<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1999
REGISTRATION NO. 333-53115
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
----------------
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
(DEPOSITOR)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
13-3320910
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
11 MADISON AVENUE
NEW YORK, NEW YORK 10010
(212) 325-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
THOMAS ZINGALLI
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
11 MADISON AVENUE
NEW YORK, NEW YORK 10010
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
----------------
KATHARINE I. CROST, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM AMOUNT OF
MAXIMUM OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING PRICE OFFERING REGISTRATION
BEING REGISTERED(1) REGISTERED(2) PER UNIT(3) PRICE(3) FEE
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<S> <C> <C> <C> <C>
Conduit Mortgage and Manufactured
Housing Contract Pass-Through
Certificates.......................... $1,250,000,000 100% $1,250,000,000 $356,000(2)
</TABLE>
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(1) This Registration Statement also relates to certain market making
transactions that may be made by Credit Suisse First Boston Corporation, an
affiliate of the Registrant.
(2) $147,500 of this amount was previously paid and was calculated using the
$295 per $1,000,000 method. The additional registration fee of $208,500 is a
result of an increase in the amount to be registered by $750,000,000. The
additional fee was calculated using the $278 per $1,000,000 method.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE COMMISSION'S RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, THE PROSPECTUS AND PROSPECTUS SUPPLEMENT CONTAINED IN
THIS REGISTRATION STATEMENT ALSO RELATES TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-3 (REGISTRATION NO. 333-33807).
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<PAGE>
PROSPECTUS
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
DEPOSITOR
CONDUIT MORTGAGE AND MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
---------------
The Conduit Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates") offered hereby and by the related Prospectus
Supplements will be offered from time to time in series (each, a "Series") in
one or more separate classes (each, a "Class"), which may be divided into one
or more subclasses (each, a "Subclass"), that represent interests in specified
percentages of principal and interest (a "Percentage Interest") with respect
to the related Mortgage Pool or the Contract Pool (each, as defined below), or
that have been assigned a Stated Principal Balance and an Interest Rate (as
such terms are defined herein), as more fully set forth herein, and will
evidence the undivided interest, beneficial interest or notional amount
specified in the related Prospectus Supplement in one of a number of trusts,
each to be created by Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor") from time to time to issue a Series of Certificates. The
trust property of each trust (the "Trust Fund") will consist of a pool
containing one- to four-family residential mortgage loans, mortgage loans
secured by multifamily residential rental properties consisting of five or
more dwelling units or apartment buildings owned by cooperative housing
corporations, loans made to finance the purchase of certain rights relating to
cooperatively owned properties secured by a pledge of shares of a cooperative
corporation and an assignment of a proprietary lease or occupancy agreement on
a cooperative dwelling, loans secured by commercial real estate properties
and/or mixed residential/commercial properties, loans secured by unimproved
land, mortgage participation certificates evidencing participation interests
in such loans that are acceptable to the nationally recognized statistical
rating agency or agencies rating the related Series of Certificates
(collectively, the "Rating Agency") for a rating in one of the four highest
rating categories of such Rating Agency (such loans and participation
certificates being referred to collectively hereinafter as the "Mortgage
Loans"), or certain conventional mortgage pass-through certificates (the
"Mortgage Certificates") and related property (the "Mortgage Pool") or a pool
of manufactured housing conditional sales contracts and installment loan
agreements (the "Contracts") or participation certificates representing
participation interests in such Contracts and related property (the "Contract
Pool") conveyed to such trust by the Depositor. The Mortgage Loans may be
conventional mortgage loans, conventional cooperative loans, mortgage loans
insured by the Federal Housing Administration (the "FHA"), or mortgage loans
partially guaranteed by the Veterans Administration (the "VA"), or any
combination of the foregoing, bearing fixed or variable rates of interest. The
Contracts may be conventional contracts, contracts insured by the FHA or
partially guaranteed by the VA, or any combination of the foregoing, bearing
fixed or variable rates of interest, as specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the rights
of the holders of the Certificates of one or more Classes or Subclasses of a
Series to receive distributions with respect to the related Mortgage Pool or
Contract Pool may be subordinated to such rights of the holders of the
Certificates of one or more Classes or Subclasses of such Series to the extent
described herein and in such Prospectus Supplement. As provided in the
applicable Prospectus Supplement, the timing of payments, whether of principal
or of interest, to any one or more of such Classes or Subclasses may be on a
sequential or a pro rata basis. The Prospectus Supplement with respect to each
Series will also set forth specific information relating to the Trust Fund
with respect to the Series in respect of which the Prospectus is being
delivered, together with specific information regarding the Certificates of
such Series.
The Certificates do not represent an obligation of or interest in the
Depositor or any affiliate thereof. Neither the Certificates, the Mortgage
Loans, the Contracts nor the Mortgage Certificates are insured or guaranteed
by any governmental agency or instrumentality, except to the extent provided
herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER "ERISA
CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 19 HEREIN FOR A DISCUSSION OF THE MOST
SIGNIFICANT RISK FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING
WHETHER TO INVEST IN THE CERTIFICATES OF A SERIES IN RESPECT OF WHICH THIS
PROSPECTUS IS BEING DELIVERED.
---------------
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, which may include Credit
Suisse First Boston Corporation, an affiliate of the Depositor, as more fully
described under "Plan of Distribution" and in the related Prospectus
Supplement. Certain offerings of the Certificates, as specified in the related
Prospectus Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop as a result of such offering or, if it does develop, that it will
continue.
The Depositor, as specified in the applicable Prospectus Supplement, may
elect to treat the Trust Fund with respect to certain Series of Certificates
as one or more Real Estate Mortgage Investment Conduits (each, a "REMIC"). See
"Federal Income Tax Consequences."
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Certificates of such Series may be subject to early
termination and may receive Special Distributions (as defined herein) in
reduction of Stated Principal Balance (as defined herein) under the
circumstances described herein and in such Prospectus Supplement.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus is , 1999.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class or Subclass within such Series; (ii) the undivided
interest, Percentage Interest, Stated Principal Balance or notional amount of
each Class or Subclass of Certificates; (iii) the Pass-Through Rate, Interest
Rate or Annual Rate borne by each Class or Subclass within such Series; (iv)
certain information concerning the Mortgage Loans, the Mortgage Certificates,
the Contracts, if any, and the other assets comprising the Trust Fund for such
Series; (v) the final Distribution Date of each Class or Subclass of
Certificates within such Series; (vi) the identity of each Class or Subclass
of Compound Interest Certificates, if any, within such Series; (vii) the
method used to calculate the amount to be distributed with respect to each
Class or Subclass of Certificates; (viii) the order of application of
distributions to each of the Classes or Subclasses within such Series, whether
sequential, pro rata, or otherwise; (ix) the Distribution Dates with respect
to such Series; (x) information with respect to the terms of the Residual
Certificates or Subordinated Certificates offered hereby, if any are offered;
(xi) information with respect to the method of credit support, if any, with
respect to such Series; and (xii) additional information with respect to the
plan of distribution of such Series of Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement of which this
Prospectus and the related Prospectus Supplement is a part. For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Depositor has filed with the Securities and Exchange
Commission (the "Commission"), under the Securities Act of 1933, as amended.
Statements contained in this Prospectus and any Prospectus Supplement as to
the contents of any contract or other document referred to are summaries and
in each instance reference is made to the copy of the contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Commission, upon payment of
the prescribed charges, or may be examined free of charge at the Commission's
offices. Reports and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
Copies of the Pooling and Servicing Agreement pursuant to which a Series of
Certificates is issued will be provided to each person to whom a Prospectus
and the related Prospectus Supplement are delivered, upon written or oral
request directed to: Treasurer, Credit Suisse First Boston Mortgage Securities
Corp., 11 Madison Avenue, New York, New York 10010, (212) 325-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of the related Series of Certificates offered
hereby (including market-making transactions by Credit Suisse First Boston
Corporation with respect to such Series of Certificates, unless such
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<PAGE>
transactions are exempt from the registration provisions of the Securities Act
of 1933, as amended). The Depositor will provide or cause to be provided
without charge to each person to whom this Prospectus is delivered in
connection with the offering of one or more Classes of Certificates, upon
request, a copy of any or all such documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one
or more of such Classes of such Certificates, other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests to the Depositor should be directed to: Credit
Suisse First Boston Mortgage Securities Corp., 11 Madison Avenue, New York,
New York 10010, telephone number (212) 325-2000.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS AND THE ATTACHED PROSPECTUS SUPPLEMENT WILL ALSO BE USED BY THE
UNDERWRITER IN CONNECTION WITH OFFERS AND SALES RELATED TO MARKET-MAKING
TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH THE UNDERWRITER ACTS AS
PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.
3
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the
related Prospectus Supplement. Certain capitalized terms used and not otherwise
defined herein shall have the meanings given elsewhere in this Prospectus. An
index indicating where certain terms used herein are defined appears at the end
of this Prospectus on p.132.
Securities Offered.......... Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates (the
"Certificates"), issuable in series (each, a
"Series"). The Certificates may be issued in one
or more classes (each, a "Class") and such
Classes may be divided into one or more
subclasses (each, a "Subclass"). One or more of
such Classes or Subclasses of a Series may be
subordinated to one or more Classes or
Subclasses of such Series, as specified in the
related Prospectus Supplement (any such Class or
Subclass to which another Class or Subclass is
subordinated being hereinafter referred to as a
"Senior Class" or a "Senior Subclass,"
respectively, and any such subordinated Class or
Subclass being hereinafter referred to as a
"Subordinated Class" or "Subordinated Subclass,"
respectively). One or more of such Classes or
Subclasses of Certificates of a Series (the
"Residual Certificates") may evidence a residual
interest in the related Trust Fund (as defined
below). If so specified in the related
Prospectus Supplement, one or more Classes or
Subclasses of Certificates within a Series (the
"Multi-Class Certificates") may be assigned a
principal balance (a "Stated Principal Balance"
or a "Certificate Principal Balance") based on
the cash flow from the Mortgage Loans (as
hereinafter defined), Mortgage Certificates (as
hereinafter defined), the Contracts (as
hereinafter defined) and/or the other assets in
the Trust Fund if specified as such in the
related Prospectus Supplement and a stated
annual interest rate, determined in the manner
set forth in such Prospectus Supplement, which
may be fixed or variable (an "Interest Rate" or
"Pass-Through Rate"). If so specified in the
related Prospectus Supplement, one or more such
Classes or Subclasses may receive unequal
amounts of the distributions of principal and
interest on the Mortgage Loans, the Contracts
and the Mortgage Certificates included in the
related Trust Fund, as specified in such
Prospectus Supplement (any such Class or
Subclass receiving the higher proportion of
principal distributions being referred to
hereinafter as a "Principal Weighted Class" or
"Principal Weighted Subclass," respectively, and
any such Class or Subclass receiving the higher
proportion of interest distributions being
referred to hereinafter as an "Interest Weighted
Class" or an "Interest Weighted Subclass,"
respectively). If so specified in the related
Prospectus Supplement, the allocation of the
principal and interest distributions may involve
as much as 100% of each distribution of
principal or interest being allocated to one or
more Classes or Subclasses and 0% to another. If
so specified in the related Prospectus
Supplement, one or more Classes or Subclasses
may
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<PAGE>
receive disproportionate amounts of certain
distributions of principal, which proportions
may change over time subject to certain
conditions. Payments may be applied to any one
or more Class or Subclass on a sequential or pro
rata basis, or otherwise, as specified in the
related Prospectus Supplement.
Each Certificate will represent the undivided
interest, beneficial interest or percentage
interest specified in the related Prospectus
Supplement in one of a number of trusts to be
created by the Depositor from time to time. The
trust property of each trust (the "Trust Fund")
will consist of (a) one or more mortgage pools
(each, a "Mortgage Pool") containing (i)
conventional one- to four-family residential
mortgage loans, (ii) loans (the "Cooperative
Loans") made to finance the purchase of certain
rights relating to cooperatively owned
properties secured by the pledge of shares
issued by a cooperative corporation (the
"Cooperative") and the assignment of a
proprietary lease or occupancy agreement
providing the exclusive right to occupy a
particular dwelling unit (a "Cooperative
Dwelling" and, together with one- to four-family
residential properties, "Single Family
Property"), (iii) mortgage loans ("Multifamily
Mortgage Loans") secured by multifamily
residential rental properties consisting of five
or more dwelling units or apartment buildings
owned by cooperative housing corporations
("Multifamily Property"), purchased by the
Depositor either directly or through one or more
affiliates from an affiliate or from
unaffiliated sellers, (iv) mortgage loans
("Commercial Mortgage Loans") secured by
commercial real estate properties ("Commercial
Property"), (v) mortgage loans ("Mixed-Use
Mortgage Loans") secured by mixed
residential/commercial properties ("Mixed-Use
Property"), (vi) loans secured by unimproved
land, (vii) mortgage participation certificates
evidencing participation interests in such loans
that are acceptable to the nationally recognized
rating agency or agencies identified in the
related Prospectus Supplement (collectively, the
"Rating Agency") rating the Certificates of such
Series for a rating in one of the four highest
rating categories of such Rating Agency (such
loans and mortgage participation certificates
being referred to collectively hereinafter as
the "Mortgage Loans"), or (b) one or more
contract pools (each, a "Contract Pool")
containing manufactured housing conditional
sales contracts and installment loan agreements
(the "Contracts") or participation certificates
representing participation interests in such
Contracts (such Contracts, together with the
Mortgage Loans and the Mortgage Certificates,
being referred to collectively hereinafter as
the "Trust Assets") purchased by the Depositor
either directly or through one or more
affiliates or Unaffiliated Sellers, and related
property conveyed to such trust by the
Depositor. Each Trust will be formed for the
purpose of issuing a Series of Certificates.
If so specified in the related Prospectus
Supplement, each Series of Certificates will be
offered in fully registered form only, in one or
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<PAGE>
more Classes, which may be divided into one or
more Subclasses evidencing the right to receive
a share of principal payments and the
percentages of interest payments on the
underlying Mortgage Loans, Mortgage Certificates
or Contracts for the related Mortgage Pool or
Contract Pool. If so specified in the related
Prospectus Supplement, one or more Classes of
Certificates may be registered in the name of a
depositary or a nominee for a depositary. If so
specified in the related Prospectus Supplement,
Multi-Class Certificates of a Series may be
issued with the Stated Principal Balances and
the Interest Rates therein specified. At the
time of issuance, each Certificate offered by
means of this Prospectus and the related
Prospectus Supplements will be rated in one of
the four highest rating categories by at least
one Rating Agency. The minimum undivided
interest, percentage interest or beneficial
interest in a Mortgage Pool or Contract Pool,
the minimum notional amount to be evidenced by a
Certificate of a Class or Subclass, or the
minimum denomination in which a Certificate of a
Class or Subclass is to be issued will be set
forth in the related Prospectus Supplement.
Depositor................... Credit Suisse First Boston Mortgage Securities
Corp., a Delaware corporation.
Master Servicer............. The entity, if any, named as Master Servicer in
the applicable Prospectus Supplement, which may
be an affiliate of the Depositor. See
"Description of the Certificates."
Special Servicer............ The entity, if any, named as Special Servicer in
the applicable Prospectus Supplement, which may
be an affiliate of the Depositor. See
"Description of the Certificates."
Interest.................... Interest will be distributed on the days
specified in the Prospectus Supplement with
respect to a Series, or if any such day is not a
business day, the next succeeding business day
(the "Distribution Date"), at the rate, or
pursuant to the method of determining such rate,
specified in the related Prospectus Supplement
for each Class or Subclass within such Series,
commencing on the day specified in such
Prospectus Supplement, in the manner specified
in such Prospectus Supplement. See "Yield
Considerations" and "Description of the
Certificates--Payments on Mortgage Loans" and
"--Payments on Contracts."
Principal (including If so specified in the related Prospectus
prepayments)............... Supplement, principal on each Trust Asset
underlying a Series of Certificates will be
distributed on each Distribution Date,
commencing on the date specified in the related
Prospectus Supplement in the priority and manner
specified in such Prospectus Supplement. If so
specified in the Prospectus Supplement with
respect to a Series that includes Multi-Class
Certificates, distributions on such Multi-Class
Certificates may be made in reduction of the
Stated
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<PAGE>
Principal Balance, in an amount equal to the
Stated Principal Distribution Amount. If so
specified in the related Prospectus Supplement,
the Stated Principal Distribution Amount will
equal the amount by which the Stated Principal
Balance of such Class of Multi-Class
Certificates (before taking into account the
amount of interest accrued and added to the
Stated Principal Balance of any Class or of
Compound Interest Certificates) exceeds the
Asset Value (as defined herein) of the Trust
Assets and other property in the related Trust
Fund as of the Business Day prior to the related
Distribution Date. See "Maturity and Prepayment
Considerations" and "Description of the
Certificates--Payments on Mortgage Loans" and
"--Payments on Contracts." If so specified in
the Prospectus Supplement relating to a Series,
the Multi-Class Certificates of such Series
which have other than monthly Distribution Dates
may receive special distributions in reduction
of Stated Principal Balance ("Special
Distributions") in any month, other than a month
in which a Distribution Date occurs, if, as a
result of principal prepayments on the Trust
Assets included in the related Trust Fund and/or
low reinvestment yields, the Trustee determines,
based on assumptions specified in the related
Pooling and Servicing Agreement, that the amount
of cash anticipated to be on deposit in the
Certificate Account for such Series on the next
Distribution Date may be less than the sum of
the interest distributions and the amount of
distributions in reduction of Stated Principal
Balance to be made on such Distribution Date. If
so specified in the related Prospectus
Supplement, Special Distributions will be made
on such Certificates in the same priority and
manner as distributions in reduction of Stated
Principal Balance would be made on the next
Distribution Date for such Certificates. See
"Description of the Certificates--Special
Distributions."
The Mortgage Pools..........
If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Mortgage Pool or
Pools included in the Trust Fund for such
Series. The applicable Prospectus Supplement
will specify the types of Mortgaged Properties,
the original principal balances of the Mortgage
Loans, the original maturities of the Mortgage
Loans and the ratio of the original or
outstanding principal balance of the Mortgage
Loans to the value of the property securing such
Mortgage Loan (the "Mortgaged Property"), based
upon an appraisal of the Mortgaged Property or
the sales price (the "Loan-to-Value Ratio").
As of the related Cut-off Date, no more than 10%
of the aggregate principal balance of any
Mortgage Pool will consist of Commercial
Mortgage Loans.
Some of the Mortgage Loans will fully amortize
over their remaining terms to maturity and
others will provide for balloon
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<PAGE>
payments at maturity. If so specified in the
related Prospectus Supplement, some of the
Mortgage Loans may prohibit prepayments entirely
or for certain periods and/or may require
payment of premiums or yield maintenance
penalties in connection with certain
prepayments. The Mortgage Loans will provide for
recourse against only the Mortgaged Properties
or provide for recourse against the other assets
of the Mortgagors thereunder.
The interest rates on the Mortgage Loans in a
Mortgage Pool may have fixed rates or variable
rates as specified in the applicable Prospectus
Supplement. The Mortgage Loans in a Mortgage
Pool will have an aggregate principal balance
equal to the amount specified in such Prospectus
Supplement, subject to a permitted variance of
up to 5%.
If so specified in the related Prospectus
Mortgage Certificates....... Supplement, the Trust Fund for a Series of
Certificates may include Mortgage Certificates
issued by one or more trusts established by one
or more private entities, with the respective
aggregate principal balances and the
characteristics described in such Prospectus
Supplement. Each Mortgage Certificate included
in a Trust Fund will evidence an interest of the
type specified in the related Prospectus
Supplement in a pool of mortgage loans of the
type described in such Prospectus Supplement,
secured principally by mortgages on one- to
four-family residences, mortgages on multi-
family residential rental properties or
apartment buildings owned by cooperative housing
corporations or by pledges of shares of
cooperative corporations and assignments of
proprietary leases or occupancy agreements on
cooperative dwellings, or such other type of
Mortgage Loan or Contract as may be specified in
such Prospectus Supplement.
The Contract Pools.......... If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Contract Pool or
Pools included in the Trust Fund for such
Series. The Contracts will be fixed rate
Contracts or adjustable rate Contracts, as
specified in the related Prospectus Supplement.
Such Contracts, as specified in the related
Prospectus Supplement, will consist of
manufactured housing conditional sales contracts
and installment loan agreements and will be
conventional Contracts or Contracts insured by
the FHA or partially guaranteed by the VA. Each
Contract may be secured by a new or used unit of
manufactured housing (a "Manufactured Home").
The related Prospectus Supplement will specify
the range of terms to maturity of the Contracts
at origination and the maximum Loan-to-Value
Ratio at origination (the "Contract Loan-to-
Value Ratio"). Because manufactured homes,
unlike site-built homes, generally depreciate in
value, the Loan-to-Value
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<PAGE>
Ratios of some of the Contracts may be higher at
the Cut-off Date than at origination and may
increase over time. Contracts that are
conventional Contracts will not be covered by
primary mortgage insurance policies or primary
credit insurance policies, except to the extent
specified in the related Prospectus Supplement.
Each Manufactured Home which secures a Contract
will be covered by a standard hazard insurance
policy (which may be a blanket policy) to the
extent described herein or in the related
Prospectus Supplement insuring against hazard
losses due to various causes, including fire,
lightning and windstorm. A Manufactured Home
located in a federally designated flood area
will be required to be covered by flood
insurance. Contract Pools may be formed from
time to time in varying sizes.
None of the Contracts will have been originated
by the Depositor or any of its affiliates.
Pre-Funding................. If so specified in the related Prospectus
Supplement, a portion of the issuance proceeds
of the Certificates of a particular Series (such
amount, the "Pre-Funded Amount") will be
deposited in an account (the "Pre-Funding
Account") to be established with the Trustee,
which will be used to acquire additional
Mortgage Loans or Contracts from time to time
during the period specified in the related
Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the Pre-
Funded Amount in additional Mortgage Loans or
Contracts, such Pre-Funded Amount may be
invested in one or more investments as specified
in the applicable Pooling and Servicing
Agreement.
During any Pre-Funding Period, the Depositor will
be obligated (subject only to the availability
thereof) to transfer to the related Trust Fund
additional Mortgage Loans or Contracts from time
to time during such Pre-Funding Period. Such
additional Mortgage Loans or Contracts will be
required to satisfy certain eligibility criteria
more fully set forth in the related Prospectus
Supplement, which eligibility criteria will be
consistent with the eligibility criteria of the
Mortgage Loans or Contracts included in the
Trust Fund as of the Closing Date, subject to
such exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-
Funding Account with respect to any issuance of
Certificates will be specified in the related
Prospectus Supplement, it is anticipated that:
(a) the Pre-Funding Period will not exceed 90
days from the related Closing Date and (b) the
additional Mortgage Loans or Contracts to be
acquired during the Pre-Funding Period will be
subject to the same representations and
warranties as the Mortgage Loans or Contracts
included in the related Trust Fund on the
Closing Date (although additional criteria may
also be required to be satisfied, as described
in the related Prospectus Supplement). The Pre-
Funded Amount will not exceed 25% of the initial
principal
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amount of the Certificates of the related
Series. The Pre-Funding Period will not be
longer than one year following the Closing Date.
See "The Trust Fund--Pre-Funding."
Yield Considerations........ If so specified in the applicable Prospectus
Supplement, an assumed rate of prepayment will
be used to calculate the expected yield to
maturity on each Class of the Certificates of a
Series. The yield on any Class of Certificates,
the purchase price of which is greater than the
aggregate amount of the Principal Distributions
to be made to such Class (a "Premium
Certificate"), is likely to be adversely
affected by a higher than anticipated level of
principal prepayments on the Trust Assets
included in the related Trust Fund. This effect
on yield will intensify with any increase in the
amount by which the purchase price of such
Certificate exceeds the aggregate amount of such
Principal Distributions. If the differential is
particularly wide and a high level of
prepayments occurs, it is possible for Holders
of Premium Certificates not only to suffer a
lower than anticipated yield but, in extreme
cases, to fail to recoup fully their initial
investment. Conversely, a lower than anticipated
level of principal prepayments (which can be
anticipated to increase the expected yield to
Holders of Certificates that are Premium
Certificates) will likely result in a lower than
anticipated yield to Holders of Certificates of
a Class the purchase price of which is less than
the aggregate amount of the Principal
Distributions to be made to such Class (a
"Discount Certificate"). The Prospectus
Supplement for each Series of Certificates that
includes an Interest Weighted or a Principal
Weighted Class will set forth certain yield
calculations on each such Class based upon a
range of specified prepayment assumptions on the
Trust Assets included in the related Trust Fund.
The yield to Certificateholders will also be
adversely affected because interest will accrue
on the Mortgage Loans, the Contracts or the
mortgage loans underlying the Mortgage
Certificates included in a Trust Fund during a
specified period, for example during the month
preceding the month in which the related
Distribution Date occurs, but the distribution
of such interest will be made after the end of
such period, for example on the 25th day of the
succeeding month. The adverse effect on yield of
this delay will intensify with any increase in
the period of time by which the Distribution
Date for a Series of Certificates succeeds the
date on which distributions on the Mortgage
Loans, the Contracts, or the Mortgage
Certificates are received by the Master Servicer
or the Trustee. See "Yield Considerations."
Credit Support.............. Neither the Certificates nor the Trust Assets are
insured or guaranteed by any governmental
agency, except to the extent of any FHA
insurance or VA guarantee. Credit support will
be
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provided on the Mortgage Pools or Contract Pools
by one or more irrevocable letters of credit
(the "Letter of Credit"), a policy of mortgage
pool insurance (the "Pool Insurance Policy"), a
bond or similar form of insurance coverage
against certain losses in the event of the
bankruptcy of a Mortgagor (the "Mortgagor
Bankruptcy Bond") or any combination of the
foregoing as specified in the applicable
Prospectus Supplement. In lieu or in addition to
the foregoing credit support arrangements if so
specified in the related Prospectus Supplement,
the Certificates of a Series may be issued in
one or more Classes or Subclasses. Payments on
the Certificates of one or more Classes or
Subclasses (the "Senior Certificates") may be
supported by a prior right to receive
distributions attributable or otherwise payable
to another Class or Subclass (the "Subordinated
Certificates") to the extent specified in the
related Prospectus Supplement (the "Subordinated
Amount"). In addition, if so specified in the
related Prospectus Supplement, one or more
Classes or Subclasses of Subordinated
Certificates may be subordinated to another
Class or Subclass of Subordinated Certificates
and may be entitled to receive disproportionate
amounts of distributions of principal. If so
specified in the related Prospectus Supplement,
a reserve (the "Reserve Fund") and certain other
accounts or funds may be established to support
payments on the Certificates. A Prospectus
Supplement with respect to a Series may also
provide for additional or alternative forms of
credit support, including a guarantee or surety
bond, acceptable to the Rating Agency
("Alternative Credit Support").
A. Letter of Credit......... If so specified in the applicable Prospectus
Supplement, the issuer of one or more Letters of
Credit (the "L/C Bank") will deliver to the
Trustee the Letters of Credit for the Mortgage
Pool or Contract Pool. To the extent described
in the related Prospectus Supplement, the L/C
Bank will be obligated, to the extent of the
amount available thereunder, to make payments to
the Certificate Account on each Distribution
Date in an amount equal to the amount sufficient
to repurchase each Liquidating Loan that has not
been purchased by the related Servicer or the
Master Servicer pursuant to the terms of the
applicable Servicing Agreement or Pooling and
Servicing Agreement referred to herein. The term
"Liquidating Loan" means: (a) each Mortgage Loan
with respect to which foreclosure proceedings
have been commenced (and the Mortgagor's right
of reinstatement has expired), (b) each Mortgage
Loan with respect to which the Servicer or the
Master Servicer has agreed to accept a deed to
the property in lieu of foreclosure, (c) each
Cooperative Loan as to which the shares of the
related Cooperative and the related proprietary
lease or occupancy agreement have been sold or
offered for sale or (d) each Contract with
respect to which repossession proceedings have
been commenced. The liability of the L/C Bank
under the Letter of Credit will be reduced by
the amount of unreimbursed
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<PAGE>
payments thereunder. In the event that at any
time there remains no amount available under the
Letter of Credit for a specific Mortgage Pool or
Contract Pool, and coverage under another form
of credit support, if any, is exhausted, any
losses will be borne by the holder of
Certificates of the Series evidencing interests
in such Mortgage Pool or Contract Pool, as
specified in the related Prospectus Supplement.
The maximum liability of the L/C Bank under the
Letter of Credit for a Mortgage Pool or Contract
Pool will be an amount set forth in the
Prospectus Supplement. The maximum amount
available at any time to be paid under the
Letter of Credit will be determined in
accordance with the provisions of the applicable
Pooling and Servicing Agreement referred to
herein. The duration of coverage and the amount
and frequency of any reduction in coverage
provided by the Letter of Credit with respect to
a Series of Certificates will be in compliance
with requirements established by the Rating
Agency rating such Series and will be set forth
in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement,
the Letter of Credit with respect to a Series of
Certificates may, in addition to or in lieu of
the foregoing, provide coverage with respect to
the unpaid principal or notional amount of the
Certificates of a Class or Classes within such
Series. See "Credit Support--Letter of Credit."
B. Pool Insurance........... If so specified in the applicable Prospectus
Supplement, the Master Servicer will obtain a
Pool Insurance Policy to cover any loss (subject
to the limitations described below) by reason of
default by the Mortgagors on the related
Mortgage Loans to the extent not covered by any
policy of primary mortgage insurance (a "Primary
Mortgage Insurance Policy"). The amount of
coverage provided by the Pool Insurance Policy
for a Mortgage Pool will be specified in the
related Prospectus Supplement. A Pool Insurance
Policy for a Mortgage Pool, however, will not be
a blanket policy against loss, because claims
thereunder may only be made for particular
defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent.
See "Description of Insurance--Pool Insurance
Policies."
The Master Servicer, if any, or the Depositor or
the applicable Servicer will be required to use
its best reasonable efforts to maintain the Pool
Insurance Policy for each such Mortgage Pool and
to present claims thereunder to the issuer of
such Pool Insurance Policy (the "Pool Insurer")
on behalf of the Trustee and the
Certificateholders. See "Description of the
Certificates--Presentation of Claims."
C. Mortgagor Bankruptcy If so specified in the related Prospectus
Bond....................... Supplement, the Master Servicer, if any, or the
Depositor or the applicable Servicer will obtain
and use its best reasonable efforts to maintain
a Mortgagor Bankruptcy Bond for such Series
covering certain losses resulting
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from action that may be taken by a bankruptcy
court in connection with the bankruptcy of a
Mortgagor. The level of coverage provided by
such Mortgagor Bankruptcy Bond will be specified
in the applicable Prospectus Supplement. See
"Description of Insurance--Mortgagor Bankruptcy
Bond."
D. Subordinated If so specified in the related Prospectus
Certificates............... Supplement, the rights of holders of the
Certificates of one or more Subordinated Classes
or Subclasses of a Series to receive
distributions with respect to the Mortgage Loans
in the Mortgage Pool or Contracts in the
Contract Pool for such Series, or with respect
to a Subordinated Pool (as defined herein), will
be subordinated to the rights of the holders of
the Certificates of one or more Classes or
Subclasses of such Series to receive such
distributions to the extent described in the
related Prospectus Supplement, and limited to
the Subordinated Amount set forth in the related
Prospectus Supplement. This subordination will
be intended to enhance the likelihood of regular
receipt by holders of the Senior Certificates of
the full amount of scheduled payments of
principal and interest due them and to reduce
the likelihood that the holders of such Senior
Certificates will experience losses. See "Credit
Support--Subordinated Certificates."
E. Shifting Interest........ If so specified in the applicable Prospectus
Supplement, the protection afforded to holders
of Senior Certificates of a Series by the
subordination of certain rights of holders of
Subordinated Certificates of such Series to
distributions on the related Mortgage Loans or
Contracts may be effected by the preferential
right of the holders of the Senior Certificates
to receive, prior to any distribution being made
in respect of the holders of the related
Subordinated Certificates, current distributions
on the related Mortgage Loans or Contracts of
principal and interest due them on each
Distribution Date out of funds available for
distribution on such date in the related
Certificate Account and by the distribution to
the holders of the Senior Certificates on each
Distribution Date of a greater than pro rata
percentage of certain principal prepayments or
other recoveries of principal specified in the
related Prospectus Supplement on a Mortgage Loan
or Contract that are received in advance of
their scheduled Due Dates and are not
accompanied by an amount as to interest
representing scheduled interest due on any date
or dates in any month or months subsequent to
the month of prepayment (the "Principal
Prepayments"). The allocation of a greater than
pro rata share of such amounts to the Senior
Certificates will have the effect of
accelerating the amortization of the Senior
Certificates while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the
respective interest of the Subordinated
Certificates relative to that of the Senior
Certificates is intended to preserve the
availability of the benefits of the
subordination provided by the Subordinated
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Certificates. See "Description of the
Certificates--Distributions of Principal and
Interest" and "--Distributions on Certificates"
and "Credit Support--Shifting Interest."
F. Reserve Fund............. If so specified in the related Prospectus
Supplement, a Reserve Fund may be established
for such Series. Such Reserve Fund may not be
included in the corpus of the Trust Fund for
such Series. If so specified in the related
Prospectus Supplement, such Reserve Fund may be
created by the deposit, in escrow, by the
Depositor, of a separate pool of mortgage loans,
cooperative loans, commercial loans, mixed-use
loans or manufactured housing conditional sales
contracts and installment loan agreements (the
"Subordinated Pool"), with the aggregate
principal balance specified in the related
Prospectus Supplement, or by the deposit of cash
in the amount specified in the related
Prospectus Supplement (the "Initial Deposit").
The Reserve Fund will be funded by the retention
of specified distributions on the Trust Assets
of the related Mortgage Pool or Contract Pool,
and/or on the mortgage loans, cooperative loans,
commercial loans, mixed-use loans or
manufactured housing conditional sales contracts
and installment loan agreements in the
Subordinated Pool, until the Reserve Fund
(without taking into account the amount of any
Initial Deposit) reaches an amount (the
"Required Reserve") set forth in the related
Prospectus Supplement. Thereafter, specified
distributions on the Trust Assets of the related
Mortgage Pool or Contract Pool, and/or on the
mortgage loans, cooperative loans, commercial
loans, mixed-use loans or manufactured housing
conditional sales contracts and installment loan
agreements in the Subordinated Pool, will be
retained to the extent necessary to maintain
such Reserve Fund (without taking into account
the amount of the Initial Deposit, if any) at
the related Required Reserve. In no event will
the Required Reserve for any Series ever be
required to exceed the lesser of the
Subordinated Amount for such Series or the
outstanding aggregate principal amount of
Certificates of the Subordinated Classes or
Subclasses of such Series specified in the
related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the
Reserve Fund with respect to such Series may be
funded at a lesser amount or in another manner
acceptable to the Rating Agency rating such
Series. See "Credit Support--Subordinated
Certificates" and "--Reserve Fund."
G. Other Funds.............. Assets consisting of cash, certificates of
deposit or letters of credit, or any combination
thereof, in the aggregate amount specified in
the related Prospectus Supplement, will be
deposited by the Depositor in one or more
accounts to be established with respect to a
Series of Certificates by the Depositor with the
Trustee on the related Delivery Date if such
assets are required to make timely distributions
in respect of principal of, and interest on, the
Certificates of such Series, are otherwise
required as a condition
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to the rating of such Certificates in the rating
category specified in the Prospectus Supplement,
or are required in order to provide for certain
contingencies or in order to make certain
distributions regarding Certificates which
represent interests in GPM Loans (a "GPM Fund")
or Buy-Down Loans (a "Buy-Down Fund"). Following
each Distribution Date, amounts may be withdrawn
from any such fund and used and/or distributed
in accordance with the Pooling and Servicing
Agreement under the conditions and to the extent
specified in the related Prospectus Supplement.
H. Swap Agreement........... If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
will enter into or obtain an assignment of a
swap agreement or similar agreement pursuant to
which the Trust will have the right to receive
certain payments of interest (or other payments)
as set forth or determined as described therein.
See "Credit Support--Swap Agreement."
Hazard Insurance and
Special Hazard Insurance The Mortgage Loans (except for the Cooperative
Policies................... Loans) and the Contracts will be covered by
standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm, except to the
extent specified in the applicable Prospectus
Supplement. In addition, the Depositor will, if
so specified in the applicable Prospectus
Supplement, obtain an insurance policy (the
"Special Hazard Insurance Policy") covering
losses that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The
Special Hazard Insurance Policy will be limited
in scope and will cover losses in an amount
specified in the applicable Prospectus
Supplement. In addition, the Master Servicer
will also require or maintain flood insurance if
the related Mortgaged Property was located at
its time of origination in a federally
designated special flood hazard area. Any hazard
losses not covered by the standard hazard
policies, Special Hazard Insurance Policy or
flood insurance policies will not be insured
against and to the extent that the amount
available under any other method of credit
support available for such Series is exhausted,
will be borne by Certificateholders of such
Series. The hazard insurance policies, Special
Hazard Insurance Policy and flood insurance
policies will be subject to the limitations
described under "Description of Insurance--
Standard Hazard Insurance Policies on Mortgage
Loans," "--Standard Hazard Insurance Policies on
the Manufactured Homes" and "--Special Hazard
Insurance Policies."
Substitution of Trust If so specified in the Prospectus Supplement
Assets..................... relating to a Series of Certificates, within the
period following the date of issuance of such
Certificates specified in such Prospectus
Supplement, the Depositor or one or more
Servicers will deliver to the Trustee with
respect to such Series Trust Assets in
substitution for any
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<PAGE>
one or more of the Trust Assets included in the
Trust Fund relating to such Series which do not
conform in one or more material respects to the
representations and warranties in the related
Pooling and Servicing Agreement. See
"Description of the Certificates--Assignment of
Mortgage Loans," "--Assignment of Contracts" and
"--Assignment of Mortgage Certificates."
Advances.................... The Servicers of the Mortgage Loans and Contracts
(and the Master Servicer, if any, with respect
to each Mortgage Loan and Contract that it
services directly, and otherwise to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans and
Contracts (the "Advances") under certain
circumstances. See "Description of the
Certificates--Advances."
Optional Termination........ If so specified in the Prospectus Supplement with
respect to a Series, the Depositor or such other
persons as may be specified in a Prospectus
Supplement may purchase the Trust Assets in the
related Trust Fund and any property acquired in
respect thereof at the time, in the manner and
at the price specified in such Prospectus
Supplement. Any such purchase will not be
exercisable until the aggregate principal
balance of the Trust Assets is reduced to 10% of
the initial aggregate principal balance of the
Trust Assets, or such lower percentage as may be
specified in the related Prospectus Supplement.
In the event that the Depositor elects to treat
the related Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC") under the
Internal Revenue Code of 1986 (the "Code"), any
such repurchase will be effected only in
compliance with the requirements of Section
860F(a)(4) of the Code, so as to constitute a
"qualified liquidation" thereunder. The exercise
of the right of repurchase will effect early
retirement of the Certificates of that Series.
Under certain circumstances, the holders of one
or more classes of Certificates may receive less
than the outstanding principal amount of and
accrued and unpaid interest on their
Certificates. See "Maturity and Prepayment
Considerations" and "Description of the
Certificates--Termination."
ERISA Limitations........... A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975
of the Code should carefully review with its own
legal advisers whether the purchase or holding
of Certificates could give rise to a transaction
prohibited or otherwise impermissible under
ERISA or Section 4975 of the Code. See "ERISA
Considerations."
Tax Status.................. The federal income tax consequences of owning the
Certificates will depend on whether an election
is made to treat the Trust as a REMIC. If so,
the Certificates will represent "REMIC Regular
16
<PAGE>
Interests" or "REMIC Residual Interests" (each
as defined herein); if not, the Certificates
will represent interests in a "grantor trust"
for federal income tax purposes (such non-REMIC
Certificates, "Trust Certificates").
Orrick, Herrington & Sutcliffe LLP, counsel to
the Depositor, has rendered an opinion to the
effect that: (1) with respect to each Series of
REMIC Certificates (issued as described in the
Prospectus), the related Mortgage Pool (or
portion thereof) will be classified as one or
more "real estate mortgage investment conduits"
("REMICs") and not an association taxable as a
corporation (or publicly traded partnership
treated as a corporation) and (2) with respect
to each other Series of Certificates (issued as
described in the Prospectus), the related Trust
Fund will be a grantor trust for federal income
tax purposes and not an association taxable as a
corporation (or publicly traded partnership
treated as a corporation) and each holder of a
Certificate will be treated as holding an equity
interest in such grantor trust. Prospective
investors should be aware that counsel to the
Depositor has not rendered any other tax
opinions. Further, if with respect to any Series
of Certificates Orrick, Herrington & Sutcliffe
LLP is not counsel to the Depositor, Depositor's
then current counsel will be identified in the
related prospectus supplement and will confirm
(or supplement) the aforementioned opinions.
Prospective investors should be further aware
that no rulings have been sought from the
Internal Revenue Service (the "IRS"), and that
legal opinions are not binding on the IRS or the
courts. Accordingly, there can be no assurance
that the IRS or the courts will agree with
counsel to the Depositor's opinions. If,
contrary to such opinions, the Mortgage Pool or
Trust Fund related to a Series of Certificates
is characterized or treated as a corporation for
federal income tax consequences, among other
consequences, the Mortgage Pool or Trust Fund
would be subject to federal income tax (and
similar state income or franchise taxes) on its
income and distributions to Certificateholders
would be impaired.
REMIC Regular Interests are generally taxed as
debt instruments issued by the Trust. Investors
that are otherwise cash method taxpayers,
however, will be required to account for income
on their REMIC Regular Interest under an accrual
method of accounting. REMIC Residual Interests
are generally subject to tax on the net income
of the REMIC, which in some or all periods will
exceed the amount of cash distributed thereon.
The income arising on a REMIC Residual Interest
is subject to tax in all events; for example, it
may not be offset with unrelated losses. REMIC
Residual Interests are subject to significant
restrictions on transfer.
The holder of a Trust Certificate will generally
be treated as if it owned its pro rata portion
of the Trust's assets. If the Trust Certificate
represents stripped bonds and/or stripped
coupons for
17
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tax purposes, the Certificate will be treated as
a newly issued debt instrument for tax purposes
every time a it is purchased by a new holder.
The material (and certain minor and incidental)
consequences of investing in the Certificates
are discussed in "Federal Income Tax
Consequences" herein.
Legal Investment............
If so specified in the related Prospectus
Supplement relating to a Series of Certificates,
a Class or Subclass of such certificates will
constitute a "mortgage related security" under
the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") if and for so long as it is rated
in one of the two highest rating categories by
at least one nationally recognized statistical
rating organization. Such Classes or Subclasses,
if any, will be legal investments for certain
types of institutional investors to the extent
provided in SMMEA, subject, in any case, to any
other regulations which may govern investments
by such institutional investors. See "Legal
Investment."
Use of Proceeds............. The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Trust Assets, (ii) to repay indebtedness which
has been incurred to obtain funds to acquire
such Trust Assets, (iii) to establish any
reserve funds described in the related
Prospectus Supplement and (iv) to pay costs of
structuring, guaranteeing and issuing such
Certificates. If so specified in the related
Prospectus Supplement, the purchase of the Trust
Assets for a Series may be effected by an
exchange of Certificates by the Depositor with
the seller of such Trust Assets. See "Use of
Proceeds."
Ratings..................... At the date of issuance, as to each series, each
class of Certificates offered hereby will be
rated, at the request of the Depositor, in one
of the four highest rating categories by one or
more nationally recognized statistical rating
agencies . A security rating is not a
recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at
any time by the assigning rating organization. A
security rating does not address the frequency
of prepayments of Mortgage Loans, or the
corresponding effect on yield to investors. See
"Ratings" in the related Prospectus Supplement.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in the
applicable Prospectus Supplement to be prepared and delivered in connection with
the offering of any Series of Certificates, prospective investors should
carefully consider the following discussion and the discussion of material risk
factors in the applicable Prospectus Supplement, which set forth the most
significant factors that make an investment in the Certificates of the
applicable Series speculative or risky, before investing in any Class or Classes
of Certificates of any such Series.
LIQUIDITY OF THE CERTIFICATES MAY BE LIMITED
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for
the life of the Certificates of any Series. The Prospectus Supplement for any
Series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates; however, no
underwriter will be obligated to do so. The Certificates will not be listed on
any securities exchange.
WITH LIMITED EXCEPTIONS, THE ONLY SOURCE OF PAYMENT ON THE CERTIFICATES IS THE
TRUST ASSETS
Except for any related insurance policies or credit support described in the
applicable Prospectus Supplement, the Trust Assets included in the related
Trust Fund will be the sole source of payments on the Certificates of a
Series. The Certificates of any Series will not represent an interest in or
obligation of the Depositor, the Master Servicer, any Servicer, any
Unaffiliated Seller, the Trustee or any of their affiliates, except for the
limited obligations of the Depositor, the Master Servicer or any Unaffiliated
Seller with respect to certain breaches of representations and warranties and
the Master Servicer's obligations as Master Servicer. Neither the Certificates
of any Series nor the related Trust Assets will be guaranteed or insured by
any governmental agency or instrumentality (except to the limited extent
described in the related Prospectus Supplement that certain Trust Assets may
be insured or guaranteed, in whole or in part, by the FHA or VA), the
Depositor, the Master Servicer, any Servicer, any Unaffiliated Seller, the
Trustee, any of their affiliates or any other person. Consequently, in the
event that payments on the Trust Assets are insufficient or otherwise
unavailable to make all payments required on the Certificates, there will be
no recourse to the Depositor, the Master Servicer, any Servicer, any
Unaffiliated Seller, the Trustee or, except as specified in the applicable
Prospectus Supplement, any other entity. In such event, the payments to one or
more Classes of Certificates of a Series may be temporarily or permanently
reduced.
CREDIT SUPPORT IS LIMITED AND MAY BE REDUCED
With respect to each Series of Certificates, credit support may be provided
in limited amounts to cover certain types of losses on the underlying Trust
Assets. Credit support may be provided in one or more of the forms referred to
herein, including, but not limited to: a Letter of Credit; a Pool Insurance
Policy; a Mortgagor Bankruptcy Bond; subordination of other Classes of
Certificates of the same Series; a Reserve Fund; and any combination thereof.
See "Credit Support" herein. Regardless of the form of credit support, if any,
provided, the amount of coverage will be limited in amount and in most cases
will be subject to periodic reduction in accordance with a schedule or
formula. Furthermore, such credit support may provide only very limited
coverage as to certain types of losses, and may provide no coverage as to
certain other types of losses. All or a portion of the credit support, if any,
for any Series of Certificates will generally be permitted to be reduced,
terminated or substituted for, if each applicable Rating Agency indicates that
the then current rating thereof will not be adversely affected. See "Credit
Support." If the credit support for any Series of Certificates is terminated
or exhausted, shortfalls and losses on the Trust Assets may be borne by the
holders of one or more Classes of Certificates, and the yield to maturity on
such Classes may be adversely affected.
LOSSES ON THE TRUST ASSETS MAY CAUSE LOSSES ON THE CERTIFICATES
General. An investment in securities such as the Certificates of any Series
which generally represent interests in mortgage loans or manufactured housing
conditional sales contracts and installment loan agreements
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("contracts"), as the case may be, may be affected by, among other things, a
decline in real estate values and changes in the mortgagor's or obligor's
financial condition. No assurance can be given that the values of the
Mortgaged Properties securing the Mortgage Loans, the values of the mortgaged
properties securing the mortgage loans underlying the Mortgage Certificates or
the values of the Manufactured Homes securing the Contracts, as the case may
be, underlying any Series of Certificates have remained or will remain at
their levels on the dates of origination of the related Mortgage Loans,
mortgage loans or Contracts. If the residential or commercial real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans and the mortgage loans underlying
the Mortgage Certificates comprising a particular Trust Fund, and any
secondary financing on the related Mortgaged Properties and mortgaged
properties, become equal to or greater than the value of the related Mortgaged
Properties or mortgaged properties, as applicable, the actual rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry and those experienced
in the related Originator's portfolio. Moreover, a decline in the value of a
Mortgaged Property will increase the risk of loss particularly with respect to
any related junior Mortgage Loan. In addition, adverse economic conditions
generally, in particular geographic areas or industries, or affecting
particular segments of the borrowing community (such as Mortgagors or Obligors
relying on commission income and self-employed Mortgagors or Obligors) and
other factors, may affect the timely payment by Mortgagors, Obligors or
mortgagors of scheduled payments of principal and interest on the Mortgage
Loans, Contracts or Mortgage Certificates, as the case may be, and,
accordingly, the actual rates of delinquencies, foreclosures and losses with
respect to any Trust Fund. See "Yield Considerations" and "Maturity and
Prepayment Considerations" herein. To the extent that such losses are not
covered by the applicable credit support, holders of Certificates of the
Series evidencing interests in the related Trust Fund will bear all risk of
loss resulting from default by Mortgagors. Certificateholders will have to
look primarily to the value of the Mortgaged Properties, mortgaged properties
or Manufactured Homes for recovery of the outstanding principal and unpaid
interest on the defaulted Mortgage Loans or Contracts. In addition to the
foregoing, certain geographic regions on the United States from time to time
will experience weaker regional economic conditions and housing markets and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans or contracts generally. The Mortgage Loans, Contracts or mortgage loans
underlying the Mortgage Certificates underlying certain Series of Certificates
may be concentrated in these regions, and such concentration may present risk
considerations in addition to those generally present for similar mortgage-
backed or contract-backed securities without such concentration. See "The
Trust Fund--The Mortgage Pools; --Underwriting Standards; --The Contract
Pools; and --Underwriting Policies."
If applicable, certain legal aspects of the Mortgage Loans for a Series of
Certificates may be described in the related Prospectus Supplement.
Commercial, Multifamily and Mixed-Use Mortgage Loans. Mortgage loans secured
by commercial real estate properties, multifamily properties and mixed
residential/commercial properties may have a greater likelihood of delinquency
and foreclosure, and a greater likelihood of loss in the event thereof, than
similar risks associated with mortgage loans secured by single family
residential properties. The ability of a mortgagor to repay a single family
loan typically depends primarily on the mortgagor's household income rather
than on the capacity of the property to produce income, and (other than in
geographic areas where employment is dependent upon a particular employer or
industry) the mortgagor's income tends not to reflect directly the value of
such property. Accordingly, a decline in the income of a mortgagor on a loan
secured by a single family property may adversely affect the performance of
the loan, but may not affect the liquidation value of such property. In
contrast, the ability of a mortgagor to repay a loan secured by an income-
producing property typically depends primarily on the successful operation of
such property rather than on any independent income or assets of the mortgagor
and thus, in general, the value of the income-producing property also is
directly related to the net operating income derived from such property. As a
result, if the net operating income of the property is reduced (for example,
if rental or occupancy rates decline or real estate tax rates or other
operating expenses increase), the mortgagor's ability to repay the loan may be
impaired, and the liquidation value of the related property also may be
adversely affected.
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Further, with respect to a particular Trust Fund that includes Commercial
Mortgage Loans, Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans,
the concentration of default, foreclosure and loss risks in individual
Mortgagors or Mortgage Loans or the related Mortgaged Properties generally
will be greater than for Mortgage Pools that consist solely of Mortgage Loans
secured by Single Family Properties, because such Trust Fund generally will
consist of a smaller number of higher balance loans than would a Mortgage Pool
of comparable aggregate unpaid principal balance comprised solely of Mortgage
Loans secured by Single Family Properties. Any reduction in the value of a
Mortgaged Property may increase the likelihood that liquidation proceeds in
the event of foreclosure will not be sufficient to pay unpaid principal and
accrued interest on the related Mortgage Loan and may increase the risk of
losses on the Mortgage Loan.
If applicable, risks particular to specific types of commercial real estate
properties included in a Trust Fund will be described in the related
Prospectus Supplement.
It is anticipated that a substantial portion of any Mortgage Loans included
in a Trust Fund that are Commercial Mortgage Loans, Multifamily Mortgage Loans
and/or Mixed-Use Mortgage Loans will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable. As to any such Mortgage Loan,
recourse in the event of a Mortgagor's default will be limited to the specific
real property and such other assets, if any, that were pledged to secure the
Mortgage Loan. Even with respect to those Mortgage Loans that provide for
recourse against the Mortgagor and its assets generally, however, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the related Mortgagor will be sufficient to permit a
recovery in respect of a defaulted Mortgage Loan in excess of the liquidation
value of the related Mortgaged Property.
Leases. The performance of a mortgage loan secured by an income-producing
property that is leased by the mortgagor to tenants, as well as the
liquidation value of such property, may depend on the businesses operated by
such tenants in connection with such property and/or the creditworthiness of
such tenants. The risks associated with such mortgage loan may be offset to
the extent that such property is leased to a relatively greater number of
tenants or such tenants operate more diverse types of businesses.
If so described in the related Prospectus Supplement, each Mortgagor under a
Commercial Mortgage Loan, Multifamily Mortgage Loan or Mixed-Use Mortgage Loan
may be an entity created by the owner or purchaser of the related Mortgaged
Property solely to own or purchase such Mortgaged Property, in part to isolate
the Mortgaged Property from the debts and liabilities of such owner or
purchaser. Each such Mortgage Loan will represent a nonrecourse obligation of
the related Mortgagor secured by the lien of the related Mortgage and any
related Lease assignments, except to the extent set forth in the related
Prospectus Supplement. Whether or not such loans are recourse or nonrecourse
obligations, it is not expected that such Mortgagors will have any significant
assets other than the Mortgaged Properties and the related Leases, which will
be pledged to the Trustee under the related Pooling and Servicing Agreement.
Accordingly, the payment of amounts due on any such Mortgage Loans and,
consequently, the payment of principal of and interest on the related
Certificates, will depend primarily or solely on rental payments by the
Lessees. Such rental payments will, in turn, depend on continued occupancy by
and/or the creditworthiness of such Lessees, which in either case may be
adversely affected by a general economic downturn or an adverse change in
their financial condition. Moreover, to the extent a Mortgaged Property was
designed for the needs of a specific type of tenant (e.g., a nursing home,
hotel or motel), the value of such Mortgaged Property may be adversely
affected in the event of a default by the Lessee or the early termination of
such Lease, because of difficulty in re-leasing the Mortgaged Property to a
suitable substitute lessee or, if re-leasing to such a substitute is not
possible, because of the cost of altering the property for another, more
marketable, use. As a result, without the benefit of the Lessee's continued
rental payments and absent significant amortization of the related Mortgage
Loan, if such Mortgage Loan is foreclosed on and the Mortgaged Property
liquidated following a Lease default, the net proceeds might be insufficient
to cover the outstanding principal and interest owing on such Mortgage Loan,
thereby increasing the risk that holders of the related Series of Certificates
will suffer loss.
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Balloon Payments
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") included in a
Trust Fund as of the related Cut-Off Date may not be fully amortizing over
their terms to maturity and, thus, will require substantial principal payments
(i.e., balloon payments) at their stated maturity. Mortgage loans with balloon
payments involve a greater degree of risk because the ability of a mortgagor
to make a balloon payment typically will depend upon its ability either to
timely refinance the loan or to timely sell the related mortgaged property.
The ability of a mortgagor to accomplish either of these goals will be
affected by a number of factors, including the level of available mortgage
interest rates at the time of sale or refinancing, the mortgagor's equity in
the related mortgaged property, the financial condition and operating history
of the mortgagor and the related mortgaged property, renewability of operating
licenses, prevailing general economic conditions and the availability of
credit generally. The inability of the Mortgagor to refinance the Mortgage
Loan or sell the Mortgaged Property could increase the likelihood of default
on the related Mortgage Loan.
Junior Mortgage Loans
To the extent specified in the related Prospectus Supplement, certain of the
Mortgage Loans included in a Trust Fund may be secured primarily by junior
mortgages. In the event of liquidation, mortgage loans secured by junior
mortgages are entitled to satisfaction from proceeds that remain from the sale
of the related mortgaged property after all mortgage loans senior to such
mortgage loans have been satisfied. If there are not sufficient funds to
satisfy any such junior Mortgage Loan in a Trust Fund and the related senior
mortgage loans, such Mortgage Loan would suffer a loss and, accordingly, one
or more classes of Certificates would bear such loss. Therefore, any risks of
deficiencies associated with first Mortgage Loans in a Trust Fund will be
relatively greater with respect to junior Mortgage Loans in such Trust Fund.
Mortgage Modifications
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, a Master Servicer (or, with respect to
certain Specially Serviced Commercial Mortgage Loans, a Special Servicer) will
be permitted (within prescribed parameters) to extend and modify Mortgage
Loans that are in default or as to which a payment default is imminent,
including in particular with respect to balloon payments. In addition, a
Master Servicer or a Special Servicer with respect to certain Commercial
Mortgage Loans may receive a workout fee based on receipts from or proceeds of
such Mortgage Loans. While any such entity generally will be required to
determine that any such extension or modification is reasonably likely to
produce a greater recovery on a present value basis than liquidation, there
can be no assurance that such flexibility with respect to extensions or
modifications or payment of a workout fee will increase the present value of
receipts from or proceeds of Mortgage Loans that are in default or as to which
a payment default is imminent. If any such extension or modification actually
decreases the amounts received in respect of any Mortgage Loan, additional
shortfalls or losses could be allocated to one or more Classes of
Certificates.
Mortgagor Type
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The mortgagor's sophistication
and form of organization may increase the likelihood of protracted litigation
or bankruptcy in default situations, and could increase the risk of loss on
the related Mortgage Loan.
ENFORCEABILITY OF THE MORTGAGE LOANS MAY BE LIMITED, RESULTING IN LOSSES ON
THE CERTIFICATES
Mortgage Loans may contain a due-on-sale clause, which in general permits
the lender to accelerate the maturity of the Mortgage Loan if the Mortgagor
sells, transfers or conveys the related Mortgaged Property or its
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interest in the Mortgaged Property. Commercial Mortgage Loans may also include
a debt-acceleration clause, which permits the lender to accelerate the debt
upon a monetary or non-monetary default by the Mortgagor. Such clauses are
generally enforceable subject to certain exceptions. The courts of all states
will enforce clauses providing for acceleration in the event of a material
payment default. The equity courts of any state, however, may refuse the
foreclosure of a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances would render
the acceleration unconscionable.
If so specified in the related Prospectus Supplement, any Commercial
Mortgage Loans, Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans in
a Trust Fund will be secured by an assignment of leases and rents pursuant to
which the Mortgagor typically assigns its right, title and interest as
landlord under the Leases on the related Mortgaged Property and the income
derived therefrom to the lender as further security for the related Mortgage
Loan, while retaining a license to collect rents for so long as there is no
default. In the event the Mortgagor defaults, the license terminates and the
lender is entitled to collect rents. Such assignments are typically not
perfected as security interests prior to actual possession of the cash flows.
Some state laws may require that the lender take possession of the Mortgaged
Property and obtain a judicial appointment of a receiver before becoming
entitled to collect the rents. In addition, if bankruptcy or similar
proceedings are commenced by or in respect of the Mortgagor, the lender's
ability to collect the rents may be adversely affected. If the lender is
unable to realize on any collateral for a Mortgage Loan or such realization is
delayed, shortfalls in amounts available to be distributed to the holders of
one or more classes of the Certificates could result, and losses on the
Mortgage Loans could be increased.
ENVIRONMENTAL RISKS ON MORTGAGED PROPERTY MAY PRODUCE LOSSES ON THE MORTGAGE
LOANS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") a lender may be liable, as
an "owner" or "operator," for costs of addressing releases or threatened
releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the operations
of the mortgagor, regardless of whether or not the environmental damage or
threat was caused by a prior owner. A lender also risks such liability on
foreclosure of the mortgage. Any such lien arising with respect to a Mortgaged
Property would adversely affect the value of such Mortgaged Property and could
make impracticable the foreclosure on such Mortgaged Property in the event of
a default by the related Mortgagor.
With respect to any Commercial Mortgage Loans or Mixed-Use Mortgage Loans
included in a Trust Fund, the related Pooling and Servicing Agreement will
provide that the Master Servicer (or, if applicable, Special Servicer), acting
on behalf of the Trust Fund, may not acquire title to a Mortgaged Property
securing a Commercial Mortgage Loan or Mixed-Use Mortgage Loan or take over
its operation unless such Master Servicer (or, if applicable, Special
Servicer) has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws or, if not, that taking
such actions as are necessary to bring the Mortgaged Property in compliance
therewith is likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions and (ii) there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances for
which investigation, testing, monitoring, containment, cleanup or remediation
could be required under any federal, state or local law or regulation, or
that, if any hazardous substances are present for which such action would be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions. Any additional restrictions on acquiring title to a Mortgaged
Property may be set forth in the related Prospectus Supplement. If the Master
Servicer is unable to acquire title to the Mortgaged Property on behalf of the
Trust Fund, the amount of proceeds received by the Trust Fund with respect to
such Mortgaged Property may be substantially reduced.
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FACTORS AFFECTING PREPAYMENTS ON THE TRUST ASSETS, WHICH MAY AFFECT THE TIMING
OF RECEIPT OF PRINCIPAL AND AN INVESTOR'S YIELD TO MATURITY
The rate and timing of principal payments on the Certificates of each Series
will depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the related Mortgage
Loans, Mortgage Certificates or Contracts. As is the case with mortgage-backed
securities generally, the Certificates of each Series are subject to
substantial inherent cash-flow uncertainties because the Mortgage Loans and
Contracts may be prepaid at any time. Generally, when prevailing interest
rates increase, prepayment rates on mortgage loans tend to decrease, resulting
in a slower return of principal to investors at a time when reinvestment at
such higher prevailing rates would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on mortgage loans tend to increase,
resulting in a faster return of principal to investors at a time when
reinvestment at comparable yields may not be possible.
The yield to maturity on each Class of Certificates of each Series will
depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the Mortgage Loans,
Mortgage Certificates or Contracts, as applicable, and the allocation thereof
to reduce the Certificate Principal Balance of such Class. The yield to
maturity on each Class of Certificates will also depend on the Pass-Through
Rate and the purchase price for such Certificates. The yield to investors on
any Class of Certificates will be adversely affected by any allocation thereto
of interest shortfalls on the Mortgage Loans or Contracts, as applicable,
which are expected to result from the distribution of interest only to the
date of prepayment (rather than a full month's interest) in connection with
prepayments in full and in part (including for this purpose Insurance Proceeds
and Liquidation Proceeds) to the extent not covered by amounts otherwise
payable to the Master Servicer as servicing compensation.
In general, if a Class of Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a Class of Certificates
is purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the time of purchase.
Investors in the certain classes of Certificates that will not receive
payments of principal should be aware that the yield to maturity on such
Certificates will be extremely sensitive to both the timing of receipt of
principal prepayments and the overall rate of principal prepayments and
defaults on the related Mortgage Loans, which rate may fluctuate significantly
over time. Investors in such Certificates should fully consider the risk that
a rapid rate of prepayments on such Mortgage Loans could result in the failure
of such investors to fully recover their investments.
Investors in certain classes of Certificates that are not entitled to
receive distributions of interest should be aware that the yield on such
Certificates will be adversely affected by slower than expected payments of
principal on the related Mortgage Loans.
SUBORDINATION OF CERTIFICATES WILL INCREASE THE RISK THAT LOSSES ON THE
MORTGAGE LOANS WILL BE BORNE BY THE SUBORDINATED CERTIFICATES
To the extent specified in the applicable Prospectus Supplement,
distributions of interest and principal on one or more Classes of Certificates
of a Series may be subordinated in priority of payment to interest and
principal due on one or more other Classes of Certificates of such Series.
Because amounts available to make distributions of principal and interest on
the Certificates of any Series are applied first to the Classes of
Certificates with the highest payment priority, any shortfalls in amounts
available to make such distributions will reduce the distributions to the most
subordinated Classes of Certificates.
LIMITATION ON EXERCISE OF RIGHTS DUE TO BOOK-ENTRY REGISTRATION
If so specified in the applicable Prospectus Supplement, one or more Classes
of Certificates of a Series initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other
nominee of The Depository Trust Company ("DTC") set forth in the applicable
Prospectus Supplement, and will not be registered in the names of the holders
of the Certificates of such Series or their nominees. Because of this, unless
and until Certificates in fully registered, certificated form ("Definitive
Certificates") for such
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Series are issued, holders of such Certificates will not be recognized by the
applicable Trustee as "Certificateholders" (as such terms are used herein or
in the related Pooling and Servicing Agreement or the related Deposit Trust
Agreement, as applicable). Hence, until Definitive Certificates are issued,
holders of such Certificates will be able to exercise the rights of
Certificateholders only indirectly through DTC and its participating
organizations.
INSOLVENCY OF UNAFFILIATED SELLER OR DEPOSITOR COULD REDUCE DISTRIBUTIONS OF
PRINCIPAL AND INTEREST ON THE CERTIFICATES
Except as described below, the Depositor intends that the transfer of each
of the Trust Assets to the Depositor by the Unaffiliated Seller and to the
Trust by the Depositor is an absolute transfer by the Unaffiliated Seller or
Depositor, as the case may be, and that the Trust Assets will not be part of
the estate of the Unaffiliated Seller or Depositor in the event the
Unaffiliated Seller or the Depositor, as the case may be, were to become a
debtor in a bankruptcy case or a trustee, conservator or receiver (or similar
official) were to be appointed for the Unaffiliated Seller or Depositor (or a
substantial portion of its property). Nevertheless, in the event of the
insolvency of an Unaffiliated Seller or the Depositor, it is possible that a
bankruptcy trustee (including such Unaffiliated Seller or Depositor as a
debtor-in-possession), conservator or receiver (or similar official) for the
Unaffiliated Seller or Depositor or a creditor of the Unaffiliated Seller or
Depositor may argue that the transfer of Trust Assets by the Unaffiliated
Seller to the Depositor or by the Depositor to the Trust Fund should be
characterized as a pledge of the Trust Assets in connection with a borrowing
by such Unaffiliated Seller or Depositor rather than an absolute transfer.
These arguments, if asserted, could prevent timely payments of amounts due on
the Certificates and, if accepted by the court, may result in reductions in
distributions of principal and interest on such Certificates. Alternatively,
if so specified in the applicable Prospectus Supplement, the Unaffiliated
Seller or the Depositor may pledge the Trust Assets as security for a
borrowing and take certain actions as are required under the UCC to perfect
the Trust Fund's interest in the Trust Assets, and such transfer would be
characterized as a secured borrowing and not a true sale.
CERTIFICATE RATINGS ARE LIMITED IN NATURE
Each class of Certificates will be assigned, at the time of issuance, a
rating from one or more nationally recognized credit rating agencies in one of
the four highest generic rating categories. Such ratings assess the likelihood
of timely payment of interest and the ultimate payments of principal to the
Certificateholders. A security rating does not address the frequency of
prepayments of Mortgage Loans, or the corresponding effect on the yield to
investors. In the event that the ratings initially assigned to a class of
Certificates are subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit enhancement with respect
to such Certificates. To the extent that credit enhancement is no longer
available to cover losses on the Trust Assets of any Series, such losses may
be allocated to one or more Classes of Certificates of such Series.
FLUCTUATIONS IN MARKET INDICES MAY CAUSE SHORTFALLS IN INTEREST PAYABLE TO
CERTIFICATEHOLDERS
If so specified in the related Prospectus Supplement, the Pass-Through Rate
on one or more classes of Certificates may vary based on one index, while the
interest rates on the Trust Assets may vary based on one or more other
indices. If the index on which the Pass-Through Rate on the Certificates is
based increases faster than the indices on which the interest rates on the
Trust Assets are based, or if the Pass-Through Rate on the Certificates
adjusts more frequently than the interest rates on the Trust Assets,
shortfalls in the amounts available to pay interest on the Certificates may
result. If so specified in the related Prospectus Supplement, such shortfalls
may be paid to the Certificateholders on subsequent Distribution Dates, but
only to the extent of funds available therefor, and may remain unpaid on the
final Distribution Date. Any such shortfalls, even if subsequently paid, may
adversely affect the yield to investors in such Certificates.
REPRESENTATIONS AND WARRANTIES MADE BY THE DEPOSITOR AND EACH UNAFFILIATED
SELLER WILL BE LIMITED
Each Unaffiliated Seller and, if so specified in the related Prospectus
Supplement, the Depositor will have made certain limited representations and
warranties with respect to the Trust Assets sold by them. If the breach of any
representation or warranty materially and adversely affects the interests of
the holders of the Certificates of the related Series, the Unaffiliated Seller
or the Depositor, as the case may be, will be obligated to repurchase or
substitute for the related Mortgage Loan. If the Unaffiliated Seller or
Depositor is unable or unwilling (due to
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the insolvency of such entity or otherwise) to repurchase or substitute for
such Mortgage Loan and losses occur with respect to such Mortgage Loan, such
losses may be allocated to the holders of one or more classes of the
Certificates of the related Series. See "The Trust Fund--Representations by
Unaffiliated Sellers; Repurchases" herein.
THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the Trust
Fund (hereinafter defined) for a Series of Certificates may be evidenced by
one or more Classes of Certificates, which may consist of one or more
Subclasses, as specified in the Prospectus Supplement for such Series. Each
Certificate will evidence the undivided interest, beneficial interest or
notional amount specified in the related Prospectus Supplement in one or more
Mortgage Pools containing one or more Mortgage Loans or Contract Pools
containing Contracts, having an aggregate principal balance of not less than
approximately $50,000,000 as of the first day of the month of its creation
(the "Cut-off Date"), unless otherwise specified in the applicable Prospectus
Supplement. If so specified in the related Prospectus Supplement, each Class
or Subclass of the Certificates of a Series will evidence the percentage
interest specified in such Prospectus Supplement in the payments of principal
and interest on the Mortgage Loans in the related Mortgage Pool or Pools or on
the Contracts in the related Contract Pool or Pools (a "Percentage Interest").
To the extent specified in the related Prospectus Supplement, each Mortgage
Pool or Contract Pool with respect to a Series will be covered by a Letter of
Credit, a Pool Insurance Policy, a Special Hazard Insurance Policy, a
Mortgagor Bankruptcy Bond, by the subordination of the rights of the holders
of the Subordinated Certificates of a Series to the rights of the holders of
the Senior Certificates, which, if so specified in the related Prospectus
Supplement, may include Certificates of a Subordinated Class or Subclass and
the establishment of a Reserve Fund, by the right of one or more Classes or
Subclasses of Certificates to receive a disproportionate amount of certain
distributions of principal or another form or forms of Alternative Credit
Support acceptable to the Rating Agency rating the Certificates of such Series
or by any combination of the foregoing. See "Description of Insurance" and
"Credit Support."
THE MORTGAGE POOLS
General. If so specified in the Prospectus Supplement with respect to a
Series, the Trust Fund for such Series may include (a) one or more Mortgage
Pools containing (i) conventional one- to four-family residential, first
and/or second mortgage loans, (ii) Cooperative Loans made to finance the
purchase of certain rights relating to cooperatively owned properties secured
by the pledge of shares issued by a Cooperative and the assignment of a
proprietary lease or occupancy agreement providing the exclusive right to
occupy a particular Cooperative Dwelling, (iii) Mortgage Loans secured by
Multifamily Property, (iv) Mortgage Loans secured by Commercial Property, (v)
Mortgage Loans secured by Mixed-Use Property, (vi) Mortgage Loans secured by
unimproved land, (vii) mortgage participation certificates evidencing
participation interests in such loans that are acceptable to the nationally
recognized Rating Agency rating the Certificates of such Series for a rating
in one of the four highest rating categories of such Rating Agency, or (viii)
certain conventional Mortgage Certificates issued by one or more trusts
established by one or more private entities or (b) one or more Contract Pools
containing manufactured housing conditional sales contracts and installment
loan agreements or participation certificates representing participation
interests in such Contracts. The Mortgage Loans and Contracts will be newly
originated or seasoned, and will be purchased by the Depositor either directly
or through one or more affiliates or Unaffiliated Sellers.
All Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by first or more junior mortgages or first or second deeds of
trust or other similar security instruments creating a first or more junior
lien, as applicable, on the Mortgaged Properties (as defined below). Single
Family Property and Multifamily Property will consist of single family
detached homes, attached homes (single family units having a common wall),
individual units located in condominiums, multifamily residential rental
properties, apartment buildings owned by cooperative housing corporations and
such other type of homes or units as are set forth in the related Prospectus
Supplement. Each such detached or attached home or multifamily property will
be constructed on land owned in fee simple by the Mortgagor or on land leased
by the Mortgagor for a term at least two years greater than the term of the
applicable Mortgage Loan. Attached homes may consist of duplexes,
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triplexes and fourplexes (multifamily structures where each Mortgagor owns the
land upon which the unit is built with the remaining adjacent land owned in
common). Multifamily Property may include, and Mixed-Use Property will consist
of, mixed commercial and residential buildings. The Mortgaged Properties may
include investment properties and vacation and second homes. Commercial
Property will consist of income-producing commercial real estate. Mortgage
Loans secured by Commercial Property, Multifamily Property and Mixed-Use
Property may also be secured by an assignment of leases and rents and
operating or other cash flow guarantees relating to the Mortgaged Properties
to the extent specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage Loan
may provide that on the day on which the Mortgage Rate adjusts, the amount of
the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may
provide that the Mortgage Rate adjusts more frequently than the monthly
payment. As a result, a greater or lesser portion of the monthly payment will
be applied to the payment of principal on the Mortgage Loan, thus increasing
or decreasing the rate at which the Mortgage Loan is repaid. See "Yield
Considerations." In the event that an adjustment to the Mortgage Rate causes
the amount of interest accrued in any month to exceed the amount of the
monthly payment on such Mortgage Loan, the excess (the "Deferred Interest")
will be added to the principal balance of the Mortgage Loan (unless otherwise
paid by the Mortgagor), and will bear interest at the Mortgage Rate in effect
from time to time. The amount by which the Mortgage Rate or monthly payment
may increase or decrease and the aggregate amount of Deferred Interest on any
Mortgage Loan may be subject to certain limitations, as described in the
related Prospectus Supplement.
If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain adjustable rate Mortgage Loans ("ARM Loans") will be
convertible from an adjustable rate to a fixed rate, at the option of the
Mortgagor under certain circumstances. If so specified in the related
Prospectus Supplement, the Pooling and Servicing Agreement will provide that
the Unaffiliated Seller from which such convertible ARM Loans were acquired
will be obligated to repurchase from the Trust Fund any such ARM Loan as to
which the conversion option has been exercised (a "Converted Mortgage Loan"),
at a purchase price set forth in the related Prospectus Supplement. The amount
of such purchase price will be required to be deposited in the Certificate
Account and will be distributed to the Certificateholders on the Distribution
Date in the month following the month of the exercise of the conversion
option. The obligation of the Unaffiliated Seller to repurchase Converted
Mortgage Loans may or may not be supported by cash, letters of credit, third
party guarantees or other similar arrangements.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA Loans")
and/or Mortgage Loans partially guaranteed by the Veterans Administration (the
"VA" and such mortgage loans are referred to as "VA Loans"). FHA Loans will be
insured by the Federal Housing Administration (the "FHA") as authorized under
the National Housing Act, as amended, and the United States Housing Act of
1937, as amended. Such FHA loans will be insured under various FHA programs
including the standard FHA 203-b programs to finance the acquisition of one-
to four-family housing units, the FHA 245 graduated payment mortgage program
and the FHA 221 and 223 programs to finance certain multifamily residential
rental properties. FHA Loans generally require a minimum down payment of
approximately 5% of the original principal amount of the FHA Loan. No FHA Loan
may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time of origination of such FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act").
The Servicemen's Readjustment Act permits a veteran (or in certain instances
the spouse of a veteran) to obtain a mortgage loan guarantee by the VA
covering mortgage financing of the purchase of a one- to four-family dwelling
unit at interest rates permitted by the VA. The program has no mortgage loan
limits, requires no down payment from the purchasers and permits the guarantee
of mortgage loans of up to 30 years' duration. However, no VA Loan will have
an original principal amount greater than five times the partial VA guarantee
for such VA Loan. The maximum guarantee that may be issued by VA under this
program is 50% of the principal amount of the Mortgage Loan if the principal
amount of the
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Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $45,000 but less than or equal to $144,000, and the
lesser of $46,000 and 25% of the principal amount of the Mortgage Loan if the
principal amount of the Mortgage Loan is greater than $144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-
K to be filed with the Commission) for each Series of Certificates the Trust
Fund with respect to which contains Mortgage Loans will contain information as
to the type of Mortgage Loans that will comprise the related Mortgage Pool or
Pools and information as to (i) the aggregate principal balance of the
Mortgage Loans as of the applicable Cut-off Date, (ii) the type of Mortgaged
Properties securing the Mortgage Loans, (iii) the original terms to maturity
of the Mortgage Loans, (iv) the largest in principal balance of the Mortgage
Loans, (v) the earliest origination date and latest maturity date of the
Mortgage Loans, (vi) the aggregate principal balance of Mortgage Loans having
Loan-to-Value Ratios at origination exceeding 80%, (vii) the interest rate or
range of interest rates borne by the Mortgage Loans, (viii) the average
outstanding principal balance of the Mortgage Loans, (ix) the geographical
distribution of the Mortgage Loans, (x) the number and aggregate principal
balance of Buy-Down Loans or GPM Loans, if applicable, (xi) with respect to
ARM Loans, the adjustment dates, the highest, lowest and weighted average
margin, and the maximum Mortgage Rate variation at the time of any periodic
adjustment and over the life of such ARM Loans, and (xii) with respect to
Mortgage Loans secured by Multifamily Property, Commercial Property, Mixed-Use
Property or such other Mortgage Loans as are specified in the Prospectus
Supplement, the related debt service coverage ratios, whether the Mortgage
Loan provides for an interest only period and whether the principal amount of
such Mortgage Loan is fully amortizing or is amortized on the basis of a
period of time that extends beyond the maturity date of the Mortgage Loan. If
specified in the related Prospectus Supplement, the Depositor may segregate
the Mortgage Loans in a Mortgage Pool into separate "Mortgage Loan Groups" (as
described in the related Prospectus Supplement) as part of the structure of
the payments of principal and interest on the Certificates of a Series. In
such case, the Depositor will disclose the above-specified information by
Mortgage Loan Group.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual Rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Mortgage Loans." To the
extent that such losses are not covered by the methods of credit support or
the insurance policies described herein or by Alternative Credit Support, they
will be borne by holders of the Certificates of the Series evidencing
interests in the Mortgage Pool.
The Depositor will cause the Mortgage Loans constituting each Mortgage Pool
to be assigned to the Trustee named in the applicable Prospectus Supplement,
for the benefit of the holders of the Certificates of such Series (the
"Certificateholders"). The Master Servicer, if any, named in the related
Prospectus Supplement will service the Mortgage Loans, either by itself or
through other mortgage servicing institutions, if any (each, a "Servicer"), or
a special servicer, if any (a "Special Servicer"), pursuant to a Pooling and
Servicing Agreement, as described herein, among the Master Servicer, if any,
the Servicer, if any, the Special Servicer, if any, the Depositor and the
Trustee (the "Pooling and Servicing Agreement") and will receive a fee for
such services. See "--Mortgage Loan Program" and "Description of the
Certificates." With respect to those Mortgage Loans serviced by a Servicer or
Special Servicer, such Servicer or Special Servicer will be required to
service the related Mortgage Loans in accordance with the Seller's Warranty
and Servicing Agreement between the Servicer and the Depositor (a "Servicing
Agreement") or the Pooling and Servicing Agreement, as applicable, and will
receive the fee for
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such services specified in the related agreement; however, any Master Servicer
will remain liable for its servicing obligations under the Pooling and
Servicing Agreement as if the Master Servicer alone were servicing such
Mortgage Loans.
The Depositor will make certain representations and warranties regarding the
Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates--Assignment of
Mortgage Loans." The Master Servicer's obligations with respect to the
Mortgage Loans will consist principally of its contractual servicing
obligations under the Pooling and Servicing Agreement (including its
obligation to enforce certain purchase and other obligations of any Special
Servicer, Servicers and/or Unaffiliated Sellers, as more fully described
herein under "--Mortgage Loan Program--Representations by Unaffiliated
Sellers; Repurchases" and "Description of the Certificates--Assignment of
Mortgage Loans" and "--Servicing by Unaffiliated Sellers") and its obligations
to make Advances in the event of delinquencies in payments on or with respect
to the Mortgage Loans or in connection with prepayments and liquidations of
such Mortgage Loans, in amounts described herein under "Description of the
Certificates--Advances." If so specified in the related Prospectus Supplement,
such Advances with respect to delinquencies will be limited to amounts that
the Master Servicer believes ultimately would be reimbursable under any
applicable Letter of Credit, Pool Insurance Policy, Special Hazard Insurance
Policy, Mortgagor Bankruptcy Bond or other policy of insurance, from amounts
in the Reserve Fund, under any Alternative Credit Support or out of the
proceeds of liquidation of the Mortgage Loans, cash in the Certificate Account
or otherwise. See "Description of the Certificates--Advances," "Credit
Support" and "Description of Insurance."
Single Family Mortgage Loans. The applicable Prospectus Supplement will
specify the types of Mortgaged Properties securing Single Family Mortgage
Loans, the original principal balances of the Single Family Mortgage Loans,
the original maturities of such Mortgage Loans and the Loan-to-Value Ratios of
such Mortgage Loans. Single Family Mortgage Loans may be fully-amortizing
Mortgage Loans or Balloon Mortgage Loans. If so specified in the related
Prospectus Supplement, a Mortgage Pool may also include ARM Loans with a
mortgage interest rate adjusted periodically (with corresponding adjustments
in the amount of monthly payments) to equal the sum (which may be rounded) of
a fixed margin and an index described in such Prospectus Supplement, subject
to any applicable restrictions on such adjustments. The Mortgage Pools may
also include other types of Single Family Mortgage Loans to the extent set
forth in the applicable Prospectus Supplement.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Single Family Mortgage Loans pursuant to which the monthly payments
made by the Mortgagor during the early years of such Mortgage Loan will be
less than the scheduled monthly payments on the Mortgage Loan ("Buy-Down
Loans"). The resulting difference in payment shall be compensated for from an
amount contributed by the Depositor, the seller of the related Mortgaged
Property, the Servicer or another source and placed in a custodial account
(the "Buy-Down Fund") by the Servicer, or if so specified in the related
Prospectus Supplement, with the Trustee. In lieu of a cash deposit, if so
specified in the related Prospectus Supplement, a letter of credit or
guaranteed investment contract may be delivered to the Trustee to fund the
Buy-Down Fund. See "Description of the Certificates--Payments on Mortgage
Loans." Buy-Down Loans included in a Mortgage Pool will provide for a
reduction in monthly interest payments by the Mortgagor for a period of up to
the first four years of the term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Single Family Mortgage Loans pursuant to which the monthly payments by
the Mortgagor during the early years of the related Mortgage Note are less
than the amount of interest that would otherwise be payable thereon, with the
interest not so paid added to the outstanding principal balance of such
Mortgage Loan ("GPM Loans"). If so specified in the related Prospectus
Supplement, the resulting difference in payment shall be compensated for from
an amount contributed by the Depositor or another source and delivered to the
Trustee (the "GPM Fund"). In lieu of cash deposit, the Depositor may deliver
to the Trustee a letter of credit, guaranteed investment contract or another
instrument acceptable to the Rating Agency rating the related Series to fund
the GPM Fund.
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Commercial, Multifamily and Mixed-Use Mortgage Loans. The Commercial
Mortgage Loans, Multifamily Mortgage Loans and Mixed-Use Mortgage Loans will
consist of mortgage loans secured by first or junior mortgages, deeds of trust
or similar security instruments on, or installment contracts ("Installment
Contracts") for the sale of, fee simple or leasehold interests in commercial
real estate property, multifamily residential property, cooperatively owned
multifamily properties and/or mixed residential/commercial property, and
related property and interests. Commercial Mortgage Loans will not represent
more than 10% of the aggregate principal balance of any Mortgage Pool as of
the related Cut-off Date.
Certain of the Commercial Mortgage Loans, Multifamily Mortgage Loans and
Mixed-Use Mortgage Loans ("Simple Interest Loans") may provide that scheduled
interest and principal payments thereon are applied first to interest accrued
from the last date to which interest has been paid to the date such payment is
received and the balance thereof is applied to principal, and other such
Mortgage Loans may provide for payment of interest in advance rather than in
arrears.
The Commercial Mortgage Loans, Multifamily Mortgage Loans and Mixed-Use
Mortgage Loans may also be secured by one or more assignments of leases and
rents, management agreements or operating agreements relating to the Mortgaged
Property and in some cases by certain letters of credit, personal guarantees
or both. Pursuant to an assignment of leases and rents, the Mortgagor assigns
its right, title and interest as landlord under each Lease and the income
derived therefrom to the related lender, while retaining a license to collect
the rents for so long as there is no default. If the Mortgagor defaults, the
license terminates and the related lender is entitled to collect the rents
from tenants to be applied to the monetary obligations of the Mortgagor. State
law may limit or restrict the enforcement of the assignment of leases and
rents by a lender until the lender takes possession of the related Mortgaged
Property and a receiver is appointed. See "Certain Legal Aspects of the
Mortgage Loans and Contracts--Leases and Rents."
The Prospectus Supplement relating to each Series will specify the
Originator or Originators relating to the Commercial Mortgage Loans,
Multifamily Mortgage Loans and Mixed-Use Mortgage Loans, which may include,
among others, commercial banks, savings and loan associations, other financial
institutions, insurance companies or real estate developers and, to the extent
available, the underwriting criteria in connection with originating such
Mortgage Loans.
Commercial, multifamily and mixed-use real estate lending is generally
viewed as exposing the lender to a greater risk of loss than one- to four-
family residential lending. Commercial, multifamily and mixed-use real estate
lending typically involves larger loans to single borrowers or groups of
related borrowers than residential one- to four-family mortgage loans.
Furthermore, the repayment of loans secured by income producing properties is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. Commercial, multifamily and mixed-use real estate can be affected
significantly by supply and demand in the market for the type of property
securing the loan and, therefore, may be subject to adverse economic
conditions. Market values may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender, such
as rent control laws, which impact the future cash flow of the property.
Corresponding to the greater lending risk is a generally higher interest rate
applicable to commercial, multifamily and mixed-use real estate lending.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either directly
or through affiliates, from one or more affiliates or from sellers
unaffiliated with the Depositor ("Unaffiliated Sellers"). Mortgage Loans
acquired by the Depositor will have been originated in accordance with the
underwriting criteria specified below under "Underwriting Standards" or as
otherwise described in a related Prospectus Supplement.
UNDERWRITING STANDARDS
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria, such other
standards as may be described in the applicable Prospectus Supplement, or
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where the underwriting standards are not known or available to the Depositor,
all prospective Mortgage Loans will be subject to the underwriting standards
adopted by the Depositor. Unaffiliated Sellers will represent and warrant that
Mortgage Loans originated by them and purchased by the Depositor have been
originated in accordance with the applicable underwriting standards
established by the Depositor or such other standards as may be described in
the applicable Prospectus Supplement unless, as set forth in the related
Prospectus Supplement, the underwriting standards are not known or available
to the Depositor. The following discussion describes the underwriting
standards of the Depositor with respect to any Mortgage Loan that it
purchases.
Single and Multi-Family Mortgage Loans. The mortgage credit approval process
for one- to four-family residential loans follows a standard procedure that
generally complies with FHLMC and FNMA regulations and guidelines (except that
certain Mortgage Loans may have higher loan amount and qualifying ratios) and
applicable federal and state laws and regulations. The credit approval process
for Cooperative Loans follows a procedure that generally complies with
applicable FNMA regulations and guidelines (except for the loan amounts and
qualifying ratios) and applicable federal and state laws and regulations. The
originator of a Mortgage Loan (the "Originator") generally will review a
detailed credit application by the prospective mortgagor designed to provide
pertinent credit information, including a current balance sheet describing
assets and liabilities and a statement of income and expenses, as well as an
authorization to apply for a credit report that summarizes the prospective
mortgagor's credit history with local merchants and lenders and any record of
bankruptcy. In addition, an employment verification is obtained from the
prospective mortgagor's employer wherein the employer reports the length of
employment with that organization, the current salary, and gives an indication
as to whether it is expected that the prospective mortgagor will continue such
employment in the future. If the prospective mortgagor is self-employed, he or
she is required to submit copies of signed tax returns. The prospective
mortgagor may also be required to authorize verification of deposits at
financial institutions. In certain circumstances, other credit considerations
may cause the Originator or Depositor not to require some of the above
documents, statements or proofs in connection with the origination or purchase
of certain Mortgage Loans.
An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties.
The appraiser is required to inspect the property and verify that it is in
good condition and that, if new, construction has been completed. The
appraisal generally will be based on the appraiser's judgment of value, giving
appropriate weight to both the market value of comparable homes and the cost
of replacing the residence. These underwriting standards also require a search
of the public records relating to a mortgaged property for liens and judgments
against such mortgaged property.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective
mortgagor has sufficient monthly income available to meet the prospective
mortgagor's monthly obligations on the proposed loan and other expenses
related to the residence (such as property taxes, hazard and primary mortgage
insurance and, if applicable, maintenance) and other financial obligations and
monthly living expenses. Each Originator's lending guidelines for conventional
mortgage loans generally will specify that mortgage payments plus taxes and
insurance and all monthly payments extending beyond one year (including those
mentioned above and other fixed obligations, such as car payments) would equal
no more than specified percentages of the prospective mortgagor's gross
income. These guidelines will be applied only to the payments to be made
during the first year of the loan. For FHA and VA Loans, the Originator's
lending guidelines will follow HUD and VA guidelines, respectively. Other
credit considerations may cause an Originator to depart from these guidelines.
For example, when two individuals co-sign the loan documents, the incomes and
expenses of both individuals may be included in the computation.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
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Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not
present in traditional types of loans. For example, Buy-Down Loans and GPM
Loans provide for escalating or variable payments by the Mortgagor. These
types of Mortgage Loans are underwritten on the basis of a judgment that the
Mortgagor will have the ability to make larger monthly payments in subsequent
years. In some instances the Mortgagor's income may not be sufficient to
enable it to continue to make scheduled loan payments as such payments
increase.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Mortgage Loans for inclusion in a Trust Fund that are
underwritten under standards and procedures which vary from and are less
stringent than those described herein. For instance, Mortgage Loans may be
underwritten under a "limited documentation" program if so specified in the
related Prospectus Supplement. With respect to such Mortgage Loans, minimal
investigation into the borrowers' credit history and income profile is
undertaken by the originator and such Mortgage Loans may be underwritten
primarily on the basis of an appraisal of the Mortgaged Property or
Cooperative Dwelling and the Loan-to-Value Ratio at origination. Thus, if the
Loan-to-Value Ratio is less than a percentage specified in the related
Prospectus Supplement, the originator may forego certain aspects of the review
relating to monthly income, and traditional ratios of monthly or total
expenses to gross income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the related Prospectus Supplement.
Commercial and Mixed-Use Mortgage Loans. The underwriting procedures and
standards for Commercial Mortgage Loans and Mixed-Use Mortgage Loans included
in a Mortgage Pool will be specified in the related Prospectus Supplement to
the extent such procedures and standards are known or available. Such Mortgage
Loans may be originated in contemplation of the transactions described in this
Prospectus and the related Prospectus Supplement or may have been originated
by third-parties and acquired by the Depositor directly or through its
affiliates in negotiated transactions.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the Originator of a Commercial Mortgage Loan or Mixed-Use Mortgage
Loan will have applied underwriting procedures intended to evaluate, among
other things, the income derived from the Mortgaged Property, the capabilities
of the management of the project, including a review of management's past
performance record, its management reporting and control procedures (to
determine its ability to recognize and respond to problems) and its accounting
procedures to determine cash management ability, the obligor's credit standing
and repayment ability and the value and adequacy of the Mortgaged Property as
collateral. Any such Mortgage Loan insured by the Federal Housing
Administration ("FHA"), a division of the United States Department of Housing
and Urban Development ("HUD"), will have been originated by a mortgage lender
that is approved by HUD as an FHA mortgagee in the ordinary course of its real
estate lending activities and will comply with the underwriting policies of
FHA.
If so specified in the related Prospectus Supplement, the adequacy of a
Commercial Property or Mixed-Use Property as security for repayment will
generally have been determined by an appraisal by an appraiser selected in
accordance with preestablished guidelines established by or acceptable to the
loan Originator for appraisers. If so specified in the related Prospectus
Supplement, the appraiser must have personally inspected the property and
verified that it was in good condition and that construction, if new, has been
completed. The appraisal will have been based upon a cash flow analysis and/or
a market data analysis of recent sales of comparable properties and, when
deemed applicable, a replacement cost analysis based on the current cost of
constructing or purchasing a similar property, or such other factors that are
described in the applicable Prospectus Supplement.
No assurance can be given that values of any Commercial Properties or Mixed-
Use Properties in a Mortgage Pool have remained or will remain at their levels
on the dates of origination of the related Mortgage Loans. Further, there is
no assurance that appreciation of real estate values generally will limit loss
experiences on commercial properties or mixed-use properties. If the
commercial real estate market should experience an overall decline in property
values such that the outstanding balances of any Commercial Mortgage Loans
and/or Mixed-
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Use Mortgage Loans and any additional financing on the related Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses on such Mortgage Loans could be higher than those now
generally experienced in the mortgage lending industry. To the extent that
such losses are not covered by the methods of credit support or the insurance
policies described herein or by Alterative Credit Support, they will be borne
by holders of the Certificates of the Series evidencing interests in the
Mortgage Pool. Even where credit support covers all losses resulting from
defaults and foreclosure, the effect of defaults and foreclosures may be to
increase prepayment experience on the related Mortgage Loans, thus shortening
weighted average life and affecting yield to maturity.
QUALIFICATIONS OF UNAFFILIATED SELLERS
Each Unaffiliated Seller must be an institution experienced in originating
conventional mortgage loans and/or FHA Loans or VA Loans in accordance with
accepted practices and prudent guidelines, and must maintain satisfactory
facilities to originate those loans, or have such other origination or
servicing experience as may be specified in the related Prospectus Supplement.
REPRESENTATIONS BY UNAFFILIATED SELLERS; REPURCHASES
If so specified in the related Prospectus Supplement, each Unaffiliated
Seller or any of its affiliates (or the Master Servicer, if the Unaffiliated
Seller is also the Master Servicer under the Pooling and Servicing Agreement)
will have made representations and warranties in respect of the Mortgage Loans
sold by such Unaffiliated Seller to the Depositor or its affiliates. Such
representations and warranties will generally include, among other things: (i)
with respect to each Mortgaged Property, that title insurance (or in the case
of Mortgaged Properties located in areas where such policies are generally not
available, an attorney's certificate of title) and any required hazard and
primary mortgage insurance was effective at the origination of each Mortgage
Loan, and that each policy (or certificate of title) remained in effect on the
date of purchase of the Mortgage Loan from the Unaffiliated Seller; (ii) that
the Unaffiliated Seller had good and marketable title to each such Mortgage
Loan; (iii) with respect to each Mortgaged Property, that each mortgage
constituted a valid first (or, if applicable, more junior) lien on the
Mortgaged Property (subject only to permissible title insurance exceptions);
and (iv) that there were no delinquent tax or assessment liens against the
Mortgaged Property. With respect to a Cooperative Loan, the Unaffiliated
Seller will represent and warrant that (a) the security interest created by
the cooperative security agreements constituted a valid first lien on the
collateral securing the Cooperative Loan (subject to the right of the related
Cooperative to cancel shares and terminate the proprietary lease for unpaid
assessments and to the lien of the related Cooperative for unpaid assessments
representing the Mortgagor's pro rata share of the Cooperative's payments for
its mortgage, current and future real property taxes, maintenance charges and
other assessments to which like collateral is commonly subject) and (b) the
related cooperative apartment was free from damage and was in good repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate.
A substantial period of time may have elapsed between such date and the date
of initial issuance of the Series of Certificates evidencing an interest in
such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale of
a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation described
below will not arise if, during the period commencing on the date of sale of a
Mortgage Loan by the Unaffiliated Seller to or on behalf of the Depositor, the
relevant event occurs that would have given rise to such an obligation had the
event occurred prior to sale of the affected Mortgage Loan. However, the
Depositor will not include any Mortgage Loan in the Trust Fund for any Series
of Certificates if anything has come to the Depositor's attention that would
cause it to believe that the representations and warranties of an Unaffiliated
Seller will not be accurate and complete in all material respects in respect
of such Mortgage Loan as of the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating
to the period commencing on the date of sale of such Mortgage Loan to
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the Depositor or its affiliates will be certain limited representations of the
Depositor and of the Master Servicer described below under "Description of the
Certificates--Assignment of Mortgage Loans." If the Master Servicer is also an
Unaffiliated Seller of Mortgage Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made in its capacity as an Unaffiliated Seller.
Upon the discovery of the breach of any representation or warranty made by
an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related
Series, such Unaffiliated Seller or the Servicer of such Mortgage Loan will be
obligated to repurchase such Mortgage Loan at a purchase price equal to 100%
of the unpaid principal balance thereof at the date of repurchase or, in the
case of a Series of Certificates as to which the Depositor has elected to
treat the related Trust Fund as a REMIC, as defined in the Code, at such other
price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
interest on the Mortgage Loans in the related Mortgage Pool, to the first day
of the month following such repurchase and the amount of any unreimbursed
Advances made by the Master Servicer or the Servicer, as applicable, in
respect of such Mortgage Loan. The Master Servicer will be required to enforce
this obligation for the benefit of the Trustee and the Certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of such Mortgage Loan. Subject to the right, if any, and the
ability of the Depositor, the Unaffiliated Seller or the Servicer to
substitute for certain Mortgage Loans, this repurchase obligation constitutes
the sole remedy available to the Certificateholders of such Series for a
breach of representation or warranty by an Unaffiliated Seller.
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is
subject to limitations, and no assurance can be given that Unaffiliated
Sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of the representations
and warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have
a repurchase obligation, and the Master Servicer may have the limited purchase
obligation, in each case as described below under "Description of the
Certificates--Assignment of Mortgage Loans."
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage pass-
through certificates (the "Mortgage Certificates") issued by one or more
trusts established by one or more private entities and evidencing the entire
or a fractional interest in a pool of mortgage loans. A description of the
mortgage loans underlying the Mortgage Certificates, the related pooling and
servicing arrangements and the insurance arrangements in respect of such
mortgage loans will be set forth in the applicable Prospectus Supplement or in
the Current Report on Form 8-K referred to below. Such Prospectus Supplement
(or, if such information is not available in advance of the date of such
Prospectus Supplement, a Current Report on Form 8-K to be filed by the
Depositor with the Commission within 15 days of the issuance of the
Certificates of such Series) will also set forth information with respect to
the entity or entities forming the related mortgage pool, the issuer of any
credit support with respect to such Mortgage Certificates, the aggregate
outstanding principal balance and the pass-through rate borne by each Mortgage
Certificate included in the Trust Fund, together with certain additional
information with respect to such Mortgage Certificates. The inclusion of
Mortgage Certificates in a Trust Fund with respect to a Series of Certificates
is conditioned upon their characteristics being in form and substance
satisfactory to the Rating Agency rating the related Series of Certificates.
Mortgage Certificates, together with the Mortgage Loans and Contracts, are
referred to herein as the "Trust Assets."
THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing conditional sales contracts and installment
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loan agreements (the "Contracts") originated by a manufactured housing dealer
in the ordinary course of business and purchased by the Depositor. The
Contracts may be conventional manufactured housing contracts or contracts
insured by the FHA or partially guaranteed by the VA. Each Contract will be
secured by a Manufactured Home, as defined below. The Contracts may be fully
amortizing or provide for a balloon payment at maturity, and will bear
interest at a fixed annual percentage rate ("APR") or a variable rate
described in the applicable Prospectus Supplement.
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to
the required utilities, and includes the plumbing, heating, air conditioning,
and electrical systems contained therein; except that such term shall include
any structure which meets all the requirements of [this] paragraph except the
size requirements and with respect to which the manufacturer voluntarily files
a certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
The Depositor will cause the Contracts constituting each Contract Pool to be
assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the related Certificateholder. The Master Servicer specified in the
related Prospectus Supplement will service the Contracts, either by itself or
through other Servicers, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates--Servicing by Unaffiliated Sellers." With
respect to those Contracts serviced by the Master Servicer through a Servicer,
the Master Servicer will remain liable for its servicing obligations under the
Agreement as if the Master Servicer alone were servicing such Contracts. The
Contract documents, if so specified in the related Prospectus Supplement, may
be held for the benefit of the Trustee by a Custodian (the "Custodian")
appointed pursuant to a Custodial Agreement (the "Custodial Agreement") among
the Depositor, the Trustee and the Custodian.
The related Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed with the Commission) will specify, for the Contracts contained
in the related Contract Pool, among other things: (a) the dates of origination
of the Contracts; (b) the weighted average APR on the Contracts; (c) the range
of outstanding principal balances as of the Cut-off Date; (d) the average
outstanding principal balance of the Contracts as of the Cut-off Date; (e) the
weighted average term to maturity as of the Cut-off Date; and (f) the range of
original maturities of the Contracts.
With respect to the Contracts included in the Contract Pool, the Depositor,
the Master Servicer or such other party, as specified in the related
Prospectus Supplement, will make or cause to be made representations and
warranties as to the types and geographical distribution of such Contracts and
as to the accuracy in all material respects of certain information furnished
to the Trustee in respect of each such Contract. In addition, the Master
Servicer or the Unaffiliated Seller of the Contracts will represent and
warrant as to the payment status of the Contracts as of the Cut-off Date. Upon
a breach of any representation that materially and adversely affects the
interest of the Certificateholder in a Contract, the Master Servicer, the
Unaffiliated Seller or such other party, as appropriate, will be obligated
either to cure the breach in all material respects or to purchase the Contract
or, if so specified in the related Prospectus Supplement, to substitute
another Contract as described below. This repurchase or substitution
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a breach of representation by the Master Servicer, the
Unaffiliated Seller or such other party.
If so specified in the related Prospectus Supplement, in addition to making
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Agreement, the Master
Servicer will make certain representations and warranties, except to the
extent that another party specified in the Prospectus Supplement makes any
such representations, to the Trustee with respect to the enforceability of
coverage under any applicable insurance policy or hazard insurance policy. See
"Description of Insurance" for information regarding the extent of coverage
under certain of such insurance policies. Upon a breach of the insurability
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Master Servicer, the Unaffiliated Seller
or such other party, as appropriate,
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will be obligated either to cure the breach in all material respects or to
purchase such Contract at a price equal to the principal balance thereof as of
the date of purchase plus accrued interest at the related Pass-Through-Rate to
the first day of the month following the month of purchase. The Master
Servicer, if required by the rating agency or agencies rating the
Certificates, will procure a surety bond, guaranty, letter of credit or other
instrument (the "Performance Bond") acceptable to such rating agency to
support this purchase obligation. See "Credit Support--Performance Bond." The
purchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of the Master Servicer's or
seller's insurability representation.
If so specified in the related Prospectus Supplement, if the Depositor
discovers or receives notice of any breach of its representations and
warranties relating to a Contract within two years or such other period as may
be specified in the related Prospectus Supplement of the date of the initial
issuance of the Certificates, the Depositor may remove such Contract from the
Trust Fund ("Deleted Contract"), rather than repurchase the Contract as
provided above, and substitute in its place another Contract ("Substitute
Contract"). Any Substitute Contract, on the date of substitution, will (i)
have an outstanding principal balance, after deduction of all scheduled
payments due in the month of substitution, not in excess of the outstanding
principal balance of the Deleted Contract (the amount of any shortfall to be
distributed to Certificateholders in the month of substitution), (ii) have an
APR not less than (and not more than 1% greater than) the APR of the Deleted
Contract, (iii) have a remaining term to maturity not greater than (and not
more than one year less than) that of the Deleted Contract and (iv) comply
with all the representations and warranties set forth in the Pooling and
Servicing Agreement as of the date of substitution. This repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for any such breach.
UNDERWRITING POLICIES
Conventional Contracts will comply with the underwriting policies of the
Originator or Unaffiliated Seller of the Contracts described in the related
Prospectus Supplement.
With respect to a Contract made in connection with the Obligor's purchase of
a Manufactured Home, the "appraised value" is the amount determined by a
professional appraiser. The appraiser must personally inspect the Manufactured
Home and prepare a report which includes market data based on recent sales of
comparable Manufactured Homes and, when deemed applicable, a replacement cost
analysis based on the current cost of a similar Manufactured Home. Unless
otherwise specified in the related Prospectus Supplement, the Contract Loan-
to-Value Ratio is equal to the original principal amount of the Contract
divided by the lesser of the "appraised value" or the sales price for the
Manufactured Home.
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Certificates of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding
Account") to be established with the Trustee, which will be used to acquire
additional Mortgage Loans or Contracts from time to time during the time
period specified in the related Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the Pre-Funded Amount in additional
Mortgage Loans or Contracts, such Pre-Funded Amount may be invested in one or
more Eligible Investments. "Eligible Investments" is any of the following, in
each case as determined at the time of the investment or contractual
commitment to invest therein: (i) obligations which have the benefit of full
faith and credit of the United States of America, including depositary
receipts issued by a bank as custodian with respect to any such instrument or
security held by the custodian for the benefit of the holder of such
depositary receipt, (ii) demand deposits or time deposits in, or bankers'
acceptances issued by, any depositary institution or trust company
incorporated under the laws of the United States of America or any state
thereof and subject to supervision and examination by Federal or state banking
or depositary institution authorities; provided that at the time of the
Trustee's investment or contractual commitment to invest therein, the
certificates of deposit or short-term deposits (if any) or long-term unsecured
debt obligations (other than such obligations whose rating is based on
collateral or on the credit of a Person other than such institution or trust
company) of such depositary institution or trust company has a credit rating
in the highest rating category from each Rating Agency, (iii) certificates of
deposit having a
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rating in the highest rating from each Rating Agency, (iv) investments in
money market funds which are (or which are composed of instruments or other
investments which are) rated in the highest category form each Rating Agency;
(v) commercial paper (having original or remaining maturities of no more than
270 days) having credit rating in the highest rating category from each Rating
Agency; (vi) repurchase agreements involving any Eligible Investment described
in any of clauses(i), (ii) or (iii) above, so long as the other party to the
repurchase agreement has its long-term unsecured debt obligations rated in the
highest rating category from each Rating Agency; and (f) any other investment
with respect to which each Rating Agency rating such Certificates indicates
will not result in the reduction or withdrawal of its then existing rating of
the Certificates, or such other investments that are described in the
applicable Prospectus Supplement. Except as otherwise provided in the
applicable Pooling and Servicing Agreement, any Eligible Investment must
mature no later than the Business Day prior to the next Distribution Date.
During any Pre-Funding Period, the Depositor will be obligated (subject only
to the availability thereof) to transfer to the related Trust Fund additional
Mortgage Loans or Contracts from time to time during such Pre-Funding Period.
Such additional Mortgage Loans or Contracts will be required to satisfy
certain eligibility criteria more fully set forth in the related Prospectus
Supplement which eligibility criteria will be consistent with the eligibility
criteria of the Mortgage Loans or Contracts included in the Trust Fund as of
the Closing Date subject to such exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Certificates will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
90 days from the related Closing Date, and (b) that the additional loans to be
acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Mortgage Loans or Contracts included in
the related Trust Fund on the Closing Date (although additional criteria may
also be required to be satisfied, as described in the related Prospectus
Supplement). The Pre-Funded Amount will not exceed 25% of the initial
principal amount of the Certificates of the related Series. The Pre-Funding
Period will not be longer than one year following the related Closing Date.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, as a wholly-owned subsidiary of First Boston Securities Corporation, the
name of which was subsequently changed to Credit Suisse First Boston
Securities Corporation ("FBSC"). FBSC is a wholly-owned subsidiary of Credit
Suisse First Boston, Inc. Credit Suisse First Boston Corporation, which may
act as an underwriter in offerings made hereby, as described in "Plan of
Distribution" below, is also a wholly-owned subsidiary of Credit Suisse First
Boston, Inc. The principal executive offices of the Depositor are located at
11 Madison Avenue, New York, N.Y. 10010. Its telephone number is (212) 325-
2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will ensure or guarantee distributions on
the Certificates of any Series.
Trust Assets will be acquired by the Depositor directly or through one or
more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Trust Assets, to repay indebtedness which has been
incurred to obtain funds to acquire the Trust Assets, to establish the Reserve
Funds, if any, for the Series and to pay costs of structuring and issuing the
Certificates. If so specified in the related Prospectus Supplement,
Certificates may be exchanged by the Depositor for Trust Assets. The Trust
Assets for each Series of Certificates will be acquired by the Depositor
either directly, or through one or more affiliates which will have acquired
such Trust Assets from time to time either in the open market or in privately
negotiated transactions.
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YIELD CONSIDERATIONS
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary
from month to month. Negative amortization with respect to a Mortgage Loan
will occur if an adjustment to the Mortgage Rate causes the amount of interest
accrued in any month, calculated at the new Mortgage Rate for such period, to
exceed the amount of the monthly payment or if the allowable increase in any
monthly payment is limited to an amount that is less than the amount of
interest accrued in any month. The amount of any resulting Deferred Interest
will be added to the principal balance of the Mortgage Loan and will bear
interest at the Mortgage Rate in effect from time to time. To the extent that,
as a result of the addition of any Deferred Interest, the Mortgage Loan
negatively amortizes over its term, the weighted average life of the
certificates of the related Series will be greater than would otherwise be the
case. As a result, the yield on any such Mortgage Loan at any time may be less
than the yields on similar adjustable rate mortgage loans, and the rate of
prepayment may be lower or higher than would otherwise be anticipated.
Generally, when a full prepayment is made on a Mortgage Loan or Contract,
the Mortgagor or the borrower under a Contract (the "Obligor"), is charged
interest for the number of days actually elapsed from the due date of the
preceding monthly payment up to the date of such prepayment, at a daily
interest rate determined by dividing the Mortgage Rate or APR by 365. Full
prepayments will reduce the amount of interest paid by the Mortgagor or the
Obligor because interest on the principal amount of any Mortgage Loan or
Contract so prepaid will be paid only to the date of prepayment instead of for
a full month; however, unless otherwise provided in the applicable Prospectus
Supplement, the Master Servicer with respect to a Series will be required to
advance from its own funds the portion of any interest at the related Mortgage
Rate (less the servicing fee rate) that is not so received. Partial
prepayments generally are applied on the first day of the month following
receipt, with no resulting reduction in interest payable for the period in
which the partial prepayment is made. If so specified in the related
Prospectus Supplement, full and partial prepayments, together with interest on
such full and partial prepayments at the related Mortgage Rate (less the
servicing fee rate) to the last day of the month in which such prepayments
occur, will be deposited in the Certificate Account and will be available for
distribution to Certificateholders on the next succeeding Distribution Date in
the manner specified in the related Prospectus Supplement. See "Maturity and
Prepayment Considerations."
Generally, the effective yield to holders of Certificates having a monthly
Distribution Date will be lower than the yield otherwise produced by the Pass-
Through Rate with respect to such Certificates because, while interest will
accrue on each Mortgage Loan or Contract, or mortgage loan underlying a
Mortgage Certificate, to the Due Date for each Mortgage Loan or Contract in
the related Due Period, the distribution of such interest to holders of such
Certificates will be made on a date following such Due Period. The adverse
effect on yield will intensify with any increase in the period of time by
which the Distribution Date with respect to a Series of Certificates succeeds
such Due Date. With respect to the Multi-Class Certificates of a Series having
other than monthly Distribution Dates, the yield to holders of such
Certificates will also be adversely affected by any increase in the period of
time from the date to which interest accrues on such Certificate to the
Distribution Date on which such interest is distributed.
In the event that the Certificates of a Series are divided into two or more
Classes or Subclasses and that a Class or Subclass is an Interest Weighted
Class, in the event that such Series includes a Class of Residual
Certificates, or as otherwise may be appropriate, the Prospectus Supplement
for such Series will indicate the manner in which the yield to
Certificateholders will be affected by different rates of prepayments on the
Mortgage Loans, on the Contracts or on the mortgage loans underlying the
Mortgage Certificates. In general, the yield on Certificates that are offered
at a premium to their principal or notional amount ("Premium Certificates") is
likely to be adversely affected by a higher than anticipated level of
principal prepayments on the Mortgage Loans, on the Contracts or on the
mortgage loans underlying the Mortgage Certificates. This relationship will
become more sensitive as the amount by which the Percentage Interest of such
Class in each Interest Distribution is greater than the corresponding
Percentage Interest of such Class in each Principal Distribution. If the
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differential is particularly wide (e.g., the Interest Distribution is
allocated primarily or exclusively to one Class or Subclass and the Principal
Distribution primarily or exclusively to another) and a high level of
prepayments occurs, there is a possibility that Certificateholders of Premium
Certificates will not only suffer a lower than anticipated yield but, in
extreme cases, will fail to recoup fully their initial investment. Conversely,
a lower than anticipated level of principal prepayments (which can be
anticipated to increase the expected yield to holders of Certificates that are
Premium Certificates) will likely result in a lower than anticipated yield to
holders of Certificates that are offered at a discount to their principal
amount ("Discount Certificates"). If so specified in the applicable Prospectus
Supplement, a disproportionately large amount of Principal Prepayments may be
distributed to the holders of the Senior Certificates at the times and under
the circumstances described therein.
In the event that the Certificates of a Series include one or more Classes
or Subclasses of Multi-Class Certificates, the Prospectus Supplement for such
Series will set forth information, measured relative to a prepayment standard
or model specified in such Prospectus Supplement, with respect to the
projected weighted average life of each such Class or Subclass and the
percentage of the initial Stated Principal Balance of each such Subclass that
would be outstanding on special Distribution Dates for such Series based on
the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Mortgage Loans or Contracts or on the mortgage loans
underlying the Mortgage Certificates in the related Trust Fund are made at
rates corresponding to the various percentages of such prepayment standard or
model.
MATURITY AND PREPAYMENT CONSIDERATIONS
If so specified in the applicable Prospectus Supplement, a Mortgage Loan or
Contract may provide for a prepayment penalty. Mortgage Loans and Contracts
with fixed interest rates generally contain (except in the case of FHA and VA
Loans) due-on-sale clauses permitting the mortgagee or obligee to accelerate
the maturity thereof upon conveyance of the Mortgaged Property, Cooperative
Dwelling or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of
varying maturities that will remain outstanding on each anniversary of the
original date of such mortgage loans (assuming they all have the same
origination date) ("FHA Experience"). Published information with respect to
conventional residential mortgage loans indicates that such mortgage loans
have historically been prepaid at higher rates than government insured loans
because, unlike government insured mortgage loans, conventional mortgage loans
may contain due-on-sale clauses that allow the holder thereof to demand
payment in full of the remaining principal balance of such mortgage loans upon
sales or certain transfers of the mortgaged property. There are no similar
statistics with respect to the prepayment rates of cooperative loans or loans
secured by multifamily, commercial or mixed-use properties.
It is customary in the residential mortgage industry in quoting yields (a)
on a pool of 30-year fixed-rate, level payment mortgages, to compute the yield
as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on
a pool of 15-year fixed-rate, level payment mortgages, to compute the yield as
if the pool were a single loan that is amortized according to a 15-year
schedule and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a
Prospectus Supplement will be the Standard Prepayment Assumption ("SPA"). SPA
represents an assumed rate of prepayment relative to the then outstanding
principal balance of a pool of mortgages. A prepayment assumption of 100% of
SPA assumes prepayment rates of 0.2% per annum of the then outstanding
principal balance of such mortgages in the first month of the life of the
mortgages and an additional 0.2% per annum in
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each month thereafter until the thirtieth month and in each month thereafter
during the life of the mortgages, 100% of SPA assumes a constant prepayment
rate of 6% per annum each month.
Information regarding FHA Experience, other published information, SPA or
any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to FHA Experience, mortgage industry
custom, any level of SPA, or any other rate specified in the related
Prospectus Supplement. A number of factors, including homeowner mobility,
economic conditions, enforceability of due-on-sale clauses, mortgage market
interest rates, mortgage recording taxes and the availability of mortgage
funds, may affect prepayment experience on residential mortgage loans.
The terms of the Pooling and Servicing Agreement generally will require the
Servicer, the Special Servicer (if applicable) or the Master Servicer to
enforce any due-on-sale clause to the extent it has knowledge of the
conveyance or the proposed conveyance of the underlying Mortgaged Property or
Cooperative Dwelling; provided, however, that any enforcement action that
would impair or threaten to impair any recovery under any related Insurance
Policy will not be required or permitted. See "Description of the
Certificates--Enforcement of "Due-On-Sale" Clauses; Realization Upon Defaulted
Mortgage Loans" and "Certain Legal Aspects of the Mortgage Loans And
Contracts--The Mortgage Loans--"Due-On-Sale" Clauses" for a description of
certain provisions of each Pooling and Servicing Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new
loans secured by a mortgage on the same property. Upon such refinancing, the
new loans will not be included in the Mortgage Pool and the related Servicer
will be required to repurchase the affected Mortgage Loan. A Mortgagor may be
legally entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other
factors affecting prepayment of mortgage loans or Contracts include changes in
housing needs, job transfers, unemployment and servicing decisions. An
investment in Certificates evidencing interests in Contracts may be affected
by, among other things, a downturn in regional or local economic conditions.
These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of the Contracts. To the extent that losses on the Contracts are
not covered by the Subordination Amount, if any, Letters of Credit, applicable
Insurance Policies, if any, or by any Alternative Credit Support, holders of
the Certificates of a Series evidencing interests in such Contracts will bear
all risk of loss resulting from default by Obligors and will have to look
primarily to the value of the Manufactured Homes, which generally depreciate
in value, for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contract Pools."
While most Contracts will contain "due-on-sale" provisions permitting the
holder of the Contract to accelerate the maturity of the Contract upon
conveyance by the borrower, the Master Servicer may permit proposed
assumptions of Contracts where the proposed buyer meets the underwriting
standards described above. Such assumption would have the effect of extending
the average life of the Contract. FHA Mortgage Loans and Contracts and VA
Mortgage Loans and Contracts are not permitted to contain "due on sale"
clauses, and are freely assumable.
Mortgage Loans made with respect to Commercial Properties, Multifamily
Properties and Mixed-Use Properties may have provisions that prohibit
prepayment entirely or for certain periods and/or require payment of premium
or yield maintenance penalties, and may provide for payments of interest only
during a certain period followed by amortization of principal on the basis of
a schedule extending beyond the maturity of the related
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Mortgage Loan. Prepayments of such Mortgage Loans may be affected by these and
other factors, including changes in interest rates and the relative tax
benefits associated with ownership of Commercial Property, Multifamily
Property and Mixed-Use Property.
If set forth in the applicable Prospectus Supplement, the Depositor or other
specified entity will have the option to repurchase the Trust Assets included
in the related Trust Fund under the conditions stated in such Prospectus
Supplement. For any Series of Certificates for which the Depositor has elected
to treat the Trust as a REMIC pursuant to the provisions or the Internal
Revenue Code of 1986, as amended (the "Code"), any such repurchase will be
effected in compliance with the requirements of Section 860F(a)(4) of the Code
so as to constitute a "qualifying liquidation" thereunder. In addition, the
Depositor will be obligated, under certain circumstances, to repurchase
certain of the Trust Assets. The Master Servicer and Unaffiliated Sellers will
also have certain repurchase obligations, as more fully described herein. In
addition, the mortgage loans underlying the Mortgage Certificates may be
subject to repurchase under circumstances similar to those described above.
Such repurchases will have the same effect as prepayments in full. See "The
Trust Fund--Mortgage Loan Program--Representations by Unaffiliated Sellers;
Repurchases," "Description of the Certificates--Assignment of Mortgage Loans,"
"--Assignment of Mortgage Certificates," "--Assignment of Contracts" and "--
Termination."
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an agreement
consisting of either (a) a Pooling and Servicing Agreement or (b) a Reference
Agreement (the "Reference Agreement") and the Standard Terms and Provisions of
Pooling and Servicing Agreement (such Standard Terms, the "Standard Terms"),
either the Standard Terms together with the Reference Agreement or the Pooling
and Servicing Agreement referred to as the "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer, if any, and the Trustee named in the
applicable Prospectus Supplement or a deposit trust agreement between the
Depositor and the Trustee (the "Deposit Trust Agreement," together with the
Pooling and Servicing Agreement, the "Agreement"). Forms of the Pooling and
Servicing Agreement and the Deposit Trust Agreement have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries describe all material terms of the Certificates and the
Pooling and Servicing Agreement or Deposit Trust Agreement that are not
described in the related Prospectus Supplement. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Pooling and Servicing Agreement or
Deposit Trust Agreement for the applicable Series and the related Prospectus
Supplement. Wherever defined terms of the Pooling and Servicing Agreement or
Deposit Trust Agreement are referred to, such defined terms are thereby
incorporated herein by reference.
GENERAL
If so specified in the related Prospectus Supplement, one or more Classes of
Certificates may be registered in the name of a depositary or a nominee for a
depositary. Each Certificate offered hereby and by means of the related
Prospectus Supplement and not so registered will be issued in fully registered
form and will represent the undivided interest or beneficial interest
attributable to such Class or Subclass in the Trust Fund. The Trust Fund with
respect to a Series will consist of: (i) such Mortgage Loans, Contracts, and
Mortgage Certificates and distributions thereon as from time to time are
subject to the applicable Agreement; (ii) such assets as from time to time are
identified as deposited in the Certificate Account referred to below; (iii)
property acquired by foreclosure of Mortgage Loans or deed in lieu of
foreclosure, or Manufactured Homes acquired by repossession; (iv) the Letter
of Credit, if any, with respect to such Series; (v) the Pool Insurance Policy,
if any, with respect to such Series (described below under "Description of
Insurance"); (vi) the Special Hazard Insurance Policy, if any, with respect to
such Series (described below under "Description of Insurance"); (vii) the
Mortgagor Bankruptcy Bond and proceeds thereof, if any, with respect to such
Series (as described below under "Description of Insurance"); (viii) the
Performance Bond and proceeds thereof, if any, with respect to such Series;
(ix) the Primary Mortgage Insurance Policies, if any, with respect to such
Series (as described below under "Description of Insurance"); (x) the
Depositor's rights under the Warranty and Servicing Agreement with
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respect to the Mortgage Loans or Contracts, if any, with respect to such
Series; and (xi) the GPM and Buy-Down Funds, if any, with respect to such
Series; or, in lieu of some or all of the foregoing, such Alternative Credit
Support as shall be described in the applicable Prospectus Supplement. Upon
the original issuance of a Series of Certificates, Certificates representing
the minimum undivided interest or beneficial ownership interest in the related
Trust Fund or the minimum notional amount allocable to each Class will
evidence the undivided interest, beneficial ownership interest or percentage
ownership interest specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more Servicers
or the Depositor may directly perform some or all of the duties of a Master
Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect to
which the Depositor has elected to treat the Trust Fund as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by Multi-
Class Certificates and Residual Certificates. Distributions of principal and
interest with respect to Multi-Class Certificates may be made on a sequential
or concurrent basis, as specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, one or more of such Classes or
Subclasses may be Compound Interest Certificates.
The Residual Certificates, if any, included in a Series will be designated
by the Depositor as the "residual interest" in the related REMIC for purposes
of Section 860G(a)(2) of the Code, and will represent the right to receive
distributions as specified in the Prospectus Supplement for such Series. All
other Classes of Certificates of such Series will constitute "regular
interests" in the related REMIC, as defined in the Code. If so specified in
the related Prospectus Supplement, such Residual Certificates may be offered
hereby and by means of such Prospectus Supplement. See "Federal Income Tax
Consequences."
If so specified in the Prospectus Supplement for a Series which includes
Multi-Class Certificates, each Trust Asset in the related Trust Fund will be
assigned an initial "Asset Value." If so specified in the related Prospectus
Supplement, the Asset Value of each Trust Asset in the related Trust Fund will
be the Stated Principal Balance of each Class or Classes of Certificates of
such Series that, based upon certain assumptions, can be supported by
distributions on such Trust Assets allocable to such Class or Subclass,
together with reinvestment income thereon, to the extent specified in the
related Prospectus Supplement, and amounts available to be withdrawn from any
Buy-Down, GPM Fund or Reserve Fund for such Series. The method of determining
the Asset Value of the Trust Assets in the Trust Fund for such a Series that
includes Multi--Class Certificates will be specified in the related Prospectus
Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and
Subordinated Certificates, each representing the undivided interests in the
Trust Fund specified in such Prospectus Supplement. If so specified in the
related Prospectus Supplement, one or more Classes or Subclasses of
Subordinated Certificates of a Series may be subordinated to the right of the
holders of Certificates of one or more Classes or Subclasses within such
Series to receive distributions with respect to the Mortgage Loans or
Contracts in the related Trust Fund, in the manner and to the extent specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Subordinated Certificates of a Series will evidence the right
to receive distributions with respect to a specific pool of Mortgage Loans or
Contracts, which right will be subordinated to the right of the holders of the
Senior Certificates and may be subordinated to the right of the holders of one
or more other Classes of Subordinated Certificates of such Series to receive
distributions with respect to such specific pool of Mortgage Loans or
Contracts, as more fully set forth in such Prospectus Supplement. If so
specified in the related Prospectus Supplement, the holders of the Senior
Certificates may have the right to receive a greater than pro rata percentage
of Principal Prepayments in the manner and under the circumstances described
in the Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor may sell
certain Classes or Subclasses of the Certificates of a Series, including one
or more Classes or Subclasses of Subordinated or Residual Certificates, in
privately negotiated transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). Such Certificates
will be transferable only pursuant to an effective registration statement or
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an applicable exemption under the Securities Act and pursuant to any
applicable state law. Alternatively, if so specified in the related Prospectus
Supplement, the Depositor may offer one or more Classes or Subclasses of the
Subordinated or Residual Certificates of a Series by means of this Prospectus
and such Prospectus Supplement.
The Certificates of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the related
Prospectus Supplement. No service charge will be made for any transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge in connection with
such transfer or exchange.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal and interest on the Certificates of a Series will
be made by the Master Servicer or Trustee, if so specified in the Prospectus
Supplement, on each Distribution Date to persons in whose name the
Certificates are registered at the close of business on the day specified in
such Prospectus Supplement (the "Record Date"). Such distributions of interest
will be made periodically at the intervals, in the manner and at the per annum
rate specified in the related Prospectus Supplement, which rate may be fixed
or variable. Interest on the Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months, unless otherwise specified in
the related Prospectus Supplement. Distributions of principal on the
Certificates will be made in the priority and manner and in the amounts
specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, distributions on a
Class or Subclass of Certificates of a Series may be based on the Percentage
Interest evidenced by a Certificate of such Class or Subclass in the
distributions (including any Advances thereof) of principal (the "Principal
Distribution") and interest (as reduced by the servicing fee) (the "Interest
Distribution") on or with respect to the Mortgage Loans, the Contracts or the
Mortgage Certificates in the related Trust Fund. Unless otherwise specified in
the related Prospectus Supplement, on each Distribution Date, the Trustee will
distribute to each holder of a Certificate of such Class or Subclass an amount
equal to the product of the Percentage Interest evidenced by such Certificate
and the interest of such Class or Subclass in the Principal Distribution and
the Interest Distribution. A Certificate of such a Class or Subclass may
represent a right to receive a percentage of both the Principal Distribution
and the Interest Distribution or a percentage of either the Principal
Distribution or the Interest Distribution, as specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of the
Senior Certificates may have the right to receive a percentage of Principal
Prepayments that is greater than the percentage of regularly scheduled payment
of principal such holder is entitled to receive. Such percentages may vary
from time to time, subject to the terms and conditions specified in the
Prospectus Supplement.
Distributions of interest on each such Class or Subclass of Multi-Class
Certificates will be made on the Distribution Dates, and at the Interest
Rates, specified in such Prospectus Supplement. Distributions of interest on
each Class or Subclass of Compound Interest Certificates of such Series will
be made only after the occurrence of certain events specified in the related
Prospectus Supplement. Prior to such time, interest on such Class or Subclass
of Compound Interest Certificates will be added to the Stated Principal
Balance thereof on each Distribution Date for such Series.
Distributions in reduction of the Stated Principal Balance of Multi-Class
Certificates will be made on each Distribution Date for such Series to the
holders of the Certificates of the Class or Subclass then entitled to receive
such distributions until the aggregate amount of such distributions have
reduced the Stated Principal Balance of such Certificates to zero. Allocation
of distributions in reduction of Stated Principal Balance will be made to each
Class or Subclass of such Certificates in the order specified in the related
Prospectus Supplement, which, if so specified in such Prospectus Supplement,
may be concurrently. Distributions in reduction of the Stated
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Principal Balance of each Certificate of a Class or Subclass then entitled to
receive such distributions will be made pro rata among the Certificates of
such Class or Subclass.
The maximum amount which will be distributed in reduction of Stated
Principal Balance to holders of Multi-Class Certificates of a Class or
Subclass then entitled thereto on any Distribution Date will equal, to the
extent funds are available in the Certificate Account, the sum of (i) the
amount of the interest, if any, that has accrued but is not yet payable on the
Compound Interest Certificates of such Series since the prior Distribution
Date (or since the date specified in the related Prospectus Supplement in the
case of the first Distribution Date) (the "Accrual Distribution Amount"); (ii)
the Stated Principal Distribution Amount; and (iii) to the extent specified in
the related Prospectus Supplement, the applicable percentage of the Excess
Cash Flow specified in such Prospectus Supplement.
If so specified in the Prospectus Supplement relating to a Series of
Certificates that includes Multi-Class Certificates, the "Stated Principal
Distribution Amount" with respect to a Distribution Date will equal the sum of
the Accrual Distribution Amount, if any, and the amount, if any, by which the
then outstanding Stated Principal Balance of the Multi-Class Certificates of
such Series (before taking into account the amount of interest accrued on any
Class of Compound Interest Certificates of such Series to be added to the
Stated Principal Balance thereof on such Distribution Date) exceeds the Asset
Value of the Trust Assets in the Trust Fund underlying such Series as of the
end of a period (a "Due Period") specified in the related Prospectus
Supplement. For purposes of determining the Stated Principal Distribution
Amount with respect to a Distribution Date, the Asset Value of the Trust
Assets will be reduced to take into account the interest evidenced by such
Classes or Subclasses of Certificates in the principal distributions on or
with respect of such Trust Assets received by the Trustee during the preceding
Due Period.
If so specified in the Prospectus Supplement relating to a Series of
Certificates that includes Multi-Class Certificates, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Certificates in the distributions received on the Mortgage Loans or Contracts
underlying such Series in the Due Period preceding a Distribution Date for
such Series (and, in the case of the first Due Period, the amount deposited in
the Certificate Account on the closing day for the sale of such Certificates),
together with income from the reinvestment thereof, and, to the extent
specified in such Prospectus Supplement, the amount of cash withdrawn from any
Reserve, GPM or Buy-Down Fund for such Series in the Due Period preceding such
Distribution Date, over (ii) the sum of all interest accrued, whether or not
then distributable, on the Multi-Class Certificates since the preceding
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date), the Stated Principal
Distribution Amount for the then current Distribution Date and, if applicable,
any payments made on any Certificates of such Class or Subclass pursuant to
any special distributions in reduction of Stated Principal Balance during such
Due Period.
The Stated Principal Balance of a Multi-Class Certificate of a Series at any
time represents the maximum specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder thereof is entitled from the
cash flow on the Trust Assets in the Trust Fund for such Series, and will
decline to the extent distributions in reduction of Stated Principal Balance
are received by such holder. The Initial Stated Principal Balance of each
Class or Subclass within a Series that has been assigned a Stated Principal
Balance will be specified in the related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Certificates) will be made by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register, except that, with
respect to any holder of a Certificate meeting the requirements specified in
the applicable Prospectus Supplement, distributions shall be made by wire
transfer in immediately available funds, provided that the Trustee shall have
been furnished with appropriate wiring instructions not less than two Business
Days prior to the related Distribution Date. The final distribution in
retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency designated by the Trustee or the
Master Servicer for such purpose, as specified in the final distribution
notice to Certificateholders.
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ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Certificates that
includes Mortgage Certificates in the related Trust Fund, the Depositor will
cause such Mortgage Certificates to be transferred to the Trustee together
with all principal and interest distributed on such Mortgage Certificates
after the Cut-off Date. Each Mortgage Certificate included in a Trust Fund
will be identified in a schedule appearing as an exhibit to the applicable
Agreement. Such schedule will include information as to the principal balance
of each Mortgage Certificate as of the date of issuance of the Certificates
and its coupon rate, maturity and original principal balance. In addition,
such steps will be taken by the Depositor as are necessary to cause the
Trustee to become the registered owner of each Mortgage Certificate which is
included in a Trust Fund and to provide for all distributions on each such
Mortgage Certificate to be made directly to the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Agreement as to, among other things, its
ownership of the Mortgage Certificates. In the event that these
representations and warranties are breached, and such breach or breaches
adversely affect the interests of the Certificateholders in the Mortgage
Certificates, the Depositor will be required to repurchase the affected
Mortgage Certificates at a price equal to the principal balance thereof as of
the date of purchase together with accrued and unpaid interest thereon at the
related pass-through rate to the distribution date for such Mortgage
Certificates. The Mortgage Certificates with respect to a Series may also be
subject to repurchase, in whole but not in part, under the circumstances and
in the manner described in the related Prospectus Supplement. Any amounts
received in respect of such repurchases will be distributed to
Certificateholders on the immediately succeeding Distribution Date.
If so specified in the related Prospectus Supplement, within the specified
period following the date of issuance of a Series of Certificates, the
Depositor may, in lieu of the repurchase obligation set forth above, and in
certain other circumstances, deliver to the Trustee Mortgage Certificates
("Substitute Mortgage Certificates") in substitution for any one or more of
the Mortgage Certificates ("Deleted Mortgage Certificates") initially included
in the Trust Fund. The required characteristics or any such Substitute
Mortgage Certificates and any additional restrictions relating to the
substitution of Mortgage Certificates will be set forth in the related
Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
The Depositor will cause the Mortgage Loans constituting a Mortgage Pool to
be assigned to the Trustee, together with all principal and interest received
on or with respect to such Mortgage Loans after the Cut-off Date, but not
including principal and interest due on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, deliver the Certificates to
the Depositor in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule will include information as to the adjusted
principal balance of each Mortgage Loan as of the Cut-off Date, as well as
information respecting the Mortgage Rate, the currently scheduled monthly (or
other periodic) payment of principal and interest, the maturity of the
Mortgage Note and the Loan-to-Value Ratio at origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its
certificate that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. Assignments of
the Mortgage Loans to the Trustee will be recorded in the appropriate public
office for real property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect
the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Depositor or the
Originator of such Mortgage Loan. In addition, with respect to any Commercial
Mortgage Loans, Multifamily
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Mortgage Loans and Mixed-Use Mortgage Loans, the Depositor will deliver or
cause to be delivered to the Trustee (or the custodian hereinafter referred
to) the assignment of leases, rents and profits (if separate from the
Mortgage) and an executed re-assignment of assignment of leases, rents and
profits.
The Depositor will cause to be delivered to the Trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock powers. The Master Servicer will file in the
appropriate office a financing statement evidencing the Trustee's security
interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will, within a
specified number of days after receipt thereof, review and hold such documents
in trust for the benefit of the Certificateholders. If so specified in the
applicable Prospectus Supplement, if the Master Servicer or another entity
specified in the related Prospectus Supplement cannot cure any material defect
within the time period specified in such Prospectus Supplement, the Master
Servicer or such other entity will be obligated to either substitute the
affected Mortgage Loan for a Substitute Mortgage Loan or Loans, or to
repurchase the related Mortgage Loan from the Trustee within the time period
specified in such Prospectus Supplement at a price equal to the principal
balance thereof as of the date of purchase or, in the case of a Series as to
which an election has been made to treat the related Trust Fund as a REMIC, at
such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case
together with accrued interest at the applicable Pass-Through Rate to the
first day of the month following such repurchase, plus the amount of any
unreimbursed Advances made by the Master Servicer in respect of such Mortgage
Loan. The Master Servicer is obligated to enforce the repurchase obligation of
the Servicer, to the extent described above under "The Trust Fund--Mortgage
Loan Program--Representations by Unaffiliated Sellers; Repurchases." This
purchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a constituent
document. If so specified in the related Prospectus Supplement, Mortgage Loans
or Contracts will not be required to be repurchased or substituted for upon
the discovery of certain defects in a constituent document.
If so specified in the applicable Prospectus Supplement, with respect to the
Mortgage Loans in a Mortgage Pool, the Depositor will make representations and
warranties as to the types and geographical distribution of such Mortgage
Loans and as to the accuracy in all material respects of certain information
furnished to the Trustee in respect of each such Mortgage Loan. In addition,
if so specified in the related Prospectus Supplement, the Depositor will
represent and warrant that, as of the Cut-off Date for the related Series of
Certificates, no Mortgage Loan is more than 30 days delinquent as to payment
of principal and interest. Upon a breach of any representation or warranty by
the Depositor that materially and adversely affects the interest of the
Certificateholders, the Depositor will be obligated either to cure the breach
in all material respects or to purchase the Mortgage Loan at the purchase
price set forth above. Unless otherwise specified in the applicable Prospectus
Supplement and subject to the ability of the Depositor, if so specified in the
applicable Prospectus Supplement, to substitute for certain Mortgage Loans as
described below, this repurchase obligation constitutes the sole remedy
available to the Certificateholders or the Trustee for a breach of
representation or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement, following
the date of issuance of a Series of Certificates, the Depositor, the Master
Servicer, the Unaffiliated Seller or the related Servicer, as the case may be,
may deliver to the Trustee Mortgage Loans ("Substitute Mortgage Loans") in
substitution for any one or more of the Mortgage Loans ("Deleted Mortgage
Loans") initially included in the Trust Fund but which do not conform in one
or more respects to the description thereof contained in the related
Prospectus Supplement, or as to which a breach of a representation or warranty
is discovered, which breach materially and adversely affects the interests of
the Certificateholders. The required characteristics of any such Substitute
Mortgage Loan and any additional restrictions relating to the substitution of
Mortgage Loans will generally be as described under "The Trust Fund--The
Contract Pools" with respect to the substitution of Contracts.
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In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under the
Pooling and Servicing Agreement relating to a Series of Certificates, the
Master Servicer may make certain representations and warranties to the Trustee
in such Pooling and Servicing Agreement with respect to the enforceability of
coverage under any applicable Primary Insurance Policy, Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Bond. See "Description
of Insurance" for information regarding the extent of coverage under certain
of the aforementioned insurance policies. If so specified in the applicable
Prospectus Supplement, upon a breach of any such representation or warranty
that materially and adversely affects the interests of the Certificateholders
of such Series in a Mortgage Loan, the Master Servicer will be obligated
either to cure the breach in all material respects or to purchase such
Mortgage Loan at the price calculated as set forth above.
To the extent described in the related Prospectus Supplement, the Master
Servicer will procure a surety bond, corporate guaranty or another similar
form of insurance coverage acceptable to the Rating Agency rating the related
Series of Certificates to support, among other things, this purchase
obligation. Unless otherwise stated in the applicable Prospectus Supplement,
the aforementioned purchase obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for a breach of the Master Servicer's
insurability representation. The Master Servicer's obligation to purchase
Mortgage Loans upon such a breach is subject to limitations.
The Trustee will be authorized, with the consent of the Depositor and the
Master Servicer, to appoint a custodian pursuant to a custodial agreement to
maintain possession of documents relating to the Mortgage Loans as the agent
of the Trustee.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Servicers, or the Special Servicer (if applicable),
will service and administer the Mortgage Loans assigned to the Trustee as more
fully set forth below. The Special Servicer may also be a party to the Pooling
and Servicing Agreement with respect to a Series of Certificates, in which
case the related Prospectus Supplement shall set forth the duties and
responsibilities of the Special Servicer thereunder.
ASSIGNMENT OF CONTRACTS
The Depositor will cause the Contracts constituting the Contract Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts after the Cut-off Date, but not including principal
and interest due on or before the Cut-off Date. If the Depositor is unable to
obtain a perfected security interest in a Contract prior to transfer and
assignment to the Trustee, the Unaffiliated Seller will be obligated to
repurchase such Contract. The Trustee, concurrently with such assignment, will
authenticate and deliver the Certificates. Each Contract will be identified in
a schedule appearing as an exhibit to the Agreement (the "Contract Schedule").
The Contract Schedule will specify, with respect to each Contract, among other
things: the original principal amount and the adjusted principal balance as of
the close of business on the Cut-off Date; the APR; the current scheduled
monthly level payment of principal and interest; and the maturity of the
Contract.
In addition, the Depositor, as to each Contract, will deliver or cause to be
delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the
right, title and interest of the Certificateholders to the Contracts, the
Depositor will cause a UCC-1 financing statement to be executed by the
Depositor identifying the Trustee as the secured party and identifying all
Contracts as collateral. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will not be stamped or otherwise marked to reflect
their assignment from the Depositor to the Trust Fund. Therefore, if a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the interest of the Certificateholders in
the Contracts could be defeated. See "Certain Legal Aspects of Mortgage Loans
and Contracts--The Contracts."
The Trustee (or the Custodian) will review and hold such documents in trust
for the benefit of the Certificateholders. If any such document is found to be
defective in any material respect, the Unaffiliated Seller
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must cure such defect within 60 days, or within such other period specified in
the related Prospectus Supplement the Unaffiliated Seller, not later than 90
days or within such other period specified in the related Prospectus
Supplement, after the Trustee's notice to the Unaffiliated Seller of the
defect. If the defect is not cured, the Unaffiliated Seller will repurchase
the related Contract or any property acquired in respect thereof from the
Trustee at a price equal to the remaining unpaid principal balance of such
Contract (or, in the case of a repossessed Manufactured Home, the unpaid
principal balance of such Contract immediately prior to the repossession) or,
in the case of a Series as to which an election has been made to treat the
related Trust Fund as a REMIC, at such other price as may be necessary to
avoid a tax on a prohibited transaction, as described in Section 860F(a) of
the Code, in each case together with accrued but unpaid interest to the first
day of the month following repurchase, plus any unreimbursed Advances
respecting such Contract. The repurchase obligation constitutes the sole
remedy available to the Certificateholders or the Trustee for a material
defect in a Contract document.
If so specified in the related Prospectus Supplement, each Unaffiliated
Seller of Contracts will have represented, among other things, that (i)
immediately prior to the transfer and assignment of the Contracts, the
Unaffiliated Seller had good title to, and was the sole owner of each Contract
and there had been no other sale or assignment thereof, (ii) as of the date of
such transfer, the Contracts are subject to no offsets, defenses or
counterclaims, (iii) each Contract at the time it was made complied in all
material respects with applicable state and federal laws, including usury,
equal credit opportunity and disclosure laws, (iv) as of the date of such
transfer, each Contract is a valid first lien on the related Manufactured Home
and such Manufactured Home is free of material damage and is in good repair,
(v) as of the date of such transfer, no Contract is more than 30 days
delinquent in payment and there are no delinquent tax or assessment liens
against the related Manufactured Home and (vi) with respect to each Contract,
the Manufactured Home securing the Contract is covered by a Standard Hazard
Insurance Policy in the amount required in the Pooling and Servicing Agreement
and that all premiums now due on such insurance have been paid in full.
All of the representations and warranties of a seller in respect of a
Contract will have been made as of the date on which such seller sold the
Contract to the Depositor or its affiliate; the date such representations and
warranties were made may be a date prior to the date of initial issuance of
the related series of Certificates. A substantial period of time may have
elapsed between the date as of which the representations and warranties were
made and the later date of initial issuance of the related Series of
Certificates. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by a seller, the seller's repurchase obligation described below will not
arise if, during the period commencing on the date of sale of a Contract by
the seller to the Depositor or its affiliate, the relevant event occurs that
would have given rise to such an obligation had the event occurred prior to
sale of the affected Contract. Nothing, however, has come to the Depositor's
attention that would cause it to believe that the representations and
warranties referred to in the preceding paragraph will not be accurate and
complete in all material respects in respect of Contracts as of the date of
initial issuance of the related series of Certificates.
The only representations and warranties to be made for the benefit of
Certificateholders in respect of any Contract relating to the period
commencing on the date of sale of such Contract to the Depositor or its
affiliate will be certain limited representations of the Depositor and of the
Master Servicer described above under "The Trust Fund--The Contract Pools."
If an Unaffiliated Seller cannot cure a breach of any representation or
warranty made by it in respect of a Contract that materially and adversely
affects the interest of the Certificateholders in such Contract within 90 days
(or such other period specified in the related Prospectus Supplement) after
notice from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to the principal balance thereof as
of the date of the repurchase or, in the case of a Series as to which an
election has been made to treat the related Trust Fund as a REMIC, at such
other price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
and unpaid interest to the first day of the month following repurchase, plus
the amount of any unreimbursed Advances in respect of such Contract (the
"Purchase Price"). The Master Servicer will be required under the applicable
Pooling and
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Servicing Agreement to enforce this obligation for the benefit of the Trustee
and the Certificateholders, following the practices it would employ in its
good faith business judgment were it the owner of such Contract. This
repurchase obligation will constitute the sole remedy available to
Certificateholders or the Trustee for a breach of representation by an
Unaffiliated Seller.
Neither the Depositor nor the Master Servicer will be obligated to purchase
a Contract if an Unaffiliated Seller defaults on its obligation to do so, and
no assurance can be given that sellers will carry out their respective
repurchase obligations with respect to Contracts. However, to the extent that
a breach of the representations and warranties of an Unaffiliated Seller may
also constitute a breach of a representation made by the Depositor or the
Master Servicer, the Depositor or the Master Servicer may have a purchase
obligation as described above under "The Trust Fund--The Contract Pools."
SERVICING BY UNAFFILIATED SELLERS
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following description does not purport to be
complete and is qualified in its entirety by reference to the form of
Servicing Agreement and by the discretion of the Master Servicer or Depositor
to modify the Servicing Agreement and to enter into different Servicing
Agreements. The Pooling and Servicing Agreement provides that, if for any
reason the Master Servicer for such Series of Certificates is no longer the
Master Servicer of the related Mortgage Loans or Contracts, the Trustee or any
successor master servicer must recognize the Servicer's rights and obligations
under such Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party servicers,
but continue to act as Servicer under the related Servicing Agreement. The
Servicer will be required to perform the customary functions of a servicer,
including collection of payments from Mortgagors and Obligors and remittance
of such collections to the Master Servicer, maintenance of primary mortgage,
hazard insurance, FHA insurance and VA guarantees and filing and settlement of
claims thereunder, subject in certain cases to (a) the right of the Master
Servicer to approve in advance any such settlement; (b) maintenance of escrow
accounts of Mortgagors and Obligors for payment of taxes, insurance, and other
items required to be paid by the Mortgagor pursuant to terms of the related
Mortgage Loan or the Obligor pursuant to the related Contract; (c) processing
of assumptions or substitutions; (d) attempting to cure delinquencies; (e)
supervising foreclosures or repossessions; (f) inspection and management of
Mortgaged Properties, Cooperative Dwellings or Manufactured Homes under
certain circumstances; and (g) maintaining accounting records relating to the
Mortgage Loans and Contracts. A Servicer will also be obligated to make
Advances in respect of delinquent installments of principal and interest on
Mortgage Loans and Contracts (as described more fully below under "--Payments
on Mortgage Loans" and "--Payments on Contracts"), and in respect of certain
taxes and insurance premiums not paid on a timely basis by Mortgagors and
Obligors.
As compensation for its servicing duties, a Servicer will be entitled to
amounts from payments with respect to the Mortgage Loans and Contracts
serviced by it. The Servicer will also be entitled to collect and retain, as
part of its servicing compensation, certain fees and late charges provided in
the Mortgage Note or related instruments. The Servicer will be reimbursed by
the Master Servicer for certain expenditures that it makes, generally to the
same extent that the Master Servicer would be reimbursed under the applicable
Pooling and Servicing Agreement.
Each Servicer will be required to agree to indemnify the Master Servicer for
any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Servicer in its servicing capacity.
Each Servicer will be required to service each Mortgage Loan or Contract
pursuant to the terms of the Servicing Agreement for the entire term of such
Mortgage Loan or Contract, unless the Servicing Agreement is
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earlier terminated by the Master Servicer or unless servicing is released to
the Master Servicer. If so specified in the Prospectus Supplement, the Master
Servicer may terminate a Servicing Agreement upon 30 days' written notice to
the Servicer, without cause, upon payment of an amount equal to the fair
market value of the right to service the Mortgage Loans or Contracts serviced
by any such Servicer under such Servicing Agreement, or if such fair market
value cannot be determined, a specified percentage of the aggregate
outstanding principal balance of all such Mortgage Loans or Contracts, or
immediately upon the giving of notice upon certain stated events, including
the violation of such Servicing Agreement by the Servicer.
The Master Servicer may agree with a Servicer to amend a Servicing
Agreement. The Master Servicer may also, at any time and from time to time,
release servicing to third-party servicers, but continue to act as Master
Servicer under the related Pooling and Servicing Agreement. Upon termination
of a Servicing Agreement, the Master Servicer may act as servicer of the
related Mortgage Loans or Contracts or enter into one or more new Servicing
Agreements. If the Master Servicer acts as servicer, it will not assume
liability for the representations and warranties of the Servicer that it
replaces. If the Master Servicer enters into a new Servicing Agreement, each
new Servicer must be an Unaffiliated Seller or meet the standards for becoming
an Unaffiliated Seller or have such servicing experience that is otherwise
satisfactory to the Master Servicer. The Master Servicer will make reasonable
efforts to have the new Servicer assume liability for the representations and
warranties of the terminated Servicer, but no assurance can be given that such
an assumption will occur. In the event of such an assumption, the Master
Servicer may, in the exercise of its business judgment, release the terminated
Servicer from liability in respect of such representations and warranties. Any
amendments to a Servicing Agreement or new Servicing Agreements may contain
provisions different from those described above that are in effect in the
original Servicing Agreements. However, the Pooling and Servicing Agreement
with respect to a Series will provide that any such amendment or new agreement
may not be inconsistent with or violate such Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will establish and maintain a separate account or
accounts in the name of the Trustee (the "Certificate Account"), which must be
maintained with a depository institution and in a manner acceptable to the
Rating Agency rating the Certificates of a Series.
If so specified in the applicable Prospectus Supplement, the Master
Servicer, in lieu of establishing a Certificate Account, may establish a
separate account or accounts in the name of the Trustee (the "Custodial
Account") meeting the requirements set forth herein for the Certificate
Account. In such a case, amounts in such Custodial Account, after making the
required deposits and withdrawals specified below, shall be remitted to the
Certificate Account maintained by the Trustee for distribution to
Certificateholders in the manner set forth herein and in such Prospectus
Supplement.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with either the standards set forth
above or, subject to the conditions set forth in the Servicing Agreement, be
maintained with a depository, meeting the requirements of the Rating Agency
rating the Certificates of the related Series, and that is otherwise
acceptable to the Master Servicer. The Servicer will be required to deposit
into the Servicing Account on a daily basis all amounts enumerated in the
following paragraph in respect of the Mortgage Loans received by the Servicer,
less its servicing compensation. On the date specified in the Servicing
Agreement, the Servicer shall remit to the Master Servicer all funds held in
the Servicing Account with respect to each Mortgage Loan. The Servicer will
also be required to advance any monthly installment of principal and interest
that was not timely received, less its servicing fee, provided that such
requirement shall only apply to the extent such Servicer determines in good
faith any such advance will be recoverable out of Insurance Proceeds, proceeds
of the liquidation of the related Mortgage Loans or otherwise. Any payments or
other amounts collected by a Special Servicer with respect to any Specially
Serviced Mortgage Loans will be deposited by such Special Servicer as set
forth in the related Prospectus Supplement.
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The Certificate Account may be maintained with a depository institution that
is an affiliate of the Master Servicer. The Master Servicer will deposit in
the Certificate Account for each Series of Certificates on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date) in the
manner set forth in the related Prospectus Supplement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans, net of any portion of such payments
that represent unreimbursed or unrecoverable Advances made by the related
Servicer;
(ii) all payments on account of interest on the Mortgage Loans, net of
any portion thereof retained by the Servicer, if any, as its servicing fee;
(iii) all proceeds of (A) any Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guarantee, Mortgagor
Bankruptcy Bond or Pool Insurance Policy with respect to such Series of
Certificates and any title, hazard or other insurance policy covering any
of the Mortgage Loans included in the related Mortgage Pool (to the extent
such proceeds are not applied to the restoration of the related property or
released to the Mortgagor in accordance with customary servicing
procedures) (collectively, "Insurance Proceeds") or any Alternative Credit
Support established in lieu of any such insurance and described in the
applicable Prospectus Supplement; and (B) all other cash amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise, other than Insurance Proceeds, payments
under the Letter of Credit or proceeds of any Alternative Credit Support,
if any, with respect to such Series ("Liquidation Proceeds"), net of
expenses of liquidation, unpaid servicing compensation with respect to such
Mortgage Loans and unreimbursed or unrecoverable Advances made by the
Servicers of the related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with respect to
such Series;
(v) all amounts required to be deposited therein from the Reserve Fund,
if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer (as described
herein under "--Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be deposited in the Certificate Account, as described
below; and
(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund--Mortgage Loan Program--Representations by
Unaffiliated Sellers; Repurchases" or "--Assignment of Mortgage Loans"
above or repurchased by the Depositor as described under "--Termination"
below).
With respect to each Buy-Down Loan, if so specified in the related
Prospectus Supplement, the Master Servicer or the related Servicer will
deposit the Buy-Down Funds with respect thereto in a custodial account
complying with the requirements set forth above for the Certificate Account,
which may be an interest-bearing account. The amount of such required
deposits, together with investment earnings thereon at the rate specified in
the applicable Prospectus Supplement, will provide sufficient funds to support
the full monthly payments due on such Buy-Down Loan on a level debt service
basis. Neither the Master Servicer nor the Depositor will be obligated to add
to the Buy-Down Fund should investment earnings prove insufficient to maintain
the scheduled level of payments on the Buy-Down Loans. To the extent that any
such insufficiency is not recoverable from the Mortgagor under the terms of
the related Mortgage Note, distributions to Certificateholders will be
affected. With respect to each Buy-Down Loan, the Master Servicer will
withdraw from the Buy-Down Fund and deposit in the Certificate Account on or
before each Distribution Date the amount, if any, for each Buy-Down Loan that,
when added to the amount due on that date from the Mortgagor on such Buy-Down
Loan, equals the full monthly payment that would be due on the Buy-Down Loan
if it were not subject to the buy-down plan.
If the Mortgagor on a Buy-Down Loan prepays such loan in its entirety, or
defaults on such loan and the Mortgaged Property is sold in liquidation
thereof, during the period when the Mortgagor is not obligated, on
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account of the buy-down plan, to pay the full monthly payment otherwise due on
such loan, the related Servicer will withdraw from the Buy-Down Fund and
deposit in the Certificate Account the amounts remaining in the Buy-Down Fund
with respect to such Buy-Down Loan. In the event of a default with respect to
which a claim, including accrued interest supplemented by amounts in the Buy-
Down Fund with respect to the related Buy-Down Loan, has been made, the Master
Servicer or the related Servicer will pay an amount equal to the remaining
amounts in the Buy-Down Fund with respect to the related Buy-Down Loan, to the
extent the claim includes accrued interest supplemented by amounts in the Buy-
Down Fund, to the related Pool Insurer or the insurer under the related
Primary Insurance Policy (the "Primary Insurer") if the Mortgaged Property is
transferred to the Pool Insurer or the Primary Insurer, as the case may be,
which pays 100% of the related claim (including accrued interest and expenses)
in respect of such default, to the L/C Bank in consideration of such payment
under the related Letter of Credit, or to the guarantor or other person which
pays the same pursuant to Alternative Credit Support described in the
applicable Prospectus Supplement. In the case of any such prepaid or defaulted
Buy-Down Loan the amounts in the Buy-Down Fund in respect of which were
supplemented by investment earnings, the Master Servicer will withdraw from
the Buy-Down Fund and remit to the Depositor or the Mortgagor, depending on
the terms of the related buy-down plan, any investment earnings remaining in
the related Buy-Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund
the Buy-Down Fund for such Series, which shall be drawn upon by the Trustee in
the manner and at the times specified in such Prospectus Supplement.
PAYMENTS ON CONTRACTS
A Certificate Account meeting the requirements set forth under "Description
of the Certificates--Payments on Mortgage Loans" will be established in the
name of the Trustee.
There will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (including scheduled payments of principal and interest due after
the Cut-off Date but received by the Master Servicer on or before the Cut-off
Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts, net of
the servicing fee;
(iii) all Liquidation Proceeds received with respect to Contracts or
property acquired in respect thereof by foreclosure or otherwise;
(iv) all Insurance Proceeds received with respect to any Contract, other
than proceeds to be applied to the restoration or repair of the
Manufactured Home or released to the Obligor;
(v) any Advances made as described under "--Advances" and certain other
amounts required under the Pooling and Servicing Agreement to be deposited
in the Certificate Account;
(vi) all amounts received from Credit Support provided with respect to a
Series of Certificates;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Master Servicer, the Depositor or otherwise as
described above or under "--Termination" below; and
(viii) all amounts, if any, required to be transferred to the Certificate
Account from the Reserve Fund.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Certificates will be registered in the name of the Trustee so that
all distributions thereon will be made directly to the Trustee. The Pooling
and Servicing Agreement will require the Trustee, if it has not received a
distribution with respect to any Mortgage Certificate by the second business
day after the date on which such distribution was due and
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payable pursuant to the terms of such Mortgage Certificate, to request the
issuer or guarantor, if any, of such Mortgage Certificate to make such payment
as promptly as possible and legally permitted and to take such legal action
against such issuer or guarantor as the Trustee deems appropriate under the
circumstances, including the prosecution of any claims in connection
therewith. The reasonable legal fees and expenses incurred by the Trustee in
connection with the prosecution of any such legal action will be reimbursable
to the Trustee out of the proceeds of any such action and will be retained by
the Trustee prior to the deposit of any remaining proceeds in the Certificate
Account pending distribution thereof to Certificateholders of the affected
Series. In the event that the Trustee has reason to believe that the proceeds
of any such legal action may be insufficient to reimburse it for its projected
legal fees and expenses, the Trustee will notify such Certificateholders that
it is not obligated to pursue any such available remedies unless adequate
indemnity for its legal fees and expenses is provided by such
Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable
Prospectus Supplement, will withdraw from the Custodial Account funds on
deposit therein and remit to the Trustee, who will distribute, such funds to
Certificateholders of record on the applicable Record Date. Such distributions
shall occur in the manner described herein under "Description of the
Certificates--Distributions of Principal and Interest" and in the related
Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Master Servicer will withdraw from the applicable Certificate
Account funds on deposit therein and distribute them to the Trustee. Such
funds shall consist of the aggregate of all previously undistributed payments
on account of principal (including principal prepayments, if any) and interest
received after the Cut-off Date and on or prior to the 20th day (or if such
day is not a business day, the next preceding business day) of the month of
such distribution or such other day as may be specified in the related
Prospectus Supplement (in either case the "Determination Date"), except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments received during the month of distribution
and all payments of interest representing interest for the month of
distribution or any portion thereof;
(iii) all payments which represent early receipt (other than prepayments)
of scheduled payments of principal and interest due on a date or dates
subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as late
payments of principal or interest and respecting which the Master Servicer
has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the
Master Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
(vi) that portion of each collection of interest on a particular Mortgage
Loan in such Mortgage Pool or on a particular Contract in such Contract
Pool that represents (A) servicing compensation to the Master Servicer and,
if applicable, the Special Servicer, (B) amounts payable to the entity or
entities specified in the applicable Prospectus Supplement or permitted
withdrawals from the Certificate Account out of payments under the Letter
of Credit, if any, with respect to the Series, (C) related Insurance
Proceeds or Liquidation Proceeds, (D) amounts in the Reserve Fund, if any,
with respect to the Series or (E) proceeds of any Alternative Credit
Support, each deposited in the Certificate Account to the extent described
under "Description of the Certificates--Maintenance of Insurance Policies,"
"--Presentation of Claims," "--Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage Loans" and "--Enforcement of Due-on-
Sale Clauses; Realization Upon Defaulted Contracts" or in the applicable
Prospectus Supplement.
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No later than the Business Day immediately preceding the Distribution Date
for a Series of Certificates, or such other date as may be specified in the
related Prospectus Supplement, the Master Servicer will furnish a statement to
the Trustee setting forth the amount to be distributed on the next succeeding
Distribution Date on account of principal and interest on the Mortgage Loans
or Contracts, stated separately or the information enabling the Trustee to
determine the amount of distribution to be made on the Certificates and a
statement setting forth certain information with respect to the Mortgage Loans
or Contracts.
If so specified in the applicable Prospectus Supplement, the Trustee will
establish and maintain the Certificate Account for the benefit of the holders
of the Certificates of the related Series in which the Trustee shall deposit,
as soon as practicable after receipt, each distribution made to the Trustee by
the Master Servicer, as set forth above, with respect to the Mortgage Loans or
Contracts, any distribution received by the Trustee with respect to the
Mortgage Certificates, if any, included in the Trust Fund and deposits from
any Reserve Fund or GPM Fund. If so specified in the applicable Prospectus
Supplement, prior to making any distributions to Certificateholders, any
portion of the distribution on the Mortgage Certificates that represents
servicing compensation, if any, payable to the Trustee shall be deducted and
paid to the Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. All income and gain realized from any such investment
will be for the benefit of the Master Servicer, or such other entity as may be
specified in the applicable Prospectus Supplement. The Master Servicer will be
required to deposit the amount of any losses incurred with respect to such
investments out of its own funds, when realized. The Certificate Account
established pursuant to the Deposit Trust Agreement shall be a non-interest
bearing account or accounts.
The timing and method of distribution of funds in the Certificate Account to
Classes or Subclasses of Certificates having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a Series of
Certificates, one or more Classes of Multi-Class Certificates that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of Stated Principal Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date occurs, if, as a result of
principal prepayments on the Trust Assets in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related Pooling and Servicing Agreement, that the amount of cash
anticipated to be on deposit in the Certificate Account on the next
Distribution Date for such Series and available to be distributed to the
holders of the Certificates of such Classes or Subclasses may be less than the
sum of (i) the interest scheduled to be distributed to holders of the
Certificates of such Classes or Subclasses and (ii) the amount to be
distributed in reduction of Stated Principal Balance or such Certificates on
such Distribution Date. Any such Special Distributions will be made in the
same priority and manner as distributions in reduction of Stated Principal
Balance would be made on the next Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer or the Trustee will include with each distribution to
Certificateholders of record of such Series, or within a reasonable time
thereafter, a statement generally setting forth, among other things, the
following information, if applicable (per each Certificate, as to (i) through
(iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Certificate, other than a Multi-Class Certificate
or Residual Certificate, the amount of such distribution allocable to
principal of the Trust Assets, separately identifying the aggregate amount
of any Principal Prepayments included therein, and the portion, if any,
advanced by a Servicer or the Master Servicer;
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(ii) to each holder of a Certificate, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to interest on the related Trust Assets and the portion, if any,
advanced by a Servicer or the Master Servicer;
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or desirable
to enable Certificateholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of Stated Principal Balance
are then being made, the amount of such interest distribution and
distribution in reduction of Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution in
reduction of Stated Principal Balance made on such Distribution Date or on
any Special Distribution Date occurring subsequent to the last report;
(v) to each holder of a Multi-Class Certificate on which a distribution
of interest only is then being made, the aggregate Stated Principal Balance
of Certificates outstanding of each Class or Subclass after giving effect
to the distribution in reduction of Stated Principal Balance made on such
Distribution Date and on any Special Distribution Date occurring subsequent
to the last such report and after including in the aggregate Stated
Principal Balance the Stated Principal Balance of the Compound Interest
Certificates, if any, outstanding and the amount of any accrued interest
added to the Compound Value of such Compound Interest Certificates on such
Distribution Date;
(vi) to each holder of a Compound Interest Certificate (but only if such
holder shall not have received a distribution of interest on such
Distribution Date equal to the entire amount of interest accrued on such
Certificate with respect to such Distribution Date):
(a) the information contained in the report delivered pursuant to
clause (v) above;
(b) the interest accrued on such Class or Subclass of Compound
Interest Certificates with respect to such Distribution Date and added
to the Compound Value of such Compound Interest Certificate; and
(c) the Stated Principal Balance of such Class or Subclass of
Compound Interest Certificates after giving effect to the addition
thereto of all interest accrued thereon;
(vii) in the case of a series of Certificates with a variable Pass-
Through Rate, the weighted average Pass-Through Rate applicable to the
distribution in question;
(viii) the amount or the remaining obligations of an L/C Bank with
respect to a Letter of Credit, after giving effect to the declining amount
available and any payments thereunder and other amounts charged thereto on
the applicable Distribution Date, expressed as a percentage of the amount
reported pursuant to (x) below, and the amount of coverage remaining under
the Pool Insurance Policy, Special Hazard Insurance Policy, Mortgagor
Bankruptcy Bond, or Reserve Fund as applicable, in each case, as of the
applicable Determination Date, after giving effect to any amounts with
respect thereto distributed to Certificateholders on the Distribution Date;
(ix) in the case of a Series of Certificates benefiting from the
Alternative Credit Support described in the related Prospectus Supplement,
the amount of coverage under such Alternative Credit Support as of the
close of business on the applicable Determination Date, after giving effect
to any amounts with respect thereto distributed to Certificateholders on
the Distribution Date;
(x) the aggregate scheduled principal balance of the Trust Assets as of a
date not earlier than such Distribution Date after giving effect to
payments of principal distributed to Certificateholders on the Distribution
Date;
(xi) the book value of any collateral acquired by the Mortgage Pool or
Contract Pool through foreclosure, repossession or otherwise;
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(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two months delinquent; and
(xiii) the remaining balance, if any, in the Pre-Funding Account.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Certificateholder of record at any time during such calendar year a report as
to the aggregate of amounts reported pursuant to (i) through (iii) or (iv)
through (vi) above and such other information as in the judgment of the Master
Servicer or the Trustee, as the case may be, is needed for the
Certificateholder to prepare its tax return, as applicable, for such calendar
year or, in the event such person was a Certificateholder of record during a
portion of such calendar year, for the applicable portion of such year.
ADVANCES
If so specified in the related Prospectus Supplement, each Servicer and the
Master Servicer (with respect to Mortgage Loans or Contracts serviced by it
and with respect to Advances required to be made by the Servicers that were
not so made) will be obligated to advance funds in an amount equal to the
aggregate scheduled installments of payments of principal and interest (as
reduced by the servicing fee) that were due on the Due Date with respect to a
Mortgage Loan or Contract and that were delinquent (including any payments
that have been deferred by the Servicer or the Master Servicer) as of the
close of business on the date specified in the Pooling and Servicing
Agreement, to be remitted no later than the close of business on the business
day immediately preceding the Distribution Date, subject to their respective
determinations that such advances are reimbursable under any Letter of Credit,
Pool Insurance Policy, Primary Mortgage Insurance Policy, Mortgagor Bankruptcy
Bond, from the proceeds of Alternative Credit Support, from cash in the
Reserve Fund, the Servicing or Certificate Accounts or otherwise. In making
such advances, the Servicers and Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the
Certificateholders, rather than to guarantee or insure against losses. Any
such Advances are reimbursable to the Servicer or Master Servicer out of
related recoveries on the Mortgage Loans respecting which such amounts were
advanced. In addition, such Advances are reimbursable from cash in the Reserve
Fund, the Servicing or Certificate Accounts to the extent that the Servicer or
the Master Servicer, as the case may be, shall determine that any such
Advances previously made are not ultimately recoverable. The Servicers and the
Master Servicer generally will also be obligated to make advances in respect
of certain taxes, insurance premiums and, if applicable, Property Protection
Expenses not paid by Mortgagors or Obligors on a timely basis and, to the
extent deemed recoverable, foreclosure costs, including reasonable attorney's
fees. "Property Protection Expenses" comprise certain costs and expenses
incurred in connection with defaulted Mortgage Loans, acquiring title or
management of REO Property or the sale of defaulted Mortgage Loans or REO
Properties, as more fully described in the related Prospectus Supplement.
Funds so advanced are reimbursable out of recoveries on the related Mortgage
Loans. This right of reimbursement for any Advance will be prior to the rights
of the Certificateholders to receive any amounts recovered with respect to
such Mortgage Loans or Contracts. If so specified in the applicable Prospectus
Supplement, the Servicers and the Master Servicer will also be required to
advance an amount necessary to provide a full month's interest (adjusted to
the applicable Pass-Through Rate) in connection with full or partial
prepayments, liquidations, defaults and repurchases of the Mortgage Loans or
Contracts. Any such Advances will not be reimbursable to the Servicers or the
Master Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer will be responsible for servicing the Mortgage Loans
pursuant to the Agreement for the related Series. If so specified in the
related Prospectus Supplement, the Master Servicer may subcontract the
servicing of all or a portion of the Mortgage Loans to one or more Servicers
and may subcontract the servicing of certain Commercial Mortgage Loans,
Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans that are in default
or otherwise require special servicing (the "Specially Serviced Mortgage
Loans") to a special servicer (the "Special Servicer"), and certain
information with respect to the Special Servicer will be set forth
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in such Prospectus Supplement. Such Servicers and any Special Servicer may be
an affiliate of the Depositor and may have other business relationships with
Depositor and its affiliates.
The Master Servicer, directly or through the Servicers or a Special
Servicer, as the case may be, will make reasonable efforts to collect all
payments called for under the Mortgage Loans or Contracts and will, consistent
with the applicable Pooling and Servicing Agreement and any applicable Letter
of Credit, Pool Insurance Policy, Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, Mortgagor Bankruptcy Bond, or Alternative Credit
Support, follow such collection procedures as it follows with respect to
mortgage loans or contracts serviced by it that are comparable to the Mortgage
Loans or Contracts, except when, in the case of FHA or VA Loans, applicable
regulations require otherwise. Consistent with the above, the Master Servicer
may, in its discretion, waive any late payment charge or any prepayment charge
or penalty interest in connection with the prepayment of a Mortgage Loan or
Contract or extend the due dates for payments due on a Mortgage Note or
Contract for a period of not greater than 270 days, provided that the
insurance coverage for such Mortgage Loan or Contract or the coverage provided
by any Letter of Credit or any Alternative Credit Support, will not be
adversely affected.
Under the Pooling and Servicing Agreement, the Master Servicer, either
directly or through Servicers or a Special Servicer, to the extent permitted
by law, may establish and maintain an escrow account (the "Escrow Account") in
which Mortgages or Obligors will be required to deposit amounts sufficient to
pay taxes, assessments, mortgage and hazard insurance premiums and other
comparable items. This obligation may be satisfied by the provision of
insurance coverage against loss occasioned by the failure to escrow insurance
premiums rather than causing such escrows to be made. The Special Servicer, if
any, will be required to remit amounts received for such purposes on Mortgage
Loans serviced by it for deposit in the Escrow Account, and will be entitled
to direct the Master Servicer to make withdrawals from the Escrow Account as
may be required for servicing of such Mortgage Loans. Withdrawals from the
Escrow Account may be made to effect timely payment of taxes, assessments,
mortgage and hazard insurance, to refund to Mortgagors or Obligors amounts
determined to be overages, to pay interest to Mortgagors or Obligors on
balances in the Escrow Account, if required, and to clear and terminate such
account. The Master Servicer will be responsible for the administration of
each Escrow Account and will be obliged to make advances to such accounts when
a deficiency exists therein. Alternatively, in lieu of establishing an Escrow
Account, the Servicer may procure a performance bond or other form of
insurance coverage, in an amount acceptable to the Rating Agency rating the
related Series of Certificates, covering loss occasioned by the failure to
escrow such amounts.
MAINTENANCE OF INSURANCE POLICIES
To the extent that the applicable Prospectus Supplement does not expressly
provide for a method of credit support described below under "Credit Support"
or for Alternative Credit Support in lieu of some or all of the insurance
coverage set forth below, the following paragraphs on insurance shall apply.
STANDARD HAZARD INSURANCE
To the extent specified in a related Prospectus Supplement, the terms of
each Servicing Agreement will require the Servicer or the Special Servicer (if
applicable) to cause to be maintained for each Mortgage Loan or Contract that
it services (and the Master Servicer will be required to maintain for each
Mortgage Loan or Contract serviced by it directly) a policy of standard hazard
insurance (a "Standard Hazard Insurance Policy") covering the Mortgaged
Property underlying such Mortgage Loan or Manufactured Home underlying such
Contract in an amount at least equal to the maximum insurable value of the
improvements securing such Mortgage Loan or Contract or the principal balance
of such Mortgage Loan or Contract, whichever is less. Each Servicer, the
Special Servicer (if applicable) or the Master Servicer, as the case may be,
shall also maintain on property acquired upon foreclosure, or deed in lieu of
foreclosure, of any Mortgage Loan or Contract, a Standard Hazard Insurance
Policy in an amount that is at least equal to the maximum insurable value of
the improvements that are a part of the Mortgaged Property or Manufactured
Home. Any amounts collected by the Servicer, the Special Servicer (if
applicable) or the Master Servicer under any such policies (other than amounts
to be applied
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to the restoration or repair of the Mortgaged Property or Manufactured Home or
released to the borrower in accordance with normal servicing procedures) shall
be deposited in the related Servicing Account for deposit in the Certificate
Account or, in the case of the Master Servicer, shall be deposited directly
into the Certificate Account. Any cost incurred in maintaining any such
insurance shall not, for the purpose of calculating monthly distributions to
Certificateholders, be added to the amount owing under the Mortgage Loan or
Contract, notwithstanding that the terms of the Mortgage Loan or Contract may
so permit. Such cost shall be recoverable by the Servicer or the Special
Servicer (if applicable) only by withdrawal of funds from the Servicing
Account or by the Master Servicer only by withdrawal from the Certificate
Account, as described in the Pooling and Servicing Agreement. No earthquake or
other additional insurance is to be required of any borrower or maintained on
property acquired in respect of a Mortgage Loan or Contract, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. When the Mortgaged
Property or Manufactured Home is located at the time of origination of the
Mortgage Loan or Contract in a federally designated flood area, the related
Servicer or the Special Servicer (if applicable) (or the Master Servicer, in
the case of each Mortgage Loan or Contract serviced by it directly) will cause
flood insurance to be maintained, to the extent available, in those areas
where flood insurance is required under the National Flood Insurance Act of
1968, as amended.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
The Pooling and Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the
Servicer fails to do so. In the event that the Master Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the
related Mortgage Loans or Contracts, it will conclusively be deemed to have
satisfied its obligations to cause to be maintained a Standard Hazard
Insurance Policy for each Mortgage Loan or Contract that it services. This
blanket policy may contain a deductible clause, in which case the Master
Servicer will, in the event that there has been a loss that would have been
covered by such policy absent such deductible, deposit in the Certificate
Account the amount not otherwise payable under the blanket policy because of
the application of such deductible clause.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal balances
owing thereon decrease, and since properties have historically appreciated in
value over time, in the event of partial loss, hazard insurance proceeds may
be insufficient to fully restore the damaged Mortgaged Property or
Manufactured Home. See "Description of Insurance--Special Hazard Insurance
Policies" for a description of the limited protection afforded by a Special
Hazard Insurance Policy against losses occasioned by certain hazards that are
otherwise uninsured against as well as against losses caused by the
application of the coinsurance provisions contained in the Standard Hazard
Insurance Policies.
With respect to Mortgage Loans secured by Commercial Property, Mixed-Use
Property and Multi-Family Property, certain additional insurance policies may
be required, including, but not limited to, loss of rent endorsements,
business interruption insurance and comprehensive public liability insurance,
and the related Pooling and Servicing Agreement may require the Master
Servicer to maintain public liability insurance with respect to any related
REO Properties. Any cost incurred by the Master Servicer in maintaining any
such insurance policy will be added to the amount owing under the related
Mortgage Loan where the terms of such Mortgage Loan so permit; provided,
however, that the addition of such cost will not be taken into account for
purposes of calculating the distribution to be made to Certificateholders.
Such costs may be recovered by the Master Servicer from the Certificate
Account, with interest thereon, as provided by the Agreement.
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SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master Servicer
will be required to exercise its best reasonable efforts to maintain the
Special Hazard Insurance Policy, if any, with respect to a Series of
Certificates in full force and effect, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premium for the Special
Hazard Insurance Policy on a timely basis; provided, however, that the Master
Servicer shall be under no such obligation if coverage under the Pool
Insurance Policy with respect to such Series has been exhausted. In the event
that the Special Hazard Insurance Policy is cancelled or terminated for any
reason (other than the exhaustion of total policy coverage), the Master
Servicer will exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to the Special Hazard Insurance Policy
with a total coverage that is equal to the then existing coverage of the
Special Hazard Insurance Policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated Special Hazard
Insurance Policy, the amount of coverage under the replacement Special Hazard
Insurance Policy may be reduced to a level such that the applicable premium
will not exceed the cost of the Special Hazard Insurance Policy that was
replaced. Certain characteristics of the Special Hazard Insurance Policy are
described under "Description of Insurance--Special Hazard Insurance Policies."
POOL INSURANCE
To the extent specified in a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool
Insurance Policy with respect to a Series of Certificates in effect throughout
the term of the Pooling and Servicing Agreement, unless coverage thereunder
has been exhausted through payment of claims, and will pay the premiums for
such Pool Insurance Policy on a timely basis. In the event that the Pool
Insurer ceases to be a qualified insurer because it is not qualified to
transact a mortgage guaranty insurance business under the laws of the state of
its principal place of business or any other state which has jurisdiction over
the Pool Insurer in connection with the Pool Insurance Policy, or if the Pool
Insurance Policy is cancelled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will exercise its
best reasonable efforts to obtain a replacement policy of pool insurance
comparable to the Pool Insurance Policy and may obtain, under the
circumstances described above with respect to the Special Hazard Insurance
Policy, a replacement policy with reduced coverage. In the event the Pool
Insurer ceases to be a qualified insurer because it is not approved as an
insurer by FHLMC, FNMA or any successors thereto, the Master Servicer will
agree to review, not less often than monthly, the financial condition of the
Pool Insurer with a view towards determining whether recoveries under the Pool
Insurance Policy are jeopardized and, if so, will exercise its best reasonable
efforts to obtain from another qualified insurer a replacement insurance
policy under the above-stated limitations. Certain characteristics of the Pool
Insurance Policy are described under "Description of Insurance--Pool Insurance
Policies."
PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer
of a Mortgage Loan secured by Single Family Property will be required to keep
in full force and effect with respect to each such Mortgage Loan serviced by
it, in each case to the extent required by the underwriting standards of the
Depositor, a Primary Mortgage Insurance Policy issued by a qualified insurer
(the "Primary Mortgage Insurer") with regard to each Mortgage Loan for which
such coverage is required pursuant to the applicable Servicing Agreement and
the Pooling and Servicing Agreement and to act on behalf of the Trustee (the
"Insured") under each such Primary Mortgage Insurance Policy. Neither the
Servicer nor the Master Servicer will cancel or refuse to renew any such
Primary Mortgage Insurance Policy in effect at the date of the initial
issuance of a Series of Certificates that is required to be kept in force
under the Pooling and Servicing Agreement or applicable Servicing Agreement
unless the replacement Primary Mortgage Insurance Policy for such cancelled or
non-renewed policy is maintained with an insurer whose claims-paying ability
is acceptable to the Rating Agency rating the Certificates. See "Description
of Insurance--Primary Mortgage Insurance Policies."
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MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master Servicer
will exercise its best reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for a Series of Certificates in full force and effect throughout the term
of the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such
Mortgagor Bankruptcy Bond on a timely basis. At the request of the Depositor,
coverage under a Mortgagor Bankruptcy Bond will be cancelled or reduced by the
Master Servicer to the extent permitted by the Rating Agency rating the
related Series of Certificates, provided that such cancellation or reduction
does not adversely affect the then current rating of such Series. See
"Description of Insurance--Mortgagor Bankruptcy Bond."
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted
Mortgage Loans or Contracts or Mortgage Loans or Contracts that are the
subject of a bankruptcy proceeding. All collections by the Master Servicer
under any FHA insurance or VA guarantee, any Pool Insurance Policy, any
Primary Mortgage Insurance Policy or any Mortgagor Bankruptcy Bond and, where
the related property has not been restored, any Special Hazard Insurance
Policy, are to be deposited in the Certificate Account, subject to withdrawal
as heretofore described. In those cases in which a Mortgage Loan or Contract
is serviced by a Servicer, the Servicer, on behalf of itself, the Trustee and
the Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections
thereunder shall be deposited in the Servicing Account, subject to withdrawal,
as set forth above, for deposit in the Certificate Account.
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to
expend its own funds to restore the damaged property unless it determines,
and, in the case of a determination by a Servicer, the Master Servicer agrees,
(i) that such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan or Contract after reimbursement of the
expenses incurred by the Servicer or the Master Servicer, as the case may be,
and (ii) that such expenses will be recoverable through proceeds of the sale
of the Mortgaged Property or proceeds of any related Pool Insurance Policy,
any related Primary Mortgage Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and procedures as are deemed necessary or advisable to
realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the Mortgaged Property or Manufactured Home are less than the principal
balance of the defaulted Mortgage Loan or Contract, respectively, plus
interest accrued thereon at the Pass-Through Rate, and if coverage under any
other method of credit support with respect to such Series is exhausted, the
related Trust Fund will realize a loss in the amount of such difference plus
the aggregate of expenses incurred by the Servicer or the Master Servicer in
connection with such proceedings and which are reimbursable under the related
Servicing Agreement or the Pooling and Servicing Agreement. In the event that
any such proceedings result in a total recovery that is, after reimbursement
to the Servicer or the Master Servicer of its expenses, in excess of the
principal balance of the related Mortgage Loan or Contract, together with
accrued and unpaid interest thereon at the applicable Pass-Through Rates, the
Servicer and the Master Servicer will be entitled to withdraw amounts
representing normal servicing compensation on such Mortgage Loan or Contract
from the Servicing Account or the Certificate Account, as the case may be.
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ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION
UPON DEFAULTED MORTGAGE LOANS
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it
has knowledge of such conveyance, exercise its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto, if any, unless it reasonably believes that such enforcement is not
exercisable under applicable law or regulations, would result in loss of
insurance coverage with respect to such Mortgage Loan or would not be in the
best interest of the related Series of Certificateholders. In any such case,
where the due-on-sale clause will not be exercised, the Servicer or the Master
Servicer is authorized to take or enter into an assumption and modification
agreement from or with the person to whom such Mortgaged Property has been or
is about to be conveyed, pursuant to which such person becomes liable under
the Mortgage Note and, unless prohibited by applicable state law, the
Mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any Pool Insurance Policy and any related Primary
Mortgage Insurance Policy. In the case of an FHA Loan, such an assumption can
occur only with HUD approval of the substitute Mortgagor. Each Servicer and
the Master Servicer will also be authorized, with the prior approval of the
Insurer under any required insurance policies, to enter into a substitution of
liability agreement with such person, pursuant to which the original Mortgagor
is released from liability and such person is substituted as Mortgagor and
becomes liable under the Mortgage Note.
Under the Servicing Agreements and the Pooling and Servicing Agreement, the
Servicer or the Master Servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
related Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Servicer or the
Master Servicer will follow such practices and procedures as are deemed
necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities and in accordance with FNMA guidelines, except
when, in the case of FHA or VA Loans, applicable regulations require
otherwise. However, neither the Servicer nor the Master Servicer will be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it determines and, in the case of a
determination by a Servicer, the Master Servicer agrees (i) that such
restoration and/or foreclosure will increase the proceeds of liquidation of
the related Mortgage Loan to Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds, Insurance Proceeds, payments under the Letter of
Credit, or amounts in the Reserve Fund, if any, with respect to the related
Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts--The Mortgage
Loans--Foreclosure" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for
those shares and otherwise limit the Trust Fund's ability to sell and realize
the value of those shares.
The market value of any Commercial Property, Multifamily Property or Mixed-
Use Property obtained in foreclosure or by deed in lieu of foreclosure will be
based substantially on the operating income obtained from renting the
commercial or dwelling units. Since a default on a Mortgage Loan secured by
Commercial Property, Multifamily Property or Mixed-Use Property is likely to
have occurred because operating income, net of expenses, is insufficient to
make debt service payments on the related Mortgage Loan, it can be anticipated
that the market value of such property will be less than was anticipated when
such Mortgage Loan was originated. To the extent that the equity in the
property does not absorb the loss in market value and such loss is not covered
by other credit support, a loss may be experienced by the related Trust Fund.
With respect to Multifamily
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Property consisting of an apartment building owned by a Cooperative, the
Cooperative's ability to meet debt service obligations on the Mortgage Loan,
as well as all other operating expenses, will be dependent in large part on
the receipt of maintenance payments from the tenant-stockholders, as well as
any rental income from units or commercial areas the Cooperative might
control. Unanticipated expenditures may in some cases have to be paid by
special assessments of the tenant-stockholders. The Cooperative's ability to
pay the principal amount of the Mortgage Loan at maturity may depend on its
ability to refinance the Mortgage Loan. The Depositor, the Unaffiliated Seller
and the Master Servicer will have no obligation to provide refinancing for any
such Mortgage Loan. The Master Servicer or Servicer will treat a defaulted
Mortgage Loan as having been finally liquidated after all liquidation
proceeds, insurance proceeds and other amounts that the Master Servicer or
Servicer expects to receive in connection with the liquidation have been
received. Any shortfall between the unpaid principal balance and accrued
interest on the Mortgage Loan, after application of all liquidation proceeds,
insurance proceeds and other amounts received in connection with the
liquidation, net of reimbursable costs and expenses, including Advances (a
"Realized Loss"), will be allocated to the Certificates in the manner set
forth in the related Prospectus Supplement. Unless otherwise specified in the
Prospectus Supplement, amounts received after a Realized Loss has been
allocated to the Certificates will not be distributed to the
Certificateholders.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES;
REALIZATION UPON DEFAULTED CONTRACTS
Each Servicing Agreement and Pooling and Servicing Agreement with respect to
Certificates representing interests in a Contract Pool will provide that, when
any Manufactured Home securing a Contract is about to be conveyed by the
Obligor, the Master Servicer, to the extent it has knowledge of such
prospective conveyance and prior to the time of the consummation of such
conveyance, may exercise its rights to accelerate the maturity of such
Contract under the applicable "due-on-sale" clause, if any, unless it is not
exercisable under applicable law. In such case, the Master Servicer is
authorized to take or enter into an assumption agreement from or with the
person to whom such Manufactured Home has been or is about to be conveyed,
pursuant to which such person becomes liable under the Contract and, unless
determined to be materially adverse to the interests of Certificateholders,
with the prior approval of the Pool Insurer, if any, to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Contract. Where authorized by the
Contract, the APR may be increased, upon assumption, to the then-prevailing
market rate, but shall not be decreased.
Under the Servicing Agreement or the Pooling and Servicing Agreement, the
Master Servicer will repossess or otherwise comparably convert the ownership
of properties securing such of the related Manufactured Homes as come into and
continue in default and as to which no satisfactory arrangements can be made
for collection of delinquent payments. In connection with such repossession or
other conversion, the Servicer or Master Servicer will follow such practices
and procedures as it shall deem necessary or advisable and as shall be normal
and usual in its general Contract servicing activities. The Servicer or Master
Servicer, however, will not be required to expend its own funds in connection
with any repossession or towards the restoration of any property unless it
determines (i) that such restoration or repossession will increase the
proceeds of liquidation of the related Contract to the Certificateholders
after reimbursement to itself for such expenses and (ii) that such expenses
will be recoverable to it either through liquidation proceeds or through
insurance proceeds.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Under the Pooling and Servicing Agreement for a Series of Certificates, the
Depositor or the person or entity specified in the related Prospectus
Supplement and any Master Servicer will be entitled to receive an amount
described in such Prospectus Supplement. The Master Servicer's primary
compensation generally will be equal to the difference, with respect to each
interest payment on a Mortgage Loan, between the Mortgage Rate and the Pass-
Through Rate for the related Mortgage Pool and with respect to each interest
payment on a Contract, between the APR and the Pass-Through Rate for the
related Contract (less any servicing compensation payable to the Servicer of
the related Mortgage Loan or Contract, if any, as set forth below, and the
amount, if any,
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payable to the Depositor or to the person or entity specified in the
applicable Prospectus Supplement). As compensation for its servicing duties, a
Servicer will be entitled to receive a monthly servicing fee in the amount
specified in the related Servicing Agreement. Such servicing compensation
shall be payable by withdrawal from the related Servicing Account prior to
deposit in the Certificate Account. Each Servicer (with respect to the
Mortgage Loans or Contracts serviced by it) and the Master Servicer will be
entitled to servicing compensation out of Insurance Proceeds, Liquidation
Proceeds, or Letter of Credit payments. Additional servicing compensation in
the form of prepayment charges, assumption fees, late payment charges or
otherwise shall be retained by the Servicers and the Master Servicer to the
extent not required to be deposited in the Certificate Account. If the Master
Servicer subcontracts the servicing of Specially Serviced Mortgage Loans to a
Special Servicer, the exact amount and calculation of the fee payable to the
Special Servicer will be set forth in the related Prospectus Supplement and
Pooling and Servicing Agreement.
The Servicers, any Special Servicer and the Master Servicer will pay certain
expenses incurred in connection with the servicing of the Mortgage Loans or
Contracts, including, without limitation, payment of the Insurance Policy
premiums and, in the case of the Master Servicer, fees or other amounts
payable for any Alternative Credit Support, payment of the fees and
disbursements of the Trustee (and any custodian selected by the Trustee), the
Certificate Register and independent accountants and payment of expenses
incurred in enforcing the obligations of Servicers and Unaffiliated Sellers.
Certain of these expenses may be reimbursable pursuant to the terms of the
Pooling and Servicing Agreement. In addition, the Master Servicer will be
entitled to reimbursement of expenses incurred in enforcing the obligations of
any Special Servicer, Servicers and Unaffiliated Sellers under certain limited
circumstances.
As set forth in the preceding section, the Servicers, any Special Servicer
and the Master Servicer will be entitled to reimbursement for certain expenses
incurred by them in connection with the liquidation of defaulted Mortgage
Loans or Contracts. The related Trust Fund will suffer no loss by reason of
such expenses to the extent claims are fully paid under the Letter of Credit,
if any, the related insurance policies, from amounts in the Reserve Fund or
under any applicable Alternative Credit Support described in a Prospectus
Supplement. In the event, however, that claims are either not made or fully
paid under such Letter of Credit, Insurance Policies or Alternative Credit
Support, or if coverage thereunder has ceased, or if amounts in the Reserve
Fund are not sufficient to fully pay such losses, the related Trust Fund will
suffer a loss to the extent that the proceeds of the liquidation proceedings,
after reimbursement of the expenses of the Servicers or the Master Servicer,
as the case may be, are less than the principal balance of the related
Mortgage Loan or Contract. In addition, the Servicers, a Special Servicer and
the Master Servicer will be entitled to reimbursement of expenditures incurred
by them in connection with the restoration of a Mortgaged Property,
Cooperative Dwelling or Manufactured Home, such right of reimbursement being
prior to the rights of the Certificateholders to receive any payments under
the Letter of Credit, or from any related Insurance Proceeds, Liquidation
Proceeds, amounts in the Reserve Fund or any proceeds of Alternative Credit
Support.
Under the Deposit Trust Agreement, the Trustee will be entitled to deduct,
from distributions of interest with respect to the Mortgage Certificates, a
specified percentage of the unpaid principal balance of each Mortgage
Certificate as servicing compensation. The Trustee shall be required to pay
all expenses, except as expressly provided in the Deposit Trust Agreement,
subject to limited reimbursement as provided therein.
EVIDENCE AS TO COMPLIANCE
The Master Servicer will deliver to the Depositor and the Trustee, on or
before the date specified in the Pooling and Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of the Master Servicer
and the Servicers during the preceding calendar year and of its performance
under the Pooling and Servicing Agreement has been made under the supervision
of such officer, and (ii) to the best of such officer's knowledge, based on
such review, the Master Servicer and each Servicer has fulfilled all its
obligations under the Pooling and Servicing Agreement and the applicable
Servicing Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Such Officer's Certificate
shall be accompanied by a statement of a firm of
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independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to servicing of the
Mortgage Loans or Contract, conducted in accordance with generally accepted
accounting principles in the mortgage banking industry, the servicing of the
Mortgage Loans or Contract was conducted in compliance with the provisions of
the Pooling and Servicing Agreement and the Servicing Agreements, except for
such exceptions as such firm believes it is required to report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER,
THE DEPOSITOR, THE TRUSTEE AND THE SPECIAL SERVICER
The Master Servicer under each Pooling and Servicing Agreement will be named
in the applicable Prospectus Supplement. The entity acting as Master Servicer
may be an Unaffiliated Seller and have other normal business relationships
with the Depositor and/or affiliates of the Depositor and may be an affiliate
of the Depositor. In the event there is no Master Servicer under a Pooling and
Servicing Agreement, all servicing of Mortgage Loans or Contracts will be
performed by a Servicer pursuant to a Servicing Agreement.
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed
the Master Servicer's obligations and duties under the Pooling and Servicing
Agreement.
The Trustee under each Pooling and Servicing Agreement or Deposit Trust
Agreement will be named in the applicable Prospectus Supplement. The
commercial bank or trust company serving as Trustee may have normal banking
relationships with the Depositor and/or its affiliates and with the Master
Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Pooling and Servicing
Agreement at any time, in which event a successor trustee will be appointed.
In addition, the Depositor may remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent, at which time the Depositor will become obligated
to appoint a successor Trustee. The Trustee may also be removed at any time by
the holders of Certificates evidencing voting rights aggregating not less than
50% of the voting rights evidenced by the Certificates of such Series. Any
resignation and removal of the Trustee, and the appointment of a successor
trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
The Trustee may resign at any time from its obligations and duties under the
Deposit Trust Agreement by executing an instrument in writing resigning as
Trustee, filing the same with the Depositor, mailing a copy of a notice of
resignation to all Certificateholders then of record, and appointing a
qualified successor trustee. No such resignation will become effective until
the successor trustee has assumed the Trustee's obligations and duties under
the Deposit Trust Agreement.
Each Pooling and Servicing Agreement and Deposit Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any
liability to the Certificateholders, for the taking of any action or for
refraining from the taking of any action in good faith pursuant to the Pooling
and Servicing Agreement, or for errors in judgment; provided, however, that
none of the Depositor, the Master Servicer or the Trustee nor any such person
will be protected against, in the case of the Master Servicer and the
Depositor, any breach of representations or warranties made by them, and in
the case of the Master Servicer, the Depositor and the Trustee, against any
liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties thereunder. Each Pooling and
Servicing Agreement and Deposit Trust Agreement will further provide that the
Depositor, the Master Servicer and the Trustee and any director, officer and
employee or agent of the Depositor, the Master Servicer or the Trustee shall
be entitled to indemnification, by the Trust Fund in the case of the Depositor
and Master Servicer and by the Master Servicer in the case of the Trustee and
will be held harmless against any loss, liability or expense incurred in
connection with any legal
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action relating to the applicable Agreement or the Certificates and in the
case of the Trustee, resulting from any error in any tax or information return
prepared by the Master Servicer or from the exercise of any power of attorney
granted pursuant to the Pooling and Servicing Agreement, other than any loss,
liability or expense related to any specific Mortgage Loan, Contract or
Mortgage Certificate (except any such loss, liability or expense otherwise
reimbursable pursuant to the applicable Agreement) and any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of their duties thereunder or by reason of reckless disregard
of their obligations and duties thereunder. In addition, each Agreement will
provide that neither the Depositor nor the Master Servicer, as the case may
be, will be under any obligation to appear in, prosecute or defend any legal
action that is not incidental to its duties under the Agreement and that in
its opinion may involve it in any expense or liability. The Depositor or the
Master Servicer may, however, in their discretion, undertake any such action
deemed by them necessary or desirable with respect to the applicable Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or the Depositor, as
the case may be, will be entitled to be reimbursed therefor out of the
Certificate Account.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the standard of care for, and any
indemnification to be provided to, the Special Servicer will be set forth in
the related Prospectus Supplement and Pooling and Servicing Agreement.
DEFICIENCY EVENT
To the extent a deficiency event is specified in the related Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Certificates of each Series may be defined in the Pooling and Servicing
Agreement as being the inability of the Trustee to distribute to holders of
one or more Classes of Certificates of such Series, in accordance with the
terms thereof and the Pooling and Servicing Agreement, any distribution of
principal or interest thereon when and as distributable, in each case because
of the insufficiency for such purpose of the funds then held in the related
Trust Fund.
To the extent a deficiency event is specified in the related Prospectus
Supplement, upon the occurrence of a Deficiency Event, the Trustee is required
to determine whether or not the application on a monthly basis (regardless of
the frequency of regular Distribution Dates) of all future scheduled payments
on the Mortgage Loans, Contracts and Mortgage Certificates included in the
related Trust Fund and other amount receivable with respect to such Trust Fund
towards payments on such Certificates in accordance with the priorities as to
distributions of principal and interest set forth in such Certificates will be
sufficient to make distributions of interest at the applicable Interest Rates
and to distribute in full the principal balance of each such Certificate on or
before the latest Final Distribution Date of any outstanding Certificates of
such Series.
To the extent a deficiency event is specified in the related Prospectus
Supplement, the Trustee will obtain and rely upon an opinion or report of a
firm of independent accountants of recognized national reputation as to the
sufficiency of the amounts receivable with respect to such Trust Fund to make
such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Pending the making of any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, in the event that the Trustee makes a positive determination, the
Trustee will apply all amounts received in respect of the related Trust Fund
(after payment of fees and expenses of the Trustee and accountants for the
Trust Fund) to distributions on the Certificates of such Series in accordance
with their terms, except that such distributions shall be made monthly and
without regard to the amount of principal that would otherwise be
distributable on any Distribution Date. Under certain circumstances following
such positive determination, the Trustee may resume making distributions on
such Certificates expressly in accordance with their terms.
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To the extent a deficiency event is specified in the related Prospectus
Supplement, if the Trustee is unable to make the positive determination
described above, the Trustee will apply all amounts received in respect of the
related Trust Fund (after payment of Trustee and accountants' fees and
expenses) to monthly distributions on the Certificates of such series pro
rata, without regard to the priorities as to distribution of principal set
forth in such Certificates, and such Certificates will, to the extent
permitted by applicable law, accrue interest at the highest Interest Rate
borne by any Certificate of such Series, or in the event any Class of such
Series shall accrue interest at a floating rate, at the weighted average
Interest Rate, calculated on the basis of the maximum interest rate applicable
to the Class having such floating interest rate and on the original principal
amount of the Certificates of that Class. In such event, the holders of a
majority in outstanding principal balance of such Certificates may direct the
Trustee to sell the related Trust Fund, any such direction being irrevocable
and binding upon the holders of all Certificates of such Series and upon the
owners of the residual interests in such Trust Fund. In the absence of such a
direction, the Trustee may not sell all or any portion of such Trust Fund.
EVENTS OF DEFAULT
Events of Default under each Pooling and Servicing Agreement will include:
(i) any failure to make a specified payment which continues unremedied, in
most cases, for five business days after the giving of written notice; (ii)
any failure by the Trustee, the Servicer or the Master Servicer, as
applicable, duly to observe or perform in any material respect any other of
its covenants or agreements in the Pooling and Servicing Agreement which
failure shall continue for 60 days (15 days in the case of a failure to pay
the premium for any insurance policy) or any breach of any representation and
warranty made by the Master Servicer or the Servicer, if applicable, which
continues unremedied for 120 days after the giving of written notice of such
failure or breach; and (iii) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings regarding
the Master Servicer or a Servicer, as applicable.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default with respect to a Series of Certificates
remains unremedied, the Depositor, the Trustee or the holders of Certificates
evidencing not less than the percentage of the voting rights evidenced by the
Certificates of such Series specified in the Pooling and Servicing Agreement
may terminate all of the rights and obligations of the Master Servicer under
the Pooling and Servicing Agreement and in and to the Mortgage Loans and
Contracts and the proceeds thereof, whereupon (subject to applicable law
regarding the Trustee's ability to make advances) the Trustee or, if the
Depositor so notifies the Trustee and the Master Servicer, the Depositor or
its designee, will succeed to all the responsibilities, duties and liabilities
of the Master Servicer under such Pooling and Servicing Agreement and will be
entitled to similar compensation arrangements. In the event that the Trustee
would be obligated to succeed the Master Servicer but is unwilling or unable
so to act, it may appoint, or petition to a court of competent jurisdiction
for the appointment of, a successor master servicer. Pending such appointment,
the Trustee (unless prohibited by law from so acting) shall be obligated to
act in such capacity. The Trustee and such successor master servicer may agree
upon the servicing compensation to be paid to such successor, which in no
event may be greater than the compensation to the Master Servicer under the
Pooling and Servicing Agreement.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein that may be inconsistent with any other provision
therein, or (iii) to make any other provisions with respect to matters or
questions arising under such Pooling and Servicing Agreement that are not
inconsistent with the provisions thereof, provided that such action will not
adversely affect in any material respect the interests of any
Certificateholder of the related Series. The Pooling and Servicing Agreement
may also be amended by the Depositor, the Master Servicer and the Trustee with
the consent of holders of Certificates evidencing not less than 66 2/3% of the
voting rights evidenced by the Certificates, for the purpose of adding any
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provisions to or changing in any manner or eliminating any of the provisions
of such Pooling and Servicing Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, delay the timing of or change the
manner in which payments received on or with respect to Mortgage Loans and
Contracts are required to be distributed with respect to any Certificate
without the consent of the holder of such Certificate, (ii) adversely affect
in any material respect the interests of the holders of a Class or Subclass of
the Senior Certificates, if any, of a Series in a manner other than that set
forth in (i) above without the consent of the holders of the Senior
Certificates of such Subclass evidencing not less than 66 2/3% of such Class
or Subclass, (iii) adversely affect in any material respect the interests of
the holders of the Subordinated Certificates of a Series in a manner other
than that set forth in (i) above without the consent of the holders of
Subordinated Certificates evidencing not less than 66 2/3% of such Class or
Subclass, or (iv) reduce the aforesaid percentage of the Certificates, the
holders of which are required to consent to such amendment, without the
consent of the holders of the Class affected thereby.
The Deposit Trust Agreement for a Series may be amended by the Trustee and
the Depositor without Certificateholder consent, to cure any ambiguity, to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, or to make any other provisions with respect to
matters or questions arising thereunder that are not inconsistent with any
other provisions thereof, provided that such action will not, as evidenced by
an opinion of counsel, adversely affect the interests of any
Certificateholders of that Series in any material respect. The Deposit Trust
Agreement for each Series may also be amended by the Trustee and the Depositor
with the consent of the Holders of Certificates evidencing Percentage
Interests aggregating not less than 66 2/3% of each Class of the Certificates
of such Series affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreement
or modifying in any manner the rights of Certificateholders of that Series;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, or change the manner in which payments
received on Mortgage Certificates are required to be distributed in respect of
any Certificate, without the consent of the Holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders
of all Certificates of such Series then outstanding.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate upon the earlier of (a) the repurchase of all
Mortgage Loans or Contracts and all property acquired by foreclosure of any
such Mortgage Loan or Contract and (b) the later of (i) the maturity or other
liquidation of the last Mortgage Loan or Contract subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan or Contract and (ii) the payment to the Certificateholders of all amounts
held by the Master Servicer and required to be paid to them pursuant to such
Pooling and Servicing Agreement. The obligations created by the Deposit Trust
Agreement for a Series of Certificates will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant
to such Deposit Trust Agreement. In no event, however, will the trust created
by either such Agreement continue beyond the expiration of 21 years from the
death of the last survivor of certain persons identified therein. For each
Series of Certificates, the Master Servicer will give written notice of
termination of the applicable Agreement of each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency specified in the notice of termination.
After termination of the applicable Agreement, the Certificates will no longer
accrue interest, and the only obligation of the Trust Fund thereafter will be
to pay principal and accrued interest that was available to be paid on the
date of termination, upon surrender of such Certificates. The Trust Fund and
the Certificateholders will have no obligation to the purchaser of the Trust
Assets with respect to the Trust Assets so purchased.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Depositor or such other person as may be specified in the
Prospectus Supplement to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans or
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Contracts subject to the Pooling and Servicing Agreement at a price specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the repurchase price will be equal to (a) the aggregate principal
balance of the Mortgage Loans outstanding (including Mortgage Loans that have
been foreclosed upon if the liquidation proceeds have not yet been
distributed), plus accrued and unpaid interest thereon, or (b) the aggregate
outstanding principal balance of and accrued and unpaid interest on the
Mortgage Loans outstanding, plus the fair market value of any Mortgaged
Property acquired in foreclosure or deed-in-lieu of foreclosure if the
liquidation proceeds in respect of such property have not yet been received by
or on behalf of the Trust Fund. The purchase price described in clause (b)
above could result on one or more classes of Certificates receiving less than
their outstanding principal and accrued interest if the fair market value of
the property is less than the outstanding principal and accrued interest on
the related Mortgage Loan. In the event that the Depositor elects to treat the
related Trust Fund as a REMIC under the Code, any such repurchase will be
effected in compliance with the requirements of Section 860F(a)(4) of the
Code, in order to constitute a "qualifying liquidation" thereunder. The
exercise of any such right will effect early retirement of the Certificates of
that Series, but the right so to repurchase may be effected only on or after
the aggregate principal balance of the Mortgage Loans or Contracts for such
Series at the time of repurchase is less than a specified percentage (not
greater than 10%) of the aggregate principal balance at the Cut-off Date for
the Series, or on or after the date set forth in the related Prospectus
Supplement.
CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the related Prospectus Supplement,
be issued in notional amounts) the provision for shifting interest credit
enhancement, the establishment of a Reserve Fund, the method of Alternative
Credit Support specified in the applicable Prospectus Supplement, or any
combination of the foregoing, in addition to, or in lieu of, the insurance
arrangements set forth below under Description of Insurance. The amount and
method of credit support will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Certificates will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank
under the Letter of Credit will be to honor requests for payment thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder,
equal to the percentage of the aggregate principal balance on the related Cut-
off Date of the Mortgage Loans or Contracts evidenced by each Series (the "L/C
Percentage") specified in the Prospectus Supplement for such Series. The
duration of coverage and the amount and frequency of any reduction in coverage
provided by the Letter of Credit with respect to a Series of Certificates will
be in compliance with the requirements established by the Rating Agency rating
such Series and will be set forth in the Prospectus Supplement relating to
such Series of Certificates. The amount available under the Letter of Credit
in all cases shall be reduced to the extent of the unreimbursed payments
thereunder. The obligations of the L/C Bank under the Letter of Credit for
each Series of Certificates will expire 30 days after the latest of the
scheduled final maturity dates of the Mortgage Loans or Contracts in the
related Mortgage Pool or Contract Pool or the repurchase of all Mortgage Loans
or Contracts in the Mortgage Pool or Contract Pool in the circumstances
specified above. See "Description of the Certificates--Termination."
If so specified in the applicable Prospectus Supplement, under the Pooling
and Servicing Agreement, the Master Servicer will be required not later than
three business days prior to each Distribution Date to determine whether a
payment under the Letter of Credit will be necessary on the Distribution Date
and will, no later than the third business day prior to such Distribution
Date, advise the L/C Bank and the Trustee of its determination, setting forth
the amount of any required payment. On the Distribution Date, the L/C Bank
will be required to honor the Trustee's request for payment thereunder in an
amount equal to the lesser of (A) the remaining amount available under the
Letter of Credit and (B) the outstanding principal balances of any Liquidating
Loans to be
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assigned on such Distribution Date (together with accrued and unpaid interest
thereon at the related Mortgage Rate or APR to the related Due Date). The
proceeds of such payments under the Letter of Credit will be deposited into
the Certificate Account and will be distributed to Certificateholders, in the
manner specified in the related Prospectus Supplement, on such Distribution
Date, except to the extent of any unreimbursed Advances, servicing
compensation due to the Servicers and the Master Servicer and other amounts
payable to the Depositor or the person or entity named in the applicable
Prospectus Supplement therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Certificateholders with respect
thereto. Payments made to the Certificate Account by the L/C Bank under the
Letter of Credit with respect to such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of
the L/C Bank, to the extent of its obligations under the Letter of Credit, in
the event of default by Mortgagors or Obligors. If the amount available under
the Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and
amounts in the Reserve Fund, if any, with respect to such Series are
insufficient to pay the entire amount of the loss and still be maintained at
the level specified in the related Prospectus Supplement (the "Required
Reserve"), the Certificateholders (in the priority specified in the related
Prospectus Supplement) will thereafter bear all risks of loss resulting from
default by Mortgagors or Obligors (including losses not covered by insurance
or Alternative Credit Support), and must look primarily to the value of the
properties securing defaulted Mortgage Loans or Contracts for recovery of the
outstanding principal and unpaid interest.
In the event that a Subordinated Class or Subclass of a Series of
Certificates is issued with a notional amount, the coverage provided by the
Letter of Credit with respect to such Series, and the terms and conditions of
such coverage, will be set forth in the related Prospectus Supplement.
SUBORDINATED CERTIFICATES
To the extent specified in the Prospectus Supplement with respect to a
Series of Certificates, credit support may be provided by the subordination of
the rights of the holders of one or more Classes or Subclasses of Certificates
to receive distributions with respect to the Mortgage Loans in the Mortgage
Pool or Contracts in the Contract Pool underlying such Series, or with respect
to a Subordinated Pool of mortgage loans or manufactured housing conditional
sales contracts and installment loan agreements, to the rights of the Senior
Certificateholders or holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series to receive such distributions, to the
extent of the applicable Subordinated Amount. In such a case, credit support
may also be provided by the establishment of a Reserve Fund, as described
below. The Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses are defined in the related
Pooling and Servicing Agreement for any given period as the aggregate amount
of delinquencies, losses and other deficiencies in the amounts due to the
holders of the Certificates of one or more classes or Subclasses of such
Series paid or borne by the holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series ("payment deficiencies"), but
excluding any payments of interest on any amounts originally due to the
holders of the Certificates of a Class or Subclass to which the applicable
Class or Subclass of Subordinated Certificates are subordinated on a previous
Distribution Date, but not paid as due, whether by way of withdrawal from the
Reserve Fund (including, prior to the time that the Subordinated Amount is
reduced to zero, any such
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withdrawal of amounts attributable to the Initial Deposit, if any), reduction
in amounts otherwise distributable to the Subordinated Certificateholders on
any Distribution Date or otherwise, less the aggregate amount of previous
payment deficiencies recovered by the related Trust Fund during such period in
respect of the Mortgage Loans or Contracts giving rise to such previous
payment deficiencies, including, without limitation, such recoveries resulting
from the receipt of delinquent principal and/or interest payments, Liquidation
Proceeds or Insurance Proceeds (net, in each case, of servicing compensation,
foreclosure costs and other servicing costs, expenses and unreimbursed
Advances relating to such Mortgage Loans or Contracts). The Prospectus
Supplement for each Series of Certificates with respect to which credit
support will be provided by one or more Classes or Subclasses of Subordinated
Certificates will set forth the Subordinated Amount for such Series. If
specified in the related Prospectus Supplement, the Subordinated Amount will
decline over time in accordance with a schedule which will also be set forth
in the related Prospectus Supplement.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Certificates for
which credit enhancement is provided by shifting interest as described herein,
the rights of the holders of the Subordinated Certificates of a Series to
receive distributions with respect to the Mortgage Loans or Contracts in the
related Trust Fund or Subsidiary Trust will be subordinated to such right of
the holders of the Senior Certificates of the same Series to the extent
described in such Prospectus Supplement. This subordination feature is
intended to enhance the likelihood of regular receipt by holders of Senior
Certificates of the full amount of scheduled monthly payments of principal and
interest due them and to provide limited protection to the holders of the
Senior Certificates against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series by
the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Certificates a disproportionately greater
percentage (the "Senior Prepayment Percentage") of Principal Prepayments. The
initial Senior Prepayment Percentage will be the percentage specified in the
related Prospectus Supplement and will decrease in accordance with the
schedule and subject to the conditions set forth in the Prospectus Supplement.
This disproportionate distribution of Principal Prepayments will have the
effect of accelerating the amortization of the Senior Certificates while
increasing the respective interest of the Subordinated Certificates in the
Mortgage Pool or Contract Pool. Increasing the respective interest of the
Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the benefits of the subordination
provided by the Subordinated Certificates.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed
by the rating. The Prospectus Supplement relating to such Series of
Certificates also will set forth certain information relating to the corporate
status, ownership and credit quality of the counterparty or counterparties to
such swap agreement.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. Unless otherwise specified in the applicable
Prospectus Supplement, the Reserve Fund for a Series will not be included in
the Trust Fund for such Series. The Reserve Fund for each Series will be
created by the Depositor and shall be funded by the retention by the Master
Servicer of certain
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payments on the Mortgage Loans or Contracts, by the deposit with the Trustee,
in escrow, by the Depositor of a Subordinated Pool of mortgage loans or
manufactured housing conditional sales contracts and installment loan
agreements with the aggregate principal balance, as of the related Cut-off
Date, set forth in the related Prospectus Supplement, by any combination of
the foregoing, or in another manner specified in the related Prospectus
Supplement. Following the initial issuance of the Certificates of a Series and
until the balance of the Reserve Fund first equals or exceeds the Required
Reserve, the Master Servicer will retain specified distributions on the
Mortgage Loans or Contracts and/or on the mortgage loans or manufactured
housing conditional sales contracts and installment loan agreements in the
Subordinated Pool otherwise distributable to the holders of Subordinated
Certificates and deposit such amounts in the Reserve Fund. After the amounts
in the Reserve Fund for a Series first equal or exceed the applicable Required
Reserve, the Master Servicer will retain such distributions and deposit so
much of such amounts in the Reserve Fund as may be necessary, after the
application of such distributions to amounts due and unpaid on the
Certificates or on the Certificates of such Series to which the applicable
Class or Subclass of Subordinated Certificates are subordinated and the
reimbursement of unreimbursed Advances and liquidation expenses, to maintain
the Reserve Fund at the Required Reserve. The balance in the Reserve Fund in
excess of the Required Reserve shall be paid to the applicable Class or
Subclass of Subordinated Certificates, or to another specified person or
entity, as set forth in the related Prospectus Supplement, and shall be
unavailable thereafter for future distribution to Certificateholders of either
Class. The Prospectus Supplement for each Series will set forth the amount of
the Required Reserve applicable from time to time. The Required Reserve may
decline over time in accordance with a schedule which will also be set forth
in the related Prospectus Supplement.
Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the related Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required to
be distributed to such Senior Certificateholders (the "Required Distribution")
on such Distribution Date, the Master Servicer will withdraw from the Reserve
Fund and deposit into the Certificate Account the lesser of (i) the entire
amount on deposit in the Reserve Fund available for distribution to the Senior
Certificateholders (which amount will not in any event exceed the Required
Reserve) or (ii) the amount necessary to increase the funds in the Certificate
Account eligible for distribution to the Senior Certificateholders on such
Distribution Date to the Required Distribution; provided, however, that in no
event will any amount representing investment earnings on amounts held in the
Reserve Fund be transferred into the Certificate Account or otherwise used in
any manner for the benefit of the Senior Certificateholders. If so specified
in the applicable Prospectus Supplement, the balance, if any, in the Reserve
Fund in excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, whenever the Reserve Fund is less than the Required Reserve,
holders of the Subordinated Certificates of the applicable Class or Subclass
will not receive any distributions with respect to the Mortgage Loans or
Contracts other than amounts attributable to interest on the Mortgage Loans or
Contracts after the initial Required Reserve has been attained and amounts
attributable to any income resulting from investment of the Reserve Fund as
described below. Whether or not the amount of the Reserve Fund exceeds the
Required Reserve on any Distribution Date, the holders of the Subordinated
Certificates of the applicable Class or Subclass are entitled to receive from
the Certificate Account their share of the proceeds of any Mortgage Loan or
Contract, or any property acquired in respect thereof, repurchased by reason
of defective documentation or the breach of a representation or warranty
pursuant to the Pooling and Servicing Agreement. Amounts in the Reserve Fund
shall be applied in the following order:
(i) to the reimbursement of Advances determined by the Master Servicer
and the Servicers to be otherwise unrecoverable, other than Advances of
interest in connection with prepayments in full, repurchases and
liquidations, and the reimbursement of liquidation expenses incurred by the
Servicers and the Master Servicer if sufficient funds for such
reimbursement are not otherwise available in the related Servicing Accounts
and Certificate Account;
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(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related
Due Date to the extent that sufficient funds in the Certificate Account are
not available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of
Mortgage Loans or Contracts repurchased, liquidated or foreclosed during
the period ending on the day prior to the Due Date to which such
distribution relates and interest thereon at the related Pass-Through Rate,
to the extent that sufficient funds in the Certificate Account are not
available therefor.
Amounts in the Reserve Fund in excess of the Required Reserve, including any
investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
Funds in the Reserve Fund for a Series shall be invested as provided in the
related Pooling and Servicing Agreement in certain types of eligible
investments. The earnings on such investments will be withdrawn and paid to
the holders of the applicable Class or Subclass of Subordinated Certificates
in accordance with their respective interests in the Reserve Fund in the
priority specified in the related Prospectus Supplement. Investment income in
the Reserve Fund is not available for distribution to the holders of the
Senior Certificates of such Series or otherwise subject to any claims or
rights of the holders of the applicable Class or Subclass of Senior
Certificates. Eligible investments for monies deposited in the Reserve Fund
will be specified in the Pooling and Servicing Agreement for a Series of
Certificates for which a Reserve Fund is established and in some instances
will be limited to investments acceptable to the Rating Agency rating the
Certificates of such Series from time to time as being consistent with its
outstanding rating of such Certificates. Such eligible investments will be
limited, however, to obligations or securities that mature at various time
periods up to 30 days according to a schedule in the Pooling and Servicing
Agreement based on the current balance of the Reserve Fund at the time of such
investment or the contractual commitment providing for such investment.
The time necessary for the Reserve Fund of a Series to reach and maintain
the applicable Required Reserve at any time after the initial issuance of the
Certificates of such Series and the availability of amounts in the Reserve
Fund for distributions on such Certificates will be affected by the
delinquency, foreclosure and prepayment experience of the Mortgage Loans or
Contracts in the related Trust Fund and/or in the Subordinated Pool and
therefore cannot be accurately predicted.
PERFORMANCE BOND
If so specified in the related Prospectus Supplement, the Master Servicer
may be required to obtain a Performance Bond that would provide a guarantee of
the performance by the Master Servicer of one or more of its obligations under
the Agreement, including its obligation to advance delinquent installments of
principal and interest on Mortgage Loans or Contracts and its obligation to
repurchase Mortgage Loans or Contracts in the event of a breach by the Master
Servicer of a representation or warranty contained in the Agreement. In the
event that the outstanding credit rating of the obligor of the Performance
Bond is lowered by the Rating Agency, with the result that the outstanding
rating on the Certificates would be reduced by such Rating Agency, the Master
Servicer will be required to secure a substitute Performance Bond issued by an
entity with a rating sufficient to maintain the outstanding rating on the
Certificates or to deposit and maintain with the Trustee cash in the amount
specified in the applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not expressly
provide for a form of credit support specified above or for Alternative Credit
Support in lieu of some or all of the insurance mentioned below, the following
paragraphs on insurance shall apply with respect to the Mortgage Loans
included in the related Trust Fund. Unless otherwise specified in the related
Prospectus Supplement, each Manufactured Home that
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secures a Contract will be covered by a standard hazard insurance policy and
other insurance policies to the extent described in the related Prospectus
Supplement. Any material changes in such insurance from the description that
follows or the description of any Alternative Credit Support will be set forth
in the applicable Prospectus Supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each Servicing
Agreement will require the Servicer to cause a Primary Mortgage Insurance
Policy to be maintained in full force and effect with respect to each Mortgage
Loan that is secured by a Single Family Property covered by the Servicing
Agreement requiring such insurance and to act on behalf of the Insured with
respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit insurance policies relating to the Contracts underlying a Series of
Certificates will be described in the related Prospectus Supplement.
The amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan in the related Mortgage Pool (herein referred to as
the "Loss") generally will consist of the insured portion of the unpaid
principal amount of the covered Mortgage Loan (as described herein) and
accrued and unpaid interest thereon and reimbursement of certain expenses,
less (i) all rents or other payments collected or received by the Insured
(other than the proceeds of hazard insurance) that are derived from or in any
way related to such Mortgaged Property, (ii) hazard insurance proceeds in
excess of the amount required to restore such Mortgaged Property and which
have not been applied to the payment of such Mortgage Loan, (iii) amounts
expended but not approved by the Primary Mortgage Insurer, (iv) claim payments
previously made by the Primary Mortgage Insurer, and (v) unpaid premiums.
As conditions precedent to the filing of or payment of a claim under a
Primary Mortgage Insurance Policy covering a Mortgage Loan in the related
Mortgage Pool, the Insured generally will be required to, in the event of
default by the Mortgagor: (i) advance or discharge (A) all hazard insurance
premiums and (B) as necessary and approved in advance by the Primary Mortgage
Insurer, (1) real estate property taxes, (2) all expenses required to
preserve, repair and prevent waste to the Mortgaged Property so as to maintain
such Mortgaged Property in at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted, (3) property sales expenses, (4) any outstanding liens (as
defined in such Primary Mortgage Insurance Policy) on the Mortgaged Property
and (5) foreclosure costs, including court costs and reasonable attorneys'
fees; (ii) in the event of a physical loss or damage to the Mortgaged
Property, have restored and repaired the Mortgaged Property to at least as
good a condition as existed at the effective date of such Primary Mortgage
Insurance Policy, ordinary wear and tear excepted; and (iii) tender to the
Primary Mortgage Insurer good and merchantable title to and possession of the
mortgaged property.
Other provisions and conditions of each Primary Mortgage Insurance Policy
covering a Mortgage Loan in the related Mortgage Pool generally will provide
that: (a) no change may be made in the terms of such Mortgage Loan without the
consent of the Primary Mortgage Insurer; (b) written notice must be given to
the Primary Mortgage Insurer within 10 days after the Insured becomes aware
that a Mortgagor is delinquent in the payment of a sum equal to the aggregate
of two scheduled monthly payments due under such Mortgage Loan or that any
proceedings affecting the Mortgagor's interest in the Mortgaged Property
securing such Mortgage Loan have commenced, and thereafter the Insured must
report monthly to the Primary Mortgage Insurer the status of any such Mortgage
Loan until such Mortgage Loan is brought current, such proceedings are
terminated or a claim is filed; (c) the Primary Mortgage Insurer will have the
right to purchase such Mortgage Loan, at any time subsequent to the 10 days'
notice described in (b) above and prior to the commencement of foreclosure
proceedings, at a price equal to the unpaid principal amount of the Mortgage
Loan, plus accrued and unpaid interest thereon and reimbursable amounts
expended by the Insured for the real estate taxes and fire and extended
coverage insurance on the Mortgaged Property for a period not exceeding 12
months, and less the sum of any claim previously paid under the Primary
Mortgage Insurance Policy and any due and unpaid premiums with respect to such
policy; (d) the Insured must commence proceedings at certain times specified
in the Primary
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Mortgage Insurance Policy and diligently proceed to obtain good and
merchantable title to and possession of the Mortgaged Property; (e) the
Insured must notify the Primary Mortgage Insurer of the price specified in (c)
above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; and (f) the Insured may accept a conveyance of the Mortgaged
Property in lieu of foreclosure with written approval of the Mortgage Insurer
provided the ability of the Insured to assign specified rights to the Primary
Mortgage Insurer are not thereby impaired or the specified rights of the
Primary Mortgage Insurer are not thereby adversely affected.
The Primary Mortgage Insurer generally will be required to pay to the
Insured either: (1) the insured percentage of the Loss; or (2) at its option
under certain of the Primary Mortgage Insurance Policies, the sum of the
delinquent monthly payments plus any advances made by the Insured, both to the
date of the claim payment, and thereafter, monthly payments in the amount that
would have become due under the Mortgage Loan if it had not been discharged
plus any advances made by the Insured until the earlier of (A) the date the
Mortgage Loan would have been discharged in full if the default had not
occurred or (B) an approved sale. Any rents or other payments collected or
received by the Insured which are derived from or are in any way related to
the Mortgaged Property will be deducted from any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act, as amended, and
the United States Housing Act of 1937, as amended. Any FHA Insurance or VA
Guarantees relating to Contracts underlying a Series of Certificates will be
described in the related Prospectus Supplement.
The insurance premiums for FHA Loans are collected by HUD approved lenders
or by the Servicers of such FHA Loans and are paid to the FHA. The regulations
governing FHA single-family mortgage insurance programs provide that insurance
benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted FHA Loan to HUD. With respect to a defaulted FHA Loan, the
Servicer of such FHA Loan will be limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or HUD,
that default was caused by circumstances beyond the Mortgagor's control, the
Servicer will be expected to make an effort to avoid foreclosure by entering,
if feasible, into one of a number of available forms of forbearance plans with
the Mortgagor. Such plans may involve the reduction or suspension of scheduled
mortgage payments for a specified period, with such payments to be made upon
or before the maturity date of the mortgage, or the recasting of payments due
under the mortgage up to or beyond the scheduled maturity date. In addition,
when a default caused by such circumstances is accompanied by certain other
criteria, HUD may provide relief by making payments to the Servicer of such
Mortgage Loan in partial or full satisfaction of amounts due thereunder (which
payments are to be repaid by the Mortgagor to HUD) or by accepting assignment
of the Mortgage Loan from the Servicer. With certain exceptions, at least
three full monthly installments must be due and unpaid under the Mortgage
Loan, and HUD must have rejected any request for relief from the Mortgagor
before the Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA Loan in a Mortgage Pool will
be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the principal amount
of the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal balance of the defaulted FHA Loan, adjusted to
reimburse the Servicer of such FHA Loan for certain costs and expenses and to
deduct certain amounts received or retained by such Servicer after default.
When entitlement to insurance
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benefits results from foreclosure (or other acquisition of possession) and
conveyance to HUD, the Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid
prior to such date in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits
results from assignment of the FHA Loan to HUD, the insurance payment includes
full compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA Loan, bears interest from
a date 30 days after the mortgagor's first uncorrected failure to perform any
obligation or make any payment due under the Mortgage Loan and, upon
assignment, from the date of assignment, to the date of payment of the claim,
in each case at the same interest rate as the applicable HUD debenture
interest rate as described above.
The maximum guarantee that may be issued by the VA under a VA Loan is 50% of
the principal amount of the VA Loan if the principal amount of the Mortgage
Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal amount
of the VA Loan if the principal amount of such VA Loan is greater than $45,000
but less than or equal to $144,000, and the lesser of $46,000 and 25% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $144,000. The liability on the guarantee is reduced or
increased pro rata with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guarantee exceed
the amount of the original guarantee. The VA may, at its option and without
regard to the guarantee, make full payment to a mortgage holder of unsatisfied
indebtedness on a Mortgage upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when the
default has continued for three months. Generally, a claim for the guarantee
is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA Loan
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations. Payments under the
guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date
of computation and limited expenses of the mortgagee, but in each case only to
the extent that such amounts have not been recovered through liquidation of
the Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
The Standard Hazard Insurance Policies covering the Mortgage Loans in a
Mortgage Pool will provide for coverage at least equal to the applicable state
standard form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to, or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the Standard Hazard Insurance Policies relating to such
Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not contain
identical terms and conditions. The most significant terms thereof, however,
generally will be determined by state law and generally will be similar. Most
such policies typically will not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive.
The Standard Hazard Insurance Policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of
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partial loss will not exceed the greater of (i) the actual cash value (the
replacement cost less physical depreciation) of the dwellings, structures and
other improvements damaged or destroyed or (ii) such proportion of the loss,
without deduction for depreciation, as the amount of insurance carried bears
to the specified percentage of the full replacement cost of such dwellings,
structures and other improvements.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient
hazard insurance proceeds and any hazard losses incurred with respect to
Cooperative Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Commercial Property, Mixed-Use
Property and Multifamily Property, certain additional insurance policies may
be required; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, business interruption insurance and rent loss
insurance to cover income losses following damage or destruction of the
Mortgaged Property. The related Prospectus Supplement will specify the
required types and amounts of additional insurance that may be required in
connection with Mortgage Loans secured by Commercial Property, Mixed-Use
Property and Multifamily Property and will describe the general terms of such
insurance and conditions to payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard Hazard Insurance Policies which provide, at a minimum, the same
coverage as a standard form file and extended coverage insurance policy that
is customary for manufactured housing, issued by a company authorized to issue
such policies in the state in which the Manufactured Home is located, and in
an amount which is not less than the maximum insurable value of such
Manufactured Home or the principal balance due from the Obligor on the related
Contract, whichever is less; provided, however, that the amount of coverage
provided by each Standard Hazard Insurance Policy shall be sufficient to avoid
the application of any co-insurance clause contained therein. When a
Manufactured Home's location was, at the time of origination of the related
Contract, within a federally designated flood area, the Master Servicer also
shall cause such flood insurance to be maintained, which coverage shall be at
least equal to the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood insurance program.
Each Standard Hazard Insurance Policy caused to be maintained by the Master
Servicer shall contain a standard loss payee clause in favor of the Master
Servicer and its successors and assigns. If any Obligor is in default in the
payment of premiums on its Standard Hazard Insurance Policy or Policies, the
Master Servicer shall pay such premiums out of its own funds, and may add
separately such premium to the Obligor's obligation as provided by the
Contract, but may not add such premium to the remaining principal balance of
the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
Hazard Insurance Policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the Obligor to maintain a Standard Hazard Insurance Policy with
respect to the related Manufactured Home, one or more blanket insurance
policies covering losses on the Obligor's interest in the Contracts resulting
from the absence or insufficiency of individual Standard Hazard Insurance
Policies. Any such
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blanket policy shall be substantially in the form and in the amount carried by
the Master Servicer as of the date of the Pooling and Servicing Agreement. The
Master Servicer shall pay the premium for such policy on the basis described
therein and shall pay any deductible amount with respect to claims under such
policy relating to the Contracts. If the insurer thereunder shall cease to be
acceptable to the Master Servicer, the Master Servicer shall exercise its best
reasonable efforts to obtain from another insurer a replacement policy
comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Certificates of such Series. Such Pool Insurance Policy will be issued by the
Pool Insurer named in the applicable Prospectus Supplement. Any Pool Insurance
Policy for a Contract Pool underlying a Series of Certificates will be
described in the related Prospectus Supplement. Each Pool Insurance Policy
will cover any loss (subject to the limitations described below) by reason of
default to the extent the related Mortgage Loan is not covered by any Primary
Mortgage Insurance Policy, FHA insurance or VA guarantee. The amount of the
Pool Insurance Policy, if any, with respect to a Series will be specified in
the related Prospectus Supplement. A Pool Insurance Policy, however, will not
be a blanket policy against loss, because claims thereunder may only be made
for particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. Any Pool Insurance Policies relating to
the Contracts will be described in the related Prospectus Supplement.
The Pool Insurance Policy generally will provide that as a condition
precedent to the payment of any claim the Insured will be required (i) to
advance hazard insurance premiums on the Mortgaged Property securing the
defaulted Mortgage Loan; (ii) to advance, as necessary and approved in advance
by the Pool Insurer, (a) real estate property taxes, (b) all expenses required
to preserve and repair the Mortgaged Property, to protect the Mortgaged
Property from waste, so that the Mortgaged Property is in at least as good a
condition as existed on the date upon which coverage under the Pool Insurance
Policy with respect to such Mortgaged Property first became effective
(ordinary wear and tear excepted), (c) property sales expenses, (d) any
outstanding liens on the Mortgaged Property and (e) foreclosure costs
including court costs and reasonable attorneys' fees; and (iii) if there has
been physical loss or damage to the Mortgaged Property, to restore the
Mortgaged Property to its condition (reasonable wear and tear excepted) as of
the issue date of the Pool Insurance Policy. It also will be a condition
precedent to the payment of any claim under the Pool Insurance Policy that the
Insured maintain a Primary Mortgage Insurance Policy that is acceptable to the
Pool Insurer on all Mortgage Loans that have Loan-to-Value Ratios at the time
of origination in excess of 80%. FHA insurance and VA guarantees will be
deemed to be an acceptable Primary Mortgage Insurance Policy under the Pool
Insurance Policy. Assuming satisfaction of these conditions, the Pool Insurer
will pay to the Insured the amount of loss, determined as follows: (i) the
amount of the unpaid principal balance of the Mortgage Loan immediately prior
to the Approved Sale (as described below) of the Mortgaged Property, (ii) the
amount of the accumulated unpaid interest on such Mortgage Loan to the date of
claim settlement at the applicable Mortgage Rate and (iii) advances as
described above, less (a) all rents or other payments (excluding proceeds of
fire and extended coverage insurance) collected or received by the Insured,
which are derived from or in any way related to the Mortgaged Property, (b)
amounts paid under applicable fire and extended coverage policies which are in
excess of the cost of restoring and repairing the Mortgaged Property and which
have not been applied to the payment of the Mortgage Loan, (c) any claims
payments previously made by the Pool Insurer on the Mortgage Loan, (d) due and
unpaid premiums payable with respect to the Pool Insurance Policy and (e) all
claim payments received by the Insured pursuant to any Primary Mortgage
Insurance Policy. An "Approved Sale" is (1) a sale of the Mortgaged Property
acquired because of a default by the Mortgagor to which the Pool Insurer has
given prior approval, (2) a foreclosure or trustee's sale of the Mortgaged
Property at a price exceeding the maximum amount specified by the Pool
Insurer, (3) the acquisition of the Mortgaged Property under the Primary
Insurance Policy by the Primary Mortgage
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Insurer or (4) the acquisition of the Mortgaged Property by the Pool Insurer.
The Pool Insurer must be provided with good and merchantable title to the
Mortgaged Property as a condition precedent to the payment of any Loss. If any
Mortgaged Property securing a defaulted Mortgage Loan is damaged and the
proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
Mortgaged Property to a condition sufficient to permit recovery under the Pool
Insurance Policy, the Master Servicer or the Servicer of the related Mortgage
Loan will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it is determined (A) that such restoration will
increase the proceeds to the Certificateholders of the related Series on
liquidation of the Mortgage Loan, after reimbursement of the expenses of the
Master Servicer or the Servicer, as the case may be, and (B) that such
expenses will be recoverable by it through payments under the Letter of
Credit, if any, with respect to such Series, Liquidation Proceeds, Insurance
Proceeds, amounts in the Reserve Fund, if any, or payments under any
Alternative Credit Support, if any, with respect to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor,
the Unaffiliated Seller, the Originator or other persons involved in the
origination thereof, (ii) the exercise by the Insured of its right to call the
Mortgage Loan, or the term of the Mortgage Loan is shorter than the
amortization period and the defaulted payment is for an amount more than twice
the regular periodic payments of principal and interest for such Mortgage
Loan, or (iii) the exercise by the Insured of a "due-on-sale" clause or other
similar provision in the Mortgage Loan; provided, in either case (ii) or
(iii), such exclusion shall not apply if the Insured offers a renewal or
extension of the Mortgage Loan or a new Mortgage Loan at the market rate in an
amount not less than the then outstanding principal balance with no decrease
in the amortization period. A failure of coverage attributable to one of the
foregoing events might result in a breach of the Master Servicer's
insurability representation described under "Description of the Certificates--
Assignment of Mortgage Loans" above, and in such event, subject to the
limitations described therein, might give rise to an obligation on the part of
the Master Servicer to purchase the defaulted Mortgage Loan if the breach
materially and adversely affects the interests of the Certificateholders of
the related Series and cannot be cured by the Master Servicer. Depending upon
the nature of the event, a breach of representation made by the Depositor or
an Unaffiliated Seller may also have occurred. Such a breach, if it materially
and adversely affects the interests of the Certificateholders of such Series
and cannot be cured, would give rise to a repurchase obligation on the part of
the Unaffiliated Seller as more fully described under "The Trust Fund--
Mortgage Loan Program--Representations by Unaffiliated Sellers; Repurchases"
and "Description of the Certificates--Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed Mortgaged
Properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer or by the Servicer of the defaulted
Mortgage Loan as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. Accordingly, if aggregate net claims paid under
a Pool Insurance Policy reach the original policy limit, coverage under the
Pool Insurance Policy will lapse and any further losses will be borne by the
holders of the Certificates of such Series. In addition, unless the Master
Servicer or the related Servicer could determine that an Advance in respect of
a delinquent Mortgage Loan would be recoverable to it from the proceeds of the
liquidation of such Mortgage Loan or otherwise, neither such Servicer nor the
Master Servicer would be obligated to make an Advance respecting any such
delinquency, since the Advance would not be ultimately recoverable to it from
either the Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Certificates. Any Special Hazard Insurance
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Policies for a Contract Pool underlying a Series of Certificates will be
described in the related Prospectus Supplement. The Special Hazard Insurance
Policy for the Mortgage Pool underlying the Certificates of a Series will be
issued by the Special Hazard Insurer named in the applicable Prospectus
Supplement. Each Special Hazard Insurance Policy will, subject to the
limitations described below, protect against loss by reason of damage to
Mortgaged Properties caused by certain hazards (including vandalism and
earthquakes and, except where the Mortgagor is required to obtain flood
insurance, floods and mudflows) not insured against under the standard form of
hazard insurance policy for the respective states in which the Mortgaged
Properties are located. See "Description of the Certificates--Maintenance of
Insurance Policies" and "--Standard Hazard Insurance." The Special Hazard
Insurance Policy will not cover losses occasioned by war, certain governmental
actions, nuclear reaction and certain other perils. Coverage under a Special
Hazard Insurance Policy will be at least equal to the amount set forth in the
related Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
will provide that, when there has been damage to the Mortgaged Property
securing a defaulted Mortgage Loan and to the extent such damage is not
covered by the Standard Hazard Insurance Policy, if any, maintained by the
Mortgagor, the Master Servicer or the Servicer, the Special Hazard Insurer
will pay the lesser of (i) the cost of repair or replacement of such Mortgaged
Property or (ii) upon transfer of such Mortgaged Property to the Special
Hazard Insurer, the unpaid balance of such Mortgage Loan at the time of
acquisition of such Mortgaged Property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement (excluding
late charges and penalty interest) and certain expenses incurred in respect of
such Mortgaged Property. No claim may be validly presented under a Special
Hazard Insurance Policy unless (i) hazard insurance on the Mortgaged Property
has been kept in force and other reimbursable protection, preservation and
foreclosure expenses have been paid (all of which must be approved in advance
as necessary by the insurer) and (ii) the insured has acquired title to the
Mortgaged Property as a result of default by the Mortgagor. If the sum of the
unpaid principal balance plus accrued interest and certain expenses is paid by
the Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the Mortgaged Property. Any amount paid as the cost
of repair of the Mortgaged Property will further reduce coverage by such
amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the Special Hazard Insurance Policy will be designed to
permit full recoveries under the Pool Insurance Policy in circumstances where
such recoveries would otherwise be unavailable because Mortgaged Property has
been damaged by a cause not insured against by a Standard Hazard Insurance
Policy. In such event the Pooling and Servicing Agreement will provide that,
if the related Pool Insurance Policy shall have terminated or been exhausted
through payment of claims, the Master Servicer will be under no further
obligation to maintain such Special Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court may
establish the value of the related Mortgaged Property or Cooperative Dwelling
at an amount less than the then outstanding principal balance of the related
Mortgage Loan. The amount of the secured debt could be reduced to such value,
and the holder of such Mortgage Loan thus would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan exceeds
the value so assigned to the Mortgaged Property or Cooperative Dwelling by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding. If so specified in the
related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Certificates will be covered under a Mortgagor Bankruptcy Bond (or any other
instrument that will not result in a downgrading of the rating of the
Certificates of a Series by the Rating Agency that rated such Series). Any
Mortgagor Bankruptcy Bond will provide for coverage in an amount acceptable to
the Rating Agency rating the
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Certificates of the related Series, which will be set forth in the related
Prospectus Supplement. Subject to the terms of the Mortgagor Bankruptcy Bond,
the issuer thereof may have the right to purchase any Mortgage Loan with
respect to which a payment or drawing has been made or may be made for an
amount equal to the outstanding principal amount of such Mortgage Loan plus
accrued and unpaid interest thereon. The coverage of the Mortgagor Bankruptcy
Bond with respect to a Series of Certificates may be reduced as long as any
such reduction will not result in a reduction of the outstanding rating of the
Certificates of such Series by the Rating Agency rating such Series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing conditional sales contracts and
installment loan agreements which are general in nature. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
General
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first or
more junior mortgages or deeds of trust, depending upon the prevailing
practice in the state in which the underlying property is located. The filing
of a mortgage, deed of trust or deed to secure debt creates a lien or title
interest upon the real property covered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by a
promissory note. It is not prior to the lien for real estate taxes and
assessments or other charges imposed under governmental police powers.
Priority with respect to such instruments depends on their terms, the
knowledge of the parties to the mortgage and generally on the order of
recording with the applicable state, county or municipal office. There are two
parties to a mortgage: the mortgagor, who is the borrower and homeowner, and
the mortgagee, who is the lender. In a mortgage state, the mortgagor delivers
to the mortgagee a note or bond evidencing the loan and the mortgage. Although
a deed of trust is similar to a mortgage, a deed of trust has three parties:
the borrower-homeowner called the trustor (similar to a mortgagor), a lender
called the beneficiary (similar to a mortgagee) and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure payment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
the express provisions of the deed of trust or mortgage, applicable law and,
in some cases, with respect to the deed of trust, the directions of the
beneficiary.
The real property covered by a mortgage is most often the fee estate in land
and improvements. However, a mortgage may encumber other interests in real
property such as a tenant's interest in a lease of land or improvements, or
both, and the leasehold estate created by such lease. A mortgage covering an
interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage to
protect the mortgagee against termination of such interest before the mortgage
is paid. Certain representations and warranties in the related Agreement will
be made with respect to the Mortgage Loans which are secured by an interest in
a leasehold estate.
Installment Contracts
The Commercial Mortgage Loans and Mixed-Use Mortgage Loans included in the
Mortgage Pool for a Series may also consist of Installment Contracts. Under an
Installment Contract the seller (hereinafter referred to in this Section as
the "lender") retains legal title to the property and enters into an agreement
with the purchaser
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(hereinafter referred to in this Section as the "borrower") for the payment of
the purchase price, plus interest, over the term of such contract. Only after
full performance by the borrower of the contract is the lender obligated to
convey title to the real estate to the purchaser. As with mortgage or deed of
trust financing, during the effective period of the Installment Contract, the
borrower is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the borrower's equitable interest in the property is forfeited. The lender
in such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the borrower and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have a
post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Contract for the sale of real estate to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally speaking, the
lender's procedures for obtaining possession and clear title under an
Installment Contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be secured by junior mortgages or deeds of trust which are subordinate to
senior mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the
Certificateholders), as beneficiary under a junior deed of trust or as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive rents, hazard
insurance and condemnation proceeds and to cause the property securing the
Mortgage Loan to be sold upon default of the mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Master Servicer asserts its subordinate interest in a property in foreclosure
litigation or satisfies the defaulted senior loan. As discussed more fully
below, in many states a junior mortgagee or beneficiary may satisfy a
defaulted senior loan in full, or may cure such default and bring the senior
loan current, in either event adding the amounts expended to the balance due
on the junior loan. Absent a provision in the senior mortgage, no notice of
default is required to be given to the junior mortgagee.
The form of the mortgage or deed of trust used by many institutional lenders
confers on the mortgagee or beneficiary the right both to receive all proceeds
collected under any hazard insurance policy and all awards made in connection
with any condemnation proceedings, and to apply such proceeds and awards to
any indebtedness secured by the mortgage or deed of trust, in such order as
the mortgagee or beneficiary may determine. Thus, in the event improvements on
the property are damaged or destroyed by fire or other casualty, or in the
event the property is taken by condemnation, the mortgagee or beneficiary
under the senior mortgage or deed of trust will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases,
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be applied to the indebtedness of a junior mortgage or deed of trust. The laws
of certain states may limit the ability of mortgagees or beneficiaries to
apply the proceeds of hazard insurance and partial condemnation awards to the
secured indebtedness. In such states, the mortgagor or trustor must be allowed
to use the proceeds of hazard insurance to repair the damage unless the
security of the mortgagee or beneficiary has been impaired. Similarly, in
certain states, the mortgagee or beneficiary is entitled to the award for a
partial condemnation of the real property security only to the extent that its
security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of
any advance made under the clause depends, in some states, on whether the
advance was an "obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance may be
entitled to receive the same priority as amounts initially made under the
mortgage or deed of trust, notwithstanding that there may be intervening
junior mortgages or deeds of trust and other liens between the date of
recording of the mortgage or deed of trust and the date of the future advance,
and notwithstanding that the mortgagee or beneficiary had actual knowledge of
such intervening junior mortgages or deeds of trust and other liens at the
time of the advance. Where the mortgagee or beneficiary is not obligated to
advance the additional amounts and has actual knowledge of the intervening
junior mortgages or deeds of trust and other liens, the advance may be
subordinate to such intervening junior mortgages or deeds of trust and other
liens. Priority of advances under a "future advance" clause rests, in many
other states, on state law giving priority to all advances made under the loan
agreement up to a "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior to
the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the
mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary
on behalf of the trustor. All sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute a lease unless the mortgagee or beneficiary executes a
written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or beneficiary
with the result that the value of the security for the junior mortgage or deed
of trust is diminished. For example, a senior mortgagee or beneficiary may
decide not to approve a lease or to refuse to grant to a tenant a non-
disturbance agreement. If, as a result, the lease is not executed, the value
of the mortgaged property may be diminished.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can
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be time-consuming. After the completion of a judicial foreclosure proceeding,
the court may issue a judgment of foreclosure and appoint a receiver or other
officer to conduct the sale of the property. In some states, mortgages may
also be foreclosed by advertisement, pursuant to a power of sale provided in
the mortgage. Foreclosure of a mortgage by advertisement is essentially
similar to foreclosure of a deed of trust by non-judicial power of sale. If
the mortgage covered the tenant's interest in a lease and leasehold estate,
the purchaser will acquire such tenant's interest subject to the tenant's
obligations under the lease to pay rent and perform other covenants contained
therein.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the
terms of the note or deed of trust. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person
who has recorded a request for a copy of a notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other
individual having an interest in the real property, including any junior
lienholders. If the loan is not reinstated within any applicable cure period,
a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be posted
on the property and sent to all parties having an interest of record in the
property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of
title to the property subject to the lien of the mortgage or deed of trust and
the redemption rights that may exist (see "--Rights of Redemption" below), and
the fact that the physical condition and financial performance of the property
may have deteriorated during the foreclosure proceedings, it is uncommon for a
third party to purchase the property at the foreclosure sale. Rather, it is
common for the lender to purchase the property from the trustee or receiver
for a credit bid less than or equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance, paying operating expenses and real
estate taxes and making such repairs at its own expense as are necessary to
render the property suitable for sale. Frequently, the lender employs a third-
party management company to manage and operate the property. The costs of
operating and maintaining commercial and mixed-use property may be significant
and may be greater than the income derived from that property. The costs of
management and operation of those mortgaged properties that are hotels, motels
or nursing or convalescent homes or hospitals may be particularly significant
because of the expertise, knowledge and, with respect to nursing or
convalescent homes or hospitals, regulatory compliance, required to run such
operations and the effect which foreclosure and a change in ownership may have
on the public's and the industry's (including franchisors') perception of the
quality of such operations. The lender commonly will obtain the services of a
real estate broker and pay the broker a commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of
the sale of the property may not equal the lender's investment in the
property. Any loss may be reduced by the receipt of mortgage insurance
proceeds.
Under the REMIC provision of the Code and the related Agreement, the Master
Servicer or Special Servicer, if any, may be permitted to hire an independent
contractor to operate any REO Property. The costs of such operation may be
significantly greater than the costs of direct operation by the Master
Servicer or Special Servicer, if any. In the case of a Series in which an
election is made to treat the related Trust Fund as a REMIC, the Master
Servicer or the Special Servicer (as the case may be) shall, on behalf of the
Trust Fund, manage,
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conserve, protect and operate each REO Property for the Certificateholders
solely for the purpose of its prompt disposition and sale in a manner which
does not cause such REO Property to fail to qualify as "foreclosure property"
within the meaning of Section 860G(a)(8) of the Code (determined without
regard to the exception applicable for purposes of Section 860D(a) of the
Code) or result in the receipt by the REMIC of any "income from nonpermitted
assets" within the meaning of Section 860F(a)(2)(B) of the Code or any "net
income from foreclosure property" under Section 860G(c) of the Code, which is
subject to taxation under the REMIC Provisions.
Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced
by promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under
the Code and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the
corporations' buildings. The security agreement will create a lien upon, or
grant a title interest in, the property that it covers, the priority of which
will depend on the terms of the particular security agreement as well as the
order of recordation of the agreement in the appropriate recording office.
Such a lien or title interest is not prior to the lien for real estate taxes
and assessments and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most
cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is generally the case, or an underlying lease of
the land, as is the case in some instances, the cooperative, as property
mortgagor, is also responsible for meeting these mortgage or rental
obligations. The interest of the occupancy under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable to
meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. Also, a
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative
to refinance a mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee. Similarly, a land lease
has an expiration date and the inability of the cooperative to extend its term
or, in the alternative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. A foreclosure by the holder of a blanket
mortgage could eliminate or significantly diminish the value of any collateral
held by the lender who financed an individual tenant-stockholder of
cooperative shares including, in the case of the Cooperative Loans, the
collateral securing the Cooperative Loans. Similarly, the termination of the
land lease by its holder could eliminate or significantly diminish the value
of any collateral held by the lender who financed an individual tenant-
stockholder of the cooperative shares or, in the case of the Cooperative
Loans, the collateral securing the Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally,
a tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
a security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement,
and a financing statement covering the proprietary lease or occupancy
agreement
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and the cooperative shares is filed in the appropriate state and local offices
to perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue
for judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "--Realizing upon Cooperative Loan Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Section 216(a) of the Code to
the corporation under Sections 163 and 164 of the Code. In order for a
corporation to qualify under Section 216(b)(1) of the Code for its taxable
year in which such items are allowable as a deduction to the corporation, such
section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholder. By virtue of this
requirement the status of a corporation for purposes of Section 216(b)(1) of
the Code must be determined on a year-to-year basis. Consequently, there can
be no assurance that cooperatives relating to the Cooperative Loans will
qualify under such section for any particular year. In the event that such a
cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies under Section 216(b)(1) of the Code, the likelihood that such a
failure would be permitted to continue over a period of years appears remote.
Realizing Upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned by
the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease
or occupancy agreement. The proprietary lease or occupancy agreement, even
while pledged, may be cancelled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy
agreement which are owed to the cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event the borrower defaults in the
performance of covenants thereunder. The lender and the cooperative will
typically enter into a recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the tenant-
stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement or that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the cooperative loan and
accrued and unpaid interest thereon.
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Recognition agreements also provide that in the event the lender succeeds to
the tenant-shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon the collateral for a cooperative loan, the
lender must obtain the approval or consent of the cooperative as required by
the proprietary lease before transferring the cooperative shares or assigning
the proprietary lease. Such approval or consent is usually based on the
prospective purchaser's income and net worth, among other factors, and may
significantly reduce the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value of the collateral.
Generally, the lender is not limited in any rights it may have to dispossess
the tenant-shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may
adversely affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the sale.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See
"AntiDeficiency Legislation and Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted from
a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a
foreclosure sale take the property subject to rent control and rent
stabilization laws which apply to certain tenants who elected to remain in the
building but not to purchase shares in the cooperative when the building was
so converted. Any such restrictions could adversely affect the number of
potential purchasers for and the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale
following judicial foreclosure, and not a sale pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states, the right to redeem is an
equitable right. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The exercise of a
right of redemption would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has
run.
Borrowers under Installment Contracts generally do not have the benefits of
redemption periods such as exist in the same jurisdiction for mortgage loans.
Where redemption statutes do exist under state laws for Installment Contracts,
the redemption period is usually far shorter than for mortgages.
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Anti-Deficiency Legislation and Other Limitations on Lenders
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be nonrecourse loans as to which, in the event of default by a Mortgagor,
recourse may be had only against the specific property pledged to secure the
related Mortgage Loan and not against the Mortgagor's other assets. Even if
recourse is available pursuant to the terms of the Mortgage Loan against the
Mortgagor's assets in addition to the Mortgaged Property, certain states have
imposed statutory restrictions that limit the remedies of a beneficiary under
a deed of trust or a mortgagee under a mortgage. In some states, statutes
limit the right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following foreclosure or a non-judicial sale
under a deed of trust. A deficiency judgment is a personal judgment against
the former borrower equal in most cases to the difference between the amount
due to the lender and the net amount realized upon the foreclosure sale. Other
statutes prohibit a deficiency judgment where the loan proceeds were used to
purchase a dwelling occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a
Chapter 13 proceeding under the federal Bankruptcy Code, when a court
determines that the value of a home is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home, and, as
part of the rehabilitation plan, reduce the amount of the secured indebtedness
to the value of the home as it exists at the time of the proceeding, leaving
the lender as a general unsecured creditor for the difference between that
value and the amount of outstanding indebtedness. A bankruptcy court may grant
the debtor a reasonable time to cure a payment default, and in the case of a
mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Certain court decisions have
applied such relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection
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with the origination, servicing and the enforcement of mortgage loans. These
laws include the federal Truth in Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act, and related statutes and regulations. These federal laws
and state laws impose specific statutory liabilities upon lenders who
originate or service mortgage loans and who fail to comply with the provisions
of the law. In some cases, this liability may affect assignees of the mortgage
loans.
If so specified in the related Prospectus Supplement, each Mortgage Loan
secured by Multifamily Property will be a non-recourse loan to the Mortgagor.
As a result, the Mortgagor's obligation to repay the Mortgage Loan can be
enforced only against the Mortgaged Property regardless of whether the
Mortgagor has other assets from which it could repay the loan.
If so specified in the related Prospectus Supplement, the mortgage securing
each Mortgage Loan relating to Multifamily Property, Mixed-Use Property or
Commercial Property will contain an assignment of rents and an assignment of
leases, pursuant to which the borrower assigns its right, title and interest
as landlord under each lease and the income derived therefrom to the
Depositor, while retaining a license to collect the rents so long as there is
no default. In the event the borrower defaults, the license terminates and the
Trustee (as the assignee of such assignment) is entitled to collect the rents.
The Trustee may enforce its right to such rents by seeking the appointment of
a receiver to collect the rents immediately after giving notice to the
borrower of the default.
Bankruptcy Laws
Numerous statutory provisions, including the Bankruptcy Code and state laws
affording relief to debtors, may interfere with and delay the ability of the
secured mortgage lender to obtain payment of the loan, to realize upon
collateral and/or to enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of
the bankruptcy petition, and, often, no interest or principal payments are
made during the course of the bankruptcy proceeding. The delay and
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in bankruptcy by or on
behalf of a junior lienor, including, without limitation, any junior mortgagee
or beneficiary, may stay the senior lender from taking action to foreclose on
such junior lien. Certain of the Mortgaged Properties may have a junior
"wraparound" mortgage or deed of trust encumbering such Mortgaged Property. In
general terms, a "wraparound" mortgage is a junior mortgage where the full
amount of the mortgage is increased by an amount equal to the principal
balance of the senior mortgage and where the junior lender agrees to pay the
senior mortgage out of the payments received from the mortgagor under the
"wraparound" mortgage. As with other junior mortgages, the filing of a
petition under the Bankruptcy Code by or on behalf of such a "wrap" mortgagee
may stay the senior lender from taking action to foreclose upon such junior
"wrap" mortgage.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage or deed
of trust secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real property
may be reduced to the then current value of the property (with a corresponding
partial reduction of the amount of the lender's security interest), thus
leaving the lender a general unsecured creditor for the difference between
such value and the outstanding balance of the loan. Other modifications may
include the reduction in the amount of each monthly payment, which reduction
may result from a reduction in the rate of interest and/or the alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or an extension (or reduction) of the final maturity date.
Some bankruptcy courts have approved plans, based on the particular facts of
the reorganization case, that effected the curing of a mortgage loan default
by paying arrearages over a number of years. Also, under the Bankruptcy Code,
a bankruptcy court may permit a debtor through its plan to de-accelerate a
secured loan and to reinstate the loan even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court (provided no sale of the property had yet occurred) prior to the filing
of the debtor's petition. This may be done even if the full amount due under
the original loan is never repaid. Other types of significant modifications to
the terms of the mortgage may be acceptable to the bankruptcy court, often
depending on the particular facts and circumstances of the specific case.
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A "deficient valuation" with respect to any mortgage loan is the excess of
(a)(i) the then outstanding principal balance of the mortgage loan, plus (ii)
accrued and unpaid interest and expenses reimbursable under the terms of the
related note to the date of the bankruptcy petition (collectively, the
"Outstanding Balance"), over (b) a valuation by a court of competent
jurisdiction of the mortgaged property which reduces the principal balance
receivable on such mortgage loan to an amount less than the Outstanding
Balance of the mortgage loan, which valuation results from a proceeding
initiated under the Bankruptcy Code. As used herein, "Deficient Valuation"
means, with respect to any Mortgage Loan, the deficient valuation described in
the preceding sentence, without giving effect to clause (a)(ii) thereof. If
the terms of a court order in respect of any retroactive Deficient Valuation
provide for a reduction in the indebtedness of a Mortgage Loan and the earlier
maturity thereof, the term Deficient Valuation includes an additional amount
equal to the excess, if any, of (a) the amount of principal that would have
been due on such Mortgage Loan for each month retroactively affected (i.e.
each month occurring after the effective date of such Deficient Valuation but
before the distribution of amounts in respect of such Deficient Valuation to
Certificateholders pursuant to the related Agreement), based on the original
payment terms and amortization schedule of such Mortgage Loan over (b) the
amount of principal due on such Mortgage Loan for each such retroactive month
(assuming the effect of such retroactive application according to such
Mortgage Loan's revised amortization schedule). A "Debt Service Reduction,"
with respect to any Mortgage Loan, is a reduction in the scheduled monthly
payment, as described in the Agreement, for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such
a reduction resulting from a Deficient Valuation.
Federal bankruptcy law may also interfere with or affect the ability of the
secured mortgage lender to enforce an assignment by a mortgagor of rents and
leases related to the mortgaged property if the related mortgagor is in a
bankruptcy proceeding. Under Section 362 of the Bankruptcy Code, the mortgagee
will be stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue can be time-consuming and may result in
significant delays in the receipt of the rents. Rents may also escape an
assignment thereof (i) if the assignment is not fully perfected under state
law prior to commencement of the bankruptcy proceeding, (ii) to the extent
such rents are used by the borrower to maintain the mortgaged property, or for
other court authorized expenses, or (iii) to the extent other collateral may
be substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may
be impaired by the commencement of a bankruptcy proceeding relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a lessee results in a stay in bankruptcy
against the commencement or continuation of any state court proceeding for
past due rent, for accelerated rent, for damages or for a summary eviction
order with respect to a default under the lease that occurred prior to the
filing of the lessee's petition.
In addition, federal bankruptcy law generally provides that a trustee or
debtor in possession in a bankruptcy or reorganization case under the
Bankruptcy Code may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk or
an unfamiliar tenant if the lease was assigned, and any assurances provided to
the lessor may, in fact, be inadequate. Furthermore, there is likely to be a
period of time between the date upon which a lessee files a bankruptcy
petition and the date upon which the lease is assumed or rejected. Although
the lessee is obligated to make all lease payments currently with respect to
the post-petition period, there is a risk that such payments will not be made
due to the lessee's poor financial condition. If the lease is rejected, the
lessor will be treated as an unsecured creditor with respect to its claim for
damages for termination of the lease and the mortgagor must relet the
mortgaged property before the flow of lease payments will recommence. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection are limited.
In a bankruptcy or similar proceeding action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term
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debt may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
"Due-on-Sale" Clauses
The enforceability of these clauses has been subject of legislation or
litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of due-
on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain
Act does "encourage" lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the average of the original
rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also
prohibit the imposition of prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may
be outstanding until maturity.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty
when the prepayment is caused by the lender's acceleration of the loan
pursuant to a due-on-sale clause. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Servicing Agreements and the Pooling and Servicing
Agreement, late charges and prepayment fees (to the extent permitted by law
and not waived by the Servicers) may be retained by the Servicers, Special
Servicer or Master Servicer as additional servicing compensation.
Some of the Commercial Mortgage Loans, Multifamily Mortgage Loans and Mixed-
Use Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of
all states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
courts of any state, however, may refuse to permit foreclosure of a mortgage
or deed of trust when an acceleration of the indebtedness would be inequitable
or unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the Mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
State courts also are known to apply various legal and equitable principles
to avoid enforcement of the forfeiture provisions of Installment Contracts.
For example, a lender's practice of accepting late payments from the borrower
may be deemed a waiver of the forfeiture clause. State courts also may impose
equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the contract following a default. Not
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infrequently, if a borrower under an Installment Contract has significant
equity in the property, equitable principles will be applied to reform or
reinstate the contract or to permit the borrower to share the proceeds upon a
foreclosure sale of the property if the sale price exceeds the debt.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and sometimes expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower will be able
to reinstate the loan. In some cases, courts have substituted their judgment
for the lender's judgment and have required lenders to reinstate loans or
recast payment schedules to accommodate borrowers who are suffering from
temporary financial disability. In some cases, courts have limited the right
of lenders to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain or insure the
property or the borrower executing a second mortgage or deed of trust
affecting the property. In other cases, some courts have been faced with the
issue whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under the deeds of
trust receive notices in addition to the statutorily-prescribed minimum
requirements. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that the sale by a trustee under a deed of
trust or under a mortgage having a power of sale does not involve sufficient
state action to afford constitutional protections to the borrower.
Environmental Considerations
Real property pledged as security to a lender may be subject to potential
environmental risks. Such environmental risks may give rise to a diminution in
value of property securing any Mortgage Loan or, as more fully described
below, liability for cleanup costs or other remedial actions, which liability
could exceed the value of such property or the principal balance of the
related Mortgage Loan. In certain circumstances, a lender may choose not to
foreclose on contaminated property rather than risk incurring liability for
remedial actions.
Under the laws of certain states where the Mortgaged Properties are located,
the owner's failure to perform remedial actions required under environmental
laws may in certain circumstances give rise to a lien on the Mortgaged
Property to ensure the reimbursement of remedial costs incurred by the state.
In several states such lien has priority over the lien of an existing mortgage
against such property. Because the costs of remedial action could be
substantial, the value of a Mortgaged Property as collateral for a Mortgage
Loan could be adversely affected by the existence of an environmental
condition giving rise to a lien.
Under some circumstances, cleanup costs, or the obligation to take remedial
actions, can be imposed on a secured lender such as the Trust Fund with
respect to each Series. Under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), current ownership or operation of a property provides a
sufficient basis for imposing liability for the costs of addressing prior or
current releases or threatened releases of hazardous substances on that
property. Under such laws, a secured lender who holds indicia of ownership
primarily to protect its interest in a property may, by virtue of holding such
indicia, fall within the literal terms of the definition of "owner or
operator"; consequently, such laws often specifically exclude such a secured
lender from the definitions of "owner" or "operator", provided that the lender
does not participate in the management of the facility.
Whether actions taken by a secured creditor would constitute such
participation in the management of a facility or property, so that the lender
loses the protection of the secured creditor exclusion, has been a matter of
judicial interpretation of the statutory language, and court decisions have
historically been inconsistent. In 1990, the United States Court of Appeals
for the Eleventh Circuit suggested, in United States v. Fleet Factors Corp.,
that the mere capacity of the lender to influence a borrower's decisions
regarding disposal of hazardous substances was sufficient participation in the
management of the borrower's business to deny the protection of the secured
creditor exclusion to the lender, regardless of whether the lender actually
exercised such influence. Other judicial decisions did not interpret the
secured creditor exclusion as narrowly as did the Eleventh Circuit.
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This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996
(the "Asset Conservation Act"), which took effect on September 30, 1996. The
Asset Conservation Act provides that in order to be deemed to have
participated in the management of a secured property, a lender must actually
participate in the operational affairs of the property or the borrower. The
Asset Conservation Act also provides that participation in the management of
the property does not include "merely having the capacity to influence, or
unexercised right to control" operations. Rather, a lender will lose the
protection of the secured creditor exclusion only if it exercises decision-
making control over the borrower's environmental compliance and hazardous
substance handling and disposal practices, or assumes day-to-day management of
all operational functions of the secured property.
It should be noted that the secured creditor exclusion does not govern
liability for cleanup costs under federal laws other than CERCLA. CERCLA's
jurisdiction extends to the investigation and remediation of releases of
"hazardous substances." The definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Under federal law, the operation and
management of underground petroleum storage tanks (excluding heating oil) is
governed by Subtitle I of the Resource Conservation and Recovery Act ("RCRA").
Under the Asset Conservation Act, the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. However, liability for cleanup of petroleum contamination will
most likely be governed by state law, which may not provide any specific
protection for secured creditors.
If so specified in the related Prospectus Supplement, each Unaffiliated
Seller will represent, as of the date of delivery of the related Series of
Certificates, that to the best of its knowledge no Mortgaged Property secured
by Commercial Property, Multifamily Property or Mixed-Use Property is subject
to an environmental hazard that would have to be eliminated under applicable
law before the sale of, or which could otherwise affect the marketability of,
such Mortgaged Property or which would subject the owner or operator of such
Mortgaged Property or a lender secured by such Mortgaged Property to liability
under law, and that there are no liens which relate to the existence of any
clean-up of a hazardous substance (and to the best of its knowledge no
circumstances are existing that under law would give rise to any such lien)
affecting the Mortgaged Property which are or may be liens prior to or on a
parity with the lien of the related mortgage. The Pooling and Servicing
Agreement will further provide that the Master Servicer, acting on behalf of
the Trust Fund, may not acquire title to a Mortgaged Property or take over its
operation unless the Master Servicer has received a report from a qualified
independent person selected by the Master Servicer setting forth whether such
Mortgaged Property is subject to or presents any toxic wastes or environmental
hazards and an estimate of the cost of curing or cleaning up such hazard. With
respect to any Mortgage Pool that contains Commercial Mortgage Loans or Mixed-
Use Mortgage Loans, the related Pooling and Servicing Agreement will provide
that the Master Servicer (of, if applicable, the Special Servicer), acting on
behalf of the Trust Fund, may not acquire title to a Mortgaged Property
securing a Commercial Mortgage Loan or Mixed-Use Mortgage Loan or take over
its operation unless such Master Servicer (or, if applicable, the Special
Servicer) has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws or, if not, that taking
such actions as are necessary to bring the Mortgaged Property in compliance
therewith is likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions and (ii) there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances for
which investigation, testing, monitoring, containment, cleanup or remediation
could be required under any federal, state or local law or regulation, or
that, if any hazardous substances are present for which such action would be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions. Such requirements effectively preclude enforcement of the security
for the related Mortgage Note until a satisfactory environmental assessment is
obtained or any required remedial action is taken, reducing the likelihood
that a given Trust Fund will become liable for any environmental conditions
affecting a Mortgaged Property, but making it more difficult to realize on the
security for the Mortgage Loan. However, there can be no assurance that any
environmental assessment obtained by the Master
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Servicer will detect all possible environmental conditions or that the other
requirements of the Pooling and Servicing Agreement, even if fully observed by
the Master Servicer will in fact insulate a given Trust Fund from liability
for environmental conditions.
If a lender is or becomes liable for clean-up costs, it may bring an action
for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment-proof. Furthermore, such action against the
Mortgagor may be adversely affected by the limitations on recourse in the loan
documents. Similarly, in some states anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a
personal action against the borrower-trustor (see "--Anti-Deficiency
Legislation" below) may curtail the lender's ability to recover from its
borrower the environmental clean-up and other related costs and liabilities
incurred by the lender. Shortfalls occurring as the result of imposition of
any clean-up costs will be addressed in the Prospectus Supplement and
Agreement for the related Series.
Soldiers' and Sailors' Relief Act
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent
not covered by any applicable Enhancements, could result in losses to the
Holders of the Certificates. The Relief Act applies to mortgagors who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast
Guard and officers of the U.S. Public Health Service assigned to duty with the
military. Because the Relief Act applies to mortgagors who enter military
service (including reservists who are later called to active duty) after
origination of the related Mortgage Loan, no information can be provided as to
the number of Mortgage Loans that may be affected by the Relief Act. In
addition, the Relief Act imposes limitations which would impair the ability of
the Master Servicer to foreclose on an affected Mortgage Loan during the
Mortgagor's period of active duty status and, under certain circumstances,
during an additional three months thereafter. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgage Property in a timely fashion.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate mortgage loans,
originated by non-federally chartered lenders have historically been subjected
to a variety of restrictions. Such restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in compliance
with applicable law. These difficulties were alleviated substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act ("Title
VIII"). Title VIII provides that, notwithstanding any state law to the
contrary, state-chartered banks may originate alternative mortgage instruments
in accordance with regulations promulgated by the Comptroller of the Currency
with respect to origination of alternative mortgage instruments by national
banks, state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National Credit
Union Administration (the "NCUA") with respect to origination of alternative
mortgage instruments by federal credit unions, and all other non-federally
chartered housing creditors, including state-chartered savings and loan
associations, state-chartered savings banks and mortgage banking companies,
may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board (now the Office of
Thrift Supervision) with respect to origination of alternative mortgage
instruments by federal savings and loan associations. Title VIII authorized
any state to reject applicability of the provision of Title VIII by adopting,
prior to October 15, 1985, a law or constitutional provision expressly
rejecting the applicability of such provisions. Certain states have taken such
action.
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Leases and Rents
Some of the Commercial Mortgage Loans, Multifamily Mortgage Loans and Mixed-
Use Mortgage Loans included in the Mortgage Pool for a Series may be secured
by an assignment of leases (each, a "Lease") and rents of one or more lessees
(each, a "Lessee"), either through a separate document of assignment or as
incorporated in the mortgage. Under such assignments, the Mortgagor under the
mortgage loan typically assigns its right, title and interest as landlord
under each Lease and the income derived therefrom to the lender, while
retaining a license to collect the rents for so long as there is no default
under the mortgage loan documentation. The manner of perfecting the lender's
interest in rents may depend on whether the mortgagor's assignment was
absolute or one granted as security for the loan. Failure to properly perfect
the lender's interest in rents may result in the loss of a substantial pool of
funds which could otherwise serve as a source of repayment for the loan. In
the event the Mortgagor defaults, the license terminates and the lender may be
entitled to collect rents. Some state laws may require that to perfect its
interest in rents, the lender must take possession of the property and/or
obtain judicial appointment of a receiver before becoming entitled to collect
the rents. Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent to property ownership. In addition, if bankruptcy or
similar proceedings are commenced by or in respect of the borrower, the
lender's ability to collect the rents may be adversely affected. In the event
of borrower default, the amount of rent the lender is able to collect from the
tenants can significantly affect the value of the lender's security interest.
Secondary Financing; Due-on-Encumbrance Provisions
Some of the Mortgage Loans secured by Commercial Property, Mixed-Use
Property or Multifamily Property included in the Mortgage Pool for a Series
may not restrict secondary financing, thereby permitting the Mortgagor to use
the Mortgaged Property as security for one or more additional loans. Some of
the Mortgage Loans secured by Commercial Property, Mixed-Use Property or
Multifamily Property may preclude secondary financing (often by permitting the
first lender to accelerate the maturity of its loan if the Mortgagor further
encumbers the Mortgaged Property) or may require the consent of the senior
lender to any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. The
Pooling and Servicing Agreement for each Series will provide that if any
Mortgage Loan contains a provision in the nature of a "due-on-encumbrance"
clause, which by its terms: (i) provides that such Mortgage Loan shall (or may
at the mortgagee's option) become due and payable upon the creation of any
lien or other encumbrance on the related Mortgaged Property; or (ii) requires
the consent of the related mortgagee to the creation of any such lien or other
encumbrance on the related Mortgaged Property, then for so long as such
Mortgage Loan is included in a given Trust Fund, the Master Servicer or, if
such Mortgage Loan is a Specially Serviced Mortgage Loan, the Special
Servicer, if any, on behalf of such Trust Fund, shall exercise (or decline to
exercise) any right it may have as the mortgagee of record with respect to
such Mortgage Loan (x) to accelerate the payments thereon, or (y) to withhold
its consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in the Agreement.
Where the Mortgagor encumbers the Mortgaged Property with one or more junior
liens, the senior lender is subject to additional risk. First, the Mortgagor
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For
example, if the Mortgagor and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the
senior lender may lose its priority to the extent an existing junior lender is
prejudiced or the Mortgagor is additionally burdened. Third, if the Mortgagor
defaults on the senior loan and/or any junior loan or loans, the existence of
junior loans and actions taken by junior lenders can impair the security
available to the senior lender and can interfere with, delay and in certain
circumstances even prevent the taking of action by the senior lender. Fourth,
the bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
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Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material diminution in
the value of a Mortgaged Property which could, together with the possibility
of limited alternative uses for a particular Mortgaged Property (i.e., a
nursing or convalescent home or hospital), result in a failure to realize the
full principal amount of the related Mortgage Loan.
Type of Mortgaged Property
The lender may be subject to additional risk depending upon the type and use
of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the Mortgagor under a
condominium form of ownership are subject to the declaration, by-laws and
other rules and regulations of the condominium association. Mortgaged
Properties which are hotels or motels may present additional risk to the
lender in that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
operator; and (ii) the transferability of the hotel's operating, liquor and
other licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
Mortgaged Properties which are multifamily residential properties or
cooperatively owned multifamily properties may be subject to rent control
laws, which could impact the future cash flows of such properties.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, owners of public accommodations (such as
hotels, restaurants, shopping centers, hospitals, schools and social service
center establishments) must remove architectural and communication barriers
which are structural in nature from existing places of public accommodation to
the extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible
to and usable by disabled individuals. The "readily achievable" standard takes
into account, among other factors, the financial resources of the affected
site, owner, landlord or other applicable Person. In addition to imposing a
possible financial burden on the borrower in its capacity as owner or
landlord, the ADA may also impose such requirements on a foreclosing lender
who succeeds to the interest of the Mortgagor as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on the
financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the Mortgagor of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the Mortgagor is subject.
THE CONTRACTS
General
As a result of the Depositor's assignment of the Contracts to the Trustee,
the Certificateholders will succeed collectively to all of the rights
(including the right to receive payment on the Contracts) and will assume
certain obligations of the Depositor. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby and (b) the
grant of a security interest in the Manufactured Home to secure repayment of
such loan. Certain aspects of both features of the Contracts are described
more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing
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Agreement, the Master Servicer or the Depositor, as the case may be, will
transfer physical possession of the Contracts to the Trustee or its custodian.
In addition, the Master Servicer will make an appropriate filing of a UCC-1
financing statement in the appropriate states to give notice of the Trustee's
ownership of the Contracts. Unless otherwise specified in the related
Prospectus Supplement, the Contracts will not be stamped or marked otherwise
to reflect their assignment from the Depositor to the Trustee. Therefore, if a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the Trustee's interest in the Contracts
could be defeated.
Security Interests in the Manufactured Homes
The law governing perfection of a security interest in a Manufactured Home
varies from state to state. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the
state motor vehicle authority, depending on state law. In some non-title
states, perfection pursuant to the provisions of the UCC is required. The
lender or Master Servicer may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of title, as
appropriate under the laws of the state in which any manufactured home
securing a manufactured housing conditional sales contract is registered. In
the event the Master Servicer or the lender fails, due to clerical errors, to
effect such notation or delivery, or files the security interest under the
wrong law (for example, under a motor vehicle title statute rather than under
the UCC, in a few states), the Certificateholders may not have a first
priority security interest in the Manufactured Home securing a Contract. As
manufactured homes have become larger and often have been attached their sites
without any apparent intention to move them, courts in many states have held
that manufactured homes, under certain circumstances, may become subject to
real estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate
law. In order to perfect a security interest in a manufactured home under real
estate laws, the holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage under the
real estate laws of the state where the manufactured home is located. These
filings must be made in the real estate records office of the county where the
manufactured home is located. Substantially all of the Contracts will contain
provisions prohibiting the borrower from permanently attaching the
Manufactured Home to its site. So long as the Obligor does not violate this
agreement, a security interest in the Manufactured Home will be governed by
the certificate of title laws or the UCC, and the notation of the security
interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the seller's security
interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in
the Manufactured Home which is prior to the security interest originally
retained by the Unaffiliated Seller and transferred to the Depositor. With
respect to a Series of Certificates and as described in the related Prospectus
Supplement, the Master Servicer may be required to perfect a security interest
in the Manufactured Home under applicable real estate laws. If such real
estate filings are not required and if any of the foregoing events were to
occur, the only recourse of the Certificateholders would be against the
Unaffiliated Seller pursuant to its repurchase obligation for breach of
warranties. Based on the representations of the Unaffiliated Seller, the
Depositor, however, believes that it has obtained a perfected first priority
security interest by proper notation or delivery of the required documents and
fees with respect to substantially all of the Manufactured Homes securing the
Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, neither the Depositor nor the Trustee
will amend the certificates of title to identify the Trustee as the new
secured party. Accordingly, the Depositor or such other entity as may be
specified in the Prospectus Supplement will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of
title and the new secured party succeeds to the assignor's rights as the
secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such assignment of the
security interest might not be held effective against creditors of the
assignor.
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In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Depositor on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the security interest assigned to the Depositor and the
Certificateholders is not perfected, such security interest would be
subordinate to, among others, subsequent purchasers for value of Manufactured
Homes and holders of perfected security interests. There also exists a risk in
not identifying the Certificateholders as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Certificateholders could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and not re-
register the Manufactured Home in such state, and if steps are not taken to
re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee, or the Master Servicer as
custodian for the Trustee, must surrender possession if it holds the
certificate of title to such Manufactured Home or, in the case of Manufactured
Homes registered in states which provide for notation of lien, the Trustee
would receive notice of surrender if the security interest in the Manufactured
Home is noted on the certificate of title. Accordingly, the Trustee would have
the opportunity to re-perfect its security interest in the Manufactured Home
in the state of relocation. In states which do not require a certificate of
title for registration of a Manufactured Home, re-registration could defeat
perfection. In the ordinary course of servicing manufactured housing
conditional sales contracts and installment loan agreements, the Master
Servicer takes steps to effect such re-perfection upon receipt of notice of
re-registration or information from the Obligor as to relocation. Similarly,
when an Obligor under a manufactured housing conditional sales contract or
installment loan agreement sells a Manufactured Home, the Trustee, or the
Master Servicer as custodian for the Trustee, must surrender possession of the
certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of
the related manufactured housing conditional sales contract or installment
loan agreement before release of the lien. Under the Pooling and Servicing
Agreement, the Master Servicer, on behalf of the Depositor, is obligated to
take such steps, at the Master Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home take priority even over a perfected security interest. The Depositor will
represent in the Pooling and Servicing Agreement that it has no knowledge of
any such liens with respect to any Manufactured Home securing payment on any
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises and such lien would not give rise to a repurchase
obligation on the part of the party specified in the Pooling and Servicing
Agreement.
Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by
repossession and resale of the Manufactured Homes securing such Defaulted
Contracts. Except in Louisiana, so long as the Manufactured Home has not
become subject to the real estate law, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC
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and consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so
that the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled
to be paid out of the sale proceeds before such proceeds could be applied to
the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
against such Obligor. Numerous other federal and state consumer protection
laws impose requirements applicable to the origination and lending pursuant to
the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act,
the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and
the Uniform Consumer Credit Code. In the case of some of these laws, the
failure to comply with their provisions may affect the enforceability of the
related Contract.
Transfers of Manufactured Homes, Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor
or the Master Servicer upon any such sale or transfer that is not consented
to. The Depositor or the Master Servicer expects that it will permit most
transfers of Manufactured Homes and not accelerate the maturity of the related
Contracts. In certain cases, the transfer may be made by a delinquent Obligor
in order to avoid a repossession proceeding with respect to a Manufactured
Home.
In the case of a transfer of a Manufactured Home after which the Depositor
desires to accelerate the maturity of the related Contract, the Depositor's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. In some states the Depositor or
the Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is
secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
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and requiring a 30-day notice period prior to instituting any action leading
to repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. In any state in which application of Title V was expressly
rejected or a provision limiting discount points or other charges has been
adopted, no Contract which imposes finance charges or provides for discount
points or charges in excess of permitted levels has been included in the Trust
Assets or Fund. The Depositor, or the party specified in the related Pooling
and Servicing Agreement will represent that all of the Contracts comply with
applicable usury laws.
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FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL; OPINIONS
The following is a discussion of the material federal income tax
consequences of the purchase, ownership and disposition of Certificates. (In
addition, certain minor and incidental consequences are discussed as well.)
Where appropriate, additional consequences will be discussed in the Prospectus
Supplement relating to a particular Series. This discussion is intended as an
explanatory discussion of the consequences of holding the Certificates
generally and does not purport to furnish information in the level of detail
or with the investor's specific tax circumstances that would be provided by an
investor's own tax advisor. Accordingly, it is recommended that each
prospective investor consult with its own tax advisor regarding the
application of United States federal income tax laws, as well as any state,
local, foreign or other tax laws, to their particular situations. Orrick,
Herrington & Sutcliffe LLP, counsel to the Depositor, rendered an opinion
generally that the discussion in this section is correct in all material
respects. In addition, counsel to the Depositor has rendered an opinion to the
effect that: (1) with respect to each Series of REMIC Certificates (issued as
described in the Prospectus), the related Mortgage Pool (or portion thereof)
will be classified as one or more "real estate mortgage investment conduits"
("REMICs") and not an association taxable as a corporation (or publicly traded
partnership treated as a corporation) and each Class of Certificates will
represent either a "regular" interest or a "residual" interest in such REMIC
and (2) with respect to each other Series of Certificates (issued as described
in the Prospectus), the related Trust Fund will be a grantor trust for federal
income tax purposes and not an association taxable as a corporation (or
publicly traded partnership treated as a corporation) and each holder of a
Certificate will be treated as holding an equity interest in such grantor
trust. Prospective investors should be aware that counsel to the Depositor has
not rendered any other tax opinions. Further, if with respect to any Series of
Certificates Orrick, Herrington & Sutcliffe LLP is not counsel to the
Depositor, Depositor's then current counsel will be identified in the related
prospectus supplement and will confirm (or supplement) the aforementioned
opinions. Prospective investors should be further aware that no rulings have
been sought from the Internal Revenue Service (the "IRS"), and that legal
opinions are not binding on the IRS or the courts. Accordingly, there can be
no assurance that the IRS or the courts will agree with counsel to the
Depositor's opinions. If, contrary to such opinions, the Mortgage Pool or
Trust Fund related to a Series of Certificates is characterized or treated as
a corporation for federal income tax consequences, among other consequences,
the Mortgage Pool or Trust Fund would be subject to federal income tax (and
similar state income or franchise taxes) on its income and distributions to
Certificateholders would be impaired. As used hereinafter in "Federal Income
Tax Consequences," "Mortgage Loans" shall include Mortgage Certificates and
Contracts and "Mortgage Pool" shall include "Contract Pool."
The following summary is based on the Code as well as Treasury regulations
and administrative and judicial rulings and practice. Legislative, judicial
and administrative changes may occur, possibly with retroactive effect, that
could alter or modify the continued validity of the statements and conclusions
set forth herein. This summary does not purport to address all federal income
tax matters that may be relevant to particular holders. For example, it
generally is addressed only to original purchasers of the Certificates that
are United States investors, deals only with Certificates held as capital
assets within the meaning of Section 1221 of the Code, and does not address
tax consequences to holders that may be relevant to investors subject to
special rules, such as non-U.S. investors, banks, insurance companies, tax-
exempt organizations, electing large partnership, dealers in securities or
currencies, mutual funds, REITs, S corporations, estates and trusts, investors
that hold the Certificates as part of a hedge, straddle, integrated or
conversion transaction, or holders whose "functional currency" is not the
United States dollar. Further, it does not address alternative minimum tax
consequences or the indirect effects on the holders of equity interests in an
entity that is a beneficial owner of the Certificates. Further, this
discussion does not address the state or local tax consequences of the
purchase, ownership and disposition of such Certificates. It is recommended
that investors consult their own tax advisors in determining the federal,
state, local, or other tax consequences to them of the purchase, ownership and
disposition of the Certificates offered hereunder.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Mortgage Pool
("REMIC Mortgage Pool") which the Master Servicer elects to have treated as a
real estate mortgage investment conduit ("REMIC") under Code Sections 860A
through 860G
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("REMIC Provisions") and (ii) certificates ("Trust Certificates") representing
certain interests in a Trust Fund which the Master Servicer does not elect to
have treated as a REMIC. REMIC Certificates and Trust Certificates will be
referred to collectively as "Certificates."
Under the REMIC Provisions, REMICs may issue one or more classes of
"regular" interests and must issue one and only one class of "residual"
interests. A REMIC Certificate representing a regular interest in a REMIC
Mortgage Pool will be referred to as a "REMIC Regular Certificate" and a REMIC
Certificate representing a residual interest in a REMIC Mortgage Pool will be
referred to as a "REMIC Residual Certificate." The related Prospectus
Supplement will identify the classes of Certificates of a Series that are
"regular" interests in a REMIC and the class of Certificates that is the
"residual" interest in each REMIC.
A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related Trust Fund,
together with interest thereon at a remittance rate (which may be less than,
greater than, or equal to the pass-through rate), will be referred to as a
"Trust Fractional Certificate" and a Trust Certificate representing an
equitable ownership of all or a portion of the interest paid on each Mortgage
Loan constituting the related Trust Fund (net of normal servicing fees) will
be referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount
provisions of the Code (the "OID Regulations"), and the Treasury regulations
issued under the provisions of the Code relating to REMICs (the "REMIC
Regulations").
II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, assuming that (i) any required REMIC election is made timely in
the required form, (ii) there is ongoing compliance with all provisions of the
related Pooling and Servicing Agreement, (iii) certain representations set
forth in the Pooling and Servicing Agreement are true and (iv) there is
continued compliance with applicable provisions of the Code, as it may be
amended from time to time, and applicable Treasury regulations issued
thereunder, such REMIC Mortgage Pool (or a portion thereof) will qualify as
one or more REMICs and the classes of interests offered will be considered to
be "regular interests" or "residual interests" within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates ("REMIC Certificateholders") should be aware
that, if an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In such event, an entity electing to be treated
as a REMIC may be taxable as a separate corporation under Treasury
regulations, and the REMIC Certificates issued by such entity may not be
accorded the status described below under the heading "Characterization of
Investments in REMIC Certificates." In the case of an inadvertent termination
of REMIC status, the Code provides the Treasury Department with authority to
issue regulations providing relief. Any such relief, however, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the REMIC's income for the period of time in which the
requirements for REMIC status are not satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment is
that substantially all of the assets of the Trust Fund (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments." In order to be a "qualified mortgage" or to support treatment of
a certificate of participation therein as a "qualified mortgage", an
obligation must be principally secured by an interest in real property. The
REMIC Regulations treat an obligation secured by manufactured housing
qualifying as a single family residence under Code Section 25(e)(10) as an
obligation secured by real property, without regard to the treatment of the
obligation or the property under state law. Under Code Section 25(e)(10), a
single family residence includes any manufactured home that has a minimum of
400 square feet of living space and a minimum width in excess of 102 inches
and that is of a kind customarily used at a fixed location.
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B. Taxation of Owners of REMIC Regular Certificates
In general, REMIC Regular Certificates will be treated for federal income
tax purposes as debt instruments issued by the REMIC Mortgage Pool and not as
ownership interests in the REMIC Mortgage Pool or its Assets. In general,
interest, original issue discount and market discount paid or accrued on a
REMIC Regular Certificate will be treated as ordinary income to the holder of
such REMIC Regular Certificate. Distributions in reduction of the stated
redemption price at maturity of the REMIC Regular Certificate will be treated
as a return of capital to the extent of such holder's basis in such REMIC
Regular Certificate. Holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant yield method that takes into account the
compounding of interest, in advance of the receipt of the cash attributable to
such income. The Master Servicer will report annually (or more frequently if
required) to the Internal Revenue Service ("IRS") and to Certificateholders
such information with respect to the original issue discount accruing on the
REMIC Regular Certificates as may be required under Code Section 6049 and the
regulations thereunder. See "Reporting and Other Administrative Matters of
REMICs" below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to REMIC Regular
Certificates.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income
tax purposes. The Prepayment Assumption is to be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The Committee Report indicates that the regulations will provide
that the Prepayment Assumption, if any, used with respect to a particular
transaction must be the same as that used by the parties in pricing the
transaction. The Master Servicer will use a Prepayment Assumption in reporting
original issue discount that is consistent with this standard. However,
neither the Depositor nor the Master Servicer makes any representation that
the Mortgage Loans will in fact prepay at the rate reflected in the Prepayment
Assumption or at any other rate. Each investor must make its own decision as
to the appropriate prepayment assumption to be used in deciding whether or not
to purchase any of the REMIC Regular Certificates. The Prospectus Supplement
with respect to a Series of REMIC Certificates will disclose the Prepayment
Assumption to be used in reporting original issue discount, if any, and for
certain other federal income tax purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the "stated redemption price at maturity" of the REMIC
Regular Certificate over its "issue price." Except as discussed in the
following two paragraphs, in general, the issue price of a particular class of
REMIC Regular Certificates offered hereunder will be the price at which a
substantial amount of REMIC Regular Certificates of that class are first sold
to the public (excluding bond houses and brokers), and the stated redemption
price at maturity of a REMIC Regular Certificate will be its Stated Principal
Balance.
If a REMIC Regular Certificate is sold with accrued interest that relates to
a period prior to the issue date of such REMIC Regular Certificate, the amount
paid for the accrued interest will be treated instead as increasing the issue
price of the REMIC Regular Certificate. In addition, that portion of the first
interest payment in excess of interest accrued from the date of initial
issuance of the Certificates (the "Closing Date") to the first Distribution
Date will be treated for federal income tax reporting purposes as includible
in the stated redemption price at maturity of the REMIC Regular Certificates,
and as excludible from income when received as a payment
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of interest on the first Distribution Date (except to the extent of any
accrued market discount as of that date). The OID Regulations suggest,
however, that some or all of this pre-issuance accrued interest "may" be
treated as a separate asset (and hence not includible in a REMIC Regular
Certificate's issue price or stated redemption price at maturity), whose cost
is recovered entirely out of interest paid on the first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest." Under the OID Regulations, "qualified stated
interest" is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (ii) a current value of a single "qualified floating rate" or "objective
rate" (each, a "Single Variable Rate"). A "current value" is the value of a
variable rate on any day that is no earlier than three months prior to the
first day on which that value is in effect and no later than one year
following that day. A "qualified floating rate" is a rate whose variations can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds in the currency in which the Certificate is denominated.
Such a rate remains qualified even though it is multiplied by a fixed,
positive multiple greater than 0.65 but not exceeding 1.35, increased or
decreased by a fixed rate, or both. Certain combinations of rates constitute a
single qualified floating rate, including (i) interest stated at a fixed rate
for an initial period of less than one year followed by a qualified floating
rate if the value of the floating rate at the Closing Date is intended to
approximate the fixed rate, and (ii) two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout
the term of the Certificate. A combination of such rates is conclusively
presumed to be a single floating rate if the values of all rates on the
Closing Date are within 0.25 percentage points of each other. A variable rate
that is subject to an interest rate cap, floor, governor or similar
restriction on rate adjustment may be a qualified floating rate only if such
restriction is fixed throughout the term of the instrument, or is not
reasonably expected as of the Closing Date to cause the yield on the debt
instrument to differ significantly from the expected yield absent the
restriction. An "objective rate" is defined as a rate determined using a
single fixed formula and based on objective financial information or economic
information. However, an objective rate does not include a rate based on
information that is in the control of the issuer or that is unique to the
circumstances of a related party. A combination of interest stated at a fixed
rate for an initial period of less than one year followed by an objective rate
is treated as a single objective rate if the value of the objective rate at
the Closing Date is intended to approximate the fixed rate; such a combination
of rates is conclusively presumed to be a single objective rate if the
objective rate on the Closing Date does not differ from the fixed rate by more
than 0.25 percentage points. The qualified stated interest payable with
respect to certain variable rate debt instruments not bearing stated interest
at a Single Variable Rate is discussed below under "Variable Rate
Certificates." Under the foregoing rules, some of the payments of interest on
a Certificate bearing a fixed rate of interest for an initial period followed
by a qualified floating rate of interest in subsequent periods could be
treated as included in the stated redemption price at maturity if the initial
fixed rate were to differ sufficiently from the rate that would have been set
using the formula applicable to subsequent periods. See "Variable Rate
Certificates." REMIC Regular Certificates offered hereby other than such
Certificates providing for variable rates of interest are not anticipated to
have stated interest other than "qualified stated interest," but if any such
REMIC Regular Certificates are so offered, appropriate disclosures will be
made in the Prospectus Supplement. Some or all of the payments on REMIC
Regular Certificates providing for the accretion of interest will be included
in the stated redemption price at maturity of such Certificates.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to
be zero if such original issue discount is less than 0.25% of the stated
redemption price at maturity of the REMIC Regular Certificate multiplied by
the weighted average life of the REMIC Regular Certificate. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the amount of each payment under
the instrument (other than a payment of qualified stated interest) by a
fraction, whose numerator is the number of complete years from the issue date
until such payment is made and whose denominator is the stated redemption
price at maturity of such REMIC Regular Certificate. The IRS may take the
position that this rule should be applied taking into account the Prepayment
Assumption and the effect of any anticipated investment income.
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Under the OID Regulations, REMIC Regular Certificates bearing only qualified
stated interest except for any "teaser" rate, interest holiday or similar
provision are treated as subject to the de minimis rule if the greater of the
foregone interest or any excess of the Certificates' stated principal amount
over their issue price is less than such de minimis amount.
The OID Regulations generally treat de minimis original issue discount as
includible in income as each principal payment is made, based on the product
of the total amount of such de minimis original issue discount and a fraction,
whose numerator is the amount of such principal payment and whose denominator
is the outstanding principal balance of the REMIC Regular Certificate. The OID
Regulations also permit a Certificateholder to elect to accrue de minimis
original issue discount (together with stated interest, market discount and
original issue discount) into income currently based on a constant yield
method. See "Taxation of Owners of REMIC Regular Certificates--Market Discount
and Premium."
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular Certificate, the daily portions of original issue discount will
be determined as follows. A calculation will first be made of the portion of
the original issue discount that accrued during each accrual period, that is
generally each period that ends on a date that corresponds to a Distribution
Date on the REMIC Regular Certificate and begins on the first day following
the immediately preceding accrual period (or in the case of the first such
period, begins on the Closing Date). For any accrual period such portion will
equal the excess, if any, of (i) the sum of (A) the present value of all of
the distributions remaining to be made on the REMIC Regular Certificate, if
any, as of the end of the accrual period and (B) distributions made on such
REMIC Regular Certificate during the accrual period of amounts included in the
stated redemption price at maturity, over (ii) the adjusted issue price of
such REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining payments referred to in the preceding sentence
will be calculated based on (i) the yield to maturity of the REMIC Regular
Certificate, calculated as of the settlement date, giving effect to the
Prepayment Assumption, (ii) events (including actual prepayments) that have
occurred prior to the end of the accrual period and (iii) the Prepayment
Assumption. The adjusted issue price of a REMIC Regular Certificate at the
beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount with
respect to such REMIC Regular Certificate that accrued in prior accrual
periods, and reduced by the amount of any distributions made on such REMIC
Regular Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will then be allocated ratably to each day during the period to
determine the daily portion of original issue discount for each day. With
respect to an accrual period between the settlement date and the first
Distribution Date on the REMIC Regular Certificate that is shorter than a full
accrual period, the OID Regulations permit the daily portions of original
issue discount to be determined according to any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued
qualified stated interest) less than its remaining stated redemption price at
maturity will also be required to include in gross income, for each day on
which it holds such REMIC Regular Certificate, the daily portions of original
issue discount with respect to such REMIC Regular Certificate, but reduced, if
such cost exceeds the "adjusted issue price", by an amount equal to the
product of (i) such daily portions and (ii) a constant fraction, whose
numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount on such REMIC Regular Certificate for all
days on or after the day of purchase. The adjusted issued price of a REMIC
Regular Certificate on any given day is equal to the sum of the adjusted issue
price (or, in the case of the first accrual period, the issue price) of the
REMIC Regular Certificate at the beginning of the accrual period during which
such day occurs and the daily portions of original issue discount for all days
during such accrual period prior to such day, reduced by the aggregate amount
of distributions made during such accrual period prior to such day other than
distributions of qualified stated interest.
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Variable Rate Certificates. REMIC Regular Certificates bearing interest at
one or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under
the OID Regulations by converting such instruments into fixed rate debt
instruments. Instruments qualifying for such treatment generally include those
providing for stated interest at (i) more than one qualified floating rate, or
(ii) a single fixed rate and (a) one or more qualified floating rates or (b) a
single "qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably
be expected to inversely reflect contemporaneous variations in the cost of
newly borrowed funds (disregarding permissible rate caps, floors, governors
and similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of interest
should be aware that there is uncertainty concerning the application of Code
Section 1272(a)(6) and the OID Regulations to such Certificates. In the
absence of other authority, the Master Servicer intends to be guided by the
provisions of the OID Regulations governing variable rate debt instruments in
adapting the provisions of Code Section 1272(a)(6) to such Certificates for
the purpose of preparing reports furnished to Certificateholders. The effect
of the application of such provisions generally will be to cause
Certificateholders holding Certificates bearing interest at a Single Variable
Rate to take into account for each period an amount corresponding
approximately to the sum of (i) the qualified stated interest accruing on the
outstanding face amount of the REMIC Regular Certificate as the stated
interest rate for that Certificate varies from time to time and (ii) the
amount of original issue discount that would have been attributable to that
period on the basis of a constant yield to maturity for a bond issued at the
same time and issue price as the REMIC Regular Certificate, having the same
face amount and schedule of payments of principal as such Certificate, subject
to the same Prepayment Assumption, and bearing interest at a fixed rate equal
to the value of the applicable qualified floating rate or qualified inverse
floating rate in the case of a Certificate providing for either such rate, or
equal to the fixed rate that reflects the reasonably expected yield on the
Certificate in the case of a Certificate providing for an objective rate other
than an inverse floating rate, in each case as of the issue date.
Certificateholders holding REMIC Regular Certificates bearing interest at a
Multiple Variable Rate generally will take into account interest and original
issue discount under a similar methodology, except that the amounts of
qualified stated interest and original issue discount attributable to such a
Certificate first will be determined for an "equivalent" debt instrument
bearing fixed rates, the assumed fixed rates for which are (a) for each
qualified floating rate, the value of each such rate as of the Closing Date
(with appropriate adjustment for any differences in intervals between interest
adjustment dates), (b) for a qualified inverse floating rate, the value of the
rate as of the Closing Date, and (c) for any other objective rate, the fixed
rate that reflects the yield that is reasonably expected for the Certificate.
If the interest paid or accrued with respect to a Multiple Variable Rate
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
In the case of a Certificate that provides for stated interest at a fixed
rate in one or more accrual periods and either one or more qualified floating
rates or a qualified inverse floating rate in other accrual periods, the fixed
rate is first converted into an assumed variable rate. The assumed variable
rate will be a qualified floating rate or a qualified inverse floating rate
according to the type of actual variable rates provided by the Certificate,
and must be such that the fair market value of the REMIC Regular Certificate
as of issuance is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the assumed variable
rate in lieu of the fixed rate. The REMIC Regular Certificate is then subject
to the determination of the amount and accrual of original issue discount as
described above, by reference to the hypothetical variable rate instrument.
Purchasers of variable rate REMIC Regular Certificates further should be
aware that the provisions of the OID Regulations applicable to variable rate
debt instruments have been limited and may not apply to some REMIC Regular
Certificates having variable rates. If such a Certificate is not governed by
the provisions of the OID Regulations applicable to variable rate debt
instruments, it may be subject to provisions of Treasury
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regulations applicable to instruments having contingent payments (the
"Contingent Debt Regulations"). The application of those provisions to
instruments such as variable rate REMIC Regular Certificates is subject to
differing interpretations. Prospective purchasers of variable rate REMIC
Regular Certificates are advised to consult their tax advisers concerning the
tax treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the REMIC Regular
Certificate's stated redemption price at maturity, or, in the case of a REMIC
Regular Certificate issued with original issue discount, the REMIC Regular
Certificate's adjusted issue price (as defined under "Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount"), will recognize market
discount upon receipt of each payment of principal. In particular, such a
holder will generally be required to allocate each payment of principal on a
REMIC Regular Certificate first to accrued market discount, and to recognize
ordinary income to the extent such principal payment does not exceed the
aggregate amount of accrued market discount on such REMIC Regular Certificate
not previously included in income. Such market discount must be included in
income in addition to any original issue discount includible in income with
respect to such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income currently
as it accrues, rather than including it on a deferred basis in accordance with
the foregoing. If made, such election will apply to all market discount bonds
acquired by such Certificateholder on or after the first day of the first
taxable year to which such election applies. In addition, the OID Regulations
permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount), reduced by any
premium, in income as interest, based on a constant yield method. If such an
election were made for a REMIC Regular Certificate with market discount, the
Certificateholder is deemed to have made an election to currently include
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this
election for a Certificate that is acquired at a premium is deemed to have
made an election to amortize bond premium, as described below, with respect to
all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. The election to accrue interest, discount
and premium on a constant yield method with respect to a Certificate is
irrevocable without the consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate
multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar de minimis rule with respect
to original issue discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied in determining whether market
discount is de minimis. It appears that de minimis market discount on a REMIC
Regular Certificate would be treated in a manner similar to original issue
discount of a de minimis amount. See "Taxation of Holders of REMIC Regular
Certificates--Original Issue Discount." Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included using the method described above. However, Treasury
regulations implementing the market discount de minimis exception have not
been issued in proposed, temporary or final form, and the precise treatment of
de minimis market discount on obligations payable in more than one installment
therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than
a de minimis amount on debt instruments, the principal of which is payable in
more than one installment. Until such time as regulations are issued by the
Treasury Department, certain rules described in the Committee Report might
apply. Under those rules, the holder of a bond purchased with more than de
minimis market discount may elect to accrue such market discount either on the
basis of a constant yield method or on the basis of the appropriate
proportionate method described below. Under the proportionate method for
obligations issued with original issue discount, the amount of market discount
that
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accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
original issue discount accruing during the period and the denominator of
which is the total remaining original issue discount at the beginning of the
period. Under the proportionate method for obligations issued without original
issue discount, the amount of market discount that accrues during a period is
equal to the product of (i) the total remaining market discount, multiplied by
(ii) a fraction, the numerator of which is the amount of stated interest paid
during the accrual period and the denominator of which is the total amount of
stated interest remaining to be paid at the beginning of the period. The
Prepayment Assumption, if any, used in calculating the accrual of original
issue discount is to be used in calculating the accrual of market discount
under any of the above methods. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a REMIC Regular Certificate
purchased at a discount in the secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such deferred interest expense is, in general, allowed as a deduction not
later than the year in which the related market discount income is recognized.
If such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will
not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally,
as described above. The Committee Report indicates a Congressional intent that
the same rules that will apply to accrual of market discount on installment
obligations will also apply in amortizing bond premium under Code Section 171
on installment obligations such as the REMIC Regular Certificates.
3. Treatment of Subordinated Certificates
As described above under "Credit Support--Subordinated Certificates,"
certain Series of Certificates may contain one or more Classes or Subclasses
of Subordinated Certificates. Holders of Subordinated Certificates will be
required to report income with respect to such Certificates on the accrual
method without giving effect to delays and reductions in distributions
attributable to defaults or delinquencies on any Mortgage Loans, except
possibly, in the case of income that constitutes qualified stated interest, to
the extent that it can be established that such amounts are uncollectible. As
a result, the amount of income reported by a Certificateholder of a
Subordinated Certificate in any period could significantly exceed the amount
of cash distributed to such Certificateholder in that period.
Although not entirely clear, it appears that a corporate holder or a holder
who holds a Regular Certificate in the course of a trade or business generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinated Certificate. Although
similarly unclear, a noncorporate holder who does not hold such Regular
Certificate in the course of a trade or business generally should be allowed
to deduct as a short-term capital loss any loss sustained on account of
complete worthlessness of a Subordinated Certificate. Special rules are
applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Holders of Subordinated Certificates should consult
their own tax advisers regarding the appropriate timing, character and amount
of any loss sustained with respect to Subordinated Certificates.
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C. Taxation of Owners of REMIC Residual Certificates
1. General
An owner of a REMIC Residual Certificate ("Residual Owner") generally will
be required to report its daily portion of the taxable income or, subject to
the limitation described below in "Taxation of Owners of REMIC Residual
Certificates--Basis Rules and Distributions," the net loss of the REMIC
Mortgage Pool for each day during a calendar quarter that the Residual Owner
owned such REMIC Residual Certificate. For this purpose, the daily portion
will be determined by allocating to each day in the calendar quarter, using a
30 days per month/90 days per quarter/360 days per year counting convention,
its ratable portion of the taxable income or net loss of the REMIC Mortgage
Pool for such quarter, and by allocating the daily portions among the Residual
Owners (on such day) in accordance with their percentage of ownership
interests on such day. Any amount included in the gross income of, or allowed
as a loss to, any Residual Owner by virtue of the rule referred to in this
paragraph will be treated as ordinary income or loss. Purchasers of REMIC
Residual Certificates should be aware that taxable income from such
Certificates may exceed cash distributions with respect thereto in any taxable
year. For example, if the Mortgage Loans are acquired by a REMIC at a
discount, then the holder of a residual interest may recognize income without
corresponding cash distributions. This result could occur because a payment
produces recognition by the REMIC of discount on the Mortgage Loan while all
or a portion of such payment could be used in whole or in part to make
principal payments on REMIC Regular Certificates issued without substantial
discount. Taxable income may also be greater in earlier years as a result of
the fact that interest expense deductions, expressed as a percentage of the
outstanding principal amount of the REMIC Regular Certificates, will increase
over time as the lower yielding sequences of Certificates are paid, whereas
interest income with respect to any given Mortgage Loan will remain constant
over time as a percentage of the outstanding principal amount of that loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisers concerning the treatment of such payments for
income tax purposes.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue
price (as determined under "Taxation of Owners of REMIC Regular Certificates--
Market Discount and Premium") over its fair market value at the time of its
transfer to the REMIC Mortgage Pool generally will be included in income as it
accrues, based on a constant yield method and on the Prepayment Assumption.
For this purpose, the Master Servicer intends to treat the fair market value
of the Mortgage Loans as being equal to the aggregate issue prices of the
REMIC Regular Certificates and REMIC Residual Certificates; if one or more
classes of REMIC Regular Certificates or REMIC Residual Certificates are
retained by the Depositor, the Master Servicer will estimate the value of such
retained interests in order to determine the fair market value of the Mortgage
Loans for this purpose. Third, no item of income, gain, loss or deduction
allocable to a prohibited transaction (see "Prohibited Transactions and Other
Possible REMIC Taxes", below) will be taken into account. Fourth, the REMIC
Mortgage Pool generally may not deduct any item that would not be allowed in
calculating the taxable income of a partnership by virtue of Code Section
703(a)(2). Fifth, the REMIC
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Regulations provide that the limitation on miscellaneous itemized deductions
imposed on individuals by Code Section 67 will not be applied at the Mortgage
Pool level to the servicing fees paid to the Master Servicer or sub-servicers
if any. (See, however, "Pass-Through of Servicing Fees", below.) If the
deductions allowed to the REMIC Mortgage Pool exceed its gross income for a
calendar quarter, such excess will be the net loss for the REMIC Mortgage Pool
for that calendar quarter.
3. Basic Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC
Residual Certificate. Such distribution will reduce the adjusted basis of such
interest, but not below zero. To the extent a distribution exceeds the
adjusted basis of the REMIC Residual Certificate, it will be treated as gain
from the sale of the REMIC Residual Certificate. (See "Sales of REMIC
Certificates," below.) The adjusted basis of a REMIC Residual Certificate is
equal to the amount paid for such REMIC Residual Certificate, increased by
amounts included in the income of the Residual Owner (see "Taxation of Owners
of REMIC Residual Certificates--Daily Portions" above), and decreased by
distributions and by net losses taken into account with respect to such
interest.
A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only
recover its basis through distributions, through the deduction of any net
losses of the REMIC Mortgage Pool or upon the sale of its REMIC Residual
Certificate. See "Sales of REMIC Certificates," below. The Residual Owner
does, however, receive reduced taxable income over the life of the REMIC
because the REMIC's basis in the underlying REMIC Mortgage Pool includes the
fair market value of the REMIC Regular Certificates and REMIC Residual
Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each
day during a calendar quarter its ratable portion of the product of the
"adjusted issue price" of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the long-term "applicable federal
rate" (generally, an average of current yields on Treasury securities of
comparable maturity, and hereafter the "AFR") in effect at the time of
issuance of the REMIC Residual Certificate. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter is the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters and decreased
by any distributions made with respect to such REMIC Residual Certificate
before the beginning of such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond houses
and brokers) at which a substantial amount of the REMIC Residual Certificates
were sold.
For Residual Owners, an excess inclusion cannot be offset by deductions,
losses or loss carryovers from other activities. However, net operating loss
carryovers are determined without regard to excess inclusion income. For
Residual Owners that are subject to tax on unrelated business taxable income
(as defined in Code Section 511), an excess inclusion is treated as unrelated
business taxable income. For Residual Owners that are nonresident alien
individuals or foreign corporations generally subject to United States 30%
withholding tax,
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even if interest paid to such Residual Owners is generally eligible for
exemptions from such tax, an excess inclusion will be subject to such tax and
no tax treaty rate reduction or exemption may be claimed with respect thereto.
See "Foreign Investors in REMIC Certificates."
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Owner. First, alternative minimum taxable income for a Residual Owner
is determined without regard to the special rule, discussed above, that
taxable income cannot be less than excess inclusions. Second, a Residual
Owner's alternative minimum taxable income for a taxable year cannot be less
than the excess inclusions for the year. Third, the amount of any alternative
minimum tax net operating loss deduction must be computed without regard to
any excess inclusions.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual Certificate. It is
expected that the REMIC Residual Certificates will be noneconomic.
6. Tax-Exempt Investors
Tax-exempt organizations (including employee benefit plans) that are subject
to tax on unrelated business taxable income (as defined in Code Section 511)
will be subject to tax on any excess inclusions attributed to them as owners
of Residual Certificates. Excess inclusion income associated with a Residual
Certificate may significantly exceed cash distributions with respect thereto.
See "Excess Inclusions."
Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511
are treated as "disqualified organizations" under provisions of the "Technical
and Miscellaneous Revenue Act of 1988" (the "1988 Act"). Under provisions of
the Pooling and Servicing Agreement, such organizations generally are
prohibited from owning Residual Certificates. See "Sales of REMIC
Certificates."
D. Sales of REMIC Certificates
If a REMIC Certificate is sold, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount
included in the seller's gross income with respect to such REMIC Regular
Certificate and reduced by premium amortization deductions and distributions
previously received by the seller of amounts included in the stated redemption
price at maturity of such REMIC Regular Certificate. The adjusted basis of a
REMIC Residual Certificate will be determined as described under "Taxation of
Owners of REMIC Residual Certificates--Basis Rules and Distributions." Gain
from the disposition of a REMIC Regular Certificate that might otherwise be
treated as a capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that
would have been includible in such holder's income had income accrued at a
rate equal to 110% of the AFR as of the date of purchase over (ii) the amount
actually includible in such holder's income. Except as otherwise provided
under "Taxation of Owners of REMIC Regular Certificates--Market Discount and
Premium" and under Code Section 582(c), any additional gain or any loss on the
sale or exchange of a REMIC Certificate will be capital gain or loss, provided
such REMIC Certificate is held as a capital asset (generally, property held
for investment) within the meaning of Code Section 1221. Capital Losses may
not, in general, be offset against ordinary income.
If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another
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residual in any REMIC or any interest in a taxable mortgage pool (as defined
in Code Section 7701(i)) comparable to a residual interest in a REMIC. Such
disallowed loss will be allowed upon the sale of the other residual interest
(or comparable interest) if the rule referred to in the preceding sentence
does not apply to that sale. While the Committee Report states that this rule
may be modified by Treasury regulations, the REMIC Regulations do not address
this issue and it is not clear whether any such modification will in fact be
implemented or, if implemented, what its precise nature or effective date
would be.
The 1988 Act makes transfers of a REMIC Residual Certificate to certain
"disqualified organizations" subject to an additional tax on the transferor in
an amount equal to the maximum corporate tax rate applied to the present value
(using a discount rate equal to the AFR) of the total anticipated excess
inclusions with respect to such residual interest for the periods after the
transfer. For this purpose, "disqualified organizations" includes the United
States, any state or political subdivision of a state, any foreign government
or international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical or telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred
and must be based on events that have occurred up to the time of such
transfer, the Prepayment Assumption, and any required or permitted clean up
calls or required liquidation provided for in the REMIC's organizational
documents. The tax generally is imposed on the transferor of the REMIC
Residual Certificate, except that it is imposed on an agent for a disqualified
organization if the transfer occurs through such agent. The Pooling and
Servicing Agreement requires, as a prerequisite to any transfer of a Residual
Certificate, the delivery to the Trustee of an affidavit of the transferee to
the effect that it is not a disqualified organization and contains other
provisions designed to render any attempted transfer of a Residual Certificate
to a disqualified organization void.
In addition, if a "pass-through entity" includes in income excess inclusions
with respect to a REMIC Residual Certificate, and a disqualified organization
is the record holder of an interest in such entity at any time during any
taxable year of such entity, then a tax will be imposed on such entity equal
to the product of (i) the amount of excess inclusions on the REMIC Residual
Certificate for such taxable year that are allocable to the interest in the
pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-
through entity will not be subject to this tax for any period, however, if the
record holder of an interest in such entity furnishes to such entity (i) such
holder's social security number and a statement under penalties of perjury
that such social security number is that of the record holder or (ii) a
statement under penalties of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means
any regulated investment company, real estate investment trust, trust,
partnership or certain other entities described in Code Section 860E(e)(6). In
addition, a person holding an interest in a pass-through entity as a nominee
for another person shall, with respect to such interest, be treated as a pass-
through entity.
E. Pass-Through of Servicing Fees
The general rule is that Residual Owners take into account taxable income or
net loss of the related REMIC Mortgage Pool. Under that rule, servicing
compensation of the Master Servicer and the subservicers (if any) will be
allocated to the holders of the REMIC Residual Certificates, and therefore
will not affect the income or deductions of holders of REMIC Regular
Certificates. However, in the case of a "single-class REMIC", such expenses
and an equivalent amount of additional gross income will be allocated among
all holders of REMIC Regular Certificates and REMIC Residual Certificates for
purposes of the limitations on the deductibility of certain miscellaneous
itemized deductions by individuals contained in Code Sections 56(b)(1) and 67.
Generally, any holder of a REMIC Residual Certificate and any holder of a
REMIC Regular Certificate issued by a "single-class REMIC" who is an
individual, estate or trust (including such a person that holds an interest in
a pass-through entity holding such a REMIC Certificate) will be able to deduct
such expenses in determining regular taxable income only to the extent that
such expenses together with certain other miscellaneous itemized deductions of
such individual, estate or trust exceed 2% of adjusted gross income; such a
holder may not deduct
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such expenses to any extent in determining liability for alternative minimum
tax. Accordingly, REMIC Residual Certificates, and REMIC Regular Certificates
receiving an allocation of servicing compensation, may not be appropriate
investments for individuals, estates or trusts, and such persons should
carefully consult with their own tax advisers regarding the advisability of an
investment in such Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as an
investment trust under the provisions of Treasury Regulation Section 301.7701-
4(c) in the absence of a REMIC election, or (ii) is substantially similar to
such an investment trust and is structured with the principal purpose of
avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a "single-class REMIC," consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates and in no part to REMIC Regular Certificates.
F. Prohibited Transactions and Other Possible Remic Taxes
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from "prohibited transactions." In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100 percent
tax on the value of any contribution of assets to the REMIC after the "startup
day" (the day on which the regular and residual interests are issued), other
than pursuant to specified exceptions, and subjects "net income from
foreclosure property" to tax at the highest corporate rate. It is not
anticipated that a REMIC Mortgage Pool will engage in any such transactions or
receive any such income.
G. Termination of a Remic Trust Fund
In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue
of the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC
Residual Certificate at the time such termination occurs exceeds the amount of
cash distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss)
equal to the amount of such excess.
H. Reporting and Other Administrative Matters of Remics
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. Certain holders of REMIC
Regular Certificates who are generally exempt from information reporting on
debt instruments, such as corporations, banks, registered securities or
commodities brokers, real estate investment trusts, registered investment
companies, common trust funds, charitable remainder annuity trusts and
unitrusts, will be provided interest and original issue discount income
information and the information set forth in the following paragraph upon
request in accordance with the requirements of the Treasury regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC Mortgage Pool must also comply with rules
requiring the face of a REMIC Certificate issued at more than a de minimis
discount to disclose the amount of original issue discount and the issue date
and requiring such information to be reported to the Treasury Department.
The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
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information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC
Mortgage Pool may not have, it appears that this provision will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be
designated as agent for and will act on behalf of the "tax matters person"
with respect to the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations,
generally have the authority to act on behalf of the REMIC and the Residual
Owners in connection with the administrative and judicial review of items of
income, deduction, gain or loss of the REMIC Mortgage Pool, as well as the
REMIC Mortgage Pool's classification. Residual Owners will generally be
required to report such REMIC Mortgage Pool items consistently with their
treatment on the REMIC Mortgage Pool's federal income tax information return
and may in some circumstances be bound by a settlement agreement between the
Master Servicer, as agent for the tax matters person, and the IRS concerning
any such REMIC Mortgage Pool item. Adjustments made to the REMIC Mortgage Pool
tax return may require a Residual Owner to make corresponding adjustments on
its return, and an audit of the REMIC Mortgage Pool's tax return, or the
adjustments resulting from such an audit, could result in an audit of a
Residual Owner's return.
I. Backup Withholding With Respect to Remic Certificates
Payments of interest and principal on REMIC Regular Certificates, as well as
payment of proceeds from the sale of REMIC Certificates, may be subject to the
"backup withholding tax" under Code Section 3406 at a rate of 31 percent if
recipients of such payments fail to furnish to the payor certain information,
including their taxpayer identification numbers, or otherwise fail to
establish an exemption from such tax. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed
by the IRS on a recipient of payments that is required to supply information
but that does not do so in the manner required.
J. Foreign Investors In Remic Certificates
1. Remic Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to a
REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other
than ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a non-
U.S. Person, and provides the name and address of such holder, and (c) the
last U.S. Person in the chain of payment to the holder receives such statement
from such holder or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
withholding tax rate of 30 percent, subject to reduction under an applicable
tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity treated as a corporation or
partnership for United States federal income tax purposes, created or
organized in or
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under the laws of the United States or any political subdivision thereof
(unless, in the case of a partnership, regulations provide otherwise), or an
estate or trust defined in Section 7701(a)(30)(D) and (E), respectively.
Holders of REMIC Regular Certificates should be aware that the IRS may take
the position that exemption from U.S. withholding taxes does not apply to such
a holder that also directly or indirectly owns 10 percent or more of the REMIC
Residual Certificates. Further, the foregoing rules will not apply to exempt a
"United States shareholder" (as such term is defined in Code Section 951) of a
controlled foreign corporation from taxation on such United States
shareholder's allocable portion of the interest or original issue discount
income earned by such controlled foreign corporation.
Prospective investors should be aware that there are no specific regulations
dealing with original issue discount as it applies to REMIC Regular
Certificates and the discussion above is based on regulations that apply to
debt instruments generally. In addition, certain aspects of those regulations
are not entirely clear. It is possible that the total amount of original issue
discount and the rate at which it accrues on any Class of Certificates may
vary from that as described above. For example, it is possible that the IRS
will take the position that all of the interest on a Class of Certificates
will be included in the Class's stated redemption price at maturity. In any
event, prospective investors should be aware that the effect of the OID
Regulations, if they apply to any Class of Certificates, in general, is: (i)
to cause income to accrue on that Class of Certificates at a rate that is
different, and may be faster, than the rate at which interest is paid on the
Certificate but (ii) such income will not accrue faster than the yield to
maturity of the Certificate when held by the holder.
2. Remic Residual Certificates
Amounts paid to a Residual Owner that is not a "U.S. Person" (as defined
above) (a "non-U.S. Person") generally will be treated as interest for
purposes of applying the withholding tax on non-U.S. Persons with respect to
income on its REMIC Residual Certificate. However, it is unclear whether
distributions on REMIC Residual Certificates will be eligible for the general
exemption from withholding tax that applies to REMIC Regular Certificates as
described above. Treasury Regulations provide that, for purposes of the
portfolio interest exception, payments to the foreign owner of a REMIC
Residual Certificate are to be considered paid on the obligations held by the
REMIC, rather than on the Certificate itself. Such payments will thus only
qualify for the portfolio interest exception if the underlying obligations
held by the REMIC would so qualify. Such withholding tax generally is imposed
at a rate of 30 percent but is subject to reduction under any tax treaty
applicable to the Residual Owner. However, there is no exemption from
withholding tax nor may the rate of such tax be reduced, under a tax treaty or
otherwise, with respect to any distribution of income that is an excess
inclusion. Although no regulations have been proposed or adopted addressing
withholding on residual interests held by non-U.S. Persons, the provisions of
the REMIC Regulations, described below, relating to the transfer of residual
interests to non-U.S. Persons can be read as implying that withholding with
respect to excess inclusion income is to be determined by reference to the
amount of the accrued excess inclusion income rather than to the amount of
cash distributions. If the IRS were successfully to assert such a position,
cash distributions on Residual Certificates held by non-U.S. Persons could be
subject to withholding at rates as high as 100 percent, depending on the
relationship of accrued excess inclusion income to cash distributions with
respect to such Residual Certificates. See "Taxation of Owners of REMIC
Residual Certificates--Excess Inclusions."
Certain restrictions relating to transfers of REMIC Residual Certificates to
and by investors who are non-U.S. Persons are also imposed by the REMIC
Regulations. First, transfers of REMIC Residual Certificates to a non-U.S.
Person that have "tax avoidance potential" are disregarded for all federal
income tax purposes. If such transfer is disregarded, the purported transferor
of such a REMIC Residual Certificate to a non-U.S. Person continues to remain
liable for any taxes due with respect to the income on such REMIC Residual
Certificate. A transfer of a REMIC Residual Certificate has tax avoidance
potential unless, at the time of the transfer, the transferor reasonably
expects (1) that the REMIC will distribute to the transferee Residual
Certificateholder amounts that will equal at least 30 percent of each excess
inclusion, and (2) that such amounts will be distributed at or after the time
at which the excess inclusion accrues and not later than the close of the
calendar year
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following the calendar year of accrual. This rule does not apply to transfers
if the income from the REMIC Residual Certificate is taxed in the hands of the
transferee as income effectively connected with the conduct of a U.S. trade or
business. Second, if a non-U.S. Person transfers a REMIC Residual Certificate
to a U.S. Person (or to a non-U.S. Person in whose hands income from the REMIC
Residual Certificate would be effectively connected), and the transfer has the
effect of allowing the transferor to avoid tax on accrued excess inclusions,
that transfer is disregarded for all federal income tax purposes and the
purported non-U.S. Person transferor continues to be treated as the owner of
the REMIC Residual Certificate. Thus, the REMIC's liability to withhold 30
percent of the accrued excess inclusions is not terminated even though the
REMIC Residual Certificate is no longer held by a non-U.S. Person.
Certain non-substantive, procedural aspects of the withholding rules are
scheduled to be amended effective January 1, 2000. It is recommended that
prospective investors consult their tax advisors with respect to the effect
these changes may have.
K. State and Local Taxation
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a
fixed investment trust for federal income tax purposes may be characterized as
a corporation, a partnership, or some other entity for purposes of state
income tax law. Such characterization could result in entity level income or
franchise taxation of the REMIC Mortgage Pool formed in, owning mortgages or
property in, or having servicing activity performed in a state without
conforming REMIC provisions in its income or franchise tax law. Further, REMIC
Regular Certificateholders resident in non-conforming states may have their
ownership of REMIC Regular Certificates characterized as an interest other
than debt of the REMIC such as stock or a partnership interest. Investors are
advised to consult their tax advisers concerning the state and local income
tax consequences of their purchase and ownership of REMIC Regular
Certificates.
III. NON-REMIC TRUST FUNDS
A. Classification of Trust Funds
With respect to each series of Trust Certificates for which no election is
made to treat the Mortgage Pool as a REMIC, the arrangements pursuant to which
such Trust Fund will be administered and such Trust Certificates will be
issued will not be classified as an association taxable as a corporation and
that each such Trust Fund will be classified as a grantor trust whose taxation
will be governed by the provisions of subpart E, Part I of subchapter J of the
Code and each holder of a Certificate will be treated as holding an equity
interest in such grantor trust.
B. Taxation of Owners of Trust Fractional Certificates
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Trust Funds included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must
report on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if
it had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because those interests
represent interests in "stripped bonds" or "stripped coupons" within the
meaning of Code Section 1286, such interests would be considered to be newly
issued debt instruments, and thus to have no market discount or premium, and
the amount of original issue discount may differ from the amount of original
issue discount on the Mortgage Loans and the amount includible in income on
account of a Trust Fractional Certificate may differ significantly from the
amount payable thereon from payments of interest on the Mortgage Loans. Each
Trust Fractional Certificateholder may report and deduct its allocable share
of the servicing and related fees and expenses paid to or retained by the
Company at the same time, to the same extent, and in the same manner as
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such items would have been reported and deducted had it held directly
interests in the Mortgage Loans and paid directly its share of the servicing
and related fees and expenses. A holder of a Trust Fractional Certificate who
is an individual, estate or trust will be allowed a deduction for servicing
fees in determining its regular tax liability only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two
percent of such holder's adjusted gross income, and will be allowed no
deduction for such fees in determining its liability for alternative minimum
tax. Amounts received by Trust Fractional Certificateholders in lieu of
amounts due with respect to any Mortgage Loan but not received by the
Depositor from the Mortgagor will be treated for federal income tax purposes
as having the same character as the payments which they replace.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Stripped Mortgage Loans
should read the material under the headings "Application of Stripped Bond
Rules," "Market Discount and Premium" and "Allocation of Purchase Price" for a
discussion of particular rules applicable to their Certificates. A "Stripped
Mortgage Loan" means a Mortgage Loan having a Retained Yield (as that term is
defined below) or a Mortgage Loan included in a Trust Fund having either Trust
Interest Certificates or more than one class of Trust Fractional Certificates
or identified in the Prospectus Supplement as related to a Class of Trust
Certificates identified as representing interests in Stripped Mortgage Loans.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
should read the material under the headings "Treatment of Unstripped
Certificates", "Market Discount and Premium", and "Allocation of Purchase
Price" for a discussion of particular rules applicable to their Certificates.
However, the IRS has indicated that under some circumstances it will view a
portion of servicing and related fees and expenses paid to or retained by the
Master Servicer or sub-servicers as an interest in the Mortgage Loans,
essentially equivalent to that portion of interest payable with respect to
each Mortgage Loan that is retained by the Depositor ("Retained Yield"). If
such a view were sustained with respect to a particular Trust Fund, such
purchasers would be subject to the rules set forth under "Application of
Stripped Bond Rules" rather than those under "Treatment of Unstripped
Certificates." The Depositor does not expect any Servicing Fee or Master
Servicing Fee to constitute a retained interest in the Mortgage Loans;
nevertheless, any such expectation generally will be a matter of uncertainty,
and prospective purchasers are advised to consult their own tax advisers with
respect to the existence of a retained interest and any effects on investment
in Trust Fractional Certificates.
1. Application of Stripped Bond Rules
Each Trust Fund will consist of an interest in each of the Mortgage Loans
relating thereto, exclusive of the Depositor's Retained Yield, if any. Any
Retained Yield will be treated for federal income tax purposes as an ownership
interest retained by the Depositor in a portion of each interest payment on
the underlying Mortgage Loans. The sale of the Trust Certificates associated
with any Trust Fund for which there is a class of Trust Interest Certificates
or two or more Classes of Trust Fractional Certificates bearing different
interest rates or of Trust Certificates identified in the Prospectus
Supplement as representing interests in Stripped Mortgage Loans (subject to
certain exceptions which, if applicable, will be stated in the applicable
Prospectus Supplement) will be treated for federal income tax purposes as
having effected a separation in ownership between the principal of each
Mortgage Loan and some or all of the interest payable thereon. As a
consequence, each Stripped Mortgage Loan will become subject to the "stripped
bond" rules of the Code (the "Stripped Bond Rules"). The effect of applying
those rules will generally be to require each Trust Fractional
Certificateholder to accrue and report income attributable to its share of the
principal and interest on each of the Stripped Mortgage Loans as original
issue discount on the basis of the yield to maturity of such Stripped Mortgage
Loans, as determined in accordance with the provisions of the Code dealing
with original issue discount. For a description of the general method of
calculating original issue discount, see "REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount." See also "Non-
Remic Trust Funds--Prepayments" hereof. The yield to maturity of a Trust
Fractional Certificateholder's interest in the Stripped Mortgage Loans will be
calculated taking account of the price at which the holder purchased the
Certificate and the holder's share of the payments of principal and interest
to be made thereon. Although the provisions of the Code and the OID
Regulations do
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not directly address the treatment of instruments similar to Trust Fractional
Certificates, in reporting to Trust Fractional Certificateholders the Trustee
intends to treat such Certificates as a single obligation with payments
corresponding to the aggregate of the payments allocable thereto from each of
the Mortgage Loans, and to determine the amount of original issue discount on
such certificates accordingly. See "Aggregate Reporting."
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as
market discount. See "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on
the Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more
than one percentage point less than the unstripped rate of interest. See "--
Market Discount and Premium." The Trustee intends to apply the foregoing de
minimis and market discount rules on an aggregate poolwide basis, although it
is possible that investors may be required to apply them on a loan by loan
basis. The loan by loan information required for such application of those
rules may not be available. See "Aggregate Reporting."
Subsequent purchasers of the Certificates may be required to include
"original issue discount" in an amount computed using the price at which such
subsequent purchaser purchased the Certificates. Further, such purchasers may
be required to determine if the above described de minimis and market discount
rules apply at the time a Trust Fractional Certificate is acquired, based on
the characteristics of the Mortgage Loans at that time.
Variable Rate Certificates. Purchasers of Trust Fractional Certificates
bearing a variable rate of interest should be aware that there is considerable
uncertainty concerning the application of the OID Regulations to Mortgage
Loans bearing a variable rate of interest. Although such regulations are
subject to a different interpretation, as discussed below, in the absence of
other contrary authority in preparing reports furnished to Certificateholders
the Trustee intends to treat Stripped Mortgage Loans bearing a variable rate
of interest (other than those treated as having market discount pursuant to
the regulations described above) as subject to the provisions therein
governing variable rate debt instruments. The effect of the application of
such provisions generally will be to cause Certificateholders holding Trust
Fractional Certificates bearing interest at a Single Variable Rate or at a
Multiple Variable Rate (as defined above under "REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount") to accrue
original issue discount and interest as though the value of each variable rate
were a fixed rate, which is (a) for each qualified floating rate, the value of
each such rate as of the Closing Date (with appropriate adjustment for any
differences in intervals between interest adjustment dates), (b) for a
qualified inverse floating rate, the value of the rate as of Closing Date, and
(c) for any other objective rate, the fixed rate that reflects the yield that
is reasonably expected for the Trust Fractional Certificate. If the interest
paid or accrued with respect to such Variable Rate Trust Fractional
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
Prospective purchasers of Trust Fractional Certificates bearing a variable
rate of interest should be aware that the provisions in the OID Regulations
applicable to variable rate debt instruments may not apply to certain
adjustable and variable rate mortgage loans, possibly including the Mortgage
Loans, or to Stripped Certificates representing interests in such Mortgage
Loans. If variable rate Trust Fractional Certificates are not governed by the
provisions of the OID Regulations applicable to variable rate debt
instruments, such Certificates may be subject to the provisions of the 1996
Contingent Debt Regulations. The application of those provisions to
instruments such as the Trust Fractional Certificates is subject to differing
interpretations. Prospective purchasers of variable rate Trust Fractional
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount on
a mortgage loan by mortgage loan basis (or on the basis of the rights to
individual payments) taking account of an allocation of
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their basis in the Certificates among the interests in the various mortgage
loans represented by such Certificates according to their respective fair
market values. Investors should be aware that it may not be possible to
reconstruct after the fact sufficient mortgage by mortgage information should
a computation on that basis be required by the IRS.
Because the treatment of the Certificates under the OID Regulations is both
complicated and uncertain, Certificateholders should consult their tax
advisers to determine the proper method of reporting amounts received or
accrued on Certificates.
2. Treatment of Unstripped Certificates
Mortgage Loans in a Trust Fund for which there is neither any Class of Trust
Interest Certificates, nor more than one Class of Trust Fractional
Certificates, nor any Retained Yield otherwise identified in the Prospectus
Supplement as being unstripped mortgage loans ("Unstripped Mortgage Loans")
will be treated as wholly owned by the Trust Fractional Certificateholders of
a Trust Fund. Trust Fractional Certificateholders using the cash method of
accounting must take into account their pro rata shares of original issue
discount as it accrues and qualified stated interest (as described in "REMIC
Trust funds--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount") from Unstripped Mortgage Loans as and when collected by the
Trustee. Trust Fractional Certificateholders using an accrual method of
accounting must take into account their pro rata shares of qualified stated
interest from Unstripped Mortgage Loans as it accrues or is received by the
Trustee, whichever is earlier.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on
or after March 2, 1984. Generally those sections provide that original issue
discount should be included in income on the basis of a constant yield to
maturity. However, the application of the original issue discount rules to
mortgages is unclear in certain respects. The Treasury Department has issued
the OID Regulations relating to original issue discount, which generally
address the treatment of mortgages issued on or after April 4, 1994. The OID
Regulations would provide a new de minimis rule for determining whether
certain self-amortizing installment obligations, such as the Mortgage Loans,
are to be treated as having original issue discount. Such obligations would
have original issue discount if the points charged at origination (or other
loan discount) exceeded the greater of one-sixth of one percent times the
number of full years to final maturity or one-fourth of one percent times
weighted average maturity. The OID Regulations treat certain variable rate
mortgage loans as having original issue discount because of an initial rate of
interest that differs from that determined by the mechanism for setting the
interest rate during the remainder of the loan, or because of the use of an
index that does not vary in a manner approved the OID Regulations. For a
description of the general method of calculating the amount of original issue
discount see "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" and "Application of Stripped Bond
Rules--Variable Rate Certificates."
A subsequent purchaser of a Trust Fractional Certificate that purchases such
Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans will
also be required to include in gross income, for each day on which it holds
such Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Loan, but
reduced, if the cost of such subsequent purchaser's interest in such
Unstripped Mortgage Loan exceeds its "adjusted issue price," by an amount
equal to the product of (i) such daily portion and (ii) a constant fraction,
whose numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount allocable to such subsequent purchaser's
interest for all days on or after the day of purchase. The adjusted issue
price of an Unstripped Mortgage Loan on any given day is equal to the sum of
the adjusted issue price (or, in the case of the first accrual period, the
issue price) of such Unstripped Mortgage Loan at the beginning of the accrual
period during which such day occurs and the daily portions of original issue
discount for all days during such accrual period prior to such day, reduced by
the aggregate amount of payments made during such accrual period prior to such
day other than payments of qualified stated interest.
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3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust Fractional
Certificate, a purchaser of a Trust Fractional Certificate will be treated as
acquiring market discount bonds to the extent that the share of such
purchaser's purchase price allocable to any Unstripped Mortgage Loan is less
than its allocable share of the "adjusted issue price" of such Mortgage Loan.
See "Treatment of Unstripped Certificates" and "Application of Stripped Bond
Rules." Thus, with respect to such Mortgage Loans, a holder will be required,
under Code Section 1276, to include as ordinary income the previously
unrecognized accrued market discount in an amount not exceeding each principal
payment on any such Mortgage Loans at the time each principal payment is
received or due, in accordance with the purchaser's method of accounting, or
upon a sale or other disposition of the Certificate. In general, the amount of
market discount that has accrued is determined on a ratable basis. A Trust
Fractional Certificateholder may, however, elect to determine the amount of
accrued market discount on a constant yield to maturity basis. This election
is made on a bond-by-bond basis and is irrevocable. In addition, the
description of the market discount rules in "Taxation of Owners of REMIC
Regular Certificates--Market Discount and Premium" with respect to (i)
conversion to ordinary income of a portion of any gain recognized on sale or
exchange of a market discount bond, (ii) deferral of interest expense
deductions, (iii) the de minimis exception from the market discount rules and
(iv) the elections to include in income either market discount or all
interest, discount and premium as they accrue, is also generally applicable to
Trust Fractional Certificates. Treasury regulations implementing the market
discount rules, including the 1986 Act amendments thereto, have not yet been
issued and investors therefore should consult their own tax advisers regarding
the application of these rules.
If a Trust Fractional Certificate is purchased at a premium, under existing
law such premium must be allocated to each of the Mortgage Loans (on the basis
of its relative fair market value). The portion of any premium allocated to
Unstripped Mortgage Loans originated after September 27, 1985 can be amortized
and deducted under the provisions of the Code relating to amortizable bond
premium. The portion of such premium allocated to Unstripped Mortgage Loans
originated on or before September 27, 1985 may only be deducted upon the sale
or final distribution in respect of any such Mortgage Loan, as the special
rules of the Code that permit the amortization of such premium apply in the
case of debt instruments other than corporate and governmental obligations,
only to obligations issued after that date. Upon such a sale or final
distribution in respect of such a Mortgage Loan, the premium, if any,
allocable thereto would be recognized as a short-term or long-term capital
loss by a Certificateholder holding the interests in Mortgage Loans
represented by such Certificate as capital assets, depending on how long the
Certificate had been held.
The application of the Stripped Bond Rules to Stripped Mortgage Loans will
generally cause any premium allocable to Stripped Mortgage Loans to be
amortized automatically by adjusting the rate of accrual of interest and
discount to take account of the allocable portion of the actual purchase price
of the Certificate. In that event, no additional deduction for the
amortization of premium would be allowed. It is possible that the IRS may take
the position that the application of the Stripped Bond Rules to the Stripped
Mortgage Loans should be adjusted so as not to take account of any premium
allocable to a Stripped Mortgage Loan originated on or before September 27,
1985. Any such premium would then be subject to the provisions of the Code
relating to the amortization of bond premium, including the limitations
described in the preceding paragraph on the amortization of premium allocable
to Mortgage Loans originated on or before September 27, 1985.
If a Certificateholder purchases a Certificate for an amount greater than
its remaining principal amount, such Certificateholder will be considered to
have purchased such Certificate with amortizable bond premium equal in amount
to such excess, and may elect to amortize such premium using a constant yield
method over the remaining term of the Certificate and to offset interest
otherwise required to be included in income in respect of such Certificate by
the premium amortized in such year. If such an election is made, it will apply
to all debt instruments having amortizable bond premium that the holder owns
or subsequently acquires. The OID Regulations also permit Certificateholders
to elect to include all interest, discount and premium in income based on a
constant yield method. The Committee Report states the same rules that apply
to accrual of market discount
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(which rules may require use of a prepayment assumption in accruing market
discount with respect to Certificates without regard to whether such
Certificates have original issue discount) would also apply in amortizing bond
premium under Code Section 171.
4. Allocation of Purchase Price
As noted above, a purchaser of a Trust Fractional Certificate relating to
Unstripped Mortgage Loans will be required to allocate the purchase price
thereof to the undivided interest it acquires in each of the Mortgage Loans,
in proportion to the respective fair market values of the portions of such
Mortgage Loans included in the Trust Fund at the time the Certificate is
purchased. The Depositor believes that it may be reasonable to make such
allocation in proportion to the respective principal balances of the Mortgage
Loans, where the interests in the Mortgage Loans represented by a Trust
Fractional Certificate have a common remittance rate and other common
characteristics, and otherwise so as to produce a common yield for each
interest in a Mortgage Loan, provided the Mortgage Loans are not so diverse as
to evoke differing prepayment expectations. However, if there is any
significant variation in interest rates among the Mortgage Loans, a
disproportionate allocation of the purchase price taking account of prepayment
expectations may be required.
C. Taxation of Owners of Trust Interest Certificates
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, each holder
of a Trust Interest Certificate (a "Trust Interest Certificateholder") will be
treated as the owner of an undivided interest in the interest portion
("Interest Coupon") of each of the Mortgage Loans. Accordingly, and subject to
the discussion under "Application of Stripped Bond Rules" below, each Trust
Interest Certificateholder is treated as owning its allocable share of the
entire Interest Coupon from the Mortgage Loans, will report income as
described below, and may deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Depositor at the same
time and in the same manner as such items would have been reported under the
Trust Interest Certificateholder's tax accounting method had it held directly
an interest in the Interest Coupon from the Mortgage Loans, received directly
its share of the amounts received with respect to the Mortgage Loans and paid
directly its share of the servicing and related fees and expenses. An
individual, estate or trust holder of a Trust Interest Certificate will be
allowed a deduction for servicing fees in determining its regular tax
liability only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross
income, and will be allowed no deduction for such fees in determining its
liability for alternative minimum tax. Amounts, if any, received by Trust
Interest Certificateholders in lieu of amounts due with respect to any
Mortgage Loan but not received by the Master Servicer from the Mortgagor will
be treated for federal income tax purposes as having the same character as the
payment which they replace.
1. Application of Stripped Bond Rules
A Trust Interest Certificate will be treated for federal income tax purposes
as comprised of an ownership interest in a portion of the Interest Coupon of
each of the Mortgage Loans (a "Stripped Interest") separated by the Depositor
from the right to receive principal payments and the remainder, if any, of
each interest payment on the underlying Mortgage Loan. As a consequence, the
Trust Interest Certificates will become subject to the Stripped Bond Rules.
Each Trust Interest Certificateholder will be required to apply the Stripped
Bond Rules to its interest in the Interest Coupon under the method prescribed
by the Code, taking account of the price at which the holder purchased the
Trust Interest Certificate and the Trust Interest Certificateholder's share of
the scheduled payment to be made thereon. The Stripped Bond Rules generally
require a holder of Stripped Coupons to accrue and report income from such
Stripped Coupons daily on the basis of the yield to maturity of such stripped
bonds or coupons, as determined in accordance with the provisions of the Code
dealing with original issue discount. For a discussion of the general method
of calculating original issue discount, see "REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount." See also
"Prepayments" below. The provisions of the Code and the OID Regulations do not
directly address the treatment of instruments similar to Trust Interest
Certificates. In reporting to Trust Interest Certificateholders such
Certificates will be treated as a single obligation with payment corresponding
to the aggregate of the payment allocable thereto from each of the Mortgage
Loans. See "Aggregate Reporting."
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Alternatively, Trust Interest Certificateholders may be required by the IRS
to treat each scheduled payment on each Stripped Interest (or their interests
in all scheduled payments from each of the Stripped Interests) as a separate
obligation for purposes of allocating purchase price and computing original
issue discount.
The tax treatment of the Trust Interest Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Trust Interest Certificate
as a single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect
to a Trust Interest Certificate must be included in ordinary gross income for
federal income tax purposes as it accrues in accordance with a constant yield
method that takes into account the compounding of interest and such accrual of
income may be in advance of the receipt of any cash attributable to such
income. In general, the rules for accruing original issue discount set forth
above in "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" apply. See "Prepayments" below. For
purposes of applying the original issue discount provisions of the Code, the
issue price used in reporting original issue discount with respect to a Trust
Interest Certificate will be the purchase price paid by each holder thereof
and the stated redemption price at maturity may include the aggregate amount
of all payments to be made with respect to the Trust Interest Certificate
whether or not denominated as interest. The amount of original issue discount
with respect to a Trust Interest Certificate may be treated as zero under the
original issue discount de minimis rules described above.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount
either on a mortgage loan by mortgage loan basis or on a payment by payment
basis taking account of an allocation of their basis in the Certificates among
the interests in the various mortgage loans represented by such Certificates
according to their respective fair market values. The effect of an aggregate
computation for the inclusion of original issue discount in income may be to
defer the recognition of losses due to early prepayments relative to a
computation on a mortgage by mortgage basis. Investors should be aware that it
may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the
IRS.
Because the treatment of the Trust Interest Certificates under current law
and the potential application of the 1996 Contingent Debt Regulations are both
complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts
received or accrued on Trust Interest Certificates.
D. Prepayments
The Tax Reform Act of 1986 (the "1986 Act") contains a provision requiring
original issue discount on certain obligations issued after December 31, 1986
to be calculated taking into account a prepayment assumption and requiring
such discount to be taken into income on the basis of a constant yield to
assumed maturity taking account of actual prepayments. Although the proper
treatment of interests, such as the Trust Fractional Certificates and the
Trust Interest Certificates, in debt instruments that are subject to
prepayment is unclear. Legislation recently enacted has extended (for taxable
years beginning after such enactment) the rules contained in the 1986 Act to
any pool of debt instruments the yield on which may be affected by reason of
prepayments. Accordingly, it appears that Section 1272(a)(6) would apply to
such Certificates. See "Taxation of Owners of REMIC Regular Certificates--
Original Issue Discount." Trust Fractional Certificateholders and Trust
Interest Certificateholders should consult their tax advisers as to the proper
reporting of income from Trust Fractional Certificates and Trust Interest
Certificates, as the case may be, in the light of the possibility of
prepayment and, with respect to the Trust Interest Certificates, as to the
possible application of the 1996 Contingent Debt Regulations.
E. Sales of Trust Certificates
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on
the sale and the Certificateholder's adjusted tax basis in the
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Certificate. Such tax basis will equal the Certificateholder's cost for the
Certificate, increased by any original issue or market discount with respect
to the interest in the Mortgage Loans represented by such Certificate
previously included in income, and decreased by any deduction previously
allowed for premium and by the amount of payments, other than payments of
qualified stated interest, previously received with respect to such
Certificate. The portion of any such gain attributable to accrued market
discount not previously included in income will be ordinary income, as will
gain attributable to a Certificate which is part of a "conversion transaction"
or which the holder elects to treat as ordinary. See "REMIC Trust Funds--Sales
of REMIC Certificates" above. Any remaining gain or any loss will be capital
gain or loss if the Certificate was held as a capital asset except to the
extent that code Section 582(c) applies to such gain or loss. Capital losses
may not, in general, be offset against ordinary income.
F. Trust Reporting
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and
to interest thereon at the Pass-Through Rate. In addition, the Master Servicer
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Trust Certificate who was such a holder at any time during
such year, information regarding the amount of servicing compensation received
by the Master Servicer and sub-servicer (if any) and such other customary
factual information as the Master Servicer deems necessary or desirable to
enable holders of Trust Certificates to prepare their tax returns.
G. Back-Up Withholding
In general, the rules described in "REMIC Trust Funds--Back-up Withholding"
will also apply to Trust Certificates.
H. Foreign Certificateholders
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans to a
Certificateholder who is not a citizen or resident of the United States, a
corporation or other entity organized in or under the laws of the United
States or of any State thereof, or a United States estate or trust, will not
generally be subject to 30% United States withholding tax, provided that such
Certificateholder (i) does not own, directly or indirectly, 10% or more of,
and is not a controlled foreign corporation (within the meaning of Code
Section 957) related to, each of the issuers of the Mortgages and (ii)
provides required certification as to its non-United States status under
penalty of perjury and then will be free of such tax only to the extent that
the underlying Mortgages were issued after July 18, 1984. This withholding tax
may be reduced or eliminated by an applicable tax treaty. Notwithstanding the
foregoing, if any such payments are effectively connected with a United States
trade or business conducted by the Certificateholder, they will be subject to
regular United States income tax and, in the case of a corporation, to a
possible branch profits tax, but will ordinarily be exempt from United States
withholding tax provided that applicable documentation requirements are met.
The Treasury Department has issued new regulations (the "New Regulations")
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. It is recommended that prospective
investors consult their tax advisors regarding the New Regulations.
I. State and Local Taxation
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state income
tax consequences of the acquisition, ownership, and disposition of the
Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state tax
consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("ERISA Plans") and on those persons who are ERISA fiduciaries with respect to
the assets of such ERISA Plans. In accordance with the general fiduciary
standards of ERISA, an ERISA Plan fiduciary should consider whether an
investment in the Certificates is permitted by the documents and instruments
governing the Plan, consistent with the Plan's overall investment policy and
appropriate in view of the composition of its investment portfolio.
Employee benefit plans which are governmental plans and certain church plans
(if no election has been made under Section 410(d) of the Code) are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Certificates subject to the provisions of applicable federal
and state law and, in the case of any such plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of
the Code, the restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and Section 4975
of the Code prohibit a broad range of transactions involving assets of ERISA
Plans and other plans subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons ("Parties in Interest") who have certain
specified relationships to the Plans and taxes and/or imposes other penalties
on any such transaction under ERISA and/or Section 4975 of the Code, unless an
exemption applies. If the assets of a Trust Fund are treated for ERISA
purposes as the assets of the Plans that purchase or hold Certificates of the
applicable Series, an investment in Certificates of that Series by or with
"plan assets" of a Plan might constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code, unless a statutory or
administrative exemption applies. Violation of the prohibited transaction
rules could result in the imposition of excise taxes and/or other penalties
under ERISA and/or Section 4975 of the Code.
PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Plan Assets Regulation") under which assets of an entity in which a Plan
makes an equity investment will be treated as assets of the investing Plan in
certain circumstances. Unless the Plan Assets Regulation provides an exemption
from this "plan asset" treatment, and if such an exemption is not otherwise
available under ERISA, an undivided portion of the assets of a Trust Fund will
be treated, for purposes of applying the fiduciary standards and prohibited
transaction rules of ERISA and Section 4975 of the Code, as an asset of each
Plan which becomes a Certificateholder of the applicable Series.
The Plan Assets Regulation provides an exemption from "plan asset" treatment
for securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value
of each class of equity interests in the entity, excluding interests held by a
person who has discretionary authority or control with respect to the assets
of the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental and other benefit plans not subject to
ERISA and entities holding assets deemed to be "plan assets"). Because the
availability of this exemption to any Trust Fund depends upon the identity of
the Certificateholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Certificates will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general
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conditions (described below) of PTCE 83-1 are satisfied, and if the applicable
Series of Certificates evidences ownership interests in Trust Assets which do
not include Mortgage Certificates, Cooperative Loans, Mortgage Loans secured
by cooperative buildings, Mortgage Loans secured by Multifamily Property,
Mortgage Loans secured by unimproved real property, Contracts, a Pre-Funding
Account, or a swap agreement (collectively "Nonexempt Assets"). An investment
by a Plan in Certificates of an Exempt Series (1) will be exempt from the
prohibitions of Section 406(a) of ERISA (relating generally to Plan
transactions involving Parties in Interest who are not fiduciaries) if the
Plan purchases the Certificates at no more than fair market value, and (2)
will be exempt from the prohibitions of Sections 406(b)(1) and (2) of ERISA
(relating generally to Plan transactions with fiduciaries) if, in addition,
(i) the purchase is approved by an independent fiduciary, (ii) no sales
commission is paid to the Depositor as Mortgage Pool sponsor, (iii) the Plan
does not purchase more than 25% of the Certificates of that Series and (iv) at
least 50% of the Certificates of that Series is purchased by persons
independent of the Depositor, the Trustee and the Insurer, as applicable. PTCE
83-1 will not apply to a Series of Certificates with respect to which the
Trust Assets include Nonexempt Assets (a "Nonexempt Series"). See "The Trust
Fund--The Mortgage Pools", "--The Contract Pools" and "--Pre-Funding."
Accordingly, it appears that PTCE 83-1 will not exempt Plans that acquire
Certificates of a Nonexempt Series from the prohibited transaction rules of
ERISA and Section 4975 of the Code. The applicable Prospectus Supplement will
state whether a Series of Certificates is an Exempt Series or a Nonexempt
Series.
PTCE 83-1 sets forth three general conditions that must be satisfied for any
transaction to be eligible for exemption: (1) the existence of a pool trustee
who is not an affiliate of the pool sponsor; (2) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against
reductions in pass-through payment due to property damage or defaults in loan
payments; and (3) a limitation on the amount of the payment retained by the
pool sponsor, together with other benefits inuring to it, to not more than
adequate consideration for selling the mortgage loans and reasonable
compensation for services provided by the pool sponsor to the mortgage pool.
The Trustee for all Series will be unaffiliated with the Depositor, and,
accordingly, the first general condition will be satisfied. With respect to
the second general condition of PTCE 83-1, the credit support method
represented by the issuance of a Subordinated Class or Subclasses of
Certificates and/or the establishment of a Reserve Fund, with respect to any
Exempt Series for which such a method of Credit Support is provided (see
"Credit Support--Subordinated Certificates" and "--Reserve Fund"), is
substantially similar to a system for protecting Certificateholders against
reductions in pass-through payments which has been reviewed and accepted by
the DOL as an alternative to pool insurance or a letter of credit
indemnification system. This may support a Plan fiduciary's conclusion that
the second general condition is satisfied with respect to any such Exempt
Series although, in the absence of a ruling to this effect, there can be no
assurance that these features will be so viewed by the DOL. In addition, the
Depositor intends to use its best efforts to establish, for each Exempt Series
for which credit support is provided by a Letter of Credit (see "Credit
Support--Letters of Credit") and/or the insurance arrangements set forth above
under "Description of Insurance" (an "Insured Series"), a system that will
adequately protect the Mortgage Pools and indemnity Certificateholders of the
applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third
general condition of PTCE 83-1, the Depositor intends to use its best efforts
to establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal or interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates
are entitled to pass-through payment of principal (but no or only nominal
interest) or interest (but no or only nominal principal), PTCE 83-1 will not
exempt Plans which acquire Certificates of that Class or Subclass from the
prohibited transaction rules of ERISA and Section 4975 of the Code.
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If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA and Section 4975 of the Code for Plans that acquire
such Subordinated Certificates.
If for any reason PTCE 83-1 does not provide an exemption for a particular
Plan Certificateholder, one of five other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 96-23 (Class Exemption
for Plan Asset Transactions Determined by In-House Asset Managers), PTCE 95-60
(Class Exemption for Certain Transactions Involving Insurance Company General
Accounts), PTCE 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), PTCE 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts) or PTCE 84-
14 (Class Exemption for Plan Asset Transactions Determined by Independent
Qualified Professional Asset Managers). There can be no assurance that any of
these class exemptions will apply with respect to any particular Plan
Certificateholder or, even if it were to apply, that the available exemptive
relief would apply to all transactions involving the applicable Trust Fund.
Any person who is a fiduciary by reason of his or her authority to invest
"plan assets" of any Plan (a "Plan investor") and who is considering the use
of "plan assets" of any Plan to purchase of the offered Certificates should
consult with its counsel with respect to the potential applicability of ERISA
and Section 4975 of the Code to such investments, and should determine on its
own whether PTCE 83-1 or another exemption would be applicable (and whether
all conditions have been satisfied with respect to any such exemptions), and
whether the offered Certificates are an appropriate investment for a Plan.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment
in the offered Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
UNDERWRITER'S PTE
Credit Suisse First Boston Corporation ("First Boston") is the recipient of
a final prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989),
as amended by PTE 97-34, 62 Fed. Reg. 39021 (July 21, 1997) (the
"Underwriter's PTE" or "First Boston's PTE" if specified in the applicable
Prospectus Supplement), which may accord protection from violations under
Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans that
acquire Certificates. The Underwriter's PTE applies to certificates (a) which
represent (1) a beneficial ownership interest in the assets of a trust and
entitle the holder to pass-through payments of principal, interest and/or
other payments made with respect to the assets of the trust, or (2) an
interest in a REMIC if the certificates are issued by and are obligations of a
trust; and (b) with respect to which First Boston or any of its affiliates is
either the sole underwriter, the manager or co-manager of the underwriting
syndicate or a selling or placement agent. The corpus of a trust to which the
Underwriter's PTE applies may consist of (i) obligations which bear interest
or are purchased at a discount and which are secured by (A) single-family
residential, multifamily residential or commercial real property (including
obligations secured by leasehold interests on such real property) or (B)
shares issued by a cooperative housing association; (ii) secured consumer
receivables that bear interest or are purchased at a discount; (iii) secured
credit instruments that bear interest or are purchased at a discount in
transactions by or between business entities; and (iv) "guaranteed
governmental mortgage pool certificates" (as defined in the Plan Assets
Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in
other investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard &
Poor's Ratings Services, Moody's Investors Service, Inc., Duff & Phelps
Inc. or Fitch IBCA, Inc., and (2) purchased by investors other than Plans,
for at least one year prior to a Plan's acquisition of Certificates in
reliance upon the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates acquired
by the Plan has received a rating in one of the rating categories referred
to in condition (b) above;
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(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non-Subordinated Mortgage Certificates (whether or
not interest and principal payable with respect to the Mortgage
Certificates are guaranteed by the GNMA, FHLMC or FNMA), Contracts but may
not include a swap agreement, or, if certain conditions specified in the
applicable prospectus supplement are satisfied, a Pre-Funding Account;
(f) the Class of Certificates acquired by the Plan are not subordinated
to other Classes of Certificates of that Series with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution
of the Certificates represents not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained
by the Seller pursuant to the sale of the Trust Assets to the Trust
represents not more than the fair market value of such Trust Assets; and
the sum of all payments made to and retained by the Master Servicer and all
Servicers represents not more than reasonable compensation for such
Servicers' services under the Pooling and Servicing Agreement and
reimbursement of such Servicers' reasonable expenses in connection
herewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5%
of the fair market value of the obligations constituting the Trust Assets or
an affiliate of such person, unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the Trust is
acquired by persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed
25% of the outstanding Certificates of that Class at the time of
acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan
assets with respect to which the investing fiduciary has discretionary
authority or renders investment advice are invested in certificates
evidencing interest in trusts sponsored or containing assets sold or
serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer
or the obligor under any other credit support mechanism, a Mortgagor or
Obligor with respect to obligations constituting more than 5% of the
aggregate unamortized principal balance of the Trust Assets on the date of
the initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
Each Series of Certificates generally is expected to satisfy condition (a)
unless otherwise specified in the applicable Prospectus Supplement. If a
Series includes a Class of Subordinated Certificates, that Class will not
satisfy condition (f). Additionally, the Prospectus permits the issuance of
Certificates rated in one of the four highest rating categories, so a
particular Class of a Series may not satisfy condition (c).
Whether the other conditions in the Underwriter's PTE will be satisfied as
to Certificates or any particular Class will depend upon the relevant facts
and circumstances existing at the time the Plan acquires Certificates of that
Class. Any Plan investor who proposes to use "plan assets" of a Plan to
acquire Certificates in reliance
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<PAGE>
upon the Underwriter's PTE should determine whether the Plan satisfies all of
the applicable conditions and consult with its counsel regarding other factors
that may affect the applicability of the Underwriter's PTE.
GENERAL CONSIDERATIONS
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with
respect to a Plan. In that event, the acquisition or holding of Certificates
of the applicable Series or Class by, on behalf of or with "plan assets" of
such Plan might be viewed as giving rise to a prohibited transaction under
ERISA and Section 4975 of the Code, unless PTCE 83-1, the Underwriter's PTE or
another exemption is available. Accordingly, before a Plan Investor makes the
investment decision to purchase, to commit to purchase or to hold Certificates
of any Series or Class, the Plan Investor should determine (a) whether the
second and third general conditions and the specific conditions (described
briefly above) of PTCE 83-1 have been satisfied; (b) whether the Underwriter's
PTE is applicable and adequate exemptive relief is available; (c) whether any
other prohibited transaction exemption (if required) is available under ERISA
and Section 4975 of the Code; or (d) whether an exemption from "plan asset"
treatment is available to the applicable Trust Fund. The Plan Investor should
also consult the ERISA discussion, if any, in the applicable Prospectus
Supplement for further information regarding the application of ERISA to any
Series or Class of Certificates.
Subordinated Certificates are not available for purchase by or with "plan
assets" of any Plan, other than an insurance company general account which
satisfies the conditions set forth in Sections I and III of PTCE 95-60 or a
governmental or church plan which is not subject to ERISA or Section 4975 of
the Code (as described above), and any acquisition of Subordinated
Certificates by, on behalf of or with "plan assets" of any such Plan will be
treated as null and void for all purposes.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions
of Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the
DOL is required to issue final regulations (the "401(c) Regulations") no later
than December 31, 1997 which are to provide guidance for the purpose of
determining, in cases where insurance policies or annuity contracts supported
by an insurer's general account are issued to or for the benefit of a Plan on
or before December 31, 1998, which general account assets constitute "plan
assets." Section 401(c) of ERISA generally provides that, until the date which
is 18 months after the 401(c) Regulations become final, no person shall be
subject to liability under Part 4 of Title I of ERISA and Section 4975 of the
Code on the basis of a claim that the assets of an insurance company general
account constitute "plan assets," unless (i) as otherwise provided by the
Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal
or state criminal law. Any assets of an insurance company general account
which support insurance policies issued to a Plan after December 31, 1998 or
issued to Plans on or before December 31, 1998 for which the insurance company
does not comply with the 401(c) Regulations may be treated as "plan assets."
In addition, because Section 401(c) does not relate to insurance company
separate accounts, separate account assets are still treated as "plan assets"
of any Plan invested in such separate account. Insurance companies
contemplating the investment of general account assets in the Certificates
should consult with their legal counsel with respect to the applicability of
Sections I and III of PTCE 95-60 and Section 401(c) or ERISA, including the
general account's ability to continue to hold the Certificates after the date
which is 18 months after the date the 401(c) Regulations become final.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH
RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE
OF THE ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
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LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is
rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations, will constitute a "mortgage
related security" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Such Class or Subclass, if any, constituting a
"mortgage related security" will be a legal investment for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies, trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for such enactments, limiting to varying extents
the ability of certain entities (in particular, insurance companies) to invest
in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Accordingly,
the investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review NCUA Letter to Credit Unions No. 96, as
modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R. Section
703.5(f)-(k), which prohibit federal credit unions from investing in certain
mortgage related securities (including securities such as certain Series,
Classes or Subclasses of Certificates), except under limited circumstances.
The Office of Thrift Supervision (the "OTS") has issued Thrift Bulletin 13a,
entitled "Management of Interest Rate Risk, Investment Securities, and
Derivatives Activities" ("TB 13a"), which is effective as of December 1, 1998
and applies to thrift institutions regulated by the OTS. One of the primary
purposes of TB 13a is to require thrift institutions, prior to taking any
investment position, to (i) conduct a pre-purchase portfolio sensitivity
analysis for any "significant transaction" involving securities or financial
derivatives, and (ii) conduct a pre-purchase price sensitivity analysis of any
"complex security" or financial derivative. For the purposes of TB 13a,
"complex security" includes among other things any collateralized mortgage
obligation or REMIC security, other than any "plain vanilla" mortgage pass-
through security (that is, securities that are part of a single class of
securities in the related pool that are non-callable and do not have any
special features). One or more classes of the Offered Certificates may be
viewed as "complex securities". The OTS recommends that while a thrift
institution should conduct its own in-house pre-acquisition analysis, it may
rely on an analysis conducted by an independent third-party as long as
management understands the analysis and its key assumptions. Further, TB 13a
recommends that the use of "complex securities with high price sensitivity" be
limited to transactions and strategies that lower a thrift institution's
portfolio interest rate risk. TB 13a warns that investment in complex
securities by thrift institutions that do not have adequate risk measurement,
monitoring and control systems may be viewed by OTS examiners as an unsafe and
unsound practice.
The predecessor to the OTS issued a bulletin entitled "Mortgage Derivative
Products and Mortgage Swaps" applicable to thrift institutions regulated by
the OTS. The bulletin established guidelines for the investment by savings
institutions in certain "high-risk" mortgage derivative securities and
limitations on the use of such securities by insolvent, undercapitalized or
otherwise "troubled" institutions. According to the bulletin, such
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"high-risk" mortgage derivative securities include securities such as the
Class B Certificates. Similar policy statements have been issued by regulators
having jurisdiction over other types of depository institutions.
On April 23, 1998, the Federal Financial Institutions Examination Council
issued a revised supervisory policy statement (the "1998 Policy Statement")
applicable to all depository institutions, setting forth guidelines for
investments in "high-risk mortgage securities." The 1998 Policy Statement has
been adopted by the Federal Reserve Board, the Office of the Comptroller of
the Currency, the FDIC, the National Credit Union Administration (the "NCUA")
and the OTS with an effective date of May 26, 1998. The 1998 Policy Statement
rescinds a 1992 policy statement that had required, prior to purchase, a
depository institution to determine whether a mortgage derivative product that
it is considering acquiring is high-risk, and, if so, that the proposed
acquisition would reduce the institution's overall interest rate risk. The
1998 Policy Statement eliminates former constraints on investing in certain
"high-risk" mortgage derivative products and substitutes broader guidelines
for evaluating and monitoring investment risk.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or Subclasses may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisers in determining whether and
to what extent such Certificates constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through Credit Suisse First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by Credit Suisse First Boston
Corporation (the "Underwriters"). The Prospectus Supplement with respect to
each such Series of Certificates will set forth the terms of the offering of
such Series or Certificates and each Subclass within such Series, including
the name or names of the Underwriters, the proceeds to the Depositor, and
either the initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
such Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale.
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If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit
offers by certain institutions to purchase the Certificates from the Depositor
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Depositor. The obligation of any
purchaser under any such contract will be subject to the condition that the
purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Certificates to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any purchasers of
Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
If and to the extent required by applicable law or regulation, this
Prospectus and the attached Prospectus Supplement will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sales.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Orrick,
Herrington & Sutcliffe LLP, New York, New York.
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INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----- -----------------
<S> <C>
1986 Act...................................................... 121
1988 Act...................................................... 110
1998 Policy Statement......................................... 129
401(c) Regulations............................................ 127
Accrual Distribution Amount................................... 44
ADA........................................................... 95
Advances...................................................... 16
AFR........................................................... 119
Agreement..................................................... 41
Alternative Credit Support.................................... 11
appraised value............................................... 36
Approved Sale................................................. 77
APR........................................................... 35
ARM Loans..................................................... 27
Asset Conservation Act........................................ 92
Balloon Mortgage Loans........................................ 22
Borrower...................................................... 81
Buy-Down Fund................................................. 15, 29
Buy-Down Loans................................................ 29
Cede.......................................................... 24
CERCLA........................................................ 23, 91
Certificate Account........................................... 50
Certificate Principal Balance................................. 4
Certificateholders............................................ 25, 28
Certificates.................................................. 1, 4
Class......................................................... 1, 4
Closing Date.................................................. 102
Code.......................................................... 16, 41
Commercial Mortgage Loans..................................... 5
Commercial Property........................................... 5
Commission.................................................... 2
Contingent Debt Regulations................................... 106
Contract Loan-to-Value Ratio.................................. 8
Contract Pool................................................. 1, 5, 101
Contract Schedule............................................. 47
Contracts..................................................... 1, 5, 20, 35
Converted Mortgage Loan....................................... 26
Cooperative................................................... 5
Cooperative Dwelling.......................................... 5
Cooperative Loans............................................. 5
Current value................................................. 103
Custodial Account............................................. 50
Custodial Agreement........................................... 35
Custodian..................................................... 35
Cut-off Date.................................................. 26
Debt Service Reduction........................................ 89
Deferred Interest............................................. 27
Deficiency Event.............................................. 66
Deficient Valuation........................................... 89
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Definitive Certificates....................................... 24
Deleted Contract.............................................. 36
Deleted Mortgage Certificates................................. 45
Deleted Mortgage Loans........................................ 46
Deposit Trust Agreement....................................... 41
Depositor..................................................... 1
Determination Date............................................ 53
Discount Certificate.......................................... 10
Discount Certificates......................................... 39
Distribution Date............................................. 6
DOL........................................................... 123
DTC........................................................... 24
Due Date...................................................... 28
Due Period.................................................... 44
ERISA......................................................... 16, 123
ERISA Plans................................................... 123
Escrow Account................................................ 57
FBSC.......................................................... 37
FHA........................................................... 1, 27, 32
FHA Experience................................................ 39
FHA Loans..................................................... 27
First Boston.................................................. 125
First Boston PTE.............................................. 125
Garn-St Germain Act........................................... 90
GPM Fund...................................................... 15, 29
GPM Loans..................................................... 29
HUD........................................................... 32
Initial Deposit............................................... 14
Installment Contracts......................................... 30
Insurance Proceeds............................................ 51
Insured....................................................... 59
Insured Series................................................ 124
Interest Coupon............................................... 120
Interest Distribution......................................... 43
Interest Rate................................................. 4
Interest Weighted Class....................................... 4
Interest Weighted Subclass.................................... 4
IRS........................................................... 17,102
L/C Bank...................................................... 11, 68
L/C Percentage................................................ 12, 68
Lease......................................................... 94
Lender........................................................ 80
Lessee........................................................ 94
Letter of Credit.............................................. 11
Liquidating Loan.............................................. 11
Liquidation Proceeds.......................................... 51
Loan- to-Value Ratio.......................................... 7
Loss.......................................................... 73
Manufactured Home............................................. 8
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Mixed-Use Mortgage Loans...................................... 5
Mixed-Use Property............................................ 5
Mortgage Certificates......................................... 1, 34
Mortgage Loan Groups.......................................... 28
Mortgage Loans................................................ 1, 5, 101
Mortgage Notes................................................ 26
Mortgage Pool................................................. 1, 5, 101
Mortgaged Property............................................ 7
Mortgagor..................................................... 7
Mortgagor Bankruptcy Bond..................................... 11
Multi-Class Certificates...................................... 4
Multifamily Mortgage Loans.................................... 5
Multifamily Property.......................................... 5
Multiple Variable Rate........................................ 105
New Regulations............................................... 122
NCUA.......................................................... 93, 129
non-U.S. Person............................................... 114
Nonexempt Assets.............................................. 124
Nonexempt Series.............................................. 124
Obligor....................................................... 38
OID Regulations............................................... 101
Originator.................................................... 31
Other Pools................................................... 126
OTS........................................................... 128
Outstanding Balance........................................... 89
Parties in Interest........................................... 123
Pass-Through Rate............................................. 4
Payment Deficiencies.......................................... 69
Percentage Interest........................................... 1, 26
Performance Bond.............................................. 36
Plan Assets................................................... 128
Plan Assets Regulation........................................ 124
Plan Investor................................................. 125
Plans......................................................... 123
Policy Statement.............................................. 129
Pool Insurance Policy......................................... 11
Pool Insurer.................................................. 12
Pooling and Servicing Agreement............................... 28, 41
Pre-Funded Amount............................................. 9, 36
Pre-Funding Account........................................... 9, 36
Pre-Funding Period............................................ 9, 36
Premium Certificate........................................... 10
Premium Certificates.......................................... 38
Prepayment Assumption......................................... 102
Primary Insurer............................................... 52
Primary Mortgage Insurance Policy............................. 12
Primary Mortgage Insurer...................................... 59
Principal Distribution........................................ 43
Principal Prepayments......................................... 13
Principal Weighted Class...................................... 4
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Principal Weighted Subclass................................... 4
PTCE 83-1..................................................... 123
Purchase Price................................................ 48
Qualified Floating Rate....................................... 103
Rating Agency................................................. 1, 5
RCRA.......................................................... 92
Realized Loss................................................. 62
Record Date................................................... 43
Reference Agreement........................................... 41
Relief Act.................................................... 93
REMIC......................................................... 1, 16, 100
REMIC Certificateholders...................................... 101
REMIC Certificates............................................ 100
REMIC Mortgage Pool........................................... 100
REMIC Provisions.............................................. 101
REMIC Regular Certificate..................................... 101
REMIC Regulations............................................. 101
REMIC Residual Certificate.................................... 101
Required Distribution......................................... 71
Required Reserve.............................................. 14, 69
Reserve Fund.................................................. 11
Residual Certificates......................................... 4
Residual Owner................................................ 108
Restricted Group.............................................. 127
Retained Yield................................................ 116
Securities Act................................................ 42
Senior Certificates........................................... 11
Senior Class.................................................. 4
Senior Prepayment Percentage.................................. 70
Senior Subclass............................................... 4
Series........................................................ 1, 4
Servicemen's Readjustment Act................................. 27
Servicer...................................................... 28
Servicing Account............................................. 50
Servicing Agreement........................................... 28
Simple Interest Loans......................................... 30
Single Family Property........................................ 5
Single Variable Rate.......................................... 103
Single-class REMIC............................................ 112
SMMEA......................................................... 18, 128
SPA........................................................... 39
Special Distributions......................................... 7, 54
Special Hazard Insurance Policy............................... 15
Special Servicer.............................................. 28, 56
Specially Serviced Mortgage Loans............................. 56
Standard Hazard Insurance Policy.............................. 57
Standard Terms................................................ 41
Startup day................................................... 113
Stated Principal Balance...................................... 4
</TABLE>
134
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----- -----------------
<S> <C>
Stated Principal Distribution Amount.......................... 45
Stripped Bond Rules........................................... 116
Stripped Interest............................................. 121
Stripped Mortgage Loan........................................ 116
Subclass...................................................... 1, 4
Subordinated Amount........................................... 11
Subordinated Certificates..................................... 11
Subordinated Class............................................ 4
Subordinated Pool............................................. 14
Subordinated Subclass......................................... 4
Substitute Contract........................................... 36
Substitute Mortgage Certificates.............................. 45
Substitute Mortgage Loans..................................... 46
TB13a......................................................... 128
Title V....................................................... 99
Title VIII.................................................... 93
Trust Assets.................................................. 5, 34
Trust Certificates............................................ 17, 101
Trust Fractional Certificate.................................. 101
Trust Fractional Certificateholder............................ 115
Trust Fund.................................................... 1, 5
Trust Interest Certificate.................................... 101
Trust Interest Certificateholder.............................. 120
U.S. Person................................................... 114
UCC........................................................... 86
Unaffiliated Sellers.......................................... 30
Underwriter's PTE............................................. 125
Underwriters.................................................. 130
Unstripped Mortgage Loans..................................... 118
VA............................................................ 1, 27
VA Loans...................................................... 27
</TABLE>
135
<PAGE>
[Version A- Mixed Use, Commercial Properties.]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Series
% Pass-Through Rate
Principal and interest payable on the 25th day
of each month, beginning , 19
-----------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
The Conduit Mortgage Pass-Through Certificate, Series (the "Certificates")
offered hereby evidence undivided fractional interests in a trust to be created
by Credit Suisse First Boston Mortgage Securities Corp. (the "Depositor") on
or about , 199 (the "Trust"). The Trust property will consist of a pool
of [conventional] [fixed-rate] one- to four-family residential mortgage loans
[and mortgage loans secured by commercial real estate properties and/or mixed
residential/commercial properties] [and] [mortgage participation certificates
evidencing participation interests in such mortgage loans and meeting the
requirements of the nationally recognized rating agency or agencies rating the
Certificates (collectively, the "Rating Agency") for a rating in one of the two
highest rating categories of such Rating Agency] (the "Mortgage Loans") and
certain related property to be conveyed to the Trust by the Depositor (the
"Trust Fund"). The initial Mortgage Loans will be transferred to the Trust,
pursuant to a Pooling and Servicing Agreement (as defined herein), dated as of ,
19 , by the Depositor in exchange for the Certificates and are more fully
described in this Prospectus Supplement and in the accompanying Prospectus. The
Pooling and Servicing Agreement provides that additional mortgage loans (the
"Subsequent Mortgage Loans") may be purchased by the Trust from the Depositor
from time to time on or before with funds on deposit in the Pre-Funding
Account (as defined herein). On the Delivery Date approximately $ will be
deposited with the Trustee in the Pre-Funding Account, which amounts are
intended to be used to acquire Subsequent Mortgage Loans. The Certificates
offered by this Prospectus Supplement constitute a separate series of the
Certificates being offered by the Depositor from time to time pursuant to its
Prospectus dated , 199 , which accompanies this Prospectus Supplement and of
which this Prospectus Supplement forms a part. The Prospectus contains important
information regarding this offering that is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Federal Income Tax Consequences" in the
Prospectus.]
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the material risk factors set forth
under Risk Factors commencing on page S-6 of this Prospectus Supplement and in
the Prospectus on page 19.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- - ---------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- ----------------------------------------------------------
Total $ $ $
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
(1)Plus accrued interest, if any, at the applicable rate from , 19 .
(2)Before deduction of expenses payable by the Depositor estimated at $ .
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about
, 19 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
This Prospectus Supplement does not contain complete information about the
Certificates offered hereby. Additional information is contained in the
Prospectus, and purchasers are urged to read both this Prospectus Supplement
and the Prospectus in full. Sales of the Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
Until , 19 , all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver
a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information filed
by the Trust can be inspected and copied at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C., and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such information can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, Series
, % Pass-Through Rate (the "Certificates").
AMOUNT.................... $ (Approximate: subject to a permitted
variance of up to 5%).
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
[SPECIAL SERVICER.........]
DENOMINATIONS............. The minimum denomination of a Certificate (a
"Single Certificate") will initially represent
approximately $ aggregate principal amount
of Mortgage Loans.
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST.................. Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on the day of each
month (each, a "Distribution Date") commencing
, 19 .
PRINCIPAL (INCLUDING Passed through monthly on the Distribution Date,
PREPAYMENTS).............. commencing , 19 .
INITIAL MORTGAGE POOL..... The initial Mortgage Pool will consist of [fixed
rate], fully-amortizing, [level-payment] mortgage
loans [and mortgage participation certificates
evidencing participation interests in such mortgage
loans that meet the requirements of the nationally
recognized rating agency or agencies rating the
Certificates (collectively the "Rating Agency") for
a rating in one of the two highest rating
categories of such Rating Agency] secured by
mortgages [on one- to four-family residential
properties] [and commercial real estate properties
and/or mixed residential/commercial properties]
[located in the states of , and (the
"Mortgage Loans").] All Mortgage Loans will have
original maturities of at least [15 but no more
than 30] years. [As of the Cut-Off Date, the
aggregate principal balance of the Mortgage Loans
secured by commercial real estate properties
represent approximately [__% [less than 10%]] of
the aggregate principal balance of all the Mortgage
Loans in the Mortgage Pool.] See "Description of
the Mortgage Pool and the Underlying Properties"
herein.
PRE-FUNDING ACCOUNT....... On the Delivery Date, $ (the "Original Pre-
Funded Amount") will be deposited in the Pre-
Funding Account, which account will be in the name
of, and maintained by, the Trustee on behalf of the
Trust Fund. The amount in the Pre-Funding Account
(the "Pre-Funded Amount") will be maintained in the
Pre-Funded Account during the period (the "Funding
Period") from and including the Delivery Date until
the earliest of (i) the date on which the Pre-
Funded Amount is less than $100,000, (ii) the date
on which an event of default under the Pooling and
Servicing Agreement occurs and (iii) . The
Original Pre-Funded Amount will be reduced during
the Funding Period by the amount thereof used to
purchase Subsequent Mortgage Loans in accordance
with the Pooling and Servicing Agreement.
Subsequent Mortgage Loans purchased by the Trust on
any date (each, a"Subsequent Transfer Date") must
satisfy the criteria set forth in the Pooling and
Servicing Agreement. Any Pre-Funded Amount
remaining at the end of the Funding Period will be
distributed to the holders of the Certificates as
described below under "Mandatory Prepayment of
Certificates." Although no assurance can be given,
it is intended that the principal balance of the
Subsequent Mortgage Loans sold to the Trust will
require application of substantially all of the
Original Pre-Funded Amount and it is not intended
that there will be any significant amount of
principal prepaid to the holders of the
Certificates from the Pre-Funding Account; however,
it is unlikely that the Depositor will deliver
Subsequent Mortgage Loans with an aggregate
principal balance exactly equal to the Original
Pre-Funded Amount. All investent income on amounts
on deposit in the Pre-Funding Account will be
deposited in the Capitalized Interest Account.
CAPITALIZED INTEREST
ACCOUNT.................. On the Delivery Date, cash will be deposited in a
trust account maintained by the Trustee (the
"Capitalized Interest Account") in the name of the
Trustee on behalf of the Trust. The amount on
deposit in the Capitalized Interest Account,
including reinvestment income thereon, will be
applied by the Trustee to fund interest at the
weighted average of the Pass-Through Rates on the
Certificates during the Funding Period on the Pre-
Funded Amount. Any amounts remaining in the
Capitalized Interest Account not needed for such
purpose will be distributed to the Depositor on the
Distribution Date occurring in .
MANDATORY PREPAYMENT
OF CERTIFICATES.......... In the event that at the end of the Funding Period,
not all of the Original Pre-Funded Amount has been
used to acquire Subsequent Mortgage Loans, then the
class or classes of Certificates then entitled to
receive payments of principal will receive a
prepayment on the Distribution Date in in
an amount equal to the portion of the Pre-Funded
Amount related to such class or classes remaining
at the end of the Funding Period.
RISK FACTORS.............. For discussion of material risk factors that
should be considered with respect to an investment
in the Certificates, see "Risk Factors" herein and
in the related Prospectus.
[LETTER OF CREDIT......... The maximum liability of [ ] under an
irrevocable standby letter of credit for the
Mortgage Pool (the "Letter of Credit"), net of
unreimbursed payments thereunder, will be no more
than [10%] of the initial aggregate principal
balance of the Mortgage Pool (the "Letter of
Credit Percentage"). The maximum amount available
to be paid under the Letter of Credit will be
determined in accordance with the Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount of frequency
of any reduction in coverage will be in compliance
with the requirements established by the Rating
Agency, in order to obtain a rating in one of the
two highest rating categories of such Rating
Agency. The amount available under the Letter of
Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Description
of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
S-3
<PAGE>
[POOL INSURANCE POLICY.... [Neither the Certificates nor the Mortgage Loans
will be insured or guaranteed by any governmental
agency.] Subject to the limitations described
herein, a pool insurance policy for certain of the
Mortgage Loans (the "Pool Insurance Policy") will
cover losses due to default on such Mortgage Loans
in an initial amount of not less than [5%] of the
aggregate principal balance as of the Cut-off Date
of all Mortgage Loans that are not covered as to
their entire outstanding principal balance by
primary policies of mortgage guaranty insurance.
The Pool Insurance Policy will be subject to the
limitations described under "Description of
Insurance--the Pool Insurance Policy" in the
Prospectus.]
HAZARD INSURANCE (AND
SPECIAL HAZARD INSURANCE All of the Mortgage Loans will be covered by
POLICY.................... standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance Policy")
will cover losses with respect to the Mortgage
Loans that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in scope
and will cover losses in an initial amount equal
to the greater of % of the aggregate principal
balance of the Mortgage Loans or times the unpaid
principal balance of the largest Mortgage Loan.]
Any hazard losses not covered by [either] standard
hazard insurance policies [or the Special Hazard
Insurance Policy] will not be insured against and
[, to the extent that the amount available under
the Letter of Credit or any alternative method of
credit support is exhausted,] will be borne by
holders of the Certificates (the
"Certificateholders"). The hazard insurance
policies [and the Special Hazard Insurance Policy]
will be subject to the limitations described under
"Description of Insurance--Hazard Insurance" [and
"--Special Hazard Insurance Policies"] in the
Prospectus.
[MORTGAGOR BANKRUPTCY The Depositor will obtain a bond or similar form of
BOND...................... insurance coverage (the "Mortgagor Bankruptcy
Bond"), providing coverage against losses that
result from proceedings with respect to obligors
under the Mortgage Loans (the "Mortgagors") under
the federal Bankruptcy Code. See "Description of
the Certificates--Mortgagor Bankruptcy Bond"
herein and "Description of Insurance--The
Mortgagor Bankruptcy Bond" in the Prospectus.]
[OPTIONAL TERMINATION..... The Depositor may, at its option, repurchase from
the Trust all Mortgage Loans remaining outstanding
at such time as the aggregate unpaid principal
balance of such Mortgage Loans is less than [10%]
of the aggregate principal balance of the Mortgage
Loans on the Cut-off Date. The repurchase price
will equal the aggregate unpaid principal balance
of such Mortgage Loans together with accrued
interest thereon at the Pass-Through Rate through
the last day of the month during which such
repurchase occurs, plus the appraised value of any
property acquired in respect thereof. [Any such
repurchase
S-4
<PAGE>
will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.]. See "Description of the
Certificates--Termination; Repurchase of
Certificates in the Prospectus."]
ADVANCES..................
The Servicers of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
TRUSTEE................... . See
"Description of the Certificates--Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance that the Certificates
be rated in one of the two highest rating
categories of the Rating Agency. A security rating
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization. A security rating does not address
the frequency of prepayments of Mortgage Loans, or
the corresponding effect on yield to investors. See
"Certain Yield and Prepayment Considerations" and
"Ratings" herein and "Yield Considerations" in the
Prospectus.
ERISA CONSIDERATIONS......
See "ERISA Considerations" in the Prospectus [and
herein].
LEGAL INVESTMENT.......... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
TAX ASPECTS............... An election for the Mortgage Loans to be treated as
a REMIC ("real estate mortgage investment conduit")
will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST]
Certificates will be REMIC regular interests and
the Class R will be a REMIC residual interest.
[Accordingly, the Certificates will be Trust
Certificates and the Trust will be a [grantor
trust] for federal income tax purposes.] [The Class
[LIST] Certificates will be treated as being issued
with original issue discount for federal tax
purposes.] The material (and certain minor and
incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax
Consequences" in the Prospectus. It is recommended
that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with
their own tax advisors regarding the consequences
to them of investing in the Certificates.
- ---------
* If the Prospectus Supplement for a Series of Certificates provides that
[Brown & Wood LLP][Cadwalader, Wickersham & Taft][Dewey Ballantine][Orrick,
Herrington & Sutcliffe LLP] will pass upon the material federal income tax
consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and " Federal
Income Tax Consequences."
S-5
<PAGE>
[RISK FACTORS]
Concentration of Mortgage Loans; Borrowers. As set forth in the following
tables, approximately ________% of the Mortgage Loans based on the Initial Pool
Balance are secured by more than one Mortgaged Property (________% of such
Mortgage Loans being Multi-Property Loans and ________% of such Mortgage Loans
being Crossed Loans) and approximately ________% of the Mortgage Loans were made
to affiliated borrowers that are not cross-collateralized loans ("Related
Borrower Loans"). Although securing a Mortgage Loan with multiple properties
generally reduces the risk that the inability of a Mortgaged Property to
generate net operating income sufficient to pay debt service will result in
defaults and ultimate losses, such Mortgaged Properties generally will be
managed by the same managers or affiliated managers or will be subject to the
management of the same borrowers or affiliated borrowers.
Concentrations of Mortgage Loans with the same borrower or related
borrowers can pose increased risks. For example, if an entity that owns or
controls several Mortgaged Properties experiences financial difficulty at one
Mortgaged Property, it could defer maintenance at another Mortgaged Property in
order to satisfy current expenses with respect to the troubled Mortgaged
Property, or it could attempt to avert foreclosure by filing a bankruptcy
petition that might have the effect of interrupting Monthly Payments (subject to
the Servicer's obligation to make Advances) for an indefinite period on all of
the related Mortgage Loans. Securing a Mortgage Loan with more than one
Mortgaged Property also imposes certain risks relating to possible fraudulent
conveyances. See "Limitations on Enforceability; Cross-Collateralized and
Cross-Defaulted Properties" below.
Limitations on Enforceability; Cross-Collateralized and Cross-Defaulted
Properties. ________ of the Mortgage Loans, representing approximately
________% of the Initial Pool Balance and having Cut-off Date Principal Balances
ranging from $____________________ to $____________________ are cross-
collateralized and/or cross-defaulted with other Mortgage Loans in the Mortgage
Pool. These arrangements seek to reduce the risk that the inability of a
Mortgaged Property securing each such Mortgage Loan to generate net operating
income sufficient to pay debt service will result in defaults and ultimate
losses. See "Concentration of Mortgage Loans; Borrowers" above.
Cross-collateralization arrangements involving more than one borrower (as
indicated in the table entitled "Related Borrowers" above) could be challenged
as a fraudulent conveyance by creditors of a borrower or by the representative
of the bankruptcy estate of a borrower, if a borrower were to become a debtor in
a bankruptcy case. Generally, under federal and most state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and (i) was insolvent or was rendered
insolvent by such obligation or transfer, (ii) was engaged in business or a
transaction, or was about to engage in business or a transaction, for which any
property remaining with the person was an unreasonably small amount of capital
or (iii) intended to, or believed that it would, incur debts that would be
beyond the person's ability to pay as such debts matured. Accordingly, a lien
granted by a borrower to secure repayment of another borrower's Mortgage Loan
could be avoided if a court were to determine that (i) the borrower granting
such lien was insolvent at the time of such grant, was rendered insolvent by the
granting of the lien or was left with inadequate capital or was not able to pay
its debts as they matured and (ii) the borrower did not, when it allowed its
Mortgaged Property to be encumbered by a lien securing the entire indebtedness
represented by the other Mortgage Loan, receive fair consideration or reasonably
equivalent value for pledging such Mortgaged Property for the equal benefit of
the other borrower.
[Description of other Risk Factors to be added as appropriate]
DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING PROPERTIES
The initial Mortgage Pool will consist of Mortgage Loans evidenced by mortgage
notes with aggregate unpaid principal balances outstanding as of the Cut-off
Date, after deducting payments of principal due on such date, of approximately
$ . This amount is subject to a permitted upward and downward
variance of up to %. The Mortgage Pool will consist of -year, [fixed-rate],
fully-amortizing, [level-payment] Mortgage Loans, as more fully described in the
Prospectus.
S-6
<PAGE>
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least % but no more than
%. All Mortgage Loans will have Mortgage Rates of at least % but no more
than %. The weighted average maturity of the Mortgage Loans, as of the Cut-
off Date, will be at least years but no more than years. All Mortgage
Loans will have original maturities of at least but no more than
years. None of the Mortgage Loans will have been originated prior to or after
, 19 . None of the Mortgage Loans will have a scheduled maturity later
than .
The initial Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the initial Mortgage Loans will have been originated
before , 19 , and no more than % of the initial Mortgage Loans will
have been originated before , 19 . See "Federal Income Tax
Consequences--Mortgage Pools," "--Taxation of Owners of Trust Fractional
Certificates" and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the initial Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the initial Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of more than $ .
No more than % of the initial Mortgage Loans will have had loan-to-value
ratios at origination in excess of 80%, and no Mortgage Loan will have had a
loan-to-value ratio at origination in excess of 95%.
All the Mortgage Loans [,other than the Mortgage Loans secured by commercial
properties,] with loan-to-value ratios at origination in excess of 80% will be
covered by a policy of private mortgage insurance until the outstanding
principal balance is reduced to 75% of the Original Value.
At least % of the initial Mortgage Loans will be secured by Mortgages on
single-family dwellings.
No more than % of the initial Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the initial Mortgage
Loans will be Mortgage Loans for which Buy-Down Funds have been provided, and no
more than % of the outstanding principal balance of any such Mortgage
Loan will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the initial Mortgage
Loans will be GPM Loans.
At least % of the initial Mortgage Loans will be secured by an owner-
occupied Mortgaged Property. Such determination will have been made on the
basis of a representation by the Mortgagor at the time of origination of the
Mortgage Loan that such Mortgagor then intended to occupy the underlying
property or, in the absence of such a representation, various factors
indicating that the underlying property is owner-occupied.
No more than [5%] of the initial Mortgage Loans will be secured by
Mortgages on properties located in any one zip code or project.
The initial Mortgage Loans will be secured by Mortgages on properties
located in the states of .
[No more than [10%], by aggregate principal balance, of the Mortgage Loans
will be secured by commercial real estate properties (such Mortgage Loans, the
"Commercial Mortgage Loans").] [ % of the Commercial Mortgage Loans are secured
by one or more assignments of leases and rents [,management agreements] [or
operating agreements] relating to the Mortgaged Property [and in some cases by
certain letters of credit, personal guarantees or both.] [ % of the Commercial
Mortgage loans do not provide either for any lockout period in which prepayments
are prohibited or for any prepayment premium, penalty or charge in connection
with the prepayment thereof, or if such provisions were included in the related
Mortgage Notes, they have expired.]
[ separate groups of Mortgage Loans (the "Cross-Collateralized Mortgage
Loans"; and each such group a "Cross-Collateralized Group") are, solely as among
the Mortgage Loans in each such particular group, cross-defaulted and cross-
collateralized with each other. Those Cross-Collateralized Groups are as
follows:]
Each Cross-Collateralized Mortgage Loan is identified on Exhibit as
corresponding to a particular Mortgaged Property (as to such Mortgage Loan, the
"Primary Mortgaged Property"); however, such Mortgageed Property, as of the
Closing Date, will secure each Mortgage Loan in the applicable Cross-
Collateralized Group. Unless the context otherwise requires, references herein
to "related Mortgaged Property" (or "related REO Property") are, in the case of
a Cross-Collateralized Mortgage Loan, references to the Mortgaged Property that
is (or the REO Property that was) designated as the Primary Mortgaged Property
for such Mortgage Loan, and references to "related Mortgage Loan" or "related
Cross-Collateralized Mortgage Loan" are, in the case of a Mortgaged Property
that secures (or an REO Property that secured) a Cross-Collateralized Group,
references to the Mortgage Loan in such Cross-Collateralized Group as to which
such Mortgaged Property has (or such REO Property had) been designated as the
Primary Mortgaged Property. Except where otherwise specifically indicated,
statistical information provided herein with respect to the Cross-Collateralized
Mortgage Loans is so provided on an individual Mortgage Loan basis without
regard to the cross-collateralization, and each Cross-Collateralized Mortgage
Loan will be deemed to be secured only by a mortgage lien on the relate Primary
Mortgaged Property.]
[In certain cases a single Mortgage Loan may be secured by mortgage liens on
two or more properties that are contiguous or otherwise in close proximity or
are operated jointly. For purposes hereof, all such properties will be
considered to constitute one Mortgage Property.]
[Certain of the Cross-Collateralized Groups and the individual Mortgage Loans
that are secured by multiple parcels permit individual property releases upon
the satisfaction of certain criteria and/or the payment of a release price equal
to between 100% and 125% of the allocated loan amount for the property to be
released.]
[Insert addtional disclosure regarding isolating individual properties and
risks, rights and obligations of the parties in respect of the Cross-
Collateralized groups, as appropriate]
[No individual Mortgage Loan or Cross-Collateralized Group represents more
than % of the initial Pool Balance.]
S-7
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Single family detached................................. $ . %
Condominium............................................
Planned Unit Developments..............................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Up to $100,000......................................... $ . %
$100,001--150,000......................................
150,001--200,000.......................................
200,001--250,000.......................................
250,001--300,000.......................................
300,001--350,000.......................................
350,001--400,000.......................................
400,001--450,000.......................................
Over $450,001..........................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LOAN-TO-VALUE RATIOS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
70.00% or less......................................... $ . %
70.01% to 75.00%.......................................
75.01% to 80.00%.......................................
80.01% to 85.00%.......................................
85.01% to 90.00%....................................... .
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average loan-to-value ratios of the initial Mortgage Loans,
based on the principal amount at origination and the principal amount as of
the Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-8
<PAGE>
MORTGAGE RATES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MORTGAGE RATES(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
. % or less........................................ $ . %
. % or less........................................
. % or less........................................ .
. % or less........................................ .
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) With respect to % of the Initial Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
S-9
<PAGE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
S-10
<PAGE>
[Mortgage Loans for which the loan-to-value ratio at origination was greater
than 80% either (1) will be insured as to payment default for the amount in
excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the initial Mortgage Loans were made to refinance the
related Mortgaged Properties and approximately % of the initial Mortgage Loans
have been made to purchase the related Mortgaged Properties. Approximately % of
the initial Mortgage Loans will be secured by Mortgaged Properties represented
to the originator in the related loan application to be the primary residence of
the mortgagor at the time of origination. % of the initial Mortgage Loans are
secured by Mortgaged Properties which were second homes of the mortgagor at the
time of origination based on representations of the Mortgagor. % of the initial
Mortgage Loans were made to finance the purchase of homes represented by the
mortgagor to have been acquired for investment purposes.
At the date of issuance of the Certificates, no initial Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than 30
days delinquent in scheduled payments of principal and interest more than once
in the previous year.
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The Pooling and Servicing Agreement permits the Trust to purchase from the
Depositor approximately $ in aggregrate principal balance of
Subsequent Mortage Loans as of the related Subsequent Cut-off Date (defined
below). Accordingly, the statistical characteristics of the Mortgage Loans will
vary as of any Subsequent Cut-off Date upon the acquisition of Subsequent
Mortgage Loans. The Subsequent Cut-off Date for any Subsequent Mortgage Loan
will be the first day of the month in which the Subsequent Mortgage Loan is
transferred to the Trust.
The obligation of the Trust to purchase Subsequent Mortgage Loans is subject
to the following requirements: (i) such Subsequent Mortgage Loan will be current
in payment of monthly principal and interest as of the related Subsequent
Cut-off Date; (ii) such Subsequent Mortgage Loan must constitute a first lien
on the related Mortgaged Property; (iii) the scheduled maturity date of such
Subsequent Mortgage Loan is not later than ; (iv) no
Subsequent Mortgage Loan will have an initial Mortgage Rate of less than
per annum or a minimum net Mortgage Rate of less than %; and (v)
following the purchase of such Subsequent Mortgage Loans by the Trust, the
Mortgage Loans (including the Subsequent Mortgage Loans) (a) will have a
weighted average Mortgage Rate of at least % per annum; (b) will have a
weighted average Loan-to-Value Ratio of not more than %; (c) will not have
a weighted average remaining term to stated maturity of more than months;
and (d) will not include any Mortgage Loan with an outstanding principal
balance in excess of $ ; and (vi) will not contain Balloon Loans
representing more than 10% by aggregate principal balance of the Mortgage
Loans in Group 2. Within 15 days following the purchase of a material portion
of Subsequent Mortgage Loans, the Depositor will file a Current report on Form
8-K with the Securities and Exchange Commission reflecting additional
statistical information regarding such Subsequent Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms"), as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), [__________________, as special servicer (the "Special
Servicer")] and , as trustee (the
"Trustee"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. Reference is made
to the accompanying Prospectus for important additional information regarding
the terms and conditions of the Pooling and Servicing Agreement and the
Certificates. Each of the Certificates at the time of issuance will qualify as
a "mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at .
PRE-FUNDING ACCOUNT
On the Delivery Date, the Original Pre-Funded Amount will be deposited in the
Pre-Funding Account, which account shall be in the name of and maintained by the
Trustee and shall be part of the Trust. During the period (the "Funding
Period") from and including the Delivery Date until the earliest of (i) the date
on which the Pre-Funded Amount is less than $100,000 for each Group, (ii) the
date on which an event of default under the Pooling and Servicing Agreement
occurs and (iii) , the Pre-Funded Amount will be maintained in the
Pre-Funding Account. The Original Pre-Funded Amount will be reduced during the
Funding Period by the amount thereof used to purchase Subsequent Mortgage Loans
in accordance with the Pooling and Servicing Agreement. Any Pre-Funded Amount
remaining at the end of the Funding Period will be distributed to the holders of
the Certificates entitled to receive principal on the Distribution Date that
immediately follows the end of the Funding Period. This payment of such
remaining Pre-Funded Amount will result in a principal prepayment of such class
of Certificates then entitled to receive distributions of principal.
Amounts on deposit in the Pre-Funding Account will be invested in Eligible
Investments. All interest and any other investment earnings on amounts on
deposit in the Pre-Funding Account will be deposited in the Capitalized
Interest Account.
CAPITALIZED INTEREST ACCOUNT
On the Delivery Date cash will be deposited in the Capitalized Interest
Account, which account shall be in the name of and maintained by the Trustee and
shall be part of the Trust. The amount on deposit in the Capitalized Interest
Account will be used by the Trustee (during the Funding Period) to pay to
holders of the Certificates an amount equal to interest accruing at the weighted
average of the net Pass-Through Rates on the Certificates on the Pre-Funded
Amount. Any amounts remaining in the Capitalized Interest Account at the end of
the Funding Period and not needed for such purpose will be paid to the Depositor
and will not thereafter be available for distribution to the holders of the
Certificates. Amounts on deposit in the Capitalized Interest Account will be
invested in Eligible Investments.
S-11
<PAGE>
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of the
with its principal office located at ,
.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
. The Master Servicer is a FNMA/FHLMC approved seller-servicer based in
. As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans with an aggregate
principal balance in excess of $ . The Master Servicer conducts
operations through FHA approved branch offices in . The Master
Servicer originated approximately $ in mortgage loans in 19 . The
Master Servicer's consolidated stockholders' equity as of was
approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
The following table sets forth certain information concerning the delinquency
experience on residential mortgage loans at the time of purchase by ____________
and were being master serviced by ___________ on _________, 1997 and __________,
1998. No mortgage loan is considered delinquent for these purposes until, in
general, it is one month past due on a contractual basis. The information
should not be considered to reflect the credit quality of the Mortgage Loans
included in the Mortgage Pool, or as a basis for assessing the likelihood,
amount or severity of losses on the Mortgage Loans. Such historical performance
does not purport to be indicative of the future performance of the Mortgage
Loans. See "Risk Factors", "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
Delinquency, Foreclosure and Loss Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
30-59 Days Past Due [ ] [ ] [ ] [ ] [ ] [ ]
60-89 Days Past Due [ ] [ ] [ ] [ ] [ ] [ ]
90 or more Days Past Due [ ] [ ] [ ] [ ] [ ] [ ]
Total Delinquencies as a
Percentage of Total Portfolio [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
Foreclosures Pending [ ] [ ] [ ] [ ] [ ] [ ]
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
Net Gain (Loss) (1) $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
Net Gain (Loss) Ratio (2) [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
</TABLE>
(1) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(2) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
S-12
<PAGE>
[THE SPECIAL SERVICER
[Information to be provided by the Special Servicer]
The information set forth in the preceding paragraphs concerning the
Special Servicer has been provided by it. Accordingly, the Depositor makes no
representation as to the accuracy or completeness of such information.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no Servicer) [.] [, and (b) the
amount payable to the Depositor, as described below.] [Pursuant to the Pooling
and Servicing Agreement, on each Distribution Date, the Master Servicer will
remit to [the Depositor] in respect of each interest payment on a Mortgage
Loan an amount equal to % of the outstanding principal balance of such
Mortgage Loan before giving effect to any payments due on the preceding Due
Date.] The Master Servicer will be permitted to withdraw from the Certificate
Account, in respect of each interest payment on a Mortgage Loan, an amount
equal to % of the outstanding principal balance of such Mortgage Loan,
before giving effect to any payments due on the preceding Due Date.
[The servicing compensation payable to the Special Servicer will be equal to
[description of Special Servicing compensation to be described]. See
"Description of the Certificates--Servicing and Other Compensation and Payment
of Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer [,the Special Servicer] and the Servicers.
The Servicers [,the Special Servicer] and the Master Servicer will pay all
expenses incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Mortgage Loans ("Retained Yield") for federal income tax purposes, by reason
of the extent to which either the weighted average Mortgage Rate, or the
stated interest rates on the Mortgage Loans exceeds the Pass-Through Rate, and
the tax consequences to them of such a characterization. In this regard, there
are no authoritative guidelines for federal income tax purposes as to either
the maximum amount of servicing compensation that may be considered reasonable
in the context of this or similar transactions or whether the reasonableness
of servicing compensation should be determined on a weighted average or loan-
by-loan basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described above as Retained
Yield for federal income tax purposes in reports to the Certificateholders and
to the Internal Revenue Service.] See "Federal Income Tax Consequences--Mortgage
Pools" and "--Taxation of Owners of Trust Fractional Certificates" in the
Prospectus for information regarding the characterization of servicing
compensation [and the amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may purchase
from the Trust all Mortgage Loans remaining in the Mortgage Pool and thereby
effect early retirement of the Certificates, provided that the aggregate
unpaid balances of the Mortgage Loans at the time of such repurchase is less
than [10%] of the aggregate principal balance of the Mortgage Loans on the
Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Mortgage Loans, together
with accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Mortgage Loans. [Any such repurchase will be effected in
compliance with the requirements of Section 86OF(a)(iv) of the Code in order
to constitute a "qualifying liquidation" thereunder.] In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
S-13
<PAGE>
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[10%] of the aggregate principal balance of the Mortgage Loans on the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction
in coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates, in order to obtain a rating in one of
the two highest rating categories of the Rating Agency. The precise amount of
coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form 8-K
referred to above. See "Description of the Certificates--Credit Support--The
Letter of Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation (the
"Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the form
of primary policies covering approximately $ billion of residential
mortgages. At such date, the Pool Insurer had total assets of approximately
$ million, capital and surplus aggregating $ million and statutory
contingency reserves of $ million, resulting in total policyholders'
reserves of $ million.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by , a corporation
(the "Special Hazard Insurer"). Claims under such policy will be limited to
% of the aggregate principal balance of the Mortgage Loans or times the
principal balance of the Mortgage Loan with the highest outstanding principal
balance at the Cut-off Date, whichever is greater. At , 19 , the Special
Hazard Insurer had total assets of approximately $ million and total
policyholders' surplus of $ million. The claims-paying ability of the
Special Hazard Insurer is presently rated by the Rating Agency. In accordance
with standard rating agency practice, the Rating Agency may, at any time,
revise or withdraw such rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
S-14
<PAGE>
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgage Bankruptcy Bond") for proceedings with respect to Mortgagors under
the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments
of principal and interest on a Mortgage Loan or a reduction by such court of
the principal amount of a Mortgage Loan and will cover certain unpaid interest
on the amount of such a principal reduction from the date of the filing of a
bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances
of the Mortgage Loans secured by second residences and investor-owned
residences or (ii) times the largest principal balance of any such
Mortgage Loan. The coverage provided by the Mortgagor Bankruptcy Bond will be
reduced by payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a
corporation. At December 31, 19 , had admitted assets of approximately
$ and total policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it.
The Depositor makes no representation as to the accuracy or completeness of
such information.]
CERTIFICATE RATING
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
FEDERAL INCOME TAX CONSEQUENCES
An election for the Mortgage Loans to be treated as a REMIC ("real estate
mortgage investment conduit") will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST] Certificates will be REMIC regular
interests and generally will be taxable as debt of the REMIC. The Class R will
be a REMIC residual interest and the holder thereof will be subject to tax on
the net income of the REMIC, which in many periods will exceed the cash
distributed on the Certificate. The Class R Certificates are subject to a
number of transfer restrictions designed to prevent the avoidance of income
tax.]] [Accordingly, the Certificates will be Trust Certificates and the Trust
will be a [grantor trust] for federal income tax purposes.] [The Depositor
currently expects to treat the Class [LIST] Certificates as being issued with
original issue discount for federal tax purposes and the Class [LIST]
Certificates as not being issued with original issue discount for federal tax
purposes.] The material (and certain minor and incidental) consequences of
investing in the Certificates are discussed in "Federal Income Tax Consequences"
in the Prospectus. It is recommended that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with their own tax advisors
regarding the consequences to them of investing in the Certificates.
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
S-15
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
<TABLE>
<S> <C>
Credit Suisse First Boston
Corporation................................................. $
-----------
Total.................................................... $ ]
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
% %
</TABLE>
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP, New York, New York.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by Orrick, Herrington & Sutcliffe LLP.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in privately negotiated transactions.
S-16
<PAGE>
[Version B- Residential and Multifamily Properties; Senior-Subordinate; IO
Strip.]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED ,
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Class A, Series
Principal and interest payable on the 25th day
of each month, beginning , 19
-----------
Class A-1 % of principal payments on the Mortgage Loans; % of interest
payments at an % pass-through rate on the Mortgage Loans (the "Pass-Through
Rate") (Interest at an % annual rate on unpaid Class A-1 principal amount)
Class A-2 No principal payments on the Mortgage Loans; % of interest
payments at an % Pass-Through Rate on the Mortgage Loans (Interest at an %
annual rate on unpaid Class A-2 notional amount)
The Conduit Mortgage Pass-Through Certificates (the "Certificates") will be
composed of two classes (each, a "Class"), entitled Conduit Mortgage Pass-
Through Certificates, Class A (the "Class A Certificates"), and Conduit
Mortgage Pass-Through Certificates, Class B (the "Class B Certificates"). The
Class A Certificates offered hereby will be divided into two subclasses (each,
a "Subclass") entitled Class A-1 (the "Class A-1 Certificates") and Class A-2
(the "Class A-2 Certificates") and will evidence undivided percentage ownership
interests in a trust (the "Trust") composed of [conventional] [fixed-rate]
[one- to four-family residential mortgage loans,] [mortgage loans secured by
multifamily residential rental properties consisting of five or more dwelling
units or apartment buildings owned by cooperative housing corporations,] [loans
made to finance the purchase of certain rights relating to cooperatively owned
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling ("Cooperative Loans"),] [and mortgage participation certificates
evidencing participation interests in such loans and meeting the requirements
of the nationally recognized rating agency or agencies rating the certificates
(collectively, the "Rating Agency") for a rating in one of the two highest
rating categories of such Rating Agency] (the "Mortgage Loans") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to a
Pooling and Servicing Agreement (as defined herein) dated as of , 199 , by
Credit Suisse First Boston Mortgage Securities Corp. ( the "Depositor") in
exchange for the Certificates and are more fully described in this Prospectus
Supplement and in the accompanying Prospectus.
The Class A-1 Certificates evidence ownership of % of each principal
payment on the Mortgage Loans and % of each interest payment on the Mortgage
Loans (representing interest at a rate of % per annum on the unpaid principal
amount of the Class A-1 Certificates). The Class A-2 Certificates evidence
ownership of % of each interest payment at the Pass-Through Rate on the
Mortgage Loans (representing interest at a rate of % per annum on the unpaid
notional amount of the Class A-2 Certificates). The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.
The yield to investors on the Class A-2 Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments,
defaults and liquidations) on the Mortgage Loans with Mortgage Rates that are
higher than ___% per annum, which rate may fluctuate significantly over time. A
rapid rate of principal payments on such Mortgage Loans could result in the
failure of investors in the Class A-2 Certificates to fully recover their
initial investments.
[The Depositor intends to offer the Class B Certificates to sophisticated
institutional investors from time to time in transactions not requiring
registration under the Securities Act of 1933. The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.]
The Certificates do not represent an obligation of or interest in Credit
Suisse First Boston Mortgage Securities Corp. or any affiliate thereof. Neither
the Certificates nor the underlying mortgage loans are insured or guaranteed by
any governmental agency or instrumentality.
The Mortgage Loans may be prepaid at any time without penalty. [A lower rate
of principal prepayments than anticipated would negatively affect the total
return to investors in Class A-1 Certificates, which are being offered at a
discount to their principal amount.] Yields on the Class A-2 Certificates will
be extremely sensitive to the prepayment experience on the Mortgage Loans, and
prospective investors in such Certificates should fully consider the associated
risks, including the risk that such investors, in circumstances of higher than
anticipated prepayment, could fail to fully recoup their initial investment.
See "The Mortgage Pool," "Yield Considerations" and "Maturity and Prepayment
Considerations" in this Prospectus Supplement.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Class A Certificates [but [is] [are] under no obligation to do so]. There can
be no assurance that a secondary market will develop or, if it does develop,
that it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Federal Income Tax Consequences" in the
Prospectus.]
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE MATERIAL RISK FACTORS SET FORTH
UNDER RISK FACTORS COMMENCING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT AND IN
THE PROSPECTUS ON PAGE 19.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER ERISA
CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Certificate % % %
- ----------------------------------------------------------------------
Per Class A-2 Certificate % % %
- ----------------------------------------------------------------------
Total $ $ $
- ----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deducting expenses payable by the Depositor estimated at $ .
-----------
The Class A Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be ready for delivery
on or about , 19 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES
OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
ADDITIONAL INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street,, Suite 1400, Illinois 60661, and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such information can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used in this Prospectus Supplement and not
otherwise defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, Class
A, Series (the "Class A Certificates").
$ Original Principal Amount Class A-1
Certificates (approximate).
No Original Principal Amount A-2 Certificates.
The Class A-1 Certificates represent undivided
percentage interests in approximately % of each
principal payment on the Mortgage Loans (the
"Principal Distribution") and undivided percentage
interests in approximately % of each interest
payment at the Pass- Through Rate on the Mortgage
Loans (the "Interest Distribution") (representing
interest at a rate of % per annum on the unpaid
principal amount of the Class A-1 Certificates).
The individual percentage interest (the
"Percentage Interest") of any Class A-1
Certificate will be equal to the percentage
obtained by dividing the original principal amount
of such Class A-1 Certificate by the aggregate
original principal amount of all Class A-1
Certificates ($ ).
The Class A-2 Certificates represent Percentage
Interests in approximately % of the Interest
Distribution (representing interest at a rate of
% per annum on the unpaid notional amount of the
Class A-2 Certificates). The Class A Certificates
will not receive distributions of principal with
respect to the Mortgage Loans. The Percentage
Interest of any Class A-2 Certificate will be
equal to the percentage obtained by dividing the
original notional amount of such Class A-2
Certificate by the aggregate original notional
amount of all Class A-2 Certificates
(approximately $ ). The notional amount of
the Class A-2 Certificates is equal to the
aggregate unpaid principal amount of the Class A
Certificates, but is used solely for purposes of
determining interest payments and certain other
rights of holders of the Class A-2 Certificates
and does not represent any interest in such
principal payments.
The Class A Certificates represent in the aggregate
an approximate % undivided interest in the Trust
Fund. The remaining approximate % undivided
interest in the Trust Fund is evidenced by the
Class B Certificates, which are subordinated in
certain respects to the Class A Certificates, as
more fully described herein and in the Prospectus.
[The Class B Certificates are not being offered
hereby, and may be retained by the Depositor or
sold by the Depositor at any time to one or more
sophisticated institutional investors in privately
negotiated transactions not requiring registration
under the Securities Act of 1933.]
S-3
<PAGE>
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
CUT-OFF DATE..............
, 19 .
DELIVERY DATE............. On or about , 19 .
DENOMINATIONS............. The minimum denomination of a Class A-1 Certificate
will represent approximately $ aggregate
principal balance of the Mortgage Loans on the
Cut-off Date. The minimum denomination of a Class
A-2 Certificate will represent approximately
$ notional amount.
INTEREST.................. Passed through monthly, on the day of each
month (each, a "Distribution Date") commencing
, 19 . The Pass-Through Rate on the
Mortgage Loans is % per annum. See "Description
of the Certificates" in the Prospectus.
PRINCIPAL (INCLUDING
PREPAYMENTS)............. Passed through monthly on the Distribution Date,
commencing on , 19 . See "Description of the
Certificates" in the Prospectus.
MORTGAGE POOL............. The Mortgage Pool will consist of [fixed rate,]
[fully-amortizing,] [level-payment] mortgage loans
secured by Mortgages on [one- to four-family
residential properties, loans (the "Cooperative
Loans") made to finance the purchase of certain
rights relating to cooperatively owned properties
secured by a pledge of shares of a cooperative
corporation (the "Cooperative") and an assignment
of a proprietary lease or occupancy agreement on a
cooperative dwelling (a "Cooperative Dwelling"
and, together with one- to four-family residential
properties, "Single Family Property"), or mortgage
loans secured by multifamily residential rental
properties consisting of five or more dwelling
units or apartment buildings owned by cooperative
housing corporations ("Multifamily Property")]
[located in the states of , and ] [and
mortgage participation certificates evidencing
participation interests in such loans that meet
the requirements of the nationally recognized
rated agency or agencies rating the certificates
(collectively, the "Rating Agency") for a rating
in one of the two highest rating categories of
such Rating Agency] (the "Mortgage Loans"). All
Mortgage Loans will have original maturities of at
least but not more than years. See "Description
of the Mortgage Pool and the Underlying
Properties" herein.*
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Contract Pool."
S-4
<PAGE>
CLASS B CERTIFICATES...... The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to the rights of the Class
A Certificateholders to receive such distributions
to the extent of the Subordinated Amount described
below. This subordination is intended to enhance
the likelihood of regular receipt by Class A
Certificateholders of the full amount of scheduled
payments of principal and interest and to decrease
the likelihood that the Class A Certificateholders
will experience losses. The extent of such
subordination (the "Subordinated Amount") will be
determined as follows: on the Cut-off Date and on
each anniversary of the Cut-off Date until ,
the Subordinated Amount will equal [ ]% of the
original aggregate principal balance of the
Mortgage Loans less the amount of "Aggregate
Losses" (as defined in the Prospectus) since the
Cut-off Date through the last day of the month
preceding such anniversary date; from the th
anniversary of the Cut-off Date, the Subordinated
Amount will gradually decline in accordance with a
schedule set forth in the Pooling and Servicing
Agreement.
RISK FACTORS.............. For discussion of material risk factors that should
be considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
RESERVE FUND..............
The protection afforded to the Class A
Certificateholders from the subordination feature
described above will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the Mortgage Loans
(to the extent of the Subordinated Amount) and by
the establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included in the
Trust Fund. The Reserve Fund will be created by
the Depositor and shall be funded by the retention
of all of the scheduled distributions of principal
otherwise distributable to the Class B
Certificateholders on each Distribution Date until
the Reserve Fund reaches an amount (the "Required
Reserve") that will equal [; thereafter, the
Reserve Fund must be maintained at the following
levels: ]. See "Description of the
Certificates--Subordinated Certificates" and "--
Reserve Fund" in the Prospectus.
[OPTIONAL TERMINATION..... The Depositor may, at its opinion, repurchase from
the Trust all Mortgage Loans remaining outstanding
[at such time as the aggregate unpaid principal
balance of such Mortgage Loans is less than 10% of
the aggregate principal balance of the Mortgage
Loans on the Cut-off Date]. The repurchase price
will equal [the aggregate unpaid principal balance
of such Mortgage Loans, together with accrued
interest thereon at the Pass-Through Rate through
the last day of the month during which such
repurchase occurs plus the appraised value of any
property with respect thereof]. [Any such
termination will be effected in compliance with
the requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986, so as to constitute
a "qualifying liquidation" thereunder.] See
"Description of the Certificates--Termination;
Repurchase of Certificates" in the Prospectus.]
S-5
<PAGE>
ADVANCES.................. The Servicers of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of
Certificates-- Advances" in the Prospectus.
TRUSTEE...................
. See "Description of the Certificates--
Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance of the Class A
Certificates that they be rated in one of the two
highest rating categories of the Rating Agency
prior to issuance. A security rating is not a
recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any
time by the assigning rating organization. A
security rating does not address the frequency of
prepayments of Mortgage Loans, or the corresponding
effect on yield to investors. The rating of the
Class A-2 Certificates do not address the
possibility that the holders of such Certificates
may fail to fully recover their initial
investments. See "Certain Yield and Prepayment
Considerations" and "Ratings" herein and "Yield
Considerations" in the Prospectus.
LEGAL INVESTMENT.......... The Class A Certificates constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" in the Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" in the Prospectus [and
herein].
TAX ASPECTS............... An election for the Mortgage Loans to be treated as
a REMIC ("real estate mortgage investment conduit")
will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST]
Certificates will be REMIC regular interests and
the Class R will be a REMIC residual interest.
[Accordingly, the Certificates will be Trust
Certificates and the Trust will be a [grantor
trust] for federal income tax purposes.] [The Class
[LIST] Certificates will be treated as being issued
with original issue discount for federal tax
purposes.] The material (and certain minor and
incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax
Consequences" in the Prospectus. It is recommended
that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with
their own tax advisors regarding the conseqences to
them of investing in the Certificates.
--------
* If the Prospectus Supplement for a Series of Certificates provides that
Orrick, Herrington & Sutcliffe LLP will pass upon the material federal income
tax consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Federal
Income Tax Consequences."
S-6
<PAGE>
[RISK FACTOR]
Limitations on Enforceability; Cross-Collateralized and Cross-Defaulted
Properties. ________ of the Mortgage Loans, representing approximately
________% of the Initial Pool Balance and having Cut-off Date Principal Balances
ranging from $____________________ to $____________________ are cross-
collateralized and/or cross-defaulted with other Mortgage Loans in the Mortgage
Pool. These arrangements seek to reduce the risk that the inability of a
Mortgaged Property securing each such Mortgage Loan to generate net operating
income sufficient to pay debt service will result in defaults and ultimate
losses. See "Concentration of Mortgage Loans; Borrowers" above.
Cross-collateralization arrangements involving more than one borrower (as
indicated in the table entitled "Related Borrowers" above) could be challenged
as a fraudulent conveyance by creditors of a borrower or by the representative
of the bankruptcy estate of a borrower, if a borrower were to become a debtor in
a bankruptcy case. Generally, under federal and most state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and (i) was insolvent or was rendered
insolvent by such obligation or transfer, (ii) was engaged in business or a
transaction, or was about to engage in business or a transaction, for which any
property remaining with the person was an unreasonably small amount of capital
or (iii) intended to, or believed that it would, incur debts that would be
beyond the person's ability to pay as such debts matured. Accordingly, a lien
granted by a borrower to secure repayment of another borrower's Mortgage Loan
could be avoided if a court were to determine that (i) the borrower granting
such lien was insolvent at the time of such grant, was rendered insolvent by the
granting of the lien or was left with inadequate capital or was not able to pay
its debts as they matured and (ii) the borrower did not, when it allowed its
Mortgaged Property to be encumbered by a lien securing the entire indebtedness
represented by the other Mortgage Loan, receive fair consideration or reasonably
equivalent value for pledging such Mortgaged Property for the equal benefit of
the other borrower.
[Description of Risk Factors to be added as appropriate)
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES*
The Mortgage Pool will consist of Mortgage Loans evidenced by notes with
aggregate unpaid principal balances outstanding as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately $ . The
amount is subject to a permitted upward and downward variance of up to %.
The Mortgage Pool will consist of -year, [fixed-] rate, fully-amortizing,
[level-payment] Mortgage Loans, as more fully described in the Prospectus.
The weighted average interest rate of the Mortgage Loans as of the Cut-off
Date will be at least % but no more than %. All Mortgage Loans will have
interest rates of at least % but no more than %. The weighted average
maturity of the Mortgage Loans, as of the Cut-off Date, will be at least
years but no more than years. All Mortgage Loans will have original
maturities of at least but no more than years. None of the Mortgage
Loans will have been originated prior to or after 19 . None of
the Mortgage Loans will have a scheduled maturity later than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
, 19 . See "Federal Income Tax Consequences--Mortgage
Pools." "--Taxation of Owners of Trust Fractional Certificates" and "--
Market Discount and Premium" in the Prospectus for information regarding
such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of 80%, and no Mortgage Loan will have had a loan-
to-value ratio at origination in excess of [95%].
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
[ % of the Mortgage Loans will be secured by Mortgages on single-family
dwellings] [ % of the Mortgage Loans will be secured by Multifamily
Property][ % of the Mortgage Loans will be secured by a pledge of shares
of a Cooperative and an assignment of a proprietary lease or occupancy
agreement on a Cooperative Dwelling.]
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided and no
more than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans will
be secured by Multifamily Properties.
- --------
[ separate groups of Mortgage Loans (the "Cross-Collateralized Mortgage
Loans"; and each such group a "Cross-Collateralized Group") are, solely as among
the Mortgage Loans in each such particular group, cross-defaulted and cross-
collateralized with each other. Those Cross-Collateralized Groups are as
follows:]
Each Cross-Collateralized Mortgage Loan is identified on Exhibit as
corresponding to a particular Mortgaged Property (as to such Mortgage Loan, the
"Primary Mortgaged Property"); however, such Mortgageed Property, as of the
Closing Date, will secure each Mortgage Loan in the applicable Cross-
Collateralized Group. Unless the context otherwise requires, references herein
to "related Mortgaged Property" (or "related REO Property") are, in the case of
a Cross-Collateralized Mortgage Loan, references to the Mortgaged Property that
is (or the REO Property that was) designated as the Primary Mortgaged Property
for such Mortgage Loan, and references to "related Mortgage Loan" or "related
Cross-Collateralized Mortgage Loan" are, in the case of a Mortgaged Property
that secures (or an REO Property that secured) a Cross-Collateralized Group,
references to the Mortgage Loan in such Cross-Collateralized Group as to which
such Mortgaged Property has (or such REO Property had) been designated as the
Primary Mortgaged Property. Except where otherwise specifically indicated,
statistical information provided herein with respect to the Cross-Collateralized
Mortgage Loans is so provided on an individual Mortgage Loan basis without
regard to the cross-collateralization, and each Cross-Collateralized Mortgage
Loan will be deemed to be secured only by a mortgage lien on the relate Primary
Mortgaged Property.]
[In certain cases a single Mortgage Loan may be secured by mortgage liens on
two or more properties that are contiguous or otherwise in close proximity or
are operated jointly. For purposes hereof, all such properties will be
considered to constitute one Mortgage Property.]
[Certain of the Cross-Collateralized Groups and the individual Mortgage Loans
that are secured by multiple parcels permit individual property releases upon
the satisfaction of certain criteria and/or the payment of a release price equal
to between 100% and 125% of the allocated loan amount for the property to be
released.]
[Insert addtional disclosure regarding isolating individual properties and
risks, rights and obligations of the parties in respect of the Cross-
Collateralized groups, as appropriate]
[No individual Mortgage Loan or Cross-Collateralized Group represents more
than % of the initial Pool Balance.]
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-7
<PAGE>
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
At least % of the Mortgage Loans will be secured by an owner-occupied
Mortgaged Property. Such determination will have been made on the basis of
a representation by the Mortgagor at the time of origination of the
Mortgage Loan that he then intended to occupy the underlying property or,
in the absence of such a representation, various factors indicating that
such underlying property is owner-occupied.
No more than [ ]% of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in the
states of .
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Single family detached................................. $ . %
Condominium............................................
Planned Unit Developments..............................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Up to $100,000......................................... $ . %
$100,001--150,000......................................
150,001--200,000.......................................
200,001--250,000.......................................
250,001--300,000.......................................
300,001--350,000.......................................
350,001--400,000.......................................
400,001--450,000.......................................
Over $450,001..........................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LOAN-TO-VALUE RATIOS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
70.00% or less......................................... $ . %
70.01% to 75.00%.......................................
75.01% to 80.00%.......................................
80.01% to 85.00%.......................................
85.01% to 90.00%....................................... .
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-8
<PAGE>
MORTGAGE RATES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MORTGAGE RATES(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
. % or less........................................ $ . %
. % or less........................................
. % or less........................................ .
. % or less........................................ .
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
S-9
<PAGE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
S-10
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was greater
than 80% either (1) will be insured as to payment default for the amount in
excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately % of the Mortgage Loans have been made
to purchase the related Mortgaged Properties. Approximately % of the Mortgage
Loans will be secured by Mortgaged Properties represented to the originator in
the related loan application to be the primary residence of the mortgagor at
the time of origination. % of the Mortgage Loans are secured by Mortgaged
Properties which were second homes of the mortgagor at the time of origination
based on representations of the Mortgagor. % of the Mortgage Loans were made
to finance the purchase of homes represented by the mortgagor to have been
acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than 30
days delinquent in scheduled payments of principal and interest more than once
in the previous year.
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS
The rate of principal payments on the Class A Certificate, the aggregate
amount of each interest payment on the Class A-1 Certificates and Class A-2
Certificates and the yield to maturity of the Class A-1 and Class A-2
Certificates will correspond directly to the rate of payments of principal on
the Mortgage Loans (including, for this purpose, scheduled amortization,
payments resulting from liquidation due to default, casualty, condemnation and
the like and repurchases by the Servicers under the circumstances described
herein and in the Prospectus). The rate of principal payments on pools of
mortgages or loans are influenced by a variety of economic, geographic, social
and other factors. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the interest rates on the Mortgage Loans. The rate of
payment of principal may also be affected by any repurchase of the Mortgage
Loans by the Servicers. See "Termination; Repurchase of Mortgage Loans" herein
and "Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus. In any such event, the repurchase price would be passed through to
Certificateholders as a prepayment of principal. See "Maturity and Prepayment
Considerations" in the Prospectus.
[[All] [ %] of the Mortgage Loans contain "due-on-sale" provisions.
Consequently, acceleration of mortgage payments as a result of transfers of
the related mortgaged property will affect the level of prepayments on the
Mortgage Loans. In addition, Mortgagors may prepay the Mortgage Loans at any
time without penalty.]
[As the Class A-1 Certificates are being offered at discounts from their
original principal amounts, if the purchaser of a Class A-1 Certificate
calculates its anticipated yield to maturity based on an assumed rate of
payment of principal that is faster than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated.] Conversely, since the Class A-2 Certificates are being offered
without any original principal amount, if the purchaser of a Class A-2
Certificate calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is slower than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated. In either case, the converse would be true.
S-11
<PAGE>
The timing of changes in the rate of prepayments of the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the Mortgage
Loans the greater the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates may not be offset by a
subsequent like reduction (or increase) in the rate of principal payments.
[BECAUSE THE CLASS A-1 CERTIFICATES ARE BEING OFFERED AT A DISCOUNT FROM
THEIR ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY ON SUCH CERTIFICATES
WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS.]
BECAUSE THE CLASS A-2 CERTIFICATES ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, THE YIELD TO MATURITY ON THE CLASS A-2 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS AND MAY FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE CLASS A-2
CERTIFICATES SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS MAY NOT FULLY RECOUP THEIR
INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, SPA assumes a
constant prepayment rate of 6% per annum. SPA does not purport to be either a
historical description of the prepayment experience of any pool of mortgage
loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment rates
on the timing and amount of distributions on the Class A Certificates and
their resulting weighted average lives. The table does not purport to
represent the anticipated rate of prepayment on the Mortgage Loans or the
resulting anticipated rate of distributions on the Class A Certificates.
The table sets for the projected annual aggregate distributions that would
be made on the Class A-1 and Class A-2 Certificates, and their resulting
weighted average lives, based on various assumed percentages of SPA. The
column headed "0%" assumes that no Mortgage Loans are prepaid before maturity.
The columns headed " %", " %" and " %" assume that prepayments are made at
the specified percentages of SPA. It has been assumed in preparing the table
that (i) all of the Mortgage Loans have identical payment provisions, (ii) the
original term to maturity of each Mortgage Loan was [ ] years, (iii) all
Mortgage Loans are prepaid at the indicated percentage of SPA for the life of
the Certificates, (iv) the weighted average remaining term to maturity of the
Mortgage Loan is years, (v) the interest rate on each Mortgage Loan is
0. % in excess of the Pass-Through Rate, and (vi) the Mortgage Loans are not
repurchased at the option of the Depositor.
S-12
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE CLASS A CERTIFICATES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
------------------------------- -------------------------------
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
----------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $
------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... $ $ $ $ $ $ $ $
Weighted average life
(years)(1).............
</TABLE>
- --------
(1) The weighted average life of the Class A-2 Certificates, which is assumed
to be equal to the weighted average life of the Class A-1 Certificates, is
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distributions on the
Certificates.
The characteristics of the Mortgage Loans will not correspond exactly to
those assumed in preparing the statistics above. The annual cash flows on the
Class A Certificates will therefore differ from those set forth above even if
all the Mortgage Loans prepay monthly at the related assumed percentage of
SPA. In addition, it is not likely that any Mortgage Loan will prepay at a
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same rate and the timing of changes in the rate of prepayments may
significantly affect the total cash flow received by a holder of a Class A
Certificate.
The Depositor makes no representation that the Mortgage Loans will prepay in
the manner or at any of the rates assumed in the table set forth above. Each
prospective investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase the
Class A Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depository, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. The
Percentage Interest evidenced by each Class A-1 Certificate will be determined
by dividing the original principal amount of such Class A-1 Certificate by the
aggregate original principal amount of all Class A-1 Certificates. The
Percentage Interest evidenced by each Class A-2 Certificate will be determined
by dividing the original notional amount of such Class A-2 Certificate by the
aggregate original notional amount of all Class A-2 Certificates. The Class A
Certificates will be issued only in fully registered form in denominations of
$ and integral multiples thereof.
The Master Servicer will allocate each month's distributions of principal
and interest on the Mortgage Loans at the Pass-Through Rate as follows: % of
the monthly Principal Distribution and % of the Interest Distribution will
be allocated to the Holders of the Class A-1 Certificates (such sum being the
"Class
S-13
<PAGE>
A-1 Distribution Amount"); % of the Interest Distribution will be allocated
to the Holders of the Class A-2 Certificates (such sum being the "Class A-2
Distribution Amount"). Holders of Class A-2 Certificates will not receive
distributions of principal with respect to the Mortgage Loans. On each
Distribution Date, the Master Servicer will distribute to each Holder of a
Class A Certificate an amount equal to the Certificateholder's Percentage
Interest evidenced by the Class A Certificate in the Class A-1 or the Class A-
2 Distribution Amount, as the case may be. The remaining distribution will be
made to the Holders of the Class B Certificates, as more fully set forth
below. Such distributions will be made to Certificateholders of record on the
Record Date for such Distribution Date.
On each Distribution Date, the Master Servicer will distribute to the Class
A Certificateholders, in the manner set forth above, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate undivided interest evidenced by all Class A
Certificates (such aggregate undivided interest being the sum of the
aggregate interests evidenced by the Class A Certificates in the Principal
Distribution and the Interest Distribution) (the "Senior Interest") in: (a)
until such time as the Subordinated Amount is reduced to zero, all
scheduled payments of principal and interest (including any advances
thereof), adjusted to the applicable Pass-Through Rate, which payments
became due on the due date to which such Distribution Date relates (the
"Due Date"), whether or not such payments are actually received; and (b)
after the Subordinated Amount is reduced to zero, all payments of principal
and interest, adjusted to the applicable Pass-Through Rate due on such Due
Date or due, but not previously received, since the time the Subordinated
Amount was reduced to zero, but only to the extent such payments are
actually received or advanced prior to the Determination Date;
(ii) the Senior Interest in all principal prepayments received during the
month prior to the month of distribution and, interest at the Pass-Through
Rate to the end of the month in which such principal prepayments occur;
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date each such Mortgage Loan was repurchased, liquidated or foreclosed, and
(b) accrued but unpaid interest on such principal balance, adjusted to the
Pass-Through Rate, to the first day of the month following the month of
such repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders to the extent that there are sufficient eligible funds
available for distribution to such Class A Certificateholders on a
Distribution Date. Funds eligible for such purpose with respect to each
Distribution Date shall be as set forth in the Prospectus under "Payments on
Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Fund and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the full distribution of the Required
Distribution on any Distribution Date, the Master Servicer shall distribute on
such Distribution Date to the Class A Certificateholders the amount of funds
eligible for distribution to such Class A Certificateholders. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the Holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be paid to the holders of the Class B Certificates.
Holders of the Class B Certificates will not be required to refund any amounts
that have previously been properly distributed to them directly from the
Certificate Account, regardless of whether there are sufficient funds on such
Distribution Date to make a full distribution to the Class A
Certificateholders. The subordination of distributions allocable to Holders of
the Class B Certificates is limited to the Subordinated Amount, which will
decrease over time as more fully set forth in the Pooling and Servicing
Agreement, and such subordination will apply on any Distribution Date only to
then current distributions allocable to the Class B Certificateholders.
S-14
<PAGE>
Distributions to Holders of Class A and Class B Certificates will be made on
a pro rata basis, in accordance with the aggregate Percentage Interests of
each Class held by each Certificateholder of the related Class.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
retirement of the Class A Certificates will be made only upon presentation and
surrender of the Class A Certificates at the office or agency specified in the
notice of Certificateholders of such final distribution.
The Class A Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the office or agency of the Master
Servicer maintained for the purpose in New York, New York. Class A
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Class A Certificates, but payment of a
sum sufficient to cover any tax or other governmental charge may be required.
Such office or agency is currently located at .
TRUSTEE
The Trustee for the Certificates will be , a bank organized and
existing under the laws of the with its
principal office located at .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operations in
. The Master Servicer is a FNMA/FHLMC approved seller-servicer based in
. As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans with an aggregate principal
balance in excess of $ . The Master Servicer conducts operations through
FHA approved branch offices in . The Master Servicer originated
approximately $ in mortgage loans in 19 . The Master Servicer's
consolidated stockholder's equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer will obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond")
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances" in an amount and form acceptable to the nationally
recognized statistical rating organization or organizations rating the Class A
Certificates (collectively, the "Rating Agency").
The following table sets forth certain information concerning the
delinquency experience on residential mortgage loans at the time of purchase by
____________ and were being master serviced by ___________ on _________, 1997
and __________, 1998. No mortgage loan is considered delinquent for these
purposes until, in general, it is one month past due on a contractual basis. The
information should not be considered to reflect the credit quality of the
Mortgage Loans included in the Mortgage Pool, or as a basis for assessing the
likelihood, amount or severity of losses on the Mortgage Loans. Such historical
performance does not purport to be indicative of the future performance of the
Mortgage Loans. See "Risk Factors," "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio.................... $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
30-59 Days Past Due................ [ ] [ ] [ ] [ ] [ ] [ ]
60-89 Days Past Due................ [ ] [ ] [ ] [ ] [ ] [ ]
90 or more Days Past Due........... [ ] [ ] [ ] [ ] [ ] [ ]
Total Delinquencies as a
Percentage of Total Portfolio..... [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
Foreclosures Pending............... [ ] [ ] [ ] [ ] [ ] [ ]
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
Net Gain (Loss) (1)................ $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
Net Gain (Loss) Ratio (2).......... [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
</TABLE>
(1) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(2) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no Servicer)[.] [, and (b) the
amount payable to the Depositor, as directed below.] [Pursuant to the Pooling
and Servicing Agreement, on each Distribution Date, the Master Servicer will
remit to [the Depositor] in respect of each interest payment on a Mortgage
Loan an amount equal to % of the
S-15
<PAGE>
outstanding principal balance of such Mortgage Loan, before giving effect to
any payments due on the preceding Due Date.] The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Mortgage Loan, an amount equal to % of the outstanding
principal balance of such Mortgage Loan, before giving effect to any payments
due on the preceding Due Date. See "Description of the Certificates--Servicing
and Other Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Service and
the Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation and amounts payable
to Depositor might be characterized as an ownership interest in the interest
payments on the Mortgage Loans ("Retained Yield") for federal income tax
purposes, by reason of the extent to which either the weighted average
Mortgage Rate, or the stated interest rates on the Mortgage Loans exceeds the
Pass-Through Rate, and the tax consequences to them of such a
characterization. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or
similar transactions or whether the reasonableness of servicing compensation
should be determined on a weighted averaged or loan-by-loan basis. [The
Depositor intends to treat % of such servicing compensation and % of the
amount payable to it described above as Retained Yield for federal income tax
purposes in reports to the Certificateholders and to the Internal Revenue
Service.] See "Federal Income Tax Consequences--Mortgage Pools" and
"--Taxation of Owners of Trust Fractional Certificates" in the Prospectus for
information regarding the characterization of servicing compensation [and the
amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may purchase
from the Trust all Mortgage Loans remaining in the Mortgage Pool and thereby
effect early retirement of the Certificates, provided that [the aggregate
unpaid balances of the Mortgage Loans at the time of such repurchase is less
than [10]% of the aggregate principal balance of the Mortgage Loans on the
Cut-off Date]. The purchase price for any such repurchase [will be the
outstanding principal balance of such Mortgage Loans together with accrued and
unpaid interest at the Pass-Through Rate to the last day of the month of such
repurchase, plus the appraiser value of any property acquired in respect
thereof.] [Any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(iv) of the Code in order to constitute a
"qualifying liquidation" thereunder.] In no event will the Trust continue
beyond the expiration of 21 years from the death of the last survivor of the
persons named in the Pooling and Servicing Agreement.]
RATING
It is a condition to the issuance of the Class A Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the Class A Certificates will receive payments required under
the Pooling and Servicing Agreement. In assigning such a rating, to mortgage
pass-through certificates, the Rating Agency takes into consideration the
credit quality of mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make required
payments on such certificates. Such rating does not, however, represent an
assessment of the likelihood that principal prepayments will be made by
mortgagors or the degree to which such payments might differ from that
originally anticipated. As a result, holders of the Class A Certificates might
suffer a lower than anticipated yield, and holders of the Class A-2
Certificates might fail, in circumstances of extreme prepayment, to recoup
their original investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
S-16
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
An election for the Mortgage Loans to be treated as a REMIC ("real estate
mortgage investment conduit") will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST] Certificates will be REMIC regular
interests and generally will be taxable as debt of the REMIC. The Class R will
be a REMIC residual interest and the holder thereof will be subject to tax on
the net income of the REMIC, which in many periods will exceed the cash
distributed on the Certificate. The Class R Certificates are subject to a number
of transfer restrictions designed to prevent the avoidance of income tax.]]
[Accordingly, the Certificates will be Trust Certificates and the Trust will be
a [grantor trust] for federal income tax purposes.] [The Depositor currently
expects to treat the Class [LIST] Certificates as being issued with original
issue discount for federal tax purposes and the Class [LIST] Certificates as not
being issued with original issue discount for federal tax purposes.] The
material (and certain minor and incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax Consequences" in the
Prospectus. It is recommended that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with their own tax advisors
regarding the consequences to them of investing in the Certificates.
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA Considerations--
Prohibited Transaction Class Exemption" in the Prospectus), a Class A
Certificate of an Exempt Series must entitle its holder to pass-through
payments of both principal and interest on the Mortgage Loans. Because holders
of Class A-2 Certificates are only entitled to pass-through payments of
interest (but not principal). PTCE 83-1 will not exempt Plans which acquire
the Class A-2 Certificates from the prohibited transaction rules of ERISA. Any
Plan fiduciary who proposes to cause a Plan to purchase Class A Certificates
should consult with its counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of Class A
Certificates. However, the other PTCE's or the Underwriter's PTE may be
applicable. See "ERISA Considerations--Prohibited Transaction Class Exemption"
in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
------------ ------------ ------------ -----------
<S> <C> <C> <C>
Credit Suisse First Boston
Corporation....................... $ $ $
Total.......................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers
at such prices less the following concessions and that the Underwriter[s] and
such dealers may allow the following discounts on sales to certain other
dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
Class A-1....................... % %
Class A-2....................... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulations, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations" or in the Prospectus under "ERISA Considerations."
S-17
<PAGE>
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP, New York, New York.
The material federal income tax consequences of the Class A Certificates will be
passed upon for the Depositor by Orrick, Herrington & Sutcliffe LLP.*
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in the open market or in privately negotiated transactions.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Legal Matters."
S-18
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- -------------------------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
Credit Suisse First Boston ... $ $ $
Corporation
Total ....................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers
at such prices less the following concessions and that the Underwriter[s] and
such dealers may allow the following discounts on sales to certain other
dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
Class A-1 .... % %
Class A-2 .... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and
for the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP, New York, New
York. The material federal income tax consequences of the Class A Certificates
will be passed upon for the Depositor by Orrick, Herrington & Sutcliffe LLP.*
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired
in privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in the open market or in privately negotiated transactions.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Legal Matters."
S-19
VERSION B
<PAGE>
[Version C- Residential Properties; Senior-Subordinate; Letter of Credit; Pool
Insurance.]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, [Class A], Series
$[Variable Rate] [ %] Class A-1 Certificates $ % Class A-3 Certificates
$[Variable Rate] [ %] Class A-2 Certificates $ % Class A-4 Certificates
-----------
The [Class A] Certificates (the "Certificates") offered hereby evidence
ownership interests in a trust to be created by Credit Suisse First Boston
Mortgage Securities Corp. (the "Depositor") on or about , 199 (the "Trust"). The
Trust property will consist of a pool of [conventional] [fixed rate] [mortgage
loans and] [mortgage participation certificates, evidencing participation
interests in such mortgage loans and meeting the requirements of the nationally
recognized rating agency or agencies rating the [Class A] Certificates
(collectively, the "Rating Agency") for a rating in one of the two highest
rating categories of such Rating Agency] (the "Mortgage Loans") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to a
Pooling and Servicing Agreement (as defined herein), dated as of , 199 , by the
Depositor in exchange for the Certificates and are more fully described in the
Prospectus Supplement and in the accompanying Prospectus.
Interest on the Class A-1, Class A-2 and Class A-3 Certificates, at the rate
of interest set forth above for each such Class, will be distributed [monthly]
on each Distribution Date, commencing , 199 . Distributions of interest on
the Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance (as defined herein) of the Class A-3 Certificates have
reduced Stated Principal Balance of such Class to zero. Prior to that time,
interest will accrue on the Class A-4 Certificates and the amount so accrued
will be added to the Stated Principal Balance thereof on each Distribution
Date. Distributions in reduction of Stated Principal Balance of the
Certificates of each Class will be made on a pro rata basis among the
Certificates of such Class, in the order of their respective Final Scheduled
Distribution Dates (as defined herein), so that no distribution in reduction of
Stated Principal Balance of any Certificate will be made until the Stated
Principal Balance of each Class of Certificates having a prior Final Scheduled
Distribution Date has been reduced to zero.
Scheduled distributions on the Mortgage Loans included in the Mortgage Pool,
together with certain other funds, as set forth more fully herein, will be
sufficient to make timely distributions of interest and distributions in
reduction of Stated Principal Balance on the [Class A] Certificates and to
reduce the Stated Principal Balance thereof to zero not later than the Final
Scheduled Distribution Dates set forth herein. However, the actual final
distribution on the [Class A] Certificates could occur significantly earlier
than the Final Scheduled Distribution Dates set forth herein. The [Class A]
Certificates will be subject to Special Distributions under the circumstances
specified herein. [The Depositor intends to offer the Class B Certificates (as
defined herein) to sophisticated institutional investors in transactions not
requiring registration under the Securities Act of 1933. The rights of the
Class B Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the Class A
Certificateholders to the extent described herein and in the Prospectus.]
The Underwriter[s] [do[es] not] intend to make a secondary market for the
[Class A] Certificates [but [is] [are] under no obligation to do so]. There can
be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Federal Income Tax Consequences" in the
Prospectus.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the material risk factors set forth
under Risk Factors commencing on page S-12 of this Prospectus Supplement and in
the Prospectus on page 19.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Final
Scheduled Proceeds to the
Distribution Price to Underwriting Depositor
Interest Rate Date (1) Public (2) Discount (2)(3)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Class A-1
Certificate (4) % % %
- ---------------------------------------------------------------------------------
Per Class A-2
Certificate (4) % % %
- ---------------------------------------------------------------------------------
Per Class A-3
Certificate % % %
- ---------------------------------------------------------------------------------
Per Class A-4
Certificate % % %
- ---------------------------------------------------------------------------------
Total % % %
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) These dates are calculated assuming, among other things, that there are no
prepayments on the Mortgage Loans in the Mortgage Pool and that the
characteristics of such Mortgage Loans are as described under "Description
of the Trust Fund--The Mortgage Pool" herein.
(2) Plus accrued interest, if any, at the applicable rate from , 199 .
(3) Before deduction of expenses payable by the Depositor estimated at $ .
(4) The Class A-1 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate of % above
the arithmetic mean of the London interbank offered rates for [ ] month
Eurodollar deposits ("LIBOR"), determined as set forth herein, subject to a
maximum interest rate of %.
(5) The Class A-2 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate equal to [ % -
( X LIBOR), determined as set forth herein, subject to a minimum interest
rate of %.]
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [its] [their] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about
199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER[S] MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, [Class
A] Series (the "[Class A] Certificates").
$[Variable] [%] Class A-1 Certificates.
$[Variable] [%] Class A-2 Certificates.
$ % Class A-3 Certificates.
$ % Class A-4 Certificates.
[The Class A-1 and Class A-2 Certificates are
Variable Rate Certificates. The Class A-3 and
Class A-4 Certificates are Fixed Interest Rate
Certificates, as described herein.]
[The Class A-4 Certificates are Compound Interest
Certificates for the purposes of this Prospectus
Supplement.]
[The Class A Certificates represent in the
aggregate an approximate % undivided interest in
the Trust Fund. The remaining approximate %
undivided interest in the Trust Fund is
represented by the Class B Certificates, which are
subordinated in certain respects to the Class A
Certificates, as more fully described herein and
in the Prospectus. [The Class B Certificates are
not being offered hereby, and may be retained by
the Depositor or sold by the Depositor at any time
to one or more sophisticated institutional
investors in privately negotiated transactions not
requiring registration under the Securities Act of
1933.]]
DENOMINATIONS AND RECORD
DATES.................... The [Class A] Certificates will be issued in fully
registered form in minimum denominations of $
and integral multiples of $ in excess of such
amount. [The Record Date for each regular
distribution on the [Class A] Certificates is the
close of business on the [last] day [of the
[second] month] immediately preceding the
applicable Distribution Date.] [The Record Date
for each regular distribution on the Variable Rate
certificates is the close of business on the th
day of the month in which the applicable
Distribution Date occurs. The Record Date for each
regular distribution on the Fixed Rate
Certificates is the close of business on the th
day of the month immediately preceding the month
in which the applicable Distribution Date occurs.]
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST DISTRIBUTIONS....
[Interest will be distributed on [the th day of
each month] [each , , and ] (each, a
"Distribution Date") on the Stated Principal
S-3
<PAGE>
Balance (as defined herein) of the Certificates at
the applicable rate of interest specified on the
cover page hereof (the "Interest Rate") for the
Class A-1, Class A-2 and Class A-3 Certificates,
commencing , 19 .] [Interest will be
distributed on the Class A-1 Certificates at the
per annum rate of % through , 19 , and
thereafter at a variable per annum rate of %
above LIBOR, determined as set forth herein,
subject to a maximum interest rate of %.
Interest will be distributed on the Class A-2
Certificates at the per annum rate of % through
, 19 , and thereafter at a variable per
annum rate equal to % - ( x LIBOR),
determined as set forth herein, subject to a
minimum interest rate of %. Interest will be
distributed on the Class A-3 and Class A-4
Certificates (the "Fixed Rate Certificates") at
the respective per annum rates specified on the
cover page hereof.] [Interest distributable on the
Certificates will accrue from the [first day of
the month preceding the] prior Distribution Date
(or from , 19 in the case of the First
Distribution Date) through the last day of the
[second] month preceding the then current
Distribution Date.] [Interest will accrue on the
Variable Rate Certificates from the preceding
Distribution Date (or from , 19 in the case of
the first Distribution Date) through the day
preceding each Distribution Date. Interest will
accrue on the Fixed Rate Certificates from the
th day of the month preceding the month in which
the prior Distribution Date occurred (or from ,
19 in the case of the first Distribution Date)
through the th day of the month preceding the
month in which the current Distribution Date
occurs.] Distributions of interest on the Class A-
4 Certificates will commence after distributions
in reduction of Stated Principal Balance of the
Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to
that time, interest will accrue on the Class A-4
Certificates and the amount so accrued will be
added to the Stated Principal Balance thereof on
each Distribution Date. See "Description of the
Certificates--Distributions of Interest" herein.
[The distribution of interest on the Class A-3
Certificates (and the addition of accrued interest
to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated
Principal Balance of the Class A-3 Certificates to
zero) one month after the date to which interest
accrues thereon and the calculation of accrued
interest on such Certificates based on the
assumption that distributions in reduction of
Stated Principal Balance are made one month prior
to the date on which such distributions actually
are made will reduce the effective yield to the
holders of the Class A-3 Certificates from that
which would be the case if interest distributable
on such Certificates on a Distribution Date were
to accrue to such Distribution Date. See
"Description of the [Class A] Certificates--
Distributions of Interest [on the Class A
Certificates]" herein.]
S-4
<PAGE>
DISTRIBUTIONS IN
REDUCTION OF STATED The Stated Principal Balance of a [Class A]
PRINCIPAL BALANCE........ Certificate at any time represents the maximum
specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder
thereof is entitled from the cash flow on the
Mortgage Loans comprising the Mortgage Pool and
will decline to the extent distributions in
reduction of Stated Principal Balance are received
by such holder. The Initial Stated Principal
Balance of each Class of Certificates is set forth
on the cover of this Prospectus Supplement.
Allocation of distributions in reduction of Stated
Principal Balance will be made to the [Subc]
[C]lasses of the [Class A] Certificates in the
order of their respective Final Scheduled
Distribution Dates, so that no distribution in
reduction of Stated Principal Balance will be made
to any [Subc] [C]lass of [Class A] Certificates
until distributions in reduction of Stated
Principal Balance made to each [Subc] [C]lass of
[Class A] Certificates having a prior Final
Scheduled Distribution Date have reduced the
Stated Principal Balance of such [Subc] [C]lass to
zero.
Distributions in reduction of Stated Principal
Balance on the [Class A] Certificates will be made
on each Distribution Date on which such
distributions are due in an aggregate amount equal
to the sum of (i) the amount of interest accrued
on the Class A-4 Certificates from the [first day
of the month preceding the prior] Distribution
Date (or from , 19 in the case of the first
Distribution Date) through the last day of the
[second] month preceding the then current
Distribution Date but not then distributable (the
"Accrual Distribution Amount"), (ii) the [Class A]
Stated Principal Distribution Amount (as described
below) [and (iii) % of Excess Cash Flow (as
defined herein)]. The [Class A] Stated Principal
Distribution Amount with respect to a Distribution
Date equals the amount, if any, by which the
aggregate Stated Principal Balance of the [Class
A] Certificates (before taking into account the
amount of interest accrued on the Class A-4
Certificates to be added to the Stated Principal
Balance thereof on such Distribution Date) exceeds
the Asset Value, as defined herein, of the
Mortgage Loans comprising the Mortgage Pool as of
the Business Day prior to such Distribution Date.
For purposes of determining the Stated Principal
Distribution Amount, the Asset Value of the
Mortgage Loans comprising the Mortgage Pool will
be reduced by taking into account [the Senior
Interest (as defined herein) in] all distributions
of principal thereof (including prepayments)
received or due to be received by the Trustee or
its nominee during the period (a "Due Period")
ending on the Business Day prior to such
Distribution Date. See "Description of the [Class
A] Certificates--Distributions in Reduction of
Stated Principal Balance" herein.
FINAL SCHEDULED
DISTRIBUTION DATE........ Class A-1 Certificates .
Class A-2 Certificates .
S-5
<PAGE>
Class A-3 Certificates .
Class A-4 Certificates .
The Final Scheduled Distribution Date for each
[Subc][C]lass of [Class A] Certificates is the
latest date on which the Stated Principal Balance
of all the Certificates of such [Subc] [C]lass
will have been reduced to zero, and is calculated
by assuming, among other things, that (i)
scheduled interest and principal payments (with no
prepayments) on the Mortgage Loans comprising the
Mortgage Pool are timely received and (ii) such
amounts are reinvested at an assumed reinvestment
rate of % per annum to , 19 , % per annum
from , 19 to , 19 and % per annum
thereafter (the "Assumed Reinvestment Rate").
Since the rate of distributions in reduction of
Stated Principal Balance of each [Subc] [C]lass of
[Class A] Certificates will depend on the rate of
payment (including prepayments) on the principal
of the Mortgage Loans, the actual final
distribution of any [Subc] [C]lass of [Class A]
Certificates could occur significantly earlier
than its Final Scheduled Distribution Date. The
rate of payments on the Mortgage Loans will depend
on their particular characteristics, as well as on
prevailing interest rates from time to time and
other economic factors, and no assurance can be
given as to the actual payment experience of the
Mortgage Loans. See "Yield Considerations" herein.
[SPECIAL DISTRIBUTIONS....
The [Class A] Certificates may receive special
distributions in reduction of Stated Principal
Balance ("Special Distributions") on the first day
of any month, other than a month in which a
Distribution Date occurs, if, as a result of
principal prepayments on the Mortgage Loans
comprising the Mortgage Pool and/or low
reinvestment yields, the Trustee determines, based
on assumptions specified in the Pooling and
Servicing Agreement, that interest requirements on
any portion of the [Class A] Certificates would
not be met. The amount of any such Special
Distribution would not exceed the amount of
distributions in reduction of Stated Principal
Balance of the [Class A] Certificates that would
otherwise be required to be made on the next
Distribution Date. As a result, a Special
Distribution on the [Class A] Certificates would
not result in a distribution to [Class A]
Certificateholders more than two months earlier
than the Distribution Date on which such
distribution would otherwise have been received.
The [Class A] Certificates will be redeemable in
the same priority and manner as distributions in
reduction of Stated Principal Balance are made on
a Distribution Date. See "Description of the
[Class A] Certificates--Special Distributions"
herein.]
[OPTIONAL TERMINATION..... On any Distribution Date on or after the [later] of
or the date on which the Stated Principal Balance
of the [Class A-3] Certificates has been reduced
to zero, the Depositor will have the right to
repurchase, in whole, but not in part, the
Mortgage Loans comprising the Mortgage Pool.
Additionally, on any Distribution Date on which
the aggregate principal amount of the Mortgage
Loans comprising the Mortgage
S-6
<PAGE>
Pool is less than [10%] of the initial aggregate
principal amount of such Mortgage Loans, the
Depositor will have the right to repurchase, in
whole, but not in part, such Mortgage Loans. Any
such repurchase will be made at a purchase price
equal to [the aggregate principal amount of such
Mortgage Loans plus accrued interest thereon to
the last day of the month of such repurchase,
together with the appraised value of any property
acquired in respect of such Mortgage Loans]. Any
such termination will be effected in compliance
with the requirements of Section 860F(a) (iv) of
the Internal Revenue Code of 1986 (the "Code") so
as to constitute a "qualifying liquidation"
thereunder. The proceeds of any such repurchase
will be treated as a distribution on the Mortgage
Loans for purposes of distributions to the
Certificateholders. In no event will the Trust
continue beyond the expiration of 21 years from
the death of the last survivor of the person named
in the Pooling and Servicing Agreement. See
"Description of the [Class A] Certificates--
Optional Termination" herein.]
TRUST FUND................ The Certificates evidence ownership interest in the
Trust Fund, the assets of which will consist of
the following:
A. MORTGAGE POOL......... The Mortgage Pool will consist of [fixed-rate,]
fully amortizing, [level-payment] mortgage loans
[and mortgage participation certificates
evidencing participation interests in such
mortgage loans that meet the requirements of the
nationally recognized rating agency or agencies
rating the Certificates (collectively, the "Rating
Agency") for a rating in one of the two highest
rating categories of such Rating Agency] secured
by mortgages on one- to four-family residential
properties located in the states of , and
(the "Mortgage Loans"). All Mortgage
Loans will have original maturities of at least
[15] but no more than [40] years. See "Description
of the Trust Fund--The Mortgage Pool" herein.*
B. CERTIFICATE ACCOUNT... There will be deposited in an account (the
"Certificate Account") to be established with the
Trustee all distributions on or with respect to
the Mortgage Loans comprising the Mortgage Pool,
together with reinvestment income thereon [, the
amount of cash initially deposited therein by the
Depositor, and any amounts withdrawn from any
Reserve Fund, GPM Fund or Buy-Down Fund (as
described below)]. Funds on deposit in the
Certificate Account will be available to make
distributions in reduction of Stated Principal
Balance and distributions of interest on the
[Class A] Certificates on each Distribution Date.
See "Description of the Trust Fund--Certificate
Account" herein.
- --------
* If the Series of Certificates offered pursuant to the Version B Prospectus
Supplement evidences interest in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Contract Pool."
S-7
<PAGE>
[C. BUY-DOWN FUND........ The Depositor will deliver to the Trustee cash, a
letter of credit or a guaranteed investment
contract to fund the Buy-Down Fund for the [Class
A] Certificates. The Assumed Reinvestment Rate for
the Buy-Down Fund will be the same as that of the
Certificate Account. The Trustee may withdraw
excess funds in the Buy-Down Fund on any
Distribution Date. See "Description of the Trust
Fund--Buy-Down Fund" herein.]
[D. GPM FUND............. The Depositor will deliver to the Trustee cash, a
letter of credit or a guaranteed investment
contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for
the GPM Fund will be the same as that of the
Certificate Account. The Trustee may withdraw
excess funds in the GPM on any Distribution Date.
See "Description of the Trust Fund--GPM Fund"
herein.
[E. REINVESTMENT All amounts on deposit in the Certificate Account
AGREEMENT................ [and the GPM and Buy-Down Funds] will be
reinvested with by the Trustee pursuant
to a guaranteed investment contract (the
"Reinvestment Agreement") at a rate of % per
annum. See "Description of the Trust Fund--
Reinvestment Agreement" herein.]
[F. LETTER OF CREDIT..... The maximum liability of [ ] under an irrevocable
standby letter of credit, for the Mortgage Pool
(the "Letter of Credit"), net of unreimbursed
payments thereunder, will be no more than [10%] of
the initial aggregate principal balance of the
Mortgage Pool (the "Letter of Credit Percentage").
The maximum amount available to be paid under the
Letter of Credit will be determined in accordance
with the Pooling and Servicing Agreement referred
to herein. The duration of coverage and the amount
and frequency of any reduction in coverage will be
in compliance with the requirements for a rating
in one of the two highest rating categories of the
Rating Agency. The amount available under the
Letter of Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Description
of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
[G. [POOL INSURANCE [Neither the Certificates nor the Mortgage Loans
POLICY................... will be insured or guaranteed by any governmental
agency.] Subject to the limitations described
herein, a pool insurance policy for certain of the
Mortgage Loans (the "Pool Insurance Policy"), will
cover losses due to default on such Mortgage Loans
in an initial amount of not less than [5%] of the
aggregate principal balance as of the first day of
the month of the creation of the Trust (the "Cut-
off Date") of all Mortgage Loans that are not
covered as to their entire outstanding principal
balance by primary policies of mortgage guaranty
insurance. See "Description of the Trust Fund--The
Pool Insurance Policy" herein. The Pool Insurance
Policy will be subject to the limitations
described under "Description of Insurance--the
Pool Insurance Policy" in the Prospectus.]
S-8
<PAGE>
[H. HAZARD INSURANCE
[AND SPECIAL HAZARD
INSURANCE POLICY]........
All of the Mortgage Loans will be covered by
standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance Policy")
will cover losses with respect to the Mortgage
Loans that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in scope
and will cover losses in an initial amount equal
to the greater of % of the aggregate principal
balance of the Mortgage Loans or times the unpaid
principal balance of the largest Mortgage Loan.]
Any hazard losses not covered by [either] standard
hazard insurance policies [or the Special Hazard
Insurance Policy] will not be insured against and
[, to the extent that the amount available under
the Letter of Credit or any alternative method of
credit support is exhausted,] will be borne by the
Certificateholders. See "Description of the Trust
Fund--The Special Hazard Insurance Policy" herein.
The hazard insurance policies [and the Special
Hazard Insurance Policy] will be subject to the
limitations described under "Description of
Insurance--Hazard Insurance" and "--Special Hazard
Insurance Policies"] in the Prospectus.
[I. MORTGAGOR BANKRUPTCY
BOND.................... The Depositor will obtain a bond or similar form of
insurance coverage (the "Mortgagor Bankruptcy
Bond"), providing coverage against losses that
result from proceedings with respect to obligors
under the Mortgage Loans (the "Mortgagor") under
the federal Bankruptcy Code. See "Description of
the Trust Fund--Mortgagor Bankruptcy Bond" herein
and "Description of Insurance--The Mortgagor
Bankruptcy Bond" in the Prospectus.]
RISK FACTORS.............. For discussion of material risk factors that should
be considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
[CLASS B CERTIFICATES..... The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to the right of the Class A
Certificateholders to receive such distributions
to the extent of the Subordinated Amount described
below. This subordination is intended to enhance
the likelihood of regular receipt by Class A
Certificateholders of the full amount of scheduled
distributions of interest and distributions in
reduction of Stated Principal Balance and to
decrease the likelihood that the Class A
Certificateholders will experience losses. The
extent of such subordination (the "Subordinated
Amount") will be determined as follows: on the
Cut-off Date and on each anniversary of the Cut-
off Date until , the Subordinated Amount
will equal % of the original aggregate principal
balance of the Mortgage Loans less the amount of
"Aggregate Losses" (as defined in the Prospectus)
since the Cut-off Date through the last day of the
month preceding such anniversary date; from the
th anniversary of the Cut-off Date onward, the
Subordinated Amount will gradually decline in
accordance with a schedule set forth in the
Pooling and Servicing Agreement.]
S-9
<PAGE>
The protection afforded to the Class A
[RESERVE FUND............. Certificateholders from the subordination feature
described above will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the Mortgage Loans
(to the extent of the Subordinated Amount) and by
the establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included in the
Trust Fund. The Reserve Fund will be created by
the Depositor and shall be funded by the retention
of all of the scheduled distributions of principal
of the Mortgage Loans otherwise distributable to
the Class B Certificateholders on each
Distribution Date until the Reserve Fund reaches
an amount (the "Required Reserve") that will equal
[; thereafter, the Reserve Fund must be
maintained at the following levels: ]. See
"Description of the Certificates--Subordinated
Certificates" and "--Reserve Fund" in the
Prospectus.]
MASTER SERVICING AND
SERVICING AGREEMENTS..... The Depositor will enter into a Master Servicing
Agreement with , which will have entered into
Servicing Agreements with various entities (each a
"Servicer") with respect to the servicing of the
Mortgage Loans. Among other things, the Servicers
and the Master Servicer are obligated under
certain circumstances to make advances with
respect to the Mortgage Loans, to purchase any
Mortgage Loans for which mortgage insurance
coverage is denied on the grounds of fraud or
misrepresentation and to purchase certain Mortgage
Loans with respect to which a breach of a
representation or warranty has occurred. The
Depositor will assign to the Trustee its rights
under the Master Servicing Agreement and the
Servicing Agreements with respect to the
Certificates.
ADVANCES.................. Any Servicer of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the applicable Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
SUBSTITUTION OF MORTGAGE
LOANS..................... Within three months following the date of the
issuance of the Certificates, the Depositor may
deliver to the Trustee Mortgage Loans in
substitution for any one or more of the Mortgage
Loans initially included in the Trust Fund but
which do not conform in one or more respects to
the description thereof contained in this
Prospectus Supplement or in the Current Report on
Form 8-K referred to herein. See "The Mortgage
Pool--Substitution of Mortgage Loans" in the
Prospectus.
RESIDUAL CERTIFICATES..... Upon the issuance of the Certificates, [the
Depositor will retain] an interest in the Mortgage
Pool [that] will be represented by a class of
certificates (the "Residual Certificates") that
the Depositor will designate as "residual
interests" under Section 860G(a)(2) of the
Internal Revenue Code of 1986 (the "Code"). The
Residual Certificates will represent the right to
receive distributions
S-10
<PAGE>
equal to % of the Excess Cash Flow, if any, with
respect to each Distribution Date. In addition, at
such time as the Stated Principal Balance of the
Class A-4 Certificates has been reduced to zero
[and all amounts distributable to the Class B
Certificateholders have been paid], the holder or
holders of the Residual Certificates will be the
sole owners of the Mortgage Pool and will have
sole rights with respect to the Mortgage Loans and
the Mortgage Pool. The Residual Certificates are
not being offered hereby. [The Depositor may, but
need not, sell some or all of such Residual
Certificates after the date of issuance of the
Certificates to sophisticated institutional
investors in transactions not requiring
registration under the Securities Act of 1933.]
TRUSTEE................... . See
"Description of the [Class A] Certificates--
Trustee" herein.
LEGAL INVESTMENT.......... The [Class A] Certificates constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" in the Prospectus.
CERTIFICATE RATING........ It is a condition of issuance that the [Class A]
Certificates be rated in one of the two highest
rating categories of the Rating Agency prior to
issuance. A security rating is not a recommendation
to buy, sell or hold securities and may be subject
to revision or withdrawal at any time by the
assigning rating organization. A security rating
does not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect on
yield to investors. See "Certain Yield and
Prepayment Considerations" and "Ratings" herein and
"Yield Considerations" in the Prospectus.
ERISA LIMITATIONS.........
See "ERISA Considerations" in the Prospectus.
TAX ASPECTS............... An election for the Mortgage Loans to be treated as
a REMIC ("real estate mortgage investment conduit")
will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST]
Certificates will be REMIC regular interests and
the Class R will be a REMIC residual interest.
[Accordingly, the Certificates will be Trust
Certificates and the Trust will be a [grantor
trust] for federal income tax purposes.] [The Class
[LIST] Certificates will be treated as being issued
with original issue discount for federal tax
purposes.] The material (and certain minor and
incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax
Consequences" in the Prospectus. It is recommended
that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with
their own tax advisors regarding the consequences
to them of investing in the Certificates.
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
Orrick, Herrington & Sutcliffe LLP will pass upon the material federal income
tax consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Certain
Federal Income Tax Consequences."
S-11
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE TRUST FUND
THE MORTGAGE POOL*
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage notes
with aggregate unpaid principal balances outstanding as of the first day of
the month of the creation of the Trust (the "Cut-off Date"), after deducting
payments of principal due on such date, of approximately $ . This amount is
subject to a permitted upward and downward variance of up to %. [The Mortgage
Pool will consist of -year, [fixed-rate], fully-amortizing, [level-payment]
Mortgage Loans, as more fully described in the Prospectus.]
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least % but no more than %.
All Mortgage Loans will have Mortgage Rates of at least % but no more than
%. The weighted average maturity of the Mortgage Loans, as of the Cut-off
Date, will be at least years but no more than years. All Mortgage Loans
will have original maturities of at least but no more than years. None
of the Mortgage Loans will have been originated prior to or after
, 19 . None of the Mortgage Loans will have a scheduled maturity later
than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
July 18, 1984, and no more than % of the Mortgage Loans will have been
originated before September 27, 1985. See "Federal Income Tax Consequences--
Mortgage Pools," "--Taxation of Owners of Trust Fractional Certificates," and
"--Market Discount and Premium" in the Prospectus for information regarding
such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of [80]%, and no Mortgage Loan will have had a
loan-to-value ratio at origination in excess of 95%.
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of primary mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
At least % of the Mortgage Loans will be secured by mortgages on one-
family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no
more than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
- --------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-12
<PAGE>
At least % of the Mortgage Loans will be secured by a Mortgage on an
owner-occupied Mortgaged Property. Such determination will have been made
on the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loan that such Mortgagor then intended to
occupy the underlying property or, in the absence of such a representation,
on the basis of various factors indicating that the underlying property is
owner-occupied.
No more than [5%] of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Single family detached................................. $ . %
Condominium............................................
Planned Unit Developments..............................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Up to $100,000......................................... $ . %
$100,001--150,000......................................
150,001--200,000.......................................
200,001--250,000.......................................
250,001--300,000.......................................
300,001--350,000.......................................
350,001--400,000.......................................
400,001--450,000.......................................
Over $450,001..........................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LOAN-TO-VALUE RATIOS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
70.00% or less......................................... $ . %
70.01% to 75.00%.......................................
75.01% to 80.00%.......................................
80.01% to 85.00%.......................................
85.01% to 90.00%....................................... .
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-13
<PAGE>
MORTGAGE RATES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MORTGAGE RATES(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
. % or less........................................ $ . %
. % or less........................................
. % or less........................................ .
. % or less........................................ .
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
S-14
<PAGE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
S-15
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was greater
than 80% either (1) will be insured as to payment default for the amount in
excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately % of the Mortgage Loans have been made
to purchase the related Mortgaged Properties. Approximately % of the Mortgage
Loans will be secured by Mortgaged Properties represented to the originator in
the related loan application to be the primary residence of the mortgagor at
the time of origination. % of the Mortgage Loans are secured by Mortgaged
Properties which were second homes of the mortgagor at the time of origination
based on representations of the Mortgagor. % of the Mortgage Loans were made
to finance the purchase of homes represented by the mortgagor to have been
acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than 30
days delinquent in scheduled payments of principal and interest more than once
in the previous year.
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
CERTIFICATE ACCOUNT
There will be deposited in an account (the "Certificate Account") to be
established with the Trustee all distributions on or with respect to the
Mortgage Loans comprising the Mortgage Pool, together with reinvestment income
thereon. [Until such time as the Subordinated Amount is reduced to zero,][f]
[F]unds on deposit in the Certificate Account will be available to make
distributions in reduction of Stated Principal Balance and distributions of
interest on the Certificates on each Distribution Date, as more fully set
forth herein. [Any funds remaining in the Certificate Account after making
required distributions to holders of the Class A Certificates will be
distributed [to the holders of the Class B Certificates.] Any amounts
remaining in the Certificate Account [after making required distributions on
the Class B Certificates] will be distributed to the holders of the Residual
Certificates.
[BUY-DOWN FUND
The Depositor will deliver cash, a letter of credit or a guaranteed
investment contract to the Trustee to fund the Buy-Down Fund for the [Class A]
Certificates. [The Senior Interest in] Buy-Down Mortgage Loans not valued
solely on the basis of the scheduled monthly payments required of the
Mortgagor will be valued by taking into account funds available from the Buy-
Down Fund and reinvestment income thereon at the same Assumed Reinvestment
Rate as that of the Certificate Account.
The Trustee may withdraw excess funds from the Buy-Down Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to
the holders of the Class B Certificates to the extent of any deficiency in
scheduled distributions on such Class B Certificates on such Distribution
Date. Any amounts remaining will be distributed] to the holders of the
Residual Certificates.]
[GPM FUND
To the extent that [the Senior Interest in] a Mortgage Loan providing for
payments during a portion of its term that are less than the actual amounts of
principal and interest payable thereon (a "GPM Loan") is valued on the basis
of its maximum principal balance, rather than on the basis of scheduled
payments by the Mortgagor, the Depositor will deliver cash, a letter of credit
or a guaranteed investment contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for the GPM Fund is the same as
that of the Certificate Account.
S-16
<PAGE>
The Trustee may withdraw excess funds from the GPM Fund on any Distribution
Date. Any amounts so withdrawn shall be distributed [first, to restore the
amount in the Reserve Fund to the Required Reserve, and then to the holders of
the Class B Certificates to the extent of any deficiency in scheduled
distributions on such Class B Certificates on such Distribution Date. Any
amounts remaining will be distributed] to the holders of the Residual
Certificates.]
[REINVESTMENT AGREEMENT
All amounts on deposit in the Certificate Account [, the Buy-Down Fund and
the GPM Fund] will be reinvested with by the Trustee pursuant to a
guaranteed investment contract (the "Reinvestment Agreement") at a rate of %
per annum.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of unreimbursed
payments thereunder, for the Certificates will be no more than % of the
aggregate principal balance of the Mortgage Loans on the Cut-off Date. The
duration of coverage and the amount and frequency of any reduction in coverage
will be in compliance with the requirements established by the Rating Agency
rating the Certificates in order to obtain a rating in one of the two highest
ratings categories of the Rating Agency. The precise amount of coverage under
the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to
above. See "Description of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation (the
"Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the form of
primary policies covering approximately $ billion of residential mortgages.
At such date, the Pool Insurer had total assets of approximately $ million,
capital and surplus aggregating $ million and statutory contingency reserves
of $ million, resulting in total policyholders' reserves of $ million. The
claims-paying ability of the Pool Insurer is currently rated by . In
accordance with standard rating agency practice, may, at any time,
revise or withdraw such rating.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by a corporation (the
"Special Hazard Insurer"). Claims under such policy will be limited to % of
the aggregate principal balance of the Mortgage Loans or twice the principal
balance of the Mortgage Loan with the highest outstanding principal balance at
the Cut-off Date, whichever is greater. At , 19 , the Special Hazard
Insurer had total assets of approximately $ million and total policyholders'
surplus of $ . The claims-paying ability of the Special Hazard Insurer is
presently rated by . In accordance with standard rating agency
practice, may, at any time, revise or withdraw such rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
S-17
<PAGE>
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgagor Bankruptcy Bond") for proceedings with respect to Mortgagors under
the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal and interest on a Mortgage Loan or a reduction by such
court of the principal amount of a Mortgage Loan and will cover certain unpaid
interest on the amount of such a principal reduction from the date of the
filing of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances of
the Mortgage Loans secured by second residences and investor-owned residences
or (ii) times the largest principal balance of any such Mortgage Loan. The
coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a corporation. At
December 31, 19 , had admitted assets of approximately $ and total
policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
YIELD CONSIDERATIONS
Principal payments on mortgage loans may be in the form of scheduled
amortization payments or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidation due to default or other dispositions of
the loans). Prepayments on the Mortgage Loans comprising the Mortgage Pool
will be passed through to the Trustee, as the assignee of the Mortgage Loans,
and such prepayments will be [available to be] applied to distributions in
reduction of States Principal Balance on the [Class A] Certificates [, as more
fully set forth herein]. Prepayments on mortgage loans are commonly measured
by a prepayment standard or model. The model used in this Prospectus
Supplement, the Standard Prepayment Assumption ("SPA"), represents an assumed
rate of prepayment each month relative to the outstanding principal balance of
a pool of mortgage loans. A prepayment assumption of 100% SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance
of such mortgage loans in the first month of the life of the mortgage loans
and an additional 0.2% per annum in each month thereafter until the 30th
month. Beginning in the 30th month and in each month thereafter during the
life of the mortgage loans. 100% SPA assumes a constant prepayment rate of 6%
per annum each month. As used in the table set forth below " % SPA" assumes
prepayment rates equal to % of 100% SPA; " % SPA" assumes prepayment rates
equal to % of 100% SPA; and " % SPA" assumes prepayment rates equal to % of
100% SPA. SPA does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool
of mortgage loans.
The rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, geographic, social and other factors, including the
level of mortgage interest rates and the rate at which homeowners sell their
homes or default on their mortgages. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Mortgage
Loans comprising the Mortgage Pool, the Certificates are likely to be subject
to higher prepayment rates than if prevailing rates remain at or above the
interest rates on the Mortgage Loans comprising the Mortgage Pool. In
addition, as homeowners move or default on their mortgages, their houses are
generally sold and the mortgages prepaid. As the rate of distributions in
reduction of Stated Principal Balance of each [Subc] [C]lass of [Class A]
Certificates will depend on the rate of payment (including prepayments) of the
Mortgage Loans comprising the Mortgage Pool, the actual final distribution
made on any [Subc] [C]lass of [Class A] Certificates is likely to occur
earlier than its Final Scheduled Distribution Date.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar in reduction of the principal of such
security will be distributed to the investor. The weighted average life of a
[Class A] Certificate is determined by (i) multiplying the amount of each
distribution in reduction of
S-18
<PAGE>
Stated Principal Balance by the number of years from the date of issuance of
the [Class A] Certificate to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the total distributions in reduction of
Stated Principal Balance made on the Class A Certificate [, including, in the
case of a Class A-4 Certificate, any interest accrued and added to the Stated
Principal Balance of such Certificate].
The table set forth below has been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool. The table assumes, among other things, that each Mortgage Loan
comprising the Mortgage Pool has a remaining term to maturity of years,
bears interest at a rate of % per annum and has payments of principal that
are timely received. There may be discrepancies between the characteristics of
the Mortgage Loans actually included in the Mortgage Pool and the
characteristics of the Mortgage Loans expected to be so included. Any such
discrepancy may have an effect on the percentages of Initial Stated Principal
Balance outstanding set forth in the table (and the weighted average lives of
each Class [Subclass] of the [Class A] Certificates. In addition, to the
extent that the Mortgage Loans that actually are included in the Mortgage Pool
have characteristics that differ from those assumed in the following table,
the Stated Principal Balance of any Class [Subclass] of the [Class A]
Certificates will be reduced to zero earlier or later than indicated by the
table.
Variations in actual prepayment experience and the balance of mortgage loans
that prepay may increase or decrease the percentages of initial Stated
Principal Balance and the weighted average lives shown in the following table.
Such variation may occur even if the average prepayment experience of all such
Mortgage Loans equals the indicated levels of SPA.
Based on the foregoing assumptions, [including an assumed interest rate of
% on the Class A-1 Certificates and an assumed interest rate of % on the
Class A-2 Certificates,] the following table indicates the projected weighted
average life of each [Subc] [C]lass of [Class A] Certificates and sets forth
the percentages of the initial Stated Principal Balance of each [Subc] [C]lass
of [Class A] Certificates that would be outstanding after each of the dates
shown at various percentages of SPA.
PERCENTAGE OF INITIAL STATED PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
------------------- ------------------- ------------------- -------------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original Balance
, 1996................
, 1997................
, 1998................
, 1999................
, 2000................
, 2001................
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
------------------- ------------------- ------------------- -------------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
, 2002................
, 2003................
, 2004................
, 2005................
, 2006................
, 2007................
, 2008................
, 2009................
, 2010................
, 2011................
, 2012................
, 2013................
, 2014................
, 2015................
, 2016................
Weighted average life
(years)................
</TABLE>
--------
(1) The table assumes, among other things, [at each level of SPA,] prepayment
of Mortgage Loans comprising the Mortgage Pool at the indicated rate and
Reinvestment Income at the Assumed Reinvestment Rate of % per annum [and
annual estimated administrative fees and expenses of approximately $ .]
DESCRIPTION OF THE [CLASS A] CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. Each
of the [Class A] Certificates at the time of issuance will qualify as a
"mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distribution of principal and interest as set forth above will be made by
the Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency specified in the notice
to Certificateholders of such final distribution.
The [Class A] Certificates will be transferable and exchangeable on a
Certificate Register to be maintained by the Trustee at the office or agency
of the Master Servicer maintained for that purpose in New York, New York.
[Class A] Certificates surrendered to the Trustee for registration of transfer
or exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be
S-20
<PAGE>
made for any registration of transfer or exchange of [Class A] Certificates,
but payment of a sum sufficient to cover any tax or other governmental charge
may be required. Such office or agency of the Master Servicer is currently
located at . The Corporate Trust Office of the Trustee is currently
located at .
[DISTRIBUTIONS GENERALLY]
[On each Distribution Date, the Trustee will distribute to the Class A
Certificateholders, in the manner set forth below, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate fractional undivided interest evidenced by all Class A
Certificates (the "Senior Interest") in: (a) until such time as the
Subordinated Amount is reduced to zero, all scheduled payments of principal
and interest (including any advances thereof), net of servicing fees and
other compensation payable to the Servicers and the Master Servicer, which
payments became due on the due date to which such Distribution Date relates
(the "Due Date"), whether or not such payments are actually received; and
(b) after the Subordinated Amount is reduced to zero, all payments of
principal and interest, net of servicing fees and other compensation
payable to the Servicers and the Master Servicer, but not previously
received, since the time the Subordinated Amount was reduced to zero, but
only to the extent such payments are actually received or advanced prior to
the Determination Date;
(ii) the Senior Interest in all principal prepayments received during the
month prior to the month of distribution and, interest to the last day of
the month in which such principal prepayments occur, net of servicing fees
and other compensation payable to the Servicers and the Master Servicer;
and
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date of each such Mortgage Loan as repurchased, liquidated or foreclosed,
and (b) accrued but unpaid interest on such principal balance, net of
servicing fees and other compensation payable to the Servicers and the
Master Servicer, to the first day of the month following the month of such
repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders, in the manner set forth below, to the extent that there
are sufficient eligible funds available for distribution to such Class A
Certificateholders on a Distribution Date. Funds eligible for such purpose
with respect to each Distribution Date shall be as set forth in the Prospectus
under "Payments on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Funds and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the Required Distribution on any
Distribution Date, the Trustee shall distribute on such Distribution Date to
the Class A Certificateholders the amount of funds eligible for distribution
to such Class A Certificateholders, in the manner set forth below. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be distributed [first, to restore the amount in the
Reserve Fund to the Required Reserve, and then to the holders of the Class B
Certificates to the extent of any deficiency in the scheduled distribution to
such Certificateholders. Any excess will then be distributed to the holders of
the Residual Certificates, as set forth more fully below]. Holders of the
Class B Certificates [or the Residual Certificates] will not be required to
refund any amounts that have previously been properly distributed to them
directly from the Certificate Account, regardless of whether there are
sufficient funds on such Distribution Date to make a full distribution to the
Class A Certificateholders. The subordination of distributions allocable to
holders of the Class B Certificates is limited to the Subordinated Amount,
which will decrease over time as more fully set forth in the Pooling and
Servicing
S-21
<PAGE>
Agreement, and such subordination applies on any Distribution Date only to
then current distributions allocable to the Class B Certificateholders.
DISTRIBUTIONS OF INTEREST [ON THE CLASS CERTIFICATES]
The [Certificates of each Class] [Class A-3 Certificates and Class A-4
Certificates] will bear interest at the Interest Rates specified on the cover
page hereof. Interest on the Stated Principal Balance of the Class A-1 and
Class A-2 Certificates will accrue at the rates calculated as set forth
below.] Interest on the Class A-1 Certificates, Class A-2 Certificates and
Class A-3 Certificates will be distributable [monthly] on each Distribution
Date, commencing , 19 . [Interest distributable on the Certificates on a
Distribution Date will accrue from the [first day of the month preceding the]
prior Distribution Date (or from , 19 (the "Accrual Date") in the case of
the first Distribution Date) through the [last] day [of the [second] month]
preceding the then current Distribution Date. [Interest will accrue on the
Variable Rate Certificates from the preceding Distribution Date (or from ,
19 , in the case of the first Distribution Date) through the th day of the
month preceding each Distribution Date. Interest will accrue on the Fixed Rate
Certificates from the th day of the month [preceding the month] in which the
prior Distribution Date occurs (or from , 19 , in the case of the first
Distribution Date) through the th day of the month [preceding the month] in
which the current Distribution Date occurs.] Distributions of interest on the
Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance of the Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to that time, interest will
accrue on the Class A-4 Certificates and the amount so accrued will be added
to the Stated Principal Balance thereof on each Distribution Date. [Interest
accrued on the [Subc] [C]lass of [Class A] Certificates currently receiving
distributions in reduction of Stated Principal Balance (and on the Class A-4
Certificates) during any period described above will be calculated on the
assumption that such distributions are made (and accrued interest added to the
Stated Principal Balance of the Class A-4 Certificates) on the [[first] day of
the month preceding] the next Distribution Date, and not on the Distribution
Date when actually made or added.
[Interest will accrue on the Class A-1 and Class A-2 Certificates through
, 19 at the rates of % and %, respectively. Commencing , 19 ,
interest will accrue on the Variable Rate Certificates at rates determined as
set forth below. For each interest accrual period other than the first
interest accrual period
--Interest will accrue on the Class A-1 Certificates at a per annum rate
of % above LIBOR, subject to a maximum interest rate of %.
--Interest will accrue on the Class A-2 Certificates at a per annum rate
equal to % - ( x LIBOR), subject to a minimum interest rate of %.
The rate at which interest will accrue on the Class A-2 Certificates will
thus vary inversely with changes in LIBOR. Interest will accrue on the Class
A-2 Certificates at the minimum rate of % whenever LIBOR is % or above, and
the maximum rate at which interest will accrue on the Class A-2 Certificates
will be % per annum, which would be the rate in effect if LIBOR were
determined to be %.
The following table illustrates the relationship between LIBOR rates and the
rate at which interest will accrue on the Class A-1 and Class A-2
Certificates.
<TABLE>
<CAPTION>
LIBOR CLASS A-1 CLASS A-2
----- ---------- ----------
<S> <C> <C>
% % %
% % %
% % %
</TABLE>
The [Trustee] will determine LIBOR for a given interest accrual period on
the second business day prior to the Distribution Date on which such interest
accrual period commences (an "Interest Rate Determination Date").
S-22
<PAGE>
For this purpose, a "business day" is any day on which banks in London and New
York City are open for the transaction of international business. Promptly
after each Interest Rate Determination Date, the Trustee will cause the
Interest Rates, the Stated Principal Balances of the Variable Rate
Certificates for the interest accrual period following such Determination
Date, and the amounts of interest payable on the Distribution Date following
such interest accrual period in respect of each $1,000 of such Stated
Principal Balance, to be published in an English language newspaper of general
circulation published each business day in New York City. The Stated Principal
Balances and the Interest Rates on the Variable Rate Certificates applicable
to the then current and the immediately preceding interest accrual periods may
be obtained by telephoning the Trustee at its Corporate Trust Office at.
The determination of the rates at which interest will accrue on the Variable
Rate Certificates after , 19 will be made in accordance with the following
provisions:
(i) On each Interest Rate Determination Date, the Trustee will
determine LIBOR on the basis of quotations [provided by [four]
Reference Banks as of 11:00 A.M. (London time) as such quotations
appear on the Reuters Screen LIBOR Page (as defined in the
International Swap Dealers Association, Inc. Code of Standard Wording,
Assumptions and Provisions for SWAPS, 1986 edition).] LIBOR as
determined by the Trustee is the arithmetic mean of such quotations
(rounded upward, if necessary, to the nearest multiple of of 1%).
(ii) If, on any Interest Rate Determination Date, at least two but
fewer than all of the Reference Banks provide quotations, LIBOR will be
determined in accordance with (i) above on the basis of the offered
quotations of those Reference Banks providing such quotations.
(iii) If, on any Interest Rate Determination Date, only one or none
of the Reference Banks provides such offered quotations, LIBOR will be
the higher of:
(a) LIBOR as determined on the previous Interest Rate
Determination Date; and
(b) the Reserve Interest Rate. The "Reserve Interest Rate" will be
the rate per annum (rounded upward as aforesaid) that the Trustee
determines to be either (x) the arithmetic mean of the offered
quotations that leading banks in New York City selected by the
Trustee (after consultation with the Depositor) are quoting on the
relevant Interest Rate Determination Date for [ ] month United
States dollar deposits to the principal London office of each of the
Reference Banks or those of them (being at least two in number) to
which such offered quotations are, in the opinion of the Trustee,
being so made or (y) in the event that the Trustee can determine no
such arithmetic mean, the arithmetic mean of the offered quotations
that leading banks in New York City selected by the Trustee (after
consultation with the Depositor) are quoting on such Interest Rate
Determination Date to leading European banks for [ ] month United
States dollar deposits; provided, however, that if the banks
selected as aforesaid by the Trustee are not quoting as mentioned
above, LIBOR for the next accrual period will be LIBOR as specified
in (a) above.
The rate at which interest will accrue on the Class A-1 Certificates will in
no event exceed % per annum, and the rate at which interest will accrue on
the Class A-2 Certificates will in no event be less than % per annum.
Each Reference Bank shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, shall not
control, be controlled by, or be under common control with, the Depositor and
shall have an established place of business in London.
[The distribution of interest on the [Class A] Certificates (and the
addition of accrued interest to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated Principal Balance of the
Class A-3 Certificates to zero) [30] days after the date to which interest
accrues thereon and the calculation of accrued
S-23
<PAGE>
interest on the Certificates based on the assumption that distributions in
reduction of Stated Principal Balance of the [Class A] Certificates are made
[one month] prior to the actual Distribution Date will reduce the effective
yield to holders of the [Class A] Certificates from that which would otherwise
be the case if interest distributable on the [Class A] Certificates (or added
to the Stated Principal Balance of the Class A-4 Certificates) on a
Distribution Date were to accrue to such Distribution Date.]
[The effective yield to the Class A-3 and Class A-4 Certificateholders will
be less than the yield that would otherwise be produced if interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) on a Distribution Date were to accrue
to such Distribution Date because (i) on the first Distribution Date, [ ]
months' interest is distributable on the Certificates (or to be added to the
Stated Principal Balance of the Class A-4 Certificates) even though [ ]
months will have elapsed from the date on which interest begins to accrue on
the Certificates and (ii) on each succeeding Distribution Date, the interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) is the interest accrued during the
period described above even though this accrual period ends [30] days prior to
such Distribution Date. In addition, during the first month of each interest
accrual period (other than the first such period) for the Class of
Certificates on which distributions in reduction of Stated Principal Balance
are being distributed, interest accrues on a principal balance that is less
than the Stated Principal Balance of such Class of Certificates, because
interest due on such Class on a Distribution Date is calculated on the Stated
Principal Balance of such Class since the preceding Distribution Date.]
DISTRIBUTIONS IN REDUCTION OF STATED PRINCIPAL BALANCE
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made on each Distribution Date on which distributions are
due in an aggregate amount equal to the sum of the Accrual Distribution Amount
and the Stated Principal Distribution Amount. For purposes of determining the
Stated Principal Distribution Amount, the Asset Value of the Mortgage Loans
comprising the Mortgage Pool will be reduced by taking into account [the
Senior Interest in] all distributions of principal thereof (including
prepayments) received or due to be received by the Trustee during the Due
Period prior to such Distribution Date.
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made first to the Class A-1 Certificates until the Stated
Principal Balance of the Class A-1 Certificates has been reduced to zero; next
to the Class A-2 Certificates until the Stated Principal Balance of the Class
A-2 Certificates has been reduced to zero; next to the Class A- 3 Certificates
until the Stated Principal Balance of the Class A-3 Certificates has been
reduced to zero; and then to the Class A-4 Certificates. Distributions in
reduction of Stated Principal Balance on [Certificates of a particular Class]
[Class A Certificates of a particular Subclass] will be made to the holder of
the Certificates of such [Class] [Subclass] either pro rata in the proportion
which the Stated Principal Balance of each Certificate of such [class]
[subclass] bears to the aggregate Stated Principal Balance of all the
Certificates of such [Class] [Subclass] or by random lot. Except as provided
herein, the Final Scheduled Distribution Date of each [Class] [Subclass] of
[Class A] Certificates has been determined based upon [the Senior Interest in]
scheduled payments of principal and interest on the Mortgage Loans comprising
the Mortgage Pool assuming no prepayments. Reinvestment Income at the Assumed
Reinvestment Rate, [and application of % of the Excess Cash Flow, as defined
herein, to the payment of Certificates.] The rate of prepayments on the
Mortgage Loans will depend on the prevailing level of interest rates and other
economic factors, and no assurance can be given as to the actual prepayment
rate of any Mortgage Loan.
The aggregate initial Asset Value of the Mortgage Loans comprising the
Mortgage Pool will be equal to at least 100% of the initial aggregate Stated
Principal Balance of the [Class A] Certificates.
The Asset Value of the Mortgage Loans comprising the Mortgage Pool will be
equal to the lesser of (a) the then present value of the [Senior Interest in
the] stream of remaining regularly scheduled monthly payments of principal and
interest on such Mortgage Loans [(after taking into account the applicable
portion of the Reserve Fund and the Buy-Down Fund)] together with Reinvestment
Income thereon from the assumed date of receipt of
S-24
<PAGE>
such payments to the next succeeding Distribution Date at the Assumed
Reinvestment Rate, discounted at the rate of % per annum with the same
frequency as distributions are made on the Certificates and (b) the product of
the Asset Value Cap calculated from time to time in the manner provided in the
Pooling and Servicing Agreement and the then outstanding principal balance of
such Mortgage Loan.
[ % of the Excess Cash Flow will be applied to the distributions on [Class
A] Certificates on each Distribution Date until such time that, even in the
event of excessive prepayments of the Mortgage Loans, sufficient funds will be
available to make distributions of interest on the [Class A] Certificates on
each succeeding Distribution Date. Thereafter, it will no longer be necessary
to provide for the possibility of a Special Distribution on the [Class A]
Certificates in respect of prepayments on such Mortgage Loans.]
On each Distribution Date, the distributions in reduction of Stated
Principal Balance on the [Class A] Certificates will be equal to the [Class A]
Stated Principal Distribution Amount. The [Class A] Stated Principal
Distribution Amount will be the amount by which (i) the Stated Principal
Balance of the [Class A] Certificates (before taking into account the amount
of interest accrued on the Class A-4 Certificates to be added to the Stated
Principal Balance thereof on the Distribution Date), exceeds (ii) the
aggregate Asset Value of the Mortgage Loans comprising the Mortgage Pool as of
such Distribution Date.
[In addition, % of the Excess Cash Flow from the Mortgage Loans comprising
the Mortgage Pool will be applied to the distributions of the [Class A]
Certificates on each Distribution Date until ]. Excess Cash Flow as of each
Distribution Date will be the amount, if any, by which (i) the [Senior
Interest in the] cash flow received from the Mortgage Loans and deposited in
the Certificate Account for the Certificates [and any amounts deposited in
such Certificate Account from any related Buy-Down Fund and GPM Fund on the
date of issuance of the Certificates], plus any Reinvestment Income thereon,
[together with any amounts otherwise distributable to the Class B
Certificateholders or in the Reserve Fund that are required to be distributed
to holders of the Class A Certificates] exceeds (ii) the sum of (a) the [Class
A] Stated Principal Distribution Amount on such Distribution Date and (b) all
interest accrued, whether or not then payable, on the Stated Principal Balance
of the [Class A] Certificates since the preceding Distribution Date, and (c)
any Special Distributions in reduction of Stated Principal Balance made since
the preceding Distribution Date (or since the date of issuance of the
Certificates in the case of the first Distribution Date). [On any Distribution
Date, Excess Cash Flow not so applied will be [distributed first to restore
the amount in the Reserve Fund to the Required Reserve, and then] to the
holders of the Class B Certificates to the extent of any current deficiency in
scheduled distributions to such Certificateholders on such Distribution Date.]
[Any excess will then be distributed to holders of the Residual Certificates.
Any Excess Cash Flow so distributed will not be available to make subsequent
distributions on the [Class A] Certificates.]
[SPECIAL DISTRIBUTIONS
The [Class A] Certificates may receive special distributions in reduction of
Stated Principal Balance ("Special Distributions") as a consequence of
principal prepayments on the Mortgage Loans comprising the Mortgage Pool
and/or low yields then available for reinvestment. The Trustee will be
required each month to determine, based on assumptions specified in the
Pooling and Servicing Agreement, the amount that will be available in the
Certificate Account for the distribution of interest that will have accrued on
such [Class A] Certificates (the "Available Interest Amount") through the
earlier of the last day of the month of determination or the last day of the
[second] month preceding the next Distribution Date (the earlier of such dates
being referred to as the "Available Interest Accrual Date"). If the Available
Interest Amount as so determined is less than the amount of interest that will
have accrued on such [Class A] Certificates to the Available Interest Accrual
Date, there will be distributed, on the first day of the month succeeding the
month of determination (the "Special Distribution Date"), the portion of the
Stated Principal Balance of the [Class A] Certificates that will cause the
Available Interest Amount to equal the amount of interest that will have
accrued to the Available Interest Accrual Date on the Certificates to be
outstanding immediately after such distribution. The amount of the Special
Distribution on the Certificates distributed on any Special Distribution Date
will not exceed the amount of
S-25
<PAGE>
distributions in reduction of Stated Principal Balance on such Certificates
that would otherwise be required to be made on the next Distribution Date.
The Trustee will notify each registered holder of [Class A] Certificates to
receive a Special Distribution by letter mailed at least five days prior to
the date set for such Special Distribution.]
[OPTIONAL TERMINATION
On any Distribution Date on or after the [later] of or the date on which
the Stated Principal Balance of the [Class A-3] Certificates has been reduced
to zero, the Depositor will have the right to repurchase, in whole, but not in
part, the Mortgage Loans comprising the Mortgage Pool. Additionally, on any
Distribution Date on which the aggregate principal amount of the Mortgage
Loans comprising the Mortgage Pool is less than [10]% of the initial aggregate
principal amount of such Mortgage Loans, the Depositor will have the right to
repurchase, in whole, but not in part, such Mortgage Loans. Any such
repurchase will be made at a purchase price equal to [the outstanding
principal balance of such Mortgage Loans, together with accrual and unpaid
interest thereon, net of servicing fees and other compensation, to the last
day of the month of such repurchase, plus the appraised value of any property
acquired in respect thereof]. Any such termination will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code so as to
constitute a "qualifying liquidation" thereunder. The proceeds of any such
repurchase will be treated as a distribution on the Mortgage Loans for
purposes of distributions to the Certificateholders. In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of the
with its principal office located at ,
.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
, . The Master Servicer may be an affiliate of the Depositor. The Master
Servicer is a FNMA/FHLMC approved seller-servicer based in . As of
, the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance in
excess of $ . The Master Servicer conducts operations through FHA approved
branch offices in . The Master Servicer originated approximately $ in
mortgage loans in 19 . The Master Servicer's consolidated stockholder's
equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances", in an amount acceptable to the Rating Agency.
The following table sets forth certain information concerning the
delinquency experience on residential mortgage loans at the time of purchase by
____________ and were being master serviced by ___________ on _________, 1997
and __________, 1998. No mortgage loan is considered delinquent for these
purposes until, in general, it is one month past due on a contractual basis. The
information should not be considered to reflect the credit quality of the
Mortgage Loans included in the Mortgage Pool, or as a basis for assessing the
likelihood, amount or severity of losses on the Mortgage Loans. Such historical
performance does not purport to be indicative of the future performance of the
Mortgage Loans. See "Risk Factors," "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio.................... $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
30-59 Days Past Due................ [ ] [ ] [ ] [ ] [ ] [ ]
60-89 Days Past Due................ [ ] [ ] [ ] [ ] [ ] [ ]
90 or more Days Past Due........... [ ] [ ] [ ] [ ] [ ] [ ]
Total Delinquencies as a
Percentage of Total Portfolio..... [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
Foreclosures Pending............... [ ] [ ] [ ] [ ] [ ] [ ]
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
Net Gain (Loss) (1)................ $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
Net Gain (Loss) Ratio (2).......... [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
</TABLE>
(1) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(2) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
% of the outstanding principal balance of each Mortgage Loan in the Mortgage
Pool less [(a)] any servicing compensation to the servicer of each such
Mortgage Loan (the "Servicer") (including such compensation paid to the Master
Servicer as the direct Servicer of a Mortgage Loan for which there is no
Servicer) under the terms of an agreement with the Master Servicer pursuant to
which the Servicer services such Mortgage Loan (a "Servicing Agreement") [.]
S-26
<PAGE>
[, and (b) the amount payable to the Depositor, as described below.] [Pursuant
to the Pooling and Servicing Agreement, on each Distribution Date, the Master
Servicer will remit to [the Depositor] in respect of each interest payment on
a Mortgage Loan an amount equal to % of the outstanding principal balance of
such Mortgage Loan, before giving effect to any payments due on the preceding
Due Date.] The Master Servicer will be permitted to withdraw from the
Certificate Account, in respect of each interest payment on a Mortgage Loan,
an amount equal to % of the outstanding principal balance of such Mortgage
Loan, before giving effect to any payments due on the preceding Due Date.
Servicing compensation to the Servicers of the Mortgage Loans shall be payable
by withdrawal from the related Servicing Account (as defined in the
Prospectus) prior to deposit in the Certificate Account. In addition, each
Servicer (with respect to the Mortgage Loans serviced by it) and the Master
Servicer will be entitled to servicing compensation out of insurance proceeds
or liquidation proceeds. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise shall
be retained by the Servicers and the Master Servicer to the extent not
required to be deposited in the Certificate Account. The Servicers and the
Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
CERTIFICATE RATING
It is a condition to the issuance of the [Class A] Certificates that they be
rated in one of the two highest categories of the Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency.
FEDERAL INCOME TAX CONSEQUENCES
An election for the Mortgage Loans to be treated as a REMIC ("real estate
mortgage investment conduit") will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST] Certificates will be REMIC regular
interests and generally will be taxable as debt of the REMIC. The Class R will
be a REMIC residual interest and the holder thereof will be subject to tax on
the net income of the REMIC, which in many periods will exceed the cash
distributed on the Certificate. The Class R Certificates are subject to a number
of transfer restrictions designed to prevent the avoidance of income tax.]]
[Accordingly, the Certificates will be Trust Certificates and the Trust will be
a [grantor trust] for federal income tax purposes.] [The Depositor currently
expects to treat the Class [LIST] Certificates as being issued with original
issue discount for federal tax purposes and the Class [LIST] Certificates as not
being issued with original issue discount for federal tax purposes.] The
material (and certain minor and incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax Consequences" in the
Prospectus. It is recommended that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with their own tax advisors
regarding the consequences to them of investing in Certificates.
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations."
S-27
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase the [entire] [following respective]
Stated Principal Balance of each [Subc] [C]lass of the [Class A] Certificates:
<TABLE>
<CAPTION>
[UNDERWRITERS CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Credit Suisse First Boston
Corporation........................... $ $ $ $
--- --- --- ----
$ $ $ $]
=== === === ====
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase all of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION
(PERCENT DISCOUNT
OF (PERCENT OF
PRINCIPAL PRINCIPAL
AMOUNT) AMOUNT)
---------- -----------
<S> <C> <C>
Class A-1 Certificates................................... % %
Class A-2 Certificates................................... % %
Class A-3 Certificates................................... % %
Class A-4 Certificates................................... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS*
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP, New York, New York.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by Orrick, Herrington & Sutcliffe LLP.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
comprising the Mortgage Pool. All of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in the open market or in privately negotiated transactions.
- --------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Legal Matters."
S-28
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase the [entire] [following respective]
Stated Principal Balance of each [Subc] [C]lass of the [Class A] Certificates:
<TABLE>
<CAPTION>
[UNDERWRITERS CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- -------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Credit Suisse First Boston ... $ $ $ $
Corporation
------------- ------------- ------------- -------------
$ $ $ $]
============= ============= ============= =============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase all of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
PRINCIPAL PRINCIPAL
AMOUNT) AMOUNT)
-------------- --------------
Class A-1 Certificates ... % %
Class A-2 Certificates ... % %
Class A-3 Certificates ... % %
Class A-4 Certificates ... % %
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
S-29
VERSION C
<PAGE>
LEGAL MATTERS*
The legality of the Certificates will be passed upon for the Depositor and
for the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP, New York, New
York. The material federal income tax consequences of the Certificates will be
passed upon for the Depositor by Orrick, Herrington & Sutcliffe LLP.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
comprising the Mortgage Pool. All of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in the open market or in privately negotiated transactions.
- ------------
* If the Series of Certificates offered pursuant to this Version C
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Legal Matters."
S-30
VERSION C
<PAGE>
[Version D- Residential Properties; SPLITS (Interest Only and Principal Only).]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Series ("SPLITS")
Class -1 SPLITS
$ Original Principal Amount (Approximate)
100% of principal payments of the underlying Certificates
0% of interest payments on the underlying Certificates
Class -2 SPLITS
No Original Principal Amount
0% of principal payments on the underlying Certificates
Interest at % Annual Rate on Class -2 SPLITS notional amount
-----------
The Conduit Mortgage Pass-Through Certificates, Series (the "SPLITS
Certificates"), offered hereby evidence undivided percentage ownership
interests in a trust (the "Trust") composed of Conventional Mortgage Pass-
Through Certificates, each having a pass-through rate of % (the "
Certificates"). The mortgage pool underlying the Certificates consists of
conventional one- to four-family residential mortgage loans originated and
serviced by and certain related property. The Certificates will be
transferred to the Trust, pursuant to a Deposit Trust Agreement dated as of
1, 199 , by Credit Suisse First Boston Mortgage Securities Corp. (the
"Depositor") in exchange for the SPLITS Certificates and are more fully
described in this Prospectus Supplement and in the accompanying Prospectus.
The SPLITS Certificates will be issued in two classes, Class -1 (the "Class
-1 Splits") and Class -2 (the "Class -2 SPLITS"). The Class -1 SPLITS
evidence ownership interests in all of the principal payments on the
Certificates. The Class -2 SPLITS evidence ownership interests in all of the
interest payments on the Certificates, net of a servicing fee as described
herein (the "Servicing Fee"). Interest distributions allocable to the Class -2
SPLITS will be passed through monthly at the annual rate of % (the "Annual
Rate") on the then aggregate outstanding notional amount of the Class -2
SPLITS. The notional amount is used solely for purposes of the determination of
interest payments and certain other rights and obligations of Holders of Class
-2 SPLITS and does not represent an interest in principal payments on the
Certificates.
Because amounts payable with respect to the Class -1 Splits Certificates are
derived primarily from principal payments on the Mortgage Loans with Net
Mortgage Rates that are lower than ___% per annum, the yield on the Class -1
Splits Certificates will be adversely affected by slower than expected payments
of principal on such Mortgage Loans. Furthermore, the yield to investors on the
Class -2 SPLITS Certificates will be extremely sensitive to the rate and timing
of principal payments (including prepayments, defaults and liquidations) on the
Mortgage Loans with Mortgage Rates that are higher than ___% per annum, which
rate may fluctuate significantly over time. A rapid rate of principal payments
on such Mortgage Loans could result in the failure of investors in the Class -2
SPLITS Certificates to fully recover their initial investments.
Principal payments and interest at the Annual Rate will be distributed to the
holders of SPLITS Certificates ("Certificateholders" or "Holders") entitled
thereto on the [last] day of the month (or if such day is not a business day,
on the next business day) (the "Distribution Date"), or under the circumstances
described herein, on the Distribution Date in the next month. The first
distribution will be made on , 199 .
The SPLITS Certificates do not represent an obligation of or interest in
Credit Suisse First Boston Mortgage Securities Corp. or any affiliate
thereof or of , any affiliate thereof or any other governmental agency or
instrumentality.
There is currently no secondary market for the SPLITS Certificates and there
is no assurance that one will develop. The Underwriter[s] expect[s] to
establish a market in the SPLITS Certificates, but [is] [are] under no
obligation to do so. There is no assurance that a secondary market will
develop, or, if it does develop, that it will continue.
The yield to maturity on the SPLITS Certificates will depend on the rate of
principal payments (including prepayments) on the Certificates. The
mortgage loans underlying the Certificates are conventional loans and may
be prepaid at any time without penalty. A lower rate of principal than
anticipated would negatively affect the total return to investors in Class -1
SPLITS, which are being offered at a discount to their principal amount. The
yield to maturity on the Class -2 SPLITS will be extremely sensitive to the
rate of principal payments on the Certificates and may fluctuate
significantly from time to time. Investors should fully consider the associated
risks, including the risk that a rapid rate of principal payments could result
in the failure of investors in Class -2 SPLITS to recoup their initial
investment. See "Yield Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the material risk factors set
forth under Risk Factors commencing on page S-6 of this Prospectus Supplement
and in the Prospectus on page 19.
Prospective investors should consider the limitations discussed under
ERISA Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Depositor (2)
- -----------------------------------------------------------
<S> <C> <C> <C>
Per Class -1 SPLITS % % %
- -----------------------------------------------------------
Per Class -2 SPLITS %(3) % %(3)
- -----------------------------------------------------------
Total $ $ $
- -----------------------------------------------------------
</TABLE>
(1) Calculated as a percent of gross proceeds of the offering of each Class of
SPLITS Certificates.
(2) Before deduction of expenses payable by the Depositor estimated at $[ ].
(3) Plus accrued interest, if any, on the Class -2 SPLITS from 1, 199
(the "Cut-off Date").
-----------
The SPLITS Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
rights to reject orders in whole or in part. It is expected that the SPLITS
Certificates, in definitive, fully registered form, will be ready for delivery
on or about , 199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SPLITS CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SPLITS CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE SPLITS
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust, can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF THE TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not otherwise defined herein shall have the meanings given in the
Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, Series
(the "SPLITS Certificates").
$ original principal amount Class -1 SPITS
(approximate). No original Principal Amount -2
SPLITS. The Class -1 SPLITS represent an undivided
percentage ownership interest in 100% of the
monthly principal payments on the underlying
Certificates (the "Mortgage Certificates Principal
Distribution"). The Class -1 SPLITS do not
evidence an ownership interest in the monthly
interest payments on the underlying Certificates.
The Class -2 SPLITS represent an undivided
percentage ownership interest in 100% of the
monthly interest payment on the underlying
Certificates (the "Mortgage Certificate Interest
Certificate Interest Distribution"), net of the
Servicing Fee as described herein (such net rate
of interest on the Class -2 SPLITS then
outstanding notional amount being referred to
herein as the "Annual Rate"). The Annual Rate is
%. The notional amount for the -2 SPLITS is
equal to the unpaid principal balance of the
Certificates, but is used solely for purposes
of determining interest payments and certain other
rights and obligations of holders of Class -2
SPLITS and does not represent any interest in
principal payments.
The SPLITS Certificates will be issued pursuant to
a deposit trust agreement, dated as 1, 19
(the "Deposit Trust Agreement"), between
, as trustee (the
"Trustee") and Credit Suisse First Boston Mortgage
Securities Corp. (the "Depositor").
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
DENOMINATIONS............. The Class -1 SPLITS will be offered in fully
registered form, in minimum denominations of $[
] original principal amount and multiples of $[
] in excess thereof. The Class -2 SPLITS will be
offered in fully registered form, in minimum
denominations of $[ ] original notional amount
and multiples of $[ ] in excess thereof.
PRINCIPAL................. The Class -1 SPLITS will receive all principal
payments on the Certificates (including
prepayments). The Class -2 SPLITS receive no
principal payments on the Certificates.
INTEREST.................. The Class -2 SPLITS will receive all interest
payments on the Certificates, after deduction of
the Servicing Fee, as described herein. The
Class -1 SPLITS will receive no interest payments
on the Certificates.
S-3
<PAGE>
DISTRIBUTION DATES........ Distributions on the Certificates that are
received by the Trustee and become cleared funds
in the hands of the Trustee prior to 1:00 p.m. on
the [last] day of each month following the
distribution date for the Certificates, or,
if such day is not a business day, on the next
business day will be distributed to
Certificateholders on such day (each, a
"Distribution Date"). Distributions on the
Certificates that are received by the Trustee and
become cleared funds in the hands of the Trustee
at or after 1:00 p.m. on any Distribution Date
will be distributed to Certificateholders on the
Distribution Date in the next month. Distributions
will be made only if, and to the extent that,
payments are made on the Certificates and
received by the Trustee. The first Distribution
Date will be , 19 . The Cut-off Date will be
, 19 .
MORTGAGE CERTIFICATES..... % Certificates will aggregate outstanding
principal balances of $[ ] as of the Cut-off
Date. See "The Certificate Pool".
RISK FACTORS.............. For discussion of material risk factors that should
be considered with respect to an investment in the
SPLITS Certificates, see "Risk Factors" herein and
in the related Prospectus.
YIELD CONSIDERATIONS...... The rate of payment of principal of the Class -1
SPLITS, and the aggregate amount of each
distribution on and the yield to maturity of all
SPLITS Certificates, will depend on the rate of
payment of principal (including prepayments) of
the mortgage loans underlying the
Certificates. The mortgage loans underlying
the Certificates are conventional mortgage
loans and can be prepaid at any time without
penalty. The rate of payment of principal varies
significantly from time to time and between pools
of mortgage loans at any time and will be affected
by a variety of factors.
The yield to maturity on the Class -2 SPLITS, which
are being offered without any original principal
amount, is extremely sensitive to the rate of
payment of principal of the mortgage loans
underlying the Certificates and may fluctuate
significantly from time to time. Investors should
fully consider the associated risks, including the
risk that if the rate of principal payment is
rapid such investors may not recoup their initial
investment. See "Yield Considerations".
OPTIONAL TERMINATION...... The mortgage loans underlying the Certificates
are subject to repurchase at the option of at such
time as the outstanding principal balance of such
mortgage loans is less than 10% of their
outstanding principal balance as of . The
Depositor may, in the event such option is
exercised, or otherwise, at such time as the
outstanding principal balance of the
Certificates is less than 10% of their
aggregate principal balance as of the Cut-off Date
purchase the SPLITS Certificates, in whole, but
not in part, at the purchase price set forth
herein. See "Description of the
Certificates--Optional Termination" herein.
LEGAL INVESTMENT.......... The SPLITS Certificates constitute "mortgage-
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act (the "Enhancement
Act"), and, as such, are legal investments for
certain
S-4
<PAGE>
entities to the extent provided in the Enhancement
Act. See "Legal Investment" in the Prospectus.
TRUSTEE...................
. See
"Description of the Certificates--Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance of the SPLITS
Certificates that they be rated " " by the Rating
Agency prior to issuance. A security rating is not
a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any
time by the assigning rating organization. A
security rating does not address the frequency of
prepayments of Mortgage Loans, or the corresponding
effect on yield to investors. The rating on the
Class - 2 SPLITS Certificates does not address the
possibility that the holders of such Certificates
may fail to recover their initial investments. See
"Certain Yield and Prepayment Considerations" and
"Ratings" herein and "Yield Considerations" in the
Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" in the Prospectus.
TAX ASPECTS............... An election for the Mortgage Loans to be treated as
a REMIC ("real estate mortgage investment conduit")
will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST]
Certificates will be REMIC regular interests and
the Class R will be a REMIC residual interest.
[Accordingly, the Certificates will be Trust
Certificates and the Trust will be a [grantor
trust] for federal income tax purposes.] [The Class
[LIST] Certificates will be treated as being issued
with original issue discount for federal tax
purposes.] The material (and certain minor and
incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax
Consequences" in the Prospectus. It is recommended
that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with
their own tax advisors regarding the consequences
to them of investing in the Certificates.
- --------
*If the Prospectus Supplement for a Series of Certificates provides that
Orrick, Herrington & Sutcliffe LLP will pass upon the material federal income
tax consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Certain
Federal Income Tax Consequences."
S-5
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE CERTIFICATES
THE CERTIFICATES
The Certificates are each proportionately based upon and backed by a pool of
conventional oneto four-family residential mortgage loans, originated and
serviced by , and certain related property conveyed to the trust by .
On the Closing Date, the Depositor will deliver to the Trustee Certificates
having an aggregate principal balance of $[ ] (subject to a permitted
variance of up to 5%) and pass-through rates of [ ]%. The mortgage loans
underlying such Certificates are expected to have a weighted average
coupon of approximately % per annum based upon actual information regarding
the coupon rates on the mortgage loans underlying the Certificates that the
Depositor anticipates delivering to the Trustee.
The Certificates are expected to have a weighted average remaining term
to maturity of approximately years based upon actual information regarding
the remaining terms to maturity of the mortgage loans underlying the
Certificates that the Depositor anticipates delivering to the Trustee.
Using such Certificates, the final payment thereon will not be later
than , .
The information presented in this section has been derived from the Current
Report on Form 8-K filed by with respect to the Certificates and
certain other publicly available statistical information regarding the
Certificates and is derived from the expected balances as of the Cut-off
Date of the mortgage loans underlying the Certificates, such balances
being estimated using the method customarily employed by the Depositor.
[Prospective investors should be aware that the Depositor may, in certain
unforeseeable circumstances, deliver to the Trustee Certificates having
characteristics different from those described herein.] Specific information
with respect to the Certificates will be forth in a Current Report on
Form 8-K that will be filed by the Depositor, on behalf of the Trust, with the
Securities and Exchange Commission within 15 days after the issuance of the
SPLITS Certificates. [Set forth additional information with respect to the
Certificates.] [A copy of the Prospectus with respect to the
Certificates will be made available to any registered holder of a SPLITS
Certificate upon written request of such Certificateholder directed to .]
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE
Because principal payments on the mortgage loans underlying the Certificates
will be passed through to the holders of the Class -1 SPLITS and will reduce
the notional amount of the Class -2 SPLITS, the rate of payment of principal
of the Class -1 SPLITS and the aggregate amount of distributions on Class -1
SPLITS and Class -2 SPLITS will be directly related to the rate of payment of
principal of the mortgage loans underlying the Certificates. The rate of
principal payments on the underlying mortgage loans will in turn be affected
by the rate of principal prepayments thereon (including, for this purpose,
payments resulting from liquidations of the mortgage loans due to defaults,
casualties, condemnations or other dispositions). The mortgage loans are
conventional and can be prepaid at any time without penalty. Prepayments with
respect to the Certificates may also occur as a result of guaranty
payments and the optional repurchase provision on the Certificates.
Accordingly, the rate of prepayments on the underlying mortgage loans and rate
of payment of principal of the SPLITS Certificates will depend upon future
events and a variety of factors, and no assurance can be given as to either
such rate.
The yield to maturity of any SPLITS Certificates will be affected by the
rate of payment of principal of the Certificates. Specifically, as the
SPLITS Certificates belonging to Class -1 SPLITS are being offered at
significant discounts from their original principal amounts, if the purchaser
of a Class -1 SPLITS
S-6
<PAGE>
Certificates calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is faster than that actually received on the
Certificates, its actual yield to maturity will be lower than that so
calculated. Conversely, as the SPLITS Certificates belonging to Class -2
SPLITS are being offered without any original principal amount, if the
purchaser of a Class -2 SPLITS Certificate calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is slower than
that actually received on the Certificates, its actual yield to maturity
will be lower than that so calculated.
The timing of changes in the rate of prepayments on the mortgage loans under
the Certificates may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments is consistent with an
investor's expectation. In general, the earlier a prepayment of principal on
the mortgage loans underlying the Certificates the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the SPLITS Certificates may not be offset by a subsequent like
reduction (or increase) in the rate of principal payments.
[BECAUSE THE CLASS -1 SPLITS ARE BEING OFFERED AT A DISCOUNT FROM THEIR
ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY THEREON WILL BE SENSITIVE TO
THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS UNDERLYING THE
CERTIFICATES.]
BECAUSE THE CLASS -2 SPLITS ARE BEING OFFERED WITHOUT ANY PRINCIPAL AMOUNT,
THE YIELD TO MATURITY ON THE CLASS -2 SPLITS WILL BE EXTREMELY SENSITIVE TO
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS UNDERLYING THE CERTIFICATES AND
MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE
CLASS -2 SPLITS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS MAY NOT FULLY RECOUP THEIR
INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, SPA assumes a
constant prepayment rate of 6% per annum. SPA does not purport to be either a
historical description of the prepayment experience of any pool of mortgage
loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment rates
on the timing and amount of distributions on each Class of SPLITS Certificates
and their resulting weighted average lives. The table does not purport to
represent the anticipated rate of prepayment on the mortgage loans underlying
the Certificates or the resulting anticipated rate of distributions of
each Class of the SPLITS Certificates.
The table sets forth the projected annual aggregate distributions that would
be made on the Class -1 and Class -2 SPLITS Certificates, and their resulting
weighted average lives, based on various assumed percentages of SPA. The
column headed "0%" assumes that no mortgage loans underlying the
Certificates are prepaid before maturity. The columns headed " %", " %"
and " %" assume that prepayments are made at the specified percentages of SPA.
It has been assumed in preparing the table that (i) the Certificates consist
of $ principal amount of % Certificates, (ii) the mortgage loans underlying
the Certificates have the characteristics described above in "Description of
the Certificates," (iii) all mortgage loans are prepaid at the indicated
percentage of SPA for the life of the Certificates, (iv) the weighted average
remaining term to maturity of the mortgage loans is years, (v) the interest
rate on each mortgage loan is . % in excess of the pass-through rate on
the related Certificate, and (vi) the Certificates are not repurchased at
the option of or the SPLITS Certificates are not repurchased at the
option of Depositor.
S-7
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE SPLITS CERTIFICATES (THOUSANDS
OF DOLLARS)
<TABLE>
<CAPTION>
CLASS -1 SPLITS CLASS -2 SPLITS
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
- ----------- ------ ----- ----- ----- ------ ----- ----- -----
$ $ $ $ $ $ $ $
------ ----- ----- ----- ------ ----- ----- -----
Total distributions.......... $ $ $ $ $ $ $ $
Weighted average life
(years)(1)...................
</TABLE>
- --------
(1) The weighted average of life of the Class -2 SPLITS which is assumed to be
equal to the weighted average life of the Class -1 SPLITS, is determined
by (i) multiplying the amount of each assumed principal distribution by
the number of years from the date of issuance of the SPLITS Certificates
to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the total principal distributions on the SPLITS
Certificates.
The characteristics of the mortgage loans underlying the Certificates, will
not correspond exactly to those assumed in preparing the statistics above. The
total cash flows of the Class -2 SPLITS will therefore differ from those set
forth above even if all of the mortgage loans prepay monthly at the related
assumed prepayment rate. In addition, it is not likely that any mortgage loan
will repay at a constant rate until maturity or that all of the mortgage loans
will prepay at the same rate, and the timing of changes in the rate of
prepayments may significantly affect the total cash flow received by Holder of
a Class -2 SPLITS Certificate.
The Depositor makes no representation that the mortgage loans will prepay in
the manner or at any of the rates assumed in the table set forth above. Each
investor must make his own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the
SPLITS.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social,
legal and other factors and has fluctuated considerably in recent years. See
"Yield Considerations" in the Prospectus. In addition, the rate of principal
prepayments on the mortgage loans underlying the Certificates may differ
among pools of mortgage loans at any time because of specific factors relating
to the mortgage loans in the particular pool, including, among other things,
the age of the loans, the interest rates on the loans, the terms to stated and
remaining maturity of the loans, the geographic locations of the properties
securing the loans, the extent of the mortgagors' equity in real property
securing the loans, changes in mortgagors' housing needs, job transfers,
unemployment and servicing decisions.
Generally, however, if prevailing interest rates vary significantly from the
interest rates on the mortgage loans underlying the Certificates, the
Certificates are likely to be subject to higher or lower prepayment rates
than if prevailing rates remain at or near the interest rates on the mortgage
loans underlying the Certificates. In general, if prevailing interest
rates fall significantly below the interest rates on the mortgage loans
underlying the Certificates, the Certificates are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rates on the mortgage loans underlying Certificates.
Conversely, if interest rates rise above the interest rates on the mortgage
loans underlying the Certificates, the rate of prepayment would be
expected to decrease.
S-8
<PAGE>
The Depositor believes that the historical payment experience on such
securities is not necessarily indicative of the future payment experience on
the mortgage loans underlying the Certificates. Since the rate of
principal payments (including prepayments) on such mortgage loans will
significantly affect the yield to maturity on the SPLITS Certificates,
prospective investors are urged to consult their investment advisors as to
both the anticipated rate of future principal payments (including prepayments)
on the underlying mortgage loans and the suitability of the SPLITS
Certificates to their investment objectives.
PAYMENT DELAY
The effective yield to Certificateholders will be lower than the yield
otherwise produced by the Annual Rate and purchase price since the monthly
distributions on the Certificates will not be paid to the Holders until
on or after the [last] day of the month next succeeding the month of accrual.
See "Pooling and Servicing Agreement" in the Prospectus. To the extent that a
monthly distribution on a Certificate does not become cleared funds in
the hands of the Trustee prior to 1:00 p.m. on the Distribution Date in the
month such distribution is required to be made by the issuer of such
Certificates, the effective yield to the Certificateholders will be
further reduced since such distribution will not be paid to the Holders until
the Distribution Date in the next succeeding month. See "Description of the
SPLITS Certificates."
DESCRIPTION OF THE SPLITS CERTIFICATES
GENERAL
The SPLITS Certificates will be issued pursuant to a deposit trust
agreement, dated as of , 19 (the "Deposit Trust Agreement"), between
, as trustee (the "Trustee"), and the
Depositor. Pursuant to the Deposit Trust Agreement, the Depositor will
transfer the Certificates to the Trustee in exchange for the SPLITS
Certificates on or about , 19 (the "Delivery Date"). The
Certificates will be registered in the name of the Trustee and payments
on the Certificates will be made directly to the Trustee.
The SPLITS Certificates are to be issued in two classes. Class -1 SPLITS
Certificates (the "Class -1 SPLITS") and Class -2 SPLITS Certificates (the
"Class -2 SPLITS"). The Class -1 SPLITS evidence the Holders' beneficial
ownership of an undivided interest in all of the principal payments of the
Certificates. The Class -2 SPLITS evidence the Holders' beneficial
ownership of an undivided interest in all of the interest payments on the
Certificates after deduction of the Servicing Fee (as defined herein).
Payments of interest on the Class -2 SPLITS will be passed through monthly to
Holders thereof at a % Annual Rate on the outstanding notional amount of such
SPLITS Certificates as of the month preceding the month in which the related
distribution of interest is to be made.
The outstanding principal amount or notional amount, as the case may be, of
each Class of SPLITS Certificates for any month will be equal to the aggregate
outstanding principal balance of the Certificates for that month. The
notional amount is used solely for purposes of the determination of interest
payments and certain other rights and obligations of Holders of Class -2
SPLITS, and Holders of Class -2 SPLITS shall not have any interest in, or be
entitled to any payment with respect to, principal payments on the
Certificates. The aggregate original principal amount of the Class -1
SPLITS and the aggregate original notional amount of the Class -2 SPLITS will
each be $ at the Cut-off Date.
Each Class -1 SPLITS Certificate will evidence a Percentage Interest in the
monthly distributions of principal of the Certificates. Each Class -2
SPLITS Certificate will evidence a Percentage Interest in the monthly
distributions of interest on the Certificates, net of the Servicing Fee.
The Percentage Interest evidenced by each SPLITS Certificate will be
determined by dividing the denomination of such SPLITS Certificate by the
aggregate denominations of all SPLITS Certificates of the same Class. On each
Distribution Date, the Trustee will distribute to each Holder of a SPLITS
Certificate of a Class an amount equal to the product
S-9
<PAGE>
of such Certificateholder's Percentage Interest evidenced by such SPLITS
Certificate and the interest of such Class in the Mortgage Certificate
Principal Distribution or the Mortgage Certificate Interest Distribution, as
applicable.
The SPLITS Certificates will be issued only in fully registered form. The
Class -1 SPLITS will be issued in minimum denominations of $ and multiples
of $ in excess thereof. The Class -2 SPLITS will be issued in minimum
denominations of $ and multiples of $ in excess thereof.
Principal and interest at a % pass-through rate in respect of the
Certificates is required to be paid by the issuer of the Certificates by
check mailed directly to the registered holder thereof on the day of each
month. Payments of principal and interest will be collected by the Trustee and
held in a segregated non-interest-bearing trust account in the name of and for
the benefit of the Trust. Distributions on the Certificates that are
received by the Trustee and become cleared funds in the hands of the Trustee
prior to 1:00 p.m. on the day of the month or, if such a day is not a
business day, on the next business day, will be distributed to
Certificateholders on such day (each, a "Distribution Date"). Distributions on
the Certificates that are received by the Trustee and become cleared
funds in the hands of the Trustee at or after 1:00 p.m. on any Distribution
Date will be distributed to the Certificateholders on the Distribution Date in
the next month. In each case the distribution will be made to the Holders of
record of the SPLITS Certificates on the close of business on the last
business day of the month preceding the month in which such distribution is
made (the "Record Date"). The first Distribution Date will be , 19 .
Distribution of principal and interest as set forth above will be made by the
Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, at the request of a Certificateholder, by wire transfer to the
account of such Certificateholder; provided, however, that the final
distribution in retirement of a SPLITS Certificate will be made only upon
presentation and surrender of the SPLITS Certificate at the office of the
Trustee specified in the notice to Certificateholders of such final
distribution. Wire transfers will be made at the expense of Certificateholders
requesting such wire transfers by deducting a wire transfer fee from the
related transfer.
The SPLITS Certificates will be transferable and exchangeable on the
Certificate Register at the office or agency of the Trustee maintained for
that purpose in the City of New York. SPLITS Certificates surrendered to the
Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer in form satisfactory to the Trustee. No service
charge will be made for any registration of transfer or exchange of SPLITS
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required. Such office or agency is currently
located at .
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of
with its principal office located at
.
SERVICING FEE
The Deposit Trust Agreement provides for a servicing fee (the "Servicing
Fee") in an amount equal to % of each interest distribution on the
Certificates. The Servicing Fee will be deducted by the Trustee prior to
making any payment of interest to Holders of the Class -2 SPLITS.
OPTIONAL TERMINATION
The Deposit Trust Agreement provides that the Depositor may purchase SPLITS
Certificates at such time as (i) the mortgage loans underlying the
Certificates are repurchased by , or (ii) the aggregate unpaid
principal balance of the Certificates is less than [10]% of the aggregate
unpaid principal balance of the Certificates as of the Cut-off Date.
S-10
<PAGE>
In such event the Class -1 SPLITS will be repurchased at % of their
outstanding principal amount and the Class -2 SPLITS will be repurchased at %
of their outstanding notional amount, in each case, as of the date of such
repurchase. In no event will the Trust continue beyond the expiration of 21
years from the death of the last survivor of the persons named in the Deposit
Trust Agreement.
RATINGS
It is a condition to the issuance of the SPLITS Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the SPLITS Certificates will receive payments required under
the Deposit Trust Agreement. In assigning such a rating to mortgage pass-
through certificates, the Ratng Agency takes into consideration the credit
quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make required
payments on such certificates. Such rating does not, however, represent an
assessment of the likelihood that principal prepayments will be made by
mortgagors or the degree to which such payments might differ from that
originally anticipated. As a result, holders of the SPLITS Certificates might
suffer a lower than anticipated yield, and holders of the Class -2 SPLITS
might fail, in circumstances of extreme prepayment, to recoup their original
investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
S-11
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
An election for the Mortgage Loans to be treated as a REMIC ("real estate
mortgage investment conduit") will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST] Certificats will be REMIC regular
interests and generally will be taxable as debt of the REMIC. The Class R will
be a REMIC residual interest and the holder thereof will be subject to tax on
the net income of the REMIC, which in many periods will exceed the cash
districuted on the Certificate. The Class R Certificates are subject to a number
of transfer restrictions designed to prevent the avoidance of income tax.]]
[Accordingly, the Certificates will be Trust Certificates and the Trust will be
a [grantor trust] for federal income tax purposes.] [The Depositor currently
expects to treat the Class [LIST] Certificates as being issued with original
issue discount for federal tax purposes and the Class [LIST] Certificates as not
being issued with original issue discount for federal tax purposes.] The
material (and certain minor and incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax Consequences" in the
Prospectus. It is recommended that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with their own tax advisors
regarding the consequences to them of investing in the Certificates.
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA--Prohibited
Transaction Class Exemption" in the Prospectus), a certificate of an Exempt
Series must entitle its holder to pass-through payments of both principal and
interest on the Mortgage Loans. Because holders of Class -1 or Class -2
Certificates are only entitled to pass-through payments of principal (but not
interest) or interest (but not principal), PTCE 83-1 will not exempt Plans
that acquire the Class -1 or Class -2 Certificates from the prohibited
transaction rules of ERISA. Any Plan fiduciary who proposes to cause a Plan
to purchase Class -1 or Class -2 Certificates should consult with its
counsel with respect to the potential consequences under ERISA and the Code
of the Plan's acquisition and ownership of such Certificates. However, one of
the other PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class SPLITS:
CLASS -1 CLASS -2
[UNDERWRITER SPLITS SPLITS TOTAL
- -------------------------------- ------------ ------------ ---------
Credit Suisse First Boston
Corporation ................... $ $ $
Total ......................... $ $ $ ]
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the SPLITS Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] prospose[s] to offer each Class of the SPLITS Certificates to
the public initially at the public offering prices set forth on the cover
page of this Prospectus Supplement [, and through the Representative,] to
certain dealers at such prices less the following concessions and that the
Underwriter[s] and such dealers may allow the following discounts on sales to
certain other dealers:
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
GROSS GROSS
PROCEEDS) PROCEEDS)
------------- -------------
Class -1 SPLITS ... % %
Class -2 SPLITS ... % %
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
S-12
VERSION D
<PAGE>
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
All of the Certificates will be acquired in a privately negotiated
transaction by the Depositor from Credit Suisse First Boston Corporation on
terms substantially similar to those that the Depositor would obtain in an arm's
length transaction. Credit Suisse First Boston Corporation will have acquired
such Certificates in a privately negotiated transaction.
LEGAL MATTERS
The legality of the SPLITS Certificates will be passed upon for the Depositor
and for the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP], New York, New
York, and the material federal income tax consequences of the SPLITS
Certificates will be passed upon for the Depositor by Orrick, Herrington &
Sutcliffe LLP.
USE OF PROCEEDS
The Depositor will apply substantially all of the net proceeds of the
offering of the SPLITS Certificates towards the simultaneous purchase of the
Certificates underlying the SPLITS Certificates.
S-13
VERSION D
<PAGE>
[Version E- Manufactured Housing Contracts; Guarantee; Letter of Credit.]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
Conduit Manufactured Housing Contract Pass-Through Certificates, Series %
Pass-Through Rate
Principal and interest payable on the th day of each month, beginning ,
19
-----------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF CREDIT
SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. [NEITHER
THE CERTIFICATES NOR THE UNDERLYING CONTRACTS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.]
-----------
The Conduit Manufactured Housing Contract Pass-Through Certificates, Series,
% Pass-Through Rate (the "Certificates") offered hereby evidence undivided
fractional interests in a trust to be created by Credit Suisse First Boston
Mortgage Securities Corp. (the "Depositor") on or about , 199 (the "Trust"). The
Trust property will consist of a pool of [conventional] [FHA Insured] [VA-
guaranteed] [fixed-rate] [variable-rate] manufactured housing conditional sales
contracts and installment loan agreements (the "Contracts") and certain related
property to be conveyed to the Trust by the Depositor (the "Trust Fund"). The
Contracts will be transferred to the Trust, pursuant to a Pooling and Servicing
Agreement (as defined herein), dated as of , 199 , by the Depositor in exchange
for the Certificates and are more fully described in this Prospectus Supplement
and in the accompanying Prospectus. The Certificates offered by this Prospectus
Supplement constitute a separate series of the Certificates being offered by the
Depositor from time to time pursuant to its Prospectus dated , 199 , which
accompanies this Prospectus Supplement and of which this Prospectus Supplement
forms a part. The Prospectus contains important information regarding this
offering that is not contained herein, and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Federal Income Tax Consequences" in the
Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the material risk factors set forth
under Risk Factors commencing on Page S-7 of this Prospectus Supplement and in
the Prospectus on page 19.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ---------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- ---------------------------------------------------------
Total $ $ $
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deduction of expenses payable by the Depositor estimated at $ .
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about ,
199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Manufactured Housing Contract Pass-Through
Certificates, Series , % Pass-Through Rate (the
"Certificates").
PRINCIPAL AMOUNT.......... $ (approximate: subject to a permitted variance
of up to %).
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
DENOMINATIONS............. The minimum denomination of a Certificate (a
"Single Certificate") will initially represent
approximately $ aggregate principal amount of
Contracts (as hereinafter defined).
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST.................. Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on the day of each
month (each, a "Distribution Date") commencing
, 19 to those persons in whose name the
Certificates are registered as of [the last
Business Day of the month preceding the
Distribution Date] (the "Record Date"). [The Pass-
Through Rate for each Contract will equal the
annual percentage rate (the "APR") then borne by
such Contract less a fee for the servicing of the
Contract (the "Servicing Fee") [, less a fee for
the Limited Guarantee (the "Limited Guarantee
Fee")] [and less the excess interest (the "Excess
Interest")], as described herein under
"Description of the Certificates--Servicing
Compensation, [Limited Guarantee Fee] and Payment
of Expenses."
PRINCIPAL (INCLUDING
PREPAYMENTS).............. Passed through monthly on the Distribution Date,
commencing , 19 .
RISK FACTORS.............. For discussion of material risk factors that should
be considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
CONTRACT POOL............. [Conventional] [FHA-insured] [VA-guaranteed] [fixed
rate] [variable rate] manufactured housing
conditional sales contracts and installment loan
agreements (collectively, the "Contracts") secured
by manufactured homes (as described herein) (the
"Manufactured Homes") [located in the states of
, and ]. The Contracts have been
originated [or acquired] by . See
"Description of the Contract Pool" herein.
[LIMITED GUARANTEE........ Subject to the limitations described below, the
Limited Guarantee will cover the difference
between the amount available for distribution to
the Certificateholders [including Advances] on any
[monthly] Distribution Date and the amount due the
Certificateholders on such Distribution Date to
the extent such shortfall is attributable to
delinquent payments by borrowers on the Contracts
(each, an "Obligor") and losses on Defaulted
Contracts (as hereinafter
S-3
<PAGE>
defined). The first $ of the Guarantee Amount,
as defined below, will consist of the general
guarantee obligation of . The obligation of
will be backed by the Standby Letter of
Credit issued by and confirmed by , (as
described below). The balance of the Guarantee
Amount consists of the Direct Letter of Credit
issued by and confirmed by , described
below (the Standby Letter of Credit and the Direct
Letter of Credit sometimes collectively are
referred to herein as the "Letters of Credit").
The amount of the Limited Guarantee (the
"Guarantee Amount") on the first Distribution Date
will be $ . Thereafter, the Guarantee Amount
available on any Distribution Date, . See "The
Limited Guarantee."]
The Standby Letter of Credit (the "Standby Letter
of Credit") is an irrevocable obligation
supporting the obligation of under the
Limited Guarantee. If does not make a payment
required of it under the Limited Guarantee, the
Trustee immediately will draw such amount under
the Standby Letter of Credit. If for any reason
does not honor a draw under the Standby
Letter of Credit, is obligated to honor the
Standby Letter of Credit.
The Direct Letter of Credit (the "Direct Letter of
Credit") will be an irrevocable direct pay letter
of credit and will be issued by and confirmed
by .
[The initial Letters of Credit will expire no
earlier than .] The Master Servicer will be
required to replace or renew the Letters of Credit
prior to their expiration until the Trust Fund is
terminated. In the event the Master Servicer does
not renew or replace a Letter of Credit, prior to
its expiration, the Trustee will draw under such
Letter of Credit an amount equal to the required
coverage of that Letter of Credit on such date and
will transfer such funds to a separate trust fund
(the "Limited Guarantee Fund"). Thereafter the
Trustee will draw upon such funds on each
Distribution Date if and to the extent draws would
have been required under the corresponding Letter
of Credit. The Letters of Credit will not be
available to support any obligations of the
Depositor, the Master Servicer or the Unaffiliated
Seller. See "The Limited Guarantee."]
[LETTER OF CREDIT......... The maximum liability of [ ] under an
irrevocable standby letter of credit for the
Contract Pool (the "Letter of Credit"), net of
unreimbursed payments thereunder, will be no more
than [ %] of the initial aggregate principal
balance of the Contract Pool (the "Letter of
Credit Percentage"). The maximum amount available
to be paid under the Letter of Credit will be
determined in accordance with the Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount and frequency
of any reduction in coverage will be in compliance
with the requirements established by the Rating
Agency, in order to obtain a rating in one of the
two highest rating categories of such Rating
Agency. The amount available under the Letter of
Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Credit
Support--Letters of Credit" in the Prospectus.]
S-4
<PAGE>
HAZARD INSURANCE.......... All of the Contracts will be covered by standard
hazard insurance policies with respect to each
Manufactured Home in an amount at least equal to
[the lesser of its maximum insurable value or the
remaining principal balance on the related
Contract]. The standard hazard insurance policies,
at a minimum, will provide for fire, lightning,
windstorm and extended coverage on terms and
conditions customary in manufactured housing
hazard insurance policies. See "Description of the
Certificates--Hazard Insurance Policies" herein.
[OPTIONAL TERMINATION..... The [Depositor] may, at its option, repurchase from
the Trust all Contracts remaining outstanding at
such time as the aggregate unpaid principal
balance of such Contracts is less than [10%] of
the aggregate principal balance of the Contracts
on the Cut-off Date. The repurchase price will
equal the aggregate unpaid principal balance of
such Contracts together with accrued interest
thereon at the Pass-Through Rate through the last
day of the month during which such repurchase
occurs, plus the appraised value of any property
acquired in respect thereof. [Any such repurchase
will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.] See "Description of the
Certificates--Termination; Repurchase of
Certificates" herein.
ADVANCES.................. The Servicers of the Contracts (and the Master
Servicer, with respect to each Contract that it
services directly and otherwise, to the extent the
related Servicer does not do so) will be obligated
to advance delinquent installments of principal
and interest on the Contracts under certain
circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
SECURITY INTERESTS AND
OTHER ASPECTS OF THE In connection with the transfer of the Contracts
CONTRACTS................. from the Depositor to the Trustee, the Depositor
has assigned the security interests in the
Manufactured Homes securing the Contracts to the
Trustee. The [Master Servicer] shall take such
steps as are necessary to perfect and maintain
perfection of such security interest in each
Manufactured Home and, to the extent such interest
is perfected, the Trustee will have a prior claim
over subsequent purchasers of the Manufactured
Home and holders of subsequently perfected
security interests. Under most state laws
Manufactured Homes constitute personal property,
and perfection of a security interest in the
Manufactured Home is obtained, depending on
applicable state law, either by noting the
security interest on the certificate of title for
the Manufactured Home or by filing a financing
statement under the Uniform Commercial Code. [The
certificates of title or Uniform Commercial Code
financing statements will not be amended to
identify the Trustee as the new secured party
because of the administrative burden and expense.]
In the absence of such an endorsement, the Trustee
may not have a perfected security interest in
Manufactured Homes registered in certain states.
In addition, if the Manufactured Home were
relocated to another state without
S-5
<PAGE>
reperfection of the security interest, or if the
Manufactured Home were to become attached to its
site and a determination were made that the
security interest was subject to real estate title
and recording laws, or as a result of fraud or
negligence, the Trustee could lose its prior
preferred security interest in a Manufactured
Home. Federal and state consumer protection laws
impose requirements upon creditors in connection
with extensions of credit and collections on
installment sales contracts, and certain of these
laws make an assignee of such a contract, such as
the Trustee, liable to the obligor thereon for any
violation by the lender. The [Master Servicer] has
agreed to repurchase any Contract as to which it
has failed to perfect a security interest in the
Manufactured Home securing such Contract, or as to
which a breach of federal or state laws exists if
such breach materially adversely affects the
Trustee's interest in the Contract, unless such
failure or breach has been cured within [90] days
from notice of such breach. See "Special
Considerations" herein and "Certain Legal Aspects
of the Mortgage Loans and Contracts--The
Contracts" in the Prospectus.
TRUSTEE...................
[ ]
CERTIFICATE RATING........ It is a condition of issuance that the Certificates
be rated in one of the two highest rating
categories of a nationally recognized statistical
rating agency (the "Rating Agency"). A security
rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization. A security rating does not address
the frequency of prepayments of Mortgage Loans, or
the corresponding effect on yield to investors. See
"Certain Yield and Prepayment Considerations" and
"Ratings" herein and "Yield Considerations" in the
Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" [in the Prospectus] and
herein.
LEGAL INVESTMENT.......... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
TAX ASPECTS...............
The Depositor [intends] [does not intend] to make
an election to treat the Trust Fund as a Real
Estate Mortgage Investment Conduit (a "REMIC"),
pursuant to the Internal Revenue Code of 1986. See
["Federal Income Tax Consequences--General"; ["--
REMIC Trust Funds"] ["--Contract Pools"] in the
Prospectus,
[The extent to which the Contracts, and therefore
the Class [ ] Certificates, will be treated as
"qualifying real property loans" for mutual
savings banks or domestic building and loan
associations, "loans . . . secured by an interest
in real property" for domestic building and loan
associations, and "real estate assets" for real
estate investment trusts depends on certain facts
and circumstances not within the knowledge of the
Depositor. The material (and certain minor and
incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax
Consequences" in the Prospectus. It is recommended
that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with
there own tax advisors regarding the consequences
to them of investing in the Certificates.
S-6
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. General. An investment in the Certificates may be affected by, among
other things, a downturn in regional or local economic conditions. These
regional or local economic conditions are often volatile, and historically
have affected the delinquency, loan loss and repossession experience of the
Contracts. To the extent that losses on the Contracts are not covered by
[the Limited Guarantee] [the Letter of Credit] [or] applicable insurance
policies, if any, Certificateholders will bear all risk of loss resulting
from default by Obligors and must rely on the value of the Manufactured
Homes for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contracts" in the Prospectus.
2. Limited Obligations. The Certificates will not represent an interest
in or obligation of the Depositor. The Certificates will not be insured or
guaranteed by [any government agency or instrumentality,] The First Boston
Corporation or any of its affiliates, including the Depositor, any Servicer
or the Master Servicer.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates or, if it does develop, that it will
provide the holders of the Certificates with liquidity of investment or
that it will remain for the term of the Certificates.
[4. [Limited Guarantee] [Letter of Credit]. The Certificates will be
secured in part by the [Limited Guarantee] [Letter of Credit]. The
[Guarantee Amount] [Letter of Credit Percentage] will be an amount
initially equal to and will decline hereafter [by the amount of
unreimbursed payments thereunder]. The [Limited Guarantee] [Letter of
Credit] will cover delinquent payments by Obligors and losses on defaulted
Contracts. Delinquency on the Contracts may be affected by local, regional
and economic considerations. If delinquency levels are high and the
[Guarantee Amount] [Letter of Credit Percentage] is reduced to zero, the
Certificateholders will bear all losses on the Contracts. See ["The Limited
Guarantee"] ["Letter of Credit"].
5. Prepayment Considerations. The prepayment experience on the Contracts
may affect the average life of the Certificates. Prepayments on the
Contracts may be influenced by a variety of economic, geographic, social
and other factors, including repossessions, aging, seasonality and interest
rates of the Contracts. Other factors affecting prepayment of Contracts
include changes in housing needs, job transfers, unemployment and servicing
decisions. See "Maturity and Prepayment Considerations" in the Prospectus.
6. Security Interests and Other Aspects of the Contracts. Each Contract
is secured by a security interest in a Manufactured Home. Perfection of
security interests in the Manufactured Homes and enforcement of rights to
realize upon the value of the Manufactured Homes as collateral for the
Contracts are subject to a number of federal and state laws, including the
Uniform Commercial Code as adopted in each state (except Louisiana) and
each state's certificate of title statutes, but generally not its real
estate laws. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. In addition, numerous
federal and state consumer protection laws impose requirements on lending
under conditional sales contracts and installment loan agreements such as
the Contracts, and the failure by the lender or seller of goods to comply
with such requirements could give rise to liabilities of assignees for
amounts due under such agreements and claims by such assignees may be
subject to set-off as a result of such lender's or seller's noncompliance.
These laws would apply to the Trustee as assignee of the Contracts.
Pursuant to the Pooling and Servicing Agreement, the seller will warrant
that each Contract complies with all requirements of law and will make
certain warranties relating to the validity, subsistence, perfection and
priority of the security interest in each Manufactured Home securing a
Contract. If the [Limited Guarantee or] [Letter of Credit Percentage]
insurance policies are exhausted and recovery of amounts due on the
Contracts is dependent on repossession and resale of Manufactured Homes
securing Contracts that are in
S-7
<PAGE>
default, certain other factors may limit the ability of the
Certificateholders to realize upon the Manufactured Homes or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of
the Mortgage Loans and Contracts--The Contracts" in the Prospectus.
[7. Louisiana Law. Any Contract secured by a Manufactured Home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the
UCC. Louisiana laws provide similar mechanisms for perfection and
enforcement of security interests in manufactured housing used as
collateral for an installment sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been affixed
permanently to real estate nevertheless will remain subject to the motor
vehicle registration laws unless the obligor and any holder of a security
interest in the property execute and file in the real estate records for
the parish in which the property is located a document converting the unit
into real property. A manufactured home that is converted into real
property, but then is removed from its site, can be converted back to
personal property governed by the motor vehicle registration laws if the
obligor executes and files various documents in the appropriate real estate
records and all mortgagees under real estate mortgages on the property and
the land to which it was affixed file releases with the motor vehicle
commissions.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary
consent of the obligor, executory process (repossession proceedings which
must be initiated through the courts but which involve minimal court
supervision) or a civil suit for possession. In connection with a voluntary
surrender, the obligor must be given a full release from liability for all
amounts due under the contract. In executory process repossessions, a
sheriff's sale (without court supervision) is permitted, unless the owner
brings suit to enjoin the sale, and the lender is prohibited from seeking a
deficiency judgment against the obligor unless the lender obtained an
appraisal of the manufactured home prior to the sale and the property was
sold for at least two-thirds of its appraised value.]
DESCRIPTION OF THE CONTRACT POOL
The contract pool (the "Contract Pool") will consist of [conventional] [FHA-
insured] [VA-guaranteed] fixed rate manufactured housing conditional sales
contracts and installment loan agreements (collectively, the "Contracts")
having an [approximate] aggregate principal balance as of the Cut-off Date of
$ , secured by manufactured homes (the "Manufactured Homes"). The
Manufactured Homes will consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which
is built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which
meets all the requirements of this paragraph except the size requirements and
with respect to which the manufacturer voluntarily files a certification
required by the Secretary of Housing and Urban Development and complies with
the standards established under this chapter."
The weighted average annualized percentage rate (individually, an "APR") of
the Contracts as of the Cut-off Date will be at least % but no more than %.
All Contracts will have APRs of at least % but no more than %. The weighted
average maturity of the Contracts, as of the Cut-off Date, will be at least
years but no more than years. All Contracts will have original maturities
of at least years but no more than years. None of the Contracts will
have been originated prior to or after , 19 . None of the Contracts will
have a scheduled maturity later than .
S-8
<PAGE>
The Contracts will have the following characteristics as of the Cut-off Date
(expressed as a percentage of the outstanding aggregate principal balances of
the Contracts having such characteristics relative to the outstanding
aggregate principal balances of all Contracts):
Approximately % of the Contracts are secured by Manufactured Homes which
were new at the time the related Contract was originated and approximately
% of the Contracts are secured by Manufactured Homes which were used at
the time the related Contract was originated.
At least % of the Contracts will be Contracts each having outstanding
principal balances of less than $ .
No more than % of the Contracts will be Contracts each having
outstanding principal balances of more than $ .
No more than % of the Contracts will have had loan-to-value ratios at
origination (based on the retail sales prices of the unit or % of the
manufacturer's invoice price, if less, plus taxes, license fees and
insurance premiums in the case of a new Manufactured Home, or based on the
lesser of the total delivered sales price or the appraised value of the
unit, including taxes, fees and insurance, in the case of a used
Manufactured Home) in excess of %, and the Contracts have a weighted
average loan to value ratio as of the Cut-off Date of %.
The Contracts will be secured by Manufactured Homes located in the states
of . No more than [5]% of the Contracts will be secured by
Manufactured Homes located in any one five digit zip code or project.
[At the date of issuance of the Certificates, no Contract in the Contract
Pool was more than 30 days delinquent.]
[Description of the underwriting policies for conventional Contracts to
be provided.]
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Single family detached................................. $ . %
Condominium............................................
Planned Unit Developments..............................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Up to $100,000......................................... $ . %
$100,001--150,000......................................
150,001--200,000.......................................
200,001--250,000.......................................
250,001--300,000.......................................
300,001--350,000.......................................
350,001--400,000.......................................
400,001--450,000.......................................
Over $450,001..........................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LOAN-TO-VALUE RATIOS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
70.00% or less......................................... $ . %
70.01% to 75.00%.......................................
75.01% to 80.00%.......................................
80.01% to 85.00%.......................................
85.01% to 90.00%....................................... .
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-09
<PAGE>
CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MORTGAGE RATES(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
. % or less........................................ $ . %
. % or less........................................
. % or less........................................ .
. % or less........................................ .
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
MORTGAGE LOAN GROSS MARGINS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
GROSS MARGINS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average Gross Margin is approximately per annum.
MONTH IN WHICH NEXT ADJUSTMENT DATE FALLS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MONTH(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The adjusted Mortgage Rate will be reflected in payments received by
Certificateholders on the 25th day of the month following the month in
which the Adjustment Date occurs.
(2) The weighted average number of months to the initial Adjustment Date is
months.
S-10
<PAGE>
LIFETIME MORTGAGE RATE CAPS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LIFETIME MORTGAGE RATE CAP LOANS BALANCES BALANCE
- ------------------------------------------------------ ----- --------- --------
<S> <C> <C> <C>
%................................................... $ . %
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
---- ----- ------
Total............................................... $ 100.00%
==== ===== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
S-11
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was greater
than 80% either (1) will be insured as to payment default for the amount in
excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately % of the Mortgage Loans have been made
to purchase the related Mortgaged Properties. Approximately % of the Mortgage
Loans will be secured by Mortgaged Properties represented to the originator in
the related loan application to be the primary residence of the mortgagor at
the time of origination. % of the Mortgage Loans are secured by Mortgaged
Properties which were second homes of the mortgagor at the time of origination
based on representations of the Mortgagor. % of the Mortgage Loans were made
to finance the purchase of homes represented by the mortgagor to have been
acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than 30
days delinquent in scheduled payments of principal and interest more than once
in the previous year.
THE INDEX
[DESCRIPTION OF APPLICABLE INDEX, e.g., The Index is currently published by
the FHLB on or about the last working day of each month and is designed to
represent the monthly weighted average cost of funds for savings institutions
in the 11th District of the Federal Home Loan Bank System (Arizona, California
and Nevada) for the month prior to publication. The Index is computed by the
FHLB for each month by dividing the cost of funds (interest paid during the
month by 11th District savings institutions on savings, advances and other
borrowings) by the average of the total amount of those funds outstanding at
the end of the month and the prior month and annualizing and adjusting the
result to reflect the actual number of days in the particular month. If
necessary, before these calculations are made, the component figures are
adjusted by the FHLB to neutralize the effect of events such as member
institutions leaving the 11th District or acquiring institutions outside the
11th District. The Index has been reported each month since August 1981.]
[The Index reflects the interest costs paid on all types of funds held by
11th District member institutions. The Index is weighted to reflect the
relative amount of each type of funds held at the end of the relevant month.
There are three major components of funds of 11th District institutions: (1)
savings deposits, (2) FHLB advances, and (3) all other borrowings, such as
reverse repurchase agreements and mortgage-backed bonds. Unlike most other
interest rate measures, the Index does not necessarily reflect current market
rates, since the component funds represent a variety of maturities whose costs
may react in different ways to changing conditions.]
Specific information with respect to the Contracts will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Contracts
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Contracts: years of origination, types
of dwellings on the underlying properties, the sizes of Contracts and
distribution of Contracts by APR, and will be set forth in a Current Report on
Form 8-K that will be filed with the Securities and Exchange Commission by the
Depositor within 15 days after the issuance of the Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, to be dated as of the Cut-off Date (the "Pooling and Servicing
Agreement") among the Depositor, , as master servicer (the "Master
Servicer"), and , as trustee (the "Trustee"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement forms a part. Reference is made to the accompanying Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. Each of the Certificates
at the time of issuance will qualify as a "mortgage related security" within
the meaning of the Secondary Mortgage Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
S-12
<PAGE>
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at , .
CONVEYANCE OF CONTRACTS
On the date of issuance of the Certificates, the Depositor will transfer,
assign, set over and otherwise convey to the Trustee all right, title and
interest of the Depositor in the Contracts, including all principal and
interest received on or with respect to the Contracts (other than receipts of
principal and interest due on the Contracts before the Cut-off Date), and all
rights under the hazard insurance policies on the related Manufactured Homes.
The Contracts will be described on a schedule attached to the Pooling and
Servicing Agreement (the "Contract Schedule"). The Contract Schedule will
include the amount of monthly payments due on each Contract as of the date of
issuance of the Certificates, the APR on each Contract and the maturity date
of each Contract. Prior to the conveyance of the Contracts to the Trustee, the
Depositor will cause to be reviewed all the Contract files, including the
certificates of title to, or other evidence of a perfected security interest
in, the Manufactured Homes, confirming the accuracy of the Contract Schedule
delivered to the Trustee.
[The Trustee, itself or through a custodian, will hold, on behalf of the
Certificateholders, the original Contracts and copies of documents and
instruments relating to each Contract and the security interest in the
Manufactured Home relating to each Contract.] In addition, in order to give
notice of the Trustee's right, title and interest in and to the Contracts,
[the Master Servicer, on behalf of] the Depositor, will deliver to the Trustee
a UCC-1 financing statement identifying the Trustee as the secured party and
identifying all the Contracts as collateral. The [Master Servicer] will file
such statement in the appropriate offices in the appropriate states. [The
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Company to the Trustee. If a subsequent purchaser were able to take
physical possession of the Contracts without notice of such assignment, the
Trustee's interest in the Contracts could be defeated.] See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Contracts" in the Prospectus.
TRUSTEE
The Trustee for the Certificates will be .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in .
The Master Servicer is [an FHA approved seller-servicer] based in . As of
, the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance
in excess of $ . The Master Servicer conducts operations through FHA
approved branch offices in . The Master Servicer originated approximately
$ in mortgage loans in 19 . The Master Servicer's consolidated
stockholders' equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
[The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its
S-13
<PAGE>
capacity as Master Servicer and guaranteeing the performance, among other
things, of the obligations of the Master Servicer to purchase certain
Contracts and to make advances, as described in the Prospectus under
"Description of the Certificates--Assignment of Contracts" and "--Advances,"
in an amount acceptable to the nationally recognized statistical rating
organization or organizations rating the Certificates (collectively, the
"Rating Agency").
The following table sets forth certain information concerning the
delinquency experience on residential mortgage loans at the time of purchase by
____________ and were being master serviced by ___________ on _________, 1997
and __________, 1998. No mortgage loan is considered delinquent for these
purposes until, in general, it is one month past due on a contractual basis. The
information should not be considered to reflect the credit quality of the
Mortgage Loans included in the Mortgage Pool, or as a basis for assessing the
likelihood, amount or severity of losses on the Mortgage Loans. Such historical
performance does not purport to be indicative of the future performance of the
Mortgage Loans. See "Risk Factors," "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio.................... $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
30-59 Days Past Due................ [ ] [ ] [ ] [ ] [ ] [ ]
60-89 Days Past Due................ [ ] [ ] [ ] [ ] [ ] [ ]
90 or more Days Past Due........... [ ] [ ] [ ] [ ] [ ] [ ]
Total Delinquencies as a
Percentage of Total Portfolio..... [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
Foreclosures Pending............... [ ] [ ] [ ] [ ] [ ] [ ]
AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1997 1998
----------------------------------------------------- ---------------------
Net Gain (Loss) (1)................ $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
Net Gain (Loss) Ratio (2).......... [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
</TABLE>
(1) Does not include gain or loss with respect to loans in the applicable
portfolio for which foreclosure proceedings had been instituted but not
completed as of the dates indicated, or for which the related properties
have been acquired in foreclosure proceedings but not yet sold.
(2) Net gain (loss) as a percentage of total loans in the applicable portfolio
at the end of each period.
SERVICING COMPENSATION [, LIMITED GUARANTEE FEE] AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Contract, equal to the
excess of each interest payment on a Contract over the Pass-Through Rate, less
[(a)] any servicing compensation payable to the Servicer of such Contract
under the terms of the agreement with the Master Servicer pursuant to which
such Contract is serviced (the "Servicing Agreement") (including such
compensation paid to the Master Servicer as the direct servicer of a Contract
for which there is no Servicer)[.] [, and (b) the amount payable to the
[Depositor,] [Master Servicer], as described below] [.] [, and (c) the Limited
Guarantee Fee.] [Pursuant to the Pooling and Servicing Agreement, on each
Distribution Date, the Master Servicer will remit to [the Depositor] in
respect of each interest payment on a Contract an amount equal to % of the
outstanding principal balance of such Contract before giving effect to any
payments due on the preceding Due Date.] [The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Contract, an amount equal to % of the outstanding
principal balance of such Contract before giving effect to any payments due on
the preceding Due Date.] See "Description of the Certificates--Servicing and
Other Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Master Servicer and the
Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
[Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Contracts ("Retained Yield") for federal income tax purposes, by reason of the
extent to which either the weighted average APR, or the stated interest rates
on the Contracts exceeds the Pass-Through Rate, and the tax consequences to
them of such a characterization. In this regard, there are no authoritative
guidelines for federal income tax purposes as to either the maximum amount of
servicing compensation that may be considered reasonable in the context of
this or similar transactions or whether the reasonableness of servicing
compensation should be determined on a weighted average or contract by
contract basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described above as Retained
Yield for federal income tax purposes in reports to the Certificateholders and
to the Internal Revenue Service.] See "Federal Income Tax Consequences--[ ] in
the Prospectus for information regarding the characterization of servicing
compensation [and the amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF CONTRACTS
The Pooling and Servicing Agreement provides that the [Depositor] [Master
Servicer] may purchase from the Trust all Contracts remaining in the Contract
Pool and thereby effect early retirement of the Certificates, provided that
the aggregate unpaid balances of the Contracts at the time of such repurchase
is less than [10%] of the aggregate principal balance of the Contracts on the
Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Contracts, together with
accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Contracts. [Any such repurchase will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code in order
to constitute a "qualifying liquidation" thereunder.] In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
S-14
<PAGE>
INSURANCE
[FHA Insurance and VA Guarantee
% and % of the Contracts, respectively (by aggregate principal balance
as of Cut-Off Date) are subject to FHA insurance and VA guarantees. See
"Description of Insurance" in the Prospectus.]
[Primary Credit Insurance Policies
To be provided.]
[Pool Insurance Policies
To be provided.]
Hazard Insurance Policies
The Master Servicer will cause to be maintained one or more standard hazard
insurance policies with respect to each Manufactured Home in an amount at
least equal to the lesser of its maximum insurable value or the principal
amount due from the Obligor under the related Contract. Such standard hazard
insurance policies, will, at a minimum, provide fire and extended coverage on
terms and conditions customary in manufactured housing hazard insurance
policies. If a Manufactured Home, at the origination of the related Contract,
was located within a federally designated flood area, the Master Servicer also
will cause flood insurance to be maintained in an amount equal to the lesser
of the amounts described above or the maximum amount available for such
Manufactured Home under the federal flood insurance program.
All amounts collected by the Master Servicer under a standard hazard
insurance policy will be applied either to the restoration or repair of the
Manufactured Home or against the unpaid principal balance of the related
Contract upon foreclosure and repossession of the Manufactured Home, after
reimbursing the Master Servicer for amounts previously advanced by it for such
purposes. The Master Servicer may satisfy its obligation to cause the
maintenance of standard hazard and flood insurance policies by maintaining a
blanket policy insuring against hazard and flood losses on all the
Manufactured Homes. Such blanket policy may contain a deductible clause, in
which case the Master Servicer will be required to deposit in the Certificate
Account any amount deducted in connection with insurance claims on repossessed
Manufactured Homes.
[THE LIMITED GUARANTEE
General
If amounts available in the Certificate Account [(following any Advances by
the Master Servicer)] for distribution to the Certificateholders is less than
the amount due to them as a result of defaulted Contracts and delinquent
payments of principal of and interest on the Contracts, the Limited Guarantee
will be available, to the extent of the Guarantee Amount, to fund such
shortfall. The Guarantee Amount on the first Distribution Date will equal
$ . Thereafter, the Guarantee Amount on any Distribution Date will equal
[$ less amounts previously paid with respect to the Limited Guarantee].
$ of the initial Guarantee Amount will be covered by the general payment
obligation of , which obligation will be supported by the Standby Letter
of Credit (described below). The balance of the initial Guarantee Amount will
be covered by the Direct Letter of Credit.
Amounts required to be paid under the Limited Guarantee will be paid first
by under its general payment obligation (or pursuant to the Standby
Letter of Credit) and after such obligation is exhausted, from the Direct
Letter of Credit. If the Guarantee Amount is reduced to zero, the
Certificateholders will bear all losses on the Contracts. As a result,
Certificateholders may be subject to delays in payments of monthly principal
and interest as a result of delinquent payments by Obligors. In the event of a
repossession and resale by the Master
S-15
<PAGE>
Servicer (as Servicer on behalf of the Trustee) of a Manufactured Home
securing a Contract in default, the Trust Fund may not recover the entire
amount of principal and interest due on such Contract. See "The Trust Fund--
The Contracts" and "Certain Legal Aspects of the Mortgage Loans and Contracts"
in the Prospectus.]
Standby Letter of Credit
The Standby Letter of Credit will be an irrevocable standby letter of credit
supporting the payment and repurchase obligations of . The Standby Letter
of Credit will be obtained initially from , and will terminate on .
will confirm the Standby Letter of Credit issued by , meaning that if
for any reason does not honor a draw upon a Standby Letter of Credit,
will be obligated to honor such draw. The amount of the Standby Letter of
Credit on the Closing Date shall be $ . On each subsequent Distribution
Date, the requisite amount of the renewed Standby Letter of Credit or
replacement Standby Letter of Credit shall be the amount of 's obligation
under the Limited Guarantee on the immediately preceding Distribution Date.
Direct Letter of Credit
The Direct Letter of Credit will be an irrevocable direct pay letter of
credit obtained initially from and will be confirmed by . The Direct
Letter of Credit will terminate on . The initial requisite amount of the
Direct Letter of Credit shall be $ and subsequently, the requisite amount
shall be .
Maintenance of Letters of Credit
The Letters of Credit will provide that, if the institution issuing such
Letter of Credit (the "L/C Bank") does not intend to renew such Letter of
Credit, it must give notice thereof to the Master Servicer and the Trustee at
least 45 days prior to the expiration of such Letter of Credit. The Master
Servicer must then obtain a replacement Letter of Credit. If, immediately
prior to the expiration of the Letter of Credit, the Master Servicer has not
obtained a replacement Letter of Credit issued or confirmed by a L/C Bank
which is a qualified bank (an institution whose unsecured long-term debt (or,
in the case of the principal bank in a bank holding company system, the
unsecured long-term debt of such bank or the bank holding company) has a
rating satisfactory to the Rating Agency for the maintenance of the " "
rating of the Certificates, the Trustee shall draw under such expiring Letter
of Credit an amount equal to the 's obligation under the Limited
Guarantee, in the case of the Standby Letter of Credit, or the difference
between the Guarantee Amount and the 's obligation under the Limited
Guarantee, in the case of the Direct Letter of Credit. The amounts so drawn
will be deposited in a separate trust fund (the "Limited Guarantee Fund") and
will be available on each Distribution Date if and to the extent that draws
would have been required under the Standby Letter of Credit or the Direct
Letter of Credit, as the case may be. The funds in the Limited Guarantee Fund
remain the property of the issuer of such Letter of Credit, subject to the
right of the Master Servicer to make withdrawals. Upon termination of the
Pooling and Servicing Agreement, any funds remaining in the Limited Guarantee
Fund will be paid to the issuer of such Letter of Credit. In addition, any
recoveries of delinquent payments previously advanced pursuant to the draws
under a Letter of Credit, and any recoveries in defaulted Contracts whose
repurchase price was deposited in the Certificate Account pursuant to a draw
on a Letter of Credit, will be repaid to the L/C Bank if the Letter of Credit
will be reinstated by such amount, or else will be deposited in the Limited
Guarantee Fund. In the event of insolvency of the L/C Bank, the amount
available to the Trust Fund under the Letter of Credit or from the Limited
Guarantee Fund, as the case may be, may be reduced.
In the event that the L/C Bank that issued or confirmed the Letter of Credit
ceases to be a qualified bank, the Master Servicer will use its best efforts
to obtain a substitute Letter of Credit issued or confirmed by a qualified
bank. If a substitute Letter of Credit issued or confirmed by a qualified bank
has not been obtained in 30 days, the Trustee will draw down the requisite
amount under such Letter of Credit and deposit such funds in the Limited
Guarantee Fund.]
S-16
<PAGE>
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[ %] of the aggregate principal balance of the Contracts on the Cut-off Date.
The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the Rating
Agency rating the Certificates, in order to obtain a rating in one of the two
highest rating categories of the Rating Agency. The precise amount of coverage
under the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to
above. See "Description of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
FEDERAL INCOME TAX CONSEQUENCES
An election for the Mortgage Loans to be treated as a REMIC ("real estate
mortgage investment conduit") will [not] be made. [Accordingly, the Certificates
will be REMIC Certificates. The Class [LIST] Certificates will be REMIC regular
interests and generally will be taxable as debt of the REMIC. The Class R will
be a REMIC residual interest and the holder thereof will be subject to tax on
the net income of the REMIC, which in many periods will exceed the cash
distributed on the Certificate. The Class R Certificates are subject to a number
of transfer restrictions designed to prevent the avoidance of income tax.]]
[Accordingly, the Certificates will be Trust Certificates and the Trust will be
a [grantor trust] for federal income tax purposes.] [The Depositor currently
expects to treat the Class [LIST] Certificates as being issued with original
issue discount for federal tax purposes and the Class [LIST] Certificates as not
being issued with original issue discount for federal tax purposes.] The
material (and certain minor and incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax Consequences" in the
Prospectus. It is recommended that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with there own tax advisors
regarding the consequences to them of investing in the Certificates.
[ERISA CONSIDERATIONS
The acquisition of a Certificate by an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Plan") could result in prohibited transactions or other violations of the
fiduciary responsibility provisions of ERISA and section 4975 of the Internal
Revenue Code of 1986 (the "Code") if by virtue of such acquisition, assets
held by the Trust were deemed to be assets of the Plan. [The United States
Department of Labor ("DOL") published final regulations concerning whether or
not the assets of a Plan will be deemed to include any of the underlying
assets of an entity, for purposes of the fiduciary responsibility provisions
of ERISA, when a Plan acquires an equity interest in such entity. The final
regulations state that the assets of a Plan which acquires an equity interest
will not include any of the underlying assets of the entity if the class of
equity interests in question are (1) held by 100 or more investors independent
of the issuer and of each other, (2) freely transferable, and (3) sold as part
of an offering pursuant to an effective registration statement under the
Securities Act of 1933, and then timely registered under section 12(b) or
12(g) of the Securities Exchange Act of 1934. It is expected that the
Certificates will meet the criteria of the regulations: The Underwriter[s]
expect[s] (although no assurances can be given) that the Certificates will be
held by at least 100 independent investors at the conclusion of the offering
made by this Prospectus; there are no restrictions imposed on the transfer of
the Certificates; and the seller intends to cause the registration
requirements to be satisfied.] In addition, even if the Plan's assets are
deemed to include the Contracts, certain exemptions from the prohibited
transaction rules could be applicable, depending in part upon the type and
circumstances of the Plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are DOL Prohibited Transaction
Exemptions 84-14 (Class Exemption for Plan Asset Transaction Determined by
Independent Qualified Professional Asset Managers), 80-51 (Class Exemption for
Certain Transactions Involving Bank Collective Investment Funds) and 78-19
(Class Exemption for Certain Transactions Involving Insurance Company Pooled
Separate Accounts).
Employee benefit plans which are governmental plans (as defined in section
3(32) of ERISA), and certain church plans (as defined in section 3(33) of
ERISA), are not subject to ERISA requirements.
Any Plan fiduciary considering the purchase of Certificates should consult
its tax and/or legal advisors regarding these and other issues and their
potential consequences.]
S-17
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
- - -------------------
Credit Suisse First Boston ...................... $
--------
Total ............................................ $ ]
========
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially
at the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
CONCESSION (PERCENT OF DISCOUNT (PERCENT OF
PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
------------------------ ------------------------
% %
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
RATINGS
It is a condition of the issuance of th [Class __] Certificates that they be
rated ["AAA"] ["Aaa"] by _____________. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating organization. Each security
rating should be evaluated independently of any other security rating. In the
event that the ratings initially assigned to the [Class__] Certificates are
subsequently lowered for any reason, no person or entity is obligated to provide
any additional support or credit enhancement with respect to the [Class__]
Certificates.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP, New York, New York.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by Orrick, Herrington & Sutcliffe LLP.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Contracts underlying
the Certificates. Certain of the Contracts will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Contracts from time to time in
privately negotiated transactions.
S-18
VERSION E
<PAGE>
[Version F- Residential Properties; Cooperatives; Adjustable Rate Loans.]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Series , [Class A]
Adjustable Pass-Through Rate
[ Master Servicer ]
-----------
The Conduit Mortgage Pass-Through Certificates, Series will be comprised
of Class A Certificates and [one] [two] subclass[es] [(not offered hereby)] of
Class B Certificates (collectively, the "Certificates"). The Certificates, will
represent interests in the Master Trust Fund which will hold an interest in a
pool (the "Mortgage Pool") of adjustable rate, [conventional] mortgage loans
secured by [first mortgages or deeds of trust] [liens] on [one-to-four-unit
residential properties] [cooperative loans evidenced by promissory notes
secured by a lien on shares in cooperative housing corporations and on the
related proprietary leases] (the "Mortgage Loans") [originated] [acquired] by
("Master Servicer"), and certain other property held in trust for the benefit
of the Certificateholders. [ ] will act as Master Servicer.
The Class A Certificates will evidence an initial interest of approximately
% in the Mortgage Loans. The remaining interest in the Mortgage Loans will be
evidenced by the Class B Certificates, which are subordinate to the
Certificates to the extent described herein and in the Prospectus. See
"Description of the Certificates--Distributions" and "--Subordination of the
Class B Certificates; Shifting Interest Credit Enhancement" herein and "Credit
Support--Subordinated Certificates" in the Prospectus.
Principal and interest on the Certificates are distributable on the [25th]
day of each month commencing (each, a "Distribution Date"). After an
initial period, the Mortgage Rate on each Mortgage Loan will adjust [semi-
annually] to a rate equal to the Index (as defined below) plus the fixed
percentage applicable to such Mortgage Loan (the "Gross Margin"), subject to
the interest rate limitations applicable to the Mortgage Loans and the other
provisions set forth herein. The Class A Certificateholders will be entitled to
receive interest on the Class A Principal Balance (as defined herein) at the
Pass-Through Rate. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates. The initial Pass-Through Rate is approximately
%. The Subsidiary Pass-Through Rate with respect to each Mortgage Loan prior
to its first Adjustment Date (as defined herein) will equal the Mortgage Rate
less . On and after its first Adjustment Date, the Subsidiary Pass-Through
Rate with respect to each Mortgage Loan will equal the [description of index,
e.g. monthly weighted average cost of funds for member institutions of the 11th
District of the Federal Home Loan Bank System, as published by the Federal Home
Loan Bank of San Francisco] (the "Index") plus basis points (the "Pass-
Through Margin") but not more than the lesser of the Periodic Mortgage Rate Cap
(as defined herein) less the Servicing Fee Rate, or the Maximum Subsidiary
Pass-Through Rate (as defined herein).
There is currently no secondary market for the Class A Certificates. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
An election will be made to treat the assets of the Subsidiary Trust Fund (as
defined herein) as a real estate mortgage investment conduit ("REMIC") for
purposes of federal income taxation (the "Subsidiary REMIC"). An election will
also be made to treat the assets represented by the "regular interests" in the
Subsidiary REMIC constituting a separate trust fund (the "Master Trust Fund")
as a separate REMIC (the "Master REMIC"). See "Federal Income Tax Consequences"
herein.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN CREDIT
SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., [MASTER SERVICER] OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the material risk factors set forth
under Risk Factors commencing on Page S-9 of this Prospectus Supplement and in
the Prospectus on page 19.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
[The Certificates will initially be delivered by the Depositor to in
exchange for the Mortgage Loans to be deposited by the Depositor into the
Subsidiary Trust Fund. The Class A Certificates may be sold or pledged by ,
directly or through one or more underwriters, from time to time at varying
prices to be determined at the time of such sale or pledge.] [The
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in negotiated transactions or otherwise, at prices determined at the
time of sale.] See "Plan of Distribution" herein. Expenses attributable to
issuance of the Class A Certificates, estimated to be approximatley $ will
be paid by [the Master Servicer] [the Depositor]. [The Depositor] will be paid
a fee by of $ in connection with the transaction.
[The Class A Certificates are offered by the [several] Underwriter[s] when,
as and if issued and accepted by the Underwriter[s] and subject to [its]
[their] right to reject orders in whole or in part. It is expected that the
Class A Certificates, in definitive fully registered form, will be ready for
delivery on or about , 199 .]
The Certificates, when, as and if issued by the Depositor, are expected to be
available for delivery in New York, New York on or about , 199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The Date of this Prospectus Supplement is , 19 .
<PAGE>
The Class A Certificates offered hereby constitute a separate series of
Conduit Mortgage and Manufactured Housing Contract Pass-Through Certificates
being offered by Credit Suisse First Boston Mortgage Securities Corp. from
time to time pursuant to its Prospectus dated . This Prospectus
Supplement does not contain complete information about the offering of the Class
A Certificates. Additional information is contained in the Prospectus, and
purchasers are urged to read both this Prospectus Supplement and the Prospectus
in full. Sale of the Class A Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
[Until , no offerings of the Class A Certificates may be made by except
pursuant to this Prospectus Supplement and the Prospectus, as supplemented as
of the date of such offering. After such date, no offerings of the Class A
Certificates will be made pursuant to this Prospectus Supplement and
Prospectus.
[Until , all dealers effecting transactions in the Class A Certificates,
whether or not participating in this distribution, may be required to deliver
a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.]
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
AVAILABLE INFORMATION
The Master Trust Fund will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, the Depositor, on behalf of the Master Fund, will file
periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports will not contain audited financial
information with respect to the Master Trust Fund. Such reports and other
information filed by the Depositor on behalf of the Master Trust Fund can be
inspected and copied at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such information can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not defined shall have the meanings ascribed thereto in the Prospectus.
SECURITIES OFFERED........ $ Conduit Mortgage Pass-Through Certificates,
Series , [Class A,] Adjustable Pass-Through Rate
(the "Class A Certificates").
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
MASTER SERVICER...........
CUT-OFF DATE..............
DELIVERY DATE............. On or about .
DESCRIPTION OF THE Two Classes of Certificates evidencing fractional
CERTIFICATES.............. interests in a Trust Fund (the "Master Trust
Fund") consisting of the Subsidiary Regular
Interests (as defined herein) which in the
aggregate generally represent an interest in (i)
all amounts distributable with respect to the
Mortgage Loans, (ii) amounts held in the
Certificate Account, (iii) any property which
secured a Mortgage Loan and is acquired by
foreclosure or deed in lieu of foreclosure, and
(iv) certain other related property, as more fully
described herein and in the Prospectus. The Class
A Certificates initially evidence in the aggregate
an interest in the Mortgage Loans (the "Class A
Percentage") of approximately %. The remaining
interest in the Mortgage Loans will be represented
by the Class B Certificates, [which will consist
of two subclasses, Class B-l (the "Class B-l
Certificates") and Class B-2 (the "Class B-2
Certificates") together,] the "Class B
Certificates"). [The Class B-l Certificates will
initially evidence an approximate % interest in
the Mortgage Loans ("the Class B-1 Percentage")
and the Class B-2 Certificates will initially
evidence an approximate % interest in the
Mortgage Loans (the "Class B-2 Percentage")
(together,] [the "Subordinate Percentage"). The
Class B Certificates will be subordinated in
certain respects to the Class A Certificates, as
more fully described herein. The Class A
Percentage, [and] the Class B[-1 Percentage and
the Class B-2 Percentage] will vary, as described
herein.
The Class A Certificates and the Class B
Certificates are collectively referred to herein
as the "Certificates." The Class A Certificates
represent the Senior Certificates and the Class B
Certificates represent the Subordinate
Certificates, both as described in the
accompanying Prospectus. Only the Class A
Certificates are being offered hereby.
THE INDEX................. [Description e.g., the monthly weighted average
cost of funds for member institutions of the 11th
District of the Federal Home Loan Bank System as
published by the Federal Home Loan Bank of San
Francisco. The Index published in
(reflecting the
S-3
<PAGE>
related weighted average cost of funds for
) was %.]
THE MORTGAGE LOANS........ The Mortgage Pool will consist of adjustable rate,
[conventional] mortgage loans [originated]
[acquired] by [the Master Servicer] and secured by
first mortgages or deeds of trust on one- to four-
family residential properties. All Mortgage Loans
will have maturities of at least 15 but no more
than 30 years and are secured by properties
located in . [All Mortgage Loans with a Loan-
to-Value Ratio greater than 80% will have private
mortgage insurance.] See "Description of the
Mortgage Pool and Underlying Mortgage Properties"
herein.
PRINCIPAL (INCLUDING Passed through monthly on the Distribution Date
PREPAYMENTS).............. commencing . On each Distribution Date the
Class A Certificateholders are entitled to receive
as payments of principal, in addition to the Class
A Percentage of all scheduled payments on account
of principal, the Class A Prepayment Percentage of
both principal prepayments in part and principal
prepayments in full received by the Master
Servicer with respect to such Mortgage Loans
during the preceding calendar month ("Principal
Prepayments"). See "Description of the
Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit
Enhancement" herein.
INTEREST.................. Interest accrued on each Mortgage Loan will be
passed through to Certificateholders on the
Distribution Date occurring in the month in which
the Due Date (as defined herein) occurs,
commencing , at the Pass-Through Rate. The
Pass-Through Rate will equal the weighted average
of the Subsidiary Pass-Through Rates. The initial
Pass-Through Rate is equal to approximately % per
annum. Prior to the first Adjustment Date after
the Cut-off Date for a Mortgage Loan, the
Subsidiary Pass-Through Rate with respect to such
Mortgage Loan will equal the Mortgage Rate less
. On and after the first Adjustment Date for a
Mortgage Loan, the Subsidiary Pass-Through Rate
with respect to each Mortgage Loan will equal the
Index applicable to such Mortgage Loan plus
basis points (the "Pass-Through Margin"), subject
to the limitation that the Subsidiary Pass-Through
Rate shall not exceed the lesser of the Periodic
Mortgage Rate Cap less the Servicing Fee Rate or
the Maximum Subsidiary Pass-Through Rate. The
Maximum Subsidiary Pass-Through Rates will range
from % to % per annum. The Maximum Subsidiary
Pass-Through Rate with respect to a particular
Mortgage Loan is equal to the Maximum Mortgage
Rate for such Mortgage Loan minus the Servicing
Fee Rate. The weighted average Maximum Subsidiary
Pass-Through Rate as of the Cut-off Date will be
approximately % per annum. Following an initial
period of months, during which the rate of
interest on each Mortgage Loan (the "Mortgage
Rate") is fixed, the Mortgage Rate on each
Mortgage Loan will be adjusted [monthly] [semi-
annually] [annually] on the adjustment dates (each
such date, an "Adjustment Date") specified in the
related mortgage note (each such note, a
S-4
<PAGE>
"Mortgage Note") to equal the sum of the Index and
a fixed percentage amount (a "Gross Margin") [,
subject to a semi-annual periodic mortgage rate
cap (the "Periodic Mortgage Rate Cap") and a
maximum rate at which interest may accrue (the
"Maximum Mortgage Rate"), as described more fully
herein]. Each Mortgage Loan will have been
originated with an initial Mortgage Rate below the
sum of the applicable Index and Gross Margin for
such Mortgage Loan (the "Initial Mortgage Rate")
and % of the Mortgage Loans as of the Cut-off
Date are expected to be accruing interest at their
Initial Mortgage Rates.] As of the Cut-off Date,
the Mortgage Loans will bear interest at Mortgage
Rates which range from % to % per annum. The
Gross Margins for the Mortgage Loans range as of
the Cut-off Date from to basis points. The
weighted average Gross Margin for the Mortgage
Loans as of the Cut-off Date will be approximately
basis points. [The Periodic Mortgage Rate Cap
for each Mortgage Loan is the Mortgage Rate in
effect immediately prior to any Adjustment Date
plus or minus basis points. The Maximum
Mortgage Rate will range from % to % per annum.]
The weighted average Maximum Mortgage Rate as of
the Cut-off Date will be % per annum. See
"Description of the Mortgage Pool and the
Underlying Mortgaged Properties" herein.
When a Mortgage Loan is prepaid, in whole or in
part, between scheduled payment dates, the
Mortgagor pays interest on the amount prepaid only
to the date of prepayment and not thereafter. This
generally reduces the aggregate amount of interest
which would otherwise be distributed to the Class
A and Class B Certificateholders. To mitigate any
such reduction in yield, [amounts otherwise
payable as the Servicing Fee (as defined herein)
for the period during which any such Principal
Prepayment was made will be reduced by] [to the
extent funds that interest on the Mortgage Loans
exceeds the Subsidiary Pass-Through Rate less the
Servicing Fee Rate for the period during which any
such prepayment is made, the Pooling and Servicing
Agreement provides that] such amount, if any, as
may be necessary to assure that the distributions
made to the Class A and Class B Certificateholders
on the related Distribution Date include an amount
equal to a full month's interest with respect to
each prepaid Mortgage Loan at the applicable
Subsidiary Pass-Through Rate will be paid to the
Master Trust Fund. See "Description of the
Certificates--Distributions" herein.
RISK FACTORS.............. For discussion of material risk factors that should
be considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
SUBORDINATION OF THE
CLASS B CERTIFICATES;
SHIFTING INTEREST CREDIT
ENHANCEMENT..............
The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to such rights of the Class
A Certificateholders to the extent of the
Subordinated Amount described below. This
subordination feature is intended to enhance the
likelihood of regular receipt by the holders of
the Class A Certificates of the full amount of the
scheduled monthly payments of principal and
interest due them with respect to the Mortgage
Loans and to protect the Class A
Certificateholders against losses.
S-5
<PAGE>
As of each Determination Date, the Subordinated
Amount will equal the Class B Principal Balance
(as defined herein) on such date reduced by the
excess of Aggregate Losses (as defined herein)
over cumulative Realized Losses (as defined
herein) borne by the Class B Certificateholders as
of such date, if any. This subordination feature
is intended to enhance the likelihood of regular
receipt by the holders of the Class A Certificates
of the full amount of the scheduled monthly
payments of principal and interest due them with
respect to the Mortgage Loans and to protect the
Class A Certificateholders against losses.
However, in certain circumstances, the
Subordinated Amount could be depleted and payment
deficiencies could result. If, on any Distribution
Date when the Subordinated Amount is greater than
zero, the aggregate amount of payments received
from the Mortgagors on the Mortgage Loans and any
Advances (as defined herein) do not provide
sufficient funds to make full distributions to the
Class A Certificateholders, the amount of the
payment deficiency, plus interest thereon at the
applicable Subsidiary Pass-Through Rate, to the
extent of the Subordinated Amount, will be added
to the amount such Class A Certificateholders are
entitled to receive on the next Distribution Date.
The extent to which the Class A Certificateholders
and the Class B Certificateholders bear Realized
Losses, and, in addition, Special Hazard Realized
Losses, is described herein. See "Description of
the Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit
Enhancement" herein.
The protection afforded to the holders of the Class
A Certificates will be effected (i) by the
preferential right of such holders to receive the
amounts of principal and interest otherwise
distributable to the Class B Certificateholders on
each Distribution Date with respect to the
Mortgage Loans out of available funds on deposit
on such date in the Certificate Account, and (ii)
by distributing to the Class A Certificateholders
a disproportionately greater percentage (the
"Class A Prepayment Percentage") of Principal
Prepayments (as hereinafter defined) and other
payments with respect to the Mortgage Loans. The
Class A Prepayment Percentage will decline from
100% after provided certain criteria
respecting the Mortgage Pool are met. See
"Description of the Certificates--Subordination of
the Class B Certificates; Shifting Interest Credit
Enhancement" herein.
SERVICING FEE............. will act as Master Servicer of the Mortgage
Loans [and will enter into a Servicing Agreement
on the Delivery Date pursuant to which will
subservice the Mortgage Loans]. will receive
a servicing fee (the "Servicing Fee") as
compensation for its services which is calculated
monthly and equals a fixed percentage on the
principal balance of each Mortgage Loan (the
"Servicing Fee Rate"). The Servicing Fee Rate
equals basis points. See "Description of the
Mortgage Pool and Underlying Mortgaged
Properties--Servicing and Sub-Servicing" and
S-6
<PAGE>
"Description of the Certificates--Servicing
Compensation and Payment of Expenses" herein.
ADVANCES.................. The Master Servicer will be obligated to advance
cash (the "Advances") to the Subsidiary Trust Fund
for distribution in an amount equal to delinquent
installments of principal and interest to the
extent that the Master Servicer determines such
Advances will be recoverable from future payments
and collections on the Mortgage Loans or
otherwise. See "Description of the Certificates--
Advances" in the Prospectus.
DENOMINATIONS............. The minimum denomination of a Class A Certificate
(a "Single Certificate") will initially represent
$ of the Cut-off Date Principal Balance,
provided that one Certificate may be issued in
such lesser amount as is required so that the
Class A Certificateholders in the aggregate equal
the Class A Principal Balance (as defined herein).
OPTIONAL TERMINATION...... The holder of the Subsidiary Residual Interest has
the option to purchase all of the Mortgage Loans
in the Subsidiary Trust Fund, and thereby effect
termination of the Subsidiary Trust Fund and the
Master Trust Fund, on any Distribution Date on
which the aggregate principal balance of the
Mortgage Loans remaining in the Subsidiary Trust
Fund is less than % of the Cut-off Date Principal
Balance. Additionally, the holder of the Class B[-
2] Certificate has the option to purchase all the
Subsidiary Regular Interests (as defined herein)
in the Master Trust Fund. Either of the above
purchases would effect early retirement of the
Class A and Class B Certificates. See "Description
of the Certificates--Optional Termination" herein
and "Description of the Certificates--Termination"
in the Prospectus.
TAX ASPECTS............... An election will be made to treat the assets of the
Subsidiary Trust Fund as a REMIC (the "Subsidiary
REMIC") for federal income tax purposes. As
further specified in the Pooling and Servicing
Agreement, Mortgage Loan interest (net of the
Servicing Fee) in excess of the Subsidiary Pass-
Through Rate and certain payments received by the
Trustee in excess of the principal balance of the
Mortgage Loans will comprise the residual interest
in the Subsidiary REMIC (the "Subsidiary Residual
Interest"). The regular interests in the
Subsidiary REMIC in the aggregate will encompass
the rights to all other amounts distributable with
respect to the Mortgage Loans and certain related
property (the "Subsidiary Regular Interests"). An
election will be made to treat the assets of the
Master Trust Fund (which consists of the
Subsidiary Regular Interests) as a REMIC (the
"Master REMIC"). The Class A Certificates [and
Class B-l Certificates] will be regular interests
in the Master REMIC. The Class B[-2] Certificate
will be the residual interest in the Master REMIC.
[The Class A Certificates will be issued with
original issue discount for federal income tax
purposes. The prepayment assumption that will be
used by the Master Servicer in determining the
rate of accrual of
S-7
<PAGE>
original issue discount for federal income tax
purposes is a Standard Prepayment Assumption of
%. No representation is made that the Mortgage
Loans will prepay at that rate or at any other
rate.]
The Class A Certificates will be treated as
"qualifying real property loans" under Section
593(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), "loans secured by interests
in real property" under Section 7701(a)(19)(C) of
the Code and "real estate assets" under Section
856(c) of the Code, generally in the same
proportion that the assets in the Subsidiary REMIC
would be so treated. In addition, interest on the
Class A Certificates will be treated as "interest
on obligations secured by mortgages on real
property" under Section 856(c) of the Code,
generally to the extent that such Class A
Certificates are treated as "real estate assets"
under Section 856(c) of the Code.
The material (and certain minor and
incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax
Consequences" in the Prospectus. It is recommended
that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with
their own tax advisors regarding the consequences
to them of investing in the Certificates.
LEGAL INVESTMENT.......... The Class A Certificates constitute "mortgage-
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act") for so long as they are rated
as described herein, and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" herein and in the Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" herein and in the
Prospectus.
TRUSTEE...................
CERTIFICATE RATING........ It is a condition of issuance that the Class A
Certificates be rated at least " " by . A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning
rating organization. A security rating does not
address the frequency of prepayments of Mortgage
Loans, or the corresponding effect on yield to
investors. See "Certain Yield and Prepayment
Considerations" and "Ratings" herein and "Yield
Considerations" in the Prospectus.
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
Orrick, Herrington & Sutcliffe LLP will pass upon the material federal income
tax consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Federal
Income Tax Consequences."
S-8
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES(1)
GENERAL
The Mortgage Pool consists of all of the ownership interest held by the
Subsidiary Trust Fund in Mortgage Loans evidenced by adjustable rate
promissory notes (the "Mortgage Notes") having an aggregate principal balance
at the Cut-off Date of $ . The Mortgage Notes are secured by first trust
deeds or mortgages on properties consisting primarily of detached single
family residential properties with the remaining properties consisting of
units of FNMA or FHLMC eligible condominiums and units in planned unit
developments (the "Mortgaged Properties"). All of the Mortgage Loans were
originated by . All of the Mortgage Loans were originated under one of
two origination programs, one of which is a limited documentation program that
relies primarily upon appraisals and credit reports and the other of which
generally conform to FNMA and FHLMC underwriting guidelines. The Mortgage
Loans have the additional characteristics described below and in the
Prospectus. See "The Mortgage Pools" in the Prospectus.
The Depositor will purchase the Mortgage Loans from and will cause such
Mortgage Loans to be assigned to the Trustee. See "The Trust Fund--Mortgage
Loan Program" in the Prospectus. will act as the master servicer (the
"Master Servicer") for the Mortgage Loans pursuant to the Standard Terms and
Provisions of Pooling and Servicing and Reference Agreement, dated as of
(the "Pooling and Servicing Agreement"), among the Depositor, the Master
Servicer and , as trustee (the "Trustee"). The Mortgage Loans will be
serviced by the Servicer pursuant to a Servicing Agreement with the Master
Servicer, and the Servicer will receive a fee for such services specified in
such Servicing Agreement; provided, however, that the Master Servicer will
remain liable for its servicing obligations under the Pooling and Servicing
Agreement as if the Master Servicer alone were servicing such Mortgage Loans.
See "The Trust Fund--The Mortgage Pools" in the Prospectus and "--Servicing
and Sub-Servicing" herein.
Each Mortgage Loan has a Mortgage Rate subject to [monthly] [semi-annual]
[annual] adjustment on the first day of the month specified in the related
Mortgage Note and on the first day of every month thereafter (each such date,
an "Adjustment Date"), to equal the sum of (i) the Index as most recently
[made available by the Federal Home Loan Bank of San Francisco (the "FHLB")]
on the day days, as specified for the particular Mortgage Note, prior to the
Adjustment Date and (ii) the applicable Gross Margin[; provided, however, that
any increase or decrease on any Adjustment Date will be limited by the
Periodic Mortgage Rate Cap, and in no event will the Mortgage Rate be greater
than the Maximum Mortgage Rate]. The Index applicable on a Rate Adjustment
Date is the Index available days prior to the Adjustment Date. Effective
with the first payment due on a Mortgage Loan after each related Adjustment
Date, the monthly payment will be adjusted to an amount which will fully
amortize the outstanding principal balance of the Mortgage Loan in
substantially equal payments over its remaining term, and pay interest at the
Mortgage Rate as so adjusted. [All] of the Mortgage Loans were
- --------
(1) The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as it was constituted
at the close of business on the Cut-off Date, after deducting the
scheduled principal payments due on or before such date. Prior to the
issuance of the Certificates, Mortgage Loans may be removed from the
Mortgage Pool if, as a result of delinquencies or otherwise, the Depositor
deems such removal necessary or desirable. Other Mortgage Loans may be
included in the Mortgage Pool in lieu of the Mortgage Loans so replaced.
In addition, under certain circumstances the Depositor or the Master
Servicer may substitute Mortgage Loans for those in the Trust Fund. See
"Description of the Certificate--Substitution of Mortgage Loans" herein
and "Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus. The Depositor believes that the information set forth herein
with respect to the Mortgage Pool is representative of the characteristics
of such Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range Mortgage Rates and maturities
and certain other characteristics of the Mortgage Loans in the Mortgage
Pool may vary in non-material respects from those set forth herein as a
result of such deletions, repurchases or substitutions.
S-9
<PAGE>
originated with a Mortgage Rate below the sum of the applicable Index and
Gross Margin (the "Initial Mortgage Rate") applicable for an initial period of
months from the date of origination and % of the Mortgage Loans as of the
Cut-off Date will bear interest at their Initial Mortgage Rates. The weighted
average number of months from the Cut-off Date to the first Adjustment Date
for the Mortgage Loans is approximately months. [Due to the application of the
Periodic Mortgage Rate Caps (even assuming no increase in the applicable Index
from the date of origination to the Adjustment Date) or the Maximum Mortgage
Rate, the Mortgage Rate on any Mortgage Loan, as adjusted on any Adjustment
Date, may be less than the sum of the then applicable Index and Gross Margin,
subject to rounding.] If the Index becomes unpublished or is otherwise
unavailable, the Master Servicer will select (or cause to be selected) an
alternative index for Mortgage Loans based upon comparable information in
compliance with applicable federal laws.
The Mortgage Loans were originated in . All of the Mortgage Loans will
have [monthly] payments due on [the first day of each month] (each a "Due
Date"). At origination, of the Mortgage Loans had terms to stated maturity
of 30 years. The latest date on which any Mortgage Loan will mature is. All
Mortgage Loans had Periodic Mortgage Rate Caps equal to basis points. The
Maximum Mortgage Rates range from % to % and the weighted average Maximum
Mortgage Rate is approximately % as of the Cut-off Date.
[Mortgage Loans that are expected to constitute approximately % of the
Initial Principal Balance of the Mortgage Pool as of the Cut-off Date will
have Mortgage Rates that will be convertible from an adjustable to a fixed
Mortgage Rate at the option of the mortgagor upon certain conditions on the
[when convertible] after origination of the related Mortgage Loan. In
determining the fixed rate applicable to a Mortgage Loan eligible for
conversion, the Master Servicer, acting on behalf of the Trustee, will. To the
extent the applicable rate is not available, the Master Servicer will quote a
fixed rate based upon comparable information. In order to be eligible to
convert the applicable Mortgage Rate on such a Mortgage Loan from an
adjustable to a fixed Mortgage Rate, the mortgagor must complete and submit to
the Master Servicer certain conversion documents and a loan modification
agreement, pay the applicable conversion fee and not be in default under the
Mortgage Note or the security documents related to such Mortgage Loan. Upon
conversion, the monthly payments of principal and interest on such Mortgage
Loan will be adjusted to provide for fully amortizing, level monthly payments
until maturity. [Should interest rates decline so that the fixed Mortgage Rate
applicable upon conversion is significantly lower than the prevailing
adjustable Mortgage Rate, due to the application of Interest Rate Caps, or is
significantly lower than the applicable Maximum Mortgage Rate on such Mortgage
Loan, mortgagors may have a significant incentive to effect a conversion.] See
"Description of the Certificates--Purchase of Converted Mortgage Loans"
herein.
The Mortgage Loans have the following characteristics (information provided
as of the Cut-off Date unless otherwise indicated):*
- --------
* The information presented in tabular form may be presented in paragraph
form, or ranges for such information may be provided.
S-10
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Single family detached................................. $ . %
Condominium............................................
Planned Unit Developments..............................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Up to $100,000......................................... $ . %
$100,001--150,000......................................
150,001--200,000.......................................
200,001--250,000.......................................
250,001--300,000.......................................
300,001--350,000.......................................
350,001--400,000.......................................
400,001--450,000.......................................
Over $450,001..........................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LOAN-TO-VALUE RATIOS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
70.00% or less......................................... $ . %
70.01% to 75.00%.......................................
75.01% to 80.00%.......................................
80.01% to 85.00%.......................................
85.01% to 90.00%....................................... .
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-11
<PAGE>
CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MORTGAGE RATES(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
. % or less........................................ $ . %
. % or less........................................
. % or less........................................ .
. % or less........................................ .
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
MORTGAGE LOAN GROSS MARGINS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
GROSS MARGINS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average Gross Margin is approximately per annum.
MONTH IN WHICH NEXT ADJUSTMENT DATE FALLS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MONTH(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The adjusted Mortgage Rate will be reflected in payments received by
Certificateholders on the 25th day of the month following the month in
which the Adjustment Date occurs.
(2) The weighted average number of months to the initial Adjustment Date is
months.
S-12
<PAGE>
LIFETIME MORTGAGE RATE CAPS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LIFETIME MORTGAGE RATE CAP LOANS BALANCES BALANCE
- ------------------------------------------------------ ----- --------- --------
<S> <C> <C> <C>
%................................................... $ . %
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
---- ----- ------
Total............................................... $ 100.00%
==== ===== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
S-13
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was greater
than 80% either (1) will be insured as to payment default for the amount in
excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately % of the Mortgage Loans have been made
to purchase the related Mortgaged Properties. Approximately % of the Mortgage
Loans will be secured by Mortgaged Properties represented to the originator in
the related loan application to be the primary residence of the mortgagor at
the time of origination. % of the Mortgage Loans are secured by Mortgaged
Properties which were second homes of the mortgagor at the time of origination
based on representations of the Mortgagor. % of the Mortgage Loans were made
to finance the purchase of homes represented by the mortgagor to have been
acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than 30
days delinquent in scheduled payments of principal and interest more than once
in the previous year.
THE INDEX
[DESCRIPTION OF APPLICABLE INDEX, e.g., The Index is currently published by
the FHLB on or about the last working day of each month and is designed to
represent the monthly weighted average cost of funds for savings institutions
in the 11th District of the Federal Home Loan Bank System (Arizona, California
and Nevada) for the month prior to publication. The Index is computed by the
FHLB for each month by dividing the cost of funds (interest paid during the
month by 11th District savings institutions on savings, advances and other
borrowings) by the average of the total amount of those funds outstanding at
the end of the month and the prior month and annualizing and adjusting the
result to reflect the actual number of days in the particular month. If
necessary, before these calculations are made, the component figures are
adjusted by the FHLB to neutralize the effect of events such as member
institutions leaving the 11th District or acquiring institutions outside the
11th District. The Index has been reported each month since August 1981.]
[The Index reflects the interest costs paid on all types of funds held by
11th District member institutions. The Index is weighted to reflect the
relative amount of each type of funds held at the end of the relevant month.
There are three major components of funds of 11th District institutions: (1)
savings deposits, (2) FHLB advances, and (3) all other borrowings, such as
reverse repurchase agreements and mortgage-backed bonds. Unlike most other
interest rate measures, the Index does not necessarily reflect current market
rates, since the component funds represent a variety of maturities whose costs
may react in different ways to changing conditions.]
S-14
<PAGE>
[A number of factors affect the performance of the Index which may cause the
Index to move in a manner different from indices tied to specific interest
rates, such as United States Treasury Bills or LIBOR. Because of the various
maturities of the liabilities upon which the Index is based, the Index may not
necessarily reflect the average prevailing market interest rates on new
liabilities of similar maturities. Additionally, the Index may not necessarily
move in the same direction as market interest rates at all times, since as
longer term deposits or borrowings mature and are renewed at prevailing market
interest rates, the Index is influenced by the differential between the prior
and the new rates on those deposits or borrowings. Moreover, as stated above,
the Index is designed to represent the average cost of funds for 11th District
savings institutions for the month prior to the month in which the Index is
published. In addition, such movement of the Index, as compared to other
indices tied to specific interest rates, may be affected by changes instituted
by the FHLB in the method used to calculate the Index. Information Bulletins
announcing the Index may be obtained by contacting the FHLB.]
[The following table sets forth the Index published in each month (with
respect to the 11th District cost of funds in the prior month) for the four
most recent calendar years and for 19 .
<TABLE>
<CAPTION>
19 19 19 19 19
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January........................................... % % % % %
February..........................................
March.............................................
April.............................................
May...............................................
June..............................................
July..............................................
August............................................
September.........................................
October...........................................
November..........................................
December..........................................
</TABLE>
[MASTER SERVICER]
is a , which was founded in . At had consolidated assets
of $ billion and regulatory capital of $ million. As of , had
executive offices in and savings branches located .
is subject to comprehensive regulation, examination and supervision by
the [FHLBB and the FSLIC,] which regulation is intended primarily for the
benefit of depositors. [Deposits at are insured by the FSLIC up to
$100,000 for each insured account holder, the maximum permitted by law.]
executive offices are located at and its telephone number at that
address is .
Loan Portfolio. [Description.]
Loan Transactions. primary lending is [description.]. has
concentrated its efforts on .
The following table sets forth certain information with respect to loan
originations, loan purchases and sales, and repayment experience during the
periods indicated.
S-15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Loans receivable at beginning of period..........................
Loans originated.................................................
Loans purchased..................................................
Loans obtained in Equitable acquisition..........................
Loans sold.......................................................
Loan repayments..................................................
Other............................................................
---- ---- ----
Net loan activity................................................
---- ---- ----
Loan receivable at end of period.................................
==== ==== ====
</TABLE>
Loan Underwriting. has adopted written, nondiscriminatory underwriting
standards for use in originating and purchasing residential mortgage loans.
has represented to the Depositor that its underwriting standards are in
substantial conformity with standards set up by the FNMA and the FHLMC, which
conformity facilitates sales of such loans in the secondary market. A detailed
loan application is obtained or reviewed to determine the borrower's ability
to repay, and confirmation of the more significant information is obtained
through the use of credit reports, financial statements and verifications. An
appraisal of the property, conducted by an appraiser meeting the
qualifications set forth in FHLBB guidelines, is required to determine the
adequacy of the collateral. also requires that a survey be conducted and
title insurance be obtained, insuring the priority of its mortgage lien, and,
for loans with a loan-to-value ratio of 80% or more, that private mortgage
insurance be obtained if available. All loan applications must be reviewed by
underwriters to ensure that guidelines are met. Such guidelines are approved
by Board of Directors. has represented to the Depositor that each
Mortgage Loan meets the credit, appraisal and underwriting standards
established by and described above.
[Approximately % of the Mortgage Loans were originated under the limited
documentation program of . has represented that each of the Mortgage
Loans originated under a limited documentation program satisfies the standards
established and followed by for originating and acquiring mortgage loans
under its limited documentation program. Under the program, does not
evaluate the borrower's assets-to-liabilities ratio, but did verify the
borrower's income and availability of funds for down payment, and relies
primarily on a credit report on the borrower (which is required to be
favorable) and at least one appraisal as evidence of the value of the property
securing the loan. The limited documentation program was not available
for loans secured by condominiums and was available only for owner-occupied
primary residences. Under such program, loan-to-value ratios were limited to
% for loans under $ and to % for loans under $ , except that for
loans in certain locations and having certain characteristics, lower maximum
loan-to-value ratios were established.
Loan Portfolio Qualify. In accordance with the requirements of the
Competitive Equality Banking Act of 1987 (the "CEBA"), the FHLBB in December
1987 adopted amendments to its classification of assets regulation. Prior to
December 1987, to monitor an insured institution's asset quality the FHLBB
defined certain assets of savings institutions as scheduled items and
established certain operating restrictions based upon ratios relating to such
assets. The regulation as amended eliminates entirely the "scheduled items"
classification, but retains the existing classification categories of
substandard, doubtful and loss, while altering the effects of the respective
classifications with respect to valuation allowance requirements and minimum
regulatory capital requirements. Specific loss reserves are no longer required
for assets classified as doubtful and institutions are required to charge off
or set aside loss reserves for 100% of the amount of any asset, or portion of
an asset, classified as a loss. The amended regulation requires institutions
to classify their own assets and to establish prudent general allowances for
loan losses, subject to examiner review. Greater examiner discretion,
consistent with the asset classification practices of the banking regulatory
agencies, is permitted by the amended regulation.
S-16
<PAGE>
The amended regulation also requires institutions to establish loss reserves
for off-balance-sheet items when loss becomes probable and estimable.
One measure of an institution's asset quality is the level of non-performing
loans in its portfolio. Non-performing loans consist of (i) non-accrual loans,
(ii) loans that are 90 or more days contractually past due as to interest or
principal but that are well-secured and in the process of collection or
renewal in the normal course of business, and (iii) loans that have been
renegotiated to provide a deferral of interest or principal because of a
deterioration in the financial condition of the borrower ("restructured
loans"). generally places conventional mortgage loans on non-accrual
status when more than 90 days past due. Where the underlying collateral is a
"home" (as defined in the Rules and Regulations for the Federal Home Loan Bank
System), the loan is placed on non-accrual status when the amount of interest
receivable plus all loan balances secured by the home exceeds 90% of the
appraised value of the security property, provided there is a reasonable
expectation of interest collection.
The following table sets forth information regarding the non-performing
loans as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
19 19 19
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans............................................. $ $ $
Accruing loans 90 days or more past due.......................
Restructured loans............................................
</TABLE>
Loan Servicing. The following table sets forth the dollar amounts of
conventional mortgage loans serviced by for itself and other lenders at the
dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
19 19 19
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Conventional mortgage loans.............................
</TABLE>
Loss and Delinquency Experience. The following table sets forth the
delinquency and foreclosure experience of residential conventional mortgage
loans in the mortgage loan portfolio serviced by and other entities at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
19 19 19 19
----------------- ----------------- ----------------- -----------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
OF OF TOTAL OF OF TOTAL OF OF TOTAL OF OF TOTAL
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conventional mortgage
loans delinquent for:
60-89 days.............. $ $ $ $
90 days and over........
In foreclosure..........
Total................. $ $ $ $
</TABLE>
The allowance for loan losses is maintained at an amount management deems
adequate to cover estimated losses. In determining the level to be maintained,
management considers factors such as current economic trends in specific
geographic areas, historical loss experience, borrowers' ability to repay and
repayment performance and estimated collateral values, as well as
considerations such as the availability of indemnifications, mortgage
insurance and seller-provided recourse.
S-17
<PAGE>
The statistics shown above represent the loss experience for the total
conventional mortgage loan portfolio (including residential and commercial
loans) for each of the periods presented, whereas the aggregate loss
experience on the Mortgage Loans will depend on the results obtained over the
life of the Mortgage Pool.
SERVICING [AND SUB-SERVICING]
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the accompanying Prospectus under the heading
"Description of the Certificates--Servicing by Unaffiliated Sellers." [ ,
as Master Servicer, will enter into a Servicing Agreement with (the
"Servicer") pursuant to which the Servicer will sub-service the Mortgage
Loans. acquired the Mortgage Loans from the Servicer. The Servicer has
serviced the Mortgage Loans since their origination. The Servicing Agreement
can be terminated without cause, but in such event or a successor master
servicer would be required to pay a fee to the Servicer or sell the Servicer's
interest in the Servicing Agreement in an auction proceeding upon termination.
may determine to terminate the Servicer and to service the Mortgage Loans
itself or through other sub-servicers who may be affiliates of .]
[The Servicing Agreement provides for servicing compensation equal to a rate
of basis points per annum on the outstanding principal balance of % of the
Mortgage Pool. In addition, the Servicer is entitled to retain certain late
payment fees, assumption fees and conversion fees related to the Mortgage
Loans. The Servicing Agreement does not require the Servicer to make Advances
or to pay any amount from its servicing compensation with respect to interest
on Principal Prepayments on Mortgage Loans.]
Except as described below, when any Mortgaged Property is conveyed by the
Mortgagor, the Master Servicer generally will enforce, and will cause any
Servicer to enforce, any due-on-sale clause contained in the Mortgage Loan, to
the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such due-on-sale
provisions in connection with transfers of the related Mortgaged Properties
will affect the level of prepayments on the Mortgage Loans, thereby affecting
the weighted average life of the related Class A Certificates. See "Maturity
and Prepayment Considerations" in the Prospectus.
All of the Mortgage Loans include a rider to the Mortgage providing that
assumption of the remaining unpaid principal balance of the Mortgage Loan will
be permitted if the borrower provides information required to evaluate the
creditworthiness of the proposed transferee and the transferee is determined
to be creditworthy. In connection with such assumption, a reasonable fee may
be charged as a condition to the loan assumption and any such fee collected in
connection with a Mortgage Loan in the Subsidiary Trust Fund will be retained
by [or the Servicer]. The assumption of Mortgage Loans by buyers of the
related Mortgaged Properties may also affect the level of prepayments on the
Mortgage Loans, thereby affecting the weighted average life of the Class A
Certificates.
INSURANCE
A Standard Hazard Insurance Policy will be maintained with respect to each
Mortgage Loan in an amount equal to the maximum insurable value of the
improvements securing such Mortgage Loan or the principal balance of such
Mortgage Loan, whichever is less. See "Description of Insurance--Standard
Hazard Insurance Policies" in the Prospectus. [No Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance will
be maintained with respect to the Mortgage Pool, nor will any Mortgage Loan
included in the Mortgage Pool be subject to FHA Insurance or a VA Guaranty.]
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YIELD CONSIDERATIONS
The effective yield to holders of the Class A Certificates will depend upon,
among other things, the price at which the Class A Certificates are purchased
and the amount and rate at which principal, including both scheduled and
unscheduled payments thereof, is paid to Class A Certificateholders.
The rate of principal payments on the Class A Certificates, the aggregate
amount of each monthly interest payment on the Class A Certificates and the
yield to maturity of the Class A Certificates will be directly related to the
rate of payments of principal on the Mortgage Loans. Principal payments on the
Mortgage Loans may be in the form of scheduled principal payments or
prepayments (for this purpose, the term "prepayment" includes payments
resulting from optional prepayments by the Mortgagors, refinancings,
liquidation of the Mortgage Loans due to defaults, casualties, condemnations
or the like and repurchases by the Depositor or the Master Servicer, as the
case may be). Any such prepayments will result in distributions to
Certificateholders of amounts which would otherwise be distributed over the
remaining term of the Mortgage Loans. In general, the prepayment rate may be
influenced by a number of economic, geographic, social and other factors,
including general economic conditions and homeowner mobility. Other factors
affecting prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions.
The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. As described herein under
"Description of the Certificates--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement," all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will be distributed
to the holders of the Class A Certificates during at least the first fourteen
years after the Cut-off Date. In general, defaults on Mortgage Loans are
expected to occur with greater frequency in their early years, although little
data is available with respect to the rate of default on adjustable rate
Mortgage loans. Increases in the monthly payments on the Mortgage Loans in
excess of those assumed in underwriting such Mortgage Loans may result in a
default rate higher than that on conventional mortgage loans with fixed
mortgage rates. Prepayments, liquidations and purchases of the Mortgage Loans
will result in distributions to Certificateholders of amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal on the Mortgage Loans will depend on future
events and a variety of factors (as described more fully herein and in the
Prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments.
[Mortgage Loans that are expected to constitute approximately % of the
initial aggregate principal balance of the Mortgage Loans as of the Cut-off
Date will provide that the mortgagor may, during a specified period of time,
convert the adjustable rate of the related Mortgage Loan to a fixed rate. The
conversion option may be exercised during periods of rising interest rates as
mortgagors attempt to limit their risk of higher rates. If mortgagors were to
exercise their conversion rights in such an interest rate environment, a
purchase of the Mortgage Loan by the Master Servicer would have the same
effect on Certificateholders as a prepayment at a time when prepayments
generally would not be expected. The availability of fixed rate mortgage loans
at competitive interest rates during periods of falling interest rates may
also encourage mortgagors to exercise the conversion option. The convertible
ARM loan is a relatively new type of mortgage loan, so there can be no
certainty as to the rate at which conversions will take place or as to the
rate of prepayments in stable or changing interest rate environments. The
Master Servicer is obligated to purchase Converted Mortgage Loans.
Consequently, the exercise of the conversion option by mortgagors will
generally result in prepayment of principal with respect to the Mortgage
Pool.]
[The rate at which mortgagors exercise their conversion rights and the
resulting purchase of Converted Mortgage Loans by the Master Servicer will
affect the rate of payment of principal, and hence the effective yield on the
Class A Certificates. The purchase price paid will be passed through to the
Certificateholders as principal in the month following the month of such
purchase. The effective yield on the Class A Certificates also will be
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affected by the failure of the Master Servicer to purchase Converted Mortgage
Loans and the resulting retention of fixed rate Mortgage Loans in the Mortgage
Pool. See "Description of the Certificates--Purchase of Converted Mortgage
Loans" herein.]
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectations. In general, the earlier a prepayment of principal on
the Mortgage Loans, the greater will be the effect on the investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the
Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
All of the Mortgage Loans comprising the Mortgage Pool are adjustable rate
mortgage loans. The yield to maturity of the Class A Certificates will be
affected by the Mortgage Rates on the Mortgage Loans as they adjust from time
to time. The Depositor is not aware of any publicly available statistics
relating to the principal prepayment experience of adjustable rate mortgage
loans over an extended period of time, and the Depositor's experience with
respect to adjustable rate mortgage loans is insufficient to draw any
conclusions with respect to the expected prepayment rates on the Mortgage
Loans comprising the Mortgage Pool. The rate of payments (including
prepayments) on adjustable rate mortgage loans has fluctuated in recent years.
As is the case with conventional fixed-rate mortgage loans, adjustable rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment. For example, if prevailing mortgage rates
fell significantly below the then current Mortgage Rates on the Mortgage Loans
or significantly below the Maximum Mortgage Rates on the Mortgage Loans, the
rate of prepayment would be expected to increase due to the availability of
fixed-rate mortgage loans at competitive interest rates, which may encourage
Mortgagors to refinance the Mortgage Loans in order to obtain a lower fixed
interest rate. Conversely, if prevailing mortgage rates rose significantly
above the then current Mortgage Rates on the Mortgage Loans, the rate of
prepayment on the Mortgage Loans would be expected to decrease.
[The Mortgage Rates on the Mortgage Loans will adjust semi-annually
(although not on the same Adjustment Dates) and such semi-annual increases and
decreases in the Mortgage Rates on the Mortgage Loans will be limited by the
Periodic Mortgage Rate Cap and Maximum Mortgage Rates applicable to the
Mortgage Loans. In addition, such Mortgage Rates will be based on the Index
(which may not rise and fall consistently with interest rates on other types
of adjustable rate residential mortgage loans) plus the Gross Margin for the
Mortgage Loans (which may be different from then current margins on
residential mortgage loans). As a result, the Mortgage Rates on the Mortgage
Loans at any time may not equal the prevailing rates for similar adjustable
rate mortgage loans, and the rate of prepayment may be lower or higher than
would otherwise be anticipated. See "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.]
In addition, if on any Distribution Date, after taking into account any
Advances, amounts otherwise distributable to the Subsidiary Residual
Certificateholder and permitted withdrawals from the Certificate Account,
there are not sufficient funds to pay the principal and interest on the Class
A Certificates, the amount of the resulting shortfall, and in the case of
interest shortfalls, interest at the applicable Pass-Through Rate, will be
added to the amount the Class A Certificateholders are entitled to receive on
the next Distribution Date. See "Description of the Certificates--
Distributions" herein. If any shortfalls occur, the weighted average life of
the Class A Certificates will be increased over that which would result had
such shortfalls not occurred.
The after-tax yield to Certificateholders may be affected by lags between
the time interest income accrues to the Certificateholders and the time the
related income is received. See "Federal Income Tax Consequences" herein and in
the Prospectus.
The effective yield to the holders of Class A Certificates will be lower
than the yield otherwise produced by the Pass-Through Rate and purchase price
because monthly interest will not be payable to such holders until the
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25th day (or if such day is not a Business Day, then on the next succeeding
Business Day) of the month following the month in which interest accrues on
the Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates offered hereby will be issued pursuant to the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. Reference is made to the Prospectus for additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement. The following summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. When particular provisions
or terms used in the Pooling and Servicing Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
The Class A Certificates will be transferable and exchangeable at the office
of the Trustee located at . No service charge will be made for any
registration of transfer or exchange of the Class A Certificates on the
Certificate Register maintained by the Trustee, but the Trustee may require
the payment of a sum sufficient to cover any related tax or other governmental
charge. There is at present no market for the Class A Certificates and there
can be no assurance that a secondary market will develop or that if it does
develop, it will continue. Fluctuating market interest rates may affect the
market value of the Class A Certificates.
DISTRIBUTIONS
Distributions of principal and interest on the Certificates will be made on
the [25th] day of each month, or, if such day is not a Business Day, the next
succeeding Business Day (each a "Distribution Date"), beginning , to the
persons in whose names the Certificates are registered at the close of
business on the last day of the month preceding the month in which payment is
made (the "Record Date"). Certain calculations with respect to the
Certificates will be made on the [15th] day of each month, or if such day is
not a Business Day, the next succeeding Business Day (the "Determination
Date").
Principal received on each Mortgage Loan will be passed through monthly as
described below on the Distribution Date occurring in the month in which the
Due Date occurs. Principal prepayments received during the period from the
first day of any month to the last day of such month ( a "Prepayment Period")
will be passed through on the Distribution Date occurring in the month
following receipt. When a Mortgage Loan is prepaid, in whole or in part,
between scheduled payment dates. the Mortgagor pays interest on the amount
prepaid only to the date of prepayment and not thereafter. The Master Servicer
is not required to pay any part of its servicing compensation to assure that
distributions made to Certificateholders on the related Distribution Date
include an amount equal to one full month's interest at the applicable
Subsidiary Pass-Through Rate.
Interest received by the Subsidiary Trust Fund on each Mortgage Loan will be
passed through monthly on the Distribution Date occurring in the month in
which the Due Date occurs, at the Subsidiary Pass-Through Rate for such
Mortgage Loan. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates for the Mortgage Loans. Prior to the first
Adjustment Date with respect to each Mortgage Loan that occurs after the Cut-
off Date, the Subsidiary Pass-Through Rate for such Mortgage Loan will equal
the Initial Mortgage Rate less . Thereafter, the Subsidiary Pass-Through
Rate with respect to each Mortgage Loan will equal the Index applicable to
each Mortgage Loan plus basis points (the "Pass-Through Margin") subject to
the limitation that the Subsidiary Pass-Through Rate shall not exceed the
lesser of the Periodic Mortgage Rate Cap less the Servicing Fee Rate and the
Maximum Subsidiary Pass-Through Rate. The Maximum Subsidiary Pass-Through Rate
with respect to a Mortgage Loan shall equal the Maximum Mortgage Rate for such
Mortgage Loan minus the Servicing Fee Rate. The Master Servicer will receive a
servicing fee (the "Servicing Fee") as compensation for the servicing of each
Mortgage Loan which is calculated monthly and equals a fixed percentage
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of the principal balance of the Mortgage Loan (the "Servicing Fee Rate").
[Prior to the first Adjustment Date with respect to a Mortgage Loan that
occurs after the Cut-off Date, the Servicing Fee Rate will be basis points
for such Mortgage Loan. Subsequent to the first Adjustment Date with respect
to a Mortgage Loan that occurs after the Cut-off Date, t][T]he Servicing Fee
Rate shall equal basis points. See "Description of the Mortgage Pool and
the Underlying Mortgaged Properties" above and "Servicing Compensation and
Payment of Expenses" below. The amount of interest on each Mortgage Loan
available to be distributed on each Distribution Date may be expected to
change, among other reasons, as the Mortgage Rate and the Subsidiary Pass-
Through Rate vary with the Index and as the Mortgage Rate reaches the Periodic
Mortgage Rate Cap and the Maximum Mortgage Rate (which will not be the same
for all Mortgage Loans).
The Master Servicer will deposit in the Certificate Account the payments and
collections described in "Description of the Certificates--Payments on
Mortgage Loans" in the Prospectus.
On each Distribution Date, the amount required to be distributed to the
Class A Certificateholders will equal the lesser of the Class A Distribution
Amount and the Master Trust Fund Aggregate Distribution.
The "Class A Distribution Amount" means generally, as of any Distribution
Date, an amount equal to the sum of: (a) one month's interest at the Pass-
Through Rate on the Class A Certificate Principal Balance as of such
Distribution Date; (b) the outstanding balance of all previously due and
unpaid Interest Shortfalls (as defined below) owed to the Class A
Certificateholders with accrued interest thereon at the Pass-Through Rate; (c)
the outstanding balance of all previously due and unpaid Principal Shortfalls
(as defined below) owed to the Class A Certificateholders; (d) the Class A
Percentage of each scheduled payment of principal due on the preceding Due
Date on the Mortgage Loans; (e) the Class A Prepayment Percentage of any
Principal Prepayments received during the related Prepayment Period on the
Mortgage Loans; (f) with respect to Mortgage Loans which became Liquidated
Loans during the related Prepayment Period, the Class A Percentage of the
aggregate principal balance of such Mortgage Loans, net of certain related
unreimbursed advances with respect thereto; (g) the Class A Percentage of any
insurance proceeds received during the related Prepayment Period, net of
certain related unreimbursed advances with respect thereto; and (h) with
respect to Mortgage Loans purchased by the Master Servicer pursuant to the
Pooling and Servicing Agreement during the related Prepayment Period, the
Class A Percentage of the aggregate principal Balances of such Mortgage Loans,
net of certain related unreimbursed advances with respect thereto.
At any time when the Subordinated Amount is equal to zero, the amount
calculated under clauses (a) through (h) above shall not include any amount in
respect of Monthly Payments due on Mortgage Loans which were not actually
received (but shall include payments from funds attributable to advances by
the Master Servicer).
The "Master Trust Fund Aggregate Distribution" shall mean, on any
Distribution Date, the sum of all amounts distributed with respect to the
Subsidiary Regular Interests, as described below.
On each Distribution Date the aggregate amount required to be distributed to
the holders of the Subsidiary Regular Interests is equal to the lesser of (x)
the Subsidiary Trust Fund Regular Distribution and (y) the sum of (i) one
month's interest at the Subsidiary Pass-Through Rate on the principal balance
of each Mortgage Loan, (ii) each payment of the principal due on the related
Due Date on each Mortgage Loan, (iii) any delinquent Mortgagor payment of
principal and interest on such Mortgage Loan received prior to the related
Determination Date, after adjustment of the interest portion of such payment
to the related Subsidiary Pass-Through Rate and deduction of unreimbursed
advances by the Master Servicer with respect to the preceding delinquent
payment, (iv) for each Mortgage Loan which was the subject of a Principal
Prepayment during the related Prepayment Period, the amount of such Principal
Prepayment, (v) for each Mortgage Loan which became a Liquidated Loan during
the related Prepayment Period, the principal balance of such Mortgage Loan,
net of certain unreimbursed advances by the Master Servicer, (vi) with respect
to any Mortgage Loan purchased by the Master Servicer pursuant to the
Agreement, the principal balance of such Mortgage Loan net of certain
unreimbursed advances by the Master Servicer, and (vii) amounts representing
insurance proceeds with respect to a Mortgage Loan.
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<PAGE>
The "Subsidiary Trust Fund Regular Distribution" means, generally, as of any
Distribution Date, an amount equal to the amount on deposit in the Certificate
Account as of the close of business on the related Determination Date except:
(a) amounts received on particular Mortgage Loans as late payments or other
recoveries of principal or interest (including Liquidation Proceeds, insurance
proceeds, and condemnation awards) and respecting which the Master Servicer
previously made an unreimbursed Advance of such amounts; (b) amounts
representing reimbursement for certain losses and expenses incurred by the
Master Servicer, as described in the Pooling and Servicing Agreement; (c) all
amounts representing scheduled monthly payments due after the immediately
preceding Due Date; (d) all Principal Prepayments (and interest thereon),
Liquidation Proceeds, insurance proceeds, condemnation awards and repurchase
proceeds received after the related Prepayment Period, including payments of
interest representing interest accrued after the last day of the related Due
Period; (e) all income from Eligible Investments held in the Certificate
Account for the account of the Master Servicer; and (f) certain amounts
distributable to the holder of the Subsidiary Residual Interest pursuant to
the Pooling and Servicing Agreement.
The "Class A Certificate Principal Balance" on any Distribution Date will
equal the portion of the unpaid principal balance of the Mortgage Loans
evidenced by the Class A Certificates as of the Cut-off Date (the "Initial
Class A Certificate Principal Balance") less the sum of payments or recoveries
of, or with respect to, principal of the Mortgage Loans previously distributed
to the Class A Certificateholders and any Realized Losses (as defined below)
including, subject to certain limitations. Special Hazard Realized Losses (as
defined below) previously allocated to the Class A Certificates. The Initial
Class A Certificate Principal Balance is expected to be approximately $ .
See "--Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement" herein.
The "Class B Principal Balance" on any Distribution Date will equal the
Scheduled Principal Balance (as defined below) of the Mortgage Loans minus the
Class A Certificate Principal Balance.
The "Scheduled Principal Balance" of the Mortgage Loans as of the time of
any determination will equal the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, after application of any scheduled principal
payments due on or before the Cut-off Date, whether or not received, reduced
by the principal portion of all scheduled payments of principal and interest
due on or before the date of determination, whether or not received, and by
all Principal Prepayments distributed to Certificateholders on or before the
date of determination, and further reduced by Realized Losses (as defined
below) with respect to the Mortgage Loans that have been allocated to one or
more classes of Certificates on or before the date of determination.
The "Class A Percentage" shall mean, as to any Distribution Date, the lesser
of 100% and the percentage obtained by dividing the Class A Certificate
Principal Balance by the Scheduled Principal Balance. The "Class A Prepayment
Percentage" shall initially be 100% and shall decline thereafter as provided
under "Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement."
"Interest Shortfall" shall mean, as to any Distribution Date, any excess of
the amount computed pursuant to clause (a) of the term "Class A Distribution
Amount" over the amount of interest distributed to the Class A
Certificateholders on such Distribution Date. "Principal Shortfall" shall
mean, as to any Distribution Date the excess of the sum of the amounts
computed pursuant to clauses (a) through (h) of the term "Class A Distribution
Amount" over the amounts distributed to the Class A Certificateholders (the
"Shortfall"), less the Interest Shortfall.
All distributions will be made by or on behalf of the Trustee to the persons
in whose names the Certificates are registered at the close of business on
each Record Date, which will be the last Business Day of the month preceding
the month in which the related Distribution Date occurs. Such distributions
shall be made either (i) by check mailed to the address of each
Certificateholder as it appears in the Certificate Register or (ii) to any
holder of Certificates having an initial principal balance in excess of
$5,000,000, by wire transfer in immediately available funds to the account of
such Certificateholder specified in writing to the Trustee.
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[On the sixth day of any month or the next succeeding Business Day, the
Master Servicer or the Trustee will provide upon request the Class A
Certificate Principal Balance after giving effect to monthly payments due on
the immediately preceding Due Date.]
SUBORDINATION OF THE CLASS B CERTIFICATES; SHIFTING INTEREST CREDIT
ENHANCEMENT
The rights of the Class B Certificateholders to receive certain
distributions with respect to the Mortgage Loans are subordinate to such
rights of the Class A Certificateholders to the extent of the Subordinated
Amount. As of each Determination Date, the Subordinated Amount will equal the
Class B Principal Balance on such date, reduced by the excess, if any, of
Aggregate Losses over cumulative Realized Losses borne by the Class B
Certificateholders.
Realized Losses shall not be allocated to the Class A Certificates until
after such time as the allocation of such Realized Losses to the Class B
Certificates has reduced the Class B Principal Balance to zero. At such time,
Realized Losses shall be allocated to the Class A Certificates, pro rata among
such Certificates in proportion to their outstanding Class A Certificate
Principal Balances immediately prior to the relevant Distribution Date.
[Notwithstanding the above, Special Hazard Realized Losses shall be allocated
first to the Class B Certificates only until such time as Special Hazard
Realized Losses equal the Special Hazard Subordination Amount, which will be
% of the Cut-off Date Principal Balance. Thereafter, Special Hazard Realized
Losses shall be allocated to the Class A Certificates and the Class B
Certificates, pro rata among such Certificates in proportion to their
outstanding Principal Balances immediately prior to the relevant Distribution
Date.] Any allocation of Realized Losses (or Special Hazard Realized Losses]
to a Class A Certificate or a Class B Certificate on a Distribution Date shall
be made by reducing the Principal Balance thereof by the amount so allocated,
which allocation shall be deemed to have occurred on such Distribution Date.
[Any allocation to the Class B Certificates of a Realized Loss or a Special
Hazard Realized Loss prior to reducing the Special Hazard Subordination Amount
to zero shall have the effect of increasing the Class A Percentage of future
payments of principal on the Mortgage Loans and thereby decreasing the
Subordinate Percentage of such payments of principal.]
"Realized Loss" is defined in the Pooling and Servicing Agreement (i) with
respect to any Liquidated Loan, as the excess of the outstanding principal
balance of such Liquidated Loan over the Liquidation Proceeds, if any,
received in connection with such Liquidated Loan, after application of all
withdrawals permitted to be made by the Master Servicer pursuant to the
Pooling and Servicing Agreement, (ii) with respect to any Mortgage Loan which
has become subject to a valuation by a court of competent jurisdiction of the
Mortgaged Property in an amount less than the then outstanding indebtedness
under the Mortgage Loan, which valuation results from a proceeding under the
United States Bankruptcy Code, as amended from time to time (11 U.S.C.) (a
"Deficient Valuation"), as the excess of the outstanding principal balance of
such Mortgage Loan over the principal amount as reduced in the Deficient
Valuation, or (iii) with respect to any Mortgage Loan purchased by the Master
Servicer or the Depositor pursuant to the Pooling and Servicing Agreement, as
the excess, if any, of 100% of the principal balance of such Mortgage Loan,
together with accrued and unpaid interest at the applicable Subsidiary Pass-
Through Rate to the first day of the month following the month of such
purchase, giving effect to the amount of any unreimbursed Advances made by the
Master Servicer with respect to such Mortgage Loan, over the purchase price
for such Mortgage Loan as the same may be reduced pursuant to an Opinion of
Counsel to prevent such amount from being taxed to the Trust Fund as a
"prohibited transaction", as defined in Section 860F(a)(2) of the Code.
Realized losses may result from, among other things, Special Hazard Realized
Losses. ["Special Hazard Realized Loss" means with respect to any Mortgage
Loan finally liquidated in connection with any physical damage not covered
under a Standard Hazard Insurance Policy or a flood insurance policy, other
than normal wear and tear or other circumstances set forth in the Pooling and
Servicing Agreement an amount equal to the unpaid principal balance of the
Mortgage Loan as of the date of such liquidation, together with interest at
the applicable Mortgage Rate, less the applicable Servicing Fee, from the Due
Date as to which interest was last paid to the Due Date next succeeding such
liquidation, less the proceeds, if any, received in connection with such
liquidation after application of all withdrawals from the Certificate Account
by the Master Servicer permitted pursuant to the Pooling and Servicing
Agreement.]
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"Liquidated Loan" means a Mortgage Loan which, as of the close of business
on the Business Day next preceding the Due Date, has been liquidated through
deed in lieu of foreclosure, sale in foreclosure, trustee's sale or other
realization as provided by applicable law of real property subject to the
related Mortgage and any security agreements or with respect to which payment
under related private mortgage insurance or hazard insurance and/or from any
public or governmental authority on account of a taking or condemnation of any
such property has been received.
The protection afforded to the Class A Certificateholders will be effected
by the preferential right of the Class A Certificateholders to receive the
amount of principal and interest otherwise available for distribution to the
Class B Certificateholders on each Distribution Date out of available funds on
deposit in the distribution account for the Master Trust Fund and by
distributing to the Class A Certificateholders a disproportionately greater
percentage of Principal Prepayments received by the Master Trust Fund from the
Certificate Account, to the extent described herein (the "Class A Prepayment
Percentage"). This disproportionate distribution will have the effect of
accelerating the amortization of the Class A Certificates while increasing the
respective interest in the Mortgage Loans evidenced by the Class B
Certificates. Increasing the respective interest of the Class B Certificates
relative to that of the Class A Certificates is intended to preserve the
availability of the subordination provided by the Class B Certificates.
The Class A Prepayment Percentage for any Distribution Date occurring before
or in will, except as provided below, equal 100%. The Class A Prepayment
Percentage for any Distribution Date occurring subsequent to will be
determined as follows: (a) for any Distribution Date occurring subsequent to
and before or in , the Class A Prepayment Percentage will equal the
Class A Percentage plus % of the Subordinate Percentage for such Distribution
Date, except that prior to the Distribution Date next succeeding the first
Distribution Date, if any, after . , as of which the Step-down
Criteria are satisfied, the Class A Prepayment Percentage will be 100%; (b)
for any Distribution Date occurring subsequent to and before or in , the
Class A Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (c)
for any Distribution Date occurring subsequent to and before or in , the
Class A Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (d)
for any Distribution Date occurring subsequent to and before or in ,
the Class A Prepayment Percentage will equal the Class A Percentage plus % of
the Subordinated Percentage for such Distribution Date, except that prior to
the Distribution Date next succeeding the first Distribution Date, if any,
after as of which the Step-down Criteria are satisfied, the Class A
Prepayment Percentage will be the Class A Prepayment Percentage in effect in
; and (e) for any Distribution Date occurring subsequent to , the
Class A Prepayment Percentage will equal the Class A Percentage as of such
Distribution Date except that prior to the Distribution Date next succeeding
the first Distribution Date, if any, after as of which the Step-down
Criteria are satisfied, the Class A Prepayment Percentage will be the Class A
Prepayment Percentage in effect in . The foregoing is subject to the
following: (i) if on any Distribution Date the distribution of all Principal
Prepayments received in the prior month to the holders of the Class A
Certificates would reduce the outstanding Class A Certificate Principal
Balance below zero, the Class A Prepayment Percentage for such Distribution
Date will be limited to the percentage necessary to reduce the Class A
Principal Certificate Balance to zero and thereafter the Class A Percentage
shall be zero; and (ii) if the Class A Percentage on any Distribution Date is
greater than the initial Class A Percentage, the Class A Prepayment Percentage
for such Distribution Date shall be 100%.
The Step-down Criteria shall be met as of any Distribution Date in the 12
months commencing subsequent to February of the year specified in the table
below provided that as of such Distribution Date (a) no more than one time
during the preceding months have the principal balances of outstanding
Mortgage Loans days or
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more delinquent (including loans in foreclosure and the book value of owned
real estate) exceeded % of the Scheduled Principal Balance at such time, and
(b) cumulative Advances deemed to be nonrecoverable as a percentage of the
principal amount of the Class B Certificates as of the Cut-off Date (the
"Subordinated Amount") do not exceed the amounts in the following table:
<TABLE>
<CAPTION>
CUMULATIVE
NON-RECOVERABLE
ADVANCES AS A
PERCENTAGE OF THE
YEAR SUBORDINATED AMOUNT
--------------------------------------------------------- -------------------
<S> <C>
....................................................... %
.......................................................
.......................................................
.......................................................
or thereafter............................................
</TABLE>
The definition of "Step-down Criteria" may be amended by the Depositor and
the Trustee, with prior written notice of such amendment to the Rating Agency,
in a manner that will not result in the lowering or withdrawal of the then
current rating of the Class A Certificates. Such amendment shall not require
the consent of any Certificateholder.
[PURCHASE OF CONVERTED MORTGAGE LOANS
The Pooling and Servicing Agreement provides that is obligated to
purchase from the Subsidiary Trust Fund any Convened Mortgage Loan in the
month following the month in which the related mortgagor exercises the
conversion option, for a price equal to the lesser of (a) 100% of the unpaid
principal balance of such Mortgage Loan, and (b) the Subsidiary Trust Fund's
adjusted federal income tax basis on the date such Mortgage Loan is to be
purchased, in each case plus accrued interest, if any, at the applicable
Subsidiary Pass-Through Rate in effect immediately prior to such conversion to
the last day of the month in which such Mortgage Loan became a Converted
Mortgage Loan, net of the applicable amounts due to the Master Servicer with
respect to that Mortgage Loan. will be obligated to deposit the amount of
the purchase price in the Certificate Account for distribution on the
Distribution Date in the month following the month of such conversion.
In the event defaults upon its obligation to repurchase any Converted
Mortgage Loan, the Trustee may attempt to sell the Mortgage Loan for the price
which was to be paid by the Master Servicer. A Converted Mortgage Loan will
remain in the Trust as a Mortgage Loan with a fixed Mortgage Rate unless and
until purchased by the Master Servicer or otherwise sold in accordance with
the Pooling and Servicing Agreement. So long as serves as Master
Servicer, the failure of the Master Servicer to repurchase a Converted
Mortgage Loan, after notice, is an Event of Default under the Pooling and
Servicing Agreement. The Trustee and a successor master servicer under the
Pooling and Servicing Agreement will not have any obligation to purchase any
Converted Mortgage Loan.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee payable to the Master Servicer will be payable out of each
interest payment on a Mortgage Loan and will be an adjustable amount equal to
one month's interest (or in the case of any payment of interest which
accompanies a Principal Prepayment made by the Mortgagor, interest for the
number of days covered by such payment of interest) at the applicable
Servicing Fee Rate on the principal balance of such Mortgage Loan. The
Servicing Fee Rate is not the same for each Mortgage Loan. The Servicing Fee
Rate is basis points. The Master Servicer will be permitted to retain or
withdraw from the Certificate Account, in respect of each interest payment
received on a Mortgage Loan, the Servicing Fee with respect to such Mortgage
Loan, calculated on the basis of the same principal amount and period
respecting which the interest payment is computed. In addition, , as
holder of the Subsidiary Residual Interest Certificate, will receive an amount
equal to (i) with respect to each Mortgage Loan, the principal balance of such
Mortgage Loan times the
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<PAGE>
difference, if any, between the Mortgage Rate (net of the Servicing Fee) and
the Subsidiary Pass-Through Rate, [less such amount as may be necessary to
assure that the distributions made to the Subsidiary Regular Certificateholder
on the related Distribution Date include an amount equal to one full month's
interest at the applicable Subsidiary Pass-Through Rate], and (ii) gains, if
any, arising from sale of Mortgaged Property acquired as a result of
foreclosure in respect of a Mortgage Loan or arising from a repurchase pursuant
to an optional termination. See "Federal Income Tax Consequences" in the
Prospectus. See "Description of the Certificates--Servicing Compensation and
Payment of Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer.
The Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
any amounts payable to the Servicer or any other sub-servicer, the fees and
expenses of the Trustee and the other various items of expense enumerated in
the Prospectus.
[ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgage Loan is prepaid, in whole or in part, between schedule
payment dates, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. As a result, the aggregate amount of
interest which would otherwise be distributed to Certificateholders may be
reduced. To mitigate this reduction in yield, the Pooling and Servicing
Agreement provides that with respect to any such Principal Prepayment, the
Servicing Fee otherwise payable to the Master Servicer will be reduced in such
amount, if any, as may be necessary to assure that the distributions made to
Certificateholders on the related Distribution Date include an amount equal to
one full month's interest at the applicable Subsidiary Pass-Through Rate for
such Mortgage Loan. Thus, so long as there are sufficient funds otherwise
payable from the Servicing Fee on each Distribution Date, Certificateholders
will always receive a full month's interest with respect to any such principal
prepayments. See "Distributions" above.]
THE TRUSTEE
, a banking association, will act as Trustee for the Certificates
pursuant to the Pooling and Servicing Agreement. The Trustee's principal
executive offices are located at , and its telephone number is ( ) .
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
Under certain circumstances, the Master Servicer may be required to
repurchase one or more Mortgage Loans from the Subsidiary Trust Fund.
Generally, the repurchase obligation arises when the documentation with
respect to a Mortgage Loan is discovered to be materially defective or when a
breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of Certificateholders. See "Description of
the Certificates--Assignment of Mortgage Loans" in the Prospectus.
In the event of a repurchase of a Mortgage Loan, the repurchase price would
be equal to the sum of the outstanding principal balance of such Mortgage Loan
on the date of repurchase plus interest accrued thereon at the Subsidiary
Pass-Through Rate to the first day of the month following the month in which
such repurchase is effected; provided, however, that if such repurchase at the
price so determined would result in net income to the Subsidiary Trust Fund
that would be subject to tax as income derived from a "prohibited
transaction," as defined in Section 860F(a)(2) of the Code, or would otherwise
subject the Subsidiary Trust Fund to tax, then, notwithstanding the foregoing.
the repurchase price for such Mortgage Loan shall be the maximum amount such
that the repurchase would not result in such tax, as evidenced by an Opinion
of Counsel, in form and substance satisfactory to the Trustee, which shall be
delivered in the event of any such reduction.
Within a period of three months, or in the case of a "defective obligation"
within the meaning of Section 860(G)(a)(4)(B) of the Code, within two years
from the Delivery Date of the Certificates, the Depositor or the
S-27
<PAGE>
Master Servicer may, instead of repurchasing a Mortgage Loan required to be
repurchased pursuant to the Pooling and Servicing Agreement, deliver a
mortgage loan (a "Replacement Mortgage Loan") in substitution for any Mortgage
Loan that would otherwise have been repurchased (a "Deleted Mortgage Loan").
Generally, the repurchase obligation arises when the documentation with
respect to a Mortgage Loan is discovered to be materially defective or when a
breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of Certificateholders. See "Description of
the Certificates--Assignment of Mortgage Loans" in the Prospectus.
To the extent that the Depositor or the Master Servicer, as the case may be,
elects to deliver a Replacement Mortgage Loan for a Mortgage Loan it would
otherwise be obligated to repurchase, such Replacement Mortgage Loan must, on
the date of such substitution: (a) have an outstanding principal balance,
after deduction of payments due in the month of substitution, not in excess of
the principal balance of the Deleted Mortgage Loan; (b) have a Maximum
Mortgage Rate no lower than (and not more than 1% per annum higher than) the
Maximum Mortgage Rate of the Deleted Mortgage Loan; (c) have the same Index,
Gross Margin, Periodic Mortgage Rate Cap and frequency of Adjustment Dates as
those of the Deleted Mortgage Loan; (d) be accruing interest at a rate no
lower than and have the same Payment Adjustment Date as the Payment Adjustment
Date of the Deleted Mortgage Loan; (e) have a Loan-to-Value Ratio no higher
than that of the Deleted Mortgage Loan; (f) have a term to maturity no greater
than (and not more than one year less than) that of the Deleted Mortgage Loan;
and (g) comply with each representation and warranty with respect to Mortgage
Loans in the Pooling and Servicing Agreement. Upon any such substitution, the
Depositor or the Master Servicer, as the case may be, will deliver the
Mortgage File relating to the Replacement Mortgage Loan to the Trustee and the
Trustee will release the Deleted Mortgage Loan (or any property acquired in
respect thereof) from the Subsidiary Trust Fund.
For any month in which a Replacement Mortgage Loan is substituted for any
Deleted Mortgage Loan, the Master Servicer will determine the amount, if any,
by which the aggregate principal balance of all such Replacement Mortgage
Loans as of the date of substitution is less than the aggregate principal
balance of all such Deleted Mortgage Loans (after application of the scheduled
principal portion of the monthly payments due in such month). The amount of
any such shortage shall be deposited by the Depositor or the Master Servicer,
as the case may be, from its own funds into the Certificate Account in the
month of substitution, without any reimbursement therefor, and will be
distributed to Certificateholders on the Distribution Date in the month
following such substitution. See "Description of the Certificates--
Distributions on Certificates" in the Prospectus.
VOTING RIGHTS
At any time that any Class A Certificates or Class B Certificates are
outstanding, the voting rights of a Class A Certificate or Class B Certificate
are obtained by dividing the then outstanding principal balance of such
Certificate by the aggregate principal balances at such time of all the Class
A Certificates and Class B Certificates.
[OPTIONAL TERMINATION
The Pooling and Servicing Agreement provides that the holder of the
Subsidiary Residual Interest Certificate, at its option, may purchase from the
Subsidiary Trust Fund all Mortgage Loans remaining in the Mortgage Pool and
all property acquired in respect of a Mortgage Loan, provided that the
aggregate unpaid balance of the Mortgage Loans at the time of any such
repurchase is less than % of the Cut-off Date Principal Balance.
Additionally, the holder of the Class B[-2] Certificate, at its option, may
purchase from the Master Trust Fund all Subsidiary Regular Interests remaining
in the Master Trust Fund and all other property in such Trust Fund, provided
that the Subsidiary Regular Interests at the time of any such repurchase
represent interests in less than % of the Cut-off Date Principal Balance of
the Mortgage Loans. The purchase price for any such repurchase will be 100% of
the unpaid principal balance of each Mortgage Loan or Subsidiary Regular
Interest, as the case may be, together with accrued and unpaid interest with
respect to each Mortgage Loan through the last day of the month of such
repurchase. Any property acquired in respect of a Mortgage Loan and remaining
in
S-28
<PAGE>
the applicable Trust Fund at the time such optional termination is effected
will be purchased at its appraised value. Either of the above purchases would
thereby effect early retirement of the Class A Certificates.]
FEDERAL INCOME TAX CONSEQUENCES
REMIC ELECTION
An election will be made to treat the assets of the Subsidiary Trust Fund as
a REMIC (the "Subsidiary REMIC") for federal income tax purposes. Amounts (i)
with respect to each Mortgage Loan equal to the principal balance of such
Mortgage Loan times the difference, if any, between the Mortgage Rate (net of
the Servicing Fee) and the Subsidiary Pass-Through Rate and (ii) representing
gains, if any, arising from the sale of Mortgaged Property acquired as a
result of foreclosure in respect of a Mortgage Loan or arising from a
repurchase pursuant to an optional termination will comprise the residual
interest in the Subsidiary REMIC. The regular interests in the Subsidiary
REMIC in the aggregate will encompass the rights to all other amounts
distributable with respect to the Mortgage Loans. An election will be made to
treat as a REMIC (the "Master REMIC") the Master Trust Fund comprised of the
regular interests in the Subsidiary REMIC. The Class A [and B-l] Certificates
will represent the regular interests in the Master REMIC and the Class B[-2]
Certificates will be the residual interest in the Master REMIC. initially will
retain the residual interests in both the Master REMIC and the Subsidiary REMIC.
See "Federal Income Tax Consequences" in the Prospectus. The Internal Revenue
Service has issued permitting REMICs to issue regular interests bearing variable
rates based on (i) certain fixed formulas using an objective interest index or
(ii) a weighted average of the interest rates of the "qualified mortgages" held
by the REMIC.
[ORIGINAL ISSUE DISCOUNT
The Class A Certificates are expected to be treated as having been issued with
original issue discount. Although no rulings or regulations have been issued by
the Internal Revenue Service clarifying the application of the statutory
provisions requiring the use of a prepayment assumption for the accrual of
original issue discount on REMIC regular interests to variable rate regular
interests and the matter is, therefore, not entirely certain, it appears likely
that the rules of the Code relating to original issue discount would be applied
to include in income as original issue discount any excess of the stated
redemption price at maturity over the issue price of the Class A Certificate as
if such Certificate would bear interest in each period after the first
Distribution Date at a rate determined as if the Index were to remain constant
over the life of such Certificate at its value as of the Closing Date (or
possibly as of the date of pricing of the Certificates). Applying that
assumption would effectively convert such Class A Certificate to a debt
instrument having an initial fixed rate followed by a higher rate in subsequent
periods to which the rules described in the Prospectus under the heading
"Federal Income Tax Consequences--REMIC Trust Funds--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount" could be applied for purposes of
determining the portion of the excess of the stated redemption price at maturity
of a Class A Certificate over the issue price of such Certificate that accrues
each day. In addition to the daily accrual of the discount described above, each
Class A Certificateholder will be required to accrue, and include in income
daily, the stated interest on each Class A Certificate to the extent not
included in the stated redemption price at maturity. For a more detailed
discussion of the accrual of original issue discount, see "Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates" in the Prospectus.]
Absent clarification in the regulations, the Master Servicer intends to
report original issue discount to the Internal Revenue Service and to
Certificateholders in the manner described above, using a prepayment
assumption that is a Standard Prepayment Assumption ("SPA") of %. A
prepayment assumption of 100% of SPA assumes a prepayment rate of 0.2% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the lives increased by 0.2% per annum each month thereafter
until the thirtieth such month. Beginning in the thirtieth month and in each
month thereafter during the lives of the mortgage loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum. No representation is made that the
Mortgage Loans will prepay at this rate or any other rate.
The material (and certain minor and incidental) consequences of investing in the
Certificates are discussed in "Federal Income Tax Consequences" in the
Prospectus. It is recommended that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with their own tax advisors
regarding the consequences to them of investing in the Certificates.
S-29
<PAGE>
LEGAL INVESTMENT
The Class A Certificates will constitute, for so long as they are rated as
described below, "mortgage-related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"), and, as such,
will be legal investments for certain entities to the extent provided in the
Enhancement Act. Such investments, however, will be subject to general
regulatory considerations governing investment practices under state and
federal law. Institutions whose investment activities are subject to review by
certain regulatory authorities may be, or may become, subject to restrictions,
which may be retroactively imposed by such regulatory authorities, on the
investment by such institutions in certain mortgage-related securities.
Investors should consult their own legal advisors to determine whether, and to
what extent, the Class A Certificates may be purchased by such investors. See
"Legal Investment" in the Prospectus.
RATINGS
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated at least " " by . (" "). Securities rated " " by
are " ."
[The ratings of Moody's on mortgage pass-through Certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying mortgage loans. Moody's rating opinions address the structural,
legal, issuer and tax-related aspects associated with the Certificates,
including the nature of the underlying mortgage loans. Moody's ratings on
pass-through Certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors (including, in the case of the Class A
Certificates, prepayments resulting from the repurchase of Converted Mortgage
Loans) or of the degree to which such payments might differ from that
originally anticipated. Moody's rating of the Class A Certificates will not
represent any assessment of the Master Servicer's ability to repurchase
Converted Mortgage Loans. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.]
ERISA CONSIDERATIONS*
[A fiduciary of any employee benefit plan and certain other retirement plans
and arrangements (including individual retirement accounts, and annuities,
Keogh plans, and collective investment funds in which such funds, accounts,
annuities or arrangements are invested) that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code
should carefully review with legal advisors whether the purchase or holding of
Certificates could give rise to a transaction that is prohibited or not
otherwise permissible either under ERISA or the Code. See "ERISA
Considerations" in the Prospectus.]
PLAN OF DISTRIBUTION
[The Master Servicer has agreed, pursuant to the Purchase Agreement dated
(the "Purchase Agreement"), to pay the Depositor a fee of $ in connection
with the exchange of the Certificates and the residual interest in the
Subsidiary REMIC for the Mortgage Loans. The Depositor will sell the
Certificates and such residual interest to the Master Servicer in exchange for
the Mortgage Loans subject to the terms and conditions set forth in the
Purchase Agreement. Pursuant to the Purchase Agreement, the Depositor or its
affiliates have certain preferential rights in connection with resales of the
Class A Certificates.]
[ may be deemed, by virtue of the exchange, to be an "Underwriter"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by of the Class A Certificates. Until , such reoffers and
sales by Master Servicer will be made pursuant to this Prospectus Supplement
and the
- --------
* [Note: If the Series of Certificates offered pursuant to this Version F
Prospectus Supplement evidences interests in Contracts, the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "ERISA Considerations" or in the Prospectus under "ERISA
Considerations."]
S-30
<PAGE>
Prospectus, as amended and supplemented as of the date of such reoffering.
After such date, this Prospectus Supplement and Prospectus may not be used in
connection with such reoffers and sales. The Depositor has been advised by
that such reoffers and sales may be made by from time to time in
negotiated transactions or otherwise at varying prices determined at the time
of sale, and may be made to or through one or more Underwriters, agents or
dealers, including, without limitation, the Depositor or one of its
affiliates, who may receive compensation in the form of underwriting
discounts, concessions or commissions.]
[The Purchase Agreement provides that will indemnify the Depositor and
its affiliates against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Depositor and its
affiliates, as the case may be required to make in respect thereof.]
[The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative.] The [Underwriter[s] named below[
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amounts[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- ----------------------------------------------- ------------ ------------ -----
<S> <C> <C> <C>
Credit Suisse First Boston
Corporation................................... $ $ $
Total........................................ $ $ $ ]
</TABLE>
[The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.]
The Underwriter[s] [[has] [have] advised the Depositor that the
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in one or more negotiated transactions or otherwise at prices to be
determined at the time of sale. The Underwriter[s] may effect such
transactions by selling the Class A Certificates to or through dealers and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter[s] and any purchasers of the
Class A Certificates for whom they may act as agent.
The Underwriter[s] and any dealers that participate with the Underwriter[s]
in the distribution of the Certificates may be deemed to be underwriters, and
any discounts or commissions received by them and any profit on the resale of
Class A Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended (the "Act").
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
[The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933 or to
contribute to payments the Underwriter[s] may be required to make in respect
thereof.]
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by Orrick, Herrington & Sutcliffe LLP. The material federal
income tax consequences of the Class A Certificates will be passed upon for the
Depositor by Orrick, Herrington & Sutcliffe LLP.
S-31
<PAGE>
USE OF PROCEEDS
[The Certificates are being initially sold and delivered by the Depositor to
in exchange for the Mortgage Loans to be deposited by the Depositor in
the Subsidiary Trust Fund. Other than its fee in connection with such exchange
the Depositor will receive no other proceeds from the sale of the
Certificates. may subsequently sell the Certificates in one or more
transactions. It is expected that will use the proceeds of such sale for
general corporate purposes. See "Plan of Distribution" herein.
[The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more
affiliates.
S-32
<PAGE>
[Version G- Adjustable Rate Certificates; Reserve Funds; Yield Support
Agreement]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any State.
SUBJECT TO COMPLETION, DATED , 19
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December __
$________________ (APPROXIMATE)
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
Adjustable Rate Conduit Mortgage Pass-Through Certificates, Series
Class A-1 Certificates
___________________
The Adjustable Rate Conduit Mortgage Pass-Through Certificates, Series
(the "Certificates") will be comprised of three classes of certificates: Class
A-1, Class IO and Class R. Only the Class A-1 Certificates are offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in a trust
fund (the "Trust Fund") to be created by Credit Suisse First Boston Mortgage
Securities Corp. (the "Depositor"), the assets of which will consist
primarily of (a) classes (or portions of classes) of mortgage pass-through
certificates (the "Mortgage Certificates"), each of which is part of one
of series of mortgage pass-through certificates initially sold by the
Resolution Trust Corporation and acquired by the Depositor in the secondary
market, (b) a Reserve Fund and (c) a Yield Support Agreement provided
by . The Certificates will be issued pursuant to a Pooling Trust
Agreement (the "Pooling Agreement") among the Depositor, as
Certificate Administrator and , as Trustee. See "Description
of the Certificates."
As more fully described herein, commencing with a rate of ______% per annum,
interest will accrue on the Class A-1 Certificates at a per annum rate 0.30% in
excess of the London interbank offered rate for three-month U.S. dollar deposits
("LIBOR"),determined quarterly as set forth herein ("LIBOR"). The amount of
interest accrued on the Class A-1 Certificates will be reduced by the amount of
certain prepayment interest shortfalls and deferred interest as described herein
under "Description of Certificates--Interest." Interest generally will be paid
quarterly, to the extent funds are available therefor as described herein on the
25th day of each February, May, August and November or, any such day is not a
business day on the next succeeding business day, beginning in ;
provided, however, that if all distributions on the Mortgage Certificates due on
such day have not been received prior to 1:00 p.m. (New York time) on such day,
distributions will be made on the next succeeding business day. Each such date
is referred to as a "Distribution Date." See "Summary of Terms--Distribution
Date" and "Description on the Certificates" herein. The ratings on the Class A-1
Certificates do not address the likelihood that the holders of such Certificates
will receive interest on their Certificates in excess of the weighted average
net mortgage rate on the mortgage loans. See "Risk Factors--Basis Risk" herein.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor, as described
herein, until the Class A-1 Certificates are paid in full. See "Description of
the Certificates--Distributions of Interest and Principal."
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE MATERIAL RISK
FACTORS DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT COMMENCING
ON PAGE S-17 AND IN THE PROSPECTUS ON PAGE 19.
(COVER CONTINUED ON NEXT PAGE)
THE CLASS A-1 CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., THE TRUSTEE, THE
CERTIFICATE ADMINISTRATOR OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES
NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PARTY.
____________________
THE CLASS A-1 CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER ERISA
CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
____________________
The Class A-1 Certificates will be offered by Credit Suisse First Boston
Corporation ("First Boston") from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Class A-1 Certificates
are anticipated to be approximately $_____________, plus accrued interest
thereon at the Certificate Rate from , but before deducting
expenses payable by the Depositor, estimated to be $ ___________.
The Class A-1 Certificates are offered by First Boston when, as and if delivered
to and accepted by First Boston, subject to prior sale, withdrawal or
modification of the offer without notice, the approval of counsel and other
conditions. It is expected that the Class A-1 Certificates will be delivered
only through the same day funds settlement system of the Depository Trust
Company on or about .
CREDIT SUISSE FIRST BOSTON
________________________________________________________________________________
The date of this Prospectus Supplement is [ ], 19
VERSION G
<PAGE>
On or about the Distribution Date occurring in and on each
succeeding Distribution Date until successful, the Trustee will attempt to sell
the Mortgage Certificates at auction for a price which, together with amounts on
deposit in the Reserve Fund, is at least equal to the then-outstanding Principal
Balance of the Class A-1 Certificates, plus interest accrued and unpaid thereon.
The proceeds of any such sale of the Mortgage Certificates, together with funds
on deposit in the Reserve Fund (to the extent needed), will be used to retire
the Class A-1 Certificates.
Prospective investors should consider:
. The yield on the Class A-1 Certificates will be sensitive to, among
other things, the rate and timing of principal payments on the
Mortgage Certificates (which likely will be different for different
Mortgage Certificates) and the level of LIBOR.
. As described under "Special Consideration--Basis Risk" and "Yield
and Prepayment Considerations--Basis Risk; LIBOR" herein, under some
prepayment and interest rate scenarios, an investor may not receive
all interest accrued on the Class A-1 Certificates with respect to
one or more Distribution Dates on such Distribution Dates, or in
certain cases, prior to the retirement of the Class A-1
Certificates.
The Class A-1 Certificates will be issued only in book-entry form, and the
purchasers thereof will not be entitled to receive definitive certificates
except in the limited circumstances set forth herein. The Class A-1
Certificates will be registered in the name of Cede & Co., as nominee of The
Depository Trust Company, which will be the "holder" or "Certificateholder" of
such Certificates, as such terms are used herein. See "Description of the
Certificates" herein.
The Class A-1 Certificates may not be an appropriate investment for
individual investors. There is currently no secondary market for the Class A-1
Certificates and there can be no assurance that a secondary market will develop
or, if it does develop, that it will provide Certificateholders with liquidity
of investment at any particular time or for the life of the Class A-1
Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so and
any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate was
purchased.
An election will be made to treat the portion of the Trust Fund consisting
of the Mortgage Certificates as a real estate mortgage investment conduit (the
"REMIC") for federal income tax purposes. As described more fully herein and in
the Prospectus, the payments on the Class A-1 Certificates which are derived
from the Mortgage Certificates and the Class IO Certificates will constitute
"regular interests" in the REMIC and the Class R Certificate will constitute the
"residual interest" in the REMIC. See "Summary Information--Federal Income Tax
Status" and "Federal Income Tax Considerations" herein and "Federal Income Tax
Consequences" in the Prospectus.
The Class A-1 Certificates represent one Class of a separate Series of
Certificates which Class is being offered by the Depositor pursuant to the
Prospectus dated accompanying this Prospectus Supplement.
The Prospectus shall not be considered complete without this Prospectus
Supplement and any prospective investor shall not purchase any Certificate
offered hereby unless it shall have received both the Prospectus and this
Prospectus Supplement. The Prospectus contains important information regarding
this offering which is not contained herein, and prospective investors are urged
to read the Prospectus and this Prospectus Supplement in full.
____________________
UNTIL ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A-1
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used herein and not defined shall have
the meaning given in the Prospectus or the Pooling Agreement, as
applicable. See "Index of Significant Prospectus Supplement Definitions"
herein and "Index of Significant Definitions" in the Prospectus.
Securities Offered $________ (approximate) initial Principal
Balance of Adjustable Rate Conduit Mortgage
Pass-Through Certificates, Series ,
Class A-1, evidencing a class of "regular
interests" in the REMIC.
Other Securities Adjustable Rate Conduit Mortgage Pass-Through
Certificates, Series , Class IO,
evidencing a class of "regular interests" in
the REMIC, and the Class R Certificate,
evidencing the "residual interest" in the
REMIC. The Class IO Certificates and the
Class R Certificate are not offered hereby.
The Class A-1, Class IO and Class R
Certificates are referred to collectively
herein as the "Certificates."
Forms of Certificates;
Denominations The Class A-1 Certificates will be issued as
Book-Entry Certificates, through the
facilities of The Depository Trust Company.
See "Description of the Certificates--Book-
Entry Form" herein. The Class A-1
Certificates will be issued, maintained and
transferred in book-entry form only in minimum
denominations of $1,000 initial principal
balance and integral multiples of $1,000
initial principal balance in excess thereof.
Depositor Credit Suisse First Boston Mortgage Securities
Corp.
Certificate Administrator Certain administrative functions with respect
to the Certificates will be performed by
Trustee
Cut-off Date (after giving effect to
distributions on the Mortgage Certificates on
such date).
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Closing Date On or about .
Final Scheduled
Distribution Date _______, 20__. The Final Scheduled
Distribution Date has been set to coincide
with the Distribution Date succeeding the
latest maturity date of any Mortgage Loan in
any Underlying Mortgage Pool.
The Trust Fund The Class A-1 Certificates evidence interests
in a trust fund (the "Trust Fund"), the assets
of which will consist primarily of (a)
classes (or portions of classes) of mortgage
pass-through certificates (the "Mortgage
Certificates"), each of which is part of one
of series of mortgage pass-through
certificates initially sold by the Resolution
Trust Corporation and which were acquired by
the Depositor in the secondary market, (b) a
Reserve Fund and (c) a Yield Support Agreement
provided by See "--The Reserve
Fund" and "--The Yield Support Agreement"
below. The Trust Fund will be established and
the Certificates will be issued pursuant to a
Pooling Trust Agreement (the "Pooling
Agreement"), dated as of .
See "Description of the Certificates--General"
herein.
Risk Factors For discussion of material risk factors that
should be considered with respect to an
investment in the Certificates, see "Risk
Factors" herein and in the related Prospectus.
Distribution Date Distributions on the Certificates will be made
quarterly on the 25th day of each February,
May, August and November, beginning in
February , or, if any such day is not a
business day, the following business day;
provided, however, that if the Trustee has not
received all distributions on the Mortgage
Certificates due on or before such day prior
to 1:00 p.m. New York time on such day,
payments on the Certificates will be made on
the next succeeding business day. Each such
day, a "Distribution Date."
Record Date The "Record Date" for each Distribution Date
will be the close of business on the last
business day of the month preceding the month
in which such Distribution Date occurs.
Distributions on
Certificates Interest Distributions. The amount of
interest payable on the Class A-1 Certificates
on each Distribution
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Date (the "Interest Accrual Amount") will be
equal to the interest accrued at the
applicable rate of interest from the 25th day
of the third month preceding the month in
which such Distribution Date occurs through
the 24th of the month in which such
Distribution Date occurs (each, an "Interest
Accrual Period"). If Interest Available Funds
(as defined herein) with respect to a
Distribution Date are insufficient to pay the
Interest Accrual Amount on such date, any
shortfall in the amount paid on account of
interest on such date will be carried forward
to succeeding Distribution Dates and will bear
interest until paid at the Class A-1 Pass-
Through Rate in effect from time to time.
Payments received on the Mortgage Certificates
on account of interest will be distributed on
each Distribution Date first to pay to the
holders of the Class A-1 Certificates their
respective Interest Accrual Amounts, next to
pay to holders of the Class A-1 Certificates
interest due them with respect to prior
Distribution Dates that remains unpaid
(together with interest on such amounts), and
then to pay current interest and any overdue
interest to the Certificate Administrator for
deposit into the Reserve Fund in respect of
the Class IO Certificates, all as more fully
set forth herein under "Description of the
Certificates--Distributions on the
Certificates." DUE TO THE FACTORS DISCUSSED
UNDER "SPECIAL CONSIDERATIONS -- BASIS RISK,"
INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE
SUFFICIENT TO PAY THE HOLDERS OF THE CLASS A-1
CERTIFICATES THEIR FULL INTEREST ACCRUAL
AMOUNTS ON EACH DISTRIBUTION DATE.
The Interest Accrual Amount for the Class A-1
Certificates on each Distribution Date will
equal the product of (i) one-fourth of the
Class A-1 Pass-Through Rate for such
Distribution Date and (ii) the outstanding
Principal Balance thereof (subject to
reduction in respect of Deferred Interest and
Nonsupported Interest Shortfalls incurred with
respect to the Mortgage Loans underlying the
Mortgage Certificates). The Interest Accrual
Amount for the Class IO Certificates on each
Distribution Date will equal the product of
(i) one-
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<PAGE>
fourth of the Class IO Pass-Through Rate for
such Distribution Date and (ii) the
outstanding Principal Balance of the Class A-1
Certificates, subject to reduction in respect
of Deferred Interest and Nonsupported Interest
Shortfalls.
The "Class A-1 Pass-Through Rate" during the
initial Interest Accrual Period will be __%
per annum. During each succeeding Interest
Accrual Period, the Class A-1 Pass-Through
Rate will be 0.30% in excess of the arithmetic
mean of the London interbank offered rate
quotations for three-month Eurodollar deposits
("LIBOR") on the second business day prior to
the first day of such Interest Accrual Period
(each, a "Reset Date"), determined as
described herein under "Description of the
Certificates -- Determination of LIBOR."
During each Interest Accrual Period the "Class
IO Pass-Through Rate" will be a variable rate
equal to the excess, if any, of (X) the
weighted average of the Weighted Average
Mortgage Certificate Pass-Through Rate, for
each of the Underlying Series Distribution
Dates that occurs in the "collection Period"
related to such Interest Accrual Period
(determined as described herein) (such
weighted average, the "Quarterly Mortgage
Certificate Pass-Through Rate") over (Y) the
Class A-1 Pass-Through Rate for such Interest
Accrual Period. The "Weighted Average
Mortgage Certificate Pass-Through Rate" with
respect to any Underlying Series Distribution
Date will be equal to the weighted average of
the pass-through rates of the Mortgage
Certificates applicable to such Underlying
Series Distribution Date, weighted on the
basis of the outstanding principal balances
thereof prior to distributions on such
Underlying Series Distribution Date. The
Weighted Average Mortgage Certificate Pass-
Through Rate with respect to the Underlying
Series Distribution Date in is
expected to be approximately ____%. The
"Collection Period" with respect to each
Distribution Date is the period commencing on
the day after the previous Distribution Date
(or, in the
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case of the first Collection Period, on
November 26, 1995) and ending on such
Distribution Date.
Interest on the Certificates will be calculated
on the basis of actual days elapsed in a 360-
day year.
Principal Distributions. Distributions in
respect of principal on the Class A-1
Certificates will be made on each Distribution
Date in an amount equal to the sum of all
amounts distributed in respect of principal on
the Mortgage Certificates during the
Collection Period ending on such Distribution
Date.
Reserve Fund On the Closing Date, the Depositor will deposit
or cause to be deposited into an account (the
"Reserve Fund") maintained by the Certificate
Administrator, (a) cash in the amount of $
million, and (b) the Class IO Certificates.
All distributions on the Class IO Certificates
will be made to the Certificate Administrator
for deposit into the Reserve Fund. Amounts on
deposit in the Reserve Fund from time to time
will be available on each Distribution Date to
be paid to holders of the Class A-1
Certificates to the extent that distributions
on account of interest received on the
Mortgage Certificates in the related
Collection Period are insufficient to pay such
holders, Interest Accrual Amount for such date
together with any overdue interest. NO
ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT
IN THE RESERVE FUND FROM TIME TO TIME WILL,
TOGETHER WITH THE BALANCE OF INTEREST
AVAILABLE FUNDS ON ANY DISTRIBUTION DATE, BE
SUFFICIENT TO ALLOW FULL DISTRIBUTIONS IN
RESPECT OF INTEREST ON THE CLASS A-1
CERTIFICATES ON SUCH DISTRIBUTION DATE. The
Reserve Fund will be an asset of the Trust
Fund, but will not be an asset of the REMIC.
See "Description of the Certificates --
Reserve Fund" herein.
The Yield Support
Agreement On the Closing Date, the Trustee, acting on
behalf of the holders of the Class A-1
Certificates, will enter into a yield support
agreement (the "Yield Support Agreement") with
, a __________ corporation (the
"Yield Support Counterparty").
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<PAGE>
Pursuant to the terms of the Yield Support
Agreement, in the event that LIBOR on any
Reset Date (determined as described herein
under "Description of Certificates--
Determination of LIBOR") exceeds a rate equal
to LIBOR as set with respect to the first
Distribution Date plus 2.0% (the "Strike
Rate"), the Yield Support Counterparty will be
obligated to pay to the Certificate
Administrator, for the benefit of the holders
of the Class A-1 Certificates, on the
Distribution Date related to the Interest
Accrual Period following such Reset Date, an
amount equal to the product of (x) the
difference between LIBOR at such Reset Date
(determined as described above) and the Strike
Rate and (y) Principal Balance of the Class A-
1 Certificates outstanding prior to
distributions on such Distribution Date.
Amounts paid by the Yield Support Counterparty
on any Distribution Date will be available to
make distributions in respect of interest on
the Class A-1 Certificates and, to the extent
not required for such distributions, will be
paid to the Certificate Administrator for
deposit into the Reserve Fund. NO ASSURANCE
CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD
SUPPORT COUNTERPARTY ON ANY DISTRIBUTION DATE
WILL, TOGETHER WITH THE BALANCE OF THE
INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION
DATE, BE SUFFICIENT TO ALLOW FULL
DISTRIBUTIONS IN RESPECT OF INTEREST ON THE
CLASS A-1 CERTIFICATES ON SUCH DISTRIBUTION
DATE OR ON ANY FUTURE DISTRIBUTION DATES.
The Yield Support Agreement will terminate upon
the reduction of the Principal Balance of the
Class A-1 Certificates to zero.
The Yield Support Agreement also may be
terminated by the Trustee under the
circumstances described herein under
"Description of the Certificates -- The Yield
Support Agreement -- Termination."
Mandatory Auction Prior to the Distribution Date occurring in
, the Trustee will cause the
Certificate Administrator to hold an auction
(the "Auction") for the sale of the Mortgage
Certificates. If the highest bid, together
with amounts on deposit in the Reserve
S-8
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<PAGE>
Fund, is at least equal to the then
outstanding Principal Balance of the Class A-1
Certificates, together with interest accrued
and unpaid thereon through such Distribution
Date, the Trustees will sell the Mortgage
Certificates and pay in full the Class A-1
Certificates on . If no
sufficient bid is obtained, the Trustee will
continue to hold the Mortgage Certificates and
the Certificate Administrator will continue to
make required distributions of interest and
principal on the Class A-1 Certificates. The
auction procedure will be repeated with
respect to each succeeding Distribution Date
until a sufficiently high bid is obtained.
Optional Repurchase of
the Mortgage Certificates The beneficial owner of the Class IO
Certificates will have the option to purchase
the Mortgage Certificates from the Trust Fund
on any Distribution Date on which the Mortgage
Certificate Balance is equal to 5% or less of
the original Mortgage Certificate Balance.
See "The Pooling Agreement -- Termination"
herein.
[Expense Fund The Depositor will deposit in an account
established by the Trustee with the
Certificate Administrator (the "Expense Fund")
on the Closing Date cash in an amount
necessary to meet the requirements of each
Rating Agency. Funds on deposit in the
Expense Fund will be used to pay amounts owing
to the Trustee pursuant to the Pooling
Agreement and the fees of the Certificate
Administrator. Funds on deposit in the
Expense Fund will not be available to make
payments on the Certificates.]
Ratings It is a condition of the issuance of the
Certificates that the Class A-1 Certificates
be rated at least "Aaa" by Moody's Investors
Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's ("S&P").
THE RATINGS OF THE RATING AGENCIES DO NOT
ADDRESS THE LIKELIHOOD OF PAYMENT OF INTEREST
ON THE CLASS A-1 CERTIFICATES AT A RATE IN
EXCESS OF THE WEIGHTED AVERAGE NET MORTGAGE
RATE ON THE UNDERLYING MORTGAGE LOANS FOR ANY
DISTRIBUTION DATE.
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<PAGE>
The ratings of Moody's and S&P on mortgage
securities address the likelihood of the
receipt by the holders thereof of all
distributions of principal and interest to
which such holders are entitled (except as set
forth in the preceding paragraph). There is
no assurance that such ratings will continue
for any period of time or that they will not
be revised or withdrawn entirely by such
rating agency if, in its judgment,
circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse
effect on the market price of the Class A-1
Certificates. A security rating is not a
recommendation to buy, sell or hold
securities.
The Depositor has not requested a rating on the
Class A-1 Certificates from any other rating
agency, although data with respect to the
Mortgage Loans and Mortgage Certificates may
have been provided to other agencies solely
for their informational purposes. There can
be no assurance that if a rating is assigned
to the Class A-1 Certificates by any other
rating agency, such rating will be as high as
that assigned by Moody's and S&P. See
"Rating."
Mortgage Certificates The assets of the REMIC will consist
primarily of classes (or a portion of such
classes) of senior mortgage pass-through
certificates (the "Mortgage Certificates"),
each of which is a part of one of separate
series of mortgage pass-through certificates
sold by the Resolution Trust Corporation
("RTC") (each an "Underlying Series"),
identified in the following table.
--------------------------------------------------------------
UNDERLYING SERIES
--------------------------------------------------------------
Series Designation Classes of Mortgage Certificates
------------------------ --------------------------------
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
S-10
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<PAGE>
--------------------------------------------------------------
Each of the Mortgage Certificates evidences a
senior interest in a mortgage pool (each, an
"Underlying Mortgage Pool") previously formed
by the RTC. Payments on each Class of
Mortgage Certificates will be made on the 25th
day of each month (or if such day is not a
business day, the succeeding business day)
(each, an "Underlying Series Distribution
Date") primarily from amounts received in
respect of the mortgage loans that constitute
the corpus of the related Underlying Mortgage
Pool (in the aggregate, the "Mortgage Loans").
Such amounts, together, with any payments
under the Yield Support Agreement and payments
from the Reserve Fund, are the sole source of
payments on the Class A-1 Certificates. As of
the Underlying Series Distribution Date in
, after giving effect to
distributions and principal balance reductions
on such date, the Mortgage Certificates had
characteristics approximately as set forth
under "The Mortgage Certificates."
The Mortgage Loans The Mortgage Loans are contained in separate
pools of adjustable interest rate,
conventional, residential first mortgage loans
having characteristics approximately as set
forth in the table entitled "Selected Mortgage
Loan Data" under "Description of the Mortgage
Loans." The interest rate on each Mortgage
Loan is subject to adjustment periodically (as
specified in the related mortgage note) to a
rate equal to the sum (subject to rounding) of
(i) a specified index and (ii) an individual
gross margin, subject to certain limitations.
For
S-11
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<PAGE>
approximately $______ by principal balance
as of the Cut-Off Date of the Mortgage Loans,
the index used is the monthly weighted average
cost of funds for member institutions of the
Eleventh District of the Federal Home Loan
Bank System, as published by the Federal Home
Loan Bank of San Francisco ("COFI"). Such
Mortgage Loans are referred to herein as "COFI
Mortgage Loans." For the remaining Mortgage
Loans, the index generally used is the weekly
average yield on U.S. Treasury securities
adjusted to a constant maturity ("CMT") of one
year or the weekly auction average
(investment) rate on U.S. Treasury Bills with
a six-month maturity ("CBE"), each as
published by the Federal Reserve Board in
Statistical Release H.15 (519), or a
comparable release. Some of the Mortgage
Loans use a CMT yield of two, three or five
years. Such Mortgage Loans using CMT or CBE
are referred to herein as "CMT Mortgage
Loans."
The Mortgage Loans are subject to overall
maximum interest rates. Some of the Mortgage
Loans are also subject to a minimum interest
rate. Some of the Mortgage Loans are subject
to negative amortization.
Some of the Mortgage Loans have mortgage
interest rates that may be converted to fixed
interest rates at the option of the mortgagor.
Upon conversion to a fixed rate, such Mortgage
Loans generally are required to be purchased
by the servicer of the related Underlying
Mortgage Pool. See "Description of the
Mortgage Loans" and "Yield and Prepayment
Considerations."
Optional Repurchase of Mortgage Loans. The
Underlying Mortgage Pool with respect to each
Mortgage Certificate is subject to special
termination a "Special Termination" at such
time as the aggregate outstanding principal
balance of all the mortgage loans underlying
all the mortgage certificates of the related
Underlying Series is equal to or less than 25%
of the initial aggregate principal balance of
such mortgage loans. See "The
S-12
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<PAGE>
Mortgage Certificates--Special Termination"
herein. In addition, the Mortgage Loan
Servicer with respect to each Underlying
Series has the option to repurchase the
Mortgage Loans from the related Underlying
Mortgage Pool at such time as the aggregate
scheduled principal balance thereof is reduced
to less than 10% of the original aggregate
principal balance thereof. See "The Mortgage
Certificates--Optional Termination" herein.
Any such repurchase will accelerate the rate
at which principal payments are made on the
Class A-1 Certificates.
Certain Prepayment and
Yield Considerations NO INVESTMENT SHOULD BE MADE IN THE CLASS A-1
CERTIFICATES UNLESS AN INVESTOR HAS CONSIDERED
CAREFULLY THE ASSOCIATED RISKS OF INVESTING IN
SUCH CLASS A-1 CERTIFICATES AS DISCUSSED BELOW
AND UNDER "SPECIAL CONSIDERATIONS" AND "YIELD
AND PREPAYMENT CONSIDERATIONS" HEREIN.
Prepayments and Excess Cash. The rate of
principal payments on the Class A-1
Certificates will be affected by the rate of
principal payments on the Mortgage Loans
(including, for this purpose, prepayments,
which may include amounts received by virtue
of condemnation, insurance or foreclosure) and
by the application of Excess Cash to the
principal balance of the Mortgage
Certificates. If a Class A-1 Certificate is
purchased at a discount from its initial
principal amount by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is faster than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated. Conversely, if a Certificate is
purchased at a premium by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is slower than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated.
Timing of Payments. The timing and amount of
payments, including prepayments, on the
Mortgage
S-13
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<PAGE>
Loans may significantly affect an investor's
yield. In general, the earlier a prepayment of
principal on the Mortgage Loans, the greater
will be the effect on an investor's yield to
maturity. As a result, the effect on an
investor's yield of principal prepayments
occurring at a rate higher (or lower) than the
rate anticipated by the investor during the
period immediately following the issuance of
the Class A-1 Certificates will not be offset
by a subsequent like reduction (or increase)
in the rate of principal prepayments.
Basis Risk; LIBOR. The interest rate payable to
the Holders of the Class A-1 Certificates is
based on LIBOR. However, the Mortgage Loans
bear interest at adjustable rates based on
various indices. LIBOR and such various
indices may respond to different economic and
market factors, and there is no necessary
correspondence between them. THERE CAN BE NO
ASSURANCE THAT FUNDS AVAILABLE IN THE RESERVE
FUND OR PAYMENTS UNDER THE YIELD SUPPORT
AGREEMENT WILL BE SUFFICIENT TO MAKE UP ANY
AMOUNT BY WHICH THE INTEREST COLLECTED ON THE
MORTGAGE CERTIFICATES IS LESS THAN THE
INTEREST ACCRUAL AMOUNT OF THE CLASS A-1
CERTIFICATES.
Auction Risk. There can be no assurance that
the Trustee will, on or on
any date thereafter, be able to sell the
Mortgage Certificates for a price sufficient
(together with amounts on deposit in the
Reserve Fund) to allow the Class A-1
Certificates to be paid in full. Therefore,
there can be no assurance that the Class A-1
Certificates will be retired on
.
See "Special Considerations" and "Yield and
Prepayment Considerations" herein for a fuller
discussion of the factors affecting the yield
to maturity of the Class A-1 Certificates.
Liquidity The Underwriter may, from time to time, buy and
sell Class A-1 Certificates, but is not
obligated to do so. There is currently no
secondary market for the Class A-1
Certificates, and there can be no assurance
that one will develop. There is no assurance
that any
S-14
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<PAGE>
such market, if established, will continue.
Each Certificateholder will receive monthly
reports pertaining to the Class A-1
Certificates and the Mortgage Certificates.
There are a limited number of sources which
provide certain information about mortgage-
backed securities in the secondary market;
however, there can be no assurance that any of
these sources will provide information about
the Class A-1 Certificates or the Mortgage
Certificates. Investors should consider the
effect of limited information on the liquidity
of the Class A-1 Certificates.
Federal Income Tax Status [An election will be made to treat the Trust
Fund, and the Trust Fund will qualify, as a
REMIC for federal income tax purposes. The
Class A-1 and Class IO Certificates will
constitute "regular interests" in the REMIC
and generally will be treated as newly
originated debt instruments for federal income
tax purposes. The Class R Certificates will
constitute the sole class of "residual
interests" in the REMIC. [The Class A-1 and
Class IO Certificates will be considered to be
issued with original issue discount in an
amount equal to the excess of all
distributions of principal and interest
expected to be received thereon over their
respective issue prices (including accrued
interest).]
The Prepayment Assumption (as defined in the
Prospectus) that will be used in determining
the rate of accrual of original issue discount
for federal income tax purposes is based on an
18% constant prepayment rate ("CPR"). See
"Yield and Prepayment Considerations" in this
Prospectus Supplement. No representation is
made as to the rate at which the Mortgage
Certificates will prepay.
The material (and certain minor and incidental)
consequences of investing in the Certificates
are discussed in "Federal Income Tax
Consequences" in the Prospectus. It is
recommended that investors read "Federal
Income Tax Consequences" in the Prospectus and
consult with their own tax advisors regarding
the consequences to them of investing in the
Certificates.
ERISA Considerations A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"), or a
governmental plan subject to any
S-15
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<PAGE>
federal, state or local law ("Similar Law")
which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code
(collectively, a "Plan"), should carefully
review with its legal advisors whether the
purchase or holding of Class A-1 Certificates
could give rise to a transaction prohibited or
not otherwise permissible under ERISA, the
Code or Similar Law. See "ERISA
Considerations" in this Prospectus Supplement
and in the Prospectus.
Legal Investment The Class A-1 Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") so long as they are rated in
one of the two highest rating categories by at
least one nationally recognized statistical
rating organization. As such, the Class A-1
Certificates are legal investments for certain
entities to the extent provided in SMMEA.
However, there are regulatory requirements and
considerations applicable to regulated
financial institutions and restrictions on the
ability of such institutions to invest in
certain types of mortgage related securities.
Prospective purchasers of the Class A-1
Certificates should consult their own legal,
tax and accounting advisors in determining the
suitability of and consequences to them of the
purchase, ownership and disposition of the
Class A-1 Certificates. See "Legal
Investment" in this Prospectus Supplement.
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<PAGE>
RISK FACTORS
Prospective investors should consider the following factors in
connection with a purchase of the Class A-1 Certificates.
1. Troubled Originators. The Mortgage Loans in each Underlying
Mortgage Pool were originated or purchased by one or more depository
institutions (each a "Depository Institution") for which the Resolution
Trust Corporation ("RTC") was appointed as conservator or receiver or from
which the RTC acquired the Mortgage Loans. Each of such Depository
Institutions was either insolvent and in the process of liquidation or in
serious financial difficulty and being operated under a conservatorship
with a significant likelihood of subsequently being placed in receivership
and liquidated. It is possible that the financial difficulties experienced
by certain Depository Institutions may have adversely affected either or
both of (i) the standards and procedures by which the Mortgage Loans were
originated by such Depository Institutions or, if purchased from another
originator, the standards and procedures by which the Depository
Institutions selected such Mortgage Loans for purchase and reviewed them
prior to purchase and (ii) the manner in which such Mortgage Loans were
serviced prior to assumption of servicing responsibilities by the servicer
of the related Mortgage Certificates. The RTC, usually acting in its
capacity as conservator or receiver of a Depository Institution, made
certain representations and warranties regarding the Mortgage Loans and is
obligated to repurchase or replace or provide indemnification to the
Trustee and the holders of the related Underlying Series with respect to
Mortgage Loans as to which there is a breach of such representations and
warranties. The RTC, acting in its corporate capacity guaranteed the
obligations incurred in connection with such representations and
warranties. There can be no assurance, however, that such remedy will
apply to all problems that may arise with respect to a Mortgage Loan by
reason of the financial difficulties experienced by the related Depository
Institution.
2. Limited Information; Incomplete Mortgage Files. In preparing
the information regarding the Mortgage Certificates and the Mortgage Loans
contained in this Prospectus Supplement, the Depositor has relied upon
information provided by the RTC in the Prospectus Supplements applicable to
each Underlying Series and on information as to each such series
subsequently provided by the various servicers of the Mortgage
Certificates. The Depositor is unable to verify such information and there
can be no assurance of its accuracy or completeness or the accuracy or
completeness of the information presented herein which is derived from
information provided by the RTC and such servicers. Information available
to the RTC and disclosed in the Prospectus Supplement with respect to an
Underlying Mortgage Pool generally was derived solely from the records of
one or more Depository Institutions without independent review. In many
cases, the information available to the RTC concerning the Depository
Institutions did not permit the RTC to determine fully the origination,
credit appraisal and underwriting practices of such institution or the
manner of servicing of the Mortgage Loans. In many Depository Institutions
the mortgage files were incomplete, and did not contain original notes,
appraisal information, or information regarding whether the mortgaged
properties were owner-occupied, whether there had been modifications,
waivers or
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amendments with respect to such Mortgage Loans or whether such Mortgage
Loans otherwise had terms inconsistent with information used by the RTC to
prepare related disclosure (which disclosure has been relied on, in part,
by the Depositor, in preparing this Prospectus Supplement). If there are a
large number of Mortgage Loans in any given Underlying Mortgage Pool which
the RTC is obligated to replace or repurchase, the average life and yield
on the related Mortgage Certificates could be adversely affected.
3. General. An investment in certificates (such as the Class
A-1 Certificates) evidencing interests in mortgage loans may be affected,
among other things, by a decline in real estate values or a decline in
mortgage market rates. Recently such declines in real estate values have
been experienced in several significant market areas within the United
States. If relevant residential real estate markets should experience an
overall decline in property values such that the outstanding balances of
the Mortgage Loans in a particular Underlying Mortgage Pool become equal to
or greater than the value of the related mortgaged properties, the actual
rates of delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry. To the extent
that such losses are not covered by the classes of certificates which are
subordinate to the Mortgage Certificates from that pool and the cash
available in the related Underlying Reserve Funds, holders of the Class A-1
certificates will bear all risk of loss resulting from default by
mortgagors and will have to depend primarily on the value of the mortgaged
properties for recovery of the outstanding principal and unpaid interest of
the defaulted Mortgage Loans.
4. Limited Obligations. The Certificates will not represent an
interest in or obligation of the Depositor, the Trustee, the Certificate
Administrator, the RTC or any of the Depository Institutions. The
Certificates will not be insured or guaranteed by any government agency or
instrumentality. With respect to the Mortgage Certificates, however, the
RTC, acting in its corporate capacity, has guaranteed the obligation of the
RTC, acting in its capacity as receiver or conservator of the various
Depository Institutions, pursuant to its representations and warranties, to
repurchase Mortgage Loans or to indemnify against loss under certain
circumstances.
5. Basis Risk. The interest rate payable to the holders of the
Class A-1 Certificates is based on LIBOR. However, the underlying Mortgage
Loans bear interest based on various indices (the "Indices") calculated at
various frequencies. LIBOR and the Indices respond to different economic
and market factors, and there is no necessary correspondence between them.
Thus, it is possible, for example, that LIBOR may rise during periods in
which the Indices are stable or are falling or that, even if both LIBOR and
the Indices rise during the same period, LIBOR may rise much more sharply
than the Indices. Moreover, the Pass-Through Rate on the Class A-1
Certificates may adjust more frequently than the interest rates on the
underlying Mortgage Loans, creating additional shortfalls in a rising
interest rate enviroment.THERE CAN BE NO ASSURANCE THAT FUNDS AVAILABLE IN
THE RESERVE FUND OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE
SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST DUE ON THE
UNDERLYING MORTGAGE LOANS (NET OF SERVICING FEES) IS LESS THAN THE
INTEREST ACCRUAL AMOUNT OF THE CLASS A-1 CERTIFICATES ("BASIS RISK
SHORTFALLS"). Any such shortfalls may be paid to the holders of the
Class A-1 Certificates on subsequent Distribution Dates, but only to the
extent of funds available therefor, and may remain unpaid on the final
Distribution Date. Any such shortfalls, even if subsequently paid, may
adversely affect the yield to investors in the Class A-1 Certificates. The
ratings on the Class A-1 Certificates do not address the likelihood of
receipt of payments in respect of Basis Risk Shortfalls.
6. Limited Liquidity. There can be no assurance that a
secondary market will develop for the Class A-1 Certificates or, if it does
develop, that it will provide the
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holders with liquidity of investment or that it will continue for the term
of the Class A-1 Certificates.
7. Prepayment and Yield Considerations. The prepayment
experience on the Mortgage Loans will affect the average life of the Class
A-1 Certificates. Prepayments on the Mortgage Loans may be influenced by a
variety of economic, geographic, social and other factors, including the
difference between the interest rates on the Mortgage Loans and prevailing
mortgage interest rates. Other factors affecting prepayment of Mortgage
Loans include changes in housing needs, job transfers, unemployment and
servicing decisions. See "Yield and Prepayment Considerations-_______".
In addition, the yield on the Class A-1 Certificates will be sensitive to,
among other things, the level of LIBOR.
8. Co-op Loans. Many of the Underlying Mortgage Pools contain
Mortgage Loans made in connection with a purchase or refinancing of
cooperative apartments. Such loans ("Co-op Loans") are not secured by
liens on real estate. The "owner" of a cooperative apartment does not own
the real estate constituting the apartment, but owns shares of stock in a
corporation which holds title to the building in which the apartment is
located, and by virtue of owning such stock is entitled to a proprietary
lease to occupy the specific apartment (the "Lease"). Thus, a Co-op Loan
is a personal loan secured by a lien on the shares and assignment of the
Lease. If the borrower defaults on a Co-op Loan, the lender's remedies are
similar to the remedies which apply to a foreclosure of a mortgage or deed
of trust, in that the lender can foreclose the loan and assume "ownership"
of the apartment.
There are certain risks which arise as a result of the
cooperative form of ownership which differentiate Co-op Loans from other
types of Mortgage Loans. For example, the power of the board of directors
of most cooperative corporations to reject a proposed purchaser of a unit
owner's shares (and prevent the sale of an apartment) for any reason (other
than reasons based upon unlawful discrimination), or for no reason,
significantly reduces the universe of potential purchasers in the event of
a foreclosure. Moreover, cooperative apartment owners run a special risk
in buildings where the "sponsor" (i.e., the owner of the unsold shares in
the corporation) holds a significant number of unsold apartments that the
sponsor may go into default on a loan which is secured by a mortgage on the
building. In such event, the unit owners would be forced by special
assessment to make the payments on the delinquent loan or risk losing their
apartments in a foreclosure proceeding brought by the holder of the
mortgage on the building. Not only would the value attributable to the
right to occupy a particular apartment be adversely affected by the special
assessment, but the foreclosure of a mortgage on the building in which the
apartment is located could result in a total loss of the shareholder's
equity in the building (and a corresponding loss of the lender's security
for its Co-op Loan).
9. Geographic Concentration. [To be provided.]
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DESCRIPTION OF THE CLASS A-1 CERTIFICATES
GENERAL
The Adjustable Rate Conduit Mortgage Pass-Through Certificates Series
will include the following three classes: the Class A-1
Certificates, the Class IO Certificates and the Class R Certificates
(collectively, the "Certificates"). Only the Class A-1 Certificates are
offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in
a trust fund (the "Trust Fund"), the assets of which will consist primarily
of (a) classes (or portions of classes) of mortgage pass-through
certificates (the "Mortgage Certificates"), each of which is part of one of
series of mortgage pass-through certificates initially sold by the
Resolution Trust Corporation and acquired by the Depositor in the secondary
market, (b) a Reserve Fund and (c) a Yield Support Agreement provided by
See "--The Reserve Fund" and "--The Yield Support Agreement"
below. The Trust Fund will be established and the Certificates will be
issued pursuant to a Pooling Trust Agreement (the "Pooling Agreement"),
dated as of among the Depositor, the Certificate
Administrator and the Trustee.
The Class A-1 Certificates will have the initial Principal Balance set
forth on the cover page hereof, subject to an upward or downward variance
of up to 5%.
The Class A-1 Certificates will be issued as Book-Entry Certificates
through the facilities of The Depository Trust Company. See "--Book-Entry
Form" below. The Class A-1 Certificates will be issued, maintained and
transferred only in minimum denominations of $1,000 initial principal
balance and integral multiples of $1,000 initial principal balance in
excess thereof. The "Record Date" for each distribution on the Class A-1
Certificates is , with respect to the initial Distribution
Date, and with respect to each subsequent Distribution Date, the last
business day of the calendar month immediately preceding the month in which
the applicable Distribution Date occurs. The undivided percentage interest
(the "Percentage Interest") represented by any Class A-1 Certificate will
be equal to the percentage obtained by dividing the initial Principal
Balance of such Class A-1 Certificate by the aggregate initial Principal
Balance of all Class A-1 Certificates.
DISTRIBUTIONS
Distributions on the Certificates will be made quarterly on the 25th
day of each February, May, August and November, beginning in February
or, if any such day is not a business day, the following business day;
provided, however that if the Certificate Administrator has not received
all distributions on the Mortgage Certificates due on or before such day,
prior to 1:00 p.m. New York time on such day, payments on the Certificates
will be made on the next succeeding business day (each such day, a
"Distribution Date"). Distributions to a holder of a Class A-1 Certificate
will be made on each Distribution Date in an amount equal to such holder's
Percentage Interest multiplied by the amount, if any, to be
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distributed to the Class A-1 Certificates. Distributions will be made on
each Distribution Date to holders of record on the related Record Date,
which, unless Definitive Certificates are issued under the circumstances
described below under "-- Book Entry Form", will be Cede & Co. as nominee
for DTC.
Interest Distributions. Distributions in respect of interest on each
Class of Certificates (other than the Class R Certificates) on each
Distribution Date will be made only up to the amount of the Interest
Available Funds for such Distribution Date. The amounts of interest that
will accrue during each Interest Accrual Period on each Class of
Certificates, after adjustment for any Non-Supported Interest Shortfalls
and any Deferred Interest (each as described below), are referred to herein
as the "Interest Accrual Amounts" thereof. The "Interest Accrual Period"
with respect to each Distribution Date is the period commencing on the 25th
day of the third month preceding the month in which such Distribution Date
occurs and ending on the 24th day of the month in which such Distribution
Date occurs.
The "Interest Accrual Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i) one-fourth of the Class A-1
Pass-Through Rate for such Distribution Date and (ii) the outstanding
Principal Balance thereof, subject to reduction in respect of Deferred
Interest and Nonsupported Interest Shortfalls incurred with respect to the
Mortgage Loans underlying the Mortgage Certificates. The Interest Accrual
Amount for the Class IO Certificates on each Distribution Date will equal
the product of (i) one-fourth of the Class IO Pass-Through Rate for such
Distribution Date and (ii) the outstanding Principal Balance of the Class
A-1 Certificates, subject to reduction in respect of Deferred Interest and
Nonsupported Interest Shortfalls. The Class R Certificates are not
entitled to distributions in respect of interest and, therefore, have no
Interest Accrual Amount.
"Interest Available Funds" with respect to any Distribution Date will
be equal to the sum of (a) all payments in respect of interest received by
the Certificate Administrator on the Mortgage Certificates during the
related Collection Period, (b) any payments made by the Yield Support
Counterparty on such Distribution Date under the Yield Support Agreement
and (c) all amounts on deposit in the Reserve Fund (up to the excess of the
Interest Accrual Amount of the Class A-1 Certificates over the amount
described in clauses (a) and (b) above). Interest Available Funds will be
distributed on each Distribution Date first to pay to the holders of the
Class A-1 Certificates their Interest Accrual Amounts, next to pay to
holders of the Class A-1 Certificates interest due them with respect to
prior Distribution Dates that remains unpaid (together with interest
thereon), and then to pay current interest and any overdue interest in
respect of the Class IO Certificates to the Certificate Administrator for
deposit into the Reserve Fund.
If Interest Available Funds with respect to a Distribution Date are
insufficient to pay the Interest Accrual Amount of the Class A-1
Certificates on such date, any shortfall in the amount paid in respect
thereof on such date will be carried forward to succeeding Distribution
Dates and will bear interest until paid at the Class A-1 Pass-Through Rate
in effect from time to time.
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The "Class A-1 Pass-Through Rate" during the initial Interest Accrual
Period will be __% per annum. During each succeeding Interest Accrual
Period, the Class A-1 Pass-Through Rate will be 0.30% in excess of the
arithmetic mean of the London interbank offered rate quotations for three-
month Eurodollar deposits ("LIBOR") on the second business day prior to the
first day of such Interest Accrual Period (each, a "Reset Date") determined
as described below under "-- Determination of LIBOR" below.
During each Interest Accrual Period the "Class IO Pass-Through Rate"
will be a variable rate equal to the excess, if any, of (X) the weighted
average of the Weighted Average Mortgage Certificate Pass-Through Rate for
each of the Underlying Series Distribution Dates that occurs during the
Collection Period related to such Interest Accrual Period (determined as
described herein) (such weighted average, the "Quarterly Mortgage
Certificate Pass-Through Rate") over (Y) the Class A-1 Pass-Through Rate
for such Interest Accrual Period. The "Weighted Average Mortgage
Certificate Pass-Through Rate" with respect to any Underlying Series
Distribution Date will be equal to the weighted average of the pass-through
rates of the Mortgage Certificates applicable to such Underlying Series
Distribution Date, weighted on the basis of the outstanding principal
balances of such classes prior to distributions on such Underlying Series
Distribution Date. The Weighted Average Mortgage Certificate Pass-Through
Rate with respect to the Underlying Series Distribution Date in
is expected to be approximately ____%. The "Collection Period" with
respect to a Distribution Date is the period commencing on the day after
the preceding Distribution Date (or, in the case of the first Collection
Period, on ) and ending on such Distribution Date.
Interest on the Certificates will be calculated on the basis of actual
days elapsed in a 360-day year.
Deferred Interest allocated to the Mortgage Certificates on each
Underlying Series Distribution Date occurring during the Collection Period
related to any Distribution Date (as reported on the remittance reports
relating to such Mortgage Certificates) will be allocated between the Class
A-1 Certificates and the Class IO Certificates on the related Distribution
Date, pro rata, based on the Interest Accrual Amounts of each thereof
(before reduction for such Deferred Interest). See "Description of the
Underlying Mortgage Loans -- __________" and "The Mortgage Certificates --
Distributions on the Mortgage Certificates." The amount of Deferred
Interest allocated in reduction of the Interest Accrual Amount of the Class
A-1 Certificates will be added to the Principal Balance of such Class as of
such Distribution Date.
Prepayment Interest Shortfalls allocated to the Mortgage Certificates
on each Underlying Series Distribution Date occurring during the Collection
Period related to any Distribution Date (as reported on the remittance
reports relating to such Mortgage Certificates) will be allocated between
the Class A-1 Certificates and the Class IO Certificates on the related
Distribution Date, pro rata, based on the Interest Accrual Amounts thereof
(before reduction for such interest shortfall on such Distribution Date).
See "The Mortgage Certificates -- Distributions on the Mortgage
Certificates" herein.
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The "Principal Balance" of the Class A-1 Certificates as of any
Distribution Date will be equal to the Mortgage Certificate Balance as of
the preceding Distribution Date. The "Mortgage Certificate Balance" as of
any Distribution Date will be equal to the sum of the Mortgage Certificate
Balances (after giving effect to all distributions and other principal
balance reductions on the Mortgage Certificates during the Collection
Period ending on such Distribution Date). Neither the Class IO
Certificates nor the Class R Certificates have any Principal Balance and,
therefore, neither is entitled to distributions in respect of principal.
DUE TO THE FACTORS DISCUSSED UNDER "SPECIAL CONSIDERATIONS -- BASIS
RISK," INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE SUFFICIENT TO PAY THE
HOLDERS OF THE CLASS A-1 CERTIFICATES THEIR FULL INTEREST ACCRUAL AMOUNTS
ON EACH DISTRIBUTION DATE.
Principal Distributions. Distributions in respect of principal on the
Class A-1 Certificates will be made on each Distribution Date in an amount
equal to the sum of all amounts distributed in respect of principal on the
Mortgage Certificates during the Collection Period ending on such
Distribution Date.
RESERVE FUND
The Pooling Agreement will require the Certificate Administrator to
establish a separate trust account, which it will hold for the benefit of
the Trustee on behalf of the holders of the Class A-1 Certificates (the
"Reserve Fund").
On the Closing Date, the Depositor will deposit or cause to be
deposited into the Reserve Fund, cash in the amount of . In
addition, the Depositor will cause the beneficial owners of the Class IO
Certificates to irrevocably pledge the Class IO Certificates to the Reserve
Fund, for the benefit of the beneficial owners of the Class A-1
Certificates. All distributions on the Class IO Certificates will be made
to the Certificate Administrator for deposit into the Reserve Fund.
Amounts on deposit in the Reserve Fund from time to time will be available
on each Distribution Date to be paid to holders of the Class A-1
Certificates to the extent that amounts described in clauses (a) and (b) of
the definition of Interest Available Funds are insufficient to pay such
holders' Interest Accrual Amount for such date together with any overdue
interest. The Reserve Fund will be an asset of the Trust Fund, but will not
be an asset of the REMIC. Amounts in the Reserve Fund will be invested in
"eligible assets," as defined in the Pooling Agreement, at the discretion
of the Certificate Administrator, provided each such investment matures no
later than the succeeding Distribution Date.
The Depositor will not have any obligation to deposit additional
monies in the Reserve Fund after the Closing Date.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND
FROM TIME TO TIME WILL BE SUFFICIENT TO ALLOW FULL DISTRIBUTIONS IN RESPECT
OF INTEREST ON THE CLASS A-1 CERTIFICATES ON ANY DISTRIBUTION DATE.
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The following table, which was prepared on the basis of the
assumptions set forth below, illustrates the balances that would be
available in the Reserve Fund on the dates indicated under the various
scenarios stated.
[INSERT TABLE]
THE YIELD SUPPORT AGREEMENT
The following is a summary of certain features of the Yield Support
Agreement (as defined below).
General. On the Closing Date, the Trustee, acting on behalf of the
holders of the Class A-1 Certificates, will enter into a yield support
agreement (the "Yield Support Agreement") with , a __________
corporation, (the "Yield Support Counterparty"). The Yield Support
Agreement will be governed by and construed in accordance with the law of
the State of New York and will be documented on a standard form published
by the International Swap and Derivatives Association, Inc., as
supplemented by a schedule and a confirmation.
Payment Terms. Pursuant to the terms of the Yield Support Agreement,
in the event that LIBOR on any Reset Date (determined as described below
under "--Determination of LIBOR") exceeds a rate equal to LIBOR as set with
respect to the first Distribution Date plus 2.0% (the "Strike Rate"), the
Yield Support Counterparty will be obligated to pay to the Certificate
Administrator, for the benefit of the holders of the Class A-1
Certificates, on the Distribution Date related to the Interest Accrual
Period following such Reset Date, an amount equal to the product of (x) the
difference between LIBOR at such Reset Date (determined as described above)
and the Strike Rate and (y) amounts paid by the Yield Support Counterparty
on any Distribution Date will be available to make distributions in respect
of interest on the Class A-1 Certificates and, to the extent not required
for such distributions, will be paid to the Certificate Administrator for
deposit into the Reserve Fund.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD SUPPORT
COUNTERPARTY ON ANY DISTRIBUTION DATE WILL BE SUFFICIENT, TOGETHER WITH THE
BALANCE OF THE INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION DATE, TO
ALLOW FULL DISTRIBUTIONS IN RESPECT OF INTEREST ON THE CLASS A-1
CERTIFICATES ON SUCH DISTRIBUTION DATE OR ON ANY FUTURE DISTRIBUTION DATES.
Termination. Unless earlier terminated as described below, the Yield
Support Agreement will terminate upon the reduction of the Principal
Balance of the Class A-1 Certificates to zero.
Pursuant to the Yield Support Agreement, certain events may occur in
respect of the Yield Support Counterparty that will give the Trustee the
right to terminate the Yield Support Agreement subject to the terms and
provisions thereof. The Trustee will have the right to terminate the Yield
Support Agreement if any of the following events occur:
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(i) the Yield Support Counterparty fails to make any payment due under
the Yield Support Agreement and such nonpayment continues for three
business days after notice from the Trustee;
(ii) the Yield Support Counterparty fails to perform or observe its
obligations under such Yield Support Agreement (other than its obligation
to make any payment due under such Yield Support Agreement) and such
failure continues for a period of 30 days after notice from the Trustee;
(iii) any representation made by the Yield Support Counterparty under
such Yield Support Agreement proves to have been incorrect or misleading in
any material respect as of the time it was made;
(iv) certain events of bankruptcy or insolvency occur with respect to
the Yield Support Counterparty;
(v) the Yield Support Counterparty undertakes certain mergers,
consolidations or transfers of its assets or is dissolved;
(vi) a withholding tax is imposed on payments by the Yield Support
Counterparty under such Yield Support Agreement; or
(vii) a change in law occurs after the Closing Date which makes it
unlawful for the Yield Support Counterparty to perform its obligations in
respect of the Yield Support Agreement.
Breakage Fee. If the Yield Support Agreement is terminated by the
Trustee, the market value of the Yield Support Agreement will be
established by the Trustee on the basis of market quotations of the cost to
the Trust Fund of entering into a replacement yield support agreement, in
accordance with the procedures set forth in the Yield Support Agreement
(such amount, the "Breakage Fee"). The Yield Support Counterparty will be
required to pay the Trustee, for the benefit of the holders of the Class A-
1 Certificates the amount of any Breakage Fee. Upon any such termination
of the Yield Support Agreement, the Trustee will distribute to the holders
of the Class A-1 Certificates, on a pro rata basis, any applicable Breakage
Fee paid by the Yield Support Counterparty.
The Yield Support Counterparty.
As of _______ ___, , the end of its most recent fiscal year, the
Yield Support Counterparty had total assets of approximately $_____
million, total liabilities of approximately $_____ million, and
Shareholders' equity of approximately $_____ million.
[The Yield Support Counterparty's outstanding senior unsecured
indebtedness has been rated [ ] by Moody's, [ ] by S&P, and [ ]
by Fitch Investors Service, L.P. ("Fitch").]
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Copies of the Yield Support Counterparty's annual reports are
available from _________________________ by contacting _____________ at
(612) ___________________.
The above information was provided by the Yield Support Counterparty.
MANDATORY AUCTION
Prior to the Distribution Date occurring in , the Trustee
will cause the Certificate Administrator, to hold an auction (the
"Auction") for the sale of the Mortgage Certificates.
If the highest bid obtained, together with amounts on deposit in the
Reserve Fund, is at least equal to the then outstanding Principal Balance
of the Class A-1 Certificates, together with interest accrued and unpaid
thereon through such Distribution Date, the trustee will sell the Mortgage
Certificates and pay in full the Class A-1 Certificates on
. If no sufficient bid is obtained, the Trustee will continue to hold
the Mortgage Certificates and the Certificate Administrator will continue
to make required distributions of interest and principal on the Class A-1
Certificates. The auction procedure will be repeated with respect to each
succeeding Distribution Date until a sufficiently high bid is obtained.
DETERMINATION OF LIBOR
On each Reset Date, the Certificate Administrator will determine
LIBOR for the succeeding Interest Accrual Period on the basis of the
offered LIBOR quotations of the Reference Banks, as such quotations are
provided to the Certificate Administrator as of 11:00 a.m. (London time) on
such Reset Date. As used in this section with respect to a Reset Date,
"business day" means a day on which banks are open for dealing in foreign
currency and exchange in London and New York City; "Reference Banks" means
four leading banks engaged in transactions in Eurodollar deposits in the
International Eurocurrency market (i) with an established place of business
in London, (ii) whose quotations appear on the Reuters Screen LIBO Page on
the Rate Determination Date in question and (iii) which have been
designated as such by the Certificate Administrator and are able and
willing to provide such quotations to the Certificate Administrator on each
Reset Date; and "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such other page
as may replace the LIBO page on that service for the purpose of displaying
London interbank offered rate quotations or major banks). If any Reference
Bank should be removed from the Reuters Screen LIBO Page or in any other
way fails to meet the qualifications of a Reference Bank, the Certificate
Administrator may, in its sole discretion, designate an alternative
Reference Bank.
On each Reset Date, LIBOR for the next Interest Accrual Period
will be established by the Certificate Administrator as follows:
(i) If on any Reset Date two or more of the Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual
Period will be the arithmetic
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mean of such offered quotations (rounding such arithmetic mean upwards
if necessary to the nearest whole multiple of 1/16%).
(ii) If on any Reset Date only one or none of the Reference Banks
provides such offered quotations, LIBOR for the next Interest Accrual
Period will be the higher of (x) LIBOR as determined on the previous
Reset Date or (y) the Reserve Interest Rate. The "Reserve Interest
Rate" will be the rate per annum which the Certificate Administrator
determines to be either (A) the arithmetic mean (rounding such
arithmetic mean upwards if necessary to the nearest whole multiple of
1/16%) of the one-month Eurodollar lending rate that New York City
banks selected by the Certificate Administrator are quoting, on the
relevant Reset Date, to the principal London offices of at least two
leading banks in the London interbank market or (B) in the event that
the Certificate Administrator can determine no such arithmetic mean,
the lowest one-month Eurodollar lending rate that the New York City
banks selected by the Certificate Administrator are quoting on such
Reset Date to leading European banks.
(iii) If on any Reset Date the Certificate Administrator is
required but is unable to determine the Reserve Interest Rate in the
manner provided in paragraph (ii) above, LIBOR for the next Interest
Accrual Period will be LIBOR as determined on the Previous Reset Date.
The establishment of LIBOR by the Certificate Administrator and
the Certificate Administrator's subsequent calculation of the rates of
interest applicable to the Class A-1 Certificates for the relevant Interest
Accrual Period (in the absence of manifest error) will be final and
binding. The Class A-1 Pass-Through Rate for any Interest Accrual Period
may be obtained by telephoning the Certificate Administrator at _________.
OPTIONAL REPURCHASE OF THE MORTGAGE CERTIFICATES
The beneficial owner of the Class IO Certificates will have the
option, but not the obligation, to purchase the Mortgage Certificates from
the Trust Fund on any Distribution Date on which the Mortgage Certificate
Balance is equal to 5% or less of the original Mortgage Certificate
Balance.
[EXPENSE FUND
The Depositor will deposit in an account established by the Trustee
with the Certificate Administrator (the "Expense Fund") on the Closing Date
cash in an amount necessary to meet the requirements of each Rating Agency.
Funds on deposit in the Expense Fund will be used to pay amounts owing to
the Trustee pursuant to the Pooling Agreement and the fees of the
Certificate Administrator. Funds on deposit in the Expense Fund will not
be available to make payments on the Certificates.]
S-27
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<PAGE>
DENOMINATIONS
The Class A-1 Certificates will be issued in minimum denominations of
$1,000 initial principal balance and integral multiples of $1,000 initial
principal balance in excess thereof.
BOOK-ENTRY FORM
The Class A-1 Certificates initially will be represented by one
physical certificate registered in the name of Cede & Co. ("Cede"), as
nominee of DTC, which will be the "holder" or "Certificateholder" of such
Certificates, as such terms are used herein. No person acquiring an
interest in the Class A-1 Certificates (a "Beneficial Owner") will be
entitled to receive a Class A-1 Certificate in certificated form (a
"Definitive Certificate") representing such person's interest in the Class
A-1 Certificates, except as set forth below. Unless and until Definitive
Certificates are issued under the limited circumstances described herein,
all references to actions taken by Certificateholders or holders shall
refer to actions taken by DTC upon instructions from its DTC Participants
(as defined below), and all references herein to distributions, notices,
reports and statements to Certificateholders or holders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Class A-1 Certificates, as the case may be, for
distribution to Beneficial Owners in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934,
as amended. DTC was created to hold securities for its participating
organizations ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through
electronic book-entries, thereby eliminating the need for physical movement
of certificates. DTC Participants include securities brokers and dealers
(including the Underwriter), banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to
banks, brokers, dealers, trust companies and other institutions that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly ("Indirect DTC Participants").
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make Class A-1
transfers of Class A-1 Certificates among DTC Participants on whose behalf
it acts with respect to the Class A-1 Certificates and to receive and
transmit distributions of principal of and interest on the Class A-1
Certificates. DTC Participants and Indirect DTC Participants with which
Beneficial Owners have accounts with respect to the Class A-1 Certificates
similarly are required to make Class A-1 transfers and receive and transmit
such payments on behalf of their respective Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership
of, or other interests in, Class A-1 Certificates may do so only through
DTC Participants and Indirect DTC Participants. In addition, Beneficial
Owners will receive all distributions of principal and interest from the
S-28
VERSION G
<PAGE>
Master Servicer, or a paying agent on behalf of the Master Servicer,
through DTC Participants. DTC will forward such distributions to its DTC
Participants, which thereafter will forward them to Indirect DTC
Participants or Beneficial Owners. Beneficial Owners will not be
recognized by the Trustee, the Trust Administrator, the Master Servicer or
any paying agent as Certificateholders, as such term is used in the Pooling
and Servicing Agreement, and Beneficial Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and
its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn
act on behalf of Indirect DTC Participants and certain banks, the ability
of a Beneficial Owner to pledge Class A-1 Certificates to persons or
entities that do not participate in the DTC system, or to otherwise act
with respect to such Class A-1 Certificates, may be limited due to the lack
of a physical certificate for such Class A-1 Certificates. In addition,
under a Class A-1 format, Beneficial Owners may experience delays in their
receipt of payments, since distributions will be made by the Master
Servicer, or a paying agent on behalf of the Master Servicer, to Cede, as
nominee for DTC.
DTC has advised the Depositor that it will take any action permitted
to be taken by a Certificateholder under the Pooling Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the
Class A-1 Certificates are credited. Additionally, DTC has advised the
Depositor that it will take such actions with respect to specified voting
interests only at the direction of and on behalf of DTC Participants whose
holdings of Class A-1 Certificates evidence such specified voting
interests. DTC may take conflicting actions with respect to voting
interests to the extent that DTC Participants whose holdings of Class A-1
Certificates evidence such voting interests authorize divergent action.
Neither the Depositor, the Certificate Administrator nor the Trustee
will have any responsibility for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Class A-1
Certificates held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. In the event of the insolvency of DTC, a DTC Participant or an
indirect DTC Participant in whose name Class A-1 Certificates are
registered, the ability of the Beneficial Owners of such Class A-1
Certificates to obtain timely payment and, if the limits of applicable
insurance coverage by the Securities Investor Protection Corporation are
exceeded or if such coverage is otherwise unavailable, ultimate payment, of
amounts distributable with respect to such Class A-1 Certificates may be
impaired.
The Class A-1 Certificates will be converted to Definitive
Certificates and re-issued to Beneficial Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Certificate Administrator is
advised that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Class A-1 Certificates
and the Certificate Administrator is unable to locate a qualified
successor, (ii) the Certificate Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence
of a dismissal or resignation of the Certificate Administrator under the
Pooling Agreement, Beneficial Owners representing not less than 51% of the
voting interests
S-29
VERSION G
<PAGE>
of the outstanding Class A-1 Certificates advise the Trustee through DTC,
in writing, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Certificate Administrator (or, if the Certificate
Administrator has been dismissed, the Trustee) will be required to notify
all Beneficial Owners through DTC Participants of the availability of
Definitive Certificates. Upon surrender by DTC of the physical
certificates representing the Class A-1 Certificates and receipt of
instructions for re-registration, the Certificate Administrator will
reissue the Class A-1 Certificates as Definitive Certificates to Beneficial
Owners.
TERMINATION
The Trust Fund will terminate upon the earlier of (a) the distribution
to holders of the Certificates of all amounts required to be distributed to
them pursuant to the Pooling Agreement and (b) the termination of the
Pooling Agreement.
CERTIFICATE ACCOUNT
All payments and collections in respect of the Mortgage Certificates
will be deposited in an account maintained by the Certificate Administrator
(the "Certificate Account") in the name of the Trustee with a depository
institution (which may be the Certificate Administrator) and in a manner
acceptable to each Rating Agency. See "Description of the Certificates --
Payments on the Mortgage Loans" and " -- Collection of Payments on Mortgage
Certificates" in the Prospectus.
ACTIONS IN RESPECT OF THE MORTGAGE CERTIFICATES
If at any time the Trustee, as the Mortgage Certificateholder, is
requested in such capacity to take any action or to give any consent,
approval or waiver, including without limitation in connection with an
amendment of an Underlying Pooling Agreement or if an event of default
occurs under an Underlying Pooling Agreement with respect to the Mortgage
Loan Servicer or the Mortgage Loan Trustee thereunder, the Pooling
Agreement provides that the Trustee, in its capacity as
certificateholder, may take action in connection with the enforcement of
any rights and remedies available to it in such capacity with respect
thereto, will promptly notify all of the holders of the Certificates and
will act only in accordance with written directions of holders of the
Certificates evidencing in excess of 50% of the Voting Rights.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of the Certificates evidencing a specified percentage of all
undivided interests in the Trust Fund may be taken by holders of the
Certificates entitled in the aggregate to such percentage of the Voting
Rights. At any time that any Certificates are outstanding, the "Voting
Rights" under
S-30
VERSION G
<PAGE>
the Pooling Agreement will be allocated 1% to the Class R Certificate, 1%
to the Class IO Certificate and the remainder to the Class A-1 Certificate.
CERTIFICATE ADMINISTRATOR
[To be provided.]
TRUSTEE
[To be provided.]
THE MORTGAGE CERTIFICATES
GENERAL
The description of the Mortgage Certificates contained in this
Prospectus Supplement is a general summary of certain characteristics of
the Mortgage Certificates and does not purport to be complete. Such
description is subject to, and is qualified in its entirety by reference
to, the actual terms and provisions of the Prospectuses and Prospectus
Supplements related to each of the Mortgage Certificates (collectively, the
"Underlying Disclosure Documents") and the Pooling and Servicing Agreements
relating to each of the Mortgage Certificates (collectively, the
"Underlying Pooling Agreements"). Copies of the Underlying Disclosure
Documents and the Underlying Pooling Agreements are available from First
Boston by calling ________ at (212) _________. Investors are urged to
obtain copies of such documents and read this Prospectus Supplement in
conjunction therewith.
The assets of the REMIC will consist primarily of classes (or
portions of classes) of senior mortgage pass-through certificates (the
"Mortgage Certificates"), each of which is a part of one of separate
series of mortgage pass-through certificates (each an "Underlying Series").
Each of the Mortgage Certificates was issued pursuant to a separate
Underlying Pooling Agreement, generally dated as of the first day of the
month of initial issuance of the related Underlying Series (as to each, the
"Underlying Series Cut-off Date"), generally among the RTC, the servicer or
master servicer of the related Mortgage Loans (each, a "Mortgage Loan
Servicer") and the trustee of the related Mortgage Certificates (each, a
"Mortgage Loan Trustee").
The Mortgage Certifictes were each issued on the dates set forth in
the following table for each such Mortgage Certificate, each in an offering
registered by the RTC under the Securities Act of 1933, as amended (the
"Securities Act").
S-31
VERSION G
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
Each Underlying Series consists of multiple classes of mortgage pass-
through certificates representing interests in separate trusts (each, an
"Underlying Trust Fund"), previously formed by the RTC, each such
Underlying Trust Fund consisting, in part, of multiple mortgage pools.
Each of the Mortgage Certificates evidences a senior interest in a separate
mortgage pool (each, an "Underlying Mortgage Pool"), which is part of one
of the Underlying Trust Funds, consisting primarily of adjustable interest
rate, conventional, one- to four-family, residential first mortgage loans
(the "Mortgage Loans"), sold by the RTC to the related Mortgage Loan
Trustee for the benefit of holders of the certificates of the related
Underlying Series. Except as set forth in the following sentence, the
Underlying Series relating to each class of Mortgage Certificates includes
at least one class of certificates (as to each Underlying Series, the
"Related Subordinated Certificates") which represents an interest in the
same Underlying Mortgage Pool as such class of Mortgage Certificates and
which is subordinated to such class of Mortgage Certificates. With respect
to three Mortgage Certificates, which have an aggregate Mortgage
Certificate Principal Amount as of the Cut-off Date of $__________, the
principal balances of the Related Subordinated Certificates have been
reduced to zero.
S-32
VERSION G
<PAGE>
Each of the Mortgage Certificates has been assigned the ratings set
forth in the following table by the rating agencies identified therein:
RATINGS APPLICABLE TO MORTGAGE CERTIFICATES
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES MOODY'S S&P FITCH
--------------------- ------- ------ -----
<S> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
-----------------------------------------
NR = Not Rated
Certain characteristics of the Mortgage Certificates are described
below. Certain of the information with respect to the Mortgage
Certificates has been derived from the original offering documents relating
to such Mortgage Certificates and from publicly available data and other
data available to the Depositor with respect thereto. IT SHOULD BE NOTED
THAT THERE MAY HAVE BEEN MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE
THE DATES SUCH DOCUMENTS WERE PREPARED, INCLUDING, BUT NOT LIMITED TO,
CHANGES IN PREPAYMENT SPEEDS AND PREVAILING INTEREST RATES AND OTHER
ECONOMIC FACTORS, WHICH MAY LIMIT THE USEFULNESS OF, AND BE DIRECTLY
CONTRARY TO THE ASSUMPTIONS USED IN PREPARING, THE INFORMATION SET FORTH IN
SUCH DOCUMENTS.
The following table sets forth expected approximate characteristics of
the Mortgage Certificates based on remittance reports received with respect
to the Underlying Series Distribution Dates occurring in .
S-33
VERSION G
<PAGE>
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
(BASED ON THE REMITTANCE REPORTS)
<TABLE>
<CAPTION>
Class Current Weighted
Original Original Original % in Current Mortgage Current Current Average
Collateral Class % of Trust Collateral Certificate Class % of Net
Underlying Series Class Balance Balance Deal Fund Balance Balance Balance Deal Index Margin
- ----------------- ----- ---------- -------- -------- ----- ---------- ----------- ------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT
Series TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
Totals/Weighted Averages
S-34
VERSION G
<PAGE>
On the Closing Date, the Principal Balance of the Class A-1
Certificates will equal the aggregate principal balance of the Mortgage
Certificates. In the event that any of the actual characteristics as of the
Cut-off Date of the Mortgage Certificates varies materially from those
described herein, revised information regarding the Mortgage Certificates
will be made available to purchasers of the Class A-1 Certificates on or
before the Closing Date.
DISTRIBUTIONS ON THE MORTGAGE CERTIFICATES
The following is a discussion of the characteristics of the Mortgage
Certificates in general. The precise characteristics of specific Mortgage
Certificates may vary from the general descriptions set forth below. There
are substantial variations among the Underlying Pooling Agreements for the
various Underlying Series. The following discussion does not purport to
describe with specificity the terms of any specific Underlying Pooling
Agreement, but is instead a general description of the major economic terms
of the Mortgage Certificates, with certain major variations from the general
descriptions with respect to certain Mortgage Certificates or groups of
Mortgage Certificates noted. Investors are urged to obtain the Underlying
Pooling Agreements and the Underlying Disclosure Documents from First Boston
and read such agreements in conjunction with this Prospectus Supplement.
Distributions of interest and in reduction of principal balance of each
class of Mortgage Certificates are made on the 25th day of each month or, if
such 25th day is not a business day, on the succeeding business day (each,
an "Underlying Series Distribution Date").
In general, for each Underlying Mortgage Pool, the related class of
Mortgage Certificates evidences, in the aggregate, the right to receive all
of the principal payments on the Mortgage Loans in such Underlying Mortgage
Pool, the right to receive the interest payments on such Mortgage Loans at
the applicable Mortgage Certificate Pass-Through Rate and, in some cases as
discussed below, the right to receive Excess Cash attributable to such
Mortgage Loans, in each case until the related Mortgage Certificate
Principal Amounts have been reduced to zero. However, the Series ,
Certificates and the Series Certificates (which
have an aggregate Mortgage Certificate Principal Amount as of the Cut-off
Date of $__________) evidence the right to receive, in addition to payments
in respect of interest and certain payments in respect of Excess Cash, only
their pro rata share (based on the principal balances of such Mortgage
Certificates and the Related Subordinated Certificates) of all of the
principal payments on the Mortgage Loans in the related Underlying Mortgage
Pools until the related Mortgage Certificate Principal Amounts have been
reduced to zero (rather than all such principal payments).
Distributions on each Mortgage Certificate (other than distributions in
respect of Excess Cash) will generally be made from the Mortgage Pool
Available Distribution Amount. For each Underlying Mortgage Pool, the
related "Mortgage Pool Available Distribution Amount" with respect to any
Underlying Series Distribution Date will equal the sum of: (i) all
previously undistributed amounts received before the related Determination
Date with respect to the Mortgage Loans in such Mortgage Pool and (ii) all
Advances made by the Mortgage Loan Servicer or the Mortgage Loan Trustee (or
amounts withdrawn from the related Reserve Fund in respect of
S-35
VERSION G
<PAGE>
delinquent mortgage loan payments), and any other payments required to be
made by the Mortgage Loan Servicer with respect to such Underlying Series
Distribution Date, less (x) the portion of the related Servicing Fee payable
to the Mortgage Loan Servicer and (y) all other amounts which are due or
reimbursable to the Mortgage Loan Servicer with respect to such Mortgage
Loans; provided, however, that the Mortgage Pool Available Distribution
Amount with respect to any Underlying Series Distribution Date shall not
include:
(a) Monthly Payments due on the related Mortgage Loans on a date
subsequent to the related Due Period;
(b) Principal Prepayments received after the related Prepayment
Period (together with any interest payments received with such
prepayments to the extent that they represent the payment of interest
accrued on the Mortgage Loans in the related Mortgage Pool for the
period subsequent to the related Prepayment Period); and
(c) liquidation proceeds, insurance proceeds and proceeds of the
sale of any Mortgage Loans in the related Mortgage Pool received after
the related Prepayment Period.
The due period (the "Due Period") related to each Underlying Series
Distribution Date commences on the second day of the month preceding the
month in which such Underlying Series Distribution Date occurs and ends on
the Due Date in the month of such Underlying Series Distribution Date. The
due date (the "Due Date") for any Mortgage Loan is the date in each month on
which its Monthly Payment is due. Generally, for each Underlying Series
Distribution Date, the prepayment period (the "Prepayment Period") is the
calendar month preceding the month in which such Underlying Series
Distribution Date occurs. With respect to certain Mortgage Loans, however,
the Prepayment Period with respect to each Underlying Series Distribution
Date is the period beginning on the Determination Date in the month
preceding the month in which such Underlying Series Distribution Date occurs
and ending on the day preceding the Determination Date in the month in which
such Underlying Series Distribution Date occurs. The Determination Date for
each Underlying Series is generally the 15th day (or if such day is not a
business day, the preceding business day) of the month in which the related
Underlying Series Distribution Date occurs.
INTEREST DISTRIBUTIONS
The "Mortgage Certificate Interest Distribution Amount" for any class
of Mortgage Certificates on any Underlying Series Distribution Date is
generally the amount of interest accrued during the preceding Mortgage
Certificate Interest Accrual Period for such class at the related Mortgage
Certificate Pass-Through Rate on the Mortgage Certificate Principal Amount
of such class immediately preceding such Underlying Series Distribution
Date, less any allocable Prepayment Interest Shortfall and allocable
Deferred Interest, each as described below. The "Mortgage Certificate
Interest Accrual Period" for any Underlying Series Distribution Date is
generally the preceding calendar month. Interest on the Mortgage
Certificates will be calculated on the basis of a 360-day year assumed to
consist of twelve 30-day months.
S-36
VERSION G
<PAGE>
The Mortgage Certificate Principal Amount with respect to any Mortgage
Certificate and any Underlying Series Distribution Date is equal to the
initial principal amount of such Mortgage Certificate plus (x) any Deferred
Interest allocated to such Mortgage Certificate and less (y) the amount of
any principal distributions previously made on such Mortgage Certificate.
With respect to each Mortgage Certificate Interest Accrual Period, the
Mortgage Certificate Pass-Through Rates will each be a variable rate per
annum equal to the weighted average of the Mortgage Interest Rates on each
of the Mortgage Loans in the related Mortgage Pool as in effect prior to the
Due Date in the Due Period immediately preceding the related Underlying
Series Distribution Date minus the amount set forth for such class in the
succeeding table (each such amount, the "Fee/Excess Rate"). The Fee/Excess
Rate with respect to each Mortgage Certificate generally represents amounts
retained to pay servicing fees, master servicing fees payable to the related
Mortgage Loan Servicer and, in some cases, amounts to be distributed as
Excess Cash.
<TABLE>
<CAPTION>
FEE/EXCESS RATES
---------------------------------------------
Mortgage Certificates Fee/Excess Rates
--------------------- ----------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
If either (x) an adjustment to the Mortgage Interest Rate on any
Interest Adjustment Date without a simultaneous adjustment of the Monthly
Payment or (y) the limitation on adjustments to Monthly Payments due to a
Payment Adjustment Cap or the graduated Monthly Payments of certain GPM
Loans causes the amount of interest accrued on the principal balance of a
Mortgage
S-37
VERSION G
<PAGE>
Loan during any period to exceed the related Monthly Payment, the payment of
such excess interest ("Deferred Interest") may be deferred and the amount
thereof added to the principal balance of such Mortgage Loan. To the extent
any Deferred Interest is added to the principal balance of the Mortgage
Loans in any Mortgage Pool, an allocable portion of such Deferred Interest
will reduce the interest payable to, and will be added to the Mortgage
Certificate Principal Amount of, the related Mortgage Certificates (such
allocable portion based upon the proportion that the interest payable on
such class of Mortgage Certificates bears to the total amount of interest
payable on all classes of certificates related to such Mortgage Pool).
The "Monthly Payment" is, with respect to any Mortgage Loan and any
month, the scheduled Monthly Payment of principal and interest, excluding
any Balloon Payment, on such Mortgage Loan which is either payable by a
borrower in such month under the related note, or in the case of Mortgage
Loans which have been discharged and the related mortgaged property is held
as part of the Underlying Trust Fund ("REO Property"), would otherwise have
been payable under the note relating to such REO Property. A "Balloon
Payment" is the final scheduled payment of principal and interest on a
Balloon Mortgage Loan.
When a borrower makes a full or partial prepayment of a Mortgage Loan
between Due Dates, the borrower pays interest on the amount prepaid only
from the last scheduled Due Date to the date of prepayment. In order to
mitigate any shortfall in interest resulting from such prepayments prior to
a scheduled Due Date, subject to certain limitations in the Underlying
Pooling Agreements, the portion of the servicing fee payable to the Mortgage
Loan Servicer (less a portion thereof reserved for payment of certain fees
and expenses) will be reduced by the amount necessary to provide the
interest payable on the related Mortgage Loans for the entire Prepayment
Period in which the prepayments occurred, adjusted to the Mortgage Interest
Rate less the applicable Servicing Fee. The following chart sets forth the
percentage, as to each Mortgage Certificate, at which the Servicing Fee
available to offset such interest shortfalls is calculated. To the extent
that reductions in the portion of the Servicing Fee payable to the related
Mortgage Loan Servicer are insufficient to offset such interest shortfalls,
the amount of such insufficiency (a "Prepayment Interest Shortfall"), will
be allocated to the classes of Mortgage Certificates in proportion to the
interest accrued thereon. The Servicing Fees payable to any Mortgage Loan
Servicer with respect to any Underlying Series will be available to offset
interest shortfalls relating to mortgage pools other than the Underlying
Mortgage Pools, and to the extent that such shortfalls occur with respect to
more than one mortgage pool relating to any Underlying Series on an
Underlying Series Distribution Date, such Servicing Fee will be allocated to
offset such interest shortfalls pro rata based on the amounts of the
interest shortfalls in each mortgage pool.
PRINCIPAL DISTRIBUTIONS
Distributions in reduction of the Mortgage Certificate Principal
Amounts of the Mortgage Certificates on each Underlying Series Distribution
Date are generally required to be made (subject to the availability of
funds) in an aggregate amount equal to the Pool Principal Distribution
Amount for the related Underlying Mortgage Pool on such Underlying Series
Distribution Date. However, with respect to the and
Certificates (which have an aggregate Mortgage
Certificate Principal Amount as of the
S-38
VERSION G
<PAGE>
Cut-off Date of $_________), distributions in reduction of the Mortgage
Certificate Principal Amounts thereof are required to be made (subject to
the availability of funds) in an amount equal to the pro rata share of each
such class of the related Pool Principal Distribution Amount for the related
Underlying Mortgage Pool on each Underlying Series Distribution Date. The
pro rata share of each such class will be determined by dividing the
principal balance of such class by the sum of the principal balance of such
class and the principal balances of the Related Subordinated Certificates.
With respect to such Mortgage Certificates, if certain levels of realized
losses are experienced in the related Mortgage Pools, the Related
Subordinated Certificates will not be entitled to distributions in respect
of prepayments on the related Mortgage Loans and all such prepayments will
be allocated to the Mortgage Certificates in reduction of their Mortgage
Certificate Principal Amounts.
The "Pool Principal Distribution Amount" for each Underlying Mortgage
Pool on any Underlying Series Distribution Date generally equals the sum of
(i) the principal component of all scheduled Monthly Payments due on each
Mortgage Loan in such Underlying Mortgage Pool in the preceding Due Period
(the "Scheduled Principal Distribution Amount"), (ii) the principal
component of each Balloon Payment received on any Balloon Mortgage Loan in
such Underlying Mortgage Pool during the related Due Period, (iii) the
scheduled principal balance of each Mortgage Loan in such Underlying
Mortgage Pool that either was sold or became a liquidated mortgage loan
during the related Prepayment Period, (iv) all full or partial principal
prepayments received on each Mortgage Loan in such Underlying Mortgage Pool
during the related Prepayment Period and (v) with respect to two of the
Mortgage Certificates, the Excess Cash, if any, related to such Underlying
Mortgage Pool.
CROSSOVER AMOUNTS
On each Underlying Series Distribution Date (other than with respect to
the Underlying Series relating to the Excess Cash Allocation Certificates)
following the retirement of all classes of certificates related to a
mortgage pool that is part of one of the Underlying Trust Funds, all
payments and other recoveries in respect of such mortgage pool ("Crossover
Amounts") will be applied to cover shortfalls in principal and interest on
the remaining certificates relating to the other mortgage pools that are
part of the same Underlying Trust Fund (which may include one or more
classes of Mortgage Certificates) on a pro rata basis in proportion to the
respective amount of such shortfalls.
Any remaining Crossover Amounts after the application thereof to cover
shortfalls will be allocated among the related mortgage pools, pro rata,
based on the aggregate principal balances of all classes of senior
certificates in the related mortgage pools, and applied on each Underlying
Series Distribution Date in reduction of the principal balances of each
class of senior certificates currently entitled to distribution of
principal.
EXCESS CASH
The "Excess Cash" in respect of any Underlying Mortgage Pool for any
Underlying Series Distribution Date is generally the excess, if any, of the
Mortgage Pool Available Distribution Amount (together, in the case of the
Excess Cash Preservation Certificates, with amount
S-39
VERSION G
<PAGE>
withdrawn from the related underlying Reserve Fund in respect of realized
losses) for such Underlying Mortgage Pool over the sum of (1) the Mortgage
Certificate Interest Distribution Amount for the related class of Mortgage
Certificates and the Related Subordinated Certificates, if any, and (2) the
amounts set forth in clauses (i) through (iv) of the definition of Pool
Principal Distribution Amount, as set forth above.
In the case of the two Mortgage Certificates described above under the
definition of Pool Principal Distribution Amount, Excess Cash in respect of
the related Mortgage Pools is distributed on each Underlying Series
Distribution Date to such Mortgage Certificates in reduction of their
Mortgage Certificate Principal Amounts. With respect to the remaining
Mortgage Certificates (the "Excess Cash Allocation Certificates"), Excess
Cash is not allocated exclusively to the related Mortgage Certificates.
Instead, the Underlying Pooling Agreements relating to such Mortgage
Certificates provide that Excess Cash will be distributed to one or more
classes of certificates related to such Underlying Series other than the
Mortgage Certificates (as described in greater detail in the related
Underlying Disclosure Documents) in some cases in respect of interest, in
some cases in respect of losses and other shortfalls and in some cases as
payments in reduction of principal amount in excess of the amount of
principal received in respect of the related mortgage loans, prior to being
distributed in reduction of the Mortgage Certificate Principal Amount of the
related Mortgage Certificates. The amount of Excess Cash distributed in
reduction of the Mortgage Certificate Principal Amount of a Mortgage
Certificate could have a significant effect on the weighted average life of
such Mortgage Certificate.
UNDERLYING SERIES RESERVE FUNDS
To increase the likelihood of full distributions of interest and
principal to holders of the certificates issued in each Underlying Series,
the RTC established with various collateral agents one or more reserve funds
with respect to each Underlying Series. The reserve funds relating to each
Underlying Series that are available to cover realized losses and, in some
cases, other shortfalls (such realized losses and other cover shortfalls,
"Covered Amounts") on the related Underlying Mortgage Pools are each
referred to herein as the "Underlying Series Reserve Fund" with respect to
each Underlying Series. Each Underlying Series Reserve Fund originally
consisted of an initial deposit by the RTC of securities, cash or other
property (the "Initial Deposits") equal in value to the amounts set forth in
the following table under the heading "Original Reserve Fund Balance". The
current values of the securities, cash and other property contained in each
of the Underlying Series Reserve Funds, as reported by the Mortgage Loan
Servicers, is set forth in the following table under the heading "Current
Reserve Fund Balance". Such Underlying Series Reserve Funds were
established pursuant to collateral security agreements (each, a "Collateral
Security Agreement") generally among the RTC, the related Mortgage Loan
Trustee and a collateral agent. The amounts held in each Underlying Series
Reserve Fund are required to be invested, at the direction of the RTC, in
certain permitted investments acceptable to the related rating agencies.
The earnings, if any, resulting from the investment of amounts held in the
Underlying Series Reserve Funds are remitted to the RTC.
S-40
VERSION G
<PAGE>
Amounts on deposit in the related Underlying Series Reserve Funds are
used to offset Covered Amounts relating to each Underlying Mortgage Pool
prior to the allocation of such amounts to the Related Subordinated
Certificates, if any. Each of the Underlying Series Reserve Funds is
available to cover not only Covered Amounts relating to the related
Underlying Mortgage Pools, but also other mortgage pools contained in the
same Underlying Trust Funds. The aggregate outstanding principal balances
of the mortgage loans not contained in the Underlying Mortgage Pools as to
which Covered Amounts will be covered by each of the Underlying Series
Reserve Funds is set forth in the following table under the heading "Balance
of Other Mortgage Loans Covered."
UNDERLYING SERIES RESERVE FUNDS
(BASED ON REMITTANCE REPORTS)
<TABLE>
<CAPTION>
BALANCE OF
ORIGINAL RESERVE CURRENT RESERVE OTHER MORTGAGE
MORTGAGE CERTIFICATES FUND BALANCE FUND BALANCE LOANS COVERED
- --------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
With respect to two of the Mortgage Certificates (which have an
aggregate Mortgage Certificate Principal Amount as of the Cut-off Date of
$__________), the Mortgage Loan Trustee will effect a transfer of funds in
the related Underlying Series Reserve Fund, to the extent available, on each
Underlying Series Distribution Date to the extent that the Mortgage Pool
Available Distribution Amount for any Mortgage Pool and any allocable
Crossover Amounts are less than the related Mortgage Certificate Interest
Distribution Amount for the related class of Mortgage Certificates and the
amount of interest distributable to the Related Subordinated
S-41
VERSION G
<PAGE>
Certificates and Pool Principal Distribution Amount. With respect to six of
the Mortgage Certificates (which have an aggregate Mortgage Certificate
Principal Amount as of the Cut-Off Date of $ ), the Mortgage Loan Trustee
will be required to effect a transfer of funds in the related Underlying
Series Reserve Fund, to the extent available, on each Underlying Series
Distribution Date in an amount equal to any realized losses sustained with
respect to Mortgage Loans in the related Mortgage Pools in the related
Prepayment Period, only to the extent that any resulting shortfalls in the
related Mortgage Certificate Interest Distribution Amounts and related
Mortgage Certificate Principal Distribution Amounts are not covered out of
distributions in respect of Excess Cash on such Distribution Date. With
respect to the remaining Mortgage Certificates (the "Excess Cash
Preservation Certificates"), the Mortgage Loan Trustee will be required to
effect a transfer of funds in the related Underlying Series Reserve Fund, to
the extent available, on each Underlying Series Distribution Date in an
amount equal to any realized losses sustained with respect to Mortgage Loans
in the related Mortgage Pools in the related Prepayment Period.
<TABLE>
<CAPTION>
SERVICING FEES AVAILABLE
-------------------------------------------
TO OFFSET INTEREST SHORTFALLS
-------------------------------------------
Mortgage Certificates Available Fees
--------------------- --------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
If the funds available in any Underlying Series Reserve Fund on any
Underlying Series Distribution Date are insufficient to pay the full amounts
due with respect to all related classes of Certificates on such Underlying
Series Distribution Date, such funds will be paid to the holders of the
Mortgage Certificates and the senior certificates related to the other
mortgage pools covered by
S-42
VERSION G
<PAGE>
such Underlying Series Reserve Fund in proportion to the respective
shortfalls of each such class that would be caused by the insufficiency of
amounts available absent a transfer of funds from such Underlying Series
Reserve Fund.
None of the Underlying Series Reserve Funds have been allocated on a
pro rata basis among the related mortgage pools. Rather, distributions from
each Underlying Series Reserve Fund, to the extent of funds available
therein, will be made without regard to the order, frequency or magnitude of
the losses and other shortfalls on mortgage loans in each covered mortgage
pool. Disproportionate losses or delinquencies in the mortgage pools
covered by the Underlying Series Reserve Funds that are not Underlying
Mortgage Pools could deplete the coverage provided for the Mortgage
Certificates by such Underlying Series Reserve Funds. Consequently, an
Underlying Series Reserve Fund may be unavailable on an Underlying Series
Distribution Date to offset Covered Amounts with respect to a class of
Mortgage Certificates even though the amount of the losses and other
shortfalls experienced by the related Underlying Mortgage Pool may have been
proportionately less than that experienced by the other covered mortgage
pools.
The terms of each Collateral Security Agreement require the related
collateral agent to release funds in the related Underlying Series Reserve
Funds to the RTC under certain circumstances related to the delinquency and
loss experience of the related mortgage loans if the balance on deposit in
such Underlying Series Reserve Funds exceeds the "Reserve Fund Requirement"
as such term is variously defined in the related Collateral Security
Agreements and described in the related Underlying Disclosure Documents.
Each Collateral Security Agreement provides that, with the approval of
the related rating agencies, and at the option of the RTC, the related
Underlying Series Reserve Fund can be replaced, in whole or in part, with a
form of credit enhancement that is, or is invested in securities or
obligations, which are backed by the full faith and credit of the United
States of America.
SUBORDINATION
After the coverage provided to each of the Mortgage Certificates by the
related Underlying Reserve Funds has been depleted, additional coverage
against losses and other shortfalls on the related Mortgage Loans will be
provided to each class of Mortgage Certificates by the subordination of the
class or classes of Related Subordinated Certificates, if any. In general,
the protection afforded to the Mortgage Certificates by the subordination of
any Related Subordination Certificates will be effected in two ways: (i) by
the preferential right of the Mortgage Certificates to receive distributions
on any Underlying Series Distribution Date after the depletion of the
related Underlying Series Reserve Fund and (ii) by the allocation of losses
on the related Mortgage Loans first to such Related Subordinated
Certificates until the principal balances thereof have been reduced to zero
prior to the allocation of any such losses to the Mortgage Certificates.
The following table indicates the current aggregate principal balance of the
class or classes of Related Subordinated Certificates for each class of
Mortgage Certificates.
S-43
VERSION G
<PAGE>
BALANCES OF RELATED SUBORDINATED CERTIFICATES
(BASED ON REMITTANCE REPORTS)
<TABLE>
<CAPTION>
CURRENT AGGREGATE PRINCIPAL PERCENTAGE OF
BALANCE OF RELATED RELATED UNDERLYING
MORTGAGE CERTIFICATES SUBORDINATED CERTIFICATES MORTGAGE POOL
--------------------- --------------------------- ------------------
<S> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
SPECIAL TERMINATION
With respect to each Underlying Series, subject to the limitations
imposed by the related Underlying Pooling Agreement, by no later than the
tenth business day after the first Underlying Series Distribution Date on
which the aggregate outstanding principal balance of all related classes of
certificates is less than 25% of the initial related aggregate principal
balance of such certificates, the related Mortgage Loan Trustee will solicit
bids for the related mortgage loans (including the Mortgage Loans contained
in the related Underlying Mortgage Pools) and any other property remaining
in the related Trust Fund. The related Mortgage Loan Trustee, however, will
not accept any bid for such mortgage loans and other property unless certain
minimum requirements are met, including that the proceeds distributable as a
result of such sale would be at least equal to 100% of the then outstanding
aggregate principal balance of all related classes of certificates plus
accrued interest thereon through the applicable Interest Accrual Period.
The sale of the mortgage loans and any other property in any Underlying
Trust Fund must be for an amount no less than fair market value. If the
proceeds from a proposed
S-44
VERSION G
<PAGE>
sale of any mortgage loans and any other property remaining in any
Underlying Trust Fund would be insufficient to satisfy the requirements of
the two preceding sentences, the related Mortgage Loan Trustee will continue
to solicit bids as described above from time to time as it deems
appropriate, until a bid satisfying the requirements of the two preceding
sentences is received. The proceeds of such sale will be treated as a
prepayment of the mortgage loans for purposes of distributions to
Certificateholders. Any such sale will effect a termination of the related
Underlying Trust Fund and an early retirement of the related certificates
(including the related Mortgage Certificates). Any resulting distribution on
a class of Mortgage Certificates will increase the amount distributable on
the Class A-1 Certificates in respect of principal and will result in a
shortening in the weighted average life thereof. There can be no assurance
as to the timing of Special Terminations with respect to the Mortgage
Certificates. Such terminations could occur for none, for only some, or for
all of the Mortgage Certificates, and any such terminations could occur
prior to the Distribution Date on the Class A-1
Certificates.
OPTIONAL TERMINATION
With respect to each Underlying Series, any of the related Mortgage
Loan Servicers, any holder of a related residual certificate or the owner of
the assets pledged to any reserve fund (including the related Underlying
Reserve Fund) may effect an early termination of the related trust on any
Underlying Series Distribution Date after the date on which the aggregate
scheduled principal balance of the related mortgage loans is reduced to less
than 10% of the aggregate scheduled principal balance as of the related
Underlying Series Cut-Off Date, by purchasing all such mortgage loans at a
purchase price, payable in cash, equal to 100% of the aggregate unpaid
principal balance of such mortgage loans plus one month's interest thereon
at the applicable mortgage interest rate. The proceeds of such sale will be
treated as a prepayment of the mortgage loans for purposes of distributions
to certificateholders. Any such sale will effect a termination of the
related Underlying Trust Fund and an early retirement of the related
Certificates (including the related Mortgage Certificates). Any resulting
distribution on a class of Mortgage Certificates will increase the amount
distributable on the Class A-1 Certificates in respect of principal and will
result in a shortening in the weighted average life thereof.
ASSIGNMENT OF MORTGAGE LOANS AND WARRANTIES
At the time of issuance of each Underlying Series, the RTC caused the
mortgage loans in the related Underlying Trust Fund to be assigned to the
related Mortgage Loan Trustee, together with all principal and interest due
on or with respect to such mortgage loans, other than principal and interest
due on or before the related Underlying Series Cut-Off Date.
In addition, the RTC delivered to the related Mortgage Loan Trustee, as
to each related mortgage loan (to the extent such documents were available
to the RTC), (i) the related mortgage note, endorsed to the order of, or
assigned to, the related Mortgage Loan Trustee without recourse; (ii) a
mortgage and mortgage assignment meeting the requirements of the related
Underlying Pooling Agreement; (iii) a lender's title insurance policy or
attorney's opinion of title issued as of the date of origination of the
mortgage loan, or an officer's certificate to the effect that
S-45
VERSION G
<PAGE>
such policy or opinion was issued on such date and remains in full force and
effect; (iv) any insurance policies covering the mortgaged property,
including the primary mortgage insurance policy, to the extent required; and
(v) such other documents as may be described in the related Underlying
Pooling Agreement (such documents collectively, the "Mortgage Loan File").
The applicable Mortgage Loan Trustee is required to hold such documents for
each Underlying Series in trust for the benefit of all certificateholders of
such Underlying Series. In a substantial number of cases, some or all of the
documents described above were not delivered by the RTC to the related
Mortgage Loan Trustees as of the closing dates for the related Underlying
Series.
In the related Underlying Pooling Agreement for each Underlying Series,
the RTC represented and warranted, among other things, that: (i) the
information set forth in the schedule of Mortgage Loans appearing as an
exhibit to the related Underlying Pooling Agreement was correct in all
material respects; (ii) immediately prior to the sale and assignment of the
related mortgage loans to the applicable Mortgage Loan Trustee, the RTC had
good title to each mortgage loan; (iii) each mortgage loan, other than any
co-op loan, was covered by a title insurance policy or an attorney's opinion
of title and each such policy was in full force and effect; (iv) to the best
of the RTC's knowledge, each mortgaged property was free of material damage
and in good repair; (v) as of the date of issuance of the related
certificates, each mortgage constituted a valid first lien on the related
mortgaged property (subject only to (a) the lien of current real property
taxes and assessments, (b) covenants, conditions, and restrictions, rights
of way, easements, and other matters of public record as of the date of the
recording of such mortgage, such exceptions appearing of record and either
being acceptable to mortgage lending institutions generally or specifically
referred to in the related title insurance policy and which do not adversely
affect the value of the mortgaged property and (c) other matters to which
like properties are commonly subject that do not materially interfere with
the benefits of the security intended to be provided by the Mortgage); and
(vi) as of the date of initial issuance of the related certificates, there
were no delinquent taxes, assessments or other outstanding charges affecting
the mortgaged properties. In addition, the RTC represented and warranted in
each related Underlying Pooling Agreement, among other things, that, as of
the date of the initial issuance of the related certificates, all Monthly
Payments due on or prior to a date which was not longer, with respect to any
Underlying Series, than [four months] prior to the related Underlying Series
Cut-Off Date had been made. The sole remedy for any breach of the RTC's
representations and warranties contained in each related Underlying Pooling
Agreement or for defects in mortgage loan documents is the obligation of the
RTC to indemnify the related Underlying Trust Fund for losses realized on
mortgage loans as to which such breaches or defects occur if there is a
connection between such losses and such breaches or defects. Subject to
certain exceptions as set forth in the Underlying Disclosure Documents, the
RTC acting in its corporate capacity will guarantee such obligation of the
Seller. The proceeds of any such repurchase or indemnification will be
passed through to related certificateholders as liquidation proceeds.
PAYMENTS ON MORTGAGE LOANS; UNDERLYING SERIES CERTIFICATE ACCOUNT
The Underlying Pooling Agreement for each Underlying Series requires
the related Mortgage Loan Servicer to maintain a custodial account or
accounts (the "Underlying Series Certificate Account") in the name of the
related Mortgage Loan Trustee for the benefit of the
S-46
VERSION G
<PAGE>
related certificateholders. The amount at any time credited to the
Underlying Series Certificate Account is required to be fully insured to the
maximum coverage possible or be invested in Permitted Investments (as
defined in the Underlying Disclosure Documents) that mature, or are subject
to withdrawal or redemption, on or before the business day preceding the
next succeeding Underlying Series Distribution Date. The income from
Permitted Investments of funds in the Underlying Series Certificate Account
is generally paid to the related Mortgage Loan Servicer, and the risk of
loss of funds in the Underlying Series Certificate Account resulting from
such investments will be borne by the related Mortgage Loan Servicer. The
amount of each such loss will be required to be deposited by the related
Mortgage Loan Servicer in the Underlying Series Certificate Account
immediately as realized.
The Mortgage Loan Servicers are required to deposit in the related
Certificate Accounts amounts representing the following collections and
payments (other than in respect of principal of or interest on the related
mortgage loans due on or before the Underlying Series Cut-Off Date): (i)
all installments of principal and interest on the applicable mortgage loans
and any principal and/or interest required to be advanced by the related
Mortgage Loan Servicer that was due on the applicable Due Date net of
servicing fees due the related Mortgage Loan Servicer, Retained Yield, if
any, and certain other amounts specified in the applicable Underlying
Pooling Agreement; (ii) all amounts received in respect of such mortgage
loans representing late payments of principal and interest to the extent
such amounts were not previously advanced by the related Mortgage Loan
Servicer with respect to such mortgage loans, net of servicing fees due the
related Mortgage Loan Servicer; (iii) all principal prepayments (whether
full or partial) on such mortgage loans received; and (iv) any amounts
received by the related Mortgage Loan Servicer as insurance proceeds (to the
extent not applied to the repair or restoration of the Mortgaged Property)
or liquidation proceeds.
COLLECTION AND OTHER SERVICING PROCEDURES
The Mortgage Loan Servicers are required to make reasonable efforts to
collect all payments called for under the mortgage loans and are required,
consistent with the Underlying Pooling Agreements and any applicable
insurance policies, to follow such collection procedures as each deems
necessary or desirable. Consistent with the above, each Mortgage Loan
Servicer may, in its discretion, waive any prepayment, late payment or
assumption charge or penalty interest in connection with prepayment, late
payment or assumption of a mortgage loan or extend the due dates for
payments due on a mortgage note, provided that insurance coverage for such
mortgage loan will not be adversely affected.
ADVANCES
With respect to classes of Mortgage Certificates, the Mortgage Loan
Servicers are required under the related Underlying Pooling Agreement to
advance prior to each Underlying Series Distribution Date, from their own
funds or from funds held in the related Certificate Accounts for
distribution on a future Underlying Series Distribution Date, scheduled
installments of principal and interest due on a mortgage loan on the
preceding Due Date and not collected by such Mortgage Loan Servicer from the
related borrower (any such advance, an
S-47
VERSION G
<PAGE>
"Advance"). Each such Mortgage Loan Servicer will be obligated to make such
an advance to the extent that such Advances are, in its judgment, reasonably
recoverable from future payments and collections on the Mortgage Loan out of
Insurance Proceeds, Liquidation Proceeds or otherwise. Any advance
previously made by such Mortgage Loan Servicer is reimbursable to such
Mortgage Loan Servicer from funds in the Certificate Account to the extent
that such Mortgage Loan Servicer determines that such advance is not
ultimately recoverable from insurance proceeds, liquidation proceeds or
otherwise. With respect to each Mortgage Certificate, the related Mortgage
Loan Trustee will generally be obligated to make any required Advance if the
Mortgage Loan Servicer fails in its obligation to do so, to the extent
provided in the related Underlying Pooling Agreement.
With respect to the remaining classes of Mortgage Certificates,
neither the related Mortgage Loan Servicer nor the related Mortgage Loan
Trustee will be required to make Advances. The amount of any delinquent
Monthly Payments with respect to related Mortgage Loans is instead withdrawn
from the related Underlying Reserve Fund, to the extent funds are available,
in order to make full distributions on the related Mortgage Certificates and
Related Subordinated Certificates, if any.
MORTGAGE LOAN TRUSTEE AND COLLATERAL AGENT
[TO BE PROVIDED]
S-48
VERSION G
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
As of the Cut-Off Date, the Mortgage Certificates represented
approximately $_______ of the beneficial interest in separate Underlying
Mortgage Pools which, in turn, were comprised of mortgage loans having an
aggregate principal balance as of such date of approximately $____. The
Mortgage Loans in each Underlying Mortgage Pool are adjustable rate,
conventional, one-to-four family residential first mortgage loans having
characteristics approximately as set forth in the table below. The related
mortgaged properties include owner-occupied, vacation and investor-owned
properties, condominiums, cooperatives, and units in Planned Unit
Developments. With respect to some of the Mortgage Loans, the type of the
related mortgaged property was unknown as of the date of issuance of the
related Mortgage Certificates. [Attached to this Prospectus Supplement as
Appendix A are copies of the tables prepared and delivered to prospective
investors by the RTC in connection with the issuance of each class of the
Mortgage Certificates. Such information may not have been accurate when
prepared (See "Special Considerations--Troubled Originators" and "--Limited
Information" herein).
SELECTED MORTGAGE LOAN DATA
[INSERT TABLES]
Interest Rate Adjustments. Each Mortgage Loan will bear interest at a
rate (the "Mortgage Interest Rate") which will adjust periodically, in
accordance with the terms of the related mortgage note, to a rate equal to
the then-current Index (as defined herein) plus the applicable fixed
percentage specified in the related mortgage note (the "Gross Margin").
Mortgage Loans for which COFI (as defined herein) is the Index are referred
to herein as "COFI Mortgage Loans." Mortgage Loans for which CMT or CBE
(each as defined herein) is the Index are referred to herein as "CMT
Mortgage Loans." The Mortgage Interest Rate for each Mortgage Loan
generally began to adjust on the first day of the month prior to the first
six-month or one-year anniversary of its first payment date and then
monthly, semi-annually or
S-49
VERSION G
<PAGE>
annually thereafter (each a "Rate Adjustment Date"). The interest rate on
all of the COFI Mortgage Loans adjusts monthly.
Generally, each Mortgage Loan is subject to an overall maximum interest
rate (the "Lifetime Cap"). For the Monthly COFI Mortgage Loans, the
Lifetime Cap ranges from 0% to 125% per annum. For the CMT Mortgage Loans,
the Lifetime Cap ranges from 0% to 125% per annum. Some of the Mortgage
Loans are subject to minimum interest rates. [In addition to the Lifetime
Cap, interest rate adjustments on the [CMT] Mortgage Loans generally limited
are to 1.00% in the case of semi-annual adjustments and 2.00% in the case of
annual adjustments.]
Effective with the first payment due on a Mortgage Loan after the
related Rate Adjustment Date, the monthly principal and interest payment
generally will be adjusted to an amount that will fully amortize the then-
outstanding principal balance of such Mortgage Loan over its remaining term
to stated maturity and that will be sufficient to pay interest at the
adjusted Mortgage Interest Rate. Therefore, any partial prepayments may
reduce the weighted average life of a Mortgage Loan but will not (except for
partial prepayments made in the final year of the original term of such
Mortgage Loan) cause the final payment on such Mortgage Loan to occur prior
to its stated maturity. An increase in the Mortgage Interest Rate on a
Mortgage Loan will result in a larger portion of each higher Monthly Payment
being allocated to interest and a smaller portion being allocated to
principal.
COFI, CMT AND CBE
The "Index" with respect to each COFI Mortgage Loan is the monthly
weighted average cost of funds for member institutions in the Eleventh
District of the Federal Home Loan Bank System, as published by the Federal
Home Loan Bank of San Francisco ("COFI"). The Index with respect to each
CMT Mortgage Loan generally is either (a) the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity ("CMT") of one year or
(b) the weekly auction average (investment) rate on U.S. Treasury Bills with
a six-month maturity ("CBE"), each as published by the Federal Reserve Board
in Statistical Release H.15 (519) or any similar publication or, if not so
published, as reported by any Federal Reserve Bank or by any U.S. Government
department or agency and made available to the servicer as of a date which
is a number of days prior to each Rate Adjustment Date for such Mortgage
Loan. Some of the Mortgage Loans use a CMT index based on a 2, 3 or 5 year
maturity. In general, should the applicable Index not be published or
become otherwise unavailable, the servicer of the Mortgage Loan will select
a comparable alternative index over which it has no control and which is
readily verifiable.
The monthly averages of CMT and CBE in the tables below are not
necessarily indicative of CMT or CBE on any given date in the relevant month
since significant week-to-week fluctuations in any such Index may occur in
any month as well as over longer periods. In addition, such monthly
averages do not purport to be a prediction of the value of CMT or CBE on any
Rate Adjustment Date or for the lives of the Mortgage Loans.
S-50
VERSION G
<PAGE>
COFI. The following table sets forth COFI for each of the last six
calendar years or portions thereof, based on information reported by The
Federal Home Loan Bank of San Francisco ("FHLBSF");
MONTHLY COFI
<TABLE>
<CAPTION>
YEAR
---------------------------------------
Month(1) 19 19 19 19 19 19
-------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
____________________
(1) COFI reflects the weighted average cost of funds of the members of the
Eleventh District for the month indicated. It is usually announced by
the FHLBSF on the last working day of the month following the month in
which the cost of funds was incurred.
The FHLBSF publishes COFI in its monthly Information Bulletin. Any
individual may request regular receipt by mail of Information Bulletins by
writing the Federal Home Loan Bank of San Francisco's Marketing Department,
P.O. Box 7948, San Francisco, California 94120, or by calling (415) 616-
2610. COFI may also be obtained by calling the FHLBSF at (415) 616-2600.
COFI is designed to represent the monthly weighted average cost of
funds for savings institutions in Arizona, California and Nevada that are
member institutions of the Eleventh Federal Home Loan Bank District (the
"Eleventh District"). COFI for a particular month reflects the interest
costs paid on all types of funds held by Eleventh District member
institutions and is calculated by dividing the cost of funds by the average
of the total amount of those funds outstanding at the end of that month and
of the prior month and annualizing and adjusting the result to reflect the
actual number of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the FHLBSF to
neutralize the effect of events such as member institutions leaving the
Eleventh District or acquiring funds held at the end of the relevant month.
The major components of funds of Eleventh District member institutions are:
(i) savings deposits, (ii) time deposits, (iii) FHLBSF advances, (iv)
repurchase agreements and (v) all other borrowings. Because the component
funds represent a variety of maturities whose costs may react in different
ways to changing conditions, COFI does not necessarily reflect any
particular current market rate.
S-51
VERSION G
<PAGE>
A number of factors affect the performance of COFI, which may cause it
to move in a manner different from indices tied to specific interest rates,
such as United States Treasury Bills or LIBOR. Because the liabilities upon
which COFI is based were issued at various times under various market
conditions and with various maturities, COFI may not necessarily reflect the
prevailing market interest rates on new liabilities of similar maturities.
Moreover, as stated above, COFI is designated to represent the average cost
of funds for Eleventh District savings institutions for the month prior to
the month in which it is due to be published. Additionally, COFI may not
necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, COFI is influenced by the differential
between the prior and the new rates on those deposits or borrowings. In
addition, movements of COFI, as compared to other indices tied to specific
interest rates, may be affected by changes instituted by the FHLBSF in the
method used to calculate COFI.
CMT AND CBE. The following table sets forth the monthly averages of
CMT and CBE for each of the last six calendar years or portions thereof,
based on information published in the Federal Reserve Board in Statistical
Release H.15 (519):
MONTHLY AVERAGES OF CMT
<TABLE>
<CAPTION>
Year
---------------------------------------
Month 19 19 19 19 19 19
----- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
S-52
VERSION G
<PAGE>
MONTHLY AVERAGES OF CBE
<TABLE>
<CAPTION>
Year
---------------------------------------
Month 19 19 19 19 19 19
----- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
Convertible Mortgage Loans. Under the terms of certain of the Mortgage
Loans, the borrower has the option at certain times and under certain
conditions to convert the Mortgage Interest Rate to a fixed rate from a
variable rate based on the applicable Index (each such loan, a "Convertible
Mortgage Loan"). The option to convert to a fixed Mortgage Interest Rate
may be exercised by the borrower on the date or dates specified in the
related note. The borrower's option to convert to a fixed Mortgage Interest
Rate may have expired with respect to certain of the Convertible Mortgage
Loans. The conversion option typically may not be exercised if the borrower
is in default under the terms of the related note or mortgage. In most
cases, the Convertible Mortgage Loan may be converted to a fixed interest
rate loan with a Mortgage Interest Rate based upon FNMA's or FHLMC's
required net yield for the purchase of 15-year (for Mortgage Loans with
original repayment terms of 15 years or less) or 30-year (for Mortgage Loans
with original repayment terms of greater than 15 years) fixed-rate mortgage
loans, under 30-day or 60-day mandatory delivery commitments. In either
case, the fixed interest rate will be computed by adding a specified margin
to the applicable FNMA quotation or the applicable FHLMC quotation. Upon
conversion, the Monthly Payments of principal and interest generally will be
adjusted to provide for fully amortizing, level Monthly Payments until
maturity.
The Pooling and Servicing Agreements applicable to the Mortgage Loans
provide that the Mortgage Loan Servicers will be obligated to purchase any
Mortgage Loan as to which the borrower exercises the right to convert to a
fixed Mortgage Interest Rate for a price equal to 100% of the unpaid
principal balance of such Mortgage Loan plus unpaid accrued interest at the
applicable Mortgage Interest Rate. The Mortgage Loan Servicer's purchase
obligation is not insured or guaranteed by any person. The proceeds of any
such purchased converted Mortgage Loan will be treated as a prepayment and
will be passed through to the Trustee, as holder of the related Mortgage
Certificates. A converted Mortgage Loan bearing a fixed Mortgage Interest
Rate will remain in the Mortgage Pool until purchased or repaid. Any
failure to purchase a
S-53
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<PAGE>
converted Mortgage Loan would cause the related Underlying Mortgage Pool to
include both fixed rate and adjustable rate Mortgage Loans.
Balloon Mortgage Loans. Certain of the Mortgage Loans are Balloon
Mortgage Loans. A "Balloon Mortgage Loan" is a Mortgage Loan that provided
on the date of origination for amortization on the basis of an amortization
schedule extending beyond its stated maturity with a disproportionate
Monthly Payment due on its stated maturity date equal to the remaining
principal balance of such Mortgage Loan. The ability of a borrower to repay
such a Balloon Mortgage Loan upon the maturity thereof frequently will
depend on the borrower's ability to refinance such Balloon Mortgage Loan,
which in turn will depend on a variety of factors, including the prevailing
level of Mortgage interest rates.
Negative Amortization Mortgage Loans. The Monthly Payment on a
Mortgage Loan is adjusted after an initial period and at periodic intervals
thereafter, all as specified in the related note (each, a "Payment Change
Date"), generally to an amount that would fully amortize the remaining
principal balance of the Mortgage Loan over its remaining amortization term
on a level-debt service basis, at the Mortgage Interest Rate in effect on
the related Payment Change Date. However, with respect to certain of the
Mortgage Loans, increases in the Monthly Payment may be limited by the terms
of the related note (the "Payment Adjustment Cap"), which generally provides
that no Monthly Payment may increase by more than a percentage, specified in
the related note, above the Monthly Payment in effect during the preceding
period. With respect to certain of the Mortgage Loans, application of the
Payment Adjustment Cap will be at the option of the borrower.
In addition, with respect to the COFI Mortgage Loans, as to which
interest rates adjust monthly, because the rate at which interest accrues
changes more frequently than payments adjust and because adjustment of
Monthly Payments on such Mortgage Loans may be subject to the various
limitations described above, the amount of interest accruing on the
remaining principal balance of such a Mortgage Loan at the applicable
Mortgage Interest Rate may exceed the amount of the interest portion of the
Monthly Payment. The resulting shortfall in the interest portion of the
related Monthly Payment will be added to the unpaid principal balance of the
related Mortgage Loan in the month during which any such shortfall occurs as
"Deferred Interest," resulting in negative amortization of the Mortgage
Loan. With respect to such Mortgage Loans negative amortization is
generally limited, however, such that the principal balance of the Mortgage
Loan cannot generally exceed the percentage of its original principal
balance specified in the applicable note. If the calculated Monthly Payment
would result in negative amortization exceeding the limit specified in the
related note, the borrower generally is required to pay as the Monthly
Payment until the next Payment Change Date an amount that would fully
amortize the remaining principal balance of the Mortgage Loan over its
remaining amortization term on a level-debt service basis without regard to
any limitations. As a result of such negative amortization, the final
payment at the end of the term of the related Mortgage Loan may be larger
than previous Monthly Payments under such Mortgage Loan.
S-54
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<PAGE>
Non-Monthly Payment Loans. Certain of the Mortgage Loans may provide
for payments of principal at biweekly, quarterly, semiannual or annual
intervals, rather than at monthly intervals.
Graduated Payment Mortgage Loans. Certain of the Mortgage Loans may
provide for an initial period of Monthly Payments in an amount that would be
insufficient to fully amortize the principal balance of the Mortgage Loan
over its stated term, and that may be insufficient to pay accrued interest,
followed by scheduled increasing Monthly Payments prior to a date specified
in the related note. To the extent the amount of interest accruing on the
principal balance of such a Mortgage Loan at the applicable Mortgage
Interest Rate exceeds the Monthly Payment, such excess will be added to the
unpaid principal balance of the related Mortgage Loan, resulting in negative
amortization.
YIELD AND PREPAYMENT CONSIDERATIONS
Prepayments and Excess Cash. The rate of principal payments on the
Class A-1 Certificates will be affected by the rate of principal payments on
the Mortgage Loans (including, for this purpose, prepayments, which may
include amounts received by virtue of condemnation, insurance or
foreclosure) and by the application of Excess Cash to the principal balance
of the Mortgage Certificates.
Principal prepayments may be influenced by a variety of economic
geographic, demographic, social, tax, legal and other factors. In general,
if prevailing interest rates fall significantly below the interest rates on
the Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the interest rates
on such Mortgage Loans. Conversely, if prevailing interest rates rise above
the interest rates on such Mortgage Loans, the rate of prepayments would be
expected to decrease. Other factors affecting prepayment of the Mortgage
Loans include changes in borrowers' housing needs, job transfers,
unemployment, borrowers' net equity in the mortgaged properties and
servicing decisions.
All of the Mortgage Loans are adjustable rate mortgage loans ("ARMs").
The Depositor is not aware of any publicly available statistics that set
forth principal prepayment experience or prepayment forecasts of ARMs over
an extended period of time, the prepayment experience of the Mortgage
Certificates is insufficient to draw any conclusions with respect to the
expected prepayment rates of the Mortgage Loans. The rate of principal
prepayments with respect to ARMs has fluctuated in recent years. As is the
case with conventional fixed rate mortgage loans, ARMs may be subject to a
greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
ARMs could be subject to higher prepayment rates than if prevailing interest
rates remain constant because the availability of fixed rate mortgage loans
at competitive interest rates may encourage mortgagors to refinance their
ARMs to "lock in" a lower fixed interest rate. No assurances can be given
as to the rate of prepayments on the Mortgage Loans in stable or changing
interest rate environments.
S-55
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<PAGE>
Excess Cash related to each of the Underlying Mortgage Pools will be
allocated in reduction of the Mortgage Underlying Certificate Principal
Balances of the Certificates in various ways. See "Description of the
Mortgage Certificates--Principal Distributions."
If a Class A-1 Certificate is purchased at a discount from its initial
principal amount by a purchaser that calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster
than that actually experienced on the Mortgage Loans, the actual yield to
maturity will be lower than that so calculated. Conversely, if a
Certificate is purchased at a premium by a purchaser that calculates its
anticipated yield to maturity based on an assumed rate of payment of
principal that is slower than that actually experienced on the Mortgage
Loans, the actual yield to maturity will be lower than that so calculated.
Timing of Payments. The timing of changes in the rate of prepayments
on the Mortgage Loans and the timing of distribution of Excess Cash may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the
Mortgage Loans or a distribution of Excess Cash, the greater the effect on
an investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Certificates may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
Basis Risk; LIBOR. The interest rate payable to the Holders of the
Class A-1 Certificates is based on LIBOR. However, the Mortgage Loans bear
interest at adjustable rates based on various indices. LIBOR and such
various indices may respond to different economic and market factors, and
there is no necessary correspondence between them. Thus, it is possible,
for example, that LIBOR may rise during periods in which the indices of the
Mortgage Loans are stable or are falling, or that even if both LIBOR and
such indices rise during the same period, LIBOR may rise much more rapidly
and sharply than the indices. THERE CAN BE NO ASSURANCE THAT FUNDS
AVAILABLE IN THE RESERVE FUND OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT
WILL BE SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON
THE MORTGAGE CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE
CLASS A-1 CERTIFICATES.
Mortgage Certificates. The Trust Fund contains Mortgage Certificates
which were issued at different times, are backed by different pools of
Mortgage Loans, have different allocations of principal and interest and
payment priorities among various classes, and may perform differently in
various interest and prepayment rate environments. The performance
characteristics of the Class A-1 Certificates will reflect a combination of
the performance characteristics of the various Mortgage Certificates. As a
result, it will be difficult to predict the likely yield and payment
experience of the Mortgage Certificates.
Special Terminations. Each of the Underlying Mortgage Pools is subject
to termination as described under "Description of the Mortgage Certificates-
-Special Termination." Any such
S-56
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<PAGE>
termination may have the effect of decreasing the weighted average life of
the Class A-1 Certificates.
Auction Risk. There can be no assurances that the Trustee will, on
or on any date thereafter, be able to sell the Mortgage
Certificates for a price sufficient (together with amounts on deposit in the
Reserve Fund) to allow the Class A-1 Certificates to be paid in full.
[Reinvestment Risk. Investors should consider the risk that rapid
rates of prepayments on the Mortgage Loans, and therefore of principal
payments on the Certificates, may coincide with periods of low prevailing
interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts received as
principal payments on such investor's Certificate may be lower than the
Class A-1 Pass-Through Rate. Conversely, slow rates of prepayments on the
Mortgage Loans, and therefore of principal payments on the Class A-1
Certificates, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal payments available to an
investor for reinvestment at such high prevailing interest rates may be
relatively low.]
Convertible ARM Loans. As discussed above under "DESCRIPTION OF THE
MORTGAGE LOANS," borrowers under certain of the Mortgage Loans have the
option to convert the Mortgage Loan to a fixed rate loan. As previously
discussed, the related Mortgage Loan Servicers are obligated to purchase any
such Converted Mortgage Loans. Unless and until such a purchase is
effected, a Converted Mortgage Loan will stay in the Underlying Mortgage
Pool and the Mortgage Interest Rate will be fixed rather than based on an
Index. The yield on the Class A-1 Certificates may thus be adversely
affected. In addition, the purchase of a Converted Mortgage Loan may affect
the rate of principal payments on the Class A-1 Certificates and, as a
result, the yield on such Certificates.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Class A-1 Certificate is determined by (a) multiplying the
amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date (or, in the case of the first
distribution, from ) to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate
referred to in clause (a). The weighted average lives of the Class A-1
Certificates will be influenced by, among other factors, the rate at which
principal is paid on the Mortgage Loans.
CPR MODEL
Prepayments on mortgage loans are commonly measured relative to a
prepayment or model. The model used in this Prospectus Supplement, known as
a conditional or a constant prepayment rate ("CPR"), represents a rate of
payment of unscheduled principal on the
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Mortgage Loans expressed as an annualized percentage of the outstanding
principal balance of the Mortgage Loans at the beginning of each period. CPR
does not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans.
PRICING ASSUMPTION
The Class A-1 Certificates were structured assuming, a month other
things, a prepayment assumption of 18% CPR and LIBOR at a rate of ____%. The
assumptions as to prepayments and LIBOR to be used for pricing purposes for
the Class A-1 Certificates may vary as determined at the time of sale. The
actual rates of prepayments and the actual levels of LIBOR may vary
considerably from the rates used for any pricing assumption.
WEIGHTED AVERAGE LIFE, FINAL DISTRIBUTION DATE AND PRE-TAX YIELD TABLES
The following tables indicate the weighted average lives (in years),
the final Distribution Dates and the pre-tax yields to maturity (on a
corporate bond equivalent basis) of the Class A-1 Certificates, assuming
various percentages of CPR and various constant levels of LIBOR, among other
things.
For each of the following tables it was assumed that (i) The Mortgage
Certificates in the Trust Fund have the principal balances set forth on Table
__ on p. S-__ [adjusted, etc.]; (ii) each Mortgage Loan underlying a Mortgage
Certificate has a Mortgage Interest Rate as of the Cut Off Date, remaining
term to maturity and loan age equivalent to the weighted average mortgage
interest rate of such Mortgage Loans, the weighted average remaining term to
maturity and the weighted average loan age of such Mortgage Loans as of the
Cut Off Date, as reported in the applicable Remittance Reports prepared by the
servicers; (iii) the Mortgage Loans prepay at the percentages of CPR
indicated; (iv) all amounts due with respect to the Mortgage Loans are applied
to the payment of the Mortgage Certificates on the 25th of the month in
accordance with the applicable Prospectus and Prospectus Supplement of the
RTC; (v) for the first Interest Accrual Period, the Class A-1 Pass-Through
Rate is ____%; (vi) LIBOR with respect to each Interest Accrual Period after
the first is equal to the levels shown; (vii) the Closing Date is
___, 19 ; (viii) each quarterly distribution on the Class A-1 Certificates is
made on the 25th day of the relevant month, commencing on , ;
(ix) each month consists of 30 days; (x) funds on deposit in the Reserve Fund
earn interest at ____; and (xi) the Class A-1 Certificates are purchased at
par.
[INSERT TABLES]
The yields set forth in the above table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class A-1 Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed
purchase price of the Class A-1 Certificates indicated above and converting
such monthly rates to corporate bond equivalent rates. Such calculation does
not take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as payments of
principal of and interest on the Class A-1 Certificates
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and consequently does not purport to reflect the return of any investment in
the Class A-1 Certificates when such reinvestment rates are considered.
Listed below are historical values of Three-Month LIBOR since
___________:
<TABLE>
<CAPTION>
3 MONTH LIBOR
MONTHLY AVERAGES
YEAR
MONTH 19 19 19 19 19
-------------------------------------------
<S> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
Historical LIBOR experience is not a predictor of future LIBOR
notes, which are influenced by numerous factors, the impact of
which cannot be predicted. The foregoing rates do not purport to
be a prediction of the value of LIBOR on any Reset Date or for the
lives of the Class A-1 Certificates.
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual
underlying Mortgage Certificates and Mortgage Loans and the characteristics
assumed therefore in preparing the tables contained herein. To the extent
that the Mortgage Certificates and Mortgage Loans have characteristics which
differ from those assumed in preparing the tables, the Class A-1 Certificates
may mature earlier or later than indicated by the tables and the weighted
average lives and pre-tax yields may also differ. In addition, it is unlikely
that the Mortgage Loans will prepay at any constant rate or at the same rate,
or that LIBOR will remain constant at any level. The timing of changes in the
rate of prepayment and level of LIBOR may significantly affect the yield
realized by a holder of the Class A-1 Certificates. Under certain prepayment
and LIBOR scenarios, investors may not receive the full amount of their
investments.
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<PAGE>
THE MORTGAGE LOAN SERVICERS
The names of the Mortgage Loan Servicers related to each of the
Mortgage Certificates are set forth in the following table:
MORTGAGE LOAN SERVICERS
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES SERVICER
--------------------- ------------------------------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
According to FHLMC and FNMA, each of the Mortgage Loan Servicers (other
than __________) is approved by such organizations to service residential
mortgage loans.
S-60
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[to be provided]
The preceding information with respect to the Mortgage Loan Servicers
was derived by the Depositor from publicly available information which the
Depositor believes to be reliable. However, the Depositor makes no
representations with respect thereto and assumes no responsibility for the
accuracy or completeness thereof.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes. The Class A-1 and Class IO Certificates will be
designated as regular interests in the REMIC, and the Class R Certificate
will be designated as the residual interest in the REMIC.
The Class A-1 Certificates will be treated as "qualifying real property
loans" for mutual savings banks and domestic building and loan associations,
"regular or residual interests in a
S-61
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<PAGE>
REMIC" for domestic building and loan associations, and "real estate assets"
for real estate investment trusts, to the extent described in the
Prospectus.
The Class A-1 Certificates generally will be treated as newly
originated debt instruments for federal income tax purposes. Beneficial
Owners of the Class A-1 Certificates will be required to report income on
such Certificates in accordance with the accrual method of accounting.
It is expected that the Class A-1 Certificates will be issued [at a
premium] [with original issue discount] for federal income tax
purposes.
The Prepayment Assumption (as defined in the Prospectus) that the
Certificate Administrator intends to use in determining the rate of accrual
of original issue discount will be calculated using 18% CPR. No
representation is made as to the actual rate at which the Mortgage Loans
will prepay.
The material (and certain minor and incidental) consequences of
investing in the Certificates are discussed in "Federal Income Tax Consequences"
in the Prospectus. It is recommended that investors read "Federal Income Tax
Consequences" in the Prospectus and consult with their own tax advisors
regarding the consequences to them of investing in the Certificates.
ERISA CONSIDERATIONS
The Department of Labor has granted to the Underwriter an
administrative exemption (the "Exemption") from certain of the prohibited
transaction rules of ERISA and certain related excise taxes imposed by the
Code with regard to the initial purchase, the holding and the subsequent
resale by ERISA Plans of certificates in pass-through trusts that meet the
conditions and requirements of the Exemption. The Exemption should apply to
the liquidation, holding, and resale of the Class A-1 Certificates by an
ERISA Plan, provided that specified conditions (certain of which are
described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the acquisition by an ERISA Plan of the Class A-1 Certificates are the
following: (1) the acquisition of the Certificates by an ERISA Plan is on
terms (including the price for such Certificates) that are at least as
favorable to the ERISA Plan as they would be in an arm's-length transaction
with an unrelated party; (2) the rights and interests evidenced by the
Certificates acquired by the ERISA Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust; (3) the
Certificates acquired by the ERISA Plan have received a rating at the time
of such acquisition that is in one of the three highest generic rating
categories from any of S&P, Fitch, Duff & Phelps Credit Rating Co. or
Moody's Investors Service, Inc.; (4) the sum of all payments made to the
Underwriter in connection with the distribution of the Class A-1
Certificates represents not more than reasonable compensation for
underwriting such Certificates; and (5) the sum of all payments made to and
retained by the Certificate Administrator represents not more than
reasonable compensation for the Certificate Administrator's services under
the Pooling Agreement and reimbursement of the Certificate Administrator's
reasonable expenses in connection therewith.
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In addition, it is a condition that the ERISA Plan investing in the
Class A-1 Certificates be an "accredited investor" as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act.
The Exemption does not apply to the acquisition and holding of Class A-
1 Certificates by ERISA Plans sponsored by the Issuer, the Underwriter, the
Trustee, the Certificate Administrator, or any affiliate of such parties.
Moreover, the Exception provides relief from certain self-dealing/conflict
of interest prohibited transactions, only if, among other requirements (i)
an ERISA Plan's investment in the Class A-1 Certificates does not exceed 25%
of all of that Class outstanding at the time of the acquisition and (ii)
immediately after the acquisition, no more than 25% of the assets of an
ERISA Plan with respect to which the person who has discretionary authority
or renders advice are invested in certificates representing an interest in a
trust containing assets sold or serviced by the same person.
USE OF PROCEEDS
The proceeds from the sale of the Class A-1 Certificates (net of
expenses incurred in connection with the issuance of the Class A-1
Certificates) will be used by the Depositor to purchase the Mortgage
Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Class A-1 Certificates constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"SMMEA") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization. As such, the Class A-1 Certificates are legal investments for
certain entities to the extent provided in the SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the
National Credit Union Administration or state banking or insurance
authorities should review applicable rules, supervisory policies and
guidelines of these agencies before purchasing any of the Class A-1
Certificates, as such Certificates may be deemed to be unsuitable
investments under one or more of these rules, policies and guidelines and
certain restrictions may apply to investments in such Certificates. It
should also be noted that certain states recently have enacted, or have
proposed enacting, legislation limiting to varying extent the ability of
certain entities (in particular insurance companies) to invest in mortgage
related securities. The appropriate characterization of the Class A-1
Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase Class A-1
Certificates, may be subject to significant interpretive uncertainties.
Investors should consult with their own legal advisors in determining
whether and to what extent Class A-1 Certificates constitute legal
investments for such investors. See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Credit Suisse First Boston proposes to place the Class A-1 Certificates
from time to time in one or more negotiated transactions, or otherwise, at
varying prices to be determined in each case, at
S-63
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<PAGE>
the time of sale. The Class A-1 Certificates are offered subject to prior
sale and acceptance and to certain other conditions.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor
Orrick, Herrington & Sutcliffe LLP New York, New York.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that
such Certificates be rated at least "Aaa" by Moody's and at least "AAA" by
S&P. There is no assurance that such ratings will continue for any period
of time or that they will not be revised or withdrawn entirely by such
rating agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse effect on the market price of
the Class A-1 Certificates. A security rating is not a recommendation to
buy, sell or hold securities.
The ratings of Moody's and S&P on mortgage pass-through certificates
address the likelihood of the receipt by holders hereof of all distributions
of principal and interest to which such holders are entitled (except as set
forth below.
Moody's and S&P's rating opinions address the structural, legal and
issuer aspects associated with the certificates, including the nature and
credit quality of the underlying mortgage assets and the credit quality of
the credit support provider, if any. Moody's and S&P's ratings on
pass-through certificates do not represent any assessment of the likelihood
that principal prepayments may differ from those originally anticipated or
the affect of the timing of such prepayments on an investor's anticipated
yield. The ratings do not address the likelihood that investors in the Class
A-1 Certificates will receive Basis Risk Shortfalls. Further, the ratings
on the Class IO Certificates do not address whether, as a result of
principal prepayments, investors in the Class IO Certificates may fail to
recoup their initial investment.
The Depositor has not requested a rating on the Certificates from any
other rating agency, although data with respect to the Mortgage Loans or the
Mortgage Certificates may have been provided to other agencies solely for
their informational purposes. There can be no assurance that if a rating is
assigned to the Class A-1 Certificates by any other rating agency, such
rating will be as high as that assigned by Moody's or S&P.
S-64
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<PAGE>
[INSERT INDEX]
S-65
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<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR THE UN-
DERWRITERS. 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 JURISDICTION.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms........................................................... S-
Risk Factors............................................................... S-
Description of the Certificates............................................ S-
The Mortgage Certificates.................................................. S-
Description of the Mortgage Loans.......................................... S-
Yield and Prepayment Considerations........................................ S-
The Mortgage Loan Servicers................................................ S-
The Resolution Trust Corporation........................................... S-
Federal Income Tax Consequences............................................ S-
ERISA Considerations....................................................... S-
Use of Proceeds............................................................ S-
Legal Investment Considerations............................................ S-
Method of Distribution..................................................... S-
Legal Matters.............................................................. S-
Ratings.................................................................... S-
PROSPECTUS
Prospectus Supplement...................................................... 2
Additional Information..................................................... 2
Incorporation of Certain Information by Reference.......................... 2
Summary of Terms........................................................... 3
Risk Factors............................................................... 16
The Trust Fund............................................................. 16
The Depositor.............................................................. 26
Use of Proceeds............................................................ 26
Yield Considerations....................................................... 27
Maturity and Prepayment Considerations..................................... 29
Description of the Certificates............................................ 31
Credit Support............................................................. 56
Description of Insurance................................................... 61
Certain Legal Aspects of the Mortgage Loans and Contracts.................. 68
Federal Income Tax Consequences............................................ 79
ERISA Considerations....................................................... 107
Legal Investment........................................................... 111
Plan of Distribution....................................................... 112
Legal Matters.............................................................. 113
Index of Terms............................................................. 114
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage
Securities Corp.
Depositor
Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates, Series
PROSPECTUS SUPPLEMENT
LOGO
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration and filing fees, are estimated.
<TABLE>
<S> <C>
SEC Registration Fee..........................................$ 356,000
Legal Fees and Expenses....................................... 450,000
Accounting Fees and Expenses.................................. 75,000
Trustee's Fees and Expenses (including counsel fees).......... 150,000
Printing and Engraving Fees................................... 175,000
Rating Agency Fees............................................ 425,000
Miscellaneous................................................. 100,000
----------
Total.......................................................$1,731,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 5 of the Restated Certificate of Incorporation of the Depositor and
Article X of the By-Laws of the Depositor provide for the indemnification,
within the limits permitted by the General Corporation Law of the State of
Delaware, of directors, officers, employees, and agents of the Corporation and
of persons who serve other enterprises in such or similar capacities at the
request of the Corporation, against expenses, including attorney's fees and
liabilities for actions they take in such capacities.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of another
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if
he or she acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no cause to believe his or her conduct
was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification may be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director, officer, employee or
agent of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145. Reference is made to Exhibit 3.1 of this Registration Statement for
the complete text of the Restated Certificate of Incorporation and reference is
made to Exhibit 3.2 of this Registration Statement for the complete text of the
By-laws.
The ultimate parent of the Depositor carries directors' and officers'
liability insurance that covers certain liabilities and expenses of the
Depositor's directors and officers.
Any underwriters who execute an Underwriting Agreement in the form filed as
Exhibits 1.1 and 1.2 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party. For provisions regarding the indemnification of controlling
persons, directors and officers of the Depositor by Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
reference is made to the proposed forms of Underwriting Agreement filed as
Exhibits 1.1 and 1.2 to this Registration Statement.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Financial Statements filed as part of the Registration Statement: none
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PG. NO.
------- ----------- -------
<C> <S> <C>
*1.1 -- Forms of Underwriting Agreement (Mortgage Loans/Mortgage
Certificates)
*1.2 -- Form of Underwriting Agreement (Contracts)
**3.1 -- Restated Certificate of Incorporation of Depositor
*3.2 -- By-laws of Depositor
*4.1 -- Form of Standard Terms and Provisions of Pooling and
Servicing Mortgage Certificates)
*4.2 -- Forms of Reference Agreement (Mortgage Loans/Mortgage
Certificates)
*4.3 -- Form of Deposit Trust Agreement between Depositor and
Trustee
*4.4 -- Form of Master Seller's Warranty and Servicing Agreement
*4.5 -- Form of Standard Terms and Provisions of Pooling and
Servicing (Contracts)
*4.6 -- Forms of Reference Agreement (Contracts)
*4.7 -- Form of Standard Terms and Provisions of Pooling and
Servicing and
Reference Agreement
*4.8 -- Form of Pooling and Servicing Agreement (Mortgage Loans)
5.1 --Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain matters involving the Certificates
8.1 --Opinion of Orrick, Herrington & Sutcliffe LLP as to tax matters
23.1 --Consent of Orrick, Herrington & Sutcliffe LLP (included as part of
Exhibits 5.1 and 8.1)
***24.1 --Power of Attorney (included on Page II-5 of the Registration
Statement)
*28.1 -- Form of Performance Bond
*28.2 -- Form of Letter of Credit
*28.3 -- Form of Primary Mortgage Insurance Policy
*28.4 -- Form of Pool Insurance Policy
*28.5 -- Form of Special Hazard Insurance Policy
*28.6 -- Form of Mortgagor Bankruptcy Bond
</TABLE>
- --------
* As previously filed in connection with Registration Statement on Form S-11
(Registration No. 33-47579) and incorporated herein by reference.
** As previously filed in connection with Registration Statement on Form S-3
(Registration No. 333-21329) and incorporated herein by reference.
*** As previously filed in connection with this Registration Statement.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) As to documents subsequently filed that are incorporated by reference:
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13 (a) or Section 15 (d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement referred to in Transaction Requirement B.2 or B.5 of Form S-3
will be met by the time of sale of the securities registered hereby, and has
duly caused this Amendment No. 4 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York on the 23rd day of September, 1999.
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP.
/s/ Patrick D. Coleman
-------------------------------------
Patrick D. Coleman*
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Patrick D. Coleman Director and President September 23, 1999
- ------------------------- (Principal Executive Officer)
PATRICK D. COLEMAN*
/s/ Scott J. Ulm Director and Chairman of the Board September 23, 1999
- -------------------------
SCOTT J. ULM*
/s/ William S. Pitofsky Director and Vice President September 23, 1999
- -------------------------
WILLIAM S. PITOFSKY
/s/ Carlos Onis Director September 23, 1999
- -------------------------
CARLOS ONIS
/s/ Zev Kindler Treasurer (Principal Financial Officer) September 23, 1999
- -------------------------
ZEV KINDLER
/s/ Thomas Zingalli Vice President and Controller September 23, 1999
- ------------------------- (Principal Accounting Officer)
THOMAS ZINGALLI*
* By: /s/ William S. Pitofsky
-------------------------
WILLIAM S. PITOFSKY
Attorney-in-fact pursuant
to a power of attorney filed
with the Registration Statement
</TABLE>
II-4
<PAGE>
As filed with the Securities and Exchange Commission on September 29, 1999
================================================================================
Registration No. 333-53115
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 4 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PG. NO.
------- ----------- -------
<S> <C>
*1.1 -- Forms of Underwriting Agreement (Mortgage Loans/Mortgage
Certificates)
*1.2 -- Form of Underwriting Agreement (Contracts)
**3.1 -- Restated Certificate of Incorporation of Depositor
*3.2 -- By-laws of Depositor
*4.1 -- Form of Standard Terms and Provisions of Pooling and
Servicing Mortgage Certificates)
*4.2 -- Forms of Reference Agreement (Mortgage Loans/Mortgage
Certificates)
*4.3 -- Form of Deposit Trust Agreement between Depositor and
Trustee
*4.4 -- Form of Master Seller's Warranty and Servicing Agreement
*4.5 -- Form of Standard Terms and Provisions of Pooling and
Servicing (Contracts)
*4.6 -- Forms of Reference Agreement (Contracts)
*4.7 -- Form of Standard Terms and Provisions of Pooling and
Servicing and
Reference Agreement
*4.8 -- Form of Pooling and Servicing Agreement (Mortgage Loans)
***5.1 --Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain matters involving the Certificates
***8.1 --Opinion of Orrick, Herrington & Sutcliffe LLP as to tax matters
***23.1 --Consent of Orrick, Herrington & Sutcliffe LLP (included as part of
Exhibits 5.1 and 8.1)
***24.1 -- Power of Attorney (included on Page II-5 of Registration Statement)
*28.1 -- Form of Performance Bond
*28.2 -- Form of Letter of Credit
*28.3 -- Form of Primary Mortgage Insurance Policy
*28.4 -- Form of Pool Insurance Policy
*28.5 -- Form of Special Hazard Insurance Policy
*28.6 -- Form of Mortgagor Bankruptcy Bond
</TABLE>
- --------
* As previously filed in connection with Registration Statement on Form S-11
(Registration No. 33-47579) and incorporated herein by reference.
** As previously filed in connection with Registration Statement on Form S-3
(Registration No. 333-21329) and incorporated herein by reference.
*** As previously filed with this Registration Statement.
