As filed with the Securities and Exchange Commission on August 8, 2000
Registration No. 333-37616
======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Amendment No. 3
to
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
------------------
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-3320910
(I.R.S. employer identification number)
Credit Suisse First Boston Mortgage Securities Corp.
11 Madison Avenue
New York, New York 10010
(212) 325-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principle executive offices)
Thomas Zingalli
Credit Suisse First Boston
Mortgage Securities Corp.
11 Madison Avenue
New York, New York 10010
(212) 325-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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 as determined by
market conditions.
If the only securities being registered on this Form are to be 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, 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. |_|
<TABLE>
CALCULATION OF REGISTRATION FEE
===================================================================================
Title of Securities Amount to be Proposed Proposed Amount of
to be Registered(1) Registered(2) Maximum Maximum Registration
Aggregate Price Aggregate Fee
Per Unit Offering Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Conduit Mortgage and
Manufactured Housing $1,500,000,000 100% $1,500,000,000(3)$ 396,000 (4)
Contract Pass-Through
Certificates
===================================================================================
</TABLE>
(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)$3,518,133,600 aggregate principal amount of Conduit Mortgage and
Manufactured Housing Contract Pass-Through Certificates registered by the
Registrant under Registration Statement No. 333-53115 on Form S-3 referred to
below and not previously sold are consolidated into this Registration
Statement pursuant to Rule 429. A registration fee in connection with such
unsold amount of Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates was paid previously under the foregoing
Registration Statement. Accordingly, the total amount registered under this
Registration Statement as so consolidated as of the date of this filing is
$5,018,133,600.
(3) Estimated solely for the purpose of calculating the registration fee.
(4) Fee of $264 paid in connection with original Registration Statement filed
on May 23, 2000. Fee of $395,736 paid in connection with Amendment No. 2 to
Registration Statement filed on August 7, 2000.
-------------------
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 this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this 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 General Rules and Regulations under the
Securities Act of 1933, the prospectus that is part of this Registration
Statement is a combined prospectus and includes all the information currently
required in a prospectus relating to the securities covered by Registration
Statement No. 333-53115 on Form S-3 previously filed by the Registrant. This
Registration Statement, which relates to $5,018,133,600 aggregate principal
amount of Conduit Mortgage and Manufactured Housing Contract Pass-Through
Certificates, constitutes Post-Effective Amendment No. 2 to Registration
Statement No. 333-53115 on Form S-3.
<PAGE>
Explanatory Note
This Registration Statement includes (i) the basic prospectus relating to
Conduit Mortgage and Manufactured Housing Contract Pass-Through Certificates,
(ii) an illustrative form of prospectus supplement for use in an offering of
Mortgage Backed Pass-Through Certificates representing beneficial ownership
interests in a trust fund consisting primarily of mortgage loans with credit
enhancement provided by subordinate certificates ("Version A") and (iii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Backed Pass-Through Certificates representing beneficial ownership interests in
a trust fund consisting primarily of mortgage loans, including multifamily and
commercial mortgage loans, with credit enhancement provided by excess interest,
overcollateralization and a financial guaranty insurance policy ("Version B").
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities Exchange Commission is effective. This prospectus supplement
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED ________________, 200_
Prospectus supplement dated ________,_____ (to prospectus dated
_____________,____)
$____________
[_________________]
SELLER AND SERVICER
CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP.
DEPOSITOR
MORTGAGE-BACKED PASS-THROUGH CERTIFICATES, SERIES 200_-___
ISSUER
THE TRUST
The trust will hold a pool of one- to four-family residential first mortgage
loans.
OFFERED CERTIFICATES
The trust will issue these classes of certificates that are offered under this
prospectus supplement:
o [_] classes of Class A Certificates
[o [_] classes of Class R Certificates]
o [_] classes of Class M Certificates
CREDIT ENHANCEMENT
Credit enhancement for all of these certificates will be provided by
subordinated certificates.
--------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[_] IN THIS
PROSPECTUS SUPPLEMENT.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE OFFERED CERTIFICATES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Credit Suisse First Boston Corporation will offer the Class A Certificates,
Class M certificates [and Class R Certificates], subject to availability.
[NAME OF UNDERWRITER]
UNDERWRITER
[_________], 200_ Version A
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS
You should rely on the information contained in this document or to which
we have referred you to in this prospectus supplement. We have not authorized
anyone to provide you with information that is different. This document may only
be used where it is legal to sell these securities.
We provide information to you about the offered certificates in two
separate documents that progressively provide more detail:
o the prospectus, which provides general information, some of which may
not apply to your series of certificates; and
o this prospectus supplement, which describes the specific terms of your
series of certificates.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Terms" beginning
on page 126 in the prospectus.
TABLE OF CONTENTS
[INSERT HERE]
<PAGE>
SUMMARY
The following summary highlights selected information from this prospectus
supplement. It does not contain all of the information that you should consider
in making your investment decision. To understand the terms of the offered
certificates, read carefully this entire prospectus supplement and the
accompanying prospectus.
--------------------------------------------------------------------------------
Title of series...........[_________________________ Mortgage-Backed
Pass-Through Certificates, Series 200_-___].
Depositor.................Credit Suisse First Boston Mortgage Securities Corp.
Seller and servicer.......[_________________________].
Trustee...................[_________________________].
Mortgag pool..............[_____] [fixed] [adjustable] rate mortgage loans
with an aggregate principal balance of approximately
$[________] as of the cut-off date, secured by first
liens on one- to four-family residential properties.
Cut-off date..............[__________ 1, 200_].
Closing date..............On or about [_________, 200_].
Distribution date.........Beginning on [__________, 200_], and thereafter
on the [ ] day of each month, or if the [ ] day is not
a business day, on the next business day.
Scheduled final
distribution date........[__________, 20__]. The actual
final distribution date could be substantially
earlier.
Form of offered
certificates............ Book-entry: Class A Certificates and Class M
Certificates.
Physical: Class R Certificates.
SEE "DESCRIPTION OF THE CERTIFICATES--BOOK-ENTRY
REGISTRATION" IN THIS PROSPECTUS SUPPLEMENT.
Minimum denominations.....[Class A Certificates and Class M Certificates]:
$25,000. Class R-1 and Class R-2 Certificates: [ ]%
percentage interests.
S-3
<PAGE>
--------------------------------------------------------------------------------
OFFERED CERTIFICATES
--------------------------------------------------------------------------------
<TABLE>
INITIAL
INITIAL PASS- INITIAL
PRINCIPAL THROUGH RATING
CLASS BALANCE RATE (____/____) DESIGNATION
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A CERTIFICATES:
--------------------------------------------------------------------------------
$ % Aaa/AAA Senior
--------------------------------------------------------------------------------
$ % Aaa/AAA Senior
--------------------------------------------------------------------------------
Total Class A
Offered
Certificates: $
--------------------------------------------------------------------------------
[CLASS R CERTIFICATES:
--------------------------------------------------------------------------------
R-1 $ % NA/AAA Senior/Residual
--------------------------------------------------------------------------------
R-2 $ % NA/AAA Senior/Residual
--------------------------------------------------------------------------------
Total Class R
Certificates: $ ]
--------------------------------------------------------------------------------
CLASS M CERTIFICATES:
--------------------------------------------------------------------------------
$ % NA/AA Mezzanine
--------------------------------------------------------------------------------
Total Class M
Certificates: $
--------------------------------------------------------------------------------
Total offered
certificates: $
--------------------------------------------------------------------------------
</TABLE>
S-4
<PAGE>
THE TRUST
The depositor will establish a trust for the Series 200_-___ Mortgage-Backed
Pass-Through Certificates, under a pooling and servicing agreement, dated as of
[_______] 1, 200_, among the depositor, the seller and servicer and
[______________], as trustee. On the closing date, the depositor will deposit
the pool of mortgage loans described in this prospectus into the trust.
Each certificate will represent a partial ownership interest in the trust.
Distributions on the certificates will be made from payments received on the
mortgage loans as described in this prospectus.
THE MORTGAGE POOL
The mortgage pool will consist of approximately [____] [fixed] [adjustable]
rate, fully amortizing mortgage loans secured by first liens on one-to
four-family residential properties having an aggregate principal balance of
approximately $_______ as of __________ 1, 200_ .]
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE POOL SEE "DESCRIPTION OF THE
MORTGAGE POOL" IN THIS PROSPECTUS SUPPLEMENT.
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
AMOUNT AVAILABLE FOR MONTHLY DISTRIBUTION. On each monthly distribution date,
the trustee will make distributions to investors. The amount available for
distribution will include:
o collections of monthly payments on the mortgage loans, including
prepayments and other unscheduled collections PLUS
o advances for delinquent payments MINUS
o the fees and expenses of the subservicers and the servicer, including
reimbursement for advances.
SEE "DESCRIPTION OF THE CERTIFICATES--GLOSSARY OF TERMS--AVAILABLE DISTRIBUTION
AMOUNT" IN THIS PROSPECTUS SUPPLEMENT.
PRIORITY OF DISTRIBUTIONS. Distributions on the offered certificates will be
made from available amounts as follows:
o Distribution of interest to the interest-bearing [Class A Certificates and
Class R Certificates]
o Distribution of principal to the remaining [Class A Certificates and Class
R Certificates] entitled to principal
o Payment to servicer for various unreimbursed advances
Distribution to the Class M Certificates in the following order:
o Interest to the Class M Certificates
o Principal to the Class M Certificates
INTEREST DISTRIBUTIONS. The amount of interest owed to each class of interest
bearing certificates on each distribution date will equal:
o the pass-through rates set forth on page S-[_] for that class of
certificates MULTIPLIED BY
o the principal balance of that class of certificates as of the day
immediately prior to the related distribution date MULTIPLIED BY
/
o 1/12th MINUS
o the share of some types of interest shortfalls allocated to that class.
S-5
<PAGE>
SEE "DESCRIPTION OF THE CERTIFICATES--INTEREST DISTRIBUTIONS" IN THIS PROSPECTUS
SUPPLEMENT.
It is possible that, on any given distribution date, there will be insufficient
payments from the mortgage loans to cover interest owed on the certificates. As
a result, some certificates, most likely the subordinate certificates, may not
receive the full amount of accrued interest to which they are entitled. If this
happens, those certificates will be entitled to receive any shortfall in
interest distributions in the following month in the same priority as their
distribution of current interest. However, there will be no extra interest paid
to make up for the delay.
ALLOCATIONS OF PRINCIPAL. Principal distributions on the certificates will be
allocated among the various classes of offered certificates as described in this
prospectus supplement. It is possible that on any distribution date, there will
be insufficient payments from the mortgage loans to make principal distributions
on the certificates. As a result, some certificates may not receive the full
amount of principal distributions to which they are entitled.
Until the distribution date in [__________] 200_, all prepayments on the
mortgage loans will be distributed to the [Class A Certificates and Class R
Certificates], unless the principal balances of those certificates have been
reduced to zero.
In addition, unscheduled collections of principal relating to the Class M
Certificates and Class B Certificates will be paid to the most senior classes of
the Class M Certificates and Class B certificates as described in this
prospectus supplement.
SEE "DESCRIPTION OF THE CERTIFICATES--PRINCIPAL DISTRIBUTIONS" AND "--PRIORITY
OF DISTRIBUTIONS" IN THIS PROSPECTUS SUPPLEMENT.
CREDIT ENHANCEMENT
ALLOCATION OF LOSSES. Most losses on the mortgage loans will be allocated in
full to the first class listed below with a principal balance greater than zero:
o Class B Certificates
o Class M Certificates
When this occurs, the principal balance of the class to which the loss is
allocated is reduced without a corresponding payment of principal.
If none of the Class M Certificates or Class B Certificates are outstanding,
losses on the mortgage loans will be allocated proportionately among the senior
certificates.
SEE "DESCRIPTION OF THE CERTIFICATES--ALLOCATION OF LOSSES; SUBORDINATION" IN
THIS PROSPECTUS SUPPLEMENT.
PRIORITY OF DISTRIBUTIONS
All or a disproportionately large portion of principal prepayments and other
unscheduled payments of principal will be allocated to the senior certificates.
This provides additional credit enhancement for the senior certificates by
preserving the principal balances of the Class M certificates and Class B
certificates for absorption of losses.
YIELD CONSIDERATIONS
The yield to maturity of each class of certificates will depend on, among other
things:
o the price at which the certificates are purchased;
S-6
<PAGE>
o the applicable pass-through rate; and
o the rate of prepayments on the related mortgage loans.
FOR A DISCUSSION OF SPECIAL YIELD CONSIDERATIONS APPLICABLE TO THE OFFERED
CERTIFICATES, SEE "RISK FACTORS" AND "SPECIAL YIELD AND PREPAYMENT
CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT.
ADVANCES
For any month, if the servicer does not receive the full scheduled payment on a
mortgage loan, the servicer will advance funds to cover the amount of the
scheduled payment that was not made. However, the servicer will advance funds
only if it determines that the advance will be recoverable from future payments
or collections on that mortgage loan.
SEE "DESCRIPTION OF THE CERTIFICATES--ADVANCES" IN THIS PROSPECTUS SUPPLEMENT.
OPTIONAL TERMINATION
On any distribution date on which the principal balances of the mortgage loans
is less than 10% of their principal balances as of the cut-off date, the
servicer will have the option to purchase from the trust all remaining mortgage
loans, causing an early retirement of the certificates.
Early retirement of the certificates may cause the holders of one or more
classes of certificates to receive less than their outstanding principal balance
plus the accrued interest.
SEE "THE POOLING AND SERVICING AGREEMENT--TERMINATION; RETIREMENT OF
CERTIFICATES" IN THE PROSPECTUS.
TAX STATUS
For federal income tax purposes, the depositor will elect to treat the trust as
[two] real estate mortgage investment conduits. The certificates, other than the
Class R Certificates, will represent ownership of regular interests in the trust
and will be treated as representing ownership of debt for federal income tax
purposes. You will be required to include as income all interest and original
issue discount, if any, on the certificates in accordance with the accrual
method of accounting regardless of your usual methods of accounting. For federal
income tax purposes, each of the Class R Certificates will be the sole residual
interest in one of the two real estate mortgage investment conduits.
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE OFFERED CERTIFICATES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
The [Class A Certificates] may be considered eligible for purchase by persons
investing assets of employee benefit plans or individual retirement accounts.
Sales of the Class M Certificates to these plans or individual retirement
accounts may be prohibited. Sales of the Class R Certificates to these plans and
retirement accounts are prohibited. Persons investing assets of those plans or
accounts should consult with their counsel before purchasing the notes.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
LEGAL INVESTMENT
When issued, the [Class A Certificates and Class R Certificates] will, and the
[Class M
S-7
<PAGE>
Certificates] will not, be "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 or SMMEA. You should consult
your legal advisors in determining whether and to what extent the offered
certificates constitute legal investments for you.
SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS SUPPLEMENT FOR IMPORTANT INFORMATION
CONCERNING POSSIBLE RESTRICTIONS ON OWNERSHIP OF THE OFFERED CERTIFICATES BY
REGULATED INSTITUTIONS.
RATINGS
When issued, the offered certificates will receive ratings which are not lower
than those listed in the table on page S-[__] of this prospectus supplement. The
ratings on the offered certificates address the likelihood that the holders of
the offered certificates will receive all distributions on the underlying
mortgage loans to which they are entitled. A security rating is not a
recommendation to buy, sell or hold a security and may be changed or withdrawn
at any time by the assigning rating agency. The ratings also do not address the
rate of principal prepayments on the mortgage loans. For example, the rate of
prepayments, if different than originally anticipated, could adversely affect
the yield realized by holders of the offered certificates.
SEE "RATINGS" IN THIS PROSPECTUS SUPPLEMENT.
S-8
<PAGE>
RISK FACTORS
The offered certificates are not suitable investments for all investors. In
particular, you should not purchase any class of offered certificates unless you
understand the prepayment, credit, liquidity and market risks associated with
that class.
The offered certificates are complex securities. You should possess, either
alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus supplement and the
prospectus in the context of your financial situation and tolerance for risk.
You should carefully consider, among other things, the following factors in
connection with the purchase of the offered certificates:
RISK OF LOSS
THE UNDERWRITING STANDARDS FOR THE MORTGAGE LOANS CREATE GREATER RISKS TO YOU.
[____]% of the mortgage loans included in the mortgage loan pool were
underwritten using standards that are standards less stringent than the
underwriting standards applied for the by other mortgage loan purchase programs,
such as mortgage Fannie Mae or Freddie Mac. Applying less stringent underwriting
standards creates additional risks that greater losses on the mortgage loans
will be allocated to certificateholders.
Examples include:
o mortgage loans with original principal balances of greater than
$1,000,000;
o mortgage loans secured by non-owner occupied properties;
o mortgage loans made to borrowers who have high debt-to-income
ratios (i.e., a large portion of the borrower's income is used to
make payments on other debt); and
o mortgage loans made to borrowers whose income was not required to
be disclosed or verified.
SEE "DESCRIPTION OF THE MORTGAGE POOL--UNDERWRITING STANDARDS" AND
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND CONTRACTS" IN THE
PROSPECTUS.
S-9
<PAGE>
THE RETURN ON YOUR CERTIFICATES MAY BE PARTICULARLY SENSITIVE TO CHANGES IN REAL
ESTATE MARKETS IN SPECIFIC AREAS. One risk of investing in mortgage-backed
securities is created by any concentration of the related properties in one or
more geographic regions. Approximately [ ]% of the cut-off date principal
balance of the mortgage loans are located in the State of [___________]. [No
more than [____]% of the cut-off date principal balance of the mortgage loans
are located in any one zip code in the State of [____________ ].] If the
regional economy or housing market in the state of [___________] weakens, or in
any other region having a significant concentration of properties underlying the
mortgage loans, the mortgage loans in that region may experience high rates of
loss and delinquency, resulting in losses to certificateholders. A region's
economic condition and housing market may be adversely affected by a variety of
events, including a downturn in various industries or other businesses
concentrated in the region, natural disasters such as earthquakes, hurricanes
and floods, and civil disturbances including riots. The depositor cannot predict
whether, or to what extent or for how long, these events may occur.
SEE "DESCRIPTION OF THE MORTGAGE POOL--GENERAL" IN THIS PROSPECTUS
SUPPLEMENT.
THE RETURN ON YOUR CERTIFICATES WILL BE REDUCED IF LOSSES EXCEED THE CREDIT
ENHANCEMENT AVAILABLE TO YOUR CERTIFICATES. The only credit enhancement for the
senior certificates will be the subordination provided by the Class M
Certificates and Class B Certificates. The only credit enhancement for the Class
M Certificates will be the subordination provided by the Class B losses
Certificates. If the aggregate principal balance of the e Class B certificates
is reduced to zero, losses will be allocated to the Class M certificates until
the principal balance of the Class M Certificates has been reduced to zero.
SEE "SUMMARY--CREDIT ENHANCEMENT" AND "DESCRIPTION OF THE
CERTIFICATES--ALLOCATION OF LOSSES; SUBORDINATION" IN THIS PROSPECTUS
SUPPLEMENT.
LIMITED OBLIGATIONS
PAYMENTS ON THE MORTGAGE LOANS ARE THE ONLY SOURCE OF PAYMENTS ON YOUR
CERTIFICATES. The certificates represent interests only in the trust. The
certificates do not represent an interest in or obligation of the depositor, the
servicer, the seller or any of their affiliates. None of the depositor, the
servicer or any of their affiliates will have any obligation to replace or
supplement the credit enhancement, or to take any other action to maintain any
rating of the certificates. If proceeds from the assets of the trust are not
sufficient to make all payments provided for under the pooling and servicing
agreement, investors will have no recourse to the depositor, the servicer, the
seller or any other entity, and will incur the losses.
S-10
<PAGE>
LIQUIDITY RISKS
YOU MAY HAVE TO HOLD YOUR CERTIFICATES TO MATURITY IF THEIR MARKETABILITY IS
LIMITED. A secondary market for the offered certificates may not develop. Even
if a secondary market does develop, it may not continue or it may be illiquid.
Neither the underwriter nor any other person will have any obligation to make a
secondary market in your certificates. Illiquidity means you may not be able to
find a buyer to buy your securities readily or at prices that will enable you to
realize a desired yield. Illiquidity can have a severe adverse effect on the
market value of your certificates.
Any class of offered certificates may experience illiquidity, although typically
illiquidity is more likely for classes that are especially sensitive to
prepayment, credit or interest rate risk, or that have been structured to meet
the investment requirements of limited categories of investors.
SPECIAL YIELD AND PREPAYMENT CONSIDERATIONS
THE YIELD TO MATURITY ON YOUR CERTIFICATES WILL DEPEND ON VARIOUS FACTORS,
INCLUDING THE RATE OF PREPAYMENTS. The yield to maturity on each class of
offered certificates will depend on a variety of factors, including:
o the rate and timing of Principal payments on the mortgage loans,
including prepayments, defaults and factors, liquidations, and
repurchases due to breaches of representations or warranties;
o interest shortfalls due to mortgagor prepayments; and
o the purchase price of that class.
The rate of prepayments is one of the most important and least predictable
of these factors.
In general, if you purchase a certificate at a price higher than its
outstanding principal balance and principal distributions on your
certificate occur faster than you assumed at the time of purchase, your
yield will be lower than you anticipated. On the other hand, if you
purchase a certificate at a price lower than its outstanding principal
balance and principal distributions on that class occur more slowly than
you assumed at the time of purchase, your yield will be lower than you
anticipated.
S-11
<PAGE>
THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS WILL VARY DEPENDING ON FUTURE
MARKET CONDITIONS AND OTHER FACTORS. Because mortgagors can typically prepay
their mortgage loans at any time, the rate and timing of principal distributions
on the offered certificates are highly uncertain. Typically, when market
interest rates increase, borrowers are less likely to prepay their mortgage
loans. This could result in a slower return of principal to you at a time when
you might have been able to reinvest your funds at a higher rate of interest
than the pass-through rate on your class of certificates. On the other hand,
when market interest rates decrease, borrowers are typically more likely to
prepay their mortgage loans. This could result in a faster return of principal
to you at a time when you might not be able to reinvest your funds at an
interest rate as high as the pass-through rate on your class of certificates.
[____]% of the mortgage loans provide for a prepayment penalty if the mortgagor
prepays the mortgage loan. Prepayment penalties may reduce the rate of
prepayment on the mortgage loans until the end of the period during which a
prepayment penalty applies.
SEE "MATURITY AND PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS.
THE YIELD ON YOUR CERTIFICATES WILL BE AFFECTED BY THE SPECIFIC CHARACTERISTICS
THAT APPLY TO THAT CLASS, DISCUSSED BELOW. The offered certificates of each
class have different yield considerations and different sensitivities to the
rate and timing of principal distributions. The following is a general
discussion of some yield considerations and prepayment sensitivities of each
class.
SEE "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT.
CLASS A CERTIFICATES. The Class A Certificates are subject to various priorities
for payment of principal. Distributions of principal on the Class A Certificates
with an earlier priority of payment will be affected by the rates and timing of
prepayment of the mortgage loans early in the life of the mortgage pool.
CLASS M CERTIFICATES. Losses on the mortgage loans will be allocated among the
certificates in the manner described in this prospectus supplement. The yield to
investors in the Class M Certificates will be sensitive to the rate and timing
of losses on the mortgage loans, if those losses are not covered by the Class B
Certificates.
SEE "SUMMARY--CREDIT ENHANCEMENT--ALLOCATION OF LOSSES" AND "DESCRIPTION OF THE
CERTIFICATES--ALLOCATION OF LOSSES; SUBORDINATION" IN THIS PROSPECTUS
SUPPLEMENT.
S-12
<PAGE>
It is not expected that the Class M Certificates will receive any distributions
of principal prepayments until the distribution date in [__________] 200_. After
that date, a large portion of principal prepayments on the mortgage loans may be
allocated to the senior certificates, and none or a relatively small portion of
principal prepayments may be paid to the holders of the Class M Certificates and
Class B Certificates. [As a result, the weighted average lives of the Class M
Certificates may be longer than would otherwise be the case.]
RISK OF CERTAIN SHORTFALLS
RECEIVERSHIP BY THE FDIC OF THE SERVICER COULD CREATE GREATER RISKS TO YOU. If
seller's transfer of the mortgage loans to the depositor is deemed to constitute
the creation of a security interest in the mortgage loans and to the servicer
extent the security interest was validly perfected [before the seller's
insolvency and was not taken in contemplation of insolvency of the seller, or
with the intent to hinder, delay or defraud the seller or the creditors of the
seller], the Federal Deposit Insurance Act or FDIA, as amended by FIRREA,
provides that the security interest should not be subject to avoidance by the
FDIC. If the FDIC cannot avoid a legally enforceable and perfected security
interest, it may repudiate the security interest. If the FDIC repudiates an
unavoidable security interest, it could be liable for statutory damages. These
damages are typically limited to actual compensatory damages.
In addition, the FDIC, would also have the power to repudiate contracts,
including the seller's obligations under the pooling and servicing agreement to
repurchase mortgage loans which do not conform to the seller's representations
and warranties. The non-conforming mortgage loans could suffer losses which
could result in losses on the certificates.
In addition, in the case of an event of default relating to the receivership,
conservatorship or insolvency of the servicer, the receiver or conservator may
terminate the servicer and replace it with a successor servicer. Any
interference with the termination of the servicer or appointment of a successor
servicer could result in a delay in payments to the certificateholders.
THE LACK OF PHYSICAL CERTIFICATES MAY CAUSE DELAYS IN PAYMENT AND CAUSE
DIFFICULTY IN PLEDGING OR SELLING OFFERED CERTIFICATES. The Class A Certificates
and Class M Certificates will physical not be issued in physical form. As a
result, certificateholders will be able to transfer certificates only through
DTC and its participants or indirect participants. In addition,
certificateholders may experience some delay in receiving distributions on these
certificates because the trustee will send all distributions to DTC, which will
then credit those distributions to the participating organizations. Those
organizations will in turn credit accounts certificateholders have either
directly or indirectly through indirect participants.
SEE "DESCRIPTION OF THE CERTIFICATES--REGISTRATION OF THE OFFERED CERTIFICATES"
IN THIS PROSPECTUS SUPPLEMENT.
S-13
<PAGE>
INTRODUCTION
Credit Suisse First Boston Mortgage Securities Corp. will establish a trust
for [____________________] Mortgage-Backed Pass-Through Certificates, Series
200_-____ on the closing date, under a pooling and servicing agreement among the
depositor, [_________________], as servicer and [_____________________], as
trustee, dated as of [_______ 1, 200_]. On the closing date, the depositor will
deposit into the trust a pool of mortgage loans secured by one- to four-family
residential properties with terms to maturity of not more than [__] years.
Some capitalized terms used in this prospectus supplement have the meanings
given below under "Description of the Certificates--Glossary of Terms" or in the
prospectus under "Glossary."
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The mortgage pool will consist of approximately [____] mortgage loans with
an aggregate principal balance outstanding as of the cut-off date, after
deducting payments of principal due on or before the cut-off date, of
approximately $[________]. The mortgage loans are secured by first liens on fee
simple or leasehold interests in one- to four-family residential real properties
with terms to maturity of not more than [__] years. The mortgage pool will
consist of conventional, [fixed] [adjustable] rate, [fully-amortizing], [level
monthly payment] mortgage loans. All percentages of the mortgage loans described
in this prospectus supplement are approximate percentages by aggregate principal
balance as of the cut-off date unless otherwise indicated.
The mortgage loans will be purchased by the depositor from the seller.
[___]% of the mortgage loans were either originated or purchased by the seller
in the normal course of its business. [[___]%, [___]% and [___]% of the mortgage
loans were originated by or purchased by ____________________,
_____________________ and ________________________], respectively.
[___]%, [___]%, [___]% and [___]% of the mortgage loans are secured by
mortgaged properties in the states of [_________], [_________], [__________] and
[________], respectively. Less than [___]% of the mortgage loans are secured by
mortgaged properties in any other single state. No more than [___]% of the
mortgage loans are secured by mortgaged properties in any single zip code.
Except for approximately [___]% of the mortgage loans, each mortgage loan
at the time of origination was represented by the related mortgagor to be
owner-occupied.
The mortgage loans may be prepaid by the mortgagors at any time without
payment of any prepayment fee or penalty[, except for [___]% of the mortgage
loans, which provide for payment of a prepayment penalty. This prepayment
penalty may discourage mortgagors from prepaying their mortgage loans. The
prepayment penalty is calculated as a percentage of the original loan amount and
declines each year. The prepayment penalty is only charged for
S-14
<PAGE>
mortgage loans paid in full. The prepayment penalty only applies during the
first three years of the mortgage loan term].
As of the cut-off date, not more than [__]% of the mortgage loans were more
than 30 days delinquent in payments of principal and interest.
As of the cut-off date, not more than [__]% of the mortgage loans provide
for deferred interest or negative amortization.
MORTGAGE LOAN POOL CHARACTERISTICS. The mortgage loans will have the following
characteristics:
o The mortgage loans consist of [____] fixed rate mortgage loans and
[____] adjustable rate mortgage loans.
o The mortgage loans have an aggregate principal balance as of the
cut-off date of $[__________].
o The mortgage loans had individual principal balances as of the cut-off
date of at least $[________] but not more than $[_________], with an
average principal balance as of the cut-off date of approximately
$[________].
o The mortgage loans have original terms to stated maturity of
approximately [__] years.
o The mortgage loans have a weighted average remaining term to stated
maturity of approximately [___] months as of the cut-off date.
o As of the cut-off date, the fixed rate mortgage loans bore interest at
mortgage rates of at least [___]% per annum but no more than [___]%
per annum, with a weighted average mortgage rate of approximately
[___]% per annum.
o As of the cut-off date, the adjustable rate mortgage loans bore
interest at mortgage rates of at least [____]% per annum but not more
than [____]% per annum, with a weighted average mortgage rate of
approximately [____]% per annum. The maximum interest rates ranged
from [____]% per annum to [____]% per annum, with a weighted average
maximum rate of [____]% per annum, the minimum interest rates ranged
from [____] % per annum to [____]% per annum with a weighted average
minimum rate of [____]% per annum. The gross margins ranged from
[____]% per annum to [____]% per annum with a weighted average gross
margin of [____]% per annum.
o [Description of Index].
o The original loan-to-value ratio of the mortgage loans was not more
than [___]%, with a weighted average original loan-to-value ratio of
approximately [___]%.
Loan-to-value ratio as used in this prospectus supplement, is calculated as
the original mortgage loan amount, divided by the lesser of (i) the appraised
value of the related mortgaged
S-15
<PAGE>
property at origination and (ii) if the mortgage loan is a purchase money loan,
the sales price of the related mortgaged property.
S-16
<PAGE>
The tables below describe additional statistical characteristics of the
mortgage loans as of the cut-off date. All percentages are approximate and are
stated by principal balance of the mortgage loans as of the cut-off date, and
have been rounded in order to add to 100%. Dollar amounts and number of months
have also been rounded.
DISTRIBUTION OF YEAR OF FIRST PAYMENT
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
YEAR OF FIRST PAYMENT MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Total
</TABLE>
S-17
<PAGE>
GROSS MARGIN
<TABLE>
RANGE OF GROSS NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
MARGINS(%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
TOTAL..........
</TABLE>
MORTGAGE RATES
<TABLE>
RANGE OF NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
%
%
%
%
%
%
%
Total
</TABLE>
As of the cut-off date, the weighted average mortgage rates of the mortgage
loans will be [____]%.
CUT-OFF DATE MORTGAGE LOAN
PRINCIPAL BALANCES
S-18
<PAGE>
<TABLE>
RANGE OF CUT-OFF DATE NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Up to $50,000.00
$50,000.01-$100,000.00
$100,000.01-$150,000.00
$150,000.01-$200,000.00
$200,000.01-$250,000.00
$250,000.01-$300,000.00
$300,000.01-$350,000.00
$350,000.01-$400,000.00
$400,000.01-$500,000.00
$500,000.01-$600,000.00
$600,000.01-$700,000.00
$700,000.01-$800,000.00
$800,000.01-$900,000.01
$900,000.01-$1,000,000.00
Over $1,000,000.01
Total
</TABLE>
As of the cut-off date, the mortgage loan principal balances will be
$[______].
S-19
<PAGE>
MORTGAGED PROPERTY TYPES
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Single-Family
Residence
Condominium
Two Family
Three Family
Four Family
Townhouse
Total
</TABLE>
MORTGAGE LOAN PURPOSE
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
PURPOSE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Refinancing
Cash-Out Refinancing
Purchase
Unknown
Total
</TABLE>
MORTGAGE LOAN OCCUPANCY TYPES
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
OCCUPANCY TYPE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Primary
Investment
Second Home
Total
</TABLE>
S-20
<PAGE>
MORTGAGE LOAN DOCUMENTATION TYPES
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
DOCUMENTATION MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Low Documentation
Full Documentation
Reduced Documentation
Streamline Refinance
Total
</TABLE>
ORIGINAL TERM TO STATED
MATURITY OF THE MORTGAGE LOANS
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
RANGE OF MONTHS MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
</TABLE>
The weighted average original term to stated maturity for the mortgage
loans is [___] months.
REMAINING TERM TO STATED
MATURITY OF THE MORTGAGE LOANS
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
RANGE OF MONTHS MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Total
</TABLE>
The weighted average remaining term to stated maturity for the mortgage
loans is [___] months.
S-21
<PAGE>
[INSERT GEOGRAPHICAL DISTRIBUTION TABLE]
ORIGINAL LOAN-TO-VALUE
RATIOS OF THE MORTGAGE LOANS
<TABLE>
RANGE OF ORIGINAL NUMBER OF AGGREGATE % OF AGGREGATE
LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
0.00%--50.00%
50.01%-55.00%
55.01%-60.00%
60.01%-65.00%
65.01%-70.00%
70.01%-75.00%
75.01%-80.00%
80.01%-85.00%
85.01%-90.00%
90.01%-95.00%
Total
</TABLE>
The weighted average of the original loan-to-value ratios for the mortgage
loans is [___]%.
The weighted average of the Discount Fractions of the mortgage loans will
be ___%.
[Included below is a table showing the Credit Scores for some mortgagors.
Credit Scores are obtained by many mortgage lenders in connection with mortgage
loan applications to help assess a borrower's credit-worthiness. Credit Scores
are obtained from credit reports provided by various credit reporting
organizations, each of which may employ differing computer models and
methodologies. The Credit Score is designed to assess a borrower's credit
history at a single point in time, using objective information currently on file
for the borrower at a particular credit reporting organization. Information used
to create a Credit Score may include, among other things, payment history,
delinquencies on accounts, levels of outstanding indebtedness, length of credit
history, types of credit, and bankruptcy experience. Credit Scores range from
[__] to [__], with higher scores indicating an individual with a more favorable
credit history compared to an individual with a lower score. However, a Credit
Score purports only to be a measurement of the relative degree of risk a
borrower represents to a lender at a single point in time, i.e., a borrower with
a higher score is statistically expected to be less likely to default in payment
than a borrower with a lower score. In addition, investors should be aware that
Credit Scores were developed to indicate a level of default probability over a
two-year period, which does not correspond to the life of a mortgage loan.
Mortgage loans typically amortize over a [__] year period. Furthermore, Credit
Scores were not developed specifically for use in connection with mortgage
loans, but for consumer loans in general, and assess only the borrower's past
credit history. Therefore, a Credit Score does not take into consideration the
differences between mortgage loans and consumer loans generally, or the specific
characteristics of the related mortgage loan, for example, the loan-to-value
ratio, the collateral for the mortgage loan, or the debt to income ratio. There
can be no assurance that the Credit Scores of the
S-22
<PAGE>
mortgagors will be an accurate predictor of the likelihood of repayment of the
related mortgage loans or that any mortgagor's Credit Score would not be lower
if obtained as of the date of the prospectus supplement.]
[CREDIT SCORE DISTRIBUTION]
<TABLE>
NUMBER OF AGGREGATE PRINCIPAL % OF AGGREGATE
RANGE OF NOTE MARGINS MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
451-500
501-550
551-600
601-650
651-700
701-750
751-800
801-850
Total
</TABLE>
UNDERWRITING STANDARDS
GENERAL
All of the mortgage loans included in the mortgage pool will be acquired by
the depositor from the seller. The following is a brief description of the
various underwriting standards and the procedures applicable to the mortgage
loans.
All one- to four-family residential mortgage loans must meet acceptable
credit, appraisal and underwriting criteria as established by the seller. The
seller's underwriting standards are applied in accordance with applicable state
and federal laws and regulations. Underwriting guidelines are established to set
acceptable criteria regarding credit history, repayment ability, adequacy of
necessary liquidity, and adequacy of the collateral. These guidelines typically
conform to secondary market standards, particularly for conforming loan amounts.
Additional loan-to-value ratio guidelines are established for individual
programs and loan amount ranges.
Three general sets of underwriting guidelines are applicable to mortgage
loans:
o Standard: includes all the basic guidelines and is applied to both
fixed rate and ARM products;
o Portfolio Feature: includes specific enhanced guidelines such as
slightly higher loan-to-value ratios, and 40 year terms, and is
available only on ARM products; and
S-23
<PAGE>
o Subprime: allows for deviations from basic guidelines for credit,
collateral and income stability in return for risk-based pricing
premiums.
[The mortgage loans have been originated under documentation guidelines
classified as "Full Doc", "Low Doc Reduced Doc" and "Streamline Refinance Doc."
The Full Doc program consists of two years of tax returns for self-employed
applicants, paystubs and W-2's for salaried applicants and bank statements for
verification of liquidity. The Low Doc program utilizes income as stated by the
borrower in the loan application and, for certain loan-to-value ratios and loan
amounts, assets as stated by the borrower. In Low Doc transactions, independent
confirmation of the borrower's source of income is obtained. The Reduced
Documentation program utilizes borrower paystubs and W-2 forms and a Streamline
Refinance Documentation program utilizes borrower paystubs and original
appraised value with a current drive-by inspection.]
[CSFB]'s underwriting of the mortgage loans consisted of an analysis of
the following applicant information:
o an applicant's income, employment, assets, debts, payments and
specific questions regarding credit history,
o an evaluation and confirmation of an applicant's credit history,
o the adequacy and stability of an applicant's income, including a
review of the documentation, verification of employment and income, an
analysis of tax returns and statements of assets and liabilities.
o calculations are made to establish the relationship between fixed
expenses and gross monthly income, which are reviewed for the
applicant's overall ability to repay the mortgage loan including other
income sources, commitment to the property as evidenced by loan to
value, other liquid resources, ability to accumulate assets and other
compensating factors, and
o the adequacy of the mortgaged property to serve as collateral for a
mortgage loan, including a physical inspection of the property, an
evaluation of the property's value for recent sales of comparable
properties and its conformity to neighborhood standards.
[All mortgage loans are subject to a sampling by the seller's internal
Quality Assurance Department, which reviews and reverifies a statistical
sampling of loans on a regular basis. All loans with loan-to-value ratios over
80% have either private mortgage insurance coverage in an amount meeting Fannie
Mae and Freddie Mac requirements or a higher interest rate in lieu of private
mortgage insurance.] Adequate title insurance and hazard insurance is required
for all loans. From time to time, loan-to-value ratio exceptions may be made for
credit worthy applicants who exhibit strong compensating factors and well
supported collateral valuations.
S-24
<PAGE>
THE SELLER AND THE SERVICER
GENERAL
[____________________], is the seller and servicer for all the mortgage loans in
the mortgage pool.
[ADDITIONAL SERVICER INFORMATION TO BE INCLUDED]
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Trust will issue the following [___] classes of senior certificates:
o [Class A Certificates]; [and
o [Class R Certificates].]
In addition to the senior certificates, the trust will also include the
following [___] classes of subordinate certificates:
o [Class M Certificates]; and
o [Class B Certificates].
Only the Class A Certificates[, Class R Certificates] and Class M certificates
are offered by this prospectus supplement.
The certificates will evidence the entire beneficial ownership interest in
the trust. The trust will consist of:
o the mortgage loans;
o the assets as from time to time are identified as deposited relating
to the mortgage loans in the Custodial Account and in the Certificate
Account and belonging to the trust;
o property acquired by foreclosure of the mortgage loans or deed in lieu
of foreclosure;
o any applicable primary mortgage insurance policies and hazard
insurance policies; and
o all proceeds of any of the foregoing.
S-25
<PAGE>
The Class A Certificates evidence in the aggregate an initial beneficial
ownership interest of approximately [___]% in the trust. The Class M
Certificates and Class B Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately [___]% and [___]% respectively,
in the trust.
The Class A Certificates and the Class M Certificates will be available
only in book-entry form through the facilities of The Depository Trust Company
or DTC. The Class A Certificates and Class M Certificates will be issued in
minimum denominations of $25,000 and integral multiples of $1 in excess of that
amount. [The Class R Certificates will be issued in registered, certificated
form in minimum denominations of [__]% percentage interests.]
BOOK-ENTRY REGISTRATION
The Class A Certificates and Class M Certificates will be issued,
maintained and transferred on the book-entry records of DTC and its
participants. Any person acquiring an interest in any Class A Certificate and
Class M Certificate will hold its certificate through DTC, if it is a
participant in that system, or indirectly through organizations which are
participants in that system. The Class A Certificates and Class M Certificates
will be represented by one or more certificates registered in the name of the
nominee of DTC. The depositor has been informed by DTC that DTC's nominee will
be Cede & Co.
Beneficial owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the Class A Certificates or Class M Certificates may do so only through
participants and indirect participants. In addition, beneficial owners will
receive all distributions of principal of and interest on the Class A
Certificates and Class M Certificates from the paying agent through DTC and
participants. Accordingly, beneficial owners may experience delays in their
receipt of payments. Unless and until definitive certificates are issued for the
Class A Certificates and Class M Certificates, it is anticipated that the only
registered certificateholder of the Class A Certificates and Class M
Certificates will be Cede, as nominee of DTC. No beneficial owner will be
entitled to receive a certificate of any class in fully registered form, a
definitive certificate, except as described in this prospectus supplement.
Beneficial owners will not be recognized by the trustee or the servicer as
certificateholders, as the term is used in the pooling and servicing agreement,
and beneficial owners will be permitted to receive information furnished to
certificateholders and to exercise the rights of certificateholders only
indirectly through DTC, its participants and indirect participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the Class A
Certificates and Class M Certificates among participants and to receive and
transmit distributions of principal of, and interest on, the Class A
Certificates and Class M Certificates. Participants and indirect participants
with which beneficial owners have accounts for the Class A Certificates and
Class M Certificates similarly are required to make book-entry transfers and
receive and transmit distributions on behalf of their respective beneficial
owners. Accordingly, although beneficial owners will not possess physical
certificates evidencing their interests in the Class A Certificates and Class M
Certificates, DTC's rules provide a mechanism by which beneficial owners,
through
S-26
<PAGE>
their participants and indirect participants, will receive distributions and
will be able to transfer their interests in the Class A Certificates and Class M
Certificates.
None of the depositor, the servicer or the trustee will have any liability
for any actions taken by DTC or its nominee, including, without limitation,
actions for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Class A Certificates and Class M
Certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to the beneficial ownership interests.
DEFINITIVE CERTIFICATES
Definitive certificates will be issued to beneficial owners or their
nominees, respectively, rather than to DTC or its nominee, only under the
following limited conditions:
o the depositor notifies the trustee in writing that DTC is no longer
willing or able to discharge its responsibilities as depository in
relation to the book-entry certificates and the trustee and the
depositor are unable to locate a qualified successor;
o the depositor elects to terminate the book-entry system through DTC;
or
o after the occurrence of an event of default under the pooling and
servicing agreement, holders of certificates evidencing at least 66
2/3% of the aggregate outstanding certificate principal balance of the
certificates, advise the trustee and DTC that the use of the
book-entry system through DTC is no longer in the best interests of
the holders of the certificates.
On the occurrence of any of the events described above, DTC is required to
notify all DTC participants of the availability of definitive certificates. On
surrender by DTC of the definitive certificates representing the Class A
Certificates and Class M Certificates and on receipt of instructions from DTC
for re-registration, the trustee will reissue the Class A Certificates and Class
M Certificates as definitive certificates issued in the respective principal
amounts owned by individual beneficial owners, and thereafter the trustee and
the servicer will recognize the holders of the definitive certificates as
certificateholders under the pooling and servicing agreement.
S-27
<PAGE>
GLOSSARY OF TERMS
The following terms are given the meanings shown below to help describe the
cash flows on the certificates:
AGGREGATE SUBORDINATE PERCENTAGE - For any date of determination, an amount
equal to the aggregate Certificate Principal Balance of the Class M Certificates
and Class B Certificates, divided by the aggregate Principal Balances of the
mortgage loans immediately prior to that date.
AVAILABLE DISTRIBUTION AMOUNT - For any distribution date, the excess of:
(A) the sum of:
o the aggregate amount of scheduled payments and collections received by
the servicer relating to each mortgage loan on or prior to the related
determination date and not previously remitted, from any source,
including amounts received from the related mortgagor, Insurance
Proceeds, Liquidation Proceeds, net of related Liquidation Expenses,
and condemnation awards, and amounts received in connection with the
purchase of any mortgage loans by the seller or servicer and the
substitution of replacement mortgage loans, and excluding interest and
other earnings on amounts on deposit in or credited to the Custodial
Account and the Certificate Account, and
o the aggregate amount of monthly Advances [and Compensating Interest],
required to be remitted by the servicer relating to that distribution
date;
(B) over the sum of:
o the aggregate amount of the servicing compensation to be paid to the
servicer under the terms of the pooling and servicing agreement,
including, without limitation, servicing fees, prepayment penalties,
fees or premiums, late payment charges and assumption fees and any
excess interest charges payable by the mortgagor by virtue of any
default or other non-compliance by the mortgagor with the terms of the
mortgage note or any other instrument or document executed in
connection therewith or otherwise,
o any amount representing late payments or other recoveries of principal
or interest, including Liquidation Proceeds, net of Liquidation
Expenses, Insurance Proceeds and condemnation awards, for any mortgage
loans which the servicer has made a previously unreimbursed monthly
Advance to the extent of that monthly Advance,
o amounts representing reimbursement of nonrecoverable Advances and
other amounts permitted to be withdrawn from the Custodial Account or
the Certificate Account,
S-28
<PAGE>
o all monthly payments or portions of monthly payments, other than
principal prepayments and other unscheduled collections of principal,
received relating to scheduled principal and interest on any mortgage
loan due after the related due period and included therein,
o all payments due on any mortgage loan on or prior to the cut-off date
and included therein, and
o principal prepayments and other unscheduled collections of principal
received after the related prepayment period and included therein.
CERTIFICATE PRINCIPAL BALANCE - For any offered certificate as of any date
of determination, an amount equal to the initial Certificate Principal Balance
of that certificate, reduced by the aggregate of:
o all amounts allocable to principal previously distributed for that
certificate, and
o any reductions in the Certificate Principal Balance of that
certificate deemed to have occurred in connection with allocations of
Realized Losses in the manner described in this prospectus supplement.
CLASS B PERCENTAGE - As of any date of determination a percentage equal to
100% minus the sum of the Class A Percentage and the Class M Percentage.
CLASS M INTEREST DISTRIBUTION AMOUNT - For any distribution date, an amount
equal to:
o one-twelfth of the product of (i) the Certificate Principal Balance
for the related class of certificates immediately preceding that
distribution date, multiplied by (ii) the pass-through rate for that
class;
o minus, the sum of:
(1) any related Prepayment Interest Shortfalls occurring during the
related Prepayment Period; and
(2) any related Relief Act Shortfalls occurring during the related
due period.
CLASS M PERCENTAGE - For any date of determination, the aggregate
Certificate Principal Balances of the Class M Certificates divided by the
aggregate Principal Balances of all mortgage loans immediately prior to that
determination date.
CLASS M PRINCIPAL DISTRIBUTION AMOUNT - For any distribution date, an
amount equal to the lesser of (i) the Available Distribution Amount remaining
after payment of the Senior Interest Distribution Amount, the Senior Principal
Distribution Amount and the Class M Interest Amount and (ii) the product of the
related Class M Percentage and the Principal Distribution Amount.
S-29
<PAGE>
[COMPENSATING INTEREST - The sum of the servicing fee payable to the
servicer for its servicing activities and reinvestment income received by the
servicer on amounts payable for that distribution date.]
FINAL DISPOSITION - With respect to a defaulted mortgage loan, a Final
Disposition is deemed to have occurred upon a determination by the servicer that
it has received all Insurance Proceeds, Liquidation Proceeds and other payments
or cash recoveries which the servicer reasonably and in good faith expects to be
finally recoverable with respect to the mortgage loan.
NET MORTGAGE RATE - On each mortgage loan is equal to its mortgage rate
minus the servicing fee rate as described in this prospectus supplement.
PASS-THROUGH RATE - For each class of certificates is the per annum rate at
which interest accrues on that class.
o The Pass-Through Rate for the Class A, Class M and Class R
Certificates is equal to the per annum rate listed on page S-[__].
o The Pass-Through Rate for the Class B Certificates is equal to [__]%.
PREPAYMENT INTEREST SHORTFALL - For any distribution date is equal to the
aggregate shortfall if any in collections of interest, adjusted to the related
Net Mortgage Rates, resulting from full or partial mortgagor prepayments of
principal on the related mortgage loans during the related prepayment period
less any Compensating Interest payable for that distribution date. These
shortfalls will result because interest on prepayments in full is distributed
only to the date of prepayment, and because no interest is distributed on
prepayments in part, as prepayments in part are applied to reduce the
outstanding principal balance of the related mortgage loans as of the due date
in the month of prepayment. For any distribution date, any interest shortfalls
resulting from prepayments in full during the preceding calendar month will be
offset by the servicer, but only to the extent such interest shortfalls do not
exceed an amount equal to the lesser of (a) one-twelfth of 0.125% of the [Stated
Principal Balance] of the mortgage loans immediately preceding that distribution
date and (b) the sum of the servicing fee payable to the servicer for its
servicing activities and reinvestment income received by the servicer on amounts
payable for that distribution date.
PREPAYMENT PERIOD - For any distribution date is the calendar month prior
to the month in which that distribution date occurs.
PRINCIPAL BALANCE - For any mortgage loan as of any date of determination,
an amount equal to the initial certificate principal balance as of the cut-off
date, minus all amounts allocated to principal that have been distributed to
certificateholders for that mortgage loan on or before that date, as further
reduced to the extent any Realized Loss thereon has been allocated to one or
more classes of certificates on or before that date.
PRINCIPAL DISTRIBUTION AMOUNT - On any distribution date, the sum of the
following:
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(1) the principal portion of all scheduled monthly payments due during
the related due period on each outstanding mortgage loan, whether or not
received on or prior to the related determination date;
(2) the Principal Balance of any mortgage loan repurchased during the
related Prepayment Period under the pooling and servicing agreement and the
amount of any shortfall deposited in the Custodial Account in connection
with the substitution of a deleted mortgage loan under the pooling and
servicing agreement during the related prepayment period;
(3) the principal portion of all other unscheduled collections,
including principal prepayments in full and curtailments and amounts
received in connection with a [Final Disposition] [Cash Liquidation or REO
Disposition] of a mortgage loan described in clause (a)(ii)(B), Insurance
Proceeds, Liquidation Proceeds; and
any amounts allocable to principal for any previous distribution date
calculated under clauses (1), (2) and (3) above that remain undistributed to the
extent that such amounts are not attributable to Realized Losses which were
allocated to the Class M Certificates or Class B Certificates.
REALIZED LOSS - The amount determined by the servicer, in connection with
any mortgage loan equal to (i) for any liquidated loan, the excess of the
principal balance of the liquidated loan plus interest thereon at a rate equal
to the applicable Net Mortgage Rate from the due date as to which interest was
last paid up to the due date next succeeding such liquidation over proceeds, if
any, received in connection with the liquidation, after application of all
withdrawals permitted to be made by the servicer from the related Custodial
Account for the mortgage loan, (ii) for any mortgage loan which has become the
subject of a deficient valuation, the excess of the principal balance of the
mortgage loan over the principal amount as reduced in connection with the
proceedings resulting in the deficient valuation, (iii) for any mortgage loan
which has become the subject of a Debt Service Reduction, the present value of
all monthly Debt Service Reductions on that mortgage loan, assuming that the
mortgagor pays each monthly payment on the applicable due date and that no
principal prepayments are received for that mortgage loan, discounted monthly at
the applicable mortgage rate, or (iv) the amount of any reduction by the
servicer to the principal balance of that mortgage loan under the pooling and
servicing agreement as a result of a default or imminent default.
RELIEF ACT SHORTFALL - For any distribution date and any mortgage loan, is
the amount of any interest that is not collectible from the mortgagor during the
related due period under the Relief Act or similar legislation or regulations as
in effect from time to time.
SENIOR CUMULATIVE INTEREST SHORTFALL AND CLASS M CUMULATIVE INTEREST
SHORTFALL - For any distribution date, an amount equal to (i) any portion of the
related Senior Interest Distribution Amount or Class M Interest Distribution
Amount, as applicable, that was not distributed to the Holders of the related
Senior Certificates or the Holders of Class M Certificates, as applicable, on
any preceding Distribution Date less (ii) any amount described in clause (i)
hereof that is included in a Realized Loss that has been allocated to the
holders of
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Class A Certificates, Class R Certificates or Class M Certificates on or prior
to that distribution date.
SENIOR INTEREST DISTRIBUTION AMOUNT - For each distribution date an amount
equal to: one-twelfth of the product of the Certificate Principal Balance for
the related class of Class A Certificates immediately preceding that
distribution date, multiplied by the pass-through rate on that class, provided
that if the Available Distribution Amount is insufficient to make the full
distributions of interest referred to in this clause, the Available Distribution
Amount shall be distributed to the Class A Certificates and the Class R
Certificates pro rata based on the full amounts allocable to that class.
SENIOR PERCENTAGE - As of any date of determination a percentage equal to
the lesser of (a) 100% and (b) the aggregate Certificate Principal Balance of
the [Class A Certificates and Class R Certificates], immediately prior to that
distribution date divided by the aggregate Principal Balance of all of the
mortgage loans immediately prior to that distribution date.
SENIOR PRINCIPAL DISTRIBUTION AMOUNT - On any distribution date, an amount
equal to the lesser of (a) the balance of the Available Distribution Amount
remaining after the Senior Interest Distribution Amount has been distributed and
(b) the Senior Percentage times the Principal Distribution Amount.
DISTRIBUTIONS
Distributions on the offered certificates will be made by the trustee on
the [__] day of each month or, if that day is not a business day, then the next
succeeding business day, commencing in [______ 200_]. Distributions on the
certificates will be made to the persons in whose names the certificates are
registered at the close of business on the day prior to each distribution date
or, if the certificates are no longer DTC registered certificates, on the record
date. See "Description of the Securities--Distributions" in the prospectus.
Distributions will be made by check or money order mailed, or on the request of
a certificateholder owning [Class A Certificates] having denominations,
aggregating at least $1,000,000, by wire transfer or otherwise, to the address
of the person entitled to the distribution, which, in the case of DTC registered
certificates, will be DTC or its nominee, as it appears on the trustee's
register in amounts calculated as described in this prospectus supplement on the
determination date. However, the final distribution relating to the certificates
will be made only on presentation and surrender of the certificate at the office
or the agency of the trustee specified in the notice to certificateholders of
the final distribution. A business day is any day other than (a) a Saturday or
Sunday or (b) a day on which banking institutions in the states of [__________]
and [_______] are required or authorized by law to be closed.
INTEREST DISTRIBUTIONS
Holders of each class of Class A Certificates [and each class of Class R
Certificates], will be entitled to receive interest distributions in an amount
equal to the Accrued Certificate Interest on that class on each distribution
date, to the extent of the Available Distribution Amount for that distribution
date, commencing on the first distribution date in the case of all classes of
Class A Certificates [and Class R Certificates] entitled to interest
distributions.
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Holders of each class of Class M Certificates will be entitled to receive
interest distributions in an amount equal to the Accrued Certificate Interest on
that class on each distribution date, to the extent of the Available
Distribution Amount for that distribution date after distributions of interest
and principal to the Class A Certificates [and Class R Certificates], and
reimbursements for some Advances to the servicer.
Prepayment Interest Shortfalls will result because interest on prepayments
in full is distributed only to the date of prepayment, and because no interest
is distributed on prepayments in part, as these prepayments in part are applied
to reduce the outstanding principal balance of the related mortgage loans as of
the due date in the month of prepayment.
[However, on any distribution date, any Prepayment Interest Shortfalls
resulting from prepayments in full during the preceding calendar month will be
offset by the servicer, but only to the extent those Prepayment Interest
Shortfalls do not exceed the amount of the servicing fee due on that
distribution date. Prepayment Interest Shortfalls resulting from partial
prepayments will not be offset by the servicer from servicing compensation or
otherwise. No assurance can be given that the servicing compensation will be
sufficient to cover the shortfalls on any distribution date. Prepayment Interest
Shortfalls will be allocated to all certificates from which the shortfall arose,
based on interest accrued on those classes for that distribution date. See
"Pooling and Servicing Agreement--Servicing and Other Compensation and Payment
of Expenses" in this prospectus supplement.]
If on any distribution date the Available Distribution Amount is less than
Accrued Certificate Interest on the Class A Certificates [and Class R
Certificates] for that distribution date, the shortfall will be allocated among
the holders of all classes of Class A Certificates [and Class R Certificates] in
proportion to the respective amounts of Accrued Certificate Interest for that
distribution date. In addition, the amount of any interest shortfalls that are
covered by subordination, specifically, interest shortfalls not described in the
definition of Available Distribution Amount preceding paragraph, will be unpaid
Accrued Certificate Interest and will be distributable to holders of the
certificates of those classes entitled to those amounts on subsequent
distribution dates, in each case to the extent of available funds after interest
distributions as required in this prospectus supplement.
These shortfalls could occur, for example, if delinquencies on the mortgage
loans were exceptionally high and were concentrated in a particular month and
Advances by the servicer did not cover the shortfall. Any amounts so carried
forward will not bear interest. Any interest shortfalls will not be offset by a
reduction in the servicing compensation of the servicer or otherwise, except to
the limited extent described in the preceding paragraph for Prepayment Interest
Shortfalls resulting from prepayments in full.
As described in this prospectus supplement, the Accrued Certificate Interest
allocable to each class of certificates is based on the Certificate Principal
Balance of that class.
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PRINCIPAL DISTRIBUTIONS ON THE CLASS A CERTIFICATES, CLASS M CERTIFICATES AND
CLASS R CERTIFICATES
Distributions of principal in an amount equal to the Senior Principal
Distribution Amount on the Class A Certificates [and Class R Certificates] on
each distribution date will be made to the Class A Certificates [and Class R
Certificates], after distribution of the Senior Interest Distribution and any
Senior Cumulative Interest Shortfall Amount, pro rata, in reduction of their
Certificate Principal Balances, until their Certificate Principal Balances have
been reduced to zero.
Holders of each class of the Class M Certificates will be entitled to
receive on each distribution date, to the extent of the portion of the Available
Distribution Amount remaining after:
o the sum of the Senior Interest Distribution Amount, Principal Only
Distribution Amount and Senior Principal Distribution Amount is
distributed,
o reimbursement is made to the master servicer for some Advances
remaining unreimbursed following the final liquidation of the related
mortgage loan to the extent described below under "Advances," and
o the aggregate amount of Accrued Certificate Interest required to be
distributed to the class of Class M Certificates on that distribution
date is distributed to those Class M Certificates,
a distribution allocable to principal equal to the Class M Principal
Distribution Amount in reduction of their Certificate Principal Balance until
the Certificate Principal Balances of the Class M Certificates has been reduced
to "zero."
REMAINING DISTRIBUTIONS
Any amounts remaining after the distributions to the Class A, [Class R] and
Class M Certificateholders on any distribution date shall be paid to the holders
of the Class B Certificates and Class R Certificates in accordance with the
terms of the Pooling Agreement.
ASSIGNMENT OF MORTGAGE LOANS
On the closing date, the seller will transfer to the depositor and the
depositor will in turn transfer to the trust, all of its right, title and
interest in and to each mortgage loan, the related mortgage note and other
related documents contained in the mortgage file, including all payments
received after the cut-off date, except payments that represent scheduled
principal and interest on the mortgage loans due on or before [_______] 1, 200_.
Each mortgage loan transferred to the trust will be identified on a schedule and
the schedule will be delivered to the trustee under the pooling and servicing
agreement. The mortgage loan schedule will include
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information as to the principal balance of each mortgage loan as of the cut-off
date, as well as information regarding the mortgage rates on the mortgage loans.
The servicer and the seller, respectively, will make representations and
warranties regarding its ability to service and sell the mortgage loans. The
seller will make representations and warranties as to the accuracy in all
material respects of information furnished to the trustee regarding each
mortgage loan. In addition, the seller will represent and warrant, as of the
closing date, that, among other things (i) the seller has transferred or
assigned to the depositor all of its right, title and interest in each mortgage
loan and mortgage file, free of any lien, and (ii) each mortgage loan complied,
at the time of origination, in all material respects with applicable state and
federal laws. Under the pooling and servicing agreement, the seller will, on
discovery of a breach of any representation and warranty which materially and
adversely affects the interest of the certificateholders in the related mortgage
loans and mortgage files, have a period of 60 days after discovery or notice of
the breach to effect a cure. If the breach cannot be cured within the 60-day
period, or 120 days if the seller is diligently pursuing a cure, the seller will
be obligated to (i) substitute for the defective mortgage loan a replacement
mortgage loan if the substitution is within two years of the closing date or
(ii) purchase the defective mortgage loan from the trust at a price equal to the
outstanding principal balance of the defective mortgage loan as of the date of
purchase, plus unpaid interest thereon from the date interest was last paid or
with respect to which interest was advanced and not reimbursed through the end
of the calendar month in which the purchase occurred, plus the amount of any
unreimbursed servicing advances made by the servicer.
ALLOCATION OF LOSSES; SUBORDINATION
The subordination provided to the senior certificates by the Class B
Certificates and Class M Certificates and the subordination provided to each of
the Class M Certificates by the Class B Certificates and will cover Realized
Losses on the mortgage loans. Realized Losses will be allocated as follows:
o first, to the Class B Certificates; and
o second, to the Class M Certificates,
in each case until the certificate principal balance of the class of
certificates has been reduced to zero; and thereafter, Realized Losses among all
the remaining classes of [Class A Certificates and Class R Certificates] on a
pro rata basis, until the Certificate Principal Balances of the [Class A
Certificates and the Class R Certificates] has been reduced to zero.
Investors in the Class A Certificates and Class R Certificates should be
aware that the certificate principal balances of the Class M Certificates and
Class B Certificates could be reduced to zero as a result of a disproportionate
amount of realized losses on the mortgage loans. Therefore, the allocation to
the Class M Certificates and Class B Certificates of realized losses on the
mortgage loans will reduce the subordination provided to the Class A
Certificates and Class R Certificates by the Class M Certificates and Class B
Certificates and increase the likelihood that realized losses may be allocated
to any class of the Class A Certificates and Class R Certificates.
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Any allocation of a Realized Loss to a certificate will be made by
reducing:
o its Certificate Principal Balance, in the case of the principal
portion of the Realized Loss, in each case until the Certificate
Principal Balance of the class has been reduced to zero, and
o the Accrued Certificate Interest for that certificate, in the case of
the interest portion of the Realized Loss, by the amount so allocated
as of the distribution date occurring in the month following the
calendar month in which the Realized Loss was incurred.
In addition, any allocation of a Realized Loss to a Class M Certificate may
also be made by operation of the payment priorities described under "--Principal
Distributions on the Senior Certificates" and any class of Class M Certificates
with a higher payment priority.
In order to maximize the likelihood of distribution in full of each Senior
Interest Distribution Amount, Principal Only Distribution Amount and Senior
Principal Distribution Amount, on each distribution date, holders of the Class A
Certificates and Class R Certificates have a right to distributions of the
related Available Distribution Amount that is prior to the rights of the holders
of the Class M Certificates and Class B Certificates, to the extent necessary to
satisfy each Senior Interest Distribution Amount, Principal Only Distribution
Amount and Senior Principal Distribution Amount. Similarly, and holders of the
Class M Certificates have a right to distributions of the Available Distribution
Amount prior to the rights of holders of the Class B Certificates.
An allocation of a Realized Loss on a pro rata basis among two or more
classes of certificates means an allocation to each of those classes of
certificates on the basis of its then outstanding Certificate Principal Balance
prior to giving effect to distributions to be made on that distribution date in
the case of an allocation of the principal portion of a Realized Loss, or based
on the Accrued Certificate Interest thereon for that distribution date in the
case of an allocation of the interest portion of a Realized Loss.
The application of the Senior Accelerated Prepayment Percentage, when it
exceeds the Senior Percentage, to determine the related Senior Principal
Distribution Amount will accelerate the amortization of the related senior
certificates relative to the actual amortization of the mortgage loans. To the
extent that the senior certificates are amortized faster than the mortgage
loans, in the absence of offsetting Realized Losses allocated to the Class M
Certificates and Class B Certificates, the percentage interest evidenced by the
senior certificates in the trust will be decreased, with a corresponding
increase in the interest in the trust evidenced by the Class M Certificates and
Class B Certificates, thereby increasing, relative to their respective
certificate principal balances, the subordination afforded the senior
certificates by the Class M Certificates and the Class B Certificates
collectively.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicer will be entitled to receive each month a servicing fee equal
to one-twelfth of the per annum rate established for each mortgage loan as the
servicing fee rate on the Principal Balance of each mortgage loan. The servicing
fee relating to each mortgage loan will be retained
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by the servicer from payments and collections, including Insurance Proceeds and
Liquidation Proceeds, for that mortgage loan. The servicer will also be entitled
to retain as additional servicing compensation all investment income earned on
amounts on deposit in the Custodial Account, all default charges and all
prepayment, late payment and assumption fees and other fees payable by the
mortgagor under the related mortgage note.
The servicer will pay all expenses incurred in connection with its
responsibilities under the pooling and servicing agreement, including all fees
and expenses payable to any subservicer and the various expenses discussed in
the prospectus. See "Description of the Certificates--Servicing by Unaffiliated
Sellers" in the prospectus.
ADVANCES
Prior to each distribution date, the servicer is required to make Advances
of monthly payments which were due on the mortgage loans on the immediately
preceding due date and delinquent on the business day next preceding the related
determination date.
These Advances are required to be made only to the extent they are deemed
by the servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or amounts otherwise payable to the holders of
the certificates. The purpose of making these Advances is to maintain a regular
cash flow to the certificateholders, rather than to guarantee or insure against
losses. The servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the mortgage loans due to
the application of the Relief Act or similar legislation or regulations. Any
failure by the servicer to make an Advance as required under the pooling and
servicing agreement will constitute an event of default, in which case the
trustee, as successor servicer, will be obligated to make any Advance, in
accordance with the terms of the pooling and servicing agreement.
All Advances will be reimbursable to the servicer on a first priority basis
from either (i) late collections, Insurance Proceeds and Liquidation Proceeds
from the mortgage loan as to which such unreimbursed Advance was made or (ii) as
to any Advance that remains unreimbursed in whole or in part following the final
liquidation of the related mortgage loan, from any amounts otherwise
distributable on any of the certificates. The effect of these provisions on the
Class M Certificates is that, for any Advance which remains unreimbursed
following the final liquidation of the related mortgage loan, the entire amount
of the reimbursement for the Advance will be borne first by the holders of the
Class B Certificates, and then by the holders of the class of Class M
Certificates to the extent of the amounts otherwise distributable to them,
except as provided above.
OPTIONAL TERMINATION
The servicer will have the option, on any distribution date on which the
aggregate principal balance of the mortgage loans is less than 10% of the
aggregate principal balance of the mortgage loans as of the cut-off date, to
purchase all remaining mortgage loans and other assets in the trust, thereby
effecting early retirement of the offered certificates. Any purchase of mortgage
loans and other assets of the trust shall be made at a price equal to the sum of
(a) 100% of the unpaid principal balance of each mortgage loan as of the date of
repurchase plus (b)
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accrued interest on each mortgage loan at the Net Mortgage Rate to, but not
including, the first day of the month in which the repurchase price is
distributed. Distributions on the certificates relating to any optional
termination will be paid, first, to the Class A Certificates and the Class R
Certificates, pro rata, second, to the Class M Certificates in the order of
their payment priority and, third, to the Class B Certificates.
On presentation and surrender of the offered certificates in connection
with the termination of the trust under the circumstances described above, the
holders of the offered certificates will receive an amount equal to the
Certificate Principal Balance of that class plus interest thereon at the
then-applicable pass-through rate, plus any previously unpaid interest, reduced,
as described above, in the case of the termination of the trust resulting from a
purchase of all the assets of the trust.
THE TRUSTEE
The trustee, [________________________], has its corporate trust offices at
[_______________________]. The trustee may resign at any time, in which event
the depositor will be obligated to appoint a successor trustee. The depositor
may also remove the trustee if the trustee ceases to be eligible to continue as
such under the pooling and servicing agreement or if the trustee becomes
insolvent. In these circumstances, the depositor will also be obligated to
appoint a successor trustee. Any resignation or removal of the trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
The pooling and servicing agreement requires the trustee to maintain, at
its own expense, an office or agency in New York City where certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the trustee and the certificate registrar relating to the
certificates under the pooling and servicing agreement may be served.
The trustee, or any of its affiliates, in its individual or any other
capacity, may become the owner or pledgee of certificates with the same rights
as it would have if it were not trustee.
The trustee will also act as paying agent, certificate registrar and
authenticating agent under the pooling and servicing agreement.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
FACTORS AFFECTING PREPAYMENTS AND DEFAULTS ON THE MORTGAGE LOANS
The yields to maturity and the aggregate amount of distributions on the
offered certificates will be affected by the rate and timing of principal
payments on the mortgage loans and the amount and timing of mortgagor defaults
resulting in Realized Losses. The rate of principal payments on the mortgage
loans will in turn be affected by the amortization schedules of the mortgage
loans, the rate of mortgagor prepayments on the mortgage loans by the
mortgagors, liquidations of defaulted mortgage loans and purchases of mortgage
loans due to breaches of some representations and warranties.
The timing of changes in the rate of prepayments, liquidations and
purchases of the mortgage loans may, and the timing of Realized Losses will,
significantly affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an investor's
expectation. The rate of prepayments on mortgage loans is also influenced by a
variety of economic, geographic, social and other factors, including the level
of mortgage interest rates and the rate at which mortgagors default on their
mortgages. In general, if interest rates fall significantly below the mortgage
rates on the mortgage loans, the mortgage loans are likely to be subject to a
higher incidence of prepayment. On the other hand, if prevailing interest rates
rise significantly above the mortgage rates on the mortgage loans, the mortgage
loans are likely to be subject to a lower incidence of prepayment. Since the
rate and timing of principal payments on the mortgage loans will depend on
future events and on a variety of factors, as described in this prospectus
supplement and in the prospectus under "Yield Considerations" and "Maturity and
Prepayment Considerations", no assurance can be given as to the rate or the
timing of principal payments on the offered certificates.
The mortgage loans in most cases may be prepaid by the mortgagors at any
time without payment of any prepayment fee or penalty, although a portion of the
mortgage loans provide for payment of a prepayment penalty, which may have a
substantial effect on the rate of prepayment of those mortgage loans. See
"Description of the Mortgage Pool--Mortgage Pool Characteristics."
Investors in the offered certificates should consider the risk that rapid
rates of prepayments on the mortgage loans, and therefore of principal
distributions on the offered certificates, may coincide with periods of low
prevailing interest rates. During these periods, the effective interest rates on
securities in which an investor in the offered certificates may choose to
reinvest amounts received as principal distributions on the offered certificates
may be lower than the interest rate borne by the certificates. On the other
hand, slow rates of prepayments on the mortgage loans, and therefore of
principal distributions on the offered certificates may coincide with periods of
high prevailing interest rates. During these periods, the amount of principal
distributions available to an investor in the offered certificates for
reinvestment at the high prevailing interest rates may be relatively low.
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All of the mortgage loans will contain due-on-sale clauses. The sale of
mortgaged properties encumbered by non-assumable mortgage loans will result in
the prepayment of the mortgage loans and a corresponding decrease in the
weighted average life of the applicable class of offered certificates. See
"Maturity and Prepayment Considerations" in the prospectus.
The mortgage loans have been originated with underwriting standards that
are less stringent than underwriting standards employed by Freddie Mac and
Fannie Mae and, as a result, may experience a higher rate of default than
mortgage loans originated with more stringent underwriting standards. In
addition, there is significant geographic concentration in the mortgage pool,
which could also increase the risk of loss on the Mortgage loans. See "Risk
Factors" and "Description of the Mortgage Pool" in this prospectus supplement
The assumed scheduled final distribution date for the offered certificates
is [________] 20__ which is the distribution date occurring in the month
following the month in which the latest stated maturity of any mortgage loan in
the mortgage pool.
No event of default, change in the priorities for distribution among the
classes or other provision under the pooling and servicing agreement will arise
or become applicable solely by reason of the failure to retire the entire
Certificate Principal Balance of any offered certificates on or before its
assumed final distribution date.
MODELING ASSUMPTIONS
For purposes of preparing the table below, indicating the percentage of
initial Certificate Principal Balance outstanding and the weighted average life
of the offered certificates under various prepayment scenarios, the following
assumptions have been made:
the mortgage loans consist of the following characteristics:
MORTGAGE LOANS
Aggregate principal balance $
Weighted Average Mortgage Rate %
Servicing Fee Rate %
Original term to maturity
(months)
Remaining term to maturity
(months)
(1) there are no repurchases of the mortgage loans;
(2) the certificates will be purchased on [___________, 20__];
(3) distributions on the certificates will be made on the 19th day of each
month, commencing in [___________, 20__];
(4) no mortgage loan is delinquent and there are no Realized Losses while
the certificates are outstanding;
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(5) there are no Prepayment Interest Shortfalls or shortfalls of interest
with regard to the mortgage loans;
(6) there is no optional termination of the trust by the servicer.
These modeling assumptions have been based on the weighted average
characteristics of the mortgage loans. The actual characteristics of many of the
mortgage loans may vary significantly from these modeling assumptions.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement, the
prepayment speed assumption, represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of new mortgage
loans. A 100% prepayment assumption assumes a constant prepayment rate of 0.0%
per annum of the then outstanding principal balance of the 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 thirteenth month. Beginning in the thirteenth
month and in each month thereafter during the life of the mortgage loans, a 100%
prepayment assumption assumes a constant prepayment rate of 6.0% per annum each
month. As used in the table below, a 0% prepayment assumption assumes prepayment
rates equal to 0% of prepayment assumption, no prepayments. Correspondingly, a
100% prepayment assumption assumes prepayment rates equal to 100% of prepayment
assumption, and so forth. Prepayment assumption 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.
The actual characteristics and performance of the mortgage loans will
differ from the assumptions used in constructing the tables shown below, which
are hypothetical in nature and are provided only to give a general sense of how
the principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the mortgage loans will prepay at the same
rate until maturity. Any difference between the assumptions and the actual
characteristics and performance of the mortgage loans, or actual prepayment
experience, will affect the percentage of initial Certificate Principal Balance
outstanding over time and the weighted average life of the offered certificates.
[TABLES REGARDING CLASS M CERTIFICATES TO BE ADDED]
FEDERAL INCOME TAX CONSEQUENCES
Orrick, Herrington & Sutcliffe LLP, counsel to the depositor, has filed
with the depositor's registration statement an opinion to the effect that,
assuming compliance with all provisions of the pooling and servicing agreement,
for federal income tax purposes, the trust will qualify as a REMIC under the
Internal Revenue Code.
For federal income tax purposes:
o the Class R Certificates will constitute the sole class of "residual
interests" in the related REMIC, and
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o each class of Class A Certificates, Class M Certificates and Class B
Certificates will represent ownership of "regular interests" in the
REMIC and will be treated as debt instruments of the REMIC.
See "Federal Income Tax Consequences--REMIC Trust Funds" in the prospectus.
For federal income tax reporting purposes, the [Class [__] Certificates
will] [the Class [__] Certificates may] [and Class [__] Certificates will not]
be treated as having been issued with original issue discount. The prepayment
assumption that will be used in determining the rate of accrual of original
issue discount, market discount and premium, if any, for federal income tax
purposes will be based on the assumption that, subsequent to the date of any
determination the mortgage loans will prepay at a rate equal to [100]% of the
prepayment assumption. No representation is made that the mortgage loans will
prepay at that rate or at any other rate. See "Federal Income Tax
Consequences--General" and "--REMIC Trust Funds--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount" in the prospectus.
If the method for computing original issue discount described in the
prospectus results in a negative amount for any period with respect to a
certificateholder, the amount of original issue discount allocable to that
period would be zero and the certificateholder will be permitted to offset that
negative amount only against future original issue discount, if any,
attributable to those certificates.
In some circumstances the OID regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, it is possible that the holder of a
certificate may be able to select a method for recognizing original issue
discount that differs from that used by the servicer in preparing reports to the
certificateholders and the IRS.
Some of the offered certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of one of those
classes of certificates will be treated as holding a certificate with
amortizable bond premium will depend on the certificateholder's purchase price
and the distributions remaining to be made on the certificate at the time of its
acquisition by the certificateholder. Holders of those classes of certificates
should consult their tax advisors regarding the possibility of making an
election to amortize this premium. See "Federal Income Tax Consequences--REMIC
Trust Funds--Taxation of Owners of REMIC Regular Certificates" and "--Market
Discount and Premium" in the prospectus.
The [offered certificates] will be treated as assets described in Section
7701(a)(19)(C) of the Internal Revenue Code and "real estate assets" under
Section 856(c)(4)(A) of the Internal Revenue Code in the same proportion that
the assets of the trust would be so treated. In addition, interest on the
offered certificates will be treated as "interest on obligations secured by
mortgages on real property" under Section 856(c)(3)(B) of the Internal Revenue
Code to the extent that the Class A Certificates are treated as "real estate
assets" under Section 856(c)(4)(A) of the Internal Revenue Code. Moreover, the
offered certificates, other than the Principal Only Certificates, will be
"qualified mortgages" within the meaning of Section 860G(a)(3) of the Internal
Revenue Code if transferred to another REMIC on its startup day in exchange for
a regular or residual interest therein. However, prospective investors in
offered certificates that
S-42
<PAGE>
will be treated as assets described in Section 860G(a)(3) of the Internal
Revenue Code should note that, regardless of the treatment, any repurchase of a
certificate pursuant to the right of the servicer or the depositor to repurchase
the offered certificates may adversely affect any REMIC that holds the offered
certificates if the repurchase is made under circumstances giving rise to a
Prohibited Transaction Tax. See "Description of the Certificates--Termination"
and "Federal Income Tax Consequences--REMIC Trust Funds--Classification of REMIC
Trust Funds" in the prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE CLASS R CERTIFICATES
The IRS has issued REMIC regulations under the provisions of the Internal
Revenue Code that significantly affect holders of the Class R Certificates. The
REMIC regulations impose restrictions on the transfer or acquisition of certain
residual interests, including the Class R Certificates. In addition, the REMIC
regulations contain restrictions that apply to the transfer of "noneconomic"
residual interests to United States persons. The pooling and servicing agreement
includes other provisions regarding the transfer of Class R Certificates,
including (i) the requirement that any transferee of a Class R Certificate
provide an affidavit representing that the transferee (a) is not a disqualified
organization, (b) is not acquiring the Class R Certificate on behalf of a
disqualified organization and (c) will maintain that status and will obtain a
similar affidavit from any person to whom the transferee shall subsequently
transfer a Class R Certificate, (ii) a provision that any transfer of a Class R
Certificate to a disqualified person shall be null and void and (iii) a grant to
the servicer of the right, without notice to the holder or any prior holder, to
sell to a purchaser of its choice any Class R Certificate that shall become
owned by a disqualified organization despite (i) and (ii) above. In addition,
under the pooling and servicing agreement, the Class R Certificates may not be
transferred to non-United States persons.
The REMIC regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on the residual interests, unless "no significant purpose of the transfer
was to impede the assessment or collection of tax." Based on the REMIC
regulations, the Class R Certificates may constitute noneconomic residual
interests during some or all of their terms for purposes of the REMIC
regulations and, accordingly, unless no significant purpose of a transfer is to
impede the assessment or collection of tax, transfers of the Class R
Certificates may be disregarded and purported transferors may remain liable for
any taxes due relating to the income on the Class R Certificates. All transfers
of the Class R Certificates will be restricted in accordance with the terms of
the pooling and servicing agreement that are intended to reduce the possibility
of any transfer being disregarded to the extent that the Class R Certificates
constitute noneconomic residual interests. See "Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Residual
Certificates--Noneconomic REMIC Residual Certificates" in the prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income for the earlier accrual periods of the term of the REMIC that
significantly exceeds the amount of cash distributions received by the Class R
Certificateholders from the REMIC for those periods. Furthermore, the tax on
that income may exceed the cash distributions for those periods.
S-43
<PAGE>
Consequently, Class R Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due in the earlier years of the
REMIC's term as a result of their ownership of the Class R Certificates. In
addition, the required inclusion of this amount of taxable income during the
REMIC's earlier accrual periods and the deferral of corresponding tax losses or
deductions until later accrual periods or until the ultimate sale or disposition
of a Class R Certificate or possibly later under the "wash sale" rules of
Section 1091 of the Internal Revenue Code may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
An individual, trust or estate that holds, whether directly or indirectly
through pass-through entities, a Class R Certificate may have significant
additional gross income with respect to, but may be limited on the deductibility
of, servicing and trustee's fees and other administrative expenses properly
allocable to the REMIC in computing the certificateholder's regular tax
liability and will not be able to deduct those fees or expenses to any extent in
computing the certificateholder's alternative minimum tax liability. See
"Federal Income Tax Consequences--REMIC Trust Funds--Taxation of Owners of REMIC
Residual Certificates--Pass-Through of Servicing Fees" in the prospectus.
The seller will be designated as the "tax matters person" for the REMIC as
defined in the REMIC Provisions, and in connection therewith will be required to
hold not less than 0.01% of the Class R Certificates.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in the
Class R Certificates. For further information regarding the federal income tax
consequences of investing in the Class R Certificates, see "Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Residual
Certificates" in the prospectus.
NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations which make 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 be effective for payments
made after [December 31, 200_], subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the new
regulations.
METHOD OF DISTRIBUTION
In accordance with the terms and conditions of an underwriting agreement,
dated [__________], 200_, Credit Suisse First Boston Corporation has agreed to
purchase and the depositor has agreed to sell the Class A Certificates and the
Class M Certificates, [except that a de minimis portion of the Class R
Certificates will be retained by [____________]]. The certificates being sold to
the underwriter are referred to as the underwritten certificates. It is
S-44
<PAGE>
expected that delivery of the underwritten certificates will be made only in
book-entry form through the Same Day Funds Settlement System of DTC, on or about
[________, 200_], against payment therefor in immediately available funds. It is
expected that the Class R Certificates will be available for delivery at the
office of the underwriter, against payment therefor in immediately available
funds.
In connection with the underwritten certificates, the underwriter has
agreed, in accordance with the terms and conditions of the underwriting
agreement, to purchase all of the underwritten certificates if any of the
underwritten certificates are purchased thereby.
The underwriting agreement provides that the obligations of the underwriter
to pay for and accept delivery of the underwritten certificates is conditioned
upon, among other things, the receipt of legal opinions and to the conditions,
among others, that no stop order suspending the effectiveness of the depositor's
registration statement shall be in effect, and that no proceedings for that
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the offered certificates by the underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. The underwriter may
effect the transactions by selling the certificates to or through dealers, and
these dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the underwriter for whom they act as agent. In
connection with the sale of the underwritten certificates, the underwriter may
be deemed to have received compensation from the depositor in the form of
underwriting compensation. The underwriter and any dealers that participate with
the underwriter in the distribution of any underwritten certificates may be
deemed to be underwriters and any profit on the resale of the underwritten
certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended. Proceeds to the
depositor from the sale of the underwritten certificates, before deducting
expenses payable by the depositor, will be approximately [___]% of the aggregate
Certificate Principal Balance of the underwritten certificates plus accrued
interest from the cut-off date. The underwriter will sell the underwritten
certificates, other than the Class R Certificates, to the seller.
The underwriting agreement provides that the depositor will indemnify the
underwriter, and that under limited circumstances the underwriter will indemnify
the depositor, against some liabilities under the Securities Act, or contribute
to payments required to be made in respect thereof.
The primary source of information available to investors concerning the
underwritten certificates will be the monthly statements discussed in the
prospectus under "Description of the Certificates--Reports to
Certificateholders," which will include information as to the outstanding
principal balance of the offered certificates. There can be no assurance that
any additional information regarding the offered certificates will be available
through any other source. In addition, the depositor is not aware of any source
through which price information about the offered certificates will be available
on an ongoing basis. The limited nature of this information regarding the
offered certificates may adversely affect the liquidity of the offered
certificates, even if a secondary market for the offered certificates becomes
available.
S-45
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to the certificates will be passed on for
the depositor and the underwriter by [Orrick, Herrington & Sutcliffe LLP, New
York, New York]. Legal matters relating to the seller and the servicer will be
passed on by [_____________________].
RATINGS
It is a condition to the issuance of the Class A Certificates, other than
the Principal Only Certificates, and the Class R Certificates, that they be
rated "AAA" by [___________________] and [__________________]. It is a condition
to the issuance of the Class M Certificates that they be rated not lower than
"[_____]," "[_____]"and "[_____]," respectively, by [__________].
The ratings on mortgage pass-through certificates address the likelihood of
the receipt by certificateholders of all distributions on the underlying
mortgage loans to which the certificateholders are entitled. The rating process
addresses the structural and legal aspects associated with the certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by mortgagors or the degree
to which any prepayments might differ from those originally anticipated, and do
not address the possibility that certificateholders might suffer a lower than
anticipated yield.
[The "r" of the "AAAr" rating of the Principal Only Certificates by
_____________ is attached to highlight derivative, hybrid, and other obligations
that ______________ believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of these obligations are:
o securities whose principal or interest return is indexed to equities,
commodities, or currencies
o certain swaps and options; and
o interest only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.]
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
offered certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional support or credit enhancement for
the offered certificates.
LEGAL INVESTMENT
The [Class A Certificates and Class M Certificates] will constitute
"mortgage related securities" for purposes of SMMEA so long as they are rated in
at least the second highest rating category by one of the Rating Agencies, and,
as such, are legal investments for entities to the extent provided in SMMEA.
SMMEA provides, however, that states could override its
S-46
<PAGE>
provisions on legal investment and restrict or condition investment in mortgage
related securities by taking statutory action on or prior to October 3, 1991.
Some states have enacted legislation which overrides the preemption provisions
of SMMEA.
The depositor makes no representations as to the proper characterization of
any class of the offered certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase any class of the offered
certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of offered certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent any class of the offered certificates constitutes a
legal investment or is subject to investment, capital or other restrictions.
See "Legal Investment" in the prospectus.
S-47
<PAGE>
ERISA CONSIDERATIONS
Any ERISA plan, any insurance company, whether through its general or
separate accounts or any other person investing ERISA plan assets of any ERISA
plan, as defined under "ERISA Considerations--Plan Assets Regulations" in the
prospectus, should carefully review with its legal advisors whether the purchase
or holding of offered certificates could give rise to a transaction prohibited
or not otherwise permissible under ERISA or Section 4975 of the Internal Revenue
Code.
The purchase or holding of the offered certificates, other than the Class M
Certificates or the Class R Certificates, by or on behalf of, or with ERISA plan
assets of, an ERISA plan may qualify for exemptive relief under the
underwriter's prohibited transaction exemption, as described under "ERISA
Considerations--Underwriter's PTE" in the prospectus. However, the exemption
contains a number of conditions which must be met for the exemption to apply,
including the requirement that the ERISA plan must be an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act.
[Insurance companies contemplating the investment of general account assets
in the offered certificates should consult with their legal advisors for the
applicability of Section 401(c) of ERISA, as described under "ERISA
Considerations--Insurance Company General Accounts" in the prospectus. The DOL
issued final regulations under Section 401(c) on January 4, 2000, but these
final regulations are not applicable until July 5, 2001.]
Because the exemptive relief afforded by the exemption or any similar
exemption that might be available will not likely apply to the purchase, sale or
holding of the Class M Certificates, no Class M Certificate or any interest
therein may be acquired or held by any ERISA plan, any trustee or other person
acting on behalf of any ERISA plan, or any other person using ERISA plan assets
to effect the acquisition or holding - a plan investor - unless:
o the acquirer or holder is an insurance company,
o the source of funds used to acquire or hold the certificate or
interest therein is an "insurance company general account" as defined
in U.S. Department of Labor Prohibited Transaction Class Exemption
95-60, and
o the conditions Sections I and III of PTCE 95-60 have been satisfied.
Each beneficial owner of a Class M Certificate or any interest therein
shall be deemed to have represented, by virtue of its acquisition or holding of
the certificate or interest therein, that either (i) it is not a Plan Investor
or (ii) (1) it is an insurance company, (2) the source of funds used to acquire
or hold the certificate or interest therein is an "insurance company general
account" as the term is defined in PTCE 95-60, and (3) the conditions listed in
Sections I and III of PTCE 95-60 have been satisfied.
If any Class M Certificate or any interest therein is acquired or held in
violation of the provisions of the preceding paragraph, the next preceding
permitted beneficial owner will be
S-48
<PAGE>
treated as the beneficial owner of the Class M Certificate, retroactive to the
date of transfer to the purported beneficial owner. Any purported beneficial
owner whose acquisition or holding of any certificate or interest therein was
effected in violation of the provisions of the preceding paragraph shall
indemnify and hold harmless the depositor, the trustee, the servicer, any
subservicer and the trust from and against any and all liabilities, claims,
costs or expenses incurred by those parties as a result of that acquisition or
holding.
Investors in the Class M Certificates are urged to obtain from a transferee
of those certificates a certification of the transferee's eligibility to
purchase the certificates in the form of the representation letter attached as
Annex I to this prospectus supplement.
Because the exemptive relief afforded by the exemption or any similar
exemption that might be available also will not likely apply to the purchase,
sale or holding of the Class R Certificates, transfers of those certificates
will not be registered by the trustee unless the transferor provides the
depositor and the trustee with a certification that the transferee is not a
ERISA plan investor.
Any fiduciary of an ERISA plan considering whether to purchase any offered
certificate should consult with its own counsel concerning the impact of ERISA
and the Internal Revenue Code and the potential consequences to its specific
circumstances, prior to making an investment in the certificates. Moreover, each
ERISA plan fiduciary should determine whether, under the general fiduciary
standards of investment procedure and diversification, an investment in the
offered certificate is appropriate for the ERISA plan, taking into account the
overall investment policy of the ERISA plan and the composition of the ERISA
plan's investment portfolio.
In addition, any fiduciary or other investor of ERISA plan assets that
proposes to acquire or hold the offered certificates on behalf of or with ERISA
plan assets of any ERISA plan should consult with its counsel with respect to:
(i) whether the specific and general conditions and the other requirements in
the exemption or any other exemption would be satisfied, or whether any other
prohibited transaction exemption would apply; and (ii) the potential
applicability of the general fiduciary responsibility provisions of ERISA and
the prohibited transaction provisions of ERISA and Section 4975 of the Internal
Revenue Code to the proposed investment. See "ERISA Considerations" in the
prospectus.
The sale of any of the offered certificates to an ERISA plan is in no
respect a representation by the depositor or the underwriter that the investment
meets all relevant legal requirements for investments by ERISA plans generally
or any particular ERISA plan, or that such an investment is appropriate for
ERISA plans generally or any particular ERISA plan.
S-49
<PAGE>
ANNEX I
ERISA REPRESENTATION LETTER
[date]
--------------------------
--------------------------
--------------------------
Credit Suisse First Boston Mortgage Securities Corp.
11 Madison Avenue
New York, New York 10010
Attention: General Counsel
--------------------------
--------------------------
--------------------------
Re: [__________________________]
Mortgage-Backed Pass-Through Certificates, Series 200_-__, Class M-
Dear Ladies and Gentlemen:
[__________________________], (the "Purchaser") intends to purchase from
[______], (the "Seller") $[____________________] initial Certificate Principal
Balance of the above-referenced certificates (the "Certificates"), issued
pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as of [_______] 1, 200_, among Credit Suisse First Boston
Mortgage Securities Corp., as depositor (the "Depositor"),
[__________________________]., as seller and servicer (the "Company") and
[________________________], as trustee (the "Trustee"). All terms used in this
prospectus supplement and not otherwise defined shall have the meanings set
forth in the Pooling and Servicing Agreement.
The Purchaser hereby certifies, represents and warrants to, and covenants
with the Depositor, the Company and the Trustee, either:
(a) The Purchaser is not an employee benefit or other plan subject to
the prohibited transaction provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal
Revenue Code of 1986, as amended (a "Plan"), or any other person (including
an investment manager, a named fiduciary or a trustee of any Plan) acting,
directly or indirectly, on behalf of or purchasing any Certificate with
"plan assets" of any Plan within the meaning of the U.S. Department of
Labor ("DOL") regulation at 29 C.F.R.ss.2510.3-101; or
(b) The Purchaser is an insurance company, the source of funds to be
used by which to purchase the Certificates is an "insurance company general
account" (as such term is defined in
S-50
<PAGE>
DOL Prohibited Transaction Class Exemption ("PTCE") 95-60), and the
conditions set forth in Sections I and III of PTCE 95-60 have been
satisfied.
In addition, the Purchaser hereby certifies, represents and warrants to, and
covenants with, the Depositor, the Company and the Trustee that the Purchaser
will not transfer the Certificates to any Plan or person unless such Plan or
person meets the requirements set forth in either (a) or (b) above.
Very truly yours,
By:________________________________
Name:______________________________
Title:_____________________________
S-51
<PAGE>
[_______________]
$___________
Mortgage-Backed Pass-Through Certificates
Series 200_-___
Prospectus Supplement
CREDIT FIRST
SUISSE BOSTON
Underwriter
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the certificates in any state where the offer is not
permitted.
We represent the accuracy of the information in this prospectus supplement and
the accompanying prospectus only as of the dates on their respective covers.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
offered certificates, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until
[____________________, 200_].
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities Exchange Commission is effective. This prospectus supplement
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED ________________, 200_ Prospectus
supplement dated _________, ___) (to prospectus dated , )
$--------
[---------------]
Seller and Servicer
Credit Suisse First Boston
Mortgage Securities Corp.
Depositor
Mortgage-Backed Pass-Through Certificates, Series 200_-___
Issuer
The Trust
The trust will hold a pool of [one- to four-family
residential][commercial][multifamily] mortgage loans.
Offered Certificates
The trust will issue these classes of certificates that are offered under this
prospectus supplement:
o [_] classes of Class A Certificates
Credit Enhancement
Credit enhancement for all of these certificates will be provided by
subordinated certificates, overcollateralization represented by the excess of
the balance of the mortgage loans over the balance of the Class A Certificates,
[and a financial guaranty insurance policy issued by [_____].
You should consider carefully the risk factors beginning on page S-__ in this
prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or determined
that this prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed the
merits of this offering. Any representation to the contrary is unlawful.
[Underwriter] will offer the Class A Certificates subject to availability.
[Name of Underwriter]
Underwriter
Version B
<PAGE>
Important notice about information presented in this
prospectus supplement and the prospectus
You should rely on the information contained in this document or to which
we have referred you to in this prospectus supplement. We have not authorized
anyone to provide you with information that is different. This document may only
be used where it is legal to sell these securities.
We provide information to you about the offered certificates in two
separate documents that progressively provide more detail:
o the prospectus, which provides general information, some of which may not
apply to your series of certificates; and
o this prospectus supplement, which describes the specific terms of your
series of certificates.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Terms" beginning
on page 126 in the prospectus.
TABLE OF CONTENTS
[INSERT HERE]
<PAGE>
SUMMARY
The following summary is a very general overview of the offered
certificates and does not contain all of the information that you should
consider in making your investment decision. To understand all of the terms of
the offered certificates, you should read carefully this entire document and the
prospectus.
Title of securities.......[_____________________ Mortgage-Backed Pass-Through
Certificates, Series 200_-__].
Depositor Credit Suisse First Boston Mortgage Securities Corp.
Seller [______________________________].
Servicer [______________________________].
Trustee [______________________________].
Financial guaranty insurer[______________________________].
Mortgage Pool [______][fixed][adjustable] rate mortgage loans
with an aggregate principal balance of approximately
$[ ] as of the cut-off date, secured by [first/junior]
liens on [one- to four-family residential]
[commercial] [multifamily] properties.
Cut-off date [ ] 1, [ ].
----------------- -------
Closing date On or about [ , 200_].
---------------
Distribution date.........Beginning on [__________, 200_], and
thereafter on the [ ] day of each month, or if the [ ]
day is not a business day, on the next business day.
Scheduled final distribution date [__________, 20__]. The actual
final distribution date could be substantially
earlier.
Form of offered certificates. Book-entry.
See "Description of the Certificates--Book-Entry
Registration" in this prospectus supplement.
Minimum denominations.....$25,000.
S-3
<PAGE>
Offered Certificates
----------------------------------------------------------------------
Initial Initial
Certificate Rating
Pass-Through Principal Initial
Class Rate Balance (___/___) Designations
--------
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A Certificates:
----------------------------------------------------------------------
----------------------------------------------------------------------
[A-1 Adjustable $ AAA/AAA Senior/Adjustable
Rate -------- Rate]
----------------------------------------------------------------------
[A-2 % $ AAA/AAA Senior/Fixed
-------- -------- Rate]
----------------------------------------------------------------------
[A-3 % $ AAA/AAA Senior/Lockout/Fixed
-------- -------- Rate]
----------------------------------------------------------------------
Total Class
A Certificates: $[_______]
----------------------------------------------------------------------
Non-Offered Certificates
----------------------------------------------------------------------
Class SB and Class R Certificates:
----------------------------------------------------------------------
SB NA $[ ] NA Subordinate
-------
----------------------------------------------------------------------
R NA $[ ] NA Subordinate
-------
----------------------------------------------------------------------
Total Class SB and Class R Certificates: $[ ]
----------------------------------------------------------------------
Total offered and
non-offered certificates: $[ ]
-------------
----------------------------------------------------------------------
Other Information:
Class A-1:
Adjustable
Rate: Initial Formula Maximum
Class A-1: [ ]% One-Month LIBOR + weighted average
------ [ ]% net mortgage
rate on the
------ mortgage loans
S-4
<PAGE>
The Trust
The depositor will establish a trust with respect to the Mortgage-Backed
Pass-Through Certificates, Series 200_-__ under a pooling and servicing
agreement. On the closing date, the depositor will deposit the pool of mortgage
loans described in this prospectus supplement into the trust. Each certificate
will represent a partial ownership interest in the trust.
[The trust will also include credit enhancement for the Class A Certificates in
the form of a financial guaranty insurance policy provided by _____________.]
The Mortgage Pool
The mortgage loans to be deposited into the trust have the following
characteristics as of the cut-off date:
[insert table]
[The interest rate on the mortgage loans will adjust on each adjustment date to
equal the sum of Six-Month LIBOR and the note margin on the mortgage, subject to
a maximum and minimum interest rate.]
For additional information regarding the mortgage pool see "Description of the
Mortgage Pool" in this prospectus supplement.
Distributions on the Offered Certificates
Amount available for monthly distribution. On each monthly distribution date,
the trustee will make distributions to investors. The amount available for
distribution will include:
o collections of monthly payments on the mortgage loans, including
prepayments and other unscheduled collections [plus]
o [advances for delinquent payments] minus
o the fees and expenses of the subservicers and the servicer, including
reimbursement for advances [minus]
o [the premium paid to the financial guaranty insurer].
See "Description of the Certificates--Glossary of Terms--Available Distribution
Amount" in this prospectus supplement.
Priority of distributions. Distributions on the offered certificates will be
made from available amounts as follows:
o [Payment to servicer for certain unreimbursed advances]
o Distribution of interest to the Class A Certificates
o Distributions of principal to the Class A Certificates
o [Reimbursement to the financial guaranty insurer for payments made by the
financial guaranty insurer to the Class A Certificates]
o Payments of excess interest payments on the mortgage loans to make
principal payments on the Class A Certificates, until the amount of
overcollateralization reaches the required amount
o Distributions of interest in respect of prepayment interest shortfalls on
the Class A Certificates
o Distribution of remaining funds to the Class SB and Class R Certificates
Interest distributions. The amount of interest owed to each class of Class A
Certificates on each distribution date will equal:
o the pass-through rate for that class of certificates multiplied by
o the principal balance of that class of certificates as of the day
immediately prior to the related distribution date multiplied by
o 1/12, in the case of the fixed-rate certificates or the actual number of
days in the interest accrual period divided by 360, in the case of the
adjustable rate certificates minus
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o the share of some types of interest shortfalls allocated to that class.
See "Description of the Certificates--Interest Distributions" in this prospectus
supplement.
Allocations of principal. Principal distributions on the certificates will be
allocated among the various classes of offered certificates as described in this
prospectus supplement. Until the required amount of overcollateralization is
reached, all principal payments on the mortgage loans will be distributed among
the Class A Certificates, unless the Class A Certificates are no longer
outstanding.
In addition, the Class A Certificates will receive a distribution in respect of
principal, to the extent of any excess interest payments on the mortgage loans
available to cover losses and then to increase the amount of
overcollateralization until the required amount of overcollateralization is
reached. In addition, the Class A Certificates will receive a distribution of
principal from the financial guaranty insurance policy to cover losses on the
mortgage loans allocated to the Class A Certificates.
See "Description of the Certificates--Principal Distributions on the Class A
Certificates" in this prospectus supplement.
Credit Enhancement
The credit enhancement for the benefit of the certificates consists of:
Excess Interest. Because more interest is paid by the mortgagors than is
necessary to pay the interest on the certificates each month, there will be
excess interest. Some of this excess interest may be used to protect the
certificates against some losses, by making an additional payment of principal
up to the amount of the losses.
Overcollateralization. Any excess interest not used to cover interest shortfalls
or current period losses will be paid as principal on the Class A Certificates
to reduce the principal balance of the Class A Certificates below the aggregate
principal balance of the mortgage loans. The excess amount of the balance of the
mortgage loans represents overcollateralization, which may absorb some losses on
the mortgage loans, if not covered by excess interest. If the level of
overcollateralization falls below what is required, the excess interest
described above will also be paid to the certificates as principal. This will
reduce the principal balance of the certificates faster than the principal
balance of the mortgage loans so that the required level of
overcollateralization is reached.
See "Description of the Certificates--Allocation of Losses; Subordination" in
this prospectus supplement.
[The Financial Guaranty Insurance Policy
_____________ will issue a financial guaranty insurance policy as a means of
providing additional credit enhancement for the Class A Certificates. Under the
policy, the financial guaranty insurer will pay an amount that will cover any
shortfalls in amounts available to pay the interest distribution amount for the
Class A Certificates on any distribution date, the principal portion of any
losses on the mortgage loans allocated to the Class A Certificates and any
unpaid certificate principal balance of the Class A Certificates on the final
distribution date. The financial guaranty insurance policy will not provide
coverage for prepayment interest shortfalls.]
[See "Description of the Certificates--Financial Guaranty Insurance Policy" and
"The Financial Guaranty Insurer" in this prospectus supplement.]
[Advances
For any month, if the servicer does not receive the full scheduled payment on a
mortgage loan, the servicer will advance funds to cover the amount of the
scheduled payment that was not made. However, the servicer will advance funds
only if it determines that the advance will be recoverable from future payments
or collections on that mortgage loan.
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See "Description of the Certificates--Advances" in this prospectus supplement.]
Optional Termination
On any distribution date on which the principal balances of the mortgage loans
is less than 10% of their principal balances as of the cut-off date, the
servicer or the depositor will have the option to:
o purchase from the trust all remaining mortgage loans, causing an early
retirement of the certificates; or
o purchase all the certificates.
Under either type of optional purchase, holders of the outstanding certificates
will receive the outstanding principal balance of the certificates in full with
accrued interest. However, no purchase of the mortgage loans or certificates
will be permitted if it would result in a draw under the policy unless the
financial guaranty insurer consents to the termination. In either case, there
will be no reimbursement of principal reductions or related interest that
resulted from losses allocated to the certificates.
See "Pooling and Servicing Agreement--Termination" in this prospectus supplement
and "Description of the Certificates--Termination" in the prospectus.
Ratings
When issued, the offered certificates will receive ratings which are not lower
than those listed in the table on page S-[ ] of this prospectus supplement. The
ratings on the offered certificates address the likelihood that holders of the
offered certificates will receive all distributions on the underlying mortgage
loans to which they are entitled. A security rating is not a recommendation to
buy, sell or hold a security and may be changed or withdrawn at any time by the
assigning rating agency. The ratings also do not address the rate of principal
prepayments on the mortgage loans. For example, the rate of prepayments, if
different than originally anticipated, could adversely affect the yield realized
by holders of the offered certificates.
See "Ratings" in this prospectus supplement.
Legal Investment
When issued, the Class [ ] Certificates will not be "mortgage related
securities" for purposes of SMMEA. You should consult your legal advisors in
determining whether and to what extent the offered certificates constitute legal
investments for you.
See "Legal Investment" in this prospectus supplement for important information
concerning possible restrictions on ownership of the offered certificates by
regulated institutions.
ERISA Considerations
The Class A Certificates may be considered eligible for purchase by persons
investing assets of employee benefit plans or individual retirement accounts.
Persons investing assets of such plans or accounts should consult with their
counsel before purchasing the notes.
See "ERISA Considerations" in this prospectus supplement and in the prospectus.
Tax Status
For federal income tax purposes, the depositor will elect to treat the trust as
[ ] real estate mortgage investment conduit[s]. The certificates, other than the
Class R Certificates, will represent ownership of regular interests in the trust
and will be treated as representing ownership of debt for federal income tax
purposes. You will be required to include in income all interest and original
issue discount, if any, on such certificates in accordance with the accrual
method of accounting regardless of your usual methods of accounting. For federal
income tax purposes, each of the Class R Certificates will be the sole residual
interest in one of the [ ] real estate mortgage investment conduits.
For further information regarding the federal income tax consequences of
investing in the offered certificates, including important information regarding
the tax treatment of the Class R Certificates, see "Material Federal Income Tax
Consequences" in this prospectus supplement and in the prospectus.
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<PAGE>
RISK FACTORS
The offered certificates are not suitable investments for all investors.
In particular, you should not purchase any class of offered certificates unless
you understand the prepayment, credit, liquidity and market risks associated
with that class.
The offered certificates are complex securities. You should possess,
either alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus supplement and the
prospectus in the context of your financial situation and tolerance for risk.
You should carefully consider, among other things, the following factors
in connection with the purchase of the offered certificates:
Risk of Loss
The return on your Losses on the mortgage loans may occur due to a
certificates may be wide variety of causes, including a decline in
affected by losses real estate values, and adverse changes in the
on the mortgage borrower's financial condition. A decline in
loans, which could real estate values or economic conditions
occur due to a nationally or in the regions where the
variety of causes, mortgaged properties are located may increase
and are more likely the risk of losses on the mortgage loans.
because a [Special risks for specific loan types, such as
significant number negative amortization or escalating payments,
of mortgage loans will be disclosed if material to an individual
are secured by offering.]
junior liens on the
mortgaged property. [______% of the mortgage loans included in the
mortgage loan pool are secured by second
mortgages or deeds of trust. Proceeds from
liquidation of the property will be available
to satisfy the mortgage loans only if the
claims of any senior mortgages have been
satisfied in full. When it is uneconomical to
foreclose on the mortgaged property or engage
in other loss mitigation procedures, the
servicer may write off the entire outstanding
balance of the mortgage loan as a bad debt. The
foregoing risks are particularly applicable to
mortgage loans secured by second liens that
have high combined loan-to-value ratios or low
junior ratios because it is comparatively more
likely that the servicer would determine
foreclosure to be uneconomical. As of the
cut-off date, the weighted average combined
loan-to-value ratio of the mortgage loans is
______%, and approximately ______% of the
mortgage loans will have combined loan-to-value
ratios in excess of ______%.]
[The underwriting [The underwriting standards under which the
standards for the junior mortgage loans were underwritten are
junior mortgage analogous to credit lending, rather than
loans create mortgage lending, since underwriting decisions
greater risks to were based primarily on the borrower's credit
you, compared to history and capacity to repay rather than on
those for first the value of the collateral upon foreclosure.
lien loans.] The underwriting standards allow loans to be
S-8
<PAGE>
approved with combined loan-to-value ratios of
up to 125%. See "Description of the Mortgage
Pool--Underwriting Standards" in this prospectus
supplement. Because of the relatively high combined
loan-to-value ratios of the mortgage loans and the
fact that a significant number of the mortgage loans
are secured by junior liens, losses on the mortgage loans
will likely be higher than on traditional first
lien mortgage loans.]
[Origination [[ ]% of the mortgage loans included in
disclosure the mortgage pool are subject to special rules,
practices for the disclosure requirements and other regulatory
mortgage loans provisions because they are high cost loans.
could create Purchasers or assignees of these high cost
liabilities that loans, could be exposed to all claims and
may affect the defenses that the mortgagors could assert
return on your against the originators of the mortgage loans.
certificates.] Remedies available to the mortgagor include
monetary penalties, as well as recission rights
if the appropriate disclosures were not given as
required. See "Certain Legal Aspects of the
Mortgage Loans and Contracts--The Mortgage Loans--
Anti-Deficiency Legislation and Other Limitations on
Lenders" in the prospectus].
The return on your One risk of investing in mortgage-backed
certificates may be securities is created by any concentration of
particularly the related properties in one or more
sensitive to geographic regions. Approximately __% of
changes in real the cut-off date principal balance of the
estate markets in mortgage loans are located in [California]. If
specific areas. the regional economy or housing market weakens
in [California], or in any other region having
a significant concentration of properties
underlying the mortgage loans, the mortgage
loans in that region may experience high rates
of loss and delinquency, resulting in losses to
Class A Certificateholders. A region's
economic condition and housing market may be
adversely affected by a variety of events,
including natural disasters such as
earthquakes, hurricanes, floods and eruptions,
and civil disturbances, including riots.
[Concentrations material to an individual
offering will be disclosed.]
Some of the Approximately ___% of the mortgage loans (based
mortgage loans on principal balances) are not fully amortizing
provide for large over their terms to maturity and, thus, will
payments at require substantial principal payments (i.e., a
maturity. balloon amount) at their stated maturity.
Mortgage loans which require payment of a balloon amount
involve a greater degree of risk because the ability of a
mortgagor to pay a balloon amount typically will depend
upon the mortgagor's ability either to timely refinance the
loan or to sell the related mortgaged property.
See "Description of the Mortgage Pool" in this prospectus
supplement.
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<PAGE>
The return on your The only credit enhancement for the Class A
certificates will Certificates will be:
be reduced if o the excess interest payments on the
losses exceed the mortgage loans;
credit enhancement o overcollateralization represented by the
available to your excess of the balance of the mortgage loans
certificates. over the balance of the Class A
Certificates; and
[o a financial guaranty insurance policy
issued by ____________.]
The return on your Mortgage loans similar to those included in the
certificates may be mortgage loan pool have been originated for a
reduced in an limited period of time. During this time,
economic downturn. economic conditions nationally and in most
regions of the country have been generally
favorable. However, a deterioration in
economic conditions could adversely affect the
ability and willingness of mortgagors to repay
their loans. No prediction can be made as to
the effect of an economic downturn on the rate
of delinquencies and losses on the mortgage
loans.
[The reloading of [With respect to mortgage loans which were used
debt could increase for debt consolidation, there can be no
your risk.] assurance that the borrower will not incur
further debt. This reloading of debt could
impair the ability of borrowers to service
their debts, which in turn could result in
higher rates of delinquency and loss on the
mortgage loans.]
The value of your If the performance of the mortgage loans is
certificates may be substantially worse than assumed by the rating
reduced if losses agencies, the ratings of any class of the
are higher than certificates may be lowered in the future.
expected This would probably reduce the value of those
certificates. Neither the depositor, the
servicer nor any other entity will have any
obligation to supplement any credit
enhancement, or to take any other action to
maintain any rating of the certificates.
See "Summary-Credit Enhancement" and
"Description of the Certificates-Allocation of
Losses; Subordination" in this prospectus
supplement.
Adverse The trust could become liable for an
environmental environmental condition at a mortgaged
conditions on the property. Any potential liability could reduce
mortgaged or delay payments to certificateholders.
property may
reduce or delay "Phase I" environmental assessments have been
your payments performed on all but [ ] of the mortgaged
properties, which constitutes [ ]% of the initial pool
balance. None of the environmental assessments revealed
material adverse environmental conditions or circumstances
affecting any mortgaged property, except those cases:
o in which the adverse conditions were
remediated or abated before the date of
issuance of the certificates;
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<PAGE>
o in which an operations and maintenance
plan or periodic monitoring of the mortgaged
property or nearby properties was
recommended;
o involving a leaking underground storage tank or
groundwater contamination at a nearby property that had
not yet materially affected the mortgaged property and
for which a responsible party either has been identified
under applicable law or was then conducting remediation
of the related condition;
o in which groundwater, soil or other contamination was
identified or suspected, and an escrow reserve,
indemnity, environmental insurance or other collateral
was provided to cover the estimated costs of continued
monitoring, investigation, testing or remediation;
o involving radon; or
o in which the related borrower has agreed to seek a "case
closed" status for the issue from the applicable
governmental agency.
Some of the mortgage loans carry environmental insurance
which may provide coverage in an amount equal to all or a
portion of the principal amount of the loan or an amount
necessary to provide for certain remediation expenses.
There can be no assurance, however, that should such
coverage be needed, coverage would be available or
uncontested, that the terms and conditions of such coverage
would be met, that coverage would be sufficient for the
claims at issue or that coverage would not be subject to
certain deductibles.
To decrease the likelihood of environmental liability
against the trust, the servicer is required to obtain a
satisfactory environmental site assessment of a mortgaged
property and see that any required remedial action is taken
before acquiring title or assuming its operation.
See "Description of the Mortgage Pool--Underwriting
Standards--Environmental Assessments" in this prospectus
supplement and "Description of the
Certificates--Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage Loans," "Risk
Factors--Environmental conditions may subject the mortgaged
property to liens or impose costs on the property owner"
and "Certain Legal Aspects of the Mortgage Loans and
Contracts--Environmental Legislation" in the prospectus.
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<PAGE>
Loss Mitigation
Practices
The release of a [The servicer may use a wide variety of
lien may increase practices to limit losses on the mortgage
your risk. loans. The pooling and servicing agreement
permits the servicer to release the lien
on a limited number of mortgaged properties securing
the mortgage loans, if the mortgage loan is current in
payment. See "Pooling and Servicing Agreement--
Refinancing of Senior Lien" and "--Collection and
Liquidation Practices; Loss Mitigation"
in this prospectus supplement.]
Limited Obligations
Payments on the The certificates represent interests only in
mortgage loans, the Mortgage-Backed Pass-Through Certificates,
together with the Series 200_-___ Trust. Credit enhancement
financial guaranty includes overcollateralization, excess
insurance policy, interest, [and a financial guaranty insurance
are the primary policy]. The certificates do not represent an
source of payments interest in or obligation of the depositor, the
on your servicer or any of their affiliates. None of
certificates. the depositor, the servicer or any of their
affiliates will have any obligation to replace or
supplement the credit enhancement, or to take any other
action to maintain any rating of the certificates. If
proceeds from the assets of the Mortgage-Backed
Pass-Through Certificates, Series 200_-___ Trust are not
sufficient to make all payments provided for under the
pooling and servicing agreement, investors will have no
recourse to the depositor, the servicer or any of its
affiliates.
Liquidity Risks
You may have to A secondary market for your certificates may
hold your not develop. Even if a secondary market does
certificates to develop, it may not continue or it may be
maturity if their illiquid. Neither the underwriter nor any
marketability is other person will have any obligation to make a
limited. secondary market in your certificates.
Illiquidity means you may not be able to find a buyer to
buy your securities readily or at prices that will enable
you to realize a desired yield. Illiquidity can have a
severe adverse effect on the market value of your
certificates.
Any class of offered certificates may experience
illiquidity, although typically illiquidity is more likely
for classes that are especially sensitive to prepayment,
credit or interest rate risk, or that have been structured
to meet the investment requirements of limited categories
of investors.
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<PAGE>
Special Yield and
Prepayment
Considerations
The yield to The yield to maturity on each class of offered
maturity on your certificates will depend on a variety of
certificates will factors, including:
vary depending on
the rate of o the rate and timing of principal payments
prepayments. on the mortgage loans, including
prepayments, defaults and liquidations, and
repurchases due to breaches of
representations or warranties;
o the pass-through rate for that class;
o interest shortfalls due to mortgagor
prepayments; and
o the purchase price of that class.
In general, if you purchase a certificate at a price higher
than its outstanding principal balance and principal
distributions on your certificate occur faster than you
assumed at the time of purchase, your yield will be lower
than you anticipated. Conversely, if you purchase a
certificate at a price lower than its outstanding principal
balance and principal distributions on that class occur
more slowly than you assumed at the time of purchase, your
yield will be lower than you anticipated.
The rate of Because mortgagors can typically prepay their
prepayments on the mortgage loans at any time, the rate and timing
mortgage loans will of principal distributions on the offered
vary depending on certificates are highly uncertain. Typically,
future market when market interest rates increase, borrowers
conditions, and are less likely to prepay their mortgage
other factors. loans. This could result in a slower return of
principal to you at a time when you might have
been able to reinvest your funds at a higher
rate of interest than the pass-through rate on
your class of certificates. On the other hand,
when market interest rates decrease, borrowers
are typically more likely to prepay their
mortgage loans. This could result in a faster
return of principal to you at a time when you
might not be able to reinvest your funds at an
interest rate as high as the pass-through rate
on your class of certificates.
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<PAGE>
[Approximately ___% of the mortgage loans permit the
mortgagor to convert the adjustable rate on the mortgage
loan to a fixed rate. Upon the conversion, the subservicer
or the servicer will repurchase the mortgage loan, which
will have the same effect as a prepayment in full.
Mortgagors may be more likely to exercise their conversion
options when interest rates are rising. As a result, the
certificates may receive greater prepayments at a time when
prepayments would not normally be expected.]
See "Maturity and Prepayment Considerations" in
the prospectus.
[______% of the mortgage loans provide for payment of a
prepayment charge. Prepayment charges may reduce the rate
of prepayment on the mortgage loans until the end of the
period during which such prepayment charges apply. See
"Description of the Mortgage Pool--Mortgage Pool
Characteristics" in this prospectus supplement and
"Maturity and Prepayment Considerations" in the
prospectus.]
The yield on your The offered certificates of each class have
certificates will different yield considerations and different
be affected by the sensitivities to the rate and timing of
specific principal distributions. The following is a
characteristics general discussion of yield considerations and
that apply to that prepayment sensitivities of each class.
class, discussed
below. See "Certain Yield and Prepayment
Considerations" in this prospectus supplement.
Class A The Class A Certificates are subject to various
Certificates priorities for payment of principal.
Distributions of principal on the Class A
Certificates with an earlier priority of
payment will be affected by the rates of
prepayment of the mortgage loans early in the
life of the mortgage pool. Those classes of
Class A Certificates with a later priority of
payment will be affected by the rates of
prepayment of the mortgage loans experienced
both before and after the commencement of
principal distributions on those classes.
See "Description of the Certificates--Principal
Distributions on the Class A Certificates" in this
prospectus supplement.
[Class A-1 The interest rate on the Class A-1 Certificates
Certificates will vary with One-Month LIBOR. Therefore,
the yield to investors on the Class A-1 Certificates will
be sensitive to fluctuations in the level of LIBOR.
Investors should consider whether this volatility is
suitable to their investment needs.]
The Class A-1 Certificates may not always receive interest
at a rate equal to One-Month LIBOR plus the applicable
margin. If the weighted average of the net mortgage rates
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<PAGE>
on the mortgage loans is less than One-Month LIBOR plus the
applicable margin, the interest rate on the Class A-1
Certificates will be reduced to that weighted average rate.
Thus, the yield to investors in the Class A-1 Certificates
will be sensitive to fluctuations in the level of One-Month
LIBOR and may be adversely affected by the application of
the weighted average net mortgage rate on the related
mortgage loans . The prepayment of the mortgage loans with
higher net mortgage rates may result in a lower weighted
average net mortgage rate. If on any distribution date the
application of the weighted average net mortgage rate
results in an interest payment lower than One-Month LIBOR
plus the applicable margin on the Class A-1 Certificates
during the related interest accrual period, the value of
those certificates may be temporarily or permanently
reduced. In a rising interest rate environment, the Class
A-1 Certificates may receive interest at the weighted
average net mortgage rate for a protracted period of time.
In addition, in such a situation, there would be less
excess interest payments on the mortgage loans to cover
losses and to create additional overcollateralization.
[Class A-3 It is not expected that the Class A-3
Certificates Certificates will receive any distributions of
principal until the distribution date _______________ in
_______________, Until the distribution date in , the Class
A-3 Certificates may receive a portion of principal
prepayments that is smaller than its pro rata share of
principal prepayments.]
[Risks Particular
to Multifamily
Properties:]
[Reductions in [ ] mortgaged properties, securing mortgage
occupancy and loans that represent [ ]% of the initial pool
rent levels on balance, are multifamily rental properties. A
multifamily decrease in occupancy or rent levels could
properties could result in realized losses on the mortgage
adversely affect loans. Occupancy and rent levels on multifamily
their value and properties may be adversely affected by:
cash flow
o local, regional or national economic conditions, which
may limit the amount of rent that can be charged for
rental units or result in a reduction in timely rent
payments;
o construction of additional housing units
in the same market;
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<PAGE>
o local military base or
industrial/business closings;
o developments at local colleges and
universities;
o national, regional and local politics,
including current or future rent
stabilization and rent control laws and
agreements;
o trends in the senior housing market;
o the level of mortgage interest rates,
which may encourage tenants in multifamily
rental properties to purchase housing; and
o lack of amenities, unattractive physical
attributes or bad reputation of the
mortgaged property.]
[Student housing [ ] of the mortgaged properties, securing
concentrations mortgage loans that represent [ ]% of the
may affect cash initial pool balance, are student housing or
flow of a have high concentrations of student tenants. In
multifamily addition to other multifamily real estate
property risks, student housing risks include:
o increased influence of economic, social, governmental
and demographic factors as they relate to the number of
students attending colleges and universities in need of
student housing;
o reliance upon the well-being of the
colleges or universities to which the
facilities relate;
o student housing facilities are subject to competition
from colleges and universities as well as other
providers of student housing and physical layouts may
not be readily convertible to traditional multifamily
use;
o maintenance and insurance costs of
student housing can exceed the typical costs
of other multifamily housing;
o tenants or sub-tenants are individuals
who often have little or no credit history,
may not have parental guarantees and are not
tied to the local community; and
o turnover of tenants or sub-tenants can be significant
and student housing is less utilized or subject to
reduced rents during summer months.
[ ] mortgaged properties, consisting principally of student
housing, securing mortgage loans that represent [ ]% of the
initial pool balance are primarily leased to one tenant,
which increases the adverse effect of a tenant default or
lease termination.
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<PAGE>
See "Description of the Mortgage
Pool--Significant Mortgage Loans--[ ]" in this prospectus
supplement and "--Losses may be caused by tenant credit
risk on the mortgage loans" below.]
[Restrictions Tax credit, and city, state and federal housing
imposed on subsidies or similar programs may apply to
multifamily multifamily properties. The limitations and
properties by restrictions imposed by these programs could
government result in realized losses on the mortgage loans
programs could that may be allocated to your class of
also adversely certificates. These programs may include:
affect their
value and cash o rent limitations that could adversely
flow affect the ability of borrowers to increase
rents to maintain the condition of their
mortgaged properties and satisfy operating
expenses; and
o tenant income restrictions that may reduce the number of
eligible tenants in those mortgaged properties and
result in a reduction in occupancy rates.
The differences in rents between subsidized or supported
properties and other multifamily rental properties in the
same area may not be a sufficient economic incentive for
some eligible tenants to reside at a subsidized or
supported property that may have fewer amenities or be less
attractive as a residence.]
[Risks Particular
to Office
Properties:]
[Economic decline [ ] mortgaged properties, securing mortgage
in tenant loans that represent [ ]% of the initial pool
businesses or balance, are office properties.
changes in
demographic Economic decline in the businesses operated by
conditions could the tenants of office properties may increase
adversely affect the likelihood that a tenant may be unable to
the value and pay its rent, which could result in realized
cash flow from losses on the mortgage loans. A number of
office properties economic and demographic factors may adversely
affect the value of office properties,
including:
o the quality of the tenants in the
building;
o the physical attributes of the building
in relation to competing buildings;
o access to transportation;
o the availability of tax benefits;
o the strength and stability of businesses
operated by the tenant or tenants;
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<PAGE>
o the desirability of the location for
business; and
o the cost of refitting office space for a new tenant,
which is often significantly higher than the cost of
refitting other types of properties for new tenants.
These risks may be increased if revenue depends on a single
tenant, if the property is owner-occupied or if there is a
significant concentration of tenants in a particular
business or industry. [ ] of the mortgaged properties
representing [ ]% of the initial pool balance are secured
by single tenant office properties. For a description of
risk factors relating to single tenant properties, see
"--Losses may be caused by tenant credit risk on the
mortgage loans" below.]
[Competition with Competition from other office properties in the
other office same market could decrease occupancy or rental
properties could rates at office properties. Decreased occupancy
also adversely could result in realized losses on the mortgage
affect the value loans. Competition is affected by a property's
and cash flow age, condition, design, such as floor sizes and
from office layout, location, access to transportation and
properties ability to offer amenities to its tenants,
including sophisticated building systems, such as fiber
optic cables, satellite communications or other base
building technological features.]
[Risks Particular
to Retail
Properties:]
[A significant [ ] mortgaged properties, securing mortgage
tenant ceasing to loans that represent [ ]% of the initial pool
operate at a balance, are retail properties.
retail property
could adversely A significant tenant ceasing to do business at
affect its value a retail property could result in realized
and cash flow losses on the mortgage loans. The loss of a
significant tenant may be the result of the tenant's
voluntary decision not to renew a lease or to terminate it
in accordance with its terms, the bankruptcy or insolvency
of the tenant, the tenant's general cessation of business
activities or for other reasons. There is no guarantee that
any tenants will continue to occupy space in the related
retail property.
Some component of the total rent paid by retail tenants may
be tied to a percentage of gross sales. As a result, the
correlation between the success of tenant businesses and
property value is more direct for retail properties than
other types of commercial property. Significant tenants or
anchor tenants at a retail property play an important part
in generating customer traffic and making a retail property
a desirable location for other tenants at that property.
Some tenants at retail properties may be entitled to
terminate their leases or pay
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reduced rent if an anchor tenant ceases operations at that
property. If anchor stores in a mortgaged property were to
close, the borrower may be unable to replace those anchor
tenants in a timely manner on similar terms, and customer
traffic may be reduced, possibly impacting sales at the
remaining retail tenants. A retail "anchor tenant" is
typically understood to be a tenant that is larger in size
and is important in attracting customers to a retail
property, whether or not it is located on the mortgaged
property.
These risks may be increased when the property is a single
tenant property. [ ] of the mortgaged properties
representing [ ]% of the initial pool balance are single
tenant retail properties. For a description of risk factors
relating to single tenant properties, see "--Losses may be
caused by tenant credit risk on the mortgage loans" below.]
[Retail Changes in consumer preferences and market
properties are demographics may adversely affect the value and
vulnerable to cash flow from retail properties, particularly
changes in properties with a specialty retail focus. You
consumer may experience losses on the certificates due
preferences to these changes. Retail properties are
particularly vulnerable to changes in consumer
preferences and market demographics that may
relate to:
o changes in consumer spending patterns;
o local competitive conditions, such as an
increased supply of retail space or the
construction of other shopping centers;
o the attractiveness of the properties and
the surrounding neighborhood to tenants and
their customers;
o the public perception of the safety of
the neighborhood; and
o the need to make major repairs or
improvements to satisfy major tenants.]
[Competition from Retail properties face competition from sources
alternative outside their local real estate market.
retail Catalogue retailers, home shopping networks,
distribution the internet, telemarketing and outlet centers
channels may all compete with more traditional retail
adversely affect properties for consumer dollars. These
the value and alternative retail outlets are often
cash flow from characterized by lower operating costs.
retail properties Continued growth of these alternative retail
outlets could adversely affect the rents collectible at the
retail properties which secure mortgage loans in the trust
and result in realized losses on the mortgage loans.]
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[Risks Particular
to Industrial
Properties:]
[Changes in [ ] mortgaged properties, securing mortgage
economic and loans that represent [ ]% of the initial pool
demographic balance, are industrial properties. Economic
conditions could decline in the businesses operated by the
adversely affect tenants of industrial properties could result
the value and in realized losses on the mortgage loans that
cash flow from may be allocated to your class of certificates.
industrial
properties These risks are similar to those of tenants of
office properties. Industrial properties, however, may be
more dependent on a single tenant. [ ] of the mortgaged
properties representing [ ]% of the initial pool balance
are secured by single tenant industrial properties. For a
description of risk factors relating to office properties,
see "--Economic decline in tenant businesses or changes in
demographic conditions could adversely affect the value and
cash flow from office properties," and for a description of
risk factors relating to single tenant properties, see
"--Losses may be caused by tenant credit risk on the
mortgage loans" below.]
[Restrictions Site characteristics at industrial properties
imposed by site may impose restrictions that could cause
characteristics realized losses on the mortgage loans that may
could also be allocated to your class of certificates.
adversely affect Site characteristics which affect the value of
the value and an industrial property include:
cash flow from
industrial o clear heights;
properties
o column spacing;
o number of bays and bay depths;
o truck turning radius;
o divisibility;
o zoning restrictions; and
o overall functionality and accessibility.
An industrial property requires availability of labor
sources, proximity to supply sources and customers, and
accessibility to rail lines, major roadways and other
distribution channels.]
[Restrictions Properties used for many industrial purposes
imposed by are more prone to environmental concerns than
increased other property types. For a description of risk
environmental factors relating to environmental risks, see
risks could also "--Adverse environmental conditions on the
adversely affect mortgaged property may reduce or delay your
the value and payments" above.]
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cash flow from
industrial
properties
[Risks Particular
to Hospitality
Properties:]
[Reductions in [ ] mortgaged properties, securing mortgage
room rates or loans that represent [ ]% of the initial pool
occupancy at a balance, are hospitality properties. A decrease
hospitality in room rates or occupancy at hospitality
property could properties could result in realized losses on
adversely affect the mortgage loans that may be allocated to
its value and your class of certificates. Room rates and
cash flow occupancy levels may depend upon the following
factors.
o The proximity of a hospitality property to major
population centers or attractions.
o Adverse local, regional or national economic conditions
or the construction of competing hospitality properties.
Because hospitality property rooms typically are rented
for short periods of time, the performance of
hospitality properties tends to be affected by adverse
economic conditions and competition more quickly than
other commercial properties.
o A hospitality property's ability to attract customers
and a portion of its revenues may depend on its having a
liquor license. A liquor license may not be transferable
if a foreclosure on the mortgaged property occurs.
o In many parts of the country the hotel and lodging
industry is seasonal in nature. Seasonality will cause
periodic fluctuations in room and other revenues,
occupancy levels, room rates and operating expenses.
o The viability of hospitality properties that are
franchisees of national or regional hotel chains depends
in large part on the continued existence and financial
strength of the franchisor. The public perception of the
franchise service mark and the duration of the franchise
license agreement are also important. If the franchisee
defaults on its debt, the trustee may be unable to use
the franchise license without the consent of the
franchisor due to restrictions on transfers imposed by
the franchise license agreements.]
[Risks Associated
with Tenants
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Generally:]
[Losses may be Cash flow or value of a mortgaged property
caused by tenant could be reduced if tenants are unable to meet
credit risk on their lease obligations or become insolvent.
the mortgage loans The inability of tenants to meet their
obligations may result in realized losses on
the mortgage loans that may be allocated to
your class of certificates.
o If tenant sales in retail properties decline, rents
based on sales will decline. Tenants may be unable to
pay their rent or other occupancy costs as a result of
poor cash flow due to sales declines or the amount of
the gross sales component of rent will be reduced. If a
tenant defaults, the borrower may experience delays and
costs in enforcing the lessor's rights.
o If a tenant were to become insolvent and subject to any
bankruptcy or similar law, the collection of rental
payments could be interrupted and foreclosure on the
mortgaged property made more difficult. See "Certain
Legal Aspects of the Mortgage Loans and
Contracts--Anti-Deficiency Legislation and Other
Limitations on Lenders" in the prospectus.
These risks may be increased when the property is a single
tenant property, is owner-occupied or is leased to
relatively few tenants. [ ]of the mortgaged properties
representing [ ]% of the initial pool balance are secured
by single tenant properties.]
[Losses may be The income from and market value of retail,
caused by the office, multifamily and industrial properties
expiration of or would decline if space leases expired or
tenant defaults terminated, or tenants defaulted and the
on leases borrowers were unable to renew the leases or
relet the space on comparable terms.
If space is not renewed at all or is not renewed on
favorable terms, the trust may experience realized losses on
the mortgage loans that may be allocated to your class of
certificates.
Even if borrowers successfully relet vacated space, the
costs associated with reletting, including tenant
improvements, leasing commissions and free rent, can exceed
the amount of any reserves maintained for that purpose and
reduce cash flow from the mortgaged properties. Although
many of the mortgage loans require the borrower to maintain
escrows for leasing expenses, there is no guarantee that
these reserves will be sufficient.]
[Tenant The bankruptcy or insolvency of a major tenant,
bankruptcy such as an anchor tenant, or a number of
entails risks smaller tenants, may adversely affect the
income produced by a mortgaged property and result in
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<PAGE>
realized losses on the mortgage loans that may be allocated
to your class of certificates. Under the federal bankruptcy
code, a tenant has the option of assuming or rejecting any
unexpired lease. If the tenant rejects the lease, the
landlord's claim for breach of the lease would be a general
unsecured claim against the tenant, unless collateral
secures the claim. The claim would be limited to the unpaid
rent reserved under the lease for the periods before the
bankruptcy petition or earlier surrender of the leased
premises that are unrelated to the rejection, plus the
greater of one year's rent or 15% of the remaining reserved
rent, but not more than three years' rent. Even if
provisions in the lease prohibit assignment, in a
bankruptcy, the tenant may assign the lease to another
entity that could be less creditworthy than the tenant may
have been at the time of origination of the mortgage loan.
See "Certain Legal Aspects of the Mortgage Loans and
Contracts" in the prospectus.]
[Losses may be [Losses may be realized on the mortgage loans
caused by that may be allocated to your class of inadequate.
inadequate certificates if property management is property inadequate.
property The property manager is responsible for the
management following activities:
o responding to changes in the local market;
o planning and implementing the rental
structure, including establishing levels of
rent payments; and
o ensuring that maintenance and capital
improvements are carried out in a timely
fashion.
Sound property management controls costs, provides
appropriate service to tenants and ensures that
improvements are maintained. Sound property management can
also maintain cash flow, reduce vacancy, leasing and repair
costs and preserve building value. Property management
errors can impair the long-term viability of a property.]
[Conflicts of Managers of mortgaged properties and the
interests between borrowers may experience conflicts of
property managers interest in the management or ownership of mortgaged
and owners properties. These conflicts of interest could result in
losses losses result in realized losses on the mortgage loans
that may be allocated to your class of
certificates. These conflicts of interests may
exist because:
o the mortgaged properties may be managed
by property managers affiliated with the
borrowers;
o the mortgaged properties may be managed
by property managers who also manage other
properties that compete with the mortgaged
properties; and
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<PAGE>
o affiliates of the managers or the borrowers, or the
managers or the borrowers or both, may also own other
properties, including competing properties.]
[Limited alternative[ ] mortgaged properties, securing mortgage
uses of other loans that represent approximately [ ]% of the initial
property types pool balance, are "special purpose" properties
affect their that have limited alternative uses. "Special
value and cash
flow
"Special purpose" limitations could result in cash flow
realized losses on the mortgage loans that maybe allocated
to your class of certificates. Mortgage loans
secured by other property types, including mixed use
properties, may pose risks not associated with mortgage
loans secured by liens on other types of income-producing
real estate.]
[Losses may An appraisal was conducted for each mortgaged
result if the property in connection with its origination,
servicer is and the loan-to-value ratios as of the cut-off
unable to sell a date referred to in this prospectus supplement
mortgaged are based on the appraisals. If the servicer
property securing forecloses on a mortgaged property and realizes
a defaulted liquidation proceeds that are less than the
mortgage loan for appraised value, a realized loss on the
its appraised mortgage loan could result that may be
value allocated to your class of certificates.
Appraisals are not guarantees of present or future value.
Appraisals seek to establish the amount a typically
motivated buyer would pay a typically motivated seller as
of a designated date. This amount could be significantly
higher than the amount obtained from the sale of a
mortgaged property under a distress or liquidation sale at
a subsequent date. If a borrower defaults on a mortgage
loan, the servicer may be unable to sell the related
mortgaged property for its appraised value.
Appraisals are estimates of value at the time of the
appraisal based on the analysis and opinion of the
appraiser. The values of the mortgaged properties may have
changed significantly since the appraisal was performed.
Most appraisals have not been updated since the mortgage
loan was originated.]
[Subordinate [ ] of the mortgaged properties securing [ ]%
financing on the of the initial pool balance are encumbered by
mortgaged subordinate debt that is not part of the
property may mortgage pool. The existence of subordinate
increase risks indebtedness may adversely affect the
borrower's financial viability or the enforcement of its
lender's security interest in the mortgaged property and
result in realized losses on the mortgage loans that may be
allocated to your class of certificates. The borrower's
financial viability or the enforcement of the lender's
security interest could be adversely affected by
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<PAGE>
subordinate financing because:
o refinancing the mortgage loan at maturity
for the purpose of making any balloon
payments may be more difficult;
o reduced cash flow could result in
deferred maintenance; and
o if the borrower defaults after the holder of the
subordinated debt files for bankruptcy or is placed in
involuntary receivership, foreclosing on the mortgaged
property could be delayed.
The holder of any material subordinate debt on each of the
mortgaged properties has agreed not to foreclose for so
long as the mortgage loan is outstanding and the trust is
not pursuing a foreclosure action. All of the mortgage
loans either prohibit the borrower from encumbering the
mortgaged property with additional secured debt or require
the consent of the holder of the first lien before so
encumbering the mortgaged property. A violation of this
prohibition, however, may not become evident until the
mortgage loan otherwise defaults. For a description of
subordinate debt relating to the mortgaged properties, see
"Description of the Mortgage Pool--Secured Subordinate
Financing" in this prospectus supplement.]
[Mezzanine debt The direct parents of some borrowers have pledged
secured by equity or are permitted to pledge their equity interest
in the borrower in the borrower to secure mezzanine debt incurred by
may increase risk the parent or other obligations. The existence of this
indebtedness could adversely affect the financial viability
of such borrower or the availability of proceeds from the
operation of the property to fund items such as
replacements, tenant improvements or other capital
expenditures. The value of the equity in the borrower held
by the sponsoring entities of the borrower could also be
adversely affected by the existence of mezzanine
indebtedness or other obligations. There is a risk that any
holder of mezzanine debt may attempt to use its rights as
owner of the mezzanine loan to protect itself against an
exercise of rights by the lender under the mortgage loan.
For a description of mezzanine debt relating to the
mortgaged properties see "Description of the Mortgage
Pool--Unsecured Subordinate and Mezzanine Financing" in this
prospectus supplement.]
[Related Borrowers Some borrowers under the mortgage loans are
may make losses affiliated or under common control with one
on the mortgage another. When borrowers are related, any
loans more severe adverse circumstances relating to one borrower
or its affiliates, and affecting one mortgage
loan or mortgaged property, also can affect the related
borrower's mortgage loans or mortgaged properties which
could make losses more likely or more severe or both than
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<PAGE>
would be the case if there were no related borrowers.
For example, a borrower that owns or controls several
mortgaged properties and experiences financial difficulty
at one mortgaged property might defer maintenance at one or
more other mortgaged properties to satisfy current expenses
of the mortgaged property experiencing financial
difficulty. Alternatively, the borrower could attempt to
avert foreclosure by filing a bankruptcy petition. The
bankruptcy or insolvency of one borrower or its affiliate
could have an adverse effect on the operation of all of the
mortgaged properties of that borrower and its affiliates
and on the ability of those mortgaged properties to produce
sufficient cash flow to make required payments on the
mortgage loans. The insufficiency of cash flows could
result in realized losses on the mortgage loans that may be
allocated to your class of certificates. See "Certain Legal
Aspects of the Mortgage Loans and
Contracts--Anti-Deficiency Legislation and Other
Limitations on Lenders" in the prospectus.]
[Larger-than- Several mortgage loans, either individually or
average balance together with other mortgage loans with which they
loans may make cross-collateralized, have outstanding severe balances
losses more severe that are substantially higher than the average
outstanding balance. If a mortgage pool includes
mortgage loans with larger-than-average balances, any
realized losses on the mortgage loans with
larger-than-average balances could be more severe, relative
to the size of the pool, than would be the case if the
aggregate balance of the pool were distributed among a
larger number of mortgage loans.]
[Losses could [ ] mortgage loans, representing [ ]% of the
result from initial pool balance, are cross-collateralized
limitation on with one or more other mortgage loans.
enforceability of Cross-collateralization arrangements involving
cross-collateraliza-more than one borrower could be challenged as a
tion fraudulent conveyance by creditors of a borrower or by the
representative or the bankruptcy estate of a borrower, if
that borrower were to become a debtor in a bankruptcy case.
The additional security provided by cross-collateralization
would not be available if a court determines that the grant
was a fraudulent conveyance. If a creditor were to
successfully assert a fraudulent conveyance claim it could
result in realized losses on the mortgage loans that may be
allocated to your class of certificates. See "Certain Legal
Aspects of the Mortgage Loans and
Contracts--Anti-Deficiency Legislation and Other
Limitations on Lenders" in the prospectus and "Description
of the Mortgage Pool--Terms and Conditions of the Mortgage
Loans--Related Borrowers, Cross-Collateralized Mortgage
Loans and Mortgage Loans Collateralized
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<PAGE>
by Multiple Properties" in this prospectus supplement.]
[Tax considerations [Payment of taxes on any net income from "foreclosure
related to property" acquired by the trust will reduce the net proceeds
foreclosure available for distribution to certificateholders. If the
may reduce payments trust acquires a mortgaged property after a default on the
to certificate- related mortgage loan under a foreclosure or delivery of a
holders deed in lieu of foreclosure, that property will be
considered "foreclosure property" under the tax rules
applicable to real estate mortgage investment conduits.
It will continue to be considered "foreclosure
property" for a period of three full years after
the taxable year of acquisition by the
trust, with possible extensions. Any net income from this
"foreclosure property," other than qualifying "rents from
real property," will subject the real estate mortgage
investment conduit containing the mortgage loans to federal
and possibly state or local tax on that income at the
highest marginal corporate tax rate.]
[State law Some jurisdictions, including California, have
limitations on laws that prohibit more than one "judicial
remedies action" to enforce a mortgage, and some courts
have viewed the term "judicial action" broadly. The pooling
and servicing agreement will require the servicer and any
replacement special servicer to obtain legal advice before
enforcing any rights under the mortgage loans that relate
to properties where the rule could be applicable. In
addition, the servicer and any replacement special servicer
may be required to foreclose on properties in states where
the "one action" rules apply before foreclosing on
properties located in states where judicial foreclosure is
the only permitted method of foreclosure.
Because of these considerations, the ability of the
servicer and any replacement special servicer to foreclose
on the mortgage loans may be limited by the application of
state laws. Actions could also subject the trust to
liability as a "mortgagee-in-possession" or result in
equitable subordination of the claims of the trustee to the
claims of other creditors of the borrower. The servicer
will be required to consider these factors in deciding what
alternative to pursue after a default.]
[Bankruptcy rules [Operation of the federal bankruptcy code and the related
may limit the state laws may interfere with the ability of a lender to
ability of a foreclose upon a lender mortgaged property and to take other
lender to enforce actions to enforce its remedies against the borrower or
remedies the mortgaged property. For a description of
risks related to bankruptcy, see "Certain Legal
Aspects of the Mortgage Loans and Contracts--Anti-Deficiency
Legislation and Other Limitations on Lenders" in
the prospectus.]
[Increases in [ ] mortgaged properties securing mortgage
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<PAGE>
ground rents may loans, which represent [ ]% of the initial
adversely affect pool balance, are subject solely to the lien of
a borrower's a mortgage on the applicable borrower's
ability to make leasehold interest under a ground lease. [ ]
payments under a mortgaged properties securing mortgage loans,
related mortgage which represent [ ]% of the initial pool
loan and cause balance, are subject to the lien of either a
realized losses mortgage on both the borrower's leasehold
on the mortgage interest and the ground lessor's fee simple
loans interest in the mortgaged property or a
mortgage on the borrower's leasehold interest in a portion
of the mortgaged property and the borrower's fee simple
interest in the remaining portion of the mortgaged
property.
Mortgage loans secured by leasehold interests may provide
for the resetting of ground lease rents based on factors
such as the fair market value of the related mortgaged
property or prevailing interest rates. Bankruptcy rules may
limit the ability of a lender to enforce remedies.
The bankruptcy of a lessor or a lessee under a ground lease
could result in losses on the mortgage loans. Upon
bankruptcy of a lessor or a lessee under a ground lease,
the debtor entity has the right to assume and continue or
reject and terminate the ground lease. Section 365(h) of
the federal bankruptcy code permits a ground lessee whose
ground lease is rejected by a debtor ground lessor to
remain in possession of its leased premises under the rent
reserved in the lease for the term, including renewals of
the ground lease. The ground lessee, however, is not
entitled to enforce the obligation of the ground lessor to
provide any services required under the ground lease. If a
ground lessee/borrower in bankruptcy rejected any or all of
its ground leases, the leasehold mortgagee would have the
right to succeed to the ground lessee/borrower's position
under the lease only if the ground lessor had specifically
granted the mortgagee that right. If the ground lessor and
the ground lessee/borrower are involved in concurrent
bankruptcy proceedings, the trustee may be unable to
enforce the bankrupt ground lessee/borrower's obligation to
refuse to treat a ground lease rejected by a bankrupt
ground lessor as terminated. If this happened, a ground
lease could be terminated notwithstanding lender protection
provisions contained therein or in the mortgage. If the
borrower's leasehold were to be terminated after a lease
default, the leasehold mortgagee would lose its security.
Each of the ground leases related to the mortgage loans,
however, generally contains the following protections to
mitigate this risk:
o It requires the lessor to give the leasehold mortgagee
notice of lessee defaults and an opportunity to cure
them.
o It permits the leasehold estate to be assigned to and by
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the leasehold mortgagee at and after a foreclosure sale.
o It contains certain other protective provisions
typically included in a "mortgageable" ground lease.
See "Description of the Mortgage Pool--Ground Leases" in
this prospectus supplement.]
[Your payments Noncompliance with zoning and building codes
may be reduced or may cause the borrower to experience cash flow
delayed if zoning delays and shortfalls. These delays or
and building code shortfalls in payments could result in realized
noncompliance on losses in the mortgage loans that may be
the mortgaged allocated to your class of certificates.
properties
adversely affects Each seller has taken steps to establish that
the ability of the use and operation of the related mortgaged
borrowers to make properties securing the mortgage loans are in
payments on the compliance in all material respects with all
mortgage loans applicable zoning, land-use, building, fire and
health ordinances, rules, regulations, and orders. Evidence
of this compliance may be in the form of legal opinions,
certifications from government officials, title policy
endorsements or representations by the related borrower in
the related mortgage loan documents. These steps may not
have revealed all possible violations. Some violations may
exist at any particular mortgaged property, but the seller
does not consider those defects known to it to be material.
In many cases, the use, operation or structure of a
mortgaged property constitutes a permitted nonconforming
use or structure that may not be rebuilt to its current
state if a material casualty event occurs. Generally,
insurance proceeds will be available in the event of a
casualty affecting the mortgaged property. The insurance
proceeds will be available to rebuild the mortgaged
property or for application to the mortgage loan. If a
mortgaged property could not be rebuilt to its current
state or its current use were no longer permitted due to
building violations or changes in zoning or other
regulations, then the borrower might experience cash flow
delays and shortfalls as referred to above.]
[Changes in As the mortgage loans are repaid, liquidated or
concentrations of repurchased, the characteristics of the pool
borrowers, may vary. For example, the relative
mortgage loans or concentrations of properties, geographic
property location, property characteristics, and number
characteristics of borrowers and affiliated borrowers may
may increase the change. Classes that have a lower priority for
likelihood of payment of principal are more likely to be
losses on the exposed to risks associated with any of these
certificates changes.]
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[Compliance with If the borrower were required to pay expenses
the Americans and fines imposed by the Americans with
with Disabilities Disabilities Act of 1990, the amount available
Act may reduce to make payments on the mortgage loan would be
payments to reduced. Reductions in funds available to make
certificateholders mortgage loan payments could result in realized
losses on the mortgage loans that may be allocated to your
class of certificates. Under the Americans with
Disabilities Act, all public accommodations are required to
meet federal requirements related to access and use by
disabled persons. If the mortgaged properties do not comply
with this law, the borrowers may be required to incur costs
of compliance. Noncompliance could result in the imposition
of fines by the federal government or an award of damages
to private litigants.]
[Litigation may Legal proceedings may be pending and, from
reduce payments to time to time, threatened, against the
certificates borrowers and their affiliates relating to the business
of the borrowers and their affiliates, or arising
out of the ordinary course of that business.
This litigation could have a material adverse
effect on the distributions to
certificateholders.]
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INTRODUCTION
The Depositor will establish a trust with respect to Series -__ on the
closing date, under a pooling and servicing agreement among the depositor, the
servicer and the trustee, dated as of the cut-off date. On the closing date, the
depositor will deposit into the trust a pool of mortgage loans that, in the
aggregate, will constitute a mortgage pool, and that will be secured by first or
junior liens on one-to four-family residential properties.
Some capitalized terms used in this prospectus supplement have the
meanings given below under "Description of the Certificates--Glossary of Terms"
or in the prospectus under "Glossary."
DESCRIPTION OF THE MORTGAGE POOL
General
The mortgage pool will consist of mortgage loans with an aggregate
principal balance outstanding as of the cut-off date, after deducting payments
of principal due on or before the cut-off date, of $ . The mortgage loans are
secured by [first] [and junior liens] on fee simple or leasehold interests in
[one- to four-family residential][commercial][multifamily] real properties.
[___% of the mortgage loans have a due date other than the first day of each
month]. In each case, the property securing the mortgage loan is referred to as
the mortgaged property. [The mortgage pool will consist of [fixed]
[adjustable]-rate mortgage loans with terms to maturity of not more than [ ]
years from the date of origination. [Approximately __% of the mortgage loans are
secured by second liens on the mortgaged properties.] All percentages of the
mortgage loans described in this prospectus supplement are approximate
percentages by aggregate principal balance as of the cut-off date unless
otherwise indicated.
All of the mortgage loans were purchased by the depositor from, and will
be serviced by, [ ]. See "The Seller and Servicer" below.
Under the terms of the pooling and servicing agreement, the Seller will
make representations and warranties with respect to the mortgage loans to the
trustee for the benefit of the certificateholders.
To the extent that the Seller does not repurchase a mortgage loan in the
event of a breach of its representations and warranties with respect to that
mortgage loan, neither the Depositor nor any other person will be required to
repurchase the mortgage loan.
[Balloon Loans
[ ] of the mortgage loans, which represent approximately [ ]% of the
initial pool balance, are balloon loans that provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of those mortgage loans. As a result, a substantial principal
amount will be due and payable together with the corresponding interest payment
on each balloon loan on its maturity date, unless the borrower prepays the
balloon loan before its maturity date.]
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[Defeasance
[ ]% of the mortgage loans secured by commercial properties provide that
after a specified period, if no default exists under the mortgage loan, the
borrower may exercise a defeasance option to obtain the release of one or more
of the mortgaged properties, from the lien of the mortgage upon satisfaction of
conditions, including that the borrower:
(1) pays on any due date
o all interest accrued and unpaid on the principal balance of the
mortgage note to and, including that due date,
o all other sums, excluding scheduled interest or principal
payments not yet due and owing, due under the mortgage loan, and
o any costs and expenses related to the release,
(2) delivers or pledges to the trustee defeasance collateral
o that consists of direct, non-callable obligations of, or
non-callable obligations, fully guaranteed as to timely payment
by, the United States of America; and
o that provides payments:
o on or before all successive scheduled payment dates from that due
date to the related maturity date, and
o in an amount equal to or greater than the scheduled payments due
on those dates under the mortgage loan, or, for
cross-collateralized mortgage loans or mortgage loans secured by
multiple mortgaged properties which permit defeasance, an amount
equal to not less than the portion of the scheduled payments
allocable to the released mortgaged property, and
(3) delivers a security agreement granting the trust a first priority
security interest in the defeasance collateral and an opinion of
counsel to that effect.
The mortgaged property will be released from the lien of the mortgage loan
and the defeasance collateral will be substituted as the collateral securing the
mortgage loan when these conditions are met.]
[Prepayment Provisions
Each mortgage loan prohibits voluntary principal prepayments at any time
except during an open period following the expiration of the lockout period and
defeasance period for that mortgage loan or during a period following the
lockout period when any prepayment must be accompanied by a prepayment premium.
S-32
<PAGE>
Any prepayment premiums actually collected on the mortgage loans will be
distributed to the respective classes of certificateholders in the amounts and
priorities described under "Description of the
Certificates--Distributions--Distributions of Prepayment Premiums" in this
prospectus supplement. The enforceability of provisions similar to the
provisions of the mortgage loans providing for the payment of a prepayment
premium upon an involuntary prepayment is unclear under the laws of a number of
states. The obligation to pay a prepayment premium with an involuntary
prepayment may not be enforceable under applicable law or, if enforceable, the
foreclosure proceeds may not be sufficient to make the payment.
Liquidation proceeds recovered from any defaulted mortgage loan will, in
most cases, be applied to cover outstanding servicing expenses and unpaid
principal and interest before being applied to cover any prepayment premium due.
The depositor makes no representation as to the enforceability of the provision
of any mortgage loan requiring the payment of a prepayment premium or as to the
collectability of any prepayment premium. Generally, no prepayment premium will
be payable upon any mandatory prepayment of a mortgage loan caused by a casualty
or condemnation. See "Certain Legal Aspects of the Mortgage Loans and
Contracts--Default Interest and Limitations on Prepayments" in the prospectus.
In most cases, no prepayment premium will be payable upon any mandatory
prepayment of a mortgage loan caused by a casualty or condemnation. No
prepayment premium will be payable with the repurchase of a mortgage loan by a
seller for a breach of representation or warranty or any failure to deliver any
related documentation on the part of that seller. No prepayment premium will be
payable with the purchase of all of the mortgage loans and any REO properties in
connection with the termination of the trust fund or with the purchase of
defaulted mortgage loans by the servicer or any holder or holders of
certificates evidencing a majority interest in the controlling class.]
[Related Borrowers, Cross-Collateralized Mortgage Loans and Mortgage Loans
Collateralized by Multiple Properties
[ ] mortgage loans, which represent [ ]% of the initial pool balance, are
cross-collateralized mortgage loans among groups of related borrowers. [ ]
mortgage loans, other than the cross-collateralized mortgage loans, which
represent [ ]% of the initial pool balance, are secured by one or more mortgages
encumbering multiple mortgaged properties. Each of these mortgage loans is
evidenced by a separate mortgage note, and is not treated as a set of
cross-collateralized mortgage loans. Because of this, the total number of
mortgage loans in the mortgage pool is [ ], while the total number of mortgaged
properties in the mortgage pool is [ ]. In most cases, we treat a mortgage loan
that is secured by mortgaged properties that are located in more than one state
as an individual mortgage loan, except that when we describe the geographic
concentration and property type distribution of the mortgage pool, we treat
these mortgage loans as multiple mortgage loans that are allocated a cut-off
date balance based on the allocated loan amount. Losses could result from
limitations on the enforceability of cross-collateralization. For a discussion
of risks related to cross-collateralized loans, see "Risk Factors" in this
prospectus supplement.
[insert additional disclosure regarding isolating individual properties
and risks, rights and obligations of the parties in respect of the
cross-collateralized groups, as appropriate]
S-33
<PAGE>
In addition to the cross-collateralized loans and the mortgage loans
secured by multiple mortgaged properties, some sets of mortgage loans were made
to borrowers who are affiliated or under common control with one another. None
of these sets of mortgage loans represents more than [ ]% of the initial pool
balance.]
[Due-on-Sale and Due-on-Encumbrance Provisions
All of the mortgage loans contain both due-on-sale and due-on-encumbrance
clauses. With limited exceptions, these clauses either:
o permit the holder of the mortgage to accelerate the maturity of
the related mortgage loan if the borrower sells or transfers or
encumbers the mortgaged property in violation of the terms of the
mortgage or other loan documents, or
o prohibit the borrower from doing so without the consent of the
holder of the mortgage. See "--Secured Subordinate Financing" in
this prospectus supplement.
Some of the mortgage loans permit either:
o transfer of the related mortgaged property if specified
conditions are satisfied or if the transfer is to a borrower
reasonably acceptable to the lender, or
o transfers to specified parties related to the borrower.
The servicer will determine, in accordance with the servicing standard,
whether to exercise any right the holder of any mortgage may have under a
due-on-sale or due-on-encumbrance clause to accelerate payment of the related
mortgage loan or to withhold its consent to the transfer or encumbrance of the
mortgaged property.]
[Secured Subordinate Financing
[ ] mortgage loans representing [ ]% of the initial pool balance are
secured by mortgaged properties known to be encumbered by subordinated debt that
is not part of the mortgage pool. In all cases, the holder of any material
subordinated debt has agreed not to foreclose for so long as the related
mortgage loan is outstanding and the trust is not pursuing a foreclosure action.
All of the remaining mortgage loans either prohibit the borrower from
encumbering the mortgaged property with additional secured debt or will require
the consent of the trustee before so encumbering the property. See "Risk
Factors--Subordinate financing on the mortgaged property may increase risks" in
this prospectus supplement and "Certain Legal Aspects of the Mortgage Loans and
Contracts--Subordinate Financing" in the prospectus.
The following table indicates those mortgaged properties that are known to
the depositor to be encumbered by secured subordinate debt, the initial
principal amount of the secured subordinate debt and the cut-off date principal
balances of the related mortgage loans.
Secured Subordinate Debt
S-34
<PAGE>
PRINCIPAL
% OF AMOUNT OF
LOAN CUT-OFF INITIAL SECURED
CONTROL LOAN DATE POOL SUBORDINATE
NUMBER NUMBER PROPERTY NAME BALANCE BALANCE DEBT
[Unsecured Subordinate and Mezzanine Financing
Some of the mortgage loans may permit the borrower to incur unsecured
subordinated debt in the future, in most cases, conditioned upon delivery of a
subordination agreement or standstill agreement or both and requirements that
limit the use of proceeds to refurbishing or renovating the property or
acquiring furniture, fixtures and equipment for the property or both. [ ] of the
mortgage loans having a cut-off date balance of $[ ], and representing
approximately [ ]% of the initial pool balance, permits the borrower to incur
unsecured subordinated debt and/or mezzanine debt secured by equity interests in
the borrower if the sum of all mezzanine, subordinated and other debt secured by
the mortgaged property does not exceed 80% of the lesser of the (a) fair market
value of the property determined by the lender and (b) the most recent purchase
price of the property. Some of the mortgage loans also permit the owner of the
borrower to incur "mezzanine debt" secured by the ownership interest in the
borrower. This financing effectively reduces the indirect equity interest of any
such owner in the related mortgaged property. No such "mezzanine debt" is
included in the mortgage pool. At the time such mezzanine or subordinated debt
is incurred, the DSCR for that mortgage loan may not be less than 1.20x and the
total DSCR (on a pro forma basis) must not be less than 1.10x. Subject to these
tests, there is no cap on the amount of unsecured subordinated debt or mezzanine
debt that may be incurred.
Additional debt, in any form, may cause a diversion of funds from property
maintenance and increase the likelihood that the borrower will become the
subject of a bankruptcy proceeding.
Except as described above, the depositor has not been able to confirm
whether the respective borrowers under the mortgage loans have any other debt
outstanding.
See "Risk Factors--Subordinate financing on the mortgaged property may
increase risk" and "--Mezzanine debt secured by equity in the borrower may
increase risk" in this prospectus supplement and "Certain Legal Aspects of the
Mortgage Loans and Contracts--Subordinate Financing" in the prospectus.]
[Ground Leases
[ ] mortgaged properties securing mortgage loans, which represent [ ]% of
the initial pool balance, are subject solely to the lien of a mortgage on the
applicable borrower's leasehold interest in such mortgaged property.
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<PAGE>
[ ] mortgaged properties securing mortgage loans, which represent [ ]% of
the initial pool balance, are subject to the lien of either:
o a mortgage on both the borrower's leasehold interest and the
ground lessor's fee simple interest in the mortgaged property or
o a mortgage on both the borrower's leasehold interest in a portion
of the mortgaged property and the borrower's fee simple interest
in the remaining portion of the mortgaged property.
[ ] of the ground leases (including any extension options) expire less
than ten years after the stated maturity of the related mortgage loan. Under the
terms of each such ground lease, the ground lessor generally has either made its
fee interest subject to the related mortgage or, typically, has agreed to give
the holder of the mortgage loan notice of, and has granted such holder the right
to cure, any default or breach by the lessee.]
[Significant Mortgage Loans
[The [ ] Loan
The Loan. The "[ ] loan" representing [ ]% of the initial pool balance was
originated by [ ] on [ ] and has a principal balance as of the cut-off date of
approximately $[ ]. The [ ] loan is a balloon loan with a maturity date of [ ]
and is secured by, among other things, a fee mortgage encumbering a [[ ] unit
multifamily building with retail space] located in [ ]. The [ ] loan was made to
[ ].
Payment and prepayment terms for the [ ] loan are set forth in the
following table:
[[ ] Loan Payment and Prepayment Table].
The [ ] Property. [ ].
Defeasance. [ ].
Value. [ ].
Underwritten NCF and DSC Ratio. [ ].
Property Management. [ ].
Master Lease. [ ].
Debt Service Reserve. [ ].
Lockbox. [ ].]
S-36
<PAGE>
Mortgage Pool Characteristics
None of the mortgage loans will have been originated prior to , or will
have a maturity date later than 1, 20 . No mortgage loan will have a remaining
term to maturity as of the cut-off date of less than months. The weighted
average remaining term to maturity of the mortgage loans as of the cut-off date
will be approximately months. The weighted average original term to maturity of
the mortgage loans as of the cut-off date will be approximately months. __% of
the mortgage loans are fully amortizing and have original terms to maturity of
approximately fifteen years, with a weighted average remaining term to stated
maturity of these mortgage loans of __ months. __% of the mortgage loans are
fully amortizing and have original terms to maturity of approximately thirty
years, with a weighted average remaining term to stated maturity of these
mortgage loans of __ months.
[Approximately % of the mortgage loans will be Buy-Down Loans.]
None of the mortgage loans provide for deferred interest or negative
amortization.
[Approximately ___% of the mortgage loans are Convertible Mortgage Loans,
which provide that, at the option of the related mortgagor, the adjustable
interest rate on a mortgage loan may be converted to a fixed interest rate. Upon
conversion, the mortgage rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related mortgage note
which formula is intended to result in a mortgage rate which is not less than
the then current market interest rates, subject to applicable usury laws. After
the conversion, the monthly payments of principal and interest will be adjusted
to provide for full amortization over the remaining term to scheduled maturity.]
[The servicer will be obligated to repurchase any Convertible Mortgage
Loan following the conversion thereof at a price equal to the unpaid principal
balance thereof plus accrued interest to the first day of the month in which the
purchase price is to be distributed to the Class A Certificates. If the servicer
fails to repurchase a Convertible Mortgage Loan following the conversion
thereof, it will not constitute an Event of Default under the Pooling and
Servicing Agreement and the mortgage loan will remain in the trust fund as a
fixed-rate loan.]
Approximately ___% of the mortgage loans will have mortgage rates
calculated on the basis of the simple interest method. See "The Trust Fund--The
Mortgage Pools--Simple Interest Loans" in the prospectus.
[Mortgage Rate Adjustment: The mortgage rate on the mortgage loans will
adjust semi-annually commencing approximately six months after origination, on
the adjustment date specified in the related mortgage note, to a rate equal to
the sum, rounded as specified in the related mortgage notes, of Six-Month LIBOR
and the note margin set forth in the related mortgage note, subject to the
limitations described in this prospectus supplement.]
[The amount of the monthly payment on each mortgage loan will be adjusted
semi-annually on the due date of the month following the month in which the
adjustment date occurs to equal the amount necessary to pay interest at the
then-applicable mortgage rate and to fully amortize the outstanding principal
balance of each mortgage loan over its remaining term to
S-37
<PAGE>
stated maturity. As of the cut-off date, ___% of the mortgage loans will have
reached their first adjustment date. The mortgage loans will have various
adjustment dates, note margins and limitations on the mortgage rate adjustments,
as described below.]
[The mortgage rate on each loan may not increase or decrease on any
adjustment date by more than a specified percentage per annum. This periodic
rate cap is not more than ___%, except that the mortgage rate on some of the
mortgage loans may adjust up to ___% on the initial adjustment date.]
[The mortgage rate on a mortgage loan may not exceed the maximum mortgage
rate or be less than the minimum mortgage rate specified for such mortgage loan
in the related mortgage note. The minimum mortgage rate for each mortgage loan
will be equal to the note margin, except in the case of ____% of the mortgage
loans, which have a minimum mortgage rate greater than the note margin. The
minimum mortgage rates on the mortgage loans will range from ____% to ____%,
with a weighted average minimum mortgage rate as of the cut-off date of _____%.
The maximum mortgage rates on the mortgage loans will range from ____% to
______%, with a weighted average maximum mortgage rate as of the cut-off date of
____%. No mortgage loan provides for payment caps on any adjustment date that
would result in deferred interest or negative amortization.]
[Six-Month LIBOR. The reference date with respect to each mortgage loan is
the date as of which Six-Month LIBOR, as published by The Wall Street Journal,
is determined. The reference date with respect to each mortgage loan is:
o the first business day of the month immediately preceding the
month in which the adjustment date occurs,
o the date forty-five days prior to the adjustment date,
o the date fifteen days prior to the adjustment date, or
o the 20th day of the month preceding the month in which the
adjustment date occurs;
except that the reference date with respect to ___ mortgage loans, representing
approximately ___% of the aggregate principal balance of the mortgage loans,
will adjust with respect to Six-Month LIBOR as published by Fannie Mae and as
most recently available as of the date forty-five days prior to the adjustment
date.]
[Listed below are levels of Six-Month LIBOR as published by The Wall
Street Journal that are or would have been applicable to mortgage loans with a
reference date of the first business day of the preceding month, and having the
following adjustment dates for the indicated years. There can be no assurance
that levels of Six-Month LIBOR published by Fannie Mae, or published in The Wall
Street Journal on a different reference date would have been at the same levels
as those set forth below. The following does not purport to be representative of
future levels of Six-Month LIBOR, as published by Fannie Mae or The Wall Street
Journal. No
S-38
<PAGE>
assurance can be given as to the level of Six-Month LIBOR on any adjustment date
or during the life of any mortgage loan based on Six-Month LIBOR.]
[table of Six-Month LIBOR]
The initial mortgage rate in effect on a mortgage loan typically will be
lower, and may be significantly lower, than the mortgage rate that would have
been in effect based on Six-Month LIBOR and the related note margin. Therefore,
unless Six-Month LIBOR declines after origination of a mortgage loan, the
related mortgage rate will typically increase on the first adjustment date
following origination of such mortgage loan, subject to the periodic rate cap.
The repayment of the mortgage loans will be dependent on the ability of the
mortgagors to make larger monthly payments following adjustments of the mortgage
rate. Mortgage loans that have the same initial mortgage rate may not always
bear interest at the same mortgage rate because such mortgage loans may have
different adjustment dates (and the mortgage rates therefore may reflect
different related Index values), note margins, maximum mortgage rates and
minimum mortgage rates. The net mortgage rate with respect to each mortgage loan
as of the cut-off date will be set forth in the mortgage loan schedule attached
to the Pooling and Servicing Agreement. The net mortgage rate on each mortgage
loan will be adjusted on each adjustment date to equal the servicing fee rate,
which the mortgage rate on the mortgage loan minus the sum of (i) the rate per
annum at which the servicing fee accrues on the mortgage loan and (ii) the
policy premium rate, which is the amount of the premium payable to the financial
guaranty insurer with respect to the financial guaranty insurance policy,
subject to any periodic rate cap, but may not exceed the maximum net mortgage
rate, or be less than the minimum net mortgage rate for such mortgage loan. See
"Description of the Mortgage Pool--Mortgage Pool Characteristics" in this
prospectus supplement.]
Set forth below is a description of some additional characteristics of the
mortgage loans as of the cut-off date unless otherwise indicated. All
percentages of the mortgage loans are approximate percentages by aggregate
principal balance as of the cut-off date unless otherwise indicated. Unless
otherwise specified, all principal balances of the mortgage loans are as of the
cut-off date and are rounded to the nearest dollar.
Mortgage Rates
Cut-off Date
Number of Principal Percent of
Mortgage Rates (%) Mortgage Loans Balance Mortgage Pool
$ %
S-39
<PAGE>
Total $ %
As of the cut-off date, the weighted average mortgage rate of the mortgage
loans will be approximately % per annum.
Original Mortgage Loan Principal Balances
Cut-off Date
Original Mortgage Number of Principal Percentage of
Loan Balance Mortgage Loans Balance Mortgage Pool
$ $ %
Total $ %
As of the cut-off date, the average unpaid principal balance of the
mortgage loans will be approximately $ .
S-40
<PAGE>
Net Mortgage Rates of the Mortgage Loans
Number of Cut-off Date Percent of
Net Mortgage Mortgage Principal Mortgage
Rates (%) Loans Balance Loans
6.000-................6.499 $ %
6.500-................6.999
7.000-................7.499
7.500-................7.999
8.000-................8.499
8.500-................8.999
9.000-................9.499
9.500-................9.999
10.000-...............10.499
11.000-...............11.499
11.500-...............11.999
12.000-...............12.499
12.500-...............12.999
13.000-...............13.499
Total.................. $ %
As of the cut-off date, the weighted average net mortgage rate of the
mortgage loans will be approximately _______% per annum.
[Combined Loan-to-Value Ratios
Cut-off date
Combined Loan Number of Principal Percentage of
to Value Ratio (%) Mortgage Loans Balance Mortgage Pool
$ %
Total $ %
The weighted average combined LTV ratio at origination of the mortgage
loans will be approximately %.]
--------
-
[The method for calculating the combined LTV ratio is described below
under the caption "Underwriting Standards."]
S-41
<PAGE>
[Junior Ratios of the Mortgage Loans
Cut-off
Number of Date Percent of
Mortgage Principal Mortgage
Junior Ratio(%) Loans Balance Loans
- $ %
-
-
-
-
-
-
-
-
-
Total $ %
=====
------------------
Excludes mortgage loans secured by first liens on the related
mortgaged property. With respect to each mortgage loan secured by a
second lien on the related mortgaged property, the Junior Ratio is
the ratio of the original principal balance of the mortgage loan to
the sum of (i) the original principal balance of that mortgage loan,
and (ii) the unpaid principal balance of any senior lien at the time
of the origination of that mortgage loan.
The weighted average Junior Ratio as of the cut-off date was
approximately __%.]
Geographic Distributions of Mortgaged Properties
Cut-off Date
Number of Principal Percentage of
State Mortgage Loans Balance Mortgage Pool
[California $ %
Connecticut
Illinois
New Jersey
New York]
Other (1)
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<PAGE>
Total $ %
(1) Other includes states and the District of Columbia with under 3%
concentrations individually.
No more than % of the mortgage loans will be secured by mortgaged
properties located in any one zip code area in California and no more than % of
the mortgage loans will be secured by mortgaged properties located in any one
zip code area outside California.
Mortgage Loan Purpose
Cut-off Date
Number of Principal Percentage of
Loan Purpose Mortgage Loans Balance Mortgage Pool
Purchase $ %
Rate/Term
Refinance
Equity Refinance
Total $ %
The weighted average combined LTV ratio at origination of rate and term
refinance mortgage loans will be %. The weighted average combined LTV ratio at
origination of equity refinance mortgage loans will be %.
Mortgage Loan Documentation Types
Cut-off Date
Number of Principal Percentage of
Documentation Type Mortgage Loans Balance Mortgage Pool
Full $ %
Reduced
Total $ %
o For purposes of the above table, Reduced Documentation Type
includes mortgage loans which were underwritten under a no stated
income program.
[The weighted average LTV ratio at origination of the mortgage loans which
were underwritten under a reduced loan documentation program will be %. No more
than % of the reduced loan documentation mortgage loans will be secured by
mortgaged properties located in California.]
S-43
<PAGE>
Occupancy Types
Cut-off Date
Number of Principal Percentage of
Occupancy Mortgage Loans Balance Mortgage Pool
Primary Residence $ %
Second/Vacation
Non Owner-occupied
Total $ %
Mortgaged Property Types
Cut-off Date
Number of Principal Percentage of
Property Type Mortgage Loans Balance Mortgage Pool
Single-family $ %
detached
Planned Unit
Developments
(detached)
Two- to
four-family units
Condo Low-Rise
(less than 5
stories)
Condo Mid-Rise (5
to 8 stories)
Condo High-Rise
(9 stories or
more)
Townhouse
Planned Unit
Developments
(attached)
Cooperative Units
Multifamily
Leasehold
S-44
<PAGE>
Total $ %
[Lien Priority of the Mortgage Loans
Number of Cut-off Date Percent of
Lien Property Mortgage Loans Principal Mortgage
Balance Loans
First Lien $ %
-- ---
Second Lien $ %
-- ---
Total $ %]
== ===
-
Remaining Term of Scheduled Maturity of the Mortgage Loans
Number of Cut-off Date Percent of
Months Remaining to Scheduled Mortgage Principal Mortgage
Maturity Loans Balance Loans
$
%
%
%
%
%
%
%
%
Total $ % %
The weighted average remaining term to maturity of the mortgage loans as
of the cut-off date was approximately ___ months.
[In connection with each mortgage loan that is secured by a leasehold
interest, the related seller shall have represented to the depositor that, among
other things:
o the use of leasehold estates for residential properties is an
accepted practice in the area where the related mortgaged
property is located;
o residential property in the area consisting of leasehold estates
is readily marketable;
o the lease is recorded and no party is in any way in breach of any
provision of the lease;
S-45
<PAGE>
o the leasehold is in full force and effect and is not subject to
any prior lien or encumbrance by which the leasehold could be
terminated or subject to any charge or penalty; and
o the remaining term of the lease does not terminate less than ten
years after the maturity date of each such mortgage loan.
Underwriting Standards
General
All of the mortgage loans included in the mortgage pool will be acquired
by the depositor from the seller. The following is a brief description of the
various underwriting standards and the procedures applicable to the mortgage
loans.
All [one- to four-family residential][commercial][multifamily] mortgage
loans must meet acceptable credit, appraisal and underwriting criteria as
established by the seller. The seller's underwriting standards are applied in
accordance with applicable state and federal laws and regulations. Underwriting
guidelines are established to set acceptable criteria regarding credit history,
repayment ability, adequacy of necessary liquidity, and adequacy of the
collateral. These guidelines typically conform to secondary market standards,
particularly for conforming loan amounts.
Additional loan-to-value ratio guidelines are established for individual
programs and loan amount ranges.
[The mortgage loans have been originated under documentation guidelines
classified as "Full Doc", "Low Doc Reduced Doc" and "Streamline Refinance Doc."
The Full Doc program consists of two years of tax returns for self-employed
applicants, paystubs and W-2's for salaried applicants and bank statements for
verification of liquidity. The Low Doc program utilizes income as stated by the
borrower in the loan application and, for certain loan-to-value ratios and loan
amounts, assets as stated by the borrower. In Low Doc transactions, independent
confirmation of the borrower's source of income is obtained. The Reduced
Documentation program utilizes borrower paystubs and W-2 forms and a Streamline
Refinance Documentation program utilizes borrower paystubs and original
appraised value with a current drive-by inspection.]
The seller's underwriting of the mortgage loans consisted of an analysis
of the following applicant information:
o an applicant's income, employment, assets, debts, payments and
specific questions regarding credit history,
o an evaluation and confirmation of an applicant's credit history,
o the adequacy and stability of an applicant's income, including a
review of the documentation, verification of employment and
income, an analysis of tax returns and statements of assets and
liabilities.
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<PAGE>
o calculations are made to establish the relationship between fixed
expenses and gross monthly income, which are reviewed for the
applicant's overall ability to repay the mortgage loan including
other income sources, commitment to the property as evidenced by
loan to value, other liquid resources, ability to accumulate
assets and other compensating factors, and
o the adequacy of the mortgaged property to serve as collateral for
a mortgage loan, including a physical inspection of the property,
an evaluation of the property's value for recent sales of
comparable properties and its conformity to neighborhood
standards.
[All mortgage loans are subject to a sampling by the seller's internal
Quality Assurance Department, which reviews and reverifies a statistical
sampling of loans on a regular basis. All loans with loan-to-value ratios over
80% have either private mortgage insurance coverage in an amount meeting Fannie
Mae and Freddie Mac requirements or a higher interest rate in lieu of private
mortgage insurance.] Adequate title insurance and hazard insurance is required
for all loans. From time to time, loan-to-value ratio exceptions may be made for
credit worthy applicants who exhibit strong compensating factors and well
supported collateral valuations.
[Environmental Assessments
"Phase I" environmental site assessments or updates of previously
conducted assessments were performed on all but [ ] of the mortgaged properties,
which constitute [ ]% of the initial pool balance. "Phase II" environmental site
assessments were performed on some mortgaged properties. These environmental
site assessments were performed for the seller or the report was delivered to
the seller as part of its acquisition or origination of the mortgage loan. For
all but [ ] of the mortgaged properties which represent [ ]% of the initial pool
balance, these environmental assessments were performed during the 12-month
period before the cut-off date.
Material adverse environmental conditions or circumstances revealed by
these environmental assessments for the mortgaged properties are described in
"Risk Factors--Adverse environmental conditions on the mortgaged property may
reduce or delay your payments."
The information contained in this prospectus supplement is based on the
environmental assessments and has not been independently verified by the
depositor, the seller, the servicer, the underwriters or any of their respective
affiliates.]
[Property Condition Assessments
Inspections or updates of previously conducted inspections of all except [
] of the mortgaged properties, which constitute [ ]% of the initial pool
balance, were conducted in connection with the origination or the purchase of
the related mortgage loan by independent licensed engineers or architects or
both. For all but [ ] of the mortgaged properties, which secure mortgage loans
representing [ ]% of the initial pool balance, the inspections were conducted
within the 12-month period before the cut-off date for the related mortgage
loan. The inspections were conducted to inspect the exterior walls, roofing,
interior construction, mechanical and
S-47
<PAGE>
electrical systems and general condition of the site, buildings and other
improvements located at a mortgaged property. The resulting reports on some of
the mortgaged properties indicated a variety of deferred maintenance items and
recommended capital expenditures. In some instances, repairs or maintenance were
completed before closing or cash reserves were established to fund the deferred
maintenance or replacement items or both.]
[Appraisals
An appraisal for each mortgaged property was performed or an existing
appraisal updated in connection with the origination or the purchase of the
related mortgage loan. For all but [ ] of the mortgaged properties, which secure
mortgage loans representing [ ]% of the initial pool balance, the appraisals
were performed during the 12-month period before the cut-off date. The appraised
value of the mortgaged property or properties is greater than the original
principal balance of the mortgage loan or the aggregate original principal
balance of any set of cross-collateralized loans. All appraisals were conducted
by an independent appraiser that is state certified or designated as a member of
the Appraisal Institute. The appraisal for all but [ ] mortgaged properties,
which constitute [ ]% of the initial pool balance, or a separate letter contains
a statement by the appraiser to the effect that the appraisal guidelines of
Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of
1989, were followed in preparing the appraisal. However, none of the depositor,
the underwriters, or the seller has independently verified the accuracy of the
appraiser's statement. For a discussion of the risks related to appraisals, see
"Risk Factors--Losses may result if the servicer is unable to sell a mortgaged
property securing a defaulted mortgage loan for its appraised value" in this
prospectus supplement.
For information about the values of the mortgaged properties available to
the depositor as of the cut-off date.]
[Hazard, Liability and Other Insurance
The mortgage loans typically require that the mortgaged property be
insured by a hazard insurance policy with a customary deductible and in an
amount at least equal to the lesser of the outstanding principal balance of the
mortgage loan and 100% of the full insurable replacement cost of the
improvements located on the mortgaged property. If applicable, the policy
contains appropriate endorsements to avoid the application of co-insurance and
does not permit reduction in insurance proceeds for depreciation.
Flood insurance, if available, must be in effect for any mortgaged
property that at the time of origination included any area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards. The flood insurance policy must meet the requirements of the then
current guidelines of the Federal Insurance Administration, be provided by a
generally acceptable insurance carrier and be in an amount representing coverage
not less than the least of:
o the outstanding principal balance of the mortgage loan,
o the full insurable value of the mortgaged property,
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o the maximum amount of insurance available under the National
Flood Insurance Act of 1968, and
o 100% of the replacement cost of the improvements located on the
mortgaged property, except in some cases where self-insurance was
permitted.
The standard form of hazard insurance policy typically covers physical
damage or destruction of the improvements on the mortgaged property caused by
fire, lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion. The policies may contain some conditions and exclusions to coverage.
Each mortgage typically also requires the borrower to maintain
comprehensive general liability insurance against claims for personal and bodily
injury, death or property damage occurring on, in or about the mortgaged
property in an amount customarily required by institutional lenders.
Each mortgage typically further requires the related borrower to maintain
business interruption or rent loss insurance in an amount not less than 100% of
the projected rental income from the related mortgaged property for not less
than twelve months.
The mortgaged properties are typically not insured for earthquake risk.
For mortgaged properties located in California and some other seismic zones, the
seller typically conducted seismic studies to assess the "probable maximum loss"
for the related mortgaged properties. In some circumstances, the related
borrower was required to obtain earthquake insurance covering the mortgaged
properties. Some of these mortgaged properties may be insured for earthquake
risk in amounts less than the outstanding principal balances of the mortgage
loan.]
[Earnouts and Additional Collateral Loans
Some of the mortgage loans are additionally secured by cash reserves or
irrevocable letters of credit that will be released upon satisfaction by the
borrower of leasing-related or other conditions, including, in some cases,
achieving specified debt service coverage ratios or loan-to-value ratios. If
these conditions are not met, under some mortgage loans, the related reserve or
credit enhancement amount will be applied to partially defease or prepay the
related mortgage loan. Any resulting partial prepayment may not be required to
be accompanied by payment of a prepayment premium or yield maintenance payment.
Under [ ] mortgage loans, amounts will be retained as additional collateral.]
THE SELLER AND SERVICER
General
General
[____________________], is the seller and servicer for all the mortgage loans in
the mortgage pool.
[ADDITIONAL SERVICER INFORMATION TO BE INCLUDED]
----------------------------------------------
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DESCRIPTION OF THE CERTIFICATES
General
The Mortgage-Backed Pass-Through Certificates, Series 200_-___ will
include the following [three] classes of Class A Certificates:
o [Class A-1 Certificates, or the Adjustable Rate Certificates
o Class A-2 Certificates; and
o Class A-3 Certificates, or the Lockout Certificates; and together with
the Class A-2 Certificates, the Fixed Rate Certificates]
In addition to the Class A Certificates, the Mortgage-Backed Pass-Through
Certificates, Series 200_-___ will also include [two] classes of certificates
which are designated as the Class SB Certificates and Class R Certificates. Only
the Class A Certificates are offered by this prospectus supplement. See
"Glossary" in the prospectus for the meanings of capitalized terms and acronyms
not otherwise defined in this prospectus supplement.
The certificates will evidence the entire beneficial ownership interest in
the trust fund. The trust fund will consist of:
o the mortgage loans
o the assets as from time to time that are identified as deposited
in respect of the mortgage loans in the Custodial Account and in
the Payment Account and belonging to the trust fund
o property acquired by foreclosure of the mortgage loans or deed in
lieu of foreclosure
o any applicable primary insurance policies and primary hazard
insurance policies
o the financial guaranty insurance policy; and
o all proceeds of any of the foregoing.
The Class A Certificates will be available only in book-entry form through
facilities of The Depository Trust Company. The Class A Certificates will be
issued, maintained and transferred on the book-entry records of DTC and its
participants. The Class A Certificates will be issued in minimum denominations
of $25,000 and integral multiples of $1 in excess thereof.
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The Class A Certificates will be represented by one or more certificates
registered in the name of the nominee of DTC. The depositor has been informed by
DTC that DTC's nominee will be Cede & Co. No beneficial owner will be entitled
to receive a certificate of any class in fully registered form, a definitive
certificate, except as described in this prospectus supplement under
"--Book-Entry Registration of Certain of the Offered Certificates--Definitive
Certificates." Unless and until definitive certificates are issued for the Class
A Certificates under the limited circumstances described in this prospectus
supplement:
o all references to actions by certificateholders with respect to
the Class A Certificates shall refer to actions taken by DTC upon
instructions from its participants, and
o all references in this prospectus supplement to distributions,
notices, reports and statements to certificateholders with
respect to the Class A Certificates shall refer to distributions,
notices, reports and statements to DTC or Cede, as the registered
holder of the Class A Certificates, for distribution to
beneficial owners by DTC in accordance with DTC procedures.
According to DTC, the foregoing information with respect to DTC has been
provided for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
Book-Entry Registration of Certain of the Offered Certificates
General. Beneficial owners that are not participants or indirect
participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Class A Certificates may do so only through participants
and indirect participants. In addition, beneficial owners will receive all
distributions of principal of and interest on the Class A Certificates from the
paying agent through DTC and participants. Accordingly, beneficial owners may
experience delays in their receipt of payments. Unless and until definitive
certificates are issued for the Class A Certificates, it is anticipated that the
only registered certificateholder of the Class A Certificates will be Cede, as
nominee of DTC. Beneficial owners will not be recognized by the trustee or the
servicer as certificateholders, as the term is used in the pooling and servicing
agreement, and beneficial owners will be permitted to receive information
furnished to certificateholders and to exercise the rights of certificateholders
only indirectly through DTC, its participants and indirect participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the Class A
Certificates among participants and to receive and transmit distributions of
principal of, and interest on, the Class A Certificates. Participants and
indirect participants with which beneficial owners have accounts with respect to
the Class A Certificates similarly are required to make book-entry transfers and
receive and transmit distributions on behalf of their respective beneficial
owners. Accordingly, although beneficial owners will not possess physical
certificates evidencing their interests in the Class A Certificates, DTC's rules
provide a mechanism by which beneficial owners, through their participants and
indirect participants, will receive distributions and will be able to transfer
their interests in the Class A Certificates.
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None of the depositor, the servicer or the trustee will have any liability
for any actions taken by DTC or its nominee, including, without limitation,
actions for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Class A Certificates held by Cede, as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Definitive Certificates. Definitive certificates will be issued to
beneficial owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions described in the prospectus under
"Description of the Certificates--Form of Certificates."
Upon the occurrence of an event described in the prospectus in the third
paragraph under "Description of the Certificates--Form of Certificates," the
trustee is required to notify, through DTC, participants who have ownership of
Class A Certificates as indicated on the records of DTC of the availability of
definitive certificates for their Class A Certificates. Upon surrender by DTC of
the definitive certificates representing the Class A Certificates and upon
receipt of instructions from DTC for re-registration, the trustee will reissue
the Class A Certificates as definitive certificates issued in the respective
principal amounts owned by individual beneficial owners, and thereafter the
trustee and the servicer will recognize the holders of the definitive
certificates as certificateholders under the pooling and servicing agreement.
For additional information regarding DTC and the DTC registered
certificates, see "Description of the Certificates--Form of Certificates" in the
prospectus.
Glossary of Terms
The following terms are given the meanings shown below to help describe
the cash flows on the certificates:
Accrued Certificate Interest - For any distribution date and class of
Class A Certificates, an amount equal to interest accrued during the related
Interest Accrual Period on the Certificate Principal Balance of the certificates
of that class immediately prior to that distribution date at the related
pass-through rate less interest shortfalls, if any, allocated thereto for that
distribution date, to the extent not covered with respect to the Class A
Certificates by the subordination provided by the Class SB Certificates
including:
(i) any Prepayment Interest Shortfall to the extent not covered by
the servicer as described in this prospectus supplement under "Description
of the Certificates--Interest Distributions";
(ii) the interest portions of Realized Losses, including Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses, and
Extraordinary Losses not allocated through subordination;
(iii)the interest portion of any Advances that were made with respect
to delinquencies that were ultimately determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses; and
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(iv) any other interest shortfalls not covered by subordination,
including interest shortfalls relating to the Soldiers' and Sailors' Civil
Relief Act of 1940, or Relief Act, or similar legislation or regulations,
all allocated as described below.
Any reductions will be allocated among the holders of all classes of
certificates in proportion to the respective amounts of Accrued Certificate
Interest that would have been payable on that distribution date absent these
reductions. In the event that any shortfall described in the immediately
preceding four clauses above is allocated to the offered certificates, or the
Available Distribution Amount on any distribution date is less than the Interest
Distribution Amount due on any distribution date, the amount of any shortfall
will be drawn under the financial guaranty insurance policy and distributed to
the holders of the Class A Certificates. Notwithstanding the foregoing, if
payments are not made as required under the financial guaranty insurance policy,
any interest shortfalls may be allocated to the Class A Certificates as
described above. See "--Financial Guaranty Insurance Policy" below. Accrued
Certificate Interest on each class of Class A Certificates will be distributed
on a pro rata basis. Accrued Certificate Interest on the Class A-2 and Class A-3
Certificates is calculated on the basis of a 360-day year consisting of twelve
30-day months. Accrued Certificate Interest on the Class A-1 Certificates will
be calculated on the basis of the actual number of days in the Interest Accrual
Period and a 360-day year.
Available Distribution Amount - For any distribution date, an amount equal
to:
o the aggregate amount of scheduled payments on the mortgage loans
due on the related due date and received on or prior to the
related determination date, after deduction of the related
servicing fees and any subservicing fees, which are collectively
referred to as the servicing fees, and the premium payable on the
financial guaranty insurance policy;
o all unscheduled payments, including mortgagor prepayments on the
mortgage loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the mortgage
loans occurring during the preceding calendar month; and
o all Advances made for that distribution date, in each case net of
amounts reimbursable therefrom to the servicer and any
subservicer.
In addition to the foregoing amounts, with respect to unscheduled
collections, not including mortgagor prepayments, the servicer may elect to
treat such amounts as included in the Available Distribution Amount for the
distribution date in the month of receipt, but is not obligated to do so. As
described in this prospectus supplement under "--Principal Distributions on the
Class A Certificates," any amount with respect to which such election is so made
shall be treated as having been received on the last day of the preceding
calendar month for the purposes of calculating the amount of principal and
interest distributions to any class of certificates. With respect to any
distribution date, the due date is the first day of the month in which that
distribution date occurs and the determination date is the 20th day of the month
in which that distribution date occurs or, if that day is not a business day,
the immediately succeeding business day.
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On any distribution date, the policy premium rate is equal to one-twelfth
of the product of the percentage specified in the Insurance and Indemnity
Agreement, dated as of ______, ____ among the financial guaranty insurer, the
depositor, the trustee, the seller and the servicer, and the aggregate
Certificate Principal Balance of the Class A Certificates immediately prior to
such distribution date.
Certificate Principal Balance - For any Class A Certificate as of any date
of determination, an amount equal to the initial Certificate Principal Balance
of that certificate, reduced by the aggregate of (a) all amounts allocable to
principal previously distributed with respect to that certificate, including
amounts paid pursuant to the financial guaranty insurance policy, and (b) any
reductions in the Certificate Principal Balance of that certificate deemed to
have occurred in connection with allocations of Realized Losses in the manner
described in this prospectus supplement, other than any amounts that have been
paid pursuant to the financial guaranty insurance policy.
Cumulative Insurance Payments - The aggregate of any payments made with
respect to the Class A Certificates by the financial guaranty insurer under the
financial guaranty insurance policy.
Excess Bankruptcy Losses - Bankruptcy Losses in excess of the Bankruptcy
Amount.
Excess Cash Flow-On any distribution date, the excess of the Available
Distribution Amount over the sum of (a) the Interest Distribution Amount and (b)
the sum of the amounts described in clauses [ ] of the definition of Principal
Distribution Amount.
Excess Fraud Losses - Fraud Losses in excess of the Fraud Loss Amount.
Excess Special Hazard Losses - Special Hazard Losses in excess of the
Special Hazard Amount.
Excess Subordinated Amount - On any distribution date, the excess, if any,
of (a) the Subordinated Amount on such distribution date over (b) the Targeted
Subordinated Amount.
Final Disposition - A Final Disposition is deemed to have occurred upon a
determination by the servicer that it has received all Insurance Proceeds,
Liquidation Proceeds and other payments or cash recoveries which the servicer
reasonably and in good faith expects to be finally recoverable with respect to a
defaulted mortgage loan.
Interest Accrual Period - For the Class A-2 and Class A-3 Certificates,
the calendar month preceding the month in which the distribution date occurs.
For the Class A-1 Certificates, (a) for the distribution date in __________,
___, the period commencing on the closing date and ending on the day preceding
the distribution date in ________ ___, and (b) with respect to any distribution
date after the distribution date in _________ ___, the period commencing on the
distribution date in the month immediately preceding the month in which the
distribution date occurs and ending on the day preceding the distribution date.
Interest Distribution Amount - The aggregate amount of Accrued Certificate
Interest to be distributed to the holders of the Class A Certificates for that
distribution date.
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Lockout Prepayment Percentage - For any distribution date occurring prior
to the distribution date in , 0%. For any distribution date occurring after the
first five years following the closing date, a percentage determined as follows:
o for any distribution date during the [sixth] year after the
closing date, [30]%;
o for any distribution date during the [seventh] year after the
closing date, [40]%;
o for any distribution date during the [eighth] year after the
closing date, [60]%;
o for any distribution date during the [ninth] year after the
closing date, [80]%; and
o for any distribution date thereafter, [100]%.
Lockout Scheduled Percentage - For any distribution date occurring prior
to the distribution date in , 0% and for any distribution date thereafter, 100%.
Principal Distribution Amount -On any distribution date, the lesser of (a)
the balance of the Available Distribution Amount remaining after the Interest
Distribution Amount has been distributed and (b) the sum of:
(1) the principal portion of all scheduled monthly payments on the
mortgage loans received or advanced with respect to the related due
period;
(2) the principal portion of all proceeds of the repurchase of
mortgage loans or, in the case of a substitution, amounts representing a
principal adjustment as required by the pooling and servicing agreement
during the preceding calendar month;
(3) the principal portion of all other unscheduled collections
received on the mortgage loans during the preceding calendar month or
deemed to be received during the preceding calendar month including,
without limitation, full and partial prepayments made by the respective
mortgagors, to the extent not distributed in the preceding month;
(4) the principal portion of any Realized Losses incurred on the
mortgage loans for the preceding calendar month to the extent payable from
Excess Cash Flow on such distribution date; and
(5) the Subordination Increase Amount for such distribution date.
Subordinated Amount - On any distribution date, the excess, if any, of (a)
the aggregate Stated Principal Balances of the mortgage loans after giving
effect to distributions of principal to be made on such distribution date over
(b) the Certificate Principal Balance of the Class A Certificates as of such
date, after taking into account the payment to the Class A Certificates of the
amounts described in clauses [ ] of the definition of Principal Distribution
Amount on such distribution date.
Subordination Increase Amount - On any distribution date, any amount of
Excess Cash Flow actually applied as an accelerated payment of principal on the
Class A Certificates.
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<PAGE>
Subordination Reduction Amount - On any distribution date, the lesser of
(a) the Excess Subordinated Amount and (b) the amount available for distribution
specified in clauses [ ] of the definition of Principal Distribution Amount.
Targeted Subordinated Amount - On any distribution date, the required
level of the Subordinated Amount, as set forth in the Pooling and Servicing
Agreement.
Distributions
Distributions on the Class A Certificates will be made by the trustee on
the [ ] day of each month or, if that day is not a business day, then the next
succeeding business day, commencing in _______, [ ]. Distributions on the
certificates will be made to the persons in whose names the certificates are
registered at the close of business on the day prior to each distribution date
or, if the certificates are no longer DTC registered certificates, on the record
date. See "Description of the Certificates--Distributions on Certificates" in
the prospectus. Distributions will be made by check or money order mailed, or
upon the request of a certificateholder owning Class A Certificates having
denominations, aggregating at least $1,000,000, by wire transfer or otherwise,
to the address of the person entitled to the distribution, which, in the case of
DTC registered certificates, will be DTC or its nominee, as it appears on the
trustee's register in amounts calculated as described in this prospectus
supplement on the determination date. However, the final distribution relating
to the certificates will be made only upon presentation and surrender thereof at
the office or the agency of the trustee specified in the notice to
certificateholders of the final distribution. A business day is any day other
than:
o a Saturday or Sunday or
o a day on which banking institutions in the State of New York, [
], [ ] or [ ] are required or authorized by law to be closed.
[Distributions of Prepayment Premiums
Any prepayment premium actually collected on a mortgage loan during any
collection period will be distributed on the related distribution date to the
holders of the [Class A-1, Class A-2, A-3] Certificates as additional interest
and not in reduction of their certificate balances in an amount up to, in the
case of each class, the product of
the prepayment x discount rate x principal
premium fraction for allocation fraction
that class of that class
The discount rate fraction for any class of certificates is a fraction not
greater than 1.0 or less than 0.0 and equal to:
pass-through rate for
that class of certificates - relevant discount rate
___________________________________________________________________
mortgage rate of the related mortgage loan -relevant discount rate
The principal allocation fraction for each class of certificates for any
distribution date is:
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<PAGE>
the portion, if any, of the principal distribution amount allocated
to that class of certificates for that distribution date
____________________________________________________________________
entire Principal Distribution Amount for that distribution date
The portion of the prepayment premium remaining after the payment of the
amount calculated as described above will be distributed to the holders of the
Class [ ] Certificates.
For any prepaid mortgage loan, the discount rate means the yield for "This
Week" as reported by the Federal Reserve Board in Federal Reserve Statistical
Release H.15(519) for the constant maturity treasury having a maturity
coterminous with the maturity date or anticipated repayment date of that
mortgage loan as of the determination date. If there is no discount rate for
instruments having a maturity coterminous with the remaining term to maturity or
anticipated repayment date, where applicable, of the mortgage loan, then the
discount rate will be equal to the linear interpolation of the yields of the
constant maturity treasuries with maturities next longer and shorter than the
remaining term to maturity or anticipated repayment date. For some of the
mortgage loans, the discount rate is a semiannual rate.
The prepayment premiums, if any, collected on the mortgage loans during
any collection period may not be sufficient to fully compensate
certificateholders of any class for any loss in yield attributable to the
related prepayments of principal.]
Interest Distributions
Holders of each class of Class A Certificates will be entitled to receive
interest distributions in an amount equal to the Accrued Certificate Interest on
that class on each distribution date, to the extent of the Available
Distribution Amount for that distribution date, commencing on the first
distribution date in the case of all classes of Class A Certificates entitled to
interest distributions.
Prepayment Interest Shortfalls will result because interest on prepayments
in full is distributed only to the date of prepayment, and because no interest
is distributed on prepayments in part, as these prepayments in part are applied
to reduce the outstanding principal balance of the related mortgage loans as of
the due date in the month of prepayment.
However, on any distribution date, any Prepayment Interest Shortfalls
resulting from prepayments in full during the preceding calendar month will be
offset by the servicer, but only to the extent those Prepayment Interest
Shortfalls do not exceed the amount of the servicing fee due on such
distribution date. Prepayment Interest Shortfalls resulting from partial
prepayments will not be offset by the servicer from servicing compensation or
otherwise. No assurance can be given that the servicing compensation available
to cover Prepayment Interest Shortfalls will be sufficient therefor. See
"Pooling and Servicing Agreement--Servicing and Other Compensation and Payment
of Expenses" in this prospectus supplement.
[If on any distribution date the Available Distribution Amount is less
than Accrued Certificate Interest on the Class A Certificates for that
distribution date, the shortfall will be
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allocated among the holders of all classes of Class A Certificates in proportion
to the respective amounts of Accrued Certificate Interest for that distribution
date. In addition, the amount of any such interest shortfalls that are covered
by subordination, specifically, interest shortfalls not described in the
definition of Available Distribution Amount preceding paragraph, will be unpaid
Accrued Certificate Interest and will be distributable to holders of the
certificates of those classes entitled to those amounts on subsequent
distribution dates, in each case to the extent of available funds after interest
distributions as required in this prospectus supplement.
These shortfalls could occur, for example, if delinquencies on the
mortgage loans were exceptionally high and were concentrated in a particular
month and Advances by the servicer did not cover the shortfall. Any amounts so
carried forward will not bear interest. Any interest shortfalls will not be
offset by a reduction in the servicing compensation of the servicer or
otherwise, except to the limited extent described in the preceding paragraph
with respect to Prepayment Interest Shortfalls resulting from prepayments in
full.
The pass-through rates on all classes of Class A Certificates, other than
the Class A-1 Certificates, are fixed and are listed on page S- of this
prospectus supplement.
The pass-through rates on the Class A-1 Certificates are calculated as
follows:
The pass-through rate on the Class A-1 Certificates with respect to the
initial Interest Accrual Period is % per annum, and as to any Interest Accrual
Period thereafter, will be a per annum rate equal to % plus the arithmetic mean
of the London interbank offered rate quotations for one-month Eurodollar
deposits, determined monthly as described in this prospectus supplement, with a
maximum rate of % per annum and a minimum rate of % per annum.
The pass-through rates on the Class A-1 Certificates for the current and
immediately preceding Interest Accrual Period may be obtained by telephoning the
trustee at __________.]
[The pass-through rates on all classes of the Class A Certificates will
increase by __% per annum for each distribution date after the first
distribution date on which the servicer and the depositor are permitted to
exercise their option to purchase the mortgage loans from the trust as described
under "Pooling and Servicing Agreement--Termination," in this prospectus
supplement. Notwithstanding the foregoing, the pass-through rates on the Class A
Certificates will not increase as described above if proceeds for optional
termination are available for payment to the certificateholders on or prior to
any distribution date.]
As described in this prospectus supplement, the Accrued Certificate
Interest allocable to each class of certificates is based on the Certificate
Principal Balance of that class.
Determination of LIBOR
LIBOR for any Interest Accrual Period after the initial Interest Accrual
Period will be determined as described in the three succeeding paragraphs.
On each distribution date, LIBOR shall be established by the trustee and
as to any Interest Accrual Period, LIBOR will equal the rate for United States
dollar deposits for one month which
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appears on the Dow Jones Telerate Screen Page 3750 as of 11:00 A.M., London
time, on the second LIBOR Business Day prior to the first day of that Interest
Accrual Period--the LIBOR rate adjustment date. Telerate Screen Page 3750 means
the display designated as page 3750 on the Telerate Service or any other page as
may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks. If the rate does not appear on that page
or any other page as may replace that page on that service, or if the service is
no longer offered, any other service for displaying LIBOR or comparable rates as
may be selected by the trustee after consultation with the servicer, the rate
will be the reference bank rate.
The reference bank rate will be determined on the basis of the rates at
which deposits in the U.S. Dollars are offered by the reference banks, which
shall be three major banks that are engaged in transactions in the London
interbank market, selected by the trustee after consultation with the servicer.
The reference bank rate will be determined as of 11:00 A.M., London time, on the
day that is one LIBOR business day prior to the immediately preceding
distribution date to prime banks in the London interbank market for a period of
one month in amounts approximately equal to the aggregate Certificate Principal
Balance of the Class A-1 Certificates then outstanding. The trustee will request
the principal London office of each of the reference banks to provide a
quotation of its rate. If at least two quotations are provided, the rate will be
the arithmetic mean of the quotations. If on that date fewer than two quotations
are provided as requested, the rate will be the arithmetic mean of the rates
quoted by one or more major banks in New York City, selected by the trustee
after consultation with the servicer, as of 11:00 A.M., New York City time, on
that date for loans in U.S. Dollars to leading European banks for a period of
one month in amounts approximately equal to the aggregate Certificate Principal
Balance of the Class A-1 Certificates then outstanding. If no quotations can be
obtained, the rate will be LIBOR for the prior distribution date, or in the case
of the first LIBOR rate adjustment date, % with respect to the Class A-1
Certificates; provided however, if, under the priorities listed previously in
this paragraph, LIBOR for a distribution date would be based on LIBOR for the
previous distribution date for the third consecutive distribution date, the
trustee shall select an alternative comparable index over which the trustee has
no control, used for determining one-month Eurodollar lending rates that is
calculated and published or otherwise made available by an independent party.
LIBOR business day means any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the city of London, England are required or
authorized by law to be closed.
The establishment of LIBOR by the trustee and the trustee's subsequent
calculation of the pass-through rates applicable to the Class A-1 Certificates
for the relevant Interest Accrual Period, in the absence of manifest error, will
be final and binding.
Principal Distributions on the Class A Certificates
Except as provided below, holders of the Class A Certificates will be
entitled to receive on each distribution date, in the priority described in this
prospectus supplement and to the extent of the portion of the Available
Distribution Amount remaining after the distribution of the Interest
Distribution Amount is distributed, a distribution allocable to principal equal
to the Principal Distribution Amount.
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Distributions of principal on the Class A Certificates on each
distribution date will be made, after distribution of the Interest Distribution
Amount, as follows:
(i) the Principal Distribution Amount to the Class A-3 Certificates
in reduction of its Certificate Principal Balance, until its Certificate
Principal Balance has been reduced to zero, an amount equal to the sum of
the following:
(A) the Lockout Scheduled Percentage of the Class A-3
Certificates' pro rata share, based on its Certificate Principal
Balance relative to the aggregate Certificate Principal Balance of
all classes of Certificates, of the aggregate of the amounts
described in clauses [ ] of the definition of Principal Distribution
Amount; and
(B) the Lockout Prepayment Percentage of the Class A-3
Certificates' pro rata share, based on its Certificate Principal
Balance relative to the aggregate Certificate Principal Balance of
all classes of Class A Certificates, of the aggregate of the amounts
described in clause [ ] of the definition of Principal Distribution
Amount;
provided that if the aggregate of the amounts set forth in the definition of
Principal Distribution Amount is more than the balance of the Available
Distribution Amount remaining after the Interest Distribution Amount has been
distributed, the amount paid to the Class A-3 Certificates under this clause (i)
shall be reduced by an amount equal to the Class A-3 Certificates' pro rata
share, based on its aggregate Certificate Principal Balance relative to the
aggregate Certificate Principal Balance of the Class A Certificates of that
difference; and
(ii) the balance of the Principal Distribution Amount remaining after
the distributions, if any, described in clause (i) above shall be
distributed in the following order of priority:
(A) first, concurrently, Class A-1 and Class A-2 Certificates,
on a pro rata basis, until their Certificate Principal Balances have
been reduced to zero; and
(B) second, to the Class A-3 Certificates until its Certificate
Principal Balance has been reduced to zero.]
On each distribution date, the financial guaranty insurer shall be
entitled to receive, after payment to the Class A Certificateholders of the
Interest Distribution Amount and the Principal Distribution Amount for such
distribution date, but before application of any Subordination Increase Amount,
from the Excess Cash Flow to the extent available therefor, the aggregate of any
payments made with respect to the Class A Certificates by the financial guaranty
insurer under the financial guaranty insurance policy to the extent not
previously reimbursed, plus interest thereon.
Overcollateralization Provisions
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The Pooling and Servicing Agreement requires that, on each distribution
date, Excess Cash Flow, if any, be applied on such distribution date as an
accelerated payment of principal on the Class A Certificates, but only as
follows: The Excess Cash Flow for any distribution date will derive primarily
from the amount of interest accrued on the mortgage loans in excess of the sum
of (a) interest at the related pass-through rates on the Certificate Principal
Balances of the Class A Certificates, (b) the premium payable on the financial
guaranty insurance policy in respect of the mortgage loans and (c) accrued
servicing fees in respect of the mortgage loans, in each case in respect of such
distribution date. Excess Cash Flow will be applied on any distribution date as
follows:
o first, to pay to the holders of the Class A Certificates the
principal portion of Realized Losses incurred on the mortgage
loans for the preceding calendar month;
o second, to pay to the financial guaranty insurer any Cumulative
Insurance Payments;
o third, to pay any Subordination Increase Amount;
o fourth, to pay the holders of the Class A Certificates the amount
of any Prepayment Interest Shortfalls allocated thereto, to the
extent not covered by the Servicing Fee payable on such
distribution date;
o fifth, to pay the holders of the Class A Certificates any
Prepayment Interest Shortfalls remaining unpaid from prior
distribution dates together with interest thereon; and
o sixth, to pay to the holders of the Class SB Certificates and
Class R Certificates any balance remaining, in accordance with
the terms of the Pooling and Servicing Agreement.
The application of Excess Cash Flow to the payment of principal on the Class A
Certificates has the effect of accelerating the amortization of the Class A
Certificates relative to the amortization of the mortgage loans.
The Pooling and Servicing Agreement requires that the Excess Cash Flow, to
the extent available as described above, will be applied as an accelerated
payment of principal on the Class A Certificates to the extent that the Targeted
Subordinated Amount exceeds the Subordinated Amount as of such distribution
date.
Subordination Reduction Amount: In the event that the Targeted
Subordinated Amount is permitted to decrease or "step down" on a distribution
date in the future, a portion of the principal that would otherwise be
distributed to the holders of the Class A Certificates on such distribution date
shall not be distributed to the holders of the Class A Certificates on such
distribution date. This has the effect of decelerating principal distributions
to the Class A Certificates relative to the amortization of the mortgage loans,
and of reducing the Subordinated Amount. If, on any distribution date, the
Excess Subordinated Amount is, or, after taking into account all other
distributions to be made on such distribution date would be, greater than zero
(i.e., the Subordinated Amount is or would be greater than the Targeted
Subordinated Amount),
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then any amounts relating to principal which would otherwise be distributed to
the holders of the Class A Certificates on such distribution date shall instead
be distributed to the holders of the Class SB Certificates in an amount equal to
the Subordination Reduction Amount for such distribution date.
Financial Guaranty Insurance Policy
The following summary of the terms of the financial guaranty insurance
policy does not purport to be complete and is qualified in its entirety by
reference to the financial guaranty insurance policy. The following information
regarding the financial guaranty insurance policy has been supplied by the
financial guaranty insurer for inclusion in this prospectus supplement.
Glossary of Terms: As used in this section and in the financial guaranty
insurance policy, the following terms shall have the following meanings:
o Agreement - The Pooling and Servicing Agreement, dated as of
_________, _____, among the depositor, the Seller, the Servicer
and the trustee, without regard to any amendment or supplement
thereto unless such amendment or supplement has been approved in
writing by the financial guaranty insurer.
o Business Day - Any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City or in the city in
which the corporate trust office of the trustee under the
Agreement or the financial guaranty insurer is located are
authorized or obligated by law or executive order to close.
o Deficiency Amount - For the related Class A Certificates as of
any distribution date, (i) any shortfall in amounts available in
the Payment Account to pay interest accrued during the Interest
Accrual Period on the Certificate Principal Balance of the Class
A Certificates at the applicable Pass-Through Rate, net of any
interest shortfalls relating to the Relief Act and any Prepayment
Interest Shortfalls allocated to the Class A Certificates, (ii)
the principal portion of any Realized Loss allocated to the Class
A Certificates and (iii) the Certificate Principal Balance of the
Class A Certificates to the extent unpaid on the final
distribution date or earlier termination of the trust fund
pursuant to the terms of the Agreement. For purposes of
determining the Deficiency Amount, the final distribution date
will be the distribution date in ____________.
o Holder - Any person who is the registered or beneficial owner of
any Class A Certificate and who, on the applicable distribution
date, is entitled under the terms of the Class A Certificates to
payment thereunder.
o Insured Amount - As of any distribution date, any Deficiency
Amount.
o Notice - The telephonic or telegraphic notice, promptly confirmed
in writing by telecopy substantially in the form of Exhibit A
attached to the financial guaranty insurance policy, the original
of which is subsequently delivered by registered or
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certified mail from the trustee specifying the Insured Amount which shall
be due and owing on the applicable distribution date.
Capitalized terms used in the financial guaranty insurance policy and not
otherwise defined in the financial guaranty insurance policy shall have the
meanings set forth in the Agreement as of the date of execution of the financial
guaranty insurance policy, without giving effect to any subsequent amendment to
or modification of the Agreement unless the amendment or modification has been
approved in writing by the financial guaranty insurer.
The financial guaranty insurer, in consideration of the payment of the
premium and subject to the terms of the related financial guaranty insurance
policy, thereby unconditionally and irrevocably guarantees to any Holder that an
amount equal to each full and complete Insured Amount will be paid to the
trustee or its successor, as trustee for the Holders. The financial guaranty
insurer's obligations under each financial guaranty insurance policy for a
particular Insured Amount shall be discharged to the extent funds equal to the
applicable Insured Amount are received by the trustee, whether or not such funds
are properly applied by the trustee. Insured Amounts shall be paid only at the
time set forth in each financial guaranty insurance policy, and no accelerated
Insured Amounts shall be paid regardless of any acceleration of the Class A
Certificates, unless such acceleration is at the sole option of the financial
guaranty insurer. The financial guaranty insurance policy does not cover any
interest shortfalls relating to the Relief Act or Prepayment Interest
Shortfalls.
Notwithstanding the foregoing paragraph, the financial guaranty insurance
policy does not cover shortfalls, if any, attributable to the liability of the
trust fund, any REMIC or the trustee for withholding taxes, if any, including
interest and penalties in respect of any such liability.
The financial guaranty insurer will pay any amounts payable under the
financial guaranty insurance policy no later than 12:00 noon, New York City
time, on the later of the distribution date on which the related Deficiency
Amount, as defined below, is due or the Business Day following receipt in New
York, New York on a Business Day of a Notice; provided that if such Notice is
received after 12:00 noon, New York City time, on such Business Day, it will be
deemed to be received on the following Business Day. If any such Notice received
is not in proper form or is otherwise insufficient for the purpose of making a
claim under the financial guaranty insurance policy it shall be deemed not to
have been received for purposes of this paragraph, and the financial guaranty
insurer shall promptly so advise the trustee and the trustee may submit an
amended Notice.
Insured Amounts due under the financial guaranty insurance policy, unless
otherwise stated in the financial guaranty insurance policy, are to be disbursed
by the financial guaranty insurer to the trustee on behalf of the Holders by
wire transfer of immediately available funds in the amount of the Insured
Amount.
The financial guaranty insurance policy is being issued under and pursuant
to and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
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The financial guaranty insurance policy is not cancelable for any reason.
The premium on the financial guaranty insurance policy is not refundable for any
reason including payment, or provision being made for payment, prior to maturity
of the related Class A Certificates.
Allocation of Losses; Subordination
Subject to the terms thereof, the financial guaranty insurance policy will
cover all Realized Losses allocated to the Class A Certificates. If payments are
not made as required under the financial guaranty insurance policy, Realized
Losses will be allocable to the Class A Certificates based on the following
priorities.
The subordination provided to the Class A Certificates by the Class SB
Certificates will cover Realized Losses on the mortgage loans that are Defaulted
Mortgage Losses, Fraud Losses, Bankruptcy Losses and Special Hazard Losses. Any
Realized Losses which are not Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses will be allocated as follows:
o first, to the Excess Cash Flow for the related distribution date;
and
o second, to the Class SB Certificates
and the remainder of the Realized Losses among all the remaining classes of
Class A Certificates on a pro rata basis.
Any allocation of a Realized Loss, other than a Debt Service Reduction, to
a certificate will be made by reducing:
o its Certificate Principal Balance, in the case of the principal
portion of the Realized Loss, in each case until the Certificate
Principal Balance of that class has been reduced to zero, and
o the Accrued Certificate Interest thereon, in the case of the
interest portion of the Realized Loss, by the amount so allocated
as of the distribution date occurring in the month following the
calendar month in which the Realized Loss was incurred.
In addition, any allocation of a Realized Loss to a Class A Certificate may also
be made by operation of the payment priority to the Class A Certificates
described under "--Principal Distributions on the Class A Certificates" in this
prospectus supplement.
As used in this prospectus supplement, subordination refers to the
provisions discussed above for the sequential allocation of Realized Losses
among the various classes, as well as all provisions effecting those allocations
including the priorities for distribution of cash flows in the amounts described
in this prospectus supplement.
As described in the prospectus, in some circumstances the servicer may
permit a servicing modification--the modification of a defaulted mortgage loan
to reduce the applicable mortgage rate or to reduce its outstanding principal
amount. Any principal reduction of this type shall constitute a Realized Loss at
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the time of the reduction, and the amount by which each monthly payment is
reduced by any mortgage rate reduction shall constitute a Realized Loss in the
month in which each such reduced monthly payment is due.
Servicing modification reductions shall be allocated when incurred, as
provided above, in the same manner as other Realized Losses as described in this
prospectus supplement. Any Advances made on any mortgage loan will be reduced to
reflect any related servicing modifications previously made. The mortgage rate
and Net Loan Rate as to any mortgage loan will be deemed not reduced by any
servicing modification, so that the calculation of Accrued Certificate Interest
payable on the Class A Certificates will not be affected by the servicing
modification.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses, Extraordinary Losses or other losses of a type not covered by
subordination will be allocated on a pro rata basis among the Class A
Certificates and in an aggregate amount equal to the percentage of that loss
equal to the then aggregate Certificate Principal Balance of the Class A
Certificates divided by the then aggregate Stated Principal Balance of the
mortgage loans, in each case subject to the limitations set forth in the Pooling
and Servicing Agreement, and the remainder of the Realized Losses will be
allocated to the Class SB Certificates.
An allocation of a Realized Loss on a "pro rata basis" among two or more
classes of certificates means an allocation to each of those classes of
certificates on the basis of its then outstanding Certificate Principal Balance
prior to giving effect to distributions to be made on that distribution date in
the case of an allocation of the principal portion of a Realized Loss, or based
on the Accrued Certificate Interest thereon in respect of that distribution date
in the case of an allocation of the interest portion of a Realized Loss.
In order to maximize the likelihood of distribution in full of the
Interest Distribution Amount and Principal Distribution Amount, on each
distribution date, holders of Class A Certificates have a right to distributions
of the Available Distribution Amount that is prior to the rights of the holders
of the Class SB Certificates and Class R Certificates, to the extent necessary
to satisfy the Interest Distribution Amount and Principal Distribution Amount.
The Special Hazard Amount shall initially be equal to $ . As of any date
of determination following the cut-off date, the Special Hazard Amount shall
equal $ less the sum of (A) any amounts allocated through subordination relating
to Special Hazard Losses and (B) the Adjustment Amount. The Adjustment Amount
will be equal to an amount calculated under the terms of the pooling and
servicing agreement.
The Fraud Loss Amount shall initially be equal to $ . As of any date of
determination after the cut-off date, the Fraud Loss Amount shall equal (X)
prior to the third anniversary of the cut-off date an amount equal to ____% of
the aggregate principal balance of all of the mortgage loans as of the cut-off
date minus the aggregate amounts allocated through Subordination for Fraud
Losses up to that date of determination and (Y) from the third to the fifth
anniversary of the cut-off date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the cut-off date and (b)
____% of the aggregate principal balance of all of the mortgage loans as of the
most recent anniversary of the cut-off date minus (2) the aggregate amounts
allocated through subordination for Fraud Losses since the
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most recent anniversary of the cut-off date up to that date of determination. On
and after the fifth anniversary of the cut-off date, the Fraud Loss Amount shall
be zero and Fraud Losses shall not be allocated through subordination.
The Bankruptcy Amount will initially be equal to $ . As of any date of
determination on or after the first anniversary of the cut-off date, the
Bankruptcy Amount will equal the excess, if any, of (1) the lesser of (a) the
Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the cut-off date and (b) an amount calculated under the terms of
the pooling and servicing agreement, which amount as calculated will provide for
a reduction in the Bankruptcy Amount, over (2) the aggregate amount of
Bankruptcy Losses allocated solely to the Class SB Certificates through
subordination since that anniversary.
Realized Losses allocated to the Class A Certificates will be covered by
the financial guaranty insurance policy. In the event payments are not made as
required under such policy, these losses will be borne by the holders of the
Class A Certificates.
With respect to any defaulted mortgage loan that is finally liquidated,
through foreclosure sale, disposition of the related mortgaged property if
acquired on behalf of the certificateholders by deed in lieu of foreclosure, or
otherwise, the amount of loss realized, if any, will equal the portion of the
Stated Principal Balance remaining, if any, plus its interest through the last
day of the month in which that mortgage loan was finally liquidated, after
application of all amounts recovered, net of amounts reimbursable to the
servicer or the subservicer for expenses, including attorneys' fees, towards
interest and principal owing on the mortgage loan.
Notwithstanding the foregoing, the provisions relating to subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
servicer has notified the trustee in writing that:
o the servicer is diligently pursuing any remedies that may exist
in connection with the representations and warranties made
regarding the related mortgage loan and
o either:
o the related mortgage loan is not in default with regard to
payments due thereunder or
o delinquent payments of principal and interest under the related
mortgage loan and any premiums on any applicable primary hazard
insurance policy and any related escrow payments relating to that
mortgage loan are being advanced on a current basis by the
servicer or a subservicer.
[Advances
Prior to each distribution date, the servicer is required to make Advances
which were due on the mortgage loans on the immediately preceding due date and
delinquent on the business day next preceding the related determination date.
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These Advances are required to be made only to the extent they are deemed
by the servicer to be recoverable from related late collections, Insurance
Proceeds or Liquidation Proceeds. The purpose of making these Advances is to
maintain a regular cash flow to the certificateholders, rather than to guarantee
or insure against losses. The servicer will not be required to make any Advances
for reductions in the amount of the monthly payments on the mortgage loans due
to Debt Service Reductions or the application of the Relief Act or similar
legislation or regulations. Any failure by the servicer to make an Advance as
required under the pooling and servicing agreement will constitute an event of
default thereunder, in which case the trustee, as successor servicer, will be
obligated to make any Advance, in accordance with the terms of the pooling and
servicing agreement.
All Advances will be reimbursable to the servicer on a first priority
basis from either (a) late collections, Insurance Proceeds and Liquidation
Proceeds from the mortgage loan as to which such unreimbursed Advance was made
or (b) as to any Advance that remains unreimbursed in whole or in part following
the final liquidation of the related mortgage loan, from any amounts otherwise
distributable on any of the Class A Certificates.]
THE FINANCIAL GUARANTY INSURER
The following information has been supplied by the financial guaranty
insurer for inclusion in this Prospectus Supplement. No representation is made
by the depositor, the underwriters or any of their affiliates as to the accuracy
or completeness of such information.
[financial guaranty insurer discloser]
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The yields to maturity and the aggregate amount of distributions on the
Class A Certificates will be affected by the rate and timing of principal
payments on the mortgage loans, the amount and timing of mortgagor defaults
resulting in Realized Losses and by adjustments to the mortgage rates. The rate
of default of mortgage loans secured by second liens may be greater than that of
mortgage loans secured by first liens. The yields may be adversely affected by a
higher or lower than anticipated rate of principal payments on the mortgage
loans in the trust fund. The rate of principal payments on the mortgage loans
will in turn be affected by the amortization schedules of the mortgage loans,
the rate and timing of mortgagor prepayments on the mortgage loans by the
mortgagors, liquidations of defaulted mortgage loans and repurchases of mortgage
loans due to breaches of some representations and warranties.
The timing of changes in the rate of prepayments, liquidations and
repurchases of the mortgage loans may, and the timing of Realized Losses will,
significantly affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an investor's
expectation. In addition, the rate of prepayments of the mortgage loans and the
yield to investors on the certificates may be affected by refinancing programs,
which may include general or targeted solicitations, as described under
"Maturity and Prepayment Considerations" in the prospectus. Since the rate and
timing of principal payments on the
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mortgage loans will depend on future events and on a variety of factors, as
described in this prospectus supplement and in the prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations," no assurance can
be given as to the rate or the timing of principal payments on the Class A
Certificates.
The amount of Excess Cash Flow may be adversely affected by the prepayment
of mortgage loans with higher mortgage rates. Any reduction of this type will
reduce the amount of Excess Cash Flow that is available to cover Realized
Losses, increase overcollateralization on the related classes of Class A
Certificates and cover Prepayment Interest Shortfalls, to the extent and in the
manner described in this prospectus supplement. See "Description of the Mortgage
Pool--General," "Description of the Certificates--Overcollateralization
Provisions" and "--Allocation of Losses; Subordination" in this prospectus
supplement.
The Class A Certificates are subject to various priorities for payment of
principal as described in this prospectus supplement. Distributions of principal
on classes of Class A Certificates having an earlier priority of payment will be
affected by the rates of prepayment of the mortgage loans early in the life of
the mortgage pool. The timing of commencement of principal distributions and the
weighted average lives of classes of Class A Certificates with a later priority
of payment will be affected by the rates of prepayment of the mortgage loans
both before and after the commencement of principal distributions on those
classes. In addition, the yield to maturity of the Class A Certificates will
depend on whether, to what extent, and the timing with respect to which, Excess
Cash Flow is used to accelerate payments of principal on the Class A
Certificates or any Subordination Reduction Amount is released. See "Description
of the Certificates--Overcollateralization Provisions" in this prospectus
supplement.
The mortgage loans in most cases may be prepaid by the mortgagors at any
time without payment of any prepayment fee or penalty, although a portion of the
mortgage loans provide for payment of a prepayment charge, which may have a
substantial effect on the rate of prepayment of those mortgage loans. See
"Description of the Mortgage Pool--Mortgage Pool Characteristics" in this
prospectus supplement.
Most of the mortgage loans contain due-on-sale clauses. As described under
"Description of the Certificates--Principal Distributions on the Class A
Certificates" in this prospectus supplement, during specified periods all or a
disproportionately large percentage of principal prepayments on the mortgage
loans will be allocated among the Class A Certificates, other than the Lockout
Certificates, and during specified periods no principal prepayments on the
mortgage loans will be distributed to the Lockout Certificates. Furthermore, if
the Certificate Principal Balances of the Class A Certificates, other than the
Lockout Certificates, have been reduced to zero, the Lockout Certificates may,
under some circumstances, receive all mortgagor prepayments made during the
preceding calendar month.
Prepayments, liquidations and purchases of the mortgage loans will result
in distributions to holders of the Class A Certificates of principal amounts
which would otherwise be distributed over the remaining terms of the mortgage
loans. Factors affecting prepayment, including defaults and liquidations, of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties, changes in the
value of the mortgaged properties, mortgage market interest rates, solicitations
and servicing decisions. In
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addition, if prevailing mortgage rates fell significantly below the mortgage
rates on the mortgage loans, the rate of prepayments, including refinancings,
would be expected to increase. Conversely, if prevailing mortgage rates rose
significantly above the mortgage rates on the mortgage loans, the rate of
prepayments on the mortgage loans would be expected to decrease. Furthermore,
since mortgage loans secured by second liens are not generally viewed by
borrowers as permanent financing and generally carry a high rate of interest,
the mortgage loans secured by second liens may experience a higher rate of
prepayment than traditional first lien mortgage loans. Prepayment of the related
first lien may also affect the rate of prepayments in the mortgage loans.
The rate of defaults on the mortgage loans will also affect the rate and
timing of principal payments on the mortgage loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default of mortgage loans secured by second liens is likely
to be greater than that of mortgage loans secured by traditional first lien
mortgage loans, particularly in the case of mortgage loans with high combined
LTV ratios or low junior ratios. The rate of default on mortgage loans which are
refinance or reduced documentation mortgage loans, and on mortgage loans with
high LTV ratios, may be higher than for other types of mortgage loans.
Furthermore, the rate and timing of prepayments, defaults and liquidations on
the mortgage loans will be affected by the general economic condition of the
region of the country in which the related mortgaged properties are located. The
risk of delinquencies and loss is greater and prepayments are less likely in
regions where a weak or deteriorating economy exists, as may be evidenced by,
among other factors, increasing unemployment or falling property values. See
"Maturity and Prepayment Considerations" in the prospectus. In addition, because
borrowers of Balloon Loans are required to make a relatively large single
payment upon maturity, it is possible that the default risk associated with
Balloon Loans is greater than that associated with fully-amortizing mortgage
loans. See "Risk Factors" in this prospectus supplement.
To the extent that any losses are incurred on any of the mortgage loans
that are not covered by the Excess Cash Flow, a reduction in the Subordinated
Amount or the financial guaranty insurance policy, holders of the Class A
Certificates will bear the risk of losses resulting from default by mortgagors.
See "Risk Factors--The return on your certificates will be reduced if losses
exceed the credit enhancement available to your certificates" in this prospectus
supplement. Even where the financial guaranty insurance policy covers all losses
incurred on the mortgage loans, this coverage may accelerate principal payments
on the Class A Certificates, thus reducing the weighted average life of the
Class A Certificates.
The periodic increase in interest paid by the mortgagor of a Buy-Down Loan
may increase the risk of default with respect to the related mortgage loan. See
"Yield Considerations" in the prospectus.
The amount of interest otherwise payable to holders of the Class A
Certificates will be reduced by any interest shortfalls to the extent not
covered by subordination or the servicer, including Prepayment Interest
Shortfalls. These shortfalls will not be offset by a reduction in the servicing
fees payable to the servicer or otherwise, except as described in this
prospectus supplement with respect to some Prepayment Interest Shortfalls. See
"Yield Considerations" in the prospectus and "Description of the
Certificates--Interest Distributions" in this prospectus
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supplement for a discussion of the effect of principal prepayments on the
mortgage loans on the yield to maturity of the Class A Certificates and possible
shortfalls in the collection of interest.
In addition, the yield to maturity on each class of the Class A
Certificates will depend on, among other things, the price paid by the holders
of the Class A Certificates and the related pass-through rate. The extent to
which the yield to maturity of any Class A Certificate is sensitive to
prepayments will depend, in part, upon the degree to which it is purchased at a
discount or premium. In general, if a class of Class A Certificates is purchased
at a premium and principal distributions thereon occur at a rate faster than
assumed at the time of purchase, the investor's actual yield to maturity will be
lower than anticipated at the time of purchase. Conversely, if a class of Class
A Certificates is purchased at a discount and principal distributions thereon
occur at a rate slower than assumed at the time of purchase, the investor's
actual yield to maturity will be lower than anticipated at the time of purchase.
For additional considerations relating to the yield on the certificates, see
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
prospectus.
Because the mortgage rates on the mortgage loans and the pass-through
rates on the Class A Certificates (other than the Class A-1 Certificates) are
fixed, the rates will not change in response to changes in market interest
rates. Accordingly, if market interest rates or market yields for securities
similar to the offered certificates were to rise, the market value of the
offered certificates may decline.
The yield to investors on the Class A-1 Certificates will be sensitive to
fluctuations in the level of LIBOR and the pass-through rate will be capped. See
"Risk Factors--The yield on your certificates will be affected by the specific
characteristics that apply to that class, discussed below - Class A-1
Certificates". A number of factors affect the performance of any index, such as
LIBOR, and may cause such index to move in a manner different from other
indices. To the extent that any index may reflect changes in the general level
of interest rates less quickly than other indices, in a period of rising
interest rates, increases in the yield to the Class A-1 Certificateholders due
to such rising interest rates may occur later than that which would be produced
by other indices. Moreover, an increase in the level of LIBOR will increase the
likelihood that the pass-through rate on the Class A-1 Certificates will be
limited by the weighted average Net Loan Rate on the mortgage loans in
accordance with such index, than of mortgage loans which adjust in accordance
with other indices.
Class A Certificates: The rate and timing of principal payments on and the
weighted average lives of the Class A Certificates will be affected primarily by
the rate and timing of principal payments, including prepayments, defaults,
liquidations and purchases, on the mortgage loans.
Lockout Certificates: Investors in the Lockout Certificates should be
aware that because the Lockout Certificates do not receive any distributions of
payments of principal prior to the distribution date occurring in , and may
receive a disproportionately small percentage of principal prepayments until the
distribution date occurring in ______, unless the Certificate Principal Balances
of the Class A Certificates, other than the Lockout Certificates, have been
reduced to zero, the weighted average life of the Lockout Certificates will be
longer than would otherwise be the case. The effect on the market value of the
Lockout Certificates of
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changes in market interest rates or market yields for similar securities will be
greater than for other classes of Class A Certificates entitled to principal
distributions.
Assumed Final Distribution Date: The assumed final distribution date with
respect to each class of the Class A Certificates is 25, , which is the
distribution date immediately following the latest scheduled maturity date for
any mortgage loan. No event of default, change in the priorities for
distribution among the various classes or other provisions under the pooling and
servicing agreement will arise or become applicable solely by reason of the
failure to retire the entire Certificate Principal Balance of any class of
certificates on or before its assumed final distribution date.
The actual final distribution date with respect to each class of Class A
Certificates could occur significantly earlier than the assumed final
distribution date for that class because:
o Excess Cash Flow will be used to make accelerated payments of
principal, i.e. Subordination Increase Amounts, to the holders of
the Class A Certificates, which payments will have the effect of
shortening the weighted average lives of the Class A Certificates
of each class,
o prepayments are likely to occur, which will also have the effect
of shortening the weighted average lives of the Class A
Certificates, and
o the servicer may cause a termination of the trust when the
aggregate Stated Principal Balance of the mortgage loans in the
trust is less than 10% of the aggregate cut-off date balance.
Weighted Average Life: Weighted average life refers to the average amount
of time that will elapse from the date of issuance of a security to the date of
distribution to the investor of each dollar distributed in reduction of
principal of the security assuming no losses. The weighted average life of the
Class A Certificates will be influenced by, among other things, the rate at
which principal of the mortgage loans is paid, which may be in the form of
scheduled amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement, the
prepayment speed assumption, represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of new mortgage
loans. A prepayment assumption of 100% PSA assumes constant prepayment rates of
0.20% per annum of the then outstanding principal balance of the mortgage loans
in the first month of the life of the mortgage loans and an additional 0.20% 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% PSA
assumes a constant prepayment rate of 6% per annum each month. As used in the
table below, "0% PSA" assumes prepayment rates equal to 0% of PSA--no
prepayments. Correspondingly, "100% PSA" and " % PSA" assumes prepayment rates
equal to 100% of PSA and % of PSA, respectively, and so forth. PSA 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 .
The table captioned "Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of PSA" has been prepared on the basis
of assumptions as listed in this
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paragraph regarding the weighted average characteristics of the Mortgage loans
that are expected to be included in the trust fund as described under
"Description of the Mortgage Pool" in this prospectus supplement and their
performance. The table assumes, among other things, that: (i) as of the date of
issuance of the Class A Certificates, the mortgage loans have the following
characteristics:
Aggregate principal $ $
balance
Weighted average % %
mortgage rate
Weighted average % %
servicing fee rate
Weighted average
original term to
maturity (months)
Weighted average
remaining term to
maturity (months)
(ii)except with respect to the Balloon Loans the scheduled monthly
payment for each mortgage loan has been based on its outstanding balance,
mortgage rate and remaining term to maturity, so that the mortgage loan will
amortize in amounts sufficient for its repayment over its remaining term to
maturity; (iii) none of the unaffiliated sellers, the servicer or the depositor
will repurchase any mortgage loan, as described under "The Trust Fund--The
Mortgage Pools" and "Description of the Certificates--Assignment of Mortgage
Loans" in the prospectus, and neither the servicer nor the depositor exercises
any option to purchase the mortgage loans and thereby cause a termination of the
trust fund; (iv) there are no delinquencies or Realized Losses on the mortgage
loans , and principal payments on the mortgage loans will be timely received
together with prepayments, if any, at the respective constant percentages of PSA
set forth in the table; (v) there is no Prepayment Interest Shortfall or any
other interest shortfall in any month; (vi) payments on the certificates will be
received on the 25th day of each month, commencing in _________; (vii) payments
on the mortgage loans earn no reinvestment return; (viii) there are no
additional ongoing trust fund expenses payable out of the trust fund; and (ix)
the certificates will be purchased on _______________, _______. Clauses (i)
through (ix) above are collectively referred to as the structuring assumptions.
The actual characteristics and performance of the mortgage loans will
differ from the assumptions used in constructing the table below, which is
hypothetical in nature and is provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the mortgage loans will prepay at a constant
level of PSA until maturity or that all of the mortgage loans will prepay at the
same level of PSA. Moreover, the diverse remaining terms to maturity and
mortgage rates of the mortgage loans could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
PSA specified, even if the weighted average remaining term to maturity and
weighted average mortgage rate of the mortgage loans are as assumed. Any
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difference between the assumptions and the actual characteristics and
performance of the mortgage loans, or actual prepayment or loss experience, will
affect the percentages of initial Certificate Principal Balances outstanding
over time and the weighted average lives of the classes of Class A Certificates.
In accordance with the foregoing discussion and assumptions, the following
table indicates the weighted average life of each class of Class A Certificates,
and sets forth the percentages of the initial Certificate Principal Balance of
each class of Class A Certificates that would be outstanding after each of the
distribution dates at the various percentages of PSA shown.
Percent of Initial Certificate Principal Balance Outstanding
at the Following Percentages of PSA
Class A-1 Class A-2 Class A-3
DISTRIBUTION DATE % % % % % % % % %
Initial Percentage
Weighted Average
Life in Years (**)
------------
o Indicates a number that is greater than zero but less than 0.5%.
o (Table continued on next page.)
** The weighted average life of a certificate of any class is determined by
(i) multiplying the net reduction, if any, of the Certificate Principal
Balance by the number of years from the date of issuance of the
certificate to the related distribution date, (ii) adding the results, and
(iii) dividing the sum by the aggregate of the net reduction of the
Certificate Principal Balance described in (i) above.
This table has been prepared based on the structuring assumptions,
including the assumptions relating to the characteristics and performance of the
mortgage loans, which differ from their actual characteristics, and should be
read in conjunction therewith.
POOLING AND SERVICING AGREEMENT
General
The certificates will be issued under a pooling and servicing agreement
dated as of __________, ____, among the depositor, the seller, the servicer, and
__________, as trustee. Reference is made to the prospectus for important
information in addition to that described in this prospectus supplement
regarding the terms and conditions of the pooling and servicing agreement and
the Class A Certificates. The trustee will appoint ____________________to
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serve as custodian in connection with the certificates. The Class A Certificates
will be transferable and exchangeable at the corporate trust office of the
trustee, which will serve as certificate registrar and paying agent. The
depositor will provide a prospective or actual certificateholder without charge,
on written request, a copy, without exhibits, of the pooling and servicing
agreement. Requests should be addressed to the President, Credit Suisse First
Boston Mortgage Securities Corp., [ ].
Servicing and Other Compensation and Payment of Expenses
The servicing fees for each mortgage loan are payable out of the interest
payments on that mortgage loan. The servicing fees relating to each mortgage
loan will be at least % per annum and not more than % per annum of the
outstanding principal balance of that mortgage loan, with a weighted average
servicing fee of approximately % per annum.
The servicer is obligated to pay some ongoing expenses associated with the
trust fund and incurred by the servicer in connection with its responsibilities
under the pooling and servicing agreement. See "Description of the Certificates"
in the prospectus for information regarding other possible compensation to the
servicer and subservicers and for information regarding expenses payable by the
servicer.
Voting Rights
There are actions specified in the prospectus that may be taken by holders
of certificates evidencing a specified percentage of all undivided interests in
the trust fund and may be taken by holders of certificates entitled in the
aggregate to that percentage of the voting rights. ___% of all voting rights
will be allocated among all holders of the Class A Certificates, ___% of all
voting rights will be allocated among all holders of the Class R Certificates
and ___% of all voting rights will be allocated among all holders of the Class
SB Certificates, respectively, in each case in proportion to the percentage
interests evidenced by their respective certificates. The pooling and servicing
agreement may be amended without the consent of the holders of the Class R
Certificates in specified circumstances.
Termination
The circumstances under which the obligations created by the pooling and
servicing agreement will terminate relating to the Class A Certificates are
described in "Description of the Certificates--Termination" in the prospectus.
The servicer will have the option, on any distribution date on which the
aggregate Stated Principal Balance of the mortgage loans is less than 10% of the
aggregate principal balance of the mortgage loans as of the cut-off date, either
to purchase all remaining mortgage loans and other assets in the trust fund,
except for the policy, thereby effecting early retirement of the Class A
Certificates or to purchase, in whole but not in part, the certificates. Any
such purchase of mortgage loans and other assets of the trust fund shall be made
at a price equal to the sum of (a) 100% of the unpaid principal balance of each
mortgage loan or the fair market value of the related underlying mortgaged
properties with respect to defaulted mortgage loans as to which title to such
mortgaged properties has been acquired if such fair market value is less than
such unpaid principal balance, net of any unreimbursed Advance attributable to
principal, as of the date of repurchase plus (b) accrued
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interest thereon at the Net Loan Rate to, but not including, the first day of
the month in which the repurchase price is distributed plus (c) any amounts due
to the financial guaranty insurer under the insurance and indemnity agreement.
Distributions on the certificates relating to any optional termination
will be paid, first, to the Class A Certificates and second, to the Class SB
Certificates in the order of their payment priority. The proceeds of any such
distribution may not be sufficient to distribute the full amount to each class
of certificates if the purchase price is based in part on the fair market value
of the underlying mortgaged property and the fair market value is less than 100%
of the unpaid principal balance of the related mortgage loan. Any purchase of
mortgage loans and termination of the trust requires the consent of the
financial guaranty insurer if it would result in a draw on the policy. Any such
purchase of the certificates will be made at a price equal to 100% of their
Certificate Principal Balance plus the sum of interest thereon for the
immediately preceding Interest Accrual Period at the then-applicable
pass-through rate and any previously unpaid Accrued Certificate Interest. Upon
the purchase of such certificates or at any time thereafter, at the option of
the servicer, the mortgage loans may be sold, thereby effecting a retirement of
the certificates and the termination of the trust fund, or the certificates so
purchased may be held or resold by the servicer or the depositor.
Upon presentation and surrender of the Class A Certificates in connection
with the termination of the trust fund or a purchase of certificates under the
circumstances described in the two preceding paragraphs, the holders of the
Class A Certificates will receive an amount equal to the Certificate Principal
Balance of that class plus interest thereon for the immediately preceding
Interest Accrual Period at the then-applicable pass-through rate, plus any
previously unpaid Accrued Certificate Interest. However, distributions to the
holders of the most subordinate class of certificates outstanding will be
reduced, as described in the preceding paragraph, in the case of the termination
of the trust fund resulting from a purchase of all the assets of the trust fund.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
____________________, counsel to the depositor, has filed with the depositor's
registration statement an opinion to the effect that, assuming compliance with
all provisions of the pooling and servicing agreement, for federal income tax
purposes, the trust fund will qualify as a REMIC under the Internal Revenue
Code.
For federal income tax purposes:
o the Class R Certificates will constitute the sole class of
"residual interests" in the REMIC and
o each class of Class A Certificates and the Class SB Certificates
will represent ownership of "regular interests" in the REMIC and
will be treated as debt instruments of the REMIC
See "Material Federal Income Tax Consequences--Classification of REMICs
and FASITs" in the prospectus.
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For federal income tax purposes, the Class Certificates will, [the Class
Certificates may] [and all other Classes of Class A Certificates will not] be
treated as having been issued with original issue discount. The prepayment
assumption that will be used in determining the rate of accrual of original
issue discount, market discount and premium, if any, for federal income tax
purposes will be based on the assumption that, subsequent to the date of any
determination the mortgage loans will prepay at a rate equal to % PSA. No
representation is made that the mortgage loans will prepay at that rate or at
any other rate. See "Material Federal Income Tax Consequences--General" and
"--Taxation of Owners of REMIC and FASIT Regular Certificates--Original Issue
Discount" in the prospectus.
If the method for computing original issue discount described in the
prospectus results in a negative amount for any period with respect to a
certificateholder, the amount of original issue discount allocable to that
period would be zero and the certificateholder will be permitted to offset that
negative amount only against future original issue discount, if any,
attributable to those certificates.
In some circumstances the OID regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, it is possible that the holder of a
certificate may be able to select a method for recognizing original issue
discount that differs from that used by the servicer in preparing reports to the
certificateholders and the IRS.
Some of the classes of Class A Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
one of those classes of certificates will be treated as holding a certificate
with amortizable bond premium will depend on the certificateholder's purchase
price and the distributions remaining to be made on the certificate at the time
of its acquisition by the certificateholder. Holders of those classes of
certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Material Federal Income Tax
Consequences--Taxation of Owners of REMIC and FASIT Regular Certificates" and
"--Premium" in the prospectus.
The Class A Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Internal Revenue Code and "real estate assets" under
Section 856(c)(4)(A) of the Internal Revenue Code in the same proportion that
the assets of the trust fund 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)(3)(B) of the Internal Revenue
Code to the extent that the Class A Certificates are treated as "real estate
assets" under Section 856(c)(4)(A) of the Internal Revenue Code. Moreover, the
Class A Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Internal Revenue Code if transferred to another REMIC on its
startup day in exchange for a regular or residual interest therein. However,
prospective investors in Class A Certificates that will be treated as assets
described in Section 860G(a)(3) of the Internal Revenue Code should note that,
notwithstanding that treatment, any repurchase of a certificate pursuant to the
right of the servicer or the depositor to repurchase the Class A Certificates
may adversely affect any REMIC that holds the Class A Certificates if the
repurchase is made under circumstances giving rise to a Prohibited Transaction
Tax. See "The Pooling and Servicing Agreement--Termination" in this prospectus
supplement and "Material
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Federal Income Tax Consequences--Taxation of Owners of REMIC Residual
Certificates--Prohibited Transaction and Other Taxes" in the prospectus.
For further information regarding federal income tax consequences of
investing in the Class A Certificates, see "Material Federal Income Tax
Consequences--Taxation of Owners of REMIC and FASIT Regular Certificates" in the
prospectus.
METHOD OF DISTRIBUTION
In accordance with the terms and conditions of an underwriting agreement,
dated , will serve as underwriter and has agreed to purchase and the depositor
has agreed to sell the Class A Certificates. The certificates being sold to the
underwriter are referred to as the underwritten certificates. It is expected
that delivery of the underwritten certificates will be made only in book-entry
form through the Same Day Funds Settlement System of DTC on or about
_____________, against payment therefor in immediately available funds.
In connection with the underwritten certificates, the underwriter has
agreed, in accordance with the terms and conditions of the underwriting
agreement, to purchase all of the underwritten certificates if any of its
underwritten certificates are purchased thereby.
The underwriting agreement provides that the obligations of the
underwriter to pay for and accept delivery of the underwritten certificates are
subject to, among other things, the receipt of legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
depositor's registration statement shall be in effect, and that no proceedings
for that purpose shall be pending before or threatened by the Commission.
The distribution of the underwritten certificates by the underwriter may
be effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined at the time of sale. Proceeds to
the depositor from the sale of the underwritten certificates, before deducting
expenses payable by the depositor, will be approximately % of the aggregate
Certificate Principal Balance of the underwritten certificates plus accrued
interest thereon from the cut-off date.
The underwriter may effect these transactions by selling the underwritten
certificates to or through dealers, and those dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
underwriter for whom they act as agent. In connection with the sale of the
underwritten certificates, the underwriter may be deemed to have received
compensation from the depositor in the form of underwriting compensation. The
underwriter and any dealers that participate with the underwriter in the
distribution of the underwritten certificates may be deemed to be underwriters
and any profit on the resale of the underwritten certificates positioned by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933, as amended.
The underwriting agreement provides that the depositor will indemnify the
underwriter, and that under limited circumstances the underwriter will indemnify
the depositor, against some liabilities under the Securities Act, or contribute
to payments required to be made in respect thereof.
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There is currently no secondary market for the Class A Certificates. The
underwriter intends to make a secondary market in the underwritten certificates
but is not obligated 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 Class A Certificates will not be listed on any securities
exchange.
The primary source of information available to investors concerning the
Class A Certificates will be the monthly statements discussed in the prospectus
under "Description of the Certificates--Reports to Certificateholders," which
will include information as to the outstanding principal balance of the Class A
Certificates. There can be no assurance that any additional information
regarding the Class A Certificates will be available through any other source.
In addition, the depositor is not aware of any source through which price
information about the Class A Certificates will be available on an ongoing
basis. The limited nature of this information regarding the Class A Certificates
may adversely affect the liquidity of the Class A Certificates, even if a
secondary market for the Class A Certificates becomes available.
LEGAL OPINIONS
[Certain legal matters relating to the certificates will be passed upon for
the depositor by , and for the ------------------------ ------------------------
underwriter by , .] ---------------------- ------------------------
[EXPERTS
The consolidated financial statements of [financial guaranty insurer]
____________ [and subsidiaries], as of December 31, ____ and ____ and for each
of the years in the three-year period ended December 31, ____ are incorporated
by reference in this prospectus supplement and in the registration statement in
reliance upon the report of _________, independent certified public accountants,
incorporated by reference in this prospectus supplement, and upon the authority
of __________ as experts in accounting and auditing.]
RATINGS
It is a condition of the issuance of the Class A Certificates that they be
rated "AAA" by __________ and ____________.
[______________________ 's ratings on mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of payments required under
the pooling and servicing agreement. ____________________ 's ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the certificates, and the extent to which the payment
stream in the mortgage pool is adequate to make payments required under the
certificates. ________________ 's rating on the certificates does not, however,
constitute a statement regarding frequency of prepayments on the mortgage s. See
"Certain Yield and Prepayment Considerations" in this prospectus supplement. In
addition, the ratings do not address the likelihood of the receipt of any
amounts in respect of Prepayment Interest Shortfalls.
The ratings assigned by to mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
they are entitled under the transaction structure. _________________'s ratings
reflect its analysis of the
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riskiness of the underlying mortgage loans and the structure of the transaction
as described in the operative documents. 's ratings do not address the effect on
the certificates' yield attributable to prepayments or recoveries on the
underlying mortgage loans . In addition, the ratings do not address the
likelihood of the receipt of any amounts in respect of Prepayment Interest
Shortfalls.
The depositor has not requested a rating on the Class A Certificates by any
rating agency other than _______________ and __________________. However, there
can be no assurance as to whether any other rating agency will rate the Class A
Certificates, or, if it does, what rating would be assigned by any other rating
agency. A rating on the Certificates by another rating agency, if assigned at
all, may be lower than the ratings assigned to the Class A Certificates by and .
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 A 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 A Certificates.
LEGAL INVESTMENT
The Class A Certificates will not constitute "mortgage related securities"
for purposes of SMMEA because the mortgage pool includes mortgage loans that are
secured by subordinate liens on the related mortgage properties.
One or more classes of the Class A Certificates may be viewed as "complex
securities" under TB13a, which applies to thrift institutions regulated by the
OTS.
The depositor makes no representations as to the proper characterization
of any class of the Class A Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any class of the Class
A Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Class A
Certificates. Accordingly, all investors whose investment activities are subject
to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their legal advisors in
determining whether and to what extent any class of the Class A Certificates
constitutes a legal investment or is subject to investment, capital or other
restrictions.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
A fiduciary of any ERISA plan, any insurance company, whether through its
general or separate accounts, or any other person investing ERISA plan assets,
as defined under "ERISA Considerations" in the prospectus, should carefully
review with its legal advisors whether the purchase or holding of Class A
Certificates could give rise to a transaction prohibited or not otherwise
permissible under ERISA or Section 4975 of the Internal Revenue Code. The
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purchase or holding of the Class A Certificates by or on behalf of an ERISA plan
or with ERISA plan assets may qualify for exemptive relief under the RFC
exemption, as described under "ERISA Considerations" in the prospectus. However,
the RFC exemption contains a number of conditions which must be met for the
exemption to apply, including the requirement that any ERISA plan must be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
Insurance companies contemplating the investment of general account assets
in the Class A Certificates should consult with their legal advisors with
respect to the applicability of Section 401(c) of ERISA, as described under
"ERISA Considerations--Insurance Company General Accounts" in the prospectus.
The DOL issued final regulations under Section 401(c) on January 4, 2000, but
these final regulations are not generally applicable until July 5, 2001.
Any fiduciary or other investor of ERISA plan assets that proposes to
acquire or hold the Class A Certificates on behalf of an ERISA plan or with
ERISA plan assets should consult with its counsel with respect to: (i) whether
the specific and general conditions and the other requirements of the RFC
exemption would be satisfied, or whether any other prohibited transaction
exemption would apply, and (ii) the potential applicability of the general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Internal Revenue Code to the
proposed investment. See "ERISA Considerations" in the prospectus.
The sale of any of the Class A Certificates to an ERISA plan is in no
respect a representation by the depositor or the underwriter that such an
investment meets all relevant legal requirements relating to investments by
ERISA plans generally or any particular ERISA plan, or that such an investment
is appropriate for ERISA plans generally or any particular ERISA plan.
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Credit Suisse First Boston Mortgage Securities Corp.
$
Mortgage-Backed Pass-Through Certificates,
Series 200_-___
Prospectus supplement
[Name of Underwriter]
Underwriter
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the prospectus. We have not authorized anyone
to provide you with different information.
We are not offering the certificates offered hereby in any state where the offer
is not permitted.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
offered certificates, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until _______, .
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Prospectus
Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
The depositor may periodically form separate trust funds to issue securities in
series, secured by assets of that trust fund.
Offered Securities. The securities in a series will consist of certificates
representing interests in a trust fund and will be paid only
from the assets of that trust fund. Each series may include
multiple classes of securities with differing payment terms
and priorities. Credit enhancement will be provided for all
offered securities.
Trust Assets. Each trust fund will consist primarily of:
o mortgage loans secured by one- to four-family
residential properties;
o mortgage loans secured by multifamily
residential rental properties consisting of
five or more dwelling units;
o mortgage loans secured by commercial real
estate properties;
o mortgage loans secured by mixed residential
and commercial real estate properties;
o loans secured by unimproved land;
o 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
and the assignment of the proprietary lease or occupancy
agreement providing the exclusive right to occupy a
particular dwelling unit;
o manufactured housing installment sales
contracts and installment loan agreements; or
o mortgage or asset-backed securities backed
by, and whole or partial participations in,
the types of assets listed above.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
August __, 2000
<PAGE>
Important notice about information presented in this
prospectus and the accompanying prospectus supplement
We provide information to you about the certificates in two separate documents
that provide progressively more detail:
o this prospectus, which provides general information, some of which may not
apply to your series of certificates; and
o the accompanying prospectus supplement, which describes the specific terms
of your series of certificates.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the certificates in any state where the offer
is not permitted.
If the description of your securities in the accompanying prospectus supplement
differs from the related description in this prospectus, you should rely on the
information in that prospectus supplement.
Some capitalized terms used in this prospectus are defined in the section titled
"Glossary" beginning on page 104 of this prospectus.
We include cross-references in this prospectus and the accompanying prospectus
supplement to captions in these materials where you can find further related
discussions. The following table of contents and the table of contents included
in the accompanying prospectus supplement provide the pages on which these
captions are located.
2
<PAGE>
Table of Contents
Page
The Trust Fund....................................................5
The Mortgage Pools..........................................5
Underwriting Standards for Mortgage Loans..................10
Qualifications of Unaffiliated Sellers.....................13
Representations by Unaffiliated Sellers; Repurchases.......13
Mortgage Certificates......................................14
The Contract Pools.........................................15
Underwriting Standards for Contracts.......................16
Pre-Funding................................................16
The Depositor....................................................17
Use of Proceeds..................................................17
Yield Considerations.............................................17
Maturity and Prepayment Considerations...........................20
Description of the Certificates..................................22
General....................................................22
Form of Certificates.......................................24
Distributions of Principal and Interest....................26
Assignment of Mortgage Loans...............................27
Assignment of Contracts....................................29
Assignment of Mortgage Certificates........................31
Servicing of Mortgage Loans and Contracts..................31
Payments on Mortgage Loans.................................32
Payments on Contracts......................................33
Collection of Payments on Mortgage Certificates............34
Distributions on Certificates..............................34
Special Distributions......................................35
Reports to Certificateholders..............................36
Advances...................................................36
Collection and Other Servicing Procedures..................37
Standard Hazard Insurance..................................38
Special Hazard Insurance...................................39
Pool Insurance.............................................39
Primary Mortgage Insurance.................................39
Mortgagor Bankruptcy Bond..................................40
Presentation of Claims.....................................40
Enforcement of Due-on-Sale Clauses; Realization
Upon Defaulted Mortgage Loans..............................41
Enforcement of "Due-on-Sale" Clauses;
Realization Upon Defaulted Contracts.......................42
Servicing Compensation and Payment of Expenses.............42
Evidence as to Compliance..................................43
Certain Matters Regarding the Servicer, the
Depositor, the Trustee and the Special Servicer............44
Events of Default..........................................45
Rights Upon Event of Default...............................45
Amendment..................................................45
Termination................................................46
Credit Support...................................................47
Financial Guaranty Insurance
Policies; Surety Bonds................................47
Letters of Credit..........................................48
Subordinated Certificates..................................49
Shifting Interest..........................................49
Overcollateralization......................................49
Swaps and Yield Supplement
Agreements............................................49
Purchase Obligations.......................................50
3
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Reserve Fund..............................................50
Performance Bond..........................................52
Description of Insurance........................................52
Primary Mortgage Insurance Policies.......................52
FHA Insurance and VA Guarantees...........................54
Standard Hazard Insurance Policies on Mortgage Loans......55
Standard Hazard Insurance Policies on the
Manufactured Homes........................................56
Pool Insurance Policies...................................57
Special Hazard Insurance Policies.........................59
Mortgagor Bankruptcy Bond.................................60
Certain Legal Aspects of the Mortgage Loans and Contracts.......60
The Mortgage Loans........................................60
The Manufactured Housing Contracts........................68
Enforceability of Certain Provisions......................70
Consumer Protection Laws..................................70
Applicability of Usury Laws...............................71
Environmental Legislation.................................71
Soldiers' and Sailors' Civil Relief Act of 1940...........72
Default Interest and Limitations on Prepayments...........72
Forfeitures in Drug and RICO Proceedings..................73
Negative Amortization Loans...............................73
Material Federal Income Tax Consequences........................73
General...................................................73
Classification of REMICs and FASITs.......................74
Taxation of Owners of REMIC and FASIT Regular
Certificates..............................................75
Taxation of Owners of REMIC Residual Certificates.........82
Backup Withholding with Respect to Securities.............90
Foreign Investors in Regular Certificates.................90
Non-REMIC Trust Funds.....................................92
State and Other Tax Consequences................................95
ERISA Considerations............................................95
Plan Assets Regulation....................................96
Underwriter's PTE.........................................96
General Considerations....................................98
Insurance Company General Accounts........................99
Legal Investment................................................99
Plan of Distribution...........................................101
Legal Matters..................................................102
Financial Information..........................................102
Additional Information.........................................102
Reports to Certificateholders102
Incorporation of Certain Information by Reference..............102
Ratings........................................................103
Glossary.......................................................104
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The Trust Fund
Ownership of the mortgage or contract pool included in the trust fund for a
series of certificates may be evidenced by one or more classes of certificates,
which may consist of one or more subclasses, as described in the prospectus
supplement for each series of certificates. Each certificate will evidence the
undivided interest, beneficial interest or notional amount specified in the
related prospectus supplement in a mortgage pool containing mortgage loans or a
contract pool containing manufactured housing installment sales contracts or
installment loan agreements, or contracts. If stated in the related prospectus
supplement, each class or subclass of the certificates of a series will evidence
the percentage interest specified in the related prospectus supplement in the
payments of principal and interest on the mortgage loans in the related mortgage
pool or on the contracts in the related contract pool.
To the extent specified in the related prospectus supplement, each mortgage
pool or contract pool, with respect to a series will be covered by some form of
credit enhancement. Types of credit enhancement that may be used include:
o financial guaranty insurance policies or surety bonds;
o letters of credit;
o pool insurance policies;
o special hazard insurance policies;
o mortgagor bankruptcy bonds;
o 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 of that series, which, if stated in the related prospectus
supplement, may include certificates of a subordinated class or subclass;
o the establishment of a reserve fund;
o by the right of one or more classes or subclasses of certificates to
receive a disproportionate amount of certain distributions of principal;
o another form or forms of Alternative Credit Support acceptable to the
related Rating Agency; or
o by any combination of the foregoing.
See "Description of Insurance" and "Credit Support" in this prospectus.
The Mortgage Pools
General. If stated in the prospectus supplement with respect to a series,
the trust fund for that series may include:
(1) one or more mortgage pools containing:
o conventional one- to four-family residential, first and/or second mortgage
loans,
o 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,
o mortgage loans secured by multifamily property,
o mortgage loans secured by commercial property,
o mortgage loans secured by Mixed-Use Property,
o mortgage loans secured by unimproved land,
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o mortgage participation certificates or pass-through certificates evidencing
interests in those loans that are acceptable to the related Rating Agency,
or
o mortgage pass-through certificates issued by one or more trusts established
by one or more private entities;
(2) one or more contract pools containing manufactured housing
conditional sales contracts and installment loan agreements or
participation certificates or pass-through certificates representing
interests in those contracts; or
(3) any combination of the foregoing.
The mortgage loans and contracts, will be newly originated or seasoned, and will
be purchased by the depositor, Credit Suisse First Boston Mortgage Securities
Corp., either directly or through affiliates, from one or more affiliates or
sellers unaffiliated with the depositor.
All mortgage loans will be evidenced by Mortgage Notes. Single family
property will consist of one- to four-family residential dwelling units
including single family detached homes, attached homes, single family units
having a common wall, individual units located in condominiums, and Cooperative
Dwellings and such other type of homes or units as are set forth in the related
prospectus supplement. Multi-family property may include multifamily residential
rental properties and apartment buildings owned by cooperative housing
corporations. Each 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. Attached homes may consist of duplexes, triplexes and fourplexes
(multifamily structures where each mortgagor owns the land upon which the unit
is built with the remaining adjacent land owned in common). Multifamily property
may include, and Mixed-Use Property will consist of, mixed commercial and
residential buildings. The mortgaged properties may include investment
properties and vacation and second homes. Commercial property will consist of
income-producing commercial real estate. Mortgage loans secured by commercial
property, multifamily property and Mixed-Use Property may also be secured by an
assignment of leases and rents and operating or other cash flow guarantees
relating to the mortgaged properties to the extent specified in the related
prospectus supplement.
If stated in the related prospectus supplement, a mortgage pool may contain
mortgage loans with adjustable mortgage rates. Any mortgage loan with an
adjustable mortgage rate 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 this prospectus. 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 or
"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 stated in the prospectus supplement for the related series, the mortgage
rate on certain adjustable rate mortgage loans will be convertible from an
adjustable rate to a fixed rate, at the option of the mortgagor under certain
circumstances. If stated in the related prospectus supplement, the related
pooling and servicing agreement will provide that the seller from which the
depositor acquired the convertible adjustable rate mortgage loans will be
obligated to repurchase from the trust fund any adjustable rate mortgage loan as
to which the conversion option has been exercised, at a purchase price set forth
in the related prospectus supplement. The amount of the 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 related seller
to repurchase converted adjustable rate mortgage loans may or may not be
supported by cash, letters of credit, insurance policies, third party guarantees
or other similar arrangements.
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A mortgage pool may include VA Loans or FHA Loans. VA Loans will be
partially guaranteed by the United States Department of Veteran's Affairs, or
VA, under the Servicemen's Readjustment Act of 1944, as amended. The
Servicemen's Readjustment Act of 1944, as amended, permits a veteran, or in
certain instances the spouse of a veteran, to obtain a mortgage loan guarantee
by the VA covering mortgage financing of the purchase of a one- to four-family
dwelling unit at interest rates permitted by the VA. The program has no mortgage
loan limits, requires no down payment from the purchasers and permits the
guarantee of mortgage loans of up to 30 years' duration. However, no VA Loan
will have an original principal amount greater than five times the partial VA
guarantee for such VA Loan. The maximum guarantee that may be issued by VA under
this program is 50% of the principal amount of the mortgage loan if the
principal amount of the mortgage loan is $45,000 or less, the lesser of $36,000
and 40% of the principal amount of the mortgage loan if the principal amount of
the mortgage loan is greater than $45,000 but less than or equal to $144,000,
and the lesser of $46,000 and 25% of the principal amount of the mortgage loan
if the principal amount of the mortgage loan is greater than $144,000.
FHA Loans will be insured by the Federal Housing Administration, or FHA, as
authorized under the National Housing Act, as amended, and the United States
Housing Act of 1937, as amended. 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.
With respect to any trust fund that contains mortgage loans, the prospectus
supplement for the series of certificates related to that trust fund, will
contain information as to the type of mortgage loans that will comprise the
related mortgage pool. The related prospectus supplement will also contain
information as to:
o the aggregate principal balance of the mortgage loans as of the applicable
Cut-off Date,
o the type of mortgaged properties securing the mortgage loans, o the range
of original terms to maturity of the mortgage loans,
o the range of principal balances and average principal balance of the
mortgage loans,
o the earliest origination date and latest maturity date of the mortgage
loans,
o the aggregate principal balance of mortgage loans having loan-to-value
ratios at origination exceeding 80%,
o the interest rate or range of interest rates borne by the mortgage loans,
o the geographical distribution of the mortgage loans,
o the aggregate principal balance of Buy-Down Loans or GPM Loans, if
applicable,
o the delinquency status of the mortgage loans as of the Cut-off Date,
o with respect to adjustable rate mortgage loans, the adjustment dates, the
highest, lowest and weighted average margin, the limitations on the
adjustment of the interest rates on any adjustment date and over the life
of the loans, and
o whether the mortgage loan provides for an interest only period and whether
the principal amount of that 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.
The aggregate principal balance of the mortgage loans or contracts in a mortgage
pool or contract pool as stated in the related prospectus supplement is subject
to a permitted variance of plus or minus 5%.
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
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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" in this prospectus. To the extent that such losses are not
covered by the methods of credit support or the insurance policies described in
this prospectus or by Alternative Credit Support, they will be borne by holders
of the certificates of the series evidencing interests in the related 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 that series. The 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, or a
special servicer, if any, pursuant to a pooling and servicing agreement, as
described in this prospectus, among the servicer, the special servicer, if any,
the depositor and the trustee, or a separate servicing agreement between the
servicer and the depositor and will receive a fee for those services. See
"--Mortgage Loan Program" and "Description of the Certificates" in this
prospectus. With respect to those mortgage loans serviced by a special servicer,
the special servicer will be required to service the related mortgage loans in
accordance with a servicing agreement between the servicer and the special
servicer, and will receive the fee for the services specified in the related
agreement; however, the servicer will remain liable for its servicing
obligations under the pooling and servicing agreement as if the servicer alone
were servicing the related mortgage loans.
If stated in the applicable prospectus supplement, the depositor will make
certain limited 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 seller
of the Mortgage Loans will also make certain limited representations and
warranties with respect to the Mortgage Loans. See "-- Representations by
Unaffiliated Sellers; Repurchases." The servicer's obligations with respect to
the mortgage loans will consist principally of its contractual servicing
obligations under the related pooling and servicing agreement. This will include
its obligation to enforce certain purchase and other obligations of any special
servicer, subservicers and/or sellers unaffiliated with the depositor, as more
fully described in this prospectus under "--Mortgage Loan
Program--Representations by Unaffiliated Sellers; Repurchases," "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 the mortgage loans, in amounts described in this
prospectus under "Description of the Certificates--Advances." Advances with
respect to delinquencies will be limited to amounts that the servicer believes
ultimately would be reimbursable under any applicable financial guaranty
insurance policy or surety bond, letter of credit, pool insurance policy,
special hazard insurance policy, mortgagor bankruptcy bond or other policy of
insurance, from amounts in the related reserve fund, if any, 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" in this
prospectus.
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 stated in the related prospectus supplement,
a mortgage pool may also include adjustable rate mortgage 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 that prospectus supplement, subject to any
applicable restrictions on those 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 Buy-Down Loans. The resulting difference in payment on a Buy-Down
Loan shall be compensated for from amounts on deposit in the related Buy-Down
Fund. In lieu of a cash deposit, if stated 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
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Certificates--Payments on Mortgage Loans" in this prospectus. 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 GPM Loans. If stated in the related prospectus supplement, the
resulting difference in payment on a GPM Loan shall be compensated for from
amounts on deposit in 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 related Rating Agency to fund the GPM Fund.
If specified in the related prospectus supplement, a mortgage pool may
contain "re-performing loans", which includes previously delinquent loans that
have been brought current, mortgage loans that are subject to a repayment plan
or bankruptcy plan, and that had arrearages of at least three monthly payments
when the repayment plan or bankruptcy plan was entered into, and mortgage loans
that have been modified. These mortgage loans may be acquired by the depositor
from a wide variety of sources through bulk or periodic sales. The rate of
default on re-performing mortgage loans may be higher than the rate of default
on mortgage loans that have not previously been in arrears.
If specified in the applicable prospectus supplement, the mortgage loans
may include "step-down" mortgage loans, which permit the servicer to reduce the
interest rate on the mortgage loan if the borrower has been current in its
monthly payments of principal and interest. The amount by which the mortgage
rate may be reduced and the period during which the mortgage loan must have been
current will be specified in the mortgage note.
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 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 and commercial property, and related property and
interests. Commercial mortgage loans, multifamily mortgage loans and Mixed-Use
Mortgage Loans will not represent substantially all 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 may be Simple Interest Loans, and other 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 related mortgagor
assigns its right, title and interest as landlord under each related 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" in this prospectus.
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 the related 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
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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.
Balloon Loans. A mortgagor's ability to pay the balloon amount at maturity,
which, based on the amortization schedule of those loans, is expected to be a
substantial amount, will typically depend on the mortgagor's ability to obtain
refinancing of the related mortgage loan or to sell the mortgaged property prior
to the maturity of the balloon loan. The ability to obtain refinancing will
depend on a number of factors prevailing at the time refinancing or sale is
required, including, without limitation, real estate values, the mortgagor's
financial situation, the level of available mortgage loan interest rates, the
mortgagor's equity in the related mortgaged property, tax laws, prevailing
general economic conditions and the terms of any related first lien mortgage
loan. Neither the depositor, the servicer or subservicer, the trustee, as
applicable, nor any of their affiliates will be obligated to refinance or
repurchase any mortgage loan or to sell the mortgaged property.
Simple Interest Loans. If specified in the accompanying prospectus
supplement, a portion of the loans underlying a series of securities may be
simple interest loans. A simple interest loan provides the amortization of the
amount financed under the loan over a series of equal monthly payments, except,
in the case of a balloon mortgage loan, the final payment. Each monthly payment
consists of an installment of interest which is calculated on the basis of the
outstanding principal balance of the loan multiplied by the stated loan rate and
further multiplied by a fraction, with the numerator equal to the number of days
in the period elapsed since the preceding payment of interest was made and the
denominator equal to the number of days in the annual period for which interest
accrues on the loan. As payments are received under a simple interest loan, the
amount received is applied first to interest accrued to the date of payment and
then the remaining amount is applied to pay any unpaid fees and then to reduce
the unpaid principal balance. Accordingly, if a borrower pays a fixed monthly
installment on a simple interest loan before its scheduled due date, the portion
of the payment allocable to interest for the period since the preceding payment
was made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. On the other hand, if a borrower pays a
fixed monthly installment after its scheduled due date, the portion of the
payment allocable to interest for the period since the preceding payment was
made will be greater than it would have been had the payment been made as
scheduled, and the remaining portion, if any, of the payment applied to reduce
the unpaid principal balance will be correspondingly less. If each scheduled
payment under a simple interest loan is made on or prior to its scheduled due
date, the principal balance of the loan will amortize more quickly than
scheduled. However, if the borrower consistently makes scheduled payments after
the scheduled due date, the loan will amortize more slowly than scheduled. If a
simple interest loan is prepaid, the borrower is required to pay interest only
to the date of prepayment. The variable allocations among principal and interest
of a simple interest loan may affect the distributions of principal and interest
on the securities, as described in the accompanying prospectus supplement.
Monthly payments on most loans are computed and applied on an actuarial
basis. Monthly payments on actuarial loans are applied first to interest,
generally in an amount equal to, one-twelfth of the applicable loan rate times
the unpaid principal balance, with any remainder of the payment applied to
principal.
Underwriting Standards for Mortgage Loans
The depositor expects that the originator of each of the loans will have
applied, consistent with applicable federal and state laws and regulations,
underwriting procedures intended to evaluate the borrower's credit standing and
repayment ability and/or the value and adequacy of the related property as
collateral. The depositor expects that any FHA loan or VA loans will have been
originated in compliance with the underwriting policies of the FHA or VA,
respectively. The underwriting criteria applied by the originators of the loans
included in a pool may vary significantly among sellers. The accompanying
prospectus supplement will describe most aspects of the underwriting criteria,
to the extent known by the depositor, that were applied by the originators of
the loans. In
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most cases, the depositor will have less detailed information concerning the
origination of seasoned loans than it will have concerning newly-originated
loans.
The underwriting standards of any particular originator typically include a
set of specific criteria by which the underwriting evaluation is made. However,
the application of the underwriting standards does not imply that each specific
criterion was satisfied individually. Rather, a loan will be considered to be
originated in accordance with a given set of underwriting standards if, based on
an overall qualitative evaluation, the loan is in substantial compliance with
the underwriting standards. For example, a loan may be considered to comply with
a set of underwriting standards, even if one or more specific criteria included
in the underwriting standards were not satisfied, if other factors compensated
for the criteria that were not satisfied or if the loan is considered to be in
substantial compliance with the underwriting standards.
Mortgage loans may have been originated over the internet, or acquired by
the depositor or the seller pursuant to a purchase that was arranged over the
internet.
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 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. Alternatively, as specified in the accompanying prospectus
supplement, values may be supported by:
o a statistical valuation;
o a broker's price opinion; or
o a drive-by appraisal or other certification of value.
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. Other credit considerations may cause an originator to depart from
these guidelines. For example, when two individuals co-sign the loan documents,
the incomes and expenses of both individuals may be included in the computation.
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The mortgaged properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. Lenders' underwriting standards
applicable to all states, including anti-deficiency states, typically require
that the value of the property being financed, as indicated by the appraisal,
currently supports and is anticipated to support in the future the outstanding
loan balance.
Certain of the types of mortgage loans that may be included in the mortgage
pools 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 in this prospectus. For instance, mortgage loans may be underwritten
under a "limited documentation" program if stated in the related prospectus
supplement. With respect to these 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.
Other examples of underwriting standards that may be less stringent than
traditional underwriting standards include investment properties, loans with
high loan-to-value ratios and no primary mortgage insurance, and loans made to
borrowers with imperfect credit histories.
The loan-to-value ratio of a mortgage loan will be equal to:
o the original principal amount of the mortgage loan divided by the lesser of
the "appraised value" or the sales price for the mortgaged property; or
o such other ratio as described in the related prospectus supplement.
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.
The majority of originators of commercial mortgage loans or Mixed-Use
Mortgage Loans 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.
If stated 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 stated in the related prospectus supplement,
the appraiser must have personally inspected the property and verified that it
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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-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 in this prospectus or by Alternative 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 seller unaffiliated with the depositor 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 stated in the related prospectus supplement, each seller that sold
mortgage loans directly or indirectly to the depositor, will have made
representations and warranties in respect of the mortgage loans sold by that
seller. These representations and warranties will generally include, among other
things:
o 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 seller;
o that the seller had good and marketable title to each mortgage loan sold by
it;
o to the best of the seller's knowledge, the mortgaged property is free from
damage and in good repair;
o with respect to each mortgaged property, that each mortgage constituted a
valid first lien, or, if applicable, a more junior lien, on the mortgaged
property, subject only to permissible title insurance exceptions; and
o that there were no delinquent tax or assessment liens against the mortgaged
property.
With respect to a Cooperative Loan, the seller will represent and warrant
that:
o the security interest created by the cooperative security agreements
constituted a valid first lien, or, if applicable, a more junior 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
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o the related cooperative apartment was free from damage and was in good
repair.
The representations and warranties of a seller in respect of a mortgage
loan generally will have been made as of the date on which that 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 that mortgage loan. Since the
representations and warranties of a seller do not address events that may occur
following the sale of a mortgage loan by that seller, the repurchase obligation
described below will not arise if, during the period commencing on the date of
sale of a mortgage loan by that seller to or on behalf of the depositor, the
relevant event occurs that would have given rise to a repurchase 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 seller will not be
accurate and complete in all material respects in respect of the related
mortgage loan as of the related Cut-off Date. If stated in the related
prospectus supplement, the seller may have made no, or extremely limited,
representations and warranties regarding the mortgage loans.
In most cases, the depositor will assign its rights with respect to the
representations and warranties of the seller regarding the mortgage loans to the
trustee for the benefit of the certificateholders. Alternatively, the depositor
will make similar representations and warranties regarding the mortgage loans to
the trustee for the benefit of the certificateholders. Upon the discovery of the
breach of any representation or warranty made by a seller or the depositor in
respect of a mortgage loan that materially and adversely affects the interests
of the certificateholders of the related series, that seller or the depositor,
as the case may be, will be obligated to repurchase the 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 some 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 the repurchase and the amount of any
unreimbursed Advances made by the servicer or subservicer, as applicable, in
respect of that mortgage loan. The 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 that mortgage loan. Subject to the right, if any, and the ability of
the seller or the depositor to substitute for certain mortgage loans, this
repurchase obligation constitutes the sole remedy available to the
certificateholders of the related series for a breach of representation or
warranty by a seller or the depositor.
If stated in the related prospectus supplement, if the seller or depositor
discovers or receives notice of any breach of its representations and warranties
relating to a mortgage loan within two years of the date of the initial issuance
of the certificates, or other period as may be specified in the related
prospectus supplement, the seller or depositor may remove that mortgage loan
from the trust fund, rather than repurchase the mortgage loan as provided above,
and substitute in its place a substitute mortgage loan. Any substitute mortgage
loan, on the date of substitution, will:
o 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 mortgage loan that it is replacing, the amount of
any shortfall to be distributed to certificateholders in the month of
substitution;
o have a mortgage rate not less than, and not more than 1% greater than, the
mortgage rate of the mortgage loan that it is replacing;
o have a remaining term to maturity not greater than, and not more than one
year less than, that of the mortgage loan that it is replacing; and
o comply with all the representations and warranties set forth in the related
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 breach of representation.
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No assurance can be given that sellers will carry out their respective
repurchase obligations with respect to mortgage loans. Neither the depositor nor
any other person will be obligated to repurchase mortgage loans if the seller
fails to do so.
Mortgage Certificates
If stated in the prospectus supplement with respect to a series, the trust
fund for such series may include Mortgage Certificates. A description of the
mortgage loans underlying the Mortgage Certificates and the related pooling and
servicing arrangements will be set forth in the applicable prospectus
supplement. The applicable prospectus supplement, 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 the Mortgage
Certificates, the aggregate outstanding principal balance and the pass-through
rate borne by each Mortgage Certificate included in the trust fund. 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 related Rating Agency.
The Contract Pools
General. If stated in the prospectus supplement with respect to a series,
the trust fund for that series may include a contract pool evidencing interests
in manufactured housing conditional sales contracts and installment loan
agreements originated by a manufactured housing dealer in the ordinary course of
business and purchased by the depositor. The contracts may be conventional
manufactured housing contracts or contracts insured by the FHA or partially
guaranteed by the VA. Each contract will be secured by a manufactured home. The
contracts may be fully amortizing or provide for a balloon payment at maturity,
and will bear interest at a fixed annual percentage rate 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 certificateholders. The servicer specified in the related
prospectus supplement will service the contracts, either by itself or through
other subservicers, pursuant to a pooling and servicing agreement. See
"Description of the Certificates--Servicing by Unaffiliated Sellers" in this
prospectus. With respect to those contracts serviced by the servicer through a
subservicer, the servicer will remain liable for its servicing obligations under
the related pooling and servicing agreement as if the servicer alone were
servicing the related contracts. If stated in the related prospectus supplement,
the contract documents may be held for the benefit of the trustee by a custodian
appointed pursuant to a custodial agreement among the depositor, the trustee and
the custodian named in the custodial agreement.
The related prospectus supplement, or, if such information is not available
in advance of the date of the related prospectus supplement, will specify, for
the contracts contained in the related contract pool, among other things:
o the range of dates of origination of the contracts;
o the weighted average annual percentage rate on the contracts;
o the range of outstanding principal balances as of the Cut-off Date;
o the average outstanding principal balance of the contracts as of the
Cut-off Date;
o the weighted average term to maturity as of the Cut-off Date; and
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o the range of original maturities of the contracts.
The servicer or the seller of the contracts will represent and warrant as
to the payment status of the contracts as of the Cut-off Date and as to the
accuracy in all material respects of certain information furnished to the
trustee in respect of each such contract. Upon a breach of any representation
that materially and adversely affects the interest of the certificateholders in
a contract, the servicer or the seller, as appropriate, will be obligated either
to cure the breach in all material respects or to purchase the contract or, if
stated 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 servicer, or seller.
Underwriting Standards for Contracts
Conventional contracts will comply with the underwriting policies of the
originator or seller as described in the related prospectus supplement.
With respect to a contract made in connection with the related 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. The loan-to-value ratio of a contract will be equal to:
o the original principal amount of the contract divided by the lesser of the
"appraised value" or the sales price for the manufactured home; or
o such other ratio as described in the related prospectus supplement.
Pre-Funding
If stated in the related prospectus supplement, a portion of the issuance
proceeds of the certificates of a particular series will be deposited in a
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. Prior to the investment
of amounts on deposit in the related pre-funding account in additional mortgage
loans or contracts, those amounts may be invested in one or more Eligible
Investments, or other investments that may be specified in the related
prospectus supplement.
Additional mortgage loans or contracts that are purchased with amounts on
deposit in a pre-funding account will be required to satisfy certain eligibility
criteria more fully set forth in the related prospectus supplement. The
eligibility criteria for additional mortgage loans or contracts will be
consistent with the eligibility criteria of the mortgage loans or contracts
included in the related trust fund as of the related closing date subject to the
exceptions that are stated in the related prospectus supplement.
Although the specific parameters of a pre-funding account with respect to
any issuance of certificates will be specified in the related prospectus
supplement, it is anticipated that:
o the period during which additional mortgage loans or contracts may be
purchased from amounts on deposit in the related pre-funding account will
not exceed 90 days from the related closing date; and
o the additional mortgage loans or contracts to be acquired by the related
trust fund will be subject to the same representations and warranties as
the mortgage loans or contracts included in the related trust fund on the
related closing date, although additional criteria may also be required to
be satisfied, as described in the related prospectus supplement.
In no event will the period during which additional mortgage loans or contracts
may be purchased exceed one year. In no event will the amounts on deposit in any
pre-funding account exceed 25% of the initial principal amount of the
certificates of the related series.
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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, or 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 by this prospectus and an accompanying prospectus
supplement, as described in "Plan of Distribution" in this prospectus, 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 in those trusts and acquiring
and selling mortgage assets to those 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 by this prospectus 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 stated 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 the related Trust Assets from
time to time either in the open market or in privately negotiated transactions.
Yield Considerations
The yield to maturity of a security will depend on the price paid by the
holder of the security, the pass-through rate on any security entitled to
payments of interest, which pass-through rate may vary if stated in the
accompanying prospectus supplement, and the rate and timing of principal
payments on the loans, including prepayments, liquidations and repurchases, and
the allocation of principal payments to reduce the principal balance of the
security or notional amount thereof, if applicable.
In general, if a security is purchased at a premium over its face amount
and payments of principal on the related loan occur at a rate faster than
anticipated at the time of purchase, the purchaser's actual yield to maturity
will be lower than that assumed at the time of purchase. On the other hand, if a
class of securities is purchased at a discount from its face amount and payments
of principal on the related loan occur at a rate slower than anticipated at the
time of purchase, the purchaser's actual yield to maturity will be lower than
assumed. The effect of principal prepayments, liquidations and purchases on
yield will be particularly significant in the case of a class of securities
entitled to payments of interest only or disproportionate payments of interest.
In addition, the total return to investors of securities evidencing a right to
distributions of interest at a rate that is based on the weighted average net
loan rate of the loans from time to time will be adversely affected by principal
prepayments on loans with loan rates higher than the weighted average loan rate
on the loans. In general, loans with higher loan rates prepay at a faster rate
than loans with lower loan rates. In some circumstances rapid prepayments may
result in the failure of the holders to recoup their original investment. In
addition, the yield to maturity on other types of classes of securities,
including accrual securities, securities with a pass-through rate that
fluctuates inversely with or at a multiple of an index or other classes in a
series including more than one class of securities, may be relatively more
sensitive to the rate of prepayment on the related loans than other classes of
securities.
A class of securities may be entitled to payments of interest at a fixed,
variable or adjustable pass-through rate, or any combination of pass-through
rates, each as specified in the accompanying prospectus supplement. A variable
pass-through rate may be calculated based on the weighted average of the net
loan rates, net of servicing fees and any excess spread, of the related loans
for the month preceding the distribution date. An adjustable pass-through rate
may be calculated by reference to an index or otherwise.
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The aggregate payments of interest on a class of securities, and the yield
to maturity on that security, will be affected by the rate of payment of
principal on the securities, or the rate of reduction in the notional amount of
securities entitled to payments of interest only, and, in the case of securities
evidencing interests in adjustable rate mortgage loans, by changes in the net
loan rates on the adjustable rate mortgage loans. See "Maturity and Prepayment
Considerations" in this prospectus. The yield on the securities will also be
affected by liquidations of loans following borrower defaults and by purchases
of loans in the event of breaches of representations made for the loans by the
depositor, the servicer or the subservicer and others, or conversions of
adjustable rate mortgage loans to a fixed interest rate. See "The Trust Fund" in
this prospectus.
In general, defaults on mortgage loans and contracts are expected to occur
with greater frequency in their early years. The rate of default on cash out
refinance, limited documentation or no documentation mortgage loans, and on
loans with high loan-to-value ratios or combined loan-to-value ratios, as
applicable, may be higher than for other types of loans. Likewise, the rate of
default on loans that have been originated under lower than traditional
underwriting standards may be higher than those originated under traditional
standards. A trust fund may include mortgage loans or contracts that are one
month or more delinquent at the time of offering of the related series of
securities or which have recently been several months delinquent. The rate of
default on delinquent mortgage loans or mortgage loans or contracts with a
recent history of delinquency, including re-performing loans, is more likely to
be higher than the rate of default on loans that have a current payment status.
The rate of defaults and the severity of losses on mortgage loans or
contracts with document deficiencies may be higher than for mortgage loans or
contracts with no documentation deficiencies. To the extent that any document
relating to a loan is not in the possession of the trustee, the deficiency may
make it difficult or impossible to realize on the mortgaged property in the
event of foreclosure, which will affect the timing and the amount of liquidation
proceeds received by the trustee.
The risk of loss may also be greater on mortgage loans or contracts with
loan-to-value ratios or combined loan-to-value ratios greater than 80% and no
primary insurance policies. The yield on any class of securities and the timing
of principal payments on that class may also be affected by modifications or
actions that may be taken or approved by the servicer, the subservicer or any of
their affiliates as described in this prospectus under "Description of the
Certificates--Servicing of Mortgage Loans and Contracts," in connection with a
mortgage loan or contract that is in default, or if a default is reasonably
foreseeable.
In addition, the rate and timing of prepayments, defaults and liquidations
on the mortgage loans or contracts will be affected by the general economic
condition of the region of the country or the locality in which the related
mortgaged properties are located. The risk of delinquencies and loss is greater
and prepayments are less likely in regions where a weak or deteriorating economy
exists, as may be evidenced by, among other factors, increasing unemployment or
falling property values.
For some loans, including adjustable rate mortgage loans, the loan rate at
origination may be below the rate that would result if the index and margin
relating to those loans were applied at origination. Under the applicable
underwriting standards, the borrower under each of the loans usually will be
qualified on the basis of the loan rate in effect at origination which reflects
a rate significantly lower than the maximum rate. The repayment of any loan may
thus be dependent on the ability of the borrower to make larger monthly payments
following the adjustment of the loan rate. In addition, the periodic increase in
the amount paid by the borrower of a Buy-Down Loan during or at the end of the
applicable buy-down period may create a greater financial burden for the
borrower, who might not have otherwise qualified for a mortgage under the
applicable underwriting guidelines, and may accordingly increase the risk of
default for the related loan.
For any loans secured by junior liens on the related mortgaged property,
the inability of the borrower to pay off the balance thereof may be affected by
the ability of the borrower to obtain refinancing of any related senior loan,
thereby preventing a potential improvement in the borrower's circumstances.
The holder of a loan secured by a junior lien on the related mortgaged
property will be subject to a loss of its mortgage if the holder of a senior
mortgage is successful in foreclosure of its mortgage and its claim, including
any related foreclosure costs, is not paid in full, since no junior liens or
encumbrances survive such a foreclosure. Also, due to the priority of the senior
mortgage, the holder of a loan secured by a junior lien on the related
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mortgaged property may not be able to control the timing, method or procedure of
any foreclosure action relating to the mortgaged property. Investors should be
aware that any liquidation, insurance or condemnation proceeds receiving
relating to any loans secured by junior liens on the related mortgaged property
will be available to satisfy the outstanding balance of such loans only to the
extent that the claims of the holders of the senior mortgages have been
satisfied in full, including any related foreclosure costs. For loans secured by
junior liens that have low balances relative to the amount secured by more
senior mortgages, foreclosure costs may be substantial relative to the
outstanding balance of the loan, and the amount of any liquidation proceeds
available to certificateholders may be smaller as a percentage of the
outstanding balance of the loan than would be the case for a first lien
residential loan. In addition, the holder of a loan secured by a junior lien on
the related mortgaged property may only foreclose on the property securing the
related loan subject to any senior mortgages, in which case the holder must
either pay the entire amount due on the senior mortgages to the senior
mortgagees at or prior to the foreclosure sale or undertake the obligation to
make payments on the senior mortgages.
Similarly, a borrower of a Balloon Loan will be required to pay the Balloon
Amount at maturity. Those loans pose a greater risk of default than
fully-amortizing loans, because the borrower's ability to make such a
substantial payment at maturity will in most cases depend on the borrower's
ability to obtain refinancing or to sell the mortgaged property prior to the
maturity of the loan. The ability to obtain refinancing will depend on a number
of factors prevailing at the time refinancing or sale is required, including,
without limitation, the borrower's personal economic circumstances, the
borrower's equity in the related mortgaged property, real estate values,
prevailing market interest rates, tax laws and national and regional economic
conditions. None of the the depositor, any seller, or any of their affiliates
will be obligated to refinance or repurchase any loan or to sell any mortgaged
property, unless that obligation is specified in the accompanying prospectus
supplement.
The loans rates on adjustable rate mortgage loans that are subject to
negative amortization typically adjust monthly and their amortization schedules
adjust less frequently. Because initial loan rates are typically lower than the
sum of the indices applicable at origination and the related margins, during a
period of rising interest rates as well as immediately after origination, the
amount of interest accruing on the principal balance of those loans may exceed
the amount of the scheduled monthly payment. As a result, a portion of the
accrued interest on negatively amortizing loans may become deferred interest
which will be added to their principal balance and will bear interest at the
applicable loan rate.
If stated in the accompanying prospectus supplement, a trust may contain
GPM Loans or Buy-down Loans that have monthly payments that increase during the
first few years following origination. Borrowers in most cases will be qualified
for those loans on the basis of the initial monthly payment. To the extent that
the related borrower's income does not increase at the same rate as the monthly
payment, such a loan may be more likely to default than a mortgage loan with
level monthly payments.
Manufactured homes, unlike residential real estate properties, in most
cases depreciate in value. Consequently, at any time after origination it is
possible, especially in the case of contracts with high loan-to-value ratios at
origination, that the market value of a manufactured home may be lower than the
principal amount outstanding under the related contract.
If credit enhancement for a series of securities is provided by a letter of
credit, insurance policy or bond that is issued or guaranteed by an entity that
suffers financial difficulty, that credit enhancement may not provide the level
of support that was anticipated at the time an investor purchased its
certificate. In the event of a default under the terms of a letter of credit,
insurance policy or bond, any Realized Losses on the loans not covered by the
credit enhancement will be applied to a series of securities in the manner
described in the accompanying prospectus supplement and may reduce an investor's
anticipated yield to maturity.
The accompanying prospectus supplement may set forth other factors
concerning the loans securing a series of securities or the structure of that
series that will affect the yield on the securities.
No assurance can be given that the value of the mortgaged property securing
a loan has remained or will remain at the level existing on the date of
origination. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the loans and
any secondary financing on the mortgaged properties in a particular pool become
equal to or greater than the value of the mortgaged properties, the
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actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
Generally, when a full prepayment is made on a mortgage loan or contract,
the mortgagor under the mortgage loan or the obligor under a contract, 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 contract rate by 365.
Full prepayments will reduce the amount of interest paid by the related
mortgagor or 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 servicer with respect to a series will be required to
pay from its own funds the portion of any interest at the related mortgage rate
or contract rate, in each case 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. Accordingly, to the extent not
covered by the servicer, prepayments will reduce the yield to maturity of the
certificates. See "Maturity and Prepayment Considerations" in this prospectus.
Maturity and Prepayment Considerations
As indicated in this prospectus under "The Trust Fund," the original terms
to maturity of the loans in a given trust will vary depending on the type of
loans included in that trust. The prospectus supplement for a series of
securities will contain information regarding the types and maturities of the
loans in the related trust. The prepayment experience, the timing and rate of
repurchases and the timing and amount of liquidations for the related loans will
affect the weighted average life of and yield on the related series of
securities.
Prepayments on loans are commonly measured relative to a prepayment
standard or model. The prospectus supplement for each series of securities may
describe one or more prepayment standards or models and may contain tables
setting forth the projected yields to maturity on each class of securities or
the weighted average life of each class of securities and the percentage of the
original principal amount of each class of securities of that series that would
be outstanding on the specified distribution dates for the series based on the
assumptions stated in the accompanying prospectus supplement, including
assumptions that prepayments on the loans are made at rates corresponding to
various percentages of the prepayment standard or model. There is no assurance
that prepayment of the loans underlying a series of securities will conform to
any level of the prepayment standard or model specified in the accompanying
prospectus supplement.
The following is a list of factors that may affect prepayment experience:
o homeowner mobility;
o economic conditions;
o changes in borrowers' housing needs;
o job transfers;
o unemployment;
o borrowers' equity in the properties securing the mortgages;
o servicing decisions;
o enforceability of due-on-sale clauses;
o mortgage market interest rates;
o mortgage recording taxes;
o solicitations and the availability of mortgage funds; and
o the obtaining of secondary financing by the borrower.
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All statistics known to the depositor that have been compiled for
prepayment experience on loans indicate that while some loans may remain
outstanding until their stated maturities, a substantial number will be paid
significantly earlier than their respective stated maturities. The rate of
prepayment for conventional fixed-rate loans has fluctuated significantly in
recent years. In general, however, if prevailing interest rates fall
significantly below the loan rates on the loans underlying a series of
securities, the prepayment rate of those loans is likely to be significantly
higher than if prevailing rates remain at or above the rates borne by those
loans. Conversely, when prevailing interest rates increase, borrowers are less
likely to prepay their loans.
Some mortgage loans may only be prepaid by the borrowers during specified
periods upon the payment of a prepayment fee or penalty. The requirement to pay
a prepayment fee or penalty may discourage some borrowers from prepaying their
mortgage loans or contracts. The servicer or subservicer will be entitled to all
prepayment charges and late payment charges received on the loans and those
amounts will not be available for payment on the securities, except to the
extent specified in the related prospectus supplement. However, some states'
laws restrict the imposition of prepayment charges even when the mortgage loans
or contracts expressly provide for the collection of those charges. As a result,
it is possible that prepayment charges may not be collected even on mortgage
loans or contracts that provide for the payment of these charges.
The addition of any deferred interest to the principal balance of any
related class of securities will lengthen the weighted average life of that
class of securities and may adversely affect yield to holders of those
securities.
Mortgage loans and contracts with fixed interest rates, except in the case
of FHA and VA Loans, generally contain due-on-sale clauses permitting the
mortgagee or obligee to accelerate the maturity thereof upon conveyance of the
mortgaged property. In most cases, the servicer may permit proposed assumptions
of mortgage loans and contracts where the proposed buyer meets the underwriting
standards applicable to that mortgage loan or contract. This assumption would
have the effect of extending the average life of the mortgage loan or contract.
FHA Loans and VA Loans are not permitted to contain "due on sale" clauses, and
are freely assumable.
An adjustable rate mortgage loan is assumable, in some circumstances, if
the proposed transferee of the related mortgaged property establishes its
ability to repay the loan and, in the reasonable judgment of the servicer, the
security for the adjustable rate mortgage loan would not be impaired by the
assumption. The extent to which adjustable rate mortgage loans are assumed by
purchasers of the mortgaged properties rather than prepaid by the related
borrowers in connection with the sales of the mortgaged properties will affect
the weighted average life of the related series of securities. See "Description
of the Certificates--Servicing of Mortgage Loans and Contracts," "--Enforcement
of "Due-on-Sale" Clauses; Realization Upon Defaulted Mortgage Loans," and
"Certain Legal Aspects of the Mortgage Loans and Contracts--Enforceability of
Certain Provisions" for a description of provisions of each agreement and legal
developments that may affect the prepayment rate of loans.
The terms of the pooling and servicing agreement related to a specific
series generally will require the related subservicer, special servicer, if
applicable, or 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" for a description of certain provisions of each
pooling and servicing agreement and certain legal developments that may affect
the prepayment experience on the related mortgage loans.
At the request of the related mortgagors, the related servicer or
subservicer, as applicable, may refinance the mortgage loans in any mortgage
pool by accepting prepayments on those mortgage loans and making new loans
secured by a mortgage on the same property. Upon any refinancing, the new loans
will not be included in the related mortgage pool and the related servicer or
subservicer, as applicable, will be required to repurchase the affected mortgage
loan. A mortgagor may be legally entitled to require the related servicer or
subservicer, as applicable, to allow a refinancing. Any repurchase of a
refinanced mortgage loan will have the same effect as a prepayment in full of
the related mortgage loan.
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For any index used in determining the rate of interest applicable to any
series of securities or loan rates of the underlying mortgage loans or
contracts, there are a number of factors that affect the performance of that
index and may cause that index to move in a manner different from other indices.
If an index applicable to a series responds to changes in the general level of
interest rates less quickly than other indices, in a period of rising interest
rates, increases in the yield to certificateholders due to those rising interest
rates may occur later than that which would be produced by other indices, and in
a period of declining rates, that index may remain higher than other market
interest rates which may result in a higher level of prepayments of the loans,
which adjust in accordance with that index, than of mortgage loans or contracts
which adjust in accordance with other indices.
Mortgage loans made with respect to commercial properties, multifamily
properties and Mixed-Use Properties may have provisions that prohibit prepayment
entirely or for certain periods and/or require payment of premium or yield
maintenance penalties, and may provide for payments of interest only during a
certain period followed by amortization of principal on the basis of a schedule
extending beyond the maturity of the related mortgage loan. Prepayments of such
mortgage loans may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
commercial property, multifamily property and Mixed-Use Property.
If stated in the prospectus supplement relating to a specific series, the
depositor or other specified entity will have the option to repurchase the
assets included in the related trust fund under the conditions stated in the
related prospectus supplement. For any series of securities for which the
depositor has elected to treat the trust fund as a REMIC, any optional
repurchase of assets 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 assets of the related trust fund. The
sellers will also have certain repurchase obligations, as more fully described
in this prospectus. In addition, the mortgage loans underlying Mortgage
Certificates may be subject to repurchase under circumstances similar to those
described above. Repurchases of the mortgage loans underlying Mortgage
Certificates 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 securities will be issued pursuant to an agreement
consisting of either:
o a pooling and servicing agreement; or
o a trust agreement.
A pooling and servicing agreement will be an agreement among the depositor, the
servicer, if any, and the trustee named in the applicable prospectus supplement.
A trust agreement will be an agreement between the depositor and the trustee.
Forms of the pooling and servicing agreement and the trust agreement have been
filed as exhibits to the Registration Statement of which this prospectus is a
part. The following summaries describe all material terms of the securities and
the pooling and servicing agreements or 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 trust
agreement for the applicable series and the related prospectus supplement.
General
The trust fund with respect to a series will consist of:
o the mortgage loans, contracts, and Mortgage Certificates and distributions
thereon as from time to time are subject to the applicable related pooling
and servicing agreement;
o the assets as from time to time identified as deposited in the related
Certificate Account;
o the related property acquired by foreclosure of mortgage loans or deed in
lieu of foreclosure, or manufactured homes acquired by repossession;
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o the surety bond or financial guaranty insurance policy, if any, with
respect to that series;
o the letter of credit, if any, with respect to that series;
o the pool insurance policy, if any, with respect to that series, described
below under "Description of Insurance",
o the special hazard insurance policy, if any, with respect to that series,
described below under "Description of Insurance";
o the mortgagor bankruptcy bond and proceeds thereof, if any, with respect to
that series, as described below under "Description of Insurance";
o the performance bond and proceeds thereof, if any, with respect to that
series;
o the primary mortgage insurance policies, if any, with respect to that
series, as described below under "Description of Insurance"; and
o the GPM Funds and Buy-Down Funds, if any, with respect to that series; or,
in lieu of some or all of the foregoing, the Alternative Credit Support as
shall be described in the applicable prospectus supplement.
Upon the original issuance of a series of securities, certificates
representing the minimum undivided interest or beneficial ownership interest in
the related trust fund or the minimum notional amount allocable to each class
will evidence the undivided interest, beneficial ownership interest or
percentage ownership interest specified in the related prospectus supplement.
If stated in the related prospectus supplement, one or more subservicers or
the depositor may directly perform some or all of the duties of a servicer with
respect to a series.
If stated in the prospectus supplement for a series, ownership of the trust
fund for that series may be evidenced by one or more classes of certificates.
Distributions of principal and interest with respect to those classes may be
made on a sequential or concurrent basis, as specified in the related prospectus
supplement.
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 the related series.
All other classes of securities of the related series will constitute "regular
interests" in the related REMIC, as defined in the Code. If stated in the
related prospectus supplement, the Residual Certificates may be offered hereby
and by means of the related prospectus supplement. See "Federal Income Tax
Consequences" in this prospectus.
If stated in the prospectus supplement for a series, each asset in the
related trust fund will be assigned an initial asset value. If stated in the
related prospectus supplement, the asset value of each asset in the related
trust fund will be the Certificate Principal Balance of each class or classes of
certificates of that series that, based upon certain assumptions, can be
supported by distributions on the Trust Assets allocable to that class or
subclass, together with reinvestment income thereon, to the extent specified in
the related prospectus supplement. The method of determining the asset value of
the assets in the trust fund for a series will be specified in the related
prospectus supplement.
If stated in the prospectus supplement with respect to a series, ownership
of the trust fund for that series may be evidenced by one or more classes or
subclasses of securities that are senior securities and one or more classes or
subclasses of securities that are subordinated securities, each representing the
undivided interests in the trust fund specified in the related prospectus
supplement. If stated in the related prospectus supplement, one or more classes
or subclasses of subordinated securities of a series may be subordinated to the
right of the holders of securities of one or more other classes or subclasses of
subordinated securities within that 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 the related prospectus supplement. If stated in the
related prospectus supplement, the holders of the senior certificates of that
series may have the right to receive a greater than pro rata percentage of
prepayments of
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principal on the related mortgage loans, contracts or mortgage loans underlying
the related Mortgage Certificates in the manner and under the circumstances
described in the related prospectus supplement.
If stated 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 certificates or Residual
Certificates, in privately negotiated transactions exempt from registration
under the Securities Act of 1933, as amended. Certificates sold in one of these
privately negotiated exempt transactions will be transferable only pursuant to
an effective registration statement or an applicable exemption under the
Securities Act of 1933, as amended, and pursuant to any applicable state law.
Alternatively, if stated in the related prospectus supplement, the depositor may
offer one or more classes or subclasses of the subordinated certificates or
Residual Certificates of a series by means of this prospectus and the related
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 the purposes 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 any
transfer or exchange.
Form of Certificates
As specified in the applicable prospectus supplement, the securities of
each series will be issued either as physical securities or in book-entry form.
If issued as physical securities, the securities will be in fully registered
form only in the denominations specified in the accompanying prospectus
supplement, and will be transferable and exchangeable at the corporate trust
office of the certificate registrar appointed under the related pooling and
servicing agreement or trust agreement to register the certificates. No service
charge will be made for any registration of exchange or transfer of securities,
but the trustee may require payment of a sum sufficient to cover any tax or
other governmental charge. The term certificateholder or holder refers to the
entity whose name appears on the records of the certificate registrar or, if
applicable, a transfer agent, as the registered holder of the certificate,
except as otherwise indicated in the accompanying prospectus supplement.
If issued in book-entry form, the classes of a series of securities will be
initially issued through the book-entry facilities of The Depository Trust
Company, or DTC, or Clearstream Banking, societe anonyme, formerly known as
Cedelbank, SA, or Clearstream, or the Euroclear System in Europe, if they are
participants of those systems, or indirectly through organizations which are
participants in those systems, or through any other depository or facility as
may be specified in the accompanying prospectus supplement. As to any class of
book-entry securities so issued, the record holder of those securities will be
DTC's nominee. Clearstream and Euroclear System will hold omnibus positions on
behalf of their participants through customers' securities accounts in
Clearstream's and Euroclear System's names on the books of their respective
depositaries, which in turn will hold those positions in customers' securities
accounts in the depositaries' names on the books of DTC. DTC is a
limited-purpose trust company organized under the laws of the State of New York,
which holds securities for its DTC participants, which include securities
brokers and dealers, banks, trust companies and clearing corporations. DTC
together with the Clearstream and Euroclear System participating organizations
facilitates the clearance and settlement of securities transactions between
participants through electronic book-entry changes in the accounts of
participants. Other institutions that are not participants but indirect
participants which clear through or maintain a custodial relationship with
participants have indirect access to DTC's clearance system.
Unless otherwise specified in the accompanying prospectus supplement, no
beneficial owner in an interest in any book-entry certificate will be entitled
to receive a certificate representing that interest in registered, certificated
form, unless either (i) DTC ceases to act as depository for that certificate and
a successor depository is not obtained, or (ii) the depositor elects in its sole
discretion to discontinue the registration of the securities through DTC. Prior
to any such event, beneficial owners will not be recognized by the trustee, the
servicer or the subservicer as holders of the related securities for purposes of
the related agreement, and beneficial owners will be able to exercise their
rights as owners of their securities only indirectly through DTC, participants
and indirect participants. Any beneficial owner that desires to purchase, sell
or otherwise transfer any interest in book-entry securities may do so only
through DTC, either directly if the beneficial owner is a participant or
indirectly through participants and, if applicable, indirect participants. Under
the procedures of DTC, transfers of the beneficial ownership of any book-entry
securities will be required to be made in minimum denominations specified in the
accompanying prospectus supplement. The ability of a beneficial owner to pledge
book-entry securities to persons or entities that are not
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participants in the DTC system, or to otherwise act with respect to the
securities, may be limited because of the lack of physical certificates
evidencing the securities and because DTC may act only on behalf of
participants.
Because of time zone differences, the securities account of a Clearstream
or Euroclear System participant as a result of a transaction with a DTC
participant, other than a depositary holding on behalf of Clearstream or
Euroclear System, will be credited during a subsequent securities settlement
processing day, which must be a business day for Clearstream or Euroclear
System, as the case may be, immediately following the DTC settlement date.
Credits or any transactions in those securities settled during this processing
will be reported to the relevant Euroclear System participant or Clearstream
participants on that business day. Cash received in Clearstream or Euroclear
System as a result of sales of securities by or through a Clearstream
participant or Euroclear System participant to a DTC participant, other than the
depositary for Clearstream or Euroclear System, will be received with value on
the DTC settlement date, but will be available in the relevant Clearstream or
Euroclear System cash account only as of the business day following settlement
in DTC.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Clearstream participants and Euroclear System participants
will occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
participants or Euroclear System participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the relevant depositaries; however, the cross
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in that system in
accordance with its rules and procedures and within its established deadlines
defined with respect to European time. The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final settlement
on its behalf by delivering or receiving securities in DTC, and making or
receiving payment in accordance with normal procedures for same day funds
settlement applicable to DTC. Clearstream participants and Euroclear System
participants may not deliver instructions directly to the depositaries.
Clearstream, as a professional depository, holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between Clearstream participants through electronic
book-entry changes in accounts of Clearstream participants, thereby eliminating
the need for physical movement of securities. As a professional depository,
Clearstream is subject to regulation by the Luxembourg Monetary Institute.
Euroclear System was created to hold securities for participants of
Euroclear System and to clear and settle transactions between Euroclear System
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of securities and
any risk from lack of simultaneous transfers of securities and cash. Euroclear
System operator is the Brussels, Belgium office of Morgan Guaranty Trust Company
of New York, under contract with the clearance cooperative, Euroclear System
Clearance Systems S.C., a Belgian co-operative corporation. All operations are
conducted by the Euroclear System operator, and all Euroclear System securities
clearance accounts and Euroclear System cash accounts are accounts with the
Euroclear System operator, not the clearance cooperative.
The clearance cooperative establishes policy for Euroclear System on behalf
of Euroclear System participants. The Euroclear System operator is the Belgian
branch of a New York banking corporation which is a member bank of the Federal
Reserve System. As a result, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission. Securities clearance
accounts and cash accounts with the Euroclear System operator are governed by
the terms and conditions Governing Use of Euroclear System and the related
operating procedures of the Euroclear System and applicable Belgian law. The
terms and conditions govern transfers of securities and cash within Euroclear
System, withdrawals of securities and cash from Euroclear System, and receipts
of payments for securities in Euroclear System. All securities in Euroclear
System are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts.
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Distributions on the book-entry securities will be forwarded by the trustee
to DTC, and DTC will be responsible for forwarding those payments to
participants, each of which will be responsible for disbursing the payments to
the beneficial owners it represents or, if applicable, to indirect participants.
Accordingly, beneficial owners may experience delays in the receipt of payments
relating to their securities. Under DTC's procedures, DTC will take actions
permitted to be taken by holders of any class of book-entry securities under the
related agreement only at the direction of one or more participants to whose
account the book-entry securities are credited and whose aggregate holdings
represent no less than any minimum amount of percentage interests or voting
rights required therefor. DTC may take conflicting actions for any action of
certificateholders of any class to the extent that participants authorize those
actions. None of the servicer, the subservicer, the depositor, the trustee or
any of their respective affiliates will have any liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the book-entry securities, or for maintaining, supervising or
reviewing any records relating to those beneficial ownership interests.
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 servicer or trustee, if stated in the related 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 the related
prospectus supplement. Distributions of interest will be calculated 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, or
such other method as 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.
On each distribution date, the trustee will distribute to each holder of a
certificate for each class or subclass an amount equal to:
o the product of the Percentage Interest evidenced by that certificate and
the interest of the related class or subclass in the distribution of
principal and the distribution of interest; or
o some other amount as described in the related prospectus supplement.
A certificate of a class or subclass may represent a right to receive a
percentage of both the distribution of principal and the distribution of
interest or a percentage of either the distribution of principal or the
distribution of interest, as specified in the related prospectus supplement. If
stated in the related prospectus supplement, a class or subclass of certificates
may be entitled to interest only or principal only.
If stated in the related prospectus supplement, the holders of the senior
certificates may have the right to receive a percentage of prepayments of
principal on the related mortgage loans or contracts that is greater than the
percentage of regularly scheduled payment of principal that holder is entitled
to receive. These percentages may vary from time to time, subject to the terms
and conditions specified in the prospectus supplement.
Distributions of interest on certain classes or subclasses of certificates,
known as Compound Interest Certificates, will be made only after the occurrence
of certain events specified in the related prospectus supplement. Prior to the
time distributions of interest are made on those certificates, accrued and
unpaid interest, or Accrual Distribution Amount, will be added to the
Certificate Principal Balance of those certificates on each distribution date
and will accrue interest until paid as described in the related prospectus
supplement. If stated in the related prospectus supplement, the Accrual
Distribution Amount will be payable as principal to one or more classes or
subclasses of certificates.
Distributions in reduction of the Certificate Principal Balance of
certificates of a series will be made on each distribution date for the related
series to the holders of the certificates of the class or subclass then entitled
to receive distributions until the aggregate amount of distributions have
reduced the Certificate Principal Balance of the certificates to zero.
Allocation of distributions in reduction of Certificate Principal Balance will
be made to each class or subclass of certificates in the order and amounts
specified in the related prospectus supplement, which, if stated in the related
prospectus supplement, may be concurrently.
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The Certificate Principal Balance of a certificate of a series at any time
represents the maximum specified dollar amount, exclusive of interest at the
related Pass-Through Rate, to which the holder thereof is entitled from the
assets in the trust fund for the related series, and will decline to the extent
distributions in reduction of Certificate Principal Balance are received by, and
losses on the mortgage loans or contracts are allocated to, the
certificateholder. The initial Certificate Principal Balance of each class or
subclass within a series that has been assigned a Certificate 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 for the related series, 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
servicer for that purpose, as specified in the final distribution notice to
certificateholders.
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 those 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 the assignment of mortgage loans, 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. The 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 date of the
Mortgage Note and the loan-to-value ratio of the mortgage loan at origination.
If stated in the accompanying prospectus supplement, and in accordance with
the rules of membership of MERSCORP, Inc. and/or Mortgage Electronic
Registration Systems, Inc. or, MERS(R), assignments of mortgages for any trust
asset in the related trust will be registered electronically through Mortgage
Electronic Registration Systems, Inc., or MERS(R) System. For trust assets
registered through the MERS(R) System, MERS(R) shall serve as mortgagee of
record solely as a nominee in an administrative capacity on behalf of the
trustee and shall not have any interest in any of those trust assets.
In addition, in most cases 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 or in blank, the mortgage with evidence of recording
indicated thereon and, except in the case of a mortgage registered with MERS(R),
an assignment of the mortgage in recordable form. With respect to any mortgage
not returned from the public recording office, the depositor will deliver a copy
of the mortgage together with its certificate stating that the original of the
mortgage was delivered to the recording office. In most cases, 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, a 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
the mortgage loan. In other cases, the Mortgage Notes and mortgages may be
retained by sellers unaffiliated with the depositor or the servicer under the
circumstances described in the related prospectus supplement, and the
assignments of mortgage into the name of the trustee will only be recorded under
the circumstances described in the related prospectus supplement. In addition,
with respect to any commercial mortgage loans, multifamily mortgage loans and
Mixed-Use Mortgage Loans, the depositor will deliver or cause to be delivered to
the trustee, or the custodian hereinafter referred to, the assignment of leases,
rents and profits, if separate from the mortgage, and an executed re-assignment
of assignment of leases, rents and profits.
The depositor will cause to be delivered to the trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock
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powers. The servicer will file in the appropriate office a financing statement
evidencing the trustee's security interest in each Cooperative Loan.
The trustee or a custodian on behalf of the trustee will, within a
specified number of days after receipt thereof, review the mortgage loan
documents. If the seller or another entity specified in the related prospectus
supplement cannot cure any material omission or defect in the mortgage loan
documents within the time period specified in the related prospectus supplement,
the seller or 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 the
related 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 some other price as
may be necessary to avoid a tax on a prohibited transaction, as described in
Section 860F(a) of the Code, in each case together with accrued interest at the
applicable mortgage rate to the first day of the month following the repurchase,
plus the amount of any unreimbursed Advances made by the servicer in respect of
the related mortgage loan. The servicer is obligated to enforce the repurchase
obligation of the seller, to the extent described above under "The Trust
Fund--Representations by Unaffiliated Sellers; Repurchases." This purchase
obligation constitutes the sole remedy available to the certificateholders or
the trustee for a material omission or defect in a constituent document. If
stated in the related prospectus supplement, mortgage loans or contracts will
not be required to be repurchased or substituted for upon the discovery of
certain omissions or defects in a constituent document.
If stated in the applicable prospectus supplement, with respect to the
mortgage loans in a mortgage pool, the depositor or the seller will make
representations and warranties as to the types and geographical distribution of
the related mortgage loans and as to the accuracy in all material respects of
certain information furnished to the trustee in respect of each mortgage loan.
In addition, if stated 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 or the seller that materially and adversely affects the interest of
the certificateholders, the depositor or the seller, as applicable, will be
obligated either to cure the breach in all material respects or to purchase the
mortgage loan at the purchase price set forth in the previous paragraph. In some
cases, the depositor or the seller may substitute for mortgage loans as
described in the succeeding paragraph. This repurchase or substitution
obligation constitutes the sole remedy available to the certificateholders or
the trustee for a breach of representation or warranty by the depositor or the
seller.
Within the period specified in the related prospectus supplement, following
the date of issuance of a series of certificates, the depositor, the servicer,
sellers unaffiliated with the depositor or the related subservicer, as the case
may be, may deliver to the trustee substitute 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 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 substitute mortgage loan and any additional restrictions relating to the
substitution of mortgage loans will generally be as described in this prospectus
under "The Trust Fund-- Representations by Unaffiliated Sellers; Repurchases."
If stated in related prospectus supplement, mortgage loans may be
transferred to the trust fund with documentation of defects or omissions, such
as missing notes or mortgages or missing title insurance policies. If stated in
the related prospectus supplement, none of the seller, the depositor or any
other person will be required to cure those defects or repurchase those mortgage
loans if the defect or omission is not cured.
The trustee will be authorized, with the consent of the depositor and the
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 servicer, either
directly or through subservicers, or a 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
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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 related unaffiliated seller will be obligated to repurchase
that contract. The trustee, concurrently with an assignment of contracts, will
authenticate and deliver the certificates for that series. Each contract will be
identified in a schedule appearing as an exhibit to the related pooling and
servicing agreement. That contract schedule will specify, with respect to each
contract, among other things:
o the original principal amount and the adjusted principal balance as of the
close of business on the Cut-off Date;
o the annual percentage rate;
o the current scheduled monthly level payment of principal and interest; and
o the maturity of the contract.
In addition, in most cases 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 other cases, the contract and
other documents and instruments may be retained by sellers unaffiliated with the
depositor or the servicer under the circumstances described in the related
prospectus supplement. 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. If stated in the
related prospectus supplement, the contracts will be stamped or otherwise marked
to reflect their assignment from the depositor to the trust fund. However, in
most cases 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 the assignment to the trustee, the interest of the
certificateholders in the contracts could be defeated. See "Certain Legal
Aspects of Mortgage Loans and Contracts--The Contracts" in this prospectus.
The trustee, or a custodian on behalf of the trustee, will review the
contract documents within the number of days specified in the related prospectus
supplement after receipt thereof. If any contract document is found to be
defective in any material respect, the related seller unaffiliated with the
depositor must cure that defect within 90 days, or within some other period that
is specified in the related prospectus supplement. If the defect is not cured,
the related seller will repurchase the related contract or any property acquired
in respect thereof from the trustee at a price equal to:
o the remaining unpaid principal balance of the defective contract; or
o in the case of a repossessed manufactured home, the unpaid principal
balance of the defective contract immediately prior to the repossession; or
o in the case of a series as to which an election has been made to treat the
related trust fund as a REMIC, at some 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 the
defective contract. The repurchase obligation constitutes the sole remedy
available to the certificateholders or the trustee for a material defect in a
contract document.
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If stated in the related prospectus supplement, each seller of contracts
will have represented, among other things, that:
o immediately prior to the transfer and assignment of the contracts, the
seller unaffiliated with the depositor had good title to, and was the sole
owner of each contract and there had been no other sale or assignment
thereof;
o as of the date of the transfer to the depositor, the contracts are subject
to no offsets, defenses or counterclaims;
o 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;
o as of the date of the transfer to the depositor, each contract is a valid
first lien on the related manufactured home and the related manufactured
home is free of material damage and is in good repair;
o as of the date of the transfer to the depositor, 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
o 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 related pooling and servicing agreement and that all premiums now due
on the 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 that seller sold the
contract to the depositor or its affiliate, which 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 the repurchase obligation had the event occurred prior to
sale of the affected contract.
If a 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 that contract within 90 days, or other period
specified in the related prospectus supplement, after notice from the servicer,
the related seller will be obligated to repurchase the defective contract at a
price equal to:
o the principal balance thereof as of the date of the repurchase; or
o in the case of a series as to which an election has been made to treat the
related trust fund as a REMIC, at some 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 the defective contract. The servicer will be required under the
applicable pooling and servicing agreement to enforce this obligation for the
benefit of the trustee and the certificateholders, following the practices it
would employ in its good faith business judgment were it the owner of the
contract. This repurchase obligation will constitute the sole remedy available
to certificateholders or the trustee for a breach of representation by a seller
unaffiliated with the depositor.
Neither the depositor nor the servicer will be obligated to purchase a
contract if a 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 defective contracts. However, to the extent that a breach of the
representations and warranties of a seller may also constitute a breach of a
representation made by the depositor, the depositor may have a purchase
obligation as described in this prospectus under "The Trust Fund--The Contract
Pools."
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If stated in the related prospectus supplement, the depositor may make
certain limited representations with respect to the contracts.
Assignment of Mortgage Certificates
Pursuant to the applicable pooling and servicing agreement for a series of
certificates that includes Mortgage Certificates in the related trust fund, the
depositor will cause the Mortgage Certificates to be transferred to the trustee
together with all principal and interest distributed on those 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 pooling and servicing agreement. The schedule will include
information as to the principal balance of each Mortgage Certificate as of the
date of issuance of the certificates and its interest rate, maturity and
original principal balance. In addition, 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 Mortgage Certificate to be made directly to the trustee.
In connection with the assignment of Mortgage Certificates to the trustee,
the depositor will make certain representations and warranties in the related
pooling and servicing agreement as to, among other things, its ownership of the
Mortgage Certificates. In the event that these representations and warranties
are breached, and the 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 the 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 repurchases of Mortgage Certificates will be
distributed to certificateholders on the immediately succeeding distribution
date or such other date described in the related prospectus supplement.
The applicable prospectus supplement will describe the characteristics of
the mortgage loans and contracts underlying the Mortgage Certificates.
If stated 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 new Mortgage Certificates in substitution
for any one or more of the 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.
Servicing of Mortgage Loans and Contracts
Each seller of a mortgage loan or a contract may act as the servicer for
the related mortgage loan or contract pursuant to a pooling and servicing
agreement. A representative form of pooling and 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 pooling and servicing agreement entered into
by the servicer, the subservicer, the depositor and the trustee. If a servicer
is appointed pursuant to a separate servicing agreement, that agreement will
contain servicing provisions generally consistent with the provisions described
in this prospectus.
Any servicer will be required to perform the customary functions of a
servicer, including:
o collection of payments from mortgagors and obligors and remittance of
collections to the servicer;
o maintenance of primary mortgage, hazard insurance, FHA insurance and VA
guarantees and filing and settlement of claims under those policies;
o 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;
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o processing of assumptions or substitutions;
o attempting to cure delinquencies;
o supervising foreclosures or repossessions;
o inspection and management of mortgaged properties, Cooperative Dwellings or
manufactured homes under certain circumstances; and
o maintaining accounting records relating to the mortgage loans and
contracts.
A servicer may delegate its servicing obligations to third-party
subservicers, but will continue to be responsible for the servicing of the
mortgage loans or contracts pursuant to the related pooling and servicing
agreement.
A servicer or subservicer 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 in this prospectus 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 or subservicer will be
entitled to amounts from payments with respect to the mortgage loans and
contracts serviced by it. A servicer or subservicer 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. A subservicer will
be reimbursed by the servicer for certain expenditures that it makes, generally
to the same extent that the servicer would be reimbursed under the applicable
pooling and servicing agreement.
Payments on Mortgage Loans
The servicer will establish and maintain a Certificate Account in
connection with each series. The Certificate Account may be maintained with a
depository institution that is an affiliate of the servicer.
The 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:
o all payments on account of principal, including principal prepayments, on
the related mortgage loans, net of any portion of payments that represent
unreimbursed or unrecoverable Advances made by the related servicer or
subservicer;
o all payments on account of interest on the related mortgage loans, net of
any portion thereof retained by the servicer or subservicer, if any, as its
servicing fee;
o all Insurance Proceeds or any Alternative Credit Support established in
lieu of any insurance and described in the applicable prospectus
supplement;
o all Liquidation Proceeds, net of expenses of liquidation, unpaid servicing
compensation with respect to the related mortgage loans and unreimbursed or
unrecoverable Advances made by the servicers or subservicers of the related
mortgage loans;
o all payments under the financial guaranty insurance policy, surety bond or
letter of credit, if any, with respect to that series;
o all amounts required to be deposited in the Certificate Account from the
reserve fund, if any, for that series;
o any Advances made by a subservicer or the servicer, as described in this
prospectus under "--Advances";
o any Buy-Down Funds, and, if applicable, investment earnings thereon,
required to be deposited in the Certificate Account, as described below;
and
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o all proceeds of any mortgage loan repurchased by the servicer, the
depositor, any subservicer or any seller unaffiliated with the depositor,
as described in this prospectus under "The Trust Fund--Mortgage Loan
Program--Representations by Unaffiliated Sellers; Repurchases" or
"--Assignment of Mortgage Loans" or repurchased by the depositor as
described in this prospectus under "--Termination".
If stated in the applicable prospectus supplement, the servicer, in lieu of
establishing a Certificate Account, may instead establish a Custodial Account.
If the servicer elects to establish a Custodial Account, amounts in that
Custodial Account, after making the required deposits and withdrawals specified
in this section "--Payments on Mortgage Loans," shall be remitted to the
Certificate Account maintained by the trustee for distribution to
certificateholders in the manner set forth in this prospectus and in the related
prospectus supplement. The servicer will also be required to advance any monthly
installment of principal and interest that was not timely received, less its
servicing fee, provided that this requirement shall only apply to the extent the
servicer determines in good faith any advance will be recoverable out of
insurance proceeds, proceeds of the liquidation of the related mortgage loans or
otherwise.
In those cases where a subservicer is servicing a mortgage loan pursuant to
a subservicing agreement, the subservicer will establish and maintain a
Servicing Account that will comply with either the standards set forth for a
Custodial Account or, subject to the conditions set forth in the servicing
related pooling and servicing agreement, meeting the requirements of the related
Rating Agency, and that is otherwise acceptable to the servicer. The subservicer
will be required to deposit into the Servicing Account on a daily basis all
amounts enumerated above in respect of the mortgage loans received by the
subservicer, less its servicing compensation. On the date specified in the
servicing related pooling and servicing agreement, the subservicer shall remit
to the servicer all funds held in the Servicing Account with respect to each
mortgage loan. Any payments or other amounts collected by a special servicer
with respect to any specially serviced mortgage loans will be deposited by the
related special servicer as set forth in the related prospectus supplement.
With respect to each series which contains Buy-Down Loans, if stated in the
related prospectus supplement, the servicer or the related subservicer will
establish a Buy-Down Fund. Amounts on deposit in the Buy-Down Fund, together
with investment earnings thereon if specified in the applicable prospectus
supplement, will be used to support the full monthly payments due on the related
Buy-Down Loans on a level debt service basis. Neither the 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 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
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 the related Buy-Down Loan, equals the full monthly payment that would be due
on the Buy-Down Loan if it were not subject to a buy-down plan.
If stated 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 that series, which shall be drawn upon by the trustee in the manner and
at the times specified in the related 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 or a Custodial 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 servicer on or before
the Cut-off Date:
o all obligor payments on account of principal, including principal
prepayments, on the contracts;
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o all obligor payments on account of interest on the contracts, net of the
servicing fee;
o all Liquidation Proceeds received with respect to contracts or property
acquired in respect thereof by foreclosure or otherwise;
o 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;
o 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;
o all amounts received from any credit support provided with respect to a
series of certificates;
o all proceeds of any contract or property acquired in respect thereof
repurchased by the servicer, the depositor or otherwise as described above
or under "--Termination" below; and
o 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 that distribution was due and payable pursuant to the
terms of the Mortgage Certificate, to request the issuer or guarantor, if any,
of the Mortgage Certificate to make payment as promptly as possible and legally
permitted and to take whatever legal action against the related 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
legal action will be reimbursable to the trustee out of the proceeds of any
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 legal action may be insufficient to
reimburse it for its projected legal fees and expenses, the trustee will notify
the related certificateholders that it is not obligated to pursue any available
remedies unless adequate indemnity for its legal fees and expenses is provided
by those certificateholders.
Distributions on Certificates
On each distribution date with respect to a series of certificates, the
servicer will withdraw from the applicable Certificate Account funds on deposit
in that Certificate Account and distribute, or, if stated in the applicable
prospectus supplement, will withdraw from the Custodial Account funds on deposit
in that Custodial Account and remit to the trustee, who will distribute, those
funds to certificateholders of record on the applicable Record Date. The
distributions shall occur in the manner described in this prospectus under
"Description of the Certificates--Distributions of Principal and Interest" and
in the related prospectus supplement. Those funds shall consist of the aggregate
of all previously undistributed payments on account of principal, including
principal prepayments, Insurance Proceeds and Liquidation Proceeds, if any, and
interest received after the Cut-off Date and on or prior to the applicable
Determination Date, except:
o all payments that were due on or before the Cut-off Date;
o all principal prepayments received during the month of distribution and all
payments of principal and interest due after the related Due Period;
o 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;
o amounts received on particular mortgage loans or contracts as late payments
of principal or interest and respecting which the servicer has made an
unreimbursed Advance;
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o amounts representing reimbursement for previously unreimbursed expenses
incurred or Advances made by the servicer or subservicer; and
o that portion of each collection of interest on a particular mortgage loan
in the related mortgage pool or on a particular contract in the related
contract pool that represents:
(1) servicing compensation to the servicer and, if applicable, the special
servicer; or
(2) 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 financial guaranty insurance policy, surety bond
or letter of credit, if any, with respect to the series.
No later than the business day immediately preceding the distribution date
for a series of certificates, the servicer will furnish a statement to the
trustee setting forth the information that is necessary for the trustee to
determine the amount of distributions to be made on the certificates and a
statement setting forth certain information with respect to the mortgage loans
or contracts.
If stated 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
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 stated 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 investment will be
for the benefit of the servicer, or other entity if stated in the applicable
prospectus supplement. The servicer or other entity will be required to deposit
the amount of any losses incurred with respect to investments out of its own
funds, when realized.
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 in this prospectus, will 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 certificates that do not provide for
monthly distribution dates may receive special distributions in reduction of
Certificate Principal Balance in any month, other than a month in which a
distribution date occurs, if, as a result of principal prepayments on the 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 that series and available
to be distributed to the holders of the certificates of those classes or
subclasses may be less than the sum of:
o the interest scheduled to be distributed to holders of the certificates of
those classes or subclasses; and
o the amount to be distributed in reduction of Certificate Principal Balance
on those certificates on that distribution date.
Any special distributions will be made in the same priority and manner as
distributions in reduction of Certificate Principal Balance would be made on the
next distribution date.
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Reports to Certificateholders
The servicer or the trustee will include with each distribution to
certificateholders of record of the related series, or within a reasonable time
thereafter, a statement generally setting forth, among other things, the
following information, if applicable:
(1) to each holder of a certificate, the amount of the related
distribution allocable to principal of the assets of the related
trust fund, separately identifying the aggregate amount of any
prepayments of principal on the related mortgage loans, contracts or
mortgage loans underlying the related Mortgage Certificates included
in that trust fund, and the portion, if any, advanced by the servicer
or a subservicer;
(2) to each holder of a certificate, the amount of the related
distribution allocable to interest on the assets of the related trust
fund and the portion, if any, advanced by the servicer or a
subservicer;
(3) in the case of a series of certificates with a variable
Pass-Through Rate, the Pass-Through Rate applicable to the
distribution;
(4) the amount of coverage remaining under the financial guaranty
insurance policy, surety bond, letter of credit, pool insurance
policy, special hazard insurance policy, mortgagor bankruptcy bond,
or reserve fund as applicable, in each case, after giving effect to
any amounts with respect thereto distributed to certificateholders on
that distribution date;
(5) 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 the Alternative Credit
Support after giving effect to any amounts with respect thereto
distributed to certificateholders on the distribution date;
(6) the aggregate unpaid principal balance of the assets of the related
trust fund as of a date not earlier than the distribution date after
giving effect to payments of principal distributed to
certificateholders on the distribution date;
(7) the book value of any collateral acquired by the mortgage pool or
contract pool through foreclosure, repossession or otherwise;
(8) the number and aggregate principal amount of mortgage loans or
contracts one month, two months, and three or more delinquent; and
(9) 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 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 that calendar year a report as to the aggregate of
amounts reported pursuant to (1) and (2) above and other information as in the
judgment of the servicer or the trustee, as the case may be, is needed for the
certificateholder to prepare its tax return, as applicable, for that calendar
year or, in the event such person was a certificateholder of record during a
portion of that calendar year, for the applicable portion of that year.
Advances
If stated in the related prospectus supplement, each subservicer and the
servicer, with respect to mortgage loans or contracts serviced by it and with
respect to Advances required to be made by the subservicers 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, 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 financial guaranty insurance policy, surety bond, 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, or liquidation proceeds from the mortgage loan or contracts.
In making Advances, the subservicers and servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the
certificateholders,
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rather than to guarantee or insure against losses. Any Advances are reimbursable
to the subservicer or servicer out of related recoveries on the mortgage loans
respecting which those amounts were advanced. In addition, Advances are
reimbursable from cash in the reserve fund, the Servicing or Certificate
Accounts to the extent that the subservicer or the servicer, as the case may be,
shall determine that any Advances previously made are not ultimately recoverable
from other sources.
The subservicers and the 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 by the servicer or
subservicer will be prior to the rights of the certificateholders to receive any
amounts recovered with respect to the related mortgage loans or contracts. If
stated in the applicable prospectus supplement, the subservicers and the
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 of the mortgage loans or contracts. Those
Advances will not be reimbursable to the subservicers or the servicer.
Collection and Other Servicing Procedures
The servicer will be responsible for servicing the mortgage loans pursuant
to the related pooling and servicing agreement for the related series. The
servicer may subcontract the servicing of all or a portion of the mortgage loans
to one or more subservicers 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 to a special
servicer, and certain information with respect to the special servicer will be
set forth in the related prospectus supplement. Any subservicer or any special
servicer may be an affiliate of the depositor and may have other business
relationships with depositor and its affiliates.
The servicer, directly or through the subservicers 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 financial guaranty
insurance policy, surety bond, letter of credit, pool insurance policy, special
hazard insurance policy, primary mortgage insurance policy, mortgagor bankruptcy
bond, or Alternative Credit Support, follow the collection procedures 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
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 that mortgage loan or contract or the coverage provided by any
financial guaranty insurance policy, surety bond, letter of credit or
Alternative Credit Support, will not be adversely affected.
Under the related pooling and servicing agreement, the servicer, either
directly or through subservicers or a special servicer, to the extent permitted
by law, may establish and maintain an escrow in which mortgagors 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
escrows to be made. The special servicer, if any, will be required to remit
amounts received for the purposes described in this paragraph on mortgage loans
serviced by it for deposit in the related escrow account, and will be entitled
to direct the servicer to make withdrawals from that escrow account as may be
required for servicing of the related mortgage loans. Withdrawals from an 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 that escrow
account, if required, and to clear and terminate that escrow account. The
servicer will be responsible for the administration of each escrow account and
will be obliged to make advances to those accounts when a deficiency exists in
any of those escrow accounts. Alternatively, in lieu of establishing an escrow
account, the servicer may procure a performance bond or other form of insurance
coverage,
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in an amount acceptable to the related Rating Agency, covering loss occasioned
by the failure to escrow such amounts.
Standard Hazard Insurance
Except to the extent specified in a related prospectus supplement, the
terms of each pooling and servicing agreement will require the servicer or the
special servicer, if any, to cause to be maintained for each mortgage loan or
contract that it services, and the servicer will be required to maintain for
each mortgage loan or contract serviced by it directly, a policy of standard
hazard insurance covering the mortgaged property underlying the related mortgage
loan or manufactured home underlying the related contract in an amount at least
equal to the maximum insurable value of the improvements securing the related
mortgage loan or contract or the principal balance of the related mortgage loan
or contract, whichever is less.
Each subservicer, the special servicer, if any, or the servicer, as the
case may be, shall also be required to maintain on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any mortgage loan or contract, a
standard hazard insurance policy. Any amounts collected by the subservicer, the
special servicer, if any, or the servicer under those policies, other than
amounts to be applied to the restoration or repair of the mortgaged property or
manufactured home or released to the borrower in accordance with normal
servicing procedures, shall be deposited in the related Servicing Account for
deposit in the Certificate Account or, in the case of the servicer, may be
deposited directly into the Certificate Account. Any cost incurred in
maintaining any 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. The cost incurred in maintaining any insurance shall
be recoverable by the servicer or the special servicer, if any, only by
withdrawal of funds from the Servicing Account or by the 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 applicable laws and regulations as shall at any
time be in force and as shall require earthquake or 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 subservicer or the special servicer, if any, or the 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 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 insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to that borrower's Cooperative Dwelling or that Cooperative's building
could significantly reduce the value of the collateral securing the related
Cooperative Loan to the extent not covered by other credit support.
The related pooling and servicing agreement will permit the servicer to
obtain and maintain a blanket policy insuring against hazard losses on all of
the related mortgage loans or contracts, in lieu of maintaining 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 servicer
will, in the event that there has been a loss that would have been covered by a
policy absent the deductible, deposit in the Certificate Account the amount not
otherwise payable under the blanket policy because of the application of the
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
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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 multifamily 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 servicer to maintain
public liability insurance with respect to any related REO Properties. Any cost
incurred by the servicer in maintaining any insurance policy will be added to
the amount owing under the related mortgage loan where the terms of that
mortgage loan so permit; provided, however, that the addition of that cost will
not be taken into account for purposes of calculating the distribution to be
made to certificateholders. These costs may be recovered by the servicer from
the Certificate Account, with interest thereon, as provided by the related
pooling and servicing agreement.
Special Hazard Insurance
If stated in the related prospectus supplement, the 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 servicer shall be under no such
obligation if coverage under the pool insurance policy with respect to that
series has been exhausted. If the special hazard insurance policy is cancelled
or terminated for any reason, other than the exhaustion of total policy
coverage, the 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 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.
Pool Insurance
To the extent specified in a related prospectus supplement, the 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 the pool insurance
policy on a timely basis. In the event that the related 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 servicer will exercise its best reasonable efforts to
obtain a replacement policy of pool insurance comparable to the pool insurance
policy and may obtain a total coverage that is equal to the then existing
coverage of the special hazard insurance policy; provided that if the cost of
any replacement policy is greater than the cost of the terminated pool insurance
policy, the amount of coverage under the replacement pool insurance policy may
be reduced to a level such that the applicable premium will not exceed the cost
of the pool insurance policy that was replaced.
Primary Mortgage Insurance
To the extent specified in the related prospectus supplement, the 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 subservicer of a
mortgage loan secured by single family property will be required to keep in full
force and effect with respect to each 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 with regard to each
mortgage loan for which coverage is required pursuant to the applicable pooling
and servicing agreement and to act on behalf of the trustee, or "insured," under
each primary mortgage insurance policy. Neither the servicer nor the subservicer
will be permitted to cancel or refuse to renew any 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 related pooling and servicing
agreement unless a replacement primary mortgage insurance policy for the
cancelled or non-renewed policy is
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maintained with an insurer whose claims-paying ability is acceptable to the
related Rating Agency. See "Description of Insurance--Primary Mortgage Insurance
Policies."
Mortgagor Bankruptcy Bond
If stated in the related prospectus supplement, the 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 the 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 servicer to the extent
permitted by the related Rating Agency, provided that any cancellation or
reduction does not adversely affect the then current rating of that series. See
"Description of Insurance--Mortgagor Bankruptcy Bond."
Presentation of Claims
The 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 whatever reasonable steps are necessary to
permit recovery under the related 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 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 subservicer, the
subservicer, 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 servicer
nor the subservicer, 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 subservicer, the servicer agrees:
o that the restoration will increase the proceeds to certificateholders on
liquidation of the mortgage loan or contract after reimbursement of the
expenses incurred by the subservicer or the servicer, as the case may be;
and
o that the 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 subservicer or the
servicer has been unable to make the above determinations or otherwise, the
subservicer or the servicer is nevertheless obligated to follow whatever normal
practices and procedures 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 that series is exhausted, the related trust fund will
realize a loss in the amount of the difference plus the aggregate of expenses
incurred by the subservicer or the servicer in connection with those proceedings
and which are reimbursable under the related pooling and servicing agreement. In
the event that any proceedings result in a total recovery that is, after
reimbursement to the subservicer or the 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
subservicer and the servicer will be entitled to
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withdraw amounts representing normal servicing compensation on the related
mortgage loan or contract from the Servicing Account or the Certificate Account,
as the case may be.
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans
Each 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 related borrower, the related subservicer or
the servicer, as the case may be, will, to the extent it has knowledge of the
conveyance, exercise its rights to accelerate the maturity of that mortgage loan
under any "due-on-sale" clause applicable thereto, if any, unless it reasonably
believes that enforcement of the "due-on-sale" clause is not exercisable under
applicable law or regulations, would result in loss of insurance coverage with
respect to that mortgage loan or would not be in the best interest of the
related series of certificateholders. In any case where the due-on-sale clause
will not be exercised, the subservicer or the servicer is authorized to take or
enter into an assumption and modification agreement from or with the person to
whom the related mortgaged property has been or is about to be conveyed,
pursuant to which that 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 subservicer and the 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 that person, pursuant to
which the original mortgagor is released from liability and that person is
substituted as mortgagor and becomes liable under the Mortgage Note.
Under each pooling and servicing agreement relating to a series, the
subservicer or the servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing those 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 the foreclosure or other conversion, the subservicer or the
servicer will follow whatever practices and procedures are deemed necessary or
advisable and as shall be normal and usual in its general mortgage servicing
activities, except when, in the case of FHA or VA Loans, applicable regulations
require otherwise. However, neither the subservicer nor the 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 subservicer, the servicer agrees:
o that the restoration and/or foreclosure will increase the proceeds of
liquidation of the related mortgage loan to certificateholders after
reimbursement to itself for expenses; and
o that the 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" in this prospectus. 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 the 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 single family property may have declined in value
since the date of origination of the mortgage loan. 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 that property will
be less than was anticipated when the related mortgage loan was originated. To
the extent that
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the equity in the property does not absorb the loss in market value and the loss
is not covered by other credit support, a loss may be experienced by the related
trust fund.
With respect to multifamily property consisting of an apartment building
owned by a Cooperative, the Cooperative's ability to meet debt service
obligations on the mortgage loan, as well as all other operating expenses, will
be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments of the tenant-stockholders. The Cooperative's
ability to pay the principal amount of the mortgage loan at maturity may depend
on its ability to refinance the mortgage loan. The depositor, any unaffiliated
seller and the servicer will have no obligation to provide refinancing for any
such mortgage loan.
The servicer or subservicer will treat a defaulted mortgage loan as having
been finally liquidated after all Liquidation Proceeds, Insurance Proceeds and
other amounts that the servicer or subservicer expects to receive in connection
with the liquidation have been received. Any Realized Loss will be allocated to
the certificates in the manner set forth in the related prospectus supplement.
Generally, amounts received after a Realized Loss has been allocated to the
certificates will not be distributed to the certificateholders, however, if
stated in the related prospectus supplement, amounts received after a Realized
Loss has been allocated to the certificates may be distributed to the
certificateholders.
Enforcement of "Due-on-Sale" Clauses; Realization Upon Defaulted Contracts
Each 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 related
obligor, the servicer, to the extent it has knowledge of the prospective
conveyance and prior to the time of the consummation of the conveyance, may
exercise its rights to accelerate the maturity of that contract under the
applicable "due-on-sale" clause, if any, unless it is not exercisable under
applicable law. In that case, the servicer is authorized to take or enter into
an assumption agreement from or with the person to whom the related manufactured
home has been or is about to be conveyed, pursuant to which that person becomes
liable under the contract and, unless determined to be materially adverse to the
interests of certificateholders, with the prior approval of the related pool
insurer, if any, to enter into a substitution of liability agreement with that
person, pursuant to which the original obligor is released from liability and
that person is substituted as obligor and becomes liable under the contract.
Where authorized by the contract, the annual percentage rate may be increased,
upon assumption, to the then-prevailing market rate, but shall not be decreased.
Under pooling and servicing agreement, the servicer will repossess or
otherwise comparably convert the ownership of properties securing those 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 the repossession or other conversion, the servicer or
subservicer will follow whatever practices and procedures it shall deem
necessary or advisable and as shall be normal and usual in its general contract
servicing activities. The servicer or subservicer, 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:
o that the restoration or repossession will increase the proceeds of
liquidation of the related contract to the certificateholders after
reimbursement to itself for the expenses; and
o that the 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 servicer will be entitled to receive an amount described in that
prospectus supplement. The servicer's primary compensation generally will be
equal to a monthly servicing fee in the amount specified in the pooling and
servicing agreement. Servicing compensation shall be payable by withdrawal from
the related Servicing Account prior to deposit in the Certificate Account from
interest payments on
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the mortgage loans or contracts, Insurance Proceeds, Liquidation Proceeds or
letter of credit payments, as applicable. Additional servicing compensation in
the form of prepayment charges, assumption fees, late payment charges or
otherwise shall be retained by the subservicers and the servicer to the extent
not required to be deposited in the Certificate Account. If the servicer
subcontracts the servicing of specially serviced mortgage loans to a special
servicer, the amount and calculation of the fee payable to the special servicer
will be set forth in the related prospectus supplement. Subservicers will also
be entitled to receive servicing compensation in addition to the servicing
compensation to the extent described in the prospectus supplement.
The subservicers, any special servicer and the 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 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 for
the related series and independent accountants and payment of expenses incurred
in enforcing the obligations of servicers and sellers. Certain of these expenses
may be reimbursable pursuant to the terms of the related pooling and servicing
agreement. In addition, the servicer will be entitled to reimbursement of
expenses incurred in enforcing the obligations of any special servicers,
subservicers and any sellers under certain circumstances.
As set forth in the preceding section, the subservicers, any special
servicer and the 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 those
expenses to the extent claims are fully paid under the financial guaranty
insurance policy, surety bond or 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 a financial guaranty insurance
policy, surety bond, 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 the losses, the related trust fund will suffer a
loss to the extent that the Liquidation Proceeds, after reimbursement of the
expenses of the subservicers or the servicer, as the case may be, are less than
the principal balance of the related mortgage loan or contract. In addition, the
subservicers, a special servicer and the 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.
The right of reimbursement will be prior to the rights of the certificateholders
to receive any payments under the financial guaranty insurance policy, surety
bond or letter of credit, if any, or from any related Insurance Proceeds,
Liquidation Proceeds, amounts in the reserve fund or any proceeds of Alternative
Credit Support.
Under the applicable trust agreement, the trustee or a certificate
administrator 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 or certificate administrator shall be required to pay all expenses,
except as expressly provided in the related trust agreement, subject to limited
reimbursement as provided in the related trust agreement.
Evidence as to Compliance
The 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:
o a review of the activities of the servicer and the subservicers
during the preceding calendar year and of their performance under the
related pooling and servicing agreement has been made under the
supervision of that officer; and
o to the best of that officer's knowledge, based on the review, the
servicer and each subservicer has fulfilled all its obligations under
the related pooling and servicing agreement and the minimum servicing
standards set forth in the Uniform Single Attestation Program for
Mortgage Bankers, or, if there has been a default in the fulfillment
of any obligation, specifying each default known to that officer and
the nature and status thereof.
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The officer's certificate shall be accompanied by a statement of a firm of
independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to servicing of the
mortgage loans or contracts, the servicing of the mortgage loans or contracts
was conducted in compliance with the provisions of the pooling and servicing
agreement, and the minimum servicing standards set forth in the Uniform Single
Attestation Program for Mortgage Bankers, except for the exceptions as the firm
of independent public accountants believes it is required to report.
Certain Matters Regarding the Servicer, the Depositor, the Trustee and the
Special Servicer
The servicer under each pooling and servicing agreement will be named in
the applicable prospectus supplement. The entity acting as servicer may be a
seller unaffiliated with the depositor and have other normal business
relationships with the depositor and/or affiliates of the depositor or may be an
affiliate of the depositor. In the event there is no 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, which will provide
for servicing responsibilities similar to those described in this prospectus for
a servicer acting pursuant to a pooling and servicing agreement.
The servicer may not resign from its obligations and duties under the
pooling and servicing agreement except in connection with an assignment of its
obligations and duties permitted by the pooling and servicing agreement or upon
a determination that its duties thereunder are no longer permissible under
applicable law. No resignation will become effective until the trustee or a
successor servicer has assumed the servicer's obligations and duties under the
pooling and servicing agreement.
The trustee under each pooling and servicing agreement or trust agreement
will be named in the applicable prospectus supplement. The commercial bank or
trust company serving as trustee may have normal banking relationships with the
depositor and/or its affiliates and with the servicer and/or its affiliates.
The trustee may resign from its obligations under the related pooling and
servicing agreement or trust 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 related pooling
and servicing agreement or trust 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 that series. Any resignation and
removal of the trustee, and the appointment of a successor trustee, will not
become effective until acceptance of the appointment by the successor trustee.
Each pooling and servicing agreement and trust agreement will also provide
that neither the depositor nor the servicer nor any director, officer, employee
or agent of the depositor or the 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 servicer or the
trustee nor any director, officer, employee or agent of the depositor or the
servicer or the trustee, or any responsible officers of the trustee will be
protected against, in the case of the servicer and the depositor, any breach of
representations or warranties made by them, and in the case of the servicer, the
depositor and the trustee, against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance of
its duties or by reason of reckless disregard of its obligations and duties
thereunder.
Each pooling and servicing agreement and trust agreement will further
provide that the depositor, the servicer and the trustee and any director,
officer and employee or agent of the depositor, the servicer or the trustee
shall be entitled to indemnification, by the trust fund in the case of the
depositor and servicer and by the servicer in the case of the trustee, and will
be held harmless against any loss, liability or expense incurred in connection
with any legal action relating to the applicable related pooling and servicing
agreement or the certificates, and in the case of the trustee, resulting from
any error in any tax or information return prepared by the 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 loss, liability or
expense otherwise reimbursable pursuant to the applicable related pooling and
servicing agreement, and any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence (or, in the case of the
trustee,
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negligence), in the performance of their duties thereunder or by reason of
reckless disregard of their obligations and duties thereunder. In addition, each
related pooling and servicing agreement will provide that neither the depositor
nor the 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 related pooling and servicing agreement and that in its opinion may involve
it in any expense or liability. The depositor or the servicer may, however, in
their discretion, undertake any action deemed by them necessary or desirable
with respect to the applicable related pooling and servicing agreement and the
rights and duties of the parties thereto and the interests of the
certificateholders thereunder. In that event, the legal expenses and costs of an
action and any liability resulting therefrom will be expenses, costs and
liabilities of the related trust fund, and the servicer or the depositor, as the
case may be, will be entitled to be reimbursed therefor out of the Certificate
Account.
If the 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 or pooling and servicing agreement.
Events of Default
Events of default under each pooling and servicing agreement will include:
o any failure to make a specified payment which continues unremedied, in most
cases, for five business days after the giving of written notice;
o any failure by the trustee, the subservicer or the 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 servicer or the subservicer, if applicable, which
continues unremedied for 120 days after the giving of written notice of the
failure or breach; and
o certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings regarding the servicer or a
subservicer, 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 that series specified in the related pooling and servicing
agreement may terminate all of the rights and obligations of the 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 servicer, the depositor or its
designee, will succeed to all the responsibilities, duties and liabilities of
the servicer under the related pooling and servicing agreement and will be
entitled to similar compensation arrangements. In the event that the trustee
would be obligated to succeed the 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 servicer. Pending an appointment, the trustee,
unless prohibited by law from so acting, shall be obligated to act in that
capacity. The trustee and the successor servicer may agree upon the servicing
compensation to be paid to the successor servicer, which in no event may be
greater than the compensation to the servicer under the related pooling and
servicing agreement.
Amendment
Each pooling and servicing agreement may be amended by the depositor, the
servicer and the trustee, without the consent of the certificateholders:
o to cure any ambiguity;
o to correct or supplement any provision in that pooling and servicing
agreement that may be inconsistent with any other provision in that pooling
and servicing agreement; or
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o to make any other provisions with respect to matters or questions arising
under the related pooling and servicing agreement that are not inconsistent
with the provisions thereof, provided that the action will not adversely
affect in any material respect the interests of any certificateholder of
the related series.
The related pooling and servicing agreement may also be amended by the
depositor, the servicer and the trustee with the consent of holders of
certificates evidencing not less than 66 2/3% of the voting rights evidenced by
the certificates, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of that pooling and servicing
agreement or of modifying in any manner the rights of the certificateholders;
provided, however, that no amendment may:
(1) 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 that certificate;
(2) 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 (1) above without the consent of the
holders of the senior certificates of that class or subclass evidencing not
less than 66 2/3% of that class or subclass;
(3) adversely affect in any material respect the interests of the holders of
the subordinated certificates, if any, of a series in a manner other than
that set forth in (1) above without the consent of the holders of
subordinated certificates evidencing not less than 66 2/3% of that class or
subclass; or
(4) reduce the aforesaid percentage of the certificates, the holders of which
are required to consent to the amendment, without the consent of the
holders of the class affected thereby.
Termination
The obligations created by the pooling and servicing agreement for a series
of certificates will terminate upon the earlier of:
(1) the repurchase of all mortgage loans or contracts and all property
acquired by foreclosure of any mortgage loan or contract; and
(2) the later of:
o 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 mortgage loan or contract; and
o the payment to the certificateholders of all amounts held by the servicer
and required to be paid to them pursuant to the related pooling and
servicing agreement.
The obligations created by the related pooling and servicing agreement or
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 that pooling and servicing agreement or trust agreement. In no
event, however, will the trust created by either the related pooling and
servicing agreement or the related trust agreement continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
identified in the related pooling and servicing agreement or the related trust
agreement.
For each series of certificates, the servicer will give written notice of
termination of the applicable related pooling and servicing agreement or trust
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
related pooling and servicing agreement or trust 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 the related certificates.
The trust fund and the certificateholders will have no obligation to the
purchaser of the assets of the related trust fund with respect to the assets so
purchased.
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If stated in the related prospectus supplement, the pooling and servicing
agreement for each series of certificates will permit, but not require, the
depositor or some other person as stated in the related prospectus supplement to
repurchase from the trust fund for that series all remaining mortgage loans or
contracts subject to the pooling and servicing agreement at a price specified in
that prospectus supplement. If stated in the related prospectus supplement, the
repurchase price will be equal to:
(1) 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
(2) 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
that property have not yet been received by or on behalf of the trust
fund.
The purchase price described in clause (2) above could result in 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 repurchase will be effected in compliance with the
requirements of Section 860F(a)(4) of the Code, in order to constitute a
"qualifying liquidation" under the Code. The exercise of any right to repurchase
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 that 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
financial guaranty insurance policies, surety bonds or letters of credit, the
issuance of subordinated classes or subclasses of certificates, which may, if
stated 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 in this
prospectus 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.
Financial Guaranty Insurance Policies; Surety Bonds
The depositor may obtain one or more financial guaranty insurance policies
or surety bonds issued by insurers or other parties acceptable to the rating
agency or agencies rating the securities of a series. Any such policy or surety
bond may provide payments to the holders of only one or more classes of
securities of a series, as specified in the applicable prospectus supplement.
Unless specified in the prospectus supplement, a financial guaranty
insurance policy or surety bond will be unconditional and irrevocable and will
guarantee to holders of the applicable securities that an amount equal to the
full amount of payments due to these holders will be received by the trustee or
its agent on behalf of the holders for payment on each payment date. The
specific terms of any financial guaranty insurance policy or surety bond will be
described in the accompanying prospectus supplement. A financial guaranty
insurance policy or surety bond may have limitations and, in most cases, will
not insure the obligation of the sellers or the depositor to purchase or
substitute for a defective trust asset and will not guarantee any specific rate
of principal prepayments or cover specific interest shortfalls. In most cases,
the insurer will be subrogated to the rights of each holder to the extent the
insurer makes payments under the financial guaranty insurance policy.
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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 maximum obligation of the letter of credit bank under
the related letter of credit will be to honor requests for payment in an
aggregate fixed dollar amount, net of unreimbursed payments previously made
under the letter of credit, 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 specified in the prospectus supplement for that 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 related Rating Agency
and will be set forth in the prospectus supplement relating to that series of
certificates. The amount available under the letter of credit in all cases shall
be reduced to the extent of the unreimbursed payments previously made under the
letter of credit. The obligations of the letter of credit 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, or on another date specified
in the related prospectus supplement.
If stated in the applicable prospectus supplement, under the related
pooling and servicing agreement, the 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 that distribution date,
advise the letter of credit bank and the trustee of its determination, stating
the amount of any required payment. On the distribution date, the letter of
credit bank will be required to honor the trustee's request for payment in an
amount equal to the lesser of:
o the remaining amount available under the letter of credit; and
o the outstanding principal balances of any Liquidating Loans to be assigned
on that distribution date, together with accrued and unpaid interest
thereon at the related mortgage rate or annual percentage rate to the
related due date.
The proceeds of 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 that distribution date,
except to the extent of any unreimbursed Advances, servicing compensation due to
the subservicers and the servicer and other amounts payable to the depositor or
the person or entity named in the applicable prospectus supplement.
If at any time the letter of credit 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 that
Liquidating Loan, and the letter of credit bank will thereafter own the
Liquidating Loan free of any further obligation to the trustee or the
certificateholders with respect to that loan. Payments made to the Certificate
Account by the letter of credit bank under the letter of credit with respect to
a Liquidating Loan will be reimbursed to the letter of credit bank only from the
proceeds, net of liquidation costs, of that Liquidating Loan. The amount
available under the letter of credit will be increased to the extent it is
reimbursed for those payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
a letter of credit bank in the manner described in the preceding paragraph
exceed the amount of payments made with respect thereto, the letter of credit
bank will be entitled to retain the 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
letter of credit 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 letter of credit bank
becomes insolvent, and amounts in the reserve fund, if any, with respect to that
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
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
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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.
Subordinated Certificates
To the extent of the Subordinated Amount as specified in the applicable
prospectus supplement, 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 that series, to the rights of
senior certificateholders or holders of one or more classes or subclasses of
subordinated certificates of that series to receive distributions. In such a
case, credit support may also be provided by the establishment of a reserve
fund, as described in "--Reserve Fund." The Subordinated Amount will be reduced
by an amount equal to the aggregate amount of Realized Losses that have occurred
in the mortgage pool or contract pool. If stated 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 stated in the prospectus supplement for a series of certificates for
which credit enhancement is provided by shifting interest as described in this
section, the rights of the holders of subordinated certificates of that series
to receive distributions with respect to the mortgage loans or contracts in the
related trust fund will be subordinated to the right of the holders of senior
certificates of that series to receive distributions to the extent described in
that 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 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 senior certificates a disproportionately greater percentage of
prepayments of principal on the related mortgage loans, contracts or mortgage
loans underlying the related Mortgage Certificates. The initial percentage of
principal to be received by the senior certificates for a series will be the
percentage specified in the related prospectus supplement and will decrease in
accordance with the schedule and subject to the conditions stated in that
prospectus supplement. This disproportionate distribution of prepayments of
principal on the related mortgage loans, contracts or mortgage loans underlying
the related Mortgage Certificates 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.
Overcollateralization
If stated in the applicable prospectus supplement, interest collections on
the mortgage loans or contracts may exceed interest payments on the securities
for the related distribution date. To the extent such excess interest is applied
as principal payments on the securities, the effect will be to reduce the
principal balance of the securities relative to the outstanding balance of the
mortgage loan or contract, thereby creating overcollateralization and additional
protection to the securityholders, if and to the extent specified in the
accompanying prospectus supplement.
Swaps and Yield Supplement Agreements
The trustee on behalf of the trust may enter into interest rate swaps and
related caps, floors and collars to minimize the risk to certificateholders of
adverse changes in interest rates, and other yield supplement agreements or
similar yield maintenance arrangements that do not involve swap agreements or
other notional principal contracts.
An interest rate swap is an agreement between two parties to exchange a
stream of interest payments on an agreed hypothetical or "notional" principal
amount. No principal amount is exchanged between the counterparties to an
interest rate swap. In the typical swap, one party agrees to pay a fixed rate on
a notional principal amount,
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while the counterparty pays a floating rate based on one or more reference
interest rates including the London Interbank Offered Rate or, LIBOR, a
specified bank's prime rate or U.S. Treasury Bill rates. Interest rate swaps
also permit counterparties to exchange a floating rate obligation based on one
reference interest rate (such as LIBOR) for a floating rate obligation based on
another referenced interest rate (such as U.S. Treasury Bill rates).
The swap market has grown substantially in recent years with a significant
number of banks and financial service firms acting both as principals and as
agents utilizing standardized swap documentation. Caps, floors and collars are
more recent innovations, and they are less liquid than other swaps.
Yield supplement agreements may be entered into to supplement the interest
rate or rates on one or more classes of the securities of any series.
There can be no assurance that the trust will be able to enter into or
offset swaps or enter into yield supplement agreements at any specific time or
at prices or on other terms that are advantageous. In addition, although the
terms of the swaps and yield supplement agreements may provide for termination
under some circumstances, there can be no assurance that the trust will be able
to terminate a swap or yield supplement agreement when it would be economically
advantageous to the trust to do so.
Purchase Obligations
Some of the mortgage loans or contracts and classes of certificates of any
series, as specified in the related prospectus supplement, may be subject to a
purchase obligation. The terms and conditions of each purchase obligation,
including the purchase price, timing and payment procedure, will be described in
the related prospectus supplement. A purchase obligation with respect to
mortgage loans or contracts may apply to the related mortgage loans or contracts
or to the related certificates. Each purchase obligation may be a secured or
unsecured obligation of its provider, which may include a bank or other
financial institution or an insurance company. Each purchase obligation will be
evidenced by an instrument delivered to the trustee for the benefit of the
applicable certificateholders of the related series. Each purchase obligation
with respect to mortgage loans or contracts will be payable solely to the
trustee for the benefit of the certificateholders of the related series, or if
stated in the related prospectus supplement, to some other person. Other
purchase obligations may be payable to the trustee or directly to the holders of
the certificates to which the obligations relate.
Reserve Fund
If stated 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, in trust, of a reserve fund for that series. Generally, the
reserve fund for a series will not be included in the trust fund for that
series, however if stated in the related prospectus supplement the reserve fund
for a series may be included in the trust fund for that series. The reserve fund
for each series will be created by the depositor and shall be funded by:
o the retention by the servicer of certain payments on the mortgage loans or
contracts;
o 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;
o an Initial Deposit;
o any combination of the foregoing; or
o some other manner as 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 servicer will retain specified distributions on the mortgage loans or
contracts, and/or on the mortgage loans or contracts in a subordinated pool,
otherwise distributable to the holders of subordinated certificates and deposit
those amounts in the reserve fund. After the amounts in the reserve fund for a
series first equal or exceed the applicable Required Reserve, the servicer will
retain such distributions and deposit so
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much of those amounts in the reserve fund as may be necessary, after the
application of distributions to amounts due and unpaid on the certificates or on
the certificates of that 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 any 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
that series, after giving effect to any Advances made by the subservicers or the
servicer on the related distribution date, is less than the amount required to
be distributed to the senior certificateholders on that distribution date, the
servicer will withdraw from the reserve fund and deposit into the Certificate
Account the lesser of:
o 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
o the amount necessary to increase the funds in the Certificate Account
eligible for distribution to the senior certificateholders on that
distribution date to the amount required to be distributed to the senior
certificateholders on that distribution date;
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.
Generally, whenever amounts on deposit in the reserve fund are 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 any income
resulting from investment of the reserve fund as described below, however, if
stated in the related prospectus supplement, holders of the subordinated
certificates of the applicable class or subclass may receive distributions with
respect to the mortgage loans or contracts when amounts on deposit in the
reserve fund are less than the Required Reserve. If specified in the applicable
prospectus supplement, whether or not amounts on deposit in the reserve fund
exceed 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.
If specified in the applicable prospectus supplement, amounts in the
reserve fund shall be applied in the following order:
(1) to the reimbursement of Advances determined by the servicer and the
subservicers 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 subservicers and
the servicer if sufficient funds for reimbursement are not otherwise
available in the related Servicing Accounts and Certificate Account;
(2) to the payment to the holders of the senior certificates of that 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
(3) to the payment to the holders of the senior certificates of that 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 that distribution relates and
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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 in the reserve fund, as set forth below, shall
then be released to the holders of the subordinated certificates, or to some
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 Eligible Investments. The earnings on
those 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 that
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 generally will be limited to investments acceptable to the
related Rating Agency from time to time as being consistent with its outstanding
rating of the certificates. With respect to a reserve fund, Eligible Investments
will be limited, however, to obligations or securities that mature at various
time periods according to a schedule in the related pooling and servicing
agreement based on the current balance of the reserve fund at the time of the
investment or the contractual commitment providing for the 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 that series and the availability of amounts in the reserve fund
for distributions on the related 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 stated in the related prospectus supplement, the servicer may be
required to obtain a performance bond that would provide a guarantee of the
performance by the servicer of one or more of its obligations under the related
pooling and servicing agreement, including its obligation to advance delinquent
installments of principal and interest on mortgage loans or contracts and its
obligation to repurchase mortgage loans or contracts in the event of a breach by
the servicer of a representation or warranty contained in the related pooling
and servicing agreement. In the event that the outstanding credit rating of the
obligor of the performance bond is lowered by the related Rating Agency, with
the result that the outstanding rating on the certificates would be reduced by
the related Rating Agency, the 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. To the extent described in the related prospectus
supplement, each manufactured home that secures a contract will be covered by a
standard hazard insurance policy and other insurance policies. Any material
changes in 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 pooling
and servicing agreement will require the subservicer 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 requiring the
insurance and to act on behalf of the related insured with respect to all
actions required to be taken by the insured under each primary mortgage
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insurance policy. Generally, a primary mortgage insurance policy covers the
amount of the unpaid principal balance of the mortgage loan over 75% of the
value of the mortgaged property at origination. Primary mortgage insurance
policies are generally permitted or required to be terminated when the unpaid
principal balance of the mortgage loan is reduced to 80% of the value of the
mortgaged property at the time of origination. Any 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 generally will
consist of the insured portion of the unpaid principal amount of the covered
mortgage loan and accrued and unpaid interest thereon and reimbursement of
certain expenses, less:
o all rents or other payments collected or received by the related insured,
other than the proceeds of hazard insurance, that are derived from or in
any way related to the mortgaged property;
o hazard insurance proceeds in excess of the amount required to restore the
mortgaged property and which have not been applied to the payment of the
related mortgage loan;
o amounts expended but not approved by the primary mortgage insurer;
o claim payments previously made by the primary mortgage insurer; and
o 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 related insured generally will be required to, in the event
of default by the mortgagor:
(1) advance or discharge:
(A) all hazard insurance premiums; and
(B) as necessary and approved in advance by the primary mortgage
insurer:
o real estate property taxes;
o all expenses required to preserve, repair and prevent waste to the
mortgaged property so as to maintain the 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;
o property sales expenses;
o any outstanding liens, as defined in the related primary mortgage insurance
policy, on the mortgaged property; and
o foreclosure costs, including court costs and reasonable attorneys' fees;
(2) in the event of a physical loss or damage to the mortgaged property,
have the mortgaged property restored and repaired to at least as good
a condition as existed at the effective date of the related primary
mortgage insurance policy, ordinary wear and tear excepted; and
(3) 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:
(1) no change may be made in the terms of the related mortgage loan
without the consent of the primary mortgage insurer;
(2) written notice must be given to the primary mortgage insurer within
10 days after the related 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 the related mortgage loan or
that any
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proceedings affecting the mortgagor's interest in the mortgaged
property securing the mortgage loan have commenced, and thereafter the
insured must report monthly to the primary mortgage insurer the status
of any mortgage loan until the mortgage loan is brought current, those
proceedings are terminated or a claim is filed;
(3) the primary mortgage insurer will have the right to purchase the
related mortgage loan, at any time subsequent to the 10 days' notice
described in (2) 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 and reimbursable
amounts expended by the related 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 that policy;
(4) the insured must commence proceedings at certain times specified in
the primary mortgage insurance policy and diligently proceed to
obtain good and merchantable title to and possession of the mortgaged
property;
(5) the related insured must notify the primary mortgage insurer of the
price specified in (3) above at least 15 days prior to the sale of
the mortgaged property by foreclosure, and bid that amount unless the
primary mortgage insurer specifies a lower or higher amount; and
(6) the related insured may accept a conveyance of the mortgaged property
in lieu of foreclosure with written approval of the primary 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.
Any rents or other payments collected or received by the related 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 the 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 that 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.
Forbearance plans may involve the reduction or suspension of scheduled mortgage
payments for a specified period, with 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 circumstances beyond the mortgagor's control is accompanied by
certain other criteria, HUD may provide relief by making payments to the
servicer of the related 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 debenture issued in satisfaction of a defaulted FHA
Loan serviced by it for an amount equal to the principal amount of the FHA Loan.
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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 that FHA Loan for certain costs and expenses and to deduct
certain amounts received or retained by the servicer after default. When
entitlement to insurance benefits results from foreclosure, or other acquisition
of possession, and conveyance to HUD, the related servicer is compensated for no
more than two-thirds of its foreclosure costs, and is compensated for interest
accrued and unpaid prior to that 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 that 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 those 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 pooling and servicing agreement will require that standard hazard
insurance policies covering the mortgage loans in a mortgage pool 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 mortgage loans will be underwritten by
different insurers and will cover mortgaged properties located in various
states, those 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 standard hazard insurance 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
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coverage falls below this specified percentage, the coinsurance clause will
provide that the insurer's liability in the event of partial loss will not
exceed the greater of:
o the actual cash value, the replacement cost less physical depreciation, of
the dwellings, structures and other improvements damaged or destroyed; or
o the 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 the related 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 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 insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to that borrower's Cooperative Dwelling or that Cooperative's building
could significantly reduce the value of the collateral securing the related
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 in areas other than 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 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 those 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 that 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
coinsurance clause contained in the related standard hazard insurance policy.
When a manufactured home's location was, at the time of origination of the
related contract, within a federally designated flood area, the 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 servicer
shall contain a standard loss payee clause in favor of the 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 servicer shall pay the
premiums out of its own funds, and may add separately the premium to the
obligor's obligation as provided by the contract, but may not add the premium to
the remaining principal balance of the contract.
The 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
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the absence or insufficiency of individual standard hazard insurance policies.
Any blanket policy shall be substantially in the form and in the amount carried
by the servicer as of the date of the pooling and servicing agreement. The
servicer shall pay the premium for the policy on the basis described in that
policy and shall pay any deductible amount with respect to claims under the
policy relating to the contracts. If the insurer thereunder shall cease to be
acceptable to the servicer, the servicer shall exercise its best reasonable
efforts to obtain from another insurer a replacement policy comparable to the
original policy.
If the servicer shall have repossessed a manufactured home on behalf of the
trustee, the servicer shall either:
o maintain hazard insurance with respect to the related manufactured home,
which expenses will be reimbursable to the servicer out of the trust fund;
or
o indemnify the trustee against any damage to the related manufactured home
prior to resale or other disposition.
Pool Insurance Policies
If stated in the related prospectus supplement, the servicer will obtain a
pool insurance policy for a mortgage pool underlying certificates of that
series. The pool insurance policy will be issued by the pool insurer named in
the applicable 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
(1) to advance hazard insurance premiums on the mortgaged property
securing the defaulted mortgage loan;
(2) to advance, as necessary and approved in advance by the pool
insurer,
o real estate property taxes;
o 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 the related
mortgaged property first became effective, ordinary wear and tear excepted;
o property sales expenses;
o any outstanding liens on the mortgaged property; and
o foreclosure costs including court costs and reasonable attorneys' fees; and
(3) 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 related 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 considered to be an acceptable primary mortgage
insurance policy under the pool insurance policy.
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Assuming satisfaction of these conditions, the related pool insurer will
pay to the related insured the amount of loss, but not more than the remaining
amount of coverage under the pool insurance policy determined as follows:
(1) the amount of the unpaid principal balance of the related mortgage loan
immediately prior to the Approved Sale of the mortgaged property;
(2) the amount of the accumulated unpaid interest on the related mortgage loan
to the date of claim settlement at the applicable mortgage rate; and
(3) advances as described above, less:
o all rents or other payments, excluding proceeds of fire and extended
coverage insurance, collected or received by the related insured, which are
derived from or in any way related to the mortgaged property;
o 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 related mortgage loan;
o any claims payments previously made by the pool insurer on the related
mortgage loan;
o due and unpaid premiums payable with respect to the pool insurance policy;
and
o all claim payments received by the related insured pursuant to any primary
mortgage insurance policy.
The related pool insurer must be provided with good and merchantable title
to the mortgaged property as a condition precedent to the payment of any amount
of a claim for benefits under a primary mortgage insurance policy. 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 servicer or the subservicer of the related mortgage loan
will not be required to expend its own funds to restore the damaged mortgaged
property unless it is determined:
o that the 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 servicer or the subservicer, as the
case may be; and
o that the expenses will be recoverable by it through payments under the
financial guaranty insurance policy, surety bond or letter of credit, if
any, with respect to that series, Liquidation Proceeds, Insurance Proceeds,
amounts in the reserve fund, if any, or payments under any Alternative
Credit Support, if any, with respect to that 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:
(1) fraud or negligence in the origination or servicing of a mortgage
loan, including misrepresentation by the mortgagor, any unaffiliated
seller, the originator or other persons involved in the origination
thereof; or
(2) the exercise by the related insured of a "due-on-sale" clause or
other similar provision in the mortgage loan.
Depending upon the nature of the event, a breach of representation made by
the depositor or a seller may also have occurred. Such a breach, if it
materially and adversely affects the interests of the certificateholders of that
series and cannot be cured, would give rise to a repurchase obligation on the
part of the depositor or 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."
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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
servicer or by the subservicer 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 that
series. In addition, unless the servicer or the related subservicer could
determine that an Advance in respect of a delinquent mortgage loan would be
recoverable to it from the proceeds of the liquidation of that mortgage loan or
otherwise, neither the subservicer nor the servicer would be obligated to make
an Advance respecting any 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."
Any pool insurance policy for a contract pool underlying a series of
certificates will be described in the related prospectus supplement.
Special Hazard Insurance Policies
If stated in the related prospectus supplement, the servicer shall obtain a
special hazard insurance policy for the mortgage pool underlying a series of
certificates. A special hazard insurance policy for a 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 the damage is not covered by the
standard hazard insurance policy, if any, maintained by the mortgagor, the
servicer or the subservicer, the special hazard insurer will pay the lesser of:
o the cost of repair or replacement of the mortgaged property; or
o upon transfer of the mortgaged property to the special hazard insurer, the
unpaid balance of the related mortgage loan at the time of acquisition of
the 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 the
mortgaged property.
No claim may be validly presented under a special hazard insurance policy
unless:
o 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 related
insurer; and
o the related 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 that 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
that amount.
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The terms of the related pooling and servicing agreement will require the
subservicer 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 related pooling
and servicing agreement, the special hazard insurance policy will be designed to
permit full recoveries under the pool insurance policy in circumstances where
recoveries would otherwise be unavailable because the related mortgaged property
has been damaged by a cause not insured against by a standard hazard insurance
policy. In that event, the related pooling and servicing agreement will provide
that, if the related pool insurance policy shall have terminated or been
exhausted through payment of claims, the servicer will be under no further
obligation to maintain the special hazard insurance policy.
Any special hazard insurance policies for a contract pool underlying a
series of certificates will be described in the related prospectus supplement.
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 that
lesser value, and the holder of the mortgage loan thus would become an unsecured
creditor to the extent the outstanding principal balance of that mortgage loan
exceeds the value so assigned to the related 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 stated
in the related prospectus supplement, losses resulting from a bankruptcy
proceeding affecting the mortgage loans in a mortgage pool 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 related Rating
Agency. Any mortgagor bankruptcy bond will provide for coverage in an amount
acceptable to the related Rating Agency, 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 that 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 reduction will
not result in a reduction of the outstanding rating of the certificates of that
series by the related Rating Agency.
Certain Legal Aspects of the Mortgage Loans and Contracts
The following discussion contains summaries of some legal aspects of the
mortgage loans and contracts that are general in nature. Because these legal
aspects are governed in part by state law, which laws may differ substantially
from state to state, the summaries do not purport to be complete, to reflect the
laws of any particular state or to encompass the laws of all states in which the
mortgaged properties may be situated. These legal aspects are in addition to the
requirements of any applicable FHA regulations described in "Description of FHA
Insurance" in this prospectus and in the accompanying prospectus supplement
regarding the contracts partially insured by FHA under Title I of the National
Housing Act, or Title I. 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 Cooperative Loans, will be secured
by deeds of trust, mortgages or deeds to secure debt depending on the prevailing
practice in the state in which the related mortgaged property is located. In
some states, a mortgage, deed of trust or deed to secure debt creates a lien on
the related real property. In other states, the mortgage, deed of trust or deed
to secure debt conveys legal title to the property to the mortgagee subject to a
condition subsequent, for example, the payment of the indebtedness secured
thereby. These instruments are not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers. Priority
with respect to these instruments depends on their terms and in some cases on
the terms of separate subordination or inter-creditor agreements, and in most
cases on the order of recordation of the mortgage deed of trust or deed to
secure debt in the appropriate recording office.
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There are two parties to a mortgage, the mortgagor, who is the borrower and
homeowner, and the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond and the mortgage. In some
states, three parties may be involved in a mortgage financing when title to the
property is held by a land trustee under a land trust agreement of which the
borrower is the beneficiary; at origination of a mortgage loan, the land
trustee, as fee owner of the property, executes the mortgage and the borrower
executes a separate undertaking to make payments on the related Mortgage Note.
Although a deed of trust is similar to a mortgage, a deed of trust has three
parties: the grantor, who is the borrower/homeowner; the beneficiary, who is the
lender; and a third-party grantee called the trustee. Under a deed of trust, the
borrower grants the mortgaged property to the trustee for the benefit of the
beneficiary, irrevocably until satisfaction of the debt. A deed to secure debt
typically has two parties, under which the borrower, or grantor, conveys title
to the real property to the grantee, or lender, typically with a power of sale,
until the time when the debt is repaid. The trustee's authority under a deed of
trust and the mortgagee's or grantee's authority under a mortgage or a deed to
secure debt, as applicable, are governed by the law of the state in which the
real property is located, the express provisions of the deed of trust, mortgage
or deed to secure debt and, in some deed of trust transactions, the directions
of the beneficiary.
Cooperative Loans. If stated in the prospectus supplement relating to a
series of securities, the loans may include Cooperative Loans. Each note
evidencing a Cooperative Loan will be secured by a security interest in shares
issued by the Cooperative that owns the related apartment building and in the
related proprietary lease or occupancy agreement granting exclusive rights to
occupy a specific dwelling unit in the Cooperative's building. The security
agreement will create a lien on, or grant a security interest in, the
Cooperative shares and proprietary leases or occupancy agreements, the priority
of which will depend on, among other things, the terms of the particular
security agreement as well as the order of recordation of the agreement, or the
filing of the financing statements related thereto, in the appropriate recording
office or the taking of possession of the Cooperative shares, depending on the
law of the state in which the Cooperative is located. This type of lien or
security interest is not, in general, prior to liens in favor of the cooperative
corporation for unpaid assessments or common charges.
In most cases, each Cooperative owns in fee or has a leasehold interest in
all the real property and owns in fee or leases the building and all separate
dwelling units in the Cooperative. The Cooperative is directly responsible for
property management and, in most cases, payment of real estate taxes, other
governmental impositions and hazard and liability insurance. If there is an
underlying mortgage or mortgages on the Cooperative's building or underlying
land, as is typically the case, or an underlying lease of the land, as is the
case in some instances, the Cooperative, as mortgagor or lessee, as the case may
be, is also responsible for fulfilling the mortgage or rental obligations.
An underlying mortgage loan is ordinarily obtained by the Cooperative in
connection with either the construction or purchase of the Cooperative's
building or the obtaining of capital by the Cooperative. The interest of the
occupant under proprietary leases or occupancy agreements as to which that
Cooperative is the landlord is usually subordinate to the interest of the holder
of an underlying mortgage and to the interest of the holder of a land lease. If
the Cooperative is unable to meet the payment obligations:
o arising under an underlying mortgage, the mortgagee holding an underlying
mortgage could foreclose on that mortgage and terminate all subordinate
proprietary leases and occupancy agreements; or
o arising under its land lease;
the holder of the landlord's interest under the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. In addition, an
underlying 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 the 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. In either event, a foreclosure by the holder of an
underlying mortgage or the termination of the underlying lease could eliminate
or significantly diminish the value of any collateral held by the lender who
financed the purchase by an
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individual tenant-stockholder of shares of the Cooperative, or in the case of
the loans, the collateral securing the Cooperative Loans.
Each Cooperative is owned by shareholders, referred to as
tenant-stockholders, who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific dwellings. In most instances, a
tenant-stockholder of a Cooperative must make a monthly maintenance payment to
the Cooperative under the proprietary lease, which rental payment represents the
tenant-stockholder's pro rata share of the Cooperative's payments for its
underlying mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a Cooperative and accompanying
occupancy rights may be financed through a Cooperative Loan evidenced by a note
and secured by an assignment of and a security interest in the occupancy
agreement or proprietary lease and a security interest in the related shares of
the related Cooperative. The lender usually takes possession of the stock
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the Cooperative shares is filed in the appropriate state or local offices to
perfect the lender's interest in its collateral. In accordance with the
limitations discussed below, on default of the tenant-stockholder, the lender
may sue for judgment on the related 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 "--Foreclosure on Shares of Cooperatives" in
this prospectus.
Tax Aspects of Cooperative Ownership. In general, a "tenant-stockholder,"
as defined in Section 216(b)(2) of the 216(b)(1) of the Code is allowed a
deduction for amounts paid or accrued within his or her taxable year to the
corporation representing his or her proportionate share of certain interest
expenses and 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 those items are allowable as a deduction to the corporation, the
section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholders. 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 this section for any particular year. If 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 this type of failure would be permitted to
continue over a period of years appears remote.
Foreclosure on Mortgage Loans. Although a deed of trust or a deed to secure
debt may also be foreclosed by judicial action, foreclosure of a deed of trust
or a deed to secure debt is typically accomplished by a non-judicial sale under
a specific provision in the deed of trust or deed to secure debt which
authorizes the trustee or grantee, as applicable, to sell the property on
default by the borrower under the terms of the note or deed of trust or deed to
secure debt. In addition to any notice requirements contained in a deed of trust
or deed to secure debt, in some states, the trustee or grantee, as applicable,
must record a notice of default and send a copy to the borrower and to any
person who has recorded a request for a copy of notice of default and notice of
sale. In addition, in some states, the trustee or grantee, as applicable, must
provide notice to any other individual having an interest of record in the real
property, including any junior lienholders. If the deed of trust or deed to
secure debt is not reinstated within a specified period, a notice of sale must
be posted in a public place and, in most states, published for a specific period
of time in one or more newspapers. In addition, some states' 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 real property.
Foreclosure of a mortgage usually is accomplished by judicial action. In
most cases, the action is initiated by the service of legal pleadings on all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may result from difficulties in locating and serving
necessary parties, including borrowers, such as international borrowers, located
outside the jurisdiction in which the mortgaged property is located.
Difficulties in foreclosing on mortgaged properties owned by international
borrowers may result in increased foreclosure costs, which may reduce the amount
of proceeds from the liquidation of the related loan available to be distributed
to the certificateholders of the related series. In addition, delays in
completion of the foreclosure and additional losses may
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result where loan documents relating to the loan are missing. If the mortgagee's
right to foreclose is contested, the legal proceedings necessary to resolve the
issue can be time-consuming.
In some states, the borrower has the right to reinstate the loan at any
time following default until shortly before the trustee's sale. In general, in
those states, 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 of defaulted payments and all other sums owing lender due to
the default, plus the costs and expenses incurred in enforcing the obligation.
In the case of foreclosure under a mortgage, a deed of trust or deed to
secure debt, the sale by the referee or other designated officer or by the
trustee or grantee, as applicable, is a public sale. However, because of the
difficulty a potential buyer at the sale may have in determining the exact
status of title and because the physical condition of the property may have
deteriorated during the foreclosure proceedings, it is uncommon for a third
party to purchase the property at a foreclosure sale. Rather, it is common for
the lender to purchase the property from the trustee or grantee, as applicable,
or referee for a credit bid less than or equal to the unpaid principal amount of
the loan, accrued and unpaid interest and the expense of foreclosure, in which
case the mortgagor's debt will be extinguished unless the lender purchases the
property for a lesser amount and preserves its right against a borrower to seek
a deficiency judgment if such remedy is available under state law and the
related loan documents. In some states, there is a statutory minimum purchase
price that the lender may offer for the property and in most cases, state law
controls the amount of foreclosure costs and expenses, including attorneys'
fees, which may be recovered by a lender. 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 taxes and making repairs at its own expense that are
necessary to render the property suitable for sale. In most cases, the lender
will obtain the services of a real estate broker and pay the broker's commission
in connection with the sale of the property. Depending on market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property and, in some states, the lender may be entitled to a
deficiency judgment. In some cases, a deficiency judgment may be pursued in lieu
of foreclosure. Any loss may be reduced by the receipt of any mortgage insurance
proceeds or other forms of credit enhancement for a series of securities. See
"Description of Credit Enhancement" in this prospectus.
Foreclosure on Junior Mortgage Loans. A junior mortgagee may not foreclose
on the property securing a junior loan unless it forecloses subject to the
senior mortgages, in which case it must either pay the entire amount due on the
senior mortgages to the senior mortgagees prior to or at the time of the
foreclosure sale or undertake the obligation to make payments on the senior
mortgages if the mortgagor is in default thereunder, in either event adding the
amounts expended to the balance due on the junior loan. In addition, if the
foreclosure by a junior mortgagee triggers the enforcement of a "due-on-sale"
clause in a senior mortgage, the junior mortgagee may be required to pay the
full amount of the senior mortgages to the senior mortgagees, to avoid a default
with respect thereto. Accordingly, if the junior lender purchases the property,
the junior lender's title will be subject to all senior liens and claims and
certain governmental liens. The proceeds received by the referee or trustee from
the sale are applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust that
is being foreclosed. Any remaining proceeds are typically payable to the holders
of junior mortgages or deeds of trust and other liens and claims in order of
their priority, whether or not the borrower is in default. Any additional
proceeds are usually payable to the mortgagor or trustor. The payment of the
proceeds to the holders of junior mortgages may occur in the foreclosure action
of the senior mortgagee or may require the institution of separate legal
proceedings. See "Description of the Securities--Servicing and Administration of
Loans--Realization Upon Defaulted Loans" in this prospectus.
Foreclosure on Shares of Cooperatives. The Cooperative shares owned by the
tenant-stockholder, together with the rights of the tenant-stockholder under the
proprietary lease or occupancy agreement, are pledged to the lender and are, in
almost all cases, in accordance with 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
the tenant-stockholder, including mechanics' liens against the Cooperative's
building incurred by the tenant-stockholder.
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In most cases, rent and other obligations and charges arising under a
proprietary lease or occupancy agreement which are owed to the Cooperative are
made liens on the shares to which the proprietary lease or occupancy agreement
relates. In addition, the proprietary lease or occupancy agreement in most cases
permits the Cooperative to terminate the lease or agreement if the borrower
defaults in the performance of covenants thereunder. Typically, the lender and
the Cooperative enter into a recognition agreement which, together with any
lender protection provisions contained in the proprietary lease or occupancy
agreement, 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 in most cases provides that, if the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate the lease or
agreement until the lender has been provided with notice of and 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 shares and the
proprietary lease or occupancy agreement allocated to the dwelling, subject,
however, to the Cooperative's right to sums due under the proprietary lease or
occupancy agreement or which 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 in most cases cannot
restrict and does not monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest thereon.
Recognition agreements also typically provide that if the lender succeeds
to the tenant-shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon its collateral for a Cooperative Loan, the
lender must obtain the approval or consent of the board of directors of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares and assigning the proprietary lease. This 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. In most cases, the lender is not limited in any rights it may
have to dispossess the tenant-stockholder.
Because of the nature of Cooperative Loans, lenders do not require the
tenant-stockholder, the borrower, to obtain title insurance of any type.
Consequently, the existence of any prior liens or other imperfections of title
affecting the Cooperative's building or real estate also may adversely affect
the marketability of the shares allocated to the dwelling unit in the event of
foreclosure.
A foreclosure on the Cooperative shares is accomplished by public sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code, or
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 and the sale price. In most instances, a sale conducted
according to the usual practice of creditors selling similar collateral in the
same area will be considered reasonably conducted.
Where the lienholder is the junior lienholder, any foreclosure may be
delayed until the junior lienholder obtains actual possession of such
Cooperative shares. Additionally, if the lender does not have a first priority
perfected security interest in the Cooperative shares, any foreclosure sale
would be subject to the rights and interests of any creditor holding senior
interests in the shares. Also, a junior lienholder may not be able to obtain a
recognition agreement from a Cooperative since many cooperatives do not permit
subordinate financing. Without a recognition agreement, the junior lienholder
will not be afforded the usual lender protections from the Cooperative which are
in most cases provided for in recognition agreements.
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, in most cases 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
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proceeds remaining, the lender must account to the tenant-stockholder for the
surplus. On the other hand, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is in most cases responsible for the deficiency. See
"--Anti-Deficiency Legislation and Other Limitations on Lenders" in this
prospectus.
Rights of Redemption. In some states, after sale under a deed of trust, or
a deed to secure debt or foreclosure of a mortgage, the borrower and foreclosed
junior lienors or other parties are given a statutory period, typically ranging
from six months to two years, in which to redeem the property from the
foreclosure sale. In some states, redemption may occur only on payment of the
entire principal balance of the mortgage loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. In some states, the right to
redeem is an equitable right. The equity of redemption, which is a non-statutory
right, should be distinguished from statutory rights of redemption. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property. The rights of redemption would defeat the title of
any purchaser subsequent to foreclosure or sale under a deed of trust or a deed
to secure debt. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired.
Anti-Deficiency Legislation and Other Limitations on Lenders. Some states
have imposed statutory prohibitions which limit the remedies of a beneficiary
under a deed of trust, a mortgagee under a mortgage or a grantee under a deed to
secure debt. In some states, including California, statutes limit the right of
the beneficiary, mortgagee or grantee to obtain a deficiency judgment against
the borrower following foreclosure. A deficiency judgment is a personal judgment
against the former borrower equal in most cases to the difference between the
net amount realized upon the public sale of the real property and the amount due
to the lender. In the case of a mortgage loan secured by a property owned by a
trust where the Mortgage Note is executed on behalf of the trust, a deficiency
judgment against the trust following foreclosure or sale under a deed of trust
or deed to secure debt, even if obtainable under applicable law, may be of
little value to the beneficiary, grantee or mortgagee if there are no mortgage
loans against which the deficiency judgment may be executed. Some state statutes
require the beneficiary, grantee or mortgagee to exhaust the security afforded
under a deed of trust, deed to secure debt or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower.
In other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting the security; however,
in some of these states, the lender, following judgment on the personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies for the security. Consequently, the practical effect of the election
requirement, in those states permitting this election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in some states, statutory provisions limit
any deficiency judgment against the borrower following a foreclosure to the
excess of the outstanding debt over the fair value of the property at the time
of the public sale. The purpose of these statutes is in most cases to prevent a
beneficiary, grantee or mortgagee from obtaining a large deficiency judgment
against the borrower as a result of low or no bids at the judicial sale.
In most cases, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted Article 9 to prohibit or limit a deficiency award in some
circumstances, including circumstances where the disposition 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 not conducted in a
commercially reasonable manner.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon its collateral and/or
enforce a deficiency judgment. For example, under the federal bankruptcy law,
all actions against the debtor, the debtor's property and any co-debtor are
automatically stayed upon the filing of a bankruptcy petition. Moreover, a court
having federal bankruptcy jurisdiction may permit a debtor through its Chapter
11 or Chapter 13 rehabilitative plan to cure a monetary default relating to a
mortgage loan or revolving credit loan on the debtor's residence by paying
arrearages within a reasonable time period and reinstating the original loan
payment schedule, even though the lender accelerated the mortgage loan or
revolving credit loan and final judgment of foreclosure had been entered in
state court. Some courts with federal bankruptcy jurisdiction have approved
plans, based on the particular facts of
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the reorganization case, that effected the curing of a mortgage loan or
revolving credit loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan or revolving credit loan secured by property of the
debtor may be modified. These courts have allowed modifications that include
reducing the amount of each monthly payment, changing the rate of interest,
altering the repayment schedule, forgiving all or a portion of the debt and
reducing the lender's security interest to the value of the residence, thus
leaving the lender a general unsecured creditor for the difference between the
value of the residence and the outstanding balance of the mortgage loan or
revolving credit loan. In most cases, however, the terms of a mortgage loan or
revolving credit loan secured only by a mortgage on real property that is the
debtor's principal residence may not be modified under a plan confirmed under
Chapter 13, as opposed to Chapter 11, except for mortgage payment arrearages,
which may be cured within a reasonable time period. Courts with federal
bankruptcy jurisdiction similarly may be able to modify the terms of a
Cooperative Loan.
Certain tax liens arising under the Code may, in some circumstances, have
priority over the lien of a mortgage, deed to secure debt or deed of trust. This
may have the effect of delaying or interfering with the enforcement of rights
for a defaulted mortgage loan or revolving credit loan.
In addition, substantive requirements are imposed on mortgage lenders in
connection with the origination and the servicing of mortgage loans or revolving
credit loans by numerous federal and some state consumer protection laws. 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. These federal laws impose specific statutory
liabilities on lenders who originate mortgage loans or revolving credit loans
and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans or revolving credit loans.
Some of the mortgage loans or revolving credit loans may be High Cost
Loans. Purchasers or assignees of any High Cost Loan, including any trust, could
be liable for all claims and subject to all defenses arising under any
applicable law that the borrower could assert against the originator of the High
Cost Loan. Remedies available to the borrower include monetary penalties, as
well as rescission rights if the appropriate disclosures were not given as
required.
Alternative Mortgage Instruments. Alternative mortgage instruments,
including adjustable rate mortgage loans and early ownership mortgage loans or
revolving credit loans, originated by non-federally chartered lenders, have
historically been subjected to a variety of restrictions. These 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, or Title VIII. Title VIII provides that, regardless of any state law to the
contrary:
o state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency
for the origination of alternative mortgage instruments by national banks;
o state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National
Credit Union Administration for origination of alternative mortgage
instruments by federal credit unions; and
o all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings
banks and mutual savings banks and mortgage banking companies, may
originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, predecessor to
the OTS, for origination of alternative mortgage instruments by federal
savings and loan associations.
Title VIII also provides that any state may reject applicability of the
provisions of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of these
provisions. Some states have taken this action.
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Junior Mortgages; Rights of Senior Mortgagees. The mortgage loans or
revolving credit loans included in the trust may be junior to other mortgages,
deeds to secure debt or deeds of trust held by other lenders. Absent an
intercreditor agreement, the rights of the trust, and therefore the
certificateholders, as mortgagee under a junior mortgage, are subordinate to
those of the mortgagee under the senior mortgage, including the prior rights of
the senior mortgagee to receive hazard insurance and condemnation proceeds and
to cause the property securing the mortgage loan or revolving credit loan to be
sold on default of the mortgagor. The sale of the mortgaged property may
extinguish the junior mortgagee's lien unless the junior mortgagee asserts its
subordinate interest in the property in foreclosure litigation and, in certain
cases, either reinstates or satisfies the defaulted senior mortgage loan or
revolving credit loan or mortgage loans or revolving credit loans. A junior
mortgagee may satisfy a defaulted senior mortgage loan or revolving credit loan
in full or, in some states, may cure the default and bring the senior mortgage
loan or revolving credit loan current thereby reinstating the senior mortgage
loan or revolving credit loan, in either event usually adding the amounts
expended to the balance due on the junior mortgage loan or revolving credit
loan. In most states, absent a provision in the mortgage, deed to secure debt or
deed of trust, or an intercreditor agreement, no notice of default is required
to be given to a junior mortgagee. Where applicable law or the terms of the
senior mortgage, deed to secure debt or deed of trust do not require notice of
default to the junior mortgagee, the lack of any notice may prevent the junior
mortgagee from exercising any right to reinstate the mortgage loan or revolving
credit loan which applicable law may provide.
The standard form of the mortgage, deed to secure debt or deed of trust
used by most institutional lenders confers on the mortgagee the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with condemnation proceedings, and to apply the proceeds and
awards to any indebtedness secured by the mortgage, deed to secure debt or deed
of trust, in the order as the mortgagee may determine. Thus, if improvements on
the property are damaged or destroyed by fire or other casualty, or if the
property is taken by condemnation, the mortgagee or beneficiary under underlying
senior mortgages 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 mortgages. Proceeds in excess of the amount of senior mortgage
indebtedness, in most cases, may be applied to the indebtedness of junior
mortgages in the order of their priority.
Another provision sometimes found in the form of the mortgage, deed to
secure debt or deed of trust used by institutional lenders obligates the
mortgagor to pay before delinquency all taxes and assessments on the property
and, when due, all encumbrances, charges and liens on the property which are
prior to the mortgage, deed to secure debt 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 under the mortgage or deed of trust. After a failure of the mortgagor
to perform any of these obligations, the mortgagee or beneficiary is given the
right under certain mortgages, deeds to secure debt or deeds of trust to perform
the obligation itself, at its election, with the mortgagor agreeing to reimburse
the mortgagee for any sums expended by the mortgagee on behalf of the mortgagor.
All sums so expended by a senior mortgagee become part of the indebtedness
secured by the senior mortgage. Also, since most senior mortgages require the
related mortgagor to make escrow deposits with the holder of the senior mortgage
for all real estate taxes and insurance premiums, many junior mortgagees will
not collect and retain the escrows and will rely on the holder of the senior
mortgage to collect and disburse the escrows.
The form of credit line trust deed or mortgage used by most institutional
lenders that make revolving credit loans typically contains a "future advance"
clause, which provides, in essence, that additional amounts advanced to or on
behalf of the borrower by the beneficiary or lender are to be secured by the
deed of trust or mortgage. The priority of the lien securing any advance made
under the clause may depend in most states on whether the deed of trust or
mortgage is designated as a credit line deed of trust or mortgage. If the
beneficiary or lender advances additional amounts, the advance is entitled to
receive the same priority as amounts initially advanced under the trust deed or
mortgage, regardless of the fact that there may be junior trust deeds or
mortgages and other liens that intervene between the date of recording of the
trust deed or mortgage and the date of the future advance, and regardless that
the beneficiary or lender had actual knowledge of these intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans or revolving credit
loans of the type that includes revolving credit loans applies retroactively to
the date of the original recording of the trust deed or mortgage, provided that
the total amount of advances under the credit limit does not
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exceed the maximum specified principal amount of the recorded trust deed or
mortgage, except as to advances made after receipt by the lender of a written
notice of lien from a judgment lien creditor of the trustor.
The Manufactured Housing Contracts
General. A manufactured housing contract evidences both:
o the obligation of the mortgagor to repay the loan evidenced thereby; and
o the grant of a security interest in the manufactured home to secure
repayment of the loan.
Certain aspects of both features of the manufactured housing contracts are
described below.
Security Interests in 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 payments of a fee to the state motor vehicle authority, depending
on state law. In some non-title states, perfection under the provisions of the
UCC is required. The lender, the subservicer or the servicer may effect the
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 contract is registered. If
the servicer, the subservicer or the lender fails to effect the 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 manufactured housing contract. As manufactured
homes have become larger and often have been attached to 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 record a mortgage, deed of trust
or deed to secure debt, as applicable, 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. In
some cases, 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 or if a court determines that a manufactured home is real property,
other parties could obtain an interest in the manufactured home which is prior
to the security interest originally retained by the mortgage collateral seller
and transferred to the depositor. In certain cases, the servicer or the
subservicer, as applicable, may be required to perfect a security interest in
the manufactured home under applicable real estate laws. If the real estate
recordings are not required and if any of the foregoing events were to occur,
the only recourse of the related certificateholders would be against the
mortgage collateral seller under its repurchase obligation for breach of
representations or warranties.
The depositor will assign its security interests in the manufactured homes
to the trustee on behalf of the certificateholders. See "Description of the
Securities--Assignment of Loans" in this prospectus. If stated in the
accompanying prospectus supplement, if a manufactured home is governed by the
applicable motor vehicle laws of the relevant state the depositor or the trustee
will amend the certificates of title to identify the trustee as the new secured
party. In most cases however, if a manufactured home is governed by the
applicable motor vehicle laws of the relevant state 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 any 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. However,
there exists a risk that, in the absence of an amendment to the certificate of
title, the assignment of the security interest may not be held effective against
subsequent purchasers of a manufactured home or subsequent lenders who take a
security interest in the manufactured home or creditors of the assignor.
If the owner of a manufactured home moves it to a state other than the
state in which the manufactured home initially is registered and if steps are
not taken to re-perfect the trustee's security interest in the state, the
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security interest in the manufactured home will cease to be perfected. While in
many circumstances the trustee would have the opportunity to re-perfect its
security interest in the manufactured home in the state of relocation, there can
be no assurance that the trustee will be able to do so.
When a mortgagor under a manufactured housing contract sells a manufactured
home, the trustee, the subservicer or the servicer on behalf of 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 lien before release of the lien. The ability
to accelerate the maturity of the related contract will depend on the
enforceability under state law of the clause permitting acceleration on
transfer. The Garn-St. Germain Depository Institutions Act of 1982 preempts,
subject to certain exceptions and conditions, state laws prohibiting enforcement
of these clauses applicable to manufactured homes. To the extent the exceptions
and conditions apply in some states, the servicer may be prohibited from
enforcing the clause in respect of certain manufactured homes.
Under the laws of most states, liens for repairs performed on a
manufactured home take priority over a perfected security interest. The
applicable mortgage collateral seller typically will represent that it has no
knowledge of any liens for any manufactured home securing payment on any
manufactured housing contract. However, the liens could arise at any time during
the term of a manufactured housing contract. No notice will be given to the
trustee or certificateholders if a lien arises and the lien would not give rise
to a repurchase obligation on the part of the party specified in the related
agreement.
To the extent that manufactured homes are not treated as real property
under applicable state law, manufactured housing contracts in most cases are
"chattel paper" as defined in the UCC in effect in the states in which the
manufactured homes initially were registered. Under the UCC, the sale of chattel
paper is treated in a manner similar to perfection of a security interest in
chattel paper. Under the related agreement, the servicer, the subservicer or the
depositor, as the case may be, will transfer physical possession of the
manufactured housing contracts to the trustee or its custodian. In addition, the
servicer or the subservicer will make an appropriate filing of a financing
statement in the appropriate states to give notice of the trustee's ownership of
the manufactured housing contracts. If stated in the accompanying prospectus
supplement, the manufactured housing contracts will be stamped or marked
otherwise to reflect their assignment from the depositor to the trustee. In most
cases however, the manufactured housing 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 manufactured housing contracts without notice of the assignment, the
trustee's interest in the manufactured housing contracts could be defeated. Even
if unsuccessful, these claims could delay payments to the related trust fund and
certificateholders. If successful, losses to the related trust fund and
certificateholders also could result. To the extent that manufactured homes are
treated as real property under applicable state law, contracts will be treated
in a manner similar to that described above with regard to mortgage loans. See
"--The mortgage loans" in this prospectus.
Land Home and Land-in-Lieu Contracts. To the extent described in the
applicable prospectus supplement, the related contract pool may contain land
home contracts or land-in-lieu contracts. The land home contracts and the
land-in-lieu contracts will be secured by either first mortgages or deeds of
trust, depending upon the prevailing practice in the state in which the
underlying property is located. See "Certain Legal Aspects of the Mortgage Loans
and Contracts--The Mortgage Loans" for a description of mortgages, deeds of
trust and foreclosure procedures.
Enforcement of Security Interests in Manufactured Homes. The subservicer or
the servicer on behalf of the trustee, to the extent required by the related
agreement, may take action to enforce the trustee's security interest for
manufactured housing contracts in default by repossession and sale of the
manufactured homes securing the defaulted manufactured housing contracts. So
long as the manufactured home has not become subject to real estate law, a
creditor in most cases can repossess a manufactured home securing a contract by
voluntary surrender, by "self-help" repossession that is "peaceful" or, in the
absence of voluntary surrender and the ability to repossess without breach of
the peace, by judicial process. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting the sale. The
debtor may also have a right to redeem the manufactured home at or before
resale.
Certain 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
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deficiency judgment. For a discussion of deficiency judgments, see "--The
Mortgage Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" in
this prospectus.
Enforceability of Certain Provisions
If stated in accompanying prospectus supplement indicates otherwise, some
or all of the loans will not contain due-on-sale clauses. In most cases however,
all of the loans will contain due-on-sale clauses. These clauses permit the
lender to accelerate the maturity of the loan if the borrower sells, transfers
or conveys the property. The enforceability of these clauses has been the
subject of legislation or litigation in many states, and in some cases the
enforceability of these clauses has been limited or denied. However, the Garn-St
Germain Depository Institutions Act of 1982, or Garn-St Germain Act, preempts
state constitutional, statutory and case law that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to 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, regardless of 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 a prepayment penalty on the acceleration of a loan under a
due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a 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 on the average life of the
loans and the number of loans which may be outstanding until maturity.
On foreclosure, courts have imposed general equitable principles. These
equitable principles are designed to relieve the borrower from the legal effect
of its defaults under the loan documents. Examples of judicial remedies that
have been fashioned include judicial requirements that the lender undertake
affirmative and 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 required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, including the borrower failing to adequately maintain the property.
Finally, some courts have been faced with the issue of whether or not federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under deeds of trust, deeds to secure debt or
mortgages receive notices in addition to the statutorily prescribed minimum. 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 deed
to secure a debt or a mortgagee having a power of sale, does not involve
sufficient state action to afford constitutional protections to the borrower.
Consumer Protection Laws
Numerous federal and state consumer protection laws impose requirements
applicable to the origination of loans, 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 loan.
If the transferor of a consumer credit contract is also the seller of goods
that give rise to the transaction, and, in certain cases, related lenders and
assignees, the "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor to transfer the contract free
of notice of claims by the debtor thereunder. The effect of this rule is to
subject the assignee of the contract to all claims and defenses that the debtor
could assert against the seller of goods. Liability under this rule is limited
to amounts paid under a contract; however, the borrower also may be able to
assert the rule to set off remaining amounts due as a defense against a claim
brought against the borrower.
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Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, or Title V, provides that state usury limitations shall not apply
to some types of residential first mortgage loans, including Cooperative Loans
originated by some lenders. Title V also provides that, subject to certain
conditions, state usury limitations shall not apply to any loan that is secured
by a first lien on certain kinds of manufactured housing. Title V also provides
that, subject to the following conditions, state usury limitations shall not
apply to any home improvement contract that is secured by a first lien on some
kinds of consumer goods. The contracts would be covered if they satisfy some
conditions, among other things, governing the terms of any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of 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 this type of 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.
Usury limits apply to junior mortgage loans in many states. Any applicable
usury limits in effect at origination will be reflected in the maximum interest
rates for the mortgage loans, as described in the accompanying prospectus
supplement.
In most cases, each seller of a loan will have represented that the loan
was originated in compliance with then applicable state laws, including usury
laws, in all material respects. However, the interest rates on the loans will be
subject to applicable usury laws as in effect from time to time.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or CERCLA, and under state law in some
states, a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property may
become liable in some circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996,
as amended, or the Conservation Act, amended, among other things, the provisions
of CERCLA for lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. For a lender to be deemed to have participated in
the management of a mortgaged property, the lender must actually participate in
the operational affairs of the mortgaged property. The Conservation Act provides
that "merely having the capacity to influence, or unexercised right to control"
operations does not constitute participation in management. A lender will lose
the protection of the secured creditor exemption only if it exercises
decision-making control over the mortgagor's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of substantially all operational functions of the mortgaged property.
The Conservation Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Other federal and state laws in some circumstances may impose liability on
a secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property
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at a foreclosure sale, or operates a mortgaged property on which contaminants
other than CERCLA hazardous substances are present, including petroleum,
agricultural chemicals, hazardous wastes, asbestos, radon, and lead-based paint.
These cleanup costs may be substantial. It is possible that the cleanup costs
could become a liability of a trust and reduce the amounts otherwise
distributable to the holders of the related series of securities. Moreover, some
federal statutes and some states by statute impose an Environmental Lien. All
subsequent liens on that property are usually subordinated to an Environmental
Lien and, in some states, even prior recorded liens are subordinated to
Environmental Liens. In the latter states, the security interest of the trustee
in a related parcel of real property that is subject to an Environmental Lien
could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present for any mortgaged property prior to
the origination of the loan or prior to foreclosure or accepting a deed-in-lieu
of foreclosure. Neither the depositor nor any servicer or subservicer will be
required by any agreement to undertake any of these evaluations prior to
foreclosure or accepting a deed-in-lieu of foreclosure. The depositor does not
make any representations or warranties or assume any liability for the absence
or effect of contaminants on any mortgaged property or any casualty resulting
from the presence or effect of contaminants. However, the servicer or the
subservicer will not be obligated to foreclose on any mortgaged property or
accept a deed-in-lieu of foreclosure if it knows or reasonably believes that
there are material contaminated conditions on the property. A failure so to
foreclose may reduce the amounts otherwise available to certificateholders of
the related series.
If stated in the applicable prospectus supplement, at the time the loans
were originated, an environmental assessment of the mortgaged properties will
have been conducted. In most cases however, at the time the loans were
originated, no environmental assessment or a very limited environment assessment
of the mortgaged properties will have been conducted.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Relief Act a borrower who enters military service
after the origination of the borrower's loan, including a borrower who was in
reserve status and is called to active duty after origination of the loan, may
not be charged interest, including fees and charges, above an annual rate of 6%
during the period of the borrower's active duty status, unless a court orders
otherwise on application of the lender. The Relief Act applies to borrowers who
are members of the Air Force, Army, Marines, Navy, National Guard, Reserves or
Coast Guard, and officers of the U.S. Public Health Service assigned to duty
with the military.
Because the Relief Act applies to borrowers who enter military service,
including reservists who are called to active duty, after origination of the
related loan, no information can be provided as to the number of loans that may
be affected by the Relief Act. For loans included in a trust, application of the
Relief Act would adversely affect, for an indeterminate period of time, the
ability of the subservicer or the servicer, as applicable, to collect full
amounts of interest on the loans. Any shortfall in interest collections
resulting from the application of the Relief Act or similar legislation or
regulations, which would not be recoverable from the related loans, would result
in a reduction of the amounts distributable to the holders of the related
securities, and would not be covered by Advances or any form of credit
enhancement provided in connection with the related series of securities. In
addition, the Relief Act imposes limitations that would impair the ability of
the subservicer or the servicer, as applicable, to foreclose on an affected loan
during the mortgagor's period of active duty status, and, under some
circumstances, during an additional three month period thereafter. Thus, if the
Relief Act or similar legislation or regulations applies to any loan which goes
into default, there may be delays in payment and losses on the related
securities in connection therewith. Any other interest shortfalls, deferrals or
forgiveness of payments on the loans resulting from similar legislation or
regulations may result in delays in payments or losses to certificateholders of
the related series.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments on the borrower's payment of prepayment fees or yield
maintenance penalties. In some states, there are or may be specific limitations
on the late charges which a lender may collect from a borrower for delinquent
payments. Some states also limit the amounts that a lender may collect from a
borrower as an additional charge if the loan is prepaid. In addition, the
enforceability of provisions that provide for prepayment
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fees or penalties on an involuntary prepayment is unclear under the laws of many
states. Most conventional single-family mortgage loans may be prepaid in full or
in part without penalty. The regulations of the Federal Home Loan Bank Board, as
succeeded by the OTS, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage. The absence of a restraint on
prepayment, particularly for mortgage loans having higher loan rates, may
increase the likelihood of refinancing or other early retirements of the
mortgage loans.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations, or RICO statute can be seized by the government if the
property was used in, or purchased with the proceeds of, those crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
"known to have an alleged interest in the property," including the holders of
mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that:
o its mortgage was executed and recorded before commission of the crime on
which the forfeiture is based; or
o the lender was, at the time of execution of the mortgage, "reasonably
without cause to believe" that the property was used in, or purchased with
the proceeds of, illegal drug or RICO activities.
Negative Amortization Loans
A recent case held that state restrictions on the compounding of interest
are not preempted by the provisions of the depository Institutions Deregulation
and Monetary Control Act of 1980, or DIDMC, and as a result, a mortgage loan
that provided for negative amortization violated New Hampshire's requirement
that first mortgage loans provide for computation of interest on a simple
interest basis. The court did not address the applicability of the Alternative
Mortgage Transaction Parity Act of 1982, which authorizes a lender to make
residential mortgage loans that provide for negative amortization. As a result,
the enforceability of compound interest on mortgage loans that provide for
negative amortization is unclear. The case, which was decided by the First
Circuit Court of Appeals, is binding authority only on Federal District Courts
in Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico.
Material Federal Income Tax Consequences
General
The following is a discussion of the material, and certain other, federal
income tax consequences of the purchase, ownership and disposition of the
securities. 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
securities generally and does not purport to furnish information with the level
of detail that would be expected to be provided by an investor's own tax
advisor, or with consideration of an investor's specific tax circumstances.
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 situation. 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
or FASIT certificates, issued as described in this prospectus and the related
prospectus supplement, the related mortgage pool, or portion thereof, will be
classified as one or more REMICs or FASITs and not an association taxable as a
corporation - or publicly traded partnership treated as a corporation - and each
class of securities will represent either a "regular" interest or a "residual"
interest in the REMIC or FASIT and (2) with respect to each other series of
securities, issued
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as described in this prospectus and the related prospectus supplement, 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 security will be treated as
holding an equity interest in that 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 securities 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, known
as 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 those opinions, the
trust fund related to a series of securities is characterized or treated as a
corporation for federal income tax purposes, among other consequences, that
trust fund would be subject to federal income tax and similar state income or
franchise taxes on its income and distributions to holders of the securities
could be impaired.
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 in this prospectus. This summary does not purport to address all federal
income tax matters that may be relevant to particular holders of securities. For
example, it generally is addressed only to original purchasers of the securities
that are United States investors, deals only with securities 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
securities 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 any entity that is a beneficial owner of
the securities. Further, this discussion does not address the state or local tax
consequences of the purchase, ownership and disposition of those securities. 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 securities offered under this prospectus and
the related prospectus supplement.
The following discussion addresses REMIC and FASIT certificates
representing interests in a trust for which the transaction documents require
the making of an election to have the trust, or a portion thereof, be treated as
one or more REMICs or FASITs and grantor trust certificates representing
interests in a grantor trust. The prospectus supplement for each series of
securities will indicate whether a REMIC or FASIT election or elections will be
made for the related trust fund and, if that election is to be made, will
identify all "regular interests" and "residual interests" in the REMIC or the
"regular interests" and "high yield regular interests" in the FASIT, as the case
may be. If interests in a FASIT ownership interest are offered for sale the
federal income consequences of the purchase, ownership and disposition of those
interests will be described in the accompanying prospectus supplement. For
purposes of this tax discussion, references to a "certificateholder" or a
"holder" are to the beneficial owner of a certificate.
Regulations specifically addressing certain of the issues discussed in this
prospectus have not been issued or have been issued only in proposed form and
this discussion is based in part on regulations that do not adequately address
some issues relevant to, and in some instances provide that they are not
applicable to, securities similar to the securities.
Classification of REMICs and FASITs
Upon the issuance of each series of REMIC or FASIT certificates, Orrick,
Herrington & Sutcliffe LLP, counsel to the depositor, will deliver its opinion
to the effect that, assuming compliance with all provisions of the related
pooling and servicing agreement, or trust agreement, the related trust fund, or
each applicable portion of the related trust fund, will qualify as a REMIC or
FASIT, as the case may be, and the certificates offered with respect thereto
will be considered to be, or evidence the ownership of, "regular interests," in
the related REMIC or FASIT or, solely in the case of REMICs, "residual
interests," in that REMIC. If with respect to any series, Orrick, Herrington &
Sutcliffe LLP is not counsel to the depositor, then depositor's counsel for such
series will be identified
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in the related prospectus supplement and will confirm, or supplement, the
aforementioned opinions. Opinions of counsel only represent the views of that
counsel and are not binding on the IRS or the courts. Accordingly, there can be
no assurance that the IRS and the courts will not take a differing position.
The IRS published proposed Treasury regulations, known as the Proposed
FASIT Regulations, supplementing the FASIT provisions of the Code on February 7,
2000, but many issues remain unresolved. The Proposed FASIT Regulations are
subject to change with potentially retroactive effect before being adopted as
final regulations. The Proposed FASIT Regulations contain an "anti-abuse" rule
that, among other things, enables the IRS to disregard a FASIT election, treat
one or more of the assets of a FASIT as held by a person other than the holder
of the ownership interest in the FASIT, treat a FASIT regular interest as other
than a debt instrument or treat a regular interest held by any person as having
the tax characteristics of one or more of the assets held by the FASIT, if a
principal purpose of forming or using the FASIT was to achieve results
inconsistent with the intent of the FASIT provisions and the Proposed FASIT
Regulations based on all the facts and circumstances. Among the requirements
that the Proposed FASIT Regulations state for remaining within the intent of the
FASIT provisions is that no FASIT provision be used to obtain a federal tax
result that could not be obtained without the use of that provision unless the
provision clearly contemplates that result. The only general intent that the
Proposed FASIT Regulations attribute to the FASIT provisions is to promote the
spreading of credit risk on debt instruments by facilitating their
securitization. The "anti-abuse" provisions of the Proposed FASIT Regulations
are proposed to be effective as of February 4, 2000. Although any FASIT whose
certificates are offered pursuant to this prospectus will be structured to
reduce the likelihood that the IRS would recharacterize the tax treatment of the
offered certificates, the anti-abuse provisions of the Proposed FASIT
Regulations are sufficiently broad and vague that the avoidance of
recharacterization cannot be assured. Investors should be cautious in purchasing
any of the certificates and should consult with their tax advisors in
determining the federal, state, local and other tax consequences to them for the
purchase, holding and disposition of the certificates.
In addition, certain FASIT regular interests, or FASIT Regular
Certificates, may be treated as "high-yield regular interests." Special rules,
discussed below apply to those securities. Although the accompanying prospectus
supplement will indicate which FASIT securities are expected to be treated as
"high-yield regular interests," in many cases it will not be clear as of the
date of the prospectus supplement, and possibly not even after the issuance of
the securities, whether any particular class will actually be so treated.
If an entity electing to be treated as a REMIC or FASIT fails to comply
with one or more of the ongoing requirements of the Code for that status during
any taxable year, the Code provides that the entity will not be treated as a
REMIC or FASIT for that year and thereafter. In that event, the entity may be
taxable as a separate corporation under Treasury regulations, and the related
certificates may not be accorded the status or given the tax treatment described
in this prospectus under "Material Federal Income Tax Consequences." The IRS
may, but is not compelled to provide relief but any relief may be accompanied by
sanctions, including the imposition of a corporate tax on all or a portion of
the trust's income for the period in which the requirements for that status are
not satisfied. The proposed FASIT regulations provide that, upon the termination
of a FASIT, FASIT regular interest holders are treated as exchanging their FASIT
regular interests for new interests in the trust. The new interests are
characterized under general tax principals, and the deemed exchange of the FASIT
regular interests for new interests in the trust may require the FASIT regular
interest holders to recognize gain, but not loss. The resulting non-FASIT trust
could be characterized as a partnership or as a publicly traded partnership or
association taxable as a corporation, with adverse tax consequences for
investors. The pooling and servicing agreement, indenture or trust agreement for
each REMIC or FASIT will include provisions designed to maintain the related
trust fund's status as a REMIC or FASIT. It is not anticipated that the status
of any trust fund as a REMIC or FASIT will be terminated, but, as noted in the
discussion of the FASIT "anti-abuse" provisions above, it is not possible to
assure against recharacterization of a FASIT by the IRS.
Taxation of Owners of REMIC and FASIT Regular Certificates
General. In general, REMIC and FASIT Regular Certificates will be treated
for federal income tax purposes as debt instruments and not as ownership
interests in the REMIC or FASIT or its assets. Moreover, holders of Regular
Certificates that otherwise report income under a cash method of accounting will
be required to report income for Regular Certificates under an accrual method.
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Original Issue Discount. Some REMIC or FASIT Regular Certificates may be
issued with "original issue discount," or OID, within the meaning of Section
1273(a) of the Code. Any holders of Regular Certificates issued with original
issue discount typically will be required to include original issue discount in
income as it accrues, in accordance with the method described below, in advance
of the receipt of the cash attributable to that income. In addition, Section
1272(a)(6) of the Code provides special rules applicable to Regular Certificates
and certain other debt instruments issued with original issue discount.
Regulations have not been issued under that section.
The Code requires that a prepayment assumption be used for loans held by a
REMIC or FASIT in computing the accrual of original issue discount on Regular
Certificates issued by that issuer, and that adjustments be made in the amount
and rate of accrual of the discount to reflect differences between the actual
prepayment rate and the prepayment assumption. The prepayment assumption is to
be determined in a manner prescribed in Treasury regulations; as noted above,
those regulations have not been issued. The conference committee report
accompanying the Tax Reform Act of 1986 indicates that the regulations will
provide that the prepayment assumption used for a Regular Certificate must be
the same as that used in pricing the initial offering of the Regular
Certificate. The prepayment assumption used by the servicer, the subservicer, or
the REMIC or FASIT administrator, as applicable, in reporting original issue
discount for each series of Regular Certificates will be consistent with this
standard and will be disclosed in the accompanying prospectus supplement.
However, none of the depositor, the REMIC or FASIT administrator, as applicable,
or the servicer or subservicer will make any representation that the loans will
in fact prepay at a rate conforming to the prepayment assumption or at any other
rate.
The original issue discount, if any, on a REMIC or FASIT Regular
Certificate will be the excess of its stated redemption price at maturity over
its issue price. The issue price of a particular class of Regular Certificates
will be the first cash price at which a substantial amount of Regular
Certificates of that class is sold, excluding sales to bond houses, brokers and
underwriters. If less than a substantial amount of a particular class of Regular
Certificates is sold for cash on or prior to the date of their initial issuance,
or the closing date, the issue price for that class will be treated as the fair
market value of the class on the closing date. Under the OID regulations, the
stated redemption price of a REMIC or FASIT Regular Certificate is equal to the
total of all payments to be made on that certificate other than "qualified
stated interest." Qualified stated interest includes interest that is
unconditionally payable at least annually at a single fixed rate, or in the case
of a variable rate debt instrument, at a "qualified floating rate," an
"objective rate," a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that in most cases does not operate in
a manner that accelerates or defers interest payments on a Regular Certificate.
In the case of Regular Certificates bearing adjustable interest rates, the
determination of the total amount of original issue discount and the timing of
the inclusion of the original issue discount will vary according to the
characteristics of the Regular Certificates. If the original issue discount
rules apply to the certificates, the accompanying prospectus supplement will
describe the manner in which the rules will be applied by the servicer, the
subservicer, or REMIC or FASIT administrator, as applicable, for those
certificates in preparing information returns to the certificateholders and the
IRS.
Some classes of the Regular Certificates may provide for the first interest
payment with respect to their certificates to be made more than one month after
the date of issuance, a period which is longer than the subsequent monthly
intervals between interest payments. Assuming the "accrual period," as defined
below, for original issue discount is each monthly period that begins or ends on
a distribution date, in some cases, as a consequence of this "long first accrual
period," some or all interest payments may be required to be included in the
stated redemption price of the Regular Certificate and accounted for as original
issue discount. Because interest on Regular Certificates must in any event be
accounted for under an accrual method, applying this analysis would result in
only a slight difference in the timing of the inclusion in income of the yield
on the Regular Certificates.
In addition, if the accrued interest to be paid on the first distribution
date is computed for a period that begins prior to the closing date, a portion
of the purchase price paid for a Regular Certificate will reflect the accrued
interest. In these cases, information returns to the certificateholders and the
IRS will be based on the position that the portion of the purchase price paid
for the interest accrued for periods prior to the closing date is treated as
part of the overall cost of the Regular Certificate, and not as a separate asset
the cost of which is recovered entirely out of interest received on the next
distribution date, and that portion of the interest paid on the first
distribution date in
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excess of interest accrued for a number of days corresponding to the number of
days from the closing date to the first distribution date should be included in
the stated redemption price of the Regular Certificate. However, the OID
regulations state that all or some portion of the accrued interest may be
treated as a separate asset the cost of which is recovered entirely out of
interest paid on the first distribution date. It is unclear how an election to
do so would be made under the OID regulations and whether that election could be
made unilaterally by a certificateholder.
Regardless of the general definition of original issue discount, original
issue discount on a Regular Certificate will be considered to be de minimis if
it is less than 0.25% of the stated redemption price of the Regular Certificate
multiplied by its weighted average life. For this purpose, the weighted average
life of the Regular Certificate is computed as the sum of the amounts
determined, as to each payment included in the stated redemption price of the
Regular Certificate, by multiplying:
o the number of complete years, rounding down for partial years, from the
issue date until the payment is expected to be made, presumably taking into
account the prepayment assumption;
by
o a fraction, the numerator of which is the amount of the payment, and the
denominator of which is the stated redemption price at maturity of the
Regular Certificate.
Under the OID regulations, original issue discount of only a de minimis amount,
other than de minimis original issue discount attributable to a so-called
"teaser" interest rate or an initial interest holiday, will be included in
income as each payment of stated principal is made, based on the product of the
total amount of the de minimis original issue discount and a fraction, the
numerator of which is the amount of the principal payment and the denominator of
which is the outstanding stated principal amount of the Regular Certificate. The
OID regulations also would permit a certificateholder to elect to accrue de
minimis original issue discount into income currently based on a constant yield
method. See "--Market Discount" in this prospectus for a description of that
election under the OID regulations.
If original issue discount on a Regular Certificate is in excess of a de
minimis amount, the holder of the certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held the Regular Certificate, including the
purchase date but excluding the disposition date. In the case of an original
holder of a Regular Certificate, the daily portions of original issue discount
will be determined as follows.
The "accrual period" as used in this section will be:
o the period that begins or ends on a date that corresponds to a distribution
date and begins on the first day following the immediately preceding
accrual period, or in the case of the first accrual period, begins on the
closing date; or
o such other period as described in the related prospectus supplement.
As to each accrual period, a calculation will be made of the portion of the
original issue discount that accrued during that accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of:
(1) the sum of:
o the present value, as of the end of the accrual period, of all of the
distributions remaining to be made on the Regular Certificate, if any, in
future periods; and
o the distributions made on the Regular Certificate during the accrual period
of amounts included in the stated redemption price;
over
(2) the adjusted issue price of the Regular Certificate at the
beginning of the accrual period.
The present value of the remaining distributions referred to in the
preceding sentence will be calculated:
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(1) assuming that distributions on the Regular Certificate will be
received in future periods based on the loans being prepaid at a rate
equal to the prepayment assumption; and
(2) using a discount rate equal to the original yield to maturity of
the certificate.
For these purposes, the original yield to maturity of the certificate will be
calculated based on its issue price and assuming that distributions on the
certificate will be made in all accrual periods based on the loans being prepaid
at a rate equal to the prepayment assumption. The adjusted issue price of a
Regular Certificate at the beginning of any accrual period will equal the issue
price of the certificate, increased by the aggregate amount of original issue
discount that accrued for that certificate in prior accrual periods, and reduced
by the amount of any distributions made on that Regular Certificate in prior
accrual periods of amounts included in its stated redemption price. The original
issue discount accruing during any accrual period, computed as described above,
will be allocated ratably to each day during the accrual period to determine the
daily portion of original issue discount for that day.
The OID regulations suggest that original issue discount for securities
that represent multiple uncertificated regular interests, in which ownership
interests will be issued simultaneously to the same buyer and which may be
required under the related pooling and servicing agreement to be transferred
together, should be computed on an aggregate method. In the absence of further
guidance from the IRS, original issue discount for securities that represent the
ownership of multiple uncertificated regular interests will be reported to the
IRS and the certificateholders on an aggregate method based on a single overall
constant yield and the prepayment assumption stated in the accompanying
prospectus supplement, treating all uncertificated regular interests as a single
debt instrument as set forth in the OID regulations, so long as the pooling and
servicing agreement requires that the uncertificated regular interests be
transferred together.
A subsequent purchaser of a Regular Certificate that purchases the
certificate at a cost, excluding any portion of that cost attributable to
accrued qualified stated interest, less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount for that certificate. However, each daily portion will
be reduced, if the cost is in excess of its "adjusted issue price," in
proportion to the ratio that excess bears to the aggregate original issue
discount remaining to be accrued on the Regular Certificate. The adjusted issue
price of a Regular Certificate on any given day equals:
o the adjusted issue price or, in the case of the first accrual period, the
issue price, of the certificate at the beginning of the accrual period
which includes that day;
plus
o the daily portions of original issue discount for all days during the
accrual period prior to that day;
minus
o any principal payments made during the accrual period prior to that day for
the certificate.
Market Discount. A certificateholder that purchases a Regular Certificate
at a market discount, that is, in the case of a Regular Certificate issued
without original issue discount, at a purchase price less than its remaining
stated principal amount, or in the case of a Regular Certificate issued with
original issue discount, at a purchase price less than its adjusted issue price
will recognize income on receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Code such a
certificateholder in most cases will be required to allocate the portion of each
distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary income to
that extent.
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, the election will apply to all market
discount bonds acquired by the certificateholder on or after the first day of
the first taxable year to which the 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, and premium in
income as interest, based on a constant yield method. If the election were made
for a Regular Certificate with market discount, the certificateholder would be
deemed to have made an election to include currently market discount in income
for all other debt instruments having market discount that the certificateholder
acquires during the taxable year of the election or thereafter.
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Similarly, a certificateholder that made this election for a certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium for all debt instruments having amortizable bond premium that the
certificateholder owns or acquires. See "--Premium" in this prospectus. Each of
these elections to accrue interest, discount and premium for a certificate on a
constant yield method or as interest may not be revoked without the consent of
the IRS.
However, market discount for a Regular Certificate will be considered to be
de minimis for purposes of Section 1276 of the Code if the market discount is
less than 0.25% of the remaining stated redemption price of the Regular
Certificate multiplied by the number of complete years to maturity remaining
after the date of its purchase. In interpreting a similar rule for 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 for market discount, presumably taking into account the
prepayment assumption. If market discount is treated as de minimis under this
rule, it appears that the actual discount would be treated in a manner similar
to original issue discount of a de minimis amount. See "-- Original Issue
Discount" in this prospectus. This treatment may result in discount being
included in income at a slower rate than discount would be required to be
included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on Regular Certificates should
accrue, at the certificateholder's option:
o on the basis of a constant yield method;
o in the case of a Regular Certificate issued without original issue
discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to
the total amount of stated interest remaining to be paid on the Regular
Certificate as of the beginning of the accrual period; or
o in the case of a Regular Certificate issued with original issue discount,
in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears
to the total original issue discount remaining on the Regular Certificate
at the beginning of the accrual period.
Moreover, the prepayment assumption used in calculating the accrual of original
issue discount is to be used in calculating the accrual of market discount.
Because the regulations referred to in this paragraph have not been issued, it
is not possible to predict what effect those regulations might have on the tax
treatment of a Regular Certificate purchased at a discount in the secondary
market.
To the extent that Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which the discount would accrue if it were
original issue discount. Moreover, in any event a holder of a Regular
Certificate in most cases will be required to treat a portion of any gain on the
sale or exchange of that 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.
In addition, under Section 1277 of the Code, a holder of a Regular
Certificate 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 a Regular Certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any deferred
interest expense would not exceed the market discount that accrues during that
taxable year and is, in general, allowed as a deduction not later than the year
in which the market discount is includible in income. If the holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by that holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
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Premium. A Regular Certificate purchased at a cost, excluding any portion
of that cost attributable to accrued qualified stated interest, greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of a Regular Certificate may elect under Section 171 of the
Code to amortize that premium under the constant yield method over the life of
the certificate. If made, this election will apply to all debt instruments
having amortizable bond premium that the holder owns or subsequently acquires.
Amortizable premium will be treated as an offset to interest income on the
related Regular Certificate, rather than as a separate interest deduction. 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. See "--Market Discount" in this prospectus. The conference committee
report states that the same rules that apply to accrual of market discount,
which rules will require use of a prepayment assumption in accruing market
discount for Regular Certificates without regard to whether those certificates
have original issue discount, will also apply in amortizing bond premium under
Section 171 of the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the Regular Certificates and noncorporate holders of the Regular Certificates
that acquire those certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their certificates become wholly or partially worthless as the
result of one or more Realized Losses on the loans. However, it appears that a
noncorporate holder that does not acquire a Regular Certificate in connection
with a trade or business will not be entitled to deduct a loss under Section 166
of the Code until the holder's certificate becomes wholly worthless, until its
outstanding principal balance has been reduced to zero, and that the loss will
be characterized as a short-term capital loss.
Each holder of a Regular Certificate will be required to accrue interest
and original issue discount for that certificate, without giving effect to any
reductions in distributions attributable to defaults or delinquencies on the
loans or the underlying certificates until it can be established that any
reduction ultimately will not be recoverable. As a result, the amount of taxable
income reported in any period by the holder of a Regular Certificate could
exceed the amount of economic income actually realized by the holder in that
period. Although the holder of a Regular Certificate eventually will recognize a
loss or reduction in income attributable to previously accrued and included
income that, as the result of a Realized Loss, ultimately will not be realized,
the law is unclear with respect to the timing and character of the loss or
reduction in income.
Special Rules for FASIT High-Yield Regular Interests.
General. A high-yield interest in a FASIT is a subcategory of a FASIT
regular interest. A FASIT high-yield regular interest is a FASIT regular
interest that either:
o has an issue price that exceeds 125% of its stated principal amount;
o has a yield to maturity equal to or greater than a specified amount,
generally 500 basis points above the appropriate applicable federal rate;
o is an interest-only obligation whose interest payments consist of a
non-varying specified portion of the interest payments on permitted assets.
A holder of a FASIT high-yield regular interest is subject to treatment,
described above, applicable to FASIT Regular Interests, generally.
Limitations on Utilization of Losses. The holder of a FASIT high-yield
regular interest may not offset its income derived thereon by any unrelated
losses. Thus, the taxable income of a holder of a FASIT high-yield regular
interest will be at least equal to the taxable income derived from that
interest, which includes gain or loss from the sale of those interests, any
FASIT ownership interests and any excess inclusion income derived from REMIC
residual interests. Thus, income from those interests generally cannot be offset
by current net operating losses or net operating loss carryovers. Similarly, the
alternative minimum taxable income of the holder of a high-yield regular
interest cannot be less than that holder's taxable income determined solely for
those interests. For purposes of these provisions, all members of an affiliated
group filing a consolidated return are treated as one taxpayer. Accordingly, the
consolidated taxable income of the group cannot be less than the group's
"tainted" income, thereby preventing losses of one member from offsetting the
tainted income of another member. However, to avoid doubly penalizing income,
net
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operating loss carryovers are determined without regard to that income for both
regular tax and alternative minimum tax purposes.
Transfer Restrictions. Transfers of FASIT high-yield Regular Certificates
to certain "disqualified holders" will, absent the satisfaction of certain
conditions, be disregarded for federal income tax purposes. In that event, the
most recent eligible holder, generally the transferring holder, will continue to
be taxed as if it were the holder of the certificate, although the disqualified
holder, and not the most recent eligible holder, would be taxable on any gain
recognized by that holder for the related interest. Although not free from
doubt, the tax ownership of a FASIT high-yield Regular Certificate may, absent
the satisfaction of certain conditions, revert to a prior holder even if the
transferee becomes a disqualified holder after the relevant transfer.
Each applicable pooling and servicing agreement, trust agreement or
indenture requires, as a prerequisite to any transfer of a FASIT high-yield
Regular Certificate, the delivery to the trustee of an affidavit of the
transferee to the effect that it is not a disqualified holder and contains
certain other provisions designed to preclude the automatic reversion of the tax
ownership of that certificate. For these purposes, a "disqualified holder' is
any person other than a:
o FASIT; or
o domestic C corporation, other than a corporation that is exempt from, or
not subject to, federal income tax; provided, however, that all of the
following are also "disqualified holders":
o regulated investment companies subject to the provisions of Part I of
subchapter M of the Code;
o real estate investment trusts subject to the provisions of Part II of
subchapter M of the Code;
o REMICs; and
o cooperatives described in Section 1381(a) of the Code.
Pass-through Entities Holding FASIT Regular Certificates. If a Pass-Through
Entity issues a high-yielding debt or equity interest that is supported by any
FASIT Regular Interest, that entity will be subject to an excise tax unless no
principal purpose of the resecuritization was the avoidance of the rules
relating to FASIT high-yield interests, pertaining to eligible holders of those
interests. See "Taxation of Owners of REMIC and FASIT Regular
Certificates--Taxation of Holders of FASIT High-yield Regular
Interests--Transfer Restrictions" in this prospectus. The tax will apply if the
original yield to maturity of the debt or equity interest in the Pass-Through
Entity exceeds the greater of:
(1) the sum of:
o the applicable federal rate in effect for the calendar month in which the
debt or equity interest is issued; and
o five percentage points; or
(2) the yield to maturity to such entity on the FASIT Regular Interest,
determined as of the date that the entity acquired its interest.
The Code provides that Treasury regulations will be issued to provide the
manner in which to determine the yield to maturity of any equity interest,
however no regulations have yet been issued. If a tax did apply, the tax would
equal the product of:
o the highest corporate tax rate; and
o the income of the holder of the debt or equity interest that is
properly attributable to the FASIT Regular Interest supporting the
equity interest.
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Taxation of Owners of REMIC Residual Certificates
General. As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the loans or as debt instruments issued by the
REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, in accordance with the
limitations noted in this discussion, the net loss of the REMIC for each day
during a calendar quarter that the holder owned the REMIC Residual Certificate.
For this purpose, the taxable income or net loss of the REMIC will be allocated
to each day in the calendar quarter ratably using a "30 days per month/90 days
per quarter/360 days per year" convention or some other convention if stated in
the accompanying prospectus supplement. The daily amounts will then be allocated
among the REMIC residual certificateholders in proportion to their respective
ownership interests on that day. Any amount included in the gross income or
allowed as a loss of any REMIC residual certificateholder by virtue of this
allocation will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described in this prospectus in
"--Taxable Income of the REMIC" and will be taxable to the REMIC residual
certificateholders without regard to the timing or amount of cash distributions
by the REMIC. Ordinary income derived from REMIC Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers in accordance with
limitations under Section 469 of the Code on the deductibility of "passive
losses."
A holder of a REMIC Residual Certificate that purchased the certificate
from a prior holder of that certificate also will be required to report on its
federal income tax return amounts representing its daily portion of the taxable
income or net loss of the REMIC for each day that it holds the REMIC Residual
Certificate. These daily portions generally will equal the amounts of taxable
income or net loss determined as described above. The committee report indicates
that modifications of the general rules may be made, by regulations, legislation
or otherwise, to reduce, or increase, the income or loss of a REMIC residual
certificateholder that purchased the REMIC Residual Certificate from a prior
holder of the certificate at a price greater than, or less than, the adjusted
basis, as defined below, that REMIC Residual Certificate would have had in the
hands of an original holder of that certificate. The REMIC regulations, however,
do not provide for any such modifications.
Any payments received by a REMIC residual certificateholder in connection
with the acquisition of that REMIC Residual Certificate will be taken into
account in determining the income of the holder for federal income tax purposes.
Although it appears likely that any payment would be includible in income
immediately on its receipt, the IRS might assert that the 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
these payments, holders of REMIC Residual Certificates should consult their tax
advisors concerning the treatment of these payments for income tax purposes.
The amount of income REMIC residual certificateholders will be required to
report, or the tax liability associated with that income, may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC residual certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions" and
"noneconomic" residual interests discussed below. The fact that the tax
liability associated with the income allocated to REMIC residual
certificateholders may exceed the cash distributions received by the REMIC
residual certificateholders for the corresponding period may significantly
adversely affect the REMIC residual certificateholders after-tax rate of return.
Taxable Income of the REMIC. The taxable income of the REMIC will equal the
income from the loans and other assets of the REMIC plus any cancellation of
indebtedness income due to the allocation of Realized Losses to Regular
Certificates, less the deductions allowed to the REMIC for interest, including
original issue discount and reduced by the amortization of any premium received
on issuance, on the Regular Certificates, and any other class of REMIC
certificates constituting "regular interests" in the REMIC not offered hereby,
amortization of any premium on the loans, bad debt deductions for the loans and,
except as described below, for servicing, administrative and other expenses.
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For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to their fair market value
immediately after their transfer to the REMIC. For this purpose, the servicer,
the subservicer, or REMIC administrator, as applicable, intends to treat the
fair market value of the loans as being equal to the aggregate issue prices of
the Regular Certificates and REMIC Residual Certificates. The aggregate basis
will be allocated among the loans collectively and the other assets of the REMIC
in proportion to their respective fair market values. The issue price of any
REMIC certificates offered hereby will be determined in the manner described in
this prospectus under "--Taxation of Owners of REMIC and FASIT Regular
Certificates--Original Issue Discount." Accordingly, if one or more classes of
REMIC certificates are retained initially rather than sold, the servicer, the
subservicer, or REMIC administrator, as applicable, may be required to estimate
the fair market value of those interests in order to determine the basis of the
REMIC in the loans and other property held by the REMIC.
Subject to the possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income for loans that it holds will be equivalent to the method of accruing
original issue discount income for regular certificateholders; under the
constant yield method taking into account the prepayment assumption. However, a
REMIC that acquires collateral at a market discount must include the discount in
income currently, as it accrues, on a constant interest basis. See "-- Taxation
of Owners of REMIC and FASIT Regular Certificates" in this prospectus, which
describes a method of accruing discount income that is analogous to that
required to be used by a REMIC as to loans with market discount that it holds.
A loan will be deemed to have been acquired with discount or premium to the
extent that the REMIC's basis in that loan, determined as described in the
preceding paragraph, is less than or greater than its stated redemption price.
Any discount will be includible in the income of the REMIC as it accrues, in
advance of receipt of the cash attributable to that income, under a method
similar to the method described above for accruing original issue discount on
the Regular Certificates. It is anticipated that each REMIC will elect under
Section 171 of the Code to amortize any premium on the loans. Premium on any
loan to which the election applies may be amortized under a constant yield
method, presumably taking into account a prepayment assumption.
A REMIC will be allowed deductions for interest, including original issue
discount, on the Regular Certificates, including any other class of REMIC
certificates constituting "regular interests" in the REMIC not offered hereby,
equal to the deductions that would be allowed if the Regular Certificates,
including any other class of REMIC certificates constituting "regular interests"
in the REMIC not offered hereby, were indebtedness of the REMIC. Original issue
discount will be considered to accrue for this purpose as described in this
prospectus under "--Taxation of Owners of REMIC and FASIT Regular
Certificates--Original Issue Discount," except that the de minimis rule and the
adjustments for subsequent holders of Regular Certificates, including any other
class of certificates constituting "regular interests" in the REMIC not offered
hereby, described in this prospectus under "--Taxation of Owners of REMIC and
FASIT Regular Certificates--Original Issue Discount," will not apply.
If a class of Regular Certificates is issued at an Issue Premium, the net
amount of interest deductions that are allowed the REMIC in each taxable year
for the Regular Certificates of that class will be reduced by an amount equal to
the portion of the Issue Premium that is considered to be amortized or repaid in
that year. Although the matter is not entirely certain, it is likely that Issue
Premium would be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described in this prospectus
under "--Taxation of Owners of REMIC and FASIT Regular Certificates--Original
Issue Discount."
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions and Other Taxes" in this
prospectus. Further, the limitation on miscellaneous itemized deductions imposed
on individuals by Section 67 of the Code, which allows those deductions only to
the extent they exceed in the aggregate two percent of the taxpayer's adjusted
gross income, will not be applied at the REMIC level so that the REMIC will be
allowed deductions for servicing, administrative and other non-interest expenses
in determining its taxable income. All of these expenses will be allocated as a
separate item to the holders of REMIC Residual Certificates, subject to the
limitation of Section 67 of the Code. See "--Possible Pass-Through of
Miscellaneous Itemized Deductions" in this prospectus. If the deductions allowed
to the REMIC exceed its gross income for a calendar quarter, the excess will be
the net loss for the REMIC for that calendar quarter.
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Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for that REMIC Residual
Certificate, increased by amounts included in the income of the related
certificateholder and decreased, but not below zero, by distributions made, and
by net losses allocated, to the related certificateholder.
A REMIC residual certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent the net loss exceeds the REMIC
residual certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of that calendar quarter, determined without regard to the net
loss. Any loss that is not currently deductible by reason of this limitation may
be carried forward indefinitely to future calendar quarters and, in accordance
with the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC residual certificateholders to deduct
net losses in accordance with additional limitations under the Code, as to which
the certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in the REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds the adjusted basis, it will be treated
as gain from the sale of the REMIC Residual Certificate. Holders of REMIC
Residual Certificates may be entitled to distributions early in the term of the
related REMIC under circumstances in which their basis in the REMIC Residual
Certificates will not be sufficiently large that distributions will be treated
as nontaxable returns of capital. Their basis in the REMIC Residual Certificates
will initially equal the amount paid for those REMIC Residual Certificates and
will be increased by their allocable shares of taxable income of the related
trust fund. However, their basis increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, for which the REMIC
taxable income is allocated to the REMIC residual certificateholders. To the
extent the REMIC residual certificateholders initial basis are less than the
distributions to the REMIC residual certificateholders, and increases in the
initial basis either occur after distributions or, together with their initial
basis, are less than the amount of the distributions, gain will be recognized to
the REMIC residual certificateholders on those distributions and will be treated
as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a certificateholder may not amortize its
basis in a REMIC Residual Certificate, but may only recover its basis through
distributions, through the deduction of its share of any net losses of the REMIC
or on the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" in this prospectus. For a discussion of possible modifications of
these rules that may require adjustments to income of a holder of a REMIC
Residual Certificate other than an original holder in order to reflect any
difference between the cost of the REMIC Residual Certificate to its holder and
the adjusted basis the REMIC Residual Certificate would have had in the hands of
the original holder, see "--General" in this prospectus
Excess Inclusions. Any "excess inclusions" for a REMIC Residual Certificate
will be subject to federal income tax in all events.
In general, the "excess inclusions" for a REMIC Residual Certificate for
any calendar quarter will be the excess, if any, of:
o the sum of the daily portions of REMIC taxable income allocable to the
REMIC Residual Certificate;
over
o the sum of the "daily accruals," as described in the following sentence,
for each day during that quarter that the REMIC Residual Certificate was
held by the REMIC residual certificateholder.
The daily accruals of a REMIC residual certificateholder will be determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the "long-term Federal rate" in
effect on the closing date. For this purpose, the adjusted issue price of a
REMIC Residual Certificate as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Certificate, increased by the sum
of the daily accruals for all prior quarters and decreased, but not below zero,
by any distributions made on the REMIC Residual Certificate before the beginning
of that quarter. The issue price of a REMIC Residual Certificate is the initial
offering price to
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the public, excluding bond houses, brokers and underwriters, at which a
substantial amount of the REMIC Residual Certificates were sold. If less than a
substantial amount of a particular class of REMIC Residual Certificates is sold
for cash on or prior to the closing date, the issue price of that class will be
treated as the fair market value of that class on the closing date. The
"long-term Federal rate" is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published monthly
by the IRS.
For REMIC residual certificateholders, an excess inclusion:
o will not be permitted to be offset by deductions, losses or loss carryovers
from other activities;
o will be treated as "unrelated business taxable income" to an otherwise
tax-exempt organization; and
o will not be eligible for any rate reduction or exemption under any
applicable tax treaty for the 30% United States withholding tax imposed on
distributions to REMIC residual certificateholders that are foreign
investors.
See, however, "--Foreign Investors in Regular Certificates" in this prospectus.
Furthermore, for purposes of the alternative minimum tax, (1) excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and (2) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions; provided, however, that for purposes
of (2), alternative minimum taxable income is determined without regard to the
special rule that taxable income cannot be less than excess inclusions. The
latter rule has the effect of preventing nonrefundable tax credits from reducing
the taxpayer's income tax to an amount lower than the alternative minimum tax on
excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions allocated to the REMIC
Residual Certificates, reduced, but not below zero, by the real estate
investment trust taxable income, within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain, will be allocated among the shareholders
of the trust in proportion to the dividends received by the shareholders from
the trust, and any amount so allocated will be treated as an excess inclusion
from a REMIC Residual Certificate as if held directly by the shareholder.
Treasury regulations yet to be issued could apply a similar rule to regulated
investment companies, common trust funds and some cooperatives; the REMIC
regulations currently do not address this subject.
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 the
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on the "noneconomic" REMIC Residual
Certificate. The REMIC regulations provide that a REMIC Residual Certificate is
noneconomic unless, based on the prepayment assumption and on any required or
permitted clean up calls, or required qualified liquidation provided for in the
REMIC's organizational documents:
(1) the present value of the expected future distributions, discounted
using the "applicable federal rate" for obligations whose term ends
on the close of the last quarter in which excess inclusions are
expected to accrue on the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS, on the REMIC Residual
Certificate equals at least the present value of the expected tax on
the anticipated excess inclusions; and
(2) the transferor reasonably expects that the transferee will receive
distributions on the REMIC Residual Certificate at or after the time
the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to restrictions under the terms
of the related pooling and servicing agreement or trust agreement that are
intended to reduce the possibility of any transfer being disregarded. The
restrictions will require each party to a transfer to provide an affidavit that
no purpose of the transfer is to impede the assessment or collection of tax,
including representations as to the financial condition of the prospective
transferee, as to which the transferor also is required to make a reasonable
investigation to determine the transferee's historic payment of its debts and
ability to
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continue to pay its debts as they come due in the future. The IRS has issued
proposed changes to the REMIC regulations that would add to the conditions
necessary to assure that a transfer of a noneconomic residual interest would be
respected. The proposed additional condition would require that the amount
received by the transferee be no less on a present value basis than the present
value of the net tax detriment attributable to holding residual interest reduced
by the present value of the projected payments to be received on the residual
interest. The change is proposed to be effective for transfers of residual
interests occurring after February 4, 2000. Prior to purchasing a REMIC Residual
Certificate, prospective purchasers should consider the possibility that a
purported transfer of the REMIC Residual Certificate by the purchaser to another
purchaser at some future date may be disregarded in accordance with the
above-described rules which would result in the retention of tax liability by
the first purchaser.
The accompanying prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC regulations. Any disclosure that a REMIC Residual Certificate will not
be considered "noneconomic" will be based on some assumptions, and the depositor
will make no representation that a REMIC Residual Certificate will not be
considered "noneconomic" for purposes of the above-described rules. See
"--Foreign Investors in Regular Certificates" for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to foreign
persons.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of those fees and expenses should be allocated to the
holders of the related Regular Certificates. Fees and expenses will be allocated
to holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related Regular Certificates or if stated in the related
prospectus supplement, some or all of the fees and expenses will be allocated to
the holders of the related Regular Certificates.
For REMIC Residual Certificates or Regular Certificates the holders of
which receive an allocation of fees and expenses in accordance with the
preceding discussion, if any holder thereof is an individual, estate or trust,
or a Pass-Through Entity beneficially owned by one or more individuals, estates
or trusts:
o an amount equal to the individual's, estate's or trust's share of fees and
expenses will be added to the gross income of that holder; and
o the individual's, estate's or trust's share of fees and expenses will be
treated as a miscellaneous itemized deduction allowable in accordance with
the limitation of Section 67 of the Code, which permits those deductions
only to the extent they exceed in the aggregate two percent of a taxpayer's
adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of:
o 3% of the excess of the individual's adjusted gross income over that
amount; or
o 80% of the amount of itemized deductions otherwise allowable for the
taxable year.
The amount of additional taxable income reportable by REMIC certificateholders
that are in accordance with the limitations of either Section 67 or Section 68
of the Code may be substantial. Furthermore, in determining the alternative
minimum taxable income of the holder of a REMIC certificate that is an
individual, estate or trust, or a Pass-Through Entity beneficially owned by one
or more individuals, estates or trusts, no deduction will be allowed for that
holder's allocable portion of servicing fees and other miscellaneous itemized
deductions of the REMIC, even though an amount equal to the amount of those fees
and other deductions will be included in the holder's gross income. Accordingly,
the REMIC certificates may not be appropriate investments for individuals,
estates, or trusts, or Pass-Through Entities beneficially owned by one or more
individuals, estates or trusts. Any prospective investors should consult with
their tax advisors prior to making an investment in these certificates.
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Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a Disqualified
Organization, a tax would be imposed in an amount, determined under the REMIC
regulations, equal to the product of:
o the present value, discounted using the "applicable federal rate" for
obligations whose term ends on the close of the last quarter in which
excess inclusions are expected to accrue on the certificate, which rate is
computed and published monthly by the IRS, of the total anticipated excess
inclusions on the REMIC Residual Certificate for periods after the
transfer; and
o the highest marginal federal income tax rate applicable to corporations.
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 transfer, the prepayment assumption and any
required or permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. This tax generally would be imposed on the
transferor of the REMIC Residual Certificate, except that where the transfer is
through an agent for a Disqualified Organization, the tax would instead be
imposed on that agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for the tax on a transfer if the transferee
furnishes to the transferor an affidavit that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that the affidavit is false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that:
o residual interests in the entity are not held by Disqualified
Organizations; and
o information necessary for the application of the tax described in this
prospectus will be made available.
Restrictions on the transfer of REMIC Residual Certificates and other
provisions that are intended to meet this requirement will be included in the
pooling and servicing agreement, including provisions:
(1) requiring any transferee of a REMIC Residual Certificate to provide an
affidavit representing that it is not a Disqualified Organization and is
not acquiring the REMIC Residual Certificate on behalf of a Disqualified
Organization, undertaking to maintain that status and agreeing to obtain a
similar affidavit from any person to whom it shall transfer the REMIC
Residual Certificate;
(2) providing that any transfer of a REMIC Residual Certificate to a
Disqualified Organization shall be null and void; and
(3) granting to the servicer or the subservicer the right, without notice to
the holder or any prior holder, to sell to a purchaser of its choice any
REMIC Residual Certificate that shall become owned by a Disqualified
Organization despite (1) and (2) above.
In addition, if a Pass-Through Entity includes in income excess inclusions
on a REMIC Residual Certificate, and a Disqualified Organization is the record
holder of an interest in that entity, then a tax will be imposed on the entity
equal to the product of:
o the amount of excess inclusions on the REMIC Residual Certificate that are
allocable to the interest in the Pass-Through Entity held by the
Disqualified Organization; and
o 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 each record holder of an interest in the Pass-Through Entity furnishes to
that Pass-Through Entity:
o the holder's social security number and a statement under penalties of
perjury that the social security number is that of the record holder; or
o a statement under penalties of perjury that the record holder is not a
Disqualified Organization.
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For taxable years beginning after December 31, 1997, regardless of the preceding
two sentences, in the case of a REMIC Residual Certificate held by an "electing
large partnership," all interests in that partnership shall be treated as held
by Disqualified Organizations, without regard to whether the record holders of
the partnership furnish statements described in the preceding sentence, and the
amount that is subject to tax under the second preceding sentence is excluded
from the gross income of the partnership allocated to the partners, in lieu of
allocating to the partners a deduction for the tax paid by the partners.
Sales of certificates. If a certificate is sold, the selling
certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the certificate. The
adjusted basis of a Regular Certificate generally will equal the cost of that
Regular Certificate to that certificateholder, increased by income reported by
the certificateholder with respect to that Regular Certificate, including
original issue discount and market discount income, and reduced, but not below
zero, by distributions on the Regular Certificate received by the
certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "--Taxation of Owners
of REMIC Residual Certificates--Basis Rules, Net Losses and Distributions" in
this prospectus. Except as described below, any gain or loss generally will be
capital gain or loss.
Gain from the sale of a REMIC Regular Certificate, but not a FASIT regular
interest, that might otherwise be capital gain will be treated as ordinary
income to the extent the gain does not exceed the excess, if any, of:
o the amount that would have been includible in the seller's income for the
Regular Certificate had income accrued thereon at a rate equal to 110% of
the "applicable federal rate," which is typically a rate based on an
average of current yields on Treasury securities having a maturity
comparable to that of the certificate, which rate is computed and published
monthly by the IRS, determined as of the date of purchase of the Regular
Certificate;
over
o the amount of ordinary income actually includible in the seller's income
prior to the sale.
In addition, gain recognized on the sale of a Regular Certificate by a seller
who purchased the Regular Certificate at a market discount will be taxable as
ordinary income to the extent of any accrued and previously unrecognized market
discount that accrued during the period the certificate was held. See
"--Taxation of Owners of REMIC and FASIT Regular Certificates--Market Discount"
in this prospectus.
A portion of any gain from the sale of a Regular Certificate that might
otherwise be capital gain may be treated as ordinary income to the extent that
the certificate is held as part of a "conversion transaction" within the meaning
of Section 1258 of the Code. A conversion transaction generally is one in which
the taxpayer has taken two or more positions in certificates or similar property
that reduce or eliminate market risk, if substantially all of the taxpayer's
return is attributable to the time value of the taxpayer's net investment in the
transaction. The amount of gain so realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable federal rate," which rate is computed and published
monthly by the IRS, at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include any net capital
gain in total net investment income for the taxable year, for purposes of the
limitation on the deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment income.
If the seller of a REMIC Residual Certificate reacquires the certificate,
any other residual interest in a REMIC or any similar interest in a "taxable
mortgage pool," as defined in Section 7701(i) of the Code, within six months of
the date of the sale, the sale will be subject to the "wash sale" rules of
Section 1091 of the Code. In that event, any loss realized by the REMIC residual
certificateholders on the sale will not be deductible, but instead will be added
to the REMIC residual certificateholders adjusted basis in the newly-acquired
asset.
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Prohibited Transactions and Other Taxes. The Code imposes a prohibited
transactions tax, which is a tax on REMICs equal to 100% of the net income
derived from prohibited transactions. In general, subject to specified
exceptions a prohibited transaction means the disposition of a loan, the receipt
of income from a source other than any loan or other Permitted Investments, the
receipt of compensation for services, or gain from the disposition of an asset
purchased with the payments on the loans for temporary investment pending
distribution on the REMIC certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income. In addition, some contributions to a REMIC made
after the day on which the REMIC issues all of its interests could result in the
imposition of a contributions tax, which is a tax on the REMIC equal to 100% of
the value of the contributed property. Each pooling and servicing agreement or
trust agreement will include provisions designed to prevent the acceptance of
any contributions that would be subject to the tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
It is not anticipated that any REMIC will recognize "net income from foreclosure
property" subject to federal income tax, however, if a REMIC may be required to
recognize "net income from foreclosure property" subject to federal income tax,
it will be stated in the related prospectus supplement.
It is not anticipated that any material state or local income or franchise
tax will be imposed on any REMIC, however if any material state or local income
or franchise tax may be imposed on a REMIC, it will be stated in the related
prospectus supplement.
To the extent permitted by then applicable laws, any prohibited
transactions tax, contributions tax, tax on "net income from foreclosure
property" or state or local income or franchise tax that may be imposed on the
REMIC will be borne by the related servicer, the subservicer, the REMIC
administrator, the trustee, or such other entity as stated in the applicable
prospectus supplement, in any case out of its own funds, provided that the
servicer, the subservicer, the REMIC administrator, the trustee, or other entity
as stated in the applicable prospectus supplement, as the case may be, has
sufficient assets to do so, and provided further that the tax arises out of a
breach of the servicer's, the subservicer's, the REMIC administrator's, the
trustee's, or other entity as stated in the applicable prospectus supplement,
obligations, as the case may be, under the related pooling and servicing
agreement or trust agreement and relating to compliance with applicable laws and
regulations. Any tax not borne by the servicer, the subservicer, the trustee, or
other entity as stated in the applicable prospectus supplement, will be payable
out of the related trust resulting in a reduction in amounts payable to holders
of the related REMIC certificates.
In the case of a FASIT, the holder of the ownership interest and not the
FASIT itself will be subject to any prohibited transaction taxes.
Termination. A REMIC will terminate immediately after the distribution date
following receipt by the REMIC of the final payment from the loans or on a sale
of the REMIC's assets following the adoption by the REMIC of a plan of complete
liquidation. The last distribution on a Regular Certificate will be treated as a
payment in retirement of a debt instrument. In the case of a REMIC Residual
Certificate, if the last distribution on the REMIC Residual Certificate is less
than the certificateholder's adjusted basis in the certificate, the
certificateholder should be treated as realizing a loss equal to the amount of
the difference, and the loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, a REMIC will be treated as a partnership
and REMIC residual certificateholders will be treated as partners. The servicer,
the subservicer, the REMIC administrator, or other entity as stated in the
applicable prospectus supplement, as applicable, will file REMIC federal income
tax returns on behalf of the related REMIC and will act as the "tax matters
person" for the REMIC in all respects, and may hold a nominal amount of REMIC
Residual Certificates.
As the tax matters person, the servicer, the subservicer, the REMIC
administrator, or other entity as stated in the applicable prospectus
supplement, as applicable, will have the authority to act on behalf of the REMIC
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and the REMIC residual certificateholders in connection with the administrative
and judicial review of items of income, deduction, gain or loss of the REMIC, as
well as the REMIC's classification. REMIC residual certificateholders will be
required to report the REMIC items consistently with their treatment on the
related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the servicer, the subservicer, the REMIC
administrator, or other entity as stated in the applicable prospectus
supplement, as applicable, as tax matters person, and the IRS concerning any
REMIC item.
Adjustments made to the REMIC tax return may require a REMIC residual
certificateholders to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from an audit, could
result in an audit of the certificateholder's return. No REMIC will be
registered as a tax shelter under Section 6111 of the Code because it is not
anticipated that any REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish to the
related REMIC, in a manner to be provided in Treasury regulations, the name and
address of that person and other information.
Reporting of interest income, including any original issue discount, on
Regular Certificates is required annually, and may be required more frequently
under Treasury regulations. These information reports are required to be sent to
individual holders of regular interests and the IRS; holders of Regular
Certificates that are corporations, trusts, securities dealers and other
non-individuals will be provided interest and original issue discount income
information and the information in the following paragraph on request in
accordance with the requirements of the applicable 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 must also comply with rules requiring a Regular Certificate issued
with original issue discount to disclose on its face information including the
amount of original issue discount and the issue date, and requiring that
information to be reported to the IRS. Reporting for the REMIC Residual
Certificates, including income, excess inclusions, investment expenses and
relevant information regarding qualification of the REMIC's assets will be made
as required under the Treasury regulations, typically on a quarterly basis.
As applicable, the Regular Certificate information reports will include a
statement of the adjusted issue price of the Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information required by regulations for computing the accrual of any market
discount. Because exact computation of the accrual of market discount on a
constant yield method requires information relating to the holder's purchase
price that the servicer or the subservicer will not have, the regulations only
require that information pertaining to the appropriate proportionate method of
accruing market discount be provided. See "--Taxation of Owners of REMIC and
FASIT Regular Certificates--Market Discount."
The responsibility for complying with the foregoing reporting rules will be
borne by the subservicer, the trustee, or the REMIC (or FASIT) administrator
named in the related prospectus supplement, as specified in the prospectus
supplement. Certificateholders may request any information with respect to the
returns described in Section 1.6049-7(e)(2) of the Treasury regulations.
Backup Withholding with Respect to Securities
Payments of interest and principal, as well as payments of proceeds from
the sale of securities, may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if recipients of payments fail to
furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from the
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against the recipient's federal income tax. Furthermore,
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 proper manner.
Foreign Investors in Regular Certificates
A regular certificateholder, other than a holder of a FASIT high-yield
regular interest, that is not a United States person and is not subject to
federal income tax as a result of any direct or indirect connection to the
United States in addition to its ownership of a Regular Certificate will not be
subject to United States federal income or withholding tax on a distribution on
a Regular Certificate, provided that the holder complies to the extent necessary
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with certain identification requirements, including delivery of a statement,
signed by the certificateholder under penalties of perjury, certifying that the
certificateholder is not a United States person and providing the name and
address of the certificateholder.
For these purposes, United States person means:
o a citizen or resident of the United States;
o a corporation, partnership or other entity created or organized in, or
under the laws of, the United States, any state thereof or the District of
Columbia, except, in the case of a partnership, to the extent provided in
regulations;
o an estate whose income is subject to United States federal income tax
regardless of its source; or
o a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust. To the extent prescribed in regulations by the Secretary of the
Treasury, which regulations have not yet been issued, a trust which was in
existence on August 20, 1996, other than a trust treated as owned by the
grantor under subpart E of part I of subchapter J of chapter 1 of the Code,
and which was treated as a United States person on August 19, 1996, may
elect to continue to be treated as a United States person regardless of the
previous sentence.
It is possible that the IRS may assert that the foregoing tax exemption should
not apply to a REMIC Regular Certificate held by a REMIC residual
certificateholder that owns directly or indirectly a 10% or greater interest in
the REMIC Residual Certificates or a FASIT Regular Certificate held by a person
that owns directly or indirectly a 10% or greater interest in the holder of the
ownership interest in the FASIT. Further, the Proposed FASIT Regulations treat
all interest received by a foreign holder of a FASIT regular interest as
ineligible for the foregoing exemption from withholding tax if the FASIT
receives or accrues interest from a United States resident in which the foreign
holder has a 10% or more ownership interest or as to which the foreign holder is
a controlled foreign corporation to which the United States resident is related.
If the holder does not qualify for exemption, distributions of interest,
including distributions of accrued original issue discount, to the holder may be
subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on the United
States shareholder's allocable portion of the interest income received by the
controlled foreign corporation.
Further, it appears that a Regular Certificate would not be included in the
estate of a non-resident alien individual and would not be subject to United
States estate taxes. However, certificateholders who are non-resident alien
individuals should consult their tax advisors concerning this question.
Generally, transfers of REMIC Residual Certificates and FASIT high-yield
regular interests to investors that are not United States persons will be
prohibited under the related pooling and servicing agreement or trust agreement,
however, if so stated in the applicable prospectus supplement transfers of REMIC
Residual Certificates and FASIT high-yield regular interests to investors that
are not United States persons will be allowed.
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New Withholding Regulations. The Treasury Department has issued new
regulations which make some 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 be effective for most payments made after December 31, 2000.
The new regulations contain transaction rules applicable to some payments made
after December 31, 2000. Prospective investors are urged to consult their tax
advisors regarding the new regulations.
Non-REMIC Trust Funds
The discussion under this heading applies only to a series with respect to
which a REMIC or FASIT election is not made.
Characterization of the Trust Fund. Upon the issuance of any series with
respect to which no REMIC or FASIT election is made and which is described in
the related prospectus supplement as a grantor trust, Orrick, Herrington &
Sutcliffe LLP, if it is counsel to the depositor, will deliver its opinion that,
with respect to that series of securities, under then existing law and assuming
compliance by the depositor, the servicer and the trustee of the related series
with all of the provisions of the related pooling and servicing agreement, and
the agreement or agreements, if any, providing for a credit facility or a
liquidity facility, together with any agreement documenting the arrangement
through which a credit facility or a liquidity facility is held outside the
related trust fund, and the agreement or agreements with any underwriter, for
federal income tax purposes, the trust fund will be classified as a grantor
trust and not as a corporation or an association which is taxable as a
corporation (or publicly traded partnership treated as a corporation) and the
grantor trust certificates will be treated as equity in that trust fund.
Accordingly, each grantor trust certificateholder will be treated for federal
income tax purposes as the owner of an undivided equity interest in the assets
included in that trust fund. Further, if with respect to any series of
securities 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. As
further described below, each grantor trust certificateholder must therefore
report on its federal income tax return the gross income from the portion of the
assets of the related trust fund that is allocable to the related grantor trust
certificate and may deduct its share of the expenses paid by the trust fund that
are allocable to that grantor trust certificate, at the same time and to the
same extent as those items would be reported by that holder if it had purchased
and held directly such interest in the assets of the related trust fund and
received directly its share of the payments on the assets of the related trust
fund and paid directly its share of the expenses paid by the trust fund when
those amounts are received and paid by the trust fund. A grantor trust
certificateholder who is an individual will be allowed deductions for those
expenses only to the extent that the sum of those expenses and certain other of
the grantor trust certificateholder's miscellaneous itemized deductions exceeds
2% of that individual's adjusted gross income. In addition, the amount of
itemized deductions otherwise allowable for the taxable year of an individual
whose adjusted gross income exceeds certain thresholds will be reduced. It
appears that expenses paid by the trust fund, and the gross income used to pay
those expenses, should be allocated among the classes of grantor trust
certificates in proportion to their respective fair market values at issuance,
but because other reasonable methods of allocation exist and the allocation of
those items has not been the subject of a controlling court decision, regulation
or ruling by the IRS, no definitive advice concerning the allocation of those
items can be given.
Under current IRS interpretations of applicable Treasury regulations, the
depositor would be able to sell or otherwise dispose of any subordinated grantor
trust certificates. Accordingly, the depositor expects to offer subordinated
grantor trust certificates for sale to investors. In general, subordination
should not affect the federal income tax treatment of either the subordinated or
senior certificates, and holders of subordinated classes of certificates should
be able to recognize any losses allocated to the related class when and if
losses are realized.
To the extent that any of the mortgage loans, contracts or mortgage loans
underlying the Mortgage Certificates included in a trust fund were originated on
or after March 21, 1984 and under circumstances giving rise to original issue
discount, grantor trust certificateholders will be required to report annually
an amount of additional interest income attributable to the discount in those
mortgage loans, contracts or mortgage loans underlying the Mortgage Certificates
prior to receipt of cash related to the discount. See the discussion above under
"Taxation of Owners of REMIC and FASIT Regular Certificates--Original Issue
Discount." Similarly, Code provisions concerning market discount and amortizable
premium will apply to the mortgage loans, contracts or mortgage loans underlying
the Mortgage Certificates included in a trust fund to the extent that the
mortgage loans, contracts or
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mortgage loans underlying the Mortgage Certificates were originated after July
18, 1984 and September 27, 1985, respectively. See the discussions above under
"Taxation of Owners of REMIC and FASIT Regular Certificates--Market Discount"
and "--Premium."
Tax Status of Grantor Trust Certificates. In general, the grantor trust
certificates, other than premium grantor trust certificates as discussed below,
will be:
o "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code; and
o assets described in Section 7701(a)(19)(C) of the Code to the extent the
trust fund's assets qualify under those sections of the Code.
Any amount includible in gross income with respect to the grantor trust
certificates will be treated as "interest on obligations secured by mortgages on
real property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code to the extent the income on the trust fund's assets
qualifies under that Code section. The IRS has ruled that obligations secured by
permanently installed mobile home units qualify as "real estate assets" under
Section 856(c)(4)(A) of the Code. Assets described in Section 7701(a)(19)(C) of
the Code include loans secured by mobile homes not used on a transient basis.
However, whether manufactured homes would be viewed as permanently installed for
purposes of Section 856 of the Code would depend on the facts and circumstances
of each case, because the IRS rulings on this issue do not provide facts on
which taxpayers can rely to achieve treatment as "real estate assets". No
assurance can be given that the manufactured homes will be so treated. A "real
estate investment trust," or REIT, will not be able to treat that portion of its
investment in certificates that represents ownership of contracts on
manufactured homes that are not treated as permanently attached as a "real
estate asset" for REIT qualification purposes. In this regard, investors should
note that generally, most contracts prohibit the related obligor from
permanently attaching the related manufactured home to its site if it were not
so attached on the date of the contract. If so specified in the related
prospectus supplement, contracts included in the related trust fund may permit
the obligor to permanently attach the related manufactured home to its site even
if not attached at the date of the contract. Grantor trust certificates that
represent the right solely to interest payments on contracts and grantor trust
certificates that are issued at prices that substantially exceed the portion of
the principal amount of the contracts allocable to those grantor trust
certificates, both types of non-REMIC certificates referred to as premium
grantor trust certificates, should qualify under the foregoing sections of the
Code to the same extent as other certificates, but the matter is not free from
doubt. Prospective purchasers of certificates who may be affected by the
foregoing Code provisions should consult their tax advisors regarding the status
of the certificates under those provisions.
Taxation of Grantor Trust Certificates Under Stripped Bond Rules. Certain
classes of grantor trust certificates may be subject to the stripped bond rules
of Section 1286 of the Code. In general, a grantor trust certificate will be
subject to the stripped bond rules where there has been a separation of
ownership of the right to receive some or all of the principal payments on a
mortgage loan, contract or mortgage loan underlying the Mortgage Certificates
from ownership of the right to receive some or all of the related interest
payments. Grantor trust certificates will constitute stripped certificates and
will be subject to these rules under various circumstances, including the
following:
(1) if any servicing compensation is deemed to exceed a reasonable amount;
(2) if the depositor or any other party retains a retained yield with
respect to the assets included in a trust fund;
(3) if two or more classes of grantor trust certificates are issued
representing the right to non-pro rata percentages of the interest or
principal payments on the assets included in a trust fund; or
(4) if grantor trust certificates are issued which represent the right to
interest only payments or principal only payments.
The grantor trust certificates will either (a) be subject to the "stripped bond"
rules of Section 1286 of the Code or, if the application of those rules to a
particular series of grantor trust certificates is uncertain, the trust fund
will take the position that they apply or (b) be subject to some other section
of the Code as described in the related prospectus supplement. There is some
uncertainty as to how Section 1286 of the Code will be applied to securities
such as the
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grantor trust certificates. Investors should consult their own tax advisors
regarding the treatment of the grantor trust certificates under the stripped
bond rules.
Although the matter is not entirely clear and alternative characterizations
could be imposed, it appears that each stripped grantor trust certificate should
be considered to be a single debt instrument issued on the day it is purchased
for purposes of calculating original issue discount. Thus, in each month the
holder of a grantor trust certificate, whether a cash or accrual method
taxpayer, will be required to report interest income from the grantor trust
certificate equal to the income that accrues on the grantor trust certificate in
that month, calculated, in accordance with the rules of the Code relating to
original issue discount, under a constant yield method. In general, the amount
of the income reported in any month would equal the product of the related
holder's adjusted basis in the grantor trust certificate at the beginning of
that month (see "--Sales of Certificates" below) and the yield of such grantor
trust certificate to that holder. The yield would be the monthly rate, assuming
monthly compounding, determined as of the date of purchase that, if used in
discounting the remaining payments on the portion of the assets in the related
trust fund that is allocable to that grantor trust certificate, would cause the
present value of those payments to equal the price at which the holder purchased
the grantor trust certificate.
With respect to certain categories of debt instruments, the Code requires
the use of a reasonable prepayment assumption in accruing original issue
discount and provides a method of adjusting those accruals to account for
differences between the assumed prepayment rate and the actual rate. These rules
apply to "regular interests" in a REMIC and are described under "--Taxation of
Owners of REMIC and FASIT Regular Certificates--Original Issue Discount."
Regulations could be adopted applying these rules to the grantor trust
certificates. Although the matter is not free from doubt, it appears that the
Taxpayer Relief Act of 1997 has expanded the requirement of the use of a
reasonable prepayment assumption to instruments such as the grantor trust
certificates. In the absence of regulations interpreting the application of this
requirement to those instruments particularly where those instruments are
subject to the stripped bond rules, it is uncertain whether the assumed
prepayment rate would be determined based on conditions at the time of the first
sale of the grantor trust certificates or, with respect to any holder, at the
time of purchase of the grantor trust certificate by that holder. Finally, if
these rules were applied to the grantor trust certificates, and the principles
used in calculating the amount of original issue discount that accrues in any
month would produce a negative amount of original issue discount, it is unclear
when the loss would be allowed.
In the case of a grantor trust certificate acquired at a price equal to the
principal amount of the assets in the related trust fund allocable to that
grantor trust certificate, the use of a reasonable prepayment assumption would
not have any significant effect on the yield used in calculating accruals of
interest income. In the case, however, of a grantor trust certificate acquired
at a discount or premium, that is, at a price less than or greater than its
principal amount, respectively, the use of a reasonable prepayment assumption
would increase or decrease the yield, and thus accelerate or decelerate the
reporting of interest income, respectively.
If the yield used by the holder of a grantor trust certificate in
calculating the amount of interest that accrues in any month is determined based
on scheduled payments on the mortgage loans, contracts, or mortgage loans
underlying the Mortgage Certificates included in the related trust fund, that
is, without using a reasonable prepayment assumption, and that grantor trust
certificate was acquired at a discount or premium, then the holder generally
will recognize a net amount of ordinary income or loss if a mortgage loan,
contract, or mortgage loan underlying the Mortgage Certificates prepays in full
in an amount equal to the difference between the portion of the prepaid
principal amount of the mortgage loan, contract, or mortgage loan underlying the
Mortgage Certificates that is allocable to the grantor trust certificate and the
portion of the adjusted basis of the grantor trust certificate, see "--Sales of
Certificates" below, that is allocable to the mortgage loan, contract, or
mortgage loan underlying the Mortgage Certificates. In general, basis would be
allocated among the mortgage loans, contracts, or mortgage loans underlying the
Mortgage Certificates in proportion to their respective principal balances
determined immediately before the prepayment. It is not clear whether any other
adjustments would be required or permitted to take account of prepayments of the
mortgage loans, contracts, or mortgage loans underlying the Mortgage
Certificates.
Solely for purposes of reporting income on the grantor trust certificates
to the IRS and to certain holders, as required under the Code, it is anticipated
that, unless provided otherwise in the related prospectus supplement, the yield
of the grantor trust certificates will be calculated based on:
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o a representative initial offering price of the grantor trust
certificates to the public; and
o a reasonable assumed prepayment rate, which will be the rate used in
pricing the initial offering of the grantor trust certificates.
The yield may differ significantly from the yield to any particular holder that
would be used in calculating the interest income of that holder. No
representation is made that the mortgage loans, contracts, or mortgage loans
underlying the Mortgage Certificates will in fact prepay at the assumed
prepayment rate or at any other rate.
Sales of Certificates. Upon the sale or exchange of a grantor trust
certificate, a grantor trust certificateholder will recognize gain or loss equal
to the difference between the amount realized in the sale and its aggregate
adjusted basis in the assets included in the related trust fund represented by
the grantor trust certificate. Generally, the aggregate adjusted basis will
equal the grantor trust certificateholder's cost for the grantor trust
certificate increased by the amount of any previously reported gain with respect
to the grantor trust certificate and decreased by the amount of any losses
previously reported with respect to the grantor trust certificate and the amount
of any distributions received on that grantor trust certificate. Except as
provided above with respect to the original issue discount and market discount
rules, any gain or loss would be capital gain or loss if the grantor trust
certificate was held as a capital asset.
Foreign Investors. Generally, interest or original issue discount paid to
or accruing for the benefit of a grantor trust certificateholder who is not a
United States person will be treated as "portfolio interest" and therefore will
be exempt from the 30% withholding tax. That grantor trust certificateholder
will be entitled to receive interest payments and original issue discount on the
grantor trust certificates free of United States federal income tax, but only to
the extent the mortgage loans, contracts, or mortgage loans underlying the
Mortgage Certificates included in the related trust fund were originated after
July 18, 1984 and provided that the grantor trust certificateholder periodically
provides the trustee, or other person who would otherwise be required to
withhold tax, with a statement certifying under penalty of perjury that the
grantor trust certificateholder is not a United States person and providing the
name and address of the grantor trust certificateholder. For additional
information concerning interest or original issue discount paid to a non-United
States person and the treatment of a sale or exchange of a grantor trust
certificate by a non-United States person, which will generally have the same
tax consequences as the sale of a Regular Certificate, see the discussion above
in "Foreign Investors in Regular Certificates."
State and Other Tax Consequences
In addition to the federal income tax consequences described under
"Material Federal Income Tax Consequences," potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of the certificates offered hereunder. State tax law may differ
substantially from the corresponding federal tax law, and the discussion above
does not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their tax advisors
with respect to the various tax consequences of investments in the certificates
offered hereby.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended, or ERISA,
imposes certain restrictions on ERISA Plans and on those persons who are ERISA
fiduciaries with respect to the assets of those 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 those plans may be
invested in the certificates subject to the provisions of applicable federal and
state law and, in the case of any 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.
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In addition to imposing general fiduciary standards, ERISA and Section 4975
of the Code prohibit a broad range of transactions involving assets of Plans and
Parties in Interest and imposes taxes and/or other penalties on any such
transaction 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, regulatory 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.
A number of prohibited transaction class exemptions issued by the DOL might
apply to exempt a prohibited transaction arising by virtue of the purchase of a
certificate by or on behalf of, or with "plan assets" of a Plan, 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.
Plan Assets Regulation
The United States Department of Labor, or DOL, has issued the Plan Assets
Regulation. Unless the Plan Assets Regulation provides an exception from this
"plan asset" treatment, and if that exception 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. As a result, transactions involving
the assets of the trust fund will be subject to the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code. The prohibited transaction exemptions identified above
would not generally apply to prohibited transactions arising in transactions
involving "plan assets" held in the trust fund.
The Plan Assets Regulation provides an exception 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 that person, are held by "benefit plan
investors" --e.g., Plans, governmental, foreign 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.
Underwriter's PTE
Credit Suisse First Boston Corporation, or First Boston, is the recipient
of an Underwriter's PTE, which may accord protection from violations under
Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans that
acquire 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 the recipient underwriter or any of its
affiliates is either the sole underwriter, the manager or co-manager
or a selling or placement agent. The corpus of a trust to which the
Underwriter's PTE applies may consist of:
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(1) 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 that real property; or
(B) shares issued by a cooperative housing association;
(2) secured consumer receivables that bear interest or are
purchased at a discount;
(3) secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities;
and
(4) "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 assets of a particular trust fund
have been included in other investment pools;
(b) certificates evidencing interests in those 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 the acquisition, the class of certificates acquired by
the Plan has received a rating in one of the rating categories
referred to in condition (b)(1) above;
(d) the trustee is not an affiliate of any member of the Restricted
Group;
(e) the applicable series of certificates evidences ownership in assets
of a particular trust fund 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 or, if certain conditions specified in the
applicable prospectus supplement are satisfied, a Pre-Funding
Account, but may not include a swap agreement;
(f) the class of certificates acquired by the Plan is not subordinated to
other classes of certificates of that Trust with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying assets of the related trust fund;
(g) the Plan is an "accredited investor," as defined in Rule 501(a)(1)
of Regulation D under the Securities Act of 1933, as amended;
(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;
(i) the sum of all payments made to and retained by the related
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 assets of the trust fund to the trust fund represents not more
than the fair market value of those assets; and
(j) the sum of all payments made to and retained by the servicer and all
subservicers represents not more than reasonable compensation for the
related subservicers' services under the pooling and servicing
agreement and reimbursement of the related subservicers' reasonable
expenses in connection herewith.
Each series of certificates generally is expected to satisfy condition (a)
above. If stated in the applicable prospectus supplement, the related series of
certificates will not satisfy condition (a) above. If a series includes a class
of subordinated certificates, that class will not satisfy condition (f) above.
Additionally, this prospectus permits the
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issuance of certificates rated in one of the four highest rating categories, so
a particular class of a series may not satisfy condition (c) above.
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 the
certificates is a mortgagor or obligor with respect to more than 5% of the fair
market value of the obligations constituting the assets of the related trust
fund or an affiliate of that person, unless:
o 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 fund is acquired by persons independent of the
Restricted Group;
o 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;
o immediately after the 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 interests in trusts sponsored or containing assets sold or
serviced by the same entity; and
o the Plan is not sponsored by any of one the Restricted Group.
Whether the conditions in the Underwriter's PTE will be satisfied as to the
certificates of any particular class will depend upon the relevant facts and
circumstances existing at the time the Plan acquires the certificates. Any Plan
investor who proposes to use "plan assets" of a Plan to acquire certificates in
reliance upon the Underwriter's PTE should determine whether the Plan satisfies
all of the applicable conditions and consult with its counsel regarding other
factors that may affect the applicability of the Underwriter's PTE.
General 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 that Plan
might be viewed as giving rise to a prohibited transaction under ERISA and
Section 4975 of the Code, unless 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:
o whether the Underwriter's PTE is applicable and adequate exemptive
relief is available;
o whether any other prohibited transaction exemption, if required, is
available under ERISA and Section 4975 of the Code; or
o whether an exception 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 particular certificate.
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.
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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. The final regulations issued under Section
401(c) of ERISA, or the 401(c) Regulations, provide guidance for the purpose of
determining, in cases where insurance policies or annuity contracts supported by
an insurer's general account were issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute "plan assets."
Pursuant to the 401(c) Regulations, when a Plan acquires one of these policies
or contracts, the Plan's assets include the policy or contract, but do not
include any of the underlying assets of the insurer's general account if the
requirements of the 401(c) Regulations are satisfied. The 401(c) Regulations
generally become effective on July 5, 2001, although earlier effective dates
apply with respect to some of the 401(c) Regulation's requirements. The 401(c)
Regulations generally provide that, until July 5, 2001, 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," except in the following three circumstances:
o an action brought by the Secretary of Labor for certain breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law;
o the application of any federal criminal law; or
o a civil action commenced before November 7, 1995.
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 July 5, 2001.
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 those certificates.
Legal Investment
The applicable prospectus supplement for a series of certificates will
specify whether a class or subclass of those 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,
as amended, or SMMEA. That 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 those entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for 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,
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and not SMMEA. Accordingly, the investors affected by the legislation will be
authorized to invest in certificates qualifying as "mortgage related securities"
only to the extent provided in that 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 those securities, and national
banks may purchase those 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 any 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, or the OTS, has issued Thrift Bulletin
13a, entitled "Management of Pass-Through Rate Risk, Investment Securities, and
Derivatives Activities," or "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:
o conduct a pre-purchase portfolio sensitivity analysis for any
"significant transaction" involving securities or financial
derivatives; and
o 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 certificates offered by
this prospectus and the accompanying prospectus supplement 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 those securities by insolvent, undercapitalized or
otherwise "troubled" institutions. According to the bulletin, these "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 its 1998 Policy Statement. 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, or 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 those authorities before purchasing any
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certificates, as certain series, classes or subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under those 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 certificates offered by this prospectus and the accompanying
prospectus supplement constitute legal investments for them.
Plan of Distribution
Each series of certificates offered hereby and by means of the related
prospectus supplement 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 prospectus supplement with respect to each series of
certificates will set forth the terms of the offering of that series of
certificates and each subclass within that 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 the certificates will be
determined.
Generally, the underwriters will be obligated to purchase all of the
certificates of a series described in the prospectus supplement with respect to
that series if any certificates are purchased. The certificates may be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. If stated in
the applicable prospectus supplement, the underwriters will not be obligated to
purchase all of the certificates of a series described in the prospectus
supplement with respect to that series if any certificates are purchased.
If stated 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 those 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 those institutions must be
approved by the depositor. The obligation of any purchaser under any 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 that purchaser is subject. The underwriters and other
agents will not have any responsibility in respect of the validity or
performance of those contracts.
The depositor may also sell the certificates offered by means of this
prospectus and 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 those transactions by selling certificates to or
through dealers, and those 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.
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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 that 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 certificates 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 or by such other counsel as may
be identified in the related prospectus supplement.
Financial Information
The depositor has determined that its financial statements are not material
to the offering made hereby. The certificates do not represent an interest in or
an obligation of the depositor. The depositor's only obligations for a series of
certificates will be to repurchase certain loans on any breach of limited
representations and warranties made by the depositor, or as otherwise provided
in the applicable prospectus supplement.
Additional Information
The depositor has filed the registration statement with the Securities and
Exchange Commission. The depositor is also subject to some of the information
requirements of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and, accordingly, will file reports thereunder with the Securities and
Exchange Commission. The registration statement and the exhibits thereto, and
reports and other information filed by the depositor under the Exchange Act can
be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at certain of its Regional Offices located as follows: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048 and electronically through the Securities and
Exchange Commission's Electronic Data Gathering, Analysis and Retrieval System
at the Securities and Exchange Commission's Web Site (http://www.sec.gov).
Reports to Certificateholders
Monthly reports which contain information concerning the trust fund for a
series of certificates will be sent by or on behalf of the servicer, the
subservicer or the trustee to each holder of record of the certificates of the
related series. See "Description of the Certificates--Reports to
Certificateholders." Reports forwarded to holders will contain financial
information that has not been examined or reported on by an independent
certified public accountant. The depositor will file with the Securities and
Exchange Commission those periodic reports relating to the trust fund for a
series of certificates as are required under the Exchange Act.
Incorporation of Certain Information by Reference
The SEC allows the depositor to "incorporate by reference" the information
filed with the SEC by the depositor, under Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act, that relates to the trust fund for the certificates. This
means that the depositor can disclose important information to any investor by
referring the investor to these documents. The information incorporated by
reference is an important part of this prospectus, and information filed by the
depositor with the SEC that relates to the trust fund for any series of
certificates will automatically update and supersede this information. Documents
that may be incorporated by reference for a particular series of certificates
include an insurer's financials, a certificate policy, mortgage pool policy,
computational materials, collateral term sheets, the related pooling and
servicing agreement and amendments
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thereto, other documents on Form 8-K and Section 13(a), 13(c), 14 or 15(d) of
Exchange Act as may be required in connection with the related trust fund.
The depositor will provide or cause to be provided without charge to each
person to whom this prospectus and accompanying prospectus supplement is
delivered in connection with the offering of one or more classes of the related
series of certificates, on written or oral request of that person, a copy of any
or all reports incorporated in this prospectus by reference, in each case to the
extent the reports relate to one or more of the classes of the related series of
certificates, other than the exhibits to those documents, unless the exhibits
are specifically incorporated by reference in the documents. Requests should be
directed in writing to Credit Suisse First Boston Mortgage Securities Corp., 11
Madison Avenue, New York, New York 10010, Attention: Treasurer.
Ratings
It is a condition to the issuance of the certificates of each series
offered hereby that at the time of issuance they shall have been rated in one of
the four highest rating categories by the nationally recognized statistical
rating agency or agencies specified in the related prospectus supplement.
Ratings on conduit mortgage and manufactured housing contract pass-through
certificates address the likelihood of the receipt by certificateholders of
their allocable share of principal and interest on the underlying mortgage or
manufactured housing contract assets. These ratings address:
o structural and legal aspects associated with the certificates;
o the extent to which the payment stream on the underlying assets is
adequate to make payments required by the certificates; and
o the credit quality of the credit enhancer or guarantor, if any.
Ratings on the certificates do not, however, constitute a statement
regarding:
o the likelihood of principal prepayments by mortgagors or obligors;
o the degree by which prepayments made by mortgagors or obligors might
differ from those originally anticipated; or
o whether the yield originally anticipated by investors of any series of
certificates may be adversely affected as a result of those
prepayments.
As a result, investors of any series of certificates might suffer a lower
than anticipated yield.
A rating on any or all of the certificates of any series by certain other
rating agencies, if assigned at all, may be lower than the rating or ratings
assigned to the certificates by the rating agency or agencies specified in the
related prospectus supplement. A security rating is not a recommendation to buy,
sell or hold certificates and may be subject to revision or withdrawal at any
time by the assigning rating agency. Each security rating should be evaluated
independently of any other security rating.
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Glossary
Below are abbreviated definitions of significant capitalized terms used in
this prospectus and in the accompanying prospectus supplement. The pooling and
servicing agreement for the related series may contain more complete definitions
of the terms used in this prospectus and in the prospectus supplement and
reference should be made to the pooling and servicing agreement for the related
series for a more complete understanding of all such terms.
"1998 Policy Statement" means the revised supervisory statement listing the
guidelines for investments in "high risk mortgage securities," and adopted by
the Federal Reserve Board, the Office of the Comptroller of the Currency, the
FDIC, the National Credit Union Administration, or NCUA and the OTS with an
effective date of May 26, 1998.
"401(c) Regulations" means the regulations the DOL is required to issue
under Section 401(c) of ERISA, which were published in proposed form on December
22, 1997.
"Accrual Distribution Amount" means the amount of the interest, if any,
that has accrued but is not yet payable on the Compound Interest Certificates of
a particular series since the prior distribution date, or since the date
specified in the related prospectus supplement in the case of the first
distribution date.
"Advance" means as to a particular mortgage loan, contract or mortgage loan
underlying a Mortgage Certificate and any distribution date, an amount equal to
the scheduled payments of principal and interest at the applicable mortgage rate
or annual percentage rate, as applicable, which were delinquent as of the close
of business on the business day preceding the Determination Date on the mortgage
loan, contract or mortgage loan underlying a Mortgage Certificate.
"Alternative Credit Support" means additional or alternative forms of
credit support, including a guarantee or surety bond, acceptable to the related
Rating Agency.
"Approved Sale" means, with respect to a series which utilizes a pool
insurance policy:
o the sale of a mortgaged property acquired because of a default by the
mortgagor to which the related pool insurer has given prior approval;
o the foreclosure or trustee's sale of a mortgaged property at a price
exceeding the maximum amount specified by the related pool insurer;
o the acquisition of the mortgaged property under the primary insurance
policy by the primary mortgage insurer; or
o the acquisition of the mortgaged property by the pool insurer.
"Buy-Down Fund" means with respect to any series, a custodial account
established by the related subservicer, subservicer or trustee as described in
the related prospectus supplement, which contains amounts deposited by the
depositor, the seller of the related mortgaged property, the subservicer or
another source to cover shortfalls in payments created by Buy-Down Loans
included in the related mortgage pool.
"Buy-Down Loans" means single family mortgage loans pursuant to which the
monthly payments made by the related mortgagor during the early years of that
mortgage loan will be less than the scheduled monthly payments on that mortgage
loan.
"Certificate Account" means, with respect to each series, the separate
account or accounts in the name of the trustee, which must be maintained with a
depository institution and in a manner acceptable to the related Rating Agency.
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"Certificate Principal Balance" means, for any class of certificates, and
as of any distribution date, the initial principal balance of that class of
certificates, less all amounts previously distributed to holders of that class
of certificates, as applicable, on account of principal.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compound Interest Certificates" means certificates that accrue interest
during certain periods that is not paid to the holder but is added to the
Certificate Principal Balance of the certificate.
"Cooperative" means a corporation entitled to be treated as a housing
cooperative under federal tax law.
"Cooperative Dwelling" means a specific dwelling unit in a building owned
by a Cooperative.
"Cooperative Loan" means a cooperative apartment loan evidenced by a note
secured a by security interest in shares issued by a Cooperative and in the
related proprietary lease or occupancy agreement granting exclusive rights to
occupy a Cooperative Dwelling.
"Custodial Account" means, with respect to each series, the separate
account or accounts in the name of the trustee, meeting the requirements set
forth in this prospectus for the Certificate Account.
"Cut-off Date" means, the date specified in the related prospectus
supplement from which principal and interest payments on the assets of the trust
fund related to a series are transferred to that trust fund.
"Determination Date" means, with respect to each series and each
distribution date, the 20th day, or if the 20th day is not a business day, the
next preceding business day, of the month of in which the distribution date
occurs, or some other day if stated in the related prospectus supplement.
"Disqualified Organization" means:
o the United States, any state or political subdivision thereof, any
foreign government, any international organization, or any agency or
instrumentality of the foregoing, but does not include
instrumentalities described in Section 168(h)(2)(D) of the Code;
o any organization, other than a cooperative described in Section 521 of
the Code, that is exempt from federal income tax, unless it is subject
to the tax imposed by Section 511 of the Code; or
o any organization described in Section 1381(a)(2)(C) of the Code.
"Due Period" means, with respect to any distribution date, the calendar
month preceding the month of that distribution or some other period as defined
in the related prospectus supplement.
"Eligible Investments" means any of the following, in each case as
determined at the time of the investment or contractual commitment to invest in
that Eligible Investment:
o 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;
o 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 in that
Eligible Investment, the certificates of deposit or short-term
deposits, if any, or long-term unsecured debt obligations, other than
obligations whose rating is based on collateral or on the credit of a
Person other than such institution or trust company, of that
depositary institution or trust company has a credit rating in the
highest rating category from the related Rating Agency;
o certificates of deposit having a rating in the highest rating from the
related Rating Agency;
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o investments in money market funds which are rated in the highest
category from the related Rating Agency or which are composed of
instruments or other investments which are rated in the highest
category from the related Rating Agency;
o commercial paper, having original or remaining maturities of no more
than 270 days, having credit rating in the highest rating category
from the related Rating Agency;
o repurchase agreements involving any Eligible Investment described in
any of the first three bullet points above, so long as the other party
to the repurchase agreement has its long-term unsecured debt
obligations rated in the highest rating category from the related
Rating Agency;
o any other investment with respect to which the related Rating Agency
indicates will not result in the reduction or withdrawal of its then
existing rating of the certificates; or
o 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.
"ERISA Plans" means employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, or ERISA.
"FASIT" means a "financial asset securitization trust" as described in
section 860L of the Code.
"FASIT Regular Certificates" means certificates or notes representing
ownership of one or more regular interests in a FASIT.
"FHA Loans" means mortgage loans or contracts insured by the Federal
Housing Administration.
"GPM Fund" means with respect to any series, a custodial account
established by the related servicer, subservicer or trustee as described in the
related prospectus supplement, which contains amounts deposited by the depositor
or another source to cover shortfalls in payments created by GPM Loans included
in the related mortgage pool.
"GPM Loans" means single family mortgage loans pursuant to which the
monthly payments by the related mortgagor during the early years of the related
Mortgage Note are less than the amount of interest that would otherwise be
payable thereon, with that interest paid from amounts on deposit in a GPM Fund.
"High Cost Loans" means mortgage loans, contracts or mortgage loans
underlying Mortgage Certificates that are subject to the special rules,
disclosure requirements and other provisions that were added to the federal
Truth-in-Lending Act by the Homeownership and Equity Protection Act of 1994,
which were originated on or after October 1, 1995, are not loans made to finance
the purchase of the mortgaged property and have mortgage rates or annual
percentage rates, as applicable, or origination costs in excess of prescribed
levels.
"Initial Deposit" means, with respect to each series in which a reserve
fund has been established, the deposit of cash into the reserve fund in the
amount specified in the related prospectus supplement.
"Insurance Proceeds" means, with respect to each series, proceeds from any
special hazard insurance policy, primary mortgage insurance policy, FHA
insurance, VA guarantee, mortgagor bankruptcy bond or pool insurance policy with
respect to the related 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 those proceeds are not applied to the restoration
of the related property or released to the mortgagor in accordance with
customary servicing procedures.
"Issue Premium" means with respect to a class of REMIC Regular
Certificates, the issue price in excess of the stated redemption price of that
class.
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"Liquidating Loan" means:
o each mortgage loan with respect to which foreclosure proceedings have
been commenced and the mortgagor's right of reinstatement has expired;
o each mortgage loan with respect to which the related subservicer or
the servicer has agreed to accept a deed to the property in lieu of
foreclosure;
o 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
o each contract with respect to which repossession proceedings have been
commenced.
"Liquidation Proceeds" means, with respect to each series, all cash amounts
received and retained in connection with the liquidation of defaulted mortgage
loans, by foreclosure or otherwise, other than Insurance Proceeds, payments
under any applicable financial guaranty insurance policy, surety bond or letter
of credit or proceeds of any Alternative Credit Support, if any, with respect to
the related series.
"Mixed-Use Mortgage Loans" means mortgage loans secured by Mixed-Use
Property.
"Mixed-Use Property" means mixed residential and commercial properties.
"Mortgage Certificates" means certain conventional mortgage pass-through
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.
"Mortgage Note" means with respect to each mortgage loan, the promissory
note secured by a first or more junior mortgage or deed of trust or other
similar security instrument creating a first or more junior lien, as applicable,
on the related mortgaged property.
"Parties in Interest" means certain persons who have certain specified
relationships to a Plan, as described in Section 3(14) of ERISA and Section 4975
of the Code.
"Pass-Through Entity" means any regulated investment company, real estate
investment trust, trust, partnership or other entities described in Section
860E(e)(6) of the Code. In addition, a person holding an interest in a
Pass-Through Entity as a nominee for another person will, for that interest, be
treated as a Pass-Through Entity.
"Pass-Through Rate" means with respect to each class of certificates in a
series, the rate of interest borne by that class as described in the related
prospectus supplement.
"Percentage Interest" means, as to any certificate of any class, the
percentage interest evidenced thereby in distributions required to be made on
the certificates in that class, which percentage interest will be based on the
original principal balance or notional amount of the certificates of that class.
"Permitted Investments" means United States government securities and other
investment grade obligations specified in the related pooling and servicing
agreement.
"Plan Assets Regulation" means the final regulation made by the United
States Department of Labor, or DOL, 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.
"Plans" means ERISA Plans and other plans subject to Section 4975 of the
Code.
"Rating Agency" means, collectively, the nationally recognized statistical
rating agency or agencies rating the related series of certificates.
107
<PAGE>
"Realized Loss" means any shortfall between the unpaid principal balance
and accrued interest on a mortgage loan, after application of all Liquidation
Proceeds, Insurance Proceeds and other amounts received in connection with the
liquidation of that mortgage loan, net of reimbursable costs and expenses,
including Advances.
"Record Date" means, with respect to each distribution date, the close of
business on the last day of the calendar month preceding the related
distribution date, or such other date as specified in the related prospectus
supplement.
"Regular Certificate" means a REMIC Regular Certificate or a FASIT Regular
Certificate, as applicable.
"REMIC" means a "real estate mortgage investment conduit" as defined in
the Code.
"REMIC Regular Certificates" means certificates or notes representing
ownership of one or more regular interests in a REMIC.
"Required Reserve" means the amount specified in the prospectus supplement
for a series of certificates which utilizes a reserve fund, to be deposited into
the reserve fund.
"Residual Certificates" means one or more classes or subclasses of
certificates of a series that evidence a residual interest in the related trust
fund.
"Restricted Group" means the depositor, any underwriter, the trustee, any
subservicer, 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 assets of the related trust fund on the date of the initial
issuance of certificates, or any of their affiliates.
"Servicing Account" means the separate account or accounts established by
each subservicer for the deposit of amounts received in respect of the mortgage
loans, contracts or mortgage loans underlying the Mortgage Certificates,
serviced by that subservicer.
"Simple Interest Loans" means mortgage loans that 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 the payment is
received and the balance thereof is applied to principal.
"Subordinated Amount" means the amount of subordination with respect to
subordinated certificates stated in the prospectus supplement relating to a
series of certificates that contains subordinate certificates.
"Trust Assets" means with respect to each series of certificates, the
mortgage loans, contracts or Mortgage Certificates conveyed to the related trust
fund.
"Underwriter's PTE" means the final prohibited transaction exemption issued
to First Boston, 54 Fed. Reg. 42597 (Oct. 17, 1989), as amended by PTE 97-34, 62
Fed. Reg. 39021 (July 21, 1997).
"VA Loans" means mortgage loans or contracts partially guaranteed by the
United States Department of Veterans Affairs.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution (Item 14 of Form S-3).
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 fee, are estimated.
----------------------------------------------------------------------
Filing Fee for Registration $ 396,000
Statement
----------------------------------------------------------------------
----------------------------------------------------------------------
Legal Fees and Expenses $ 450,000
----------------------------------------------------------------------
----------------------------------------------------------------------
Accounting Fees and Expenses $ 125,000
----------------------------------------------------------------------
----------------------------------------------------------------------
Trustee's Fees and Expenses $ 75,000
----------------------------------------------------------------------
----------------------------------------------------------------------
(including counsel fees)
----------------------------------------------------------------------
----------------------------------------------------------------------
Printing and Engraving Expenses $ 100,000
----------------------------------------------------------------------
----------------------------------------------------------------------
Rating Agency Fees $ 600,000
----------------------------------------------------------------------
----------------------------------------------------------------------
Miscellaneous $ 100,000
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Total $ 1,846 000
----------------------------------------------------------------------
Indemnification of Directors and Officers (Item 15 of Form S-3).
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.
II-1
<PAGE>
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 indemnify 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 attorney's 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 Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrants' 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 form of Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement.
II-2
<PAGE>
Exhibits (Item 16 of Form S-3).
(a) Financial Statement filed as part of the Registration
Statement: none
(b) Exhibits:
EXHIBIT NUMBER
------
DESCRIPTION
*1.1 Form of Underwriting Agreement
*3.1 Restated Certificate of Incorporation
of Depositor
*3.2 By-laws of Depositor
*4.1 Form of Pooling and Servicing Agreement
*4.2 Form of Sale and Purchase Agreement
*4.3 Form of Trust Agreement
*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
*24.2 Certified Copy of the Resolutions of
the Board of Directors of Depositor
-------------------
* As previously filed with this Registration Statement.
<PAGE>
Undertakings (Item 17 of Form S-3)
In accordance with Item 512 of Regulation S-K under the Securities Act of 1933,
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 purpose 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:
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, 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. 3 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 August 8, 2000.
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
By: /s/ Patrick D. Coleman*
_________________________
Patrick D. Coleman
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
/s/ Patrick D. Coleman* Director and President August 8, 2000
_________________________
PATRICK D. COLEMAN (Principal Executive
Officer)
/s/ Scott J. Ulm* Director and Chairman August 8, 2000
--------------------------- of the Board
SCOTT J. ULM
/s/ William Pitofsky* Director August 8, 2000
--------------------------- and Vice President
WILLIAM PITOFSKY
/s/ Carlos Onis* Director August 8, 2000
___________________________
CARLOS ONIS
/s/ Zev Kindler* Treasurer August 8, 2000
-------------------------- (Principal Financial Officer)
ZEV KINDLER
/s/ Thomas Zingalli* Vice President August 8, 2000
--------------------------- and Controller
THOMAS ZINGALLI (Principal Accounting Officer)
* By: /s/ Greg Petroski
________________________
Greg Petroski
Attorney-in-fact pursuant
to a power of attorney filed
with the Registration
Statement
