As filed with the Securities and Exchange Commission on December 29, 2000
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
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 Ave.
New York, New York 10010
(212) 325-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Allan J. Baum
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:
William J. Cullen, Esq. Patrick T. Quinn, Esq. Joshua E. Raff, Esq.
Sidley & Austin Cadwalader, Wickersham & Orrick, Herrington &
875 Third Avenue Taft Sutcliffe LLP
New York, New York 10022 100 Maiden Lane 666 Fifth Avenue
New York, New York 10038 New York, New York
10103-0001
================================================================================
<PAGE>
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Securities Being Amount to be Price Offering Registration
Registered Registered Per Unit Price (2) Fee
================================================================================
Commercial/Multifamily $1,000,000(1) 100% 100% $250
Mortgage Pass-Through
Certificates
================================================================================
(1) $2,175,534,581 aggregate principal amount of Commercial/Multifamily
Mortgage Pass-Through Certificates registered by the Registrant under
Registration Statement No. 333-51771 (the "Prior Registration Statement")
referred to below and not previously sold is carried forward in this
Registration Statement pursuant to Rule 429. All registration fees in connection
with such unsold amount of Commercial /Multifamily Mortgage Pass-Through
Certificates have been previously paid by the Registrant under the Prior
Registration Statement.
(2) Estimated solely for the purposes of calculating the registration fee.
PURSUANT TO RULE 429 OF THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND
REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION STATEMENT NO.
333-51771).
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 and 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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED _____, 200_
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____ __, 200_)
$______
(APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 200_-_ CREDIT
SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
depositor
------
mortgage loan seller[s]
-----------------------
The trust fund will issue ______ classes of certificates, ______ of which
are being offered, as listed below. The trust fund will pay interest and/or
principal monthly on the _______ business day following the ____ day of each
month, or if the ____ day is not a business day, on the ______ business day
following the next business day. The first payment of interest and/or principal
will be made on ______ __, 200_. The offered certificates represent obligations
of the trust fund only and do not represent obligations of or interests in
Credit Suisse First Boston Mortgage Securities Corp. or any of its affiliates.
The underwriter[s] have agreed to purchase the offered certificates from
the depositor at a price of ______% of the initial principal balance of the
offered certificates plus accrued interest from ______ __, 200_. The
underwriter[s] propose to offer the offered certificates from time to time for
sale in negotiated transactions or otherwise, at market prices prevailing at the
time of sale, at prices related to the prevailing market prices or at negotiated
prices.
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
S-14 OF THIS PROSPECTUS SUPPLEMENT.
<TABLE>
<CAPTION>
ASSUMED
INITIAL APPROXIMATE ASSUMED RATED WEIGHTED
CERTIFICATE NITIAL PASS- FINAL FINAL AVERAGE
BALANCE (+ THROUGH DISTRIBUTION DISTRIBUTION RATING LIFE
CLASS OR -5%) RATE DATE DATE ___/___ (YEARS)
----------- ----------- ------------ ------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class [A-1] $ %
Class [A-2] $ %
Class [B]. $ %
Class [C]. $ %
Class [D]. $ %
</TABLE>
Delivery of the offered certificates, in book-entry form only, will be
made on or about ______ __, 200_.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
________ will act as [co-]lead and [joint] book running managers.
UNDERWRITER[S]
THIS FORM OF PROSPECTUS SUPPLEMENT IS REPRESENTATIVE OF THE FORM OF PROSPECTUS
SUPPLEMENT THAT MAY TYPICALLY BE USED IN A PARTICULAR TRANSACTION. THE
PROVISIONS IN THIS FORM MAY CHANGE FROM TRANSACTION TO TRANSACTION, WHETHER OR
NOT THE PROVISIONS ARE BRACKETED IN THE FORM TO REFLECT THE SPECIFIC PARTIES,
THE STRUCTURE OF THE CERTIFICATES, SERVICING PROVISIONS, ASSET POOL, PROVISIONS
OF THE POOLING AND SERVICING AGREEMENT AND OTHER MATTERS. IN ALL CASES, THE
PROVISIONS IN THE PROSPECTUS SUPPLEMENT WILL BE CONSISTENT IN MATERIAL RESPECTS
WITH THE PROVISIONS IN THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ________ __, 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
SUMMARY OF PROSPECTUS SUPPLEMENT ....................................... S-1
RISK FACTORS ........................................................... S-14
CAPITALIZED TERMS USED IN THIS
PROSPECTUS SUPPLEMENT ................................................ S-31
LOOKING FORWARD STATEMENTS ............................................. S-31
DESCRIPTION OF THE MORTGAGE LOANS ...................................... S-32
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS .......................... S-34
DESCRIPTION OF THE OFFERED CERTIFICATES ................................ S-45
PREPAYMENT AND YIELD CONSIDERATIONS .................................... S-57
THE POOLING AND SERVICING AGREEMENT .................................... S-61
CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS FOR MORTGAGED PROPERTIES
LOCATED IN [ LIST STATES] ............................................ S-88
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................ S-88
ERISA CONSIDERATIONS ................................................... S-90
LEGAL INVESTMENT ....................................................... S-92
USE OF PROCEEDS ........................................................ S-92
UNDERWRITING ........................................................... S-92
LEGAL MATTERS .......................................................... S-93
RATING ................................................................. S-93
GLOSSARY ............................................................... S-95
Prospectus
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS......... __
AVAILABLE INFORMATION; INCORPORATION BY REFERENCE........................... __
SUMMARY OF PROSPECTUS....................................................... __
RISK FACTORS................................................................ __
CAPITALIZED TERMS USED IN THIS PROSPECTUS................................... __
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP......................... __
USE OF PROCEEDS............................................................. __
DESCRIPTION OF THE TRUST ASSETS............................................. __
YIELD AND MATURITY CONSIDERATIONS........................................... __
DESCRIPTION OF THE CERTIFICATES............................................. __
DESCRIPTION OF THE GOVERNING DOCUMENTS...................................... __
DESCRIPTION OF CREDIT SUPPORT............................................... __
LEGAL ASPECTS OF MORTGAGE LOANS............................................. __
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................... __
STATE AND OTHER TAX CONSEQUENCES............................................ __
ERISA CONSIDERATIONS........................................................ __
LEGAL INVESTMENT............................................................ __
PLAN OF DISTRIBUTION........................................................ __
LEGAL MATTERS............................................................... __
FINANCIAL INFORMATION....................................................... __
RATING...................................................................... __
GLOSSARY.................................................................... __
-ii-
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. 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. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT OR THE DATES OTHERWISE SPECIFIED IN THIS DOCUMENT.
UNTIL 90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, ALL DEALERS THAT
EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. THIS IS IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS WHEN ACTING AS AN
UNDERWRITER[S] AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-iii-
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the offered certificates in two
separate documents that progressively provide more detail-
o the accompanying prospectus, which provides general information, some of
which may not apply to the offered certificates; and
o this prospectus supplement, which describes the specific terms of the
offered certificates. You should read both this prospectus supplement and the
accompanying prospectus before investing in any of the offered certificates.
You should rely only on the information contained in this prospectus
supplement and accompanying prospectus. If the description of the offered
certificates in the prospectus and in this prospectus supplement varies, you
should rely on the information in this prospectus supplement.
This prospectus supplement is not an offer to sell these securities, and
is not soliciting an offer to buy these securities, in any state where the offer
or sale is not permitted.
The photographs of the mortgaged properties included in the prospectus
supplement are not representative of all the mortgaged properties or of any
particular type of mortgaged property.
This prospectus supplement begins with several introductory sections
describing the Series 200_- certificates and the trust in abbreviated form:
Summary of Certificates, commencing on page S-__ of this prospectus
supplement, which sets forth important statistical information relating to the
certificates;
Summary of Terms, commencing on page S-__ of this prospectus supplement,
which gives a brief introduction of the key features of the Series 200_-__
certificates and a description of the mortgage loans; and
Risk Factors, commencing on page S-__ of this prospectus supplement, which
describe risks that apply to the Series 200_-__ certificates which are in
addition to those described in the prospectus with respect to the securities
issued by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in the
prospectus are defined on the pages indicated under the caption "Glossary"
beginning on page __ in the prospectus.
In this prospectus supplement, the terms "depositor," "we," "us" and "our"
refer to Credit Suisse First Boston Mortgage Securities Corporation.
The principal executive office of the depositor is Eleven Madison Avenue,
New York, New York 10010.
-iv-
<PAGE>
EXECUTIVE SUMMARY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Approximate
Initial % of Assumed
Certificate Aggregate weighted Assumed Rated
Balance or Initial Approximate Initial average Assumed Final Final
Ratings(a) Notional Certificate Credit Descrip- pass- life principal Distribution Distribution
Class ____/_____ Balance(b) Balance Support tion through rate (years)(c) window Date(d) Date(e)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[A-1] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[A-2] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[B] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[C] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[D] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[A-X] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[E] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[F] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[G] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[H] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[J] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[K] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[L] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[M] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
[N] ____/_____ $[_____] [_____]% [_____]% [_____]% [_____]% ____/_____ [____] [____]
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(a) Ratings shown are those of ______ and/or ___________, respectively.
(b) The principal or notional balance of any class may be changed by up to
__%.
(c) This is the average amount of time in years between the closing date and
the payment of each dollar of principal. The Class [A-X] Certificates do
not have a principal balance and do not receive principal distributions;
the weighted average life of this class is based on its notional amount,
which will decrease as the principal balances of the other classes
decrease.
(d) This date was calculated assuming, among other things, that there are no
voluntary or involuntary prepayments. There may be some voluntary and/or
involuntary prepayments.
(e) This date was set at two years after the latest maturity date of any
mortgage loan which is not a balloon loan or, for any balloon loan, the
date upon which it would be deemed to mature in accordance with its
original amortization schedule absent its balloon payment.
[The Class __, Class __, Class __ and Class __ Certificates are not represented
in this table.]
-v-
<PAGE>
MORTGAGE LOAN EXECUTIVE SUMMARY
GENERAL MORTGAGE LOAN CHARACTERISTICS
(AS OF THE CUT-OFF DATE, UNLESS OTHERWISE INDICATED)
Initial pool balance(1)................................................... $
Number of mortgage loans..................................................
Mortgage Loan Seller[s]:(2) .............................................. %
Number of mortgaged properties............................................
Average mortgage loan principal balance................................... $
Highest mortgage loan principal balance................................... $
Lowest mortgage loan principal balance.................................... $
Weighted average mortgage rate............................................ %
range of mortgage rates................................................... %
Weighted average remaining term to the earlier of maturity or ............ %
anticipated repayment date (months)..................................... %
Range of remaining terms to the earlier of maturity or
anticipated repayment date (months)..................................... %
Weighted average remaining amortization term (months)..................... %
Range of remaining amortization terms (months)............................ %
Weighted average debt service coverage ratio(3)........................... %
Range of debt service coverage ratios(3).................................. %
Weighted average loan-to-value ratio(3)................................... %
Range of loan-to-value ratios(3).......................................... %
Weighted average loan-to-value ratio at the earlier of
anticipated repayment date or maturity(3) (4)........................... %
Percentage of initial pool balance made up of: ........................... %
anticipated repayment date loans........................................ %
fully amortizing Loans (other than anticipated repayment date
loans)................................................................. %
balloon loans........................................................... %
multi-property loans.................................................... %
crossed loans........................................................... %
residential cooperative loans........................................... %
----------
(1) The aggregate balance may be changed by up to __%.
(2) Shown as a percentage of initial pool balance. Loans sold to the depositor
by a mortgage Loan seller[s] were either originated by the mortgage loan
seller[s] or acquired by the mortgage loan seller[s] from a third party.
(3) The debt service coverage ratios and loan-to-value ratios of loans secured
by cooperatives are calculated based on the value and projected rental
revenues of the properties if converted to rental properties as shown in
the related appraisal.
(4) Excluding fully amortizing loans other than anticipated repayment date
loans.
-vi-
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
o o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision.
o o To understand all of the terms of the offered certificates, carefully
read this prospectus supplement and the accompanying prospectus.
o o This summary provides an overview of certain information to aid your
understanding and is qualified by the full description presented in this
prospectus supplement and the accompanying prospectus.
o o Unless otherwise stated, all percentages of the mortgage loans, or of
any specified group of mortgage loans, referred to in this prospectus
supplement are calculated using the aggregate cut-off date principal
balance.
o o References to percentages of mortgage properties are references to the
percentages of the initial pool balance represented by the aggregate
cut-off date principal balance of the related mortgage loans or, in the
case of multi-property loans, the amount of the related mortgage loan
allocated to each individual property.
o o All numerical information concerning the mortgage loans is provided on
an approximate basis.
THE PARTIES
DEPOSITOR Credit Suisse First Boston Mortgage Securities
Corp., a Delaware corporation and an affiliate of
one of the mortgage loan seller[s] and of one of
the underwriter[s].
SERVICER[S] ________________________, a ______________. See
"The Pooling and Servicing Agreement--The
Servicer" in this prospectus supplement. The
servicer's address is _______ and its telephone
number is _______. See "The Pooling and Servicing
Agreement-General" in this prospectus supplement.
SPECIAL SERVICER[S] _____________________________________, a ________
_________. The special servicer's address is
_______ and its telephone number is _______. See
"The Pooling and Servicing Agreement--The Special
Servicer" in this prospectus supplement.
TRUSTEE _____________________________________, a _______
__________. The trustee's address is _______ and
its telephone number is _______. See "The Pooling
and Servicing Agreement--The Trustee" in this
prospectus supplement.
MORTGAGE LOAN SELLER[S] The mortgage loan seller[s] address is
________________ and its telephone number is
_______________.
SIGNIFICANT DATES AND PERIODS
CUT-OFF DATE ________ __, 200_.
CLOSING DATE ________ __, 200_.
S-1
<PAGE>
DUE DATES The dates on which monthly installments of
principal and interest are due on the mortgage
loans are the following:
NUMBER OF % OF INITIAL
MORTGAGE LOANS POOL BALANCE DUE DATE
-------------- ------------ --------
-------------- ------------ --------
============== ============ ========
DETERMINATION DATE The close of business on the ____ day of the month
in which the distribution date occurs or, if the
____ day is not a business day, the business day
immediately following the ____ day.
DISTRIBUTION DATE The __th business day following the determination
date in each month, commencing on ________ __,
200_. A business day is any day other than a
Saturday, a Sunday or any day on which banking
institutions in the States of [LIST STATES] are
authorized or obligated by law, executive order or
governmental decree to close.
RECORD DATE The close of business on the last business day of
the month immediately preceding the month in which
the distribution date occurs.
INTEREST ACCRUAL PERIOD [The period commencing on the ____ day of the
calendar month preceding the month in which the
distribution date occurs and ending on the 10th
day of the month in which the distribution date
occurs.] [Each interest accrual period is deemed
to consist of 30 days.]
ASSUMED FINAL DISTRIBUTION
DATE For each class of certificates, the date set forth
on the cover page.
RATED FINAL DISTRIBUTION
DATE The distribution date occurring in ________ __,
200_.
DUE PERIOD The period beginning on the day following the
determination date in the month immediately
preceding the month in which the distribution date
occurs and ending at the close of business on the
determination date of the month in which the
distribution date occurs.
THE CERTIFICATES
THE OFFERED CERTIFICATES Each class of offered certificates will have the
initial certificate balance and the initial
pass-through rate set forth below, subject, in the
case of each such certificate balance, to a
permitted variance of plus or minus __%.
INITIAL INITIAL
CERTIFICATE PASS-THROUGH
CLASS BALANCE RATE
-------------- ------------ ------------
Class [A-1] $ %
Class [A-2] $ %
Class [B] $ %
Class [C] $ %
Class [D] $ %
DISTRIBUTIONS
DISTRIBUTIONS Funds available for distribution from the mortgage
loans will be distributed on each distribution
date, net of specified trust expenses including
servicing fees, trustee fees and related
compensation.
S-2
<PAGE>
INTEREST DISTRIBUTIONS [Interest on the certificates will accrue on a
monthly basis and on the basis of a 360-day year
consisting of twelve 30-day months.] Prepayments
and defaults may reduce interest distributions.
PRINCIPAL DISTRIBUTIONS The amount of principal required to be distributed
to the classes entitled to principal on a
particular distribution date will, in general, be
equal to:
o the principal portion of all scheduled
payments, other than balloon payments, which
are received or advanced during the related due
period;
o all principal prepayments and the principal
portion of balloon payments received during the
related due period;
o the principal portion of other collections on
the mortgage loans received during the related
due period including liquidation proceeds,
condemnation proceeds, insurance proceeds and
income on "real estate owned" property; and
o the principal portion of proceeds of mortgage
loan repurchases received during the related
due period.
PRIORITY OF DISTRIBUTIONS Distributions will be made on each distribution
date. Distributions of interest and principal and
allocations of losses are set forth in the chart
below. The priority of each class of certificates
for the payment of interest and principal is
illustrated in descending order. Losses on the
mortgage loans will be applied to each class of
certificates in ascending order.
-----------------------
Class [A-1],
Class [A-2] and Class
[A-X] (1)
-----------------------
-------------
Class [B]
Distributions ------------- Losses on the
Interest and Mortgage
Principal ------------- Loans
Class [C]
-------------
-------------
Class [D]
-------------
-----------------------
Private Certificates
(other than Class
[A-X] )
-----------------------
----------
(1) Receives only interest distributions.
PREPAYMENT PREMIUMS The manner in which any prepayment premiums and
yield maintenance charges received during a
particular due period will be allocated to the
Class [A-X] Certificates, on the one hand, and the
class or classes of certificates entitled to
principal, on the other hand, is described in
"Description of the Offered
Certificates--Distributions" in this prospectus
supplement.
S-3
<PAGE>
OTHER DISTRIBUTIONS [________________].
ADVANCES __________, in its capacity as servicer, and
___________ is required to advance delinquent
principal and interest on the mortgage loans which
they service. The servicer[s] will only be
required to make this advance for so long as it
determines that the advance is recoverable from
the mortgaged property. See "The Pooling and
Servicing Agreement--Advances" in this prospectus
supplement. These advances generally will equal
the delinquent portion of the monthly payment of
the related mortgage loan, less
o the servicing fee and primary servicing fee, and
o if applicable, the related workout fee.
If a borrower fails to pay amounts due on the
maturity date of the mortgage loan, the
servicer[s] will only advance the amount it would
have advanced on a delinquent monthly payment due
prior to the maturity date.
The servicer[s] will not be required to make
advances for penalty charges, yield maintenance
premiums, balloon payments or prepayment premiums.
In addition, in connection with mortgage loans
with anticipated repayment dates, the servicer[s]
will not be required to make any advance in
respect of excess interest. Any appraisal
reduction amount will reduce the amount of the
advance that will be made by the servicers. If the
applicable servicer fails to make a required
advance, the trustee is required to make the
advance in each case subject to a determination of
recoverability.
OPTIONAL TERMINATION The following parties will each in turn, according
to the order listed below, have the option to
purchase all of the mortgage loans and all other
property remaining in the trust fund on any
distribution date on which the aggregate stated
principal balance of the mortgage loans is less
than ___% of the initial pool balance:
o ___________;
o ___________;
o ___________;
o ___________;
o ___________; and
o ___________.
In the event that any party above exercises this
option, the trust will terminate and all
outstanding certificates will be retired, as
described in more detail in this prospectus
supplement.
S-4
<PAGE>
DENOMINATIONS The offered certificates will be issuable in
registered form, in the following denominations:
MULTIPLES IN
EXCESS OF
INITIAL INITIAL
BALANCE BALANCE
------- ------------
Offered certificates
(certificate balance) $ $
CLEARANCE AND SETTLEMENT The offered certificates will be issued in
book-entry form and will be evidenced by one or
more certificates registered in the name of Cede &
Co., as nominee of The Depository Trust Company.
The depositor may elect to terminate the
book-entry system through The Depository Trust
Company with respect to all or any portion of any
class of the offered certificates.
CERTAIN FEDERAL INCOME TAX
TAX CONSIDERATIONS Real estate mortgage investment conduit elections
will be made with respect to two segregated pools
of assets of the trust, referred to as the
"Lower-Tier REMIC" and the "Upper-Tier REMIC". All
classes of the certificates, other than the Class
__, Class __, Class __ and Class __ Certificates,
will be regular interests in the Upper-Tier REMIC.
Pertinent federal income tax consequences of an
investment in the offered certificates include:
o Each class of offered certificates will be REMIC
regular interests.
o The regular interests will be treated as newly
originated debt instruments for federal income
tax purposes.
o You will be required to report income on your
certificates in accordance with the accrual
method of accounting.
o One or more classes of offered certificates may
be issued with original issue discount.
o Prepayment premiums and yield maintenance
charges on the mortgage loans may be ordinary
income to the related certificateholders as
these amounts accrue.
ERISA CONSIDERATIONS The acquisition of an offered certificate by an
employee benefit plan or other plan or arrangement
subject to the Employee Retirement Income Security
Act of 1974, as amended, or to section 4975 of the
Internal Revenue Code of 1986, as amended, could,
in some instances, result in a prohibited
transaction or other violation of the fiduciary
responsibility provisions of these laws. It is
anticipated that only the following classes of
offered certificates may be acquired by these
plans or arrangements and by persons investing the
assets of these plans or arrangements, provided
certain conditions are met:
o Class [A-1]
o Class [A-2]
[In addition, it is anticipated that the following
classes of offered certificates may be acquired by
insurance company general accounts
S-5
<PAGE>
which contain assets of these plans or
arrangements, provided certain conditions are met:
o Class [B]
o Class [C]
o Class [D]]
Any fiduciary of these plans or arrangements
considering whether to purchase offered
certificates in any of these classes with assets
of or on behalf of these plans or arrangements
should consult with its counsel regarding the
applicability of the Employee Retirement Income
Security Act of 1974, as amended, section 4975 of
the Internal Revenue Code of 1986, as amended, or
materially similar provisions of applicable
federal, state or local law, and the availability
of any exemptions from the prohibited transaction
provisions of these laws.
RATINGS It is a condition to the issuance of the offered
certificates that they receive the following
credit ratings from any and all of the following
rating agencies:
[rating agency] [rating agency]
Class [A-1]
Class [A-2]
Class [B]
Class [C]
Class [D] ______ ______
The rated final distribution date for each class
of offered certificates is the distribution date
occurring in ____ 20__. For a description of the
limitations of the ratings of the offered
certificates, see "Rating."
You should consider the following about a security
rating:
o it is not a recommendation to buy, sell or hold
securities;
o it may be subject to revision or withdrawal at
any time by the assigning rating organization;
o it only addresses the likelihood of the timely
payment of interest and the ultimate repayment
of principal by the rated final distribution
date;
o it does not address the frequency of voluntary
and involuntary prepayments or the possibility
that certificateholders might suffer a lower
than anticipated yield; and
o it does not address the likelihood of receipt of
prepayment premiums, yield maintenance charges,
default interest or excess interest.
LEGAL INVESTMENT [The Class ___ certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984,
as amended.] [None of the other offered
certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended.]
Consult
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<PAGE>
your legal advisor as to the appropriate
characterization of the offered certificates under
any legal investment restrictions applicable to
you.
THE MORTGAGE LOANS
GENERAL The trust fund will consist of ___ commercial,
multifamily and residential cooperative mortgage
loans having the following general
characteristics:
GENERAL MORTGAGE LOAN CHARACTERISTICS
(AS OF THE CUT-OFF DATE, UNLESS OTHERWISE INDICATED)
Initial pool balance (1).................................................. $
Number of mortgage loans..................................................
Mortgage loan seller:(2) .................................................
Number of mortgaged properties............................................
Average mortgage loan principal balance................................... $
Highest mortgage loan principal balance................................... $
Lowest mortgage loan principal balance.................................... $
Weighted average mortgage rate............................................ %
Range of mortgage rates................................................... %
Weighted average remaining term to the earlier of maturity
or ..................................................................... %
anticipated repayment date (months).......................................
Range of remaining terms to the earlier of maturity or
anticipated repayment date (months).....................................
Weighted average remaining amortization term (months).....................
Range of remaining amortization terms (months)............................
Weighted average debt service coverage ratio(3)........................... %
Range of debt service coverage ratios(3).................................. %
Weighted average loan-to-value ratio(3)................................... %
Range of loan-to-value ratios(3).......................................... %
Weighted average loan-to-value ratio at the earlier of
anticipated repayment date or maturity(3) (4)........................... %
Percentage of initial pool balance made up of: %
anticipated repayment date loans........................................ %
fully amortizing loans other than anticipated repayment date
loans.................................................................. %
balloon loans........................................................... %
multi-property loans.................................................... %
crossed loans........................................................... %
residential cooperative loans........................................... %
----------
(1) The aggregate balance may be changed by up to __%.
(2) Shown as a percentage of initial pool balance. Loans sold to the depositor
by a mortgage loan seller[s] were either originated by the mortgage loan
seller[s] or acquired by the mortgage loan seller[s] from a third party.
(3) The debt service coverage ratios and loan-to-value ratios of loans secured
by cooperatives are calculated based on the value and projected rental
revenues of the properties if converted to rental properties as shown in
the related appraisal.
(4) Excluding fully amortizing loans [other than anticipated repayment date
loans].
SECURITY FOR THE MORTGAGE LOANS Each mortgage loan is
secured primarily by one or more first priority
mortgages, deeds of trust, or other similar
security instruments on the borrower's fee or
leasehold interest in real property as set forth
in the table below. The mortgaged properties are
used for commercial or multifamily residential
purposes.
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<PAGE>
INTEREST OF NUMBER OF % OF
BORROWER MORTGAGED INITIAL POOL
ENCUMBERED PROPERTIES BALANCE(1)
----------- ---------- ------------
%
%
---------- ------------
TOTAL %
========== ============
----------
(1) Based on the principal balance of the mortgage
loan or, for any multi-property loan, the
amount allocated to each individual property.
(2) For any mortgaged property with respect to
which the ground lessee and ground lessor are
both parties to the mortgage, the mortgaged
property has been categorized as a fee simple
estate. For any mortgaged property that
partially consists of a leasehold interest,
the encumbered interest has been categorized
as a fee simple interest if the leasehold
interest does not constitute a material
portion of the mortgaged property.
[LOANS WITH ANTICIPATED
REPAYMENT DATES ____ mortgage loans representing ___% of the
initial pool balance specify an anticipated
repayment date. These mortgage loans generally
have the following terms:
o a substantial amount of principal will be
outstanding at the anticipated repayment date;
o the loan can be prepaid on or after the
anticipated repayment date without payment of
any prepayment premium; and
o a lockbox must be established on or prior to the
anticipated repayment date.
In addition, loans that are not repaid on the
anticipated repayment date:
o accrue interest at a higher rate after the
anticipated repayment date;
o apply all cash flow in excess of certain
specified expenses, including principal and
interest, calculated at the initial interest
rate on the amortized principal balance and the
initial amortization
o schedule and operating expenses, to amortize the
mortgage loan until paid in full; and
o apply all cash flow to pay accrued excess
interest after principal is paid in full.]
[LOANS REPRESENTED BY
MULTIPLE NOTES ____ of the mortgage loans, representing ____% of
the initial pool balance, are secured by mortgages
on properties which also secure other loans not
included in this trust fund.]
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<PAGE>
CROSSED LOANS AND MULTI-PROPERTY LOANS
NUMBER OF % OF INITIAL
MORTGAGE POOL
TYPE OF MORTGAGE LOAN LOANS BALANCE
------------------------------------------- --------- -------------
All multi-property loans %
All crossed loans %
Cross loans and multi-property loans which %
prohibit release of any related mortgaged
property
Cross loans and multi-property loans which %
permit release of an individual mortgaged
property (1)
----------
(1) Generally, these mortgage loans require (a) a defeasance or prepayment (in
an amount equal to a percentage of the related property release amount, as
described in the succeeding tables entitled "Crossed Loans" and "Mortgage
Loans Secured by More than One Mortgaged Property") and (b) that the debt
service coverage ratio with respect to the remaining properties is not
less than the greater of (i) a specified debt service coverage ratio
and/or (ii) in most cases, the debt service coverage ratio immediately
prior to defeasance or prepayment.
CROSS LOANS
CUT-OFF DATE
LOAN PRINCIPAL % OF INITIAL RELEASE PRICE
NO. LOAN NAME BALANCE POOL BALANCE (1)
------ ---------------------- --------------- ------------ -------------
__ ______ $______ ______ % $ ______
TOTAL
====== ======
----------
(1) The release price shown is the percentage of the property release amount
that the borrower must prepay or defease, as applicable, in order to
obtain the release of an individual mortgaged property from the lien of
the related mortgage.
(2) The _______ mortgage loan consists of ___ notes, one of which is
cross-collateralized and cross-defaulted with the _______ mortgage loan.
See "Certain Characteristics of the Mortgage Loans--Significant Mortgage
Loans."
(3) Borrower is not permitted to release any individual property without the
consent of the lender, which may be withheld at the sole discretion of
lender.
MORTGAGE LOANS SECURED BY MORE THAN ONE MORTGAGED PROPERTY
CUT-OFF % OF
DATE INITIAL
LOAN NUMBER OF PRINCIPAL POOL RELEASE
NO. LOAN NAME PROPERTIES BALANCE BALANCE PRICE (1)
----- ------------------------ ------------ --------- -------- ----------
$ % %
$ % %
$ % %
TOTAL................
============ ========= ======== ==========
----------
(1) The release price shown is the percentage of the property release amount
that the borrower must prepay or defease, as applicable, in order to
obtain the release of an individual mortgaged property from the lien of
the related mortgage.
(2) The mortgage loan prohibits the release of an individual mortgaged
property.
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<PAGE>
[LOCKBOX TERMS ____________ mortgage loans, representing ____% of
the initial pool balance, generally provide that
all rents, credit card receipts, accounts
receivable payments and other income derived from
the related mortgaged properties will be paid into
one of the following three types of lockboxes,
each of which is described below:
HARD LOCKBOX. Income is paid to a lockbox account
controlled by the servicer on behalf of the trust
fund, except that with respect to multifamily
properties, income is collected and deposited in
the lockbox account by the manager of the
mortgaged property and, with respect to
hospitality properties, cash or "over-the-counter"
receipts are deposited into the lockbox account by
the manager, while credit card receivables will be
deposited directly into a lockbox account;
MODIFIED LOCKBOX. Income is paid to the manager of
the mortgaged properties, other than multifamily
properties, which will deposit all sums collected
into a lockbox account on a regular basis; or
SPRINGING LOCKBOX. Income is collected by the
borrower until the occurrence of a triggering
event, following which a hard lockbox is put in
place. Examples of triggering events include:
o a failure to pay the related mortgage loan in
full on or before the related anticipated
repayment date; or
o a decline, by more than a specified amount, in
the net operating income of the related
mortgaged property; or
o a failure to meet a specified debt service
coverage ratio; or
o an event of default under the mortgage.
Each mortgage loan that has a lockbox is
identified on Annex A. Lockbox accounts will not
be assets of the trust fund. The mortgage loans
provide for lockbox accounts as follows:
% OF NUMBER OF
INITIAL POOL MORTGAGED
TYPE OF LOCKBOX BALANCE PROPERTIES]
------------------- ------------ -----------
PREPAYMENT
CHARACTERISTICS OF
THE MORTGAGE LOANS Each mortgage loan restricts voluntary prepayments
in one or more of the following ways:
o by prohibiting any voluntary prepayments for a
specified period of time after the mortgage loan
is originated;
o by requiring that any voluntary principal
prepayment made during a specified period of
time be accompanied by a yield maintenance
charge; and/or
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<PAGE>
o by imposing fees or premiums in connection with
full or partial voluntary principal prepayments
for a specified period of time.
The mortgage loans generally provide that
principal prepayments may only be made:
o on a due date; or
o accompanied by interest through the next due
date.
Additional collateral loans may also require
partial principal prepayments during the related
lockout period.
As of the cut-off date, ____% of the mortgage
loans by initial pool balance were within their
respective lockout periods, and the weighted
average of the lockout and/or defeasance periods
was ____ months. See "Certain Characteristics of
the Mortgage Loans--Certain Terms and Conditions
of the Mortgage Loans--Prepayment Provisions" in
this prospectus supplement.
DEFEASANCE ________ mortgage loans, representing ____% of the
initial pool balance, permit the borrower to
obtain the release of the related mortgaged
property, or, in the case of any crossed loan and
most of the multi-property loans, one or more of
the related mortgaged properties, from the lien of
the related mortgage(s) upon the pledge to the
trustee of certain noncallable U.S. government
obligations. The U.S. government obligations must
provide for payments which equal or exceed
scheduled interest and principal payments due
under the related mortgage note.
ADDITIONAL COLLATERAL LOANS ____ mortgage loans, representing ____% of the
initial pool balance, are also secured by cash
reserves or irrevocable letters of credit. The
additional collateral will be released to the
borrower if the borrower satisfies certain
conditions that may include meeting debt service
coverage ratio levels and/or satisfying leasing
conditions. If these conditions are not satisfied,
the related reserve or credit enhancement amount
may be applied to partially prepay the related
mortgage loan.
The loan documents relating to ____ of these
mortgage loans, representing ____% of the initial
pool balance, also require the payment of a yield
maintenance charge in connection with any partial
prepayment. See "Certain Characteristics of the
Mortgage Loans--Certain Terms and Conditions of
the Mortgage Loans-- Mortgage Loans which May
Require Principal Paydowns" in this prospectus
supplement.
RISK FACTORS See "Risk Factors" immediately following this
"Summary of Prospectus Supplement" for a
discussion of the material risks in connection
with the purchase of the offered certificates.
REPORTING REQUIREMENTS On each distribution date, the trustee will
prepare a statement to holders of the certificates
and will make available or, upon request, forward
it to the following parties:
o each certificateholder;
o the depositor;
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<PAGE>
o the servicer;
o the special servicer;
o the underwriter;
o each rating agency
o any other party upon the direction of the
depositor; and
o if requested in writing, any potential investor.
Prior to each distribution date, The servicer will
deliver to the trustee the servicer reports with
respect to the mortgage loans for which it is the
servicer, which are in the form of the standard
information package of the Commercial Mortgage
Securities Association. On each distribution date,
the trustee will consolidate the information in
these reports and make available or, upon request,
forward these reports to the following parties:
o each certificateholder;
o the depositor;
o each underwriter;
o each rating agency; and
o if requested in writing, any potential investor.
In addition, The servicer will also make available
at its offices or via electronic means upon
reasonable advance written notice and during
normal business hours, the following items to the
extent it has received them:
o mortgaged property operating statements;
o rent rolls, or maintenance rolls in the event
that the property is a cooperative;
o retail sales information; and
o mortgaged property inspection reports.
In addition, the trustee will make copies of all
modifications, waivers and amendments of each
mortgage loan available at its offices, upon
reasonable advance written notice and during
normal business hours.
A current report on Form 8-K will be filed by the
depositor, together with the pooling and servicing
agreement, with the Securities and Exchange
Commission within fifteen days after the initial
issuance of the offered certificates. If mortgage
loans are removed from the trust fund after the
date hereof but prior to the initial issuance of
the certificates, the removal will be reflected in
the Form 8-K. The Form 8-K will be available to
purchasers and potential purchasers of the offered
certificates. You can obtain a copy of the
statement to certificateholders and certain other
information from the trustee
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<PAGE>
through its home page on the World Wide Web. The
website will initially be located at _______. You
can obtain this information by facsimile by
calling ________ and requesting that this
information be faxed to you. Certain property
level information relating to the loans serviced
by ___________ will be available at its website at
________.
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<PAGE>
RISK FACTORS
The risks and uncertainties described below, in addition to those risks
described in the prospectus under "Risk Factors", summarize the material risks
in connection with the purchase of the offered certificates. All numerical
information concerning the mortgage loans is provided on an approximate basis.
RISKS RELATED TO THE MORTGAGE LOANS
[Specify Property Types]
[Add disclosure relating to each property type as to which there exists a
material concentration based on cut-off date principal balances of the
underlying mortgage loans.]
COMMERCIAL AND
MULTIFAMILY LENDING
SUBJECTS YOUR
INVESTMENT TO SPECIAL RISKS Commercial and multifamily lending is generally
thought to be riskier than single-family
residential lending because, among other things,
larger loans are made to single borrowers or
groups of related borrowers.
The mortgage loans are secured by the following
income-producing property types:
o office properties;
o anchored and unanchored retail properties;
o multifamily properties;
o residential cooperative properties;
o manufactured housing communities;
o self-storage facilities; and
o assisted living facilities.
There are additional factors in connection with
commercial and multifamily lending, not present in
connection with single-family residential lending,
which could adversely affect the economic
performance of the mortgaged properties. Any one
of these additional factors, discussed in more
detail in this prospectus supplement, could result
in a reduction in the level of cash flow from the
mortgaged properties that is required to ensure
timely payment on your certificates.
YOUR SOURCE OF
REPAYMENT ON YOUR
CERTIFICATES IS LIMITED
TO PAYMENTS UNDER THE
COMMERCIAL AND
MULTIFAMILY
MORTGAGE LOANS Repayment of loans secured by commercial and
multifamily properties typically depends on the
cash flow produced by the properties. The
S-14
<PAGE>
ratio of net cash flow to debt service of a loan
secured by an income-producing property is an
important measure of the risk of default on the
loan.
Payment on each mortgage loan is dependent
primarily on:
o the net operating income of the related
mortgaged property; and
o with respect to balloon loans or mortgage loans
with anticipated repayment dates, the sale
proceeds of the related mortgaged property,
taking into account any adverse effect of a
foreclosure proceeding on the sales proceeds, or
refinance proceeds of the mortgage loan, whether
at scheduled maturity or on the anticipated
repayment date or, in the event of a default
under the mortgage loan, upon the acceleration
of its maturity.
In general, if a mortgage loan has a relatively
high loan-to-value ratio or a relatively low debt
service coverage ratio, a foreclosure sale is more
likely to result in proceeds insufficient to
satisfy the outstanding debt.
YOUR INVESTMENT IS NOT
INSURED
OR GUARANTEED The mortgage loans will not be an obligation of,
or be insured or guaranteed by:
o any governmental entity;
o any private mortgage insurer;
o the depositor;
o any mortgage loan seller;
o any servicer;
o any special servicer;
o the trustee; or
o any of their respective affiliates.
With respect to certain of the mortgage loans, the
trust fund will have the benefit of environmental
insurance policies. See "Certain Characteristics
of the Mortgage Loans--Environmental Matters" in
this prospectus supplement. Except for the
mortgage loans secured by cooperative properties
and certain other mortgage loans, each mortgage
loan is a nonrecourse loan. If there is a default,
other than a default resulting from voluntary
bankruptcy, fraud or willful misconduct, there
will generally only be recourse against the
specific properties and other assets that have
been pledged to secure the mortgage loan. Even if
a mortgage loan provides for recourse to a
borrower or its affiliates, it is unlikely the
trust fund will ultimately recover any amounts not
covered by the mortgaged property.
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<PAGE>
THE REPAYMENT OF A
COMMERCIAL OR
MULTIFAMILY MORTGAGE
LOAN IS DEPENDENT ON
THE CASH FLOW PRODUCED
BY THE PROPERTY WHICH
CAN BE VOLATILE AND
INSUFFICIENT TO ALLOW
TIMELY PAYMENT ON YOUR
CERTIFICATES Commercial, multifamily and, to a lesser degree,
cooperative cash flows are volatile and may be
insufficient to cover debt service on the related
mortgage loan at any given time which may cause
the value of a property to decline. Cash flows and
property values generally affect:
o the ability to cover debt service;
o the ability to pay a mortgage loan in full with
sales or refinance proceeds; and
o the amount of proceeds recovered upon
foreclosure.
Cash flows and property values depend upon a
number of factors, including:
o national, regional and local economic
conditions;
o local real estate conditions, as an oversupply
of space similar to the related mortgaged
property;
o changes or continued weakness in a specific
industry segment;
o the nature of expenses:
o as a percentage of revenue;
o whether expenses are fixed or vary with
revenue; and
o the level of required capital expenditures
for proper maintenance and improvements
demanded by tenants;
o demographic factors;
o changes required by retroactive building or
similar codes;
o capable management and adequate maintenance;
o location;
o with respect to mortgaged properties with uses
subject to significant regulation, changes in
applicable laws;
o perceptions by prospective tenants and, if
applicable, their customers, of the safety,
convenience, services and attractiveness of the
property;
o the age, construction quality and design of a
particular property; and
o whether the mortgaged property is readily
convertible to alternative uses.
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<PAGE>
PROPERTY MANAGEMENT IS
IMPORTANT TO THE
SUCCESSFUL OPERATION OF
THE MORTGAGED
PROPERTY The successful operation of a real estate project
depends in part on the performance and viability
of the property manager. The property manager is
generally responsible for:
o operating the property and providing building
services;
o establishing and implementing the rental
structure;
o managing operating expenses;
o responding to changes in the local market; and
o advising the borrower with respect to
maintenance and capital improvements.
Properties deriving revenues primarily from
short-term sources, such as hotels, self-storage
facilities and assisted living facilities,
generally are more management intensive than
properties leased to creditworthy tenants under
long-term leases.
A good property manager, by controlling costs,
providing necessary services to tenants and by
overseeing and performing maintenance or
improvements on the properties, can improve cash
flow, reduce vacancy, leasing and repair costs and
preserve building value. On the other hand,
management errors can, in some cases, impair
short-term cash flow and the long-term viability
of an income-producing property.
Neither the depositor nor any of the mortgage loan
seller[s] make any representation or warranty as
to the skills of any present or future property
managers. Furthermore, we cannot assure you that
the property managers will be in a financial
condition to fulfill their management
responsibilities throughout the terms of their
respective management agreements. In addition,
certain of the mortgaged properties are managed by
affiliates of the applicable borrower. If a
mortgage loan is in default or undergoing special
servicing, this could disrupt the management of
the underlying property and may adversely affect
cash flow.
The mortgage loans generally permit the lender to
remove the property manager upon the occurrence of
one or more of the following:
o an event of default;
o a decline in cash flow below a specified level;
o the failure to satisfy some other specified
performance trigger; or
o a determination by the lender, in its reasonable
judgment, that the continued management of the
mortgaged property by the manager may have an
adverse effect on the value of the mortgaged
property or on the ability of the borrower to
perform its obligations under the related
mortgage.
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<PAGE>
[RELIANCE ON A SINGLE
TENANT INCREASES THE
RISK THAT CASH
FLOW WILL BE INTERRUPTED] [_____ mortgaged properties securing ___% of the
initial pool balance are leased by a single
tenant. Reliance on a single tenant may increase
the risk that cash flow will be interrupted, which
will adversely affect the ability of a borrower to
repay the mortgage loan.]
LOSSES ON LARGER LOANS
MAY ADVERSELY AFFECT
PAYMENT ON
YOUR CERTIFICATES Certain of the mortgage loans or groups of
[cross-collateralized mortgage loans] have cut-off
date principal balances that are substantially
higher than the average cut-off date principal
balance. In general, these concentrations can
result in losses that are more severe than would
be the case if the aggregate balance of these
mortgage loans were more evenly distributed among
the mortgage loans in the pool. The following
chart lists the ten largest mortgage loans or
groups of cross-collateralized mortgage loans.
____ LARGEST MORTGAGE LOANS
CUT-OFF % OF
DATE INITIAL
PRINCIPAL POOL
LOAN NAME BALANCE BALANCE
--------------------------- --------- --------
[MORTGAGE LOANS TO
RELATED BORROWERS MAY
RESULT IN MORE
SEVERE LOSSES ON YOUR
CERTIFICATES] [___ of the mortgage loans, representing ___% of
the initial pool balance, were made to borrowers
under common ownership and are not
cross-collateralized. Mortgage loans with the same
borrower or related borrowers pose additional
risks. Some of these risks include:
o financial difficulty at one mortgaged property
could cause the owner to defer maintenance at
another mortgaged property in order to satisfy
current expenses with respect to the troubled
mortgaged property; and
o the owner could attempt to avert foreclosure on
one mortgaged property by filing a bankruptcy
petition that might have the effect of
interrupting monthly payments for an indefinite
period on all of the related mortgage loans.]
RELATED BORROWER LOANS
% OF
CUT-OFF DATE INITIAL
PRINCIPAL POOL
LOAN NO. PROPERTY NAME BALANCE BALANCE
-------- ----------------------------- ------------ -------
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<PAGE>
[ENFORCEABILITY OF
CROSS-COLLATERALIZED
AND CROSS-DEFAULTED
MORTGAGE LOANS MAY BE
CHALLENGED] [__ of the mortgage loans, representing ___% of
the initial pool balance, are cross-collateralized
and cross-defaulted with other mortgage loans in
the mortgage pool. These arrangements attempt to
reduce the risk that one mortgaged property may
not generate enough net operating income to pay
debt service.
o Cross-collateralization arrangements involving
more than one borrower could be challenged as a
fraudulent conveyance if:
o one of the borrowers were to become a debtor in
a bankruptcy case, or were to become subject to
an action brought by one or more of its
creditors outside a bankruptcy case;
o the related borrower did not receive fair
consideration or reasonably equivalent value in
exchange for allowing its mortgaged property to
be encumbered; and
o at the time the lien was granted, the borrower
was:
o insolvent;
o inadequately capitalized; or
o unable to pay its debts.]
[A BORROWER'S OTHER LOANS
MAY REDUCE THE CASH FLOW
AVAILABLE TO OPERATE AND
MAINTAIN THE MORTGAGED
PROPERTY OR INTERFERE WITH
LENDER'S RIGHTS UNDER THE
MORTGAGE LOANS WHICH MAY
ADVERSELY AFFECT PAYMENTS
ON YOUR CERTIFICATES]
[Other than as described in the succeeding
paragraphs, the mortgage loans generally prohibit
borrowers from incurring any additional debt that
is secured by the related mortgaged property.
However, subject, in most cases, to certain
limitations relating to maximum amounts, borrowers
generally may incur trade and operational debt in
connection with the ordinary operation and
maintenance of the related mortgaged property.
o The existence of other debt could:
o adversely affect the financial viability of the
borrowers by reducing the cash flow available to
the borrowers to operate and maintain the
mortgaged property;
o adversely affect the security interest of the
lender in the equipment or other assets acquired
through its financings;
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<PAGE>
o complicate bankruptcy proceedings; and
o delay foreclosure on the mortgaged property.
The borrowers under __ mortgage loans secured by
residential cooperatives, which collectively
represent __% of the initial pool balance, have
granted subordinate liens on the properties
related to these loans to secure subordinate
indebtedness on these properties. With respect to
these mortgage loans, no subordination and
standstill agreements have been executed, and the
holder of the subordinate mortgage may foreclose
on the related mortgaged property upon the
occurrence of an event of default under the
related subordinated mortgage. If the holder of
the subordinate mortgage did foreclose, it would
take title to the related mortgaged property
subject to the trust fund's priority lien thereon.
The borrowers under __ other mortgage loans, all
of which are secured by residential cooperative
properties, which collectively represent __% of
the initial pool balance, are also permitted to
incur a limited amount of indebtedness secured by
the related mortgaged properties. It is a
condition to the incurrence of any future secured
subordinate indebtedness on these mortgage loans
that: (i) the aggregate LTV of these loans be
below certain thresholds, generally __% calculated
on a loan-to-value ratio - cooperative basis, as
described under "Certain Characteristics of the
Mortgage Loans--Additional Mortgage Loan
Information"; and (ii) subordination agreements be
put in place between the trustee and the related
lenders. ]
[A MEZZANINE LOAN TO A
BORROWER OR BORROWER'S
PARENT OR A PREFERRED
EQUITY FINANCING
RELATED TO A BORROWER
MAY ADVERSELY AFFECT
PAYMENTS ON
YOUR CERTIFICATES] [The borrowers under __ mortgage loans,
representing __% of the initial pool balance have
informed the mortgage loan seller[s] that the
equity in these borrowers has been pledged to
secure mezzanine loans from lenders not affiliated
with any mortgage loan seller.
Upon a default under a mezzanine loan, the
mezzanine loan lender would be entitled to
foreclose upon the equity in the related borrower
that has been pledged to secure payment of the
mezzanine loan. This transfer of equity would not
trigger the "due on sale" clause under the related
mortgage loan, as described in this prospectus
supplement. If the mezzanine loan lender attempts
to foreclose upon the pledged equity, the obligor
may file for bankruptcy. A mezzanine loan may not
be transferred to another entity without the
consent of the applicable servicer and the rating
agencies or unless the related entity satisfies
certain requirements set forth in the pooling and
servicing agreement.
No mezzanine loan lender has a lien on, or has the
power to foreclose on, any of the mortgaged
properties or on any of the escrow accounts,
lockbox accounts or cash collateral accounts
established under the related mortgage loans. The
mezzanine loan lender's only remedy in the event
of non-payment is to foreclose upon the equity and
cash collateral accounts pledged to it and to
terminate the related property manager.
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<PAGE>
A preferred equity holder may be entitled to
receive certain preferred distributions prior to
distributions being made to the other partners or
members from funds remaining after all required
monthly debt service payments, reserve payments
and other payments under the related mortgage loan
are made, any obligations to other creditors have
been satisfied when due and all monthly operating
expenses with respect to the related mortgaged
property have been paid.
Additionally, a preferred equity holder may be
entitled to (i) terminate and replace the manager
of the related mortgaged property or properties,
or the managing member or general partner of the
borrower upon the occurrence of certain specified
breaches or, in some cases, if the debt service
coverage ratio falls below certain levels and (ii)
approve various significant decisions made by the
borrowers.]
THE OPERATION OF THE
MORTGAGED PROPERTY UPON
FORECLOSURE OF THE
MORTGAGE LOAN MAY
AFFECT THE TAX STATUS
OF THE TRUST FUND AND
ADVERSELY AFFECT THE
CERTIFICATES If the trust fund were to acquire a mortgaged
property pursuant to a foreclosure or delivery of
a deed in lieu of foreclosure, the related special
servicer would be required to retain an
independent contractor to operate and manage the
mortgaged property. Among other things, the
independent contractor would not be permitted to
perform construction work on the mortgaged
property unless that construction generally was at
least 10% complete at the time default on the
mortgage loan became imminent. In addition, any
net income from the property other than qualifying
"rents from real property" would subject the
lower-tier REMIC to federal and possibly state or
local tax on this income at the highest marginal
federal corporate tax rate currently 35%. This
would reduce net proceeds available for
distribution to certificateholders. Rents from
real property does not include any rental income
based on the net profits of a tenant or sub-tenant
or allocable to a service that is non-customary in
the area and for the type of building involved.
GEOGRAPHIC
CONCENTRATION OF THE
MORTGAGED PROPERTIES
MAY ADVERSELY AFFECT
PAYMENT ON
YOUR CERTIFICATES
The concentration of mortgaged properties in a
specific state or region will make the performance
of the pool of mortgage loans, as a whole, more
sensitive to the following factors in the state or
region where the borrowers and the mortgaged
properties are concentrated:
o economic conditions, including real estate
market conditions;
o changes in governmental rules and fiscal
policies;
o acts of God, which may result in uninsured
losses; and
o other factors which are beyond the control of
the borrowers.
The mortgaged properties are located in __ states
and the District of Columbia. The table below sets
forth the states in which a significant percentage
of the mortgaged properties are located. Except as
set forth below, no state contains more than __%,
by cut-off date principal balance of allocated
loan amount, of the mortgaged properties.
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<PAGE>
SIGNIFICANT GEOGRAPHIC CONCENTRATIONS OF MORTGAGED
PROPERTIES
% OF NUMBER OF
INITIAL MORTGAGED
STATE POOL BALANCE PROPERTIES
------------------------ ------------ ----------
SOME REMEDIES MAY NOT
BE AVAILABLE FOLLOWING
A MORTGAGE
LOAN DEFAULT
The mortgage loans contain "due-on-sale" and
"due-on-encumbrance" clauses. These clauses
permit the holder of the mortgage loan to
accelerate the maturity of the mortgage loan
if the related borrower sells or otherwise
transfers or encumbers the related mortgaged
property or its interest in the mortgaged
property in violation of the terms of the
mortgage. All of the mortgage loans also
include a debt-acceleration clause. A
debt-acceleration clause which permits the
lender to accelerate the debt upon specified
monetary or non-monetary defaults of the
borrower.
The courts of all states will enforce clauses
providing for acceleration in the event of a
material payment default. The equity courts
of a state, however, may refuse the
foreclosure or other sale of a mortgaged
property or refuse to permit the acceleration
of the indebtedness as a result of a default
deemed to be immaterial or if the exercise of
these remedies would be inequitable or
unjust.
Each of the mortgage loans is secured by an
assignment of leases and rents from the borrower,
which assignment may be contained within the
mortgage document. However, in many cases, the
borrower generally may collect rents for so long
as there is no default. As a result, the trust
fund's rights to these rents will be limited
because:
o the trust fund may not have a perfected security
interest in the rent payments until the related
servicer collects them;
o the related servicer may not be entitled to
collect the rent payments without court action;
and
o the bankruptcy of the related borrower could
limit the related servicer's ability to collect
the rents.
ENVIRONMENTAL LAWS MAY
ADVERSELY AFFECT
MORTGAGED
PROPERTY CASH FLOW Under various federal and state laws, a current or
previous owner or operator of real property may be
liable for the costs of cleanup of environmental
contamination on, under, at, or emanating from the
property. These laws often impose liability
whether or not the owner or operator knew of, or
was responsible for, the presence of the
contamination. The costs of any required cleanup
and the owner's liability for these costs are
generally not limited under these laws and could
exceed the value of the property and/or the
aggregate assets of
S-22
<PAGE>
the owner. Contamination of a property may give
rise to a lien on the property to assure the costs
of cleanup. An environmental lien may have
priority over the lien of an existing mortgage. In
addition, the presence of hazardous or toxic
substances, or the failure to properly clean up
contamination on the property, may adversely
affect the owner's or operator's future ability to
refinance the property.
Certain environmental laws impose liability for
releases of asbestos into the air, and govern the
responsibility for the removal, encapsulation or
disturbance of asbestos containing materials when
the asbestos containing materials are in poor
condition or when a property with asbestos
containing materials undergoes renovation or
demolition. Certain laws impose liability for
lead-based paint, lead in drinking water, elevated
radon gas inside buildings, and releases of
polychlorinated biphenyl compounds Third parties
may also seek recovery from owners or operators of
real property for personal injury associated with
exposure to asbestos, lead, radon, and
polychlorinated biphenyl compounds.
As described in this prospectus supplement under
"Certain Characteristics of the Mortgage
Loans--Underwriting Standards--Environmental
Assessments," no assessment, study or updated
database search revealed any environmental
condition or circumstance that the depositor
believes will have a material adverse impact on
the value of the related mortgaged property or the
related borrower's ability to pay its debt. It is
possible that the environmental site assessments
did not reveal all environmental liabilities or
that there are material environmental liabilities
of which neither the mortgage loan seller[s] nor
the depositor are aware. It is also possible that
the environmental condition of the mortgaged
properties in the future could be affected by
tenants, occupants, or by third parties unrelated
to the borrowers.
There can be no assurance that any of these
environmental conditions will not have a material
adverse effect on the value or cash flow of the
related mortgaged property. With respect to ____
of the mortgaged properties, which represent ___%
of the initial pool balance, the lender and/or the
related borrower obtained an insurance policy
against losses and expenses relating to certain
environmental contamination or potential
contamination which was identified on the related
mortgaged properties or in lieu of performing a
Phase II environmental assessment where one was
recommended.] See "Certain Characteristics of the
Mortgage Loans-- Environmental Matters" in this
prospectus supplement.
The borrowers generally agreed to establish and
maintain operations and maintenance programs,
abatement programs and/or environmental reserves
in cases where the environmental assessments
revealed:
o the existence of material amounts of friable
and/or non-friable asbestos;
o underground storage tanks that needed to be
replaced or removed;
o lead-based paint at certain of the multifamily
residential properties; or
S-23
<PAGE>
o other adverse environmental conditions,
including polychlorinated biphenyl compounds in
equipment, elevated radon levels or
contamination of soil and/or groundwater.
ONE ACTION RULES MAY
LIMIT
REMEDIES Several states, including California, have laws
that prohibit more than one "judicial action" to
enforce a mortgage obligation, and some courts
have construed the term "judicial action" broadly.
Accordingly, the applicable special servicer is
required to obtain advice of counsel prior to
enforcing any of the trust fund's rights under any
of the mortgage loans that include mortgaged
properties where the rule could be applicable. In
the case of either a cross-collateralized and
cross-defaulted mortgage loan or a multi-property
loan, which is secured by mortgaged properties
located in multiple states, the applicable special
servicer may be required to foreclose first on
properties located in states where the "one
action" rules apply, and where non-judicial
foreclosure is permitted, before foreclosing on
properties located in states where judicial
foreclosure is the only permitted method of
foreclosure.
APPRAISALS AND MARKET
STUDIES MAY
INACCURATELY REFLECT
THE VALUE OF THE
MORTGAGED
PROPERTIES In connection with the origination of each of the
mortgage loans, the related mortgaged property was
appraised by an independent appraiser.
In general, appraisals are not guarantees, and may
not be indicative, of present or future value
because:
o they represent the analysis and opinion of the
appraiser at the time the appraisal is
conducted;
o there can be no assurance that another appraiser
would not have arrived at a different valuation,
even if the appraiser used the same general
approach to, and the same method of, appraising
the mortgaged property; and
o appraisals seek to establish the amount a
typically motivated buyer would pay a typically
motivated seller and therefore, could be
significantly higher than the amount obtained
from the sale of a mortgaged property under a
distress or liquidation sale.
PROPERTY MANAGERS AND
BORROWERS MAY EACH
EXPERIENCE CONFLICTS OF
INTEREST IN MANAGING
MULTIPLE PROPERTIES Each of the managers of the mortgaged properties
and the borrowers may experience conflicts of
interest in the management and/or ownership of
these properties because:
o a substantial number of the mortgaged properties
are managed by property managers affiliated with
the respective borrowers;
o these property managers also may manage
additional properties, including properties that
may compete with the mortgaged properties; and
S-24
<PAGE>
o affiliates of the managers and/or the borrowers,
or the managers and/or the borrowers themselves,
also may own other properties, including
competing properties.
SERVICER[S] AND SPECIAL
SERVICER[S] MAY
EXPERIENCE CONFLICTS OF
INTEREST
The servicers and special servicers will service
loans other than those included in the trust fund
in the ordinary course of their businesses. These
loans may include mortgage loans similar to the
mortgage loans in the trust fund. These mortgage
loans and the related mortgaged properties may be
in the same markets as the mortgaged properties.
They may also have owners, obligors and/or
property managers in common with, certain of the
mortgage loans and the mortgaged properties.
In these cases, the interests of the servicers or
special servicers, as applicable, and their other
clients may differ from and compete with the
interests of the trust fund and these activities
may adversely affect the amount and timing of
collections on the mortgage loans. Under the
pooling and servicing agreement, the servicer and
the special servicer is required to service the
mortgage loans that each of them services in the
same manner, and with the same care, as similar
mortgage loans for their own portfolio or for the
portfolios of third parties.
LEASEHOLD INTERESTS ARE
SUBJECT TO TERMS OF THE
GROUND LEASE [_____ of the mortgage loans, representing ___% of
the initial pool balance, are primarily secured by
leasehold interests with respect to which the
related owner of the fee estate has not mortgaged
the fee estate as security for the related
mortgage loan. For the purposes of this prospectus
supplement, for any mortgaged property with
respect to which the ground lessee and ground
lessor are both parties to the mortgage, the
mortgaged property has been categorized as a fee
simple estate. For any mortgaged property that
partially consists of a leasehold interest, the
encumbered interest has been categorized as a fee
simple interest if the leasehold interest does not
constitute a material portion of the mortgaged
property.]
Upon the bankruptcy of a lessor or a lessee under
a ground lease, the debtor entity has the right to
continue or terminate the ground lease. Pursuant
to section 365(h) of the federal bankruptcy code,
a ground lessee whose ground lease is terminated
by a debtor ground lessor has the right to remain
in possession of its leased premises under the
rent reserved in the lease for the term of the
ground lease, including any renewals, but is not
entitled to enforce the obligation of the ground
lessor to provide any services required under the
ground lease. In the event of concurrent
bankruptcy proceedings involving the ground lessor
and the ground lessee/ borrower, the ground lease
could be terminated.
CHANGES IN ZONING LAWS
MAY AFFECT ABILITY TO
REPAIR OR RESTORE
MORTGAGED PROPERTY Due to changes in applicable building and zoning
ordinances and codes affecting certain of the
mortgaged properties which have come into effect
after the construction of these properties,
certain mortgaged properties may not comply fully
with current zoning laws because of:
S-25
<PAGE>
o density;
o use;
o parking;
o set-back requirements; or
o other building related conditions.
These changes will not interfere with the current
use of the mortgaged property. However, these
changes may limit the ability of the related
borrower to rebuild the premises "as is" in the
event of a substantial casualty loss which may
adversely affect the ability of the borrower to
meet its mortgage loan obligations from cash flow.
Generally, all mortgaged properties which no
longer conform to current zoning ordinances and
codes require the borrower to maintain "law and
ordinance" coverage which will insure the
increased cost of construction to comply with
current zoning ordinances and codes. Insurance
proceeds may not be sufficient to pay off the
mortgage loan in full. In addition, if the
mortgaged property were to be repaired or restored
in conformity with then current law, its value
could be less than the remaining balance on the
mortgage loan and it may produce less revenue than
before repair or restoration.
ENGINEERING REPORTS MAY
NOT DISCOVER ALL
REQUIRED REPAIRS
AND REPLACEMENTS Substantially all of the mortgaged properties, by
aggregate principal balance, were inspected by
engineering firms at the time the mortgage loans
were originated or acquired to evaluate:
o structure;
o exterior walls;
o roofing;
o interior construction;
o mechanical and electrical systems;
o general condition of the site; and
o buildings and other improvements located on the
mortgaged properties.
There can be no assurance that all conditions
requiring repair or replacement have been
identified in these inspections.
COMPLIANCE WITH
AMERICANS WITH
DISABILITIES ACT MAY
RESULT IN
ADDITIONAL COSTS Under the Americans with Disabilities Act of 1990,
all public accommodations are required to meet
certain federal requirements related to access and
use by disabled persons. To the extent a mortgaged
property does not comply with the Americans with
Disabilities Act of 1990, the related borrower may
be required to incur costs to comply with this
law. In addition, noncompliance could result
S-26
<PAGE>
in the imposition of fines by the federal
government or an award of damages to private
litigants.
LITIGATION MAY AFFECT
THE TIMING AND/OR
PAYMENT ON YOUR
CERTIFICATES There may be legal proceedings pending and, from
time to time, threatened against a borrower or its
affiliates arising out of the ordinary course of
business of the borrower and its affiliates. There
can be no assurance that this litigation will not
have a material adverse effect on the
distributions to certificateholders.
POTENTIAL DEFAULTS
UNDER CERTAIN MORTGAGE
LOANS MAY AFFECT THE
TIMING AND/OR PAYMENT
ON YOUR
CERTIFICATES Any defaults that may occur under the mortgage
loans may result in shortfalls in the payments on
these mortgage loans. Even if these defaults are
non-monetary, the Servicer[s] may still accelerate
the maturity of the related mortgage loan which
could result in an acceleration of payments to
Certificateholders.
CERTAIN LOANS MAY
REQUIRE PRINCIPAL
PAYDOWNS WHICH MAY
REDUCE THE YIELD ON YOUR
CERTIFICATES [_____ of the mortgage loans, representing ___% of
the initial pool balance, may require the related
borrower to make partial prepayments if certain
conditions, including, in certain cases, meeting
certain debt service coverage ratios and/or
satisfying certain leasing conditions, have not
been satisfied. The required prepayment may need
to be made even though the mortgage loan is in its
lockout period. With respect to prepayments on
these mortgage loans, the holders of any class of
offered certificates receiving the required
prepayment will be entitled to receive, only from
amounts actually paid by the borrower to the
related servicer and not from assets of the trust
fund, any prepayment premium or yield maintenance
charge payments required by the loan documents.
See "Certain Characteristics of the Mortgage
Loans--Certain Terms and Conditions of the
Mortgage Loans--Mortgage Loans which May Require
Principal Paydowns."]
RISKS RELATED TO THE OFFERED CERTIFICATES
THE TRUST FUND'S ASSETS
MAY BE INSUFFICIENT TO
ALLOW FOR REPAYMENT IN
FULL ON YOUR
CERTIFICATES If the assets of the trust fund are insufficient
to make payments on the offered certificates, no
other assets will be available for payment of the
deficiency.
PREPAYMENTS AND
DEFAULTS MAY REDUCE THE
YIELD ON YOUR
CERTIFICATES The yield to maturity on each class of
certificates will depend in part on the following:
o the purchase price for the certificates
o the rate and timing of voluntary and involuntary
principal prepayments, including repurchases by
a mortgage loan seller[s] for breaches of
representations and warranties;
S-27
<PAGE>
o the rate and timing of delinquencies and losses;
o interest shortfalls resulting from prepayments;
and
o the receipt and allocation of prepayment
premiums and/or yield maintenance charges.
The investment performance of the offered
certificates may be materially different from what
you expected if the assumptions you make with
respect to the factors listed above are incorrect.
If you purchase an offered certificate at a
premium and principal distributions on the
certificate, including voluntary and involuntary
prepayments, occur at a rate faster than you
anticipated at the time of purchase, and even if
prepayment premiums or yield maintenance charges
are collected, your actual yield to maturity may
be lower than the yield you assumed at the time of
purchase. Conversely, if you purchase an offered
certificate at a discount and principal
distributions on the certificate, including
voluntary and involuntary prepayments, occur at a
rate slower than that you assumed at the time of
purchase, your actual yield to maturity may be
lower than the yield you assumed at the time of
purchase.
Generally speaking, borrowers are less likely to
prepay if prevailing interest rates are at or
above the rates borne by the mortgage loans. On
the other hand, borrowers are more likely to
prepay if prevailing rates fall significantly
below the interest rates of the mortgage loans.
Borrowers are less likely to prepay mortgage loans
with lockout periods, prepayment premium
provisions or yield maintenance charge provisions,
to the extent enforceable, than otherwise
identical mortgage loans without these provisions,
with shorter lockout periods or with lower
prepayment premiums or yield maintenance charges.
The servicers will not be required to advance any
prepayment premiums or yield maintenance charges.
Delinquencies on the mortgage loans, if the
delinquent amounts are not advanced, may result in
shortfalls in distributions of interest and/or
principal to the offered certificates for the
current month. Any late payments received on or in
respect of the mortgage loans will be distributed
to the certificates in the priorities described
more fully in this prospectus supplement, but no
interest will accrue on this shortfall during the
period of time that the payment is delinquent.
Even if losses on the mortgage loans are allocated
to a particular class of offered certificates, the
losses may affect the weighted average life and
yield to maturity of other classes of
certificates. Losses on the mortgage loans, to the
extent not allocated to a class of offered
certificates, may result in a higher percentage
ownership interest evidenced by these certificates
than would otherwise have resulted absent the
loss. The consequent effect on the weighted
average life and yield to maturity of the offered
certificates will depend upon the characteristics
of the remaining mortgage loans.
Provisions requiring prepayment premiums or yield
maintenance charges may not be enforceable in some
states and under federal bankruptcy law, and may
constitute interest for usury purposes.
Accordingly, no assurance can be given that the
obligation to pay a prepayment premium or a yield
maintenance charge will be enforceable
S-28
<PAGE>
or, if enforceable, that the foreclosure proceeds
will be sufficient to pay the prepayment premium
or yield maintenance charge. Additionally,
although the collateral substitution provisions
related to defeasance are not intended to be, and
do not have the same effect on the
certificateholders as, a prepayment, there can be
no assurance that a court would not interpret
these provisions as requiring a prepayment premium
or yield maintenance charge which may be
unenforceable or usurious under applicable law.
THE SERVICER'[S] RIGHT
TO RECEIVE INTEREST ON
ADVANCES MAY RESULT IN
ADDITIONAL LOSSES TO
THE TRUST FUND The servicer or the trustee, as applicable, will
be entitled to receive interest on unreimbursed
advances and unreimbursed servicing expenses. This
interest will generally accrue from the date on
which the related advance is made or the related
expense is incurred through the date of
reimbursement. The right to receive these payments
of interest is senior to the rights of
certificateholders to receive distributions on the
offered certificates and, consequently, may result
in losses being allocated to the offered
certificates that would not have resulted absent
the accrual of this interest.
IF THE SERVICER[S] OR
SPECIAL SERVICER[S]
PURCHASE CERTIFICATES,
A CONFLICT OF INTEREST
COULD ARISE BETWEEN
THEIR DUTIES AND THEIR
INTERESTS IN THE
CERTIFICATES The servicers or special servicers or an affiliate
thereof may purchase any class of certificates. It
is anticipated that one or more of the special
servicers may purchase all or a portion of the
Class G, Class H, Class J, Class K, Class L, Class
M and Class N Certificates. However, there can be
no assurance that any special servicer or an
affiliate of any special servicer will purchase
any certificates. The purchase of certificates by
a servicer or special servicer could cause a
conflict between its duties pursuant to the
pooling and servicing agreement and its interest
as a holder of a certificate, especially to the
extent that certain actions or events have a
disproportionate effect on one or more classes of
certificates. However, under the pooling and
servicing agreement, The servicer and The special
servicer is required to service the mortgage loans
that each of them services in the same manner, and
with the same care, as similar mortgage loans for
their own portfolio or for the portfolios of third
parties.
SPECIAL SERVICER[S] MAY
BE REMOVED BY CERTAIN
INVESTORS
WITHOUT CAUSE The holders of a majority of the percentage
interests of the controlling class, initially a
portion of which may be purchased by the special
servicers, will be entitled, at their option, to
remove any special servicer, with or without
cause, and appoint a successor special servicer
chosen by these holders without the consent of the
holders of any other certificates, the trustee or
the related servicer, provided that each rating
agency confirms in writing that the removal and
appointment, in and of itself, would not cause a
downgrade, qualification or withdrawal of the then
current ratings assigned to any class of
certificates and provided that these holders pay
the expense of the removal and appointment.
S-29
<PAGE>
BOOK-ENTRY REGISTRATION
OF THE CERTIFICATES MAY
REQUIRE YOU TO EXERCISE
YOUR RIGHTS
THROUGH THE DEPOSITORY
TRUST COMPANY Each class of offered certificates initially will
be represented by one or more certificates
registered in the name of Cede & Co., as the
nominee for The Depository Trust Company,
generally referred to as DTC, and will not be
registered in the names of the related beneficial
owners of certificates or their nominees. As a
result, unless and until definitive certificates
are issued, beneficial owners of offered
certificates will not be recognized as
"certificateholders" for certain purposes.
Therefore, until you are recognized as a
"certificateholder," you will be able to exercise
the rights of holders of certificates only
indirectly through The Depository Trust Company,
and its participating organizations.
As a beneficial owner holding a certificate
through the book-entry system, you will be
entitled to receive the reports described under
"The Pooling and Servicing Agreement--Reports to
Certificateholders; Available Information" and
notices only through the facilities of DTC and its
respective participants or from the trustee, if
you have certified to the trustee that you are a
beneficial owner of offered certificates using the
form annexed to the pooling and servicing
agreement. Upon presentation of evidence
satisfactory to the trustee of your beneficial
ownership interest in the offered certificates,
you will be entitled to receive, upon request in
writing, copies of monthly reports to
certificateholders from the trustee.
YOU MAY BE BOUND BY THE
ACTIONS OF OTHER
CERTIFICATEHOLDERS In some circumstances, the consent or approval of
the holders of a specified percentage of the
certificates will be required to direct, consent
to or approve certain actions, including amending
the pooling and servicing agreement. In these
cases, this consent or approval will be sufficient
to bind all holders of certificates.
LACK OF A SECONDARY
MARKET FOR THE
CERTIFICATES MAY MAKE
IT DIFFICULT FOR YOU
TO RESELL YOUR
CERTIFICATES There currently is no secondary market for the
offered certificates. Although the underwriter[s]
have advised the depositor that they currently
intend to make a secondary market in the offered
certificates, they are under no obligation to do
so. Accordingly, there can be no assurance that a
secondary market for the offered certificates will
develop. Moreover, if a secondary market does
develop, there can be no assurance that it will
provide you with liquidity of investment or that
it will continue for the life of the offered
certificates. The offered certificates will not be
listed on any securities exchange. Lack of
liquidity could adversely affect the market value
of the offered certificates. The market value of
the offered certificates at any time may be
affected by many other factors, including then
prevailing interest rates, and no representation
is made by any person or entity as to what the
market value of any offered certificate will be at
any time
S-30
<PAGE>
CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT
From time to time we use capitalized terms in this prospectus supplement. A
Capitalized term used throughout this prospectus supplement will have the
meaning assigned to it in the "Glossary" attached to this prospectus supplement.
LOOKING FORWARD STATEMENTS
This prospectus supplement and the accompanying prospectus includes the words
"expects", "intends", "anticipates", "estimates" and similar words and
expressions. These words and expressions are intended to identify forward-
looking statements. Any forward-looking statements are made subject to risks and
uncertainties which could cause actual results to differ materially from those
stated. These risks and uncertainties include, among other things, declines in
general economic and business conditions, increased competition, changes in
demographics, changes in political and social conditions, regulatory initiatives
and changes in customer preferences, many of which are beyond our control and
the control of any other person or entity related to this offering. The
forward-looking statements made in this prospectus supplement are accurate as of
the date stated on the cover of this prospectus supplement. We have no
obligation to update or revise any forward-looking statement.
S-31
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The Trust Fund will consist primarily of ___ [fixed rate]/[adjustable
rate] loans, secured by ___ multifamily, commercial and residential cooperative
properties, (the "Mortgage Loans"). The Mortgage Loans will have an aggregate
principal balance of approximately $________ (the "Initial Pool Balance") as of
________ __, 200_ (the "Cut-off Date"), subject to a variance of plus or minus
__%. For the purposes of this prospectus supplement, any Multi-Property Loan is
considered to be one Mortgage Loan. Any loans made to affiliated borrowers are
considered separate Mortgage Loans. For purposes of describing the property type
and geographic distribution of Mortgaged Properties, Allocated Loan Amounts, as
shown on Annex A, are used for Multi-Property Loans. All numerical information
provided in this prospectus supplement with respect to the Mortgage Loans is
provided on an approximate basis. All percentages of the Trust Fund, or of any
specified sub-group thereof, referred to in this prospectus supplement without
further description are approximate percentages by aggregate Cut-off Date
Principal Balance. Descriptions of the terms and provisions of the Mortgage
Loans are generalized in the aggregate. Many of the individual Mortgage Loans
have specific terms and provisions that deviate from the general description.
Each Mortgage Loan is evidenced by one or more notes (each, a "Mortgage
Note"), and secured by one or more mortgages, deeds of trust or other similar
security instruments (each, a "Mortgage"). Each of the Mortgages creates a first
lien on the interests of the related borrower in certain land used for
commercial or multifamily residential purposes, all buildings and improvements
thereon and certain personal property located thereon, and, in certain cases,
reserve funds (collectively, "Mortgaged Properties"), as set forth in the
following table:
SECURITY FOR THE MORTGAGE LOANS
% OF INITIAL NUMBER OF
INTEREST OF POOL MORTGAGED
BORROWER ENCUMBERED BALANCE(1) PROPERTIES
----------------------------- ------------ ----------
%
Fee Simples Estate(2)....
Leasehold................ %
%
TOTAL
----------
(1) Based on the principal balance of the Mortgage Loan or, for any
Multi-Property Loan, the Allocated Loan Amount with respect to each
portion of the related Mortgaged Property.
(2) For any Mortgaged Property subject to a ground lease where the ground
lessee and ground lessor are both parties to the Mortgage, the Mortgaged
Property was categorized as a fee simple estate. For any Mortgaged
Property that partially consists of a leasehold interest, the encumbered
interest has been categorized as a fee simple interest if the leasehold
interest does not constitute a material portion of the Mortgaged Property.
Each Mortgaged Property consists of land improved by -
o an office building, an "Office Property" any Mortgage Loan secured
thereby, an "Office Loan";
o a retail property, a "Retail Property" and any Mortgage Loan secured
thereby, a "Retail Loan";
o an apartment building or complex consisting of five or more rental
units, a "Multifamily Property" and any Mortgage Loan secured
thereby, a "Multifamily Loan";
o a full or limited service or extended stay hotel/motel property, a
"Hospitality Property" or a "Lodging Property", and any Mortgage
Loan secured thereby, a "Hospitality Loan" or a "Lodging Loan";
o an industrial property, an "Industrial Property" and any Mortgage
Loan secured thereby, an "Industrial Loan;
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o a residential cooperative property, a "Residential Cooperative
Property" and any Mortgage Loan secured thereby, a "Residential
Cooperative Loan";
o mixed use properties, each, a "Mixed Use Property", and any Mortgage
Loan secured thereby, a "Mixed Use Loan"; or
o certain other properties, including but not limited to, manufactured
housing communities (__% of Initial Pool Balance), assisted living
facilities (__% of Initial Pool Balance) and self-storage facilities
(__% of Initial Pool Balance) (each, an "Other Property") and any
Mortgage Loan secured thereby, an "Other Loan. Certain statistical
information relating to the various types of Mortgaged Properties is
set forth in the table under "Certain Characteristics of the
Mortgage Loans--Additional Mortgage Loan Information-- Mortgaged
Properties by Property Type."
___ Mortgage Loans, representing approximately ___% of the Initial Pool
Balance, are evidenced by two or more Mortgage Notes which are secured and
cross-collateralized by two or more Mortgaged Properties.
___ Mortgage Loans, representing approximately ___% of the Initial Pool
Balance, are secured by two or more Mortgaged Properties, under a single
Mortgage Note by a single borrower.
___ Mortgage Loans, representing approximately ___% of the Initial Pool
Balance, which are not cross-collateralized, are loans to borrowers which are
under common ownership. See "Risk Factors--Risks Related to the Mortgage
Loans--Mortgage Loans to Related Borrowers May Result in More Severe Losses on
Your Certificates."
None of the Mortgage Loans is insured or guaranteed by the United States,
any governmental agency or instrumentality, any private mortgage insurer or by
the depositor, the Mortgage Loan Seller[s], the Servicer[s], the Special
Servicer[s], the Trustee or any of their respective affiliates except that, with
respect to certain of the mortgage loans, the trust fund will have the benefit
of environmental insurance policies. See "Certain Characteristics of the
Mortgage Loans--Environmental Matters" in this prospectus supplement. Except for
the ___________ Mortgage Loans, which are generally fully recourse to the
Borrower, the Mortgage Loans generally are non-recourse except in limited
circumstances such as a default resulting from voluntary bankruptcy, fraud or
other willful misconduct of the borrower. If a borrower defaults on any Mortgage
Loan, recourse generally may be had only against the specific Mortgaged Property
or Mortgaged Properties securing such Mortgage Loan and such limited other
assets as have been pledged to secure such Mortgage Loan, and not against the
borrower's other assets.
Credit Suisse First Boston Mortgage Securities Corp. will purchase the
Mortgage Loans to be included in the Trust Fund on or before the date on which
the Certificates are issued from _______ (the "Mortgage Loan Seller"). The
Mortgage Loans which will be sold to the depositor by the Mortgage Loan
Seller[s] were originated or purchased by the [applicable] Mortgage Loan Seller.
The Mortgage Loan Seller[s] are selling the Mortgage Loans without recourse and,
accordingly, in such capacity, will have no obligations with respect to the
Certificates other than pursuant to the limited representations, warranties and
covenants made by each Mortgage Loan Seller[s] to the depositor and assigned by
the depositor to the Trustee for the benefit of the Certificateholders. See
"Description of the Governing Documents--Representations and Warranties with
Respect to Mortgage Assets" in the accompanying prospectus.
___________ will service the Mortgage Loans pursuant to the Pooling and
Servicing Agreement.
SECURITY FOR THE MORTGAGE LOANS
In addition to the security of one or more Mortgages encumbering the
related borrower's interest in the applicable Mortgaged Property or Mortgaged
Properties, each Mortgage Loan also is secured by an assignment of the related
borrower's interest in the leases, rents, issues and profits of the related
Mortgaged Properties. In certain instances, additional collateral exists in the
nature of partial indemnities or guaranties, or one or more Escrow Accounts for,
among other things, replacements of furniture, fixtures and equipment and
environmental remediation, real estate taxes, insurance premiums and ground
rents, deferred maintenance and/or scheduled capital improvements, re-leasing
reserves and seasonal working capital reserves. The Mortgage Loans generally
provide for the indemnification of the lender by the borrower (or related
principals) for the presence of any hazardous
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substances not identified in the related environmental site assessments
affecting the Mortgaged Property. In addition, ___ Mortgaged Properties securing
Mortgage Loans representing ___% of the Initial Pool Balance, are covered by
insurance policies insuring against certain environmental-related losses. See
"Certain Characteristics of the Mortgage Loans--Environmental Matters."
Each Mortgage constitutes a first lien on a Mortgaged Property, subject
generally only to--
o liens for real estate and other taxes and special assessments not
yet due and payable;
o covenants, conditions, restrictions, rights of way, easements and
other encumbrances whether or not of public record as of the date of
recording of the Mortgage, such exceptions having been acceptable to
the related Mortgage Loan Seller, as applicable, in connection with
the purchase or origination of such Mortgage Loan; and
o such other exceptions and encumbrances on Mortgaged Properties as
are reflected in the related title insurance policies.
See "Certain Characteristics of the Mortgage Loans--Certain Terms and
Conditions of the Mortgage Loans--Escrows."
THE MORTGAGE LOAN SELLER[S]
The Mortgage Loans were sold to us by the Mortgage Loan Seller. The
Mortgage Loan Seller is a ________________ formed as a ______ to originate and
acquire loans secured by mortgages on commercial and multifamily real estate.
Each of the Mortgage Loans sold by the Mortgage Loan Seller to us was purchased
or originated by the Mortgage Loan Seller and underwritten by the Mortgage Loan
Seller'[s] Underwriter[s]. The principal office of the Mortgage Loan Seller is
located at ____________. Its telephone number is ____________.
[INSERT DESCRIPTION OF MORTGAGE LOAN SELLER UNDERWRITING STANDARD.]
MORTGAGE LOAN SELLER UNDERWRITING STANDARDS
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
[MULTIPLE NOTE LOANS]
[Insert Description Of Multiple Note Loans]
SIGNIFICANT MORTGAGE LOANS
[Insert Description of Significant Mortgage Loans]
[Insert Significant Mortgage Loan Description Table]
ENVIRONMENTAL MATTERS
The information set forth in this prospectus supplement is based on
information contained in the environmental assessments described under
"Description of the Mortgage Loans--Underwriting Standards."
Environmental Insurance.
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<PAGE>
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
General. For a detailed presentation of the characteristics of the
Mortgage Loans on a loan-by-loan basis, see Annex A hereto.
Due Dates. With respect to ____ Mortgage Loans (representing approximately
____% of the Initial Pool Balance), the Due Date is the ____ day of each month,
with respect to ____ Mortgage Loans (representing approximately ____% of the
Initial Pool Balance), the Due Date is the 1st day of each month and with
respect to one Mortgage Loan (representing ____% of the Initial Pool Balance),
the Due Date is the ____th day of each month. No Mortgage Loan has a grace
period for payment defaults that extends beyond the related Determination Date.
Mortgage Rates; Calculations of Interest. ________ Mortgage Loans,
representing ____% of the Initial Pool Balance, accrue interest on a 30/360
basis. The balance of the Mortgage Loans accrue interest on an Actual/360 basis.
Each of the Mortgage Loans accrues interest at the related Mortgage Rate, which
is fixed for the entire remaining term to maturity [or, in the case of an ARD
Loan, the remaining term to Anticipated Repayment Date) of such Mortgage Loan.
Except as described below under "--Excess Interest," most of the Mortgage Loans
accrue interest at a higher rate after their respective Anticipated Repayment
Dates. Each Mortgage Loan generally requires the related borrower to make a
constant Monthly Payment that is calculated based on the related Mortgage Rate,
the amortization schedule for such Mortgage Loan and the initial principal
balance thereof and assumes that such Mortgage Loan accrues interest on a 30/360
basis. [If any of the Mortgage Loans have floating or adjustable mortgage
interest rates, discuss calculations of those rates, including indices, gross
margins, adjustment dates, floors and caps.]
[Excess Interest. ____ of the Mortgage Loans, representing ___% of the
Initial Pool Balance, are ARD Loans which bear interest at their respective
Mortgage Rates until an Anticipated Repayment Date. Commencing on the respective
Anticipated Repayment Date, the ARD Loans generally will bear interest at a
fixed rate (the "Revised Rate") per annum equal to the Mortgage Rate plus a
specified percentage (generally, no more than ___%, so long as the Mortgage Loan
is included in the Trust Fund). Until the principal balance of each such
Mortgage Loan has been reduced to zero, such Mortgage Loan will only be required
to pay interest at the Mortgage Rate, and the interest accrued at the excess of
the related Revised Rate over the related Mortgage Rate will be deferred (such
accrued and deferred interest and interest thereon, if any, is referred to in
this prospectus supplement as Excess Interest.
The date on which such Mortgage Loan begins accruing Excess Interest is
referred to in this prospectus supplement as the "Anticipated Repayment Date" or
"ARD". Except where limited by applicable law, Excess Interest will not be added
to the principal balance of the related Mortgage Loan but will accrue interest
at the Revised Rate. Prior to the Anticipated Repayment Date, borrowers under
ARD Loans generally have entered into, or will be required to enter into, a
lockbox agreement whereby all revenue generally will be deposited directly into
a Lockbox Account controlled by the Servicer[s] following the Anticipated
Repayment Date.
From and after the Anticipated Repayment Date, the related borrower
generally will be required to apply all monthly cash flow from the related
Mortgaged Property to pay the following amounts in the following order of
priority -
o required payments to the tax and insurance escrow fund and any
ground lease escrow fund;
o payment of monthly debt service (at the initial mortgage loan rate
and amortization);
o payments to any other required escrow funds;
o payment of operating expenses pursuant to the terms of an annual
budget approved by the Servicer;
o payment of approved extraordinary operating expenses or capital
expenses not set forth in the approved annual budget or allotted for
in any escrow fund;
o principal on the Mortgage Loan until such principal is paid in full;
and
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<PAGE>
o Excess Interest, until paid in full.
The cash flow from the Mortgaged Property securing an ARD Loan after
payments of items (1) through (7) above is referred to in this prospectus
supplement as excess cash flow. As described below, each ARD Loan generally
provides that the related borrower is prohibited from prepaying the Mortgage
Loan until one to six months prior to the Anticipated Repayment Date but, upon
the commencement of such period, may prepay the loan, in whole or in part,
without payment of a Prepayment Premium or Yield Maintenance Charge. The
Anticipated Repayment Date for each ARD Loan is listed in Annex A.]
[The holder of ____% of the Class ____ Certificates will have the option
for up to ________ months after the Anticipated Repayment Date for any ________
Mortgage Loan which is an ARD Loan, and the holder of [100]% of the Class ____
Certificates will have the option for up to ___ months after the Anticipated
Repayment Date for any ________ Mortgage Loan which is an ARD Loan, in each
case, to purchase such ARD Loan at a price equal to its outstanding principal
balance plus accrued and unpaid interest, any unreimbursed Advances with
interest thereon and any special servicing fees due with respect thereto. As a
condition to such purchase, each such holder will be required to deliver an
opinion of counsel to the effect that such purchase (or such right to purchase)
would not cause (a) either REMIC to fail to qualify as a REMIC under the
Internal Revenue Code of 1986 at any time that any Certificate is outstanding
and (b) would not cause the arrangement between the Trust Fund and the Class
____ Certificateholders or Class ____ Certificateholders, as applicable, to be
other than a grantor trust for federal income tax purposes, and (i) an opinion
of counsel to the effect that such purchase would not result in a gain which
would be subject to the tax on net income derived from prohibited transactions
imposed by Section 860F(a)(1) of the Internal Revenue Code of 1986 or otherwise
result in the imposition of any other tax on either REMIC under the REMIC
provisions of the Internal Revenue Code of 1986 or (ii) an accountant's
certification to the effect that such purchase would not result in the
realization of any net income to either REMIC.]
Amortization of Principal. Balloon loans provide for monthly payments of
principal based on amortization schedules at least ________ months longer than
their original terms, thereby resulting in substantial principal amounts due and
payable, a balloon payment, on their respective maturity dates, unless
previously prepaid. The remaining Mortgage Loans are either (a) fully amortizing
Mortgage Loans that fully amortize or, in the case of any such Mortgage Loans
that accrue interest on an [Actual/360 basis], substantially fully amortize,
over their terms and are not ARD Loans or (b) ARD Loans.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
% OF INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
---------------------- ------------ ---------
Prepayment Provisions. Each Mortgage Loan restricts voluntary prepayments
in one or more of the following ways-
o by prohibiting any prepayments for a specified period of time after
the date of origination of such Mortgage Loan (a "Lockout Period");
o by requiring that any voluntary principal prepayment made during a
specified period of time after the date of origination of such
Mortgage Loan or, in the case of a Mortgage Loan also subject to a
Lockout Period, after the date of expiration of such Lockout Period
(a "Yield Maintenance Period") be accompanied by a Yield Maintenance
Charge (as defined below); and/or
o by imposing fees or premiums generally equal to a percentage of the
then outstanding principal balance of such Mortgage Loan
("Prepayment Premiums") in connection with full or partial voluntary
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principal prepayments for a specified period of time after the
expiration of the related Lockout Period and any Yield Maintenance
Period (a "Prepayment Premium Period").
The Mortgage Loans generally permit prepayments to be made either (1) on a
Due Date or (2) provided that such prepayment is accompanied by interest through
the next Due Date, on any date. All of the Mortgage Loans specify a period of
time (generally ______ to ______ months) prior to the maturity date or
Anticipated Repayment Date, as applicable, of such Mortgage Notes during which
there are no restrictions on voluntary prepayments on any Due Date.
For the purposes of this prospectus supplement and the statistical
information presented in this prospectus supplement -
o the entire principal balance of each Additional Collateral Loan is
deemed to be subject to a Lockout Period for the related Remaining
Lockout period set forth on Annex A hereto, notwithstanding the fact
that Required Prepayments could occur under such Additional
Collateral Loans during such Lockout Period; and
o it is assumed that each ARD Loan prepays on the related Anticipated
Repayment Date, notwithstanding the fact that prepayments could
occur under such ARD Loans prior to such Anticipated Repayment Date
and that, in either case, such prepayments would not be accompanied
by payment of a Yield Maintenance Charge or Prepayment Premium.
See "Risk Factors--Risks Related to the Mortgage Loans--Certain Loans May
Require Principal Paydowns which May Reduce the Yield on Your Certificates" and
"--Risks Related to The Offered Certificates--Prepayments and Defaults May
Reduce the Yield on Your Certificates."
The "Yield Maintenance Charge" for any Mortgage Loan providing for such a
charge generally will be equal to [specify calculation of yield maintenance
charge]
[Insert Chart For Yield Maintenance]
Prepayment Premiums and Yield Maintenance Charges are distributable as
described in this prospectus supplement under "Description of the Offered
Certificates--Distributions--Allocation of Prepayment Premiums and Yield
Maintenance Charges."
Unless a Mortgage Loan is relatively near its stated maturity date or
unless the sale price or the amount of the refinancing of the related Mortgaged
Property is considerably higher than the current outstanding principal balance
of such Mortgage Loan (due to an increase in the value of the Mortgaged Property
or otherwise), the Yield Maintenance Charge or Prepayment Premium may, even in a
relatively low interest rate environment, offset entirely or render
insignificant any economic benefit to be received by the borrower upon a
refinancing or sale of the Mortgaged Property. The Yield Maintenance Charge or
Prepayment Premium provision of a Mortgage Loan creates an economic disincentive
for the borrower to prepay such Mortgage Loan voluntarily and, accordingly, the
related borrower may elect not to prepay such Mortgage Loan.
However, there can be no assurance that the imposition of a Yield
Maintenance Charge or Prepayment Premium will provide a sufficient disincentive
to prevent a voluntary principal prepayment. Furthermore, certain state laws
limit the amounts that a lender may collect from a borrower as an additional
charge in connection with the prepayment of a mortgage loan. Even if a borrower
does elect to pay a Yield Maintenance Charge or Prepayment Premium, the Pooling
and Servicing Agreement provides that amounts received from borrowers will be
applied to payments of principal and interest on the Mortgage Loans being
prepaid prior to being distributed as Yield Maintenance Charges or Prepayment
Premiums.
The Mortgage Loans generally provide that in the event of an involuntary
prepayment made after an event of default has occurred, a Yield Maintenance
Charge or Prepayment Premium will be due. The enforceability of provisions
providing for payments comparable to the Prepayment Premiums and/or Yield
Maintenance Charges upon an involuntary prepayment is unclear under the laws of
a number of states. No assurance can be given that, at the time a Prepayment
Premium or a Yield Maintenance Charge is required to be made on a Mortgage Loan
in
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<PAGE>
connection with an involuntary prepayment, the obligation to pay such Prepayment
Premium or Yield Maintenance Charge will be enforceable under applicable state
law. See "Legal Aspects of the Mortgage Loans in the accompanying prospectus.
None of the depositor or the Mortgage Loan Seller[s] makes any
representation as to the enforceability of the provision of any Mortgage Loan
requiring the payment of a Prepayment Premium or Yield Maintenance Charge, or of
the collectibility of any Prepayment Premium or Yield Maintenance Charge. See
"Risk Factors--Risks Related to the Offered Certificates--Prepayments And
Defaults May Reduce The Yield On Your Certificates."
Casualty and Condemnation. In the event of a condemnation or casualty the
Mortgage Loans generally require the borrower to restore the related Mortgaged
Property, and the lender may under certain circumstances apply the condemnation
award or insurance proceeds to the repayment of debt, which, in the case of
substantially all of the Mortgage Loans, will not require payment of any
Prepayment Premium or Yield Maintenance Charge. In the case of a majority of the
Mortgage Loans, if the award or loss is less than a specified amount or a
specified percentage of the original principal balance of the Mortgage Loan or
affects less than a specified percentage of Mortgaged Property and if in the
reasonable judgment of the Servicer[s] or Special Servicer[s] as the case may be
-
o the Mortgaged Property can be restored within the time period
specified in the related loan documents to a state no less valuable
or useful than it was prior to the condemnation or casualty, or
would meet a debt service coverage test;
o after a restoration the Mortgaged Property would adequately secure
the outstanding balance of the Mortgage Note; and
o no event of default under such Mortgage Loan has occurred or is
continuing, the proceeds or award may be applied by the borrower to
the costs of repairing or replacing the Mortgaged Property.
A [limited] number of Mortgage Loans provide that if casualty or
condemnation proceeds are above a specified amount, the borrower will be
permitted to supplement such proceeds with an amount sufficient to prepay the
entire principal balance of the Mortgage Loan without Prepayment Premium or
Yield Maintenance Charge. Certain Mortgage Loans provide that, in the event of a
partial prepayment resulting from the occurrence of a casualty or condemnation,
the constant Monthly Payment may be reduced based on the remaining amortization
period, the Mortgage Rate and the outstanding Principal Loan Balance. In such
event, no Prepayment Premium or Yield Maintenance Charge would be required to be
paid.
Defeasance.
Defeasance Loans. ________ of the mortgage loans that we intend to include
in the trust, representing ____% of the initial mortgage pool balance, permit
the borrower to deliver U.S. government securities as substitute collateral.
Each of these mortgage loans permits the related borrower, during
specified periods and subject to specified conditions, to pledge to the holder
of the mortgage loan the requisite amount of direct, non-callable U.S.
government securities and obtain a full or partial release of the mortgaged real
property. In general, the U.S. government securities that are to be delivered in
connection with the defeasance of any mortgage loan, must provide for a series
of payments that--
o will be made prior, but as closely as possible, to all successive
due dates through and including the maturity date, and
o will, in the case of each due date, be in a total amount equal to or
greater than the monthly debt service payment, including any
applicable balloon payment, scheduled to be due on that date, with
any excess to be returned to the related borrower.
[For purposes of determining the defeasance collateral for an ARD Loan,
however, that mortgage loan will be treated as if a balloon payment is due on
its anticipated repayment date.]
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If fewer than all of the real properties securing any particular mortgage
loans or group of cross-collateralized mortgage loans are to be released in
connection with any defeasance, the requisite defeasance collateral will be
calculated based on the allocated loan amount for the properties to be released
and the portion of the monthly debt service payments attributable to that
allocated loan amount.
In connection with any delivery of defeasance collateral, the related
borrower will be required to deliver a security agreement granting the trust a
first priority security interest in the collateral, together with an opinion of
counsel confirming the first priority status of the security interest.
None of the mortgage loans that we intend to include in the trust may be
defeased prior to the ____ anniversary of the date of initial issuance of the
certificates.
The depositor and Mortgage Loan Seller[s] make no representation as to the
enforceability of the defeasance provisions of any Mortgage Loan. See "Risk
Factors--Risks Related to the Offered Certificates - Prepayments and Defaults
May Reduce the Yield on Your Certificates."
Property Releases. ____ of the Multi-Property Loans, representing
approximately ____% of the Initial Pool Balance, do not provide for the release
of any related Mortgaged Property prior to payment in full of the Mortgage Loan.
____ of the Multi-Property Loans representing approximately ____% of the Initial
Pool Balance and ____ of the Crossed Loans, representing ____% of the Initial
Pool Balance, permit a Mortgaged Property to be released from the lien of the
related Multi-Property Loan or Crossed Loan, as applicable, prior to payment in
full of the Mortgage Loan provided that, generally, ____% of the applicable
Property Release Amount or outstanding principal balance, as applicable, be
defeased or prepaid and that the DSCR with respect to the remaining Mortgaged
Properties after defeasance or prepayment, as applicable, be no less than the
greater of (i) a specified DSCR (generally the DSCR at origination) and (ii) the
DSCR immediately prior to such defeasance or prepayment, as applicable.
Lockboxes. ____ Mortgage Loans, representing approximately ____% of the
Initial Pool Balance, generally provide that all rents, credit card receipts,
accounts receivables payments and other income derived from the related
Mortgaged Properties will be-
o paid directly into an account (or, in the case of Multifamily
Properties, such income will be collected and deposited into an
account by the manager and, in the case of Hospitality Properties,
cash paid "over-the-counter" will be deposited into an account by
the manager) (such account, a "Lockbox Account") controlled by the
Servicer[s] or, with respect to the Multiple Note Loans, the holder
or servicer of the related Other Note (a "Hard Lockbox");
o paid to the manager of the Mortgaged Properties, other than
multifamily properties, which will deposit all sums collected into a
Lockbox Account on a regular basis, a "Modified Lockbox"); or
o collected by the borrower until such time (if any) as a triggering
event (such as the failure to pay the related Mortgage Loan in full
on or before the related Anticipated Repayment Date or a decline, by
more than a specified amount, in the net operating income of the
related Mortgaged Property and/or a failure to meet a specified
DSCR) occurs, at which time all rents derived from the related
Mortgaged Property generally will be directly deposited into a
Lockbox Account (a "Springing Lockbox"), which will generally be
administered thereafter on the same terms as a Hard Lockbox.
Each such Mortgage Loan is identified on Annex A hereto as having a
"Hard," "Modified" or "Springing" Lockbox. For any Hard Lockbox, income
deposited directly into the related Lockbox Account may not include amounts paid
in cash which are paid directly to the related property manager (notwithstanding
requirements to the contrary). Mortgage Loans whose terms call for the
establishment of a Lockbox Account require that amounts paid to the manager of
the related Mortgaged Properties or "over-the-counter" will be deposited into a
Lockbox Account on a regular basis. Lockbox Accounts will not be assets of the
Trust Fund. Overall, the Mortgage Loans provide for Lockbox Accounts as follows:
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<PAGE>
% OF INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOCKBOX: BALANCE LOANS
---------------------- ------------ ---------
Escrows. ____ Mortgage Loans, representing approximately ____% of the
Initial Pool Balance provide for monthly escrows to cover property taxes and
___Mortgage Loans, representing approximately ___% of the Initial Pool Balance
provide for monthly escrows to cover insurance premiums on the Mortgaged
Properties. The Mortgage Loans, secured by leasehold interests, generally also
provide for escrows to make ground lease payments. Substantially all of the
Mortgage Loans (excluding the ____ Mortgage Loans), by aggregate Cutoff Date
Principal Balance, require up front and/or monthly funding of escrows for one or
more of the following: ongoing repair and maintenance; tenant improvement and
leasing commission expenses; replacement of furniture, fixtures and equipment;
and/or seasonal fluctuations in occupancy. Such reserves generally are funded by
the related borrower from the operating cashflow of the Mortgaged Property or
otherwise. In addition, the Mortgage Loans generally provide for deferred
maintenance reserves in an amount sufficient to remediate any material
deficiencies identified by the engineering report issued in connection with
origination or in certain cases, the related borrower was required to repair or
remediate the deficiency.
Engineering Escrows. Annex A describes various engineering escrows for the
Mortgaged Properties. The following paragraphs describe certain of the material
escrows.
Litigation. [Insert Description of Litigation]
"Due-on-Sale" and "Due-on-Encumbrance". The Mortgage Loans contain
"due-on-sale" and "due-on-encumbrance" clauses that in each case permit the
holder of the Mortgage Loan to accelerate the maturity of the Mortgage Loan if
the related borrower sells or otherwise transfers or encumbers the related
Mortgaged Property other than in accordance with the terms of the related loan
documents. Subject to the limitations described in this prospectus supplement,
the related Special Servicer[s] will determine, in a manner consistent with the
Servicing Standard, whether to exercise any right the related Special
Servicer[s] may have under any such clause to accelerate payment of the related
Mortgage Loan upon, or to withhold its consent to, any transfer or further
encumbrance of the related Mortgaged Property. Certain of the Mortgage Loans
provide that the Servicer[s] may condition an assumption of the loan on the
receipt of an assumption fee and an assumption application fee (neither of which
will be available for payment of principal or interest on the Certificates).
Such an assumption fee generally is equal to one percent of the then unpaid
principal balance of the applicable Mortgage Note or, in some cases, a smaller
fee set forth in the related Mortgage Loan, in addition to the payment of all
costs and expenses incurred in connection with such assumption. ________ of the
Mortgages provide that such consent may not be unreasonably withheld provided
that-
o no event of default has occurred under the related Mortgage Loan;
o the proposed transferee is creditworthy and has sufficient
experience in the ownership and management of properties similar to
the Mortgaged Property;
o the Rating Agencies have confirmed in writing that such transfer
will not result in a qualification, reduction or withdrawal of the
then current rating of the Certificates;
o the transferee has executed and delivered an assumption agreement
evidencing its agreement to abide by the terms of the Mortgage Loan
together with legal opinions and title insurance endorsements; and
o the assumption fee, if any, has been received. See "Legal Aspects of
Mortgage Loans--" in the accompanying prospectus and "Risk
Factors--Risks Related to the Mortgage Loans--Some Remedies May Not
Be Available Following a Mortgage Loan Default," and "The Pooling
and Servicing
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<PAGE>
Agreement--Enforcement of `Due-on-Sale' and `Due-on-Encumbrance'
Clauses" in this prospectus supplement.
The depositor and the Mortgage Loan Seller[s] make no representation as to
the enforceability of any due-on-sale or due-on-encumbrance provision in any
Mortgage Loan.
Mortgage Provisions Relating to the Special Servicer'[s] Right to
Terminate Management Agreements. ________ of the Mortgage Loans permit the
related Special Servicer[s] to cause the related borrowers to terminate the
related management agreements upon the occurrence of certain events. ________ of
the Mortgage Loans may provide that if the DSCR for such Mortgage Loan falls
below a certain level, the related Special Servicer[s] will have the right to
cause the termination of the related management agreement and replace the
manager with a manager acceptable to such Special Servicer. The Mortgage Loans
[generally] allow the related Special Servicer[s] to cause the termination of
the related management agreements upon the failure to meet certain performance
triggers and/or the occurrence of certain events of default under the related
loan agreements or mortgage documents. In addition, the related Special
Servicer[s] is generally permitted to cause the termination of a management
agreement if the manager breaches certain provisions of the management agreement
which would permit the termination of such agreement thereunder.
Cross-Collateralization and Cross-Default of Certain Mortgage Loans.
________ of the Mortgage Loans (the "Multi-Property Loans"), representing ____%
of the Initial Pool Balance, are evidenced by one Mortgage Note and secured by
more than one Mortgaged Property. ________ of the Mortgage Loans are Crossed
Loans, representing ____% of the Initial Pool Balance, and are evidenced by more
than one Mortgage Note and are cross-collateralized with multiple Mortgaged
Properties. Because certain states require the payment of a mortgage recording
or documentary stamp tax based upon the principal amount of debt secured by a
mortgage, the individual Mortgages recorded with respect to certain Crossed
Loans with properties in such states may secure an amount less than the
aggregate of the applicable initial principal balance of the applicable Crossed
Loans. For the same reason, the Mortgages with respect to certain Multi-Property
Loans may secure only a multiple (generally 150%) of the Property Release Amount
of such Mortgaged Property (for Multi-Property Loans) rather than the entire
initial principal balance of the related Mortgage Note. See "Risk Factors--Risks
Related to the Mortgage Loans--Enforceability of Cross-Collateralized and
Cross-Defaulted Mortgage Loans May Be Challenged" in this prospectus supplement.
Hazard, Liability and Other Insurance. The Mortgage Loans generally
require that each Mortgaged Property be insured by a hazard insurance policy in
a minimum amount equal to the greatest of -
o the principal balance of the related Mortgage Loan;
o 100% of the full replacement cost of the improvements and equipment
without deduction for physical depreciation; and
o such amount necessary to avoid the operation of co-insurance
provisions that would otherwise reduce the amount that the insurer
is required to pay, or in an amount satisfying other similar
standards, and by a flood insurance policy if any part of the
improvements located on the Mortgaged Property are located in an
area identified by the Federal Emergency Management Agency as an
area having special flood hazards and for which flood insurance has
been made available under the National Flood Insurance Program in an
amount at least equal to the outstanding principal amount of the
related Mortgage Loan (or with respect to certain Multi-Property
Loans, the full insurable value of the related Mortgaged Property)
or the maximum limit of coverage available, whichever is less, or in
an amount satisfying other similar standards, including, estimated
exposure.
[Certain of the Mortgaged Properties located in earthquake risk areas and
subject to material earthquake risk have been either subject to seismic upgrade
(or appropriate reserves or a letter of credit established for retrofitting),
are subject to a lower loan-to-value limit or are insured by earthquake
insurance, and certain of such insured Mortgaged Properties may be insured in
amounts less than the outstanding principal balance of such Mortgage Loans.
Certain of the Mortgaged Properties located in areas having special hurricane
hazards are insured by hurricane insurance in amounts less than the outstanding
principal balance of such Mortgage Loans. Additional
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types of insurance may be required. The hazard insurance policy is generally
required to cover loss or damage by fire and lightning or other risks and
hazards covered by a standard "All Risks" insurance policy including, but not
limited to, riot and civil commotion, vandalism, malicious mischief, burglary
and theft.]
The Mortgage Loans also generally require that the related borrower obtain
and maintain during the entire term of the Mortgage Loan -
o comprehensive general liability insurance, including broad form
property damage, blanket contractual and personal injuries coverages
and containing minimum limits per occurrence as specified in the
related Mortgage;
o rent loss and/or business interruption insurance in an amount
generally equal to the greatest of -
(1) the projected gross revenues from operations of the Mortgaged
Property,
(2) the projected operating expense (including debt service) for
the maintenance and operation of the Mortgaged Property; and
(3) in an amount satisfying other similar standards, in any such
case, for a period of __ months or more or a specified longer
period (depending on the related Mortgage Loan Seller);
o insurance against loss or damage from leakage of sprinkler systems
and explosion of steam boilers, air conditioning equipment, high
pressure piping, machinery and equipment, and pressure vessels;
o worker's compensation insurance; and
o such other insurance as may from time to time be reasonably required
by the lender in order to protect its interests.
Mortgage Loans which May Require Principal Paydowns. ________ Mortgage
Loans are Additional Collateral Loans representing approximately ____% of the
Initial Pool Balance, and are additionally secured by cash reserves or
irrevocable letters of credit that will be released to the related borrowers
upon satisfaction by the borrower of certain leasing-related conditions
including, in certain cases, achievement of certain debt service coverage ratios
and/or satisfying leasing conditions within time periods prior to loan maturity.
Failure to satisfy such conditions within the time periods specified therefor
may result in the application of the related reserve or credit enhancement
amount (each, a "Required Prepayment") to partially prepay the related Mortgage
Loan.
ADDITIONAL COLLATERAL LOANS
<TABLE>
<CAPTION>
TYPE OF AMOUNT OF BORROWER REQUIRED
MORTGAGE LOAN ADDITIONAL ADDITIONAL TO PAY PREPAYMENT
SELLER PROPERTY NAME COLLATERAL COLLATERAL RELEASE CONDITIONS CONSIDERATIONS
------------- ------------- ---------- ---------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
</TABLE>
With respect to any Required Prepayment on any of the Additional
Collateral Loans, the related borrowers are required to pay the prepayment
consideration specified in the table above. The holders of the Class [A-X]
Certificates and any Class of Offered Certificates then entitled to receive any
such prepayment will receive such payments collected from the borrower.
ADDITIONAL MORTGAGE LOAN INFORMATION
The following tables and Annex __ hereto set forth certain information
with respect to the Mortgage Loans and Mortgaged Properties. The statistics in
the following tables and Annex A were primarily derived from information
provided to the depositor by the Mortgage Loan Seller[s], which information may
have been obtained from the borrowers without independent verification.
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<PAGE>
The tables below set forth certain summary information regarding the
Mortgage Loans. See Annex A hereto for certain characteristics of Mortgage Loans
on a loan-by-loan basis. All percentages of Initial Pool Balances used in this
prospectus supplement and in Annex A are based upon the Cut-off Date Principal
Balance of the related Mortgage Loan or, with respect to each Multi-Property
Loan are based upon the Allocated Loan Amount of the related Mortgaged Property.
Crossed Loans are treated as one Mortgage Loan in the tables below and in Annex
A for the purpose of calculating DSCR and LTV. All weighted average information
regarding the Mortgage Loans reflects weighting of the Mortgage Loans by their
Cut-off Date Principal Balances or, with respect to Multi-Property Loans,
Allocated Loan Amounts. The "Cut-off Date Principal Balance" of each Mortgage
Loan is equal to the unpaid principal balance thereof as of the Cut-off Date,
after application of all payments of principal due on or before such date,
whether or not received. All numerical information provided in this prospectus
supplement and in Annex A with respect to the Mortgage Loans is provided on an
approximate basis. Certain statistical information set forth in this prospectus
supplement may change prior to the date of issuance of the Certificates due to
changes in the composition of the Trust Fund prior to the Closing Date. See
"--Changes in Mortgage Loan Characteristics" below.
o [Insert Table Showing Mortgage Note Characteristics]
o [Insert Table Showing Range of Debt Service Coverage Ratios]
o [Insert Table Showing Loan-to-Value Ratios]
o [Insert Table Showing Mortgaged Properties by State]
o [Insert Table Showing Year Built or Renovated]
o [Insert Table Showing Mortgaged Properties by Property Type]
o [Insert Table Showing Cut-Off Principal Balances and Mortgage Rates]
o [Insert Table Showing Range of Anticipated Loan Terms]
o [Insert Table Showing Anticipated Repayment by Year]
o [Insert Table Showing Years of Scheduled Maturity]
o [Insert Table Showing Lock-out and Yield Maintenance Terms]
o [Insert Table Showing Sponsor Ownership in Cooperative Mortgage
Loans]
o [Insert Table Showing Residential Cooperative Mortgage Loans, Loan
to Value Ratios]
o [Range of LTV Co-op Basis for Residential Cooperative Mortgage
Loans]
[Applicable Footnotes or Special Definitions to be Indicated]
CHANGES IN MORTGAGE LOAN CHARACTERISTICS
The description in this prospectus supplement of the Trust Fund and the
Mortgaged Properties is based upon the Trust Fund as expected to be constituted
at the close of business on the Cut-off Date, as adjusted for the scheduled
principal payments due on the Mortgage Loans on or before the Cut-off Date.
Prior to the issuance of the Offered Certificates, a Mortgage Loan may be
removed from the Trust Fund if the depositor deems such removal necessary or
appropriate or if it is prepaid. This may cause the range of Mortgage Rates and
maturities as well as the other characteristics of the Mortgage Loans to vary
from those described in this prospectus supplement.
A Current Report on Form 8-K will be available to purchasers of the
Offered Certificates and will be filed by the depositor, together with the
Pooling and Servicing Agreement with the the Commission within fifteen days
after the initial issuance of the Offered Certificates. In the event Mortgage
Loans are removed from the Trust Fund
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<PAGE>
as set forth in the preceding paragraph, such removal will be noted in the Form
8-K. Such Form 8-K will be available to purchasers and potential purchasers of
the Offered Certificates.
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<PAGE>
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
o The Certificates will be issued pursuant to the Pooling and
Servicing Agreement and will represent in the aggregate the entire
beneficial ownership interest in the Trust Fund.
The Credit Suisse First Boston Mortgage Securities Corp., Commercial
Mortgage Pass-Through Certificates, Series 200_-_ will consist of the following
classes -
o the Class [A-1] and Class [A-2] Certificates (collectively, the
"Senior Offered Certificates");
o the Class [B], Class [C] and Class [D] Certificates (collectively,
the "Mezzanine Certificates") and, together with the Senior Offered
Certificates, the "Offered Certificates");
o the Class [A-X] Certificates (the "Senior Private Certificates"),
o the Class [E], Class [F], Class [G], Class [H], Class [J], Class
[K], Class [L], Class [M] and Class [N] Certificates (collectively,
the "Subordinate Private Certificates" and, together with the Senior
Private Certificates, the "Private Certificates" and together with
the Offered Certificates, the "Regular Certificates");
o the Class R and Class LR Certificates (together, the "Residual
Certificates"); and
o the Class __ and Class __ Certificates. The Mezzanine Certificates
together with the Subordinate Private Certificates are referred to
in this prospectus supplement as the "Subordinate Certificates")
Only the Offered Certificates are offered in this prospectus supplement.
The Class [A-X], Class [E], Class [F], Class [G], Class [H], Class [J], Class
[K], Class [L], Class [M] Class [N], Class [___], Class [___], Class [___] and
Class [___] Certificates have not been registered under the Securities Act of
1933, as amended (the "Securities Act") and are not offered by this prospectus
supplement.
On each Distribution Date, the Certificate Balance of each Class of
Certificates will be reduced by any distributions of principal actually made on,
and any Collateral Support Deficit actually allocated to, such Class of
Certificates on such Distribution Date and, except for the purposes of
determining Voting Rights and the identity of the Controlling Class, will be
increased by the amount of any Certificate Deferred Interest allocated to such
Class of Certificates on such Distribution Date. The initial Certificate Balance
of each Class of Offered Certificates is expected to be the balance set forth on
the cover of this prospectus supplement, subject to a permitted variance of plus
or minus ____%, depending on the aggregate principal balance of the Mortgage
Loans actually transferred to the Trust Fund.
The Offered Certificates will be maintained and transferred on the
book-entry records of and its Participants and issued in denominations of $____
initial Certificate Balance and integral multiples of $____ in excess thereof.
The "Percentage Interest" evidenced by any Regular Certificate is equal to the
initial denomination thereof as of the Closing Date, divided by the initial
Certificate Balance or Notional Balance of the Class to which it belongs.
The Offered Certificates will initially be represented by one or more
global 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 Certificate
Owner will be entitled to receive a Definitive Certificate representing its
interest in such Class, except as set forth below under "--Book-Entry
Registration and Definitive Certificates." Unless and until Definitive
Certificates are issued, all references to actions by holders of the Offered
Certificates will refer to actions taken by DTC upon instructions received from
Certificate Owners through its Participants, and all references to payments,
notices, reports and statements to holders of the Offered Certificates will
refer to payments, notices, reports and
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<PAGE>
statements to DTC or Cede & Co., as the registered holder of the Offered
Certificates, for distribution to Certificate Owners through its Participants in
accordance with DTC procedures.
Until Definitive Certificates are issued, interests in any Class of
Offered Certificates will be transferred only on the book-entry records of DTC
and its Participants.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
General. Holders of Offered Certificates may hold their Certificates
through the book-entry facilities of The Depository Trust Company ("DTC"),
Certificates, the record holder of such Certificates will be DTC's nominee. DTC
is a limited-purpose trust company organized under the New York Banking Law, a
"banking corporation" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations (the "Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic computerized book-entry changes in their
accounts, thereby eliminating the need for physical movement of securities
certificates. "Direct Participants" which maintain accounts with DTC, include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations. DTC is owned by a number of its
Direct Participants and by The New York Stock Exchange, Inc., The American Stock
Exchange, Inc. and National Association of Securities Dealers, Inc. Access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
DTC has informed its participants and other members of the financial
community that it has developed and is implementing a program so that its
systems continue to function appropriately to provide timely payment of
distributions, including principal and income payments, to securityholders,
book-entry deliveries and settlement of trades within DTC.
Purchases of Certificates under the DTC system which are book-entry
certificates must be made by or through Direct Participants, which will receive
a credit for the book-entry certificates on DTC's records. The ownership
interest of each actual purchaser of a book-entry certificate is in turn to be
recorded on the Direct and Indirect Participants' records. Certificate Owners
will not receive written confirmation from DTC of their purchases, but
Certificate Owners are expected to receive written confirmations providing
details of such transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which each Certificate Owner
entered into the transaction. Transfers of ownership interests in the book-entry
certificates are to be accomplished by entries made on the books of Participants
acting on behalf of Certificate Owners. Certificate Owners will not receive
certificates representing their ownership interests in the book-entry
certificates, except in the event that use of the book-entry system for the
book-entry certificates of any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the book-entry
certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the book-entry certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of each such Participant (and not
of DTC, the depositor or any Trustee or
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<PAGE>
Servicer), subject to any statutory or regulatory requirements as may be in
effect from time to time. Under a book-entry system, Certificate Owners may
receive payments after the related Distribution Date.
The only holder of the Offered Certificates will be the nominee of DTC,
and the Certificate Owners will not be recognized as Certificateholders under
the Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise the rights of Certificateholders under the Pooling and Servicing
Agreement only indirectly through the Participants, which in turn will exercise
their rights through DTC. The depositor is informed that DTC will take action
permitted to be taken by a Certificateholder under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose account
with DTC interests in the book-entry certificates are credited.
Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability of a
Certificate Owner to pledge its interest in book-entry certificates to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in book-entry certificates, may be limited due to the
lack of a physical certificate evidencing such interest.
Certificate Owners that are not Direct Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Offered Certificates may do so only through Direct
Participants and Indirect Participants. In addition, Certificate Owners will
receive all distributions of principal and of interest on the Offered
Certificates from the Trustee through DTC and its Direct Participants and
Indirect Participants. Accordingly, Certificate Owners may experience delays in
their receipt of payments. Unless and until Definitive Certificates are issued,
it is anticipated that the only registered Certificateholder of the Offered
Certificates will be Cede & Co., as nominee of DTC. Except as otherwise provided
under "The Pooling and Servicing Agreement--Reports to Certificateholders;
Available Information" below, Certificate Owners will not be recognized by the
Certificate Registrar, the Trustee, the Special Servicer[s] or the Servicer[s]
as Certificateholders, as such term is used in the Pooling and Servicing
Agreement, and Certificate Owners will be permitted to receive information
furnished to Certificateholders and to exercise the rights of Certificateholders
only indirectly through DTC and its Direct Participants and Indirect
Participants.
Under the Rules, DTC is required to make book-entry transfers of the
Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Offered Certificates. Direct
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Offered Certificates similarly are required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess physical certificates evidencing their interests in the Offered
Certificates, the Rules provide a mechanism by which Certificate Owners, through
their Direct and Indirect Participants, will receive distributions and will be
able to transfer their interests in the Offered Certificates.
None of the depositor, the Servicer[s], the Certificate Registrar, the
Underwriter[s], the Special Servicer[s] or the Trustee will have any liability
for any actions taken by DTC or its nominee, including, without limitation,
actions for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Offered Certificates held by Cede & Co.,
as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interest.
Definitive Certificates. Certificates initially issued in book-entry form
will be issued in fully registered, certificated form to Certificate Owners or
their nominees ("Definitive Certificates")), rather than to DTC or its nominee,
only if -
o the depositor advises the Trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
depository with respect to such Certificates and the depositor is
unable to locate a qualified successor;
o the depositor, at its option, elects to terminate the book-entry
system through DTC with respect to such Certificates; or
o the Trustee determines that Definitive Certificates are required
because the Trustee has instituted or has been directed to institute
judicial proceeding in a court to enforce the rights of the
Certificateholders under the Certificates, and the Trustee has been
advised by counsel that in
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<PAGE>
connection with such proceeding it is necessary or appropriate for
the Trustee to obtain possession of all or any portion of those
Certificates evidenced in book-entry form.
Upon the occurrence of any of the events described in the preceding
sentence, the Trustee is required to notify, through DTC, Direct Participants
who have ownership of Offered Certificates as indicated on the records of DTC of
the availability of Definitive Certificates. Upon surrender by DTC of the
Definitive Certificates representing the Offered Certificates and upon receipt
of instructions from DTC for re-registration, the Certificate Registrar and the
Authenticating Agent will reissue the Offered Certificates as Definitive
Certificates issued in the respective Certificate Balances owned by individual
Certificate Owners, and thereafter the Certificate Registrar, the Trustee, the
Special Servicer[s] and the Servicer[s] will recognize the holders of such
Definitive Certificates as Certificateholders under the Pooling and Servicing
Agreement.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
by the Trustee, to the extent of available funds on each Distribution Date.
Each such distribution will be made by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
has provided the Trustee with written wiring instructions no less than ____
Business Days prior to the related Record Date (which wiring instructions may be
in the form of a standing order applicable to all subsequent distributions) and
is the registered owner of Certificates with an aggregate initial Certificate
Balance or Notional Balance, as the case may be, of at least $____, or otherwise
by check mailed to such Certificateholder. The final distribution on any
Certificate will be made in like manner, but only upon presentation and
surrender of such Certificate at the location that will be specified in a notice
of the pendency of such final distribution. All distributions made with respect
to a Class of Certificates will be allocated pro rata among the outstanding
Certificates of such Class based on their respective Percentage Interests.
The Servicer[s] will establish and maintain, or cause to be established
and maintained, one or more accounts, a "Collection Account" and collectively,
the "Collection Accounts", as described in the Pooling and Servicing Agreement.
The Servicer[s] is required to deposit in its respective Collection Account on a
daily basis (and in no event later than the Business Day following receipt in
available funds) all payments and collections due after the Cut-off Date and
other amounts received or advanced with respect to their related Mortgage Loans
(including, without limitation, insurance and condemnation proceeds and
liquidation proceeds), and will be permitted to make withdrawals therefrom as
set forth in the Pooling and Servicing Agreement.
The Trustee will establish and maintain one or more accounts (the
"Distribution Account") in the name of the Trustee and for the benefit of the
Certificateholders. On each Distribution Date, the Trustee will apply amounts on
deposit in the Distribution Account (which will include all funds that were
remitted by the Servicer[s] from the Collection Account plus, among other
things, any P&I Advances remitted to the Trustee by the Servicer[s], less
applicable fees and amounts, if any, distributable to the Residual Certificates
as set forth in the Pooling and Servicing Agreement) generally to make
distributions of interest and principal from the available distribution amount
to the holders of Certificates as described in this prospectus supplement. Each
of the Collection Account and the Distribution Account will conform to certain
eligibility requirements set forth in the Pooling and Servicing Agreement.
The aggregate amount available from the Mortgage Loans for distribution to the
holders of Offered Certificates on each Distribution Date will, in general,
equal the sum of the following amounts -
o the total amount of all cash received on the Mortgage Loans and any
related REO Properties that is on deposit in the Collection Accounts
as of the Business Day preceding the Servicer[s] Remittance Date,
exclusive of:
(1) all Monthly Payments collected but due on a Due Date
subsequent to the related Due Period,
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<PAGE>
(2) all principal prepayments, Balloon Payments, liquidation
proceeds, insurance and condemnation proceeds and other
unscheduled recoveries received subsequent to the related
Determination Date,
(3) all amounts that are due or reimbursable to (x) any person
other than the Certificateholders and (y) the Class ___ or
Class ___ Certificates,
(4) all Prepayment Premiums and Yield Maintenance Charges,
(5) all net investment income on the funds in the Collection
Accounts and certain other accounts,
(6) all Withheld Amounts relating to a subsequent Distribution
Date and
(7) all amounts deposited in any Collection Account in error;
o all P&I Advances made with respect to such Distribution Date by the
Servicer[s] or the Trustee, as applicable, with respect to the
Mortgage Loans (net of certain amounts that are due or reimbursable
to persons other than the Certificateholders); and
o all funds released from the Interest Reserve Account for
distribution on such Distribution Date. See "Description of the
Trust Assets--Accounts" in the accompanying prospectus.
Pass-Through Rates. The Pass-Through Rate applicable to each Class of
Offered Certificates for any Distribution Date will equal the rates per annum
specified below under "--Definitions." Interest will accrue for each Class of
Certificates during the related Interest Accrual Period.
Interest Distributions. On each Distribution Date, to the extent of the
available distribution amount and subject to the distribution priorities
described below under "--Priority of Distributions," each Class of Offered
Certificates will be entitled to receive distributions of interest in an
aggregate amount equal to the Monthly Interest Distribution Amount with respect
to such Class for such Distribution Date and, to the extent not previously paid,
for all prior Distribution Dates. No interest will accrue on such overdue
amounts. Interest will accrue with respect to the Certificates on the basis of a
360-day year consisting of twelve 30-day months.
Principal Distributions. On each Distribution Date, to the extent of the
available distribution amount remaining after all prior distributions on such
Distribution Date made in accordance with the distribution priorities described
below under "--Priority of Distributions," the Classes of Offered Certificates
will be entitled to distributions of principal sequentially as described below
(until the Certificate Balance of each such Class of Certificates is reduced to
zero) in an aggregate amount up to the Principal Distribution Amount for such
Distribution Date.
Priority of Distributions. On each Distribution Date, unless the principal
balances of the [Private Certificates] [and the Mezzanine Certificates] have
been reduced to zero by the allocation of Collateral Support Deficits, the
Trustee will apply amounts on deposit in the Distribution Account, to the extent
of the available distribution amount for such Distribution Date, in the
following order of priority:
(i) concurrently, to Class [A-1], Class [A-2] and Class [A-X]
Certificates, pro rata, up to the Optimal Interest Distribution
Amounts for such Classes for such Distribution Date;
(ii) to the Class [A-1] and Class [A-2] Certificates, in reduction of the
Certificate Balances thereof, an amount up to the Principal
Distribution Amount for such Distribution Date, in the following
order of priority:
first, to the Class [A-1] Certificates, until the Certificate
Balance thereof has been reduced to zero; and
second, to the Class [A-2] Certificates, until the Certificate
Balance thereof has been reduced to zero;
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<PAGE>
(iii) to the Class [A-1] and Class [A-2] Certificates, pro rata (based on
the aggregate unreimbursed Collateral Support Deficit previously
allocated to each such Class), until all amounts of such Collateral
Support Deficit previously allocated to such Classes, but not
previously reimbursed, have been reimbursed in full; and
(iv) [to the Mezzanine Certificates] [and Private Certificates], in the
following order of priority:
(A) to the Class [B] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(B) to the Class [B] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(C) to the Class [B] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [B] Certificates, but not previously
reimbursed, have been reimbursed in full;
(D) to the Class [C] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(E) to the Class [C] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(F) to the Class [C] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [C] Certificates, but not previously
reimbursed, have been reimbursed in full;
(G) to the Class [D] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(H) to the Class [D] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(I) to the Class [D] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [D] Certificates, but not previously
reimbursed, have been reimbursed in full;
(J) to the Class [E] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(K) to the Class [E] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(L) to the Class [E] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [E] Certificates, but not previously
reimbursed, have been reimbursed in full;
(M) to the Class [F] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(N) to the Class [F] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(O) to the Class [F] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [F] Certificates, but not previously
reimbursed, have been reimbursed in full;
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(P) to the Class [G] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(Q) to the Class [G] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(R) to the Class [G] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [G] Certificates, but not previously
reimbursed, have been reimbursed in full;
(S) to the Class [H] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(T) to the Class [H] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(U) to the Class [H] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [H] Certificates, but not previously
reimbursed, have been reimbursed in full;
(V) to the Class [J] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(W) o the Class [J] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(X) to the Class [J] Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class [J] Certificates, but not previously
reimbursed, have been reimbursed in full;
(Y) to the Class [K] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(Z) to the Class [K] Certificates, in reduction of the Certificate Balance
thereof, an amount up to the Remaining Principal Distribution Amount for such
Distribution Date until such Certificate Balance has been reduced to zero;
(AA) to the Class [K] Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class [K] Certificates, but not
previously reimbursed, have been reimbursed in full;
(BB) to the Class [L] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(CC) to the Class [L] Certificates, in reduction of the Certificate
Balance thereof, an amount up to the Remaining Principal Distribution Amount for
such Distribution Date until such Certificate Balance has been reduced to zero;
(DD) to the Class [L] Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class [L] Certificates, but not
previously reimbursed, have been reimbursed in full;
(EE) to the Class [M] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class for such Distribution Date;
(FF) to the Class [M] Certificates, in reduction of the Certificate
Principal Balance thereof, an amount up to the Remaining Principal Distribution
Amount for such Distribution Date until such Certificate Balance has been
reduced to zero;
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(GG) to the Class [M] Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class [M] Certificates, but not
previously reimbursed, have been reimbursed in full;
(HH) to the Class [N] Certificates, in respect of interest, up to the
Optimal Interest Distribution Amount for such Class on such Distribution Date;
(II) to the Class [N] Certificates, in reduction of the Certificate
Balance thereof, an amount up to the Remaining Principal Distribution Amount for
such Distribution Date until such Certificate Balance has been reduced to zero;
(JJ) to the Class [N] Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class [N] Certificates, but not
previously reimbursed, have been reimbursed in full; and
(KK) to the Class ___ and Class ___ Certificates, any remaining amounts in
the Upper-Tier REMIC and the Lower-Tier REMIC, respectively.
Notwithstanding the foregoing, on each Distribution Date occurring on or
after the date on which the principal balances of the Mezzanine Certificates and
Subordinate Private Certificates have been reduced to zero by the application of
Collateral Support Deficits thereto, the Trustee will apply amounts on deposit
in the Distribution Account in the following order of priority -
o concurrently, to the Class [A-1], Class [A-2] and Class [A-X]
Certificates, pro rata, in respect of interest;
o to the Class [A-1] and Class [A-2] Certificates, pro rata, in
reduction of the Certificate Balances thereof, until the Certificate
Balance of each such Class has been reduced to zero; and
o to the Class [A-1] and Class [A-2] Certificates, pro rata (based on
the aggregate unreimbursed Collateral Support Deficit previously
allocated to such Class), until all amounts of such Collateral
Support Deficit previously allocated to such Classes but not
previously reimbursed have been reimbursed in full.
o Reimbursement of previously allocated Collateral Support Deficits
will not constitute distributions of principal for any purpose and
will not result in an additional reduction in the Certificate
Balance of the class of Certificates in respect of which any such
reimbursement is made.
DEFINITIONS
"Class [A-1] Pass-Through Rate":
"Class [A-2] Pass-Through Rate" :
"Class [A-X] Pass-Through Rate":
"Class [B] Pass-Through Rate" :
"Class [C] Pass-Through Rate" :
"Class [D] Pass-Through Rate" :
"Class [E] Pass-Through Rate" :
"Class [F] Pass-Through Rate":
"Class [G] Pass-Through Rate":
"Class [H] Pass-Through Rate":
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"Class [J] Pass-Through Rate":
"Class [K] Pass-Through Rate":
"Class [L] Pass-Through Rate":
"Class [M] Pass-Through Rate":
"Class [N] Pass-Through Rate":
"Excess Rate": With respect to each ARD Loan after the related Anticipated
Repayment Date, the excess of the Revised Rate thereof over the Mortgage Rate
thereof.
"Interest Shortfall Amount": As to any Distribution Date and any Class of
Regular Certificates, the amount, if any, by which the amount distributed on
such Class on such Distribution Date in respect of interest is less than the
related Optimal Interest Distribution Amount.
"Monthly Interest Distribution Amount": As to any Distribution Date and
any Class of Regular Certificates other than the Class [A-X] Certificates, the
amount of interest accrued for the related Interest Accrual Period at the
related Pass-Through Rate on the Certificate Balance of such Class as of such
Distribution Date, reduced by -
o such Class's share of the Uncovered Prepayment Interest Shortfall
Amount; and
o any allocations to such Class of any Certificate Deferred Interest
for such Distribution Date. As to any Distribution Date and the
Class [A-X] Certificates, the amount of interest accrued during the
related Interest Accrual Period at the Class [A-X] Pass-Through Rate
on the Notional Balance as of such Distribution Date, reduced by
such Class's share of the Uncovered Prepayment Interest Shortfall
Amount for such Distribution Date.
"Mortgage Interest Accrual Period": With respect to any Mortgage Loan, the
period during which interest accrues pursuant to the related Mortgage Note.
"Mortgage Pass-Through Rate": With respect to any Mortgage Loan that
provides for calculations of interest based on twelve months of 30 days each for
any Mortgage Interest Accrual Period, the Net Mortgage Rate thereof. With
respect to any Mortgage Loan that provides for interest accrual on an Actual/360
basis, (a) for any Mortgage Interest Accrual Period relating to an Interest
Accrual Period beginning in any [January, February, April, June, September and
November and any December occurring in a year immediately preceding any year
that is not a leap year], the Net Mortgage Rate thereof and (b) for any Mortgage
Interest Accrual Period relating to any Interest Accrual Period beginning in any
________________ any ________ occurring in a year immediately preceding a year
that is a leap year], the Net Mortgage Rate thereof multiplied by a fraction
whose numerator is 31 and whose denominator is 30.
The Mortgage Rate for purposes of calculating Mortgage Pass-Through Rates
and the Weighted Average Net Mortgage Rate will be the Mortgage Rate of such
Mortgage Loan without taking into account any reduction in the interest rate by
a bankruptcy court pursuant to a plan of reorganization or pursuant to any of
its equitable powers or any reduction in the interest rate resulting from a
work-out as described in this prospectus supplement under "The Pooling and
Servicing Agreement--Modifications."
"Net Mortgage Pass-Through Rate": With respect to any Mortgage Loan and
any Distribution Date, the Mortgage Pass-Through Rate for such Mortgage Loan for
the related Interest Accrual Period minus the sum of the related Servicing Fee
Rate and the Trustee Fee Rate.
"Net Mortgage Rate": With respect to any Interest Accrual Period and any
Mortgage Loan, a per annum rate equal to the Mortgage Rate for such Mortgage
Loan as of the Cut-off Date minus the related Primary Servicing Fee Rate.
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"Optimal Interest Distribution Amount": As to any Distribution Date and
any Class of Regular Certificates, the sum of the Monthly Interest Distribution
Amount and the Unpaid Interest Shortfall Amount for such Class for such
Distribution Date.
"Principal Distribution Amount": As to any Distribution Date, the sum of -
o the amount collected or otherwise received on or in respect of
principal of the Mortgage Loans during the related Due Period; and
o that portion of the P&I Advance, if any, made in respect of
principal of the Mortgage Loans with respect to such Distribution
Date.
"Remaining Principal Distribution Amount": As to any Distribution Date and
any Class of Mezzanine Certificates or Private Certificates, the amount, if any,
by which the Principal Distribution Amount for such Distribution Date exceeds
the aggregate amount distributed in respect of principal on such Distribution
Date on all Classes senior to such Class.
"Uncovered Prepayment Interest Shortfall Amount": As to any Distribution
Date, the sum of the Uncovered Prepayment Interest Shortfalls (as defined below
under "The Pooling and Servicing Agreement-- Servicing Compensation and Payment
of Expenses"), if any, for such Distribution Date.
"Unpaid Interest Shortfall Amount": As to the first Distribution Date and
any Class of Regular Certificates, zero. As to any Distribution Date after the
first Distribution Date and any Class of Regular Certificates, the amount, if
any, by which the sum of the Interest Shortfall Amounts for such Class for prior
Distribution Dates exceeds the sum of the amounts distributed on such Class on
prior Distribution Dates in respect of such Interest Shortfall Amounts.
"Unscheduled Payments of Principal": Principal prepayments, Liquidation
Proceeds, insurance proceeds, condemnation awards and any other unscheduled
recoveries of principal.
"Weighted Average Net Mortgage Rate": As to any Distribution Date, the
average, as of such Distribution Date, of the Net Mortgage Pass-Through Rates of
the Mortgage Loans, weighted by the Stated Principal Balances thereof.
Certain Calculations with Respect to Individual Mortgage Loans. The Stated
Principal Balance of each Mortgage Loan outstanding at any time represents the
principal balance of such Mortgage Loan ultimately due and payable to the
Certificateholders. The Stated Principal Balance of a Mortgage Loan may also be
reduced in connection with any forced reduction of the actual unpaid principal
balance thereof imposed by a court presiding over a bankruptcy proceeding in
which the related borrower is the debtor. See "Legal Aspects of the Mortgage
Loans--Bankruptcy Laws" in the accompanying prospectus. If any Mortgage Loan is
paid in full or such Mortgage Loan (or any Mortgaged Property acquired in
respect thereof) is otherwise liquidated, then, as of the first Distribution
Date that follows the end of the Due Period in which such payment in full or
liquidation occurred and notwithstanding that a loss may have occurred in
connection with any such liquidation, the Stated Principal Balance of such
Mortgage Loan will be zero.
For purposes of calculating distributions on, and allocations of
Collateral Support Deficit to, the Certificates, as well as for purposes of
calculating the Servicing Fee, Primary Servicing Fee and Trustee Fee payable
each month, each REO Property will be treated as if there exists with respect
thereto an outstanding mortgage loan (an "REO Loan"), and all references to
"Mortgage Loan" and "Mortgage Loans" in this prospectus supplement and in the
accompanying prospectus, when used in such context, will be deemed to also be
references to or to also include, as the case may be, any REO Loans. Each REO
Loan will generally be deemed to have the same characteristics as its actual
predecessor Mortgage Loan, including the same fixed Mortgage Rate (and,
accordingly, the same Net Mortgage Pass-Through Rate) and the same unpaid
principal balance and Stated Principal Balance. Amounts due on such predecessor
Mortgage Loan, including any portion thereof payable or reimbursable to the
Servicer, will continue to be "due" in respect of the REO Loan; and amounts
received in respect of the related REO Property, net of payments to be made, or
reimbursement to the Servicer[s] or the related Special Servicer[s] for
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payments previously advanced, in connection with the operation and management of
such property, generally will be applied by the Servicer[s] as if received on
the predecessor Mortgage Loan.
[Describe Allocations of Prepayments, Prepayment Premiums and Yield
Maintenance Charges]
[Excess Interest. On each Distribution Date, Excess Interest collected
during the related Due Period in respect of _____ Mortgage Loans and will be
distributed solely to the Class ___ and Class __ Certificates, respectively, to
the extent set forth in the Pooling and Servicing Agreement, and will not be
available for distribution to holders of the Offered Certificates. The holders
of the Class ___ and Class ___ Certificates will have the right to purchase
Mortgage Loans that on or after their related Anticipated Repayment Dates under
the circumstances described under "Certain Characteristics of the Mortgage
Loans--Certain Terms and Conditions of the Mortgage Loans." The Class __ and
Class __ certificates are not entitled to any other distributions of interest,
principal, Prepayment Premiums or Yield Maintenance Charges.]
ASSUMED FINAL DISTRIBUTION DATE; RATED FINAL DISTRIBUTION DATE
The Assumed Final Distribution Date will in each case be as follows:
ASSUMED FINAL
CLASS DESIGNATION DISTRIBUTION DATE
----------------- -----------------
The above Assumed Final Distribution Dates were calculated based on the
Mortgage Loan Assumptions, including the assumptions that there are no defaults,
delinquencies or prepayments on the Mortgage Loans. Accordingly, in the event of
defaults on the Mortgage Loans, the actual final Distribution Date for one or
more Classes of the Offered Certificates may be later, and could be
substantially later, than the related Assumed Final Distribution Date(s).
In addition, the above Assumed Final Distribution Dates were calculated on
the basis of a 0% CPR. Since the rate of payment (including prepayments) of the
Mortgage Loans may exceed the scheduled rate of payments, and could exceed such
scheduled rate by a substantial amount, the actual final Distribution Date for
one or more Classes of the Offered Certificates may be earlier, and could be
substantially earlier, than the related Assumed Final Distribution Date(s). The
rate of payments (including prepayments) on the Mortgage Loans will depend on
the characteristics of the Mortgage Loans, as well as on the prevailing level of
interest rates and other economic factors, and no assurance can be given as to
actual payment experience. Finally, the Assumed Final Distribution Dates were
calculated assuming that there would not be an early termination of the Trust
Fund.
The Rated Final Distribution Date for each Class of Offered Certificates
will be the Distribution Date in ________ __, 200_, which is the first
Distribution Date following the date that is two years after the latest Assumed
Maturity Date.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICITS AND CERTIFICATE
DEFERRED INTEREST
The rights of the holders of the Subordinate Private Certificates to
receive distributions of principal and interest on or in respect of the Mortgage
Loans will be subordinate to those of the holders of the Mezzanine Certificates,
and the rights of the holders of any Class of Mezzanine Certificates to receive
distributions of principal and interest on or in respect of the Mortgage Loans
will be subordinate to those of the holders of the Senior Certificates and each
Class of Mezzanine Certificates with an earlier alphabetical designation, other
than, in each case, with respect to Uncovered Prepayment Interest Shortfalls.
This subordination is intended to enhance the likelihood of timely receipt by
the holders of the Senior Certificates of the full amount of all interest
payable in respect of the Senior Certificates on each Distribution Date, and the
ultimate receipt by the holders of the Senior Certificates (other than the Class
[A-X] Certificates) of principal in an amount equal to, in each case, the entire
Certificate Balance of such Class of Certificates. Similarly, but to decreasing
degrees, this subordination is also
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intended to enhance the likelihood of timely receipt by the holders of Class
[B], Class [C] and Class [D] Certificates of the full amount of interest payable
in respect of such Classes of Certificates on each Distribution Date, and the
ultimate receipt by the holders of such Certificates of principal equal to, in
each case, the entire Certificate Balance of each such Class of Certificates.
The protection afforded to the holders of any Class of Offered
Certificates by means of the subordination of each Class of Offered
Certificates, if any, subordinate thereto and by means of the subordination of
the Private Certificates will be accomplished by the application of the
available distribution amount on each Distribution Date in accordance with the
order of priority described under "--Distributions" above and by the allocation
of Collateral Support Deficits and Certificate Deferred Interest in the manner
described below. No other form of credit support will be available for the
benefit of the holders of the Offered Certificates.
Allocation to each Class of Offered Certificates, in order of declining
seniority for so long as such Class is outstanding, of the Principal
Distribution Amount on a given Distribution Date will have the effect of
reducing the aggregate Certificate Balance of such Class at a proportionately
faster rate than the rate at which the aggregate Stated Principal Balance of the
Mortgage Loans will decrease. Thus, as principal is distributed to each Class of
Offered Certificates, the percentage interest in the Trust Fund evidenced by
such Class will be decreased (with a corresponding increase in the percentage
interest in the Trust Fund evidenced by the Private Certificates and those
Classes of Offered Certificates subordinate to the Class of Offered Certificates
then receiving distributions of principal), thereby increasing, relative to
their respective Certificate Balances, the subordination afforded such Class by
the Offered Certificates subordinate thereto and by the Private Certificates.
On each Distribution Date, immediately following the distributions to be
made to the Certificateholders on such date, the Trustee is required to
calculate the Collateral Support Deficit. The Trustee will be required to
allocate any such Collateral Support Deficit among the respective Classes of
Certificates as follows: to the Class [N], Class [M], Class [L], Class [K],
Class [J], Class [H], Class [G], Class [F], Class [E], Class [D], Class [C] and
Class [B] Certificates in that order, in reduction of the respective Certificate
Balances thereof, in each case until the remaining Certificate Balance of each
such Class has been reduced to zero. Following the reduction of the Certificate
Balances of all such Classes to zero, any remaining Collateral Support Deficit
will be allocated among the Class [A-1] and Class [A-2] Certificates, pro rata
(based upon such Classes' respective Certificate Balances), until the remaining
Certificate Balances of such Classes have been reduced to zero. Any Collateral
Support Deficit allocated to a Class of Certificates will be allocated among
respective Certificates of such Class in proportion to the Percentage Interests
evidenced thereby.
In general, Collateral Support Deficits could result from the occurrence
of -
o losses and other shortfalls on or in respect of the Mortgage Loans,
including as a result of defaults and delinquencies, the payment to
the related Special Servicer[s] of any compensation as described in
"The Pooling and Servicing Agreement--Servicing Compensation and
Payment of Expenses," the payment of interest on Advances (to the
extent not covered by Penalty Charges collected on the related
Mortgage Loans) and certain servicing expenses; and
o certain unanticipated, non-Mortgage Loan specific expenses of the
Trust Fund, including certain reimbursements to the Trustee, the
Servicer[s], the Special Servicer[s] and the depositor and certain
federal, state and local taxes, and certain tax-related expenses,
payable out of the Trust Fund (but excluding Uncovered Prepayment
Interest Shortfalls, which will be allocated to all or several of
the Classes of Regular Certificates on a pro rata basis as a
reduction of such Classes' interest entitlement, as described below)
as described in this prospectus supplement under "The Pooling and
Servicing Agreement."
Accordingly, the allocation of Collateral Support Deficits as described
above will constitute an allocation of losses and other shortfalls experienced
by the Trust Fund. A Class of Offered Certificates will be considered
outstanding until its Certificate Balance is reduced to zero; provided, however,
that reimbursement of any previously allocated Collateral Support Deficit may
thereafter be made to such Class.
Shortfalls in the available distribution amount resulting from Uncovered
Prepayment Interest Shortfalls will generally be allocated to all Classes of the
Regular Certificates. In each case such allocations will be made pro rata
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to such Classes on the basis of their Monthly Interest Distribution Amounts
(before giving effect to any reductions therefrom for such Uncovered Prepayment
Interest Shortfalls or indemnification expenses or for Certificate Deferred
Interest) and will reduce such Classes' respective interest entitlements.
Certificate Deferred Interest. On each Distribution Date, the amount of
interest distributable monthly on each Class of Regular Certificates will be
reduced by an amount of Certificate Deferred Interest equal to the aggregate
amount of Mortgage Deferred Interest for all Mortgage Loans for the related Due
Date and allocated to such Class of Certificates, the amount representing such
Certificate Deferred Interest to be allocated first, to the [Subordinate Private
Certificates], second, to the Class [D] Certificates, third, to the Class [C]
Certificates and fourth, to the Class [B] Certificates. If the Certificate
Balance of at least one Class of Senior Certificates is not zero, then any
amounts representing Certificate Deferred Interest after allocation thereof to
the [Mezzanine Certificates] [and Subordinate Private] Certificates in
accordance with the preceding sentence, will be allocated to the Senior
Certificates (other than the Class [A-X] Certificates) pro rata on the basis of
such Classes' respective interest entitlements on such date (before giving
effect to any reduction therefrom on such Distribution Date). The effect of such
an allocation of Certificate Deferred Interest is to reduce the interest
otherwise distributable to such Classes of Certificates. Additionally, on each
Distribution Date, the Certificate Balance of each Class of Regular Certificates
(other than the Class [A-X] Certificates) will be increased (except for the
purposes of determining Voting Rights and the identity of the Controlling Class)
by the amount of Certificate Deferred Interest, if any, allocated to such Class
of Certificates.
PREPAYMENT AND YIELD CONSIDERATIONS
YIELD
The yield to maturity on the Offered Certificates will depend upon the
price paid by the Certificateholder, the rate and timing of the distributions in
reduction of Certificate Balance of such Certificates and the rate, timing and
severity of losses on the Mortgage Loans and the extent to which such losses are
allocable in reduction of the Certificate Balance of such Certificates, as well
as prevailing interest rates at the time of prepayment or default.
The rate of distributions in reduction of the Certificate Balance of any
Class of Offered Certificates, the aggregate amount of distributions on any
Class of Offered Certificates and the yield to maturity of any Class of Offered
Certificates will be directly related to the rate of payments of principal (both
scheduled and unscheduled) on the Mortgage Loans and the amount and timing of
borrower defaults. The Pass-Through Rate for the Class [A-X] Certificates for
any Distribution Date will be variable and will be based on the Weighted Average
Net Mortgage Rate for such Distribution Date. In addition, such distributions in
reduction of Certificate Balance may result from repurchases by a Mortgage Loan
Seller[s] due to missing or defective documentation or by a Mortgage Loan Seller
for breaches of representations and warranties with respect to the Mortgage
Loans as described in this prospectus supplement under "The Pooling and
Servicing Agreement--Representations and Warranties; Repurchase," purchases of
the Mortgage Loans in the manner described in this prospectus supplement under
"The Pooling and Servicing Agreement-- Optional Termination" or purchases of ARD
Loans by Class ___ or Class ___ Certificateholders as described in this
prospectus supplement under "Certain Characteristics of the Mortgage
Loans--Certain Terms and Conditions of the Mortgage Loans."
The Certificate Balance of any Class of Offered Certificates may be
reduced without distributions thereon as a result of the allocation of
Collateral Support Deficits to such Class (or the related Classes), reducing the
maximum amount distributable to such Class in respect of Certificate Balance, as
well as the amount of interest that would have accrued thereon in the absence of
such reduction. A Collateral Support Deficit generally results when the
aggregate principal balance of a Mortgage Loan is reduced without an equal
distribution to Certificateholders in reduction of the Certificate Balances of
the Certificates. Collateral Support Deficits are likely to arise under the
circumstances described in the penultimate paragraph of "Description of the
Offered Certificates--Subordination; Allocation of Collateral Support Deficits
and Certificate Deferred Interest."
Because the ability of a borrower to make a Balloon Payment or to repay an
ARD Loan in full on its Anticipated Repayment Date will depend upon its ability
either to refinance the Mortgage Loan or to sell the related Mortgaged
Properties, there is a risk that a borrower may default at the maturity date in
the case of a Balloon Loan or fail to fully repay an ARD Loan at its Anticipated
Repayment Date. In connection with a default on the Balloon
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Payment, the related Special Servicer[s] may agree to extend the maturity date
thereof as described in this prospectus supplement under "The Pooling and
Servicing Agreement--Realization Upon Mortgage Loans." In the case of any such
default, recovery of proceeds may be delayed by and until, among other things,
work-outs are negotiated, foreclosures are completed or bankruptcy proceedings
are resolved.
The Directing Certificateholder may delay the commencement of any
foreclosure proceedings under certain conditions described in this prospectus
supplement. Certificateholders are not entitled to receive distributions of
Monthly Payments or the Balloon Payment when due except to the extent they are
either actually received or covered by an Advance. Consequently, any defaulted
Monthly Payment for which no such Advance is made and a defaulted Balloon
Payment will tend to extend the weighted average lives of the Certificates,
whether or not a permitted extension of the maturity date of the related
Mortgage Loan has been effected. The rate of payments (including voluntary and
involuntary prepayments) on pools of Mortgage Loans is influenced by a variety
of economic, demographic, geographic, social, tax, legal and other factors,
including the level of mortgage interest rates and the rate at which borrowers
default on their mortgage loans.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
even if the average rate of principal payments experienced over time is
consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans is applied in reduction of the
Certificate Balance of a Class of Offered Certificates, the greater the effect
on such investor's yield to maturity.
Substantially all of the Mortgage Loans have Lockout and/or Defeasance
Periods ranging from ______ months to ______ months following the Cut-off Date.
The weighted average Lockout and/or Defeasance Period for the Mortgage Loans is
approximately ______ months. Voluntary prepayments on the Mortgage Loans are
generally prohibited until no earlier than one to six months preceding their
Anticipated Repayment Date or maturity date, as applicable. See "Certain
Characteristics of the Mortgage Loans--Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions" in this prospectus supplement.
As described in this prospectus supplement, ______ of the Mortgage Loans
have one or more call-protection features (i.e., Lockout Periods, Prepayment
Premiums or Yield Maintenance Charges), which are intended to prohibit or
discourage borrowers from prepaying their Mortgage Loans. Notwithstanding the
existence of such call protection, no representation is made as to the rate of
principal payments on the Mortgage Loans or as to the yield to maturity of any
Class of Offered Certificates. In addition, although excess cash flow is applied
to reduce the principal of the ARD Loans after their respective Anticipated
Repayment Dates and the Mortgage Rates are reset at the Revised Rates, there can
be no assurance that any of such Mortgage Loans will be prepaid on that date or
any date prior to maturity. Additional Collateral Loans may require principal
prepayments during the related Lockout Periods without payment of a Prepayment
Premium or Yield Maintenance Charge.
An investor is urged to make an investment decision with respect to any
Class of Offered Certificates based on the anticipated yield to maturity of such
Class of Offered Certificates resulting from its purchase price and such
investor's own determination as to anticipated Mortgage Loan prepayment rates
under a variety of scenarios. The extent to which any Class of Offered
Certificates is purchased at a discount or a premium and the degree to which the
timing of payments on such Class of Offered Certificates is sensitive to
prepayments will determine the extent to which the yield to maturity of such
Class of Offered Certificates may vary from the anticipated yield. An investor
should carefully consider the associated risks, including, in the case of any
Offered Certificates purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield and, in
the case of any Offered Certificates purchased at a premium, the risk that a
faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield.
An investor should consider the risk that rapid rates of prepayments on
the Mortgage Loans, and therefore of amounts distributable in reduction of the
principal balance of the Offered Certificates entitled to distributions of
principal may coincide with periods of low prevailing interest rates. During
such periods, the effective interest rates on securities in which an investor
may choose to reinvest amounts distributed in reduction of the principal balance
of such investor's Offered Certificate may be lower than the Pass-Through Rate.
There can be no assurance that any distribution of Prepayment Premiums or Yield
Maintenance Charges advanced by the Servicer[s] in connection with the mandatory
prepayment of an Additional Collateral Loan will be sufficient to offset any
negative effect on yield.
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Conversely, slower rates of prepayments on the Mortgage Loans, and
therefore of amounts distributable in reduction of the principal balance of the
Offered Certificates entitled to distributions of principal, may coincide with
periods of high prevailing interest rates. During such periods, the amount of
principal distributions resulting from prepayments available to an investor in
such Certificates for reinvestment at such high prevailing interest rates may be
relatively small.
The Pass-Through Rate applicable to the Class [B], Class [C] and Class [D]
Certificates for any Distribution Date will be equal to the Weighted Average
[Net Mortgage Rate minus [__]%, [__]%, [__]% and [__]% respectively with respect
to such Distribution Date. Accordingly, the yield on the Class [B], Class [C]
and Class [D] Certificates will be sensitive to changes in the relative
composition of the Mortgage Loans as a result of scheduled amortization,
voluntary prepayments, liquidations of Mortgage Loans following default and
repurchases of Mortgage Loans. Losses or payments of principal on the Mortgage
Loans with higher Mortgage Rates will result in a reduction in the Weighted
Average Net Mortgage Rate, reducing the Pass-Through Rates of the Class [B],
Class [C] and Class [D] Certificates.
The effective yield to holders of Offered Certificates will be lower than
the yield otherwise produced by the applicable Pass-Through Rate and purchase
prices because while interest is generally required to be paid by the borrower
on a specified day between the first day and the eleventh day of each month, the
distribution of such interest will not be made until the Distribution Date
occurring in such month, and principal paid on any Distribution Date will not
bear interest during the period after the interest is paid and before the
Distribution Date occurs. Additionally, as described under "Description of the
Offered Certificates--Distributions" in this prospectus supplement, if the
portion of the available distribution amount distributable in respect of
interest on any Class of Offered Certificates on any Distribution Date is less
than the amount of interest required to be paid to the holders of such Class,
the shortfall will be distributable to holders of such Class of Certificates on
subsequent Distribution Dates, to the extent of Available Funds on such
Distribution Dates. Any such shortfall will not bear interest, however, and will
therefore negatively affect the yield to maturity of such Class of Certificates
for so long as it is outstanding.
MODELING ASSUMPTIONS
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the Constant Prepayment
Rate or CPR model. As used in the following tables, (a) the column headed "0%
CPR" assumes that none of the Mortgage Loans is prepaid before the Anticipated
Repayment Date or maturity date, as applicable, and (b) the columns headed "5%
CPR," "10% CPR," "15% CPR" and "25% CPR" assume that prepayments on the Mortgage
Loans are made at those levels of CPR following the expiration of any Lockout
Period and Yield Maintenance Period. All columns in the following tables assume
that all of the ARD Loans are fully prepaid on their related Anticipated
Repayment Date and all of the other Mortgage Loans are paid in full on their
maturity date. There is no assurance, however, that prepayments of the Mortgage
Loans will conform to any level of CPR, and no representation is made that the
Mortgage Loans will prepay at the levels of CPR shown or at any other prepayment
rate. The foregoing assumptions are referred to as the "Prepayment Assumptions"
[Insert Description of Mortgage Loan Modeling Assumptions]
RATED FINAL DISTRIBUTION DATE
The ratings provided by the Rating Agencies address the likelihood that
all principal due on the Offered Certificates will be received by the Rated
Final Distribution Date, which is the Distribution Date occurring in ________
__, 200_, which is the first Distribution Date following the date that is two
years after the latest Assumed Maturity Date. Most of the Mortgage Loans have
maturity dates or Anticipated Repayment Dates that occur earlier than the latest
Assumed Maturity Date, and most of the Mortgage Loans may be prepaid prior to
maturity. Consequently, it is possible that the Certificate Balance of each
Class of Offered Certificates will be reduced to zero significantly earlier than
the Rated Final Distribution Date.
WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution or allocation
to the investor of each dollar in reduction of Certificate Balance that is
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distributed or allocated, respectively. The weighted average lives of the
Offered Certificates will be influenced by, among other things, the rate at
which principal of the Mortgage Loans is paid, which may occur as a result of
scheduled amortization, Balloon Payments, voluntary or involuntary prepayments
or liquidations.
The weighted average lives of the Offered Certificates may also be
affected to the extent that additional distributions in reduction of the
Certificate Balance of such Certificates occur as a result of the repurchase or
purchase of Mortgage Loans from the Trust Fund as described under "The Pooling
and Servicing Agreement-- Representations and Warranties; Repurchase" and
"--Optional Termination" in this prospectus supplement. Such a repurchase or
purchase from the Trust Fund will have the same effect on distributions to the
holders of Certificates as if the related Mortgage Loans had prepaid in full,
except that no Prepayment Premiums or Yield Maintenance Charges are made in
respect thereof.
The tables of "Percentage of Initial Certificate Balance Outstanding at
the Respective CPRs Set Forth Below" indicate the weighted average life of each
Class of Offered Certificates and set forth the percentage of the initial
Certificate Balance of such Offered Certificates that would be outstanding after
each of the dates shown at the various CPRs and based on the Prepayment
Assumptions. The tables have also been prepared on the basis of the Mortgage
Loan Assumptions. The Mortgage Loan Assumptions made in preparing the previous
and following tables are expected to vary from the actual performance of the
Mortgage Loans. It is highly unlikely that principal of the Mortgage Loans will
be repaid consistent with assumptions underlying any one of the scenarios.
Investors are urged to conduct their own analysis concerning the likelihood that
the Mortgage Loans may pay or prepay on any particular date.
Based on the Mortgage Loan Assumptions, the Prepayment Assumptions and the
various CPRs, the tables indicate the weighted average life of the Offered
Certificates and set forth the percentages of the initial Certificate Balance of
the Offered Certificates that would be outstanding after each of the indicated
Distribution Dates, at the indicated CPRs.
[Insert Table Showing Weighted Average Life of Offered Certificates]
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THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ________ __, 200_ (the "Pooling and Servicing
Agreement"), by and among the depositor, the Servicer[s], the Special
Servicer[s] and the Trustee.
Reference is made to the accompanying prospectus for important information
in addition to that set forth in this prospectus supplement regarding the terms
of the Pooling and Servicing Agreement and terms and conditions of the Offered
Certificates. The Trustee will provide a copy of the Pooling and Servicing
Agreement to a prospective or actual holder of an Offered Certificate, upon
written request and, at the Trustee's discretion, payment of a reasonable fee
for any expenses. The Pooling and Servicing Agreement will also be made
available by the Trustee on its website, at the address set forth under
"Reporting Requirements." The Pooling and Servicing Agreement will also be filed
with the Commission by the depositor by means of the EDGAR System and should be
available on the Commission's website, the address of which is "www.sec.gov."
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the depositor will sell, transfer or otherwise
convey, assign or cause the assignment of the Mortgage Loans, without recourse,
to the Trustee for the benefit of the holders of Certificates. On or prior to
the Closing Date, the depositor will deliver to the Trustee, with respect to
each Mortgage Loan, a mortgage file ("Mortgage File") containing certain
documents and instruments, including, among other things, the following -
o the original Mortgage Note endorsed without recourse to the order of
the Trustee, or a lost note affidavit;
o the original mortgage or counterpart thereof (or, in either case, a
certified copy thereof);
o the assignment of the mortgage in recordable form in favor of the
Trustee;
o if applicable, preceding assignments of mortgages (or certified
copies thereof);
o the related security agreement, if any;
o if applicable, preceding assignments of assignments of leases and
rents (or certified copies thereof);
o a certified copy of the UCC-1 Financing Statements, if any,
including UCC-3 continuation statements and UCC-3 assignments;
o if applicable, the original loan agreements; and
o the original lender's title insurance policy (or marked commitments
to insure).
The Trustee will hold such documents for the benefit of the holders of the
Certificates. The Trustee is obligated to review the documents described in
items __ through __, __ through __ and __ above for each Mortgage Loan and
report any missing documents or certain types of defects therein (in each such
case, a "Defect" in the related Mortgage File) within 90 days after the Closing
Date to the depositor, the [applicable] Servicer, the [applicable] Special
Servicer[s] and the applicable Mortgage Loan Seller[s] as set forth in and
subject to the terms of the Pooling and Servicing Agreement.
REPRESENTATIONS AND WARRANTIES; REPURCHASE
In the Pooling and Servicing Agreement, the depositor will assign to the
Trustee for the benefit of the Certificateholders the representations and
warranties made by each of the Mortgage Loan Seller[s] to the depositor
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in the Mortgage Loan Purchase Agreement[s]; Subject to certain specified
exceptions, the representations and warranties of the Mortgage Loan Seller
generally include the following-
[Specify Select Representations And Warranties];
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any Defect in a Mortgage
File or any Breach of any Mortgage Loan Seller's representations or warranties
regarding the Mortgage Loans.
Any Defect or any Breach that, in either case, causes any Mortgage Loan
not to be a "qualified mortgage" within the meaning of the REMIC provisions of
the Internal Revenue Code of 1986 shall be deemed to materially and adversely
affect the interests of Certificateholders therein, requiring the related
Mortgage Loan Seller to purchase the affected Mortgage Loan from the Trust Fund
at the applicable Purchase Price or in conformity with the related Mortgage Loan
Purchase Agreement.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement requires the Servicer[s] or the
Special Servicer[s], as applicable, to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans. With
respect to the ARD Loans, the [applicable] Servicer[s] and [applicable] Special
Servicer[s] will not be able to take any enforcement action with respect to
payment of Excess Interest or principal in excess of the principal component of
the constant Monthly Payment, other than requests for collections, until the
date on which principal and accrued interest (other than Excess Interest) has
been paid in full. With respect to any Specially Serviced Mortgage Loan, subject
to the restrictions set forth below under "--Realization Upon Mortgage Loans,"
the Special Servicer[s] will be entitled to pursue any of the remedies set forth
in the related Mortgage, including the right to acquire, through foreclosure,
all or any of the Mortgaged Properties securing such Mortgage Loan. The Special
Servicer[s] may elect to extend a Mortgage Loan (subject to conditions described
in this prospectus supplement) notwithstanding its decision to foreclose on
certain of the Mortgaged Properties.
The accompanying prospectus describes the liability of the Servicer[s] and
Special Servicer[s] with regard to their respective actions and omissions.
ADVANCES
On the Business Day immediately preceding each Distribution Date (the
"Servicer Remittance Date"), the Servicer, with respect to its related Mortgage
Loans will be obligated, subject to the recoverability determination described
below, to make advances (each, a "P&I Advance") out of its own funds or, subject
to the replacement thereof as provided in the Pooling and Servicing Agreement,
certain funds held in its Collection Account that are not required to be part of
the available distribution amount for such Distribution Date, in an amount equal
to (but subject to reduction as described in the following paragraph) the
aggregate of -
o the related Monthly Payments (in each case net of any related
Servicing Fees, Primary Servicing Fees and Workout Fees), other than
Balloon Payments, which were due during any related Due Period and
delinquent (or not advanced by the related sub-servicer) as of the
Business Day preceding such Servicer[s] Remittance Date; and
o in the case of each Mortgage Loan delinquent in respect of its
Balloon Payment as of the end of the related Due Period, including
any REO Loan as to which the Balloon Payment would have been past
due, an Assumed Scheduled Payment equal to the sum of -
(1) the principal portion of the Monthly Payment that would have
been due on such Mortgage Loan on the related Due Date based
on the constant payment required by the related Mortgage Note
or the original amortization schedule thereof (as calculated
with interest at the related Mortgage Rate), if applicable,
assuming such Balloon Payment had not become due, after giving
effect to any modification of such Mortgage Loan; and
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(2) interest on the Stated Principal Balance of such Mortgage Loan
at the applicable Net Mortgage Rate (net of interest at the
Servicing Fee Rate).
The Servicer'[s] obligations to make P&I Advances in respect of its
related Mortgage Loan or REO Property will continue through liquidation of such
Mortgage Loan or disposition of such REO Property, as the case may be. To the
extent the [applicable] Servicer[s] fails to make a P&I Advance that it is
required to make under the Pooling and Servicing Agreement, the Trustee is
obligated to make such required P&I Advance pursuant to the Pooling and
Servicing Agreement, but in any event no later than on the related Distribution
Date.
With respect to any Distribution Date, the amount required to be advanced
in respect of delinquent Monthly Payments or Assumed Scheduled Payments on a
Mortgage Loan that has been subject to an Appraisal Reduction Event will equal
the amount that would be required to be advanced by the Servicer[s] without
giving effect to the Appraisal Reduction less any Appraisal Reduction Amount
with respect to such Mortgage Loan for such Distribution Date. Neither the
Servicer[s] nor the Trustee will be required or permitted to make -
o P&I Advance for Penalty Charges;
o Yield Maintenance Charges;
o Excess Interest;
o Balloon Payments; or
o Prepayment Premiums.
If the monthly payment on any Mortgage Loan has been reduced or if the
final maturity on any Mortgage Loan is extended in connection with a bankruptcy
or similar proceeding involving the related borrower or a modification, waiver
or amendment granted or agreed to by the related Special Servicer, and the
monthly payment due and owing during the extension period is less than the
scheduled monthly payment in effect prior to such modifications, then the
Servicer[s] shall, as to such Mortgage Loan, advance only the amount of the
monthly payment due and owing after taking into account such reduction (net of
related Primary Servicing Fees and Servicing Fees) in the event of subsequent
delinquencies thereon.
In addition to P&I Advances, the Servicer[s] will also be obligated
(subject to the limitations described in this prospectus supplement) to make
advances ("Servicing Advances") in connection with the servicing and
administration of any Mortgage Loan or in connection with the servicing and
administration of any Mortgaged Property or REO Property, to pay delinquent real
estate taxes, assessments, hazard insurance premiums, environmental inspections
and remediation and to cover other similar costs and expenses that are or may
become a lien thereon. To the extent that the Servicer[s] fails to make a
Servicing Advance that it is required to make under the Pooling and Servicing
Agreement and a responsible officer of the Trustee has been notified in writing
of such failure, the Trustee will make such Servicing Advance pursuant to the
Pooling and Servicing Agreement no later than ____ Business Day following the
Servicer'[s] failure to make such Servicing Advance.
The [applicable] Servicer[s] or the Trustee, as the case may be, will be
entitled to recover any Advance made out of its own funds from any amounts
collected in respect of the Mortgage Loan as to which such Advance was made,
whether in the form of related payments, insurance and condemnation proceeds,
Liquidation Proceeds, any revenues from REO Properties or otherwise from the
Mortgage Loan ("Related Proceeds"). Notwithstanding the foregoing, neither the
Servicer[s] nor the Trustee will be obligated to make any Advance or portion
thereof that it determines in its reasonable good faith judgment would, if made,
not be recoverable (including interest thereon) out of Related Proceeds (a
"Nonrecoverable Advance") and the Servicer[s] or the Trustee will be entitled to
recover any Advance or portion thereof that it so determines to be a
Nonrecoverable Advance out of general funds on deposit in the Collection
Account. The Trustee will be entitled to rely conclusively on any
non-recoverability determination of the [applicable] Servicer. Nonrecoverable
Advances will represent a portion of the losses to be borne by the
Certificateholders.
In connection with its recovery of any Advance, each of the Servicer[s]
and the Trustee will be entitled to be paid, out of any amounts then on deposit
in the Collection Account, interest at the Prime Rate (the
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"Reimbursement Rate") accrued on the amount of such Advance from the date made
to but not including the date of reimbursement.
[The "Prime Rate" will be the rate, for any day, set forth as such in the
"Money Rates" section of The Wall Street Journal, New York edition. Each
Statement to Certificateholders will contain information relating to the amount
of Advances made with respect to the related Distribution Date. See "--Reports
to Certificateholders; Available Information" below.]
APPRAISAL REDUCTIONS
After an Appraisal Reduction Event has occurred with respect to a Mortgage
Loan, an Appraisal Reduction will be calculated for such Mortgage Loan. An
Appraisal Reduction Event will occur on the earliest of -
o the third anniversary of the date on which the first extension of
the maturity date of a Mortgage Loan becomes effective as a result
of a modification of such Mortgage Loan by the related Special
Servicer, which extension does not decrease the aggregate amount of
Monthly Payments on the Mortgage Loan;
o 120 days after an uncured delinquency (without regard to the
application of any grace period) occurs in respect of a Mortgage
Loan;
o the date on which a reduction in the amount of Monthly Payments on a
Mortgage Loan; or a change in any other material economic term of
the Mortgage Loan (other than an extension of its maturity) becomes
effective as a result of a modification of such Mortgage Loan by the
related Special Servicer;
o 60 days after a receiver has been appointed for the borrower of the
related Mortgaged Property;
o 30 days after a borrower declares bankruptcy;
o 60 days after the borrower becomes the subject of an undischarged
and unstayed decree or order for a bankruptcy proceeding; and
o immediately after a Mortgage Loan becomes an REO Loan; provided,
however, that an Appraisal Reduction Event shall not be deemed to
occur at any time after the aggregate Certificate Balances of all
Classes of Certificates (other than the Senior Certificates) have
been reduced to zero.
If required to obtain an MAI appraisal pursuant to the foregoing, the
related Special Servicer[s] must receive such appraisal within 60 days of the
occurrence of such Appraisal Reduction Event (provided that in no event shall
the period to receive such appraisal exceed ____ days from the occurrence of the
event that, with the passage of time, would become such Appraisal Reduction
Event). If such appraisal is not received, and an internal valuation is not
completed, by such date or if, for any Mortgage Loan with a Stated Principal
Balance of $____ or less, the related Special Servicer[s] elects not to obtain
an appraisal or perform an internal valuation, the Appraisal Reduction for the
related Mortgage Loan will be ____% of the Stated Principal Balance of such
Mortgage Loan as of the date of the related Appraisal Reduction Event. On the
first Determination Date occurring on or after the delivery of such MAI
appraisal or the completion of such internal valuation, the related Special
Servicer[s] will be required to calculate and report to the [applicable]
Servicer, and such Servicer[s] will report to the Trustee, the Appraisal
Reduction taking into account such appraisal or internal valuation.
As a result of calculating an Appraisal Reduction with respect to a
Mortgage Loan, the P&I Advance for such Mortgage Loan for the Servicer[s]
Remittance Date will be reduced, which will have the effect of reducing the
amount of interest available for distribution to the Subordinate Certificates in
reverse alphabetical order of the Classes. See "--Advances" above. The Appraisal
Reduction Amount for any Distribution Date and any Mortgage Loan for which an
Appraisal Reduction has been calculated will equal the product of -
o the Reduction Rate for such Distribution Date; and
o the Appraisal Reduction with respect to such Mortgage Loan.
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Such Appraisal Reduction Amount will be calculated by the Servicer, who
will be required to make such calculation prior to the day on which the
Servicer[s] is required to make Advances.
With respect to the Specially Serviced Mortgage Loan as to which an
Appraisal Reduction Event has occurred, unless such Mortgage Loan has become a
Corrected Mortgage Loan and has remained current for twelve consecutive Monthly
Payments and with respect to which no other Appraisal Reduction Event has
occurred and is continuing, the [related] Special Servicer[s] is required,
within 30 days of each anniversary of such Appraisal Reduction Event, to order
an appraisal (which may be an update of a prior appraisal) and, with respect to
any Mortgage Loan with an outstanding principal balance less than $________,
perform an internal valuation or obtain an appraisal (which may be an update of
a prior appraisal), the cost of which shall be paid by the [applicable] Special
Servicer[s] as a Servicing Advance recoverable from the Trust Fund.
Based upon such appraisal, internal valuation or, as described in the
second preceding paragraph, percentage calculation of the Appraisal Reduction,
as the case may be, the [related] Special Servicer[s] shall redetermine and
report to the Trustee and the [applicable] Servicer[s] the amount of the
Appraisal Reduction with respect to such Mortgage Loan, and such redetermined
Appraisal Reduction shall replace the prior Appraisal Reduction with respect to
such Mortgage Loan. Notwithstanding the foregoing, the [related] Special
Servicer[s] will not be required to obtain an appraisal or perform an internal
valuation, as the case may be, with respect to a Mortgage Loan which is the
subject of an Appraisal Reduction Event if [such] Special Servicer[s] has
obtained an appraisal with respect to the related Mortgaged Property within the
____ month period immediately prior to the occurrence of such Appraisal
Reduction Event, except where the Special Servicer[s] has reason to believe
there has been a material adverse change in the value of the property securing
such Mortgage Loan. Instead, [such] Special Servicer[s] may use such prior
appraisal in calculating any Appraisal Reduction with respect to such Mortgage
Loan.
With respect to the [Specially Serviced Mortgage Loan[s]] as to which an
Appraisal Reduction Event has occurred and that has become a Corrected Mortgage
Loan and has remained current for twelve consecutive Monthly Payments, and with
respect to which no other Appraisal Reduction Event has occurred and is
continuing, the related Special Servicer[s] may, within 30 days after the date
of such twelfth Monthly Payment, order an appraisal (which may be an update of a
prior appraisal) or, with respect to any Mortgage Loan with an outstanding
principal balance less than $________, perform an internal valuation or obtain
an appraisal (which may be an update of a prior appraisal), the cost of which is
required to be paid by the [applicable] Special Servicer[s] as a Servicing
Advance recoverable from the Trust Fund. Based upon such appraisal or internal
valuation, the related Special Servicer[s] is required to redetermine and report
to the Trustee and the [applicable] Servicer[s] the amount of the Appraisal
Reduction with respect to such Mortgage Loan, and such redetermined Appraisal
Reduction will replace the prior Appraisal Reduction with respect to such
Mortgage Loan.
ACCOUNTS
Lockbox Accounts. With respect to ________ Mortgage Loans, which represent
in the aggregate ____% of the Initial Pool Balance, one or more accounts in the
name of the related borrower (which are the Lockbox Accounts) have been, or upon
the occurrence of certain events will be, established into which rents or other
revenues from the related Mortgaged Properties are deposited by the related
tenants or manager. Agreements governing the Lockbox Accounts provide that the
borrower has no withdrawal or transfer rights with respect thereto and that all
funds on deposit in the Lockbox Accounts are periodically swept into the Cash
Collateral Accounts. For all ARD Loans for which a Lockbox Account has not
already been established, such loans require the related lender to establish a
Lockbox Account prior to its Anticipated Repayment Date. The Lockbox Accounts
will not be assets of the Trust Fund.
Cash Collateral Accounts. With respect to each Mortgage Loan that has a
Lockbox Account, one or more cash collateral accounts in the name of the
Servicer[s] have been established into which funds in the related Lockbox
Accounts will be swept on a regular basis. Unless certain trigger events occur
as specified in the related Mortgage Loan, any excess over the amount necessary
to fund the Monthly Payment, the Escrow Accounts and any other amounts due under
the Mortgage Loans will be returned to or retained by the related borrower,
provided that no event of default of which the Servicer[s] is aware has occurred
and is continuing with respect to such Mortgage Loan. However, as described
under "Description of the Mortgage Loans--Certain Terms and Conditions of the
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Mortgage Loans--Excess Interest," after the respective Anticipated Repayment
Date, if applicable, all or substantially all amounts in the related cash
collateral account in excess of the amount necessary to fund the Monthly Payment
and Escrow Accounts will be applied to -
o operating and capital expenses;
o the reduction of the principal balance of the related Mortgage Loan
until such principal is paid in full;
o and Excess Interest, in that order.
The cash collateral accounts will not be an asset of the Trust Fund.
Collection Account. The Servicer[s] will establish and maintain a
segregated account (a "Collection Account and collectively the "Collection
Accounts") pursuant to the Pooling and Servicing Agreement, and on each Due Date
withdraw from each cash collateral account an amount equal to the Monthly
Payment on the related Mortgage Loan and deposit such amount into its Collection
Account for application towards the Monthly Payment, net of related Servicing
Fees and Primary Servicing Fees and other amounts due the [applicable]
Servicer[s] or applicable Primary Servicer[s] and not required to be deposited
into its Collection Account. The Servicer[s] will also deposit into its
Collection Account within one Business Day of receipt all other payments in
respect of the Mortgage Loans, other than amounts to be deposited into any
Escrow Account, net of related Servicing Fees and Primary Servicing Fees and
other amounts due the [applicable] Servicer[s] or applicable Primary Servicer[s]
and not required to be deposited into the Collection Account.
Distribution Account. The Trustee will establish and maintain one or more
segregated accounts (collectively, the "Distribution Account") in the name of
the Trustee for the benefit of the holders of Certificates. With respect to each
Distribution Date, the Servicer[s] will deliver to the Trustee for deposit into
the Distribution Account, to the extent of funds on deposit in the Collection
Account on the Servicer[s] Remittance Date, its portion of the available
distribution amount. The Servicer[s] will deposit all P&I Advances into the
Distribution Account on the Servicer[s] Remittance Date. To the extent a
Servicer[s] fails to do so, the Trustee is required to deposit any required P&I
Advances into the Distribution Account on the related Distribution Date as
described in this prospectus supplement and as provided in the Pooling and
Servicing Agreement. See "Description of the Offered
Certificates--Distributions."
Interest Reserve Account. The Servicer[s] will establish on or before the
Closing Date and will maintain an "Interest Reserve Account" in the name of such
Servicer[s] for the benefit of the holders of the Certificates. On the
Servicer[s] Remittance Date in each [February] and on the Servicer[s] Remittance
Date in any January which occurs in a year which is not a leap year, the
Servicer[s] will be required to deposit, in respect of the related Mortgage
Loans that accrue on an Actual/360 basis, into the Interest Reserve Account, an
amount withheld from the related Monthly Payment or Advance equal to one day's
interest at the related Mortgage Rate on the Stated Principal Balance of such
Mortgage Loan as of the Distribution Date occurring in the month preceding the
month in which such Servicer[s] Remittance Date occurs, to the extent a full
Monthly Payment or P&I Advance is made in respect thereof ("Withheld Amounts").
On the Servicer[s] Remittance Date occurring in ____, the Servicer[s] will be
required to withdraw from the Interest Reserve Account an amount equal to the
Withheld Amounts from the preceding ____ and ____, if any, and deposit such
amount (excluding any net investment income thereon) into the Distribution
Account.
[Excess Interest Distribution Account. The Trustee also will establish and
maintain one or more segregated accounts (collectively, the "Excess Interest
Distribution Account"), each in the name of the Trustee for the benefit of the
holders of the Certificates.]
Account Requirements. The cash collateral accounts, Collection Account,
any REO Account, the Escrow Accounts, the Distribution Account, the Interest
Reserve Account and the Excess Interest Distribution Account will be held in the
name of the Trustee (or the Servicer[s] on behalf of the Trustee) on behalf of
the holders of Certificates and [such] Servicer[s] will be authorized to make
withdrawals from the cash collateral accounts, the Collection Account and the
Interest Reserve Account. Each of the cash collateral account, Collection
Account, any REO Account, the Interest Reserve Account, the Escrow Accounts and
the Excess Interest Distribution Account will be-
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o an account or accounts maintained with a federal or state chartered
depository institution or trust company the short term unsecured
debt obligations or commercial paper of which are rated at least
"___" by ____ and "___" by ____ in the case of accounts in which
funds are held for 30 days or less (or, in the case of accounts in
which funds are held for more than 30 days, the long term unsecured
debt obligations of which are rated at least "___" by ____ and
"____" by ____ or (b) as to which the Trustee has received written
confirmation from each of the Rating Agencies that holding funds in
such account would not, in and of itself, cause any Rating Agency to
qualify, withdraw or downgrade any of its then current ratings on
the Certificates;
o a segregated trust account or accounts maintained with a federal or
state chartered depository institution or trust company acting in
its fiduciary capacity which, in the case of a state chartered
depository institution or trust company, is subject to regulations
substantially similar to 12 C.F.R. Section 9.10(b), having in either
case a combined capital surplus of at least $________ and subject to
supervision or examination by federal and state authority; or
o any other account that, as evidenced by a written confirmation from
each Rating Agency that such account would not, in and of itself,
cause a downgrade, qualification or withdrawal of the then current
ratings assigned to the Certificates, an "eligible bank".
Amounts on deposit in the Collection Account, cash collateral account, any
REO Account and the Interest Reserve Account may be invested in certain
Permitted Investments. Interest or other income earned on funds in the
Collection Account, any Escrow Accounts and cash collateral accounts will be
paid to the Servicer[s] (except to the extent required to be paid to the related
borrower) as additional servicing compensation and interest or other income
earned on funds in any REO Account will be payable to the [applicable] Special
Servicer. Interest or other income earned on funds in the Interest Reserve
Account will be paid to the [applicable] Servicer. Amounts on deposit in the
Excess Interest Distribution Account and the Distribution Account will remain
uninvested.
WITHDRAWALS FROM THE COLLECTION ACCOUNTS
The Servicer[s] may make withdrawals from its respective Collection
Account for the following purposes, to the extent permitted and in the
priorities provided in the Pooling and Servicing Agreement -
(1) to remit to the Trustee for deposit in the Distribution Account the
amounts required to be remitted or that may be applied to make P&I
Advances;
(2) to pay itself unpaid Servicing Fees or to pay any unpaid Primary
Servicing Fees, and to pay the [applicable] Special Servicer[s]
unpaid Special Servicing Fees, Liquidation Fees and Workout Fees;
(3) to reimburse itself or the Trustee for unreimbursed P&I Advances;
(4) to reimburse itself, the Trustee or the holder or servicer of the
related Other Note, for unreimbursed Servicing Advances;
(5) to reimburse itself or the Trustee, for Nonrecoverable Advances;
(6) to pay itself or the Trustee, any interest accrued and payable
thereon for any unreimbursed P&I Advances, Servicing Advances or
Nonrecoverable Advances;
(7) to reimburse itself, the [applicable] Special Servicer, the
depositor or the Trustee, as the case may be, for any unreimbursed
expenses reasonably incurred in respect of any Breach or Defect
giving rise to a repurchase obligation of either Mortgage Loan
Seller, or the enforcement of such obligation, under the related
Mortgage Loan Purchase Agreement;
(8) to pay itself, as additional servicing compensation, any net
investment earnings and Penalty Charges on Mortgage Loans (other
than Specially Serviced Mortgage Loans), but only to the extent
collected from the related borrower; and to pay the [applicable]
Special Servicer, as additional servicing compensation, Penalty
Charges on Specially Serviced Mortgage Loans;
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(9) to recoup any amounts deposited in the Collection Account in error;
(10) to pay itself, the [applicable] Special Servicer, the depositor and
their respective directors, officers, employees and agents, any
amounts payable pursuant to the Pooling and Servicing Agreement;
(11) to pay for-
o the cost of the opinions of counsel for purposes of REMIC
administration or amending the Pooling and Servicing Agreement
to the extent payable out of the Trust Fund; and
o the cost of obtaining an extension from the Internal Revenue
Service for the sale of any REO Loan;
(12) to pay out of general collections for any and all federal, state and
local taxes imposed on any REMIC or their assets or transactions
together with incidental expenses;
(13) to reimburse itself and the [applicable] Special Servicer[s] out of
general collections for expenses incurred by and reimbursable to
each of them by the Trust Fund;
(14) to pay itself, the [applicable] Special Servicer, either Mortgage
Loan Seller, with respect to each Mortgage Loan, if any, previously
purchased pursuant to the Pooling and Servicing Agreement, all
amounts received thereon subsequent to the date of purchase;
(15) to pay for costs and expenses incurred by the Trust Fund due to
actions taken pursuant to an environmental assessment; and
(16) to clear and terminate the Collection Account at termination of the
Pooling and Servicing Agreement; provided, that in the case of
clauses (3), (4), (5) and (6), the Trustee will have priority with
respect to any such reimbursement.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
The Mortgage Loans contain provisions in the nature of "due-on-sale" or
assumption clauses, which by their terms (a) provide that the Mortgage Loans
will (or, at the lender's option, may) become due and payable upon the sale or
other transfer of an interest in the related Mortgaged Property or (b) provide
that the Mortgage Loans may be assumed with, among other conditions, the consent
of the related servicer in connection with any such sale or other transfer. The
Special Servicer[s] will be required to enforce any such due-on-sale clause or
refuse to consent to such assumption, unless such Special Servicer[s]
determines, in accordance with the Servicing Standard, that -
o not declaring an event of default under the related Mortgage; or
o granting such consent would likely result in a greater recovery (or
an equal recovery, provided the other conditions for an assumption
or waiver of a due-on-sale clause, if any, are met) on a present
value basis (discounting at the related Mortgage Rate), than would
enforcement of such clause or the failure to grant such consent.
If such Special Servicer[s] determines that-
o not declaring an event of default under the related Mortgage; or
o granting such consent would likely result in a greater recovery (or
an equal recovery, provided the other conditions for an assumption
or waiver of a due-on-sale clause, if any, are met), such Special
Servicer[s] is authorized to take or enter into an assumption
agreement from or with the proposed transferee as obligor thereon,
provided that-
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(1) the credit status of the prospective transferee is in
compliance with such Special Servicer'[s] regular commercial
mortgage origination criteria or the Servicing Standard and
the terms of the related Mortgage; and
(2) with respect to any Mortgage Loan the principal balance of
which is $____ or more or that is a Mortgage Loan, part of a
group of Crossed Loans or a group of Mortgage Loans identified
under the table entitled "Related Borrower Loans" under "Risk
Factors--Risks Related to the Mortgage Loans" that, in each
case, in the aggregate, (i) represents ____% or more of the
aggregate outstanding principal balance of all of the Mortgage
Loans at such time or (ii) is one of the ten largest Mortgage
Loans by outstanding principal balance of all of the Mortgage
Loans at such time, such Special Servicer[s] has received
written confirmation from each of the Rating Agencies that
such assumption would not, in and of itself, cause a
downgrade, qualification or withdrawal of the then current
ratings assigned to the Certificates (the conditions described
in (1) and (2) are referred to as the assumption conditions.
Mortgage Loans described in (2) are referred to as Significant
Mortgage Loans
The Special Servicer[s] is required to provide notice to the Rating
Agencies of the assumption of any Mortgage Loan or transfer of a direct or
indirect controlling interest in the borrower under a Mortgage Loan which, in
each case, is not a Significant Mortgage Loan. No assumption agreement may
contain any terms that are different from any term of any Mortgage or related
Mortgage Note, except pursuant to the provisions described under "--Realization
Upon Mortgage Loans" and "--Modifications" below. The SpeciaL Servicer[s] will
provide notice to the Rating Agencies of any waiver of any due-on-sale clause in
the event that Rating Agency confirmation is not required for such waiver.
The consent of the Special Servicer[s] and, except as described in this
prospectus supplement, the receipt of a rating confirmation will not be required
in the event that the holder of mezzanine debt related to a Mortgage Loan
forecloses upon the equity in a borrower under a Mortgage Loan.
The Mortgage Loans contain provisions in the nature of a
"due-on-encumbrance" clause which provide-
o that the Mortgage Loans shall (or, at the lender's option, may)
become due and payable upon the creation of any additional lien or
other encumbrance on the related Mortgaged Property; or
o require the consent of the related lender to the creation of any
such additional lien or other encumbrance on the related Mortgaged
Property.
The Special Servicer[s] will be required to enforce such
due-on-encumbrance clause and in connection therewith will be required to (i)
accelerate payments thereon or (ii) withhold its consent to such lien or
encumbrance unless such Special Servicer[s] (x) determines, in accordance with
the Servicing Standard, that such enforcement would not be in the best interests
of the Trust Fund and (y) receives prior written confirmation from each of the
Rating Agencies, that (1) not accelerating payments on the related Mortgage Loan
or (2) granting such consent would not, in and of itself, cause a downgrade,
qualification or withdrawal of any of the then current ratings assigned to the
Certificates. See "Legal Aspects of the Mortgage Loans in the accompanying
prospectus.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Servicer[s] (or, with respect to the Specially Serviced Mortgage
Loans, the [applicable] Special Servicer) will perform (at its own expense), or
cause to be performed (at its own expense), physical inspections of each
Mortgaged Property at such times and in such manner as are consistent with the
Servicing Standard, but in any event shall inspect each Mortgaged Property
securing a Mortgage Note (a) with a Stated Principal Balance of which is
$________ or more or that is a Mortgage Loan that represents ___% or more of the
aggregate outstanding principal balance of all of the Mortgage Loans at such
time, at least once every ___ months and (b) with a Stated Principal Balance
that is less than $____ and that is not a Mortgage Loan which represents ____%
or more of the aggregate outstanding principal balance of all the Mortgage Loans
at such time, at least once every ___ months, in each case commencing in ____
(or at such lesser frequency as each Rating Agency shall have confirmed in
writing to the [applicable] Servicer[s] will not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any Class of Certificates); provided, however, that if the related Mortgage
Loan--
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o has a DSCR of less than 1.0x and is a Specially Serviced Mortgage
Loan;
o becomes a Specially Serviced Mortgage Loan; or
o is delinquent for ____ days;
then the related Special Servicer[s] is required to inspect the related
Mortgaged Property as soon as practicable and thereafter at least every ____
months for so long as such condition exists. The [applicable] Special
Servicer[s] or the [applicable] Servicer, as the case may be, is required to
prepare a written report of each such inspection describing the condition of the
Mortgaged Property.
Most of the Mortgages obligate the related borrower to deliver quarterly,
and substantially all Mortgages require annual, property operating statements.
In addition, there can be no assurance that any operating statements required to
be delivered will in fact be delivered, nor is the related Special Servicer[s]
or the Servicer[s] likely to have any practical means of compelling such
delivery in the case of an otherwise performing Mortgage Loan.
INSURANCE POLICIES
To the extent permitted by the related Mortgage Loan and required by the
Servicing Standard, the Servicer[s] (or, with respect to the Specially Serviced
Mortgage Loans, the related Special Servicer) will use its reasonable best
efforts to cause each borrower to maintain, and if the borrower does not so
maintain, is required to itself maintain (through a program that it maintains,
to the extent available at commercially reasonable rates (as determined by such
Servicer[s] or such Special Servicer, as applicable, in accordance with the
Servicing Standard), any insurance policy coverage determined to be applicable
by [such] Servicer[s] or, with respect to any Specially Serviced Mortgage Loan,
by [such] Special Servicer, in accordance with the Servicing Standard. The
coverage of each such policy will be in an amount that is not less than the
lesser of the full replacement cost of the improvements securing such Mortgage
Loan or the outstanding principal balance owing on such Mortgage Loan but in any
case, such amount so as to avoid the application of any co-insurance clause and
with no deduction for physical depreciation.
Additionally, under the terms of the related Mortgage Loan documents, each
borrower is required to maintain business interruption insurance which covers a
period of not less than __ months. During all such times as the Mortgaged
Property is located in an area identified as a federally designated special
flood hazard area (if such flood insurance has been made available), the
[applicable] Servicer[s] or the [applicable] Special Servicer, as the case may
be, will use its reasonable best efforts to cause each borrower to maintain (to
the extent required by the related Mortgage Loan), and if the borrower does not
so maintain, is required to itself maintain (through a program that it
maintains, to the extent available at commercially reasonable rates (as
determined by the [applicable] Servicer[s] or the [applicable] Special Servicer,
as the case may be, in accordance with the Servicing Standard), a Federal flood
insurance policy in an amount equal to at least of -
o the outstanding principal balance of the related Mortgage Loan;
o the maximum amount of insurance which is available under the Flood
Disaster Protection Act of 1973, as amended; and
o any amount required by the related Mortgage Loan.
The Special Servicer[s] will be required to maintain (or cause to be
maintained) fire and hazard insurance on each REO Property in an amount that is
not less than the lesser of the full replacement cost of the improvements on
such Mortgaged Property or the outstanding principal balance owing on such
Mortgage Loan. In addition, during all such times as the REO Property is located
in an area identified as a federally designated special flood hazard area, the
[applicable] Special Servicer[s] will cause to be maintained, to the extent
available at commercially reasonable rates (as determined by such Special
Servicer[s] in accordance with the Servicing Standard), a flood insurance policy
meeting the requirements of the current guidelines of the Federal Insurance
Administration in an amount representing coverage not less than the maximum
amount of insurance which is available under the Flood Disaster Protection Act
of 1973, as amended.
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The Pooling and Servicing Agreement provides that the Servicer[s] and the
related Special Servicer[s] may satisfy their respective obligations to cause
related borrower to maintain a hazard insurance policy by maintaining a blanket
policy insuring against hazard losses on the Mortgage Loans. Any losses incurred
with respect to Mortgage Loans due to uninsured risks (including earthquakes,
mudflows and floods) or insufficient hazard insurance proceeds may adversely
affect payments to Certificateholders. Any cost incurred by the Servicer[s] in
maintaining any such insurance policy if the borrower defaults on its obligation
to do so is required to be advanced by such Servicer[s] as a Servicing Advance
and will be charged to the related borrower.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires the Servicer[s] and the
Special Servicer[s] to cause a firm of nationally recognized independent public
accountants, which is a member of the American Institute of Certified Public
Accountants, to furnish to the Trustee, the depositor and the Rating Agencies on
or before ____ of each year, beginning ______ a statement to the effect that
such firm has examined the servicing operations of the reporting person for the
previous calendar year (or a portion thereof) and that on the basis of their
examination, conducted substantially in compliance with the Uniform Single
Attestation Program ("USAP") for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC (the "Audit Program"), such firm confirms that the
Servicer[s] or the Special Servicer, as the case may be, complied with the
minimum servicing standards identified in USAP or the Audit Program, in all
material respects, except for such significant exceptions or errors in records
that, in the opinion of each such firm, the USAP or the Audit Program require
such firm to report, in which case such exceptions and errors shall be so
reported.
The Pooling and Servicing Agreement also requires the Servicer[s] and the
Special Servicer[s] to deliver to the Trustee, the depositor and the Rating
Agencies on or before ____ of each year, beginning ____, an officer's
certificate of the Servicer[s] stating that, among other things, to the best of
such officer's knowledge, such Servicer[s] has fulfilled its obligations under
the Pooling and Servicing Agreement in all material respects throughout the
preceding year (or such shorter period) or, if there has been a material
default, specifying each material default known to such officer, the nature and
status of such default and the action proposed to be taken with respect thereto.
CERTAIN MATTERS REGARDING THE DEPOSITOR, THE TRUSTEE, THE SERVICER[S] AND THE
SPECIAL SERVICER[S]
The accompanying prospectus describes the circumstances and procedures
whereby a Servicer[s] and/or Special Servicer[s] may resign from their
respective obligations. The accompanying prospectus also sets forth the
appointment procedure for [a] successor Servicer[s] and/or Special Servicer[s].
See "Description of the Governing Documents--Matters Regarding the Master
Servicer, the Special Servicer, the Manager and Us" in the accompanying
prospectus.
The Pooling and Servicing Agreement will provide that none of the
Servicer[s], the Special Servicer[s], the Trustee, the depositor or any
affiliate, director, officer, employee or agent of any of them will be under any
liability to the Trust Fund, the other parties thereto or the Certificateholders
for any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the Servicer[s], the Special Servicer[s], the Trustee, the depositor or any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance of
obligations or duties thereunder or by reason of negligent disregard of such
obligations and duties. The Pooling and Servicing Agreement will also provide
that the Servicer[s], the Special Servicer[s], the Trustee, the depositor and
any affiliate, director, officer, employee or agent of any of them will be
entitled to indemnification by the Trust Fund against any loss, liability or
expense incurred in connection with any legal action that relates to the Pooling
and Servicing Agreement, the Mortgage Loans or the Certificates; provided,
however, that such indemnification will not extend to any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of obligations or duties under the Pooling and Servicing
Agreement, by reason of negligent disregard of such obligations or duties, or in
the case of the depositor and any of its directors, officers, employees and
agents, any violation by any of them of any state or federal securities law.
In addition, the Pooling and Servicing Agreement will provide that none of
the Servicer[s], the Special Servicer[s], the Trustee, or the depositor will be
under any obligation to appear in, prosecute or defend any legal or
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administrative action that is not incidental to its respective responsibilities
under the Pooling and Servicing Agreement and that in its opinion may involve it
in any expense or liability. However, each of the Servicer[s], the Special
Servicer[s], the Trustee, and the depositor will be permitted, in the exercise
of its discretion, to undertake any such action, proceeding, hearing or
examination as it may deem necessary or desirable with respect to the
enforcement and/or protection of the rights and duties of the parties to the
Pooling and Servicing Agreement and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action, and any
liability resulting therefrom, will be expenses, costs and liabilities of the
Trust Fund, and the [applicable] Servicer, the [applicable] Special Servicer,
the Trustee or the depositor, as the case may be, will be entitled to
reimbursement from amounts attributable to the Mortgage Loans on deposit in the
Collection Account.
Pursuant to the Pooling and Servicing Agreement, the Servicer[s] and the
Special Servicer[s] will be required to maintain a fidelity bond and errors and
omissions policy or their equivalent that provides coverage against losses that
may be sustained as a result of an officer's or employee's misappropriation of
funds or errors and omissions, subject to certain limitations as to amount of
coverage, deductible amounts, conditions, exclusions and exceptions permitted by
the Pooling and Servicing Agreement. Notwithstanding the foregoing, the
Servicer[s] or the Special Servicer[s] will be allowed to self-insure with
respect to a fidelity bond and errors and omissions policy so long as certain
conditions set forth in the Pooling and Servicing Agreement are met.
Any person with or into which the Servicer[s], the Special Servicer[s] or
the depositor may be merged or consolidated, or any person resulting from any
merger or consolidation to which the Servicer[s], the Special Servicer[s] or the
depositor is a party, or any person succeeding to the business of the
Servicer[s], the Special Servicer[s] or the depositor, will be the successor of
the Servicer[s], the Special Servicer[s] or the depositor, as the case may be,
under the Pooling and Servicing Agreement; provided, however, that such merger,
consolidation or succession will not, or has not, in and of itself, resulted in
a withdrawal, downgrade or qualification of the then current ratings of the
Certificates that have been so rated, as confirmed in writing by each Rating
Agency. the Servicer[s] and the Special Servicer[s] may have other normal
business relationships with the depositor or the depositor's affiliates.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement with respect
to the Servicer[s] or the Special Servicer, as the case may be, will include,
without limitation -
o (a) any failure by [such] Servicer[s] to make any remittance
required to be made by [such] Servicer[s] (including any P&I
Advances) by 5:00 p.m. on [such] Servicer[s] Remittance Date, which
is not cured by 10:00 a.m. on the Distribution Date and (b) any
failure by [such] Servicer[s] to make any required Servicing Advance
within the time specified in the Pooling and Servicing Agreement;
o any failure by [such] Special Servicer[s] to deposit into the REO
Account, or to remit to the [applicable] Servicer[s] for deposit in
the Collection Account, any such remittance required to be made by
[such] Special Servicer[s] on the day such remittance is required to
be made under the Pooling and Servicing Agreement;
o any failure by [such] Servicer[s] or [such] Special Servicer[s] duly
to observe or perform in any material respect any of its other
covenants or obligations under the Pooling and Servicing Agreement,
which failure continues unremedied for thirty days (or fifteen days
for payment of premiums on any insurance policies or 60 days so long
as [such] Servicer[s] is in good faith diligently pursuing such
obligation) after written notice thereof has been given to [such]
Servicer[s] or [such] Special Servicer, as the case may be, by any
other party to the Pooling and Servicing Agreement, or to [such]
Servicer[s] or [such] Special Servicer, the depositor and the
Trustee, by Certificateholders of any Class, evidencing, as to such
Class, Percentage Interests aggregating not less than ____%;
o any breach by [such] Servicer[s] or [such] Special Servicer[s] of a
representation or warranty contained in the Pooling and Servicing
Agreement which materially and adversely affects the interests of
the Certificates and continues unremedied for thirty days after the
date on which notice of such breach shall have been given;
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o certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings in respect of or
relating to [such] Servicer[s] or [such] Special Servicer, and
certain actions by or on behalf of [such] Servicer[s] or [such]
Special Servicer[s] indicating its insolvency or inability to pay
its obligations and such decree or order shall have remained in
force for ____ days; or
o ______ confirms in writing that the Servicer[s]; or Special
Servicer[s] is no longer rated "____" and "____," respectively, or
better as such ratings pertain to both Servicer[s] and Special
Servicer;
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to a Servicer[s] or a Special
Servicer[s] under the Pooling and Servicing Agreement, then, in each and every
such case, so long as the Event of Default remains unremedied, the Trustee, will
be authorized, and at the written direction of Certificateholders entitled to
not less than 51% of the Voting Rights. If the Trustee is unwilling or unable so
to act or is not approved by each Rating Agency, it may (or, at the written
request of Certificateholders entitled to not less than 51% of the Voting
Rights, it will be required to), appoint, or petition a court of competent
jurisdiction to appoint as successor to [such] Servicer[s] or [such] Special
Servicer, as the case may be, any established mortgage loan servicing
institution or other entity as to which the Trustee has received written notice
from each Rating Agency that such appointment would not, in and of itself,
result in the downgrade, qualification or withdrawal of the then current ratings
assigned to any Class of Certificates by such Rating Agency.
No Certificateholder will have any right under the Pooling and Servicing
Agreement to institute any suit, action or proceeding with respect to the
Certificates or the Pooling and Servicing Agreement unless such holder
previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates of any Class
evidencing not less than 25% of the aggregate Percentage Interests constituting
such Class have made written request upon the Trustee to institute such
proceeding on behalf of the Trustee and have offered to the Trustee reasonable
indemnity, and the Trustee for 60 days after receipt of such request and
indemnity has neglected or refused to institute any such proceeding. However,
the Trustee, will be under no obligation to exercise any of the trusts or powers
vested in it by the Pooling and Servicing Agreement or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
The accompanying prospectus describes several circumstances where the
Pooling and Servicing Agreement may be amended by the parties thereto without
the consent of the holders of Certificates. See "Description of the Governing
Documents--Amendment" in the accompanying prospectus. The parties may also amend
the Pooling and Servicing Agreement without the consent of any of the holders of
Certificates to -
o change the timing and/or nature of deposits in the Collection
Account, the Distribution Account or the REO Account, provided that-
(1) the Servicer[s] Remittance Date shall not be later than the
related Distribution Date;
(2) such change would not adversely affect in any material respect
the interests of any Certificateholder, as evidenced by an
opinion of counsel (at the expense of the party requesting the
amendment); and
(3) such change would not result in the downgrading, qualification
or withdrawal of the then current ratings assigned to any
Class of Certificates by any Rating Agency, as evidenced by a
letter from each Rating Agency;
o modify, eliminate or add to any of its provisions-
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(1) to such extent as shall be necessary to maintain the
qualification of the Lower-Tier REMIC or the Upper-Tier REMIC as a
REMIC or to avoid or minimize the risk of imposition of any tax on
the Trust Fund, provided that the Trustee has received an opinion of
counsel (at the expense of the party requesting the amendment) to
the effect that-
(i) such action is necessary or desirable to maintain such
qualification or to avoid or minimize such risk; and
(ii) such action will not adversely affect in any material
respect the interests of any holder of the Certificates;
or
(2) to restrict the transfer of the Residual Certificates, provided
that the depositor has determined that the then current ratings of
any Class of the Certificates will not be downgraded, qualified or
withdrawn, as evidenced by a letter from each Rating Agency, and
that any such amendment will not give rise to a federal tax with
respect to the transfer of the Residual Certificates to a
non-permitted transferee (see "Certain Federal Income Tax
Consequences" in the accompanying prospectus);
o make any other provisions with respect to matters or questions
arising under the Pooling and Servicing Agreement, provided that
such action will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any
Certificateholder; or
o amend or supplement any provision of the Pooling and Servicing
Agreement to the extent necessary to maintain the then current
ratings assigned to each Class of Certificates by each Rating Agency
as confirmed in writing.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each Class affected
thereby evidencing, in each case, not less than 66 2/3% of the aggregate
Percentage Interests constituting such Class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of the Certificates, except that no such amendment may -
o reduce the aforesaid percentage of Certificates of any Class the
holders of which are required to consent to any such amendment
without the consent of the holders of all Certificates of such Class
then outstanding; or
o adversely affect the Voting Rights of any Class of Certificates
without the consent of the holders of all Certificates of such Class
then outstanding, change the Servicing Standard without the consent
of the holders of all Certificates then outstanding.
See "Description of the Governing Documents--Amendment" in the accompanying
prospectus.
Notwithstanding the foregoing, the Trustee will not be entitled to consent
to any amendment to the Pooling and Servicing Agreement without having first
received an opinion of counsel (at the Trust Fund's expense) to the effect that
such amendment or the exercise of any power granted to the Servicer[s], the
Special Servicer[s], the depositor, the Trustee or any other specified person in
accordance with such amendment will not result in the imposition of a tax on
either REMIC constituted by the Trust Fund or cause the Lower-Tier REMIC or the
Upper-Tier REMIC to fail to qualify as a REMIC.
VOTING RIGHTS
For any date of determination, the voting rights for the Certificates (the
"Voting Rights") will be allocated among the respective Classes of
Certificateholders as follows -
o ___% in the case of the Class [A-X] Certificates, and
o in the case of any other Class of Certificates (other than the Class
___, Class ___ and Residual Certificates), a percentage equal to the
product of [_]% and a fraction, the numerator of which is the
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aggregate Certificate Balance of such Class, in each case,
determined as of the Distribution Date immediately preceding such
date of determination, and the denominator of which is equal to the
aggregate Certificate Balance of all Classes of Certificates, each
determined as of the Distribution Date immediately preceding such
date of determination. None of the Class ___, Class ___ or Residual
Certificates will be entitled to any Voting Rights.
For purposes of determining Voting Rights, the Certificate Balance of any
Class shall be deemed reduced by allocation of Collateral Support Deficit to
such Class, but not by any Appraisal Reductions allocated to such Class. Voting
Rights allocated to a Class of Certificateholders shall be allocated among such
Certificateholders in proportion to the Percentage Interests evidenced by their
respective Certificates. Solely for the purposes of the taking of any action
under the Pooling and Servicing Agreement with respect to an event of default of
a Servicer, a Special Servicer[s] or the Trustee, the taking of any vote
pursuant to the Pooling and Servicing Agreement with respect to the rights,
obligations or liabilities of a Servicer, Trustee or a Special Servicer, or the
giving of any consent or waiver with respect to the rights, obligations or
liabilities of a Servicer, Trustee or a Special Servicer[s] pursuant to the
Pooling and Servicing Agreement, any Certificate beneficially owned by a
Servicer, Trustee or a Special Servicer, as the case may be, or any affiliate
thereof, will be deemed not to be outstanding and the Voting Rights to which it
is entitled will not be taken into account in determining whether the requisite
percentage of Voting Rights necessary to take any such action or vote or effect
any such consent or waiver has been obtained; provided, however, that the
foregoing will not apply if a Servicer, Trustee or a Special Servicer, as the
case may be, and/or their affiliates, owns the entire Class of each Class
affected by such action, vote, consent or waiver.
REALIZATION UPON MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, if a default on a
Mortgage Loan has occurred or, in the [applicable] Special Servicer'[s]
judgment, a payment default is imminent, such Special Servicer, on behalf of the
Trust Fund, may at any time institute foreclosure proceedings, exercise any
power of sale contained in the related Mortgage or otherwise acquire title to
the related Mortgaged Property. Such Special Servicer[s] shall not, however,
acquire title to any Mortgaged Property or take any other action with respect to
any Mortgaged Property that would cause the Trustee, for the benefit of the
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of or to be an "owner" or an "operator" of
such Mortgaged Property within the meaning of certain federal environmental
laws, unless such Special Servicer[s] has previously received a report prepared
by a person who regularly conducts environmental audits (which report will be a
Servicing Advance) and either-
o such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and
(b) there are no circumstances or conditions present at the
Mortgaged Property for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any
applicable environmental laws and regulations; or
o [such] Special Servicer[s], based solely (as to environmental
matters and related costs) on the information set forth in such
report, determines that taking such actions as are necessary to
bring the Mortgaged Property into compliance with applicable
environmental laws and regulations and/or taking the actions
contemplated by clause (i)(b) above, is reasonably likely to
increase the net proceeds of the liquidation of such Mortgaged
Property, than not taking such actions.
The Pooling and Servicing Agreement grants to the Special Servicer[s] a
right (or to the Servicer[s], to the extent that the Special Servicer[s] does
not exercise its right) to purchase from the Trust Fund, at the Purchase Price,
any Mortgage Loan for which it is the Special Servicer[s] as to which a
specified number of scheduled payments are delinquent. In addition, the Special
Servicer[s] may offer to sell its defaulted Mortgage Loan if and when such
Special Servicer[s] determines, consistent with the Servicing Standard, that
such a sale would produce a greater recovery, on a present value basis, than
would liquidation of the related Mortgaged Property. In the absence of any such
sale, such Special Servicer[s] will generally be required to proceed against the
related Mortgaged Property, subject to the discussion above.
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Tax Considerations. If title to any REO Property is acquired by the Trust
Fund, the related Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property prior to the close of the third calendar
year beginning after the year of acquisition, unless -
o the Internal Revenue Service grants an extension of time to sell
such property; or
o the Trustee receives an opinion of independent counsel to the effect
that the holding of the property by the Trust Fund for such longer
period will not result in the imposition of taxes on "prohibited
transactions" on either REMIC constituted by the Trust Fund or cause
the Lower-Tier REMIC or the Upper-Tier REMIC to fail to qualify as a
REMIC for federal or applicable state tax purposes at any time that
any Certificate is outstanding.
The Special Servicer[s] will also be required to ensure that any REO
Property acquired by the Trust Fund by such Special Servicer[s] is administered
so that it constitutes "foreclosure property" within the meaning of Section
860G(a)(8) of the Internal Revenue Code of 1986 at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any "income
from nonpermitted assets" as described in Section 860F(a)(2)(B) of the Internal
Revenue Code of 1986. If the Trust Fund acquires title to any Mortgaged
Property, the related Special Servicer, on behalf of the Trust Fund, will retain
an independent contractor to manage and operate such property. The retention of
an independent contractor, however, will not relieve such Special Servicer[s] of
its obligation to manage such Mortgaged Property as required under the Pooling
and Servicing Agreement.
Generally, neither the Lower-Tier REMIC nor the Upper-Tier REMIC will be
taxed on income received with respect to a Mortgaged Property acquired by the
Trust Fund to the extent that it constitutes "rents from real property," within
the meaning of Section 856(c)(3)(a) of the Internal Revenue Code of 1986 and
Treasury regulations thereunder. "Rents from real property" include fixed rents
and rents based on the receipts or sales of a tenant but do not include the
portion of any rental based on the net income or profit of any tenant or
sub-tenant. No determination has been made whether rent on any of the Mortgaged
Properties meets this requirement. "Rents from real property" include charges
for services customarily furnished or rendered in connection with the rental of
real property, whether or not the charges are separately stated. Services
furnished to the tenants of a particular building will be considered as
customary if, in the geographic market in which the building is located, tenants
in buildings which are of similar Class are customarily provided with the
service. No determination has been made whether the services furnished to the
tenants of the Mortgaged Properties are "customary" within the meaning of
applicable regulations. It is therefore possible that a portion of the income
with respect to a Mortgaged Property owned by the Trust Fund, based on the
charges for any non-customary services, or all of such income if such charges
are not separately stated or such non-customary services are not performed by an
independent contractor, would not constitute "rents from real property."
Any of the foregoing types of income may instead constitute "net income
from foreclosure property," which would be taxable to the Lower-Tier REMIC at
the highest marginal federal corporate rate (currently 35%) and may also be
subject to state or local taxes. Because these sources of income, if they exist,
are already in place with respect to the Mortgaged Properties, it is generally
viewed as beneficial to Certificateholders to permit the Trust Fund to continue
to earn them if it acquires a Mortgaged Property, even at the cost of this tax.
Any such taxes would be chargeable against the related income for purposes of
determining the proceeds available for distribution to holders of Certificates.
See "Certain Federal Income Tax Consequences" in this prospectus supplement.
Liquidation Proceeds. To the extent that Liquidation Proceeds collected
with respect to any Mortgage Loan are less than the sum of -
o the outstanding principal balance of such Mortgage Loan;
o interest accrued thereon;
o interest accrued on any P&I Advances made with respect to such
Mortgage Loan; and
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o the aggregate amount of outstanding reimbursable expenses (including
any unreimbursed Servicing Advances and unpaid and accrued interest
on such Advances) incurred with respect to such Mortgage Loan, then
the Trust Fund will realize a loss in the amount of such shortfall.
The Trustee, the Servicer[s], with respect to their related Mortgage
Loans, and/or the related Special Servicer[s] will be entitled to reimbursement
out of the Liquidation Proceeds recovered on a Mortgage Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, of any and all
amounts that represent unpaid servicing compensation in respect of such Mortgage
Loan, certain unreimbursed expenses incurred with respect to such Mortgage Loan
and any unreimbursed Advances made with respect to such Mortgage Loan. In
addition, amounts otherwise distributable on the Certificates will be further
reduced by interest payable to the Servicer[s] or Trustee on any such Advances.
If any Mortgaged Property suffers damage such that the proceeds, if any,
of the related hazard insurance policies or flood insurance are insufficient to
restore fully the damaged property, the [applicable] Servicer[s] will not be
required to expend its own funds to effect such restoration unless -
o the related Special Servicer[s] determines that such restoration
will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan after reimbursement of such Special Servicer[s] or
such Servicer, as the case may be, for its expenses; and
o such Servicer[s] determines that such expenses will be recoverable
by it from related Liquidation Proceeds.
Specially Serviced Loans. With respect to any Mortgage Loan -
o as to which a payment default has occurred at its maturity date;
o as to which any Monthly Payment (other than a Balloon Payment) is
more than 60 or more days delinquent; as to which the borrower has-
o as to which such borrower has-
(1) filed for, or consented to, bankruptcy, appointment of a
receiver or conservator or a similar insolvency proceeding;
(2) become the subject of a decree or order for such a proceeding
which is not stayed or discharged within 60 days; or
(3) has admitted in writing its inability to pay its debts
generally as they become due;
o as to which the Servicer[s] shall have received notice of the
foreclosure or proposed foreclosure of any other lien on the
Mortgaged Property;
o as to which, in the judgment of the Servicer, a payment default has
occurred or is imminent and is not likely to be cured by the
borrower within 60 days; or
o any other default has occurred which has materially and adversely
affected the value of the related Mortgage Loan, and prior to
acceleration of amounts due under the related Mortgage Note or
commencement of any foreclosure or similar proceedings, the
Servicer[s] will transfer its servicing responsibilities to the
related Special Servicer, but will continue to receive payments on
such Mortgage Loan (including amounts collected by the related
Special Servicer), to make certain calculations with respect to such
Mortgage Loan and to make remittances and prepare certain reports to
the Trustee with respect to such Mortgage Loan.
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The related Special Servicer[s] will continue to be responsible for the
operation and management of an REO Property. The Servicer[s] will have no
responsibility for the performance by the Special Servicer[s] of their duties
under the Pooling and Servicing Agreement.
The related Special Servicer[s] will return the full servicing of a
Corrected Mortgage Loan to the Servicer.
The Special Servicer[s] will prepare a report an asset status report for
each of its related Mortgage Loans which becomes a Specially Serviced Mortgage
Loan not later than ____ days after the servicing of such Mortgage Loan is
transferred to such Special Servicer. Each asset status report will be delivered
to the Servicer, the Directing Certificateholder (as defined below) and the
Rating Agencies. The Directing Certificateholder may object to any asset status
report within ____ Business Days of receipt; provided, however, that the related
Special Servicer[s] is required to implement the recommended action as outlined
in such asset status report if it makes an affirmative determination that such
objection is not in the best interest of all the Certificateholders. In
connection with making such affirmative determination, the related Special
Servicer[s] will request a vote by all the Certificateholders. If the Directing
Certificateholder does not disapprove an asset status report within 10 Business
Days, the related Special Servicer[s] is required to implement the recommended
action as outlined in such asset status report.
If the majority of Certificateholders fail within ____ days after the
notice of such vote is sent to them to reject such asset status report, the
related Special Servicer[s] is required to implement the same. If the majority
of Certificateholders reject the asset status report, the Special Servicer[s] is
required to revise such asset status report as set forth below.
If the Directing Certificateholder disapproves such asset status report
and the related Special Servicer[s] has not made the affirmative determination
described above, such Special Servicer[s] will revise such asset status report
within ____ Business Days thereafter, but in no event later than 30 days after
such disapproval. The related Special Servicer[s] will revise such asset status
report until the earlier of (a) the Directing Certificateholder's failure to
disapprove such revised asset status report as described above; or (b) until
such Special Servicer[s] makes a determination that such objection is not in the
best interests of the Certificateholders; or (c) 60 days from the date of
preparation of the first asset status report at which time such Special
Servicer[s] will implement the recommended action.
A "Controlling Class Certificateholder is each holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified by
the Certificate Registrar to the Trustee from time to time by such holder (or
Certificate Owner).
The Controlling Class as of the Closing Date will be the Class [M] and
Class [N] Certificates.
The "Directing Certificateholder" is the Controlling Class
Certificateholder selected by the holders of more than 50% of the Percentage
Interests in the Controlling Class, by Certificate Balance, as certified by the
Certificate Registrar from time to time; provided, however, that until a
Directing Certificateholder is so selected or after receipt of a notice from the
holders of more than 50% of the Percentage Interests in the Controlling Class
that a Directing Certificateholder is no longer designated, the Controlling
Class Certificateholder that beneficially owns the largest aggregate Certificate
Balance of the Controlling Class will be the Directing Certificateholder.
[Neither] Special Servicer[s] may be required to take or refrain from
taking any action pursuant to instructions from the Directing Certificateholder
that would cause it to violate applicable law, the Pooling and Servicing
Agreement, including the Servicing Standard, or the REMIC provisions.
MODIFICATIONS
The Pooling and Servicing Agreement will permit the Special Servicer[s]
(and, in certain circumstances, the [applicable] Servicer) to modify, waive or
amend any term of the related Mortgage Loan if (a) it determines, in accordance
with the Servicing Standard, that it is appropriate to do so and (b) except as
described in the following paragraph, such modification, waiver or amendment,
will not -
o affect the amount or timing of any scheduled payments of principal,
interest or other amount (including Prepayment Premiums and Yield
Maintenance Charges) payable under the Mortgage Loan;
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o affect the obligation of the related borrower to pay a Prepayment
Premium or Yield Maintenance Charge or permit a principal prepayment
during the applicable Lockout Period;
o except as expressly provided by the related Mortgage or in
connection with a material adverse environmental condition at the
related Mortgaged Property, result in a release of the lien of the
related Mortgage on any material portion of such Mortgaged Property
without a corresponding principal prepayment; or
o in the judgment of such Special Servicer[s] or the [applicable]
Servicer, materially impair the security for the Mortgage Loan or
reduce the likelihood of timely payment of amounts due thereon;
provided, that unless the Mortgage Loan is in default or default is
reasonably foreseeable, the Special Servicer[s] (or, if applicable,
the Servicer) has determined (and may rely upon an Opinion of
Counsel in making such determination) that the modification, waiver
or amendment will not be a "significant modification" of the
Mortgage Loan within the meaning of Treasury regulations Section
1-860B-2(b).
Notwithstanding clause (b) of the preceding paragraph, the related Special
Servicer[s] may -
o reduce the amounts owing under any Specially Serviced Mortgage Loan
by forgiving principal, accrued interest and/or any Prepayment
Premium or Yield Maintenance Charge;
o reduce the amount of the Monthly Payment on any Specially Serviced
Mortgage Loan, including by way of a reduction in the related
Mortgage Rate;
o forbear in the enforcement of any right granted under any Mortgage
Note or Mortgage relating to a Specially Serviced Mortgage Loan;
o waive Excess Interest if such waiver conforms to the Servicing
Standard; and/or
o accept a principal prepayment during any Lockout Period; provided
that (w) the related borrower is in default with respect to the
Specially Serviced Mortgage Loan or, in the judgment of such Special
Servicer, such default is reasonably foreseeable, in the sole, good
faith judgment of such Special Servicer, such modification, waiver
or amendment would increase the recovery to Certificateholders on a
net present value basis documented to the Trustee.
However, in no event will the [related] Special Servicer[s] be permitted to-
(1) extend the maturity date of a Mortgage Loan beyond a date that is three
years prior to the Rated Final Distribution Date;
(2) extend the maturity date of any Mortgage Loan at an interest rate less
than the lower of -
(3) the interest rate in effect prior to such extension; or
(4) the then prevailing interest rate for comparable loans, as determined by
such Special Servicer[s] by reference to available indices for commercial
mortgage lending,
(5) extend the maturity date of such Mortgage Loan beyond a date which is ____
years prior to the expiration of the term of such ground lease if the
Mortgage Loan is secured by a ground lease;
(6) reduce the Mortgage Rate to a rate below the lesser of (x) ___% per annum
and (y) the then prevailing interest rate for comparable loans, as
determined by such Special Servicer[s] by reference to available indices
for commercial mortgage lending; or
(7) defer interest due on any Mortgage Loan in excess of ___% of the Stated
Principal Balance of such Mortgage Loan.
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With respect to clause (3) above, Special Servicer[s] is required to give
due consideration to the term of the ground lease before extending the Maturity
Date beyond a date which is ___ years prior to the expiration of the term of
such ground lease. Neither the Servicer[s] nor the Special Servicer[s] may
permit or modify a loan to permit a voluntary prepayment of a Mortgage Loan
(other than a Specially Serviced Mortgage Loan) on any day other than its Due
Date, unless, among other things, the [applicable] Servicer[s] or [applicable]
Special Servicer[s] also collects interest thereon through the Due Date
following the date of such prepayment or unless otherwise permitted under the
Mortgage Loan Documents. Prepayments of Specially Serviced Mortgage Loans will
be permitted to be made on any day without the payment of interest through the
following Due Date.
With respect to any Mortgage Loan the modification of which would create a
deferral of interest, the Pooling and Servicing Agreement will provide that the
amount of Certificate Deferred Interest resulting from such negative
amortization or any such modification will be allocated to reduce the Monthly
Interest Distribution Amount of the Class or Classes with the latest
alphabetical designation then outstanding and, to the extent so allocated, shall
be added to the Certificate Balance of such Class or Classes (other than for the
purposes of determining Voting Rights or the identity of the Controlling Class).
The Special Servicer[s] will notify the [applicable] Servicer[s] and the
Trustee of any modification, waiver or amendment of any term of its related
Mortgage Loan and must deliver to the Trustee (with a copy to the [applicable]
Servicer) for deposit in the related mortgage file an original counterpart of
the agreement related to such modification, waiver or amendment, promptly
following the execution thereof (and in any event within 10 Business Days). The
Special Servicer[s] will notify the Rating Agencies of any modification, waiver
or amendment of any term of its related Mortgage Loan the principal balance of
which is $____ more or that is a Mortgage Loan, part of a group of Crossed Loans
or a group of loans made to affiliated borrowers that, in each case, in the
aggregate represent _____% or more of the aggregate outstanding principal
balances of all of the Mortgage Loans. Copies of each agreement whereby any such
modification, waiver or amendment of any term of any Mortgage Loan is effected
are to be available for review during normal business hours, upon prior request,
at the offices of the [applicable] Special Servicer.
OPTIONAL TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earlier of -
o the final payment (or advance in respect thereof) or other
liquidation of the last Mortgage Loan or REO Property subject
thereto; or
o the purchase of all of the assets of the Trust Fund by the Mortgage
Loan Seller, [either] Special Servicer, the holders of the
Controlling Class or [either] Servicer. Written notice of
termination of the Pooling and Servicing Agreement will be given to
each Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at the office of
the Certificate Registrar or other location specified in such notice
of termination.
Subject to the requirement set forth in the last sentence of this
paragraph, the ____ Mortgage Loan Seller[s] will have the option to purchase all
of the assets of the Trust Fund. If the ____ Mortgage Loan Seller[s] does not
exercise such option within 60 days after it becomes exercisable by the holder
of a majority of the Percentage Interests in the Controlling Class may notify
the Mortgage Loan Seller[s] and the Trustee of its intention to exercise such
option, and if neither exercises such option within ____ Business Days, the
holder of a majority of the Percentage Interests in the Controlling Class will
be entitled to exercise such option. If the holder of a majority of the
Percentage Interests in the Controlling Class does not exercise its option to
purchase all of the assets of the Trust Fund within 60 days after such option
becomes exercisable, the Special Servicer[s] may notify the Mortgage Loan
Seller[s], the holder of a majority of the Percentage Interests in the
Controlling Class and the Trustee of its intention to exercise such option, and
if none of the Mortgage Loan Seller[s] or the holder of a majority of the
Percentage Interests in the Controlling Class exercise such option within [ten]
Business Days, the Special Servicer[s] will be entitled to exercise such option.
If the Special Servicer[s] does not exercise its option to purchase all of the
assets of the Trust Fund within [60] days after such option becomes exercisable,
the [applicable] Servicer[s] may notify the Mortgage Loan Seller[s], the holder
of the Controlling Class, the Special Servicer[s] and the Trustee of its
intention
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to exercise such option, and if none of the Mortgage Loan Seller, the holders of
the Controlling Class nor the Special Servicer[s] exercise such option within
ten business days, either Servicer[s] will be entitled to exercise such option.
Any such purchase of all the Mortgage Loans and other assets in the Trust
Fund is required to be made at a price equal to the sum of -
o the aggregate Purchase Price of all the Mortgage Loans (in each case
exclusive of REO Loans) included in the Trust Fund; and
o the aggregate fair market value of all REO Properties, if any,
included in the Trust Fund (which fair market value for any REO
Property may be less than the Purchase Price for the corresponding
REO Loan), as determined by an appraiser selected and mutually
agreed upon by such Servicer[s] and the Trustee.
Such purchase will effect early retirement of the then outstanding Offered
Certificates, but the right of the Mortgage Loan Seller[s], the Special
Servicer[s], the holder of the Controlling Class or the [applicable] Servicer[s]
to effect such termination is subject to the requirement that the then aggregate
Stated Principal Balance of the Mortgage Loans and any REO Mortgage Loans be
less than ____% of the Initial Pool Balance.
On the final Distribution Date, the aggregate amount paid by the Mortgage
Loan Seller, the [applicable] Special Servicer, the holder of the Controlling
Class or the [applicable] Servicer, as the case may be, for the Mortgage Loans
and other assets in the Trust Fund (if the Trust Fund is to be terminated as a
result of the purchase described in the preceding paragraph), together with all
other amounts on deposit in the Collection Account and not otherwise payable to
a person other than the Certificateholders will be applied generally as
described above under "Description of the Offered
Certificates--Distributions--Priority of Distributions."
THE TRUSTEE
________ will serve as Trustee under the Pooling and Servicing Agreement
pursuant to which the Certificates are being issued (in such capacity, the
"Trustee"). The corporate trust office of the Trustee responsible for
administration of the Trust is located at ________________ Attention:
________________, Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mortgage Pass-Through Certificates, Series 200_-_. For Certificate
transfer and payment purposes, the office of the Trustee is located at
________________, Attention: ________, Credit Suisse First Boston Mortgage
Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 200_-_.
As of ________, the Trustee had assets in excess of $[____].
As compensation for its services, the Trustee will receive the Trustee Fee
(as defined below).
The information concerning the Trustee in this section has been provided
by the Trustee, and none of the Mortgage Loan Seller[s], the Servicer[s], the
Special Servicer[s], the depositor or the Underwriter[s] makes any
representation or warranty as to the accuracy hereof.
TRUSTEE FEE AND PAYMENT OF EXPENSES
As compensation for the performance of its duties, the Trustee will be
paid a fee (the "Trustee Fee"). The Trustee Fee will be payable monthly on a
loan-by-loan basis and will accrue at a rate (the "Trustee Fee Rate") equal to
____% per annum, and will be computed on the basis of a 360-day year consisting
of twelve 30-day months on the Stated Principal Balance of the related Mortgage
Loan. In addition, the Trustee will be entitled to recover from the Trust Fund
all reasonable unanticipated expenses and disbursements incurred or made by such
party in accordance with any of the provisions of the Pooling and Servicing
Agreement, but not including expenses incurred in the ordinary course of
performing their duties under the Pooling and Servicing Agreement, and not
including any such expense, disbursement or advance as may arise from their
willful misconduct, negligence or bad faith.
DUTIES OF THE TRUSTEE
If the Servicer[s] fails to make a required Advance, the Trustee is
required to make such Advance, provided that the Trustee shall not be obligated
to make any Nonrecoverable Advance. The Trustee will be entitled to rely
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conclusively on any determination by the Servicer[s] or the related Special
Servicer[s] that an Advance, if made, would not be recoverable. The Trustee will
be entitled to reimbursement for each Advance, with interest, made by it in the
same manner and to the same extent as [such] Servicer[s] or [such] Special
Servicer.
If no Event of Default has occurred, and after the curing of all Events of
Default which may have occurred, the Trustee is required to perform only those
duties specifically required under the Pooling and Servicing Agreement. Upon
receipt of the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine such documents and to
determine whether they conform on their face to the requirements of the Pooling
and Servicing Agreement.
THE SERVICER[S]
___________, in its capacity as servicer under the Pooling and Servicing
Agreement, will be responsible for servicing the Mortgage Loans (other than the
Specially Serviced Mortgage Loans and REO Properties).
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The fee of the Servicer[s] (the "Servicing Fee") will be payable monthly
on a loan-by-loan basis from interest received, will accrue at a rate of ___%
per annum, and will be computed on the basis of a 360-day year consisting of
twelve 30-day months on the Stated Principal Balance of the Mortgage Loans other
than the [____] Mortgage Loans (including any related REO Loans and Specially
Serviced Mortgage Loans).
The principal compensation to be paid to the Special Servicer[s] in
respect of their special servicing activities will be the Special Servicing Fee,
the Workout Fee and the Liquidation Fee. The "Special Servicing Fee" will accrue
with respect to the Specially Serviced Mortgage Loan at a rate equal to [____]%
per annum (the "Special Servicing Fee Rate") on the basis of the same principal
amount and for the same period respecting which any related interest payment due
or deemed due on such Specially Serviced Mortgage Loan is computed, and will be
payable monthly from the Trust Fund.
A "Workout Fee" will in general be payable with respect to each Corrected
Mortgage Loan. As to each Corrected Mortgage Loan, the Workout Fee will be
payable out of, and will be calculated by application of a "Workout Fee Rate" of
-
o ____% for any Mortgage Loan with a Stated Principal Balance of less
than $____,
o ____% for any Mortgage Loan with a Stated Principal Balance equal to
or greater than $____ but less than $____ (iii) ____% for any
Mortgage Loan with a Stated Principal Balance equal to or greater
than $____, to each collection of interest and principal (including
scheduled payments, prepayments, Balloon Payments and payments at
maturity) received on such Mortgage Loan for so long as it remains a
Corrected Mortgage Loan.
The Workout Fee with respect to any Corrected Mortgage Loan will cease to
be payable if such loan again becomes a Specially Serviced Mortgage Loan;
provided that a new Workout Fee will become payable if and when such Mortgage
Loan again becomes a Corrected Mortgage Loan. If a Special Servicer[s] is
terminated (other than for cause or by resignation), it will retain the right to
receive any and all Workout Fees payable with respect to Mortgage Loans that
became Corrected Mortgage Loans during the period that it acted as a Special
Servicer[s] and were still such at the time of such termination (and the
successor Special Servicer[s] shall not be entitled to any portion of such
Workout Fee), in each case until the Workout Fee for any such loan ceases to be
payable in accordance with the preceding sentence.
A "Liquidation Fee" will be payable with respect to the Specially Serviced
Mortgage Loan as to which such Special Servicer[s] obtains a full or discounted
payoff with respect thereto from the related borrower and, except as otherwise
described below, with respect to any Specially Serviced Mortgage Loan or REO
Property as to which such Special Servicer[s] receives any amounts (net of
expenses) in connection with a taking of a Mortgaged Property by exercise of a
power of eminent domain or condemnation or the liquidation of a defaulted
Mortgage Loan, by foreclosure or otherwise "Liquidation Proceeds".
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As to each such Specially Serviced Mortgage Loan, the Liquidation Fee will
be payable from, and will be calculated by application of a "Liquidation Fee
Rate" of-
o ____% for any Mortgage Loan with a Stated Principal Balance of less
than $____;
o ____% for any Mortgage Loan with a Stated Principal Balance equal to
or greater than $____ but less than $____; and
o ____% for any Mortgage Loan with a Stated Principal Balance equal to
or greater than $____, to the net liquidation proceeds received with
respect to such Specially Serviced Mortgage Loan.
Notwithstanding anything to the contrary described above, no Liquidation
Fee will be payable based on, or out of, Liquidation Proceeds received in
connection with the repurchase of any Mortgage Loan by the related Mortgage Loan
Seller, as applicable, for a breach of representation or warranty or for
defective or deficient Mortgage Loan documentation, the purchase of any
Specially Serviced Mortgage Loan by the [applicable] Servicer[s] or the
[applicable] Special Servicer, the purchase by the holders of the Class ___ or
Class ___ Certificates of any ARD Loan or the purchase of all of the Mortgage
Loans and REO Properties in connection with an optional termination of the Trust
Fund. If, however, Liquidation Proceeds are received with respect to any
Corrected Mortgage Loan and the related Special Servicer[s] is properly entitled
to a Workout Fee, such Workout Fee will be payable based on and out of the
portion of such Liquidation Proceeds that constitutes principal and/or interest.
The Special Servicer[s] will be entitled to additional servicing
compensation in the form of -
o all assumption fees on all Specially Serviced Mortgage Loans;
o ___% of all assumption fees on any Specially Serviced Mortgage Loans
other than Specially Serviced Mortgage Loans; and
o all commercially reasonable extension fees and modification fees
received on or with respect to any Mortgage Loans to the extent
already collected. The Special Servicer[s] will also be entitled to
Penalty Charges collected by such Special Servicer[s] on any
Specially Serviced Mortgage Loans net of any outstanding interest on
Advances accrued thereon.
Although the Servicer[s] and the Special Servicer[s] are each required to
service and administer the related Mortgage Loans in accordance with the
Servicing Standard above and, accordingly, without regard to their right to
receive compensation under the Pooling and Servicing Agreement, additional
servicing compensation in the nature of assumption and modification fees may
under certain circumstances provide the [applicable] Servicer[s] or the
[applicable] Special Servicer, as the case may be, with an economic disincentive
to comply with such standard.
As and to the extent described in this prospectus supplement under
"Advances," the Servicer[s] will be entitled to receive interest on their
related Advances at the Reimbursement Rate, such interest to be paid
contemporaneously with the reimbursement of the related Advance.
[Each] of the Servicer[s] and the Special Servicer[s] generally will be
required to pay all expenses incurred by it in connection with its servicing
activities under the Pooling and Servicing Agreement and will not be entitled to
reimbursement therefor except as expressly provided in the Pooling and Servicing
Agreement. In connection therewith, the Servicer[s] will be responsible for all
fees of any sub-servicer[s].
Any Prepayment Interest Shortfall for any Mortgage Loan in excess of the
sum of (1) the Servicing Fee attributable to such Mortgage Loan (other than a
Specially Serviced Mortgage Loan) being prepaid and (2) the investment income
accruing on the related Principal Prepayment due to the Servicer[s] for the
period from the date of such prepayment to the following Servicer[s] Remittance
Date (or, in the case of a Specially Serviced Mortgage Loan, for the period from
the date of such prepayment to the immediately following Due Date) (such excess
amount, an "Uncovered Prepayment Interest Shortfall" will be allocated to each
Class of Regular Certificates, pro rata, based on the Monthly Interest
Distribution Amounts thereof (calculated without regard to any Uncovered
Prepayment Interest Shortfall Amounts). Any Prepayment Interest Excess on a
Mortgage Loan (other than a Mortgage Loan the
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terms of which expressly permit collections of interest through the following
Due Date in connection with any voluntary principal prepayment) will be paid to
the Servicer.
THE SPECIAL SERVICER[S]
_____________________, a ________________ will serve as the special
servicer and in such capacity will be responsible for servicing the Specially
Serviced Mortgage Loans.
The principal executive offices of the Special Servicer[s] are located at
__________________ and its telephone number is ___________.
The information set forth in this section concerning the Special
Servicer[s] has been provided by such Special Servicer, and none of Mortgage
Loan Seller, the Trustee, the depositor, the Servicer[s] or the Underwriter[s]
makes any representation or warranty as to the accuracy or completeness of such
information.
The holders of greater than ____% of the percentage interests of the
controlling class will be entitled to remove the Special Servicer[s] of the
Mortgage Loans and appoint a successor special servicer subject to written
confirmation from each rating agency that such removal and appointment, in and
of itself, would not cause a downgrade, qualification or withdrawal of the then
current ratings assigned to any Class of Certificates.
THE SERVICER[S] AND THE SPECIAL SERVICER[S] PERMITTED TO BUY CERTIFICATES
The Servicer[s] and the Special Servicer[s] will be permitted to purchase
any Class of Certificates. Such a purchase by such Servicer[s] or such Special
Servicer[s] could cause a conflict relating to such Servicer'[s] or such Special
Servicer'[s] duties pursuant to the Pooling and Servicing Agreement and such
Servicer'[s] or such Special Servicer'[s] interest as a holder of Certificates,
especially to the extent that certain actions or events have a disproportionate
effect on one or more Classes of Certificates. Pursuant to the Pooling and
Servicing Agreement, the Servicer[s] or the Special Servicer[s] are required to
administer the related Mortgage Loans in accordance with the servicing standard
set forth therein without regard to ownership of any Certificate by such
Servicer[s] or such Special Servicer[s] or any affiliate thereof.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports. Based solely on information provided in monthly reports
prepared by the Servicer[s] and the related Special Servicer[s] regarding the
related Mortgage Loans (each of which may also publish such reports on the
Internet), and delivered to the Trustee, the Trustee will make available and,
upon request, forward on each Distribution Date to each Certificateholder, the
depositor, the Servicer[s], the Special Servicer[s], the Underwriter[s], each
Rating Agency and, if requested in writing, any potential investors in the
Certificates, all of which will be made available electronically to any
interested party via the Trustee's website and, with respect to the Statement to
Certificateholders only, its fax service:
o A "Statement to Certificateholders" setting forth, among other
things:
(1) the aggregate amount of distributions, if any, made on such
Distribution Date to the holders of each Class of Certificates
applied to reduce the respective Certificate Balances thereof;
(2) the aggregate amount of distributions, if any, made on such
Distribution Date to holders of each Class of Certificates
allocable to (a) such Class's Optimal Interest Distribution
Amount and, separately stated, the portion thereof
representing the Unpaid Interest Shortfall Amount for such
Class, (b) Prepayment Premiums and Yield Maintenance Charges;
(3) the number of outstanding Mortgage Loans and the aggregate
unpaid principal balance of the Mortgage Loans at the close of
business on the related Determination Date;
(4) the number and aggregate unpaid principal balance of Mortgage
Loans (a) delinquent ______ days, (b) delinquent ______ days,
(c) delinquent ______ or more (d) that are Specially Serviced
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Mortgage Loans and are not delinquent, or (e) as to which
foreclosure proceedings have been commenced;
(5) with respect to any Mortgage Loan as to which the related
Mortgaged Property became an REO Property during the preceding
calendar month, the city, state, property type, latest DSCR,
Stated Principal Balance and unpaid principal balance of such
Mortgage Loan as of the date such Mortgaged Property became an
REO Property;
(6) as to any Mortgage Loan repurchased by either Mortgage Loan
Seller or otherwise liquidated or disposed of during the
related Due Period, the loan number thereof and the amount of
proceeds of any repurchase of a Mortgage Loan, Liquidation
Proceeds and/or other amounts, if any, received thereon during
the related Due Period and the portion thereof included in the
available distribution amount for such Distribution Date;
(7) with respect to any REO Property included in the Trust Fund as
of the close of business on the related Due Date, the loan
number of the related Mortgage Loan, the value of such REO
Property based on the most recent appraisal or valuation and
the amount of any other income collected with respect to any
REO Property received on such REO Property during the related
Due Period and the portion thereof included in the available
distribution amount for such Distribution Date;
(8) with respect to any REO Property sold or otherwise disposed of
during the related Due Period and for which a final recovery
determination has been made, (a) the loan number of the
related Mortgage Loan and the amount of the sale proceeds and
other amounts, if any, received in respect of such REO
Property during the related Due Period and the portion thereof
included in the available distribution amount for such
Distribution Date and (b) the date of the related
determination by the Special Servicer[s] that it has recovered
all payments which it expects to be finally recoverable;
(9) the aggregate Certificate Balance or Notional Balance of each
Class of Regular Certificates before and after giving effect
to the distributions made on such Distribution Date,
separately identifying any reduction in the aggregate
Certificate Balance or Notional Balance, as applicable, of
each such Class due to any Collateral Support Deficit;
(10) the amount of principal prepayments (in the aggregate and
broken out on a loan-by-loan basis) made during the related
Due Period, the amount of any Yield Maintenance Charges and/or
Prepayment Premiums (in the aggregate and broken out on a
loan-by-loan basis) paid during the related Due Period and the
aggregate amount of any Prepayment Interest Shortfalls not
covered by the [applicable] Servicer[s] for such Distribution
Date;
(11) the Pass-Through Rate for each Class of Certificates
applicable for such Distribution Date;
(12) the aggregate amount of the Servicing Fee, Primary Servicing
Fee and Special Servicing Fee retained by or paid to the
[applicable] Servicer[s] and the [applicable] Special
Servicer[s] during the related Due Period;
(13) the Collateral Support Deficit, if any, for such Distribution
Date;
(14) certain Trust Fund expenses incurred during the related Due
Period as described in the Pooling and Servicing Agreement;
(15) the amount of Servicing Advances and P&I Advances (net of
reimbursed Advances) outstanding which have been made by the
[applicable] Servicer[s] or the Trustee during the related Due
Period; and
(16) the amount of any Appraisal Reduction Amounts allocated during
the related Due Period on a loan-by-loan basis and the total
Appraisal Reduction Amounts as of such Distribution Date on a
loan-by-loan basis.
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In the case of information furnished pursuant to subclauses (1), (2) and (9)
above, the amounts shall be expressed as a dollar amount in the aggregate for
all Certificates of each applicable Class and per $____ of original Certificate
Balance or Notional Balance, as the case may be.
o A report containing information regarding the Mortgage Loans as of the end
of the related Due Period, which report shall contain substantially the
categories of information regarding the Mortgage Loans set forth in this
prospectus supplement in the tables under the caption "Certain
Characteristics of the Mortgage Loans--Certain Terms and Conditions of the
Mortgage Loans" (reported, where applicable, solely on the basis of the
most recent relevant information provided by the borrowers to the
Servicer[s] or the related Special Servicer[s] and by such Servicer[s] or
such Special Servicer, as the case may be, to the Trustee) and such
information shall include a loan-by-loan listing showing loan name,
property type, location, unpaid principal balance, Mortgage Rate, paid
through date, maturity date, net interest portion of the Monthly Payment,
principal portion of the Monthly Payment and any Prepayment Premiums
received. Such loan-by-loan listing will be made available electronically
in accordance with the provisions of the Pooling and Servicing Agreement;
provided, however, that the Trustee will provide Certificateholders with a
written copy of such report upon written request.
Servicer[s] Reports. The Servicer[s] is required to deliver to the Trustee on
the Business Day prior to each Distribution Date, and the Trustee is required to
make available, or, upon request, forward to each Certificateholder, the
depositor, the Trustee, the Underwriter[s], each Rating Agency and, if requested
in writing, any potential investor in the Certificates, on each Distribution
Date, the following eight reports, in the form of the Commercial Mortgage
Securities Association standard information package, all of which will be made
available electronically via the Trustee's website:
(1) A comparative financial status report in the form set forth in
Annex __.
(2) A delinquent loan status report in the form set forth in Annex
__.
(3) An historical loan modification report in the form set forth
in Annex ___.
(4) An historical loss estimate report in the form set forth in
Annex __.
(5) An REO status report in the form set forth in Annex __.
(6) A Servicer[s] watch list in the form set forth in Annex ___ .
(7) Annually, on or before ____ of each year, commencing with
________ __, 200_, with respect to each Mortgaged Property and
REO Property, an "Operating Statement Analysis Report"
together with copies of the operating statements and rent
rolls (but only to the extent the related borrower delivers
such information to the Servicer[s] or related Special
Servicer), as applicable for such Mortgaged Property or REO
Property as of the end of the preceding calendar year. To the
extent delivery is required in the related Mortgage Loan, the
Servicer[s] (or the related Special Servicer[s] in the case of
Specially Serviced Mortgage Loans and REO Properties) is
required to use its best reasonable efforts to obtain said
annual operating statements and rent rolls.
(8) Within thirty days of receipt by the Servicer[s] (or within
ten days of receipt from the related Special Servicer[s] with
respect to any Specially Serviced Mortgage Loan or REO
Property) of annual operating statements, if any, with respect
to any Mortgaged Property or REO Property, an NOI Adjustment
Worksheet for such Mortgaged Property (with the annual
operating statements attached thereto as an exhibit),
presenting the computations made in accordance with the
methodology described in the Pooling and Servicing Agreement
to "normalize" the full year net operating income and debt
service coverage numbers used by the Servicer[s] in the other
reports referenced above.
The reports described in clauses (1), (6), (7) and (8) above are
collectively referred to as the "Restricted Reports". The reports described in
clauses (2), (3), (4) and (5)above are collectively referred as the
"Unrestricted Reports". The information that pertains to Specially Serviced
Mortgage Loans and REO Properties reflected in such
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reports shall be based solely upon the reports delivered by the related Special
Servicer[s] to the Servicer[s] the fourth Business Day prior to the Servicer[s]
Remittance Date. Absent manifest error, none of the Servicer[s], the Special
Servicer[s] or the Trustee shall be responsible for the accuracy or completeness
of any information supplied to it by a borrower or third party that is included
in any reports, statements, materials or information prepared or provided by the
Servicer[s], the Special Servicer[s] or the Trustee, as applicable. Upon written
request, the Trustee will make hard copies of such reports available to the
Certificateholders at the expense of the requesting party.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee is required to make available and, upon request, to
send to each person who at any time during the calendar year was a
Certificateholder of record, a report summarizing on an annual basis (if
appropriate) the items provided to Certificateholders in the monthly Statement
to Certificateholders and such other information as may be required to enable
such Certificateholders to prepare their federal income tax returns. The Trustee
shall be deemed to have satisfied this requirement to the extent it has complied
with applicable reporting provisions of the Internal Revenue Code of 1986. Such
information is to include the amount of original issue discount accrued on each
Class of Certificates held by persons other than holders exempted from the
reporting requirements and information regarding the expenses of the Trust Fund.
Other Information. The Pooling and Servicing Agreement requires that the
Trustee (except with respect to items (4) and (5) below which will be made
available by the Servicer[s]) make available at its offices, during normal
business hours, upon not less than 10 Business Days' prior written notice, for
review by any Certificateholder, the depositor, the Trustee, the Special
Servicer[s], the Servicer[s], any Rating Agency, any potential investor in the
Certificates or any other person to whom the depositor believes such disclosure
is appropriate, originals or copies of, among other things, the following items
(except to the extent not permitted by applicable law or under any of the
Mortgage Loan documents) -
o the Pooling and Servicing Agreement and any amendments thereto;
o all Statements to Certificateholders delivered to holders of the
relevant Class of Offered Certificates since the Closing Date;
o all annual officers' certificates and accountants' reports delivered
by the Servicer[s] and the related Special Servicer[s] to the
Trustee since the Closing Date regarding compliance with the
relevant agreements;
o the most recent property inspection report prepared by or on behalf
of the Servicer[s] or the related Special Servicer[s] with respect
to each Mortgaged Property delivered to the Trustee;
o the most recent annual operating statements, rent rolls (to the
extent such operating statements or rent rolls have been made
available by the related borrower, or are required under the related
loan documents) and/or lease summaries and retail "sales
information," if any, collected by or on behalf of the Servicer[s]
or the related Special Servicer[s] with respect to each Mortgaged
Property;
o any and all modifications, waivers and amendments of the terms of a
Mortgage Loan entered into by the Servicer[s] and/or the related
Special Servicer[s] delivered to the Trustee; and
o any and all officers' certificates and other evidence delivered to
the Trustee to support the Servicer'[s] determination that any
Advance, if made, would be a Nonrecoverable Advance. Copies of any
and all of the foregoing items will be available from the Trustee or
Servicer, as applicable, upon written request; however, the Trustee
and Servicer, as applicable, will be permitted to require payment of
a sum sufficient to cover the reasonable costs and expenses of
providing such copies.
The Trustee will make available each month, to any interested party, the
Statement to Certificateholders, the Unrestricted Reports and certain Mortgage
Loan information as presented in the CMSA100 format via the Trustee's website.
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The Trustee will also make available each month the Restricted Reports,
via its website on a restricted basis, accessible only to each
Certificateholder, each of the parties to the Pooling and Servicing Agreement,
each of the Rating Agencies, each of the Underwriter[s], any party that
identifies itself to the Trustee as a beneficial owner or prospective purchaser
of a Certificate by delivering an investor certification (the form of which is
available on the Trustee's website and also attached as an exhibit to the
Pooling and Servicing Agreement) and any other person upon the direction of the
depositor.
Neither the Servicer[s] nor Trustee will make any representations or
warranties as to the accuracy or completeness of any report, document or other
information made available on its website and will assume no responsibility
therefor. In addition, the Trustee may disclaim responsibility for any
information distributed by the Trustee for which it is not the original source.
In connection with providing access to the Trustee's website, the Trustee
may require registration and the acceptance of a disclaimer. None of the
Trustee, the Servicer[s] or the Special Servicer[s] will be liable for the
dissemination of information in accordance herewith and with the Pooling and
Servicing Agreement.
Other Information Available via the Trustee's Website. Parties to whom the
Trustee provides access may request additional information regarding the
performance of the Mortgage Loans from the Trustee by directing inquiries by
e-mail through the Trustee's website. The Trustee will post responses to
investor inquiries in the Investor Q&A Forum section of its website within the
time specified in the Pooling and Servicing Agreement (or indicate the time
within which a response will be provided). Parties to whom the Trustee provides
access may obtain through the Trustee's website a listing of certain "special
events" (as specified in the Pooling and Servicing Agreement) and certain
updates on Mortgage Loan performance and other financial information concerning
the Trust Fund, as specified in the Pooling and Servicing Agreement.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
FOR MORTGAGED PROPERTIES LOCATED IN [ LIST STATES]
The following discussion contains summaries of certain legal aspects of
the Mortgage Loans or portions of Mortgage Loans secured by parcels in ____
(approximately ____% of the Initial Pool Balance), ____ (approximately ____% of
the Initial Pool Balance), ____ (approximately ____% of the Initial Pool
Balance), ____ (approximately ____% of the Initial Pool Balance), ____
(approximately ____% of the Initial Pool Balance) and ____ (approximately ____%
of the Initial Pool Balance), which are general in nature. The summaries do not
purport to be complete and are qualified in their entirety by reference to the
applicable federal and state laws governing the Mortgage Loans.
STATE DISCLOSURE
Mortgage loans in ____ are generally secured by mortgages on the related
real estate. Foreclosure of a mortgage is usually accomplished in judicial
proceedings. After an action for foreclosure is commenced, and if the lender
secures a ruling that is entitled to foreclosure ordinarily by motion for
summary judgment, the court then appoints a referee to compute the amount owed
together with certain costs, expenses and legal fees of the action. The lender
then moves to confirm the referee's report and enter a final judgment of
foreclosure and sale. Public notice of the foreclosure sale, including the
amount of the judgment, is given for a statutory period of time, after which the
mortgaged real estate is sold by a referee at public auction. There is no right
of redemption after the foreclosure sale. In certain circumstances, deficiency
judgments may be obtained. Under mortgages containing a statutorily sanctioned
covenant, the lender has a right to have a receiver appointed without notice and
without regard to the adequacy of the mortgaged real estate as security for the
amount owed.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of an investment in the Offered Certificates by holders that
acquire the Offered Certificates in their initial offering. This summary is
based on the Internal Revenue Code of 1986 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
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alter or modify the continued validity of the statements and conclusions set
forth in this prospectus supplement. This summary does not purport to address
all federal income tax matters that may be relevant to particular holders. For
example, it generally is addressed only to original purchasers of the Offered
Certificates, deals only with Offered Certificates held as capital assets within
the meaning of Section 1221 of the Internal Revenue Code of 1986, 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, dealers in securities or currencies, electing large
partnerships, mutual funds, REITs, RICs, natural persons, cash method taxpayers,
S corporations, estates and trusts, investors that hold the Offered Certificates
as part of a hedge, straddle or 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 a holder of the Offered Certificates. Investors
should consult their own tax advisors to determine the United States federal,
state, local and other tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271 through 1273 and
1275 of the Internal Revenue Code of 1986 and in Treasury regulations issued
under the original issue discount provisions of the Internal Revenue Code of
1986 (the "OID Regulations"), and the Treasury regulations issued under the
provisions of the Internal Revenue Code of 1986 relating to REMICs (the "REMIC
Regulations"). Purchasers of the Offered Certificates should be aware that
Section 1272(a)(6) of the Internal Revenue Code of 1986 and the OID Regulations
do not adequately address certain issues relevant to, or applicable to,
prepayable obligations such as the Offered Certificates.
Elections will be made to treat the Trust Fund, exclusive of the Excess
Interest (such portion of the Trust Fund, the "Trust REMICs "), as two separate
REMICs (the "Upper-Tier REMIC") and the "Lower-Tier REMIC" respectively) within
the meaning of Section 860D of the Internal Revenue Code of 1986. The reserve
accounts, the Lockbox Accounts and the cash collateral accounts will be treated
as beneficially owned by the respective borrowers for federal income tax
purposes. The Lower-Tier REMIC will hold the Mortgage Loans (exclusive of Excess
Interest), proceeds therefrom, the Collection Account, the Distribution Account,
the Interest Reserve Account and any REO Property, and will issue (i) certain
uncertificated Classes of regular interests (the "Lower-Tier Regular Interests")
and (ii) the Class [LR] Certificates, which will represent the sole Class of
residual interests in the Lower-Tier REMIC. The Upper-Tier REMIC will hold
regular interests of the Lower-Tier REMIC and the Upper-Tier Distribution
Account in which distributions thereon will be deposited, and will issue the
regular interests represented by the Regular Certificates as Classes of regular
interests and the Class R Certificates as representing the sole Class of
residual interests in ____ Upper-Tier REMIC. Qualification as a REMIC requires
ongoing compliance with certain conditions.
Assuming-
o the making of appropriate elections;
o compliance with the Pooling and Servicing Agreement; and
o compliance with any changes in the law, including any amendments to the
Internal Revenue Code of 1986 or applicable temporary or final regulations of
the U.S. Department of the Treasury ("Treasury Regulations") thereunder, in the
opinion of [Cadwalader, Wickersham & Taft, Sidley & Austin, or Orrick Herrington
& Sutcliffe] the Upper-Tier REMIC and the Lower-Tier REMIC will each qualify as
a separate REMIC and the portion of the Trust Fund consisting of Excess Interest
and the Excess Interest Distribution Account will be treated as a grantor trust
for federal income tax purposes. References in this discussion to the "REMIC"
will, unless the context dictates otherwise, refer to each of the Upper-Tier
REMIC and the Lower-Tier REMIC.
The Class ___ and Class ___ Certificates will represent pro rata undivided
beneficial interests in the portion of the Trust Fund consisting of Excess
Interest with respect to the ____ Mortgage Loans. In addition, the Offered
Certificates are qualifying assets under Section 7701(a)(19)(C) of the Internal
Revenue Code of 1986 only to the extent of the percentage of the aggregate pool
balance from time to time represented by the Mortgage Loans secured by
Multifamily Properties, Residential Cooperative Properties, manufactured housing
community properties and assisted living facilities.
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The regular interests represented by the Offered Certificates generally
will be treated as newly originated debt instruments for federal income tax
purposes. Beneficial owners of the Offered Certificates will be required to
report income on such regular interests in accordance with the accrual method of
accounting. Based on expected issue prices of the Offered Certificates, it is
anticipated that the Class [A-1], Class [A-2], Class [B], Class [C] and Class
[D] Certificates will be issued at a premium. Yield Maintenance Charges and
Prepayment Premiums received by Certificateholders generally will be treated as
additional ordinary income in respect of their corresponding Class of regular
interests. Nevertheless, authority exists for treating such payments as received
in respect of a sale or exchange and subject to capital gain treatment.
Prospective Certificateholders should consult their tax advisors with respect to
the treatment of Yield Maintenance Charges and Prepayment Premiums for federal
income tax purposes.
For purposes of accruing original issue discount, determining whether such
original issue discount is de minimis and amortizing any premium, the Prepayment
Assumption will be 0% CPR, with all ARD Loans prepaying on their related
Anticipated Repayment Dates. See "Prepayment and Yield Considerations." No
representation is made as to the rate, if any, at which the Mortgage Loans will
prepay.
See "Certain Federal Income Tax Consequences--REMIC Certificates--Taxation
of REMIC Regular Certificates" in the accompanying prospectus for a discussion
of the timing of income and the timing and character of losses on the Offered
Certificates as a result of unadvanced delinquencies or losses on the Mortgage
Loans and the subordination features of the Certificates.
For a discussion of the tax consequences of the ownership of Offered
Certificates by any person who is not a citizen or resident of the United
States, a corporation or partnership or other entity created or organized in or
under the laws of the United States, a State or the District of Columbia, or is
a foreign estate or trust, see "Certain Federal Income Tax Consequences--Federal
Income Tax Consequences For REMIC Certificates--TaxatioN of Certain Foreign
Investors" in the accompanying prospectus.
See "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences For REMIC Certificates" in the accompanying prospectus.
ERISA CONSIDERATIONS
SENIOR CERTIFICATES
The purchase by or transfer to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, that is subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended, or to Section 4975 of the Internal Revenue Code of 1986, or
a governmental plan (as defined in Section 3(32) of ERISA) that is subject to
any federal, state or local law ("Similar Law") which is, to a material extent,
similar to the foregoing provisions of ERISA or the Internal Revenue Code of
1986 (each, a "Plan"), or a collective investment fund in which such Plans are
invested, an insurance company using the assets of separate accounts or general
accounts which include assets of Plans (or which are deemed pursuant to ERISA or
any Similar Law to include assets of Plans) or other persons acting on behalf of
any such Plan or using the assets of any such Plan to acquire the Offered
Certificates is subject to the requirements imposed by ERISA, Section 4975 of
the Internal Revenue Code of 1986 or any Similar Law, as described in the
accompanying prospectus under "ERISA Considerations." For example, unless
exempted, investment by a Plan in the Offered Certificates may constitute or
give rise to a prohibited transaction under ERISA or the Internal Revenue Code
of 1986. There are certain exemptions issued by the United States Department of
Labor (the "Department") that may be applicable to an investment by a Plan in
the Offered Certificates. The Department has granted an individual prohibited
transaction exemption, Prohibited Transaction Exemption ("PTE")
[_________________] as amended by PTE 97-34, 62 Fed. Reg. 39021 (July 21, 1997)
and PTE 2000-58, 65 Fed. Reg. 67765 (November 13, 2000) (the "Exemption"), for
certain mortgage-backed and asset-backed certificates underwritten, in whole or
in part, by ____. The Exemption might be applicable to the initial purchase, the
holding, and the subsequent resale by a Plan of certain certificates, such as
the Offered Certificates, representing interests in pass-through trusts that
consist of certain receivables, loans and other obligations, provided that the
conditions and requirements of the Exemption are satisfied. The loans described
in the Exemption include mortgage loans such as the Mortgage Loans.
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Among the conditions that must be satisfied for the Exemption to apply to the
acquisition, holding and resale of the Offered Certificates are the following -
o The acquisition of Offered 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;
o The Offered Certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the four highest
generic rating categories from Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc. ("S&P") or Fitch, Inc. ("Fitch") or
other nationally recognized Rating Agency;
o The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
o The sum of all payments made to and retained by ____ in connection
with the distribution of Offered Certificates represents not more
than reasonable compensation for underwriting the Certificates. The
sum of all payments made to and retained by the depositor pursuant
to the assignment of the Mortgage Loans to the Trust Fund represents
not more than the fair market value of such Mortgage Loans. The sum
of all payments made to and retained by the Servicer[s] and any
other servicer represents not more than reasonable compensation for
such person's services under the Pooling and Servicing Agreement and
reimbursement of such person's reasonable expenses in connection
therewith; and
o The Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act.
The Trust Fund must also meet the following requirements-
o the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
o certificates in such other investment pools must have been rated in
one of the four highest rating categories of Moody's, S&P or Fitch
prior to the Plan's acquisition of the Offered Certificates pursuant
to the Exemption; and
o certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least
one year prior to any Plan's acquisition of the Offered Certificates
pursuant to the Exemption.
If all of the conditions of the Exemption are met, whether or not a Plan's
assets would be deemed to include an ownership interest in the Mortgage Loans,
the acquisition, holding and resale of the Senior Certificates by Plans would be
exempt from the prohibited transaction provisions of ERISA and Section 4975 of
the Internal Revenue Code of 1986.
Moreover, the Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables, loans or
obligations held in the trust, provided that, among other requirements, (a) in
the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent of each Class of certificates in which
Plans have invested is acquired by persons independent of the Restricted Group
and at least fifty percent of the aggregate interest in the trust is acquired by
persons independent of the Restricted Group; (b) such fiduciary (or its
affiliate) is an obligor with respect to five percent or less of the fair market
value of the obligations contained in the trust; (c) the Plan's investment in
certificates of any Class does not exceed twenty-five percent of all of the
certificates of that Class outstanding at the time of the acquisitions; and (d)
immediately after the acquisition no more than twenty-five percent of the assets
of any Plan with respect to which such person is a fiduciary are invested in
certificates representing an interest in one or more trusts containing assets
sold or served by the same entity.
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The Exemption does not apply to the purchasing or holding of Offered
Certificates by Plans sponsored by the depositor, the Underwriter[s], the
Trustee, the Servicer[s], any obligor with respect to Mortgage Loans included in
the Trust Fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of such
parties (the "Restricted Group").
The Underwriter[s] believe[s] that the conditions to the applicability of
the Exemption will generally be met with respect to the Offered Certificates,
other than possibly those conditions which are dependent on facts unknown to the
Underwriter[s] or which they cannot control, such as those relating to the
circumstances of the Plan purchaser or the Plan fiduciary making the decision to
purchase any such Class of Certificates. However, before purchasing a Offered
Certificate, a fiduciary of a Plan should make its own determination as to the
availability of the exemptive relief provided by the Exemption or the
availability of any other prohibited transaction exemptions, and whether the
conditions of any such exemption will be applicable to the Offered Certificates.
A fiduciary of a Plan that is a governmental Plan should make its own
determination as to the need for and the availability of any exemptive relief
under any Similar Law.
Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Internal Revenue Code of 1986 to such investment. See "ERISA
Considerations" in the accompanying prospectus.
The sale of Offered Certificates to a Plan is in no respect a
representation by the depositor or the Underwriter[s] that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or any particular Plan, or that this investment is appropriate for Plans
generally or any particular Plan.
LEGAL INVESTMENT
[The Class ________ Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), so long as they are rated in one of the two highest
rating categories by one of the Rating Agencies or another nationally recognized
statistical rating organization.] [None of the other Offered Certificates will
constitute "mortgage related securities" for purposes of [SMMEA] [the Secondary
Mortgage Market Enhancement Act of 1984, as amended.] [Except as to the status
of certain Classes of Offered Certificates as "mortgage related securities",]
[no] representation is made as to the proper characterization of the Offered
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase the Offered Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
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 own
legal advisors in determining whether and to what extent the Offered
Certificates constitute a legal investment or are subject to investment, capital
or other restrictions. See "Legal Investment" in the accompanying prospectus.
USE OF PROCEEDS
The net proceeds from the sale of Offered Certificates will be used by the
depositor to pay part of the purchase price of the Mortgage Loans.
UNDERWRITING
Under the terms and conditions set forth in the underwriting agreement
dated ________ __, 200_ among the depositor and Credit Suisse First Boston
Corporation, an affiliate of the depositor (the "Underwriters"), the depositor
has agreed to sell to the Underwriter[s] the following respective principal
amounts of the Offered Certificates:
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<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS [A-1] CLASS [A-2] CLASS [B] CLASS [C] CLASS [D]
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
The Underwriting Agreement will provide that the Underwriter[s] are
obligated to purchase all of the Offered Certificates if any are purchased. The
Underwriting Agreement further provides that if an Underwriter[s] defaults, the
purchase commitments of the non-defaulting Underwriter[s] may be increased or
the offering of the Offered Certificates may be terminated.
Proceeds to the depositor from the sale of the Offered Certificates will
be approximately 100.41% of the initial aggregate principal balance thereof as
of the Cut-off Date, plus accrued interest from the Cut-off Date, before
deducting expenses payable by the depositor. The depositor estimates that its
out-of-pocket expenses for this offering will be approximately $____.
The Underwriter[s] have advised the depositor that they propose to offer
the Offered Certificates for sale from time to time in one or more transactions
(which may include block transactions), in negotiated transactions or otherwise,
or a combination of such methods of sale, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Underwriter[s] may effect such transactions by selling
the Offered Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter[s] and/or the purchasers of the Offered Certificates for
whom they may act as agents. In connection with the sale of the Offered
Certificates, the Underwriter[s] may be deemed to have received compensation
from the depositor in the form of underwriting discounts, and the Underwriter[s]
may also receive commissions from the purchasers of the Offered Certificates for
whom they may act as agent. The Underwriter[s] and any dealers that participate
with the Underwriter[s] in the distribution of the Offered Certificates may be
deemed to be Underwriter[s], and any discounts or commissions received by them
and any profit on the resale of the Offered Certificates by them may be deemed
to be underwriting discounts or commissions.
The Offered Certificates are a new issue of securities with no established
trading market. The depositor has been advised by the Underwriter[s] that the
Underwriter[s] currently intend to make a market in the Offered Certificates;
however, the Underwriter[s] do not have any obligation to do so, any market
making may be discontinued at any time and there can be no assurance that an
active public market for the Offered Certificates will develop. See "Risk
Factors--Risks Related to the Offered Certificates--Lack of a Secondary Market
for the Certificates May Make It Difficult for You To Resell Your Certificates."
The depositor has agreed to indemnify the Underwriter[s] against
liabilities under the Securities Act, or contribute to payments which the
Underwriter[s] may be required to make in respect thereof. The Mortgage Loan
Seller[s] have agreed to indemnify the depositor with respect to liabilities
under the Securities Act, relating to the Mortgage Loans.
LEGAL MATTERS
Certain legal matters will be passed upon for the depositor, the
Underwriter[s] and the ____ Mortgage Loan Seller[s] by [Cadwalader, Wickersham &
Taft, New York, New York, Sidley & Austin, New York, New York and Orrick,
Herrington & Sutcliffe, New York, New York].
RATING
It is a condition to the issuance of the Offered Certificates that they
receive the following credit ratings from any or all, as applicable, of ____ and
____:
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----------- -----------
Class [A-1]
Class [A-2]
Class [B]
Class [C]
Class [D]
The Rating Agencies' ratings on mortgage pass-through certificates address
the likelihood of the timely payment of interest and the ultimate repayment of
principal by the Rated Final Distribution Date. The Rating Agencies' ratings
take into consideration the credit quality of the Mortgage Loans, structural and
legal aspects associated with the Offered Certificates, and the extent to which
the payment stream in the Trust Fund is adequate to make payments required under
the Offered Certificates. Ratings on mortgage pass-through certificates do not,
however, represent an assessment of the likelihood, timing or frequency of
principal prepayments (both voluntary and involuntary) by borrowers, or the
degree to which such prepayments might differ from those originally anticipated.
The security ratings do not address the possibility that Certificateholders
might suffer a lower than anticipated yield. In addition, ratings on mortgage
pass-through certificates do not address the likelihood of receipt of Prepayment
Premiums, Yield Maintenance Charges, default interest or Excess Interest or the
timing or frequency of the receipt thereof.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Offered Certificates by a rating
agency that has not been requested by the depositor to do so may be lower than
the rating assigned by the Rating Agencies pursuant to the depositor's request.
The rating of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
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GLOSSARY
The following capitalized terms will have the respective meanings assigned to
them in this "Glossary" section whenever they are used in this prospectus
supplement, including in any of the annexes to this prospectus supplement.
"30/360" means the mortgage loans that accrue interest on the basis of a 360-day
year consisting of twelve 30-day months.
"Actual/360" means the mortgage loans that accrue interest on the basis of the
actual number of days elapsed in a 360-day year.
"Advances" means collectively, any P&I advance and servicing advance required to
be made by a servicer.
"Anticipated Repayment Date" means the date on which mortgage loans that accrue
excess interest begin accruing excess interest.
"Appraisal Reduction Amount" means for any date of distribution and any
mortgage loan for which an appraisal reduction has been calculated will equal
the product of--
o the Reduction Rate for such Distribution Date; and
o the appraisal reduction with respect to such Mortgage Loan. Such
Appraisal Reduction Amount will be calculated by the servicer, who
will be required to make such calculation prior to the day on which
the servicer is required to make Advances.
"ARD Loans " means any mortgage loan in the trust having the characteristics
described in the first paragraph under "Certain Characteristics of the Mortgage
Loans- Certain Terms and Conditions of the Mortgage Loans" in this prospectus
supplement.
"Assumed Final Distribution Date" means with respect to class of offered
certificates is the date of distribution on which the aggregate Certificate
Balance of such class of certificates would be reduced to zero based on the
assumptions set forth in this prospectus supplement under the second paragraph
of "Description of the Offered Certificates- Assumed Final Distribution Date;
Rated Final Distribution Date".
"Assumed Maturity Date" means (a) for any mortgage loan that is not a Balloon
Loan or ARD Loan the maturity date of such mortgage loan and (b) any Balloon
Loan or ARD Loan the date on which such Balloon Loan or ARD Loan would fully
amortize, assuming interest is paid on a 30/360 basis.
"Assumed Scheduled Payment" means an amount equal to--
o the principal portion of the monthly payment that would have been
due on a mortgage loan on the related due date based on the constant
payment required by the related mortgage note or the original
amortization schedule thereof (as calculated with interest at the
related mortgage rate), if applicable, assuming the related balloon
payment had not become due, after giving effect to any modification
of a mortgage loan; and
o interest on the Stated Principal Balance of the mortgage at the
applicable net mortgage rate, net of interest at the servicing fee
rate.
"Business Day" means any day other than a Saturday, a Sunday or any day in which
banking institutions in the States of [List States] are authorized or obligated
by law, executive order or governmental decree to close.
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"Certificate Balance" means for any class of Regular Certificates, other than
the Class [A-X] Certificates, outstanding at any time represents the maximum
amount which the holders thereof are entitled to receive as distributions
allocable to principal from the cash flow on the Mortgage Loans and the other
assets in the Trust Fund. The Class [A-X] Certificates will not have a
Certificate Balance and no distributions of principal will be made with respect
to the Class [A-X] Certificates.
"Certificate Deferred Interest" means for any date of distribution with respect
to any class of certificates, the amount of Mortgage Deferred Interest allocated
to such class as described in this prospectus supplement under "Description of
the Certificates-- Subordination; Allocation of Collateral Support Deficits and
Certificate Deferred Interest--Certificate Deferred Interest".
"Certificate Owner" means the actual purchaser of a book-entry certificate.
"Certificateholder" means the nominee of The Depository Trust Company recognized
as the only holder of the offered certificates.
"Certificates" means the certificates comprising the Credit Suisse First Boston
Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series
200_-_.
"Class" means each individual class of certificates comprising the Credit Suisse
First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through
Certificates, Series 200_-_.
"Closing Date" means the date upon which the Certificates are issued.
"Collateral Support Deficit" means amount, if any, by which:
o the aggregate Stated Principal Balance of the Mortgage Loans
expected to be outstanding immediately following such Distribution
Date is less than
o the aggregate Certificate Balance of the Certificates after giving
effect to distributions of principal on such Distribution Date.
"Commission" means the Securities and Exchange Commission.
"Controlling Class" means as of any time of determination the most subordinate
Class of Certificates then outstanding that has a Certificate Balance at least
equal to 25% of the initial Certificate Balance of such Class (or, if no such
Class exists, the most subordinate Class then outstanding).
A "Controlling Class Certificateholder" is each holder, or Certificate Owner, if
applicable, of a Certificate of the Controlling Class as certified by the
certificate registrar to the trustee from time to time by the related holder or
Certificate Owner.
"Corrected Mortgage Loan" means any Specially Serviced Mortgage Loan, in
accordance with its original terms or as modified in accordance with the Pooling
and Servicing Agreement, which has become a performing mortgage loan for three
consecutive Monthly Payments, provided, that no additional event of default is
foreseeable in the reasonable judgment of the special servicer.
"CPR" means an assumed constant annual rate of prepayment each month, expressed
as a per annum percentage of the then-scheduled principal balance of the pool of
mortgage loans.
"Determination Date" means the ____ day of the month or, if such ____ day is not
a Business Day, the Business Day immediately following such ____ day.
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"Distribution Date" means the date upon which distributions on the Certificates
will be made by the trustee, to the extent of available funds, on the __th
Business Day after the Determination Date in each month commencing on ________
__, 200_.
"Due Date" means the date of each month that the mortgage loans provide for
scheduled payments of principal and interest to be due.
"Due Period" means the period beginning on the day following the Determination
Date in the month immediately preceding the month in which such Distribution
Date occurs and ending at the close of business on the Determination Date of the
month in which such Distribution Date occurs.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Interest Accrual Period": means as to any Distribution Date, the period
commencing on the [__] day of the calendar month preceding the month in which
such Distribution Date occurs and ending on the [___]th day of the month in
which such Distribution Date occurs. Each Interest Accrual Period is deemed to
consist of [___] days.
"Monthly Payment" means the constant monthly payment of principal and interest
required to be paid by the borrower under the related mortgage loan.
"Mortgage Deferred Interest" means, with respect to any mortgage loan that as of
any Due Date has been modified to reduce the rate at which interest is paid
currently below the Mortgage Rate, the excess, if any, of--
o interest accrued on the Stated Principal Balance thereof during the
related one-month interest accrual period set forth in the related
Mortgage Note at the related Mortgage Rate over
o the interest portion of the related Monthly Payment or, if
applicable, Assumed Scheduled Payment due on the related Due Date.
"Mortgage Loan" means ___ [fixed rate]/[adjustable rate] loans, secured by ___
multifamily, commercial and residential cooperative properties that comprise the
Trust Fund.
"Mortgage Rate" means the rate at which interest accrues on an ARD Loan prior to
its anticipated repayment date.
"Notional Balance" means with respect to any date of distribution and the Class
[A-X] Certificates will equal the aggregate Certificate Balance of the Regular
Certificates, other than the Class [A-X] Certificates, immediately prior to such
Distribution Date.
"Percentage Interest" means the interest evidenced by any Regular Certificate
equal to the initial denomination of the Regular Certificates as of the Closing
Date, divided by the initial Certificate Balance or Notional Balance of the
Class to which it belongs.
"Permitted Investments" means United States government securities and other
high-quality investments specified in the Pooling and Servicing Agreement.
"Prepayment Interest Excess" means, with respect to any Distribution Date, for
each mortgage loan that was subject to a principal prepayment in full or in
part, or as to which insurance or condemnation proceeds were received by the
servicer[s] or the related special servicer[s] for application to such mortgage
loan, in each case after the Due Date in the month of such Distribution Date and
on or prior to the related Determination Date, the amount of interest accrued at
the Mortgage Rate for such mortgage loan on the amount of such principal
prepayment, insurance proceeds or condemnation proceeds after the mortgage
interest accrual period relating to such Due Date and accruing in the manner set
forth in the loan documents relating to such mortgage loan, to the extent such
interest is collected by the servicer[s] or the related special servicer.
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"Prepayment Interest Shortfall" means with respect to any Distribution Date, for
each mortgage loan that was subject to a principal prepayment in full or in part
and which did not include a full month's interest, or as to which insurance or
condemnation proceeds were received by the [applicable] servicer[s] or the
[applicable] special servicer[s] for application to such mortgage loan, in each
case after the Determination Date in the calendar month preceding such
Distribution Date but prior to the Due Date in the related Due Period, the
amount of interest that would have accrued at the net mortgage pass-through rate
for such mortgage loan on the amount of such principal prepayment, insurance
proceeds or condemnation proceeds during the period commencing on the date as of
which such principal prepayment, insurance proceeds or condemnation proceeds
were applied to the unpaid principal balance of such Mortgage Loan and ending on
(and including) the day immediately preceding such Due Date.
"Rating Agencies" means each of _________ and _________.
"Rated Final Distribution Date" means for each class of offered certificates
will be the Distribution Date in ________ __, 200_, which is the first date of
distribution following the date that is two years after the latest Assumed
Maturity Date.
"Record Date" means the close of business on the last business day of the month
immediately preceding the month in which such Distribution Date occurs.
"Regular Certificates" means the Class [A-1], Class [A-2], Class [A-X] , Class
[B], Class [C], Class [D], Class [E], Class [F], Class [G], Class [H], Class
[J], Class [K], Class [L], Class [M] and Class [N] Certificates.
"Reduction Rate" means a rate per annum equal to the average of the pass-through
Rates of each class of certificates to which appraisal reductions have been
allocated pursuant to the Pooling and Servicing Agreement, weighted on the basis
of the amount of the appraisal reductions allocated to each related class of
certificates.
"REMIC" means "means a real estate mortgage investment conduit, within the
meaning of, and formed in accordance with, the Tax Reform Act of 1986 and
Sections 860A through 860G of the Internal Revenue Code of 1986.
"REO Property" means any mortgaged real property that is acquired by the trust
through foreclosure, deed-in-lieu of foreclosure or otherwise following a
default on the corresponding pooled mortgage loan.
"Revised Rate" means commencing on its anticipated repayment date , the fixed
rate per annum, at which the ARD Loans generally will bear interest equal to the
Mortgage Rate plus a specified percentage, generally, no more than ___%, so long
as the Mortgage Loan is included in the trust fund.
"Servicing Standard" means the standard by which the servicer and special
servicer will administer their respective Mortgage Loans and, with respect to
the special servicer, any REO Properties for which it is responsible on behalf
of the trust fund and in the best interests of and for the benefit of the
Certificateholders, as determined by the servicer or the special servicer, as
the case may be, in its good faith and reasonable judgment, in accordance with
applicable law, the terms of the respective mortgage loans or Specially Serviced
Mortgage Loans and, to the extent consistent with the foregoing, the terms of
the pooling and servicing agreement and the related agreement and/or co-lender
agreement, and, to the extent consistent with the foregoing, in accordance with
the higher of the following standards of care--
o the same manner in which, and with the same care, skill, prudence
and diligence with which, the servicer or special servicer, as the
case may be, services and administers similar commercial or
multifamily mortgage loans for other third-party portfolios, giving
due consideration to the customary and usual standards of practice
of prudent institutional commercial or multifamily mortgage lenders
servicing their own mortgage loans;
o the same care, skill, prudence and diligence with which the servicer
or special servicer, as the case may be, services and administers
similar commercial or multifamily mortgage loans owned the servicer
or the special servicer, in either case exercising reasonable
business judgment and with a view to the
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maximization, on a present value basis (discounting at the related
Mortgage Rate), of timely recovery of principal and interest on the
mortgage loans or specially serviced mortgage loans, as applicable;
and
o without regard to--
o any relationship that the servicer or special servicer, as the case
may be, or any its affiliates may have with the related borrower or
any other party to the Pooling and Servicing Agreement;
o the ownership of any Certificate by the servicer or special
servicer, as the case may be, or any affiliate thereof;
o the servicer's obligation to make Advances;
o the servicer or the special servicer, as the case may be, right to
receive compensation for its services under the Pooling and
Servicing Agreement or with respect to any particular transaction;
or
o the servicer or the special servicer's ownership, servicing or
management of any other mortgage loans or mortgaged properties.
"Significant Mortgage Loans" means mortgage loan(s) that represent(s)--
o ____% or more of the aggregate outstanding principal balance of all
of the mortgage loans at such time or
o is one of the ten largest mortgage loans by outstanding principal
balance of all of the mortgage loans at such time.
"Specially Serviced Mortgage Loans" means the mortgage moans serviced by the
special servicer that have become REO Properties.
"Stated Principal Balance" means initially the cut-off date balance of each
mortgage loan, and on each Distribution Date, will be reduced by the portion of
the principal distribution amount for the related Distribution date that is
attributable to the related mortgage loan.
"Trust Fund": means the entire beneficial ownership interest in the collateral
underlying the Certificates consisting of-
o the mortgage loans and all payments under and proceeds of the
lortgage loans received after the cut-off date (exclusive of
payments of principal and interest due on or before the cut-off
cate);
o any mortgaged property acquired by the special servicer on behalf of
the Trust Fund through foreclosure or deed in lieu of foreclosure ;
o such funds or assets as from time to time are deposited in the
collection account, the distribution account, the excess interest
distribution account, the interest reserve account and, if
established, the REO account;
o the rights of the lender under all insurance policies with respect
to the mortgage loans; and
o certain rights of the depositor under the mortgage loan purchase
agreements relating to mortgage loan document delivery requirements
with respect to the mortgage loans and the representations and
warranties of the mortgage loan seller regarding the mortgage loans.
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PROSPECTUS
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., THE DEPOSITOR
COMMERCIAL/MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES, ISSUABLE IN SERIES
Our name is Credit Suisse First Boston Mortgage Securities Corp. We intend
to offer from time to time commercial/multifamily mortgage pass-through
certificates. These offers may be made through one or more different methods,
including offerings through underwriters. We do not currently intend to list the
offered certificates of any series on any national securities exchange or the
NASDAQ stock market. See "Plan of Distribution."
--------------------------------------------------------------------------------
THE OFFERED CERTIFICATES:
The offered certificates will be issuable in series. Each series of offered
certificates will--
o have its own series designation;
o consist of one or more classes with various payment characteristics;
o evidence beneficial ownership interests in a trust established by us; and
o be payable solely out of the related trust assets.
No governmental agency or instrumentality will insure or guarantee payment on
the offered certificates. Neither we nor any of our affiliates are responsible
for making payments on the offered certificates if collections on the related
trust assets are insufficient.
--------------------------------------------------------------------------------
THE TRUST ASSETS:
The assets of each of our trusts will include--
o mortgage loans secured by first and junior liens on, or security interests
in, various interests in commercial and multifamily real properties;
o mortgage-backed securities that directly or indirectly evidence interests
in, or are directly or indirectly secured by, those types of mortgage
loans; or
o some combination of those types of mortgage loans and mortgage-backed
securities.
Trust assets may also include letters of credit, surety bonds, insurance
policies, guarantees, credit derivatives, reserve funds, guaranteed investment
contracts, interest rate exchange agreements, interest rate cap or floor
agreements, currency exchange agreements, or other similar instruments and
agreements.
--------------------------------------------------------------------------------
In connection with each offering, we will prepare a supplement to this
prospectus in order to describe in more detail the particular certificates being
offered and the related trust assets. In that document, we will also state the
price to public for each class of offered certificates or explain the method for
determining that price. In that document, we will also identify the applicable
lead or managing underwriter(s), if any, and provide information regarding the
relevant underwriting arrangements and the underwriters' compensation. You may
not purchase the offered certificates of any series unless you have also
received the prospectus supplement for that series. YOU SHOULD CAREFULLY
CONSIDER THE RISK FACTORS BEGINNING ON PAGE 11 IN THIS PROSPECTUS, AS WELL AS
THOSE SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT, PRIOR TO INVESTING.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is _____________________, 2000.
<PAGE>
TABLE OF CONTENTS
Important Notice About the Information Presented in This Prospectus..........3
Available Information; Incorporation by Reference............................3
Summary of Prospectus........................................................4
Risk Factors................................................................11
Capitalized Terms Used in this Prospectus...................................27
CREDIT suisse first boston mortgage securities CORP.........................28
Use of Proceeds.............................................................28
Description of the Trust Assets.............................................28
Yield and Maturity Considerations...........................................51
Description of the Certificates.............................................56
Description of the Governing Documents......................................65
Description of Credit Support...............................................73
Legal Aspects of Mortgage Loans.............................................76
Federal Income Tax Consequences.............................................86
State and Other Tax Consequences...........................................119
ERISA Considerations.......................................................119
Legal Investment...........................................................122
plan of Distribution.......................................................124
Legal Matters..............................................................125
Financial Information......................................................125
Rating.....................................................................125
Glossary...................................................................126
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IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS
When deciding whether to invest in any of the offered certificates, you
should only rely on the information contained in this prospectus and the related
prospectus supplement. We have not authorized any dealer, salesman or other
person to give any information or to make any representation that is different.
In addition, information in this prospectus or any related prospectus supplement
is current only as of the date on its cover. By delivery of this prospectus and
any related prospectus supplement, we are not offering to sell any securities,
and are not soliciting an offer to buy any securities, in any state where the
offer and sale is not permitted.
AVAILABLE INFORMATION; INCORPORATION BY REFERENCE
We have filed with the SEC a registration statement under the Securities
Act of 1933, as amended, with respect to the certificates offered by this
prospectus. This prospectus forms a part of the registration statement. This
prospectus and the related prospectus supplement do not contain all of the
information with respect to an offering that is contained in the registration
statement. For further information regarding the documents referred to in this
prospectus and the related prospectus supplement, you should refer to the
registration statement and its exhibits. You can inspect the registration
statement and its exhibits, and make copies of these documents at prescribed
rates, at the public reference facilities maintained by the SEC at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, 500 West Madison,
14th Floor, Chicago, Illinois 60661; and New York Regional Office, Seven World
Trade Center, New York, New York 10048. You can also obtain copies of these
materials electronically through the SEC's Web site (http://www.sec.gov).
In connection with each series of offered certificates, we will file or
arrange to have filed with the SEC with respect to the related trust any
periodic reports that are required under the Securities Exchange Act of 1934, as
amended. All documents and reports that are so filed for the related trust prior
to the termination of an offering of certificates are incorporated by reference
into, and should be considered a part of, this prospectus. Upon request, we will
provide without charge to each person receiving this prospectus in connection
with an offering, a copy of any or all documents or reports that are so
incorporated by reference. All requests should be directed to us in writing at
Eleven Madison Avenue, New York, New York 10010, telephone number
(212) 325-2000.
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SUMMARY OF PROSPECTUS
This summary contains selected information from this prospectus. It does
not contain all of the information you need to consider in making your
investment decision. To understand all of the terms of a particular offering of
certificates, you should read carefully this prospectus and the related
prospectus supplement in full.
WHO WE ARE................... Credit Suisse First Boston Mortgage Securities
Corp. Our principal offices are located at Eleven
Madison Avenue, New York, New York 10010,
telephone number (212) 325-2000. We are a
wholly-owned subsidiary of Credit Suisse First
Boston Management Corporation, which in turn is a
wholly-owned subsidiary of Credit Suisse First
Boston, Inc. See "Credit Suisse First Boston
Mortgage Securities Corp."
THE SECURITIES BEING OFFERED. The securities that will be offered by this
prospectus and the related prospectus supplements
consist of commercial/multifamily mortgage
pass-through certificates. These certificates will
be issued in series, and each series will, in
turn, consist of one or more classes. Each class
of offered certificates must, at the time of
issuance, be assigned an investment grade rating
by at least one nationally recognized statistical
rating organization. Typically, the four highest
rating categories, within which there may be
sub-categories or gradations to indicate relative
standing, signify investment grade. See "Rating."
Each series of offered certificates will evidence
beneficial ownership interests in a trust
established by us and containing the assets
described in this prospectus and the related
prospectus supplement.
THE OFFERED CERTIFICATES
MAY BEISSUED WITH
OTHER CERTIFICATES ....... We may not publicly offer all the
commercial/multifamily mortgage pass-through
certificates evidencing interests in one of our
trusts. We may elect to retain some of those
certificates, to place some privately with
institutional investors or to deliver some to the
applicable seller as partial consideration for the
related mortgage assets. In addition, some of
those certificates may not satisfy the rating
requirement for offered certificates described
under "--The Securities Being Offered" above.
THE GOVERNING DOCUMENTS...... In general, a pooling and servicing agreement or
other similar agreement or collection of
agreements will govern, among other things--
o the issuance of each series of offered
certificates;
o the creation of and transfer of assets to the
related trust; and
o the servicing and administration of those
assets.
The parties to the governing document(s) for a
series of offered certificates will always include
us and a trustee. We will be responsible for
establishing the trust relating to each series of
offered certificates. In addition, we will
transfer or arrange for the transfer of the
initial trust assets to that trust. In general,
the trustee for a series of offered certificates
will be responsible for, among other things,
making payments and preparing and disseminating
various reports to the holders of those offered
certificates.
If the trust assets for a series of offered
certificates include mortgage loans, the parties
to the governing document(s) will also include--
o a master servicer that will generally be
responsible for performing customary servicing
duties with respect to those mortgage loans that
are not
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defaulted, non-performing or otherwise
problematic in any material respect; and
o a special servicer that will generally be
responsible for servicing and administering
those mortgage loans that are defaulted,
non-performing or otherwise problematic in any
material respect and real estate assets acquired
as part of the related trust with respect to
defaulted mortgage loans.
The same person or entity, or affiliated entities,
may act as both master servicer and special
servicer for any trust.
If the trust assets for a series of offered
certificates include mortgage-backed securities,
the parties to the governing document(s) may also
include a manager that will be responsible for
performing various administrative duties with
respect to those mortgage-backed securities. If
the related trustee assumes those duties, however,
there will be no manager.
In the related prospectus supplement, we will
identify the trustee and any master servicer,
special servicer or manager for each series of
offered certificates and their respective duties.
See "Description of the Governing Documents."
CHARACTERISTICS OF THE
MORTGAGE ASSETS............ The trust assets with respect to any series of
offered certificates will, in general, include
mortgage loans. Each of those mortgage loans will
constitute the obligation of one or more persons
to repay a debt. The performance of that
obligation will be secured by a first or junior
lien on, or security interest in, the ownership,
leasehold or other interest(s) of the related
borrower or another person in or with respect to
one or more commercial or multifamily real
properties. In particular, those properties may
include-
o rental or cooperatively-owned buildings with
multiple dwelling units;
o retail properties related to the sale of
consumer goods and other products, or related to
providing entertainment, recreational or
personal services, to the general public;
o office buildings;
o hospitality properties;
o casino properties;
o health care-related facilities;
o industrial facilities;
o warehouse facilities, mini-warehouse facilities
and self-storage facilities;
o restaurants, taverns and other establishments
involved in the food and beverage industry;
o manufactured housing communities, mobile home
parks and recreational vehicle parks;
o recreational and resort properties;
o arenas and stadiums;
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o churches and other religious facilities;
o parking lots and garages;
o mixed use properties;
o other income-producing properties; and/or
o unimproved land.
The mortgage loans underlying a series of offered
certificates may have a variety of payment terms.
For example, any of those mortgage loans--
o may provide for the accrual of interest at a
mortgage interest rate that is fixed over its
term, that resets on one or more specified dates
or that otherwise adjusts from time to time;
o may provide for the accrual of interest at a
mortgage interest rate that may be converted at
the borrower's election from an adjustable to a
fixed interest rate or from a fixed to an
adjustable interest rate;
o may provide for no accrual of interest;
o may provide for level payments to stated
maturity, for payments that reset in amount on
one or more specified dates or for payments that
otherwise adjust from time to time to
accommodate changes in the mortgage interest
rate or to reflect the occurrence of specified
events;
o may be fully amortizing or, alternatively, may
be partially amortizing or nonamortizing, with a
substantial payment of principal due on its
stated maturity date;
o may permit the negative amortization or deferral
of accrued interest;
o may prohibit some or all voluntary prepayments
or require payment of a premium, fee or charge
in connection with those prepayments;
o may permit defeasance and the release of real
property collateral in connection with that
defeasance;
o may provide for payments of principal, interest
or both, on due dates that occur monthly,
bi-monthly, quarterly, semi-annually, annually
or at some other interval; and/or
o may have two or more component parts, each
having characteristics that are otherwise
described in this prospectus as being
attributable to separate and distinct mortgage
loans.
Most, if not all, of the mortgage loans underlying
a series of offered certificates will be secured
by liens on real properties located in the United
States, its territories and possessions. However,
some of those mortgage loans may be secured by
liens on real properties located outside the
United States, its territories and possessions,
provided that foreign mortgage loans do not
represent more than 10% of the related mortgage
asset pool, by balance.
We do not originate mortgage loans. However, some
or all of the mortgage loans included in one of
our trusts may be originated by our affiliates.
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Neither we nor any of our affiliates will
guarantee or insure repayment of any of the
mortgage loans underlying a series of offered
certificates. Unless we expressly state otherwise
in the related prospectus supplement, no
governmental agency or instrumentality will
guarantee or insure repayment of any of the
mortgage loans underlying a series of offered
certificates. See "Description of the Trust
Assets--Mortgage Loans."
The trust assets with respect to any series of
offered certificates may also include mortgage
participations, mortgage pass-through
certificates, collateralized mortgage obligations
and other mortgage-backed securities, that
evidence an interest in, or are secured by a
pledge of, one or more mortgage loans of the type
described above. We will not include a
mortgage-backed security among the trust assets
with respect to any series of offered certificates
unless--
o the security has been registered under the
Securities Act of 1933, as amended; or
o we would be free to publicly resell the security
without registration.
See "Description of the Trust
Assets--Mortgage-Backed Securities."
We will describe the specific characteristics of
the mortgage assets underlying a series of offered
certificates in the related prospectus supplement.
In general, the total outstanding principal
balance of the mortgage assets transferred by us
to any particular trust will equal or exceed the
initial total outstanding principal balance of the
related series of certificates. In the event that
the total outstanding principal balance of the
related mortgage assets initially delivered by us
to the related trustee is less than the initial
total outstanding principal balance of any series
of certificates, we may deposit or arrange for the
deposit of cash or liquid investments on an
interim basis with the related trustee to cover
the shortfall. For 90 days following the date of
initial issuance of that series of certificates,
we will be entitled to obtain a release of the
deposited cash or investments if we deliver or
arrange for delivery of a corresponding amount of
mortgage assets. If we fail, however, to deliver
mortgage assets sufficient to make up the entire
shortfall, any of the cash or, following
liquidation, investments remaining on deposit with
the related trustee will be used by the related
trustee to pay down the total principal balance of
the related series of certificates, as described
in the related prospectus supplement.
SUBSTITUTION, ACQUISITION
AND REMOVAL OF MORTGAGE
ASSETS ................... If so specified in the related prospectus
supplement, we or another specified person or
entity may be permitted, at our or its option, but
subject to the conditions specified in that
prospectus supplement, to acquire from the related
trust particular mortgage assets underlying a
series of certificates in exchange for-
o cash that would be applied to pay down the
principal balances of certificates of that
series; and/or
o other mortgage loans or mortgage-backed
securities that--
1. conform to the description of mortgage assets
in this prospectus; and
2. satisfy the criteria set forth in the related
prospectus supplement.
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In addition, if so specified in the related
prospectus supplement, the related trustee may be
authorized or required, to apply collections on
the mortgage assets underlying a series of offered
certificates to acquire new mortgage loans or
mortgage-backed securities that--
o conform to the description of mortgage assets in
this prospectus; and
o satisfy the criteria set forth in the related
prospectus supplement.
No replacement of mortgage assets or acquisition
of new mortgage assets will be permitted if it
would result in a qualification, downgrade or
withdrawal of the then-current rating assigned by
any rating agency to any class of affected offered
certificates.
CHARACTERISTICS OF THE
OFFERED CERTIFICATES ..... An offered certificate may entitle the holder to
receive-
o a stated principal amount;
o interest on a principal balance or notional
amount, at a fixed, variable or adjustable
pass-through rate;
o specified, fixed or variable portions of the
interest, principal or other amounts received on
the related mortgage assets;
o payments of principal, with disproportionate,
nominal or no payments of interest;
o payments of interest, with disproportionate,
nominal or no payments of principal;
o payments of interest or principal that commence
only as of a specified date or only after the
occurrence of specified events, such as the
payment in full of the interest and principal
outstanding on one or more other classes of
certificates of the same series;
o payments of principal to be made, from time to
time or for designated periods, at a rate that
is--
1. faster and, in some cases, substantially
faster, or
2. slower and, in some cases, substantially
slower,
than the rate at which payments or other
collections of principal are received on the
related mortgage assets;
o payments of principal to be made, subject to
available funds, based on a specified principal
payment schedule or other methodology; or
o payments of all or part of the prepayment or
repayment premiums, fees and charges, equity
participations payments or other similar items
received on the related mortgage assets.
Any class of offered certificates may be senior or
subordinate to one or more other classes of
certificates of the same series, including a
non-offered class of certificates of that series,
for purposes of some or all payments and/or
allocations of losses.
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A class of offered certificates may have two or
more component parts, each having characteristics
that are otherwise described in this prospectus as
being attributable to separate and distinct
classes.
We will describe the specific characteristics of
each class of offered certificates in the related
prospectus supplement. See "Description of the
Certificates."
CREDIT SUPPORT AND
REINVESTMENT, INTEREST
RATE AND CURRENCY
RELATED PROTECTION FOR
THE OFFERED CERTIFICATES .. Some classes of offered certificates may be
protected in full or in part against defaults and
losses, or select types of defaults and losses, on
the related mortgage assets through the
subordination of one or more other classes of
certificates of the same series or by other types
of credit support. The other types of credit
support may include a letter of credit, a surety
bond, an insurance policy, a guarantee, a credit
derivative or a reserve fund. We will describe the
credit support, if any, for each class of offered
certificates in the related prospectus supplement.
The trust assets with respect to any series of
offered certificates may also include any of the
following agreements-
o guaranteed investment contracts in accordance
with which moneys held in the funds and accounts
established with respect to those offered
certificates will be invested at a specified
rate;
o interest rate exchange agreements, interest rate
cap or floor agreements, or other agreements and
arrangements designed to reduce the effects of
interest rate fluctuations on the related
mortgage assets or on one or more classes of
those offered certificates; or
o currency exchange agreements or other agreements
and arrangements designed to reduce the effects
of currency exchange rate fluctuations with
respect to the related mortgage assets and one
or more classes of those offered certificates.
We will describe the types of reinvestment,
interest rate and currency related protection, if
any, for each class of offered certificates in the
related prospectus supplement.
See "Risk Factors," "Description of the Trust
Assets" and "Description of Credit Support."
ADVANCES WITH RESPECT
TO THE MORTGAGE ASSETS .... If the trust assets for a series of offered
certificates include mortgage loans, then, as and
to the extent described in the related prospectus
supplement, the related master servicer, the
related special servicer, the related trustee, any
related provider of credit support and/or any
other specified person may be obligated to make,
or may have the option of making, advances with
respect to those mortgage loans to cover--
o delinquent scheduled payments of principal
and/or interest, other than balloon payments;
o property protection expenses;
o other servicing expenses; or
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o any other items specified in the related
prospectus supplement.
Any party making advances will be entitled to
reimbursement from subsequent recoveries on the
related mortgage loan and as otherwise described
in this prospectus or the related prospectus
supplement. That party may also be entitled to
receive interest on its advances for a specified
period. See "Description of the
Certificates--Advances."
If the trust assets for a series of offered
certificates include mortgage-backed securities,
we will describe in the related prospectus
supplement any comparable advancing obligations
with respect to those mortgage-backed securities
or the underlying mortgage loans.
OPTIONAL TERMINATION ........ We will describe in the related prospectus
supplement any circumstances in which a specified
party is permitted or obligated to purchase or
sell any of the mortgage assets underlying a
series of offered certificates. In particular, a
master servicer, special servicer or other
designated party may be permitted or obligated to
purchase or sell--
o all the mortgage assets in any particular trust,
thereby resulting in a termination of the trust;
or
o that portion of the mortgage assets in any
particular trust as is necessary or sufficient
to retire one or more classes of offered
certificates of the related series.
See "Description of the
Certificates--Termination."
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES .......... Any class of offered certificates will constitute
or evidence ownership of-
o regular interests or residual interests in a
real estate mortgage investment conduit under
Sections 860A through 860G of the Internal
Revenue Code of 1986; or
o interests in a grantor trust under Subpart E of
Part I of Subchapter J of the Internal Revenue
Code of 1986.
See "Certain Federal Income Tax Consequences."
ERISA CONSIDERATIONS ........ If you are a fiduciary of an employee benefit plan
or other retirement plan or arrangement, you
should review with your legal advisor whether the
purchase or holding of offered certificates could
give rise to a transaction that is prohibited or
is not otherwise permissible under applicable law.
See "ERISA Considerations."
LEGAL INVESTMENT............. If your investment authority is subject to legal
restrictions, you should consult your legal
advisor to determine whether and to what extent
the offered certificates constitute a legal
investment for you. We will specify in the related
prospectus supplement which classes of the offered
certificates will constitute mortgage related
securities for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended. See
"Legal Investment."
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RISK FACTORS
You should consider the following factors, as well as the factors set
forth under "Risk Factors" in the related prospectus supplement, in deciding
whether to purchase any offered certificates.
LIMITED LIQUIDITY OF YOUR CERTIFICATES MAY HAVE AN ADVERSE IMPACT ON YOUR
ABILITY TO SELL YOUR OFFERED CERTIFICATES
The offered certificates may have limited or no liquidity. We cannot
assure you that a secondary market for your offered certificates will develop.
There will be no obligation on the part of anyone to establish a secondary
market. Even if a secondary market does develop for your offered certificates,
it may provide you with less liquidity than you anticipated and it may not
continue for the life of your offered certificates.
We will describe in the related prospectus supplement the information that
will be available to you with respect to your offered certificates. The limited
nature of the information may adversely affect the liquidity of your offered
certificates.
We do not currently intend to list the offered certificates on any
national securities exchange or the NASDAQ stock market.
Lack of liquidity will impair your ability to sell your offered
certificates and may prevent you from doing so at a time when you may want or
need to. Lack of liquidity could adversely affect the market value of your
offered certificates. We do not expect that you will have any redemption rights
with respect to your offered certificates.
If you decide to sell your offered certificates, you may have to sell them
at a discount from the price you paid for reasons unrelated to the performance
of your offered certificates or the related mortgage assets. Pricing information
regarding your offered certificates may not be generally available on an ongoing
basis.
THE MARKET VALUE OF YOUR CERTIFICATES WILL BE SENSITIVE TO FACTORS UNRELATED TO
THE PERFORMANCE OF YOUR CERTIFICATES AND THE UNDERLYING MORTGAGE ASSETS.
The market value of your certificates can decline even if those
certificates and the underlying mortgage assets are performing at or above your
expectations.
The market value of your certificates will be sensitive to fluctuations in
current interest rates. However, a change in the market value of your
certificates as a result of an upward or downward movement in current interest
rates may not equal the change in the market value of your certificates as a
result of an equal but opposite movement in interest rates.
The market value of your certificates will also be influenced by the
supply of and demand for commercial mortgage-backed securities generally. The
supply of commercial mortgage-backed securities will depend on, among other
things, the amount of commercial and multifamily mortgage loans, whether newly
originated or held in portfolio, that are available for securitization. A number
of factors will affect investors' demand for commercial mortgage-backed
securities, including--
o the availability of alternative investments that offer high yields
or are perceived as being a better credit risk, having a less
volatile market value or being more liquid;
o legal and other restrictions that prohibit a particular entity from
investing in commercial mortgage-backed securities or limit the
amount or types of commercial mortgage-backed securities that it may
acquire;
o investors' perceptions regarding the commercial and multifamily real
estate markets which may be adversely affected by, among other
things, a decline in real estate values or an increase in defaults
and foreclosures on mortgage loans secured by income-producing
properties; and
o investors' perceptions regarding the capital markets in general,
which may be adversely affected by political, social and economic
events completely unrelated to the commercial and multifamily real
estate markets.
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If you decide to sell your certificates, you may have to sell at discount
from the price you paid for reasons unrelated to the performance of your
certificates or the related mortgage assets. Pricing information regarding your
certificates may not be generally available on an ongoing basis.
LIMITED ASSETS OF EACH TRUST MAY ADVERSELY IMPACT YOUR ABILITY TO RECOVER YOUR
INVESTMENT IN THE EVENT OF LOSS ON THE UNDERLYING MORTGAGE ASSETS
The offered certificates do not represent obligations of any person or
entity and do not represent a claim against any assets other than those of the
related trust. Unless the related prospectus supplement states otherwise, no
governmental agency or instrumentality will guarantee or insure payment on the
offered certificates. In addition, neither we nor our affiliates are responsible
for making payments on the offered certificates if collections on the related
trust assets are insufficient. If the related trust assets are insufficient to
make payments on your offered certificates, no other assets will be available to
you for payment of the deficiency, and you will bear the resulting loss. Any
advances made by a master servicer or other party with respect to the mortgage
assets underlying your offered certificates are intended solely to provide
liquidity and not credit support. The party making those advances will have a
right to reimbursement, probably with interest, which is senior to your right to
receive payment on your offered certificates.
PREPAYMENT CONSIDERATIONS; VARIABILITY IN AVERAGE LIFE OF OFFERED CERTIFICATES;
SPECIAL YIELD CONSIDERATIONS
The Terms of the Underlying Mortgage Loans Will Affect Payments on Your
Offered Certificates. Each of the mortgage loans underlying the offered
certificates will specify the terms on which the related borrower must repay the
outstanding principal amount of the loan. The rate, timing and amount of
scheduled payments of principal may vary, and may vary significantly, from
mortgage loan to mortgage loan. The rate at which the underlying mortgage loans
amortize will directly affect the rate at which the principal balance or
notional amount of your offered certificates is paid down or otherwise reduced.
In addition, any mortgage loan underlying the offered certificates may
permit the related borrower during some or all of the loan term to prepay the
loan. In general, a borrower will be more likely to prepay its mortgage loan
when it has an economic incentive to do so, such as obtaining a larger loan on
the same underlying real property or a lower or otherwise more advantageous
interest rate through refinancing. If a mortgage loan includes some form of
prepayment restriction, the likelihood of prepayment should decline. These
restrictions may include--
o an absolute or partial prohibition against voluntary prepayments
during some or all of the loan term; or
o a requirement that voluntary prepayments be accompanied by some form
of prepayment premium, fee or charge during some or all of the loan
term.
In many cases, however, there will be no restriction associated with the
application of insurance proceeds or condemnation proceeds as a prepayment of
principal.
The Terms of the Underlying Mortgage Loans Do Not Provide Absolute
Certainty as Regards the Rate, Timing and Amount of Payments on Your Offered
Certificates. Notwithstanding the terms of the mortgage loans backing your
offered certificates, the amount, rate and timing of payments and other
collections on those mortgage loans will, to some degree, be unpredictable
because of borrower defaults and because of casualties and condemnations with
respect to the underlying real properties.
The investment performance of your offered certificates may vary
materially and adversely from your expectations due to--
o the rate of prepayments and other unscheduled collections of
principal on the underlying mortgage loans being faster or slower
than you anticipated; or
o the rate of defaults on the underlying mortgage loans being faster,
or the severity of losses on the underlying mortgage loans being
greater, than you anticipated.
The actual yield to you, as a holder of an offered certificate, may not
equal the yield you anticipated at the time of your purchase, and the total
return on investment that you expected may not be realized. In deciding whether
to purchase any offered certificates, you should make an independent decision as
to the appropriate prepayment, default and loss assumptions
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to be used. If the trust assets underlying your offered certificates include
mortgage-backed securities, the terms of those securities may lessen or increase
the effects to you that may result from prepayments, defaults and losses on the
mortgage loans that ultimately back those securities.
Prepayments on the Underlying Mortgage Loans Will Affect the Average Life
of Your Offered Certificates; and the Rate and Timing of those Prepayments May
Be Highly Unpredictable. Payments of principal and/or interest on your offered
certificates will depend upon, among other things, the rate and timing of
payments on the related mortgage assets. Prepayments on the underlying mortgage
loans may result in a faster rate of principal payments on your offered
certificates, thereby resulting in a shorter average life for your offered
certificates than if those prepayments had not occurred. The rate and timing of
principal prepayments on pools of mortgage loans varies among pools and is
influenced by a variety of economic, demographic, geographic, social, tax and
legal factors. Accordingly, neither you nor we can predict the rate and timing
of principal prepayments on the mortgage loans underlying your offered
certificates. As a result, repayment of your offered certificates could occur
significantly earlier or later, and the average life of your offered
certificates could be significantly shorter or longer, than you expected.
The extent to which prepayments on the underlying mortgage loans
ultimately affect the average life of your offered certificates depends on the
terms and provisions of your offered certificates. A class of offered
certificates may entitle the holders to a pro rata share of any prepayments on
the underlying mortgage loans, to all or a disproportionately large share of
those prepayments, or to none or a disproportionately small share of those
prepayments. If you are entitled to a disproportionately large share of any
prepayments on the underlying mortgage loans, your offered certificates may be
retired at an earlier date. If, however, you are only entitled to a small share
of the prepayments on the underlying mortgage loans, the average life of your
offered certificates may be extended. Your entitlement to receive payments,
including prepayments, of principal of the underlying mortgage loans may--
o vary based on the occurrence of specified events, such as the
retirement of one or more other classes of certificates of the same
series; or
o be subject to various contingencies, such as prepayment and default
rates with respect to the underlying mortgage loans.
We will describe the terms and provisions of your offered certificates
more fully in the related prospectus supplement.
Certificates Purchased at a Premium or a Discount Will Be Sensitive to the
Rate of Principal Payment. A series of certificates may include one or more
classes of offered certificates offered at a premium or discount. Yields on
those classes of certificates will be sensitive, and in some cases extremely
sensitive, to prepayments on the underlying mortgage loans. Where the amount of
interest payable with respect to a class is disproportionately large, as
compared to the amount of principal, as with certain classes of interest-only
certificates, you might fail to recover your original investment under some
prepayment scenarios. The extent to which the yield to maturity of any class of
offered certificates may vary from the anticipated yield will depend upon the
degree to which they are purchased at a discount or premium and the amount and
timing of distributions on those certificates. You should consider, in the case
of any offered certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the mortgage loans could result in an
actual yield that is lower than the anticipated yield and, in the case of any
offered certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield that is
lower than the anticipated yield.
THE NATURE OF RATINGS ARE LIMITED AND WILL NOT GUARANTEE THAT YOU WILL RECEIVE
ANY PROJECTED RETURN ON YOUR OFFERED CERTIFICATES
Any rating assigned to a class of offered certificates by a rating agency
will only reflect its assessment of the probability that you will receive
payments to which you are entitled. This rating will not constitute an
assessment of the probability--
o that principal prepayments on the related mortgage loans will be
made;
o of the degree to which the rate of prepayments might differ from the
rate of prepayments that was originally anticipated; or
o of the likelihood of early optional termination of the related trust
fund.
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Furthermore, the rating will not address the possibility that prepayment
of the related mortgage loans at a higher or lower rate than you anticipated may
cause you to experience a lower than anticipated yield or that if you purchase a
certificate at a significant premium you might fail to recover your initial
investment under certain prepayment scenarios.
The amount, type and nature of credit support, if any, provided with
respect to a series of certificates will be determined on the basis of criteria
established by each rating agency rating classes of the certificates of that
series. These criteria are sometimes based upon analysis of the behavior of
mortgage loans in a larger group. However, we cannot assure you that the
historical data supporting that analysis will accurately reflect future
experience, or that the data derived from a large pool of mortgage loans will
accurately predict the delinquency, foreclosure or loss experience of any
particular pool of mortgage loans. In other cases, the criteria may be based
upon determinations of the values of the mortgaged properties that provide
security for the mortgage loans in the related trust fund. However, we cannot
assure you that those values will not decline in the future.
RISKS ASSOCIATED WITH COMMERCIAL OR MULTIFAMILY MORTGAGE LOANS
Many of the Mortgage Loans Underlying Your Offered Certificates Will be
Nonrecourse. You should consider all of the mortgage loans underlying your
offered certificates to be nonrecourse loans. This means that, in the event of a
default, recourse will be limited to the related real property or properties
securing the defaulted mortgage loan. In those cases where recourse to a
borrower or guarantor is permitted by the loan documents, we generally will not
undertake any evaluation of the financial condition of that borrower or
guarantor. Consequently, full and timely payment on each mortgage loan
underlying your offered certificates will depend on one or more of the
following--
o the sufficiency of the net operating income of the applicable real
property;
o the market value of the applicable real property at or prior to
maturity; and
o the ability of the related borrower to refinance or sell the
applicable real property.
In general, the value of a multifamily or commercial property will depend
on its ability to generate net operating income. The ability of an owner to
finance a multifamily or commercial property will depend, in large part, on the
property's value and ability to generate net operating income.
Unless we state otherwise in the related prospectus supplement, none of
the mortgage loans underlying your offered certificates will be insured or
guaranteed by any governmental entity or private mortgage insurer.
The risks associated with lending on multifamily and commercial properties
are inherently different from those associated with lending on the security of
single-family residential properties. This is because multifamily rental and
commercial real estate lending involves larger loans and, as described above,
repayment is dependent upon the successful operation and value of the related
real estate project.
Many Risk Factors are Common to Most or All Multifamily and Commercial
Properties. The following factors, among others, will affect the ability of a
multifamily or commercial property to generate net operating income and,
accordingly, its value--
o the age, design and construction quality of the property;
o perceptions regarding the safety, convenience and attractiveness of
the property;
o the characteristics of the neighborhood where the property is
located;
o the proximity and attractiveness of competing properties;
o the existence and construction of competing properties;
o the adequacy of the property's management and maintenance;
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o national, regional or local economic conditions, including plant
closings, industry slowdowns and unemployment rates;
o local real estate conditions, including an increase in or oversupply
of comparable commercial or residential space;
o demographic factors;
o customer tastes and preferences;
o retroactive changes in building codes; and
o changes in governmental rules, regulations and fiscal policies,
including environmental legislation.
Particular factors that may adversely affect the ability of a multifamily
or commercial property to generate net operating income include--
o an increase in interest rates, real estate taxes and other operating
expenses;
o an increase in the capital expenditures needed to maintain the
property or make improvements;
o a decline in the financial condition of a major tenant and, in
particular, a sole tenant or anchor tenant;
o an increase in vacancy rates;
o a decline in rental rates as leases are renewed or replaced; and
o natural disasters and civil disturbances such as earthquakes,
hurricanes, floods, eruptions or riots.
The volatility of net operating income generated by a multifamily or
commercial property over time will be influenced by many of the foregoing
factors, as well as by--
o the length of tenant leases;
o the creditworthiness of tenants;
o the rental rates at which leases are renewed or replaced;
o the percentage of total property expenses in relation to revenue;
o the ratio of fixed operating expenses to those that vary with
revenues; and
o the level of capital expenditures required to maintain the property
and to maintain or replace tenants.
Therefore, commercial and multifamily properties with short-term or less
creditworthy sources of revenue and/or relatively high operating costs, such as
those operated as hospitality and self-storage properties, can be expected to
have more volatile cash flows than commercial and multifamily properties with
medium- to long-term leases from creditworthy tenants and/or relatively low
operating costs. A decline in the real estate market will tend to have a more
immediate effect on the net operating income of commercial and multifamily
properties with short-term revenue sources and may lead to higher rates of
delinquency or defaults on the mortgage loans secured by those properties.
The Successful Operation of a Multifamily or Commercial Property Depends
on Tenants. Generally, multifamily and commercial properties are subject to
leases. The owner of a multifamily or commercial property typically uses lease
or rental payments for the following purposes--
o to pay for maintenance and other operating expenses associated with
the property;
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o to fund repairs, replacements and capital improvements at the
property; and
o to service mortgage loans secured by, and any other debt obligations
associated with operating, the property.
Factors that may adversely affect the ability of a multifamily or
commercial property to generate net operating income from lease and rental
payments include--
o an increase in vacancy rates, which may result from tenants deciding
not to renew an existing lease or discontinuing operations;
o an increase in tenant payment defaults;
o a decline in rental rates as leases are entered into, renewed or
extended at lower rates;
o an increase in the capital expenditures needed to maintain the
property or to make improvements; and
o a decline in the financial condition of a major or sole tenant.
Various factors that will affect the operation and value of a commercial
property include--
o the business operated by the tenants;
o the creditworthiness of the tenants; and
o the number of tenants.
Dependence on a Single Tenant or a Small Number of Tenants Makes a
Property Riskier Collateral. In those cases where an income-producing property
is leased to a single tenant or is primarily leased to one or a small number of
major tenants, a deterioration in the financial condition or a change in the
plan of operations of any of those tenants can have particularly significant
effects on the net operating income generated by the property. If any of those
tenants defaults under or fails to renew its lease, the resulting adverse
financial effect on the operation of the property will be substantially more
severe than would be the case with respect to a property occupied by a large
number of less significant tenants.
An income-producing property operated for retail, office or industrial
purposes also may be adversely affected by a decline in a particular business or
industry if a concentration of tenants at the property is engaged in that
business or industry.
Tenant Bankruptcy Adversely Affects Property Performance. The bankruptcy
or insolvency of a major tenant, or a number of smaller tenants, at a commercial
property may adversely affect the income produced by the property. Under the
U.S. 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
there is collateral securing the claim. The claim would be limited to--
o the unpaid rent reserved under the lease for the periods prior to
the bankruptcy petition or any earlier surrender of the leased
premises; plus
o an amount, not to exceed three years' rent, equal to the greater of
one year's rent and 15% of the remaining reserved rent.
The Success of an Income-Producing Property Depends on Reletting Vacant
Spaces. The operations at an income-producing property will be adversely
affected if the owner or property manager is unable to renew leases or relet
space on comparable terms when existing leases expire and/or become defaulted.
Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements and leasing commissions in the case of
income-producing properties operated for retail, office or industrial purposes,
can be substantial and could reduce cash flow from the income-producing
properties. Moreover, if a tenant at a income-producing property defaults in its
lease obligations, the landlord may incur substantial costs and experience
significant delays associated with enforcing its rights and protecting its
investment, including costs incurred in renovating and reletting the property.
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If an income-producing property has multiple tenants, re-leasing
expenditures may be more frequent than in the case of a property with fewer
tenants, thereby reducing the cash flow generated by the multi-tenanted
property. Multi-tenanted properties may also experience higher continuing
vacancy rates and greater volatility in rental income and expenses.
Property Value May Be Adversely Affected even when Current Operating
Income Is Not. Various factors may affect the value of multifamily and
commercial properties without affecting their current net operating income,
including--
o changes in interest rates;
o the availability of refinancing sources;
o changes in governmental regulations, licensing or fiscal policy;
o changes in zoning or tax laws; and
o potential environmental or other legal liabilities.
Property Management May Affect Property Operations and Value. The
operation of an income-producing property will depend upon the property
manager's performance and viability. The property manager generally is
responsible for--
o responding to changes in the local market;
o planning and implementing the rental structure, including staggering
durations of leases and establishing levels of rent payments;
o operating the property and providing building services;
o managing operating expenses; and
o ensuring that maintenance and capital improvements are carried out
in a timely fashion.
Income-producing properties that derive revenues primarily from short-term
rental commitments, such as hospitality or self-storage properties, generally
require more intensive management than properties leased to tenants under
long-term leases.
By controlling costs, providing appropriate and efficient services to
tenants and maintaining improvements in good condition, a property manager can--
o maintain or improve occupancy rates, business and cash flow;
o reduce operating and repair costs; and o o preserve building value.
On the other hand, management errors can, in some cases, impair the long term
viability of an income-producing property.
Maintaining a Property in Good Condition May Be Costly. The owner may be
required to expend a substantial amount to maintain, renovate or refurbish a
commercial or multifamily property. Failure to do so may materially impair the
property's ability to generate cash flow. The effects of poor construction
quality will increase over time in the form of increased maintenance and capital
improvements. Even superior construction will deteriorate over time if
management does not schedule and perform adequate maintenance in a timely
fashion. There can be no assurance that an income-producing property will
generate sufficient cash flow to cover the increased costs of maintenance and
capital improvements in addition to paying debt service on the mortgage loan(s)
that may encumber that property.
Competition Will Adversely Affect the Profitability and Value of an
Income-Producing Property. Some income-producing properties are located in
highly competitive areas. Comparable income-producing properties located in the
same area compete on the basis of a number of factors including--
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o rental rates;
o location;
o type of business or services and amenities offered; and
o nature and condition of the particular property.
The profitability and value of an income-producing property may be
adversely affected by a comparable property that- o o offers lower rents;
o has lower operating costs;
o offers a more favorable location; or
o offers better facilities.
Costs of renovating, refurbishing or expanding an income-producing
property in order to remain competitive can be substantial.
Various Types of Income-Producing Properties May Present Special Risks.
The relative importance of any factor affecting the value or operation of an
income-producing property will depend on the type and use of the property. In
addition, the type and use of a particular income-producing property may present
special risks. For example--
o Health care-related facilities and casinos are subject to
significant governmental regulation of the ownership, operation,
maintenance and/or financing of those properties;
o Multifamily rental properties, manufactured housing communities and
mobile home parks may be subject to rent control or rent
stabilization laws and laws governing landlord/tenant relationships;
o Hospitality and restaurant properties are often operated under
franchise, management or operating agreements, which may be
terminable by the franchisor or operator. Moreover, the
transferability of a hotel's or restaurant's operating, liquor and
other licenses upon a transfer of the hotel or restaurant is subject
to local law requirements;
o Depending on their location, recreational and resort properties,
properties that provide entertainment services, hospitality
properties, restaurants and taverns, mini-warehouses and
self-storage facilities tend to be adversely affected more quickly
by a general economic downturn than other types of commercial
properties;
o Marinas will be affected by various statutes and government
regulations that govern the use of, and construction on, rivers,
lakes and other waterways;
o Some recreational and hospitality properties may have seasonal
fluctuations and/or may be adversely affected by prolonged
unfavorable weather conditions;
o Churches and other religious facilities may be highly dependent on
donations which are likely to decline as economic conditions
decline; and
o Properties used as gas stations, automotive sales and service
centers, dry cleaners, warehouses and industrial facilities may be
more likely to have environmental issues.
Additionally, many types of commercial properties are not readily
convertible to alternative uses if the original use is not successful or may
require significant capital expenditures to effect any conversion to an
alternative use. As a result, the liquidation value of any of those types of
property would be substantially less than would otherwise be the case. See
"Description of the Trust Assets--Mortgage Loans--Various Types of Multifamily
and Commercial Properties that may Secure Mortgage Loans Underlying a Series of
Offered Certificates."
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Borrowers May Be Unable to Make Balloon Payments. Any of the mortgage loans
underlying your offered certificates may be nonamortizing or only partially
amortizing. The borrower under a mortgage loan of that type is required to make
substantial payments of principal and interest, which are commonly called
balloon payments, on the maturity date of the loan. The ability of the borrower
to make a balloon payment depends upon the borrower's ability to refinance or
sell the real property securing the loan. The ability of the borrower to
refinance or sell the property will be affected by a number of factors,
including--
o the fair market value and condition of the underlying real property;
o the level of interest rates;
o the borrower's equity in the underlying real property;
o the borrower's financial condition;
o the operating history of the underlying real property;
o changes in zoning and tax laws;
o changes in competition in the relevant area;
o changes in rental rates in the relevant area;
o changes in governmental regulation and fiscal policy;
o prevailing general and regional economic conditions;
o the state of the fixed income and mortgage markets; and
o the availability of credit for multifamily rental or commercial
properties.
Neither we nor any of our affiliates will be obligated to refinance any
mortgage loan underlying your offered certificates.
The related master servicer or special servicer may, within prescribed
limits, extend and modify mortgage loans underlying your offered certificates
that are in default or as to which a payment default is imminent in order to
maximize recoveries on the defaulted loans. The related master servicer or
special servicer is only required to determine that any extension or
modification is reasonably likely to produce a greater recovery than a
liquidation of the real property securing the defaulted loan. There is a risk
that the decision of the master servicer or special servicer to extend or modify
a mortgage loan may not in fact produce a greater recovery.
BORROWER CONCENTRATION WITHIN A TRUST EXPOSES INVESTORS TO GREATER RISK OF
DEFAULT AND LOSS
A particular borrower or group of related borrowers may be associated with
multiple real properties securing the mortgage loans underlying a series of
offered certificates. The bankruptcy or insolvency of, or other financial
problems with respect to, that borrower or group of borrowers could have an
adverse effect on the operation of all of the related real properties and on the
ability of those properties to produce sufficient cash flow to make required
payments on the related mortgage loans. For example, if a borrower or group of
related borrowers that owns or controls several real properties experiences
financial difficulty at one of those properties, it could defer maintenance at
another of those properties in order to satisfy current expenses with respect to
the first property. That borrower or group of related borrowers could also
attempt to avert foreclosure by filing a bankruptcy petition that might have the
effect of interrupting debt service payments on all the related mortgage loans
for an indefinite period. In addition, multiple real properties owned by the
same borrower or related borrowers are likely to have common management. This
would increase the risk that financial or other difficulties experienced by the
property manager could have a greater impact on the owner of the related loans.
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LOAN CONCENTRATION WITHIN A TRUST EXPOSES INVESTORS TO GREATER RISK OF DEFAULT
AND LOSS
Any of the mortgage assets in one of our trusts may be substantially
larger than the other assets in that trust. In general, the inclusion in a trust
of one or more mortgage assets that have outstanding principal balances that are
substantially larger than the other mortgage assets in the trust can result in
losses that are more severe, relative to the size of the related mortgage asset
pool, than would be the case if the aggregate balances of that pool were
distributed more evenly.
GEOGRAPHIC CONCENTRATION WITHIN A TRUST EXPOSES INVESTORS TO GREATER RISK OF
DEFAULT AND LOSS
If a material concentration of mortgage loans underlying a series of offered
certificates is secured by real properties in a particular locale, state or
region, then the holders of those certificates will have a greater exposure to--
o any adverse economic developments that occur in the locale, state or
region where the properties are located;
o changes in the real estate market where the properties are located;
o changes in governmental rules and fiscal policies in the
governmental jurisdiction where the properties are located; and
o acts of nature, including floods, tornadoes and earthquakes, in the
areas where properties are located.
CHANGES IN POOL COMPOSITION WILL CHANGE THE NATURE OF YOUR INVESTMENT
The mortgage loans underlying any series of offered certificates will
amortize at different rates and mature on different dates. In addition, some of
those mortgage loans may be prepaid or liquidated. As a result, the relative
composition of the related mortgage asset pool will change over time.
If you purchase certificates with a pass-through rate that is equal to or
calculated based upon a weighted average of interest rates on the underlying
mortgage loans, your pass-through rate will be affected, and may decline, as the
relative composition of the mortgage pool changes.
In addition, as payments and other collections of principal are received
with respect to the underlying mortgage loans, the remaining mortgage pool
backing your certificates may exhibit an increased concentration with respect to
property type, number and affiliation of borrowers and geographic location.
ADJUSTABLE RATE MORTGAGE LOANS MAY ENTAIL GREATER RISKS OF DEFAULT TO LENDERS
THAN FIXED RATE MORTGAGE LOANS
Some or all of the mortgage loans underlying a series of offered
certificates may provide for adjustments to their respective mortgage interest
rates and corresponding adjustments to their respective periodic debt service
payments. As the periodic debt service payment for any of those mortgage loans
increases, the likelihood that cash flow from the underlying real property will
be insufficient to make that periodic debt service payment and pay operating
expenses also increases.
SUBORDINATE DEBT INCREASES THE LIKELIHOOD THAT A BORROWER WILL DEFAULT ON A
MORTGAGE LOAN BACKING YOUR CERTIFICATES
Certain mortgage loans included in one of our trusts may either--
o prohibit the related borrower from encumbering the related real
property with additional secured debt, or
o require the consent of the holder of the mortgage loan prior to so
encumbering the related real property.
However, a violation of this prohibition may not become evident until the
affected mortgage loan otherwise defaults, and a lender, such as one of our
trusts, may not realistically be able to prevent a borrower from incurring
subordinate debt.
The existence of any secured subordinated indebtedness increases the
difficulty of refinancing a mortgage loan at the loan's maturity. In addition,
the related borrower may have difficulty repaying multiple loans. Moreover, the
filing of a petition in bankruptcy by, or on behalf of, a junior lienholder may
stay the senior lienholder from taking action to foreclose out the junior lien.
See "Legal Aspects of Mortgage Loans - Subordinate Financing".
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JUNIOR MORTGAGE LOANS MAY UNDERLIE YOUR OFFERED CERTIFICATES AND WILL CAUSE
GREATER RISKS OF LOSS THAN FIRST MORTGAGE LOAN
To the extent specified in the related prospectus supplement, certain
mortgage loans may be secured primarily by junior mortgages. In the case of
liquidation, mortgage loans underlying the offered certificates are entitled to
satisfaction from proceeds that remain from the sale of the related mortgaged
property after the mortgage loans senior to those junior mortgage loans have
been satisfied. If there are not sufficient funds to satisfy those junior
mortgage loans and senior mortgage loans, the junior mortgage loan would suffer
a loss and, accordingly, one or more classes of certificates would bear that
loss. Therefore, any risks of deficiencies associated with first mortgage loans
will be greater with respect to junior mortgage loans.
THE TYPE OF MORTGAGOR MAY ENTAIL RISK
Mortgage loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of mortgage loans made to individuals. The mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT IS LIMITED AND MAY NOT BE SUFFICIENT TO PREVENT LOSS ON YOUR
OFFERED CERTIFICATES
The prospectus supplement for a series of certificates will describe any
credit support provided for that series. Any use of credit support will be
subject to the conditions and limitations described in this prospectus and in
the related prospectus supplement, and may not cover all potential losses or
risks. For example, it may or may not cover fraud or negligence by a mortgage
loan originator or other parties.
A series of certificates may include one or more classes of subordinate
certificates, if so provided in the related prospectus supplement. Although
subordination is intended to reduce the risk to holders of senior certificates
of delinquent distributions or ultimate losses, the amount of subordination will
be limited and may decline under certain circumstances described in the related
prospectus supplement. In addition, if principal payments on one or more classes
of certificates of a series are made in a specified order or priority, any
limits with respect to the aggregate amount of claims under any related credit
support may be exhausted before the principal of the later paid classes of
certificates of that series has been repaid in full. As a result, the impact of
losses and shortfalls experienced with respect to the mortgage assets may fall
primarily upon those subordinate classes of certificates. Moreover, if a form of
credit support covers more than one series of certificates, holders of
certificates of one series will be subject to the risk that the credit support
will be exhausted by the claims of the holders of certificates of one or more
other series.
The amount of any applicable credit support for one or more classes of
offered certificates, including the subordination of one or more other classes
of certificates, will be determined on the basis of criteria established by each
rating agency rating those classes of certificates. Such criteria will be based
on a assumed level of defaults, delinquencies and losses on the underlying
mortgage assets and certain other factors. However, we cannot assure you that
the default, delinquency or loss experience on the related mortgage assets will
not exceed the assumed levels. See "-Limited Nature of Ratings", "Description of
the Certificates" and "Description of Credit Support" in this prospectus.
THE ENFORCEABILITY OF SOME PROVISIONS IN THE MORTGAGE LOANS UNDERLYING YOUR
OFFERED CERTIFICATES MAY BE CHALLENGED
Cross-Collateralization Arrangements. It may be possible to challenge
cross-collateralization arrangements involving more than one borrower as a
fraudulent conveyance, even if the borrowers are related. If one of those
borrowers were to become a debtor in a bankruptcy case, creditors of the
bankrupt party or the representative of the bankruptcy estate of the bankrupt
party could seek to have the bankruptcy court avoid any lien granted by the
bankrupt party to secure repayment of another borrower's loan. In order to do
so, the court would have to determine that--
o the bankrupt party--
1. was insolvent at the time of granting the lien,
2. was rendered insolvent by the granting of the lien,
3. was left with inadequate capital, or
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4. was not able to pay its debts as they matured; and
o the bankrupt party did not, when it allowed its property to be
encumbered by a lien securing the other borrower's loan, receive
fair consideration or reasonably equivalent value for pledging its
property for the equal benefit of the other borrower.
If the court were to conclude that the granting of the lien was an avoidable
fraudulent conveyance, it could nullify the lien or security instrument
effecting the cross-collateralization. The court could also allow the bankrupt
party to recover payments it made under the avoided cross-collateralization.
Prepayment Premiums, Fees and Charges. Under the laws of a number of
states, the enforceability of any mortgage loan provisions that require payment
of a prepayment premium, fee or charge upon an involuntary prepayment, is
unclear. If those provisions were unenforceable, borrowers would have an
incentive to default in order to prepay their loans.
Due-on-Sale and Debt Acceleration Clauses. Some or all of the mortgage
loans included in one of our trusts may contain a due-on-sale clause, which
permits the lender, with some exceptions, to accelerate the maturity of the
mortgage loan upon the sale, transfer or conveyance of--
o the related real property; or
o a majority ownership interest in the related borrower.
We anticipate that all of the mortgage loans included in one of our trusts
will contain some form of debt-acceleration clause, which permits the lender to
accelerate the debt upon specified monetary or non-monetary defaults by the
related borrower.
The courts of all states will enforce acceleration clauses in the event of
a material payment default. The equity courts of any state, however, may refuse
to allow the foreclosure of a mortgage, deed of trust or other security
instrument or to permit the acceleration of the indebtedness if--
o the default is deemed to be immaterial;
o the exercise of those remedies would be inequitable or unjust; or
o the circumstances would render the acceleration unconscionable.
Assignments of Leases. Some or all of the mortgage loans included in one
of our trusts may be secured by, among other things, an assignment of leases and
rents. Under that document, the related borrower will assign its right, title
and interest as landlord under the leases on the related real property and the
income derived from those leases to the lender as further security for the
related mortgage loan, while retaining a license to collect rents for so long as
there is no default. In the event the borrower defaults, the license terminates
and the lender is entitled to collect rents. In some cases, those assignments
may not be perfected as security interests prior to actual possession of the
cash flow. Accordingly, state law may require that the lender take possession of
the property and obtain a judicial appointment of a receiver before becoming
entitled to collect the rents. In addition, the commencement of bankruptcy or
similar proceedings by or with respect to the borrower will adversely affect the
lender's ability to collect the rents. See "Legal Aspects of Mortgage
Loans--Bankruptcy Laws."
Defeasance. A mortgage loan underlying a series of offered certificates
may permit the related borrower, during the periods specified and subject to the
conditions set forth in the loan, to pledge to the holder of the mortgage loan a
specified amount of direct, non-callable United States government securities and
thereby obtain a release of the related mortgaged property. The cash amount
which a borrower must expend to purchase, or must deliver to a master servicer
in order for the master servicer to purchase, the required United States
government securities may be in excess of the principal balance of the mortgage
loan. A court could interpret that excess amount as a form of prepayment premium
or could take it into account for usury purposes. In some states, some forms of
prepayment premiums are unenforceable. If the payment of that excess amount were
held to be unenforceable, the remaining portion of the cash amount to be
delivered may be insufficient to purchase the requisite amount of United States
government securities.
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CHANGES IN ZONING LAWS MAY ADVERSELY AFFECT THE USE OR VALUE OF A REAL PROPERTY
Due to changes in zoning requirements since the construction thereof, an
income-producing property may not comply with current zoning laws, including
density, use, parking and set back requirements. Accordingly, the property may
be a permitted non-conforming structure or the operation of the property may be
a permitted non-confirming use. This means that the owner is not required to
alter the property's structure or use to comply with the new law, but the owner
may be limited in its ability to rebuild the premises "as is" in the event of a
substantial casualty loss. This may adversely affect the cash flow available
following the casualty. If a substantial casualty were to occur, insurance
proceeds may not be sufficient to pay a mortgage loan secured by the property in
full. In addition, if the property were repaired or restored in conformity with
the current law, its value or revenue-producing potential may be less than that
which existed before the casualty.
COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT OF 1990 MAY BE EXPENSIVE
Under the Americans with Disabilities Act of 1990, all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. If a property does not currently comply with
that Act, the owner of the non-conforming property may be required to incur
significant costs in order to effect compliance with that Act. This will reduce
the amount of cash flow available to cover other required maintenance and
capital improvements and to pay debt service on the mortgage loan(s) that may
encumber that property. There can be no assurance that the owner will have
sufficient funds to cover the costs necessary to comply with that Act. In
addition, noncompliance could result in the imposition of fines by the federal
government or an award or damages to private litigants.
LITIGATION MAY ADVERSELY AFFECT A BORROWER'S ABILITY TO REPAY ITS MORTGAGE LOAN
The owner of a multifamily or commercial property may be a defendant in a
litigation arising out of, among other things, the following--
o breach of contract involving a tenant, a supplier or other party;
o negligence resulting in a personal injury; or
o responsibility for an environmental problem.
Litigation will divert the owner's attention from operating its property.
If the litigation were decided adversely to the owner, the award to the
plaintiff may adversely affect the owner's ability to repay a mortgage loan
secured by the property.
SPECIAL HAZARD LOSSES MAY CAUSE YOU TO SUFFER LOSSES ON YOUR OFFERED
CERTIFICATES
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of a property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in the related
policy. Most insurance policies typically do not cover any physical damage
resulting from, among other things--
o war;
o revolution;
o governmental actions;
o floods and other water-related causes;
o earth movement, including earthquakes, landslides and mudflows;
o wet or dry rot;
o vermin; and
o domestic animals.
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Unless the related mortgage loan documents specifically require the
borrower to insure against physical damage arising from these causes, then the
resulting losses may be borne by you as a holder of offered certificates.
ENVIRONMENTAL RISKS
We cannot provide any assurance--
o as to the degree of environmental testing conducted at any of the
real properties securing the mortgage loans that back your offered
certificates;
o that the environmental testing conducted by or on behalf of the
applicable originators or any other parties in connection with the
origination of those mortgage loans or otherwise identified all
adverse environmental conditions and risks at the related real
properties;
o that the results of the environmental testing were accurately
evaluated in all cases;
o that the related borrowers have implemented or will implement all
operations and maintenance plans and other remedial actions
recommended by any environmental consultant that may have conducted
testing at the related real properties; or
o that the recommended action will fully remediate or otherwise
address all the identified adverse environmental conditions and
risks.
Environmental site assessments vary considerably in their content, quality
and cost. Even when adhering to good professional practices, environmental
consultants will sometimes not detect significant environmental problems because
to do an exhaustive environmental assessment would be far too costly and
time-consuming to be practical.
In addition, the current environmental condition of a real property
securing a mortgage loan underlying your offered certificates could be adversely
affected by--
o tenants at the property, such as gasoline stations or dry cleaners;
or
o conditions or operations in the vicinity of the property, such as
leaking underground storage tanks at another property nearby.
Various environmental laws may make a current or previous owner or
operator of real property liable for the costs of removal or remediation of
hazardous or toxic substances on, under or adjacent to the property. Those laws
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. For example,
there are laws that impose liability for release of asbestos containing
materials into the air or require the removal or containment of the materials.
The owner's liability for any required remediation generally is unlimited and
could exceed the value of the property and/or the total assets of the owner. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate the adverse environmental condition, may adversely affect the owner's
or operator's ability to use the affected property. In some states,
contamination of a property may give rise to a lien on the property to ensure
the costs of cleanup. Depending on the state, this lien may have priority over
the lien of an existing mortgage, deed of trust or other security instrument. In
addition, third parties may seek recovery from owners or operators of real
property for personal injury associated with exposure to hazardous substances,
including asbestos and lead-based paint. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may be liable for the costs of
removal or remediation of the substances at the disposal or treatment facility.
The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, as well as other federal and state laws,
provide that a secured lender, such as one of our trusts, may be liable as an
"owner" or "operator" of the real property, regardless of whether the borrower
or a previous owner caused the environmental damage, if--
o agents or employees of the lender are deemed to have participated in
the management of the borrower; or
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o the lender actually takes possession of a borrower's property or
control of its day-to-day operations, including through the
appointment of a receiver or foreclosure.
Although recently enacted legislation clarifies the activities in which a
lender may engage without becoming subject to liability under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, and similar federal laws, that legislation has no applicability to
state environmental laws. Moreover, future laws, ordinances or regulations could
impose material environmental liability.
Federal law requires owners of residential housing constructed prior to
1978 to disclose to potential residents or purchasers--
o any condition on the property that causes exposure to lead-based
paint; and
o the potential hazards to pregnant women and young children,
including that the ingestion of lead-based paint chips and/or the
inhalation of dust particles from lead-based paint by children can
cause permanent injury, even at low levels of exposure.
Property owners may be liable for injuries to their tenants resulting from
exposure under various laws that impose affirmative obligations on property
owners of residential housing containing lead-based paint.
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS MAY UNDERLIE YOUR OFFERED
CERTIFICATES AND ADVERSELY AFFECT THE YIELD ON YOUR OFFERED CERTIFICATES
The related prospectus supplement may provide that certain non-performing
mortgage loans underlie a series of offered certificates. Unless the related
prospectus supplement provides otherwise, the special servicer may service these
mortgage loans. The same entity may act as both master servicer and special
servicer. Any credit enhancement provided with respect to a particular series of
certificates may not cover all losses related to delinquent or non-performing
mortgage loans, and you should consider the risk that the inclusion of
delinquent or non-performing mortgage loans in the trust fund may adversely
affect the rate of defaults and prepayments on the mortgage loans and
accordingly the yield on your certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES REGARDING RESIDUAL CERTIFICATES
Inclusion of Taxable Income in Excess of Cash Received. If you own a
certificate that is a residual interest in a real estate mortgage investment
conduit, or REMIC, for federal income tax purposes, you will have to report on
your income tax return as ordinary income your pro rata share of the taxable
income of that REMIC, regardless of the amount or timing of your possible
receipt of any cash on the certificate. As a result, your offered certificate
may have phantom income early in the term of the REMIC because the taxable
income from the certificate may exceed the amount of economic income, if any,
attributable to the certificate. While you will have a corresponding amount of
tax losses later in the term of the REMIC, the present value of the phantom
income may significantly exceed the present value of the tax losses. Therefore,
the after-tax yield on any REMIC residual certificate may be significantly less
than that of a corporate bond or other instrument having similar cash flow
characteristics. In fact, some offered certificates that are residual interests,
may have a negative value.
You have to report your share of the taxable income and net loss of the
REMIC until all the certificates in the related series have a principal balance
of zero. See "Certain Federal Income Tax Consequences--REMICs."
Some Taxable Income of a Residual Interest Can Not Be Offset Under the
Internal Revenue Code of 1986. A portion of the taxable income from a REMIC
residual certificate may be treated as excess inclusions under the Internal
Revenue Code of 1986. You will have to pay tax on the excess inclusions
regardless of whether you have other credits, deductions or losses. In
particular, the tax on excess inclusion--
o generally will not be reduced by losses from other activities;
o for a tax-exempt holder, will be treated as unrelated business
taxable income; and
o for a foreign holder, will not qualify for any exemption from
withholding tax.
Individuals and Certain Entities Should Not Invest in REMIC Residual
Certificates. The fees and non-interest expenses of a REMIC will be allocated
pro rata to certificates that are residual interests in the REMIC. However,
individuals will only
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be able to deduct these expenses as miscellaneous itemized deductions, which are
subject to numerous restrictions and limitations under the Internal Revenue Code
of 1986. Therefore, the certificates that are residual interests generally are
not appropriate investments for--
o o individuals;
o estates;
o trusts beneficially owned by any individual or estate; and
o pass-through entities having any individual, estate or trust as a
shareholder, member or partner.
Transfer Limitations. In addition, the REMIC residual certificates will be
subject to numerous transfer restrictions. These restrictions will reduce your
ability to liquidate a REMIC residual certificate. For example, unless we
indicate otherwise in the related prospectus supplement, you will not be able to
transfer a REMIC residual certificate to a foreign person under the Internal
Revenue Code of 1986 or to a United States partnership that includes foreign
partners as partners.
See "Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Residual Certificates."
BORROWER BANKRUPTCY PROCEEDINGS CAN DELAY AND IMPAIR RECOVERY ON A MORTGAGE LOAN
UNDERLYING YOUR OFFERED CERTIFICATES
Under the U.S. Bankruptcy Code, the filing of a petition in bankruptcy by
or against a borrower will stay the sale of a real property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, if a court determines that the value of a real property is
less than the principal balance of the mortgage loan it secures, the court may
reduce the amount of secured indebtedness to the then-value of the property.
This would make the lender a general unsecured creditor for the difference
between the then-value of the property and the amount of its outstanding
mortgage indebtedness.
A bankruptcy court also may--
o grant a debtor a reasonable time to cure a payment default on a
mortgage loan;
o reduce monthly payments due under a mortgage loan;
o change the rate of interest due on a mortgage loan; or
o otherwise alter a mortgage loan's repayment schedule.
Furthermore, the borrower, as debtor-in-possession, or its bankruptcy
trustee has special powers to avoid, subordinate or disallow debts. In some
circumstances, the claims of a secured lender, such as one of our trusts, may be
subordinated to financing obtained by a debtor-in-possession subsequent to its
bankruptcy.
Under the U.S. Bankruptcy Code, a lender will be stayed from enforcing a
borrower's assignment of rents and leases. The U.S. Bankruptcy Code also may
interfere with a lender's ability to enforce lockbox requirements. The legal
proceedings necessary to resolve these issues can be time consuming and may
significantly delay the receipt of rents. Rents also may escape an assignment to
the extent they are used by borrower to maintain its property or for other court
authorized expenses.
As a result of the foregoing, the related trust's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the total
amount ultimately collected may be substantially less than the amount owed.
TAXES ON FORECLOSURE PROPERTY WILL REDUCE AMOUNTS AVAILABLE TO MAKE PAYMENTS ON
THE OFFERED CERTIFICATES
One of our trusts may be designated, in whole or in part, as a real estate
mortgage investment conduit for federal income tax purposes. If that trust
acquires a real property through a foreclosure or deed in lieu of foreclosure,
then the related special servicer may be required to retain an independent
contractor to operate and manage the property. Receipt of the following
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types of income on that property will subject the trust to federal, and possibly
state or local, tax on that income at the highest marginal corporate tax rate--
o any net income from that operation and management that does not
consist of qualifying rents from real property within the meaning of
Section 856(d) of the Internal Revenue Code of 1986; and
o any rental income based on the net profits of a tenant or sub-tenant
or allocable to a service that is non-customary in the area and for
the type of building involved.
These taxes would reduce the net proceeds available for payment with respect to
the related offered certificates.
BOOK-ENTRY REGISTRATION MAY LIMIT YOUR ABILITY TO EXERCISE YOUR RIGHTS, PROVIDE
ONLY LIMITED INFORMATION, AND AFFECT PAYMENT AND TRANSFERABILITY OF YOUR OFFERED
CERTIFICATES
Your offered certificates may be issued in book-entry form through the
facilities of the Depository Trust Company. As a result--
o you will be able to exercise your rights as a certificateholder only
indirectly through the Depository Trust Company and its
participating organizations;
o you may have only limited access to information regarding your
offered certificates;
o you may suffer delays in the receipt of payments on your offered
certificates; and
o your ability to pledge or otherwise take action with respect to your
offered certificates may be limited due to the lack of a physical
certificate evidencing your ownership of those certificates.
See "Description of the Certificates--Book-Entry Registration."
POTENTIAL CONFLICTS OF INTEREST CAN AFFECT A PERSON'S PERFORMANCE
The master servicer or special servicer for one of our trusts, or any of
their respective affiliates, may purchase certificates evidencing interests in
that trust.
In addition, the master servicer or special servicer for one of our
trusts, or any of their respective affiliates, may have interests in, or other
financial relationships with, borrowers under the related mortgage loans.
In servicing the mortgage loans in any of our trusts, the related master
servicer and special servicer will each be required to observe the terms of the
governing document(s) for the related series of offered certificates and, in
particular, to act in accordance with the servicing standard described in the
related prospectus supplement. You should consider, however, that either of
these parties, if it or an affiliate owns certificates, or has financial
interests in or other financial dealings with any of the related borrowers, may
have interests when dealing with the mortgage loans underlying your offered
certificates that are in conflict with your interests. For example, if the
related special servicer owns any certificates, it could seek to mitigate the
potential loss on its certificates from a troubled mortgage loan by delaying
enforcement in the hope of realizing greater proceeds in the future. However,
this action by a special servicer could result a lower recovery to the related
trust than would have been the case if the special servicer had not delayed in
taking enforcement action.
Furthermore, the master servicer or special servicer for any of our trusts
may service existing and new loans for third parties, including portfolios of
loans similar to the mortgage loans included in that trust. The properties
securing these other loans may be in the same markets as and compete with the
properties securing mortgage loans in our trust. Accordingly, that master
servicer or special servicer may be acting on behalf of parties with conflicting
interests.
CAPITALIZED TERMS USED IN THIS PROSPECTUS
From time to time we use capitalized terms in this prospectus. Each of
those capitalized terms will have the meaning assigned to it in the "Glossary"
attached to this prospectus.
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CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
We were incorporated in Delaware on December 31, 1985. We were organized,
among other things, for the purpose of serving as a private secondary mortgage
market conduit.
We are a wholly-owned subsidiary of Credit Suisse First Boston Management
Corporation who is a wholly-owned subsidiary of Credit Suisse First Boston, Inc.
Our principal executive offices are located at Eleven Madison Avenue, New York,
New York 10010. Our telephone number is 212-325-2000.
We do not have, and do not expect to have in the future, any significant
assets.
Neither we nor any of our affiliates will guarantee any of the mortgage
assets included in one of our trusts. Furthermore, unless we indicate otherwise
in the related prospectus supplement, no governmental agency or instrumentality
will guarantee or insure any of those mortgage assets.
USE OF PROCEEDS
Unless otherwise specified in the related prospectus supplement, the net
proceeds to be received from the sale of the offered certificates of any series
will be applied by us to the purchase of assets for the related trust or will be
used by us to cover expenses related to that purchase and the issuance of those
certificates. We expect to sell the offered certificates from time to time, but
the timing and amount of offerings of those certificates will depend on a number
of factors, including the volume of mortgage assets acquired by us, prevailing
interest rates, availability of funds and general market conditions.
DESCRIPTION OF THE TRUST ASSETS
GENERAL
We will be responsible for establishing the trust underlying each series
of offered certificates. The assets of the trust will primarily consist of--
o various types of multifamily and/or commercial mortgage loans;
o mortgage participations, pass-through certificates, collateralized
mortgage obligations or other mortgage-backed securities that
directly or indirectly evidence interests in, or are secured by
pledges of, one or more of various types of multifamily and/or
commercial mortgage loans; or
o a combination of mortgage loans and mortgage-backed securities of
the types described above.
We do not originate mortgage loans. Accordingly, we must acquire each of
the mortgage loans to be included in one of our trusts from the originator or a
subsequent assignee. In some cases, that originator or subsequent assignee will
be one of our affiliates.
Unless we indicate otherwise in the related prospectus supplement, we will
acquire, directly or through one of our affiliates, in the secondary market, any
mortgage-backed security to be included in one of our trusts.
MORTGAGE LOANS
General. Each mortgage loan underlying the offered certificates will
constitute the obligation of one or more persons to repay a debt. That
obligation will be evidenced by a promissory note or bond. In addition, that
obligation will be secured by a mortgage, deed of trust or other security
instrument that creates a first or junior lien on, or security interest in, an
interest in one or more of the following types of real property--
o rental or cooperatively-owned buildings with multiple dwelling
units;
o retail properties related to the sale of consumer goods and other
products to the general public, such as shopping centers, malls,
factory outlet centers, automotive sales centers, department stores
and other retail stores, grocery stores, specialty shops,
convenience stores and gas stations;
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o retail properties related to providing entertainment, recreational
and personal services to the general public, such as movie theaters,
fitness centers, bowling alleys, salons, dry cleaners and automotive
service centers;
o office properties;
o hospitality properties, such as hotels, motels and other lodging
facilities;
o casino properties;
o health care-related properties, such as hospitals, skilled nursing
facilities, nursing homes, congregate care facilities and, in some
cases, assisted living centers and senior housing;
o industrial properties;
o warehouse facilities, mini-warehouse facilities and self-storage
facilities;
o restaurants, taverns and other establishments involved in the food
and beverage industry;
o manufactured housing communities, mobile home parks and recreational
vehicle parks;
o recreational and resort properties, such as recreational vehicle
parks, golf courses, marinas, ski resorts and amusement parks;
o arenas and stadiums;
o churches and other religious facilities;
o parking lots and garages;
o mixed use properties;
o other income-producing properties; and
o unimproved land.
The real property interests that may be encumbered in order to secure a
mortgage loan underlying your offered certificates, include--
o a fee interest or estate, which consists of ownership of the
property for an indefinite period;
o an estate for years, which consists of ownership of the property for
a specified period of years;
o a leasehold interest or estate, which consists of a right to occupy
and use the property for a specified period of years, subject to the
terms and conditions of a lease;
o shares in a cooperative corporation which owns the property; or
o any other real estate interest under applicable local law.
Any of these real property interests may be subject to deed restrictions,
easements, rights of way and other matters of public record with respect to the
related property. In addition, the use of, and improvements that may be
constructed on, any particular real property will, in most cases, be subject to
zoning laws and other legal restrictions.
Most, if not all, of the mortgage loans underlying a series of offered
certificates will be secured by liens on real properties located in the United
States, its territories and possessions. However, some of those mortgage loans
may be
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secured by liens on real properties located outside the United States, its
territories and possessions, provided that foreign mortgage loans do not
represent more than 10% of the related mortgage asset pool, by balance.
If we so indicate in the related prospectus supplement, one or more of the
mortgage loans underlying a series of offered certificates may be secured by a
junior lien on the related real property. However, the loan or loans secured by
the more senior liens on that property may not be included in the related trust.
The primary risk to the holder of a mortgage loan secured by a junior lien on a
real property is the possibility that the foreclosure proceeds remaining after
payment of the loans secured by more senior liens on that property will be
insufficient to pay the junior loan in full. In a foreclosure proceeding, the
sale proceeds are applied--
o first, to the payment of court costs and fees in connection with the
foreclosure;
o second, to the payment of real estate taxes; and
o third, to the payment of any and all principal, interest, prepayment
or acceleration penalties, and other amounts owing to the holder of
the senior loans.
The claims of the holders of the senior loans must be satisfied in full before
the holder of the junior loan receives any payments with respect to the junior
loan. If a lender forecloses on a junior loan, it does so subject to any related
senior loans.
If we so indicate in the related prospectus supplement, the mortgage loans
underlying a series of offered certificates may be delinquent as of the date the
certificates are initially issued. In those cases, we will describe in the
related prospectus supplement--
o the period of the delinquency;
o any forbearance arrangement then in effect;
o the condition of the related real property; and
o the ability of the related real property to generate income to
service the mortgage debt.
We will not, however, transfer any mortgage loan to a trust if we know that the
mortgage loan is, at the time of transfer, more than 90 days delinquent with
respect to any scheduled payment of principal or interest or in foreclosure.
Various Types of Multifamily and Commercial Properties May Secure Mortgage
Loans Underlying a Series of Offered Certificates. The mortgage loans underlying
a series of offered certificates may be secured by numerous types of multifamily
and commercial properties. As we discuss below under "--Mortgage Loans--Default
and Loss Considerations with Respect to Commercial and Multifamily Mortgage
Loans," the adequacy of an income-producing property as security for a mortgage
loan depends in large part on its value and ability to generate net operating
income. Set forth below is a discussion of some of the various factors that may
affect the value and operations of the indicated types of multifamily and
commercial properties.
Multifamily Rental Properties. Factors affecting the value and operation
of a multifamily rental property include-
o the physical attributes of the property, such as its age,
appearance, amenities and construction quality;
o the types of services offered at the property;
o the location of the property;
o the characteristics of the surrounding neighborhood, which may
change over time;
o the rents charged for dwelling units at the property relative to the
rents charged for comparable units at competing properties;
o the ability of management to provide adequate maintenance and
insurance;
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o the property's reputation;
o the level of mortgage interest rates, which may encourage tenants to
purchase rather than lease housing;
o the existence or construction of competing or alternative
residential properties, including other apartment buildings and
complexes, manufactured housing communities, mobile home parks and
single-family housing;
o the ability of management to respond to competition;
o the tenant mix and whether the property is primarily occupied by
workers from a particular company or type of business, personnel
from a local military base or students;
o adverse local, regional or national economic conditions, which may
limit the amount that may be charged for rents and may result in a
reduction in timely rent payments or a reduction in occupancy
levels;
o state and local regulations, which may affect the property owner's
ability to increase rent to the market rent for an equivalent
apartment;
o the extent to which the property is subject to land use restrictive
covenants or contractual covenants that require that units be rented
to low income tenants;
o the extent to which the cost of operating the property, including
the cost of utilities and the cost of required capital expenditures,
may increase; and
o the extent to which increases in operating costs may be passed
through to tenants.
Because units in a multifamily rental property are leased to individuals,
usually for no more than a year, the property is likely to respond relatively
quickly to a downturn in the local economy or to the closing of a major employer
in the area.
Some states regulate the relationship of an owner and its tenants at a
multifamily rental property. Among other things, these states may--
o require written leases;
o require good cause for eviction;
o require disclosure of fees;
o prohibit unreasonable rules;
o prohibit retaliatory evictions;
o prohibit restrictions on a resident's choice of unit vendors;
o limit the bases on which a landlord may increase rent; or
o prohibit a landlord from terminating a tenancy solely by reason of
the sale of the owner's building.
Apartment building owners have been the subject of suits under state
Unfair and Deceptive Practices Acts and other general consumer protection
statutes for coercive, abusive or unconscionable leasing and sales practices.
Some counties and municipalities also impose rent control regulations on
apartment buildings. These regulations may limit rent increases to--
o fixed percentages;
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o percentages of increases in the consumer price index;
o increases set or approved by a governmental agency; or
o increases determined through mediation or binding arbitration.
In many cases, the rent control laws do not provide for decontrol of
rental rates upon vacancy of individual units. Any limitations on a landlord's
ability to raise rents at a multifamily rental property may impair the
landlord's ability to repay a mortgage loan secured by the property or to meet
operating costs.
Some multifamily rental properties are subject to land use restrictive
covenants or contractual covenants in favor of federal or state housing
agencies. These covenants generally require that a minimum number or percentage
of units be rented to tenants who have incomes that are substantially lower than
median incomes in the area or region. These covenants may limit the potential
rental rates that may be charged at a multifamily rental property, the potential
tenant base for the property or both. An owner may subject a multifamily rental
property to these covenants in exchange for tax credits or rent subsidies. When
the credits or subsidies cease, net operating income will decline.
Some mortgage loans underlying the offered certificates will be secured
by--
o the related borrower's interest in multiple units in a residential
condominium project; and
o the related voting rights in the owners' association for the
project.
Due to the nature of condominiums, a default on any of those mortgage loans will
not allow the related special servicer the same flexibility in realizing on the
real property collateral as is generally available with respect to multifamily
rental properties that are not condominiums. The rights of other unit owners,
the governing documents of the owners' association and the state and local laws
applicable to condominiums must be considered and respected. Consequently,
servicing and realizing upon the collateral for those mortgage loans could
subject the related trust to greater delay, expense and risk than a loan secured
by a multifamily rental property that is not a condominium.
Cooperatively-Owned Apartment Buildings. Some multifamily properties are
owned or leased by cooperative corporations. In general, each shareholder in the
corporation is entitled to occupy a particular apartment unit under a long-term
proprietary lease or occupancy agreement.
A tenant/shareholder of a cooperative corporation must make a monthly
maintenance payment to the corporation. The monthly maintenance payment
represents a tenant/shareholder's pro rata share of the corporation's--
o mortgage loan payments;
o real property taxes;
o maintenance expenses; and
o other capital and ordinary expenses of the property.
These monthly maintenance payments are in addition to any payments of principal
and interest the tenant/shareholder must make on any loans of the
tenant/shareholder secured by its shares in the corporation.
A cooperative corporation is directly responsible for building maintenance
and payment of real estate taxes and hazard and liability insurance premiums. A
cooperative corporation's ability to meet debt service obligations on a mortgage
loan secured by, and to pay all other operating expenses of, the cooperatively
owned property depends primarily upon the receipt of--
o maintenance payments from the tenant/shareholders; and
o any rental income from units or commercial space that the
cooperative corporation might control.
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A cooperative corporation may have to impose special assessments on the
tenant/shareholders in order to pay unanticipated expenditures. Accordingly, a
cooperative corporation is highly dependent on the financial well being of its
tenant/shareholders. A cooperative corporation's ability to pay the amount of
any balloon payment due at the maturity of a mortgage loan secured by the
cooperatively owned property depends primarily on its ability to refinance the
property.
In a typical cooperative conversion plan, the owner of a rental apartment
building contracts to sell the building to a newly formed cooperative
corporation. Shares are allocated to each apartment unit by the owner or
sponsor. The current tenants have a specified period to subscribe at prices
discounted from the prices to be offered to the public after that period. As
part of the consideration for the sale, the owner or sponsor receives all the
unsold shares of the cooperative corporation. In general the sponsor controls
the corporation's board of directors and management for a limited period of
time. If the sponsor holds the shares allocated to a large number of apartment
units, the lender on a mortgage loan secured by a cooperatively owned property
may be adversely affected by a decline in the creditworthiness of the sponsor.
Many cooperative conversion plans are non-eviction plans. Under a
non-eviction plan, a tenant at the time of conversion who chooses not to
purchase shares is entitled to reside in its apartment unit as a subtenant from
the owner of the shares allocated to that unit. Any applicable rent control or
rent stabilization laws would continue to be applicable to the subtenancy. In
addition, the subtenant may be entitled to renew its lease for an indefinite
number of years with continued protection from rent increases above those
permitted by any applicable rent control and rent stabilization laws. The
owner/shareholder is responsible for the maintenance payments to the cooperative
corporation without regard to whether it receives rent from the subtenant or
whether the rent payments are lower than maintenance payments on the unit.
Newly-formed cooperative corporations typically have the greatest concentration
of non-tenant/shareholders.
Retail Properties. The term "retail property" encompasses a broad range
of properties at which businesses sell consumer goods and other products and
provide various entertainment, recreational or personal services to the
general public. Some examples of retail properties include--
o shopping centers;
o factory outlet centers;
o malls;
o automotive sales and service centers;
o consumer oriented businesses;
o department stores;
o grocery stores;
o convenience stores;
o specialty shops;
o gas stations;
o movie theaters;
o fitness centers;
o bowling alleys;
o salons; and
o dry cleaners.
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Unless owner occupied, retail properties generally derive all or a
substantial percentage of their income from lease payments from commercial
tenants. Therefore, it is important for the owner of a retail property to
attract and keep tenants, particularly significant tenants, that are able to
meet their lease obligations. In order to attract tenants, the owner of a retail
property may be required--
o to lower rents;
o to grant a potential tenant a free rent or reduced rent period;
o to improve the condition of the property generally; or
o to make at its own expense, or grant a rent abatement to cover,
tenant improvements for a potential tenant.
A prospective tenant will also be interested in the number and type of
customers that it will be able to attract at a particular retail property. The
ability of a tenant at a particular retail property to attract customers will be
affected by a number of factors related to the property and the surrounding
area, including--
o competition from other retail properties; o o perceptions regarding
the safety, convenience and attractiveness of the property;
o perceptions regarding the safety of the surrounding area;
o demographics of the surrounding area;
o the strength and stability of the local, regional and national
economies;
o traffic patterns and access to major thoroughfares;
o the visibility of the property;
o availability of parking;
o the particular mixture of the goods and services offered at the
property;
o customer tastes, preferences and spending patterns; and
o the drawing power of other tenants.
The success of a retail property is often dependent on the success of its
tenants' businesses. A significant component of the total rent paid by tenants
of retail properties is often tied to a percentage of gross sales or revenues.
Declines in sales or revenues of the tenants will likely cause a corresponding
decline in percentage rents and/or impair the tenants' ability to pay their rent
or other occupancy costs. A default by a tenant under its lease could result in
delays and costs in enforcing the landlord's rights. Retail properties would be
directly and adversely affected by a decline in the local economy and reduced
consumer spending.
Repayment of a mortgage loan secured by a retail property will be affected
by the expiration of space leases at the property and the ability of the
borrower to renew or relet the space on comparable terms. Even if vacant space
is successfully relet, the costs associated with reletting, including tenant
improvements, leasing commissions and free rent, may be substantial and could
reduce cash flow from a retail property.
The presence or absence of an anchor tenant in a multi-tenanted retail
property can be important. Anchor tenants play a key role in generating customer
traffic and making the center desirable for other tenants. An anchor tenant is,
in general, a retail tenant whose space is substantially larger in size than
that of other tenants at the same retail property and whose operation is vital
in attracting customers to the property. At some retail properties, the anchor
tenant owns the space it occupies. In those cases where the property owner does
not control the space occupied by the anchor tenant, the property
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owner may not be able to take actions with respect to the space that it
otherwise typically would, such as granting concessions to retain an anchor
tenant or removing an ineffective anchor tenant. In some cases, an anchor tenant
may cease to operate at the property, thereby leaving its space unoccupied even
though it continues to own or pay rent on the vacant space. If an anchor tenant
ceases operations at a retail property, other tenants at the property may be
entitled to terminate their leases prior to the scheduled termination date or to
pay rent at a reduced rate for the remaining term of the lease.
Various factors will adversely affect the economic performance of an anchored
retail property, including--
o an anchor tenant's failure to renew its lease;
o termination of an anchor tenant's lease;
o the bankruptcy or economic decline of an anchor tenant or a
self-owned anchor;
o the cessation of the business of a self-owned anchor or of an anchor
tenant, notwithstanding its continued ownership of the previously
occupied space or its continued payment of rent, as the case may be;
or
o a loss of an anchor tenant's ability to attract shoppers.
Retail properties may also face competition from sources outside a given
real estate market or with lower operating costs. For example, all of the
following compete with more traditional department stores and specialty shops
for consumer dollars--
o factory outlet centers;
o discount shopping centers and clubs;
o catalogue retailers;
o television shopping networks and programs;
o internet web sites; and
o telemarketing.
Similarly, home movie rentals and pay-per-view movies provide alternate
sources of entertainment to movie theaters. Continued growth of these
alternative retail outlets and entertainment sources, which are often
characterized by lower operating costs, could adversely affect the rents
collectible at retail properties.
Gas stations, automotive sales and service centers and dry cleaners also
pose unique environmental risks because of the nature of their businesses and
the types of products used or sold in those businesses.
Office Properties. Factors affecting the value and operation of an office
property include--
o the number and quality of the tenants, particularly significant
tenants, at the property;
o the physical attributes of the building in relation to competing
buildings;
o the location of the property with respect to the central business
district or population centers;
o demographic trends within the metropolitan area to move away from or
towards the central business district;
o social trends combined with space management trends, which may
change towards options such as telecommuting or hoteling to satisfy
space needs;
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o tax incentives offered to businesses or property owners by cities or
suburbs adjacent to or near where the building is located;
o local competitive conditions, such as the supply of office space or
the existence or construction of new competitive office buildings;
o the quality and philosophy of building management;
o access to mass transportation; and
o changes in zoning laws.
Office properties may be adversely affected by an economic decline in the
business operated by their tenants. The risk associated with that economic
decline is increased if revenue is dependent on a single tenant or if there is a
significant concentration of tenants in a particular business or industry.
Office properties are also subject to competition with other office
properties in the same market. Competitive factors affecting an office property
include--
o rental rates;
o the building's age, condition and design, including floor sizes and
layout;
o access to public transportation and availability of parking; and
o amenities offered to its tenants, including sophisticated building
systems, such as fiber optic cables, satellite communications or
other base building technological features.
The cost of refitting office space for a new tenant is often higher than
for other property types.
The success of an office property also depends on the local economy.
Factors influencing a company's decision to locate in a given area include--
o the cost and quality of labor;
o tax incentives; and
o quality of life matters, such as schools and cultural amenities.
The strength and stability of the local or regional economy will affect an
office property's ability to attract stable tenants on a consistent basis. A
central business district may have a substantially different economy from that
of a suburb.
Hospitality Properties. Hospitality properties may involve different types
of hotels and motels, including--
o full service hotels;
o resort hotels with many amenities;
o limited service hotels;
o hotels and motels associated with national or regional franchise
chains;
o hotels that are not affiliated with any franchise chain but may have
their own brand identity; and
o other lodging facilities.
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Factors affecting the economic performance of a hospitality property
include--
o the location of the property and its proximity to major population
centers or attractions;
o the seasonal nature of business at the property;
o the level of room rates relative to those charged by competitors;
o quality and perception of the franchise affiliation;
o economic conditions, either local, regional or national, which may
limit the amount that can be charged for a room and may result in a
reduction in occupancy levels;
o the existence or construction of competing hospitality properties;
o nature and quality of the services and facilities;
o financial strength and capabilities of the owner and operator;
o the need for continuing expenditures for modernizing, refurbishing
and maintaining existing facilities;
o increases in operating costs, which may not be offset by increased
room rates;
o the property's dependence on business and commercial travelers and
tourism; and
o changes in travel patterns caused by changes in access, energy
prices, labor strikes, relocation of highways, the reconstruction of
additional highways or other factors.
Because limited service hotels and motels are relatively quick and
inexpensive to construct and may quickly reflect a positive value, an
over-building of these hotels and motels could occur in any given region, which
would likely adversely affect occupancy and daily room rates. Further, because
rooms at hospitality properties are generally rented for short periods of time,
hospitality properties tend to be more sensitive to adverse economic conditions
and competition than many other types of commercial properties. Additionally,
the revenues of some hospitality properties, particularly those located in
regions whose economies depend upon tourism, may be highly seasonal in nature.
Hospitality properties may be operated under franchise agreements. The
continuation of a franchise is typically subject to specified operating
standards and other terms and conditions. The franchisor periodically inspects
its licensed properties to confirm adherence to its operating standards. The
failure of the hospitality property to maintain those standards or adhere to
those other terms and conditions could result in the loss or cancellation of the
franchise license. It is possible that the franchisor could condition the
continuation of a franchise license on the completion of capital improvements or
the making of capital expenditures that the owner of the hospitality property
determines are too expensive or are otherwise unwarranted in light of the
operating results or prospects of the property. In that event, the owner of the
hospitality property may elect to allow the franchise license to lapse. In any
case, if the franchise is terminated, the owner of the hospitality property may
seek to obtain a suitable replacement franchise or to operate property
independently of a franchise license. The loss of a franchise license could have
a material adverse effect upon the operations or value of the hospitality
property because of the loss of associated name recognition, marketing support
and centralized reservation systems provided by the franchisor.
The viability of any hospitality property that is a franchise of a national
or a regional hotel or motel chain is dependent upon--
o the continued existence and financial strength of the franchisor;
o the public perception of the franchise service mark; and
o the duration of the franchise licensing agreement.
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The transferability of franchise license agreements may be restricted. The
consent of the franchisor would be required for the continued use of the
franchise license by the hospitality property following a foreclosure.
Conversely, a lender may be unable to remove a franchisor that it desires to
replace following a foreclosure. Further, in the event of a foreclosure on a
hospitality property, the lender or other purchaser of the hospitality property
may not be entitled to the rights under any associated liquor license. That
party would be required to apply in its own right for a new liquor license.
There can be no assurance that a new license could be obtained or that it could
be obtained promptly.
Casino Properties. Factors affecting the economic performance of a casino
property include--
o location, including proximity to or easy access from major
population centers;
o appearance;
o economic conditions, either local, regional or national, which may
limit the amount of disposable income that potential patrons may
have for gambling;
o the existence or construction of competing casinos;
o dependence on tourism; and
o local or state governmental regulation.
Competition among major casinos may involve attracting patrons by--
o providing alternate forms of entertainment, such as performers and
sporting events; and
o offering low-priced or free food and lodging.
Casino owners may expend substantial sums to modernize, refurbish and
maintain existing facilities.
The ownership and operation of casino properties is often subject to local
or state governmental regulation. A government agency or authority may have
jurisdiction over or influence with respect to the foreclosure of a casino
property or the bankruptcy of its owner or operator. In some jurisdictions, it
may be necessary to receive governmental approval before foreclosing, thereby
resulting in substantial delays to a lender. Gaming licenses are not
transferable, including in connection with a foreclosure. There can be no
assurance that a lender or another purchaser in foreclosure or otherwise will be
able to obtain the requisite approvals to continue operating the foreclosed
property as a casino.
Any given state or municipality that currently allows legalized gambling
could pass legislation banning it.
The loss of a gaming license for any reason would have a material adverse
effect on the value of a casino property.
Health Care-Related Properties. Health-care related properties include-
o hospitals;
o skilled nursing facilities;
o nursing homes;
o congregate care facilities; and
o in some cases, assisted living centers and housing for seniors.
Health care-related facilities, particularly nursing homes, may receive a
substantial portion of their revenues from government reimbursement programs,
primarily Medicaid and Medicare. Medicaid and Medicare are subject to--
o statutory and regulatory changes;
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o retroactive rate adjustments; o o administrative rulings;
o policy interpretations;
o delays by fiscal intermediaries; and
o government funding restrictions.
All of the foregoing can adversely affect revenues from the operation a
health care-related facility. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers. In
addition, there are currently under consideration various proposals for national
health care relief that could further limit these payments.
Providers of long-term nursing care and other medical services are highly
regulated by federal, state and local law. They are subject to numerous factors
which can increase the cost of operation, limit growth and, in extreme cases,
require or result in suspension or cessation of operations, including--
o federal and state licensing requirements;
o facility inspections;
o rate setting;
o reimbursement policies; and
o laws relating to the adequacy of medical care, distribution of
pharmaceuticals, use of equipment, personnel operating policies and
maintenance of and additions to facilities and services.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements generally may not be made to any person other than the
provider who actually furnished the related material goods and services.
Accordingly, in the event of foreclosure on a health care-related facility,
neither a lender nor other subsequent lessee or operator of the property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
property prior to foreclosure. Furthermore, in the event of foreclosure, there
can be no assurance that a lender or other purchaser in a foreclosure sale would
be entitled to the rights under any required licenses and regulatory approvals.
The lender or other purchaser may have to apply in its own right for those
licenses and approvals. There can be no assurance that a new license could be
obtained or that a new approval would be granted.
Health care-related facilities are generally special purpose properties
that could not be readily converted to general residential, retail or office
use. This will adversely affect their liquidation value. Furthermore, transfers
of health care-related facilities are subject to regulatory approvals under
state, and in some cases federal, law not required for transfers of most other
types of commercial properties.
Industrial Properties. Industrial properties may be adversely affected by
reduced demand for industrial space occasioned by a decline in a particular
industry segment and/or by a general slowdown in the economy. In addition, an
industrial property that suited the particular needs of its original tenant may
be difficult to relet to another tenant or may become functionally obsolete
relative to newer properties.
The value and operation of an industrial property depends on--
o location of the property, the desirability of which in a particular
instance may depend on--
1. availability of labor services,
2. proximity to supply sources and customers, and
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3. accessibility to various modes of transportation and shipping,
including railways, roadways, airline terminals and ports;
o building design of the property, the desirability of which in a
particular instance may depend on--
1. ceiling heights,
2. column spacing,
3. number and depth of loading bays,
4. divisibility,
5. floor loading capacities,
6. truck turning radius,
7. overall functionality, and
8. adaptability of the property, because industrial tenants often
need space that is acceptable for highly specialized
activities; and
o the quality and creditworthiness of individual tenants, because
industrial properties frequently have higher tenant concentrations.
Industrial properties are generally special purpose properties that could
not be readily converted to general residential, retail or office use. This will
adversely affect their liquidation value.
Warehouse, Mini-Warehouse and Self-Storage Facilities. Warehouse,
mini-warehouse and self-storage properties are considered vulnerable to
competition because both acquisition costs and break-even occupancy are
relatively low. In addition, it would require substantial capital expenditures
to convert a warehouse, mini-warehouse or self-storage property to an
alternative use. This will materially impair the liquidation value of the
property if its operation for storage purposes becomes unprofitable due to
decreased demand, competition, age of improvements or other factors.
Successful operation of a warehouse, mini-warehouse or self-store property
depends on--
o building design;
o location and visibility;
o tenant privacy;
o efficient access to the property;
o proximity to potential users, including apartment complexes or
commercial users;
o services provided at the property, such as security;
o age and appearance of the improvements; and
o quality of management.
Restaurants and Taverns. Factors affecting the economic viability of
individual restaurants, taverns and other establishments that are part of the
food and beverage service industry include--
o competition from facilities having businesses similar to a
particular restaurant or tavern;
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o perceptions by prospective customers of safety, convenience,
services and attractiveness;
o the cost, quality and availability of food and beverage products;
o negative publicity, resulting from instances of food contamination,
food-borne illness and similar events;
o changes in demographics, consumer habits and traffic patterns;
o the ability to provide or contract for capable management; and
o retroactive changes to building codes, similar ordinances and other
legal requirements.
Adverse economic conditions, whether local, regional or national, may
limit the amount that may be charged for food and beverages and the extent to
which potential customers dine out. Because of the nature of the business,
restaurants and taverns tend to respond to adverse economic conditions more
quickly than do many other types of commercial properties. Furthermore, the
transferability of any operating, liquor and other licenses to an entity
acquiring a bar or restaurant, either through purchase or foreclosure, is
subject to local law requirements.
The food and beverage service industry is highly competitive. The
principal means of competition are--
o segment;
o product;
o price;
o value;
o quality;
o service;
o convenience;
o location; and
o the nature and condition of the restaurant facility.
A restaurant or tavern operator competes with the operators of comparable
establishments in the area in which its restaurant or tavern is located. Other
restaurants could have--
o lower operating costs;
o more favorable locations;
o more effective marketing;
o more efficient operations; or
o better facilities.
The location and condition of a particular restaurant or tavern will
affect the number of customers and, to an extent, the prices that may be
charged. The characteristics of an area or neighborhood in which a restaurant or
tavern is located may change over time or in relation to competing facilities.
Also, the cleanliness and maintenance at a restaurant or tavern will affect its
appeal to customers. In the case of a regionally- or nationally-known chain
restaurant, there may be costly expenditures for renovation, refurbishment or
expansion, regardless of its condition.
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Factors affecting the success of a regionally- or nationally-known chain
restaurant include--
o actions and omissions of any franchisor, including management
practices that--
1. adversely affect the nature of the business, or
2. require renovation, refurbishment, expansion or other
expenditures;
o the degree of support provided or arranged by the franchisor,
including its franchisee organizations and third-party providers of
products or services; and
o the bankruptcy or business discontinuation of the franchisor or any
of its franchisee organizations or third-party providers.
Chain restaurants may be operated under franchise agreements. Those
agreements typically do not contain provisions protective of lenders. A
borrower's rights as franchisee typically may be terminated without informing
the lender, and the borrower may be precluded from competing with the franchisor
upon termination. In addition, a lender that acquires title to a restaurant site
through foreclosure or similar proceedings may be restricted in the use of the
site or may be unable to succeed to the rights of the franchisee under the
related franchise agreement. The transferability of a franchise may be subject
to other restrictions. Also, federal and state franchise regulations may impose
additional risk, including the risk that the transfer of a franchise acquired
through foreclosure or similar proceedings may require registration with
governmental authorities or disclosure to prospective transferees.
Manufactured Housing Communities, Mobile Home Parks and Recreational
Vehicle Parks. Manufactured housing communities and mobile home parks consist of
land that is divided into "spaces" or "home sites" that are primarily leased to
owners of the individual mobile homes or other housing units. The home owner
often invests in site-specific improvements such as carports, steps, fencing,
skirts around the base of the home, and landscaping. The land owner typically
provides private roads within the park, common facilities and, in many cases,
utilities.
Due to relocation costs and, in some cases, demand for homesites, the
value of a mobile home or other housing unit in place in a manufactured housing
community or mobile home park is generally higher, and can be significantly
higher, than the value of the same unit not placed in a manufactured housing
community or mobile home park. As a result, a well-operated manufactured housing
community or mobile home park that has achieved stabilized occupancy is
typically able to maintain occupancy at or near that level. For the same reason,
a lender that provided financing for the home of a tenant who defaulted in his
or her space rent generally has an incentive to keep rental payments current
until the home can be resold in place, rather than to allow the unit to be
removed from the park. In general, the individual mobile homes and other housing
units will not constitute collateral for a mortgage loan underlying a series of
offered certificates.
Recreational vehicle parks lease spaces primarily or exclusively for motor
homes, travel trailers and portable truck campers, primarily designed for
recreational, camping or travel use. In general, parks that lease recreational
vehicle spaces can be viewed as having a less stable tenant population than
parks occupied predominantly by mobile homes. However, it is not unusual for the
owner of a recreational vehicle to leave the vehicle at the park on a year-round
basis or to use the vehicle as low cost housing and reside in the park
indefinitely.
Factors affecting the successful operation of a manufactured housing
community, mobile home park or recreational vehicle park include--
o the number of comparable competing properties in the local market;
o the age, appearance and reputation of the property;
o the types of facilities and services it provides.
Manufactured housing communities and mobile home parks also compete
against alternative forms of residential housing, including--
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o multifamily rental properties;
o cooperatively-owned apartment buildings;
o condominium
o single-family residential developments.
Recreational vehicle parks also compete against alternative forms of
recreation and short-term lodging, such as staying at a hotel at the beach.
Manufactured housing communities, mobile home parks and recreational
vehicle parks are special purpose properties that could not be readily converted
to general residential, retail or office use. This will adversely affect the
liquidation value of the property if its operation as a manufactured housing
community, mobile home park or recreational vehicle park, as the case may be,
becomes unprofitable due to competition, age of the improvements or other
factors.
Some states regulate the relationship of an owner of a manufactured
housing community or mobile home park and its tenants in a manner similar to the
way they regulate the relationship between a landlord and tenant at a
multifamily rental property. In addition, some states also regulate changes in
the use of a manufactured housing community or mobile home park and require that
the owner give written notice to its tenants a substantial period of time prior
to the projected change.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on manufactured housing
communities and mobile home parks. These ordinances may limit rent increases
to--
o fixed percentages;
o percentages of increases in the consumer price index;
o increases set or approved by a governmental agency; or
o increases determined through mediation or binding arbitration.
In many cases, the rent control laws either do not permit vacancy
decontrol or permit vacancy decontrol only in the relatively rare event that the
mobile home or manufactured housing unit is removed from the homesite. Local
authority to impose rent control on manufactured housing communities and mobile
home parks is pre-empted by state law in some states and rent control is not
imposed at the state level in those states. In some states, however, local rent
control ordinances are not pre-empted for tenants having short-term or
month-to-month leases, and properties there may be subject to various forms of
rent control with respect to those tenants.
Recreational and Resort Properties. Any mortgage loan underlying a series
of offered certificates may be secured by a golf course, marina, ski resort,
amusement park or other property used for recreational purposes or as a resort.
Factors affecting the economic performance of a property of this type include--
o the location and appearance of the property; the appeal of the
o the existence or construction of competing properties, whether are
not they offer the same activities;
o the need to make capital expenditures to maintain, refurbish,
improve and/or expand facilities in order to attract potential
patrons;
o geographic location and dependence on tourism;
o changes in travel patterns caused by changes in energy prices,
strikes, location of highways, construction of additional highways
and similar factors;
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o seasonality of the business, which may cause periodic fluctuations
in operating revenues and expenses;
o sensitivity to weather and climate changes; and
o local, regional and national economic conditions.
A marina or other recreational or resort property located next to water
will also be affected by various statutes and government regulations that govern
the use of, and construction on, rivers, lakes and other waterways.
Because of the nature of the business, recreational and resort properties
tend to respond to adverse economic conditions more quickly than do many other
types of commercial properties.
Recreational and resort properties are generally special purpose
properties that are not readily convertible to alternative uses. This will
adversely affect their liquidation value.
Arenas and Stadiums. The success of an arena or stadium generally depends
on its ability to attract patrons to a variety of events, such as sporting
events, musical events, theatrical events, animal shows, and circuses. The
ability to attract patrons is dependent on, among others, the following
factors--
o the appeal of the particular event;
o the cost of admission;
o perceptions by prospective patrons of the safety, convenience,
services and attractiveness of the arena or stadium;
o perceptions by prospective patrons of the safety of the surrounding
area; and
o the alternative forms of entertainment available in the particular
locale.
In some cases, an arena's or stadium's success will depend on its ability
to attract and keep a sporting team as a tenant. An arena or stadium may become
unprofitable, or unacceptable to a tenant of that type, due to decreased
attendance, competition and age of improvements. Often, substantial expenditures
must be made to modernize, refurbish and/or maintain existing facilities.
Arenas and stadiums are special purpose properties which cannot be readily
convertible to alternative uses. This will adversely affect their liquidation
value.
Churches and Other Religious Facilities. Churches and other religious
facilities generally depend on charitable donations to meet expenses and pay for
maintenance and capital expenditures. The extent of those donations is dependent
on the attendance at any particular religious facility and the extent to which
attendees are prepared to make donations, which is influenced by a variety of
social, political and economic factors. Donations may be adversely affected by
economic conditions, whether local, regional or national. Religious facilities
are special purpose properties that are not readily convertible to alternative
uses. This will adversely affect their liquidation value.
Parking Lots and Garages. The primary source of income for parking lots
and garages is the rental fees charged for parking spaces. Factors affecting the
success of a parking lot or garage include--
o the number of rentable parking spaces and rates charged;
o the location of the lot or garage and, in particular, its proximity
to places where large numbers of people work, shop or live;
o the amount of alternative parking spaces in the area;
o the availability of mass transit; and
o the perceptions of the safety, convenience and services of the lot
or garage.
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Unimproved Land. The value of unimproved land is largely a function of its
potential use. This may depend on--
o its location;
o its size;
o the surrounding neighborhood; and
o local zoning laws.
Default and Loss Considerations with Respect to Commercial and Multifamily
Mortgage Loans. Mortgage loans secured by liens on income-producing properties
are substantially different from mortgage loans made on the security of
owner-occupied single-family homes. The repayment of a loan secured by a lien on
an income-producing property is typically dependent upon--
o the successful operation of the property; and
o its ability to generate income sufficient to make payments on the
loan.
This is particularly true because most or all of the mortgage loans underlying
the offered certificates will be nonrecourse loans.
The debt service coverage ratio of a multifamily or commercial mortgage
loan is an important measure of the likelihood of default on the loan. In
general, the debt service coverage ratio of a multifamily or commercial mortgage
loan at any given time is the ratio of--
o the amount of income derived or expected to be derived from the
related real property for a twelve-month period that is available to
pay debt service; to
o the annualized scheduled payments of principal and/or interest on
the mortgage loan and any other senior loans that are secured by the
related real property.
The amount described in the first bullet point of the preceding sentence is
often a highly subjective number based on a variety of assumptions regarding,
and adjustments to, revenues and expenses with respect to the related real
property. We will provide a more detailed discussion of its calculation in the
related prospectus supplement.
The cash flow generated by a multifamily or commercial property will
generally fluctuate over time and may or may not be sufficient to--
o make the loan payments on the related mortgage loan;
o cover operating expenses; and
o fund capital improvements at any given time.
Operating revenues of a nonowner occupied, income- producing property may
be affected by the condition of the applicable real estate market and/or area
economy. Properties leased, occupied or used on a short-term basis, such as--
o some health care-related facilities;
o recreational vehicle parks; and
o mini-warehouse and self-storage facilities,
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tend to be affected more rapidly by changes in market or business conditions
than do properties typically leased for longer periods, such as--
o warehouses;
o retail stores;
o office buildings; and
o industrial facilities.
Some commercial properties may be owner-occupied or leased to a small
number of tenants. Accordingly, the operating revenues may depend substantially
on the financial condition of the borrower or one or a few tenants. Mortgage
loans secured by liens on owner-occupied and single tenant properties may pose a
greater likelihood of default and loss than loans secured by liens on
multifamily properties or on multi-tenant commercial properties.
Increases in property operating expenses can increase the likelihood of a
borrower default on a multifamily or commercial mortgage loan secured by the
property. Increases in property operating expenses may result from--
o increases in energy costs and labor costs;
o increases in interest rates and real estate tax rates; and
o changes in governmental rules, regulations and fiscal policies.
Some net leases of commercial properties may provide that the lessee,
rather than the borrower/landlord, is responsible for payment of operating
expenses. However, a net lease will result in stable net operating income to the
borrower/landlord only if the lessee is able to pay the increased operating
expense while also continuing to make rent payments.
Lenders also look to the loan-to-value ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property is liquidated
following a default. In general, the loan-to-value ratio of a multifamily or
commercial mortgage loan at any given time is the ratio, expressed as a
percentage, of--
o the then outstanding principal balance of the mortgage loan and any
other senior loans that are secured by the related real property; to
o the estimated value of the related real property based on an
appraisal, a cash flow analysis, a recent sales price or another
method or benchmark of valuation.
A low loan-to-value ratio means the borrower has a large amount of its own
equity in the multifamily or commercial property that secures its loan. In these
circumstances--
o the borrower has a greater incentive to perform under the terms of
the related mortgage loan in order to protect that equity; and
o the lender has greater protection against loss on liquidation
following a borrower default.
Loan-to-value ratios are not necessarily an accurate measure of the
likelihood of liquidation loss in a pool of multifamily and commercial mortgage
loans. For example, the value of a multifamily or commercial property as of the
date of initial issuance of a series of offered certificates may be less than
the estimated value determined at loan origination. The value of any real
property, in particular a multifamily or commercial property, will likely
fluctuate from time to time. Moreover, even a current appraisal is not
necessarily a reliable estimate of value. Appraised values of income-producing
properties are generally based on--
o the market comparison method, which takes into account the recent
resale value of comparable properties at the date of the appraisal;
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o the cost replacement method, which takes into account the cost of
replacing the property at the date of the appraisal;
o the income capitalization method, which takes into account the
property's projected net cash flow; or
o a selection from the values derived from the foregoing methods.
Each of these appraisal methods presents analytical difficulties. For
example
o it is often difficult to find truly comparable properties that have
recently been sold;
o the replacement cost of a property may have little to do with its
current market value; and
o income capitalization is inherently based on inexact projections of
income and expense and the selection of an appropriate
capitalization rate and discount rate.
If more than one appraisal method is used and significantly different
results are produced, an accurate determination of value and, correspondingly, a
reliable analysis of the likelihood of default and loss, is even more difficult.
The value of a multifamily or commercial property will be affected by
property performance. As a result, if a multifamily or commercial mortgage loan
defaults because the income generated by the related property is insufficient to
pay operating costs and expenses as well as debt service, then the value of the
property will decline and a liquidation loss may occur.
We believe that the foregoing considerations are important factors that
generally distinguish mortgage loans secured by liens on income-producing real
estate from single-family mortgage loans. However, the originators of the
mortgage loans underlying your offered certificates may not have considered all
of those factors for all or any of those loans.
Payment Provisions of the Mortgage Loans. Each of the mortgage loans
included in one of our trusts will have the following features--
o an original term to maturity of not more than approximately 40
years; and
o scheduled payments of principal, interest or both, to be made on
specified dates, that occur monthly, bi-monthly, quarterly,
semi-annually, annually or at some other interval.
A mortgage loan included in one of our trusts may also include terms
that--
o provide for the accrual of interest at a mortgage interest rate that
is fixed over its term, that resets on one or more specified dates
or that otherwise adjusts from time to time;
o provide for the accrual of interest at a mortgage interest rate that
may be converted at the borrower's election from an adjustable to a
fixed interest rate or from a fixed to an adjustable interest rate;
o provide for no accrual of interest;
o provide for level payments to stated maturity, for payments that
reset in amount on one or more specified dates or for payments that
otherwise adjust from time to time to accommodate changes in the
coupon rate or to reflect the occurrence of specified events;
o be fully amortizing or, alternatively, may be partially amortizing
or nonamortizing, with a substantial payment of principal due on its
stated maturity date;
o permit the negative amortization or deferral of accrued interest;
o permit defeasance and the release of the real property collateral in
connection with that defeasance; and/or
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o prohibit some or all voluntary prepayments or require payment of a
premium, fee or charge in connection with those prepayments.
Mortgage Loan Information in Prospectus Supplements. We will describe in
the related prospectus supplement the characteristics of the mortgage loans that
we will include in any of our trusts. In general, we will provide in the related
prospectus supplement, among other items, the following information on the
particular mortgage loans in one of our trusts--
o the total outstanding principal balance and the largest, smallest
and average outstanding principal balance of the mortgage loans;
o the type or types of property that provide security for repayment of
the mortgage loans;
o the earliest and latest origination date and maturity date of the
mortgage loans;
o the original and remaining terms to maturity of the mortgage loans,
or the range of each of those terms to maturity, and the weighted
average original and remaining terms to maturity of the mortgage
loans;
o loan-to-value ratios of the mortgage loans either at origination or
as of a more recent date, or the range of those loan-to-value
ratios, and the weighted average of those loan-to-value ratios;
o the mortgage interest rates of the mortgage loans, or the range of
those mortgage interest rates, and the weighted average mortgage
interest rate of the mortgage loans;
o if any mortgage loans have adjustable mortgage interest rates, the
index or indices upon which the adjustments are based, the
adjustment dates, the range of gross margins and the weighted
average gross margin, and any limits on mortgage interest rate
adjustments at the time of any adjustment and over the life of the
loan;
o information on the payment characteristics of the mortgage loans,
including applicable prepayment restrictions;
o debt service coverage ratios of the mortgage loans either at
origination or as of a more recent date, or the range of those debt
service coverage ratios, and the weighted average of those debt
service coverage ratios; and
o the geographic distribution of the properties securing the mortgage
loans on a state-by-state basis.
If we are unable to provide the specific information described above at
the time a series of offered certificates is initially offered, we will
provide--
o more general information in the related prospectus supplement; and
o specific information in a report which will be filed with the SEC as
part of a Current Report on Form 8-K within 15 days following the
issuance of those certificates.
If any mortgage loan, or group of related mortgage loans, included in one
of our trusts represents a material concentration of credit risk, we will
include in the related prospectus supplement financial statements or other
financial information on the related real property or properties.
MORTGAGE-BACKED SECURITIES
The mortgage backed-securities underlying a series of offered certificates
may include-
o mortgage participations, mortgage pass-through certificates,
collateralized mortgage obligations or other mortgage-backed
securities that are not insured or guaranteed by any governmental
agency or instrumentality; or
o certificates issued and/or insured or guaranteed by Freddie Mac,
Fannie Mae, Ginnie Mae, Farmer Mac, or another federal or state
governmental agency or instrumentality.
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In addition, each of those mortgage-backed securities will directly or
indirectly evidence an interest in, or be secured by a pledge of, multifamily
and/or commercial mortgage loans.
Each mortgage-backed security included in one of our trusts--
o will have been registered under the Securities Act of 1933, as
amended;
o will be exempt from the registration requirements of that Act;
o will have been held for at least the holding period specified in
Rule 144(k) under that Act; or
o may otherwise be resold by us publicly without registration under
that Act.
We will describe in the related prospectus supplement the characteristics
of the mortgage-backed securities that we will include in any of our trusts. In
general, we will provide in the related prospectus supplement, among other
items, the following information on the particular mortgage-backed securities
included in one of our trusts--
o the initial and outstanding principal amount(s) and type of the
securities;
o the original and remaining term(s) to stated maturity of the
securities;
o the pass-through or bond rate(s) of the securities or the formula
for determining those rate(s);
o the payment characteristics of the securities;
o the identity of the issuer(s), servicer(s) and trustee(s) for the
securities;
o a description of the related credit support, if any;
o the type of mortgage loans underlying the securities;
o the circumstances under which the related underlying mortgage loans,
or the securities themselves, may be purchased prior to maturity;
o the terms and conditions for substituting mortgage loans backing the
securities; and
o the characteristics of any agreements or instruments providing
interest rate protection to the securities.
With respect to any mortgage-backed security included in one of our
trusts, we will provide in our reports filed under the Securities Exchange Act
of 1934, as amended, the same information regarding the security as is provided
by the issuer of the security in its own reports filed under that Act, if the
security was publicly offered, or in the reports the issuer of the security
provides to the related trustee, if the security was privately issued.
SUBSTITUTION, ACQUISITION AND REMOVAL OF MORTGAGE ASSETS
If so specified in the related prospectus supplement, we or another
specified person or entity may be permitted, at our or its option, but subject
to the conditions specified in that prospectus supplement, to acquire from the
related trust particular mortgage assets underlying a series of offered
certificates in exchange for--
o cash that would be applied to pay down the principal balances of the
certificates of that series; and/or
o other mortgage loans or mortgage-backed securities that--
1. conform to the description of mortgage assets in this
prospectus, and
2. satisfy the criteria set forth in the related prospectus
supplement.
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In addition, if so specified in the related prospectus supplement, the
trustee may be authorized or required to apply collections on the related
mortgage assets to acquire new mortgage loans or mortgage-backed securities
that--
o conform to the description of mortgage assets in this prospectus;
and
o satisfy the criteria set forth in the related prospectus supplement.
No replacement of mortgage assets or acquisition of new mortgage assets
will be permitted if it would result in a qualification, downgrade or withdrawal
of the then-current rating assigned by any rating agency to any class of
affected offered certificates.
UNDELIVERED MORTGAGE ASSETS
In general, the total outstanding principal balance of the mortgage assets
transferred by us to any particular trust will equal or exceed the initial total
outstanding principal balance of the related series of certificates. In the
event that the total outstanding principal balance of the related mortgage
assets initially delivered by us to the related trustee is less than the initial
total outstanding principal balance of any series of certificates, we may
deposit or arrange for the deposit of cash or liquid investments on an interim
basis with the related trustee to cover the shortfall. For 90 days following the
date of initial issuance of that series of certificates, we will be entitled to
obtain a release of the deposited cash or investments if we deliver or arrange
for delivery of a corresponding amount of mortgage assets. If we fail, however,
to deliver mortgage assets sufficient to make up the entire shortfall, any of
the cash or, following liquidation, investments remaining on deposit with the
related trustee will be used by the related trustee to pay down the total
principal balance of the related series of certificates, as described in the
related prospectus supplement.
ACCOUNTS
The trust assets underlying a series of offered certificates will include
one or more accounts established and maintained on behalf of the holders. All
payments and collections received or advanced on the mortgage assets and other
trust assets will be deposited and held in those accounts. We will identify and
describe those accounts, and will further describe the deposits to and
withdrawals from those accounts, in the related prospectus supplement.
CREDIT SUPPORT
The holders of any class of offered certificates may be the beneficiaries
of credit support designed to protect them partially or fully against all or
particular defaults and losses on the related mortgage assets. The types of
credit support that may benefit the holders of a class of offered certificates
include--
o the subordination or one or more other classes of certificates of
the same series;
o a letter of credit;
o a surety bond;
o an insurance policy;
o a guarantee;
o a credit derivative; and/or
o a reserve fund.
In the related prospectus supplement, we will describe the amount and
types of any credit support benefiting the holders of a class of offered
certificates.
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ARRANGEMENTS PROVIDING REINVESTMENT, INTEREST RATE AND CURRENCY RELATED
PROTECTION
The trust assets for a series of offered certificates may include
guaranteed investment contracts in accordance with which moneys held in the
funds and accounts established for that series will be invested at a specified
rate. Those trust assets may also include--
o interest rate exchange agreements;
o interest rate cap agreements;
o interest rate floor agreements;
o currency exchange agreements; or
o other agreements or arrangements designed to reduce the effects of
interest rate or currency exchange rate fluctuations with respect to
the related mortgage assets and one or more classes of offered
certificates.
In the related prospectus supplement, we will describe any agreements or
other arrangements designed to protect the holders of a class of offered
certificates against shortfalls resulting from movements or fluctuations in
interest rates or currency exchange rates. If applicable, we will also identify
any obligor under the agreement or other arrangement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on your offered certificates will depend on--
o the price you paid for your offered certificates;
o the pass-through rate on your offered certificates; and
o the amount and timing of payments on your offered certificates.
The following discussion contemplates a trust established by us that
consists only of mortgage loans. If one of our trusts also includes a
mortgage-backed security, the payment terms of that security will soften or
enhance the effects that the characteristics and behavior of mortgage loans
backing that security can have on the yield to maturity and/or weighted average
life of a class of offered certificates. If one of our trusts includes a
mortgage-backed security, we will discuss in the related prospectus supplement
the effect, if any, that the security may have on the yield to maturity and
weighted average lives of the related offered certificates.
PASS-THROUGH RATE
A class of interest-bearing offered certificates may have a fixed,
variable or adjustable pass-through rate. We will specify in the related
prospectus supplement the pass-through rate for each class of interest-bearing
offered certificates or, if the pass-through rate is variable or adjustable, the
method of determining the pass-through rate.
PAYMENT DELAYS
There will be a delay between the date on which payments on the underlying
mortgage loans are due and the date on which those payments are passed through
to you and other investors. That delay will reduce the yield that would
otherwise be produced if those payments were passed through on your offered
certificates on the same date that they were due.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity on your offered certificates will be affected by the
rate of principal payments on the underlying mortgage loans and the allocation
of those principal payments to reduce the principal balance or notional amount
of your offered certificates. The rate of principal payments on those mortgage
loans will be affected by the following--
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o the amortization schedules of the mortgage loans, which may change
from time to time to reflect, among other things, changes in
mortgage interest rates or partial prepayments of principal;
o the dates on which any balloon payments are due; and
o the rate of principal prepayments on the mortgage loans, including
voluntary prepayments by borrowers and involuntary prepayments
resulting from liquidations, casualties or purchases of mortgage
loans.
Because the rate of principal prepayments on the mortgage loans underlying
your offered certificates will depend on future events and a variety of factors,
we cannot give you any assurance as to that rate.
The extent to which the yield to maturity of your offered certificates may
vary from your anticipated yield will depend upon--
o whether you purchased your offered certificates at a discount or
premium and, if so, the extent of that discount or premium; and
o when, and to what degree, payments of principal on the underlying
mortgage loans are applied or otherwise result in the reduction of
the principal balance or notional amount of your offered
certificates.
If you purchase your offered certificates at a discount, you should
consider the risk that a slower than anticipated rate of principal payments on
the underlying mortgage loans could result in an actual yield to you that is
lower than your anticipated yield. If you purchase your offered certificates at
a premium, you should consider the risk that a faster than anticipated rate of
principal payments on the underlying mortgage loans could result in an actual
yield to you that is lower than your anticipated yield.
If your offered certificates entitle you to payments of interest, with
disproportionate, nominal or no payments of principal, you should consider that
your yield will be extremely sensitive to prepayments on the underlying mortgage
loans and, under some prepayment scenarios, may be negative.
If a class of offered certificates accrues interest on a notional amount,
that notional amount will, in general, either--
o be based on the principal balances of some or all of the mortgage
assets in the related trust; or
o equal the total principal balance of one or more of the other
classes of certificates of the same series.
Accordingly, the yield on that class of certificates will be inversely related
to, as applicable, the rate at which--
o payments and other collections of principal are received on the
mortgage assets referred to in the first bullet point of the prior
sentence; or
o payments are made in reduction of the total principal balance of the
class or classes of certificates referred to in the second bullet
point of the prior sentence.
The extent of prepayments of principal of the mortgage loans underlying your
offered certificates may be affected by a number of factors, including--
o the availability of mortgage credit;
o the relative economic vitality of the area in which the related real
properties are located;
o the quality of management of the related real properties;
o the servicing of the mortgage loans;
o possible changes in tax laws; and
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o other opportunities for investment.
In general, those factors that increase--
o the attractiveness of selling or refinancing a commercial or
multifamily property; or
o the likelihood of default under a commercial or multifamily mortgage
loan,
would be expected to cause the rate of prepayment to accelerate. In contrast,
those factors having an opposite effect would be expected to cause the rate of
prepayment to slow.
The rate of principal payments on the mortgage loans underlying your
offered certificates may also be affected by the existence and enforceability of
prepayment restrictions, such as--
o prepayment lock-out periods; and
o requirements that voluntary principal prepayments be accompanied by
prepayment premiums, fees or charges.
If enforceable, those provisions could constitute either an absolute
prohibition, in the case of a prepayment lock-out period, or a disincentive, in
the case of a prepayment premium, fee or charge, to a borrower's voluntarily
prepaying its mortgage loan, thereby slowing the rate of prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be
affected by prevailing market interest rates for mortgage loans of a comparable
type, term and risk level. As prevailing market interest rates decline, a
borrower may have an increased incentive to refinance its mortgage loan. Even in
the case of adjustable rate mortgage loans, as prevailing market interest rates
decline, the related borrowers may have an increased incentive to refinance for
the following purposes-
o to convert to a fixed rate loan and thereby lock in that rate; or
o to take advantage of a different index, margin or rate cap or floor
on another adjustable rate mortgage loan.
Subject to prevailing market interest rates and economic conditions
generally, a borrower may sell a real property in order to--
o realize its equity in the property;
o meet cash flow needs; or
o make other investments.
Additionally, some borrowers may be motivated by federal and state tax
laws, which are subject to change, to sell their properties prior to the
exhaustion of tax depreciation benefits.
We make no representation as to--
o the particular factors that will affect the prepayment of the
mortgage loans underlying any series of offered certificates;
o the relative importance of those factors;
o the percentage of the principal balance of those mortgage loans that
will be paid as of any date; or
o the overall rate of prepayment on those mortgage loans.
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WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the mortgage loans
underlying any series of offered certificates will affect the ultimate maturity
and the weighted average life of one or more classes of those certificates. In
general, weighted average life refers to the average amount of time that will
elapse from the date of issuance of an instrument until each dollar allocable as
principal of that instrument is repaid to the investor.
The weighted average life and maturity of a class of offered certificates
will be influenced by the rate at which principal on the underlying mortgage
loans is paid to that class, whether in the form of--
o scheduled amortization; or
o prepayments, including--
1. voluntary prepayments by borrowers, and
2. involuntary prepayments resulting from liquidations,
casualties or condemnations and purchases of mortgage loans
out of the related trust.
Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the CPR prepayment model or the SPA prepayment model.
CPR represents an assumed constant rate of prepayment each month, expressed as
an annual percentage, relative to the then outstanding principal balance of a
pool of mortgage loans for the life of those loans. SPA represents an assumed
variable rate of prepayment each month, expressed as an annual percentage,
relative to the then outstanding principal balance of a pool of mortgage loans,
with different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of those loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the 30th month. Beginning in the 30th month, and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption is a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. It is unlikely that the prepayment
experience of the mortgage loans underlying your offered certificates will
conform to any particular level of CPR or SPA.
In the prospectus supplement for a series of offered certificates, we will
include tables, if applicable, setting forth--
o the projected weighted average life of each class of those offered
certificates with principal balances; and
o the percentage of the initial total principal balance of each class
of those offered certificates that would be outstanding on specified
dates,
based on the assumptions stated in that prospectus supplement, including
assumptions regarding prepayments on the underlying mortgage loans. Those tables
and assumptions illustrate the sensitivity of the weighted average lives of
those offered certificates to various assumed prepayment rates and are not
intended to predict, or to provide information that will enable you to predict,
the actual weighted average lives of your offered certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans underlying a series of offered certificates may require that balloon
payments be made at maturity. The ability of a borrower to make a balloon
payment typically will depend upon its ability either--
o to refinance the loan; or
o to sell the related real property.
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If a borrower is unable to refinance or sell the related real property, there is
a possibility that the borrower may default on the mortgage loan or that the
maturity of the mortgage loan may be extended in connection with a workout. If a
borrower defaults, recovery of proceeds may be delayed by--
o the bankruptcy of the borrower; or
o adverse economic conditions in the market where the related real
property is located.
In order to minimize losses on defaulted mortgage loans, the related
master servicer or special servicer may be authorized within prescribed limits
to modify mortgage loans that are in default or as to which a payment default is
reasonably foreseeable. Any defaulted balloon payment or modification that
extends the maturity of a mortgage loan may delay payments of principal on your
offered certificates and extend the weighted average life of your offered
certificates.
Negative Amortization. The weighted average life of a class of offered
certificates can be affected by mortgage loans that permit negative amortization
to occur. Those are the mortgage loans that provide for the current payment of
interest calculated at a rate lower than the rate at which interest accrues on
the mortgage loan, with the unpaid portion of that interest being added to the
related principal balance. Negative amortization most commonly occurs with
respect to an adjustable rate mortgage loan that--
o limits the amount by which its scheduled payment may adjust in
response to a change in its mortgage interest rate;
o provides that its scheduled payment will adjust less frequently than
its mortgage interest rate; or
o provides for constant scheduled payments regardless of adjustments
to its mortgage interest rate.
Negative amortization on one or more mortgage loans in any of our trusts
may result in negative amortization on a related class of offered certificates.
We will describe in the related prospectus supplement, if applicable, the manner
in which negative amortization with respect to the underlying mortgage loans is
allocated among the respective classes of a series of offered certificates.
The portion of any mortgage loan negative amortization allocated to a
class of offered certificates may result in a deferral of some or all of the
interest payable on those certificates. Deferred interest may be added to the
total principal balance of a class of offered certificates. In addition, an
adjustable rate mortgage loan that permits negative amortization would be
expected during a period of increasing interest rates to amortize, if at all, at
a slower rate than if interest rates were declining or were remaining constant.
This slower rate of mortgage loan amortization would be reflected in a slower
rate of amortization for one or more classes of certificates of the related
series. Accordingly, there may be an increase in the weighted average lives of
those classes of certificates to which any mortgage loan negative amortization
would be allocated or that would bear the effects of a slower rate of
amortization of the underlying mortgage loans.
The extent to which the yield on your offered certificates may be affected
by any negative amortization on the underlying mortgage loans will depend, in
part, upon whether you purchase your offered certificates at a premium or a
discount.
During a period of declining interest rates, the scheduled payment on an
adjustable rate mortgage loan may exceed the amount necessary to amortize the
loan fully over its remaining amortization schedule and pay interest at the then
applicable mortgage interest rate. The result is the accelerated amortization of
the mortgage loan. The acceleration in amortization of a mortgage loan will
shorten the weighted average lives of those classes of certificates that entitle
their holders to a portion of the principal payments on the mortgage loan.
Foreclosures and Payment Plans. The weighted average life of and yield on
your offered certificates will be affected by--
o the number of foreclosures with respect to the underlying mortgage
loans; and
o the principal amount of the foreclosed mortgage loans in relation to
the principal amount of those mortgage loans that are repaid in
accordance with their terms.
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Servicing decisions made with respect to the underlying mortgage loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of mortgage loans in bankruptcy proceedings or otherwise, may also
affect the payment patterns of particular mortgage loans and, as a result, the
weighted average life of and yield on your offered certificates.
Losses and Shortfalls on the Mortgage Assets. The yield on your offered
certificates will directly depend on the extent to which you are required to
bear the effects of any losses or shortfalls in collections on the underlying
mortgage loans and the timing of those losses and shortfalls. In general, the
earlier that you bear any loss or shortfall, the greater will be the negative
effect on the yield of your offered certificates.
The amount of any losses or shortfalls in collections on the mortgage
assets in any of our trusts will, to the extent not covered or offset by draws
on any reserve fund or under any instrument of credit support, be allocated
among the various classes of certificates of the related series in the priority
and manner, and subject to the limitations, that we specify in the related
prospectus supplement. As described in the related prospectus supplement, those
allocations may be effected by the following--
o a reduction in the entitlements to interest and/or the total
principal balances of one or more classes of certificates; and/or
o the establishment of a priority of payments among classes of
certificates.
If you purchase subordinated certificates, the yield to maturity on those
certificates may be extremely sensitive to losses and shortfalls in collections
on the underlying mortgage loans.
Additional Certificate Amortization. If your offered certificates have a
principal balance, then they entitle you to a specified portion of the principal
payments received on the underlying mortgage loans. They may also entitle you to
payments of principal from the following sources--
o amounts attributable to interest accrued but not currently payable
on one or more other classes of certificates of the applicable
series;
o interest received or advanced on the underlying mortgage assets that
is in excess of the interest currently accrued on the certificates
of the applicable series;
o prepayment premiums, fees and charges, payments from equity
participations or any other amounts received on the underlying
mortgage assets that do not constitute interest or principal; or
o any other amounts described in the related prospectus supplement.
The amortization of your offered certificates out of the sources described in
the prior paragraph would shorten their weighted average life and, if your
offered certificates were purchased at a premium, reduce their yield to
maturity.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of offered certificates, together with any non-offered
certificates of the same series, will represent the entire beneficial ownership
interest in a trust established by us. Each series of offered certificates will
consist of one or more classes. Any non-offered certificates of that series will
likewise consist of one or more classes.
A series of certificates consists of all those certificates that--
o have the same series designation;
o were issued under the same Governing Document; and
o represent beneficial ownership interests in the same trust.
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A class of certificates consists of all those certificates of a particular
series that--
o have the same class designation; and
o have the same payment terms.
The respective classes of offered and non-offered certificates of any
series may have a variety of payment terms. An offered certificate may entitle
the holder to receive--
o a stated principal amount, which will be represented by its
principal balance;
o interest on a principal balance or notional amount, at a fixed,
variable or adjustable pass-through rate;
o specified, fixed or variable portions of the interest, principal or
other amounts received on the related mortgage assets;
o payments of principal, with disproportionate, nominal or no payments
of interest;
o payments of interest, with disproportionate, nominal or no payments
of principal;
o payments of interest or principal that commence only as of a
specified date or only after the occurrence of specified events,
such as the payment in full of the interest and principal
outstanding on one or more other classes of certificates of the same
series;
o payments of principal to be made, from time to time or for
designated periods, at a rate that is--
1. faster and, in some cases, substantially faster, or
2. slower and, in some cases, substantially slower,
than the rate at which payments or other collections of principal
are received on the related mortgage assets;
o payments of principal to be made, subject to available funds, based
on a specified principal payment schedule or other methodology; or
o payments of all or part of the prepayment or repayment premiums,
fees and charges, equity participations payments or other similar
items received on the related mortgage assets.
Any class of offered certificates may be senior or subordinate to one or
more other classes of certificates of the same series, including a non-offered
class of certificates of that series, for purposes of some or all payments
and/or allocations of losses or other shortfalls.
A class of offered certificates may have two or more component parts, each
having characteristics that are described in this prospectus as being
attributable to separate and distinct classes. For example, a class of offered
certificates may have a total principal balance on which it accrues interest at
a fixed, variable or adjustable rate. That class of offered certificates may
also accrue interest on a total notional amount at a different fixed, variable
or adjustable rate. In addition, a class of offered certificates may accrue
interest on one portion of its total principal balance or notional amount at one
fixed, variable or adjustable rate and on another portion of its total principal
balance or notional amount at a different fixed, variable or adjustable rate.
Each class of offered certificates will be issued in minimum denominations
corresponding to specified principal balances, notional amounts or percentage
interests, as described in the related prospectus supplement. A class of offered
certificates may be issued in fully registered, definitive form and evidenced by
physical certificates or may be issued in book-entry form through the facilities
of The Depository Trust Company. Offered certificates held in fully registered,
definitive form may be transferred or exchanged, subject to any restrictions on
transfer described in the related prospectus supplement, at the location
specified in the related prospectus supplement, without the payment of any
service charges, except for any tax or other governmental charge payable in
connection with the transfer or exchange. Interests in offered certificates held
in
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book-entry form will be transferred on the book-entry records of DTC and its
participating organizations. If we so specify in the related prospectus
supplement, we will arrange for clearance and settlement through Clearstream
Banking, societe anonyme or the Euroclear System, for so long as they are
participants in DTC.
PAYMENTS ON THE CERTIFICATES
General. Payments on a series of offered certificates may occur monthly,
bi-monthly, quarterly, semi-annually, annually or at any other specified
interval. In the prospectus supplement for each series of offered certificates,
we will identify--
o the periodic payment date for that series; and
o the record date as of which certificateholders entitled to payments
on any particular payment date will be established.
All payments with respect to a class of offered certificates on any
payment date will be allocated pro rata among the outstanding certificates of
that class in proportion to the respective principal balances, notional amounts
or percentage interests, as the case may be, of those certificates. Payments on
an offered certificate will be made to the holder entitled thereto either--
o by wire transfer of immediately available funds to the account of
that holder at a bank or similar entity, provided that the holder
has furnished the party making the payments with wiring instructions
no later than the applicable record date and has satisfied any other
conditions specified in the related prospectus supplement; or
o by check mailed to the address of that holder as it appears in the
certificate register, in all other cases.
In general, the final payment on any offered certificate will be made only
upon presentation and surrender of that certificate at the location specified to
the holder in notice of final payment.
Payments of Interest. In the case of each class of interest-bearing
offered certificates, interest will accrue from time to time, at the applicable
pass-through rate and in accordance with the applicable interest accrual method,
on the total outstanding principal balance or notional amount of that class.
The pass-through rate for a class of interest-bearing offered certificates
may be fixed, variable or adjustable. We will specify in the related prospectus
supplement the pass-through rate for each class of interest-bearing offered
certificates or, in the case of a variable or adjustable pass-through rate, the
method for determining that pass-through rate.
Interest may accrue with respect to any offered certificate on the basis
of--
o a 360-day year consisting of 12 30-day months;
o the actual number of days elapsed during each relevant period in a
year assumed to consist of 360 days;
o the actual number of days elapsed during each relevant period in a
normal calendar year; or
o any other method identified in the related prospectus supplement.
We will identify the interest accrual method for each class of offered
certificates in the related prospectus supplement.
Subject to available funds and any adjustments to interest entitlements
described in the related prospectus supplement, accrued interest with respect to
each class of interest-bearing offered certificates will normally be payable on
each payment date. However, in the case of some classes of interest-bearing
offered certificates, payments of accrued interest will only begin on a
particular payment date or under the circumstances described in the related
prospectus supplement. Prior to that time, the amount of accrued interest
otherwise payable on that class will be added to its total principal balance on
each date or otherwise deferred as described in the related prospectus
supplement.
If a class of offered certificates accrues interest on a total notional
amount, that total notional amount, in general, will be either--
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o based on the principal balances of some or all of the related
mortgage assets; or
o equal to the total principal balances of one or more other classes
of certificates of the same series.
Reference to the notional amount of any certificate is solely for
convenience in making calculations of interest and does not represent the right
to receive any payments of principal.
We will describe in the related prospectus supplement the extent to which
the amount of accrued interest that is payable on, or that may be added to the
total principal balance of, a class of interest-bearing offered certificates may
be reduced as a result of any contingencies, including shortfalls in interest
collections due to prepayments, delinquencies, losses and deferred interest on
the related mortgage assets.
Payments of Principal. An offered certificate may or may not have a
principal balance. If it does, that principal balance outstanding from time to
time will represent the maximum amount that the holder of that certificate will
be entitled to receive as principal out of the future cash flow on the related
mortgage assets and the other related trust assets.
The total outstanding principal balance of any class of offered
certificates will be reduced by--
o payments of principal actually made to the holders of that class;
and
o if and to the extent that we so specify in the related prospectus
supplement, losses of principal on the related mortgage assets that
are allocated to or are required to be borne by that class.
A class of interest-bearing offered certificates may provide that payments
of accrued interest will only begin on a particular payment date or under the
circumstances described in the related prospectus supplement. If so, the total
outstanding principal balance of that class may be increased by the amount of
any interest accrued, but not currently payable, on that class.
We will describe in the related prospectus supplement any other
adjustments to the total outstanding principal balance of a class of offered
certificates.
Unless we so state in the related prospectus supplement, the initial total
principal balance of all classes of a series will not be greater than the total
outstanding principal balance of the related mortgage assets transferred by us
to the related trust. We will specify the expected initial total principal
balance of each class of offered certificates in the related prospectus
supplement.
The payments of principal to be made on a series of offered certificates
from time to time will, in general, be a function of the payments, other
collections and advances received or made with respect to the related prospectus
supplement. Payments of principal on a series of offered certificates may also
be made from the following sources--
o amounts attributable to interest accrued but not currently payable
on one or more other classes of certificates of the applicable
series;
o interest received or advanced on the underlying mortgage assets that
is in excess of the interest currently accrued on the certificates
of the applicable series;
o prepayment premiums, fees and charges, payments from equity
participations or any other amounts received on the underlying
mortgage assets that do not constitute interest or principal; or
o any other amounts described in the related prospectus supplement.
We will describe in the related prospectus supplement the principal
entitlement of each class of offered certificates on each payment date.
ALLOCATION OF LOSSES AND SHORTFALLS
If and to the extent that any losses or shortfalls in collections on the
mortgage assets in any of our trusts are not covered or offset by delinquency
advances or draws on any reserve fund or under any instrument of credit support,
they will be
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allocated among the various classes of certificates of the related series in the
priority and manner, and subject to the limitations, specified in the related
prospectus supplement. As described in the related prospectus supplement, the
allocations may be effected as follows--
o by reducing the entitlements to interest and/or the total principal
balances of one or more of those classes; and/or
o by establishing a priority of payments among those classes.
See "Description of Credit Support."
ADVANCES
If any trust established by us includes mortgage loans, then as and to the
extent described in the related prospectus supplement, the related master
servicer, the related special servicer, the related trustee, any related
provider of credit support and/or any other specified person may be obligated to
make, or may have the option of making, advances with respect to those mortgage
loans to cover--
o delinquent payments of principal and/or interest, other than balloon
payments;
o property protection expenses;
o other servicing expenses; or
o any other items specified in the related prospectus supplement.
If there are any limitations with respect to a party's advancing
obligations, we will discuss those limitations in the related prospectus
supplement.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to certificateholders. Advances are not a guarantee against
losses. The advancing party will be entitled to recover all of its advances out
of--
o subsequent recoveries on the related mortgage loans, including
amounts drawn under any fund or instrument constituting credit
support; and
o any other specific sources identified in the related prospectus
supplement.
If and to the extent that we so specify in the related prospectus
supplement, any entity making advances will be entitled to receive interest on
some or all of those advances for a specified period during which they are
outstanding at the rate specified in that prospectus supplement. That entity may
be entitled to payment of interest on its outstanding advances--
o periodically from general collections on the mortgage assets in the
related trust, prior to any payment to the related series of
certificateholders; or
o at any other times and from any other sources as we may describe in
the related prospectus supplement.
If any trust established by us includes mortgage-backed securities, we
will discuss in the related prospectus supplement any comparable advancing
obligations with respect to those securities or the mortgage loans that back
them.
REPORTS TO CERTIFICATEHOLDERS
On or about each payment date, the related master servicer, manager or
trustee will forward to each offered certificateholder a statement substantially
in the form, or specifying the information, set forth in the related prospectus
supplement. In general, that statement will include information regarding--
o the payments made on that payment date with respect to the
applicable class of offered certificates; and
o the recent performance of the mortgage assets.
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Within a reasonable period of time after the end of each calendar year,
the related master servicer, manager or trustee, as the case may be, will be
required to furnish to each person who at any time during the calendar year was
a holder of an offered certificate a statement containing information regarding
the principal, interest and other amounts paid on the applicable class of
offered certificates, aggregated for--
o that calendar year; or
o the applicable portion of that calendar year during which the person
was a certificateholder.
The obligation to provide that annual statement will be deemed to have been
satisfied by the related master servicer, manager or trustee, as the case may
be, to the extent that substantially comparable information is provided in
accordance with any requirements of the Internal Revenue Code of 1986.
If one of our trusts includes mortgage-backed securities, the ability of
the related master servicer, manager or trustee, as the case may be, to include
in any payment date statement information regarding the mortgage loans that back
those securities will depend on comparable reports being received with respect
to them.
VOTING RIGHTS
Voting rights will be allocated among the respective classes of offered
and non-offered certificates of each series in the manner described in the
related prospectus supplement. Certificateholders will generally not have a
right to vote, except--
o with respect to those amendments to the governing documents
described under "Description of the Governing Documents--Amendment";
or
o as otherwise specified in this prospectus or in the related
prospectus supplement.
As and to the extent described in the related prospectus supplement, the
certificateholders entitled to a specified amount of the voting rights for a
particular series will have the right to act as a group to remove or replace the
related trustee, master servicer, special servicer or manager. In general, that
removal or replacement must be for cause. We will identify exceptions in the
related prospectus supplement.
TERMINATION
The trust for each series of offered certificates will terminate and cease
to exist following--
o the final payment or other liquidation of the last mortgage asset in
that trust; and
o the payment, or provision for payment, to the certificateholders of
that series of all amounts required to be paid to them.
Written notice of termination of a trust will be given to each affected
certificateholder. The final payment will be made only upon presentation and
surrender of the certificates of the related series at the location to be
specified in the notice of termination.
If we so specify in the related prospectus supplement, one or more
designated parties will be entitled to purchase all of the mortgage assets
underlying a series of offered certificates, thereby effecting early retirement
of the certificates and early termination of the related trust. We will describe
in the related prospectus supplement the circumstances under which that purchase
may occur.
If we so specify in the related prospectus supplement, one or more
certificateholders will be entitled to exchange all of the certificates of a
particular series for all of the mortgage assets underlying that series, thereby
effecting early termination of the related trust. We will describe in the
related prospectus supplement the circumstances under which that exchange may
occur.
In addition, if we so specify in the related prospectus supplement, on a
specified date or upon the reduction of the total principal balance of a
specified class or classes of certificates by a specified percentage or amount,
a party designated in the related prospectus supplement may be authorized or
required to solicit bids for the purchase of all the mortgage assets of the
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related trust or of a sufficient portion of the mortgage assets to retire that
class or those classes of certificates. The solicitation of bids must be
conducted in a commercially reasonable manner, and assets will, in general, be
sold at their fair market value. If the fair market value of the mortgage assets
being sold is less than their unpaid balance, then the certificateholders of one
or more classes of certificates may receive an amount less than the total
principal balance of, and accrued and unpaid interest on, their certificates.
BOOK-ENTRY REGISTRATION
General. Any class of offered certificates may be issued in book-entry
form through the facilities of DTC. If so, that class will be represented by one
or more global certificates registered in the name of DTC or its nominee. If we
so specify in the related prospectus supplement, we will arrange for clearance
and settlement through the Euroclear System or Clearstream Banking, societe
anonyme, for so long as they are participants in DTC.
DTC, Euroclear and Clearstream. DTC is-
o a limited-purpose trust company organized under the New York Banking
Law;
o a "banking corporation" within the meaning of the New York Banking
Law;
o a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
o a "clearing agency" registered under the provisions of Section 17A
of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for participants in the DTC system and
to facilitate the clearance and settlement of securities transactions between
those participants through electronic computerized book-entry changes in their
accounts, thereby eliminating the need for physical movement of securities
certificates. Organizations that maintain accounts with DTC include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include other organizations. DTC is owned by a number of its participating
organizations and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that directly or indirectly clear through or maintain a
custodial relationship with one of the organizations that maintains an account
with DTC. The rules applicable to DTC and its participating organizations are on
file with the SEC.
It is our understanding that Clearstream was incorporated in 1970 as
"Cedel S.A.," a company with limited liability under the laws of Luxembourg.
Cedel S.A. subsequently changed its name to Cedelbank. On January 10, 2000,
Cedelbank's parent company, Cedel International, societe anonyme merged its
clearing, settlement and custody business with that of Deutsche Borse Clearing
AG. The merger involved the transfer by Cedel International of substantially all
of its assets and liabilities, including its shares in Cedelbank, to a new
Luxembourg company, New Cedel International, societe anonyme. New Cedel
International is 50% owned by Cedel International and 50% by Deutsche Borse AG,
the parent of Deutsche Borse Clearing AG. The shareholders of these two entities
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations. On January 18, 2000, Cedelbank was renamed Clearstream Banking,
societe anonyme. Clearstream holds securities for its member organizations and
facilitates the clearance and settlement of securities transactions between its
member organizations through electronic book-entry changes in accounts of those
organizations, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream in any of 36
currencies, including United States dollars. Clearstream provides to its member
organizations, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream interfaces with domestic securities markets
in over 30 countries through established depository and custodial relationships.
Clearstream is registered as a bank in Luxembourg. It is subject to regulation
by the Commission de Surveillance du Secteur Financier, which supervises
Luxembourg banks. Clearstream's customers are world-wide financial institutions
including underwriters, securities brokers and dealers, banks, trust companies
and clearing corporations. Clearstream's U.S. customers are limited to
securities brokers and dealers, and banks. Currently, Clearstream has
approximately 2,000 customers located in over 80 countries, including all major
European countries, Canada and the United States. Indirect access to Clearstream
is available to other institutions that clear through or maintain a custodial
relationship with an account holder of Clearstream. Clearstream and Euroclear
have
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established an electronic bridge between their two systems across which their
respective participants may settle trades with each other.
It is our understanding that Euroclear was founded in December 1968 to
hold securities for its member organizations and to clear and settle
transactions between its member organizations through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Over 100,000 different securities are accepted for
settlement through Euroclear, the majority of which are domestic securities from
over 30 markets. Transactions may be settled in Euroclear in any of over 35
currencies, including United States dollars. The Euroclear system includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described below in this
"-Book-Entry Registration" section. Euroclear is operated by Morgan Guaranty
Trust Company of New York, Brussels, Belgium office, under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation. We
understand that under an agreement effective January 1, 2000, the role of Morgan
Guaranty Trust Company of New York will be taken over by a new market owned
Euroclear Bank in early 2001. All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not ECS. ECS establishes
policy for the Euroclear system on behalf of the more than 120 member
organizations of Euroclear. Those member organizations include banks, including
central banks, securities brokers and dealers and other professional financial
intermediaries. Indirect access to the Euroclear system is also available to
other firms that clear through or maintain a custodial relationship with a
member organization of Euroclear, either directly or indirectly. Euroclear and
Clearstream have established an electronic bridge between their two systems
across which their respective participants may settle trades with each other.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. It is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Euroclear Terms and Conditions. The Euroclear Terms
and Conditions govern transfers of securities and cash within the Euroclear
system, withdrawal of securities and cash from the Euroclear system, and
receipts of payments with respect to securities in the Euroclear system. All
securities in the Euroclear system are held on a fungible basis without
attribution of specific securities to specific securities clearance accounts.
The Euroclear Operator acts under the Euroclear Terms and Conditions only on
behalf of member organizations of Euroclear and has no record of or relationship
with persons holding through those member organizations.
The information in this prospectus concerning DTC, Euroclear and
Clearstream, and their book-entry systems, has been obtained from sources
believed to be reliable, but we do not take any responsibility for the accuracy
or completeness of that information.
Holding and Transferring Book-Entry Certificates. Purchases of book-entry
certificates under the DTC system must be made by or through, and will be
recorded on the records of, the Financial Intermediary that maintains the
beneficial owner's account for that purpose. In turn, the Financial
Intermediary's ownership of those certificates will be recorded on the records
of DTC or, alternatively, if the Financial Intermediary does not maintain an
account with DTC, on the records of a participating firm that acts as agent for
the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC. A beneficial owner of book-entry certificates must rely on the
foregoing procedures to evidence its beneficial ownership of those certificates.
DTC has no knowledge of the actual beneficial owners of the book-entry
certificates. DTC's records reflect only the identity of the direct participants
to whose accounts those certificates are credited, which may or may not be the
actual beneficial owners. The participants in the DTC system will remain
responsible for keeping account of their holdings on behalf of their customers.
Transfers between participants in the DTC system will be effected in the
ordinary manner in accordance with DTC's rules and will be settled in same-day
funds. Transfers between direct account holders at Euroclear and Clearstream, or
between persons or entities participating indirectly in Euroclear or
Clearstream, will be effected in the ordinary manner in accordance with their
respective procedures and in accordance with DTC's rules.
Cross-market transfers between direct participants in DTC, on the one
hand, and member organizations at Euroclear or Clearstream, on the other, will
be effected through DTC in accordance with DTC's rules and the rules of
Euroclear or Clearstream, as applicable. These cross-market transactions will
require, among other things, delivery of instructions by the applicable member
organization to Euroclear or Clearstream, as the case may be, in accordance with
the rules and procedures
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and within deadlines, Brussels time, established in Euroclear or Clearstream, as
the case may be. If the transaction complies with all relevant requirements,
Euroclear or Clearstream, as the case may be, will then deliver instructions to
its depositary to take action to effect final settlement on its behalf.
Because of time-zone differences, the securities account of a member
organization of Euroclear or Clearstream purchasing an interest in a global
certificate from a DTC participant that is not a member organization, will be
credited during the securities settlement processing day, which must be a
business day for Euroclear or Clearstream, as the case may be, immediately
following the DTC settlement date. Transactions in interests in a book-entry
certificate settled during any securities settlement processing day will be
reported to the relevant member organization of Euroclear or Clearstream on the
same day. Cash received in Euroclear or Clearstream as a result of sales of
interests in a book-entry certificate by or through a member organization of
Euroclear or Clearstream, as the case may be, to a DTC participant that is not a
member organization will be received with value on the DTC settlement date, but
will not be available in the relevant Euroclear or Clearstream cash account
until the business day following settlement in DTC. The related prospectus
supplement will contain additional information regarding clearance and
settlement procedures for the book-entry certificates and with respect to tax
documentation procedures relating to the book-entry certificates.
Conveyance of notices and other communications by DTC to DTC participants,
and by DTC participants to Financial Intermediaries and beneficial owners, will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Payments on the book-entry certificates will be made to DTC. DTC's
practice is to credit DTC participants' accounts on the related payment date in
accordance with their respective holdings shown on DTC's records, unless DTC has
reason to believe that it will not receive payment on that date. Disbursement of
those payments by DTC participants to Financial Intermediaries and beneficial
owners will be--
o governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer
form or registered in street name; and
o the sole responsibility of each of those DTC participants, subject
to any statutory or regulatory requirements in effect from time to
time.
Under a book-entry system, beneficial owners may receive payments after
the related payment date.
The only "certificateholder" of book-entry certificates will be DTC or its
nominee. Parties to the governing documents for any series of offered
certificates need not recognize beneficial owners of book-entry certificates as
"certificateholders." The beneficial owners of book-entry certificates will be
permitted to exercise the rights of "certificateholders" only indirectly through
the DTC participants, who in turn will exercise their rights through DTC. We
have been informed that DTC will take action permitted to be taken by a
"certificateholder" only at the direction of one or more DTC participants. DTC
may take conflicting actions with respect to the book-entry certificates to the
extent that those actions are taken on behalf of Financial Intermediaries whose
holdings include those certificates.
Because DTC can act only on behalf of DTC participants, who in turn act on
behalf of Financial Intermediaries and beneficial owners of the applicable
book-entry securities, the ability of a beneficial owner to pledge its interest
in a class of book-entry certificates to persons or entities that do not
participate in the DTC system, or otherwise to take actions with respect to its
interest in a class of book-entry certificates, may be limited due to the lack
of a physical certificate evidencing that interest.
Issuance of Definitive Certificates. Unless we specify otherwise in the
related prospectus supplement, beneficial owners of affected offered
certificates initially issued in book-entry form will not be able to obtain
physical certificates that represent those offered certificates, unless--
o we advise the related trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
depository with respect to those offered certificates and we are
unable to locate a qualified successor; or
o we elect, at our option, to terminate the book-entry system through
DTC with respect to those offered certificates.
Upon the occurrence of either of the two events described in the prior
paragraph, DTC will be required to notify all DTC participants of the
availability through DTC of physical certificates with respect to the affected
offered certificates. Upon
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surrender by DTC of the certificate or certificates representing a class of
book-entry offered certificates, together with instructions for registration,
the related trustee or other designated party will be required to issue to the
beneficial owners identified in those instructions physical certificates
representing those offered certificates.
DESCRIPTION OF THE GOVERNING DOCUMENTS
GENERAL
The "Governing Document" for purposes of issuing the offered certificates
of each series will be a pooling and servicing agreement or other similar
agreement or collection of agreements. In general, the parties to the Governing
Document for a series of offered certificates will include us, a trustee, a
master servicer and a special servicer. However, if the related trust assets
include mortgage-backed securities, the Governing Document may include a manager
as a party, but may not include a master servicer, special servicer or other
servicer as a party. We will identify in the related prospectus supplement the
parties to the Governing Document for a series of offered certificates.
If we so specify in the related prospectus supplement, a party from whom
we acquire mortgage assets or one of its affiliates may perform the functions of
master servicer, special servicer or manager for the trust to which we transfer
those assets. If we so specify in the related prospectus supplement, the same
person or entity may act as both master servicer and special servicer for one of
our trusts.
Any party to the Governing Document for a series of offered certificates,
or any of its affiliates, may own certificates issued thereunder. However,
except in limited circumstances, including with respect to required consents to
amendments to the Governing Document for a series of offered certificates,
certificates that are held by the related master servicer, special servicer or
manager will not be allocated voting rights.
A form of a pooling and servicing agreement has been filed as an exhibit
to the registration statement of which this prospectus is a part. However, the
provisions of the Governing Document for each series of offered certificates
will vary depending upon the nature of the certificates to be issued thereunder
and the nature of the related trust assets. The following summaries describe
select provisions that may appear in the Governing Document for each series of
offered certificates. The prospectus supplement for each series of offered
certificates will provide material additional information regarding the
Governing Document for that series. The summaries in this prospectus do not
purport to be complete, and you should refer to the provisions of the Governing
Document for your offered certificates and, further, to the description of those
provisions in the related prospectus supplement. We will provide a copy of the
Governing Document, exclusive of exhibits, that relates to your offered
certificates, without charge, upon written request addressed to our principal
executive offices specified under "Credit Suisse First Boston Mortgage
Securities Corp."
ASSIGNMENT OF MORTGAGE ASSETS
At the time of initial issuance of any series of offered certificates, we
will assign or cause to be assigned to the designated trustee the mortgage
assets and any other assets to be included in the related trust. We will specify
in the related prospectus all material documents to be delivered, and all other
material actions to be taken, by us or any prior holder of the related mortgage
assets in connection with that assignment. We will also specify in the related
prospectus supplement any remedies available to the related certificateholders,
or the related trustee on their behalf, in the event that any of those material
documents are not delivered or any of those other material actions are not taken
as required. Concurrently with that assignment, the related trustee will deliver
to us or our designee the certificates of that series in exchange for the
mortgage assets and the other assets to be included in the related trust.
Each mortgage asset included in one of our trusts will be identified in a
schedule appearing as an exhibit to the related Governing Document. That
schedule generally will include detailed information about each mortgage asset
transferred to the related trust, including--
o in the case of a mortgage loan--
1. the address of the related real property,
2. the mortgage interest rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap
information,
3. the remaining term to maturity,
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4. the remaining amortization term if that mortgage loan is a
balance loan, and
5. the outstanding principal balance; and
o in the case of a mortgage-backed security--
1. the outstanding principal balance, and
2. the pass-through rate or coupon rate.
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO MORTGAGE ASSETS
Unless otherwise specified in the related prospectus supplement, the
unaffiliated seller of a mortgage loan to us or any of our affiliates (or the
master servicer, if the unaffiliated seller is also the master servicer under
the Governing Document) will have made representations and warranties in respect
of the mortgage loans it is selling to us or our affiliates. Those
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 title
insurance policies are generally not available, an attorney's
opinion of title and any required hazard insurance was effective at
the origination of each mortgage loan, and that each policy remained
in effect on the date of purchase of the mortgage loan from the
unaffiliated seller;
o that the unaffiliated seller had good and marketable title to each
mortgage loan;
o with respect to each mortgaged property, that each mortgage
constituted a valid first lien on the mortgaged property, subject
only to permissible title insurance exceptions, unless otherwise
specified in the related prospectus supplement;
o that there were no delinquent tax or assessment liens against the
mortgaged property; and
o that each mortgage loan was current as to all required payments
(unless otherwise specified in the related prospectus supplement).
The unaffiliated seller in respect of a mortgage loan will make its
representations and warranties to us or our affiliates as of the date of sale. A
substantial period of time may have elapsed between such date and the date of
the initial issuance a series of offered certificate and the particular mortgage
loan. Because the representations and warranties do not address events that may
occur following the sale of a mortgage loan by it, its repurchase obligation
described below will not arise if, on or after the date of the sale of a
mortgage loan by the unaffiliated seller to us or our affiliates, the relevant
event occurs that would have given rise to such an obligation. However, we will
not include any mortgage loan in the trust fund for any series of certificates
if anything has come to our attention that would cause us to believe that the
representations and warranties of an unaffiliated seller will not be accurate
and complete in all material respects in respect of that mortgage loan as of the
date listed in the related prospectus supplement. The related prospectus
supplement may provide that we will make certain representations and warranties
for the benefit of holders of certificates in respect of a mortgage loan that
relate to the period commencing on the date of sale of that mortgage loan to us
or our affiliates.
Unless otherwise set forth or specified in the related prospectus
supplement, upon the discovery of the breach of any representation or warranty
made by an unaffiliated seller in respect of a mortgage loan that materially and
adversely affects the interests of holders of the related series, that
unaffiliated seller or, if so specified in the related prospectus supplement,
the master servicer will be obligated to repurchase the mortgage loan at a
purchase price that, unless otherwise specified in the related prospectus
supplement, will 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
we have elected to treat the related trust as a REMIC, at a price as may be
necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Internal Revenue Code of 1986 as amended, in each case together
with accrued interest at the pass-through rate to the first day of the month
following the repurchase and the amount of any unreimbursed advances made by the
master servicer in respect of such mortgage loan. The master servicer or other
specified party to the related Governing Document will be required to enforce
this obligation of the unaffiliated seller for the benefit of the trustee and
the certificateholders, following the practices it would employ in its good
faith business judgment were it the owner of such mortgage loan. Unless
otherwise specified in the applicable prospectus
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supplement and subject to the ability of the unaffiliated seller or the master
servicer to deliver substitute mortgage loans for certain mortgage loans as
described below, this repurchase obligation constitutes the sole remedy
available to the certificateholders of the affected series for a breach of a
representation or warranty by an unaffiliated seller.
Any obligation of the master servicer to purchase a mortgage loan if an
unaffiliated seller defaults on its obligation to do so is subject to
limitations, and no assurance can be given that an unaffiliated seller will
carry out its repurchase obligation with respect to the mortgage loans.
If and as specified in the related prospectus supplement, we will make
representations and warranties with respect to the mortgage loans in a mortgage
pool. Upon a breach of any representation or warranty by us that materially and
adversely affects the interests of the certificateholders, we will be obligated
either to cure the breach in all material respects or to purchase the related
mortgage loan at the purchase price set forth above. Unless otherwise specified
in the applicable prospectus supplement and subject to our ability to deliver
substitute mortgage loans for certain mortgage loans as described below, this
repurchase obligation constitutes the sole remedy available to the
certificateholders or the trustee for a breach of representation or warranty by
us.
The proceeds for the repurchase of a mortgage loan will be distributed
into one or more accounts as called for under the related Governing Document.
Within the period of time specified in the related prospectus supplement,
following the issuance of a series of certificates, we, the master servicer or
the unaffiliated seller, as the case may be, may deliver to the trustee mortgage
loans in substitution for any one or more of the mortgage loans initially
included in the trust but which do not conform in one or more respects to the
description thereof contained in the related prospectus supplement, as to which
a breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of the certificateholders, or as to which a
document in the related mortgage loan file is defective in any material respect.
Unless otherwise specified in the related prospectus supplement, the
required characteristics of any substitute mortgage loan will generally include,
among other things, that the 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 removed mortgage loan,
with the amount of any shortfall to be distributed to
certificateholders in the month of substitution;
o have a per annum interest rate (removed mortgage loan not less than,
and not more than 1% greater than the per annum interest rate of the
removed mortgage loan;
o have a remaining term to maturity not greater than (and not more
than one year less than) that of the removed mortgage loan; and
o comply with all the representations and warranties set forth in the
Governing Document as of the date of substitution.
COLLECTION AND OTHER SERVICING PROCEDURES WITH RESPECT TO MORTGAGE LOANS
The Governing Document for each series of offered certificates will govern
the servicing and administration of any mortgage loans included in the related
trust.
In general, the related master servicer and special servicer, directly or
through sub-servicers, will be obligated to service and administer for the
benefit of the related certificateholders the mortgage loans in any of our
trusts. The master servicer and the special servicer will be required to service
and administer those mortgage loans in accordance with applicable law and,
further, in accordance with the terms of the related Governing Document, the
mortgage loans themselves and any instrument of credit support included in that
trust. Subject to the foregoing, the master servicer and the special servicer
will each have full power and authority to do any and all things in connection
with that servicing and administration that it may deem necessary and desirable.
As part of its servicing duties, each of the master servicer and the
special servicer for one of our trusts will be required to make reasonable
efforts to collect all payments called for under the terms and provisions of the
related mortgage loans that it
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services. In general, each of the master servicer and the special servicer for
one of our trusts will be obligated to follow the same collection procedures as
it would follow for comparable mortgage loans held for its own account, provided
that--
o those procedures are consistent with the terms of the related
Governing Document; and
o they do not impair recovery under any instrument of credit support
included in the related trust.
Consistent with the foregoing, the master servicer and the special
servicer will each be permitted, in its discretion, to waive any default
interest or late payment charge in connection with collecting a late payment on
any defaulted mortgage loan.
The master servicer and/or the special servicer for one or our trusts,
directly or through sub-servicers, will also be required to perform various
other customary functions of a servicer of comparable loans, including--
o maintaining escrow or impound accounts for the payment of taxes,
insurance premiums, ground rents and similar items, or otherwise
monitoring the timely payment of those items;
o ensuring that the related properties are properly insured;
o attempting to collect delinquent payments;
o supervising foreclosures;
o negotiating modifications;
o responding to borrower requests for partial releases of the
encumbered property, easements, consents to alteration or demolition
and similar matters;
o protecting the interests of certificateholders with respect to
senior lienholders;
o conducting inspections of the related real properties on a periodic
or other basis;
o collecting and evaluating financial statements for the related real
properties;
o managing or overseeing the management of real properties acquired on
behalf of the trust through foreclosure, deed-in-lieu of foreclosure
or otherwise; and
o maintaining servicing records relating to mortgage loans in the
trust.
We will specify in the related prospectus supplement when, and the extent
to which, servicing of a mortgage loan is to be transferred from a master
servicer to a special servicer. In general, a special servicer for any of our
trusts will be responsible for the servicing and administration of--
o mortgage loans that are delinquent with respect to a specified
number of scheduled payments;
o mortgage loans as to which there is a material non-monetary default;
o mortgage loans as to which the related borrower has--
1. entered into or consented to bankruptcy, appointment of a
receiver or conservator or similar insolvency proceeding, or
2. become the subject of a decree or order for such a proceeding
which has remained in force undischarged or unstayed for a
specified number of days; and
o real properties acquired as part of the trust with respect to
defaulted mortgage loans.
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The related Governing Document may also may provide that if a default on a
mortgage loan in the related trust has occurred or, in the judgment of the
related master servicer, a payment default is reasonably foreseeable, the
related master servicer may elect to transfer the servicing of that mortgage
loan, in whole or in part, to the related special servicer. When the
circumstances no longer warrant a special servicer's continuing to service a
particular mortgage loan, such as when the related borrower is paying in
accordance with the forbearance arrangement entered into between the special
servicer and that borrower, the master servicer will generally resume the
servicing duties with respect to the particular mortgage loan.
A borrower's failure to make required mortgage loan payments may mean that
operating income from the related real property is insufficient to service the
mortgage debt, or may reflect the diversion of that income from the servicing of
the mortgage debt. In addition, a borrower that is unable to make mortgage loan
payments may also be unable to make timely payment of taxes and otherwise to
maintain and insure the related real property. In general, with respect to each
series of offered certificates, the related special servicer will be required to
monitor any mortgage loan in the related trust that is in default, evaluate
whether the causes of the default can be corrected over a reasonable period
without significant impairment of the value of the related real property,
initiate corrective action in cooperation with the mortgagor if cure is likely,
inspect the related real property and take any other actions as it deems
necessary and appropriate. A significant period of time may elapse before a
special servicer is able to assess the success of any corrective action or the
need for additional initiatives. The time within which a special servicer can--
o make the initial determination of appropriate action;
o evaluate the success of corrective action;
o develop additional initiatives;
o institute foreclosure proceedings and actually foreclose; or
o accept a deed to a real property in lieu of foreclosure, on behalf
of the certificateholders of the related series,
may vary considerably depending on the particular mortgage loan, the related
real property, the borrower, the presence of an acceptable party to assume the
mortgage loan and the laws of the jurisdiction in which the related real
property is located. If a borrower files a bankruptcy petition, the special
servicer may not be permitted to accelerate the maturity of the defaulted loan
or to foreclose on the related real property for a considerable period of time.
See "Legal Aspects of Mortgage Loans--Bankruptcy Laws."
A special servicer for one of our trusts may also perform limited duties
with respect to mortgage loans in that trust for which the related master
servicer is primarily responsible, such as--
o performing property inspections and collecting; and
o evaluating financial statements.
A master servicer for one of our trusts may perform limited duties with
respect to any mortgage loan in that trust for which the related special
servicer is primarily responsible, such as--
o continuing to receive payments on the mortgage loan;
o making calculations with respect to the mortgage loan; and
o making remittances and preparing reports to the related trustee
and/or certificateholders with respect to the mortgage loan.
The duties of the master servicer and special servicer for your series
will be more fully described in the related prospectus supplement.
Unless we state otherwise in the related prospectus supplement, the master
servicer for your series will be responsible for filing and settling claims with
respect to particular mortgage loans for your series under any applicable
instrument of credit support. See "Description of Credit Support" in this
prospectus.
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SUB-SERVICERS
A master servicer or special servicer may delegate its servicing
obligations to one or more third-party servicers or sub-servicers. However,
unless we specify otherwise in the related prospectus supplement, the master
servicer or special servicer will remain obligated under the related Governing
Document. Each sub-servicing agreement between a master servicer or special
servicer, as applicable, and a sub-servicer must provide for servicing of the
applicable mortgage loans consistent with the related Governing Document. Any
master servicer and special servicer for one of our trusts will each be required
to monitor the performance of sub-servicers retained by it.
Unless we specify otherwise in the related prospectus supplement, any
master servicer or special servicer for one of our trusts will be solely liable
for all fees owed by it to any sub-servicer, regardless of whether the master
servicer's or special servicer's compensation under the related Governing
Document is sufficient to pay those fees. Each sub-servicer will be entitled to
reimbursement from the master servicer or special servicer, as the case may be,
that retained it, for expenditures which it makes, generally to the same extent
the master servicer or special servicer would be reimbursed under the related
Governing Document.
COLLECTION OF PAYMENTS ON MORTGAGE-BACKED SECURITIES
Unless we specify otherwise in the related prospectus supplement, if a
mortgage-backed security is included among the trust assets underlying any
series of offered certificates, then--
o that mortgage-backed security will be registered in the name of the
related trustee or its designee;
o the related trustee will receive payments on that mortgage-backed
security; and
o subject to any conditions described in the related prospectus
supplement, the related trustee or a designated manager will, on
behalf and at the expense of the trust, exercise all rights and
remedies with respect to that mortgaged-backed security, including
the prosecution of any legal action necessary in connection with any
payment default.
MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE MANAGER AND US
Unless we specify otherwise in the related prospectus supplement, no
master servicer, special servicer or manager for any of our trusts may resign
from its obligations in that capacity, except upon--
o the appointment of, and the acceptance of that appointment by, a
successor to the resigning party and receipt by the related trustee
of written confirmation from each applicable rating agency that the
resignation and appointment will not result in a withdrawal or
downgrade of any rating assigned by that rating agency to any class
of certificates of the related series; or
o a determination that those obligations are no longer permissible
under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by the resigning
party.
In general, no resignation will become effective until the related trustee
or other successor has assumed the obligations and duties of the resigning
master servicer, special servicer or manager, as the case may be.
With respect to each series of offered certificates, we and the related
master servicer, special servicer and/or manager, if any, will in each case be
obligated to perform only those duties specifically required under the related
Governing Document.
In no event will we or any master servicer, special servicer or manager
for one of our trusts, or any of our or its respective members, managers,
directors, officers, employees or agents, be under any liability to that trust
or the related certificateholders for any action taken, or not taken, in good
faith under the related Governing Document or for errors in judgment. Neither we
nor any of those other persons or entities will be protected, however, against
any liability that would otherwise be imposed by reason of--
o willful misfeasance, bad faith, or negligence in the performance of
obligations or duties under the Governing Document for any series of
offered certificates; or
o reckless disregard of those obligations and duties.
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Furthermore, the Governing Document for each series of offered
certificates will entitle us, the members, managers, master servicer, special
servicer and/or manager for the related trust, and our and their respective
directors, officers, employees and agents, to indemnification out of the related
trust assets for any loss, liability or expense incurred in connection with any
legal action that relates to that Governing Document or series of offered
certificates or to the related trust. The indemnification will not extend,
however, to any loss, liability or expense--
o specifically required to be borne by the relevant party, without
right of reimbursement, under the terms of that Governing Document;
o incurred in connection with any legal action against the relevant
party resulting from any breach of a representation or warranty made
in that Governing Document; or
o incurred in connection with any legal action against the relevant
party resulting from any willful misfeasance, bad faith or
negligence in the performance of obligations or duties under that
Governing Document.
Neither we nor any master servicer, special servicer or manager for the
related trust will be under any obligation to appear in, prosecute or defend any
legal action unless--
o the action is related to the respective responsibilities of that
party under the Governing Document for the affected series of
offered certificates; and
o either--
1. that party is specifically required to bear the expense of the
action, or
2. the action will not, in its opinion, involve that party in any
ultimate expense or liability for which it would not be
reimbursed under the Governing Document for the affected
series of offered certificates.
However, we and each of those other parties may undertake any legal action
that may be necessary or desirable with respect to the enforcement or protection
of the rights and duties of the parties to the Governing Document for any series
of offered certificates and the interests of the certificateholders of that
series under that Government Document. In that event, the legal expenses and
costs of the action, and any liability resulting from the action, will be
expenses, costs and liabilities of the related trust and payable out of related
trust assets.
With limited exception, any person or entity--
o into which we or any related master servicer, special servicer or
manager may be merged or consolidated;
o resulting from any merger or consolidation to which we or any
related master servicer, special servicer or manager is a party; or
o succeeding to our business or the business of any related master
servicer, special servicer or manager,
will be the successor of us or that master servicer, special servicer or
manager, as the case may be, under the Governing Document for a series of
offered certificates.
The compensation arrangements with respect to any master servicer, special
servicer or manager for any of our trusts will be set forth in the related
prospectus supplement. In general, that compensation will be payable out of the
related trust assets.
EVENTS OF DEFAULT
We will identify in related prospectus supplement the various events of
default under the Governing Document for each series of offered certificates for
which any related master servicer, special servicer or manager may be terminated
in that capacity.
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AMENDMENT
The Governing Document for each series of offered certificates may be
amended by the parties thereto, without the consent of any of the holders of
those certificates, or of any non-offered certificates of the same series, for
the following reasons--
1. to cure any ambiguity;
2. to correct, modify or supplement any provision in the
Governing Document which may be inconsistent with any other
provision in that document;
3. to make any other provisions with respect to matters or
questions arising under the Governing Document that are not
inconsistent with the existing provisions of that document;
4. to maintain a rating or ratings assigned to a series of
certificates.
Further, the Governing Document may also provide that the parties to the
Governing Document may amend it without the consent of the holders of
certificates to modify, eliminate or add provisions that are necessary to
maintain the qualification of any REMIC created under the Governing Document as
a REMIC while certificates remain outstanding. Any action taken to maintain
REMIC status must be necessary or helpful to maintain REMIC status as evidenced
by an opinion of counsel acceptable to the related trustee.
The Governing Document may also provide that any amendment made to it must
be accompanied by an opinion of counsel stating that the amendment will not
adversely affect the REMIC status of any series of certificates.
The prospectus supplement for an individual series of certificates may
describe other or different provisions concerning the amendment of the Governing
Document.
However, no amendment of the Governing Document for any series of offered
certificates, covered solely by clause 3. above, may adversely affect in any
material respect the interests of any holders of offered or non-offered
certificates of that series as evidenced by an opinion of counsel acceptable to
us and the trustee for the related series.
In general, the Governing Document for a series of offered certificates
may also be amended by the parties to that document, with the consent of the
holders of offered and non-offered certificates representing, in total, not less
than 51%, or any other percentage specified in the related prospectus
supplement, of all the voting rights allocated to those classes of that series
that are affected by the amendment. However, the Governing Document for a series
of offered certificates may not be amended to--
o reduce in any manner the amount of, or delay the timing of, payments
received on the related mortgage assets which are required to be
distributed on any offered or non-offered certificate of that series
without the consent of the holder of that certificate;
o adversely affect in any material respect the interests of the
holders of any class of offered or non-offered certificates of that
series in any other manner without the consent of the holders of all
certificates of that class;
o modify the provisions of the Governing Document relating to
amendments of that document without the consent of the holders of
all offered and non-offered certificates of that series then
outstanding; or
o alter the servicing standard set forth in the Governing Document.
THE TRUSTEE
The trustee for each series of offered certificates will be named in the
related prospectus supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as trustee for any
series of offered certificates may have typical banking relationships with the
us and our affiliates and with any of the other parties to the related Governing
Document and its affiliates.
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DUTIES OF THE TRUSTEE
The trustee for each series of offered certificates will not--
o make any representation as to the validity or sufficiency of those
certificates, the related Governing Document or any underlying
mortgage asset or related document; or
o be accountable for the use or application by or on behalf of any
other party to the related Governing Document of any funds paid to
that party with respect to those certificates or the underlying
mortgage assets.
If no event of default has occurred and is continuing under the related
Governing Document, the trustee for each series of offered certificates will be
required to perform only those duties specifically required under the related
Governing Document. However, upon receipt of any of the various certificates,
reports or other instruments required to be furnished to it under the related
Governing Document, the trustee must examine those documents and determine
whether they conform to the requirements of that Governing Document.
MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related prospectus supplement, the
fees and normal disbursements of the trustee for any series of offered
certificates may be the expense of the related master servicer or other
specified person or may be required to be paid by the related trust assets.
The trustee for each series of offered certificates will be entitled to
indemnification, out of related trust assets, for any loss, liability or expense
incurred by that trustee in connection with its acceptance or administration of
its trusts under the related Governing Document.
No trustee for any series of offered certificates will be liable for any
action reasonably taken, suffered or omitted by it in good faith and believed by
it to be authorized by the related Governing Document.
No trustee for any series of offered certificates will be required to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties under the related Governing Document, or in the
exercise of any of its rights or powers, if it has reasonable grounds for
believing that repayment of those funds or adequate indemnity against that risk
or liability is not reasonably assured to it.
The trustee for each series of offered certificates will be entitled to
execute any of its trusts or powers and perform any of its duties under the
related Governing Document, either directly or by or through agents or
attorneys. The trustee will not be responsible for any willful misconduct or
gross negligence on the part of any agent or attorney appointed by it with due
care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee for any series of offered certificates may resign at any time.
We will be obligated to appoint a successor to a resigning trustee. We may also
remove the trustee for any series of offered certificates if that trustee ceases
to be eligible to continue under the related Governing Document or if that
trustee becomes insolvent. Unless we indicate otherwise in the related
prospectus supplement, the trustee for any series of offered certificates may
also be removed at any time by the holders of the offered and non-offered
certificates of that series evidencing not less than 51%, or any other
percentage specified in the related prospectus supplement, of the voting rights
for that series. However, if the removal was without cause, the
certificateholders effecting the removal may be responsible for any costs and
expenses incurred by the terminated trustee in connection with its removal. Any
resignation or removal of a trustee and appointment of a successor trustee will
not become effective until acceptance of the appointment by the successor
trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of the
offered certificates of any series or with respect to the related mortgage
assets. That credit support may be in the form of any of the following--
o the subordination of one or more other classes of certificates of
the same series;
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o the use of a letter of credit, a surety bond, an insurance policy, a
guarantee or a credit derivative;
o the establishment of one or more reserve funds; or
o any combination of the foregoing.
If and to the extent described in the related prospectus supplement, any
of the above forms of credit support may provide credit enhancement for
non-offered certificates, as well as offered certificates, or for more than one
series of certificates.
If you are the beneficiary of any particular form of credit support, that
credit support may not protect you against all risks of loss and will not
guarantee payment to you of all amounts to which you are entitled under your
offered certificates. If losses or shortfalls occur that exceed the amount
covered by that credit support or that are of a type not covered by that credit
support, you will bear your allocable share of deficiencies. Moreover, if that
credit support covers the offered certificates of more than one class or series
and total losses on the related mortgage assets exceed the amount of that credit
support, it is possible that the holders of offered certificates of other
classes and/or series will be disproportionately benefited by that credit
support to your detriment.
If you are the beneficiary of any particular form of credit support, we
will include in the related prospectus supplement a description of the
following--
o the nature and amount of coverage under that credit support;
o any conditions to payment not otherwise described in this
prospectus;
o any conditions under which the amount of coverage under that credit
support may be reduced and under which that credit support may be
terminated or replaced; and
o the material provisions relating to that credit support.
Additionally, we will set forth in the related prospectus supplement
information with respect to the obligor, if any, under any instrument of credit
support.
SUBORDINATE CERTIFICATES
If and to the extent described in the related prospectus supplement, one
or more classes of certificates of any series may be subordinate to one or more
other classes of certificates of that series. If you purchase subordinate
certificates, your right to receive payments out of collections and advances on
the related trust assets on any payment date will be subordinated to the
corresponding rights of the holders of the more senior classes of certificates.
If and to the extent described in the related prospectus supplement, the
subordination of a class of certificates may not cover all types of losses or
shortfalls. In the related prospectus supplement, we will set forth information
concerning the method and amount of subordination provided by a class or classes
of subordinate certificates in a series and the circumstances under which that
subordination will be available.
If the mortgage assets in any trust established us are divided into
separate groups, each supporting a separate class or classes of certificates of
the related series, credit support may be provided by cross-support provisions
requiring that payments be made on senior certificates evidencing interests in
one group of those mortgage assets prior to payments on subordinate certificates
evidencing interests in a different group of those mortgage assets. We will
describe in the related prospectus supplement the manner and conditions for
applying any cross-support provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
The mortgage loans included in any trust established by us may be covered
for some default risks by insurance policies or guarantees. If so, we will
describe in the related prospectus supplement the nature of those default risks
and the extent of that coverage.
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LETTERS OF CREDIT
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates or
select classes of those certificates will be covered by one or more letters of
credit, issued by a bank or other financial institution specified in the related
prospectus supplement. The issuer of a letter of credit will be obligated to
honor draws under that letter of credit in a total fixed dollar amount, net of
unreimbursed payments under the letter of credit, generally equal to a
percentage specified in the related prospectus supplement of the total principal
balance of some or all of the related mortgage assets as of the date the related
trust was formed or of the initial total principal balance of one or more
classes of certificates of the applicable series. The letter of credit may
permit draws only in the event of select types of losses and shortfalls. The
amount available under the letter of credit will, in all cases, be reduced to
the extent of the unreimbursed payments thereunder and may otherwise be reduced
as described in the related prospectus supplement. The obligations of the letter
of credit issuer under the letter of credit for any series of offered
certificates will expire at the earlier of the date specified in the related
prospectus supplement or the termination of the related trust.
CERTIFICATE INSURANCE AND SURETY BONDS
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates or
select classes of those certificates will be covered by insurance policies or
surety bonds provided by one or more insurance companies or sureties. Those
instruments may cover, with respect to one or more classes of the offered
certificates of the related series, timely payments of interest and principal or
timely payments of interest and payments of principal on the basis of a schedule
of principal payments set forth in or determined in the manner specified in the
related prospectus supplement. We will describe in the related prospectus
supplement any limitations on the draws that may be made under any of those
instruments.
CREDIT DERIVATIVES
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates or
select classes of those certificates will be covered by credit derivatives, such
as credit default swaps and total return swaps. A credit derivative is a
financial instrument designed to offset losses and shortfalls derived from the
credit risk of an underlying or reference asset or the credit risk of an
underlying or reference credit. We will describe in the related prospectus
supplement when and how payments are made under the particular instrument and
the specific credit risk that is being covered.
RESERVE FUNDS
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates or
select classes of those certificates will be covered, to the extent of available
funds, by one or more reserve funds in which cash, a letter of credit, permitted
investments, a demand note or a combination of the foregoing, will be deposited,
in the amounts specified in the related prospectus supplement. If and to the
extent described in the related prospectus supplement, the reserve fund for the
related series of offered certificates may also be funded over time.
Amounts on deposit in any reserve fund for a series of offered
certificates will be applied for the purposes, in the manner, and to the extent
specified in the related prospectus supplement. If and to the extent described
in the related prospectus supplement, reserve funds may be established to
provide protection only against select types of losses and shortfalls. Following
each payment date for the related series of offered certificates, amounts in a
reserve fund in excess of any required balance may be released from the reserve
fund under the conditions and to the extent specified in the related prospectus
supplement.
CREDIT SUPPORT WITH RESPECT TO MBS
If and to the extent described in the related prospectus supplement, any
mortgage-backed security included in one of our trusts and/or the mortgage loans
that back that security may be covered by one or more of the types of credit
support described in this prospectus. We will specify in the related prospectus
supplement, as to each of those forms of credit support, the information
indicated above with respect to that mortgage-backed security, to the extent
that the information is material and available.
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LEGAL ASPECTS OF MORTGAGE LOANS
Most, if not all, of the mortgage loans underlying a series of offered
certificates will be secured by multifamily and commercial properties in the
United States, its territories and possessions. However, some of those mortgage
loans may be secured by multifamily and commercial properties outside the United
States, its territories and possessions.
The following discussion contains general summaries of select legal
aspects of mortgage loans secured by multifamily and commercial properties in
the United States. Because these legal aspects are governed by applicable state
law, which 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 jurisdictions in which the security for the mortgage
loans underlying the offered certificates is situated. Accordingly, you should
be aware that the summaries are qualified in their entirety by reference to the
applicable laws of those states. See "Description of the Trust Assets--Mortgage
Loans."
If a significant percentage of mortgage loans underlying a series of
offered certificates, are secured by properties in a particular state, we will
discuss the relevant state laws, to the extent they vary materially from this
discussion, in the related prospectus supplement.
GENERAL
Each mortgage loan underlying a series of offered certificates will be
evidenced by a note or bond and secured by an instrument granting a security
interest in real property. The instrument granting a security interest in real
property may be a mortgage, deed of trust or a deed to secure debt, depending
upon the prevailing practice and law in the state in which that real property is
located. Mortgages, deeds of trust and deeds to secure debt are often
collectively referred to in this prospectus as "mortgages." A mortgage creates a
lien upon, or grants a title interest in, the real property covered by the
mortgage, and represents the security for the repayment of the indebtedness
customarily evidenced by a promissory note. The priority of the lien created or
interest granted will depend on--
o the terms of the mortgage;
o the terms of separate subordination agreements or intercreditor
agreements with others that hold interests in the real property;
o the knowledge of the parties to the mortgage; and
o in general, the order of recordation of the mortgage in the
appropriate public recording office.
However, the lien of a recorded mortgage will generally be subordinate to
later-arising liens for real estate taxes and assessments and other charges
imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage--
o a mortgagor, who is the owner of the encumbered interest in the real
property; and
o a mortgagee, who is the lender.
In general, the mortgagor is also the borrower.
In contrast, a deed of trust is a three-party instrument. The parties to a
deed of trust are--
o the trustor, who is the equivalent of a mortgagor;
o the trustee to whom the real property is conveyed; and
o the beneficiary for whose benefit the conveyance is made, who is the
lender.
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Under a deed of trust, the trustor grants the property, irrevocably until
the debt is paid, in trust and generally with a power of sale, to the trustee to
secure repayment of the indebtedness evidenced by the related note.
A deed to secure debt typically has two parties. Under a deed to secure
debt, the grantor, who is the equivalent of a mortgagor, conveys title to the
real property to the grantee, who is the lender, generally with a power of sale,
until the debt is repaid.
Where the borrower is a land trust, there would be an additional party
because legal title to the property is held by a land trustee under a land trust
agreement for the benefit of the borrower. At origination of a mortgage loan
involving a land trust, the borrower may execute a separate undertaking to make
payments on the mortgage note. In no event is the land trustee personally liable
for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by--
o the law of the state in which the real property is located;
o various federal laws; and
o in some deed of trust transactions, the directions of the
beneficiary.
INSTALLMENT CONTRACTS
The mortgage loans underlying your offered certificates may consist of
installment contracts. Under an installment contract the seller retains legal
title to the property and enters into an agreement with the purchaser for
payment of the purchase price, plus interest, over the term of the installment
contract. Only after full performance by the borrower of the contract is the
seller obligated to convey title to the real estate to the purchaser. During the
period that the installment contract is in effect, the purchaser is generally
responsible for maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums associated with the
property.
The seller's enforcement of an installment contract varies from state to
state. Generally, installment contracts provide that upon a default by the
purchaser, the purchaser loses his or her right to occupy the property, the
entire indebtedness is accelerated, and the purchaser's equitable interest in
the property is forfeited. The seller in this situation does not have to
foreclose in order to obtain title to the property, although in some cases a
quiet title action is in order if the purchaser has filed the installment
contract in local land records and an ejectment action may be necessary to
recover possession. In a few states, particularly in cases of purchaser default
during the early years of an installment contract, the courts will permit
ejectment of the purchaser and a forfeiture of his or her interest in the
property.
However, most state legislatures have enacted provisions by analogy to
mortgage law protecting borrowers under installment contracts from the harsh
consequences of forfeiture. Under those statutes, a judicial or nonjudicial
foreclosure may be required, the seller may be required to give notice of
default and the borrower may be granted some grace period during which the
contract may be reinstated upon full payment of the default amount and the
purchaser may have a post-foreclosure statutory redemption right. In other
states, courts in equity may permit a purchaser with significant investment in
the property under an installment contract for the sale of real estate to share
in the proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the seller's procedures for obtaining possession and clear title under
an installment contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
LEASES AND RENTS
A mortgage that encumbers an income-producing property often contains an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases. Under an assignment of rents and leases, the
borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived from each lease. However, the
borrower retains a revocable license to collect the rents, provided there is no
default and the rents are not directly paid to the lender. If the borrower
defaults, the license terminates and the lender is entitled to collect the
rents. Local
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law may require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the UCC. Room rates are generally pledged by the borrower as
additional security for the loan when a mortgage loan is secured by a hotel or
motel. In general, the lender must file financing statements in order to perfect
its security interest in the room rates and must file continuation statements,
generally every five years, to maintain that perfection. Mortgage loans secured
by hotels or motels may be included in one of our trusts even if the security
interest in the room rates was not perfected or the requisite UCC filings were
allowed to lapse. A lender will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default, even if the lender's
security interest in room rates is perfected under applicable nonbankruptcy law.
In the bankruptcy setting, the lender will be stayed from enforcing its
rights to collect hotel and motel room rates. However, the room rates will
constitute cash collateral and cannot be used by the bankrupt borrower--
o without a hearing or the lender's consent; or
o unless the lender's interest in the room rates is given adequate
protection.
For purposes of the foregoing, the adequate protection may include a cash
payment for otherwise encumbered funds or a replacement lien on unencumbered
property, in either case equal in value to the amount of room rates that the
bankrupt borrower proposes to use. See "--Bankruptcy Laws" below.
PERSONALTY
Some types of income-producing real properties, such as hotels, motels and
nursing homes, may include personal property, which may, to the extent it is
owned by the borrower and not previously pledged, constitute a significant
portion of the property's value as security. The creation and enforcement of
liens on personal property are governed by the UCC. Accordingly, if a borrower
pledges personal property as security for a mortgage loan, the lender generally
must file UCC financing statements in order to perfect its security interest in
the personal property and must file continuation statements, generally every
five years, to maintain that perfection. Mortgage loans secured in part by
personal property may be included in one of our trusts even if the security
interest in the personal property was not perfected or the requisite UCC filings
were allowed to lapse.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property security at public auction to
satisfy the indebtedness.
Foreclosure Procedures Vary From State to State. The two primary methods
of foreclosing a mortgage are--
o judicial foreclosure, involving court proceedings; and
o nonjudicial foreclosure under a power of sale granted in the
mortgage instrument.
Other foreclosure procedures are available in some states, but they are
either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed. A
foreclosure action sometimes requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, a lender
initiates the action by the service of legal pleadings upon--
o all parties having a subordinate interest of record in the real
property; and
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o all parties in possession of the property, under leases or
otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. The court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property upon successful completion of a
judicial foreclosure proceeding. The proceeds of that public sale are used to
satisfy the judgment. The procedures that govern these public sales vary from
state to state.
Equitable and Other Limitations on Enforceability of Particular
Provisions. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on these principles, a
court may--
o alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or
overreaching;
o require the lender to undertake affirmative actions to determine the
cause of the borrower's default and the likelihood that the borrower
will be able to reinstate the loan;
o require the lender to reinstate a loan or recast a payment schedule
in order to accommodate a borrower that is suffering from a
temporary financial disability; or
o limit the right of the lender to foreclose in the case of a
nonmonetary default, such as--
1. a failure to adequately maintain the mortgaged property, or
2. an impermissible further encumbrance of the mortgaged
property.
Some courts have addressed the issue of whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that a borrower receive notice in addition to statutorily-prescribed
minimum notice. For the most part, these cases have--
o upheld the reasonableness of the notice provisions; or
o found that a public sale under a mortgage providing for a power of
sale does not involve sufficient state action to trigger
constitutional protections.
In addition, some states may have statutory protection such as the right
of the borrower to reinstate its mortgage loan after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale under a power of sale typically
granted in the deed of trust. A power of sale may also be contained in any other
type of mortgage instrument if applicable law so permits. A power of sale under
a deed of trust allows a nonjudicial public sale to be conducted generally
following--
o a request from the beneficiary/lender to the trustee to sell the
property upon default by the borrower; and
o notice of sale is given in accordance with the terms of the deed of
trust and applicable state law.
In some states, prior to a nonjudicial public sale, the trustee under the
deed of trust must--
o record a notice of default and notice of sale; and
o send a copy of those notices to the borrower and to any other party
who has recorded a request for a copy of them.
In addition, in some states, the trustee must provide notice to any other party
having an interest of record in the real property, including junior lienholders.
A notice of sale must be posted in a public place and, in most states, published
for a specified
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period of time in one or more newspapers. Some states require a reinstatement
period during which the borrower or junior lienholder may have the right to cure
the default by paying the entire actual amount in arrears, without regard to the
acceleration of the indebtedness, plus the lender's expenses incurred in
enforcing the obligation. In other states, the borrower or the junior lienholder
has only the right to pay off the entire debt to prevent the foreclosure sale.
Generally, state law governs the procedure for public sale, the parties entitled
to notice, the method of giving notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of--
o the difficulty in determining the exact status of title to the
property due to, among other things, redemption rights that may
exist; and
o the possibility that physical deterioration of the property may have
occurred during the foreclosure proceedings.
As a result of the foregoing, it is common for the lender to purchase the
mortgaged property and become its owner, subject to the borrower's right in some
states to remain in possession during a redemption period. In that case, the
lender will have both the benefits and burdens of ownership, including the
obligation to pay debt service on any senior mortgages, to pay taxes, to obtain
casualty insurance and to make repairs necessary to render the property suitable
for sale. The costs of operating and maintaining a commercial or multifamily
residential property may be significant and may be greater than the income
derived from that property. The lender also will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
or lease of the property. Whether, the ultimate proceeds of the sale of the
property equal the lender's investment in the property depends upon market
conditions. Moreover, because of the expenses associated with acquiring, owning
and selling a mortgaged property, a lender could realize an overall loss on the
related mortgage loan even if the mortgaged property is sold at foreclosure, or
resold after it is acquired through foreclosure, for an amount equal to the full
outstanding principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens. In addition, it
may be obliged to keep senior mortgage loans current in order to avoid
foreclosure of its interest in the property. Furthermore, if the foreclosure of
a junior mortgage triggers the enforcement of a due-on-sale clause contained in
a senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are--
o to enable the lender to realize upon its security; and
o to bar the borrower, and all persons who have interests in the
property that are subordinate to that of the foreclosing lender,
from exercising their equity of redemption.
The doctrine of equity of redemption provides that, until the property
encumbered by a mortgage has been sold in accordance with a properly conducted
foreclosure and foreclosure sale, those having interests that are subordinate to
that of the foreclosing lender have an equity of redemption and may redeem the
property by paying the entire debt with interest. Those having an equity of
redemption must generally be made parties to the foreclosure proceeding in order
for their equity of redemption to be terminated.
The equity of redemption is a common-law, nonstatutory right which should
be distinguished from post-sale statutory rights of redemption. In some states,
the borrower and foreclosed junior lienors are given a statutory period in which
to redeem the property after sale under a deed of trust or foreclosure of a
mortgage. In some states, statutory redemption may occur only upon payment of
the foreclosure sale price. In other states, redemption may be permitted if the
former borrower pays only a portion of the sums due. A statutory right of
redemption will diminish the ability of the lender to sell the foreclosed
property because the exercise of a right of redemption would defeat the title of
any purchaser through a foreclosure. 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. In some states, a
post-sale statutory right of redemption may exist following a judicial
foreclosure, but not following a trustee's sale under a deed of trust.
Anti-Deficiency Legislation. Some or all of the mortgage loans underlying
a series of offered certificates may be nonrecourse loans. Recourse in the case
of a default on a non-recourse mortgage loan will be limited to the mortgaged
property and any other assets that were pledged to secure the mortgage loan.
However, even if a mortgage loan by its terms
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provides for recourse to the borrower's other assets, a lender's ability to
realize upon those assets may be limited by state law. For example, in some
states, a lender cannot obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the former borrower equal to the difference between
the net amount realized upon the public sale of the real property and the amount
due to the lender. Other statutes may require the lender to exhaust the security
afforded under a mortgage 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,
but in doing so, the lender may be deemed to have elected a remedy and thus may
be precluded from foreclosing upon the security. Consequently, lenders will
usually proceed first against the security in states where an election of remedy
provision exists. Finally, other statutory provisions limit any deficiency
judgment to the excess of the outstanding debt over the fair market value of the
property at the time of the sale. These other statutory provisions are intended
to protect borrowers from exposure to large deficiency judgments that might
result from bidding at below-market values at the foreclosure sale.
Leasehold Considerations. Some or all of the mortgage loans underlying a
series of offered certificates may be secured by a mortgage on the borrower's
leasehold interest under a ground lease. Leasehold mortgage loans are subject to
some risks not associated with mortgage loans secured by a lien on the fee
estate of the borrower. The most significant of these risks is that if the
borrower's leasehold were to be terminated upon a lease default, the leasehold
mortgagee would lose its security. This risk may be lessened if the ground
lease--
o requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them;
o permits the leasehold estate to be assigned to and by the leasehold
mortgagee or the purchaser at a foreclosure sale; and
o contains other protective provisions typically required by prudent
lenders to be included in a ground lease.
Some mortgage loans underlying a series of offered certificates, however,
may be secured by ground leases which do not contain these provisions.
Cooperative Shares. Some or all of the mortgage loans underlying a series
of offered certificates may be secured by a security interest on the borrower's
ownership interest in shares, and the proprietary leases belonging to those
shares, allocable to cooperative dwelling units that may be vacant or occupied
by nonowner tenants. Loans secured in this manner are subject to some risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. Loans secured in this manner typically are subordinate to the
mortgage, if any, on the cooperative's building. That mortgage, if foreclosed,
could extinguish the equity in the building and the proprietary leases of the
dwelling units derived from ownership of the shares of the cooperative. Further,
transfer of shares in a cooperative is subject to various regulations as well as
to restrictions under the governing documents of the cooperative. The shares may
be canceled in the event that associated maintenance charges due under the
related proprietary leases are not paid. Typically, a recognition agreement
between the lender and the cooperative provides, among other things, that the
lender may cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a commercially reasonable manner, which
may be dependent upon, among other things, the notice given the debtor and the
method, manner, time, place and terms of the sale. 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. A recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of the
cooperative corporation to receive sums due under the proprietary leases.
BANKRUPTCY LAWS
Operation of the U.S. Bankruptcy Code and related state laws may interfere
with or affect the ability of a lender to realize upon collateral or to enforce
a deficiency judgment. For example, under the U.S. Bankruptcy Code, virtually
all actions, including foreclosure actions and deficiency judgment proceedings,
to collect a debt are automatically stayed upon the filing of the bankruptcy
petition. Often, no interest or principal payments are made during the course of
the bankruptcy case. The delay caused by an automatic stay and its consequences
can be significant. Also, under the U.S. Bankruptcy Code, the filing of a
petition in bankruptcy by or on behalf of a junior lienor may stay the senior
lender from taking action to foreclose out the junior lien.
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Under the U.S. Bankruptcy Code, the amount and terms of a mortgage loan
secured by a lien on property of the debtor may be modified provided that
substantive and procedural safeguards protective of the lender are met. A
bankruptcy court may, among other things--
o reduce the secured portion of the outstanding amount of the loan to
the then-current value of the property, thereby leaving the lender a
general unsecured creditor for the difference between the
then-current value of the property and the outstanding balance of
the loan;
o reduce the amount of each scheduled payment, by means of a reduction
in the rate of interest and/or an alteration of the repayment
schedule, with or without affecting the unpaid principal balance of
the loan;
o extend or shorten the term to maturity of the loan;
o permit the bankrupt borrower to cure of the subject loan default by
paying the arrearage over a number of years; or
o permit the bankrupt borrower, through its rehabilitative plan, to
reinstate the loan payment schedule even if the lender has obtained
a final judgment of foreclosure prior to the filing of the debtor's
petition.
Federal bankruptcy law may also interfere with or affect the ability of a
secured lender to enforce the borrower's assignment of rents and leases related
to the mortgaged property. A lender may be stayed from enforcing the assignment
under the U.S. Bankruptcy Code. In addition, the legal proceedings necessary to
resolve the issue could be time-consuming, and result in delays in the lender's
receipt of the rents. However, recent amendments to the U.S. Bankruptcy Code may
minimize the impairment of the lender's ability to enforce the borrower's
assignment of rents and leases. In addition to the inclusion of hotel revenues
within the definition of cash collateral as noted above, the amendments provide
that a pre-petition security interest in rents or hotel revenues is designed to
overcome those cases holding that a security interest in rents is unperfected
under the laws of some states until the lender has taken some further action,
such as commencing foreclosure or obtaining a receiver prior to activation of
the assignment of rents.
A borrower's ability to make payment on a mortgage loan may be impaired by
the commencement of a bankruptcy case relating to the tenant under a lease of
the related property. Under the U.S. Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a tenant results in a stay in bankruptcy
against the commencement or continuation of any state court proceeding for--
o past due rent;
o accelerated rent;
o damages; or
o a summary eviction order with respect to a default under the lease
that occurred prior to the filing of the tenant's bankruptcy
petition.
In addition, the U.S. Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court--
o assume the lease and either retain it or assign it to a third party;
or
o reject the lease.
If the lease is assumed, the trustee, debtor-in-possession or assignee, if
applicable, must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with adequate assurance of future performance.
These remedies may be insufficient, and any assurances provided to the lessor
may be inadequate. If the lease is rejected, the lessor will be treated, except
potentially to the extent of any security deposit, as an unsecured creditor with
respect to its claim for damages for termination of the lease. The U.S.
Bankruptcy Code also limits a lessor's damages for lease rejection to--
o o the rent reserved by the lease without regard to acceleration for
the greater of one year, or 15%, not to exceed three years, of the
remaining term of the lease; plus
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o unpaid rent to the earlier of the surrender of the property or the
lessee's bankruptcy filing.
ENVIRONMENTAL CONSIDERATIONS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Those environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In some circumstances, a lender may
decide to abandon a contaminated real property as collateral for its loan rather
than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
that lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to that
superlien.
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, imposes strict liability on present and past
"owners" and "operators" of contaminated real property for the costs of
clean-up. A secured lender may be liable as an "owner" or "operator" of a
contaminated mortgaged property if agents or employees of the lender have
participated in the management of the property or the operations of the
borrower. Liability may exist even if the lender did not cause or contribute to
the contamination and regardless of whether the lender has actually taken
possession of the contaminated mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator," however, is a person who, without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest. This is the so called "secured creditor exemption."
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
amended, among other things, the provisions of CERCLA with respect to lender
liability and the secured creditor exemption. The Lender Liability 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. In
order 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 property of the borrower. The Lender Liability 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--
o it exercises decision-making control over a borrower's environmental
compliance and hazardous substance handling and disposal practices;
or
o assumes day-to-day management of operational functions of a
mortgaged property.
The Lender Liability 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 that property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Other Federal and State Laws. Many states have statutes similar to CERCLA,
and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act.
Some federal, state and local laws, regulations and ordinances govern the
management, removal, encapsulation or disturbance of asbestos-containing
materials. These laws, as well as common law standards, may--
o impose liability for releases of or exposure to asbestos-containing
materials; and
o provide for third parties to seek recovery from owners or operators
of real properties for personal injuries associated with those
releases.
Federal law requires owners of residential housing constructed prior to
1978 to disclose to potential residents or purchasers any known lead-based paint
hazards and will impose treble damages for any failure to disclose. In addition,
the
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ingestion of lead-based paint chips or dust particles by children can result in
lead poisoning. If lead-based paint hazards exist at a property, then the owner
of that property may be held liable for injuries and for the costs of removal or
encapsulation of the lead-based paint.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action related to hazardous environmental conditions on a property,
such as actions based on nuisance or on toxic tort resulting in death, personal
injury or damage to property. While it may be more difficult to hold a lender
liable under common law causes of action, unanticipated or uninsured liabilities
of the borrower may jeopardize the borrower's ability to meet its loan
obligations.
Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on a borrower. These costs may jeopardize
the borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard. However, that individual or entity may be without
substantial assets. Accordingly, it is possible that the costs could become a
liability of the related trust and occasion a loss to the related
certificateholders.
If the operations on a foreclosed property are subject to environmental
laws and regulations, the lender will be required to operate the property in
accordance with those laws and regulations. This compliance may entail
substantial expense, especially in the case of industrial or manufacturing
properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers,
including prospective buyers at a foreclosure sale or following foreclosure.
This disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Some or all of the mortgage loans underlying a series of offered
certificates may contain due-on-sale and due-on-encumbrance clauses that purport
to permit the lender to accelerate the maturity of the loan if the borrower
transfers or encumbers the a mortgaged property. In recent years, court
decisions and legislative actions placed substantial restrictions on the right
of lenders to enforce these clauses in many states. However, the Garn-St Germain
Depository Institutions Act of 1982 generally preempts state laws that prohibit
the enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms, subject to the limitations prescribed in
that Act and the regulations promulgated thereunder.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
Any of our trusts may include mortgage loans secured by junior liens,
while the loans secured by the related senior liens may not be included in that
trust. The primary risk to holders of mortgage loans secured by junior liens is
the possibility that adequate funds will not be received in connection with a
foreclosure of the related senior liens to satisfy fully both the senior loans
and the junior loan.
In the event that a holder of a senior lien forecloses on a mortgaged
property, the proceeds of the foreclosure or similar sale will be applied as
follows--
o first, to the payment of court costs and fees in connection with the
foreclosure;
o second, to real estate taxes;
o third, in satisfaction of all principal, interest, prepayment or
acceleration penalties, if any, and any other sums due and owing to
the holder of the senior liens; and
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o last, in satisfaction of all principal, interest, prepayment and
acceleration penalties, if any, and any other sums due and owing to
the holder of the junior mortgage loan.
SUBORDINATE FINANCING
Some mortgage loans underlying a series of offered certificates may not
restrict the ability of the borrower to use the mortgaged property as security
for one or more additional loans, or the restrictions may be unenforceable.
Where a borrower encumbers a mortgaged property with one or more junior liens,
the senior lender is subjected to the following additional risks--
o the borrower may have difficulty servicing and repaying multiple
loans;
o o if the subordinate financing permits recourse to the borrower, as
is frequently the case, and the senior loan does not, a borrower may
have more incentive to repay sums due on the subordinate loan;
o acts of the senior lender that prejudice the junior lender or impair
the junior lender's security, such as the senior lender's agreeing
to an increase in the principal amount of or the interest rate
payable on the senior loan, may create a superior equity in favor of
the junior lender;
o if the borrower defaults on the senior loan and/or any junior loan
or loans, the existence of junior loans and actions taken by junior
lenders can impair the security available to the senior lender and
can interfere with or delay the taking of action by the senior
lender; and
o the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
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. They
may also contain provisions that prohibit prepayments for a specified period
and/or condition prepayments upon the borrower's payment of prepayment premium,
fee or charge. In some states, there are or may be specific limitations upon the
late charges that 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 premiums, fees and charges upon an
involuntary prepayment is unclear under the laws of many states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 provides that state usury limitations shall not apply to various
types of residential, including multifamily, first mortgage loans originated by
particular lenders after March 31, 1980. Title V authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Some states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder, in order to protect individuals with disabilities,
owners of public accommodations, such as hotels, restaurants, shopping centers,
hospitals, schools and social service center establishments, must remove
architectural and communication barriers which are structural in nature from
existing places of public accommodation to the extent "readily achievable." In
addition, under the ADA, alterations to a place of public accommodation or a
commercial facility are to be made so that, to the maximum extent feasible, the
altered portions are readily accessible to and usable by disabled individuals.
The "readily achievable" standard takes into account, among other factors, the
financial resources of the affected property owner, landlord or other applicable
person. In addition to imposing a possible financial burden on the borrower in
its capacity as owner or landlord, the ADA may also impose requirements on a
foreclosing lender who succeeds to the interest of the borrower as owner or
landlord. Furthermore, because the "readily achievable" standard may vary
depending on the financial condition of the owner or
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landlord, a foreclosing lender that is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, a borrower who enters military service after the origination of the
borrower's mortgage loan, including a borrower who was in reserve status and is
called to active duty after origination of the mortgage 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
upon application of the lender. The Relief Act applies to individuals who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast
Guard and officers of the U.S. Public Health Service assigned to duty with the
military. Because the Relief Act applies to individuals who enter military
service, including reservists who are called to active duty, after origination
of the related mortgage loan, no information can be provided as to the number of
loans with individuals as borrowers that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of a master servicer or special servicer to collect
full amounts of interest on an affected mortgage loan. Any shortfalls in
interest collections resulting from the application of the Relief Act would
result in a reduction of the amounts payable to the holders of certificates of
the related series, and would not be covered by advances or, unless otherwise
specified in the related prospectus supplement, any form of credit support
provided in connection with the certificates. In addition, the Relief Act
imposes limitations that would impair the ability of a master servicer or
special servicer to foreclose on an affected mortgage loan during the borrower's
period of active duty status and, under some circumstances, during an additional
three month period after the active duty status ceases.
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 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 upon 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.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This is a general discussion of the material federal income tax
consequences of owning the offered certificates. To the extent it relates to
matters of law or legal conclusions, it represents the opinion of our counsel,
subject to any qualifications as may be expressed in this discussion. Unless we
otherwise specify in the related prospectus supplement, our counsel for each
series will be Cadwalader, Wickersham & Taft, Sidley & Austin, or Orrick,
Herrington & Sutcliffe (as provided in the related prospectus supplement).
This discussion is directed to certificateholders that hold the offered
certificates as "capital assets" within the meaning of Section 1221 of the
Internal Revenue Code of 1986, which we will refer to throughout this "Federal
Income Tax Consequences" section as the "Code". It does not discuss all federal
income tax consequences that may be relevant to owners of offered certificates,
particularly as to investors subject to special treatment under the Code,
including--
o banks;
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o insurance companies; and
o foreign investors.
Further, this discussion and any legal opinions referred to in this
discussion are based on authorities that can change, or be differently
interpreted, with possible retroactive effect. No rulings have been or will be
sought from the IRS with respect to any of the federal income tax consequences
discussed below. Accordingly, the IRS may take contrary positions.
Investors and preparers of tax returns should be aware that under
applicable Treasury regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice is--
o given with respect to events that have occurred at the time the
advice is rendered; and
o is directly relevant to the determination of an entry on a tax
return.
Accordingly, even if this discussion addresses an issue regarding the tax
treatment of the owner of the offered certificates, investors should consult
their own tax advisors regarding that issue. Investors should do so not only as
to federal taxes, but also state and local taxes. See "State and Other Tax
Consequences".
The following discussion addresses securities of two general types--
o "REMIC certificates" representing interests in a trust, or a portion
thereof, as to which a specified person or entity will make a "real
estate mortgage investment conduit", or "REMIC", election under
Sections 860A through 860G of the Code; and
o "grantor trust certificates" representing interests in a trust or a
portion thereof, as to which no REMIC election will be made.
We will indicate in the prospectus supplement for each series whether the
related trustee, another party to the related Governing Document or an agent
appointed by that trustee or other party, in any event, a tax administrator,
will make a REMIC election for the related trust. If the related tax
administrator is required to make a REMIC election, we also will identify in the
related prospectus supplement all regular interests and residual interests in
the resulting REMIC.
The following discussion is limited to certificates offered under this
prospectus. In addition, this discussion applies only to the extent that the
related trust or a portion thereof holds only mortgage loans. If a trust holds
assets other than mortgage loans, such as mortgage-backed securities, we will
disclose in the related prospectus supplement the tax consequences associated
with those other assets being included. In addition, if agreements other than
guaranteed investment contracts are included in a trust to provide interest rate
protection for the related offered certificates, the anticipated material tax
consequences associated with those agreements also will be discussed in the
related prospectus supplement. See "Description of the Trust
Assets--Arrangements Providing Reinvestment, Interest Rate and Currency Related
Protection".
The following discussion is based in part on the rules governing original
issue discount in Sections 1271-1273 and 1275 of the Code and in the Treasury
regulations issued under those sections. It is also based in part on the rules
governing REMICs in Sections 860A-860G of the Code and in the Treasury
regulations issued under those sections, which we will refer to as the "REMIC
Regulations". The regulations relating to original issue discount do not
adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the offered certificates.
REMICS
General. With respect to each series of offered certificates as to which
the related tax administrator will make a REMIC election, our counsel will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Governing Document, and subject to certain assumptions
set forth in the opinion--
o the related trust, or the relevant designated portion of the trust,
will qualify as a REMIC; and
o those offered certificates of that series will be considered to
evidence ownership of--
1. REMIC "regular interests", or
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2. REMIC "residual interests".
We refer in this discussion to--
o certificates that evidence REMIC "regular interests" as the "REMIC
regular certificates"; and
o certificates that represent REMIC "residual interests" as the "REMIC
residual certificates".
If an entity electing to be treated as a REMIC fails to comply with the
ongoing requirements of the Code for REMIC status, it may lose its REMIC status.
If so, the entity may become taxable as a corporation. Therefore, the related
certificates may not be given the tax treatment summarized below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, the Treasury Department
has not done so. Any relief mentioned above, moreover, may be accompanied by
sanctions. These sanctions could include the imposition of a corporate tax on
all or a portion of a trust's income for the period in which the requirements
for REMIC status are not satisfied. The Governing Document with respect to each
REMIC will include provisions designed to maintain its status as a REMIC under
the Code.
Qualification as a REMIC. In order to qualify as a REMIC, an entity must
comply with the requirements set forth in the Code. The REMIC must fulfill an
asset test, which requires that no more than a de minimis portion of the assets
of the REMIC, as of the close of the third calendar month beginning after the
"Startup Day" and at all times thereafter, may consist of assets other than
"qualified mortgages" and "permitted investments". The "Startup Date" for the
purposes of this discussion is the date of issuance of the REMIC certificates.
The REMIC Regulations provide a safe harbor pursuant to which the de minimis
requirement is met if at all times the aggregate adjusted basis of the
nonqualified assets is less than 1% of the aggregate adjusted basis of all the
REMIC's assets. An entity that fails to meet the safe harbor may nevertheless
demonstrate that it holds no more than a de minimis amount of nonqualified
assets. A REMIC also must provide "reasonable arrangements" to prevent its
residual interest from being held by "Disqualified Organizations" and must
furnish applicable tax information to transferors or agents that violate this
requirement. The Governing Document for each series will contain a provision
designed to meet this requirement. See "Sales of REMIC Certificates--Tax and
Restrictions on Transfer of Residual Certificates to Certain Organizations"
below.
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC on the
Startup Day or is purchased by the REMIC within a three-month period thereafter
pursuant to a fixed price contract in effect on the Startup Day. Qualified
mortgages include--
o whole mortgage loans, such as the mortgage loans; o o certificates
of beneficial interest in a grantor trust that holds mortgage loans,
including certain of mortgage backed securities;
o regular interests in another REMIC, such as mortgage backed
securities in a trust as to which a REMIC election has been made;
o loans secured by timeshare interests and loans secured by shares
held by a tenant stockholder in a cooperative housing corporation,
provided, in general that:
1. the fair market value of the real property security (including
buildings and structural components) is at least 80% of the principal balance of
the related mortgage loan or mortgage loan underlying the mortgage certificate
either at origination or as of the Startup Day (an original loan-to-value ratio
of not more than 125% with respect to the real property security); or
2. substantially all the proceeds of the mortgage loan or the underlying
mortgage loan were used to acquire, improve or protect an interest in real
property that, at the origination date, was the only security for the mortgage
loan or underlying mortgage loan.
If the mortgage loan has been significantly modified other than in connection
with a default or reasonably foreseeable default, it must meet the loan-to-value
test in (1) above as of the date of the last significant modification or at
closing. A qualified
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mortgage includes a qualified replacement mortgage, which is any property that
would have been treated as a qualified mortgage if it were transferred to the
REMIC on the Startup Day and that is received either--
o in exchange for any qualified mortgage within a three-month period
thereafter; or
o in exchange for a "defective obligation" within a two-year period
thereafter.
A "defective obligation" includes--
o a mortgage in default or as to which default is reasonably
foreseeable;
o a mortgage as to which a customary representation or warranty made
at the time of transfer to the REMIC has been breached;
o a mortgage that was fraudulently procured by the mortgagor; and
o a mortgage that was not in fact principally secured by real property
(but only if the mortgage is disposed of within 90 days of
discovery).
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC. A
qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC to provide for
payments of expenses of the REMIC or amounts due on the regular or residual
interests in the event of defaults (including delinquencies) on the qualified
mortgages, lower than expected reinvestment returns, prepayment interest
shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in the fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the mortgage loans
are received. Foreclosure property is real property acquired by the REMIC in
connection with the default or imminent default of a qualified mortgage,
provided that we had no knowledge that the mortgage loan would go into default
at the time it was transferred to the REMIC. Foreclosure property generally must
be disposed of prior to the close of the third calendar year following the
acquisition of the property by the REMIC, with an extension that may be granted
by the IRS.
In addition to the foregoing requirements, the various interests in a
REMIC also must meet certain requirements. All of the interests in a REMIC must
be either of the following--
o one or more classes of regular interests; or
o a single class of residual interests on which distributions, if any,
are made pro rata.
A regular interest is an interest in a REMIC that is issued on the Startup
Day with fixed terms, is designated as a regular interest, and unconditionally
entitles the holder to receive a specified principal amount (or other similar
amount), and provides that interest payments (or other similar amounts), if any,
at or before maturity either are payable based on a fixed rate or a qualified
variable rate, or consist of a specified, nonvarying portion of the interest
payments on qualified mortgages. The specified portion may consist of--
o a fixed number of basis points;
o a fixed percentage of the total interest; or
o a fixed or qualified variable or inverse variable rate on some or
all of the qualified mortgages minus a different fixed or qualified
variable rate.
The specified principal amount of a regular interest that provides for
interest payments consisting of a specified, nonvarying portion of interest
payments on qualified mortgages may be zero. A residual interest is an interest
in a REMIC other than a regular interest that is issued on the Startup Day and
that is designated as a residual interest. An interest in a
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REMIC may be treated as a regular interest even if payments of principal with
respect to that interest are subordinated to payments on other regular interests
or the residual interest in the REMIC, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
than reasonably expected returns on permitted investments, unanticipated
expenses incurred by the REMIC or prepayment interest shortfalls. Accordingly,
the REMIC regular certificates of a series will constitute one or more classes
of regular interests, and the REMIC residual certificates for each REMIC of that
series will constitute a single class of residual interests on which
distributions are made pro rata.
Characterization of Investments in REMIC Certificates. Unless we state
otherwise in the related prospectus supplement, the offered certificates that
are REMIC certificates will be treated as--
o "real estate assets" within the meaning of Section 856(c)(5)(B) of
the Code in the hands of a real estate investment trust; and
o "loans secured by an interest in real property" or other assets
described in Section 7701(a)(19)(C) of the Code in the hands of a
thrift institution,
in the same proportion that the assets of the related REMIC are so treated.
However, to the extent that the REMIC assets constitute mortgage loans on
property not used for residential or certain other prescribed purposes, the
related offered certificates will not be treated as assets qualifying under
Section 7701(a)(19)(C). If 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
related offered certificates will qualify for the corresponding status in their
entirety for that calendar year.
In addition, unless provided otherwise in the related prospectus
supplement, offered certificates that are REMIC regular certificates will be--
o "qualified mortgages" within the meaning of Section 860G(a)(3) of
the Code in the hands of another REMIC; and
o "permitted assets" under Section 860L(c)(1)(G) for a financial asset
securitization investment trust or "FASIT".
Finally, interest, including original issue discount, on offered
certificates that are REMIC regular certificates, and income allocated to
offered certificates that are REMIC residual certificates, will be interest
described in Section 856(c)(3)(B) of the Code if received by a real estate
investment trust, to the extent that these certificates are treated as "real
estate assets" within the meaning of Section 856(c)(5)(B) of the Code.
The related tax administrator will determine the percentage of the REMIC's
assets that constitute assets described in the above-referenced sections of the
Code with respect to each calendar quarter based on the average adjusted basis
of each category of the assets held by the REMIC during that calendar quarter.
The related tax administrator will report those determinations to
certificateholders in the manner and at the times required by applicable
Treasury regulations.
The assets of the REMIC will include, in addition to mortgage loans,
collections on mortgage loans held pending payment on the related offered
certificates and any property acquired by foreclosure held pending sale, and may
include amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale, and amounts in reserve accounts, would be
considered to be part of the mortgage loans, or whether these assets otherwise
would receive the same treatment as the mortgage loans for purposes of the
above-referenced sections of the Code. In addition, in some instances, the
mortgage loans may not be treated entirely as assets described in those sections
of the Code. If so, we will describe in the related prospectus supplement those
mortgage loans that are characterized differently. The Treasury regulations do
provide, however, that cash received from collections on mortgage loans held
pending payment is considered part of the mortgage loans for purposes of Section
856(c)(5)(B) of the Code, relating to real estate investment trusts.
To the extent a REMIC certificate represents ownership of an interest in a
mortgage loan that is secured in part by the related borrower's interest in a
bank account, that mortgage loan is not secured solely by real estate, and
therefore--
o a portion of that certificate may not represent ownership of "loans
secured by an interest in real property" or other assets described
in Section 7701(a)(19)(C) of the Code;
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o a portion of that certificate may not represent ownership of "real
estate assets" under Section 856(c)(5)(B) of the Code; and
o the interest on that certificate may not constitute "interest on
obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code.
Tiered REMIC Structures. For certain series of REMIC certificates, the
related tax administrator may make two or more REMIC elections as to the related
trust for federal income tax purposes. As to each of these series of REMIC
certificates, our counsel will opine that each portion of the related trust as
to which a REMIC election is to be made will qualify as a REMIC. Each of these
series will be treated as one REMIC solely for purposes of determining--
o whether the related REMIC certificates will be "real estate assets"
within the meaning of Section 856(c)(5)(B) of the Code;
o whether the related REMIC certificates will be "loans secured by an
interest in real property" under Section 7701(a)(19)(C) of the Code;
and
o whether the interest/income on the related REMIC certificates is
interest described in Section 856(c)(3)(B) of the Code.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, the Code treats
REMIC regular certificates as debt instruments issued by the REMIC and not as
ownership interests in the REMIC or its assets. Holders of REMIC regular
certificates that otherwise report income under the cash method of accounting
must nevertheless report income with respect to REMIC regular certificates under
the accrual method.
Original Issue Discount. Certain REMIC regular certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC regular certificates issued with original issue
discount generally will have to include original issue discount in income as it
accrues, in accordance with the constant yield method described below, prior to
the receipt of the cash attributable to that income. The IRS has issued
regulations under Section 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Section
1272(a)(6) of the Code provides special rules applicable to the accrual of
original issue discount on, among other things, REMIC regular certificates. The
Treasury Department has not issued regulations under that section. You should be
aware, however, that Section 1272(a)(6) and the regulations under Sections 1271
to 1275 of the Code do not adequately address certain issues relevant to, or are
not applicable to, prepayable securities such as the offered certificates. We
recommend that you consult with your own tax advisor concerning the tax
treatment of your certificates.
The Code requires, in computing the accrual of original issue discount on
REMIC regular certificates, that a reasonable assumption be used concerning the
rate at which borrowers will prepay the mortgage loans held by the related
REMIC. Further, adjustments must be made in the accrual of that original issue
discount to reflect differences between the prepayment rate actually experienced
and the assumed prepayment rate. The prepayment assumption is to be determined
in a manner prescribed in Treasury regulations that the Treasury Department has
not yet issued. The Conference Committee Report accompanying the Tax Reform Act
of 1986 (the "Committee Report") indicates that the regulations should provide
that the prepayment assumption used with respect to a REMIC regular certificate
is determined once, at initial issuance, and must be the same as that used in
pricing. The prepayment assumption used in reporting original issue discount for
each series of REMIC regular certificates will be consistent with this standard
and will be disclosed in the related prospectus supplement. However, neither we
nor any other person will make any representation that the mortgage loans
underlying any series of REMIC regular certificates will in fact prepay at a
rate conforming to the prepayment assumption or at any other rate or that the
IRS will not challenge on audit the prepayment assumption used.
The original issue discount, if any, on a REMIC 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 REMIC regular certificates will
be the first cash price at which a substantial amount of those certificates are
sold, excluding sales to bond houses, brokers and underwriters. If less than a
substantial amount of a particular class of REMIC regular certificates is sold
for cash on or prior to the related date of initial issuance of those
certificates, the issue price for that class will be the fair market value of
that class on the date of initial issuance.
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Under the Treasury regulations, the stated redemption price of a REMIC
regular certificate is equal to the total of all payments to be made on that
certificate other than qualified stated interest. Qualified stated interest is
interest that is unconditionally payable at least annually, during the entire
term of the instrument, at--
o a single fixed rate;
o a qualified floating rate;
o an objective rate;
o a combination of a single fixed rate and one or more qualified
floating rates;
o a combination of a single fixed rate and one qualified inverse
floating rate; or
o a combination of qualified floating rates that does not operate in a
manner that accelerates or defers interest payments on the REMIC
regular certificate.
In the case of REMIC regular certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
those certificates. If the original issue discount rules apply to those
certificates, we will describe in the related prospectus supplement the manner
in which those rules will be applied with respect to those certificates in
preparing information returns to the certificateholders and the IRS.
Certain classes of REMIC regular certificates may provide that the first
interest payment with respect to those certificates be made more than one month
after the date of initial issuance, a period that is longer than the subsequent
monthly intervals between interest payments. Assuming the accrual period for
original issue discount is the monthly period that ends on each payment date,
then, as a result of this long first accrual period, some or all interest
payments may be required to be included in the stated redemption price of the
REMIC regular certificate and accounted for as original issue discount. Because
interest on REMIC 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 REMIC
regular certificates.
In addition, if the accrued interest to be paid on the first payment date
is computed with respect to a period that begins prior to the date of initial
issuance, a portion of the purchase price paid for a REMIC regular certificate
will reflect that accrued interest. In those cases, information returns provided
to the certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued prior to the date of
initial issuance is treated as part of the overall cost of the REMIC regular
certificate. Therefore, the portion of the interest paid on the first payment
date in excess of interest accrued from the date of initial issuance to the
first payment date is included in the stated redemption price of the REMIC
regular certificate. However, the Treasury regulations state that all or some
portion of this accrued interest may be treated as a separate asset, the cost of
which is recovered entirely out of interest paid on the first payment date. It
is unclear how an election to do so would be made under these regulations and
whether this election could be made unilaterally by a certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC regular certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the
certificate multiplied by its weighted average maturity. For this purpose, the
weighted average maturity of a REMIC regular certificate is computed as the sum
of the amounts determined, as to each payment included in the stated redemption
price of the certificate, by multiplying--
o the number of complete years, rounding down for partial years, from
the date of initial issuance, until that payment is expected to be
made, presumably taking into account the prepayment assumption; by
o a fraction--
1. the numerator of which is the amount of the payment, and
2. the denominator of which is the stated redemption price at
maturity of the certificate.
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Under the Treasury 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:
o the total amount of the de minimis original issue discount, and
o a fraction--
1. the numerator of which is the amount of the principal payment,
and
2. the denominator of which is the outstanding stated principal
amount of the subject REMIC regular certificate.
The Treasury regulations also would permit you to elect to accrue de
minimis original issue discount into income currently based on a constant yield
method. See "--REMICs--Taxation of Owners of REMIC Regular Certificates--Market
Discount" below for a description of that election under the applicable Treasury
regulations.
If original issue discount on a REMIC 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 certificate, including the
purchase date but excluding the disposition date. In the case of an original
holder of a REMIC regular certificate, the daily portions of original issue
discount will be determined as described below.
As to each accrual period, the related tax administrator will calculate
the original issue discount that accrued during that accrual period. For these
purposes, an accrual period is, unless we otherwise state in the related
prospectus supplement, the period that begins on a date that corresponds to a
payment date, or in the case of the first accrual period, begins on the date of
initial issuance, and ends on the day preceding the immediately following
payment date. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of--
o the sum of--
1. the present value, as of the end of the accrual period, of all
of the payments remaining to be made on the subject REMIC
regular certificate, if any, in future periods, presumably
taking into account the prepayment assumption, and
2. the payments made on that certificate during the accrual
period of amounts included in the stated redemption price;
over
o the adjusted issue price of the subject REMIC regular certificate at
the beginning of the accrual period.
The adjusted issue price of a REMIC regular certificate is--
o the issue price of the certificate; increased by
o the aggregate amount of original issue discount previously accrued
on the certificate; reduced by
o the amount of all prior payments of amounts included in its stated
redemption price.
The present value of the remaining payments referred to in item 1 of the second
preceding sentence, will be calculated--
o assuming that payments on the REMIC regular certificate will be
received in future periods based on the related mortgage loans being
prepaid at a rate equal to the prepayment assumption;
o using a discount rate equal to the original yield to maturity of the
certificate, based on its issue price and the assumption that the
related mortgage loans will be prepaid at a rate equal to the
prepayment assumption; and
o taking into account events, including actual prepayments, that have
occurred before the close of the accrual period.
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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.
A subsequent purchaser of a REMIC regular certificate that purchases the
certificate at a cost, excluding any portion of that cost attributable to
accrued qualified stated interest, that is less than its remaining stated
redemption price, will also be required to include in gross income the daily
portions of any original issue discount with respect to the certificate.
However, the daily portion will be reduced, if the cost is in excess of its
adjusted issue price, in proportion to the ratio that the excess bears to the
aggregate original issue discount remaining to be accrued on the certificate.
The adjusted issue price of a REMIC regular certificate, as of any date of
determination, equals the sum of:
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 date of determination; and
o the daily portions of original issue discount for all days during
the accrual period prior to that date of determination.
If the foregoing method for computing original issue discount results in a
negative amount of original issue discount as to any accrual period with respect
to a REMIC regular certificate held by you, the amount of original issue
discount accrued for that accrual period will be zero. You may not deduct the
negative amount currently. Instead, you will only be permitted to offset the
negative amount against future positive original issue discount, if any,
attributable to the certificate. Although not free from doubt, it is possible
that you may be permitted to recognize a loss to the extent your basis in the
certificate exceeds the maximum amount of payments that you could ever receive
with respect to the certificate. However, any such loss may be a capital loss,
which is limited in its deductibility. The foregoing considerations are
particularly relevant to certificates that have no, or a disproportionately
small, amount of principal because they can have negative yields if the mortgage
loans held by the related REMIC prepay more quickly than anticipated. See "Risk
Factors--Prepayment Considerations; Variability in Average Life of Offered
Certificates; Special Yield Considerations".
The Treasury regulations in some circumstances 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 you may be able to
select a method for recognizing original issue discount that differs from that
used by the trust in preparing reports to you and the IRS. Prospective
purchasers of the REMIC regular certificates should consult their tax advisors
concerning the tax treatment of these certificates in this regard.
Market Discount. You will be considered to have purchased a REMIC regular
certificate at a market discount if--
o in the case of a certificate issued without original issue discount,
you purchased the certificate at a price less than its remaining
stated principal amount; or
o in the case of a certificate issued with original issue discount,
you purchased the certificate at a price less than its adjusted
issue price.
If you purchase a REMIC regular certificate with more than a de minimis
amount of market discount, you will recognize gain upon receipt of each payment
representing stated redemption price. Under Section 1276 of the Code, you
generally will be required to allocate the portion of each payment representing
some or all of the stated redemption price first to accrued market discount not
previously included in income. You must recognize ordinary income to that
extent. You 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, this election will apply to all market discount bonds
acquired by you on or after the first day of the first taxable year to which
this election applies.
The Treasury regulations also permit you to elect to accrue all interest
and discount, including de minimis market or original issue discount, in income
as interest, and to amortize premium, based on a constant yield method. Your
making this election with respect to a REMIC regular certificate with market
discount would be deemed to be an election to include currently market discount
in income with respect to all other debt instruments with market discount that
you acquire during the taxable year of the election or thereafter, and possibly
previously acquired instruments. Similarly, your making this election as to a
certificate acquired at a premium would be deemed to be an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that you own or acquire. See "--REMICs --Taxation of Owners of REMIC
Regular Certificates--Premium" below.
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Each of the elections described above to accrue interest and discount and
to amortize premium, with respect to a certificate on a constant yield method or
as interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC 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 certificate multiplied by the number of complete years to maturity remaining
after the date of its purchase. In interpreting a similar rule with respect to
original issue discount on obligations payable in installments, the Treasury
regulations refer to the weighted average maturity of obligations. It is likely
that the same rule will be applied with respect to 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
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount" above. This treatment would 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, you may accrue market discount on a REMIC regular
certificate held by you, at your option--
o on the basis of a constant yield method;
o in the case of a 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
certificate as of the beginning of the accrual period; or
o in the case of a 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 amount of original issue discount
remaining on the certificate at the beginning of the accrual period.
The prepayment assumption used in calculating the accrual of original
issue discount is also used in calculating the accrual of market discount.
To the extent that REMIC regular certificates provide for monthly or other
periodic payments 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 REMIC regular
certificate generally will be required to treat a portion of any gain on the
sale or exchange of the 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.
Further, Section 1277 of the Code may require you to defer a portion of
your interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry a REMIC 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 the related taxable year and is, in general, allowed as a
deduction not later than the year in which the related market discount is
includible in income. If you have elected, however, to include market discount
in income currently as it accrues, the interest deferral rule described above
would not apply.
Premium. A REMIC regular certificate purchased at a cost, excluding any
portion of the cost attributable to accrued qualified stated interest, that is
greater than its remaining stated redemption price will be considered to be
purchased at a premium. You may elect under Section 171 of the Code to amortize
the premium under the constant yield method over the life of the certificate. If
you elect to amortize bond premium, bond premium would be amortized on a
constant yield method and would be applied as an offset against qualified stated
interest. If made, this election will apply to all debt instruments having
amortizable bond premium that you own or subsequently acquire. The IRS has
issued regulations on the amortization of bond premium, but they specifically do
not apply to holders of REMIC regular certificates.
The Treasury regulations also permit you to elect to include all interest,
discount and premium in income based on a constant yield method, further
treating you as having made the election to amortize premium generally. See
"--Taxation of Owners of REMIC Regular Certificates--Market Discount" above. The
Committee Report states that the same rules that
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apply to accrual of market discount and require the use of a prepayment
assumption in accruing market discount with respect to REMIC 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.
Whether you will be treated as holding a REMIC regular certificate with
amortizable bond premium will depend on--
o the purchase price paid for your certificate; and
o the payments remaining to be made on your certificate at the time of
its acquisition by you.
If you acquire an interest in any class of REMIC regular certificates
issued at a premium, you should consider consulting your own tax advisor
regarding the possibility of making an election to amortize the premium.
Realized Losses. Under Section 166 of the Code, if you are either a
corporate holder of a REMIC regular certificate and or a noncorporate holder of
a REMIC regular certificate that acquires the certificate in connection with a
trade or business, you should be allowed to deduct, as ordinary losses, any
losses sustained during a taxable year in which your certificate becomes wholly
or partially worthless as the result of one or more realized losses on the
related mortgage loans. However, if you are a noncorporate holder that does not
acquire a REMIC regular certificate in connection with a trade or business, it
appears that--
o you will not be entitled to deduct a loss under Section 166 of the
Code until your certificate becomes wholly worthless, which is when
its principal balance has been reduced to zero; and
o the loss will be characterized as a short-term capital loss.
You will also have to accrue interest and original issue discount with
respect to your REMIC regular certificate, without giving effect to any
reductions in payments attributable to defaults or delinquencies on the related
mortgage loans, until it can be established that those payment reductions are
not recoverable. As a result, your taxable income in a period could exceed your
economic income in that period. If any amounts previously included in taxable
income are not ultimately received due to a loss on the related mortgage loans,
you should be able to recognize a loss or reduction in income. However, the law
is unclear with respect to the timing and character of this loss or reduction in
income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, the Code does not subject a REMIC to entity-level taxation, except
with regard to prohibited transactions and certain other transactions. See
"--REMICs--Prohibited Transactions Tax and Other Taxes" below. Rather, a holder
of REMIC residual certificates must generally take in income the taxable income
or net loss of the related REMIC. Accordingly, the Code treats the REMIC
residual certificates much differently than it would if they were direct
ownership interests in the related mortgage loans or as debt instruments issued
by the related REMIC.
Holders of REMIC residual certificates generally will be required to
report their daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the related REMIC for each day during
a calendar quarter that they own those certificates. 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 unless we otherwise disclose in the related prospectus
supplement. These daily amounts then will be allocated among the holders of the
REMIC residual certificates in proportion to their respective ownership
interests on that day. Any amount included in the certificateholders' gross
income or allowed as a loss to them by virtue of this paragraph will be treated
as ordinary income or loss. The taxable income of the REMIC will be determined
under the rules described below in "--REMICs--Taxation of Owners of REMIC
Residual Certificates--Taxable Income of the REMIC". Holders of REMIC residual
certificates must report the taxable income of the related REMIC without regard
to the timing or amount of cash payments by the REMIC until the REMIC's
termination. Income derived from the REMIC residual certificates will be
"portfolio income" for the purposes of the 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 also will be required to report on its federal income tax
return amounts representing its daily share of the taxable income, or net loss,
of the related REMIC for each day that it holds the REMIC residual certificate.
These daily amounts generally will equal the amounts of taxable income or net
loss determined as described above. The Committee Report indicates that certain
modifications of the general
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rules may be made, by regulations, legislation or otherwise to reduce, or
increase, the income of a holder of a REMIC residual certificate. These
modifications would occur when a holder purchases the REMIC residual certificate
from a prior holder at a price other than the adjusted basis that the REMIC
residual certificate would have had in the hands of an original holder of that
certificate. The Treasury regulations, however, do not provide for these
modifications.
Any payments that you receive from the seller of a REMIC residual
certificate in connection with the acquisition of that certificate will be
income to you. Although it is possible that these payments would be includible
in income immediately upon receipt, the IRS might assert that you should include
these payments 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, we recommend that you consult your tax advisor
concerning the treatment of these payments for income tax purposes.
Tax liability with respect to the amount of income that holders of REMIC
residual certificates will be required to report, will often exceed the amount
of cash payments received from the related REMIC for the corresponding period.
Consequently, you should have--
o other sources of funds sufficient to pay any federal income taxes
due as a result of your ownership of REMIC residual certificates; or
o unrelated deductions against which income may be offset.
See, however, the rules discussed below relating to--
o "excess inclusions";
o residual interests without "significant value"; and
o "noneconomic" residual interests.
The fact that the tax liability associated with this income allocated to
you may exceed the cash payments received by you for the corresponding period
may significantly and adversely affect their after-tax rate of return. This
disparity between income and payments may not be offset by corresponding losses
or reductions of income attributable to your certificates until subsequent tax
years. Even then, the extra income may not be completely offset due to changes
in the Code, tax rates or character of the income or loss. Therefore, the REMIC
residual certificates will ordinarily have a negative value at the time of
issuance. See "Risk Factors--Certain Federal Income Tax Consequences Regarding
Residual Certificates".
Taxable Income of the REMIC. The taxable income of a REMIC will equal--
o the income from the mortgage loans and other assets of the REMIC;
plus
o any cancellation of indebtedness income due to the allocation of
realized losses to those REMIC certificates, constituting "regular
interests" in the REMIC; less
o the following items--
1. the deductions allowed to the REMIC for interest, including
original issue discount but reduced by any premium on
issuance, on any class of REMIC certificates constituting
"regular interests" in the REMIC, whether offered or not,
2. amortization of any premium on the mortgage loans held by the
REMIC,
3. bad debt losses with respect to the mortgage loans held by the
REMIC, and
4. except as described below, servicing, administrative and other
expenses.
For purposes of determining its taxable income, a REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC certificates, or in the case of REMIC certificates not sold initially,
their fair market values. The aggregate basis will be allocated among the
mortgage loans and the other assets of the REMIC in proportion to
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their respective fair market values. The issue price of any REMIC certificates
offered hereby will be determined in the manner described above under
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount". The issue price of a REMIC certificate received in exchange for an
interest in mortgage loans or other property will equal the fair market value of
the interests in the mortgage loans or other property. Accordingly, if one or
more classes of REMIC certificates are retained initially rather than sold, the
related tax administrator may be required to estimate the fair market value of
these interests in order to determine the basis of the REMIC in the mortgage
loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by a REMIC of original issue discount income and market discount income
with respect to mortgage loans that it holds will be equivalent to the method
for accruing original issue discount income for holders of REMIC regular
certificates. That method is a constant yield method taking into account the
prepayment assumption. However, a REMIC that acquires loans at a market discount
must include that market discount in income currently, as it accrues, on a
constant yield basis. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing the discount income
that is analogous to that required to be used by a REMIC as to mortgage loans
with market discount that it holds.
A REMIC will acquire a mortgage loan with discount, or premium, to the
extent that the REMIC's basis, determined as described in the preceding
paragraph, is different from its stated redemption price. 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 REMIC regular
certificates. A REMIC probably will elect under Section 171 of the Code to
amortize any premium on the mortgage loans that it holds. Premium on any
mortgage loan to which this election applies may be amortized under a constant
yield method, presumably taking into account the prepayment assumption.
A REMIC will be allowed deductions for interest, including original issue
discount, on all of the certificates that constitute "regular interests" in the
REMIC, whether or not offered hereby, as if those certificates were indebtedness
of the REMIC. Original issue discount will be considered to accrue for this
purpose as described above under "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". However, the de minimis rule described
in that section will not apply in determining deductions.
If a class of REMIC regular certificates is issued at a price in excess of
the stated redemption price of that class, the net amount of interest deductions
that are allowed to the REMIC in each taxable year with respect to those
certificates will be reduced by an amount equal to the portion of that excess
that is considered to be amortized in that year. It appears that this excess
should be amortized under a constant yield method in a manner analogous to the
method of accruing original issue discount described above under
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount".
As a general rule, the taxable income of a REMIC will be determined 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 "--REMICs--Prohibited Transactions Tax and Other Taxes" below. Further, the
limitation on miscellaneous itemized deductions imposed on individuals by
Section 67 of the Code will not be applied at the REMIC level so that the REMIC
will be allowed full deductions for servicing, administrative and other
noninterest expenses in determining its taxable income. All those expenses will
be allocated as a separate item to the holders of the related REMIC
certificates, subject to the limitation of Section 67 of the Code. See
"--REMICs--Taxation of Owners of REMIC Residual Certificates--Possible
Pass-Through of Miscellaneous Itemized Deductions" below. 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.
Basis Rules, Net Losses and Distributions. The adjusted basis of a
REMIC residual certificate will be equal to--
o the amount paid for that REMIC residual certificate;
o increased by, amounts included in the income of the holder of that
REMIC residual certificate; and
o decreased, but not below zero, by distributions made, and by net
losses allocated, to the holder of that REMIC residual certificate.
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A holder of a REMIC residual certificate is not allowed to take into
account any net loss for any calendar quarter to the extent that the net loss
exceeds the adjusted basis to that holder as of the close of that calendar
quarter, determined without regard to that net loss. Any loss that is not
currently deductible by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income from the REMIC residual certificate.
Any distribution on a REMIC residual certificate will be treated as a
nontaxable 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 holder's adjusted basis, it will be
treated as gain from the sale of that REMIC residual certificate.
A holder's basis in a REMIC residual certificate will initially equal the
amount paid for the certificate and will be increased by that holder's allocable
share of taxable income of the related REMIC. However, these increases in basis
may not occur until the end of the calendar quarter, or perhaps the end of the
calendar year, with respect to which the related REMIC's taxable income is
allocated to that holder. To the extent the initial basis of the holder of a
REMIC residual certificate is less than the payments to that holder, and
increases in the initial basis either occur after these payments or, together
with the initial basis, are less than the amount of these payments, gain will be
recognized to that holder on these payments. This gain will be treated as gain
from the sale of its REMIC residual certificate.
The effect of these rules is that a holder of a REMIC residual certificate
may not amortize its basis in a REMIC residual certificate, but may only recover
its basis--
o through distributions;
o through the deduction of any net losses of the REMIC; or
o upon the sale of its REMIC residual certificate. See
"--REMICs--Sales of REMIC Certificates" below.
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 see "--REMICs--Taxation of Owners of REMIC Residual
Certificates--General" above. These adjustments could require a holder of a
REMIC residual certificate to account for any difference between the cost of the
certificate to the holder and the adjusted basis of the certificate would have
been in the hands of an original holder.
Excess Inclusions. Any excess inclusions with respect to a REMIC residual
certificate will be subject to federal income tax in all events. In general, the
excess inclusions with respect to a REMIC residual certificate for any calendar
quarter will be the excess, if any, of--
o the daily portions of REMIC taxable income allocable to that
certificate; over
o the sum of the daily accruals for each day during the quarter that
the certificate was held by that holder.
The daily accruals of a holder of a REMIC residual certificate will be
determined by allocating to each day during a calendar quarter its ratable
portion of a numerical calculation. That calculation is 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 date of
initial issuance. For this purpose, the adjusted issue price of a REMIC residual
certificate as of the beginning of any calendar quarter will be equal to--
o the issue price of the certificate; increased by
o the sum of the daily accruals for all prior quarters; and decreased,
but not below zero; by
o any payments made with respect to the certificate before the
beginning of that quarter.
The issue price of a REMIC residual certificate is the initial offering
price to the public at which a substantial amount of the REMIC residual
certificates were sold, but excluding sales to bond houses, brokers and
underwriters or, if no sales have been made, their initial value. 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.
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Although it has not done so, the Treasury Department has authority to
issue regulations that would treat the entire amount of income accruing on a
REMIC residual certificate as excess inclusions if the REMIC residual interest
evidenced by that certificate is considered not to have significant value.
For holders of REMIC residual certificates, excess inclusions--
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 with respect to the 30% United States
withholding tax imposed on payments to holders of REMIC residual
certificates that are foreign investors. See, however,
"--REMICs--Foreign Investors in REMIC Certificates" below.
Furthermore, for purposes of the alternative minimum tax--
o excess inclusions will not be permitted to be offset by the
alternative tax net operating loss deduction; and
o alternative minimum taxable income may not be less than the
taxpayer's excess inclusions.
This last rule has the effect of preventing non-refundable 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, or REIT, the aggregate excess inclusions with respect to these
REMIC residual certificates will be allocated among the shareholders of the REIT
in proportion to the dividends received by the shareholders from the REIT. Any
amount so allocated will be treated as an excess inclusion with respect to a
REMIC residual certificate as if held directly by the shareholder. The aggregate
excess inclusions referred to in the previous sentence will be reduced, but not
below zero, by any REIT taxable income, within the meaning of Section 857(b)(2)
of the Code, other than any net capital gain. Treasury regulations yet to be
issued could apply a similar rule to--
o regulated investment companies;
o common trust funds; and
o certain cooperatives.
The Treasury regulations, however, currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the Treasury 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 a
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 Treasury 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 liquidation provided for in the related
Governing Document--
o the present value of the expected future payments on the REMIC
residual certificate equals at least the present value of the
expected tax on the anticipated excess inclusions; and
o the transferor reasonably expects that the transferee will receive
payments with respect to the REMIC residual certificate at or after
the time the taxes accrue on the anticipated excess inclusions in an
amount sufficient to satisfy the accrued taxes.
The present value calculation referred to above is calculated 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 with respect to the
REMIC residual certificate. This rate is computed and published monthly by the
IRS.
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Accordingly, all transfers of REMIC residual certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Governing Document that are intended to reduce the
possibility of any transfer being disregarded. These restrictions will require
an affidavit--
o from each party to the transfer, stating that no purpose of the
transfer is to impede the assessment or collection of tax;
o from the prospective transferee, providing certain representations as
to its financial condition; and
o from the prospective transferor, stating that it has made a reasonable
investigation to determine the transferee's historic payment of its
debts and ability to continue to pay its debts as they come due in the
future.
The Treasury recently issued proposed regulations that would revise this
safe harbor. The proposed regulation would make the safe harbor unavailable
unless the present value of the anticipated tax liabilities associated with
holding the residual interest was less than or equal to the sum of--
o the present value of any consideration given to the transferee to
acquire the interest;
o the present value of the expected future distributions on the
interest; and
o the present value of the anticipated tax savings associated with the
holding of the interest as the REMIC generates losses.
Present values would be computed using a discount rate equal to an
applicable Federal rate, except that if a transferee could demonstrate that it
borrowed regularly in the course of its trade or business substantial funds at a
lower rate from unrelated third parties, that lower rate could be used as the
discount rate.
Additionally, Treasury has issued Revenue Procedure 2001-12 (the "Revenue
Procedure") dealing with the transfer of noneconomic residual interests. The
Revenue Procedure restates the safe harbor described in the proposed Treasury
regulations discussed above and adds an alternative test for meeting the safe
harbor. To meet the alternative test, (i) the transferee must be a domestic "C"
corporation (other than a corporation exempt from taxation or a regulated
investment company or real estate investment trust) that meets certain gross and
net asset tests (generally, $100 million of gross assets and $10 million of net
assets for the current year and the two preceding fiscal years); (ii) the
transferee must agree in writing that any subsequent transfer of the residual
interest would meet the requirements for a safe harbor transfer under the
Revenue Procedure; and (iii) the facts and circumstances known to the transferor
on or before the date of the transfer must not reasonably indicate that the
taxes associated with ownership of the residual interest will not be paid by the
transferee. This alternative test, as well as the minimum transfer price test,
are effective February 4, 2000.
Prospective investors should consult their own tax advisors as to the
applicability and effect of these alternative safe harbor tests.
Prior to purchasing a REMIC residual certificate, prospective purchasers
should consider the possibility that a purported transfer of a REMIC residual
certificate to another party at some future date may be disregarded in
accordance with the above-described rules. This would result in the retention of
tax liability by the transferor in respect of that purported transfer.
We will disclose in the related prospectus supplement whether the offered
REMIC residual certificates may be considered "noneconomic" residual interests
under the Treasury regulations. However, we will base any disclosure that a
REMIC residual certificate will not be considered "noneconomic" upon certain
assumptions. Further, we will make no representation that a REMIC residual
certificate will not be considered "noneconomic" for purposes of the
above-described rules.
See "--REMICs--Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC residual
certificates to foreign persons and to United States partnerships that include
foreign persons as partners.
Mark-to-Market Rules. Regulations under Section 475 of the Code require
that a securities dealer mark to market securities held for sale to customers.
This mark-to-market requirement applies to all securities owned by a dealer,
except to the extent that the dealer has specifically identified a security as
held for investment. These regulations provide that for
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purposes of this mark-to-market requirement, a REMIC residual certificate is not
treated as a security for purposes of Section 475 of the Code. Thus, a REMIC
residual certificate is not subject to the mark-to-market rules. We recommend
that prospective purchasers of a REMIC residual certificate consult their tax
advisors regarding these regulations.
Foreigners May Not Hold REMIC Residual Certificates. Unless we otherwise
state in the related prospectus supplement, transfers of REMIC residual
certificates to investors that are foreign persons under the Code and to United
States partnerships that include foreign persons as partners will be prohibited
under the related Governing Document. If transfers of REMIC residual
certificates to investors that are foreign persons are permitted pursuant to the
related Governing Document, we will describe in the related prospectus
supplement additional restrictions applicable to transfers of certain REMIC
residual certificates to these persons.
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 these fees and expenses should be allocated to the holders of the
related REMIC regular certificates. Unless we state otherwise in the related
prospectus supplement, however, these 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 REMIC regular certificates.
If the holder of a REMIC certificate receives an allocation of fees and
expenses in accordance with the preceding discussion, and if that holder is--
o an individual;
o an estate or trust; or
o a pass-through entity beneficially owned by one or more individuals,
estates or trusts,
then--
o an amount equal to this individual's, estate's or trust's share of
these fees and expenses will be added to the gross income of this
holder; and
o the individual's, estate's or trust's share of these fees and expenses
will be treated as a miscellaneous itemized deduction allowable
subject to the limitation of Section 67 of the Code, which permits the
deduction of these fees and expenses only to the extent they exceed in
the aggregate 2% 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 the
specified amount; or
o 80% of the amount of itemized deductions otherwise allowable for the
taxable year.
Furthermore, in determining the alternative minimum taxable income of a
holder of a REMIC certificate that is--
o an individual,
o an estate or trust, or
o a pass-through entity beneficially owned by one or more individuals,
estates or trusts,
no deduction will be allowed for the holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of these fees and other deductions will be
included in the holder's gross income.
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The amount of additional taxable income reportable by holders of REMIC
certificates that are subject to the limitations of either Section 67 or Section
68 of the Code, or the complete disallowance of the related expenses for
alternative minimum tax purposes, may be substantial.
Accordingly, REMIC certificates to which these expenses are allocated will
generally not be appropriate investments for--
o an individual;
o an estate or trust; or
o a pass-through entity beneficially owned by one or more individuals,
estates or trusts.
We recommend that prospective investors consult with their tax advisors
prior to making an investment in a REMIC certificate to which these expenses are
allocated.
Sales of REMIC Certificates. If a REMIC 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 REMIC certificate.
The adjusted basis of a REMIC regular certificate generally will equal--
o the cost of the certificate to that certificateholder; increased by
o income reported by that certificateholder with respect to the
certificate, including original issue discount and market discount
income; and reduced, but not below zero, by
o payments on the certificate received by that certificateholder,
amortized premium and realized losses allocated to the certificate and
previously deducted by the certificateholder.
The adjusted basis of a REMIC residual certificate will be determined as
described above under "--REMICs--Taxation of Owners of REMIC Residual
Certificates--Basis Rules, Net Losses and Distributions". Except as described
below, any gain or loss from your sale of a REMIC certificate will be capital
gain or loss, provided that you hold the certificate as a capital asset within
the meaning of Section 1221 of the Code, which is generally property held for
investment.
In addition to the recognition of gain or loss on actual sales, the Code
requires the recognition of gain, but not loss, upon the "constructive sale of
an appreciated financial position". A constructive sale of an appreciated
financial position occurs if a taxpayer enters into certain transactions or
series of transactions that have the effect of substantially eliminating the
taxpayer's risk of loss and opportunity for gain with respect to the financial
instrument. Debt instruments that--
o entitle the holder to a specified principal amount;
o pay interest at a fixed or variable rate; and
o are not convertible into the stock of the issuer or a related party,
cannot be the subject of a constructive sale for this purpose. Because most
REMIC regular certificates meet this exception, Section 1259 will not apply to
most REMIC regular certificates. However, REMIC regular certificates that have
no, or a disproportionately small amount of, principal, can be the subject of a
constructive sale.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include the net capital
gain in total net investment income for the taxable year. A taxpayer would do so
because of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
As of the date of this prospectus, the Code provides for lower rates as to
long-term capital gains than those applicable to the short-term capital gains
and ordinary income recognized or received by individuals. No rate differential
exists for corporations. In addition, the distinction between a capital gain or
loss and ordinary income or loss is relevant for other purposes to both
individuals and corporations.
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Gain from the sale of a REMIC regular certificate that might otherwise be a
capital gain will be treated as ordinary income to the extent that the gain does
not exceed the excess, if any, of--
o the amount that would have been includible in the seller's income with
respect to that REMIC regular certificate assuming that income had
accrued thereon at a rate equal to 110% of the applicable Federal rate
determined as of the date of purchase of the certificate, which is a
rate based on an average of current yields on Treasury securities
having a maturity comparable to that of the certificate based on the
application of the prepayment assumption to the certificate; over
o the amount of ordinary income actually includible in the seller's
income prior to that sale.
In addition, gain recognized on the sale of a REMIC regular certificate by
a seller who purchased the certificate at a market discount will be taxable as
ordinary income in an amount not exceeding the portion of that discount that
accrued during the period the certificate was held by the seller, reduced by any
market discount included in income under the rules described above under
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Market Discount"
and "--Premium".
REMIC certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC certificate by a bank or thrift institution to which that section of
the Code applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC regular certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that a holder holds the certificate 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 the same 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 that 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 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.
Except as may be provided in Treasury regulations yet to be issued, a loss
realized on the sale of a REMIC residual certificate will be subject to the
"wash sale" rules of Section 1091 of the Code, if during the period beginning
six months before, and ending six months after, the date of that sale the seller
of that certificate--
o reacquires that same REMIC residual certificate;
o acquires any other residual interest in a REMIC; or
o acquires any similar interest in a "taxable mortgage pool", as defined
in Section 7701(i) of the Code.
In that event, any loss realized by the holder of a REMIC residual
certificate on the sale will not be recognized or deductible currently, but
instead will be added to that holder's adjusted basis in the newly-acquired
asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from prohibited transactions. In
general, subject to certain specified exceptions, a prohibited transaction
includes--
o the disposition of a non-defaulted mortgage loan,
o the receipt of income from a source other than a mortgage loan or
certain other permitted investments,
o the receipt of compensation for services, or
o the gain from the disposition of an asset purchased with collections
on the mortgage loans for temporary investment pending payment on the
REMIC certificates.
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It is not anticipated that any REMIC will engage in any prohibited
transactions as to which it would be subject to this tax.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property. The related
Governing Document will include provisions designed to prevent the acceptance of
any contributions that would be subject to this 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 REITs. Net income from foreclosure property generally means income
from foreclosure property other than qualifying rents and other qualifying
income for a REIT. Under certain circumstances, the special servicer may be
authorized to conduct activities with respect to a mortgaged property acquired
by a trust that causes the trust to incur this tax if doing so would, in the
reasonable discretion of the special servicer, maximize the net after-tax
proceeds to certificateholders. However, under no circumstance will the special
servicer cause the acquired mortgaged property to cease to be a "permitted
investment" under Section 860G(a)(5) of the Code.
Unless we otherwise disclose 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.
Unless we state otherwise in the related prospectus supplement, and to the
extent permitted by then applicable laws, any tax on prohibited transactions,
certain contributions or net income from foreclosure property, and any state or
local income or franchise tax, that may be imposed on the REMIC will be borne by
the related trustee, tax administrator, master servicer, special servicer or
manager, in any case out of its own funds, provided that--
o the person has sufficient assets to do so; and
o the tax arises out of a breach of that person's obligations under
select provisions of the related Governing Document.
Any tax not borne by one of these persons would be charged against the
related trust resulting in a reduction in amounts payable to holders of the
related REMIC certificates.
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 will be imposed in an amount equal to the product of--
o the present value of the total anticipated excess inclusions with
respect to the REMIC residual certificate for periods after the
transfer; and
o the highest marginal federal income tax rate applicable to
corporations.
The value of the anticipated excess inclusions is 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 with respect to the
REMIC residual certificate.
The anticipated excess inclusions must be determined as of the date that
the REMIC residual certificate is transferred and must be based on--
o events that have occurred up to the time of the transfer;
o the prepayment assumption; and
o any required or permitted clean up calls or required liquidation
provided for in the related Governing Document.
The tax on transfers to disqualified organizations generally would be
imposed on the transferor of the REMIC residual certificate, except when the
transfer is through an agent for a disqualified organization. In that case, the
tax would instead be imposed on the agent. However, a transferor of a REMIC
residual certificate would in no event be liable for the tax with respect to a
transfer if--
o the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization; and
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o as of the time of the transfer, the transferor does not have actual
knowledge that the affidavit is false.
In addition, if a pass-through entity includes in income excess inclusions
with respect to a REMIC residual certificate, and a disqualified organization is
the record holder of an interest in that entity, then a tax will be imposed on
that entity equal to the product of--
o the amount of excess inclusions on the 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 that 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.
For taxable years beginning on or after January 1, 1998, if an electing
large partnership holds a REMIC residual certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed on pass-through entities described in the second
preceding paragraph. This tax on electing large partnerships must be paid even
if each record holder of an interest in that partnership provides a statement
mentioned in the prior paragraph.
For these purposes, a "disqualified organization" means--
o the United States;
o any State or political subdivision thereof;
o any foreign government;
o any international organization;
o any agency or instrumentality of the foregoing, except for
instrumentalities described in Section 168(h)(2)(D) of the Code or the
FHLMC;
o any organization, other than a cooperative described in Section 521 of
the Code, that is exempt from federal income tax, except if 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.
For these purposes, a "pass-through entity" means any--
o regulated investment company;
o real estate investment trust;
o trust;
o partnership; or
o certain other entities described in Section 860E(e)(6) of the Code.
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For these purposes, an "electing large partnership" means any partnership
having more than 100 members during the preceding tax year which elects to apply
simplified reporting provisions under the Code, except for certain service
partnerships and commodity pools.
In addition, a person holding an interest in a pass-through entity as a
nominee for another person will, with respect to that interest, be treated as a
pass-through entity.
Moreover, an entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that--
o the residual interests in the entity are not held by disqualified
organizations; and
o the information necessary for the application of the tax described
herein will be made available.
We will include in the related Governing Document restrictions on the
transfer of REMIC residual certificates and certain other provisions that are
intended to meet this requirement, and we will discuss those restrictions and
provisions in any prospectus supplement relating to the offering of any REMIC
residual certificate.
Termination. A REMIC will terminate immediately after the payment date
following receipt by the REMIC of the final payment in respect of the related
mortgage loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last payment on a REMIC 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 payment on that
certificate is less than the REMIC residual certificateholder's adjusted basis
in the certificate, that holder should, but may not, be treated as realizing a
capital loss equal to the amount of that difference.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, a REMIC will be treated as a partnership
and holders of the related REMIC residual certificates will be treated as
partners. Unless we otherwise state in the related prospectus supplement, the
related tax administrator will file REMIC federal income tax returns on behalf
of the REMIC, and will be designated as and will act as or on behalf of the tax
matters person with respect to the REMIC in all respects.
As, or as agent for, the tax matters person, the related tax administrator,
subject to certain notice requirements and various restrictions and limitations,
generally will have the authority to act on behalf of the REMIC and the holders
of the REMIC residual certificates in connection with the administrative and
judicial review of the REMIC's--
o income;
o deductions;
o gains;
o losses; and
o classification as a REMIC.
Holders of REMIC residual certificates generally will be required to report
these REMIC items consistently with their treatment on the related REMIC's tax
return. In addition, these holders may in some circumstances be bound by a
settlement agreement between the related tax administrator, as, or as agent for,
the tax matters person, and the IRS concerning any REMIC item. Adjustments made
to the REMIC's tax return may require these holders to make corresponding
adjustments on their returns. An audit of the REMIC's tax return, or the
adjustments resulting from that audit, could result in an audit of a holder's
return.
No REMIC will be registered as a tax shelter pursuant to Section 6111 of
the Code. 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 other person,
as well as other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC regular certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are
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required to be sent or made readily available through electronic means to
individual holders of REMIC regular certificates and the IRS. Holders of REMIC
regular certificates that are--
o corporations;
o trusts;
o securities dealers; and
o certain other non-individuals,
will be provided interest and original issue discount income information and the
information set forth in the following paragraphs. This information will be
provided upon request in accordance with the requirements of the applicable
regulations. The information must be provided by the later of--
o 30 days after the end of the quarter for which the information was
requested; or
o two weeks after the receipt of the request.
Reporting with respect to REMIC residual certificates, including--
o income;
o excess inclusions;
o investment expenses; and
o relevant information regarding qualification of the REMIC's assets,
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC regular certificate information reports will
include a statement of the adjusted issue price of the REMIC regular certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, the regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Market Discount".
Unless we otherwise specify in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the tax administrator for the subject REMIC.
Backup Withholding with Respect to REMIC Certificates. Payments of interest
and principal, as well as payments of proceeds from the sale of REMIC
certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of these payments--
o fail to furnish to the payor certain information, including their
taxpayer identification numbers; or
o otherwise fail to establish an exemption from this tax.
Any amounts deducted and withheld from a payment to a recipient would be
allowed as a credit against the recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates. A holder of an offered certificate
that is--
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o a foreign person; and
o 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 that certificate;
will normally not be subject to United States federal income or withholding tax
in respect of a payment on an offered certificate. To avoid withholding or tax,
that holder must comply with certain identification requirements. These
requirements include delivery of a statement, signed by the certificateholder
under penalties of perjury, certifying that the certificateholder is a foreign
person and providing the name and address of the certificateholder.
On October 6, 1997, the Treasury Department issued new regulations that
modify the withholding, backup withholding and information reporting rules
described above. These regulations, as most recently modified on May 15, 2000,
will generally be effective for payments made after December 31, 2000, subject
to certain transition rules. Prospective investors are urged to consult their
own tax advisors regarding these regulations.
For these purposes, a "foreign person" is anyone other than a United States
person. A "United States person" is--
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 or the District of
Columbia;
o an estate whose income from sources without the United States is
includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or
business within the United States; or
o a trust as to which--
1. a court in the United States is able to exercise primary
supervision over the administration of the trust, and
2. one or more United States persons have the authority to control
all substantial decisions of the trust.
In addition, to the extent provided in the Treasury Regulations, a trust
will be a United States person if it was in existence on August 20, 1996 and it
elected to be treated as a United States person.
It is possible that the IRS may assert that the foregoing tax exemption
should not apply with respect to a REMIC regular certificate held by a person or
entity that owns directly or indirectly a 10% or greater interest in the related
REMIC residual certificates. If the holder does not qualify for exemption,
payments of interest, including payments in respect of accrued original issue
discount, to that holder may be subject to a tax rate of 30%, subject to
reduction under any applicable tax treaty.
It is possible, under regulations promulgated under Section 881 of the Code
concerning conduit financing transactions, that the exemption from withholding
taxes described above may also not be available to a holder who is a foreign
person and either--
o owns 10% or more of one or more underlying mortgagors; or
o if the holder is a controlled foreign corporation, is related to one
or more mortgagors in the applicable trust.
Further, it appears that a REMIC regular certificate would not be included in
the estate of a nonresident alien individual and would not be subject to United
States estate taxes. However, it is recommended that certificateholders who are
nonresident alien individuals consult their tax advisors concerning this
question.
Unless we otherwise state in the related prospectus supplement, the related
Governing Document will prohibit transfers of REMIC residual certificates to
investors that are--
o foreign persons, or
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o United States persons, if classified as a partnership under the Code,
unless all of their beneficial owners are United States persons.
GRANTOR TRUSTS
Classification of Grantor Trusts. With respect to each series of grantor
trust certificates, our counsel will deliver its opinion to the effect that,
assuming compliance with all provisions of the related Governing Document, the
related trust, or relevant portion thereof, will be classified as a grantor
trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation.
For purposes of the following discussion--
o A grantor trust certificate representing an undivided equitable
ownership interest in the principal of the mortgage loans constituting
the related grantor trust, together with interest (if any) thereon at
a pass-through rate, will be referred to as a "grantor trust
fractional interest certificate"; and
o A grantor trust certificate representing ownership of all or a portion
of the difference between--
1. interest paid on the mortgage loans constituting the related
grantor trust, minus
2. the sum of--
o normal administration fees, and
o interest paid to the holders of grantor trust fractional
interest certificates issued with respect to that grantor
trust,
will be referred to as a "grantor trust strip certificate". A grantor trust
strip certificate may also evidence a nominal ownership interest in the
principal of the mortgage loans constituting the related grantor trust.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. Unless we otherwise
disclose in the related prospectus supplement, any offered certificates that are
grantor trust fractional interest certificates will generally represent
interests in--
o "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, but only to the
extent that the underlying mortgage loans have been made with respect
to property that is used for residential or certain other prescribed
purposes;
o "obligation[s] (including any participation or certificate of
beneficial ownership therein) which . . . [are] principally secured by
an interest in real property" within the meaning of Section 860G(a)(3)
of the Code;
o "permitted assets" within the meaning of Section 860L(a)(1)(C) of the
Code; and
o "real estate assets" within the meaning of Section 856(c)(5)(B) of the
Code.
In addition, interest on offered certificates that are grantor trust
fractional interest certificates will, to the same extent, be considered
"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.
Grantor Trust Strip Certificates. Even if grantor trust strip certificates
evidence an interest in a grantor trust--
o consisting of mortgage loans that are "loans . . . secured by an
interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code;
o consisting of mortgage loans that are "real estate assets" within the
meaning of Section 856(c)(5)(B) of the Code; and
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o the interest on which is "interest on obligations secured by mortgages
on real property" within the meaning of Section 856(c)(3)(A) of the
Code,
it is unclear whether the grantor trust strip certificates, and the income
therefrom, will be so characterized. We recommend that prospective purchasers to
which the characterization of an investment in grantor trust strip certificates
is material consult their tax advisors regarding whether the grantor trust strip
certificates, and the income therefrom, will be so characterized.
The grantor trust strip certificates will be--
o "obligation[s] (including any participation or certificate of
beneficial ownership therein) which . . . [are] principally secured by
an interest in real property" within the meaning of Section
860G(a)(3)(A) of the Code; and
o in general, "permitted assets" within the meaning of Section
860L(a)(1)(C) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of grantor trust fractional
interest certificates generally--
o will be required to report on their federal income tax returns their
shares of the entire income from the mortgage loans, including amounts
used to pay reasonable servicing fees and other expenses, and
o will be entitled to deduct their shares of any reasonable servicing
fees and other expenses.
Because of stripped interests, market or original issue discount, or
premium, the amount includible in income on account of a grantor trust
fractional interest certificate may differ significantly from interest paid or
accrued on the underlying mortgage loans.
Section 67 of the Code allows an individual, estate or trust holding a
grantor trust fractional interest certificate directly or through certain
pass-through entities a deduction for any reasonable servicing fees and expenses
only to the extent that the aggregate of the holder's miscellaneous itemized
deductions exceeds two percent of the holder's adjusted gross income.
Section 68 of the Code reduces the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount by the lesser of--
o 3% of the excess of the individual's adjusted gross income over that
amount; and
o 80% of the amount of itemized deductions otherwise allowable for the
taxable year.
The amount of additional taxable income reportable by holders of grantor
trust fractional interest certificates who are subject to the limitations of
either Section 67 or Section 68 of the Code may be substantial. Further,
certificateholders, other than corporations, subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining their
alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of grantor trust certificates, including grantor trust strip
certificates, are issued, any fees and expenses should be allocated among those
classes of grantor trust certificates. The method of this allocation should
recognize that each class benefits from the related services. In the absence of
statutory or administrative clarification as to the method to be used, we
currently expect that information returns or reports to the IRS and
certificateholders will be based on a method that allocates these fees and
expenses among classes of grantor trust certificates with respect to each period
based on the payments made to each class during that period.
The federal income tax treatment of grantor trust fractional interest
certificates of any series will depend on whether they are subject to the
stripped bond rules of Section 1286 of the Code. Grantor trust fractional
interest certificates may be subject to those rules if--
o a class of grantor trust strip certificates is issued as part of the
same series; or
o we or any of our affiliates retain, for our or its own account or for
purposes of resale, a right to receive a specified portion of the
interest payable on an underlying mortgage loan.
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Further, the IRS has ruled that an unreasonably high servicing fee retained
by a seller or servicer will be treated as a retained ownership interest in
mortgage loans that constitutes a stripped coupon. We will include in the
related prospectus supplement information regarding servicing fees paid out of
the assets of the related trust to--
o a master servicer;
o a special servicer;
o any sub-servicer; or
o their respective affiliates.
With respect to certain categories of debt instruments, Section 1272(a)(6)
of the Code requires the use of a reasonable prepayment assumption in accruing
original issue discount, and adjustments in the accrual of original issue
discount when prepayments do not conform to the prepayment assumption.
Legislation enacted in 1997 extended the section to cover investments in
any pool of debt instruments the yield on which may be affected by reason of
prepayments. The precise application of Section 1272(a)(6) of the Code to pools
of debt instruments, is unclear in certain respects. For example, it is
uncertain whether a prepayment assumption will be applied collectively to all a
taxpayer's investments in these pools of debt instruments, or on an
investment-by-investment basis. Similarly, it is not clear whether the assumed
prepayment rate as to investments in grantor trust fractional interest
certificates is to be determined based on conditions at the time of the first
sale of the certificate or, with respect to any holder, at the time of purchase
of the certificate by that holder.
We recommend that certificateholders consult their tax advisors concerning
reporting original issue discount, market discount and premium with respect to
grantor trust fractional interest certificates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
grantor trust fractional interest certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. This is subject, however, to the discussion below regarding--
o the treatment of certain stripped bonds as market discount bonds; and
o de minimis market discount.
See "--Grantor Trusts--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--Market Discount" below.
The holder of a grantor trust fractional interest certificate will report
interest income from its grantor trust fractional interest certificate for each
month, to the extent it constitutes "qualified stated interest," in accordance
with its normal method of accounting. See "REMICs - Taxation of Owners of REMIC
Regular Certificates - Original Issue Discount" above for a definition of
"qualified stated interest".
The original issue discount on a grantor trust fractional interest
certificate will be the excess of the certificate's stated redemption price over
its issue price. The issue price of a grantor trust fractional interest
certificate as to any purchaser will be equal to the price paid by that
purchaser of the grantor trust fractional interest certificate. The stated
redemption price of a grantor trust fractional interest certificate will be--
o the sum of all payments to be made on that certificate;
o other than qualified stated interest, if any; and
o the certificate's share of reasonable servicing fees and other
expenses.
See "--Grantor Trusts--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
qualified stated interest. In general, the amount of income that accrues in any
month would equal the product of--
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o the holder's adjusted basis in the grantor trust fractional interest
certificate at the beginning of the related month, as defined in
"--Grantor Trusts--Sales of Grantor Trust Certificates"; and
o the yield of that grantor trust fractional interest certificate to the
holder.
The yield would be computed as the rate, that, if used to discount the
holder's share of future payments on the related mortgage loans, would cause the
present value of those future payments to equal the price at which the holder
purchased the certificate. This rate is compounded based on the regular interval
between payment dates. In computing yield under the stripped bond rules, a
certificateholder's share of future payments on the related mortgage loans will
not include any payments made in respect of any ownership interest in those
mortgage loans retained by us, a master servicer, a special servicer, a
sub-servicer, or our or their respective affiliates, but will include the
certificateholder's share of any reasonable servicing fees and other expenses,
and is based generally on the method described in Section 1272(a)(6) of the
Code. The precise means of applying that method is uncertain in various
respects, however. See "Grantor Trusts - Taxation of Owners of Grantor Trust
Fractional Interest Certificates - General."
In the case of a grantor trust fractional interest certificate acquired at
a price equal to the principal amount of the related mortgage loans allocable to
that certificate, the use of a prepayment assumption generally would not have
any significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a grantor trust fractional interest certificate
acquired at a price less than or greater than the principal amount,
respectively, the use of a reasonable prepayment assumption would increase or
decrease the yield. Therefore, the use of this prepayment assumption would
accelerate or decelerate, respectively, the reporting of income.
In the absence of statutory or administrative clarification, we currently
expect that information reports or returns to the IRS and certificateholders
will be based on--
o a prepayment assumption determined when certificates are offered and
sold hereunder, which we will disclose in the related prospectus
supplement; and
o a constant yield computed using a representative initial offering
price for each class of certificates.
However, neither we nor any other person will make any representation
that--
o the mortgage loans in any of our trusts will in fact prepay at a rate
conforming to the prepayment assumption used or any other rate; or
o the prepayment assumption will not be challenged by the IRS on audit.
Certificateholders also should bear in mind that the use of a
representative initial offering price will mean that the information returns or
reports that we send, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial certificateholders of each series
who bought at that price.
Under Treasury Regulation Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds. Accordingly, any purchaser of this type of
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon--
o there is no original issue discount or only a de minimis amount of
original issue discount; or
o the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate
payable on the related mortgage loans, before subtracting any
servicing fee or any stripped coupon.
If interest payable on a grantor trust fractional interest certificate is
more than one percentage point lower than the gross interest rate payable on the
related mortgage loans, we will disclose that fact in the related prospectus
supplement. If the original issue discount or market discount on a grantor trust
fractional interest certificate determined under the stripped bond rules is less
than the product of--
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o 0.25% of the stated redemption price; and
o the weighted average maturity of the related mortgage loans,
then the original issue discount or market discount will be considered to be de
minimis. Original issue discount or market discount of only a de minimis amount
will be included in income in the same manner as de minimis original issue
discount and market discount described in "--Grantor Trusts--Taxation of Owners
of Grantor Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not
Apply" and "--Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a grantor
trust fractional interest certificate, the certificateholder will be required to
report its share of the interest income on the related mortgage loans in
accordance with the certificateholder's normal method of accounting. In that
case, the original issue discount rules will apply, even if the stripped bond
rules do not apply, to a grantor trust fractional interest certificate to the
extent it evidences an interest in mortgage loans issued with original issue
discount.
The original issue discount, if any, on mortgage loans will equal the
difference between--
o the stated redemption price of the mortgage loans; and
o their issue price.
For a definition of "stated redemption price", see "--REMICs--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount" above. In
general, the issue price of a mortgage loan will be the amount received by the
borrower from the lender under the terms of the mortgage loan. If the borrower
separately pays points to the lender that are not paid for services provided by
the lender, such as commitment fees or loan processing costs, the amount of
points paid reduces the issue price.
The stated redemption price of a mortgage loan will generally equal its
principal amount. The determination as to whether original issue discount will
be considered to be de minimis will be calculated using the same test as in the
REMIC discussion. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, we will describe in the related prospectus supplement the manner in which
these rules will be applied with respect to the mortgage loans by the related
trustee or master servicer, as applicable, in preparing information returns to
certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based generally on the method
described in Section 1272(a)(6) of the Code. The precise means of applying that
method is uncertain in various respects, however. See "Grantor Trusts - Taxation
of Owners of Grantor Trust Fractional Interest Certificates - General."
A purchaser of a grantor trust fractional interest certificate may purchase
the grantor trust fractional interest certificate at a cost less than the
certificate's allocable portion of the aggregate remaining stated redemption
price of the underlying mortgage loans. In that case, the purchaser will also be
required to include in gross income the certificate's daily portions of any
original issue discount with respect to those mortgage loans. However, each
daily portion will be reduced, if the cost of the grantor trust fractional
interest certificate to the purchaser is in excess of the certificate's
allocable portion of the aggregate adjusted issue prices of the underlying
mortgage loans. The reduction will be approximately in proportion to the ratio
that the excess bears to the certificate's allocable portion of the aggregate
original issue discount remaining to be accrued on those mortgage loans.
The adjusted issue price of a mortgage loan on any given day equals the sum
of--
o the adjusted issue price or the issue price, in the case of the first
accrual period, of the mortgage loan at the beginning of the accrual
period that includes that day, and
o the daily portions of original issue discount for all days during the
accrual period prior to that day.
The adjusted issue price of a mortgage loan at the beginning of any accrual
period will equal--
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o the issue price of the mortgage loan; increased by
o the aggregate amount of original issue discount with respect to the
mortgage loan that accrued in prior accrual periods; and reduced by
o the amount of any payments made on the mortgage loan in prior accrual
periods of amounts included in its stated redemption price.
In the absence of statutory or administrative clarification, we currently
expect that information reports or returns to the IRS and certificateholders
will be based on--
o a prepayment assumption determined when the certificates are offered
and sold hereunder and disclosed in the related prospectus supplement;
and
o a constant yield computed using a representative initial offering
price for each class of certificates.
However, neither we nor any other person will make any representation
that--
o the mortgage loans will in fact prepay at a rate conforming to the
prepayment assumption or any other rate; or
o the prepayment assumption will not be challenged by the IRS on audit.
Certificateholders also should bear in mind that the use of a
representative initial offering price will mean that the information returns or
reports, even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial certificateholders of each series who bought at
that price.
Market Discount. If the stripped bond rules do not apply to a grantor trust
fractional interest certificate, a certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a mortgage loan is considered to have been purchased at a market
discount. A mortgage loan is considered to have been purchased at a market
discount if--
o in the case of a mortgage loan issued without original issue discount,
it is purchased at a price less than its remaining stated redemption
price; or
o in the case of a mortgage loan issued with original issue discount, it
is purchased at a price less than its adjusted issue price.
If market discount is in excess of a de minimis amount, the holder
generally must include in income in each month the amount of the discount that
has accrued, under the rules described below, through that month that has not
previously been included in income. However, the inclusion will be limited, in
the case of the portion of the discount that is allocable to any mortgage loan,
to the payment of stated redemption price on the mortgage loan that is received
by or, for accrual method certificateholders, due to, the trust in that month. A
certificateholder may elect to include market discount in income currently as it
accrues, under a constant yield method based on the yield of the certificate to
the holder, rather than including it on a deferred basis in accordance with the
foregoing. This market discount will be accrued generally on the method
described in Section 1272(a)(6) of the Code. The precise means of applying that
method is uncertain in various respects, however. See "Grantor Trusts - Taxation
of Owners of Grantor Trust Fractional Interest Certificates - General."
We recommend that certificateholders consult their own tax advisors
concerning accrual of market discount with respect to grantor trust fractional
interest certificates. Certificateholders should also refer to the related
prospectus supplement to determine whether and in what manner the market
discount will apply to the underlying mortgage loans purchased at a market
discount.
To the extent that the underlying mortgage loans provide for periodic
payments of stated redemption price, you may be required to include market
discount in income at a rate that is not significantly slower than the rate at
which that discount would be included in income if it were original issue
discount.
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Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described under "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
Further, under the rules described under "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount" above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the underlying mortgage loans.
Premium. If a certificateholder is treated as acquiring the underlying
mortgage loans at a premium, which is a price in excess of their remaining
stated redemption price, the certificateholder may elect under Section 171 of
the Code to amortize the portion of that premium allocable to mortgage loans
originated after September 27, 1985 using a constant yield method. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should--
o be allocated among the payments of stated redemption price on the
mortgage loan; and
o be allowed as a deduction as those payments are made or, for an
accrual method certificateholder, due.
It appears that a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code similar to that
described for calculating the accrual of market discount of grantor trust
fractional interest certificates, based generally on the method described in
Section 1272(a)(6) of the Code. The precise means of applying that method is
uncertain in various respects, however. See "Grantor Trusts - Taxation of Owners
of Grantor Trust Fractional Interest Certificates - General."
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the grantor trust strip
certificates. Except as described above under "--Grantor Trust Funds--Taxation
of Owners of Grantor Trust Fractional Interest Certificates--If Stripped Bond
Rules Apply", no regulations or published rulings under Section 1286 of the Code
have been issued and some uncertainty exists as to how it will be applied to
securities, such as the grantor trust strip certificates. Accordingly, we
recommend that you consult your tax advisors concerning the method to be used in
reporting income or loss with respect to those certificates.
The Treasury regulations promulgated under the original discount rules do
not apply to stripped coupons, although they provide general guidance as to how
the original issue discount sections of the Code will be applied.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the grantor trust strip
certificates based on a constant yield method. In effect, you would include as
interest income in each month an amount equal to the product of your adjusted
basis in the grantor trust strip certificate at the beginning of that month and
the yield of the grantor trust strip certificate to you. This yield would be
calculated based on--
o the price paid for that grantor trust strip certificate by you; and
o the projected payments remaining to be made thereon at the time of the
purchase; plus
o an allocable portion of the projected servicing fees and expenses to
be paid with respect to the underlying mortgage loans.
Such yield will accrue generally on the method described in Section 1272(a)(6)
of the Code. The precise means of applying that method is uncertain in various
respects, however. See "Grantor Trusts - Taxation of Owners of Grantor Trust
Fractional Interest Certificates - General."
If the method for computing original issue discount under Section
1272(a)(6) results in a negative amount of original issue discount as to any
accrual period with respect to a grantor trust strip certificate, the amount of
original issue discount allocable to that accrual period will be zero. That is,
no current deduction of the negative amount will be allowed to you. You will
instead only be permitted to offset that negative amount against future positive
original issue discount, if any, attributable to that certificate. Although not
free from doubt, it is possible that you may be permitted to deduct a loss to
the
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extent his or her basis in the certificate exceeds the maximum amount of
payments you could ever receive with respect to that certificate. However, any
loss may be a capital loss, which is limited in its deductibility. The foregoing
considerations are particularly relevant to grantor trust certificates with no,
or disproportionately small, amounts of principal, which can have negative
yields under circumstances that are not default related. See "Risk
Factors--Prepayment Considerations; Variability in Average Life of Offered
Certificates; Special Yield Considerations" above.
The accrual of income on the grantor trust strip certificates will be
significantly slower using a prepayment assumption than if yield is computed
assuming no prepayments. In the absence of statutory or administrative
clarification, we currently expect that information returns or reports to the
IRS and certificateholders will be based on--
o the prepayment assumption we will disclose in the related prospectus
supplement; and
o a constant yield computed using a representative initial offering
price for each class of certificates.
However, neither we nor any other person will make any representation
that--
o the mortgage loans in any of our trusts will in fact prepay at a rate
conforming to the prepayment assumption or at any other rate; or
o the prepayment assumption will not be challenged by the IRS on
audit.
We recommend that prospective purchasers of the grantor trust strip
certificates consult their tax advisors regarding the use of the prepayment
assumption.
Certificateholders also should bear in mind that the use of a
representative initial offering price will mean that the information returns or
reports, even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial certificateholders of each series who bought at
that price.
Sales of Grantor Trust Certificates. Any gain or loss recognized on the
sale or exchange of a grantor trust certificate by an investor who holds that
certificate as a capital asset, will be capital gain or loss, except as
described below. The amount recognized equals the difference between--
o the amount realized on the sale or exchange of a grantor trust
certificate; and
o its adjusted basis.
The adjusted basis of a grantor trust certificate generally will equal--
o its cost; increased by
o any income reported by the seller, including original issue discount
and market discount income; and reduced, but not below zero, by
o any and all--
1. previously reported losses,
2. amortized premium, and
3. payments with respect to that grantor trust certificate.
As of the date of this prospectus, the Code provides for lower rates as to
long-term capital gains, than those applicable to the short-term capital gains
and ordinary income realized or received by individuals. No rate differential
exists for corporations. In addition, the distinction between a capital gain or
loss and ordinary income or loss remains relevant for other purposes.
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Gain or loss from the sale of a grantor trust certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income.
Gain or loss recognized by banks and other financial institutions subject to
Section 582(c) of the Code will be treated as ordinary income.
Furthermore, a portion of any gain that might otherwise be capital gain may
be treated as ordinary income to the extent that the grantor trust 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 the same 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 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, 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.
The Code requires the recognition of gain upon the constructive sale of an
appreciated financial position. A constructive sale of an appreciated financial
position occurs if a taxpayer enters into certain transactions or series of
transactions that have the effect of substantially eliminating the taxpayer's
risk of loss and opportunity for gain with respect to the financial instrument.
Debt instruments that--
o entitle the holder to a specified principal amount;
o pay interest at a fixed or variable rate; and
o are not convertible into the stock of the issuer or a related party,
cannot be the subject of a constructive sale for this purpose. Because most
grantor trust certificates meet this exception, this Section will not apply to
most grantor trust certificates. However, certain grantor trust certificates
have no, or a disproportionately small, amount of principal and these
certificates can be the subject of a constructive sale.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include the net capital
gain in total net investment income for the relevant taxable year. This election
would be done for purposes of the rule that limits the deduction of interest on
indebtedness incurred to purchase or carry property held for investment to a
taxpayer's net investment income.
Grantor Trust Reporting. Unless otherwise provided in the related
prospectus supplement, the related tax administrator will furnish or make
readily available through electronic means to each holder of a grantor trust
certificate with each payment a statement setting forth the amount of the
payment allocable to principal on the underlying mortgage loans and to interest
thereon at the related pass-through rate. In addition, the related tax
administrator will furnish, within a reasonable time after the end of each
calendar year, to each person or entity that was the holder of a grantor trust
certificate at any time during that year, information regarding--
o the amount of servicing compensation received by a master servicer or
special servicer; and
o all other customary factual information the reporting party deems
necessary or desirable to enable holders of the related grantor trust
certificates to prepare their tax returns.
The reporting party will furnish comparable information to the IRS as and
when required by law to do so.
Because the rules for accruing discount and amortizing premium with respect
to grantor trust certificates are uncertain in various respects, there is no
assurance the IRS will agree with the information reports of those items of
income and expense. Moreover, those information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial certificateholders that bought their certificates at the representative
initial offering price used in preparing the reports.
On August 13, 1998, the Service published proposed regulations, which will,
when effective, establish a reporting framework for interests in widely held
fixed investment trusts similar to that for regular interests in REMICs. A
widely-held fixed investment trust is defined as any entity classified as a
trust under Treasury Regulation Section 301.7701-4(c) in which any interest is
held by a middleman, which includes, but is not limited to--
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o a custodian of a person's account;
o a nominee; and
o a broker holding an interest for a customer in street name.
These regulations are proposed to be effective for calendar years beginning
on or after the date that the final regulations are published in the Federal
Register.
Backup Withholding. In general, the rules described under "--REMICs--Backup
Withholding with Respect to REMIC Certificates" above will also apply to grantor
trust certificates.
Foreign Investors. In general, the discussion with respect to REMIC regular
certificates under "--REMICs--Foreign Investors in REMIC Certificates" above
applies to grantor trust certificates. However, unless we otherwise specify in
the related prospectus supplement, grantor trust certificates will be eligible
for exemption from U.S. withholding tax, subject to the conditions described in
the discussion above, only to the extent the related mortgage loans were
originated after July 18, 1984.
To the extent that interest on a grantor trust certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the certificate is not held in connection with a certificateholder's
trade or business in the United States, the certificate will not be subject to
United States estate taxes in the estate of a nonresident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences", potential investors should consider the state and
local tax consequences concerning the offered certificates. State tax law may
differ substantially from the corresponding federal law, and the discussion
above does not purport to describe any aspect of the tax laws of any state or
other jurisdiction. Therefore, we recommend that prospective investors consult
their tax advisors with respect to the various tax consequences of investments
in the offered certificates.
ERISA CONSIDERATIONS
GENERAL
ERISA and the Code impose various requirements on--
o ERISA Plans; and
o persons that are fiduciaries with respect to ERISA Plans,
in connection with the investment of the assets of an ERISA Plan. For purposes
of this discussion, ERISA Plans may include individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts,
including as applicable, insurance company general accounts, in which other
ERISA Plans are invested.
Governmental plans and, if they have not made an election under Section
410(d) of the Code church plans are not subject to ERISA requirements.
Accordingly, assets of those plans may be invested in the offered certificates
without regard to the considerations described below in this "ERISA
Considerations" section. However, these plans may be subject to provisions of
other applicable federal and state law that are materially similar to the
provisions of ERISA and the Code. Any of those plans which is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Code, however, is
subject to the prohibited transaction rules in Section 503 of the Code.
ERISA imposes general fiduciary requirements on a fiduciary that is investing
the assets of an ERISA Plan, including--
o investment prudence and diversification; and
o compliance with the investing ERISA Plan's governing the documents.
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Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986
also prohibit a broad range of transactions involving the assets of an ERISA
Plan and a Party in Interest with respect to that ERISA Plan, unless a statutory
or administrative exemption exists.
The types of transactions between ERISA Plans and Parties in Interest that
are prohibited include--
o sales, exchanges or leases of property;
o loans or other extensions of credit; and
o the furnishing of goods and services.
Parties in Interest that participate in a prohibited transaction may be
subject to an excise tax imposed under Section 4975 of the Code or a penalty
imposed under Section 502(i) of ERISA, unless a statutory or administrative
exemption is available. In addition, the persons involved in the prohibited
transaction may have to cancel the transaction and pay an amount to the affected
ERISA Plan for any losses realized by that ERISA Plan or profits realized by
those persons. In addition, individual retirement accounts involved in the
prohibited transaction may be disqualified which would result in adverse tax
consequences to the owner of the account.
PLAN ASSET REGULATIONS
An ERISA Plan's investment in offered certificates may cause the underlying
mortgage assets and other assets of the related trust to be deemed assets of
that ERISA Plan. Section 2510.3-101 of the Plan Asset Regulations provides that
when an ERISA Plan acquires an equity interest in an entity, the assets that
ERISA Plan or arrangement include both that equity interest and an undivided
interest in each of the underlying assets of the entity, unless an exception
applies. One exemption is that the equity participation in the entity by benefit
plan investors, which include both ERISA Plans and some employee benefit plans
not subject to ERISA, is not significant. The equity participation by benefit
plan investors will be significant on any date if 25% or more of the value of
any class of equity interests in the entity is held by benefit plan investors.
The percentage owned by benefit plan investors is determined by excluding the
investments of the following persons--
o those with discretionary authority or control over the assets of the
entity;
o those who provide investment advice directly or indirectly for a fee
with respect to the assets of the entity; and
o those who are affiliates of the persons described in the preceding two
bullets.
In the case of one of our trusts, investments by us, by the related
trustee, the related master servicer, the related special servicer or any other
party with discretionary authority over the related trust assets, or by the
affiliates of these persons, will be excluded.
A fiduciary of an investing ERISA Plan is any person who--
o has discretionary authority or control over the management or
disposition of the assets of that ERISA Plan; or
o provides investment advice with respect to the assets of that ERISA
Plan for a fee.
If the mortgages and other assets included in one of our trusts are ERISA
Plan assets, then any party exercising management or discretionary control
regarding those assets, such as the related trustee, master servicer or special
servicer, or affiliates of any of these parties, may be--
o deemed to be a fiduciary with respect to the investing ERISA Plan; and
o subject to the fiduciary responsibility provisions of ERISA.
In addition, if the mortgages and other assets included in one of our
trusts are ERISA Plan assets, then the operation of that trust may involve
prohibited transactions under ERISA or the Code. For example, if a borrower with
respect to a
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mortgage loan in that trust is a Party in Interest to an investing ERISA Plan,
then the purchase by that ERISA Plan of offered certificates evidencing
interests in that trust, could be a prohibited loan between that ERISA Plan and
the Party in Interest.
The Plan Asset Regulations provide that where an ERISA Plan purchases a
"guaranteed governmental mortgage pool certificate," the assets of that ERISA
Plan include the certificate but do not include any of the mortgages underlying
the certificate. The Plan Asset Regulations include in the definition of a
"guaranteed governmental mortgage pool certificate" some certificates issued
and/or guaranteed by Freddie Mac, Ginnie Mae, Fannie Mae, or Farmer Mac.
Accordingly, even if these types of mortgaged-backed securities were deemed to
be assets of an ERISA Plan, the underlying mortgages would not be treated as
assets of that ERISA Plan. Private label mortgage participations, mortgage
pass-through certificates or other mortgage-backed securities are not
"guaranteed governmental mortgage pool certificates" within the meaning of the
Plan Asset Regulations.
In addition, the acquisition or holding of offered certificates by or on
behalf of an ERISA Plan could give rise to a prohibited transaction if we or the
related trustee, master servicer or special servicer or any related underwriter,
sub-servicer, tax administrator, manager, borrower or obligor under any credit
enhancement mechanism, or one of their affiliates, is or becomes a Party in
Interest with respect to an investing ERISA Plan.
If you are the fiduciary of an ERISA Plan, you should consult your counsel
and review the ERISA discussion in the related prospectus supplement before
purchasing any offered certificates.
UNDERWRITER'S EXEMPTION
It is expected that Credit Suisse First Boston Corporation will be the
sole, lead or co-lead underwriter in each underwritten offering of certificates
made by this prospectus. The U.S. Department of Labor issued PTE 89-90 to a
predecessor in interest to Credit Suisse First Boston Corporation. Subject to
the satisfaction of the conditions specified in that exemption, as amended,
including by PTE 97-34 and PTE 2000-58, PTE 89-90 generally exempts from the
application of the prohibited transaction provisions of ERISA and the Code,
various transactions relating to, among other things--
o the servicing and operation of some mortgage assets pools, such as the
types of mortgage asset pools that will be included in our trusts; and
o the purchase, sale and holding of some certificates evidencing
interests in those pools that are underwritten by Credit Suisse First
Boston Corporation or any person affiliated with Credit Suisse First
Boston Corporation, such as particular classes of the offered
certificates.
The related prospectus supplement will state whether PTE 89-90 or other
similar exemption is or may be available with respect to any offered
certificates underwritten by Credit Suisse First Boston Corporation or other
underwriters.
INSURANCE COMPANY GENERAL ACCOUNTS
The Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides relief from the fiduciary and prohibited transaction
provisions of ERISA and the Internal Revenue Code of 1986 for transactions
involving an insurance company general account. This exemption is in addition to
any exemption that may be available under prohibited transaction class exemption
95-60 for the purchase and holding of offered certificates by an insurance
company general account.
Under Section 401(c) of ERISA, the U.S. Department of Labor issued a final
regulation on January 5, 2000, providing guidance for determining, in cases
where insurance policies supported by an insurer's general account are issued to
or for the benefit of an ERISA Plan on or before December 31, 1998, which
general account assets are ERISA Plan assets. That regulation generally provides
that, if the specified requirements are satisfied with respect to insurance
policies issued on or before December 31, 1998, the assets of an insurance
company general account will not be ERISA Plan assets.
Any assets of an insurance company general account which support insurance
policies issued to an ERISA Plan after December 31, 1998, or issued to an ERISA
Plan on or before December 31, 1998 for which the insurance company does not
comply with the requirements set forth in the final regulation under Section
401(c) of ERISA, may be treated as ERISA Plan assets. In addition, because
Section 401(c) of ERISA and the regulation issued under Section 401(c) of ERISA
do not relate to insurance company separate accounts, separate account assets
are still treated as ERISA Plan assets, invested in the separate account. If you
are an insurance company are contemplating the investment of general account
assets in offered
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certificates, you should consult your legal counsel as to the applicability of
Section 401(c) of ERISA and prohibited transaction class exemption 95-60.
CONSULTATION WITH COUNSEL
If you are a fiduciary for an ERISA Plan and you intend to purchase offered
certificates on behalf of or with assets of that ERISA Plan, you should--
o consider your general fiduciary obligations under ERISA; and
o consult with your legal counsel as to--
1. the potential applicability of ERISA and the Internal
Revenue Code of 1986 to investment, and
2. the availability of any prohibited transaction exemption in
connection with investment.
TAX EXEMPT INVESTORS
An ERISA Plan that is exempt from federal income taxation under Section 501
of the Internal Revenue Code of 1986 will be subject to federal income taxation
to the extent that its income is "unrelated business taxable income" within the
meaning of Section 512 of the Internal Revenue Code of 1986.
LEGAL INVESTMENT
If and to the extent specified in the related prospectus supplement, the
offered certificates of any series may constitute mortgage related securities
for purposes of SMMEA. Mortgage related securities are legal investments for
entities--
o that are created or existing under the laws of the United States or
any state, including the District of Columbia and Puerto Rico; and
o whose authorized investments are subject to state regulations,
to the same extent that, under applicable law, obligations issued by or
guaranteed as to principal and interest by the United States or any of its
agencies or instrumentalities are legal investments for those entities.
Prior to December 31, 1996, classes of offered certificates would be
mortgage related securities for purposes of SMMEA only if they-
o were rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization; and
o evidenced interests in a trust consisting of loans directly secured by
a first lien on a single parcel of real estate upon which is located a
dwelling or mixed residential and commercial structure, which loans
had been originated by the types of originators specified in SMMEA.
Further, under SMMEA as originally enacted, if a state enacted legislation
on or before October 3, 1991 that specifically limited the legal investment
authority of any entities referred to in the preceding paragraph with respect to
mortgage related securities under that definition, offered certificates would
constitute legal investments for entities subject to the legislation only to the
extent provided in that legislation. A number of states enacted laws limiting
the authority of certain entities, particularly insurance companies, to invest
in "mortgage-related securities."
Effective December 31, 1996, the definition of "mortgage related security"
was modified to include among the types of loans to which the securities may
relate, loans secured by first liens on "one or more parcels of real estate upon
which is located one or more commercial structures." In addition, the related
legislative history states that this expanded definition includes multifamily
loans secured by more than one parcel of real estate upon which is located more
than one structure. Through September 23, 2001, any state may enact legislation
limiting the extent to which mortgage related securities under this expanded
definition would constitute legal investments under that state's laws. However,
any limiting legislation cannot
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affect the validity of a contract to purchase, hold or invest in, or require the
sale or disposition of, mortgage related securities, if the contract or purchase
predated that legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows--
o 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 by
those securities;
o federal credit unions may invest in mortgage related securities; and
o national banks may purchase mortgage related securities for their own
account without regard to the limitations generally applicable to
investment securities prescribed in 12 U.S.C.ss.24 (Seventh),
subject in each case to the regulations that the applicable federal regulatory
authority may prescribe.
The OCC has amended 12 C.F.R. Part 1 to authorize national banks to
purchase and sell for their own account, without limitation as to a percentage
of the bank's capital and surplus but subject to compliance with general
standards in 12 C.F.R. ss. 1.5 concerning "safety and soundness" and retention
of credit information, "Type IV securities", which are defined in 12 C.F.R. ss.
1.2(1) to include some commercial mortgage-related securities and residential
mortgage-related securities. As defined in that rule, "commercial
mortgage-related security" and "residential mortgage-related security" mean, in
relevant part, a mortgage related security within the meaning of SMMEA, provided
that, in the case of a commercial mortgage-related security, it "represents
ownership of a promissory note or certificate of interest or participation that
is directly secured by a first lien on one or more parcels of real estate upon
which one or more commercial structures are located and that is fully secured by
interests in a pool of loans to numerous obligors." In the absence of any rule
or administrative interpretation by the OCC defining the term "numerous
obligors," we make no representation as to whether any class of offered
certificates will qualify as commercial mortgage-related securities, and thus as
Type IV securities, for investment by national banks.
The NCUA has adopted rules, codified at 12 C.F.R. Part 703, which permit
federal credit unions to invest in mortgage related securities under limited
circumstances, other than stripped mortgage related securities, residual
interests in mortgage related securities and commercial mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the investment pilot program described in 12 C.F.R. ss.
703.140.
The OTS has issued Thrift Bulletin 13a (December 1, 1998), "Management of
Interest Rate Risk, Investment Securities, and Derivatives Activities," which
thrift institutions subject to the jurisdiction of the OTS should consider
before investing in any of the offered certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" of the Federal Financial
Institutions Examination Council, which has been adopted by the Board of
Governors of the Federal Reserve System, the FDIC, the OCC and the OTS effective
May 26, 1998, and by the NCUA effective October 1, 1998. That statement sets
forth general guidelines which depository institutions must follow in managing
risks, including market, credit, liquidity, operational (transaction), and legal
risks, applicable to all securities, including mortgage pass-through securities
and mortgage-derivative products used for investment purposes.
There may be other restrictions, by way of statute, rule, negotiation,
order, guideline, policy statement, agreement or otherwise, on your ability
either to purchase one or more classes of offered certificates of any series or
to purchase offered certificates representing more than a specified percentage
of your assets. Except as to the status of some classes as "mortgage related
securities", we make no representations as to the proper characterization of any
class of offered certificates for legal investment or other purposes. Also, we
make no representations as to the ability of particular investors to purchase
any class of offered certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of any
class of offered certificates. Accordingly, if your investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities, you should consult with your
legal advisor in determining whether and to what extent--
o the offered certificates of any class and series constitute legal
investments or are subject to investment, capital or other
restrictions; and
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o if applicable, SMMEA has been overridden in a State whose laws govern
your investments.
PLAN OF DISTRIBUTION
The certificates offered by this prospectus and the related prospectus
supplements will be offered in series through one or more of the methods
described in the next paragraph. The prospectus supplement prepared for the
offered certificates of each series will describe the method of offering being
utilized for those certificates and will state the net proceeds to us from the
sale of those certificates.
We intend that offered certificates will be offered through the following
methods from time to time. We further intend that offerings may be made
concurrently through more than one of these methods or that an offering of the
offered certificates of a particular series may be made through a combination of
two or more of these methods. The methods are as follows--
o by negotiated firm commitment or best efforts underwriting and public
offering by one or more underwriters which may include one of our
affiliate corporations, Credit Suisse First Boston Corporation, as
specified in the related prospectus supplement;
o by placements by us with institutional investors through dealers; and
o by direct placements by us with institutional investors.
In addition, if specified in the related prospectus supplement, the offered
certificates of a series may be offered in whole or in part to the seller of the
mortgage assets that would back those certificates. Furthermore, the related
trust assets for any series of offered certificates may include other
securities, the offering of which was registered under the registration
statement of which this prospectus is a part.
If underwriters are used in a sale of any offered certificates, other than
in connection with an underwriting on a best efforts basis, the offered
certificates will be acquired by the underwriters for their own account. These
certificates may be resold from time to time in one or more transactions,
including negotiated transactions, at fixed public offering prices or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. The managing underwriter or underwriters with respect to the offer and
sale of offered certificates of a particular series will be described on the
cover of the prospectus supplement relating to the series and the members of the
underwriting syndicate, if any, will be named in the relevant prospectus
supplement.
Underwriters may receive compensation from us or from purchasers of the
offered certificates in the form of discounts, concessions or commissions.
Underwriters and dealers participating in the payment of the offered
certificates may be deemed to be underwriters in connection with those
certificates. In addition, any discounts or commissions received by them from us
and any profit on the resale of those offered certificates by them may be deemed
to be underwriting discounts and commissions under the Securities Act of 1933,
as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
the offered certificates of any series will provide that--
o the obligations of the underwriters will be subject to various
conditions precedent;
o the underwriters will be obligated to purchase all the certificates if
any are purchased, other than in connection with an underwriting on a
best efforts basis; and
o in limited circumstances, we will indemnify the several underwriters
and the underwriters will indemnify us against civil liabilities
relating to disclosure in our registration statement, this prospectus
or any of the related prospectus supplements, including liabilities
under the Securities Act of 1933, as amended, or will contribute to
payments required to be made with respect to any liabilities.
The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of the offering
and any agreements to be entered into between us and purchasers of offered
certificates of that series.
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We anticipate that the offered certificates will be sold primarily to
institutional investors. Purchasers of offered certificates, including dealers,
may, depending on the facts and circumstances of the purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with reoffers and sales by them of offered certificates. Holders of
offered certificates should consult with their legal advisors in this regard
prior to any reoffer or sale.
LEGAL MATTERS
Unless otherwise specified in the related prospectus supplement, particular
legal matters in connection with the certificates of each series, including some
federal income tax consequences, will be passed upon for us by--
o Cadwalader, Wickersham & Taft;
o Sidley & Austin; or
o Orrick, Herrington & Sutcliffe LLP.
FINANCIAL INFORMATION
A new trust will be formed with respect to each series of offered
certificates. None of those trusts will engage in any business activities or
have any assets or obligations prior to the issuance of the related series of
offered certificates. Accordingly, no financial statements with respect to any
trust will be included in this prospectus or in the related prospectus
supplement. We have determined that our financial statements will not be
material to the offering of any offered certificates.
RATING
It is a condition to the issuance of any class of offered certificates
that, at the time of issuance, at least one nationally recognized statistical
rating organization has rated those certificates in one of its generic rating
categories which signifies investment grade. Typically, the four highest rating
categories, within which there may be sub-categories or gradations indicating
relative standing, signify investment grade.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders of all payments of interest and/or principal to which
they are entitled. These ratings address the structural, legal and
issuer-related aspects associated with the certificates, the nature of the
underlying mortgage assets and the credit quality of any third-party credit
enhancer. The rating(s) on a class of offered certificates will not represent
any assessment of--
o whether the price paid for those certificates is fair;
o whether those certificates are a suitable investment for any
particular investor;
o the tax attributes of those certificates or of the related trust;
o the yield to maturity or, if they have principal balances, the average
life of those certificates;
o the likelihood or frequency of prepayments of principal on the
underlying mortgage loans;
o the degree to which the amount or frequency of prepayments on the
underlying mortgage loans might differ from those originally
anticipated;
o whether or to what extent the interest payable on those certificates
may be reduced in connection with interest shortfalls resulting from
the timing of voluntary prepayments;
o the likelihood that any amounts other than interest at the related
mortgage interest rates and principal will be received with respect to
the underlying mortgage loans; or
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o if those certificates provide solely or primarily for payments of
interest, whether the holders, despite receiving all payments of
interest to which they are entitled, would ultimately recover their
initial investments in those certificates.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
GLOSSARY
The following capitalized terms will have the respective meanings assigned
to them in this "Glossary" section whenever they are used in this prospectus.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee Report" means the Conference Committee Report accompanying the
Tax Reform Act of 1986.
"CPR" means an assumed constant rate of prepayment each month, which is
expressed on a per annum basis, relative to the then-Scheduled term in Supp.
principal balance of a pool of mortgage loans for the life of those loans.
"Disqualified Organization" means-
o the United States;
o any State or political subdivision of the United States;
o any foreign government;
o any international organization;
o any agency or instrumentality of the foregoing, except for
instrumentalities described in Section 168(h)(2)(D) of the Code or
Freddie Mac;
o any organization, other than a cooperative described in Section 521 of
the Code, that is exempt from federal income tax, except if 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.
"ECS" means Euroclear Clearance System, S.C., a Belgian cooperative
corporation.
"Electing Large Partnership" means any partnership having more than 100
members during the preceding tax year which elects to apply simplified reporting
provisions under the Code, except for some service partnerships and commodity
pools.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means any employee benefit plan, or other retirement plan,
arrangement or account, that is subject to the fiduciary responsibility
provisions of the Employee Retirement Income Security Act of 1974, as amended,
and Section 4975 of the Internal Revenue Code of 1986.
"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels, Belgium office, as operator of the Euroclear System.
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"Euroclear Terms and Conditions" means the Terms and Conditions Governing
Use of Euroclear and the related Operating Procedures of the Euroclear System
and, to the extent that it applies to the operation of the Euroclear System,
Belgian law.
"Fannie Mae" means the Federal National Mortgage Association.
"Farmer Mac" means the Federal Agricultural Mortgage Corporation.
"FASIT" means a financial asset securitization trust, within the meaning
of, and formed in accordance with, the Small Business Job Protection Act of 1996
and Sections 860I through 860L of the Code.
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Intermediary" means a brokerage firm, bank, thrift institution
or other financial intermediary that maintains an account of a beneficial owner
of securities.
"Freddie Mac" means the Federal Home Loan Mortgage Association.
"Ginnie Mae" means the Government National Mortgage Association.
"Governing Document" means the pooling and servicing agreement or other
similar agreement or collection of agreements, which governs the issuance of a
series of offered certificates.
"IRS" means the Internal Revenue Service.
"Lender Liability Act" means the Asset Conservation Lender Liability and
Deposit Insurance Act of 1996, as amended.
"Net Income From Foreclosure Property" means income from foreclosure
property other than qualifying rents and other qualifying income for a REIT.
"NCUA" means the National Credit Union Administration.
"OCC" means the Office of the Comptroller of the Currency.
"OTS" means the Office of Thrift Supervision.
"Party in Interest" means any person that is a "party in interest" within
the meaning of ERISA or a "disqualified person" within the meaning of the Code.
"Pass-Through Entity" means any-
o regulated investment company;
o real estate investment trust;
o trust;
o partnership; or
o other entities described in Section 860E(e)(6) of the Internal Revenue
Code.
"Plan Asset Regulations" means the regulations of the U.S. Department of
Labor promulgated under the Employee Retirement Income Security Act of 1974, as
amended.
"PTE" means a Prohibited Transaction Exemption issued by the U.S.
Department of Labor.
"REIT" means a real estate investment trust within the meaning of Section
856(a) of the Code.
"Relief Act" means the Soldiers' and Sailors' Relief Act of 1940, as
amended.
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"REMIC" means a real estate mortgage investment conduit, within the meaning
of, and formed in accordance with, the Tax Reform Act of 1986 and Sections 860A
through 860G of the Code.
"SEC" means the Securities and Exchange Commission.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"SPA" means standard prepayment assumption.
"UCC" means, for any jurisdiction, the Uniform Commercial Code as in effect
in that jurisdiction.
"U.S. 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 or the District of
Columbia;
o an estate whose income from sources without the United States is
includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or
business within the United States; or
o a trust as to which--
1. a court in the United States is able to exercise primary
supervision over the administration of the trust, and
2. one or more United States persons have the authority to
control all substantial decisions of the trust.
In addition, to the extent provided in the Treasury Regulations, a trust will
be a U.S. Person if it was in existence on August 20, 1996 and it elected to
be treated as a U.S. Person.
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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 Certificates being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement................. $ 250.00
Legal Fees and Expenses............................... 500,000.00
Accounting Fees and Expenses.......................... 175,000.00
Trustee's Fees and Expenses
(including counsel fees)................. 50,000.00
Blue Sky Fees and Expenses............................ 25,000.00
Printing and Engraving Fees........................... 200,000.00
Rating Agency Fees.................................... 1,050,000.00
Miscellaneous......................................... 75,000.00
Total................................................. $2,075,250.00
============
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
Section 5 of the Restated Certificate of Incorporation of the Registrant
and Article X of the By-laws of the Registrant provide for, among other things,
the indemnification of the officers and directors of the Registrant in certain
circumstances. 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 Registrant carries directors' and officers'
liability insurance that covers certain liabilities and expenses of the
Registrant's directors and officers.
For provisions regarding the indemnification of controlling persons,
directors and certain officers of the Registrant by Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
reference is made to the form of Underwriting Agreement filed as Exhibit 1 to
this Registration Statement.
<PAGE>
EXHIBITS (ITEM 16 OF FORM S-3).
A. Financial Statement filed as part of the Registration Statement: none.
B. Exhibits:
1-- Form of Underwriting Agreement (incorporated by reference to
Exhibit 1 to Registration Statement 33-82354)
3.1-- Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 to Registration
Statement 333-25751)
3.2-- Bylaws of Registrant (incorporated by reference to Exhibit
3.2 to Registration Statement 333-25751)
4-- Form of Pooling and Servicing Agreement (incorporated by
reference to Exhibit 4 to Registration Statement 33-59342)
5.1(a)-- Opinion of Sidley & Austin with respect to certain matters
involving the Certificates
5.1(b)-- Opinion of Cadwalader, Wickersham & Taft with respect to
certain matters involving the Certificates
5.1(c)-- Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain matters involving the Certificates
8.1(a)-- Opinion of Sidley & Austin as to tax matters (included in
Exhibit 5.1(a))
8.1(b)-- Opinion of Cadwalader, Wickersham & Taft as to tax matters
(included in Exhibit 5.1(b))
8.1(c)-- Opinion of Orrick, Herrington & Sutcliffe LLP as to tax matters
23.1(a)--Consent of Sidley & Austin (to be included as part of Exhibits
5.1(a))
23.1(b)--Consent of Cadwalader, Wickersham & Taft (to be included as
part of Exhibits 5.1(b))
23.1(c)--Consent of Orrick, Herrington & Sutcliffe LLP (to be included
as part of Exhibits 5.1(c) and 8.1(c))
24.1-- Power of Attorney (included on signature page to this
Registration Statement)
------------------------------
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<PAGE>
UNDERTAKINGS (ITEM 17 OF FORM S-3)
A. Undertakings Pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required to be included in the
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this 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. Undertaking in respect of incorporation by reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement 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.
C. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the
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<PAGE>
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
D. Undertaking in respect of equity offerings of nonreporting registrants.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 18th day of
December 2000.
CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP.
By:/s/ Patrick D. Coleman
--------------------------------------
Patrick D. Coleman
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick D. Coleman, Allan J. Baum and Debra
Huddelston, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities to sign this Registration Statement and any
or all other documents in connection herewith, and to file the same, with all
exhibits hereto, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as might or could
be done in person, hereby ratifying and confirming all said attorneys-in-fact
and agents or any of them, or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed on December
18, 2000 by the following persons in the capacities indicated:
SIGNATURE TITLE DATE
/s/ Patrick D. Coleman President December 18, 2000
---------------------- (Principal Executive
Patrick D. Coleman Officer)
Director
/s/ Scott J. Ulum Chairman December 18, 2000
------------------ Director
Scott J. Ulm
/s/ William S.Pitofsky Vice-President December 18, 2000
---------------------- Director
William S. Pitofsky
/s/ Zev Kindler Treasurer December 18, 2000
--------------- (Principal Financial
Zev Kindler Officer)
/s/ Thomas Zingalli Controller December 18, 2000
------------------- (Principal Accounting
Thomas Zingalli Officer)
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