<PAGE>
Filed Pursuant to Rule 424(a)
Registration File No.: 33-96378
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus supplement and the prospectus to which it
relates shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated January 29, 1996)
$351,749,135 (APPROXIMATE)
LB COMMERCIAL CONDUIT MORTGAGE TRUST II
MULTICLASS PASS-THROUGH CERTIFICATES, SERIES 1996-C2
Structured Asset Securities Corporation (the "Depositor") is forming a
trust (the "Trust"), designated as LB Commercial Conduit Mortgage Trust II,
which will issue Multiclass Pass-Through Certificates, Series 1996-C2 (the
"Certificates") in the aggregate principal amount of approximately
$404,309,353. The Certificates will consist of thirteen classes (each, a
"Class"): the Class A and Class IO Certificates (collectively, the "Senior
Certificates"); the Class B, Class C, Class D, Class E, Class F, Class G,
Class H and Class J Certificates (collectively, the "Subordinate
Certificates"; and collectively with the Senior Certificates, the "Regular
Interest Certificates"); and the Class R-I, Class R-II and Class R-III
Certificates (collectively, the "Residual Interest Certificates"). Only the
Senior Certificates and the Class B, Class C, Class D and Class E
Certificates (collectively, the "Offered Certificates") are being offered
hereby. It is a condition to their issuance that the Class A Certificates and
the Class IO Certificates each be rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's") and "AAA" by each of Fitch Investors Service, L.P. ("Fitch")
and Duff & Phelps Credit Rating Co. ("DCR", and together with Moody's and
Fitch, the "Rating Agencies "), that the Class B Certificates be rated "Aa2"
by Moody's and "AA" by each of Fitch and DCR, that the Class C Certificates
be rated "A2" by Moody's and "A" by each of Fitch and DCR, that the Class D
Certificates be rated "Baa2" by Moody's and "BBB" by each of Fitch and DCR,
and that the Class E Certificates be rated "Baa3" by Moody's and "BBB-" by
each of Fitch and DCR.
The Certificates will evidence beneficial ownership interests in the
Trust, which will be established by the Depositor pursuant to the Trust
Agreement, to be dated as of October 1, 1996, among the Depositor, LaSalle
National Bank as trustee (the "Trustee"), ABN AMRO Bank N.V. as fiscal agent
(the "Fiscal Agent"), GMAC Commercial Mortgage Corporation as servicer (the
"Servicer"), and CRIIMI MAE Services Limited Partnership as special servicer
(the "Special Servicer"). The Certificates will be payable solely from
amounts received with respect to the assets of the Trust. The Certificates
will not constitute obligations of the Depositor or any of its affiliates and
will not be insured or guaranteed by any governmental agency or
instrumentality or by Lehman Brothers Inc. ("Lehman Brothers" or the
"Underwriter") or any affiliate thereof or by any other person or entity. SEE
"RISK FACTORS" BEGINNING AT PAGE S-40 IN THIS PROSPECTUS SUPPLEMENT AND "RISK
FACTORS" BEGINNING AT PAGE 26 IN THE PROSPECTUS FOR CERTAIN FACTORS TO BE
CONSIDERED IN PURCHASING THE OFFERED CERTIFICATES.
The primary assets of the Trust will be a segregated pool (the "Mortgage
Pool") of 111 conventional, fixed rate, first lien, monthly-pay, commercial
and multifamily mortgage loans (the "Mortgage Loans"), exclusive of any
Retained Yield (as defined herein) collected thereon, and certain Collection
and Custodial Accounts (collectively, the "Trust Fund"). The Mortgage Loans
had an aggregate principal balance as of October 1, 1996 (the "Cut-off Date")
of $404,309,352.93 (the "Initial Pool Balance"). On or before the date of
initial issuance of the Certificates, the Mortgage Loans will be acquired by
the Depositor from an affiliate of the Depositor and Lehman Brothers (such
affiliate, the "Seller"), which originated or acquired the Mortgage Loans
through the operation of its commercial and multifamily mortgage loan conduit
program.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
INITIAL AGGREGATE ASSUMED FINAL
CERTIFICATE PRINCIPAL OR INITIAL CERTIFICATE DISTRIBUTION
CLASS NOTIONAL AMOUNT(1) INTEREST RATE(2) DATE(3)(4) CUSIP NUMBER
- ----------- ------------------------ -------------------- ------------------- --------------
<S> <C> <C> <C> <C>
Class A .... $ 274,930,359 % 501773 AM 7
Class B .... $ 28,301,654 % 501773 AN 5
Class C .... $ 24,258,561 % 501773 AP 0
Class D .... $ 16,172,374 % 501773 AQ 8
Class E .... $ 8,086,187 % 501773 AR 6
Class IO .. $404,309,353(5) % 501773 AS 4
</TABLE>
- ------------
(Footnotes to table on next page)
The Offered Certificates will be offered by Lehman Brothers from time to
time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The aggregate proceeds (excluding accrued
interest) to the Depositor from the sale of the Offered Certificates will be
approximately $ , before deduction of expenses payable by the Depositor.
The Offered Certificates will be offered by Lehman Brothers subject to
prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by Lehman Brothers and certain further
conditions. It is expected that the Class A, Class B, Class C, Class D and
Class E Certificates will be delivered in book-entry form through the
Same-Day Funds Settlement System of The Depository Trust Company and that the
Class IO Certificates will be delivered in definitive form at the offices of
Lehman Brothers, New York, New York on or about October 30, 1996 (the
"Closing Date").
LEHMAN BROTHERS
OCTOBER , 1996
<PAGE>
The footnotes to the table on the previous page are as follows:
- ------------
(1) The initial aggregate principal amount ("Certificate Principal Amount")
or notional amount ("Certificate Notional Amount") of each Class of
Offered Certificates is subject to a permitted variance of plus or
minus 5%, depending on the Mortgage Loans actually delivered to the
Trustee.
(2) The per annum rates shown above are the approximate Certificate
Interest Rates for the Distribution Date (as defined below) in November
1996. The Certificate Interest Rates for the Class A, Class B, Class C,
Class D and Class E Certificates will be variable and, subsequent to
the Distribution Date in November 1996, will in each such case equal
the weighted average of the Net Mortgage Rates (as defined herein) on
the Mortgage Loans from time to time, minus basis points, in the
case of the Class A Certificates, basis points, in the case of the
Class B Certificates, basis points, in the case of the Class C
Certificates, basis points, in the case of the Class D Certificates,
and basis points, in the case of the Class E Certificates. The
Certificate Interest Rate for the Class IO Certificates will also be
variable and for each subsequent Distribution Date will be calculated
as provided herein. See "DESCRIPTION OF THE CERTIFICATES--Distributions--
Certificate Interest Rates" herein.
(3) Determined on the basis of the assumptions set forth in "DESCRIPTION OF
THE CERTIFICATES--Assumed Final Distribution Date; Rated Final
Distribution Date" herein and a 0% CPR.
(4) The "Rated Final Distribution Date" is October 25, 2026, the first
Distribution Date that follows the end of the amortization term for the
Mortgage Loan that, as of the Cut-off Date, has the longest remaining
amortization term. See "DESCRIPTION OF THE CERTIFICATES--Assumed Final
Distribution Date; Rated Final Distribution Date" and "CERTIFICATE
RATING" herein.
(5) The Class IO Certificates will not have Certificate Principal Amounts
or entitle their holders to distributions of principal. The Class IO
Certificates will bear interest on an aggregate Certificate Notional
Amount equal to the aggregate Certificate Principal Amount of the other
nine Classes of Regular Interest Certificates outstanding from time to
time.
THE YIELD TO MATURITY ON THE CLASS IO CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS, WHICH MAY FLUCTUATE SIGNIFICANTLY FROM
TIME TO TIME, AND BY OTHER FACTORS SET FORTH HEREIN, INCLUDING LOSSES ON THE
MORTGAGE LOANS ALLOCATED IN REDUCTION OF THE AGGREGATE CERTIFICATE PRINCIPAL
AMOUNT OF THE REGULAR INTEREST CERTIFICATES WITH CERTIFICATE PRINCIPAL
AMOUNTS. INVESTORS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE
RISK THAT AN EXTREMELY RAPID RATE OF PRINCIPAL PAYMENTS ON AND/OR
LIQUIDATIONS OF THE MORTGAGE LOANS COULD RESULT IN THE FAILURE BY INVESTORS
IN THE CLASS IO CERTIFICATES TO FULLY RECOUP THEIR INITIAL INVESTMENTS. THE
CREDIT RATING THEREON DOES NOT ADDRESS THE POSSIBILITY THAT INVESTORS IN THE
CLASS IO CERTIFICATES MIGHT SUFFER A LOWER THAN ANTICIPATED YIELD OR, IN THE
EVENT OF AN EXTREMELY RAPID RATE OF PRINCIPAL PAYMENTS ON AND/OR LIQUIDATIONS
OF THE MORTGAGE LOANS, COULD FAIL TO RECOVER THEIR INITIAL INVESTMENT. SEE
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" HEREIN.
Lehman Brothers, directly or through one or more of its affiliates,
currently intends to make a secondary market in the Offered Certificates but
is under no obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop or, if it does develop, that
it will continue. See "RISK FACTORS" herein.
The Offered Certificates will bear interest at the respective rates per
annum set forth above and/or described under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Certificate Interest Rates" herein. Interest on
the Regular Interest Certificates will be payable on the 25th day of each
month (or, if any such 25th day is not a Business Day, then on the next
succeeding Business Day) (each such date, a "Distribution Date"), commencing
in November 1996. Principal payments on each Class of Regular Interest
Certificates (other than the Class IO Certificates) will be made
sequentially, in the order and amounts described herein, on a pro rata basis
among the Certificates of any particular Class. If and to the extent
collected, Prepayment Premiums (as defined herein), exclusive of any portion
thereof that constitutes Retained Yield, will be distributed among the
holders of the respective Classes of Certificates, in the amounts and in
accordance with the priorities described herein. As and to the extent
described
S-2
<PAGE>
herein, Realized Losses (as defined herein) with respect to the Mortgage
Loans and Additional Expense Losses (as defined herein) will be allocated to
the Subordinate Certificates prior to allocation thereof to the Senior
Certificates and will be allocated to the respective Classes of Subordinate
Certificates sequentially in reverse alphabetical order of Class designation.
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to the Trust for
federal income tax purposes (the REMICs formed thereby, "REMIC I", "REMIC II"
and "REMIC III", respectively). As described more fully herein and in the
Prospectus, the Offered Certificates will evidence "regular interests" in the
related REMIC. See "FEDERAL INCOME TAX CONSIDERATIONS" herein and in the
Prospectus.
This Prospectus Supplement does not contain complete information about the
offering of the Certificates. Additional information is contained in the
Prospectus and investors must read both the Prospectus and this Prospectus
Supplement to obtain material information about the offering. Sales of
Offered Certificates may not be consummated unless the purchaser has received
both the Prospectus and this Prospectus Supplement.
Until ninety days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Offered Certificates, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and the Prospectus. This is in addition to the obligation of
dealers acting as underwriters to deliver a Prospectus Supplement and the
Prospectus with respect to their unsold allotments or subscriptions.
S-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
EXECUTIVE SUMMARY .............................................................. S-6
SUMMARY OF TERMS ............................................................... S-20
RISK FACTORS ................................................................... S-40
The Certificates .............................................................. S-40
The Mortgage Loans ............................................................ S-41
DESCRIPTION OF THE CERTIFICATES ................................................ S-47
General ....................................................................... S-47
Certificate Principal Amounts and Certificate Notional Amounts ............... S-47
Registration; Denominations ................................................... S-48
Certificate Interest Rates .................................................... S-49
Distributions ................................................................. S-50
Subordination; Allocation of Losses and Certain Expenses ...................... S-59
Prepayment Interest Shortfalls and Excess Prepayment Interest ................. S-61
Advances ...................................................................... S-62
Appraisal Reductions .......................................................... S-63
Reports to Certificateholders; Available Information .......................... S-64
Assumed Final Distribution Date; Rated Final Distribution Date ............... S-67
Optional Termination .......................................................... S-68
Voting Rights; Lists of Certificateholders .................................... S-68
Amendment ..................................................................... S-69
The Trustee ................................................................... S-69
The Fiscal Agent .............................................................. S-71
The Custodial and Collection Accounts ......................................... S-72
DESCRIPTION OF THE MORTGAGE POOL ............................................... S-74
General ....................................................................... S-74
Mortgage Loan History ......................................................... S-75
Certain Terms and Conditions of the Mortgage Loans ............................ S-75
Assessments of Property Condition ............................................. S-78
Retained Yield ................................................................ S-79
Secondary Financing ........................................................... S-80
Additional Mortgage Loan Information .......................................... S-80
Assignment of the Mortgage Loans; Repurchases ................................. S-95
Representations and Warranties; Repurchases ................................... S-96
Changes in Mortgage Pool Characteristics ...................................... S-97
SERVICING OF MORTGAGE LOANS .................................................... S-98
General ....................................................................... S-98
The Servicer .................................................................. S-99
The Special Servicer .......................................................... S-101
The Operating Adviser ......................................................... S-102
Due-on-Sale and Due-on-Encumbrance Provisions ................................. S-104
Maintenance of Insurance ...................................................... S-104
Mortgage Loan Modifications ................................................... S-106
Sale of Defaulted Mortgage Loans and REO Properties ........................... S-107
Foreclosures .................................................................. S-107
Certain Matters Regarding the Servicer and the Special Servicer .............. S-109
Events of Default ............................................................. S-111
S-4
<PAGE>
PAGE
---------
Termination of the Servicer or Special Servicer ............................... S-111
Appointment of a Successor Servicer or Special Servicer ....................... S-112
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS .................................. S-112
General ....................................................................... S-112
Effects of Losses on the Mortgage Loans, Additional Trust Fund Expenses and
Other Matters ................................................................ S-114
Weighted Average Life ......................................................... S-114
Yield Sensitivity of the Class IO Certificates ................................ S-124
LEGAL INVESTMENT CONSIDERATIONS ................................................ S-124
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS LOCATED IN GEORGIA ..................... S-124
USE OF PROCEEDS ................................................................ S-124
ERISA CONSIDERATIONS ........................................................... S-124
FEDERAL INCOME TAX CONSIDERATIONS .............................................. S-127
UNDERWRITING ................................................................... S-129
LEGAL MATTERS .................................................................. S-129
CERTIFICATE RATING ............................................................. S-129
INDEX OF PRINCIPAL TERMS ....................................................... S-131
Annex A
</TABLE>
S-5
<PAGE>
EXECUTIVE SUMMARY
$351,749,135 (APPROXIMATE)
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus relating to the securities referred to herein
in making their investment decision. The following Executive Summary does not
include all relevant information relating to the Offered Certificates or
Mortgage Loans, particularly with respect to the risks and special
considerations involved with an investment in the Offered Certificates and is
qualified in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus Supplement and the Prospectus. Prior to making
any investment decision, a prospective investor should fully review this
Prospectus Supplement and the Prospectus. Capitalized terms used and not
otherwise defined herein have the respective meanings assigned to them in
this Prospectus Supplement and the Prospectus.
<TABLE>
<CAPTION>
CREDIT
SUPPORT % OF DEAL
- ----------- ------------- ----------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
32.0% CLASS A $ 274.9 MM (Aaa/AAA/AAA) 68.0%
CLASS I/O ----------- ------------ -------------------- ---------
25.0% CLASS B $ 28.3 MM (Aa2/AA/AA) 7.0%
----------- ------------ -------------------- ---------
19.0% CLASS C $ 24.3 MM (A2/A/A) 6.0%
----------- ------------ -------------------- ---------
15.0% CLASS D $ 16.2 MM (Baa2/BBB/BBB) 4.0%
----------- ------------ -------------------- ---------
13.0% CLASS E $ 8.1 MM (Baa3/BBB-/BBB-) 2.0%
----------- ------------ --------------------
7.5% CLASS F $ 22.2 MM -- NOT OFFERED 5.5%
----------- ------------ --------------------
4.0% CLASS G $ 14.2 MM -- NOT OFFERED 3.5%
----------- ------------ --------------------
2.5% CLASS H $ 6.1 MM -- NOT OFFERED 1.5%
------------ ------------ --------------------
0.0% CLASS J $ 10.1 MM -- NOT OFFERED 2.5%
----------- ------------ --------------------
Ratings: Moody's/Fitch/DCR
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
INITIAL AGGREGATE INITIAL
CERTIFICATE CERTIFICATE CERTIFICATE WEIGHTED
RATINGS MOODY'S / PRINCIPAL OR INTEREST RATE INTEREST RATE AVERAGE LIFE** PRINCIPAL**
CLASS FITCH / DCR NOTIONAL AMOUNT DESCRIPTION* (APPROX.) (APPROX.) WINDOW
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Senior Classes
- --------------------------------------------------------------------------------------------------------------------
A Aaa/AAA/AAA $274,930,359 Variable % 7.0 11/96 -6/06
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
IO Aaa/AAA/AAA $404,309,353 Variable I/O % 8.5 11/96 -4/19
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
Subordinate Classes
- -------------------------------------------------------------------------------------------------------------------
B Aa2/AA/AA $ 28,301,654 Variable % 9.7 6/06 -8/06
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
C A2/A/A $ 24,258,561 Variable % 9.8 8/06 -8/06
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
D Baa2/BBB/BBB $ 16,172,374 Variable % 9.9 8/06 -9/06
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
E Baa3/BBB-/BBB- $ 8,086,187 Variable % 9.9 9/06 -9/06
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
F Not Offered $ 22,237,014 Variable % 11.0 9/06 -11/10
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
G Not Offered $ 14,150,827 Variable % 14.6 11/10 -12/12
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
H Not Offered $ 6,064,640 Variable % 17.3 12/12 -2/15
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
J Not Offered $ 10,107,733 Variable % 20.1 2/15 -4/19
- ------- --------------------- ----------------- --------------- --------------- -------------- ---------------
</TABLE>
* The Certificate Interest Rate for each Class of Regular Interest
Certificates (other than the Class IO Certificates) is the weighted
average of the Net Mortgage Rates on the Mortgage Loans from time to
time, minus a specified number of basis points (which specified number
of basis points may vary from Class to Class). The Certificate Interest
Rate for the Class IO Certificates will also be variable and will be
calculated as described herein. See "DESCRIPTION OF THE
CERTIFICATES--Distributions--Certificate Interest Rates" herein.
** The weighted average life and period during which distributions of
principal would be received (the "Principal Window") set forth in the
foregoing table with respect to each Class of Regular Interest
Certificates is based on the assumptions that there are no prepayments
or losses on the Mortgage Loans and no extensions of maturity dates and
otherwise on the basis of the Mortgage Loan Assumptions (as defined
herein).
S-7
<PAGE>
<TABLE>
<S> <C>
PARTIES:
DEPOSITOR .............. Structured Asset Securities Corporation. See
"THE ISSUER--The Company" in the Prospectus.
SERVICER ............... GMAC Commercial Mortgage Corporation. See
"SERVICING OF THE MORTGAGE LOANS--The
Servicer" herein.
SPECIAL SERVICER ....... CRIIMI MAE Services Limited Partnership. See
"SERVICING OF THE MORTGAGE LOANS--The
Special Servicer" herein.
TRUSTEE ................ LaSalle National Bank. See "DESCRIPTION OF
THE CERTIFICATES--The Trustee" herein.
FISCAL AGENT ........... ABN AMRO Bank, N.V. See "DESCRIPTION OF THE
CERTIFICATES--The Fiscal Agent" herein.
OFFERED SECURITIES ..... Class A, Class IO, Class B, Class C, Class D
and Class E Certificates are publicly
registered securities, and are the only
securities offered hereby. No other Class of
Certificates is offered hereby. See also
"LEGAL INVESTMENT CONSIDERATIONS" herein.
DISTRIBUTION DATES ..... Distributions on the Certificates will be
made monthly on the 25th day of the month,
or, if such day is not a Business Day, the
next succeeding Business Day commencing in
November, 1996. The "Record Date" for each
such distribution is the last Business Day
of the preceding calendar month. All Classes
of Regular Interest Certificates have a
"24-day delay", and all such Classes accrue
interest on the basis of a year deemed to
consist of twelve 30-day months. "See
DESCRIPTION OF THE CERTIFICATES--Distributions"
herein.
RATED FINAL
DISTRIBUTION DATE ..... October 25, 2026, the first Distribution
Date following the end of the amortization
term of the Mortgage Loan that, as of the
Cut-Off Date, has the longest remaining
amortization term. See "DESCRIPTION OF THE
CERTIFICATES--Assumed Final Distribution
Date; Rated Final Distribution Date" and
"CERTIFICATE RATING" herein.
ASSUMED FINAL
DISTRIBUTION DATE .....CLASS DESIGNATION ASSUMED FINAL DISTRIBUTION DATE
- --------------------- ------------------ -------------------------------
Class A
Class IO
Class B
Class C
Class D
Class E
Determined on the basis of the assumptions
set forth in "DESCRIPTION OF THE
CERTIFICATES--Assumed Final
S-8
<PAGE>
Distribution Date; Rated Final Distribution
Date" herein.
TERMINATION RIGHTS ..... 5% optional termination. See "DESCRIPTION OF
THE CERTIFICATES--Optional Termination"
herein.
FEDERAL TAX STATUS ..... Elections will be made to treat the
segregated pool of assets comprising the
Trust as three separate REMICs. See "FEDERAL
INCOME TAX CONSEQUENCES" herein.
ERISA .................. The Class A and Class IO Certificates should
qualify for an exemption from the prohibited
transaction provisions of ERISA described
herein. No Class B, Class C, Class D or
Class E Certificate or interest therein
should be acquired by, on behalf of or with
assets of any employee benefit plan or other
retirement arrangement subject to ERISA,
unless the purchase and holding of such
Certificate or interest therein is exempt
from prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the
Code under Prohibited Transaction Class
Exemption 95-60, which provides an exemption
from the prohibited transaction rules for
certain transactions involving an insurance
company general account. See "ERISA
CONSIDERATIONS" herein.
SMMEA .................. None of the Offered Certificates are
mortgage-related securities pursuant to the
Secondary Mortgage Market Enhancement Act of
1984.
DENOMINATIONS .......... $100,000 in Certificate Principal Amount and
integral multiples of $1 in excess thereof,
with respect to the Class A, Class B, Class
C, Class D and Class E Certificates; and
$1,000,000 in Certificate Notional Amount
and integral multiples of $1 in excess
thereof, with respect to the Class IO
Certificates.
DTC ELIGIBILITY ........ The Class A, Class B, Class C, Class D and
Class E Certificates will be offered in
book-entry form through DTC. The Class IO
Certificates will be issued in fully
registered certificated form.
CLOSING DATE ........... On or about October 30, 1996.
DISTRIBUTIONS OF
INTEREST
AND PRINCIPAL ......... Distributions of interest and principal on
the respective Classes of Regular Interest
Certificates will be made in the amounts
described herein in the following order:
1) Interest on the Class A and Class IO
Certificates on a pro rata basis;
2) Principal on the Class A
Certificates;
3) Interest on the Class B
Certificates, then, if the aggregate
Certificate Principal Amount of the
Class A Certificates has been
reduced to zero, principal on the
Class B Certificates;
S-9
<PAGE>
4) Interest on the Class C
Certificates, then, if the aggregate
Certificate Principal Amount of the
Class B Certificates has been
reduced to zero, principal on the
Class C Certificates;
5) Interest on the Class D
Certificates, then, if the aggregate
Certificate Principal Amount of the
Class C Certificates has been
reduced to zero, principal on the
Class D Certificates;
6) Interest on the Class E
Certificates, then, if the aggregate
Certificate Principal Amount of the
Class D Certificates has been
reduced to zero, principal on the
Class E Certificates; and
7) Interest and principal on the
remaining Classes of Subordinate
Certificates, sequentially.
See "DESCRIPTION OF THE CERTIFICATES--Distributions--Application of
the Available Distribution Amount" herein.
CREDIT ENHANCEMENT ..... Credit enhancement for the Senior
Certificates will be provided by the
subordination of the respective Classes of
Subordinate Certificates with respect to
distributions of interest and principal.
Credit enhancement for each of the other
Classes of Offered Certificates will be
provided by the subordination of each Class
of Subordinate Certificates with a later
alphabetical Class designation, with respect
to distributions of interest and principal.
The initial amount of credit enhancement
provided to each Class of Offered
Certificates is summarized below:
CREDIT ENHANCEMENT*
-------------------------
INITIAL AGGREGATE
OFFERED RATINGS CERTIFICATE PRINCIPAL
CLASS MOODY'S/FITCH/DCR AMOUNT AMOUNT SUPPORT
- --------- ----------------- --------------------- -------------- ---------
A** .... Aaa/AAA/AAA $274,930,359 $129,378,993 32.0%
B .... Aa2/AA/AA $ 28,301,654 $101,077,338 25.0%
C .... A2/A/A $ 24,258,561 $ 76,818,777 19.0%
D .... Baa2/BBB/BBB $ 16,172,374 $ 60,646,403 15.0%
E .... Baa3/BBB-/BBB- $ 8,086,187 $ 52,560,216 13.0%
* Reflects the aggregate Certificate
Principal Amount of all Classes of
Subordinate Certificates (in the
case of the Class A Certificates) or
all Classes of Subordinate
Certificates with a later
alphabetical Class designation (in
the case of the Class B, Class C,
Class D and Class E Certificates),
in each case expressed as a dollar
amount and the percent of the
Initial Pool Balance.
** The Class IO Certificates do not
have Certificate Principal Balances.
Interest accrued on the Certificate
Notional Amounts of such
Certificates is payable on a pro
rata basis with interest accrued in
respect of the Class A Certificates.
As and to the extent described herein,
Realized Losses (as defined herein) with
respect to the Mortgage Loans and Additional
Trust Fund Expenses (as defined herein) will
be allocated to the Subordinate Certificates
prior to allocation thereof to the
S-10
<PAGE>
Senior Certificates and will be allocated to
the respective Classes of Subordinate
Certificates in reverse alphabetical order
of Class designation. See "DESCRIPTION OF
THE CERTIFICATES--Subordination; Allocation
of Losses and Certain Expenses" herein.
ALLOCATION OF
PREPAYMENT PREMIUMS ... As and to the extent collected, Prepayment
Premiums (as defined herein), net of any
portion thereof constituting Retained Yield
(as defined herein), are to be distributed
among the holders of the Class IO
Certificates and the holders of each other
Class of Regular Interest Certificates in
respect of which the related prepayment of
principal was distributed, up to an amount
equal to, and pro rata in accordance with,
the related PV Yield Loss Amount (as defined
herein) for each such Class of Certificates
in connection with such prepayment of
principal. In general, the PV Yield Loss
Amount will be calculated with respect to
each such Class of Certificates in
accordance with a formula intended to
reflect the yield loss to the holders
thereof resulting from the particular
prepayment of principal being distributed in
reduction of the aggregate Certificate
Principal Amount or Certificate Notional
Amount, as the case may be, of such Class of
Certificates. Any remaining portion of such
Prepayment Premium will be distributed among
the Certificateholders as described herein.
See "DESCRIPTION OF THE CERTIFICATES--
Distributions--Distributions of Prepayment
Premiums" herein.
ADVANCES ............... The Servicer will be obligated to make
advances (each, an "Advance") of delinquent
interest and, except for the principal
portion of a Balloon Payment, principal on
the Mortgage Loans and to cover certain
servicing expenses, in any event under the
circumstances and subject to the limitations
described herein. In general, the Trustee
will be obligated to make any Advance that
the Servicer is required but fails to make;
and, if the Servicer and the Trustee both
fail to make any required Advance, the
Fiscal Agent will be required to make such
Advance.
Each Advance will bear interest on the
amount thereof for the period during which
it is outstanding, such interest accruing at
the rate and payable to the Servicer, the
Trustee or the Fiscal Agent, as the case may
be, under the circumstances described
herein. See "DESCRIPTION OF THE CERTIFICATES
--Advances" herein.
OPERATING ADVISER ...... The majority holder (or holders) of the
outstanding Class of Regular Interest
Certificates (other than the Class IO
Certificates) with the latest alphabetical
Class designation will have the right,
subject to certain conditions described
herein, to elect an adviser (the "Operating
Adviser") from whom the Special Servicer
will seek advice and approval and take
direction under the various circumstances
described herein. See "SERVICING
S-11
<PAGE>
OF MORTGAGE LOANS--The Operating Adviser"
herein.
SERVICER MODIFICATION,
WAIVER AND
AMENDMENT RIGHTS ...... The Servicer will, at the direction of the
Special Servicer, agree to extend the
maturity date of a balloon loan for one year
or less from or after the maturity date of
such balloon loan if certain conditions
described herein are met. No such extension
by the Servicer may be for a period of more
than one year from the maturity date of such
Mortgage Loan or extend the maturity date
beyond two years prior to the Rated Final
Distribution Date. No more than one such
extension may be granted by the Servicer
with respect to any particular Mortgage
Loan. Further extensions may be granted by
the Special Servicer as described below. See
"SERVICING OF THE MORTGAGE LOANS--Mortgage
Loan Modifications" herein.
SPECIAL SERVICER
MODIFICATION, WAIVER
AND AMENDMENT RIGHTS .. If the Special Servicer determines, after
consultation with the Operating Advisor,
that a modification, waiver or amendment
(including the substitution or release of
collateral or the pledge of additional
collateral) of the terms of a Specially
Serviced Mortgage Loan with respect to which
a payment default or other material default
has occurred or a payment default is, in the
Special Servicers judgment, reasonably
foreseeable, is reasonably likely to produce
a greater recovery of net collections on a
present value basis (the relevant
discounting to be performed at the related
Net Mortgage Rate) than liquidation of such
Specially Serviced Mortgage Loan, then the
Special Servicer may, but is not required
to, with the approval of the Operating
Advisor, agree to a modification, waiver or
amendment of such Specially Serviced
Mortgage Loan, subject to the limitations
and restrictions described herein. The
Special Servicer may not agree to a
modification, waiver or amendment of any
term of any Specially Serviced Mortgage Loan
if such modification, waiver or amendment
would: (i) extend the maturity date of any
Specially Serviced Mortgage Loan to a date
occurring later than two years prior to the
Rated Final Distribution Date; (ii) extend
the maturity date of any such Specially
Serviced Mortgage Loan, unless, if the
related Mortgage Rate (as defined herein) is
below the then prevailing interest rate as
determined by the Special Servicer, such
Mortgage Rate is modified to equal such then
prevailing interest rate; (iii) provide for
the deferral of interest unless (A) interest
accrues thereon at the related Mortgage Rate
and (B) the aggregate amount of such
deferred interest does not exceed 5% of the
unpaid principal balance of the Specially
Serviced Mortgage Loan; (iv) reduce the
Mortgage Rate on any such Specially Serviced
Mortgage Loan to less than the then
prevailing interest rate as determined by
the Special Servicer; or (v) result in a
prepayment (other than from liquidation
proceeds, insurance proceeds or condemnation
proceeds) on a date other than the Mortgage
Loans due date. With limited exception
S-12
<PAGE>
described herein, the Special Servicer may
not agree to any modification, waiver or
amendment of a Mortgage Loan that is not a
Specially Serviced Mortgage Loan. See
"SERVICING OF THE MORTGAGE LOANS--Mortgage
Loan Modifications" herein.
INVESTOR REPORTING ..... Several reports will be available to
Certificateholders. These reports include:
(1) A monthly Distribution Date
Statement that provides, among other
things, standard information as to
principal and interest
distributions, Certificate Principal
Amounts, Certificate Interest Rates,
Advances and certain information as
to the Mortgage Loans.
(2) A monthly report containing
substantially the categories of
information regarding the Mortgage
Loans set forth in this Prospectus
Supplement in the tables under the
caption "DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan
Information" (calculated where
applicable on the basis of the most
recent relevant information provided
by the borrowers to the Servicer or
the Special Servicer and by the
Servicer or the Special Servicer, as
the case may be, to the Trustee),
such information to be presented in
a tabular format substantially
similar to the format utilized in
this Prospectus Supplement under
such caption and a loan-by-loan
listing showing loan number,
property type, location, unpaid
principal balance, Mortgage Rate,
paid through date, and maturity
date.
(3) A quarterly report which provides,
among other things, a debt service
coverage ratio for each of the
Mortgage Loans for which the Special
Servicer obtains operating
statements and the occupancy rate
with respect to each Mortgaged
Property for which the Special
Servicer obtains rent rolls.
(4) A monthly Portfolio Performance
Report which will set forth detailed
information with respect to the
delinquency status of the Mortgage
Loans, including, among other
things, the following: (i) number of
days delinquent (ranging from less
than one month to over two years)
and causes of servicing transfers,
(ii) delinquency status by state,
including the five states with the
largest delinquency concentrations,
(iii) delinquency status by property
type, (iv) Mortgage Loans returned
to the Servicer, with and without
modifications, (v) Mortgage Loans
liquidated, including by payment in
full, discounted pay-off, sale of
the Mortgage Loan, repurchase and
sale of REO Property and (vi) REO
property by state and property type.
S-13
<PAGE>
(5) With respect to Specially Serviced
Mortgage Loans and REO Properties:
(i) a report showing loan-by-loan
detail on each Specially Serviced
Mortgage Loan that is 60 days
delinquent, 90 days delinquent, or
in the process of foreclosure, (ii)
a status report for each REO
Property and (iii) a modification
report showing loan-by-loan detail
for each modification closed during
the most recent reporting period.
See "DESCRIPTION OF THE
CERTIFICATES--Reports to
Certificateholders; Available
Information" herein.
MORTGAGE POOL:
MORTGAGE LOANS ........ The collateral consists of 111 Mortgage
Loans with an Initial Pool Balance of
approximately $404,309,353. Seven Mortgage
Loans (representing approximately 14.3% of
the Initial Pool Balance) were originated
directly by the Seller; 81 Mortgage Loans
(representing approximately 65.8% of the
Initial Pool Balance) were originated by
Seller approved conduit originators
utilizing the Seller's commercial conduit
program guidelines; and 23 Mortgage Loans
(representing approximately 19.9% of the
Initial Pool Balance) were purchased from
unaffiliated third-party originators in the
secondary mortgage market. The purchased
loans were reunderwritten by the Seller to
confirm substantial compliance with the
Seller's underwriting guidelines.
Ninety-five Mortgage Loans (representing
approximately 85.5% of the Initial Pool
Balance) were originated subsequent to
October 1, 1995. The remaining 16 Mortgage
Loans were originated prior to September 30,
1995 but subsequent to November 4, 1994.
PREPAYMENT RESTRICTIONS
........................ As of the Cut-off Date, all of the Mortgage
Loans restrict or, with limited exception
described herein, prohibit voluntary
principal prepayments. In general, as of the
Cut-off Date, the Mortgage Loans either (i)
permit voluntary prepayments of principal
provided that the prepayment is accompanied
by an additional amount (a "Prepayment
Premium") in excess of the amount prepaid
(83 Mortgage Loans, representing 76.1% of
the Initial Pool Balance), or (ii) with
limited exception described herein, prohibit
voluntary prepayments of principal for a
period (a "Lock-out Period") ending on a
specified date and impose Prepayment
Premiums in connection with prepayments made
thereafter (28 Mortgage Loans, representing
23.9% of the Initial Pool Balance). When a
Prepayment Premium is required to be paid in
connection with the prepayment of any
Mortgage Loan, such Prepayment Premium will
generally be calculated either: (a) as the
greater of (i) 1.0% of the amount prepaid
and (ii) the result of a "treasury" yield
maintenance formula; or (b) in the case of
certain Mortgage Loans, after the expiration
of a period during which the calculations
described in clause (a) is in effect, as a
specified percentage (which will decline
over time) of the amount prepaid. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain
Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" herein.
</TABLE>
S-14
<PAGE>
The following table sets forth the prepayment restrictions that will be
in effect for the Mortgage Pool at the specified dates based on the Mortgage
Loan Assumptions and a 0% CPR (expressed as a percentage of the Initial Pool
Balance).
<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF % OF % OF % OF % OF % OF % OF % OF
POOL POOL POOL POOL POOL POOL POOL POOL POOL POOL POOL POOL
PREPAYMENT NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1,
POSITION 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
- -------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOP (1)....... 23.9% 10.6% 7.4% 3.6% 1.5% 0.8% 0.8% -- -- -- -- --
TYM (2)....... 76.1% 89.4% 92.6% 96.4% 98.5% 94.7% 78.6% 56.0% 55.9% 39.0% 11.5% 11.5%
5% of PP(3)... -- -- -- -- -- -- -- -- -- -- 1.9% --
4% of PP...... -- -- -- -- -- -- -- -- -- -- -- 1.9%
3% of PP...... -- -- -- -- -- -- -- 3.3% -- -- -- --
2% of PP...... -- -- -- -- -- -- -- -- 3.3% -- -- --
1% of PP...... -- -- -- -- -- 3.3% 3.3% 3.3% 3.3% 1.8% -- --
None (4)...... -- -- -- -- -- 1.2% 10.9% -- 0.1% 16.4% -- --
Loans Matured. -- -- -- -- -- -- 6.4% 37.4% 37.4% 42.8% 86.6% 86.6%
----- ----- ---- ----- ----- ----- ------ ------ ----- ----- ----- ------
Total......... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
===== ===== ===== ===== ===== ===== ====== ====== ===== ===== ===== ======
</TABLE>
- --------------
(1) LOP: Lock-out Period
(2) TYM: Prepayment Premium based on a "treasury" yield maintenance
formula.
(3) PP: Principal Prepayment
(4) None: No prepayment restriction
LOAN DETAILS ......... See Annex A hereto for certain
characteristics of Mortgage Loans on a
loan-by-loan basis. See also "DESCRIPTION OF
THE MORTGAGE LOANS--Additional Mortgage Loan
Information" for additional statistical
information regarding the Mortgage Loans.
SUMMARY OF MORTGAGE POOL
<TABLE>
<CAPTION>
CHARACTERISTICS TOTAL DEAL
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
Initial Pool Balance .................................................................. $404,309,353
Number of Mortgage Loans .............................................................. 111
Average Cut-off Date Balance .......................................................... $3,642,427
Weighted Average Mortgage Rate ........................................................ 9.13%
Weighted Average
Original Term to Maturity ............................................................ 122 Months
Weighted Average
Remaining Term to Maturity ........................................................... 116 Months
Weighted Average Original
Amortization Term .................................................................... 321 Months
Weighted Average Cut-off Date DSC Ratio ............................................... 1.46x
Weighted Average Cut-off Date LTV Ratio ............................................... 65.3%
Balloon Loans as a Percentage of the Initial Pool Balance ............................. 90.2%
Mortgage Loans Secured by California Properties as a Percentage of the Initial Pool
Balance .............................................................................. 9.3%
</TABLE>
The "Cut-off Date Balance" of any Mortgage Loan is the unpaid principal
balance of such Mortgage as of the Cut-off Date, after application of all
payments of principal due on or before such date, whether or not received.
"Cut-off Date LTV Ratios," "Cut-off Date DSC Ratios" and "Occupancy Rates"
are calculated as described under "DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan Information" herein.
S-15
<PAGE>
SUMMARY OF MORTGAGE POOL BY PROPERTY TYPE
<TABLE>
<CAPTION>
ASSISTED
LIVING/
CONGREGATE MOBILE SELF
CHARACTERISTICS MULTIFAMILY HOTEL RETAIL OFFICE CARE HOME PARK STORAGE
- --------------- ------------- ----------- ------------ ----------- ----------- --------- --------- - -
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate
Cut-off Date
Balance .................. $136,525,092 $126,335,695 $122,410,871 $6,208,496 $5,006,988 $4,609,831 $3,212,380
% of Initial Pool Balance . 33.8% 31.3% 30.3% 1.5% 1.2% 1.1% 0.8%
Number of
Mortgages Loans .......... 49 33 23 2 2 1 1
Average Cut-off Date
Balance .................. $2,786,226 $3,828,354 $5,322,212 $3,104,248 $2,503,494 $4,609,831 $3,212,380
Weighted Average
Mortgage Rate ............ 8.57% 9.67% 9.11% 9.50% 9.44% 10.50% 9.54%
Weighted Average
Original Term to 127 139 103 97 84 84 120
Stated Maturity .......... Months Months Months Months Months Months Months
Weighted Average
Remaining Term to 118 133 100 85 81 64 119
Stated Maturity .......... Months Months Months Months Months Months Months
Weighted Average
Original Amortization 330 286 347 272 360 360 300
Term ..................... Months Months Months Months Months Months Months
Weighted Average
Cut-off Date
DSC Ratio ................ 1.38x 1.60x 1.40x 1.62x 1.40x 1.24x 1.42x
Weighted Average
Cut-off Date
LTV Ratio ................ 69.6% 60.1% 66.5% 56.5% 63.8% 63.2% 70.6%
Weighted Average
Occupancy Rate ........... 96.0% 70.1% 95.0% 93.0% 91.9% 83.0% 81.0%
Mortgage Loans
Secured by
California Properties
as a Percentage of
the Initial Pool Balance . 3.6% 14.4% 6.9% 0.0% 53.9% 0.0% 100.0%
Balloon Loans as a Percentage
of Mortgage Loans secured by
such Property Type* ..... 91.8% 80.1% 99.0% 63.2% 100.0% 100.0% 100.0%
- ------------
</TABLE>
* Determined in accordance with Cut-off Date Balances.
S-16
<PAGE>
<TABLE>
RANGE OF CUT-OFF DATE BALANCES
Average Cut-off Date Balance: $3,642,427
Minimum Cut-off Date Balance: $466,744 Maximum Cut-off Date Balance:
$16,940,106
AGGREGATE PERCENT OF
RANGE OF CUT-OFF DATE BALANCES NUMBER OF CUT-OFF DATE INITIAL POOL
($) MORTGAGE LOANS BALANCE (MM) BALANCE
- -------------------------------- -------------- -------------- --------------
<S> <C>
0 -2,000,000 .................... 44 $ 57.2 14.2%
2,000,001 -4,000,000 ............ 31 $ 87.1 21.5%
4,000,001 -6,000,000 ............ 19 $ 95.3 23.6%
6,000,001 -8,000,000 ............ 7 $ 48.3 11.9%
8,000,001 -10,000,000 ........... 4 $ 34.8 8.6%
10,000,001 -12,000,000 .......... 2 $ 21.3 5.3%
12,000,001 -14,000,000 .......... 1 $ 12.3 3.1%
14,000,001 -16,000,000 .......... 1 $ 14.9 3.7%
16,000,001 -18,000,000 .......... 2 $ 33.2 8.2%
-------------- -------------- --------------
Total ......................... 111 $404.3 100.0%
============== ============== ==============
RANGE OF MORTGAGE RATES
Weighted Avg. Mortgage Rate: 9.13%
Minimum Mortgage Rate: 7.90% Maximum Mortgage Rate: 10.68%
AGGREGATE PERCENT OF
RANGE OF MORTGAGE RATES NUMBER OF CUT-OFF DATE INITIAL POOL
(%) MORTGAGE LOANS BALANCE (MM) BALANCE
- ------------------------- -------------- -------------- --------------
7.500 -8.000 ............. 2 $ 9.6 2.4%
8.001 -8.500 ............. 26 $ 65.0 16.1%
8.501 -9.000 ............. 30 $107.1 26.5%
9.001 -9.500 ............. 26 $116.9 28.9%
9.501 -10.000 ............ 17 $ 61.8 15.3%
10.001 -10.500 ........... 7 $ 38.5 9.5%
10.501 -11.000 ........... 3 $ 5.6 1.4%
-------------- -------------- --------------
Total .................. 111 $404.3 100.0%
============== ============== ==============
PROPERTY TYPES
AGGREGATE PERCENT OF
NUMBER OF CUT-OFF DATE INITIAL POOL
PROPERTY TYPES MORTGAGE LOANS BALANCE (MM) BALANCE
- ----------------- -------------- -------------- --------------
Multifamily ...... 49 $136.5 33.8%
Hotel ............ 33 $126.3 31.3%
Retail ........... 23 $122.4 30.3%
Office ........... 2 $ 6.2 1.5%
AL/CC ............ 2 $ 5.0 1.2%
Mobile Home Park 1 $ 4.6 1.1%
Self Storage ..... 1 $ 3.2 0.8%
-------------- -------------- --------------
Total .......... 111 $404.3 100.0%
============== ============== ==============
</TABLE>
S-17
<PAGE>
RANGE OF REMAINING TERMS TO MATURITY
Weighted Average Remaining Term to Maturity: 116 Months
Min. Rem. Term to Maturity: 64 Months Max. Rem. Term to Maturity: 270 Months
AGGREGATE PERCENT OF
RANGE OF REMAINING TERMS NUMBER OF CUT-OFF DATE INITIAL POOL
TO MATURITY (MONTHS) MORTGAGE LOANS BALANCE (MM) BALANCE
- ------------------------ -------------- -------------- --------------
61 -90 .................. 31 $151.5 37.5%
91 -120 ................. 57 $198.5 49.1%
151 -180 ................ 9 $ 17.3 4.3%
211 -240 ................ 9 $ 15.7 3.9%
241 -270 ................ 5 $ 21.3 5.3%
-------------- -------------- --------------
Total ................. 111 $404.3 100.0%
============== ============== ==============
RANGE OF REMAINING AMORTIZATION TERMS
Weighted Average Remaining Amort. Term: 315 Months
Min. Rem. Amort. Term: 103 Months Max. Rem. Amort. Term: 360 Months
RANGE OF REMAINING AGGREGATE PERCENT OF
AMORTIZATION TERMS NUMBER OF CUT-OFF DATE INITIAL POOL
(MONTHS) MORTGAGE LOANS BALANCE (MM) BALANCE
- ------------------------- -------------- -------------- --------------
91 -120 .................. 1 $ 2.3 0.6%
151 -180 ................. 2 $ 3.3 0.8%
211 -240 ................. 8 $ 12.9 3.2%
241 -270 ................. 19 $ 56.3 13.9%
271 -300 ................. 36 $126.4 31.3%
301 -330 ................. 2 $ 17.7 4.4%
331 -360 ................. 43 $185.5 45.9%
-------------- -------------- --------------
Total .................. 111 $404.3 100.0%
============== ============== ==============
RANGE OF CUT-OFF DATE DSC RATIOS
Weighted Average Cut-off Date DSC Ratio: 1.46x
Minimum Cut-off Date DSC Ratio: 1.15x Maximum Cut-off Date DSC Ratio: 2.49x
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
RANGE OF CUT-OFF DATE DSC RATIOS NUMBER OF CUT-OFF DATE INITIAL POOL
(X) MORTGAGE LOANS BALANCE (MM) BALANCE
- --------------------------------- -------------- -------------- --------------
<S> <C>
1.101 -1.200 ..................... 3 $ 9.9 2.4%
1.201 -1.300 ..................... 17 $ 80.5 19.9%
1.301 -1.400 ..................... 29 $120.7 29.9%
1.401 -1.500 ..................... 28 $103.2 25.5%
1.501 -1.600 ..................... 11 $ 28.6 7.1%
1.601 -1.700 ..................... 6 $ 11.7 2.9%
1.701 -1.800 ..................... 2 $ 11.0 2.7%
1.801 -1.900 ..................... 5 $ 16.6 4.1%
1.901 -2.000 ..................... 3 $ 5.5 1.4%
Above 2.001 ...................... 7 $ 16.7 4.2%
-------------- -------------- --------------
Total .......................... 111 $404.3 100.0%
============== ============== ==============
S-18
<PAGE>
RANGE OF CUT-OFF DATE LTV RATIOS
Weighted Average Cut-off Date LTV Ratio: 65.3%
Minimum Cut-off Date LTV Ratio: 34.7% Maximum Cut-off Date LTV Ratio: 76.3%
AGGREGATE PERCENT OF
NUMBER OF CUT-OFF DATE INITIAL POOL
RANGE OF CUT-OFF DATE LTV RATIOS MORTGAGE LOANS BALANCE (MM) BALANCE
- -------------------------------- -------------- -------------- --------------
30.00 -50.00% ................... 7 $ 18.7 4.6%
50.01 -55.00% ................... 5 $ 16.8 4.1%
55.01 -60.00% ................... 15 $ 38.3 9.5%
60.01 -65.00% ................... 26 $104.9 26.0%
65.01 -70.00% ................... 28 $105.6 26.1%
70.01 -75.00% ................... 28 $110.3 27.3%
75.01 -80.00% ................... 2 $ 9.7 2.4%
-------------- -------------- --------------
Total ......................... 111 $404.3 100.0%
============== ============== ==============
GEOGRAPHIC DISTRIBUTION
AGGREGATE PERCENT OF
NUMBER OF CUT-OFF DATE INITIAL POOL
STATE MORTGAGE LOANS BALANCE (MM) BALANCE
- --------------------------- -------------- -------------- --------------
Georgia .................... 15 $ 50.0 12.4%
Florida .................... 11 $ 40.0 9.9%
California ................. 7 $ 37.5 9.3%
New Jersey ................. 7 $ 35.8 8.8%
Texas ...................... 13 $ 31.9 7.9%
Illinois ................... 4 $ 18.9 4.7%
Virginia ................... 2 $ 17.4 4.3%
Maryland ................... 1 $ 16.9 4.2%
Nebraska ................... 3 $ 16.5 4.1%
Michigan ................... 2 $ 14.4 3.6%
Other (23 States and D.C.) 46 $125.0 30.8%
-------------- -------------- --------------
Total .................... 111 $404.3 100.0%
============== ============== ==============
</TABLE>
S-19
<PAGE>
<TABLE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
the Prospectus. Capitalized terms used and not otherwise defined herein have
the respective meanings assigned to them in the Prospectus. An "Index of
Principal Terms" is included at the end of this Prospectus Supplement and a
"Glossary" is included at the end of the Prospectus.
<S> <C>
DEPOSITOR .............. Structured Asset Securities Corporation (the
"Depositor"). The Depositor's principal
offices are located at 200 Vesey Street, New
York, New York 10285, telephone (212)
526-4428. See "THE ISSUER--The Company" in
the Prospectus.
TITLE OF CERTIFICATES
AND DESIGNATION OF
CLASSES ............... Multiclass Pass-Through Certificates, Series
1996-C2 (the "Certificates") to be issued in
the aggregate Certificate Principal Amount
of approximately $404,309,353 and to consist
of thirteen classes (each, a "Class"): the
Class A and Class IO Certificates
(collectively, the "Senior Certificates");
the Class B, Class C, Class D, Class E,
Class F, Class G, Class H and Class J
Certificates (collectively, the "Subordinate
Certificates"; and collectively with the
Senior Certificates, the "Regular Interest
Certificates"); and the Class R-I, Class
R-II and Class R-III Certificates
(collectively, the "Residual Interest
Certificates"). See "DESCRIPTION OF THE
CERTIFICATES" herein.
OFFERED CERTIFICATES ... Only the Senior Certificates and the Class
B, Class C, Class D and Class E Certificates
(collectively, the "Offered Certificates")
are offered hereby. The respective Classes
of Offered Certificates will, in each case,
be issued in the initial aggregate
Certificate Principal Amount or Certificate
Notional Amount set forth on the cover page
of this Prospectus Supplement. The initial
aggregate Certificate Principal Amount or
Certificate Notional Amount of any Class of
Offered Certificates is subject to a
permitted variance of plus or minus 5%,
depending on the actual Mortgage Loans
delivered to the Trustee.
CERTIFICATES NOT OFFERED
........................ The Class F, Class G, Class H, Class J,
Class R-I, Class R-II and Class R-III
Certificates (collectively, the "Non-Offered
Certificates") have not been registered
under the Securities Act of 1933, as amended
(the "Securities Act"), and are not offered
hereby. The initial aggregate Certificate
Principal Amount of the Non-Offered
Certificates is approximately $52,560,216
(subject to a permitted variance of plus or
minus 5%), representing approximately 13.0%
of the Initial Pool Balance.
REGISTRATION;
DENOMINATIONS .......... The Class A, Class B, Class C, Class D and
Class E Certificates will be issued in
book-entry form in original denominations of
$100,000 Certificate Principal Amount and in
integral multiples of $1 in excess thereof.
The Class IO Certificates will be issued in
fully registered, certificated form in
original denominations of $1,000,000
Certificate Notional Amount and in integral
mul-
S-20
<PAGE>
tiples of $1 in excess thereof. One
Certificate of each of the foregoing Classes
may be issued in a different Certificate
Principal Amount or Certificate Notional
Amount, as the case may be, to accommodate
the remainder of the initial aggregate
Certificate Principal Amount or Certificate
Notional Amount, as the case may be, of the
Certificates of such Class. See "DESCRIPTION
OF THE CERTIFICATES--Registration;
Denominations" herein and "DESCRIPTION OF
THE SECURITIES--Book-Entry Registration" in
the Prospectus.
SELLER ................. On or before the Closing Date, the Depositor
will acquire the Mortgage Loans from an
affiliate of the Depositor and the
Underwriter (such affiliate, the "Seller"),
which either (i) originated the Mortgage
Loans or (ii) acquired them from various
sources (including participants in the
Seller's commercial and multifamily mortgage
loan conduit program) as part of its ongoing
business of purchasing and selling mortgage
loans and other mortgage related assets. See
"DESCRIPTION OF THE MORTGAGE POOL--Mortgage
Loan History" herein.
TRUSTEE ................ LaSalle National Bank (the "Trustee"), a
nationally chartered bank, will act as
trustee for the Trust and will also be
obligated to make any Advance (as defined
herein) which the Servicer is required, but
fails, to make. See "DESCRIPTION OF THE
CERTIFICATES--Advances" and "--The Trustee"
herein.
SERVICER ............... GMAC Commercial Mortgage Corporation (the
"Servicer"), a California corporation, will
(with limited exception) be responsible for
servicing the Mortgage Loans other than the
Specially Serviced Mortgage Loans (as
defined below). See "SERVICING OF MORTGAGE
LOANS--The Servicer" herein.
SPECIAL SERVICER ....... CRIIMI MAE Services Limited Partnership (the
"Special Servicer"), a Maryland limited
partnership, will be responsible for
performing certain servicing functions with
respect to all the Mortgage Loans and most
servicing functions with respect to Mortgage
Loans ("Specially Serviced Mortgage Loan")
that, in general, are in default (and,
depending on the default, have been so for a
specified period of time) or as to which
such a default is reasonably foreseeable or
as to which certain bankruptcy or insolvency
events have occurred with respect to the
related borrower. The Special Servicer will
also be responsible for the management and
disposition of REO Properties (as defined
herein) acquired on behalf of the Trust. See
"SERVICING OF MORTGAGE LOANS--The Special
Servicer" herein.
FISCAL AGENT ........... ABN AMRO Bank N.V. (the "Fiscal Agent"), a
Netherlands banking corporation and the
parent of the Trustee, will be obligated to
make any Advance which the Servicer is
required to make and which both the Servicer
and the Trustee fail to make. See
"DESCRIPTION OF THE CERTIFICATES--Advances"
and "--The Fiscal Agent" herein.
S-21
<PAGE>
OPERATING ADVISER ..... The majority holder (or holders) of the
outstanding Class of Regular Interest
Certificates (other than the Class IO
Certificates) with the latest alphabetical
Class designation will have the right,
subject to certain conditions described
herein, to elect an adviser (the "Operating
Adviser") from whom the Special Servicer
will seek advice and approval and take
direction under the various circumstances
described herein. See "SERVICING OF MORTGAGE
LOANS--The Operating Adviser" herein.
CLOSING DATE ........... On or about October 30, 1996.
CUT-OFF DATE ........... October 1, 1996.
RECORD DATE ............ The record date (the "Record Date") for each
Class of Offered Certificates for each
Distribution Date will be the last day of
the month immediately preceding the month in
which such Distribution Date occurs or, if
such day is not a Business Day (as defined
in the Prospectus), the Business Day
immediately preceding such day.
DISTRIBUTION DATE ...... The 25th day of each month or, if any such
25th day is not a Business Day, then the
next succeeding Business Day, commencing in
November 1996.
DESCRIPTION OF THE
CERTIFICATES ........... The Certificates will be issued, and the
trust (the "Trust") designated as LB
Commercial Conduit Mortgage Trust II will be
created, pursuant to a trust agreement to be
dated as of the Cut-off Date (the "Trust
Agreement"), among the Depositor, the
Trustee, the Fiscal Agent, the Servicer and
the Special Servicer. See "DESCRIPTION OF
THE CERTIFICATES" herein.
A. CERTIFICATE PRINCIPAL
AMOUNTS AND
CERTIFICATE NOTIONAL
AMOUNTS ............. Upon initial issuance, and in each case
subject to a permitted variance of plus or
minus 5%,
(i) the Class A Certificates will have
an aggregate Certificate Principal
Amount of $274,930,359, which will
represent approximately 68.0% of the
Initial Pool Balance;
(ii) the Class B Certificates will have
an aggregate Certificate Principal
Amount of $28,301,654, which will
represent approximately 7.0% of the
Initial Pool Balance;
(iii) the Class C Certificates will have
an aggregate Certificate Principal
Amount of $24,258,561, which will
represent approximately 6.0% of the
Initial Pool Balance;
(iv) the Class D Certificates will have
an aggregate Certificate Principal
Amount of $16,172,374, which will
represent approximately 4.0% of the
Initial Pool Balance;
S-22
<PAGE>
(v) the Class E Certificates will have
an aggregate Certificate Principal
Amount of $8,086,187, which will
represent approximately 2.0% of the
Initial Pool Balance; and
(vi) the Class F, Class G, Class H and
Class J Certificates (collectively
with the Class A, Class B, Class C,
Class D and Class E Certificates,
the "Sequential Pay Certificates")
will have an aggregate Certificate
Principal Amount of $52,560,216,
which will represent approximately
13.0% of the Initial Pool Balance.
The "Certificate Principal Amount" of any
Sequential Pay Certificate, as of any date
of determination, represents the maximum
specified dollar amount of principal to
which the holder thereof is then entitled
pursuant to the Trust Agreement, such amount
being equal to the initial principal amount
set forth on the face of such Certificate
less the amount of all principal
distributions previously made with respect
to such Certificate and less all Realized
Losses and Additional Expense Losses (each
as defined herein) previously allocated to
such Certificate pursuant to the Trust
Agreement.
The Class IO Certificates will not have
Certificate Principal Amounts or entitle
their holders to distributions of principal.
Each such Certificate will, however,
represent the right to receive distributions
of interest accrued as described herein on a
notional amount (a "Certificate Notional
Amount ") equal to the product of the
Percentage Interest (as defined herein)
represented by such Certificate in such
Class, multiplied by the aggregate
Certificate Notional Amount of the Class IO
Certificates. The aggregate Certificate
Notional Amount of the Class IO Certificates
will equal the aggregate Certificate
Principal Amount of the Sequential Pay
Certificates outstanding from time to time.
The aggregate Certificate Principal Amount
of each particular Class of Sequential Pay
Certificates will constitute a separate
component (each, a "Component") of the
aggregate Certificate Notional Amount of the
Class IO Certificates and, for purposes
hereof, will have the same letter
designation as such Class of Sequential Pay
Certificates (for example, the aggregate
Certificate Principal Amount of the Class A
Certificates will constitute Component A of
the aggregate Certificate Notional Amount of
the Class IO Certificates).
The Residual Interest Certificates will not
have Certificate Principal Amounts or
Certificate Notional Amounts. See
"DESCRIPTION OF THE CERTIFICATES--Certificate Principal Amounts
and Certificate Notional Amounts" herein.
B. CERTIFICATE INTEREST
RATES .................. The per annum rate at which any Regular
Interest Certificate accrues interest from
time to time is herein referred to as its
"Certificate Interest Rate." The Certificate
Interest Rate applicable to the Class A
Certificates for each Distribution Date will
be a per annum rate equal to the Weighted
Average Net Mortgage Rate for such
Distribution Date minus basis
S-23
<PAGE>
points. The Certificate Interest Rate
applicable to the Class B Certificates for
each Distribution Date will be a per annum
rate equal to the Weighted Average Net
Mortgage Rate for such Distribution Date
minus basis points. The Certificate
Interest Rate applicable to the Class C
Certificates for each Distribution Date will
be a per annum rate equal to the Weighted
Average Net Mortgage Rate for such
Distribution Date minus basis points.
The Certificate Interest Rate applicable to
the Class D Certificates for each
Distribution Date will be a per annum rate
equal to the Weighted Average Net Mortgage
Rate for such Distribution Date minus
basis points. The Certificate Interest Rate
applicable to the Class E Certificates for
each Distribution Date will be a per annum
rate equal to the Weighted Average Net
Mortgage Rate for such Distribution Date
minus basis points. The Certificate
Interest Rate applicable to the Class F,
Class G, Class H and Class J Certificates
for each Distribution Date will be a per
annum rate equal to the Weighted Average Net
Mortgage Rate for such Distribution Date,
minus basis points.
The "Weighted Average Net Mortgage Rate "
for each Distribution Date is the weighted
average of the Net Mortgage Rates for the
Mortgage Loans, weighted on the basis of
their respective Stated Principal Balances
(as defined herein) outstanding immediately
prior to such Distribution Date. For
purposes of the foregoing, the "Net Mortgage
Rate" on each Mortgage Loan is a fixed rate
per annum equal to the related Mortgage Rate
as of the Cut-Off Date minus the
Administrative Cost Rate and any Retained
Yield Rate (each as defined herein)
applicable to such Mortgage Loan as of the
Cut-Off Date.
The Certificate Interest Rate applicable to
the Class IO Certificates with respect to
each Distribution Date will equal the
weighted average of the Component A Rate
( % per annum), the Component B Rate ( %
per annum), the Component C Rate ( % per
annum), the Component D Rate ( % per
annum), the Component E Rate ( % per
annum), the Component F Rate ( % per
annum), the Component G Rate ( % per
annum), the Component H Rate ( % per annum)
and the Component J Rate ( % per annum),
each weighted on the basis of the proportion
that the amount of the related Component
(that is, the Component with the same letter
designation) outstanding immediately prior
to such Distribution Date bears to the
aggregate Certificate Notional Amount of the
Class IO Certificates outstanding
immediately prior to such Distribution Date.
C. DISTRIBUTIONS ....... As more particularly described herein, the
total of all payments or other collections
(or advances in lieu thereof) on or in
respect of the Mortgage Loans that are
available for distribution to
Certificateholders on any Distribution Date
(exclusive of Prepayment Premiums) is herein
referred to as the "Available Distribution
Amount" for such Distribution Date. See "DE-
S-24
<PAGE>
SCRIPTION OF THE CERTIFICATES--Distributions--The Available
Distribution Amount" herein.
On each Distribution Date, the Trustee or a
Paying Agent (as defined in the Prospectus)
will (except as otherwise described under
"DESCRIPTION OF THE CERTIFICATES--Optional
Termination" herein) apply the Available
Distribution Amount for such date for the
following purposes and in the following
order of priority, in each case to the
extent of remaining available funds:
(i) to distributions of interest to the
holders of the Class A Certificates
and the holders of the Class IO
Certificates, pro rata in accordance
with the respective amounts of
interest distributable on such
Classes of Certificates on such
Distribution Date as described in
this clause (i), in an amount equal
to all Distributable Certificate
Interest in respect of each such
Class of Certificates for such
Distribution Date and, to the extent
not previously paid, for all prior
Distribution Dates;
(ii) to distributions of principal to the
holders of the Class A Certificates,
in an amount (not to exceed the then
outstanding aggregate Certificate
Principal Amount of such Class of
Certificates) equal to the entire
Principal Payment Amount for such
Distribution Date;
(iii) to distributions to the holders of
the Class A Certificates, to
reimburse such holders for all
Realized Losses and Additional
Expense Losses, if any, previously
allocated to such Class of
Certificates and for which no
reimbursement has previously been
received;
(iv) to distributions of interest to the
holders of the Class B Certificates,
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(v) if the Class A Certificates have
been retired, to distributions of
principal to the holders of the
Class B Certificates in an amount
(not to exceed the then outstanding
aggregate Certificate Principal
Amount of such Class of
Certificates) equal to the Principal
Payment Amount for such Distribution
Date, less any portion thereof
distributed in retirement of the
Class A Certificates;
(vi) to distributions to the holders of
the Class B Certificates to
reimburse such holders for all
Realized Losses and Additional
Expense Losses, if any, previously
allocated to such Class of
Certificates and for which no
reimbursement has previously been
received;
(vii) to distributions of interest to the
holders of the Class C Certificates,
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for
S-25
<PAGE>
such Distribution Date and, to the
extent not previously paid, for all
prior Distribution Dates;
(viii) if the Class A and Class B
Certificates have been retired, to
distributions of principal to the
holders of the Class C Certificates
in an amount (not to exceed the then
outstanding aggregate Certificate
Principal Amount of such Class of
Certificates) equal to the Principal
Payment Amount for such Distribution
Date, less any portion thereof
distributed in retirement of the
Class A and/or Class B Certificates;
(ix) to distributions to the holders of
the Class C Certificates to
reimburse such holders for all
Realized Losses and Additional
Expense Losses, if any, previously
allocated to such Class of
Certificates and for which no
reimbursement has previously been
received;
(x) to distributions of interest to the
holders of the Class D Certificates,
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(xi) if the Class A, Class B and Class C
Certificates have been retired, to
distributions of principal to the
holders of the Class D Certificates
in an amount (not to exceed the then
outstanding aggregate Certificate
Principal Amount of such Class of
Certificates) equal to the Principal
Payment Amount for such Distribution
Date, less any portion thereof
distributed in retirement of the
Class A, Class B and/or Class C
Certificates;
(xii) to distributions to the holders of
the Class D Certificates to
reimburse such holders for all
Realized Losses and Additional
Expense Losses, if any, previously
allocated to such Class of
Certificates and for which no
reimbursement has previously been
received;
(xiii) to distributions of interest to the
holders of the Class E Certificates,
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(xiv) if the Class A, Class B, Class C and
Class D Certificates have been
retired, to distributions of
principal to the holders of the
Class E Certificates in an amount
(not to exceed the then outstanding
aggregate Certificate Principal
Amount of such Class of
Certificates) equal to the Principal
Payment Amount for such Distribution
Date, less any portion thereof
distributed in retirement of the
Class A, Class B, Class C and/or
Class D Certificates;
(xv) to distributions to the holders of
the Class E Certificates to
reimburse such holders for all
Realized Losses and Additional
Expense Losses, if any, previously
allocated to such
S-26
<PAGE>
Class of Certificates and for which
no reimbursement has previously been
received; and
(xvi) to distributions to the holders of
the respective Classes of
Non-Offered Certificates as
described herein (provided that no
distributions of principal will be
made in respect of any Class of
Non-Offered Certificates until the
aggregate Certificate Principal
Amount of the Class A, Class B,
Class C, Class D and Class E
Certificates has been reduced to
zero).
See "DESCRIPTION OF THE CERTIFICATES--
Distributions--Application of the Available
Distribution Amount" herein.
The "Distributable Certificate Interest " in
respect of any Class of Offered Certificates
for any Distribution Date generally will
equal one month's interest (calculated on
the basis of a 360-day year consisting of
twelve 30-day months) accrued at the
applicable Certificate Interest Rate on the
aggregate Certificate Principal Amount or
Certificate Notional Amount, as the case may
be, of such Class of Certificates
outstanding immediately prior to such
Distribution Date, reduced (to not less than
zero) by such Class's allocable share (in
each case, calculated as described herein)
of any Net Aggregate Prepayment Interest
Shortfall (as defined herein) for such
Distribution Date. See "SERVICING OF
MORTGAGE LOANS--The Servicer--Adjustment to
Servicer's Fee in Connection with Pre paid
Mortgage Loans" and "DESCRIPTION OF THE
CERTIFICATES--Distributions--Distributable
Certificate Interest" and "--Prepayment
Interest Shortfalls and Excess Prepayment
Interest" herein.
As more particularly described herein, the
"Principal Payment Amount" for any
Distribution Date will generally equal that
portion of the Available Distribution Amount
for such Distribution Date allocable to
principal of the Mortgage Loans. See
"DESCRIPTION OF THE
CERTIFICATES--Distributions--Principal
Payment Amount" herein.
On each Distribution Date, except as
otherwise described below, any Prepayment
Premium collected on a Mortgage Loan during
the one month period that constitutes the
"Collection Period" (as specified herein)
for such Distribution Date, exclusive of any
portion thereof that constitutes Retained
Yield, will be distributed, separate from
the Available Distribution Amount for such
date, to the holders of the Class IO
Certificates and the holders of the
respective Classes of Regular Interest
Certificates then entitled to distributions
of principal, pro rata, up to an amount
equal to the PV Yield Loss Amount for each
such Class of Certificates in respect of the
particular prepayment of principal as to
which such Prepayment Premium was received.
S-27
<PAGE>
If the amount of any such Prepayment
Premium (exclusive of any portion thereof
that constitutes Retained Yield) that would
be distributed in accordance with the
preceding paragraph on any Distribution Date
exceeds the aggregate PV Yield Loss Amount
for the Regular Interest Certificates in
respect of the prepayment of principal in
connection with which such Prepayment
Premium was received, then the Trustee or a
Paying Agent shall distribute 70% of such
excess to the holders of the Class of
Sequential Pay Certificates with the
earliest alphabetical Class designation that
had an aggregate Certificate Principal
Amount greater than zero immediately prior
to such Distribution Date, but which was not
entitled to any distributions of principal
on such Distribution Date, and the Trustee
or a Paying Agent shall distribute the
remaining 30% of such excess to the Holders
of the Class of Sequential Pay Certificates
with the second earliest alphabetical Class
designation that had an aggregate
Certificate Principal Amount greater than
zero immediately prior to such Distribution
Date, but which was not entitled to any
distributions of principal on such
Distribution Date; provided that, if only
one Class of Sequential Pay Certificates
with an aggregate Certificate Principal
Amount greater than zero immediately prior
to such Distribution Date was not entitled
to any distributions of principal on such
Distribution Date, then the entire amount of
such excess shall be distributed to the
Holders of such Class; and provided,
further, that, if every Class of Sequential
Pay Certificates with an aggregate
Certificate Principal Amount greater than
zero immediately prior to such Distribution
Date was entitled to distributions of
principal on such Distribution Date, then
the entire amount of such excess shall be
distributed to the Holders of the Class R-II
Certificates.
Notwithstanding the foregoing, on each
Distribution Date, provided that the
aggregate Certificate Notional Amount of the
Class IO Certificates was greater than zero
immediately prior to such Distribution Date,
the Trustee or a Paying Agent shall
distribute entirely to the holders of the
Class IO Certificates any Prepayment Premium
(net of the portion thereof, if any, that
constitutes Retained Yield) that was
collected during the related Collection
Period and as to which each of the following
conditions apply: (i) the related prepaid
Mortgage Loan provides that the amount of
such Prepayment Premium was to be calculated
as the greater of (x) 1.0% of the related
prepayment of principal and (y) the result
of a specified "treasury" yield maintenance
formula; and (ii) such Prepayment Premium
was calculated in accordance with the
foregoing to equal 1.0% of the related
prepayment of principal.
A PV Yield Loss Amount will be calculated as
described herein with respect to each Class
of Regular Interest Certificates in
connection with each Principal Prepayment;
however, unless the aggregate Certificate
Principal Amount or Certificate Notional
Amount, as the case may be, of such Class of
Regular Interest
S-28
<PAGE>
Certificates is to be reduced in connection
with the distribution of such Principal
Prepayment, the related PV Yield Loss Amount
for such Class of Regular Interest
Certificates will be zero. Accordingly, the
PV Yield Loss Amount for any Class of
Sequential Pay Certificates in respect of
any Principal Prepayment will be zero if
such Class is not then entitled to
distributions of principal. The portion of
any Prepayment Premium actually distributed
in respect of any Class of Regular Interest
Certificates may not equal the corresponding
PV Yield Loss Amount and/or may be
insufficient to offset any adverse effect on
such Class's yield to maturity resulting
from the related Principal Prepayment. See
"DESCRIPTION OF THE CERTIFICATES--
Distributions--Distributions of Prepayment
Premiums" and "RISK FACTORS--The Mortgage
Loans--Prepayment Premiums" herein.
ALLOCATION OF LOSSES AND
CERTAIN EXPENSES ...... On each Distribution Date, following all
distributions on the Certificates to be made
on such date, the aggregate of all losses on
the Mortgage Loans (as more particularly
described herein, "Realized Losses") and
shortfalls (as more particularly described
herein, "Additional Expense Loss") resulting
from certain Trust Fund expenses (as more
particularly described herein, "Additional
Trust Fund Expenses") that, in each case,
have been incurred since the Cut-off Date
through the end of the related Collection
Period, but have not previously been
allocated as described below, will be
allocated (subject to certain limitations
described herein): first, sequentially to
the respective Classes of Subordinate
Certificates, in reverse alphabetical order
of Class designation, until, in the case of
any such Class, the aggregate Certificate
Principal Amount thereof is reduced to zero;
and then, to the Class A Certificates, until
the aggregate Certificate Principal Amount
of such Class is reduced to zero. See
"DESCRIPTION OF THE CERTIFICATES--Subordination;
Allocation of Losses and Certain Expenses" herein.
PREPAYMENT INTEREST
SHORTFALLS
AND EXCESS PREPAYMENT
INTEREST .............. A "Prepayment Interest Shortfall" is a
shortfall in the collection of a full
month's interest (exclusive of any portion
thereof constituting Retained Yield) on any
Mortgage Loan by reason of a full or partial
Principal Prepayment or a Balloon Payment
(as defined below) made during any
Collection Period prior to the Due Date for
such Mortgage Loan in such Collection
Period. In any case in which a full or
partial Principal Prepayment or a Balloon
Payment is made during any Collection Period
but after the Due Date for such Mortgage
Loan in such Collection Period, then "Excess
Prepayment Interest" will arise. The amount
of Excess Prepayment Interest in any such
case will equal, to the extent collected,
the interest (exclusive of any portion
thereof constituting Retained Yield) that
accrues on such Principal Prepayment or the
principal portion of such
S-29
<PAGE>
Balloon Payment from the last Due Date for
such Mortgage Loan to the date such payment
was made. To the extent that the aggregate
of all Prepayment Interest Shortfalls for
any Collection Period exceeds the aggregate
of all Excess Prepayment Interest for such
Collection Period, the Servicer's servicing
fee (but not the compensation of the Special
Servicer or the Trustee) for the
corresponding period will be reduced in an
amount necessary to offset such additional
remaining Prepayment Interest Shortfalls.
See "SERVICING OF MORTGAGE LOANS--The
Servicer--Adjustment to Servicer's Fee in
Connection with Prepaid Mortgage Loans"
herein. To the extent that the aggregate of
all Prepayment Interest Shortfalls for any
Collection Period exceeds the aggregate of
all Excess Prepayment Interest for such
Collection Period and the Servicer's
servicing fees (prior to reduction as
described above) for the corresponding
period, such excess (the "Net Aggregate
Prepayment Interest Shortfall" for the
related Distribution Date) generally will be
allocated to each Class of Regular Interest
Certificates (in reduction of its
Distributable Certificate Interest for the
related Distribution Date) in the ratio that
the interest otherwise payable with respect
to such Class of Certificates on the related
Distribution Date, if there had been no Net
Aggregate Prepayment Interest Shortfall,
bears to the total of the interest payable
with respect to all the Classes of Regular
Interest Certificates on the related
Distribution Date, if there had been no Net
Aggregate Prepayment Interest Shortfall.
TREATMENT OF REO
PROPERTIES ............. Notwithstanding that a Mortgaged Property
may be acquired on behalf of the
Certificateholders through foreclosure, deed
in lieu of foreclosure or otherwise (upon
acquisition, an "REO Property"), the related
Mortgage Loan will be treated, for purposes
of, among other things, determining
distributions on the Certificates,
allocations of Realized Losses and
Additional Expense Losses to the
Certificates and the amount of fees payable
to the Servicer, the Special Servicer and
the Trustee, as having remained outstanding
until such REO Property is liquidated. In
connection therewith, operating revenues and
other proceeds derived from such REO
Property (exclusive of related operating
costs, including certain reimbursements
payable to the Servicer, the Trustee or the
Fiscal Agent in connection with the
operation and disposition of such REO
Property) will be "applied" by the Servicer
as principal, interest and other amounts
"due" on such Mortgage Loan, and the
Servicer, the Trustee and the Fiscal Agent
will be obligated to make Advances in
respect of such Mortgage Loan, in all cases
as if such Mortgage Loan had remained
outstanding.
OPTIONAL TERMINATION ... The holders of the Class R-III Certificates
and the Servicer will each have the option
to purchase, in whole but not in part, the
Mortgage Loans and any REO Properties
remaining in the Trust Fund, and thereby
effect a termination of the Trust and early
retirement of the then outstanding
Certificates, on any
S-30
<PAGE>
date on which the aggregate Certificate
Principal Amount of the Sequential Pay
Certificates then outstanding is less than
or equal to 5% of the initial aggregate
Certificate Principal Amount thereof. See
"DESCRIPTION OF THE CERTIFICATES--Optional
Termination" herein.
THE MORTGAGE POOL ...... The Mortgage Pool will consist of 111
conventional, fixed rate Mortgage Loans
(exclusive of any Retained Yield) with an
aggregate Cut-off Date Balance of
$404,309,352.93 (the "Initial Pool
Balance"), subject to a variance of plus or
minus 5%. The "Cut-off Date Balance" of any
Mortgage Loan is its unpaid principal
balance as of the Cut-off Date, after
application of all payments of principal due
on or before such date, whether or not
received. All percentages of the Mortgage
Loans, or of any specified group of Mortgage
Loans, referred to herein without further
description are approximate percentages by
aggregate Cut-off Date Balance. References
to percentages of Mortgaged Properties are
references to the percentages of the Initial
Pool Balance represented by the aggregate
Cut-off Date Balance of the related Mortgage
Loans. All numerical information provided
herein and in Annex A hereto with respect to
the Mortgage Loans is provided on an
approximate basis.
The Mortgage Loans are generally
non-recourse obligations of the related
borrowers. No Mortgage Loan will be insured
or guaranteed by any governmental entity or
private insurer or by any other person.
Each Mortgage Loan is secured by a first
mortgage lien on the borrower's fee simple
estate in an income producing real property
(each, a "Mortgaged Property"). Set forth
below are the number of Mortgage Loans, and
the approximate percentage of the Initial
Pool Balance represented by such Mortgage
Loans, that are secured by Mortgaged
Properties operated for each indicated
purpose:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
MORTGAGE INITIAL POOL
PROPERTY TYPE LOANS BALANCE
------------------------------- ----------- ---------------
<S> <C> <C>
Multifamily .................... 49 33.77%
Hotel .......................... 33 31.25%
Retail ......................... 23 30.28%
Office ......................... 2 1.54%
Assisted Living/Congregate Care 2 1.24%
Mobile Home Park ............... 1 1.14%
Self-Storage Facility .......... 1 0.79%
</TABLE>
The Mortgaged Properties are located
throughout 33 states and the District of
Columbia. Set forth below are the number of
Mortgage Loans, and the approximate
percentage of the Initial Pool Balance
represented by such Mortgage Loans, that are
secured by Mortgaged Properties located in
the four states with the highest
concentrations:
S-31
<PAGE>
NUMBER OF PERCENTAGE OF
MORTGAGE INITIAL POOL
STATE LOANS BALANCE
------------- ----------- ---------------
Georgia ...... 15 12.37%
Florida ...... 11 9.90%
California .. 7 9.27%
New Jersey .. 7 8.84%
Three groups (each, a "Group") of Mortgage
Loans (the "Cross-Collateralized Mortgage
Loans"), representing 4.16%, 3.16% and
1.16%, respectively, of the Initial Pool
Balance, are, solely as among the Mortgage
Loans in each such particular Group,
cross-defaulted and cross-collateralized. In
the case of two of the three Groups of
Cross-Collateralized Mortgage Loans, the
aggregate unpaid principal amount of the
entire Group is evidenced by a single
Mortgage Note (as defined herein) and
secured by first mortgage liens on the
borrowers' respective fee simple interests
in three or more Mortgaged Properties. In
such cases, a portion of such aggregate
unpaid principal amount has been allocated
to each such Mortgaged Property and such
allocated portion is for purposes of this
Prospectus Supplement and the Trust
Agreement deemed to be a separate Mortgage
Loan. See "RISK FACTORS--The Mortgage
Loans--Limitations on Enforceability of
Cross-Collateralization" and "DESCRIPTION OF
THE MORTGAGE POOL--General" herein. For
purposes of this Prospectus Supplement, each
Mortgaged Property securing a Group of
Cross-Collateralized Mortgage Loans will be
designated as the "Primary Mortgaged
Property" for one of the Mortgage Loans in
such Group. Unless the context otherwise
requires, references herein to "related
Mortgaged Property" (or "Related REO
Property") are, in the case of a
Cross-Collateralized Mortgage Loan,
references to the Mortgaged Property that is
(or the REO Property that was) designated as
the Primary Mortgaged Property for such
Mortgage Loan, and references to "related
Mortgage Loan" or "related
Cross-Collateralized Mortgage Loan" are, in
the case of a Mortgaged Property that
secures (or an REO Property that secured) a
Group of Cross-Collateralized Mortgage
Loans, references to the Mortgage Loan as to
which such Mortgaged Property has (or such
REO Property had) been designated as the
Primary Mortgaged Property. Except where
otherwise specifically indicated,
statistical information provided herein and
in Annex A hereto with respect to the
Cross-Collateralized Mortgage Loans is so
provided without regard to the
cross-collateralization, and each
Cross-Collateralized Mortgage Loan will be
deemed to be secured only by a mortgage lien
on the related Primary Mortgaged Property.
All of the Mortgage Loans bear interest at
annualized rates (each, a "Mortgage Rate")
that will remain fixed for their respective
remaining loan terms. Scheduled payments of
principal and interest on the mortgage loans
("Monthly Payments")
S-32
<PAGE>
are due monthly on the first day of each
month (each such day, as to any Mortgage
Loan, its "Due Date"). Interest on each
Mortgage Loan will be computed on the basis
of a 360-day year consisting of twelve
30-day months.
Ninety-five of the Mortgage Loans,
representing 90.15% of the Initial Pool
Balance, provide for Monthly Payments based
on amortization schedules significantly
longer than their terms to maturity. As a
result, such Mortgage Loans ("Balloon
Loans") will have substantial principal
amounts due and payable (each such payment,
together with the corresponding interest
payment, a "Balloon Payment") on their
respective maturity dates, unless prepaid
prior thereto. Balloon Loans generally
involve a greater risk of default than
self-amortizing loans. See "RISK
FACTORS--The Mortgage Loans--Balloon Payment
at Maturity and Extension of Maturity"
herein and "RISK FACTORS--Certain Mortgage
Loans and Mortgaged Property; Obligor
Default" in the Prospectus.
As of the Cut-off Date, all of the Mortgage
Loans restrict or, with limited exception,
prohibit voluntary principal prepayments. In
general, as of the Cut-off Date, the
Mortgage Loans either (i) permit voluntary
prepayments of principal provided that the
prepayment is accompanied by an additional
amount (a "Prepayment Premium") in excess of
the amount prepaid (83 Mortgage Loans,
representing 76.1% of the Initial Pool
Balance), or (ii) with limited exception
described herein, prohibit voluntary
prepayments of principal for a period (a
"Lock-out Period") ending on a specified
date and impose Prepayment Premiums in
connection with prepayments made thereafter
(28 Mortgage Loans, representing 23.9% of
the Initial Pool Balance). When a Prepayment
Premium is required to be paid in connection
with the prepayment of any Mortgage Loan,
such Prepayment Premium will generally be
calculated either: (a) as the greater of (i)
1.0% of the amount prepaid and (ii) the
result of a "treasury" yield maintenance
formula; or (b) in the case of certain
Mortgage Loans, after the expiration of a
period during which the calculation
described in clause (a) is in effect, as a
specified percentage (which will decline
over time) of the amount prepaid. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain
Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" herein. If and
to the extent collected, Prepayment
Premiums, exclusive of any portion thereof
that constitutes Retained Yield, will be
distributed to Certificateholders as
described herein under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Distributions
of Prepayment Premiums". The Depositor makes
no representation as to the enforceability
of the provision of any Mortgage Note
requiring the payment of a Prepayment
Premium, or of the collectability of any
Prepayment Premium. See "RISK FACTORS--The
Mortgage Loans--Prepayment Premiums" herein.
S-33
<PAGE>
Mortgage Loans representing 99.86% of the
Initial Pool Balance were originated during
either the year 1995 or 1996.
Set forth below is certain information
regarding the Mortgage Loans and the
Mortgaged Properties as of the Cut-off Date
(all weighted averages set forth below are
based on the Cut-off Date Balances of the
respective Mortgage Loans). Such information
is more fully described, and additional
information regarding the Mortgage Loans and
the Mortgaged Properties is set forth, in
the tables under "DESCRIPTION OF THE
MORTGAGE POOL--Additional Mortgage Loan
Information" herein and in Annex A hereto:
<TABLE>
<CAPTION>
<S> <C>
Number of Mortgage Loans ........... 111
Initial Pool Balance ............... $404,309,352.93
Minimum Cut-off Date Balance ...... $ 466,743.63
Maximum Cut-off Date Balance ...... $ 16,940,105.79
Average Cut-off Date Balance ...... $ 3,642,426.60
Minimum Mortgage Rate .............. 7.900%
Maximum Mortgage Rate .............. 10.680%
Weighted Average Mortgage Rate .... 9.132%
Minimum Net Mortgage Rate .......... 7.603%
Maximum Net Mortgage Rate .......... 10.330%
Weighted Average Net Mortgage Rate 8.802%
Minimum Original Term to Maturity
(months) .......................... 84
Maximum Original Term to Maturity
(months) .......................... 276
Weighted Average Original Term to
Maturity (months) ................. 122
Minimum Remaining Term to Maturity
(months) .......................... 64
Maximum Remaining Term to Maturity
(months) .......................... 270
Weighted Average Remaining Term to
Maturity (months) ................. 116
Minimum Occupancy Rate ............. 45.30%
Maximum Occupancy Rate ............. 100.00%
Weighted Average Occupancy Rate ... 87.23%
Minimum Cut-off Date DSC Ratio .... 1.15x
Maximum Cut-off Date DSC Ratio .... 2.49x
Weighted Average Cut-off Date DSC
Ratio ............................. 1.46x
Minimum Cut-off Date LTV Ratio .... 34.73%
Maximum Cut-off Date LTV Ratio .... 76.31%
Weighted Average Cut-off Date LTV
Ratio ............................. 65.34%
</TABLE>
S-34
<PAGE>
<TABLE>
<S><C>
"Cut-off Date LTV Ratios," "Cut-off Date
DSC Ratios" and "Occupancy Rates" are
calculated as described under "DESCRIPTION
OF THE MORTGAGE POOL--Additional Mortgage
Loan Information" herein.
On or prior to the Closing Date, the Seller
will assign the Mortgage Loans, without
recourse, to the Depositor, and the
Depositor will assign the Mortgage Loans,
without recourse, to the Trustee for the
benefit of the Certificateholders. In
connection with such assignment by it, the
Depositor will make certain representations
and warranties regarding the characteristics
of the Mortgage Loans and, as more
particularly described herein, will agree to
cure any material breach thereof or, in the
absence of such a cure, to repurchase the
affected Mortgage Loan. See "DESCRIPTION OF
THE MORTGAGE POOL--Representations and
Warranties; Repurchases" herein.
RETAINED YIELD ......... Four Mortgage Loans, representing 4.74% of
the Initial Pool Balance, are being
transferred to the Trustee subject to a
prior holder's right to receive any Retained
Yield collected thereon. With respect to any
such Mortgage Loan, "Retained Yield" will
generally consist of (i) interest accrued at
the related Retained Yield Rate on the
outstanding principal balance from time to
time of such Mortgage Loan calculated and
payable monthly from interest received on
such Mortgage Loan, whether in the form of
scheduled payments of interest, Insurance
Proceeds, Condemnation Proceeds or
Liquidation Proceeds (each as defined in the
Prospectus), or otherwise and (ii) a pro
rata share of Prepayment Premiums received
in respect of such Mortgage Loan generally
based on the proportionate relationship
between (A) the applicable Retained Yield
Rate and (B) the sum of the applicable Net
Mortgage Rate and the Trustee Fee Rate. The
Retained Yield Rates for such Mortgage Loans
range from 0.28% per annum to 1.18% per
annum. As of the Cut-off Date, such Mortgage
Loans had a weighted average Retained Yield
Rate (based on the respective Cut-off Date
Balances thereof) of 0.706% per annum. See
"DESCRIPTION OF THE MORTGAGE POOL--Retained
Yield" herein.
ADMINISTRATIVE COST RATE
........................ The administrative costs on each Mortgage
Loan will, as of any date of determination,
equal the aggregate of the then applicable
Servicing Fee for such loan, the Trustee Fee
and the Special Servicing Basic Fee
(collectively, expressed as a per annum rate
on the Scheduled Principal Balance of each
Mortgage Loan, the "Administrative Cost
Rate"), all as described herein. The initial
Administrative Cost Rates for the Mortgage
Loans range from 0.287% per annum to 0.297%
per annum, and the weighted average of the
initial Administrative Cost Rates for the
Mortgage Loans (based on the respective
Cut-off Date Balances thereof) was 0.296%
per annum. See "SERVICING OF MORTGAGE
LOANS--The Servicer--Servicer Compensation
and Payment of Expenses" and "--The Special
Servicer--Special Servicer Com-
S-35
<PAGE>
pensation and Payment of Expenses" and
"DESCRIPTION OF THE CERTIFICATES--The
Trustee" herein.
ADVANCES ............... The Servicer will be obligated to make
advances (each, an "Advance") of delinquent
interest and, except for the principal
portion of a Balloon Payment, principal on
the Mortgage Loans and to cover certain
servicing expenses, in any event under the
circumstances and subject to the limitations
described herein. In general, the Trustee
will be obligated to make any Advance that
the Servicer is required but fails to make;
and, if the Servicer and the Trustee both
fail to make any required Advance, the
Fiscal Agent will be required to make such
Advance.
The Servicer, the Trustee and the Fiscal
Agent will be obligated to make Advances
only to the extent that such Advances are,
in the reasonable business judgment of the
Servicer, the Trustee or the Fiscal Agent,
as applicable, ultimately recoverable from
future payments and other collections,
including in the form of Insurance Proceeds,
Condemnation Proceeds and Liquidation
Proceeds, on or in respect of the related
Mortgage Loan or REO Property.
Each Advance will bear interest on the
amount thereof for the period during which
it is outstanding, such interest accruing at
the rate and payable to the Servicer, the
Trustee or the Fiscal Agent, as the case may
be, under the circumstances described
herein. See "DESCRIPTION OF THE CERTIFICATES
--Advances" herein.
CERTAIN INVESTMENT
CONSIDERATIONS ......... The yield to maturity of a Class A, Class B,
Class C, Class D or Class E Certificate
purchased at a discount or premium will be
affected by the rate of prepayments and
other unscheduled collections of principal
on or in respect of the Mortgage Loans and
the allocation thereof to reduce the
Certificate Principal Amount of such
Certificate. An investor should consider, in
the case of any such Certificate purchased
at a discount, the risk that a slower than
anticipated rate of prepayments could result
in a lower than anticipated yield and, in
the case of any such Certificate purchased
at a premium, the risk that a faster than
anticipated rate of prepayments could result
in a lower than anticipated yield. In
addition, the yield to maturity on a Class
IO Certificate will be highly sensitive to
the rate and timing of principal payments
(in particular as affected by prepayments,
defaults and liquidations) and losses on the
Mortgage Loans that are applied in reduction
of the Certificate Notional Amount of such
Certificate, and an investor in the Class IO
Certificates should fully consider the
associated risks, including the risk that an
extremely rapid rate of prepayments and/or
liquidations (with a corresponding reduction
of the aggregate Certificate Notional Amount
of the Class IO Certificates, including by
reason of the allocation of liquidation
losses) could result in the failure of such
investor to recoup its initial investment.
See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" herein.
S-36
<PAGE>
In addition, insofar as an investor's
initial investment in any Offered
Certificate is returned in the form of
payments of principal thereon, there can be
no assurance that such amounts can be
reinvested in comparable alternative
investments with comparable yields.
Investors in the Offered Certificates should
consider that the rate of prepayments on the
Mortgage Loans is likely to be inversely
related to the level of prevailing market
interest rates (and, presumably, to the
yields on comparable alternative
investments).
USE OF PROCEEDS ........ The Depositor will use substantially all of
the net proceeds from the sale of the
Certificates to purchase the Mortgage Loans
from the Seller and to pay certain expenses
in connection with the issuance of the
Certificates. See "USE OF PROCEEDS" herein.
FEDERAL INCOME TAX
CONSIDERATIONS ......... Three separate "real estate mortgage
investment conduit" ("REMIC") elections will
be made with respect to the Trust for
federal income tax purposes. The assets of
"REMIC I" will consist of the Mortgage
Loans, any REO Properties acquired on behalf
of the Certificateholders and the Collection
and Custodial Accounts (see "DESCRIPTION OF
THE CERTIFICATES--The Custodial and
Collection Accounts" herein). For federal
income tax purposes, (a) the Class R-I
Certificates will be the sole class of
"residual interests" in REMIC I, (b) the
separate non-certificated regular interests
in REMIC I will be the "regular interests"
in REMIC I and will constitute the assets of
"REMIC II," (c) the Class R-II Certificates
will be the sole class of "residual
interests" in REMIC II, (d) the separate
non-certificated regular interests in REMIC
II will be the "regular interests" in REMIC
II and will constitute the assets of "REMIC
III," (e) the Regular Interest Certificates
will evidence the "regular interests" in,
and generally will be treated as debt
obligations of, REMIC III, and (f) the Class
R-III Certificates will be the sole class of
"residual interests" in REMIC III.
The Class A, Class B, Class C and Class D
Certificates will not, and the Class E and
Class IO Certificates will, be treated as
having been issued with original issue
discount for federal income tax reporting
purposes. The prepayment assumption that
will be used for purposes of computing the
accrual of original issue discount, market
discount and premium, if any, for federal
income tax purposes will be equal to a CPR
of 0%. However, no representation is made
that the Mortgage Loans will not prepay or
that, if they do, they will prepay at any
particular rate.
If the method for computing original issue
discount described in the Prospectus results
in a negative amount for any period, a
Certificateholder will be permitted to
offset such amount only against the future
original issue discount (if any) from such
Certificate. See "FEDERAL INCOME TAX
CONSIDER-
S-37
<PAGE>
ATIONS" herein and "FEDERAL INCOME TAX
CONSIDERATIONS--Taxation of Regular Interest
Securities--Interest and Acquisition
Discount" in the Prospectus. For further
information regarding the federal income tax
consequences of investing in the Offered
Certificates, see "FEDERAL INCOME TAX
CONSIDERATIONS" herein and in the
Prospectus.
CERTIFICATE RATING ..... It is a condition of the issuance of the
Offered Certificates that they receive the
following credit ratings from Moody's
Investors Service, Inc. ("Moody's"), Fitch
Investors Service, L.P. ("Fitch") and Duff &
Phelps Credit Rating Co. ("DCR," and
together with Moody's and Fitch, the "Rating
Agencies"):
CLASS MOODY'S FITCH DCR
------------- ----------- --------- -------
Class A ...... Aaa AAA AAA
Class IO ..... Aaa AAA AAA
Class B ...... Aa2 AA AA
Class C ...... A2 A A
Class D ...... Baa2 BBB BBB
Class E ...... Baa3 BBB- BBB-
The ratings on the Offered Certificates
address the likelihood of the timely receipt
by the holders thereof of all payments of
interest to which they are entitled and, in
the case of Class A, Class B, Class C, Class
D and Class E Certificates, the ultimate
receipt by the holders thereof of all
payments of principal to which they are
entitled on or before the Rated Final
Distribution Date. The ratings take into
consideration the characteristics of the
Mortgage Loans and the structural and legal
aspects associated with the Certificates.
The ratings do not address the likelihood of
receipt of Prepayment Premiums or Default
Interest, nor the possibility that
Certificateholders might suffer a lower than
anticipated yield or that, if there is a
rapid rate of principal payments (including
both voluntary and involuntary prepayments)
on and/or liquidations of the Mortgage
Loans, investors in the Class IO
Certificates could fail to recover their
initial investments. Each security rating
assigned to the Offered Certificates should
be evaluated independently of any other
security rating.
A credit 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. In
addition, a credit rating does not address
the likelihood or frequency of prepayments
of Mortgage Loans, or the corresponding
effect on yield to investors. See
"CERTIFICATE RATING" herein.
LEGAL INVESTMENT ....... The Offered Certificates will not constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984. As a result, the appropriate
characterization of the Offered Certificates
under various legal invest-
S-38
<PAGE>
ment restrictions, and thus the ability of
investors subject to these restrictions to
purchase the Offered Certificates of any
Class thereof, may be subject to significant
interpretative uncertainties. In addition,
institutions whose investment activities are
subject to review by federal or state
regulatory authorities may be or may become
subject to restrictions on the investment by
such institutions in certain forms of
mortgage backed securities. Investors should
consult their own legal advisors to
determine the extent to which the
Certificates may be purchased by such
investors. See "LEGAL INVESTMENT
CONSIDERATIONS" herein and "LEGAL
INVESTMENT" in the Prospectus.
ERISA CONSIDERATIONS ... A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code (a "Plan") should review
carefully with its legal advisors whether
the purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or is not
otherwise permitted either under ERISA or
Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein.
The U.S. Department of Labor has issued to
the Underwriter an individual exemption,
Prohibited Transaction Exemption 91-14,
which generally exempts from the application
of certain of the prohibited transaction
provisions of Section 406 of ERISA and the
excise taxes imposed on such prohibited
transactions by Sections 4975(a) and (b) of
the Code and Section 502(i) of ERISA,
transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten by the Underwriter and the
servicing and operation of related asset
pools, provided that certain conditions are
satisfied.
The Depositor expects that Prohibited
Transaction Exemption 91-14 will generally
apply to the Senior Certificates, but it
will not apply to the other Classes of
Offered Certificates.
ACCORDINGLY, THE CLASS B, CLASS C, CLASS D
AND CLASS E CERTIFICATES SHOULD NOT BE
ACQUIRED BY, ON BEHALF OF OR WITH ASSETS OF
A PLAN, UNLESS THE PURCHASE AND HOLDING OF
SUCH CERTIFICATE OR INTEREST THEREIN IS
EXEMPT FROM THE PROHIBITED TRANSACTION
PROVISIONS OF SECTION 406 OF ERISA AND
SECTION 4975 OF THE CODE UNDER PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60, WHICH
PROVIDES AN EXEMPTION FROM THE PROHIBITED
TRANSACTION RULES FOR CERTAIN TRANSACTIONS
INVOLVING AN INSURANCE COMPANY GENERAL
ACCOUNT. See "ERISA CONSIDERATIONS" herein
and in the Prospectus.
</TABLE>
S-39
<PAGE>
RISK FACTORS
Prospective purchasers should consider, among other things, the following
factors (as well as the factors set forth under "RISK FACTORS" in the
Prospectus) in connection with an investment in the Offered Certificates.
THE CERTIFICATES
Limited Liquidity
There is currently no secondary market for the Offered Certificates, and
no listing on any securities exchange or other arrangement for secondary
market trading of the Offered Certificates is being made. While the
Underwriter has advised the Depositor that it (or its affiliates) currently
intends to make a secondary market in the Offered Certificates, it is under
no obligation to do so. Accordingly, there can be no assurance that such a
market will develop or, if it does develop, that it will provide holders of
the Offered Certificates with liquidity of investment or continue for the
life of such Certificates.
Certain Yield and Maturity Considerations
The yield on any Offered Certificate will depend on the price paid for
such Certificate and the rate, timing and amount of distributions on such
Certificate. The rate, timing and amount of distributions on any Offered
Certificate will in turn depend on, among other things, (i) the rate, timing
and amount of principal payments and other collections on the Mortgage Loans
attributable to principal (including Principal Prepayments and proceeds from
liquidations of Mortgage Loans or as a result of repurchases of Mortgage
Loans from the Trust by the Depositor) and (ii) by the order of priority of
distributions of principal in respect of the Certificates.
The Certificate Interest Rate for each Class of Offered Certificates for
any Distribution Date will be variable. The Certificate Interest Rates for
the respective Classes of Offered Certificates (other than the Class IO
Certificates) will, in each case, equal the Weighted Average Net Mortgage
Rate for such date, minus a fixed number of basis points. Accordingly, the
yields on the Class A, Class B, Class C, Class D and Class E Certificates
will be sensitive to changes in the relative composition of the Mortgage Pool
as a result of scheduled amortization, voluntary prepayments and liquidations
of Mortgage Loans following default. The Certificate Interest Rate for the
Class IO Certificates will vary as the relative sizes of the various
Components of the aggregate Certificate Notional Amount of such Class of
Certificates (that is, the aggregate Certificate Principal Amounts of the
other Classes of Regular Interest Certificates) change. The sizes of such
various Components will be affected by the rate and timing at which payments
of principal are made, and Realized Losses and Additional Expense Losses are
allocated, in reduction of the aggregate Certificate Principal Amounts of the
other Classes of Regular Interest Certificates. See "DESCRIPTION OF THE
CERTIFICATES--Distributions--Certificate Interest Rates" and "DESCRIPTION OF
THE MORTGAGE POOL" herein.
Prepayments on the Mortgage Loans will be influenced by the prepayment
provisions of the related Mortgage Notes and may also be affected by a
variety of economic, geographic and other factors, including the difference
between the Mortgage Rates on the Mortgage Loans and prevailing mortgage
rates (giving consideration to limitations imposed by lock-out provisions and
the cost of refinancing, including the payment of a Prepayment Premium) and
the availability of refinancing. In general, if prevailing interest rates
fall significantly below the Mortgage Rates on the Mortgage Loans, the rate
of prepayment on the Mortgage Loans would be expected to increase.
Conversely, if prevailing interest rates rise to a level significantly above
the Mortgage Rates, the rate of prepayment on the Mortgage Loans would be
expected to decrease. All of the Mortgage Loans permit voluntary principal
prepayments, but (with limited exception described herein) only after the
expiration of a Lock-out Period and/or upon payment of a Prepayment Premium.
The Depositor makes no representations as to the effect of such Lock-out
Periods or Prepayment Premiums on the rate of prepayment of the related
Mortgage Loans. The yield to maturity on the Class IO Certificates will be
extremely sensitive to the rate and timing of principal payments (including
prepayments) on the Mortgage Loans, which may fluctuate significantly from
time to time, and by other factors set forth herein, including losses on the
Mortgage Loans allocated in reduction of the aggregate Certificate Principal
Amount of the Sequential Pay Certificates.
S-40
<PAGE>
Delays in liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to extend the payment of
principal of the Mortgage Loans. Because approximately 90.15% of the Initial
Pool Balance is constituted by Balloon Loans and because the ability of a
borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the Mortgage Loan or to sell the related Mortgaged
Property at a price sufficient to permit the borrower to make the Balloon
Payment, there is a risk that a number of Mortgage Loans having Balloon
Payments may default at maturity, or that, following such a default, the
Servicer or the Special Servicer may extend the maturity of a number of such
Mortgage Loans in connection with working them out. In the case of defaults,
recovery of proceeds may be delayed by, among other things, bankruptcy of the
borrower or adverse conditions in the market where the Mortgaged Property is
located. In order to minimize losses on defaulted Mortgage Loans, the Special
Servicer, with the approval of the Operating Adviser, is given considerable
flexibility under the Special Servicing Agreement (as defined herein) to
modify Mortgage Loans as to which a payment or other material default has
occurred. See "SERVICING OF MORTGAGE LOANS--Mortgage Loan Modifications"
herein.
Limited Obligations
The Certificates will represent beneficial ownership interests solely in
the assets of the Trust and will not represent an interest in or obligation
of Lehman Brothers, the Servicer, the Special Servicer, the Fiscal Agent, the
Trustee, the Seller, the Depositor or any of their respective affiliates or
any other person. Distributions on any Class of Certificates will depend
solely on the amount and timing of payments and other collections in respect
of the Mortgage Loans. Although amounts, if any, otherwise distributable in
respect of the Non-Offered Certificates on any Distribution Date will be
available to make distributions on the Offered Certificates, in the event
that Realized Losses and/or Additional Expense Losses occur, there can be no
assurance that these amounts, together with other payments and collections in
respect of the Mortgage Loans, will be sufficient to make full and timely
distributions on the Offered Certificates.
Subordination of Subordinate Certificates
As and to the extent described herein, the rights of the holders of the
respective Classes of Subordinate Certificates (including the Class B, Class
C, Class D and Class E Certificates) to receive distributions of amounts
collected or advanced on or in respect of the Mortgage Loans will be
subordinated to those of the holders of the Senior Certificates and the
holders of each other Class of Subordinate Certificates, if any, with an
earlier alphabetical Class designation. See "DESCRIPTION OF THE
CERTIFICATES--Distributions--Application of the Available Distribution
Amount" and "--Subordination; Allocation of Losses and Certain Expenses"
herein.
Special Servicer Actions at Direction of the Operating Adviser
In connection with the servicing of the Specially Serviced Mortgage Loans,
the Special Servicer may, at the direction of the Operating Adviser, take
actions with respect to such Specially Serviced Mortgage Loans that could
adversely affect the holders of some or all of the Classes of Offered
Certificates. As described under "SERVICING OF MORTGAGE LOANS--The Operating
Adviser," the Operating Adviser will, in the absence of significant losses,
be controlled by the holders of the Class J Certificates or another Class of
Non-Offered Certificates, which may have interests in conflict with those of
the holders of the Offered Certificates. As a result, it is possible that the
Operating Adviser may direct the Special Servicer to take actions which
conflict with the interests of certain Classes of Offered Certificates.
THE MORTGAGE LOANS
Limited Recourse
The Mortgage Loans are not insured or guaranteed by any governmental
entity or private mortgage insurer. Although certain of the Mortgage Loans
may be guaranteed by, or provide for recourse to, the partners, shareholders
or affiliates of the related borrowers (certain of which may also be limited
recourse entities), there can be no assurance that any such guaranty or
recourse will add significantly to the
S-41
<PAGE>
recoveries of the Trust if a default occurs on the related Mortgage Loan. As
a result, it should be assumed that recourse in the case of a default will be
limited to the related Mortgaged Property or, in the case of a Group of
Cross-Collateralized Mortgage Loans, the related Mortgaged Properties.
Commercial and Multifamily Lending Generally
Each Mortgage Loan is secured by a first lien on a fee simple interest in
a multifamily property or a commercial property. The ability of the borrowers
to repay their respective Mortgage Loans and meet their obligations in a
timely manner will depend on a number of factors that typically affect such
types of properties, including the successful operation of the related
property and the value of such property. Various factors, many of which are
beyond the control of the borrower or the manager of a Mortgaged Property,
may affect the economic viability of the Mortgaged Properties, including but
not limited to the national, regional and local economic conditions (which
may be adversely affected by industry slowdowns, company relocations,
prevailing employment conditions and levels of employment and other factors);
local real estate conditions (such as an oversupply of facilities having the
same businesses as the Mortgaged Properties); changes or weaknesses in
specific industry segments; perceptions by prospective tenants of the safety,
convenience, services and attractiveness of the property; the willingness and
ability of the property owner to provide capable management and adequate
maintenance; demographic factors; retroactive changes to building or similar
codes; and increases in operating expenses (such as energy costs). Historical
operating results of the Mortgaged Properties may not be comparable to future
operating results. In addition, other factors may adversely affect a
property's value without affecting its then current net operating income,
including changes in government regulations, zoning or tax laws; potential
environmental liabilities or other legal liabilities; the availability of
refinancing; and changes in prevailing market rates of interest.
Multifamily and commercial lending is generally viewed as exposing the
lender to a greater risk of loss than one-to-four-family residential lending.
Multifamily and commercial lending typically involves larger loans to a
single obligor, or group of related obligors, than residential
one-to-four-family mortgage loans. Pools consisting of mortgage loans secured
by multifamily apartment buildings and commercial structures may be more
likely to be affected by natural disasters, including earthquakes, fires and
floods (the effects of which may not in all cases be wholly recoverable from
insurance) than pools secured by one-to-four-family residential mortgage
loans. Such events may also have adverse effects on the long-term occupancy
rates of the affected buildings.
Additionally, a Mortgaged Property may not readily be converted to an
alternative use in the event that the operation of such Mortgaged Property
for its original purpose becomes unprofitable for any reason. In such cases,
the conversion of the Mortgaged Property to an alternative use would
generally require substantial capital expenditures. Thus, if the borrower
becomes unable to meet its obligations under the related Mortgage Loan, the
liquidation value of any such Mortgaged Property may be substantially less,
relative to the amount outstanding on the related Mortgage Loan, than would
be the case if such Mortgaged Property were readily adaptable to other uses.
Dependence on Management
Each Mortgaged Property is managed by a manager (which may be the borrower
or an affiliate of the borrower), which is responsible for responding to
changes in the local market for the facilities offered at the property,
planning and implementing the rental or pricing structure, including
staggering durations of leases and establishing levels of rent payments, and
causing maintenance and capital improvements to be carried out in a timely
fashion. Management errors may adversely affect the long-term viability of a
Mortgaged Property. Accordingly, concentration of property management of the
Mortgaged Properties increases the risk that the poor performance of a single
property manager will have a widespread effect on the Mortgage Pool. Nine
Mortgage Loans (the "Servico Mortgage Loans"), representing 8.72% of the
Initial Pool Balance, have been made to borrowers that are corporations or
limited partnerships directly or indirectly controlled by Servico, Inc. The
property manager for each of the Mortgaged Properties securing the Servico
Mortgage Loans is an affiliate of Servico, Inc. Eight Mortgage Loans (the
"Blanchard Loans"), representing 6.17% of the Initial Pool Balance, have been
made to borrowers that are limited
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liability companies which are, in each case, controlled by a managing member
which is, in turn, controlled by John Blanchard or by John Blanchard and Sam
Miller. The property manager for each of the Mortgaged Properties securing
the Blanchard Loans is also controlled by John Blanchard and Sam Miller.
Dependence on Tenants
The borrower under a mortgage loan secured by income-producing property
generally relies on periodic lease or rental payments from tenants to pay for
maintenance and other operating expenses of the building, to fund capital
improvements and to service the mortgage loan and any other debt or
obligations it may have outstanding. There can be no guaranty that tenants
will renew leases upon expiration or, in the case of a commercial tenant,
that it will continue operations throughout the term of its lease. The income
of borrowers under the Mortgage Loans would be adversely affected if tenants
were unable to pay rent or if space was unable to be rented on favorable
terms or at all. For example, if any borrower under a Mortgage Loan were
unable to relet or renew the existing leases for a significant amount of
space or were to do so at rental rates significantly lower than expected
rates, then such borrower's funds from operations may be adversely affected.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors, including, without limitation, the rate of
inflation and unemployment levels and may be reflected in the rental rates
offered for comparable space. In addition, upon reletting or renewing
existing leases, the borrower under a Mortgage Loan secured by commercial
property will likely be required to pay leasing commissions and tenant
improvement costs which may adversely affect cash flow from the Mortgaged
Property. There will be existing leases that expire during the term of a
Mortgage Loan and there can be no assurance that such leases will be renewed
or that the corresponding space will otherwise be relet at current market
rental rates, if at all. There can be no assurances whether, or to what
extent, economic, legal or social factors will affect future rental or
repayment patterns.
In the case of retail, office and industrial properties, the performance
and liquidation value of such properties may be dependent upon the business
operated by tenants, the creditworthiness of such tenants and/or the number
of tenants. In some cases, a relatively small number of tenants may account
for a disproportionately large share of the rentable space or rental income
of such property. Accordingly, a decline in the financial condition of a
significant tenant, or other adverse circumstances in respect of such a
tenant (such as bankruptcy or insolvency), may have a disproportionately
greater effect on the net operating income derived from such property than
would be the case if rentable space or rental income were more evenly
distributed among the tenants at such property.
Risks Particular to Retail and Office Properties
With respect to Mortgage Loans secured by retail properties or office
buildings, in addition to risks generally associated with real estate, such
Mortgage Loans are also affected significantly by adverse changes in consumer
spending patterns, local competitive conditions (such as the supply of retail
or office space or the existence or construction of new competitive shopping
centers, shopping malls or office buildings), alternative forms of retailing
(such as direct mail and video shopping networks which reduce the need for
retail shopping space), the quality and philosophy of management, the
attractiveness of the properties to tenants and their customers or clients,
the public perception of the safety of customers at retail properties, and
the need to make major repairs or improvements to satisfy the needs of
significant tenants. In addition, significant tenants at or near a retail
property play an important part in generating customer traffic and making a
retail property a desirable location for other tenants of the retail
property. A retail property may be adversely affected if a significant tenant
ceases operations at or near such location (which may occur on account of a
voluntary decision not to renew a lease, bankruptcy or insolvency of such
tenant, such tenant's general cessation of business activities or for other
reasons), even if such tenant is not a tenant in such property. Certain
tenants at retail properties may be entitled to have their rent reduced or to
terminate their leases if an anchor tenant ceases operations at such
property.
Risks Particular to Multifamily Properties
In the case of multifamily lending in particular, adverse economic
conditions, either local, regional or national, may limit the amount of rent
that can be charged and may result in a reduction in timely rent
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payments or a reduction in occupancy levels. Occupancy and rent levels may
also be affected by construction of additional housing units, local military
base closings and national, state and local legislation, including current or
future rent stabilization and rent control laws and agreements. In addition,
the level of mortgage interest rates may encourage tenants to purchase
single-family housing. Further, the cost of operating a multifamily property
may increase, including the costs of utilities and the costs of required
capital expenditures. All of these conditions and events may increase the
possibility that a borrower may be unable to meet its obligations under a
Mortgage Loan secured by a multifamily property.
Risks Particular to Hotel Properties
Various factors, including location, quality and franchise affiliation,
affect the economic viability of a hotel. Adverse economic conditions, either
local, regional or national, may limit the amount that may be charged for a
room and may result in a reduction in occupancy levels. The construction of
competing hotels or motels can have similar effects. Because hotel rooms
generally are rented for short periods of time, hotel properties tend to
respond more quickly to adverse economic conditions and competition than do
other commercial properties. In addition, the transferability of franchise
license agreements may be restricted. Furthermore, the ability of a hotel to
attract customers, and some of such hotel's revenues, may depend in large
part on its having a liquor license. Such a license may not be transferable.
Competition
Other multifamily residences, hotels, self-storage facilities, retail
shopping facilities, office buildings, mobile home parks and assisted living
or congregate care facilities located in the areas of the Mortgaged
Properties compete with the Mortgaged Properties of such types to attract
residents, guests, tenants and customers, as applicable. The leasing of real
estate is highly competitive. The principal means of competition are price,
location and the nature and condition of the facility to be leased. A
borrower under a Mortgage Loan competes with all lessors and developers of
comparable types of real estate in the area in which the Mortgaged Property
is located. Such lessors or developers could have lower rentals, lower
operating costs, more favorable locations or better facilities. While a
borrower under a Mortgage Loan may renovate, refurbish or expand the
Mortgaged Property to maintain it and remain competitive, such renovation,
refurbishment or expansion may itself entail significant risks. Increased
competition could adversely affect income from and the market value of the
Mortgaged Properties. In addition, the business conducted at each Mortgaged
Property may face competition from other industries and industry segments.
Environmental Law Considerations
Contamination of real property may give rise to a lien on that property to
assure payment of the cost of clean-up or, in certain circumstances, may
result in liability to the lender for that cost. Such contamination may also
reduce the value of a property. See "RISK FACTORS--Environmental Risks" and
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Environmental Matters" in the
Prospectus. A "phase I" environmental site assessment was performed at each
of the Mortgaged Properties in connection with the origination of the related
Mortgage Loan. In some cases, environmental testing in addition to the "phase
I" assessment was performed. In all cases, the environmental reports were
prepared in respect of the Mortgaged Properties less than 18 months prior to
the Cut-off Date. In three cases, on the basis of such environmental
assessments, reserves were established to address certain environmental
conditions. See "DESCRIPTION OF THE MORTGAGE POOL--Assessments of Property
Condition--Environmental Assessments" herein.
The Special Servicer will be required to obtain an environmental site
assessment of a Mortgaged Property prior to acquiring title thereto or
assuming its operation. Such requirement effectively precludes enforcement of
the security for the related Mortgage Note until a satisfactory environmental
site assessment is obtained (or until any required remedial action is
thereafter taken) but will decrease the likelihood that the Trust will become
liable for a material adverse environmental condition at the Mortgaged
Property. However, there can be no assurance that the requirements of the
Special Servicing Agreement (as described herein) will effectively insulate
the Trust from potential liability for a materially adverse environmental
condition at any Mortgaged Property.
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Concentrations of Mortgage Loans and Borrowers
Several of the Mortgage Loans have Cut-off Date Balances that are
substantially higher than the $3,642,426.60 average Cut-off Date Balance of
the Mortgage Loans. Without regard to the cross-collateralization of certain
of the Mortgage Loans, the largest Mortgage Loan represents approximately
4.19% of the Initial Pool Balance, and the three largest Mortgage Loans
represent approximately 11.87% of the Initial Pool Balance. In addition, the
Mortgage Pool includes three Groups of Cross-Collateralized Mortgage Loans,
which represent 4.16%, 3.16% and 1.16%, respectively, of the Initial Pool
Balance. Each Group of Cross-Collateralized Mortgage Loans involves commonly
controlled, affiliated borrowers.
With respect to nine of the Mortgage Loans (eight of which comprise two of
the three Groups of Cross-Collateralized Mortgage Loans), representing 8.72%
of the Initial Pool Balance, the related borrower is, in each case, a special
purpose corporation or limited partnership directly or indirectly controlled
by Servico, Inc.
With respect to eight of the Mortgage Loans, representing 6.17% of the
Initial Pool Balance, the related borrower is, in each case, a limited
liability company which is controlled by a managing member which is, in turn,
controlled by John Blanchard or by John Blanchard and Sam Miller.
In general, concentrations in a mortgage pool of loans with larger than
average principal balances can result in losses that are more severe,
relative to the size of the pool, than would be the case if the aggregate
principal balance of the pool were more evenly distributed. Concentration of
borrower representation in a mortgage pool can pose similar risks because
each Mortgage Loan group can be viewed in some respects as a single loan.
Thus, the commonly owned borrowers whose Mortgage Loans are cross-defaulted
and cross-collateralized with one another, under certain circumstances, could
determine that it was in their collective interest to file bankruptcy
petitions that would stay the enforcement of all those Mortgage Loans and
that might result in the interruption of related Scheduled Payments for an
indefinite period.
Limitations on Enforceability of Cross-Collateralization
The Mortgage Pool includes three Groups of Cross-Collateralized Mortgage
Loans, which represent 4.16%, 3.16% and 1.16%, respectively, of the Initial
Pool Balance. These arrangements seek to reduce the risk that the inability
of one or more of the Mortgaged Properties securing each such Group to
generate net operating income sufficient to pay debt service will result in
defaults and ultimate losses. However, certain Groups of the
Cross-Collateralized Mortgage Loans are secured by mortgage liens on
Mortgaged Properties located in different states. Because of various state
laws governing foreclosure or the exercise of a power of sale and because, in
general, foreclosure actions are brought in state court, and the courts of
one state cannot exercise jurisdiction over property in another state, it may
be necessary upon a default under any such Mortgage Loan to foreclose on the
related Mortgaged Properties in a particular order rather than simultaneously
in order to ensure that the lien of the related Mortgages is not impaired or
released.
Geographic Concentration
Repayments by borrowers and the market value of the Mortgaged Properties
can be affected by economic conditions generally or in the regions or
specific real estate markets where the Mortgaged Properties are located,
changes in governmental rules and fiscal policies, acts of nature, including
floods, tornadoes and earthquakes (which may result in uninsured losses), and
other factors that are beyond the control of the borrowers.
Forty Mortgage Loans, representing 40.38% of the Initial Pool Balance, are
secured by Mortgaged Properties located in one of four states: Georgia (15
Mortgage Loans, representing 12.37% of the Initial Pool Balance); Florida (11
Mortgage Loans, representing 9.90% of the Initial Pool Balance); California
(seven Mortgage Loans, representing 9.27% of the Initial Pool Balance) and
New Jersey (seven Mortgage Loans, representing 8.84% of the Initial Pool
Balance). In general, that concentration increases the exposure of the
Mortgage Pool to any adverse economic or other developments or acts of nature
that may occur in those states.
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Balloon Payments at Maturity and Extension of Maturity
Ninety-five Mortgage Loans, representing 90.15% of the Initial Pool
Balance, do not fully amortize over their terms to maturity and thus, in each
case will have a substantial payment (that is, a Balloon Payment) due at
scheduled maturity, unless previously prepaid. Mortgage loans with Balloon
Payments involve a greater risk to a lender than self-amortizing loans
because the ability of a borrower to make a Balloon Payment will normally
depend on its ability to fully refinance the loan or sell the mortgaged
property at a price sufficient to permit the borrower to make the Balloon
Payment. The ability of a borrower to effect such a refinancing or sale will
be affected by a number of factors including the value of the related
Mortgaged Property, the level of available mortgage rates at the time of sale
or refinancing, the borrower's equity in the Mortgaged Property, the
financial condition and operating history of the borrower and the Mortgaged
Property, tax laws, prevailing general economic conditions and the
availability of credit for loans secured by multifamily or commercial, as the
case may be, real properties generally. Neither the Depositor nor any of its
affiliates is under any obligation to refinance any Mortgage Loan.
The Servicer and the Special Servicer are permitted to extend and modify a
defaulted Mortgage Loan (or one as to which default is reasonably
foreseeable) under certain circumstances and subject to certain limitations.
See "SERVICING OF MORTGAGE LOANS--Mortgage Loan Modifications" herein. There
can be no assurance, however, that any such extension or modification will
increase the present value of recoveries in a given case. Any delay in the
collection of a Balloon Payment that would otherwise be distributable in
respect of a Class of Offered Certificates, whether due to default or to
modification of the related Mortgage Loan, will likely extend the weighted
average life of such Class of Offered Certificates.
Prepayment Premiums
Each Mortgage Loan requires for a specified period following the related
date of origination or, if applicable, the end of the related Lock-out Period
that any Principal Prepayment (as defined in the Prospectus) be accompanied
by a Prepayment Premium. See "DESCRIPTION OF THE MORTGAGE POOL--Certain Terms
and Conditions of the Mortgage Loans--Prepayment Provisions" herein.
If and to the extent received, Prepayment Premiums, exclusive of any
portion thereof that constitutes Retained Yield, will be distributed among
the holders of the respective Classes of Certificates, in the amounts and in
accordance with the priorities described herein. See "DESCRIPTION OF THE
CERTIFICATES--Distributions--Distributions of Prepayment Premiums" herein.
The Depositor, however, makes no representation as to the enforceability of
the provision of any Mortgage Note requiring the payment of a Prepayment
Premium, or of the collectability of any Prepayment Premium.
The enforceability, under the laws of a number of states, of provisions
similar to the provisions of the Mortgage Loans providing for the payment of
a Prepayment Premium upon an involuntary prepayment is unclear. No assurance
can be given that, at any time that any Prepayment Premium is required to be
made in connection with an involuntary prepayment, the obligation to pay such
Prepayment Premium will be enforceable under applicable law or, if
enforceable, the foreclosure proceeds will be sufficient to make such
payment. Liquidation Proceeds recovered in respect of any defaulted Mortgage
Loan will, in general, be applied to cover outstanding servicing expenses and
unpaid principal and interest prior to being applied to cover any Prepayment
Premium due in connection with the liquidation of such Mortgage Loan. See
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Enforceability of Prepayment and
Late Payment Fees" in the Prospectus.
No Prepayment Premium will be payable in connection with any repurchase of
a Mortgage Loan by the Depositor for a material breach of representation or
warranty on the part of the Depositor or any failure to deliver documentation
relating thereto, nor will any Prepayment Premium be payable in connection
with the purchase of all the Mortgage Loans and any REO Properties by the
Servicer or the Class R-III Certificateholders in connection with the
termination of the Trust Fund. See "DESCRIPTION OF THE MORTGAGE
POOL--Assignment of the Mortgage Assets; Repurchases" and "--Representations
and Warranties; Repurchases" and "DESCRIPTION OF THE CERTIFICATES--Optional
Termination" herein.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Multiclass Pass-Through Certificates, Series 1996-C2 (the
"Certificates") will be issued, and the trust (the "Trust") designated as LB
Commercial Conduit Mortgage Trust II will be created, on or about October 30,
1996 (the "Closing Date"), pursuant to a trust agreement (the "Trust
Agreement"), to be dated as of the Cut-off Date, among the Depositor, the
Trustee, the Fiscal Agent, the Servicer and the Special Servicer. The
following summaries describe certain provisions relating to the Certificates.
The summaries do not purport to be complete and are subject, and qualified in
their entirety by reference, to the provisions of the Trust Agreement. When
particular provisions or terms used in the Trust Agreement are referred to
herein, the actual provisions (including definitions of terms) are deemed to
be incorporated herein by reference. Reference is made to the Prospectus for
additional information regarding the terms of the Trust Agreement, provided
that the information contained herein supersedes any contrary information set
forth in the Prospectus. See "DESCRIPTION OF THE SECURITIES" and "THE TRUST
AGREEMENT" in the Prospectus.
The Certificates will represent beneficial ownership interests in the
assets of the Trust (collectively, the "Trust Fund"), consisting primarily
of: (i) the Mortgage Loans and all payments under and proceeds of the
Mortgage Loans received or applicable to periods after the Cut-off Date
(exclusive of payments of principal and interest due on or before the Cut-off
Date and exclusive of Retained Yield); (ii) any Mortgaged Property acquired
on behalf of the Trust through foreclosure, deed in lieu of foreclosure or
otherwise (upon acquisition, an "REO Property"); and (iii) such funds or
assets as from time to time are deposited in the Collection and Custodial
Accounts hereinafter described.
The Certificates will consist of thirteen Classes: the Class A and Class
IO Certificates (collectively, the "Senior Certificates"); the Class B, Class
C, Class D, Class E, Class F, Class G, Class H and Class J Certificates
(collectively, the "Subordinate Certificates"; and collectively with the
Senior Certificates, the "Regular Interest Certificates"); and the Class R-I,
Class R-II and Class R-III Certificates (collectively, the "Residual Interest
Certificates"). Only the Senior Certificates and the Class B, Class C, Class
D and Class E Certificates (collectively, the "Offered Certificates") are
being offered hereby. The Class F, Class G, Class H, Class J, Class R-I,
Class R-II and Class R-III Certificates (collectively, the "Non-Offered
Certificates") have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and are not offered hereby. Accordingly,
information herein regarding the terms of the Non-Offered Certificates is
provided primarily because of its potential relevance to a prospective
purchaser of an Offered Certificate.
CERTIFICATE PRINCIPAL AMOUNTS AND CERTIFICATE NOTIONAL AMOUNTS
Upon initial issuance, the Class A, Class B, Class C, Class D and Class E
Certificates will have the respective aggregate Certificate Principal Amounts
set forth in the following table, in each case subject to a permitted
variance of plus or minus 5%.
INITIAL AGGREGATE CERTIFICATE APPROXIMATE % OF INITIAL
CLASS OF CERTIFICATES PRINCIPAL AMOUNT POOL BALANCE
- --------------------- ----------------------------- ------------------------
Class A Certificates $274,930,359 68%
Class B Certificates $ 28,301,654 7%
Class C Certificates $ 24,258,561 6%
Class D Certificates $ 16,172,374 4%
Class E Certificates $ 8,086,187 2%
----------------------------- ------------------------
Total .............. $351,749,135 87%
============================= ========================
Upon initial issuance, the Class F, Class G, Class H and Class J
Certificates will have an aggregate Certificate Principal Amount of
approximately $52,560,216 (subject to a permitted variance of plus or minus
5%), representing approximately 13.0% of the Initial Pool Balance. The Class
A, Class B, Class C, Class D, Class E, Class F, Class G, Class H and Class J
Certificates are herein collectively referred to as the "Sequential Pay
Certificates."
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The "Certificate Principal Amount" of any Sequential Pay Certificate, as
of any date of determination, represents the maximum specified dollar amount
of principal to which the holder thereof is then entitled pursuant to the
Trust Agreement, such amount being equal to the initial principal amount set
forth on the face of such Certificate less the amount of all principal
distributions previously made with respect to such Certificate and less all
Realized Losses and Additional Expense Losses previously allocated to such
Certificate pursuant to the Trust Agreement.
The Class IO Certificates will not have Certificate Principal Amounts or
entitle their holders to distributions of principal. Each such Certificate
will, however, represent the right to receive distributions of interest
accrued as described herein on a notional amount (a "Certificate Notional
Amount") equal to the product of the Percentage Interest represented by such
Certificate in such Class, multiplied by the aggregate Certificate Notional
Amount of the Class IO Certificates. The aggregate Certificate Notional
Amount of the Class IO Certificates will consist of the following nine
components (each, a "Component"): (a) the aggregate Certificate Principal
Amount of the Class A Certificates outstanding from time to time ("Component
A"); (b) the aggregate Certificate Principal Amount of the Class B
Certificates outstanding from time to time ("Component B"); (c) the aggregate
Certificate Principal Amount of the Class C Certificates outstanding from
time to time ("Component C"); (d) the aggregate Certificate Principal Amount
of the Class D Certificates outstanding from time to time ("Component D");
(e) the aggregate Certificate Principal Amount of the Class E Certificates
outstanding from time to time ("Component E"); (f) the aggregate Certificate
Principal Amount of the Class F Certificates outstanding from time to time
("Component F"); (g) the aggregate Certificate Principal Amount of the Class
G Certificates outstanding from time to time ("Component G"); (h) the
aggregate Certificate Principal Amount of the Class H Certificates
outstanding from time to time ("Component H"); and (i) the aggregate
Certificate Principal Amount of the Class J Certificates outstanding from
time to time ("Component J").
The Residual Interest Certificates will not have Certificate Principal
Amounts or Certificate Notional Amounts.
REGISTRATION; DENOMINATIONS
The Class A, Class B, Class C, Class D and Class E Certificates
(collectively, the "Book-Entry Certificates") will be issued in book-entry
form through the facilities of The Depository Trust Company ("DTC") in
denominations of $100,000 Certificate Principal Amount and in integral
multiples of $1 in excess thereof. The Class IO Certificates will be issued
in fully registered, certificated form in denominations of $1,000,000
Certificate Notional Amount and in integral multiples of $1 in excess
thereof. One Certificate of each of the foregoing Classes may be issued in a
different principal amount to accommodate the remainder of the initial
aggregate Certificate Principal Amount or Certificate Notional Amount, as the
case may be, of the Certificates of such Class.
Each Class of Book-Entry 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
beneficial owner of a Book-Entry Certificate of any Class thereof (each, a
"Certificate Owner") will be entitled to receive a fully registered, physical
Certificate (a "Definitive Certificate") representing its interest in such
Class except under the limited circumstances described in the Prospectus
under "DESCRIPTION OF THE SECURITIES--Book-Entry Registration." Unless and
until Definitive Certificates are issued in respect of a Class of Book-Entry
Certificates, beneficial ownership interests in such Class of Certificates
will be maintained and transferred on the book-entry records of DTC and its
participating organizations (the "Participants"), and all references to
actions by holders of such Class of Certificates will refer to actions taken
by DTC upon instructions received from the related Certificate Owners through
the Participants in accordance with DTC procedures, and all references herein
to payments, notices, reports and statements to holders of such Class of
Certificates will refer to payments, notices, reports and statements to DTC
or Cede & Co., as the registered holder thereof, for distribution to the
related Certificate Owners through the Participants in accordance with
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DTC procedures. The form of such payments and transfers may result in certain
delays in receipt of payments by an investor and may restrict an investor's
ability to pledge its securities. See "DESCRIPTION OF THE
SECURITIES--Book-Entry Registration" in the Prospectus.
The Class IO Certificates may be transferred or exchanged at the offices
of the Trustee, without the payment of any service charges, other than any
tax or other governmental charge payable in connection therewith. The Trustee
initially will serve as registrar (in such capacity, the "Certificate
Registrar") for purposes of recording and otherwise providing for the
registration of the Offered Certificates and of transfers and exchanges of
the Class IO Certificates and, if Definitive Certificates are issued in
respect thereof, the other Classes of Offered Certificates.
CERTIFICATE INTEREST RATES
The per annum rate at which any Regular Interest Certificate accrues
interest from time to time is herein referred to as its "Certificate Interest
Rate." The approximate Certificate Interest Rates applicable to the
respective Classes of Offered Certificates for the initial Distribution Date
are set forth on the cover page hereof. The Certificate Interest Rates
applicable to the respective Classes of Offered Certificates (other than the
Class IO Certificates) for each Distribution Date subsequent to the initial
Distribution Date will, in each such case, be a per annum rate equal to the
Weighted Average Net Mortgage Rate for such Distribution Date, minus basis
points, in the case of the Class A Certificates, basis points, in the case
of the Class B Certificates, basis points, in the case of the Class C
Certificates, basis points, in the case of the Class D Certificates, and
basis points, in the case of the Class E Certificates. The Certificate
Interest Rate applicable to the Class IO Certificates for each Distribution
Date subsequent to the initial Distribution Date will equal the weighted
average of the Component A Rate ( % per annum), the Component B Rate ( %
per annum), the Component C Rate ( % per annum), the Component D Rate ( %
per annum), the Component E Rate ( % per annum), the Component F Rate ( %
per annum), the Component G Rate ( % per annum), the Component H Rate ( %
per annum) and the Component J Rate ( % per annum) (the Component A Rate,
Component B Rate, Component C Rate, Component D Rate, Component E Rate,
Component F Rate, Component G Rate, Component H Rate and Component J Rate,
collectively, the "Component Rates"), each weighted on the basis of the
proportion that the amount of the related Component (that is, the Component
with the same letter designation) outstanding immediately prior to such
Distribution Date bears to the aggregate Certificate Notional Amount of the
Class IO Certificates outstanding immediately prior to such Distribution
Date.
The Certificate Interest Rate applicable to each Class of Non-Offered
Certificates (other than the Residual Interest Certificates) for each
Distribution Date will be a per annum rate equal to the Weighted Average Net
Mortgage Rate for such Distribution Date, minus basis points. The Residual
Interest Certificates will not bear interest.
The "Weighted Average Net Mortgage Rate" for each Distribution Date is the
weighted average of the Net Mortgage Rates for the Mortgage Loans, weighted
on the basis of their respective Stated Principal Balances outstanding
immediately prior to such Distribution Date. For purposes of the foregoing,
the "Net Mortgage Rate" for each Mortgage Loan will be a fixed rate per annum
equal to the Mortgage Rate in effect for such Mortgage Loan as of the Cut-off
Date, minus the Administrative Cost Rate and any Retained Yield Rate
applicable to such Mortgage Loan as of the Cut-off Date.
The "Stated Principal Balance" of any Mortgage Loan (including any
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property), as of any date of determination coinciding with or following the
Cut-off Date, will generally be equal to the Cut-off Date Balance of such
Mortgage Loan, reduced on each Distribution Date (to not less than zero) by:
(i) that portion of the Principal Payment Amount for such Distribution Date
(calculated without regard to clause (f) of the definition of "Principal
Payment Amount" set forth under "--Distributions--Principal Payment Amount"
below) that is attributable to such Mortgage Loan; and (ii) the principal
portion of any Realized Loss incurred in respect of such Mortgage Loan during
the related Collection Period. Notwithstanding the foregoing, if any Mortgage
Loan is paid in full, or if any Mortgage Loan or, if acquired in respect
thereof, the related Mortgaged Property is liquidated, purchased out of the
Trust Fund or otherwise disposed of by the Trust,
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the "Stated Principal Balance" of such Mortgage Loan will be zero commencing
as of the Distribution Date on which amounts received in connection with such
payment in full, liquidation, purchase or other disposition would be
distributed on the Certificates.
The "Due Period" and the "Collection Period" for any Distribution Date
will, in each case, end at the close of business on the Determination Date
for such Distribution Date and commence immediately following the end of the
prior such period (or, in the case of the initial Due Period and Collection
Period, commence immediately following the Cut-off Date). The "Determination
Date" for each Distribution Date will be the 12th day of the month in which
such Distribution Date occurs or, if such 12th day is not a Business Day,
then the next preceding Business Day. For purposes of the Prospectus, the
Collection Period is the "Prepayment Period" for the related Distribution
Date.
DISTRIBUTIONS
General
Distributions of principal and interest on the Certificates will be made
by the Trustee or a Paying Agent (as defined in the Prospectus) out of the
related Available Distribution Amount on the 25th day of each month (or, if
such 25th day is not a Business Day, then on the next succeeding Business
Day) (each such date, a "Distribution Date"), commencing in November 1996.
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 in such Class. The "Percentage
Interest" in any Class (other than a Class of Residual Interest Certificates)
evidenced by a Certificate thereof will equal a fraction (expressed as a
percentage), the numerator of which is the initial Certificate Principal
Amount or Certificate Notional Amount, as the case may be, of such
Certificate as specified on the face thereof, and the denominator of which is
the initial aggregate Certificate Principal Amount or Certificate Notional
Amount, as the case may be, of such Class.
The Trustee or a Paying Agent will make payments on the Class IO
Certificates by check mailed to the registered holders thereof as of the
close of business on the related Record Date at their addresses appearing on
the books and records of the Certificate Registrar or, upon written request
to the Trustee of any holder of a Class IO Certificate delivered five
Business Days prior to the related Record Date, by wire transfer in
immediately available funds to the account of such Certificateholder
specified in the request and at the expense of such Certificateholder.
Notwithstanding the above, the final payment in retirement of any Class IO
Certificate will be made only upon presentation and surrender of such
Certificate at the Corporate Trust Office of the Trustee.
The "Record Date" for each Class of Offered Certificates for each
Distribution Date will be the last day of the month preceding the month in
which such Distribution Date occurs or, if such day is not a Business Day,
the Business Day immediately preceding such day.
The Available Distribution Amount
The aggregate amount available for distribution of principal and/or
interest to Certificateholders on each Distribution Date (the "Available
Distribution Amount") will, in general, equal the sum of the following
amounts:
(a) the aggregate of all cash amounts received on or in respect of the
Mortgage Loans and any REO Properties that is on deposit in the Collection
and Custodial Accounts as of the commencement of business on the Business
Day preceding such Distribution Date (the "Servicer Remittance Date")
(which cash amounts will generally include all Monthly Payments, including
Balloon Payments, received on the Mortgage Loans and any other payments of
principal and/or interest received on a delinquent Balloon Loan; any
Principal Prepayments (together with the corresponding interest payment
and Prepayment Premium), Liquidation Proceeds, Insurance Proceeds and
Condemnation Proceeds (each as defined in the Prospectus) received on the
Mortgage Loans and any REO Properties; any other income collected with
respect to any REO Property, net of related expenses ("Net REO Income");
any proceeds from the purchase of any Mortgage Loan required to be
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repurchased by the Depositor ("Repurchase Proceeds "); and any other
amounts required to be deposited in the Collection and/or Custodial
Accounts under the Trust Agreement, the Servicing Agreement (as defined
herein) or the Special Servicing Agreement (as defined herein)), exclusive
of any portion thereof that represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to
the related Due Period;
(ii) all payments of principal, including Principal Prepayments, and
interest, Insurance Proceeds, Condemnation Proceeds, Liquidation
Proceeds and Net REO Income received after the end of the related
Collection Period;
(iii) Prepayment Premiums;
(iv) Retained Yield;
(v) amounts that are currently payable or reimbursable to the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent
(including as compensation or to reimburse the Servicer, the Trustee
or the Fiscal Agent, as the case may be, for outstanding Advances,
together with interest thereon, or to indemnify or reimburse the
Trustee and certain related persons as contemplated under "--The
Trustee" below, or to indemnify or reimburse the Fiscal Agent and
certain related persons as contemplated under "--The Fiscal Agent"
below, or to indemnify or reimburse the Servicer, the Special Servicer
and certain related persons as contemplated under "SERVICING OF
MORTGAGE LOANS--Certain Matters Regarding the Servicer and the Special
Servicer" herein) or used to pay certain unanticipated expenses of the
Trust Fund, including certain Additional Trust Fund Expenses not
previously referenced;
(vi) amounts received on Mortgage Loans and REO Properties previously
repurchased by the Depositor or otherwise removed from the Trust Fund;
and
(vii) amounts deposited in the Collection Account or Custodial
Account in error; and
(b) all P&I Advances made by the Servicer, the Trustee and/or the Fiscal
Agent with respect to such Distribution Date (see "--Advances" below).
With respect to the final Distribution Date, any Termination Price paid as
contemplated under "--Optional Termination" would constitute part of the
related Available Distribution Amount, subject to any withdrawals therefrom
to cover the items described in clause (a)(v) above.
Application of the Available Distribution Amount
On each Distribution Date, the Trustee or a Paying Agent will (except as
otherwise described under "--Optional Termination" below) apply amounts on
deposit in the Collection Account, to the extent of the Available
Distribution Amount for such Distribution Date, in the following order of
priority, in each case to the extent of remaining funds:
(1) to distributions of interest to the holders of the Class A
Certificates and the holders of the Class IO Certificates, pro rata in
accordance with the respective amounts of interest distributable on such
Classes of Certificates on such Distribution Date as described in this
clause (1), in an amount equal to all Distributable Certificate Interest
in respect of each such Class of Certificates for such Distribution Date
and, to the extent not previously paid, for all prior Distribution Dates;
(2) to distributions of principal to the holders of the Class A
Certificates, in an amount (not to exceed the then outstanding aggregate
Certificate Principal Amount of the Class A Certificates) equal to the
Principal Payment Amount for such Distribution Date;
(3) to distributions to the holders of the Class A Certificates, to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
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<PAGE>
(4) to distributions of interest to the holders of the Class B
Certificates, in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(5) if the Class A Certificates have been retired, to distributions of
principal to the holders of the Class B Certificates in an amount (not to
exceed the then outstanding aggregate Certificate Principal Amount of the
Class B Certificates) equal to the Principal Payment Amount for such
Distribution Date, less any portion thereof distributed in retirement of
the Class A Certificates on such Distribution Date;
(6) to distributions to the holders of the Class B Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(7) to distributions of interest to the holders of the Class C
Certificates, in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(8) if the Class A and Class B Certificates have been retired, to
distributions of principal to the holders of the Class C Certificates in
an amount (not to exceed the then outstanding aggregate Certificate
Principal Amount of the Class C Certificates) equal to the Principal
Payment Amount for such Distribution Date, less any portion thereof
distributed in retirement of the Class A and/or Class B Certificates on
such Distribution Date;
(9) to distributions to the holders of the Class C Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(10) to distributions of interest to the holders of the Class D
Certificates, in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(11) if the Class A, Class B and Class C Certificates have been retired,
to distributions of principal to the holders of the Class D Certificates
in an amount (not to exceed the then outstanding aggregate Certificate
Principal Amount of the Class D Certificates) equal to the Principal
Payment Amount for such Distribution Date, less any portion thereof
distributed in retirement of the Class A, Class B and/or Class C
Certificates on such Distribution Date;
(12) to distributions to the holders of the Class D Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(13) to distributions of interest to the holders of the Class E
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(14) if the Class A, Class B, Class C and Class D Certificates have been
retired, to distributions of principal to the holders of the Class E
Certificates in an amount (not to exceed the then outstanding aggregate
Certificate Principal Amount of the Class E Certificates) equal to the
Principal Payment Amount for such Distribution Date, less any portion
thereof distributed in retirement of the Class A, Class B, Class C and/or
Class D Certificates on such Distribution Date;
(15) to distributions to the holders of the Class E Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(16) to distributions of interest to the holders of the Class F
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
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<PAGE>
(17) if the Class A, Class B, Class C, Class D and Class E Certificates
have been retired, to distributions of principal to the holders of the
Class F Certificates in an amount (not to exceed the then outstanding
aggregate Certificate Principal Amount of the Class F Certificates) equal
to the Principal Payment Amount for such Distribution Date, less any
portion thereof distributed in retirement of the Class A, Class B, Class
C, Class D and/or Class E Certificates on such Distribution Date;
(18) to distributions to the holders of the Class F Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(19) to distributions of interest to the holders of the Class G
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(20) if the Class A, Class B, Class C, Class D, Class E and Class F
Certificates have been retired, to distributions of principal to the
holders of the Class G Certificates in an amount (not to exceed the then
outstanding aggregate Certificate Principal Amount of the Class G
Certificates) equal to the Principal Payment Amount for such Distribution
Date, less any portion thereof distributed in retirement of the Class A,
Class B, Class C, Class D, Class E and/or Class F Certificates on such
Distribution Date;
(21) to distributions to the holders of the Class G Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(22) to distributions of interest to the holders of the Class H
Certificates, in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(23) if the Class A, Class B, Class C, Class D, Class E, Class F and
Class G Certificates have been retired, to distributions of principal to
the holders of the Class H Certificates in an amount (not to exceed the
then outstanding aggregate Certificate Principal Amount of the Class H
Certificates) equal to the Principal Payment Amount for such Distribution
Date, less any portion thereof distributed in retirement of the Class A,
Class B, Class C, Class D, Class E, Class F and/or Class G Certificates;
(24) to distributions to the holders of the Class H Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(25) to distributions of interest to the holders of the Class J
Certificates, in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(26) if the Class A, Class B, Class C, Class D, Class E, Class F, Class G
and Class H Certificates have been retired, to distributions of principal
to the holders of the Class J Certificates in an amount (not to exceed the
then outstanding aggregate Certificate Principal Amount of the Class J
Certificates) equal to the Principal Payment Amount for such Distribution
Date, less any portion thereof distributed in retirement of the Class A,
Class B, Class C, Class D, Class E, Class F, Class G and/or Class H
Certificates;
(27) to distributions to the holders of the Class J Certificates to
reimburse such holders for all Realized Losses and Additional Expense
Losses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received; and
(28) to distributions to the holders of the Residual Certificates in an
amount equal to the balance, if any, of the Available Distribution Amount
remaining after the distributions to be made on such Distribution Date as
described in clauses (1) through (27) above.
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<PAGE>
Distributions of the Principal Payment Amount will constitute the only
distributions of principal on the Certificates. Reimbursements of previously
allocated Realized Losses and Additional Expense Losses will not constitute
distributions of principal for any purpose and will not result in an
additional reduction in the Certificate Principal Amounts of the Sequential
Pay Certificates in respect of which any such reimbursements are made. No
distributions of principal will be made in respect of the Non-Offered
Certificates until the aggregate Certificate Principal Amount of the Class A,
Class B, Class C, Class D and Class E Certificates is reduced to zero.
Distributable Certificate Interest
The "Distributable Certificate Interest" in respect of each Class of
Regular Interest Certificates for each Distribution Date represents that
portion of the Accrued Certificate Interest in respect of such Class of
Certificates for such Distribution Date that is net of such Class's allocable
share (calculated as described below) of the Net Aggregate Prepayment
Interest Shortfall for such Distribution Date.
The "Accrued Certificate Interest" in respect of each Class of Regular
Interest Certificates for each Distribution Date is equal to one month's
interest at the Certificate Interest Rate applicable to such Class of
Certificates for such Distribution Date accrued on the related aggregate
Certificate Principal Amount or Certificate Notional Amount, as the case may
be, outstanding immediately prior to such Distribution Date. Accrued
Certificate Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
The Net Aggregate Prepayment Interest Shortfall for any Distribution Date
will be allocated among the respective Classes of Regular Interest
Certificates, pro rata in accordance with the respective amounts of Accrued
Certificate Interest for such Classes of Certificates for such Distribution
Date.
Principal Payment Amount
The "Principal Payment Amount" for each Distribution Date will generally
equal the aggregate of the following:
(a) the aggregate of all payments of principal (other than Principal
Prepayments) received on the Mortgage Loans during the related Collection
Period, in each case net of any portion of the particular payment that
represents a late collection of principal due on or before the Cut-off
Date or for which a P&I Advance was previously made for a prior
Distribution Date or that represents the principal portion of a Monthly
Payment due on a Due Date subsequent to the related Due Period;
(b) the aggregate of the principal portions of all Monthly Payments due
in respect of the Mortgage Loans for their respective Due Dates occurring
during the related Due Period that were received prior to the related
Collection Period;
(c) the aggregate of all Principal Prepayments received on the Mortgage
Loans during the related Collection Period;
(d) the aggregate of all Liquidation Proceeds, Condemnation Proceeds,
Insurance Proceeds, Repurchase Proceeds and Net REO Income received on or
in respect of the Mortgage Loans and any REO Properties during the related
Collection Period, to the extent identified and applied by the Servicer as
recoveries of principal thereof (or, in the case of an REO Property, of
the related Mortgage Loan), in each case net of any portion of such
amounts that represents a late collection of principal due on or before
the Cut-off Date or for which a P&I Advance was previously made for a
prior Distribution Date;
(e) the aggregate of the principal portions of any P&I Advances made by
the Servicer, the Trustee and/or the Fiscal Agent for such Distribution
Date; and
(f) if such Distribution Date is subsequent to the initial Distribution
Date, the excess, if any, of the Principal Payment Amount for the
immediately preceding Distribution Date, over the aggregate distributions
of principal made on the Certificates on such immediately preceding
Distribution Date.
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Treatment of REO Properties
Notwithstanding that any Mortgaged Property may be acquired on behalf of
the Trust through foreclosure, deed in lieu of foreclosure or otherwise, the
related Mortgage Loan (which, if such Mortgaged Property secures a Group of
Cross-Collateralized Mortgage Loans, will for purposes of this Prospectus
Supplement be the Mortgage Loan as to which such Mortgaged Property was the
related Primary Mortgaged Property) will be treated, for purposes of, among
other things, determining distributions on the Certificates, allocations of
Realized Losses and Additional Expense Losses to the Certificates, and the
amount of fees payable to the Servicer, the Special Servicer and the Trustee,
as having remained outstanding until such REO Property is liquidated. In
connection therewith, operating revenues and other proceeds derived from such
REO Property (exclusive of related operating costs, including certain
reimbursements payable to the Servicer, the Trustee or the Fiscal Agent in
connection with the operation or disposition of such REO Property) will be
"applied" by the Servicer as principal, interest and other amounts "due" on
such Mortgage Loan, and the Servicer, the Trustee and Fiscal Agent will be
obligated to make P&I Advances in respect of such Mortgage Loan, in all cases
as if such Mortgage Loan had remained outstanding.
Distributions of Prepayment Premiums
On each Distribution Date, except as otherwise discussed below, any
Prepayment Premium collected on a Mortgage Loan during the related Collection
Period, exclusive of any portion thereof that constitutes Retained Yield,
will be distributed, separate from but in the same manner as the Available
Distribution Amount for such date, to the holders of the Class IO
Certificates and the holders of the respective Classes of Regular Interest
Certificates then entitled to distributions of principal, pro rata, in an
amount equal to the PV Yield Loss Amount for each such Class of Certificates
in respect of the particular prepayment of principal as to which such
Prepayment Premium was received.
If the amount of any such Prepayment Premium (exclusive of any portion
thereof that constitutes Retained Yield) distributed in accordance with the
preceding paragraph on any Distribution Date exceeds the aggregate PV Yield
Loss Amount for the Regular Interest Certificates in respect of the
prepayment of principal in connection with which such Prepayment Premium was
received, then the Trustee or a Paying Agent shall distribute 70% of such
excess to the holders of the Class of Sequential Pay Certificates with the
earliest alphabetical Class designation that had an aggregate Certificate
Principal Amount greater than zero immediately prior to such Distribution
Date, but which was not entitled to any distribution of principal on such
Distribution Date, and the Trustee or a Paying Agent shall distribute the
remaining 30% of such excess to the Holders of the Class of Sequential Pay
Certificates with the second earliest alphabetical Class designation that had
an aggregate Certificate Principal Amount greater than zero immediately prior
to such Distribution Date, but which was not entitled to any distribution of
principal on such Distribution Date; provided that, if only one Class of
Sequential Pay Certificates with an aggregate Certificate Principal Amount
greater than zero immediately prior to such Distribution Date was not
entitled to any distribution of principal on such Distribution Date, then the
entire amount of such excess shall be distributed to the Holders of such
Class; and provided, further, that, if every Class of Sequential Pay
Certificates with an aggregate Certificate Principal Amount greater than zero
immediately prior to such Distribution Date was entitled to distributions of
principal on such Distribution Date, then the entire amount of such excess
shall be distributed to the Holders of the Class R-II Certificates.
Notwithstanding the foregoing, on each Distribution Date, provided that
the aggregate Certificate Notional Amount of the Class IO Certificates was
greater than zero immediately prior to such Distribution Date, the Trustee or
a Paying Agent shall distribute entirely to the Holders of the Class IO
Certificates any Prepayment Premium (net of the portion thereof, if any, that
constitutes Retained Yield) that was collected during the related Collection
Period and as to which each of the following conditions apply: (i) the
related prepaid Mortgage Loan provides that the amount of such Prepayment
Premium was to be calculated as the greater of (x) 1.0% of the related
prepayment of principal and (y) the result of a specified "treasury" yield
maintenance formula; and (ii) such related Prepayment Premium was calculated
in accordance with the foregoing to equal 1.0% of the related prepayment of
principal.
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The "PV Yield Loss Amount" means: (a) with respect to any Class of
Sequential Pay Certificates, as calculated on any Distribution Date in
respect of any prepayment of principal of a Mortgage Loan that is payable, in
whole or in part, in reduction of the aggregate Certificate Principal Amount
of such Class of Certificates on such Distribution Date, an amount equal to
the present value of a series of monthly payments, each equal to the related
Fixed Interest Payment Adjustment deemed payable on each subsequent
Distribution Date to and including the earlier of (i) the Assumed Final
Distribution Date for such Class of Certificates and (ii) the Distribution
Date immediately following the stated maturity date for such Mortgage Loan
(such period following the then current Distribution Date to and including
the earlier of the two Distribution Dates referred to in clauses (a)(i) and
(a)(ii), the "Interest Payment Adjustment Period" for such Class of
Certificates), and each discounted at the applicable Reinvestment Yield
(monthly compounding) for the number of months remaining from the then
current Distribution Date to the applicable subsequent Distribution Date; and
(b) with respect to the Class IO Certificates, as calculated on any
Distribution Date in respect of any prepayment of principal of a Mortgage
Loan that is payable, in whole or in part, in reduction of the aggregate
Certificate Principal Amount of the Sequential Pay Certificates (i.e., the
aggregate Certificate Notional Amount of the Class IO Certificates) on such
Distribution Date, the present value of a series of monthly payments, which
may vary over time, each equal to the applicable related Variable Interest
Payment Adjustment deemed payable on each subsequent Distribution Date to and
including the Distribution Date immediately following the stated maturity
date for such Mortgage Loan (such period following the then current
Distribution Date to and including the Distribution Date immediately
following the stated maturity for such Mortgage Loan, the "Interest Payment
Adjustment Period " for the Class IO Certificates), and each discounted at
the applicable Reinvestment Yield (monthly compounding) for the number of
months remaining from the then current Distribution Date to the applicable
subsequent Distribution Date. With respect to any Class of Sequential Pay
Certificates and any prepayment of principal of a Mortgage Loan that is
payable, in whole or in part, in reduction of the aggregate Certificate
Principal Amount of such Class of Certificates on any Distribution Date, the
"Fixed Interest Payment Adjustment" deemed payable on each subsequent
Distribution Date during the relevant Interest Payment Adjustment Period,
shall equal one-twelfth of the product of (a) the amount, if any, by which
the Certificate Interest Rate for such Class of Certificates for the then
current Distribution Date exceeds the applicable Reinvestment Yield,
multiplied by (b) the amount of such prepayment that is payable in reduction
of the aggregate Certificate Principal Amount of such Class of Certificates
on the then current Distribution Date. With respect to the Class IO
Certificates and any prepayment of principal of a Mortgage Loan that is
payable, in whole or in part, in reduction of the aggregate Certificate
Principal Amount of the Sequential Pay Certificates on any Distribution Date,
the "Variable Interest Payment Adjustment" deemed payable on any particular
subsequent Distribution Date during the relevant Interest Payment Adjustment
Period shall depend on when such subsequent Distribution Date occurs, shall
change with the occurrence of each Assumed Final Distribution Date (up to and
including the Assumed Final Distribution Date for the Class E Certificates)
that occurs during the relevant Interest Payment Adjustment Period and shall
equal one-twelfth of (a) a specified percentage, multiplied by (b) the amount
of the particular prepayment of principal that is payable in reduction of the
aggregate Certificate Principal Amount of the Sequential Pay Certificates on
the then current Distribution Date. The specified percentage referred to in
clause (a) of the prior sentence shall be: (u) % for Variable Interest
Payment Adjustments deemed due on or prior to the Assumed Final Distribution
Date for the Class A Certificates; (v) % for Variable Interest Payment
Adjustments deemed due on or prior to the Assumed Final Distribution Date for
the Class B Certificates but after the Assumed Final Distribution Date for
the Class A Certificates; (w) % for Variable Interest Payment Adjustments
deemed due on or prior to the Assumed Final Distribution Date for the Class C
Certificates but after the Assumed Final Distribution Date for the Class B
Certificates; (x) % for Variable Interest Payment Adjustments deemed due on
or prior to the Assumed Final Distribution Date for the Class D Certificates
but after the Assumed Final Distribution Date for the Class C Certificates;
(y) % for Variable Interest Payment Adjustments deemed due on or prior to
the Assumed Final Distribution Date for the Class E Certificates but after
the Assumed Final Distribution Date for the Class D Certificates; and (z) %
for Variable Interest Payment Adjustments deemed due after the Assumed Final
Distribution Date for the Class E Certificates. For purposes of the
foregoing, the "Reinvestment Yield" applicable to any Class of Regular
Interest Certificates will be equal to the yield on the U.S. Treasury issue
(primary issue) with a
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maturity date closest to the final Distribution Date during the relevant
Interest Payment Adjustment Period. Also for purposes of the foregoing, the
amount of any prepayment of principal payable in reduction of the aggregate
Certificate Principal Amount of any Class or Classes of Sequential Pay
Certificates on any Distribution Date shall be deemed to equal the product of
(x) the full amount of such prepayment of principal, multiplied by (y) a
fraction, the numerator of which is the portion of the Principal Payment
Amount for such Distribution Date that is payable in respect of such Class or
Classes of Sequential Pay Certificates, and the denominator of which is the
entire Principal Payment Amount for such Distribution Date.
The following is an example of the foregoing allocation of Prepayment
Premiums, and is based on the assumptions that (i) a Mortgage Loan with a
$10,000,000 unpaid principal balance, a Mortgage Rate of 9.0% per annum, no
Retained Yield and a stated maturity date of November 1, 2007, prepays in
full on its Due Date during the initial Collection Period, (ii) such Mortgage
Loan provides for the payment of a Prepayment Premium calculated in
accordance with the "treasury" yield maintenance formula described under
"DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions" herein, (iii) no other prepayment of
principal is received on any Mortgage Loan during the initial Collection
Period, and (iv) the Assumed Final Distribution Dates for the respective
Classes of Regular Interest Certificates are as set forth herein, and is
otherwise based on the "Mortgage Loan Assumptions" set forth under "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS--Weighted Average Life" herein:
TREASURY YIELD MAINTENANCE ALLOCATION TABLE
<TABLE>
<CAPTION>
MORTGAGE LOAN CLASS A CERTIFICATES CLASS IO CERTIFICATES
- ------------------------------- --------------- -------------------- ---------------------
<S> <C> <C> <C>
Amount of Principal
Prepayment(1) $10,000,000 $10,000,000 $10,000,000
Maturity Date/End of Relevant
Interest Payment
Adjustment Period(2) 11/1/07 6/25/06 11/25/07
Number of Payments(3) 132 115 132
- ------------------------------- --------------- -------------------- ---------------------
Treasury Note Used for 7.875%/
Discounting(4) November 2007 6.875%/ May 2006 7.875%/ November 2007
Treasury Yield (CBE) 6.750% 6.600% 6.750%
Reinvestment Yield 6.657% 6.511% 6.657%
- ------------------------------- --------------- -------------------- ---------------------
Mortgage Rate 9.000%
Payment Differential
($ per month) $ 19,525(5)
- ------------------------------- --------------- -------------------- ---------------------
Certificate Interest Rate
for initial Distribution Date 7.550%
Fixed Interest Payment
Adjustment ($ per month) $ 8,658(6)
- ------------------------------- --------------- -------------------- ---------------------
Variable Interest Payment
Adjustment ($ per month)
12/25/96 to 6/25/06 $ 10,417(7)
7/25/06 to 8/25/06 $ 10,000(8)
9/25/06 to 9/25/06 $ 8,333(9)
10/25/06 to 11/25/07 $ 7,500(10)
- ------------------------------- --------------- -------------------- ---------------------
Total Prepayment Premium $ 1,823,901
- ------------------------------- --------------- -------------------- ---------------------
PV Yield Loss Amount $ 739,260 $ 951,134
- ------------------------------- --------------- -------------------- ---------------------
Remainder of Prepayment Premium $133,507(11)
- ------------------------------- --------------- --------------------
</TABLE>
S-57
<PAGE>
Remainder Allocated:
Class B = 70% $93,455
Class C = 30% $40,052
(1) The entire amount of the prepayment is payable in reduction of the
aggregate Certificate Principal Amount of the Class A Certificates
and the aggregate Certificate Notional Amount of the Class IO
Certificates.
(2) For the Mortgage Loan, the maturity date thereof; for the Class A
Certificates, the earlier of the Assumed Final Distribution Date for
such Class and the first Distribution Date following the maturity
date of the Mortgage Loan; and for the Class IO Certificates, the
first Distribution Date following the maturity date of the Mortgage
Loan.
(3) For the Mortgage Loan, same as the number of months from the date of
prepayment to the maturity date; and for the Class A and Class IO
Certificates, same as the number of months from the Distribution
Date in November 1996 to the end of the relevant Interest Payment
Adjustment Period.
(4) The treasury note with a maturity date closest to the date used in
footnote (2) above.
(5) (Mortgage Rate -Reinvestment Yield) x (amount of Principal
Prepayment)/12 for 132 payments.
(6) (Certificate Interest Rate for Class A Certificates for initial
Distribution Date -Reinvestment Yield) x (amount of Principal
Prepayment)/12 for 115 payments.
(7) (1.25%) x (amount of Principal Prepayment)/12 for 115 payments;
relates to Component A of aggregate Certificate Notional Amount of
Class IO Certificates.
(8) (1.20%) x (amount of Principal Prepayment)/12 for two payments;
relates to Component B of aggregate Certificate Notional Amount of
Class IO Certificates.
(9) (1.00%) x (amount of Principal Prepayment)/12 for one payment;
relates to Component C of aggregate Certificate Notional Amount of
Class IO Certificates.
(10) (0.90%) x (amount of Principal Prepayment)/12 for 14 payments;
relates to Component F of aggregate Certificate Notional Amount of
Class IO Certificates; no Variable Interest Payment Adjustments
relate to Component D or Component E of the aggregate Certificate
Notional Amount of the Class IO Certificates because, based on the
Mortgage Loan Assumptions and a 0% CPR, the Class D and Class E
Certificates would be retired on the same date as the Class C
Certificates.
(11) Excess of Prepayment Premium over aggregate PV Yield Loss Amount for
Class A and Class IO Certificates. Remainder allocated: 70% to Class
B ($93,455) and 30% to Class C ($40,052).
The Depositor makes no representation as to the enforceability of the
provision of any Mortgage Note requiring the payment of a Prepayment Premium,
or of the collectability of any Prepayment Premium. See "RISK FACTORS--The
Mortgage Loans--Prepayment Premiums" and "DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" herein.
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<PAGE>
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
The rights of holders of the Non-Offered Certificates to receive
distributions of amounts collected or advanced on or in respect of the
Mortgage Loans will be subordinated, to the extent described herein, to the
rights of holders of the Offered Certificates; the rights of holders of the
Class E Certificates to receive distributions of amounts collected or
advanced on or in respect of the Mortgage Loans will be subordinated, to the
extent described herein, to the rights of holders of the other Classes of
Offered Certificates; the rights of holders of the Class D Certificates to
receive distributions of amounts collected or advanced on or in respect of
the Mortgage Loans will be subordinated, to the extent described herein, to
the rights of holders of the Senior Certificates, the Class B Certificates
and the Class C Certificates; the rights of holders of the Class C
Certificates to receive distributions of amounts collected or advanced on or
in respect of the Mortgage Loans will be subordinated, to the extent
described herein, to the rights of the holders of the Senior Certificates and
the Class B Certificates; and the rights of the holders of the Class B
Certificates to receive distributions of amounts collected or advanced on or
in respect of the Mortgage Loans will be subordinated, to the extent
described herein, to the rights of holders of the Senior Certificates. 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 Class A Certificates of principal in
an amount equal to the entire aggregate Certificate Principal Amount of the
Class A Certificates. Similarly, but to decreasing degrees, this
subordination is also intended to enhance the likelihood of timely receipt by
the holders of the other Classes of Offered 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 Classes of
Certificates of principal equal to, in each such case, the entire aggregate
Certificate Principal Amount of such Class of Certificates. The protection
afforded to the holders of the Class E Certificates by means of the
subordination of the Non-Offered Certificates, to the holders of the Class D
Certificates by means of the subordination of the Class E and the Non-Offered
Certificates, to the holders of the Class C Certificates by means of the
subordination of the Class D, the Class E and the Non-Offered Certificates,
to the holders of the Class B Certificates by means of the subordination of
the Class C, the Class D, the Class E and the Non-Offered Certificates, and
to the holders of the Senior Certificates by means of the subordination of
the Subordinate 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--Application of the
Available Distribution Amount" above. No other form of credit enhancement
will be available for the benefit of the holders of the Offered Certificates.
Allocation to the Class A Certificates, for so long as they are
outstanding, of the entire Principal Payment Amount for each Distribution
Date will generally have the effect of reducing the aggregate Certificate
Principal Amount of such Class at a faster rate than the aggregate Stated
Principal Balance of the Mortgage Loans. Thus, as principal is distributed to
the holders of the Class A Certificates, the percentage interest in the Trust
Fund evidenced by the Class A Certificates will generally be decreased (with
a corresponding increase in the percentage interest in the Trust Fund
evidenced by the Subordinate Certificates), thereby increasing, relative to
their aggregate Certificate Principal Amount, the subordination afforded the
Class A Certificates (and, correspondingly, to the Class IO Certificates) by
the Subordinate Certificates. Following retirement of the Class A
Certificates, the herein described successive allocation to the Class B
Certificates, the Class C Certificates, the Class D Certificates and the
Class E Certificates, in that order, in each case for so long as they are
outstanding, of the entire Principal Payment Amount for each Distribution
Date will provide a similar benefit to each such Class of Certificates as
regards the relative amount of subordination afforded thereto by each other
outstanding Class of Subordinate Certificates, if any, with a later
alphabetical Class designation.
On each Distribution Date, following all distributions on the Certificates
to be made on such date, the aggregate of all Realized Losses and Additional
Expense Losses that, in each case, have been incurred since the Cut-off Date
through the end of the related Collection Period, but have not previously
been allocated as described below, will be allocated among the respective
Classes of Sequential Pay Certificates (in each such case, in reduction of
the aggregate Certificate Principal Amount of the particular Class) as
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<PAGE>
follows, but in the aggregate only to the extent that the aggregate
Certificate Principal Amount of all the Sequential Pay Certificates remaining
outstanding after giving effect to the distributions on such Distribution
Date (but before giving effect to the allocations below) exceeds the
aggregate Stated Principal Balance of the Mortgage Pool that will be
outstanding immediately following such Distribution Date: first, to the Class
J Certificates, until the remaining aggregate Certificate Principal Amount of
such Certificates (and, correspondingly, Component J of the aggregate
Certificate Notional Amount of the Class IO Certificates) is reduced to zero;
second, to the Class H Certificates, until the remaining aggregate
Certificate Principal Amount of such Certificates (and, correspondingly,
Component H of the aggregate Certificate Notional Amount of the Class IO
Certificates) is reduced to zero; third, to the Class G Certificates, until
the remaining aggregate Certificate Principal Amount of such Certificates
(and, correspondingly, Component G of the aggregate Certificate Notional
Amount of the Class IO Certificates) is reduced to zero; fourth, to the Class
F Certificates, until the remaining aggregate Certificate Principal Amount of
such Certificates (and, correspondingly, Component F of the aggregate
Certificate Notional Amount of the Class IO Certificates) is reduced to zero;
fifth, to the Class E Certificates, until the remaining aggregate Certificate
Principal Amount of such Certificates (and, correspondingly, Component E of
the aggregate Certificate Notional Amount of the Class IO Certificates) is
reduced to zero; sixth, to the Class D Certificates, until the remaining
aggregate Certificate Principal Amount of such Certificates (and,
correspondingly, Component D of the aggregate Certificate Notional Amount of
the Class IO Certificates) is reduced to zero; seventh, to the Class C
Certificates, until the remaining aggregate Certificate Principal Amount of
such Certificates (and, correspondingly, Component C of the aggregate
Certificate Notional Amount of the Class IO Certificates) is reduced to zero;
eighth, to the Class B Certificates, until the remaining aggregate
Certificate Principal Amount of such Certificates (and, correspondingly,
Component B of the aggregate Certificate Notional Amount of the Class IO
Certificates) is reduced to zero; and last, to the Class A Certificates,
until the remaining aggregate Certificate Principal Amount of such
Certificates (and, correspondingly, Component A of the aggregate Certificate
Notional Amount of the Class IO Certificates) is reduced to zero. Any
Realized Loss or Additional Expense Loss allocated as described above to a
Class of Sequential Pay Certificates will be allocated among the respective
Certificates of such Class pro rata based on their respective Percentage
Interests.
"Realized Losses" are losses arising from the inability of the Servicer
and/or the Special Servicer to collect all amounts due and owing under any
defaulted Mortgage Loan, including by reason of fraud or bankruptcy of the
borrower or a casualty of any nature at the related Mortgaged Property, to
the extent not covered by insurance. The Realized Loss in respect of a
liquidated Mortgage Loan (or related REO Property) is an amount generally
equal to the excess, if any, of (a) the outstanding principal balance of such
Mortgage Loan as of the date of liquidation, together with all accrued and
unpaid interest thereon at the related Mortgage Rate (net of any related
Retained Yield Rate) to but not including the Due Date in the Collection
Period in which the liquidation occurred, over (b) the aggregate amount of
Liquidation Proceeds, if any, recovered in connection with such liquidation
(net of any portion of such Liquidation Proceeds that constitutes Retained
Yield or that is payable or reimbursable in respect of related liquidation
and other servicing expenses). If any portion of the debt due under a
Mortgage Loan is forgiven, whether in connection with a modification, waiver
or amendment granted or agreed to by the Special Servicer or in connection
with a bankruptcy or similar proceeding involving the related borrower, the
amount so forgiven (to the extent not allocable to Retained Yield) also will
be treated as a Realized Loss.
An "Additional Expense Loss" is any loss realized upon payment by the
Trust of an Additional Trust Fund Expense.
"Additional Trust Fund Expenses" include, among other things: (i) any
interest paid to the Servicer, Trustee and/or Fiscal Agent in respect of
unreimbursed Advances; (ii) certain additional compensation payable to the
Special Servicer in connection with a Mortgage Loan becoming a Specially
Serviced Mortgage Loan or an REO Property; (iii) any outstanding and
unreimbursed Servicing Advance that is determined to be a Nonrecoverable
Advance as described under "--Advances" below; and (iv) any of certain
unanticipated, non-Mortgage Loan specific expenses of the Trust Fund,
including, but not limited to, certain reimbursements and indemnification to
the Trustee and certain related persons described
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<PAGE>
under "--The Trustee" below, certain reimbursements and indemnification to
the Fiscal Agent and certain related persons described under "--The Fiscal
Agent" below, certain reimbursements and indemnification to the Servicer, the
Special Servicer and certain related persons described under "SERVICING OF
MORTGAGE LOANS--Certain Matters Regarding the Servicer and the Special
Servicer" herein, certain taxes payable from the assets of the Trust Fund as
described under "SERVICING OF MORTGAGE LOANS--Foreclosures" and "FEDERAL
INCOME TAX CONSEQUENCES" herein, certain tax-related expenses and the cost of
various opinions of counsel required to be obtained in connection with the
servicing of the Mortgage Loans and administration of the Trust.
PREPAYMENT INTEREST SHORTFALLS AND EXCESS PREPAYMENT INTEREST
For any Distribution Date, a "Prepayment Interest Shortfall" will arise
with respect to any Mortgage Loan if a borrower makes a full or partial
Principal Prepayment or a Balloon Payment during the related Collection
Period, the date such payment was made occurred prior to the Due Date for
such Mortgage Loan in such Collection Period and interest on such Principal
Prepayment or the principal portion of such Balloon Payment was not paid
through such Due Date. Such a shortfall arises because the amount of interest
(exclusive of any portion thereof that constitutes Retained Yield) which
accrues on the amount of such Principal Prepayment or the principal portion
of such Balloon Payment, as the case may be, will be less than the
corresponding amount of interest accruing on the Certificates and fees
payable to the Servicer, the Special Servicer and the Trustee. In such case,
the Prepayment Interest Shortfall will generally equal the excess of (a) the
aggregate amount of interest (exclusive of any portion thereof that
constitutes Retained Yield) which would have accrued on the Scheduled
Principal Balance of such Mortgage Loan for the one-month period ending on
such Due Date if such Principal Prepayment or Balloon Payment had not been
made, over (b) the aggregate interest (exclusive of any portion thereof that
constitutes Retained Yield) that did so accrue during such period taking into
account such payment.
In any case in which a full or partial Principal Prepayment or a Balloon
Payment is made during any Collection Period after the Due Date for the
related Mortgage Loan, "Excess Prepayment Interest" will arise since the
amount of interest (exclusive of any portion thereof that constitutes
Retained Yield) which accrues on the amount of such Principal Prepayment or
the principal portion of such Balloon Payment will exceed the corresponding
amount of interest accruing on the Certificates and fees payable to the
Servicer, the Special Servicer and the Trustee. The amount of Excess
Prepayment Interest in any such case will equal, to the extent collected, the
interest (exclusive of any portion thereof that constitutes Retained Yield)
that accrues on such Principal Prepayment or the principal portion of such
Balloon Payment from such Due Date to the date such payment was made.
To the extent that the aggregate of all such Prepayment Interest
Shortfalls for all Mortgage Loans for any Collection Period exceeds the
aggregate of all such Excess Prepayment Interest for all Mortgage Loans for
such Collection Period, the Servicing Fee (but not the compensation of the
Special Servicer or the Trustee) for the corresponding period will be reduced
in an amount necessary to offset such additional remaining Prepayment
Interest Shortfalls. See "SERVICING OF MORTGAGE LOANS--The
Servicer--Adjustment to Servicer's Fee in Connection with Prepaid Mortgage
Loans" herein. To the extent that the aggregate of all such Prepayment
Interest Shortfalls for all Mortgage Loans for any Collection Period exceeds
the aggregate of all such Excess Prepayment Interest for all Mortgage Loans
for such Collection Period and the Servicing Fee (prior to reduction as
described above) for the corresponding period, such excess (the "Net
Aggregate Prepayment Interest Shortfall" for the related Distribution Date)
will generally be allocated among the respective Classes of Regular Interest
Certificates (in reduction of the respective amounts of Distributable
Certificate Interest for such Classes of Certificates for the related
Distribution Date) pro rata in accordance with the respective amounts of
Accrued Certificate Interest for such Classes of Certificates for the related
Distribution Date.
To the extent that the aggregate of all such Excess Prepayment Interest
for all Mortgage Loans for any Collection Period exceeds the aggregate of all
such Prepayment Interest Shortfalls for all Mortgage Loans for such
Collection Period, such excess amount (the "Net Aggregate Excess Prepayment
Interest" for such Collection Period) will be payable to the Servicer as
additional compensation.
S-61
<PAGE>
The "Scheduled Principal Balance" of any Mortgage Loan (including any
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property) will generally be equal to: (i) as of the Cut-off Date, the Cut-off
Date Balance of such Mortgage Loan; and (ii) as of any date subsequent to the
Cut-off Date, an amount generally equal to the Cut-off Date Balance of such
Mortgage Loan, reduced (to not less than zero) by the aggregate of the
following:
(a) the aggregate of the principal portions of all Monthly Payments
(other than any Balloon Payment) due, and of any Assumed Payments deemed
due, in respect of such Mortgage Loan on all Due Dates subsequent to the
Cut-off Date through and including such date of determination, whether or
not received or advanced;
(b) the aggregate of all payments, Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds, Repurchase Proceeds and other amounts
received on or in respect of such Mortgage Loan (or any related REO
Property) during the period subsequent to the Cut-off Date through and
including such date of determination that were applied by the Servicer as
recoveries of principal of such Mortgage Loan, in each case net of any
portion of the particular payment or other collection which represents a
recovery of the principal portion of any Monthly Payment (other than a
Balloon Payment) due, or of the principal portion of any Assumed Payment
deemed due, in respect of such Mortgage Loan on a Due Date on or prior to
such date of determination; and
(c) the principal portion of any Realized Loss incurred in respect of
such Mortgage Loan during the period subsequent to the Cut-off Date
through and including such date of determination.
Notwithstanding the foregoing, if any Mortgage Loan is paid in full, or if
any Mortgage Loan or, if acquired in respect thereof, the related Mortgaged
Property is liquidated, purchased out of the Trust Fund or otherwise disposed
of by the Trust Fund, the "Scheduled Principal Balance" of such Mortgage Loan
will be zero as of the date which such payment in full, liquidation, purchase
or other disposition occurred and as of each date thereafter.
The "Assumed Payment" is an amount deemed due in respect of (i) any
Balloon Loan that is delinquent in respect of its Balloon Payment beyond the
end of the Collection Period in which its maturity date occurred and (ii) any
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property. With respect to any such delinquent Balloon Loan, the Assumed
Payment will generally equal an amount which when paid monthly would be
sufficient to fully amortize the Scheduled Principal Balance of such Balloon
Loan outstanding immediately prior to its stated maturity date over the then
remaining amortization term of such Balloon Loan (without regard to the
occurrence of such maturity date) and to pay one month's interest at the
related Mortgage Rate. With respect to any such Mortgage Loan described in
clause (ii) of the second preceding sentence, the Assumed Payment will
generally equal an amount which when paid monthly would be sufficient to
fully amortize the Scheduled Principal Balance of such Mortgage Loan
outstanding immediately prior to the date on which the related Mortgaged
Property became an REO Property over the then remaining amortization term of
such Mortgage Loan (without regard to the occurrence of its maturity date)
and to pay one month's interest at the related Mortgage Rate.
ADVANCES
The Servicer, subject to the limitations described herein, and the
Trustee, if the Servicer fails to do so (or the Fiscal Agent, if both the
Servicer and the Trustee fail to do so), will be obligated to make cash
advances ("P&I Advances"), with respect to each Distribution Date, of: (i)
with respect to all Mortgage Loans other than those described in clause (ii)
of this sentence, all delinquent Monthly Payments due during the related Due
Period (exclusive of any portion thereof that constitutes Retained Yield);
and (ii) in the case of a Balloon Loan delinquent in respect of its Balloon
Payment or a Mortgage Loan as to which the related Mortgaged Property has
become an REO Property, the excess, if any, of the Assumed Payment deemed due
in respect such Mortgage Loan during the related Due Period (exclusive of any
portion thereof that constitutes Retained Yield), over any amounts collected
on or in respect of such Mortgage Loan or any related REO Property during the
related Collection Period and applied as previously unadvanced principal of
and/or interest (exclusive of any portion thereof that constitutes
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<PAGE>
Retained Yield) on such Mortgage Loan. Notwithstanding the foregoing, if it
is determined that an Appraisal Reduction Amount (as defined below) exists
with respect to any Required Appraisal Mortgage Loan (as defined below),
then, with respect to the Distribution Date immediately following the date of
such determination and with respect to each subsequent Distribution Date for
so long as such Appraisal Reduction Amount exists, in the event of subsequent
delinquencies thereon, the interest portion of the P&I Advance in respect of
such Mortgage Loan will be reduced (no reduction to be made in the principal
portion, however) to equal the product of (i) the amount of the interest
portion of such P&I Advance that would otherwise be required to be made for
such Distribution Date without regard to this sentence, multiplied by (ii) a
fraction (expressed as a percentage), the numerator of which is equal to the
Stated Principal Balance of such Mortgage Loan, net of such Appraisal
Reduction Amount, and the denominator of which is equal to the Stated
Principal Balance of such Mortgage Loan. See "--Appraisal Reductions" below.
The Servicer, subject to the limitations described herein, and the
Trustee, if the Servicer fails to do so (or the Fiscal Agent, if both the
Servicer and the Trustee fail to do so), will also be obligated to make
certain cash advances ("Servicing Advances," and together with P&I Advances,
"Advances") with respect to any Mortgaged Property to the extent necessary to
pay taxes and insurance premiums that the related borrower failed to pay and
to cover certain other servicing expenses.
The Servicer, the Trustee and the Fiscal Agent will not be obligated to
make any such Advances to the extent that such Advances, in the reasonable
business judgment of the Servicer, the Trustee or the Fiscal Agent, as
applicable, are ultimately not recoverable from future payments and other
collections including Insurance Proceeds, Condemnation Proceeds and
Liquidation Proceeds on or in respect of the related Mortgage Loans and REO
Properties (any Advance, whether previously made or proposed to be made, that
is not so recoverable, a "Nonrecoverable Advance"). Any determination of
non-recoverability by the Servicer, the Trustee or the Fiscal Agent is to be
supported by an analysis by the Servicer, the Trustee or the Fiscal Agent, as
appropriate, of the possibility for repayment of such Advance giving full
consideration to the cash flow generated by and the value of the related
Mortgaged Property or Properties. To the extent such proceeds are not
available in respect of any Mortgage Loan or REO Property in an amount
sufficient to reimburse such Advances made thereon (or, in the case of an REO
Property, the related Mortgage Loan), the Servicer, the Trustee and/or the
Fiscal Agent, as applicable, may be reimbursed from collections with respect
to other Mortgage Loans. With respect to any Advance, the Trustee and the
Fiscal Agent are entitled to conclusively rely on the non-recoverability
determination made by the Servicer.
The Servicer, the Trustee and the Fiscal Agent are each entitled to
interest on the aggregate amount of Advances made thereby with respect to a
Mortgage Loan or REO Property. Interest will accrue on each such Advance at a
per annum rate equal to the "Prime Rate" (as published in the "Money Rates"
section of The Wall Street Journal or such other publication as determined by
the Trustee in its reasonable discretion) until repaid and will generally be
payable out of late payment charges and/or default interest, if any,
collected in respect of the related Mortgage Loan or, if such amounts are
insufficient, out of any amounts on deposit in the Custodial Account at the
time such Advance is reimbursed. Pursuant to the terms of the Trust
Agreement, with respect to Advances made on all Mortgage Loans, the Fiscal
Agent will be entitled to recover all of its Advances (and interest accrued
thereon) before either the Trustee or the Servicer is entitled to recover any
of its aggregate Advances (and interest accrued thereon), and the Trustee
will be entitled to recover all of its Advances (and interest accrued
thereon) before the Servicer is entitled to recover any of its aggregate
Advances (and interest accrued thereon).
APPRAISAL REDUCTIONS
Upon the earliest of (i) the date on which any Mortgage Loan becomes a
Modified Mortgage Loan (as defined below), (ii) the 120th day (or, in the
case of a Modified Mortgage Loan, the 30th day) following the occurrence of
any uncured delinquency in Monthly Payments with respect to any Mortgage
Loan, (iii) the date on which a receiver is appointed and continues in such
capacity in respect of the Mortgaged Property securing any Mortgage Loan and
(iv) the date on which the Mortgaged Property securing any Mortgage Loan
becomes an REO Property (each such Mortgage Loan, a "Required Appraisal
Loan"),
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<PAGE>
the Special Servicer will be required to promptly obtain an appraisal of the
related Mortgaged Property from an independent MAI-designated appraiser,
unless such an appraisal had previously been obtained within the prior twelve
months. The cost of such appraisal will be paid, or reimbursed to the Special
Servicer, by a Servicing Advance of the Servicer. As a result of any such
appraisal, it may be determined that an "Appraisal Reduction Amount" exists
with respect to the related Required Appraisal Loan. The Appraisal Reduction
Amount for any Required Appraisal Loan will, in general, be an amount,
calculated as of the Determination Date immediately succeeding the date on
which the appraisal is obtained, equal to the excess, if any, of (a) the sum
of (i) the Stated Principal Balance of such Required Appraisal Loan, (ii) to
the extent not previously advanced by the Servicer, the Trustee or the Fiscal
Agent, all unpaid interest on the Required Appraisal Loan through the most
recent Due Date prior to such Determination Date at a per annum rate equal to
the related Mortgage Rate (net of any applicable Retained Yield Rate), (iii)
all related unreimbursed Advances made by or on behalf of the Servicer, the
Trustee or the Fiscal Agent with respect to such Required Appraisal Loan plus
interest accrued on such Advances at the Prime Rate and (iv) all currently
due and unpaid real estate taxes and assessments, insurance premiums, and, if
applicable, ground rents in respect of the related Mortgaged Property (or, in
the case of a Cross-Collateralized Mortgage Loan, the related Primary
Mortgaged Property) or REO Property, net of any escrow reserves held by the
Servicer or the Special Servicer with respect to any such item, over (b) 90%
of an amount equal to the appraised value (as is) of the related Mortgaged
Property (or, in the case of a Cross-Collateralized Mortgage Loan, of the
related Primary Mortgaged Property) or REO Property as determined by such
appraisal (net of any liens that are prior to the lien of such Mortgage Loan
and that do not relate to an item considered in clause (a)(iv) of this
definition).
With respect to each Required Appraisal Loan (unless such Mortgage Loan
has become a Rehabilitated Mortgage Loan (as defined herein) and has remained
current for twelve consecutive Monthly Payments, and no other Servicing
Transfer Event (as defined herein) has occurred with respect thereto during
the preceding twelve months), the Special Servicer is required, within 30
days of each anniversary of such loan's becoming a Required Appraisal Loan,
to order an update of the prior appraisal (the cost of which will be paid, or
reimbursed to the Special Servicer, by a Servicing Advance of the Servicer).
Based upon such appraisal, the Special Servicer is to redetermine and report
to the Trustee the Appraisal Reduction Amount, if any, with respect to such
Mortgage Loan.
A "Modified Mortgage Loan" is any Mortgage Loan as to which any Servicing
Transfer Event has occurred and which has been modified by the Special
Servicer in a manner that: (A) affects the amount or timing of any payment of
principal or interest due thereon (other than, or in addition to, bringing
current Monthly Payments with respect to such Mortgage Loan); (B) except as
expressly contemplated by the related Mortgage, results in a release of the
lien of the Mortgage on any material portion of the related Mortgaged
Property (or, in the case of a Cross-Collateralized Mortgage Loan, the
related Primary Mortgaged Property) without a corresponding Principal
Prepayment in an amount not less than the fair market value (as is) of the
property to be released; or (C) in the good faith judgment of the Special
Servicer, otherwise materially impairs the security for such Mortgage Loan or
reduces the likelihood of timely payment of amounts due thereon.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports
Based on information provided in monthly reports prepared by the Servicer
and the Special Servicer and delivered to the Trustee, the Trustee will
prepare and forward on each Distribution Date to each Certificateholder:
1. A statement (a "Distribution Date Statement") setting forth, among
other things: (i) the amount of distributions if any, made on such
Distribution Date to the holders of each Class of Offered Certificates
(other than the Class IO Certificates) applied to reduce the respective
Certificate Principal Amounts thereof; (ii) the amount of distributions,
if any, made on such Distribution Date to holders of each Class of Offered
Certificates allocable to (A) Distributable Certificate Interest and/or
(B) Prepayment Premiums (net of any portion thereof constituting Retained
Yield); (iii) the
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aggregate Scheduled Principal Balance of the Mortgage Pool at the close of
business on the related Determination Date and the aggregate Stated
Principal Balance of the Mortgage Pool at the close of business on such
Distribution Date; (iv) the number and aggregate principal balance of
Mortgage Loans (a) delinquent one month, (b) delinquent two or more months
or (c) as to which foreclosure proceedings have been commenced; (v) with
respect to any Mortgage Loan as to which the related Mortgaged Property
became an REO Property during the related Collection Period, the Scheduled
Principal Balance, Stated Principal Balance and unpaid principal balance
of such Mortgage Loan as of the date such Mortgaged Property became an REO
Property; (vi) as to any Mortgage Loan repurchased by the Depositor or
otherwise liquidated or disposed of during the related Collection Period,
the loan number thereof and the amount of Repurchase Proceeds, Liquidation
Proceeds and/or other amounts, if any, received thereon during the related
Collection Period and the portion thereof included in the Available
Distribution Amount for such Distribution Date; (vii) with respect to any
REO Property included in the Trust Fund as of the close of business on the
related Determination Date, the loan number of the related Mortgage Loan,
the book value of such REO Property and the amount of Net REO Income and
other amounts, if any, received on such REO Property during the related
Collection Period and the portion thereof included in the Available
Distribution Amount for such Distribution Date; (viii) with respect to any
REO Property sold or otherwise disposed of during the related Collection
Period, the loan number of the related Mortgage Loan and the amount of
sale proceeds and other amounts, if any, received in respect of such REO
Property during the related Collection Period and the portion thereof
included in the Available Distribution Amount for such Distribution Date;
(ix) the aggregate Certificate Principal Amount or Certificate Notional
Amount, as the case may be, of each Class of Offered Certificates before
and after giving effect to the distributions made on such Distribution
Date; (x) the aggregate amount of Principal Prepayments made during the
related Collection Period; (xi) the Certificate Interest Rate applicable
to each Class of Offered Certificates for such Distribution Date; (xii)
the number of outstanding Mortgage Loans and the aggregate unpaid
principal balance thereof at the close of business on the related
Determination Date; (xiii) the aggregate amount of servicing compensation
retained by or paid to the Servicer and the Special Servicer during the
related Due Period; (xiv) the amount of Realized Losses and/or Additional
Expense Losses, if any, incurred with respect to the Mortgage Loans during
the related Collection Period; and (xv) the aggregate amount of Servicing
Advances and P&I Advances outstanding which have been made by the
Servicer, the Trustee and the Fiscal Agent as of the close of business on
the related Determination Date. In the case of information furnished
pursuant to subclauses (i), (ii) and (ix) above, the amounts shall be
expressed as a dollar amount in the aggregate for all Certificates of each
applicable Class and per single Certificate of a specified minimum
denomination.
2. A report containing information regarding the Mortgage Loans as of
the end of the related Due Period and Collection 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 "DESCRIPTION OF THE MORTGAGE POOL--Additional Mortgage Loan
Information" (calculated where applicable on the basis of the most recent
relevant information provided by the borrowers to the Servicer or the
Special Servicer and by the Servicer or the Special Servicer, as the case
may be, to the Trustee) and such information shall be presented in a
tabular format substantially similar to the format utilized in this
Prospectus Supplement under such caption and a loan-by-loan listing
showing loan number, property type, location, unpaid principal balance,
Mortgage Rate, paid through date, and maturity date.
On a quarterly basis, the Special Servicer is to deliver to the Trustee,
and the Trustee is to deliver to Certificateholders, a report setting forth
the debt service coverage ratio (and the calculation thereof) with respect to
each Mortgage Loan for which the Special Servicer obtains operating
statements and the occupancy rate with respect to each Mortgaged Property for
which the Special Servicer obtains rent rolls. On a quarterly basis, the
Servicer is to deliver to the Trustee, and the Trustee is to deliver to
Certificateholders, a report setting forth certain information regarding any
repair and replacement, capital improvements and other reserve funds
maintained with respect to the Mortgage Loans.
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In addition, within a reasonable period of time after the end of each
calendar year, the Trustee is required 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) above described items 1.(i),
1.(ii) and 1.(xiii) provided to Certificateholders in the monthly
Distribution Date Statements and such other information as may be required to
enable such Certificateholders to prepare their federal income tax returns.
Such information is to include the amount of original issue discount accrued
on each Class of Offered Certificates held by persons other than holders
exempted from the reporting requirements and information regarding the
expenses of the Trust Fund.
Portfolio Performance Reports
The Servicer will prepare a monthly "Portfolio Performance Report" with
respect to the Mortgage Loans and deliver each such report to the Trustee.
The Trustee will make such report available to Certificateholders. Such
report will be prepared in part based on information provided to the Servicer
each month by the Special Servicer with respect to Specially Serviced
Mortgage Loans. Such report will set forth detailed information with respect
to the delinquency status of the Mortgage Loans, including, among other
things, the following: (i) number of days delinquent (ranging from less than
one month to over two years) and causes of servicing transfers, (ii)
delinquency status by state, including the five states with the largest
delinquency concentrations, (iii) delinquency status by property type, (iv)
delinquency status by state and property type, (v) Mortgage Loans returned to
the Servicer, with and without modifications, (vi) Mortgage Loans liquidated,
including by payment in full, discounted pay-off, sale of the Mortgage Loan,
repurchase for breach of representations and warranties and sale of REO
Property and (vii) REO Property by state and property type.
Special Servicer Reports
With respect to each Determination Date, the Special Servicer shall
prepare the following reports with respect to Specially Serviced Mortgage
Loans and REO Properties (collectively, the "Special Servicer Reports"): (i)
a report showing loan-by-loan detail on each Specially Serviced Mortgage Loan
that is 60 days delinquent, 90 days delinquent or in the process of
foreclosure, (ii) a status report for each REO Property and (iii) a
modification report showing loan-by-loan detail for each modification closed
during the most recent reporting period. The Special Servicer Reports will be
delivered to the Servicer, who will in turn deliver such reports to the
Trustee, who will distribute such reports to the Certificateholders.
Book-Entry Certificates
Until such time as Definitive Certificates are issued in respect of the
Book-Entry Certificates, the foregoing information and access thereto will be
available to the related Certificate Owners only to the extent it is
forwarded by or otherwise available through DTC and its Participants. The
manner in which notices and other communications are conveyed by DTC to
Participants, and by Participants to the 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. The Servicer, the Special
Servicer, the Trustee and the Depositor are required to recognize as
Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Certificate Registrar. Any
Certificate Owner that does not receive information through DTC or its
Participants may request that Trustee reports be mailed directly to it by
written request to the Trustee (accompanied by verification of such
Certificate Owner's ownership interest) at the Trustee's corporate trust
office.
For those who have obtained an account number on the Trustee's Automatic
Statements Accessed by Phone ("ASAP") System, Distribution Date Statements or
a summary report of bond factors may be obtained from the Trustee via
automated facsimile by placing a telephone call to (312) 904-2200 and
following the voice prompts to request "Statement No. 207". Account numbers
on the Trustee's ASAP System may be obtained by calling the same telephone
number and following the voice prompts for obtaining account numbers.
Separately, factor information may be obtained from the Trustee by placing a
telephone call to (800) 246-5761. In addition, if the Depositor so directs
the Trustee and on terms
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agreeable to the Trustee, the Trustee will make available through its
electronic bulletin board system, on a confidential basis, certain
information related to the Mortgage Loans. The bulletin board can be reached
at (714) 282-3990. Those who have an account on the bulletin board may
retrieve the loan level data file for each transaction in the directory.
Other Information
The Trust Agreement requires that the Trustee make available at its
offices primarily responsible for administration of the Trust Fund, during
normal business hours, for review by any holder of an Offered Certificate,
any Certificate Owner in respect of an Offered Certificate (provided that
such Certificate Owner provides verification of its ownership interest), or
any other Person to whom the Trustee believes such disclosure is appropriate,
originals or copies of, among other things, the following items (except to
the extent prohibited by applicable law or by the terms of any of the
Mortgage Loan documents) that are in the Trustee's possession: (i) the Trust
Agreement, the Servicing Agreement and the Special Servicing Agreement and
any amendments thereto, (ii) all Distribution Date Statements delivered to
holders of the relevant Class of Offered Certificates since the Closing Date,
(iii) all annual officer's certificates and accountants' reports delivered by
the Servicer and the Special Servicer to the Trustee since the Closing Date
regarding compliance with the relevant agreements (see "SERVICING OF MORTGAGE
LOANS--Evidence as to Compliance" in the Prospectus), (iv) the most recent
property inspection report prepared by or on behalf of the Special Servicer
in respect of each Mortgaged Property, (v) the most recent quarterly and
annual operating statements and most recent rent rolls, if any, collected by
the Special Servicer with respect to each Mortgaged Property, (vi) any and
all modifications, waivers and amendments of the terms of a Mortgage Loan
entered into by the Servicer and/or the Special Servicer, and (vii) any and
all officers' certificates and other evidence delivered to the Trustee to
support the Servicer's, Trustee's or Fiscal Agent's determination that any
Advance was or, if made, would be a Nonrecoverable Advance. Copies of any and
all of the foregoing items will be available from the Trustee upon request;
however, the Trustee will be permitted to require payment of a sum sufficient
to cover the reasonable costs and expenses of providing such copies.
ASSUMED FINAL DISTRIBUTION DATE; RATED FINAL DISTRIBUTION DATE
The "Assumed Final Distribution Date" with respect to any Class of Regular
Interest Certificates is the Distribution Date on which the aggregate
Certificate Principal Amount or aggregate Certificate Notional Amount, as the
case may be, of such Class of Certificates would be reduced to zero based on
the assumption that no Mortgage Loan is voluntarily prepaid prior to its
stated maturity date and otherwise based on the "Mortgage Loan Assumptions"
set forth under "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS--Weighted
Average Life" herein, which Distribution Date shall in each case be as
follows:
CLASS DESIGNATION ASSUMED FINAL DISTRIBUTION DATE
- --------------------- -----------------------------------
Class A ..............
Class IO .............
Class B ..............
Class C ..............
Class D ..............
Class E ..............
Class F ..............
Class G ..............
Class H ..............
Class J ..............
The Assumed Final Distribution Dates set forth above were calculated
without regard to any delays in the collection of Balloon Payments and
without regard to a reasonable liquidation time with respect to any Mortgage
Loans that may be delinquent. 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).
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In addition, the Assumed Final Distribution Dates set forth above were
calculated on the basis of a 0% CPR and no losses on the Mortgage Loans.
Because the rate of principal payments (including prepayments) on the
Mortgage Loans can be expected to exceed the scheduled rate of principal
payments, and could exceed such scheduled rate by a substantial amount, and
because losses may occur in respect of the Mortgage Loans, 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 principal 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 principal
payment experience. See "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" and
"DESCRIPTION OF THE MORTGAGE POOL" herein and "YIELD AND PREPAYMENT
CONSIDERATIONS" in the Prospectus.
The "Rated Final Distribution Date" with respect to each Class of Offered
Certificates (other than the Class IO Certificates) is October 25, 2026, the
first Distribution Date that follows the end of the amortization term for the
Mortgage Loan that, as of the Cut-off Date, has the longest remaining
amortization term. The rating assigned by a Rating Agency to any Class of
Offered Certificates entitled to receive distributions in respect of
principal reflects an assessment of the likelihood that Certificateholders of
such Class will receive, on or before the Rated Final Distribution Date, all
principal distributions to which they are entitled. See "CERTIFICATE RATING"
herein.
OPTIONAL TERMINATION
The holders of the Class R-III Certificates and the Servicer will each
have the option to purchase, in whole but not in part, the Mortgage Loans and
any REO Properties remaining in the Trust Fund on any date on which the
aggregate Certificate Principal Amount of the Sequential Pay Certificates
then outstanding is less than or equal to 5% of the initial aggregate
Certificate Principal Amount thereof. Such purchase will be at a price (the
"Termination Price") generally equal to the greater of (i) 100% of the
aggregate unpaid principal balance of the Mortgage Loans (other than Mortgage
Loans as to which the related Mortgaged Property has become an REO Property),
plus accrued and unpaid interest on each such Mortgage Loan at the related
Mortgage Rate (net of any applicable Retained Yield Rate) to the Due Date for
such Mortgage Loan in the Collection Period of purchase and all related
unreimbursed Servicing Advances, and the fair market value of any REO
Property remaining in the Trust Fund, and (ii) the fair market value of all
such Mortgage Loans and REO Properties remaining in the Trust Fund. The
optional termination of the Trust must be conducted so as to constitute a
"qualified liquidation" of the Trust under Section 860F of the Code. Upon any
such termination, the purchase price for the Mortgage Loans and any REO
Properties remaining in the Trust Fund (net of any portion of such purchase
price that is allocable to cover the items described in clause (a)(v) of the
definition of "Available Distribution Amount" set forth under
"--Distributions--The Available Distribution Amount" above) will be applied
to pay the outstanding Classes of Offered Certificates generally in the
manner provided under "--Distributions--Application of the Available
Distribution Amount" above, except that, subject to available funds,
distributions of principal on the respective Classes of Sequential Pay
Certificates will be made, in each such case, until the aggregate Certificate
Principal Amount of such Class is reduced to zero and without regard to any
Principal Payment Amount. Notice of any optional termination must be mailed
by the Trustee at least ten days prior to the date set for optional
termination.
ANY SUCH TERMINATION WOULD RESULT IN RETIREMENT OF THE CERTIFICATES AND
WOULD HAVE AN ADVERSE EFFECT ON THE YIELD OF ANY OUTSTANDING CLASS IO
CERTIFICATES AND ANY OTHER OUTSTANDING CERTIFICATES PURCHASED AT A PREMIUM,
BECAUSE A TERMINATION WOULD HAVE THE SAME EFFECT AS A PREPAYMENT IN FULL OF
THE MORTGAGE LOANS. SEE "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS"
HEREIN.
VOTING RIGHTS; LISTS OF CERTIFICATEHOLDERS
At all times during the term of the Trust Agreement, 100% of the voting
rights for the series offered hereby (the "Voting Rights") will be allocated
among the various Classes of Sequential Pay Certificates in proportion to the
respective aggregate Certificate Principal Amounts of those Classes, and none
of the Voting Rights will be allocated among the Class IO Certificates and
Residual Interest Certificates. Voting
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Rights allocated to a Class of Certificates will be allocated among the
related Certificateholders in proportion to the Percentage Interests in such
Class evidenced by their respective Certificates.
If three or more Certificateholders (hereinafter referred to as
"applicants," with a single person which (together with its affiliates) is
the holder of more than one Class of Certificates being viewed as a single
"applicant" for these purposes) apply in writing to the Trustee, and such
application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under the Trust Agreement or
under the Certificates and is accompanied by a copy of the communication
which such applicants propose to transmit, then the Trustee is required,
within five Business Days after the receipt of such application, to send, at
the applicants' expense, the written communication proffered by the
applicants to all Certificateholders at their addresses as they appear in the
Certificate Register.
AMENDMENT
The Trust Agreement may be amended from time to time by the parties
thereto (and the Trustee may agree to any amendment of the Servicing
Agreement or the Special Servicing Agreement), without notice to or the
consent of any of the Certificateholders, (i) to cure any ambiguity in the
Trust Agreement (or in the Servicing Agreement or the Special Servicing
Agreement), (ii) to cause the provisions in the Trust Agreement (or in the
Servicing Agreement or the Special Servicing Agreement) to conform to or be
consistent with or in furtherance of the statements made with respect to the
Certificates, the Trust Fund or the Trust Agreement (or with respect to the
Servicing Agreement or the Special Servicing Agreement) in this Prospectus
Supplement or the Prospectus, or to correct or supplement any provision in
the Trust Agreement (or in the Servicing Agreement or the Special Servicing
Agreement) which may be inconsistent with any other provisions in the Trust
Agreement (or in the Servicing Agreement or the Special Servicing Agreement),
(iii) to amend any provision of the Trust Agreement (or of the Servicing
Agreement or the Special Servicing Agreement) to the extent necessary or
desirable to maintain the status of each of REMIC I, REMIC II and REMIC III
as a REMIC for the purposes of federal income tax law or comparable
provisions of state income tax law, or (iv) to make any other provisions with
respect to matters or questions arising under or with respect to the Trust
Agreement (or under or with respect to the Servicing Agreement or the Special
Servicing Agreement); provided that no such amendment effected (or agreed to
by the Trustee) pursuant to clause (iv) of the preceding sentence shall (i)
adversely affect in any material respect the interests of any
Certificateholder not consenting thereto or (ii) adversely affect the status
of any of REMIC I, REMIC II or REMIC III as a REMIC. Any such amendment will
be deemed not to adversely affect in any material respect any holder of a
rated Certificate of any particular Class if the Trustee receives written
confirmation from each Rating Agency that such amendment will not cause such
Rating Agency to reduce, qualify or withdraw the then current rating assigned
to such Class.
The Trust Agreement may also be amended from time to time by the parties
thereto (and the Trustee may agree to any amendment of the Servicing
Agreement or the Special Servicing Agreement) with the consent of the holders
of Certificates entitled to not less than 66 2/3% of the Voting Rights, for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Trust Agreement (or of the Servicing
Agreement or the Special Servicing Agreement) or of modifying in any manner
the rights of the Certificateholders; provided that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, payments received
on the Mortgage Loans which are required to be distributed on any Certificate
without the consent of the holder of such Certificate, (ii) reduce the
aforesaid percentages of Voting Rights, the holders of which are required to
consent to any such amendment, without the consent of all the
Certificateholders, or (iii) adversely affect the status of any of REMIC I,
REMIC II or REMIC III as a REMIC for federal income tax purposes.
THE TRUSTEE
LaSalle National Bank ("LaSalle") will act as Trustee of the Trust.
LaSalle is a subsidiary of LaSalle National Corporation which is a subsidiary
of the Fiscal Agent. The Trustee is at all times to be, and will be required
to resign if it fails to be, (i) an institution insured by the FDIC, (ii) a
corporation, national bank or national banking association, organized and
doing business under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers,
having a
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combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by federal or state authority and (iii) an
institution whose long-term senior unsecured debt is rated either (A) if a
fiscal agent is then currently in place, not less than (1) if ABN AMRO Bank,
N.V. ("ABN AMRO") is the Fiscal Agent, (a) "Baa2" by Moody's and (b) "A-" by
Fitch or another nationally recognized statistical rating organization (other
than Moody's), or (2) if ABN AMRO and LaSalle are then no longer the Fiscal
Agent and Trustee, respectively, (a) "Baa2" by Moody's, (b) "BBB" by DCR and
(c) "A-" by Fitch or (B) if a fiscal agent is not then in place, not less
than "Aa2" by Moody's and "AA" by each of Fitch and DCR (or, in the case of
each of clause (iii)(A) and (iii)(B), such other lower rating by any Rating
Agency as would not, as evidenced in writing by such Rating Agency, adversely
affect any of the ratings then assigned thereby to the Certificates). The
corporate trust office of the Trustee responsible for administration of the
Trust (the "Corporate Trust Office") is located at 135 South LaSalle Street,
Suite 1740, Chicago, Illinois 60674-4107 Attention: Asset-Backed Securities
Trust Services--LB Mortgage Trust II, Series 1996-C2. As of December 31,
1995, the Trustee had assets of approximately $15 billion.
The Trustee may be removed by the holders of Certificates entitled to more
than 50% of the Voting Rights, for cause, upon 30 days' written notice to the
Trustee and the Depositor. However, (i) removal of the initial Trustee will
automatically result in the simultaneous removal of the initial Fiscal Agent
and (ii) upon the resignation or removal of any subsequent Trustee, the
Depositor may in its sole discretion remove the then current Fiscal Agent
without cause.
As compensation for the performance of its duties, the Trustee will be
paid a monthly fee (the "Trustee Fee"), out of general collections on the
Mortgage Loans, equal to one month's interest (calculated on the basis of a
360-day year consisting of twelve 30-day months) at 0.01% per annum (the
"Trustee Fee Rate") accrued on the aggregate Scheduled Principal Balance of
the Mortgage Pool as of the commencement of each Due Period. The Trustee
shall also be entitled to recover from the Trust Fund all reasonable
unanticipated expenses and disbursements incurred or made by the Trustee in
accordance with any of the provisions of the Trust Agreement, the Servicing
Agreement and the Special Servicing Agreement (including the reasonable
compensation and the reasonable expenses and disbursements of its counsel and
for all persons not regularly in its employ), but not including expenses
incurred in the ordinary course of performing its duties as Trustee under
such agreements, and except any such expense, disbursement or advance as may
arise from its negligence, bad faith or willful misconduct or which is the
specific responsibility of the Trustee under such agreements.
The Trustee and each of its directors, officers, employees or agents shall
be entitled to indemnification from the Trust Fund out of the Custodial
Account for any loss, liability or expense incurred without negligence, bad
faith or willful misconduct on their part, arising out of, or in connection
with, the acceptance or administration of the trusts created under the Trust
Agreement, the Servicing Agreement or the Special Servicing Agreement in
accordance with the terms thereof (including, without limitation, any loss,
liability or expense incurred in connection with any action or inaction of
the Servicer pursuant to the Trust Agreement or the Servicing Agreement or of
the Special Servicer pursuant to the Trust Agreement or the Special Servicing
Agreement), including the costs and expenses of defending themselves against
any related claims; provided that:
(i) with respect to any such claim, the Trustee shall have given the
Depositor and the holders of the Certificates written notice thereof
promptly after the Trustee shall have knowledge thereof (except that
failure to give such notice will not affect the Trustee's rights to
indemnification unless the Depositor's or Certificateholders' defense of
such claim is materially prejudiced thereby);
(ii) while maintaining control over its own defense, the Trustee is to
cooperate and consult fully with the Depositor in preparing such defense;
and
(iii) the Trust Fund will not be liable for settlement of any such claim
by the Trustee entered into without the prior consent of the Depositor,
which consent is not to be unreasonably withheld.
The Trustee will not be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its duties as Trustee in
accordance with the Trust Agreement, the Servicing Agreement and/or the
Special Servicing Agreement (and, if it does, all legal expenses and costs of
such action will be
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expenses and costs of the Trust). The Trustee will not be required to expend
its own funds or otherwise incur any financial liability in the performance
of its duties if it has reasonable grounds for believing that repayment of
such funds or adequate indemnity against such liability is not assured to it.
The Trustee will be responsible for various tax-related administrative
duties in respect of the Trust.
See "THE TRUST AGREEMENT--The Trustee", "--Duties of the Trustee" and
"--Resignation of the Trustee" in the Prospectus.
THE FISCAL AGENT
ABN AMRO Bank, N.V., a Netherlands banking corporation and the corporate
parent of the Trustee, will act as Fiscal Agent for the Trust and will be
obligated to make any Advance required to be made, and not made, by the
Servicer and the Trustee under the Trust Agreement, the Servicing Agreement
or the Special Servicing Agreement, provided that the Fiscal Agent will not
be obligated to make any Advance that it deems to be a Nonrecoverable
Advance. The Fiscal Agent will be entitled (but not obligated) to rely
conclusively on any determination by the Servicer or the Trustee that an
Advance, if made, would be a Nonrecoverable Advance. The Fiscal Agent will be
entitled to reimbursement for each Advance made by it in the same manner and
to the same extent as, but prior to, the Servicer and the Trustee. The Trust
Agreement will provide that, in the event that the Fiscal Agent fails to make
a required Advance or upon the occurrence of certain other events of default
specified in the Trust Agreement, the Depositor or the Trustee may, and at
the direction of the holders of Certificates evidencing aggregate Voting
Rights of at least 25% the Trustee shall, remove the Fiscal Agent. See
"--Advances" above.
The Fiscal Agent may not resign its obligations and duties under the Trust
Agreement except upon determination that it may no longer perform such
obligations and duties under applicable law or such obligations and duties
are in material conflict by reason of applicable law with any other
activities carried on by it. Any such determination is required to be
evidenced by an opinion of counsel to such effect delivered to the Depositor
and the Trustee. The Fiscal Agent may also resign from its obligations and
duties under the Trust Agreement at any time after October 31, 1997, upon
reasonable notice to the Trustee, provided that (i) a successor fiscal agent
is (A) available, and (B) willing to assume the obligations,
responsibilities, and covenants to be performed by the Fiscal Agent on
substantially the same terms and conditions, and for not more than equivalent
compensation, (ii) the Fiscal Agent bears all costs associated with such
resignation, (iii) the successor fiscal agent has a long-term debt rating of
at least "Aa2" from Moody's and "AA" from each of Fitch and DCR, (iv) the
successor fiscal agent is approved by the Depositor and the Trustee, and (v)
the Rating Agencies shall have confirmed in writing that the appointment of
such successor fiscal agent will not adversely affect the ratings on the
Certificates that are then rated.
Upon any resignation or removal of the Fiscal Agent, the Trustee will be
required to designate a successor thereto whose appointment will not
adversely affect the ratings on the Certificates then rated, unless (i) there
is a successor fiscal agent already provided for in accordance with the
proviso to the last sentence of the preceding paragraph or (ii) the long-term
senior unsecured debt of the Trustee is rated at least "Aa2" by Moody's and
"AA" by each of Fitch and DCR (or such other lower rating by any Rating
Agency as would not, as evidenced in writing by such Rating Agency, adversely
affect any of the ratings then assigned thereby to the Certificates). Except
under the circumstances described in clause (ii) of the preceding sentence,
no resignation or removal of the Fiscal Agent shall become effective until a
successor fiscal agent acceptable to each Rating Agency, as evidenced in
writing, shall have assumed the Fiscal Agent's obligations and duties under
the Trust Agreement.
The Trustee will be responsible for payment of the compensation of the
Fiscal Agent. In addition, the Fiscal Agent will be entitled to recover from
the Trust Fund all reasonable unanticipated expenses and disbursements
incurred or made by the Fiscal Agent in accordance with any of the provisions
of the Trust Agreement, the Servicing Agreement and the Special Servicing
Agreement (including the reasonable compensation and the reasonable expenses
and disbursements of its counsel and for all persons not regularly in its
employ), but not including expenses incurred in the ordinary course of
performing its
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duties as Fiscal Agent under such agreements, and except any such expense,
disbursement or advance as may arise from its negligence, bad faith or
willful misconduct or which is the specific responsibility of the Fiscal
Agent under such agreements.
Neither the Fiscal Agent nor any of the directors, officers, employees or
agents of the Fiscal Agent will be under any liability to the
Certificateholders, the Depositor or the Trustee for any action taken or for
refraining from the taking of any action in good faith pursuant to the Trust
Agreement, the Servicing Agreement or the Special Servicing Agreement, or for
errors in judgment; provided that neither the Fiscal Agent nor any such
person will be protected against any breach of a representation or warranty
contained in the Trust Agreement or any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in its
performance of duties or by reason of reckless disregard for its obligations
and duties under the Trust Agreement, the Servicing Agreement or the Special
Servicing Agreement. The Fiscal Agent and any director, officer, employee or
agent of the Fiscal Agent may rely in good faith on any document of any kind
prima facie properly executed and submitted by any person respecting any
matters arising under the Trust Agreement. The Fiscal Agent will not be under
any obligation to appear in, prosecute or defend any legal action which is
not incidental to its duties with respect to the Mortgage Loans and any REO
Properties in accordance with the Trust Agreement, the Servicing Agreement or
the Special Servicing Agreement.
The Fiscal Agent and each of its directors, officers, employees or agents
shall be entitled to indemnification from the Trust Fund out of the Custodial
Account for any loss, liability or expense incurred without negligence, bad
faith or willful misconduct on their part, arising out of, or in connection
with, the performance of their duties under the Trust Agreement, the
Servicing Agreement or the Special Servicing Agreement, including the costs
and expenses of defending themselves against any related claims; provided
that:
(i) with respect to any such claim, the Fiscal Agent shall have given the
Depositor and the holders of the Certificates written notice thereof
promptly after the Fiscal Agent shall have knowledge thereof (except that
failure to give such notice will not affect the Fiscal Agent's rights to
indemnification unless the Depositor's or the Certificateholders' defense
of such claim is materially prejudiced thereby);
(ii) while maintaining control over its own defense, the Fiscal Agent is
to cooperate and consult fully with the Depositor in preparing such
defense; and
(iii) the Trust Fund will not be liable for settlement of any such claim
by the Fiscal Agent entered into without the prior consent of the
Depositor, which consent is not to be unreasonably withheld.
As of December 31, 1995, the Fiscal Agent had assets of approximately $340
billion.
THE CUSTODIAL AND COLLECTION ACCOUNTS
The "Custodial Account" for the Trust will be established by the Servicer
in the name of the Trustee in an account or accounts as described in the
Trust Agreement (each, an "Eligible Account") that are either (i) maintained
with a depository institution, under terms and conditions which will not
adversely affect the ratings of the Certificates by any Rating Agency or (ii)
a segregated trust account. The Servicer will deposit in the Custodial
Account on the Business Day following the day of receipt or identification
thereof all payments and other collections received with respect to the
Mortgage Loans after the Cut-off Date (other than payments of principal and
interest due on or before the Cut-off Date and other than Retained Yield),
and will be permitted to make withdrawals therefrom as set forth in the
Servicing Agreement. See "SERVICING OF MORTGAGE LOANS" in the Prospectus.
Funds in the Custodial Account may be invested and, if invested, will be
invested in the name of the Trustee (in its capacity as such) in Eligible
Investments specified in the Trust Agreement and generally described in the
Prospectus that mature not later than the Business Day preceding each
Distribution Date and may not be sold or disposed of prior to its maturity.
All income and gain realized from any such investments will accrue to the
benefit of the Servicer, as additional servicing compensation, and will be
subject to withdrawal from time to time. Likewise, all losses realized from
any such investments will be borne by the Servicer.
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The "Collection Account" for the Trust will be established by the Trustee
in an Eligible Account or Accounts. No later than the Business Day preceding
each Distribution Date (the "Servicer Remittance Date"), the net collections
and P&I Advances on or in respect of the Mortgage Loans and any REO
Properties then on deposit in the Custodial Account that constitute part of
the Available Distribution Amount for such Distribution Date, together with
certain other limited amounts then payable to the Trustee and any Prepayment
Premiums, net of any portion thereof constituting Retained Yield, collected
during the related Collection Period, are to be remitted by the Servicer to
the Trustee for deposit into the Collection Account. On each Distribution
Date, the Trustee will withdraw all amounts in the Collection Account and,
after paying fees and expenses described in the Trust Agreement, will make
the payments on the Certificates described herein. Funds in the Collection
Account may not be invested.
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DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of 111 conventional, fixed rate, first
lien, monthly-pay commercial and multifamily mortgage loans (the "Mortgage
Loans") with an aggregate Cut-off Date Balance of $404,309,352.93 (the
"Initial Pool Balance"). The "Cut-off Date Balance" of any Mortgage Loan is
the unpaid principal balance thereof as of October 1, 1996 (the "Cut-off
Date"), after application of all payments due on such Mortgage Loan on or
before such date, whether or not received. All percentages of the Mortgage
Loans, or of any specified group of Mortgage Loans, referred to herein
without further description are approximate percentages by aggregate Cut-off
Date Balance. References to percentages of Mortgaged Properties are
references to the percentages of the Initial Pool Balance represented by the
aggregate Cut-off Date Balance of the related Mortgage Loans. All statistical
information provided herein with respect to the Mortgage Pool is provided on
an approximate basis.
Except as otherwise described below with respect to Cross-Collateralized
Mortgage Loans, each Mortgage Loan is evidenced by a promissory note (a
"Mortgage Note") and secured by a mortgage, deed of trust or other similar
security instrument (a "Mortgage") that creates a first mortgage lien on a
borrower's fee simple estate in an income-producing real property (each, a
"Mortgaged Property"). Forty-nine Mortgage Loans, representing 33.77% of the
Initial Pool Balance, are secured by multifamily apartment properties; 33
Mortgage Loans, representing 31.25% of the Initial Pool Balance, are secured
by hotel properties; 23 Mortgage Loans, representing 30.28% of the Initial
Pool Balance, are secured by retail properties; two Mortgage Loans,
representing 1.54% of the Initial Pool Balance, are secured by office
properties; two Mortgage Loans, representing 1.24% of the Initial Pool
Balance, are secured by assisted living/congregate care properties; one
Mortgage Loan, representing 1.14% of the Initial Pool Balance, is secured by
a mobile home park; and one Mortgage Loan, representing 0.79% of the Initial
Pool Balance, is secured by a self-storage facility.
The Mortgage Loans are secured by mortgage liens on Mortgaged Properties
located throughout 33 states and the District of Columbia, including Georgia
(15 Mortgage Loans, representing 12.37% of the Initial Pool Balance), Florida
(11 Mortgage Loans, representing 9.90% of the Initial Pool Balance),
California (seven Mortgage Loans, representing 9.27% of the Initial Pool
Balance) and New Jersey (seven Mortgage Loans, representing 8.84% of the
Initial Pool Balance).
Three groups (each, a "Group") of Mortgage Loans (the
"Cross-Collateralized Mortgage Loans"), representing 4.16%, 3.16% and 1.16%,
respectively, of the Initial Pool Balance, are, solely as among the Mortgage
Loans in each such particular Group, cross-defaulted and
cross-collateralized. In the case of two of the three Groups of
Cross-Collateralized Mortgage Loans, the aggregate unpaid principal amount of
the entire Group is evidenced by a single Mortgage Note and secured by first
mortgage liens on the borrowers' respective fee simple interests in three or
more Mortgaged Properties. In such cases, a portion of such aggregate unpaid
principal amount has been allocated to each such Mortgaged Property (as to
such allocated portion, the "Primary Mortgaged Property"), and such allocated
portion is for purposes of this Prospectus Supplement and the Trust Agreement
deemed to be a separate Mortgage Loan. In the case of the third Group of
Cross-Collateralized Mortgage Loans, each Mortgage Loan in such Group is
evidenced by a separate Mortgage Note, and the Mortgage on each related
Mortgaged Property reflects that it is intended as security for each of the
Mortgage Loans in such Group; provided that for purposes of this Prospectus
Supplement and the Trust Fund, each of the related Mortgaged Properties has
been designated as the "Primary Mortgaged Property" for one of the Mortgage
Loans in such Group. See "RISK FACTORS--The Mortgage Loans--Limitations on
Enforceability of Cross-Collateralization" herein. Unless the context
otherwise requires, references herein to "related Mortgaged Property" (or
"related REO Property") are, in the case of a Cross-Collateralized Mortgaged
Loan, references to the Mortgaged Property that is (or the REO Property that
was) designated as the Primary Mortgaged Property for such Mortgage Loan, and
references to "related Mortgage Loan" or "related Cross-Collateralize
Mortgage Loan" are, in the case of a Mortgaged Property that secures (or an
REO Property that secured) a Group of Cross-Collateralized Mortgage Loans,
references to the Mortgage Loan as to which such Mortgaged Property has (or
such REO Property had) been designated as the Primary
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Mortgaged Property. Except where otherwise specifically indicated,
statistical information provided herein and in Annex A hereto with respect to
the Cross-Collateralized Mortgage Loans is so provided without regard to the
cross-collateralization, and each Cross-Collateralized Mortgage Loan will be
deemed to be secured only by a mortgage lien on the related Primary Mortgaged
Property.
None of the Mortgage Loans were 30 days or more delinquent as of the
Cut-off Date, and no Mortgage Loan has been 30 days or more delinquent during
the 12 months preceding the Cut-off Date or, if originated during such
12-month period, since origination.
MORTGAGE LOAN HISTORY
Seven Mortgage Loans, representing 14.33% of the Initial Pool Balance,
were originated by the Seller; 81 Mortgage Loans, representing 65.82% of the
Initial Pool Balance, were originated by Seller-approved conduit originators
utilizing the Seller's commercial conduit program guidelines; and 23 Mortgage
Loans, representing 19.85% of the Initial Pool Balance, were purchased from
unaffiliated third-party originators in the secondary mortgage market.
Ninety-five Mortgage Loans, representing 85.45% of the Initial Pool Balance,
were originated subsequent to October 1, 1995. The remaining 16 Mortgage
Loans were originated prior to September 30, 1995 but subsequent to November
4, 1994. The Mortgage Loans purchased by the Seller in the secondary mortgage
market were re-underwritten by the Seller to confirm substantial compliance
with the Seller's underwriting guidelines.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans bear
interest at Mortgage Rates that will remain fixed for their remaining terms.
All of the Mortgage Loans accrue interest on the basis of a 360-day year
consisting of twelve 30-day months.
Due Dates. The Mortgage Loans have Due Dates (that is, the dates upon
which the related Monthly Payments first become due) that occur on the first
day of each month.
Amortization. Sixteen of the Mortgage Loans, representing 9.85% of the
Initial Pool Balance, are self-amortizing. The remaining Mortgage Loans
provide for Monthly Payments based on amortization schedules significantly
longer than their terms to maturity, thereby leaving Balloon Payments due and
payable on their respective maturity dates, unless prepaid prior thereto. See
"RISK FACTORS--The Mortgage Loans--Balloon Payments at Maturity and Extension
of Maturity" herein.
Prepayment Provisions. As of the Cut-off Date, all of the Mortgage Loans,
restrict or prohibit voluntary principal prepayment. In general, as of the
Cut-off Date those Mortgage Loans either (i) permit voluntary prepayments of
principal provided that the prepayment is accompanied by an additional amount
(a "Prepayment Premium") in excess of the amount prepaid (83 Mortgage Loans,
representing approximately 76.1% of the Initial Pool Balance) or (ii)
prohibit voluntary prepayments of principal for a period (a "Lock-out
Period") ending on a date specified in the related Mortgage Note and require
that prepayments made thereafter be accompanied by a Prepayment Premium (28
Mortgage Loans, representing approximately 23.9% of the Initial Pool
Balance). Prepayment Premiums are generally calculated either: (a) as the
greater of (x) 1.0% of the amount prepaid and (y) the result of a "treasury"
yield maintenance formula (99 Mortgage Loans, representing approximately
87.0% of the Initial Pool Balance); or (b) in the case of certain Mortgage
Loans, after the expiration of a period during which the calculation
described in clause (a) is in effect, as a specified percentage (which
generally declines to 1% over the remaining loan term) of the amount prepaid
(12 Mortgage Loans, representing approximately 13.0% of the Initial Pool
Balance). In general, each Mortgage Loan permits a Principal Prepayment in
full (and, in certain cases, in part) to be made without payment of any
Prepayment Premium during the six-month period preceding its stated maturity
date (except in the case of eight Mortgage Loans secured by hotel properties,
representing 9.56% of the Initial Pool Balance, each of which has an original
term to maturity of seven, 15, 20 or 23 years, and which generally require
for the first six, 12 or 15 years of the loan term that permitted Principal
Prepayments be accompanied by a Prepayment Premium based on a "treasury"
yield maintenance formula and do not require any Prepayment Premium for the
remainder of the loan term).
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In the case of two of the three Groups of Cross-Collateralized Mortgage
Loans, representing 4.16% and 3.16% of the Initial Pool Balance,
respectively, the related Mortgage Loan documents provide that any one or
more of the individual hotels constituting the Mortgaged Properties for each
such Group may be released from the lien of the related Mortgage provided
that certain specified conditions are met, including the payment by the
related borrower to the lender of, among other specified amounts, an amount
equal to 125% of the portion of the aggregate unpaid principal amount of the
related debt that has been allocated to each of the Mortgaged Properties to
be released, together with the applicable Prepayment Premium.
One Mortgage Loan, which represents 1.88% of the Initial Pool Balance, in
addition to having one of the versions of prepayment provisions described
above, provides for the deposit in escrow of $600,000 of the Mortgage Loan
proceeds in connection with three leases of space at the related Mortgaged
Property. As certain leasing criteria are met with respect to each such
lease, a specified percentage of the escrowed funds is to be disbursed to the
borrower. In the event that such criteria are not met with respect to one or
more of such leases by July 31, 1997, the remaining undisbursed escrowed
proceeds are to be applied as a partial Principal Prepayment of the Mortgage
Loan during what would otherwise be the related Lockout Period; provided that
such Principal Prepayment is required to be accompanied by the applicable
Prepayment Premium, for which funds have not been escrowed.
The "treasury" yield maintenance formula referred to in the preceding
paragraph as being used in the calculation of Prepayment Premiums will
generally be equal to the present value of a series of payments each equal to
the Payment Differential (hereinafter defined) and payable on each monthly
payment date over the remaining original term of the Mortgage Loan being
prepaid discounted at the Treasury Yield (hereinafter defined) for the number
of months remaining from the date of prepayment to each such monthly payment
date through the maturity date. The term "Treasury Yield" as used herein will
generally be equal to the yield on the U.S. Treasury issue (primary issue)
with a maturity date closest to the maturity date of the Mortgage Loan being
prepaid, with such yield being based on the bid price for such issue as
published in or otherwise made available from a specified source) on the date
that is a specified number of days prior to the date of prepayment and
converted to a monthly compounded nominal yield. The term "Payment
Differential" as used herein will generally be equal to (x) the Mortgage Rate
minus the Treasury Yield, divided by (y) 12 and multiplied by (z) the amount
being prepaid.
The table set forth below indicates for each of the specified prepayment
provisions the portion of the Mortgage Pool (expressed as a percentage of the
Initial Pool Balance) to which such provision is applicable as of the first
day of each of the specified months based on the assumption that no Mortgage
Loan is voluntarily prepaid prior to its stated maturity date and otherwise
based on the "Mortgage Loan Assumptions" set forth under "YIELD, PREPAYMENT
AND MATURITY CONSIDERATIONS--Weighted Average Life" herein.
PREPAYMENT PROVISIONS
<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF % OF % OF % OF % OF % OF % OF % OF
POOL POOL POOL POOL POOL POOL POOL POOL POOL POOL POOL POOL
NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1 NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1, NOV. 1,
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOP (1) ....... 23.9% 10.6% 7.4% 3.6% 1.5% 0.8% 0.8% -- -- -- -- --
TYM (2) ....... 76.1% 89.4% 92.6% 96.4% 98.5% 94.7% 78.6% 56.0% 55.9% 39.0% 11.5% 11.5%
5% of PP(3) ... -- -- -- -- -- -- -- -- -- -- 1.9% --
4% of PP ...... -- -- -- -- -- -- -- -- -- -- -- 1.9%
3% of PP ...... -- -- -- -- -- -- -- 3.3% -- -- -- --
2% of PP ...... -- -- -- -- -- -- -- -- 3.3% -- -- --
1% of PP ...... -- -- -- -- -- 3.3% 3.3% 3.3% 3.3% 1.8% -- --
None (4) ...... -- -- -- -- -- 1.2% 10.9% -- 0.1% 16.4% -- --
Loans Matured . -- -- -- -- -- -- 6.4% 37.4% 37.4% 42.8% 86.6% 86.6%
------- ------ ------- ------ ------ ------ ------ ----- ----- ----- ----- ------
Total ......... 100% 100% 100% 100 100% 100% 100% 100% 100% 100% 100% 100%
======= ====== ======= ====== ====== ====== ====== ===== ===== ===== ===== ======
</TABLE>
- ------------
(1) LOP: Lock-out Period
(2) TYM: Prepayment Premium based on a "treasury" yield maintenance
formula.
(3) PP: Principal Prepayment
(4) None: No prepayment restriction
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If and to the extent collected, Prepayment Premiums, net of any portion
thereof constituting Retained Yield, will be distributed among the holders of
the respective Classes of Certificates as described herein under "DESCRIPTION
OF THE CERTIFICATES--Distributions--Distributions of Prepayment Premiums".
The Depositor makes no representation as to the enforceability of the terms
of any Mortgage Note requiring the payment of a Prepayment Premium, or as to
the collectability of any Prepayment Premium. See "RISK FACTORS--The Mortgage
Loans--Prepayment Premiums" herein.
Non-recourse Obligations. Substantially all of the Mortgage Loans are
non-recourse obligations of the related borrowers and, upon any such
borrower's default in the payment of any amount due under the related
Mortgage Loan, the holder thereof may look only to the Mortgaged Property or
Properties securing such loan for satisfaction of the borrower's obligations.
In addition, in those cases where recourse to a borrower or guarantor is
purportedly permitted, the Depositor has not undertaken an evaluation of the
financial condition of any such person (which in some cases may itself be a
limited recourse entity), and prospective investors should thus consider all
of the Mortgage Loans to be non-recourse.
Servico Cash Management System. In the case of six of the Servico Mortgage
Loans (the "Servico Cash Management Mortgage Loans"), which represent in the
aggregate approximately 5.56% of the Initial Pool Balance, the related
borrowers (each, a "Servico Participating Borrower") participate in a single
centralized "cash management" system (the "System") that is maintained by
Servico, Inc. ("Servico"), which wholly owns each of the Servico
Participating Borrowers. Pursuant to the terms of a cash management agreement
(as amended, the "Cash Management Agreement"), the manager (the "Servico
Manager") of the related Mortgaged Properties is required to deposit cash
receipts and credit card receivables from the operation of such Mortgaged
Properties into one or more accounts (each, a "Servico Account") in the name
of Servico. Under the System, cash receipts and credit card receivables from
the operation of properties that are owned by affiliates of Servico other
than the Servico Participating Borrowers (each, a "Non-Borrower Participant")
also are deposited into the Servico Accounts, together with other receipts of
the Servico Manager and Servico. The Cash Management Agreement provides for
the pooling of net income from all participating entities and the payment of
operating expenses on a collective basis (although property specific
accounting is to be maintained). Accordingly, at any given time, a
participant in the System may have paid more or less into the System than it
has withdrawn or had paid on its behalf, thereby being entitled to or owing,
as the case may be, the difference.
Such commingling could cause the lien of the Trust Fund on cash and credit
card receivables belonging to a Servico Participating Borrower and held under
the System to become unperfected. In addition, the filing of a bankruptcy
petition with respect to any participant in the System could result in the
imposition of an automatic stay against attempts to enforce rights to collect
funds flowing through the accounts established under the Cash Management
Agreement, resulting in uncertainty as to the timing and amount of recovery
of funds and credit card receivables of the Servico Participating Borrowers
then in the System. The Cash Management Agreement does provide, however, that
upon the occurrence of a default under any Servico Cash Management Mortgage
Loan or certain other loans (or, upon written notice from the lender, that an
insolvency event has occurred in respect of Servico or certain of its
participating affiliates), each Servico Participating Borrower will
immediately cease to participate in the System and any underpayments due
from, or overpayments due to, a participant in the System existing at that
time are required to be paid in cash, provided that any payment obligation of
a Servico Participating Borrower is required to be paid only from available
net income of such entity after payment of debt service, the funding of any
required reserves and the payment of other amounts required by the terms of
its Servico Cash Management Mortgage Loan.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. Substantially all of
the Mortgages contain "due-on-sale" and "due-on-encumbrance" clauses that, in
general, permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or
encumbers the related Mortgaged Property or prohibit the borrower from doing
so without the consent of the holder of the Mortgage. See "SERVICING OF
MORTGAGE LOANS--Due-on-Sale and Due-on-Encumbrance Provisions" herein.
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ASSESSMENTS OF PROPERTY CONDITION
Appraisals
An appraisal of each of the Mortgaged Properties was performed by an
independent MAI or state-certified appraiser to establish the value of such
Mortgaged Property at the time of origination of the related Mortgage Loan
(the "Original Value" of such Mortgaged Property). In the case of each of the
111 Mortgaged Properties, the related appraiser certified that such appraisal
was conducted in accordance with the Uniform Standards of Professional
Appraisal Practices. In general, such appraisals represent the analysis and
opinions of the respective appraisers at or before the origination of the
related Mortgage Loans, have not been updated following origination and are
not guarantees of, and may not be indicative of, present or future value. One
appraisal was conducted with respect to each Mortgaged Property, and there
can be no assurance that another appraiser would not have arrived at a
different valuation, even if such other appraiser used the same general
approach to and same method of appraising the property.
Appraised values of income-producing properties, like the Mortgaged
Properties, are generally based on one of three approaches or upon a
selection from or interpolation of the values derived from such methods: (a)
the market comparison method (recent resale value of comparable properties at
the date of the appraisal), (b) the replacement cost method (the cost of
replacing the property at such date), and (c) the income capitalization
method (a projection of value based upon the property's projected net cash
flow). Each of these appraisal methods can present analytical difficulties.
It is often difficult to find truly comparable properties that have recently
been sold; the replacement cost of a property may have little to do with its
current market value; and income capitalization is inherently based on
inexact projections of income and expense and the selection of an appropriate
capitalization rate and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of the
likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, the value thereof will in all cases be affected by
property performance. Accordingly, if a Mortgage Loan defaults because the
income generated by the related Mortgaged Property is insufficient to cover
operating costs and expenses and pay debt service, then the value of the
Mortgaged Property will reflect such and a liquidation loss may occur.
Environmental Assessments
A "phase I" environmental site assessment was performed with respect to
each of the Mortgaged Properties in connection with the origination of the
related Mortgage Loan. In certain cases, additional environmental testing, as
recommended by such "phase I" assessment, was performed. In each case where
environmental assessments revealed violations, the originator was required to
determine that necessary remediation was being undertaken in a satisfactory
manner or that it would be addressed post-closing and, in some instances, the
originator required that reserves be established to cover the estimated cost
of such remediation.
The most common recommendation in the resulting environmental reports
related to the establishment of an Operations and Maintenance ("O&M") Program
in respect of asbestos-containing materials ("ACMs"). In several cases, O&M
Programs and/or repainting were also recommended with respect to lead-based
paint. Other significant recommendations included: (i) quarterly monitoring
of groundwater contamination resulting from the removal of a leaking
underground storage tank (a "UST") (one Mortgaged Property securing 2.08% of
the Initial Pool Balance); (ii) asbestos abatement, together with the closing
of a "UST" (one Mortgaged Property securing 0.77% of the Initial Pool
Balance); and (iii) the venting of crawl spaces and the testing for radon gas
(one Mortgaged Property securing 0.31% of the Initial Pool Balance). In the
case of items (ii) and (iii) of the preceding sentence, reserves were
established at the closings of the related Mortgage Loans to address the
identified problems in the amounts of $40,813 and $3,000, respectively.
With respect to item (i) above, the Depositor has been advised of the
following by a certified environmental engineering consultant.
Petroleum-contaminated soil was identified at the related Mort-
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<PAGE>
gaged Property in 1985. In January 1986, four UST's were removed, the soil
was excavated to a depth of 15 feet below surface grade and four new
double-walled USTs with leak-detection monitors between the walls were
installed with appropriate permits. In July 1996, the system was certified to
be operating properly. The California Regional Water Quality Control Board
("CRWQCB"), Los Angeles Region, has overseen the monitoring of the related
Mortgaged Property since June 1986. In a June 29, 1994 letter to the related
borrower, the CRWQCB approved a workplan for the installation of monitoring
wells and a quarterly groundwater monitoring program. Sampling of on-site
monitoring wells from August 1994 through July 1996 have identified the
presence of petroleum contamination beneath the Mortgaged Property from both
on-and off-site sources. The related Mortgage Loan documents require the
borrower to establish an environmental reserve, into which monthly payments
of $2,500 are required to be made, for the reimbursement to such borrower of
the costs incurred by it in connection with above-described monitoring and/or
remediation, if necessary, of groundwater contamination as disclosed or
referred to in the related environmental site assessment report. In addition,
the Underground Storage Tank Cleanup Fund ("UST Fund") was created pursuant
to Chapter 6.75 of the California Health and Safety Code to assist qualified
UST system owners with the cleanup of petroleum contamination. The UST Fund
provides up to $990,000 per occurrence for expenditures approved by
California's State Water Resources Control Board. The related Mortgaged
Property has been accepted into this state reimbursement program, and over
$21,000 has been reimbursed to the related borrower as of June 1996 for costs
associated with the approved workplan.
Engineering Assessments
In connection with the origination of each of the Mortgage Loans, an
architectural and/or engineering firm inspected the related Mortgaged
Property to assess the structure, exterior walls, roofing, interior structure
and mechanical and electrical systems. The resulting reports (the "A&E
Report") indicated a variety of deferred maintenance items that required
attention generally in the first six months or year of the Mortgage Loan.
With respect to 82 of such Mortgaged Properties, securing 72.43% of the
Initial Pool Balance, escrows were established by the related borrowers to
cover the estimated cost of the recommended repairs or replacements in an
amount ranging from 100% to 150% of such estimated cost to assure completion
of the repairs or replacements.
Property Inspections
Each of the Mortgaged Properties was inspected by or on behalf of the
Seller or the originator of the Mortgage Loan in connection with the
origination of the related Mortgage Loan to assess its general condition. No
such inspection revealed any patent structural deficiency that the Depositor
considers material and adverse or any material deferred maintenance for which
adequate reserves have not been established.
Product Improvement Plans
In addition to the reserves established pursuant to the A&E Reports,
certain Mortgage Loans secured by hotel properties provide for escrows to
address franchisor required upgrades to the hotel. The cost of such upgrade
is generally escrowed at between 100% and 150% of the estimated cost of such
repair.
RETAINED YIELD
Four Mortgage Loans, representing 4.74% of the Initial Pool Balance, are
being transferred to the Trustee subject to a prior holder's right to receive
any Retained Yield collected thereon. With respect to any such Mortgage Loan,
"Retained Yield" will generally consist of (i) interest accrued at the
related Retained Yield Rate on the outstanding principal balance from time to
time of such Mortgage Loan calculated and payable monthly from interest
received on such Mortgage Loan, whether in the form of scheduled payments of
interest, Insurance Proceeds, Condemnation Proceeds or Liquidation Proceeds
or otherwise, and (ii) a pro rata share of any Prepayment Premiums received
in respect of such Mortgage Loan (in each case, generally equal to the
product of (i) the amount of the particular Prepayment Premium, multiplied by
(ii) a fraction, the numerator of which is the Retained Yield Rate, and the
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denominator of which is the sum of the Retained Yield Rate, the Net Mortgage
Rate and the Trustee Fee Rate). The Retained Yield Rates for such Mortgage
Loans range from 0.28% per annum to 1.18% per annum. As of the Cut-off Date,
such Mortgage Loans had a weighted average Retained Yield Rate (based on
their respective Cut-off Date Balances) of 0.71% per annum.
The holder of the Retained Yield (the "Retained Yield Holder") with
respect to any Mortgage Loan will have the right to assign any or all of its
rights in and to such Retained Yield without the consent of the Trustee or
any Certificateholder. Any sale by the Trust of a Mortgage Loan as to which
there is Retained Yield will be subject to the related Retained Yield
Holder's interest in and right to such Retained Yield.
Payments or other collections of interest received in respect of any
Mortgage Loan as to which there is Retained Yield, if less than the full
amount of interest then due and owing on such Mortgage Loan, will be applied
first to certain unpaid servicing fees, and second, as between interest at
the related Retained Yield Rate and interest at the sum of the related Net
Mortgage Rate, plus the Trustee Fee Rate, in the same proportion as the
related Retained Yield Rate bears to the sum of the related Net Mortgage
Rate, plus the Trustee Fee Rate.
SECONDARY FINANCING
One of the Mortgaged Properties, which represents security for 1.05% of
the Initial Pool Balance, is encumbered by subordinated debt. With limited
exception, all of the Mortgage Loans either prohibit the related mortgagor
from encumbering the Mortgaged Property with additional secured debt or
require the lender's prior consent prior to so encumbering such property. See
"Certain Terms and Conditions of the Mortgage Loans--Due-on-Sale and
Due-on-Encumbrance Provisions" above. Other than as indicated above, the
Depositor is unable to confirm if any other subordinate financing currently
encumbers any Mortgaged Property.
The existence of subordinated indebtedness encumbering any Mortgaged
Property may increase the difficulty of refinancing the related Mortgage Loan
at maturity and the possibility that reduced cash flow could result in
deferred maintenance. Also, in the event that the holder of the subordinated
debt has filed for bankruptcy or been placed in involuntary receivership,
foreclosing on the Mortgaged Property could be delayed. See "CERTAIN LEGAL
ASPECTS OF MORTGAGE LOANS--Secondary Financing; Due-on-Encumbrance
Provisions" in the Prospectus.
In addition, five of the borrowers under the Mortgage Loans are the
obligors on various unsecured debt.
ADDITIONAL MORTGAGE LOAN INFORMATION
The tables appearing on the following pages set forth certain information
with respect to the entire Mortgage Pool and with respect to the Mortgage
Loans secured by mortgage liens on the various types of Mortgaged Properties
and, in each such case, certain information with respect to the related
Mortgaged Properties. The statistics in certain of such tables were derived
primarily from unaudited information furnished by or on behalf of the related
borrowers and/or property managers, and such information has not been
independently verified by the Depositor, the Seller or the Underwriter. In
preparing such tables, each Cross-Collateralized Mortgage Loan was treated as
an individual Mortgage Loan secured only by a mortgage lien on the related
Primary Mortgaged Property. For purposes of this Prospectus Supplement, and
in particular the following tables and in Annex A hereto:
1. "Underwriting NOI" as used herein with respect to any Mortgaged
Property means the Annual Gross Operating Revenues minus the Annual Gross
Operating Expenses, each of which was derived as of year end 1995 or first
quarter 1996 (depending on available information), generally in the following
manner:
(a) Multifamily, Mobile Home Park, Assisted Living/Congregate Care and
Self-Storage Properties. For Mortgaged Properties that are multifamily
rental properties, mobile home parks and assisted living/congregate care
facilities ("AL/CC"), the Annual Gross Operating Revenues are an
S-80
<PAGE>
annualized number based upon actual property performance for the three
month period preceding the calculation thereof. For self-storage
facilities, the Annual Gross Operating Revenues are based upon the actual
property performance for the 12-month period preceding the calculation
thereof.
In determining the Annual Gross Operating Expenses for such Mortgaged
Properties, variable expenses were based on the actual trailing 12 months
or, if the actual trailing 12 months' expenses are not available, on the
most recent fiscal year's expenses and a 3% to 4% growth factor. In
addition, multifamily rental properties, mobile home parks and assisted
living/congregate care facilities are assumed to have minimum management
fees equal to 5% of the effective gross income (although, in the case of
certain larger properties, a 4% to 4.5% management fee is assumed due to
economies of scale). Self-storage properties are assumed to have a minimum
management fee equal to 6% of the effective gross income. Repairs and
maintenance expenses are adjusted to remove non-recurring capital
expenditure items and to reflect, among other things, the age and
condition of the properties.
Also in determining the Annual Gross Operating Expenses for such
Mortgaged Properties, fixed expenses such as real estate taxes and
insurance premiums are based on (i) the tax bill for the next 12 months
or, if not available, the current tax bill increased by 3% to 4% and (ii)
the actual insurance premiums for the borrower's policy as adjusted to
reflect the Seller's insurance requirements, if necessary.
Annual Gross Operating Expenses for such Mortgaged Properties also
generally reflect replacement reserves based on the greater of: (i) the
actual amount set forth in the related architectural and engineering
report; and (ii) $150/unit/year for multifamily rental properties that are
less than 10 years old, $200/unit/year for multifamily rental properties
that are between 10 and 20 years old, $250/unit/year for multifamily
rental properties that are more than 20 years old, approximately $.17 to
$.25/sq. ft./year for self-storage facilities, $250 to $300/unit/year for
assisted living/congregate care facilities and $0 to $40/pad/year for
mobile home park properties.
(b) Hotels. The Annual Gross Operating Revenues and Annual Gross
Operating Expenses for Mortgaged Properties that are hotels are based on
the actual operating performance for the trailing 12 months; provided that
the following adjustments are made with respect to the indicated expense
items: (i) management fees are assumed to equal the greater of actual and
4% of gross revenues; (ii) franchise fees are assumed to equal the greater
of actual and 4% of room revenues; (iii) furniture, fixtures and equipment
("FF&E") reserves are set between 3% and 5% of gross revenues depending on
the related A&E Report and the franchisor's report, prior capital
expenditures and the age of the hotel; (iv) in cases where the operating
margins of the hotel are well below the industry norm, an adjustment is
made to decrease the operating margin; (v) in cases where the occupancy is
adjusted downward, only management fees, franchise fees and FF&E reserves
based solely on revenues are adjusted; (vi) if an increase in the tax rate
is expected, real estate taxes are adjusted to reflect the increase; and
(vii) insurance premiums are adjusted to reflect an estimate of the
coverage that is required by the Seller.
(c) Retail and Office. The Annual Gross Operating Revenues for Mortgaged
Properties that constitute retail and office properties are determined by
analyzing the current rent roll and comparing the results to historical
collections. The Seller only underwrites rents in place and therefore does
not consider speculative lease-up of vacant space in its underwriting.
Expense recoveries are based on leases in place and compared to historical
trends. Generally, expense reimbursements cover common area maintenance,
real estate taxes and insurance. The Seller typically does not underwrite
management fees as a recoverable expense.
Annual Gross Operating Expenses for such Mortgaged Properties are
calculated based on operating expenses determined utilizing the same
methodology as that used for multifamily rental properties. In addition,
operating expenses are compared to market expenses and adjusted upward if
below market. Structural replacement reserves are calculated at
approximately $.15 to $.25/sq. ft./year in the case of office properties,
$.10 to $.15/sq. ft./year in the case of properties with flex space and
warehouses, and $.10 to $.25/sq. ft./year for retail properties. Such
ranges depend on the quality of the property, age and location, among
other things.
S-81
<PAGE>
Tenant improvements, leasing commissions and downtime between leases,
collectively known as "Leasing Costs," are taken into consideration when
calculating Underwriting NOI for retail and office properties. A
normalized amount of annual Leasing Costs is determined for each retail
and office property based on the contractual lease expirations that are
scheduled to occur during the term of the Mortgage Loan plus one
additional year. Such Leasing Costs are quantified and deducted as an
expense in deriving Underwriting NOI. In many cases, depending on the
amount of the Leasing Costs and the specific arrangement with the
borrower, monthly escrows are required in order to fund the anticipated
Leasing Costs. As a matter of underwriting policy, vacant space at the
time a loan is underwritten is assumed to remain unoccupied for the term
of the Mortgage Loan. Therefore, Underwriting NOI does not contain any
speculative income from leases that are not currently in place.
No representation is made as to the future net cash flow of the Mortgaged
Properties, nor is the Underwriting NOI set forth herein intended to
represent such future cash flow.
Underwriting NOI and the revenues and expenses used to determine
Underwriting NOI for each Mortgaged Property are derived from unaudited
information provided by the respective borrowers and/or property managers.
Net income for a Mortgaged Property as determined under Generally Accepted
Accounting Procedures ("GAAP") would not be the same as the Underwriting NOI
for such Mortgaged Property set forth in Annex A hereto and used in
calculating the Cut-off Date DSC Ratio for the related Mortgage Loan set
forth in the tables herein or in Annex A hereto. Underwriting NOI is not a
substitute for or comparable to net operating income as determined in
accordance with GAAP as a measure of the results of a property's operations
or a substitute for cash flows from operating activities determined in
accordance with GAAP as a measure of liquidity.
2. "Annual Debt Service" means, for any Mortgage Loan, 12 times the
amount of the Monthly Payment under such Mortgage Loan as of the Cut-off
Date.
3. "Cut-off Date DSC Ratio" or "Cut-off Date Debt Service Coverage Ratio"
means, with respect to any Mortgage Loan, (a) the Underwriting NOI for the
related Mortgaged Property, divided by (b) the Annual Debt Service for such
Mortgage Loan.
4. "Cut-off Date LTV Ratio" means, with respect to any Mortgage Loan, the
ratio, expressed as a percentage, of the Cut-off Date Balance of such
Mortgage Loan to the Original Value of the related Mortgaged Property.
5. "Maturity Date LTV Ratio" means, with respect to any Mortgage Loan,
the ratio, expressed as a percentage, of the Scheduled Principal Balance of
such Mortgage Loan that will be outstanding immediately prior to its maturity
(based on the assumption that no prepayments are made with respect to such
Mortgage Loan, and otherwise based on the Mortgage Loan Assumptions set forth
under "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS--Weighted Average Life"
herein) to the Original Value of the related Mortgaged Property.
6. "Units" means (in each case, without regard to the size thereof) (a)
in the case of a multifamily property, apartments, (b) in the case of a
hotel, guest rooms or suites, (c) in the case of a self-storage facility,
self-storage units, (d) in the case of an assisted living/congregate care
facility, dwelling units and (d) in the case of a mobile home park, pads.
7. "Occupancy Rate" means, with respect to any Mortgaged Property, (a) in
the case of multifamily properties, mobile home parks and the assisted
living/congregate care facility, the percentage of units rented, (b) in the
case of hotel properties, the average annual occupancy rate (that is, for a
specified year, the percentage obtained by dividing the number of rooms
actually rented for all nights in such year by the number of rooms available
to be rented for all nights in such year), (c) in the case of office and
retail properties, the percentage of the net rentable square footage rented,
and (d) in the case of self-storage facilities, either the percentage of the
net rentable square footage rented or the percentage of units rented
(depending on borrower reporting). See the column headed "Occupancy % as of
Date" on Annex A for the date as of which (or the end of the period for
which) the Occupancy Rate set forth herein or in Annex A with respect to any
Mortgaged Property was determined.
S-82
<PAGE>
8. References to "weighted average" or "wtd avg" are references to an
average weighted on the basis of the Cut-off Date Balances of the related
Mortgage Loans.
9. "Cap Imp Rsv" means, with respect to any Mortgaged Property, the
capital improvements reserve required to be established with respect to such
Mortgaged Property under the terms of the related Mortgage.
10. "Replacement Reserve" or "Replacement Rsv" means, with respect to any
Mortgaged Property, the repair and replacement reserve required to be
established with respect to such Mortgaged Property under the terms of the
related Mortgage.
The Mortgage Pool
The following tables under this "--Additional Mortgage Loan
Information--The Mortgage Pool" section set forth the indicated information
as of the Cut-Off Date with respect to all the Mortgage Loans and Mortgaged
Properties. The sum in any column of any of the following tables may not
equal the indicated total due to rounding.
S-83
<PAGE>
MORTGAGE LOANS BY STATE
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE AVERAGE
NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
STATE OF LOANS BALANCE BALANCE BALANCE
- -------------- -------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
GA ............ 15 $ 50,025,967.36 12.37% $ 3,335,064.49
FL ............ 11 40,015,649.58 9.90 3,637,786.33
CA ............ 7 37,462,124.30 9.27 5,351,732.04
NJ ............ 7 35,759,427.16 8.84 5,108,489.59
TX ............ 13 31,949,476.35 7.90 2,457,652.03
IL ............ 4 18,890,074.14 4.67 4,722,518.54
VA ............ 2 17,387,832.39 4.30 8,693,916.20
MD ............ 1 16,940,105.79 4.19 16,940,105.79
NE ............ 3 16,533,954.97 4.09 5,511,318.32
MI ............ 2 14,401,308.54 3.56 7,200,654.27
RI ............ 2 13,573,158.77 3.36 6,786,579.39
IA ............ 3 10,452,149.50 2.59 3,484,049.83
CT ............ 3 9,894,327.81 2.45 3,298,109.27
NY ............ 5 8,582,451.74 2.12 1,716,490.35
OH ............ 5 7,385,002.00 1.83 1,477,000.40
SC ............ 2 6,399,734.26 1.58 3,199,867.13
NV ............ 1 6,192,068.01 1.53 6,192,068.01
MA ............ 2 5,984,321.76 1.48 2,992,160.88
PA ............ 2 5,938,179.10 1.47 2,969,089.55
IN ............ 4 5,529,051.61 1.37 1,382,262.90
MO ............ 1 5,463,306.15 1.35 5,463,306.15
KS ............ 1 4,867,462.85 1.20 4,867,462.85
DC ............ 2 4,675,801.20 1.16 2,337,900.60
AZ ............ 2 4,622,663.80 1.14 2,311,331.90
ME ............ 1 4,609,831.43 1.14 4,609,831.43
KY ............ 1 4,232,088.11 1.05 4,232,088.11
MS ............ 2 3,839,728.29 0.95 1,919,864.15
AL ............ 1 3,342,454.19 0.83 3,342,454.19
NH ............ 1 3,186,194.95 0.79 3,186,194.95
UT ............ 1 1,648,087.69 0.41 1,648,087.69
NC ............ 1 1,533,725.93 0.38 1,533,725.93
AR ............ 1 1,184,354.51 0.29 1,184,354.51
NM ............ 1 1,143,012.09 0.28 1,143,012.09
MN ............ 1 664,276.60 0.16 664,276.60
-------- --------------- -------------- -------------
Total/Wtd Avg/
Min/Max ...... 111 $404,309,352.93 100.00% $ 3,642,426.60
======== =============== ============== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVTG
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
STATE BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- -------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
GA ............ $10,658,824.36 69.59% 1.48x 1.26-2.49x 91.85% 8.861%
FL ............ 12,323,243.60 61.97 1.48 1.26-2.18 90.12 9.438
CA ............ 16,215,977.95 64.19 1.41 1.26-1.65 85.92 9.678
NJ ............ 8,449,863.59 68.50 1.52 1.35-1.77 94.59 8.964
TX ............ 6,116,543.79 68.85 1.46 1.20-1.67 95.91 8.460
IL ............ 10,595,473.27 65.95 1.35 1.30-1.56 92.70 9.359
VA ............ 14,852,557.78 63.25 1.47 1.38-1.97 69.43 9.568
MD ............ 16,940,105.79 60.07 1.34 1.34 93.20 8.680
NE ............ 9,205,303.21 62.11 1.33 1.27-1.41 81.78 9.527
MI ............ 8,732,038.98 64.68 1.35 1.28-1.46 77.13 9.041
RI ............ 7,443,589.39 60.69 1.64 1.40-1.84 66.30 9.702
IA ............ 5,834,300.13 60.49 1.47 1.39-1.90 72.11 9.177
CT ............ 7,693,390.66 64.90 1.46 1.33-1.85 93.75 9.238
NY ............ 2,497,792.27 62.89 1.46 1.30-1.82 96.48 8.775
OH ............ 3,021,104.72 59.43 1.53 1.27-2.09 70.67 8.821
SC ............ 4,099,145.33 60.34 2.08 1.65-2.33 81.43 9.260
NV ............ 6,192,068.01 67.49 1.38 1.38 94.00 8.650
MA ............ 3,213,797.31 61.39 1.40 1.38-1.43 81.59 9.118
PA ............ 3,199,561.61 68.87 1.35 1.25-1.43 95.10 8.621
IN ............ 1,721,028.61 56.41 2.09 1.67-2.27 72.52 8.500
MO ............ 5,463,306.15 68.81 1.16 1.16 87.50 8.100
KS ............ 4,867,462.85 74.88 1.48 1.48 76.20 9.875
DC ............ 3,132,820.70 71.19 1.33 1.21-1.39 93.40 9.000
AZ ............ 4,057,174.50 70.49 1.53 1.33-1.56 93.56 8.234
ME ............ 4,609,831.43 63.15 1.24 1.24 83.00 10.500
KY ............ 4,232,088.11 75.57 1.33 1.33 100.00 8.290
MS ............ 2,700,428.12 67.22 1.41 1.28-1.47 75.06 9.986
AL ............ 3,342,454.19 61.67 1.15 1.15 97.00 9.164
NH ............ 3,186,194.95 74.10 1.30 1.30 94.60 9.570
UT ............ 1,648,087.69 61.04 1.83 1.83 83.00 10.375
NC ............ 1,533,725.93 63.91 1.46 1.46 72.72 9.500
AR ............ 1,184,354.51 69.67 1.54 1.54 66.00 9.500
NM ............ 1,143,012.09 67.24 1.39 1.39 73.84 9.625
MN ............ 664,276.60 65.13 1.28 1.28 100.00 8.050
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/
Min/Max ...... $16,940,105.79 65.34% 1.46x 1.15-2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
S-84
<PAGE>
MORTGAGE LOANS BY PROPERTY TYPE
(ALL MORTGAGE LOANS)
<TABLE>
CAPTION>
AGGREGATE % BY AGG AVERAGE
NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
PROPERTY TYPE OF LOANS BALANCE BALANCE BALANCE
- ----------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Multifamily ............ 49 $136,525,091.87 33.77% $2,786,226.36
Hotel .................. 33 126,335,694.68 31.25 3,828,354.38
Retail ................. 23 122,410,871.00 30.28 5,322,211.78
Office ................. 2 6,208,495.76 1.54 3,104,247.88
Assisted Living/
Congregate Care ....... 2 5,006,987.73 1.24 2,503,493.87
Mobile Home Park ....... 1 4,609,831.43 1.14 4,609,831.43
Self Storage ........... 1 3,212,380.46 0.79 3,212,380.46
-------- --------------- ------------ -------------
Total/Wtd Avg/Min/Max 111 $404,309,352.93 100.00% $3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
PROPERTY TYPE BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ----------------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Multifamily ............ $ 9,205,303.21 69.61% 1.38x 1.15-1.85x 96.04% 8.573%
Hotel .................. 16,215,977.95 60.08 1.60 1.38-2.49 70.05 9.666
Retail ................. 16,940,105.79 66.46 1.40 1.21-1.87 94.99 9.110
Office ................. 3,922,869.33 56.52 1.62 1.38-2.03 92.96 9.505
Assisted Living/
Congregate Care ....... 2,697,230.63 63.82 1.40 1.39-1.40 91.88 9.442
Mobile Home Park ....... 4,609,831.43 63.15 1.24 1.24 83.00 10.500
Self Storage ........... 3,212,380.46 70.60 1.42 1.42 81.00 9.540
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max $16,940,105.79 65.34% 1.46x 1.15-2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
CUT-OFF DATE DSC RATIOS
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
RANGE OF AGGREGATE % BY AGG
CUT-OFF DATE NUMBER CUT-OFF DATE CUT-OFF DATE
DSC RATIOS (X) OF LOANS BALANCE BALANCE
- ----------------------- -------- --------------- ------------
<S> <C> <C> <C>
1.151 -1.200 ........... 3 $ 9,875,729.74 2.44%
1.201 -1.300 ........... 17 80,480,323.38 19.91
1.301 -1.400 ........... 29 120,687,063.93 29.85
1.401 -1.500 ........... 28 103,173,062.70 25.52
1.501 -1.750 ........... 17 40,292,458.74 9.97
1.751 -2.000 ........... 10 33,021,707.59 8.17
2.001 -2.500 ........... 7 16,779,006.85 4.15
-------- --------------- ------------
Total/Wtd Avg/Min/Max 111 $404,309,352.93 100.00%
======== =============== ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF AVERGE HIGHEST WTD AVG WTD AVG WTD AVG WTD AVG
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
DSC RATIOS (X) BALANCE BALANCE LTV RATIO DSC RATIO RATE RATE
- ----------------------- ------------- -------------- ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
1.151 -1.200 ........... $3,291,909.91 $ 5,463,306.15 65.38% 1.16x 91.09% 8.548%
1.201 -1.300 ........... 4,734,136.67 12,323,243.60 69.83 1.27 93.87 9.058
1.301 -1.400 ........... 4,161,622.89 16,940,105.79 67.35 1.36 91.01 8.926
1.401 -1.500 ........... 3,684,752.24 16,215,977.95 63.29 1.44 79.73 9.548
1.501 -1.750 ........... 2,370,144.63 5,456,360.68 64.95 1.58 85.90 8.834
1.751 -2.000 ........... 3,302,170.76 8,449,863.59 59.30 1.83 85.40 9.145
2.001 -2.500 ........... 2,397,000.98 4,099,145.33 54.80 2.26 78.95 9.432
------------- -------------- ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max $3,642,426.60 $16,940,105.79 65.34% 1.46x 87.23% 9.132%
============= ============== ============ ============ ========= ========
</TABLE>
S-85
<PAGE>
CUT-OFF DATE LTV RATIOS
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
RANGE OF AGGREGATE % BY AGG AVERAGE
CUT-OFF DATE NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
LTV RATIOS (%) OF LOANS BALANCE BALANCE BALANCE
- ---------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
30.000-34.999 ......... 1 $ 2,431,235.29 0.60% $2,431,235.29
35.000-39.999 ......... 2 1,374,508.44 0.34 687,254.22
40.000-44.999 ......... 1 3,932,457.30 0.97 3,932,457.30
45.000-49.999 ......... 3 10,924,545.00 2.70 3,641,515.00
50.000-54.999 ......... 5 16,750,252.28 4.14 3,350,050.46
55.000-59.999 ......... 15 38,299,832.02 9.47 2,553,322.13
60.000-64.999 ......... 26 104,919,944.64 25.95 4,035,382.49
65.000-69.999 ......... 28 105,626,841.71 26.13 3,772,387.20
70.000-74.999 ......... 28 110,323,619.41 27.29 3,940,129.26
75.000-77.499 ......... 2 9,726,116.84 2.41 4,863,058.42
-------- --------------- ------------ -------------
Total/Wtd Avg/Min/Max 111 $404,309,352.93 100.00% $3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
LTV RATIOS (%) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ---------------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
30.000-34.999 ......... $ 2,431,235.29 34.73% 1.41x 1.41x 61.00% 9.875%
35.000-39.999 ......... 791,277.47 38.24 1.53 1.35-1.67 81.49 8.445
40.000-44.999 ......... 3,932,457.30 43.21 1.51 1.51 50.31 8.625
45.000-49.999 ......... 5,991,515.88 47.77 1.98 1.87-2.18 93.34 10.060
50.000-54.999 ......... 4,897,416.47 52.70 1.65 1.41-2.33 72.32 9.237
55.000-59.999 ......... 7,443,589.39 57.77 1.65 1.20-2.27 71.99 9.405
60.000-64.999 ......... 16,940,105.79 62.28 1.44 1.15-2.49 84.20 9.366
65.000-69.999 ......... 10,595,473.27 67.58 1.43 1.16-1.77 91.38 9.050
70.000-74.999 ......... 12,323,243.60 73.24 1.36 1.25-1.67 94.19 8.888
75.000-77.499 ......... 5,494,028.73 75.99 1.37 1.33-1.39 97.18 8.070
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max $16,940,105.79 65.34% 1.46x 1.15-2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
MATURITY DATE LTV RATIOS
(ALL BALLOON LOANS)
<TABLE>
<CAPTION>
RANGE OF AGGREGATE % BY AGG AVERAGE
MATURITY DATE NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
LTV RATIOS (%) OF LOANS BALANCE BALANCE BALANCE
- ---------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
15.000-19.999 ......... 1 $ 2,771,675.03 0.76% $2,771,675.03
20.000-24.999 ......... 1 791,277.47 0.22 791,277.47
30.000-34.999 ......... 6 9,344,686.38 2.56 1,557,447.73
35.000-39.999 ......... 1 3,932,457.30 1.08 3,932,457.30
40.000-44.999 ......... 1 3,021,104.72 0.83 3,021,104.72
45.000-49.999 ......... 8 26,322,832.29 7.22 3,290,354.04
50.000-54.999 ......... 15 54,577,344.49 14.97 3,638,489.63
55.000-59.999 ......... 20 84,647,120.00 23.22 4,232,356.00
60.000-64.999 ......... 24 94,157,489.91 25.83 3,923,228.75
65.000-69.999 ......... 17 82,683,706.61 22.68 4,863,747.45
70.000-74.999 ......... 1 2,248,698.38 0.62 2,248,698.38
-------- --------------- ------------ -------------
Total/Wtd Avg/Min/Max 95 $364,498,392.58 90.15% $3,836,825.19
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
MATURITY DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
LTV RATIOS (%) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ---------------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
15.000-19.999 ......... $ 2,771,675.03 64.46% 2.49x 2.49x 76.00% 9.750%
20.000-24.999 ......... 791,277.47 39.56 1.67 1.67 70.80 8.500
30.000-34.999 ......... 2,431,235.29 51.03 1.91 1.35-2.27 70.21 8.850
35.000-39.999 ......... 3,932,457.30 43.21 1.51 1.51 50.31 8.625
40.000-44.999 ......... 3,021,104.72 50.35 1.41 1.41 51.72 8.625
45.000-49.999 ......... 5,991,515.88 56.81 1.53 1.15-1.87 87.68 9.312
50.000-54.999 ......... 16,215,977.95 61.32 1.48 1.21-1.97 76.58 9.685
55.000-59.999 ......... 16,940,105.79 64.36 1.36 1.16-1.61 86.22 9.064
60.000-64.999 ......... 8,732,038.98 68.86 1.43 1.24-1.77 94.47 9.003
65.000-69.999 ......... 12,323,243.60 73.88 1.35 1.26-1.49 94.57 8.846
70.000-74.999 ......... 2,248,698.38 74.96 1.27 1.27 100.00 8.725
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max $16,940,105.79 66.01% 1.43x 1.15-2.49x 87.80% 9.098%
============== ============ ============ ============ ========= ========
</TABLE>
S-86
<PAGE>
MORTGAGE RATES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGG AVERAGE
RANGE OF NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
MORTGAGE RATES (%) OF LOANS BALANCE BALANCE BALANCE
- ---------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
7.500-7.999 ........... 2 $ 9,551,203.23 2.36% $4,775,601.62
8.000-8.499 ........... 17 44,677,662.67 11.05 2,628,097.80
8.500-8.999 ........... 35 119,726,316.19 29.61 3,420,751.89
9.000-9.499 ........... 27 119,508,462.74 29.56 4,426,239.36
9.500-9.999 ........... 20 66,816,605.94 16.53 3,340,830.30
10.000-10.499 ......... 5 17,651,748.93 4.37 3,530,349.79
10.500-10.999 ......... 5 26,377,353.23 6.52 5,275,470.65
-------- --------------- ------------ -------------
Total/Wtd Avg/Min/Max 111 $404,309,352.93 100.00% $3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
RANGE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
MORTGAGE RATES (%) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ---------------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
7.500-7.999 ........... $ 5,494,028.73 74.29% 1.46x 1.39-1.56x 94.15% 7.904%
8.000-8.499 ........... 6,116,543.79 69.44 1.38 1.16-1.67 95.80 8.205
8.500-8.999 ........... 16,940,105.79 65.26 1.47 1.20-2.27 90.64 8.678
9.000-9.499 ........... 12,323,243.60 66.94 1.42 1.15-2.33 91.52 9.210
9.500-9.999 ........... 14,852,557.78 61.41 1.52 1.30-2.49 74.02 9.739
10.000-10.499 ......... 6,129,569.38 59.87 1.59 1.40-2.18 72.24 10.295
10.500-10.999 ......... 16,215,977.95 61.86 1.46 1.24-2.03 78.87 10.530
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max $16,940,105.79 65.34% 1.46x 1.15-2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
S-87
<PAGE>
ORIGINAL TERMS TO MATURITY
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
ORIGINAL TERM AGGREGATE % BY AGG AVERAGE
TO MATURITY NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
(MONTHS) OF LOANS BALANCE BALANCE BALANCE
- ------------------ -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
84 ................ 31 $151,484,456.10 37.47% $4,886,595.36
120 ............... 57 198,497,991.23 49.10 3,482,420.90
166 ............... 1 640,249.08 0.16 640,249.08
180 ............... 8 16,677,299.34 4.12 2,084,662.42
240 ............... 9 15,701,583.28 3.88 1,744,620.36
276 ............... 5 21,307,773.90 5.27 4,261,554.78
-------- --------------- ------------ -------------
Total/Wtd Avg/
Min/Max ........ 111 $404,309,352.93 100.00% $3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ORIGINAL TERM HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
TO MATURITY CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
(MONTHS) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ------------------ -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
84 ................ $16,940,105.79 63.22% 1.43x 1.20 -1.97x 83.87% 9.210%
120 ............... 16,215,977.95 68.20 1.39 1.16 -2.03 91.26 9.058
166 ............... 640,249.08 60.98 1.56 1.56 100.00 8.750
180 ............... 3,565,944.87 60.02 1.83 1.15 -2.27 83.53 8.840
240 ............... 2,843,735.26 63.40 1.66 1.32 -2.49 92.65 8.979
276 ............... 7,443,589.39 59.47 1.79 1.40 -2.33 72.23 9.612
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/
Min/Max ........ $16,940,105.79 65.34% 1.46x 1.15 -2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
REMAINING TERMS TO MATURITY
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
RANGE OF
REMAINING TERMS AGGREGATE % BY AGG AVERAGE
TO MATURITY NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
(MONTHS) OF LOANS BALANCE BALANCE BALANCE
- ------------------ -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
61-72 ............. 5 $ 26,034,907.73 6.44% $5,206,981.55
73-84 ............. 26 125,449,548.37 31.03 4,824,982.63
97-108 ............ 7 21,540,621.01 5.33 3,077,231.57
109-120 ........... 50 176,957,370.22 43.77 3,539,147.40
145-156 ........... 1 640,249.08 0.16 640,249.08
169-180 ........... 8 16,677,299.34 4.12 2,084,662.42
217-228 ........... 1 2,843,735.26 0.70 2,843,735.26
229-240 ........... 8 12,857,848.02 3.18 1,607,231.00
253-264 ........... 2 7,777,657.07 1.92 3,888,828.54
265-276 ........... 3 13,530,116.83 3.35 4,510,038.94
-------- --------------- ------------ -------------
Total/Wtd Avg/
Min/Max ........ 111 $404,309,352.93 100.00% $3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF
REMAINING TERMS HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
TO MATURITY CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
(MONTHS) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ------------------ -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
61-72 ............. $ 9,205,303.21 69.67% 1.38x 1.24 -1.75x 94.52% 9.218%
73-84 ............. 16,940,105.79 61.88 1.44 1.20 -1.97 81.66 9.208
97-108 ............ 7,106,674.42 65.89 1.45 1.28 -2.03 94.87 8.942
109-120 ........... 16,215,977.95 68.48 1.39 1.16 -1.85 90.82 9.072
145-156 ........... 640,249.08 60.98 1.56 1.56 100.00 8.750
169-180 ........... 3,565,944.87 60.02 1.83 1.15 -2.27 83.53 8.840
217-228 ........... 2,843,735.26 64.78 1.57 1.57 100.00 8.710
229-240 ........... 2,771,675.03 63.10 1.68 1.32 -2.49 91.02 9.039
253-264 ........... 6,129,569.38 64.88 1.49 1.40 -1.83 71.51 10.276
265-276 ........... 7,443,589.39 56.36 1.96 1.65 -2.33 72.64 9.230
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/
Min/Max ........ $16,940,105.79 65.34% 1.46x 1.15 -2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
S-88
<PAGE>
CUT-OFF DATE BALANCES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGG AVERAGE
RANGE OF NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
CUT-OFF DATE BALANCES ($) OF LOANS BALANCE BALANCE BALANCE
- --------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
0.01- 999,999.99 ........... 10 $ 6,672,113.96 1.65% $ 667,211.40
1,000,000.00-1,999,999.99 . 34 50,568,189.19 12.51 1,487,299.68
2,000,000.00-2,999,999.99 . 20 50,321,296.44 12.45 2,516,064.82
3,000,000.00-3,999,999.99 . 11 36,784,854.43 9.10 3,344,077.68
4,000,000.00-4,999,999.99 . 9 39,914,422.39 9.87 4,434,935.82
5,000,000.00-5,999,999.99 . 10 55,390,551.89 13.70 5,539,055.19
6,000,000.00-6,999,999.99 . 3 18,438,181.18 4.56 6,146,060.39
7,000,000.00-7,999,999.99 . 4 29,850,727.95 7.38 7,462,681.99
8,000,000.00-8,999,999.99 . 3 25,577,529.54 6.33 8,525,843.18
9,000,000.00-9,999,999.99 . 1 9,205,303.21 2.28 9,205,303.21
10,000,000.00-10,999,999.99 2 21,254,297.63 5.26 10,627,148.82
12,000,000.00-12,999,999.99 1 12,323,243.60 3.05 12,323,243.60
14,000,000.00-14,999,999.99 1 14,852,557.78 3.67 14,852,557.78
16,000,000.00-16,999,999.99 2 33,156,083.74 8.20 16,578,041.87
-------- --------------- ------------ -------------
Total/Wtd Avg/Min/Max .... 111 $404,309,352.93 100.00% $ 3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
RANGE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
CUT-OFF DATE BALANCES ($) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- --------------------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
0.01- 999,999.99 ........... $ 894,928.47 59.31% 1.48x 1.28-1.85x 94.64% 8.975%
1,000,000.00-1,999,999.99 . 1,996,936.96 64.56 1.54 1.20-2.27 88.29 9.002
2,000,000.00-2,999,999.99 . 2,950,000.00 63.25 1.59 1.25-2.49 87.34 9.157
3,000,000.00-3,999,999.99 . 3,932,457.30 63.92 1.41 1.15-1.67 83.75 8.964
4,000,000.00-4,999,999.99 . 4,897,416.47 65.74 1.50 1.24-2.33 85.66 9.169
5,000,000.00-5,999,999.99 . 5,991,515.88 65.33 1.43 1.16-1.87 85.47 9.016
6,000,000.00-6,999,999.99 . 6,192,068.01 69.32 1.42 1.38-1.49 86.16 8.983
7,000,000.00-7,999,999.99 . 7,693,390.66 64.86 1.51 1.35-1.84 87.72 9.123
8,000,000.00-8,999,999.99 . 8,732,038.98 68.19 1.46 1.28-1.77 96.94 8.835
9,000,000.00-9,999,999.99 . 9,205,303.21 73.76 1.27 1.27 94.60 9.250
10,000,000.00-10,999,999.99 10,658,824.36 70.52 1.29 1.28-1.30 93.66 9.300
12,000,000.00-12,999,999.99 12,323,243.60 70.42 1.29 1.29 93.00 9.095
14,000,000.00-14,999,999.99 14,852,557.78 63.74 1.38 1.38 67.80 9.750
16,000,000.00-16,999,999.99 16,940,105.79 61.19 1.40 1.34-1.45 85.77 9.570
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max .... $16,940,105.79 65.34% 1.46x 1.15-2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
ORIGINAL AMORTIZATION TERMS
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGG AVERAGE
ORIGINAL AMORTIZATION NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
TERMS (MONTHS) OF LOANS BALANCE BALANCE BALANCE
- ---------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
120 ................... 1 $ 2,285,626.43 0.57% $2,285,626.43
166 ................... 1 640,249.08 0.16 640,249.08
180 ................... 1 2,647,402.69 0.65 2,647,402.69
240 ................... 8 12,929,908.25 3.20 1,616,238.53
276 ................... 19 56,254,526.47 13.91 2,960,764.55
300 ................... 36 126,362,023.37 31.25 3,510,056.20
324 ................... 2 17,702,147.69 4.38 8,851,073.84
336 ................... 1 3,186,194.95 0.79 3,186,194.95
360 ................... 42 182,301,274.00 45.09 4,340,506.52
-------- --------------- ------------ -------------
Total/Wtd Avg/Min/Max 111 $404,309,352.93 100.00% $3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
ORIGINAL AMORTIZATION CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
TERMS (MONTHS) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ---------------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
120 ................... $ 2,285,626.43 46.65% 2.03x 2.03x 87.25% 10.680%
166 ................... 640,249.08 60.98 1.56 1.56 100.00 8.750
180 ................... 2,647,402.69 48.13 2.18 2.18 83.53 10.250
240 ................... 2,843,735.26 63.17 1.48 1.32-1.61 96.21 8.814
276 ................... 7,443,589.39 59.63 1.75 1.39-2.49 71.04 9.166
300 ................... 16,215,977.95 64.81 1.41 1.16-1.90 80.53 9.506
324 ................... 10,595,473.27 68.17 1.32 1.30-1.35 93.21 9.123
336 ................... 3,186,194.95 74.10 1.30 1.30 94.60 9.570
360 ................... 16,940,105.79 67.69 1.40 1.15-1.87 95.54 8.843
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max $16,940,105.79 65.34% 1.46x 1.15-2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
S-89
<PAGE>
OCCUPANCY RATES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGG AVERAGE
RANGE OF NUMBER CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
OCCUPANCY RATES (%) OF LOANS BALANCE BALANCE BALANCE
- ---------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
45.000-49.999 ......... 1 $ 5,669,269.56 1.40% $5,669,269.56
50.000-54.999 ......... 2 6,953,562.02 1.72 3,476,781.01
60.000-64.999 ......... 2 9,874,824.68 2.44 4,937,412.34
65.000-69.999 ......... 11 46,397,740.99 11.48 4,217,976.45
70.000-74.999 ......... 4 4,763,138.34 1.18 1,190,784.59
75.000-79.999 ......... 9 42,295,141.27 10.46 4,699,460.14
80.000-84.999 ......... 7 19,747,210.21 4.88 2,821,030.03
85.000-89.999 ......... 3 10,446,163.21 2.58 3,482,054.40
90.000-94.999 ......... 25 106,675,887.96 26.38 4,267,035.52
95.000-99.999 ......... 25 101,302,508.46 25.06 4,052,100.34
100.000-100.000 ....... 22 50,183,906.23 12.41 2,281,086.65
-------- --------------- ------------ -------------
Total/Wtd Avg/Min/Max 111 $404,309,352.93 100.00% $3,642,426.60
======== =============== ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
HIGHEST WTD AVG WTD AVG RANGE OF WTD AVG WTD AVG
RANGE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE OCCUPANCY MORTGAGE
OCCUPANCY RATES (%) BALANCE LTV RATIO DSC RATIO DSC RATIOS RATE RATE
- ---------------------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
45.000-49.999 ......... $ 5,669,269.56 56.69% 1.46x 1.46x 45.30% 9.875%
50.000-54.999 ......... 3,932,457.30 46.31 1.47 1.41-1.51 50.92 8.625
60.000-64.999 ......... 7,443,589.39 51.06 1.73 1.41-1.84 63.68 9.404
65.000-69.999 ......... 14,852,557.78 61.42 1.49 1.38-2.26 67.68 9.869
70.000-74.999 ......... 1,533,725.93 58.60 1.50 1.39-1.67 72.75 9.534
75.000-79.999 ......... 16,215,977.95 64.84 1.62 1.39-2.49 77.16 9.663
80.000-84.999 ......... 4,609,831.43 60.16 1.71 1.21-2.33 82.37 9.784
85.000-89.999 ......... 5,463,306.15 63.61 1.41 1.16-2.03 87.88 8.980
90.000-94.999 ......... 16,940,105.79 67.91 1.35 1.20-1.75 93.07 8.937
95.000-99.999 ......... 10,658,824.36 68.37 1.40 1.15-1.82 96.63 8.756
100.000-100.000 ....... 5,991,515.88 67.26 1.48 1.26-1.87 100.00 8.843
-------------- ------------ ------------ ------------ --------- --------
Total/Wtd Avg/Min/Max $16,940,105.79 65.34% 1.46x 1.15-2.49x 87.23% 9.132%
============== ============ ============ ============ ========= ========
</TABLE>
S-90
<PAGE>
<TABLE>
<CAPTION>
CAPITAL IMPROVEMENTS AND REPLACEMENT RESERVE ACCOUNTS
(ALL MORTGAGE LOANS)
INITIAL DEPOSIT TO CURRENT BALANCE
PROPERTY NAME PROPERTY TYPE CAP IMP RSV CAP IMP RSV
- --------------------------------- ------------------------------- ------------------ ---------------
<S> <C> <C>
Candletree Apartments ............ Multifamily $ 25,500.00 $ 0.00
Country House .................... Multifamily 169,503.00 125,385.00
Barrington Manor ................. Multifamily 35,662.50 0.00
Evergreen Apartments ............. Multifamily 0.00 0.00
Bahama Glen ...................... Multifamily 39,086.00 0.00
Cotswold Village Apartments ..... Multifamily 107,637.50 106,550.25
Briarwood Gardens ................ Multifamily 231,900.00 97,327.00
Poplar Springs Apartments I & II Multifamily 24,937.50 24,937.50
Lakeside Townhouse ............... Multifamily 2,562.50 0.00
Versailles Apartments ............ Multifamily 41,100.00 41,100.00
Autumn Run Apartments ............ Multifamily 69,375.00 69,375.00
Sandal Ridge ..................... Multifamily 9,450.00 0.00
Ludren Park ...................... Multifamily 72,375.00 0.00
Mc Queen Village ................. Multifamily* 13,375.00 13,375.00
Chateau Estates .................. Multifamily 129,338.00 202,506.82
Canal House Apartments ........... Multifamily 0.00 0.00
Hudson Bridge Apartments ......... Multifamily 29,938.00 29,938.00
Lawnmont Apartments .............. Multifamily 70,000.00 71,979.42
Hampden House Apartments ......... Multifamily 43,650.00 43,650.00
Beckford Place Apartments ........ Multifamily 11,700.00 11,700.00
Corder Crossing Apartments ...... Multifamily 0.00 0.00
Habersham Court .................. Multifamily 0.00 0.00
El Presidente Apartments ......... Multifamily 56,188.00 57,296.81
Sutton Square Apartments ......... Multifamily 3,375.00 3,375.00
Holiday Hills Apartments ......... Multifamily 5,754.00 7,175.00
Ridgewood Apartments ............. Multifamily 83,530.00 0.00
Payvand Tower .................... Multifamily 13,500.00 13,500.00
Forest Place Apartments .......... Multifamily 0.00 0.00
Oakley Shoals Apartments ......... Multifamily 22,875.00 22,875.00
Poplar Springs Apartments Ph.III Multifamily 31,875.00 31,875.00
Pineview Apartments .............. Multifamily 290,745.00 52,536.01
Oak Trails Apartments ............ Multifamily 56,875.00 56,875.00
Bentwood Apartments .............. Multifamily 48,750.00 0.00
<PAGE>
CAPITAL IMPROVEMENTS AND REPLACEMENT RESERVE ACCOUNTS
(ALL MORTGAGE LOANS) (CONTINUED)
(RESTUBBED TABLE CONTINUED FROM ABOVE)
ANNUAL DEPOSIT TO CURRENT BALANCE RESERVE ACCOUNTS
PROPERTY NAME REPLACEMENT RSV REPLACEMENT RSV AS OF DATE
- --------------------------------- ----------------- --------------- ----------------
Candletree Apartments ............ $95,880.00 $49,201.10 7/30/96
Country House .................... 49,700.00 24,850.02 6/30/96
Barrington Manor ................. 81,000.00 69,462.72 7/30/96
Evergreen Apartments ............. 45,600.00 16,425.04 7/30/96
Bahama Glen ...................... 68,832.00 22,944.00 6/30/96
Cotswold Village Apartments ..... 84,000.00 0.00 6/30/96
Briarwood Gardens ................ 84,365.06 19,038.21 6/30/96
Poplar Springs Apartments I & II 51,840.00 8,640.00 6/30/96
Lakeside Townhouse ............... 43,500.00 13,887.50 6/30/96
Versailles Apartments ............ 32,199.96 18,783.31 6/30/96
Autumn Run Apartments ............ 58,500.00 58,500.00 7/30/96
Sandal Ridge ..................... 53,900.04 4,681.69 6/30/96
Ludren Park ...................... 56,000.04 23,333.35 6/30/96
Mc Queen Village ................. 21,120.00 10,200.00 6/30/96
Chateau Estates .................. 30,000.00 6,683.62 6/30/96
Canal House Apartments ........... 15,975.00 2,662.50 7/30/96
Hudson Bridge Apartments ......... 23,664.00 0.00 8/30/96
Lawnmont Apartments .............. 47,172.00 35,786.16 7/30/96
Hampden House Apartments ......... 28,800.00 7,200.00 6/30/96
Beckford Place Apartments ........ 35,750.04 5,958.34 6/30/96
Corder Crossing Apartments ...... 23,400.00 4,890.66 6/30/96
Habersham Court .................. 10,800.00 0.00 8/30/96
El Presidente Apartments ......... 38,784.00 19,514.96 7/30/96
Sutton Square Apartments ......... 36,189.96 12,063.32 6/30/96
Holiday Hills Apartments ......... 20,799.96 6,933.32 6/30/96
Ridgewood Apartments ............. 25,771.92 0.00 7/30/96
Payvand Tower .................... 10,238.40 5,119.20 6/30/96
Forest Place Apartments .......... 41,307.00 3,442.25 7/30/96
Oakley Shoals Apartments ......... 19,263.96 3,210.66 6/30/96
Poplar Springs Apartments Ph.III 17,280.00 2,880.00 6/30/96
Pineview Apartments .............. 34,503.96 14,376.65 6/30/96
Oak Trails Apartments ............ 67,512.00 0.00 7/30/96
Bentwood Apartments .............. 23,250.00 0.00 7/30/96
S-91
INITIAL DEPOSIT TO CURRENT BALANCE
PROPERTY NAME PROPERTY TYPE CAP IMP RSV CAP IMP RSV
- --------------------------------- ------------------------------- ------------------ ---------------
Whisperwood Apartments ........... Multifamily $ 82,067.00 $ 0.00
Westchester Apartments ........... Multifamily 8,688.00 0.00
Westpark Village Apartments ..... Multifamily 14,687.50 14,687.50
Ivywood Apartments ............... Multifamily 0.00 0.00
Granada Apartments ............... Multifamily 145,125.00 0.00
Lakeside Villa Apts .............. Multifamily 216,375.00 4,500.00
Spanish Main Apartments .......... Multifamily 21,509.00 7,719.56
60 Clarkson Street ............... Multifamily 108,520.00 75,000.00
Ashley Apartments ................ Multifamily 0.00 0.00
329 Main Street .................. Multifamily 46,332.00 11,232.00
Bent Tree Apartments Phase I .... Multifamily 0.00 0.00
Bent Tree Apartments Phase II ... Multifamily 0.00 0.00
Aspen Oaks ....................... Multifamily 350.00 300.00
Elmwood .......................... Multifamily 5,565.00 5,565.00
Landmark Apartments .............. Multifamily 0.00 0.00
Chapin Place ..................... Multifamily 13,080.00 0.00
Hilton Hotel Pleasanton .......... Hotel 115,312.50 115,312.50
Sheraton Crystal City ............ Hotel 35,000.00 35,037.16
Holiday Inn Providence ........... Hotel 161,222.00 91,691.62
Comfort Inn Warwick .............. Hotel 100,000.00 7,436.42
Park Central ..................... Hotel 0.00 0.00
Hilton Hotel Sioux City .......... Hotel 121,395.00 122,546.38
Holiday Inn Lansing .............. Hotel 1,079,050.00 1,080,132.65
Best Western Omaha ............... Hotel 984,375.00 984,375.00
Holiday Inn Wichita .............. Hotel 771,250.00 771,250.00
Hampton Inn Mt. Laurel ........... Hotel 31,806.25 0.00
Best Western Charleston .......... Hotel 31,875.00 32,231.97
Holiday Inn Augusta .............. Hotel 22,000.00 0.00
Best Western Des Moines .......... Hotel 956,125.00 956,125.00
Holiday Inn Richfield ............ Hotel 328,450.00 328,450.00
Hampton Inn Austell .............. Hotel 0.00 0.00
Hawthorne Hotel .................. Hotel 162,531.00 162,531.00
Holiday Inn Oxford ............... Hotel 50,000.00 0.00
<PAGE>
CAPITAL IMPROVEMENTS AND REPLACEMENT RESERVE ACCOUNTS
(ALL MORTGAGE LOANS) (CONTINUED)
ANNUAL DEPOSIT TO CURRENT BALANCE RESERVE ACCOUNTS
PROPERTY NAME REPLACEMENT RSV REPLACEMENT RSV AS OF DATE
- --------------------------------- ----------------- --------------- ----------------
Whisperwood Apartments ........... $ 20,000.00 $ 0.00 9/30/96
Westchester Apartments ........... 17,940.00 6,531.92 6/30/96
Westpark Village Apartments ..... 14,076.00 2,346.00 6/30/96
Ivywood Apartments ............... 16,749.96 0.00 7/30/96
Granada Apartments ............... 19,500.00 0.00 7/30/96
Lakeside Villa Apts .............. 25,374.96 22,424.23 6/30/96
Spanish Main Apartments .......... 22,260.00 3,710.00 7/30/96
60 Clarkson Street ............... 20,750.40 13,833.36 6/30/96
Ashley Apartments ................ 19,536.00 0.00 7/30/96
329 Main Street .................. 9,450.00 0.00 6/30/96
Bent Tree Apartments Phase I .... 12,750.00 0.00 7/30/96
Bent Tree Apartments Phase II ... 12,750.00 0.00 7/30/96
Aspen Oaks ....................... 13,200.00 15,435.09 6/30/96
Elmwood .......................... 9,800.00 5,716.99 6/30/96
Landmark Apartments .............. 10,500.00 7,390.18 7/30/96
Chapin Place ..................... 14,400.00 924.00 6/30/96
Hilton Hotel Pleasanton .......... 459,474.48(1) 114,566.00 7/30/96
Sheraton Crystal City ............ 265,334.40(1) 44,249.59 7/30/96
Holiday Inn Providence ........... 268,356.00(1) 28,926.84 7/30/96
Comfort Inn Warwick .............. 150,782.04(1) 23,868.08 7/30/96
Park Central ..................... 133,224.48(1) 11,102.04 7/30/96
Hilton Hotel Sioux City .......... 205,597.92(1) 84,503.84 7/30/96
Holiday Inn Lansing .............. 150,232.20(1) 83,531.84 7/30/96
Best Western Omaha ............... 140,502.88(1) 11,708.57 7/30/96
Holiday Inn Wichita .............. 121,812.00(1) 10,151.00 7/30/96
Hampton Inn Mt. Laurel ........... 96,264.00(1) 56,382.97 7/30/96
Best Western Charleston .......... 148,894.20(1) 112,032.21 7/30/96
Holiday Inn Augusta .............. 138,555.12(1) 58,639.50 7/30/96
Best Western Des Moines .......... 112,200.00(1) 9,350.00 7/30/96
Holiday Inn Richfield ............ 107,268.48(1) 48,320.00 7/30/96
Hampton Inn Austell .............. 60,000.00(1) 33,052.45 7/30/96
Hawthorne Hotel .................. 192,144.00(1) 16,012.00 6/30/96
Holiday Inn Oxford ............... 94,356.00(1) 15,729.98 7/30/96
S-92
INITIAL DEPOSIT TO CURRENT BALANCE
PROPERTY NAME PROPERTY TYPE CAP IMP RSV CAP IMP RSV
- --------------------------------- ------------------------------- ------------------ ---------------
Comfort Inn Pensacola ............ Hotel $ 35,750.00 $ 35,750.00
Comfort Inn Herndon .............. Hotel 28,968.75 167.03
Sheraton Omaha ................... Hotel 756,880.00 756,880.00
Comfort Inn Duncan ............... Hotel 10,625.00 0.00
Holiday Inn Express Barstow, CA . Hotel 0.00 0.00
Amerihost Inn Plainfield ......... Hotel 19,100.00 19,273.22
Days Inn Plainfield .............. Hotel 1,400.00 1,412.70
Sleep Inn South Jordan ........... Hotel 0.00 0.00
Days Inn Marysville .............. Hotel 6,250.00 6,558.94
Best Western Council Bluff ...... Hotel 171,675.00 171,675.00
Econo Lodge King ................. Hotel 10,000.00 0.00
Days Inn Cloverdale .............. Hotel 1,050.00 1,059.53
Comfort Inn Gainesville .......... Hotel 40,000.00 40,036.28
Comfort Inn Forrest City ......... Hotel 3,750.00 3,784.00
Comfort Inn Gallup ............... Hotel 0.00 0.00
Days Inn Crawfordsville .......... Hotel 5,500.00 5,549.88
Congressional Plaza .............. Retail 0.00 0.00
Concord Plaza Shopping Center ... Retail 16,000.00 16,000.00
Village at Mableton .............. Retail 0.00 0.00
Arlington Plaza .................. Retail 0.00(3) 0.00
Doubletree Shopping Center ...... Retail 34,531.00 0.00
Sunkist Plaza Shopping Center ... Retail 103,563.00 0.00
Newington Plaza .................. Retail 0.00 0.00
Old Colony ....................... Retail 0.00 0.00
Tourist Plaza .................... Retail 1,000.00 1,000.00
Cedar Grove Shopping Center ..... Retail 12,500.00 0.00
Homosassa Springs Plaza .......... Retail 0.00 0.00
Cherry Creek ..................... Retail 0.00 0.00
Second Street Shoppes ............ Retail 0.00 0.00
Circle Mgmt. 3414-3428 Ct. Ave. . Retail 61,329.00 33,838.50
New Paltz Shopping Center ........ Retail 85,000.00 85,000.00
Cambridge Commons Shopping Center Retail 625.00 0.00
<PAGE>
CAPITAL IMPROVEMENTS AND REPLACEMENT RESERVE ACCOUNTS
(ALL MORTGAGE LOANS) (CONTINUED)
ANNUAL DEPOSIT TO CURRENT BALANCE RESERVE ACCOUNTS
PROPERTY NAME REPLACEMENT RSV REPLACEMENT RSV AS OF DATE
- --------------------------------- ----------------- ----------------- ----------------
Comfort Inn Pensacola ............ $ 68,077.00(1) $ 23,804.00 6/30/96
Comfort Inn Herndon .............. 83,220.00(1) 27,125.48 7/30/96
Sheraton Omaha ................... 118,464.00(1) 9,872.00 7/30/96
Comfort Inn Duncan ............... 37,176.00(2) 15,350.50 6/30/96
Holiday Inn Express Barstow, CA . 46,993.68(1) 3,916.14 6/30/96
Amerihost Inn Plainfield ......... 36,000.00(1) 16,710.47 7/30/96
Days Inn Plainfield .............. 34,902.00(1) 20,535.62 7/30/96
Sleep Inn South Jordan ........... 60,937.56(1) 12,506.79 7/30/96
Days Inn Marysville .............. 35,948.04(1) 21,060.35 7/30/96
Best Western Council Bluff ...... 41,815.00(1) 3,484.59 7/30/96
Econo Lodge King ................. 28,716.00(2) 20,251.00 6/30/96
Days Inn Cloverdale .............. 29,388.00(1) 18,218.56 7/30/96
Comfort Inn Gainesville .......... 31,956.00(1) 5,329.08 7/30/96
Comfort Inn Forrest City ......... 120,000.00(1) 31,473.03 7/30/96
Comfort Inn Gallup ............... 24,128.00(1) 20,542.30 7/30/96
Days Inn Crawfordsville .......... 24,096.00(1) 17,132.98 7/30/96
Congressional Plaza .............. 24,977.00 0.00 7/30/96
Concord Plaza Shopping Center ... 24,000.00 168,000.00 6/30/96
Village at Mableton .............. 35,369.58 2,947.47 7/30/96
Arlington Plaza .................. 56,746.20 4,728.85 7/30/96
Doubletree Shopping Center ...... 29,248.80 49,155.75 6/30/96
Sunkist Plaza Shopping Center ... 27,065.40 0.00 8/30/96
Newington Plaza .................. 24,837.00 0.00 7/30/96
Old Colony ....................... 13,062.48 0.00 7/30/96
Tourist Plaza .................... 10,568.04 880.67 7/30/96
Cedar Grove Shopping Center ..... 11,948.04 10,952.27 7/30/96
Homosassa Springs Plaza .......... 11,577.08 0.00 7/30/96
Cherry Creek ..................... 24,187.00 0.00 7/30/96
Second Street Shoppes ............ 4,476.00 0.00 7/30/96
Circle Mgmt. 3414-3428 Ct. Ave. . 5,571.96 0.00 7/30/96
New Paltz Shopping Center ........ 8,281.55 0.00 8/30/96
Cambridge Commons Shopping Center 8,952.00 746.00 7/30/96
S-93
INITIAL DEPOSIT TO CURRENT BALANCE
PROPERTY NAME PROPERTY TYPE CAP IMP RSV CAP IMP RSV
- --------------------------------- ------------------------------- ------------------ ---------------
Walmart Plaza Cobleskill ......... Retail $ 0.00 $ 0.00
Circle Mgmt. 1218-1220 Ct. Ave. . Retail 15,000.00 16,976.70
Dorset Avenue Shopping Center ... Retail 3,000.00 0.00
Walmart Plaza Jamestown .......... Retail 0.00 0.00
Tara Village ..................... Retail 26,062.50 26,062.50
Pleasantdale Village Shopping Ctr Retail 0.00 0.00
32nd Street Shops/Denny's ........ Retail 18,500.00 18,500.00
Metro III Office Building ........ Office 37,500.00 0.00
The Citizens Trust Company Bldg. Office 0.00 0.00
Franciscan Manor ................. Assisted Living/Congregate Care 0.00 0.00
Villa Rose Retirement Apartments Assisted Living/Congregate Care 53,500.00 53,500.00
Bay Bridge Mobile Home Park ..... Mobile Home Park 10,750.00 8,577.81
American Self Storage ............ Self Storage 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL IMPROVEMENTS AND REPLACEMENT RESERVE ACCOUNTS
(ALL MORTGAGE LOANS) (CONTINUED)
ANNUAL DEPOSIT TO CURRENT BALANCE RESERVE ACCOUNTS
PROPERTY NAME REPLACEMENT RSV REPLACEMENT RSV AS OF DATE
- --------------------------------- ----------------- ---------------- ----------------
<S> <C>
Walmart Plaza Cobleskill ......... $ 3,675.96 $ 306.33 6/30/96
Circle Mgmt. 1218-1220 Ct. Ave. . 3,677.04 0.00 7/30/96
Dorset Avenue Shopping Center ... 2,049.96 8,430.85 6/30/96
Walmart Plaza Jamestown .......... 3,508.00 0.00 7/30/96
Tara Village ..................... 31,730.00 3,132.92 7/30/96
Pleasantdale Village Shopping Ctr 0.00 3,055.00 7/30/96
32nd Street Shops/Denny's ........ 2,412.00 0.00 7/30/96
Metro III Office Building ........ 144,468.00 19,852.10 7/30/96
The Citizens Trust Company Bldg. 41,700.00 111,407.85 7/30/96
Franciscan Manor ................. 18,852.00 1,570.83 7/30/96
Villa Rose Retirement Apartments 32,000.00 5,333.34 7/30/96
Bay Bridge Mobile Home Park ..... 14,790.00 27,093.99 6/30/96
American Self Storage ............ 8,800.00 0.00 7/30/96
</TABLE>
- ------------
* Section 42 Multifamily Property.
(1)Annual deposit will fluctuate during term as deposit is a percentage of
prior year's gross income. Amount set forth above has been extrapolated
from historical operating results and may not equal future requirements
for the annual deposit.
(2)Annual deposit will fluctuate during term as deposit is a percentage of
prior month's gross income. Amount set forth above has been extrapolated
from historical operating results and may not equal future requirements
for the annual deposit.
(3)Immediate repairs in the amount $52,000 were required pursuant to the
A&E Report and were completed prior to closing.
S-94
<PAGE>
Additional Information
For a detailed presentation of certain of the characteristics of the
Mortgage Loans and the Mortgaged Properties, on an individual basis, see
Annex A hereto. Certain additional information regarding the Mortgage Loans
is contained in the Prospectus under "SECURITY FOR THE BONDS AND
CERTIFICATES" and "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS."
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASES
At the time of issuance of the Certificates, the Depositor will cause the
Mortgage Loans to be assigned to the Trustee, together with all principal and
interest due on or with respect to such Mortgage Loans, other than principal,
interest and other amounts due on or before the Cut-off Date, Principal
Prepayments received on or before the Cut-off Date and Retained Yield. The
Trustee, concurrently with such assignment, will execute and deliver
Certificates evidencing the beneficial ownership interests in the Trust Fund
to or at the direction of the Depositor in exchange for the Mortgage Loans.
Each Mortgage Loan will be identified in a schedule appearing as an exhibit
to the Trust Agreement (the "Mortgage Loan Schedule"). The Mortgage Loan
Schedule will include, among other things, as to each Mortgage Loan,
information as to its Cut-off Date Balance, Mortgage Rate, current Monthly
Payment and maturity date.
In addition, the Depositor will deliver or cause to be delivered to the
Trustee or to a document custodian appointed by the Trustee (a "Custodian"),
among other things, the following documents with respect to each Mortgage
Loan (collectively, as to each Mortgage Loan, the "Mortgage File"): (i) the
original Mortgage Note, endorsed without recourse to the order of Trustee;
(ii) the original or a copy of each Mortgage, together with originals or
copies of any intervening assignments of such Mortgage, in each case with
evidence of recording indicated thereon; (iii) the original or a copy of each
related assignment of leases (if such item exists and is a document separate
from the corresponding Mortgage), together with originals or copies of any
intervening assignments of such document, in each case with evidence of
recording indicated thereon; (iv) an assignment of each Mortgage in favor of
the Trustee and in recordable form; (v) an assignment of each related
assignment of leases (if such item exists and is a document separate from the
corresponding Mortgage) in favor of the Trustee and in recordable form; (vi)
originals or copies of all assumption, modification and substitution
agreements in those instances where the terms or provisions of a Mortgage
Note or Mortgage have been modified or the Mortgage Loan has been assumed;
and (vii) the original or copy of the lender's title insurance policy or a
marked-up binder or commitment to issue such.
The Trustee or a Custodian on its behalf will be required to review each
Mortgage File within a specified period following its receipt thereof. If any
of the above-described documents is found during the course of such review to
be missing from any Mortgage File or defective, and in either case such
omission or defect materially and adversely affects the interests of the
Certificateholders, the Depositor, if it cannot deliver or cause delivery of
the document or cure or cause the cure of the defect within a period of 90
days following its receipt of notice thereof, will be obligated pursuant to
the Trust Agreement within such 90-day period to repurchase the affected
Mortgage Loan at a price (the "Purchase Price") generally at least equal to
the sum of (i) the unpaid principal balance of such Mortgage Loan, (ii)
unpaid accrued interest on such Mortgage Loan (calculated at the Mortgage
Rate, net of any applicable Retained Yield Rate) to but not including the Due
Date in the Collection Period in which the purchase is to occur, and (iii)
any related unreimbursed Servicing Advances.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any defect or
omission in the Mortgage File for a Mortgage Loan. None of the Depositor's
affiliates or any other person will be obligated to repurchase any Mortgage
Loan as to which there is a material defect or omission in the related
Mortgage File if the Depositor defaults on its obligation to do so. In
connection with any repurchase of a Cross-Collateralized Mortgage Loan
contemplated by the preceding paragraph, if other related
Cross-Collateralized Mortgage Loans secured by Mortgages on the same
Mortgaged Properties are to remain part of the Trust Fund, the
cross-collateralization between the Cross-Collateralized Mortgage Loan to be
repurchased and the other related Cross-Collateralized Mortgage Loans that
are to remain in the Trust Fund, will be severed. If, however, the Servicer
shall determine that such repurchase and the corresponding severance of the
S-95
<PAGE>
cross-collateralization between the Cross-Collateralized Mortgage Loan to be
repurchased and the other related Cross-Collateralized Mortgage Loans that
are to remain in the Trust Fund, is not in the best interests of the
Certificateholders, then the Servicer may direct the Depositor not to
repurchase the Cross-Collateralized Mortgage Loan that it is otherwise
required to repurchase, provided that if such direction is given, the
applicable defect or omission in the related Mortgage File giving rise to the
repurchase obligation will be deemed to have been cured in all respects.
The Trust Agreement will require the Trustee promptly (and in any event
within 30 days of the Closing Date) to cause each of the assignments
described in clauses (iv) and (v) of the third preceding paragraph to be
submitted for recording in the real property records of the jurisdiction in
which the related Mortgaged Property is located. See "THE TRUST
AGREEMENT--Assignment of Mortgage Assets" in the Prospectus.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Trust Agreement, the Depositor will represent and warrant with
respect to each Mortgage Loan, as of the Cut-off Date, or as of such other
date specifically provided in the representation and warranty, among other
things, generally that:
(1) The information pertaining to such Mortgage Loan set forth in the
Mortgage Loan Schedule to the Trust Agreement was true and correct in all
material respects as of the Cut-off Date;
(2) To the actual knowledge of the Depositor, as of the date of its
origination, the Mortgage Loan complied in all material respects with, or
was exempt from, all requirements of federal, state or local law relating
to the origination of such Mortgage Loan;
(3) Except for any Retained Yield with respect to such Mortgage Loan, the
Depositor owns the Mortgage Loan, has full right and authority to sell,
assign and transfer the Mortgage Loan and is transferring the Mortgage
Loan free and clear of any and all liens, pledges, charges or security
interests of any nature encumbering such Mortgage Loan;
(4) The proceeds of such Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder;
(5) To the actual knowledge of the Depositor, each of the related
Mortgage Loan documents executed in connection therewith is the legal,
valid and binding obligation of the maker thereof (subject to any
non-recourse provisions therein and any state anti-deficiency
legislation), enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights
generally, and by general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law), and there
is no valid offset, defense, counterclaim or right to rescission with
respect to any such Mortgage Loan document;
(6) The assignment of each related Mortgage in favor of the Trustee
constitutes the legal, valid and binding assignment of such Mortgage to
the Trustee;
(7) The related Mortgage (or, in the case of a Cross-Collateralized
Mortgage Loan, a related Mortgage) is a valid and enforceable first lien
on the related Mortgaged Property (or, in the case of a
Cross-Collateralized Mortgage Loan, the related Primary Mortgaged
Property), which Mortgaged Property is free and clear of all encumbrances
and liens having priority over, or on a parity with, the first lien of the
Mortgage, except for (a) liens for real estate taxes and special
assessments not yet due and payable, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public record
as of the date of recording of such Mortgage, such exceptions appearing of
record being customarily acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal of such Mortgaged
Property made in connection with the origination of such Mortgage Loan,
(c) other matters to which like properties are commonly subject which do
not, individually or in the aggregate, materially interfere with the
benefits of the security intended to be provided by such Mortgage or
materially affect the value or marketability of such Mortgaged Property,
and (d) if such Mortgage secures a Cross-Collateralized Mortgage Loan, any
lien securing a related Cross-Collateralized Mortgage Loan.
S-96
<PAGE>
(8) All taxes and governmental assessments that prior to the Cut-off
Date became due and owing in respect of, and affect, the related Mortgaged
Property (or, in the case of a Cross-Collateralized Mortgage Loan, the
related Primary Mortgaged Property) have been paid, or an escrow of funds
in an amount sufficient to cover such payments has been established;
(9) To the actual knowledge of the Depositor, there is no proceeding
pending for the total or partial condemnation of the related Mortgaged
Property (or, in the case of a Cross-Collateralized Mortgage Loan, the
related Primary Mortgaged Property) that materially affects the value
thereof, and such Mortgaged Property is free of material damage;
(10) To the actual knowledge of the Depositor, all insurance required
under the Mortgage for such Mortgage Loan is in full force and effect with
respect to the related Mortgaged Property (or, in the case of a
Cross-Collateralized Mortgage Loan, the related Primary Mortgaged
Property);
(11) As of the Cut-off Date, no Mortgage Loan is 30 days or more past due
in respect of any Monthly Payment; and
(12) One or more environmental site assessments were performed with
respect to the related Mortgaged Property (or, in the case of a
Cross-Collateralized Mortgage Loan, the related Primary Mortgaged
Property) during the 18-month period preceding the Cut-off Date, and the
Depositor having made no independent inquiry other than to review the
report(s) prepared in connection with the assessments referenced herein,
has no knowledge of any material and adverse environmental condition or
circumstance affecting such Mortgaged Property that was not disclosed in
such report(s).
In the case of a breach of any of the foregoing representations and
warranties that materially and adversely affects the interests of the
Certificateholders, the Depositor, if it cannot cure such breach within a
period of 90 days following its discovery or its receipt of notice thereof,
will be obligated pursuant to the Trust Agreement within such 90-day period
to repurchase the affected Mortgage Loan at its applicable Purchase Price.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any uncured breach of
the Depositor's representations and warranties regarding the Mortgage Loans.
The Depositor will be the sole warranting party in respect of the Mortgage
Loans, and none of its affiliates or any other person will be obligated to
repurchase any affected Mortgage Loan in connection with a material breach of
the Depositor's representations and warranties if the Depositor defaults on
its obligation to do so. See "THE TRUST AGREEMENT--Repurchase of
Non-Conforming Loans" in the Prospectus. In connection with any repurchase of
a Cross-Collateralized Mortgage Loan contemplated by the preceding paragraph,
if other related Cross-Collateralized Mortgage Loans secured by Mortgages on
the same Mortgaged Properties are to remain part of the Trust Fund, the
cross-collateralization between the Cross-Collateralized Mortgage Loan to be
repurchased and the other related Cross-Collateralized Mortgage Loans that
are to remain in the Trust Fund, will be severed. If, however, the Servicer
shall determine that such repurchase and the corresponding severance of the
cross-collateralization between the Cross-Collateralized Mortgage Loan to be
repurchased and the other related Cross-Collateralized Mortgage Loans that
are to remain in the Trust Fund, is not in the best interests of the
Certificateholders, then the Servicer may direct the Depositor not to
repurchase the Cross-Collateralized Mortgage Loan that it is otherwise
required to repurchase, provided that if such direction is given, the
applicable breach giving rise to the repurchase obligation will be deemed to
have been cured in all respects.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, 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 Mortgage Pool if the Depositor deems such
removal necessary or appropriate or if it is prepaid. The
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Depositor believes that the information set forth herein will be
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued, although the
range of Mortgage Rates and maturities, as well as the other characteristics
of the Mortgage Loans described herein, may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Closing Date
and will be filed, together with the Trust Agreement, with the Securities and
Exchange Commission within fifteen days after the initial issuance of the
Offered Certificates. In the event Mortgage Loans are removed from or added
to the Mortgage Pool as set forth in the preceding paragraph, such removal or
addition will be noted in the Form 8-K.
SERVICING OF MORTGAGE LOANS
GENERAL
The servicing of the Mortgage Loans and any REO Properties will be
governed by the Trust Agreement, as well as by a servicing agreement (the
"Servicing Agreement") and a special servicing agreement (the "Special
Servicing Agreement", and together with the Trust Agreement and the Servicing
Agreement, the "Transaction Documents"), each to be dated as of the Cut-off
Date, among the Trustee, the Depositor, the Servicer and the Special
Servicer. The following summaries describe certain provisions of the
Transaction Documents relating to the servicing and administration of the
Mortgage Loans and any REO Properties. The summaries do not purport to be
complete and are subject, and qualified in their entirety by reference, to
the provisions of the Transaction Documents. When particular provisions or
terms used in the Transaction Documents are referred to herein, the actual
provisions (including definitions of terms) are deemed to be incorporated
herein by reference. Reference is made to the Prospectus for additional
information regarding the terms of the Transaction Documents relating to the
servicing and administration of the Mortgage Loans and any REO Properties,
provided that the information herein supersedes any contrary information set
forth in the Prospectus. See "SERVICING OF MORTGAGE LOANS" and "THE TRUST
AGREEMENT" in the Prospectus.
The Servicer and the Special Servicer, either directly or, in the case of
the Servicer, through Sub-Servicers, each will be required to service and
administer the Mortgage Loans during the time it is responsible for such
servicing and administration, for and on behalf of the Trustee and for the
benefit of the Certificateholders, in accordance with applicable law and the
actual provisions of the Transaction Documents, the respective Mortgage Loans
and the related Insurance Policies (as defined in the Prospectus) and, to the
extent consistent with the foregoing, in accordance with the applicable
Accepted Servicing Practices (as described below for each of the Servicer and
the Special Servicer under "--The Servicer" and "--The Special Servicer",
respectively).
The Servicer initially will, with limited exceptions, be responsible for
the servicing and administration of the entire Mortgage Pool. Upon the
occurrence of a Servicing Transfer Event with respect to any Mortgage Loan,
and prior to acceleration of amounts due under the related Mortgage Note or
commencement of any foreclosure or similar proceedings, the Servicer will
transfer its servicing responsibilities with respect to such Mortgage Loan to
the Special Servicer (whereupon it will become a "Specially Serviced Mortgage
Loan"), but will continue to receive payments on such Mortgage Loan
(including amounts collected by the Special Servicer), to make certain
calculations with respect to such Mortgage Loan, to make remittances to the
Trustee and prepare certain reports to the Certificateholders with respect to
such Mortgage Loan and to make Servicing Advances and/or to reimburse the
Special Servicer for any reimbursable servicing expenses incurred thereby
with respect to such Mortgage Loan. If any Mortgaged Property is acquired on
behalf of the Trust, whether through foreclosure, deed-in-lieu of foreclosure
or otherwise, the Special Servicer will be responsible for the operation and
management thereof. The Special Servicer, in addition to its duties with
respect to the Specially Serviced Mortgage Loans and REO Properties and in
accordance with applicable Accepted Servicing Practices, will be responsible
for (i) conducting (or retaining a third party to conduct) inspections of
each Mortgaged Property at least once a year, (ii) collecting and making
certain calculations based on, annual and quarterly operating statements and
rent rolls with respect to each Mortgaged Property, and (iii) making
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reasonable efforts to collect any delinquent Monthly Payment and any other
payments required under the terms and provisions of the related Mortgage Loan
upon notification by the Servicer that the related borrower is delinquent and
that the Servicer has made an initial contact with such borrower in
connection with such delinquency. The Servicer will have no responsibility
for the Special Servicer's performance of its duties under the Transaction
Documents.
A "Servicing Transfer Event" means, with respect to any Mortgage Loan, the
occurrence of any of the following: (i) if such Mortgage Loan is a Balloon
Loan, a payment default occurs on such Mortgage Loan at its maturity date and
the Servicer does not extend the maturity of such Mortgage Loan within 31
days following its maturity date; (ii) any Monthly Payment becomes more than
60 days delinquent; (iii) a payment default occurs or, in the judgment of the
Servicer, is imminent and is not likely to be cured by the related borrower
within 60 days of such occurrence (and, in the case of a Balloon Payment, the
maturity of such Mortgage Loan is not likely to be extended by the Servicer
within 31 days following such Mortgage Loan's maturity date); (iv) any other
default occurs that, in the good faith judgment of the Servicer, materially
impairs the use or marketability of any related Mortgaged Property or the
value thereof as security for such Mortgage Loan; (v) the related borrower
enters into or consents to bankruptcy, appointment of a receiver or
conservator, or a similar insolvency or similar proceeding, or the related
borrower becomes the subject of a decree or order for such a proceeding that
remains in full force undischarged or unstayed for a period of 60 days; (vi)
the related borrower admits in writing its inability to pay its debts
generally as they become due, files a petition to take advantage of any
applicable insolvency or reorganization statute, makes an assignment for the
benefit of its creditors or voluntarily suspends payment of its obligations;
or (vii) the Servicer receives notice of the foreclosure or proposed
foreclosure of any lien on any related Mortgaged Property.
If, in the case of any Specially Serviced Mortgage Loan as to which a
Servicing Transfer Event specified in clause (i), (ii) or (iii) of the
preceding paragraph has occurred, three consecutive Monthly Payments have
been made, whether in accordance with such loan's original terms or its terms
as modified in accordance with the Transaction Documents, or if, in the case
of any Specially Serviced Mortgage Loan as to which a Servicing Transfer
Event specified in clause (iv), (v), (vi) or (vii) has occurred, such event
has been remedied, cured or otherwise resolved (whereupon, in either case,
such Specially Serviced Mortgage Loan shall become a "Rehabilitated Mortgage
Loan"), the Special Servicer will transfer back the servicing
responsibilities therefor to the Servicer, and the Servicer will be required
to resume servicing such Mortgage Loan pursuant to the terms of the
Transaction Documents.
THE SERVICER
General
GMAC Commercial Mortgage Corporation, a California corporation, will act
as Servicer with respect to the Mortgage Pool. As of May 31, 1996, the
Servicer had a net worth of approximately $36.7 million and a total
commercial and multifamily mortgage loan servicing portfolio (including
mortgage loans serviced for its own account and for others) of approximately
$18.3 billion. The Servicer's principal executive offices are located at 650
Dresher Road, Horsham, Pennsylvania 19044-8015, and its telephone number is
(215) 682-1000. The Servicer conducts operations from its headquarters in
Pennsylvania and from offices located in California, Colorado, Maryland,
Illinois, Michigan, Minnesota, Missouri, Nebraska, New York, Ohio, Texas,
Virginia, Washington and Wisconsin. The foregoing information concerning the
Servicer has been provided by it. Accordingly, neither the Depositor nor the
Underwriter makes any representation or warranty as to the accuracy or
completeness of such information.
The Servicer will perform various customary functions of a servicer of
mortgage loans comparable to the Mortgage Loans including the collection of
Monthly Payments and, if required by the related Mortgage and/or Mortgage
Note, escrow payments, the establishment and maintenance of escrow accounts
(if permitted by the related Mortgage and/or Mortgage Note) for the
collection of escrow payments in respect of hazard insurance premiums, real
estate taxes and assessments and similar items with respect to the Mortgage
Loans (including Specially Serviced Mortgage Loans), and the establishment
and maintenance of any capital improvements reserve, replacement reserve or
any other reserve fund with respect to any Mortgaged Property pursuant to the
terms of the related Mortgage.
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The Servicing Agreement will provide that the Servicer will comply with
the REMIC Provisions.
Accepted Servicing Practices
"Accepted Servicing Practices" means, in the case of the Servicer, the
same manner in which, and with the same care, skill, prudence and diligence
with which, the Servicer generally services and administers similar mortgage
loans for other portfolios or held in its own portfolio, whichever servicing
procedure is of a higher standard, but without regard to (i) any relationship
that the Servicer or any affiliate thereof may have with the related
borrower; (ii) the ownership of any Certificate by the Servicer or any
affiliate thereof; (iii) the Servicer's obligation to make Advances (as
defined herein); and (iv) the Servicer's right to receive compensation for
its services under the Servicing Agreement or with respect to any particular
transaction.
Servicer Compensation and Payment of Expenses
The Servicer will be entitled to a monthly fee (the "Servicing Fee"),
payable out collections and advances of interest on or in respect of, and
equal to one month's interest (calculated on the basis of a 360-day year
consisting of twelve 30-day months) at the applicable Servicing Fee Rate on
the Scheduled Principal Balance as of the first day of each Due Period of,
each Mortgage Loan (including Mortgage Loans as to which the related
Mortgaged Property has become an REO Property). The "Servicing Fee Rate" for:
(i) each Mortgage Loan (other than a Specially Serviced Mortgage Loan or a
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property) will vary on a loan-by-loan basis and will range from 0.227% per
annum to 0.237% per annum, with a weighted average Servicing Fee Rate of
0.236% per annum as of the Cut-off Date; and (ii) each Specially Serviced
Mortgage Loan and each Mortgage Loan as to which the related Mortgaged
Property has become an REO Property will equal 0.125% per annum. The Servicer
will be entitled to receive, as additional compensation, default interest and
late fees that are collected by the Servicer with respect to Mortgage Loans
(other than Specially Serviced Mortgage Loans) and not otherwise applied to
cover interest on Advances, and any interest or other income earned on any
investment of the funds in the Custodial Account. See "SERVICING OF MORTGAGE
LOANS--Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Servicer, and for
information regarding expenses payable by the Servicer.
Adjustment to Servicer's Fee in Connection with Prepaid Mortgage Loans
If a borrower makes a Principal Prepayment or Balloon Payment prior to the
Due Date for a Mortgage Loan in any Collection Period and fails to pay
interest on such Principal Prepayment or the principal portion of such
Balloon Payment through such Due Date, a Prepayment Interest Shortfall will
result. If a borrower makes a Principal Prepayment or Balloon Payment after
the Due Date for a Mortgage Loan during any Collection Period, Excess
Prepayment Interest may arise. See "DESCRIPTION OF THE CERTIFICATES--
Prepayment Interest Shortfalls and Excess Prepayment Interest" herein.
In order to mitigate any Prepayment Interest Shortfalls (not including
any such shortfalls arising from Principal Prepayments due to casualty,
condemnation or default) in full or in part on the Mortgage Loans, the
amount of the Servicing Fee (but not the fees payable to the Special
Servicer or the Trustee) will be reduced by the amount that the aggregate of
all Prepayment Interest Shortfalls for all Mortgage Loans for any Collection
Period exceeds Excess Prepayment Interest for all Mortgage Loans for such
Collection Period. Any remaining Net Aggregate Prepayment Interest Shortfall
will be allocated among the respective Classes of Regular Interest
Certificates as set forth under "DESCRIPTION OF THE CERTIFICATES--Prepayment
Interest Shortfalls and Excess Prepayment Interest" herein. To the extent the
aggregate of all Excess Prepayment Interest for all Mortgage Loans for any
Collection Period exceeds the aggregate of all Prepayment Interest Shortfalls
for all Mortgage Loans for such Collection Period, such excess amount will be
payable to the Servicer as additional compensation.
Servicer's Use of Sub-Servicers
The Servicer (but not the Special Servicer) may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"), which will
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generally be the respective originators of the Mortgage Loans; provided that
the Servicer will remain primarily obligated under the Transaction Documents.
Each sub-servicing agreement between the Servicer and a Sub-Servicer (each, a
"Sub-Servicing Agreement") must provide that, if for any reason the Servicer
is no longer acting in such capacity, the Trustee or any other successor to
the Servicer may assume the Servicer's rights and obligations under such
Sub-Servicing Agreement or terminate such agreement. The Servicer will be
required to monitor the performance of Sub-Servicers retained by it, and it
or the Depositor will each have the right to remove a Sub-Servicer upon the
occurrence of an event of default under the related Sub-Servicing Agreement
or the payment of a termination fee.
The Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether its compensation pursuant to the
Transaction Documents is sufficient to pay such fees. Each Sub-Servicer will
be reimbursed by the Servicer for certain expenditures which it makes,
generally to the same extent the Servicer would be reimbursed under the
Transaction Documents.
THE SPECIAL SERVICER
General
CRIIMI MAE Services Limited Partnership, a Maryland limited partnership,
the general partner of which is CRIIMI MAE Management, Inc., will act as
Special Servicer with respect to the Mortgage Pool. The principal offices of
the Special Servicer are located at 11200 Rockville Pike, Rockville, Maryland
20852. As of August 31, 1996, the Special Servicer was responsible for the
servicing of approximately 1,000 commercial and multifamily loans with an
aggregate principal balance of approximately $3.8 billion, the collateral for
which is located in 47 states. The foregoing information concerning the
Special Servicer has been provided by it. Accordingly, neither the Depositor
nor the Underwriter makes any representation or warranty as to the accuracy
or completeness of such information.
The Special Servicer will, among other things, oversee the resolution of
Specially Serviced Mortgage Loans, act as disposition manager of REO
Properties acquired on behalf of the Trust through foreclosure or deed in
lieu of foreclosure, maintain insurance with respect to REO Properties and
provide monthly reports to the Servicer and the Trustee. The Special Servicer
will be required, as and to the extent described herein, to seek advice and
approval and take direction from the Operating Adviser. The Special Servicer,
in addition to its duties with respect to the Specially Serviced Mortgage
Loans and in accordance with applicable Accepted Servicing Practices, will be
responsible for (i) conducting (or retaining a third party to conduct)
inspections of each Mortgaged Property at least once a year, (ii) collecting
and making certain calculations based on annual and quarterly operating
statements and rent rolls with respect to each Mortgaged Property, and (iii)
making reasonable efforts to collect any delinquent Monthly Payment and any
other payments required under the terms and provisions of the related
Mortgage Loan upon notification by the Servicer that the related borrower is
delinquent and that the Servicer has made an initial contact with such
borrower in connection with such delinquency.
The Special Servicing Agreement will provide that the Special Servicer
will comply with the REMIC Provisions.
Accepted Servicing Practices
"Accepted Servicing Practices" means, in the case of the Special Servicer,
the same care, skill and diligence with which prudent institutional
commercial mortgage lenders, loan servicers and asset managers service
performing and non-performing mortgage loans comparable to the Specially
Serviced Mortgage Loans and/or administer real properties comparable to the
REO Properties (and, in any event, with at least the same care, skill,
prudence and diligence with which the Special Servicer generally services
comparable mortgage loans and real properties owned by it) and with a view to
the maximization of related Net Collections on a present value basis (the
relevant discounting to be performed at the related Net Mortgage Rate), but
without regard to: (i) any relationship that the Special Servicer or any
affiliate of the Special Servicer may have with the related borrower; (ii)
the ownership of any Certificate by the
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Special Servicer or any affiliate of the Special Servicer; (iii) the Special
Servicer's right to receive compensation for its services under the
Transaction Documents or with respect to any particular transaction; and (iv)
the servicing by the Servicer of the Mortgage Loans that are not Specially
Serviced Mortgaged Loans.
"Net Collections" will generally consist of, with respect to any Specially
Serviced Mortgage Loan, Rehabilitated Mortgage Loan or REO Property, the
total of (i) any payments with respect to such Mortgage Loan, (ii) net
operating income with respect to the related Mortgaged Property or such REO
Property, and/or (iii) net Liquidation Proceeds with respect to such Mortgage
Loan or REO Property, that is, in each such case, allocable as a recovery of
principal of and/or interest (adjusted to the related Net Mortgage Rate) on
such Mortgage Loan or, in the case of an REO Property, the related Mortgage
Loan or as a recovery of a Prepayment Premium with respect thereto, net of
any portion thereof that constitutes Retained Yield.
Special Servicer Compensation and Payment of Expenses
The Special Servicing Agreement will provide that the Special Servicer
will be entitled to certain fees, including (a) a monthly fee (the "Special
Servicing Basic Fee"), payable out of collections and advances of interest on
or in respect of, and equal to one month's interest (calculated on the basis
of a 360-day year consisting of twelve 30-day months) at 0.05% per annum (the
"Special Servicing Basic Fee Rate") on the Scheduled Principal Balance as of
the first day of each Due Period of, each Mortgage Loan (including Mortgage
Loans as to which the related Mortgaged Property has become an REO Property),
and (b) an additional monthly fee (the "Special Servicing Supplemental Fee"),
payable out of collections and advances of interest on or in respect of the
Specially Serviced Mortgage Loans and the Mortgage Loans as to which the
related Mortgaged Properties have become an REO Property, equal to the
excess, if any, of (i) one month's interest (calculated on the basis of a
360-day year consisting of twelve 30-day months) at 0.25% per annum on the
aggregate Scheduled Principal Balance as of the first day of each Due Period
of all such Mortgage Loans, over (ii) the aggregate Special Servicing Basic
Fee for the entire Mortgage Pool for such Due Period. In addition, the
Special Servicer will be entitled to receive, as additional compensation,
assumption fees that are collected by the Special Servicer or the Servicer
with respect to the Mortgage Loans and all modification fees that are
collected by the Servicer with respect to the Mortgage Loans. The Servicing
Agreement permits the Servicer, at the direction of the Special Servicer, to
extend the term of a Balloon Loan for a period not to exceed one year past
its original maturity date upon the satisfaction of certain conditions stated
in the Servicing Agreement, and the Special Servicer will be entitled to any
reasonable modification fee collected in connection therewith. See
"--Mortgage Loan Modifications" herein.
With respect to any Mortgage Loan, as of any date of determination, the
Special Servicing Basic Fee Rate, the then applicable Servicing Fee Rate for
such loan and the Trustee Fee Rate will collectively constitute the
"Administrative Cost Rate".
THE OPERATING ADVISER
Election of the Operating Adviser
The holder or holders of Certificates with an aggregate Certificate
Principal Amount equal to more than 50% of the aggregate Certificate
Principal Amount of the Controlling Class will be entitled to elect an
adviser (the "Operating Adviser") from whom the Special Servicer will seek
advice and approval and take direction as described below. Upon (i) the
receipt by the Trustee of written requests for an election of an Operating
Adviser from the holders of Certificates representing more than 50% of the
aggregate Certificate Principal Amount of the then Controlling Class, (ii)
the resignation or removal of the person acting as Operating Adviser or (iii)
a determination by the Trustee that the Controlling Class has changed, an
election of a successor Operating Adviser will be held commencing as soon as
practicable thereafter. The Operating Adviser may be removed at any time by
the written vote of holders of Certificates representing more than 50% of the
aggregate Certificate Principal Amount of the then Controlling Class. Prior
to the election of the initial Operating Adviser, and in the event that an
Operating Adviser shall
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have resigned or been removed and a successor Operating Adviser shall not
have been elected, there shall be no Operating Adviser; and, notwithstanding
anything to the contrary described herein, the Special Servicer shall not
have any right or obligation to notify, to consult with or to seek and/or
obtain approval or direction from an Operating Adviser, and the Special
Servicer may act in accordance with the provisions of the Transaction
Documents without providing such notice, engaging in such consultation or
seeking or obtaining such approval or direction, in any event during any such
period that there is no Operating Adviser.
The "Controlling Class" will be, as of any date of determination, the
Class of Sequential Pay Certificates with the latest alphabetical Class
designation that has a then aggregate Certificate Principal Amount (net of
any Uncovered Portion thereof) at least equal to the lesser of (i) 25% of the
initial aggregate Certificate Principal Amount of such Class of Sequential
Pay Certificates as of the Closing Date and (ii) 2% of the aggregate
Certificate Principal Amount (net of any Uncovered Portion thereof) of all
the Sequential Pay Certificates as of such date of determination.
If, at any time, the aggregate Assigned Asset Value of the Mortgage Pool
is less than the aggregate Certificate Principal Amount of the Sequential Pay
Certificates, such deficit will be allocated among the respective Classes of
Sequential Pay Certificates, in reverse alphabetical order of Class
designation, in each case, to the extent of the aggregate Certificate
Principal Amount of the particular Class of Certificates. Such allocation
will not reduce the aggregate Certificate Principal Amount of any Class of
Sequential Pay Certificates and is intended solely to identify the portion
(the "Uncovered Portion") of the aggregate Certificate Principal Amount of
each such Class for which there is at such time no corresponding aggregate
Assigned Asset Value of the Mortgage Pool.
The "Assigned Asset Value" of any Mortgage Loan (other than a Required
Appraisal Loan), as of any date of determination, will be the Stated
Principal Balance of such Mortgage Loan as of such date of determination. The
"Assigned Asset Value" of any Required Appraisal Loan, as of any date of
determination, will be (a) the Stated Principal Balance of such Required
Appraisal Loan as of such date of determination, reduced (to not less than
zero) by (b) any Appraisal Reduction Amount applicable to such Required
Appraisal Loan as of such date of determination.
Duties of the Operating Adviser
Subject to the last paragraph under this "--The Operating Adviser--Duties
of the Operating Adviser" subsection, the Special Servicer will not be
permitted to take any of the following actions if the Operating Adviser shall
have objected to such action within five Business Days of receiving written
notice of the Special Servicer's intention to take such action (if such
written objection has not been received by the Special Servicer within such
five Business Day period, then the Operating Adviser's approval will be
deemed to have been given):
(i) any foreclosure upon or comparable conversion (which may include
acquisition of an REO Property) of the ownership of properties securing
such of the Specially Serviced Mortgage Loans as come into and continue in
default;
(ii) any modification of a monetary term of a Mortgage Loan other than a
modification consisting of the extension of the maturity date of a
Mortgage Loan for one year or less;
(iii) any proposed sale of a defaulted Mortgage Loan or REO Property
(other than in connection with the termination of the Trust Fund as
described under "DESCRIPTION OF THE CERTIFICATES--Optional Termination"
herein);
(iv) any determination to bring an REO Property into compliance with
applicable environmental laws;
(v) any acceptance of substitute or additional collateral for a Mortgage
Loan;
(vi) any waiver of a "due-on-sale" or "due-on-encumbrance" clause; and
(vii) any acceptance of an assumption agreement releasing a borrower from
liability under a Mortgage Loan.
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In addition, the Operating Adviser may direct the Special Servicer to
take, or to refrain from taking, such other actions as the Operating Adviser
may deem advisable or as to which provision is otherwise made in the
Transaction Documents. Notwithstanding the foregoing, the Special Servicer
shall ignore any objection of the Operating Adviser delivered pursuant to the
second preceding paragraph, and shall refuse to follow any direction of the
Operating Adviser given pursuant to the preceding paragraph, if acting or
refraining from acting, as the case may be, in accordance with such objection
or direction would be inconsistent with Accepted Servicing Practices or, in
the case of any such direction, would require or cause the Special Servicer
to violate any provision of the Transaction Documents, including the Special
Servicer's obligation to act in accordance with the servicing standards
described under "--General" above, or expose the Servicer, the Special
Servicer, the Trust or the Trustee to liability, or materially expand the
scope of the Special Servicer's responsibilities under the Transaction
Documents.
Limitation on Liability of Operating Adviser
The Operating Adviser will have no liability to the Trust Fund or the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Trust Agreement, or for errors in
judgment; provided that the Operating Adviser will not be protected against
any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties. By its acceptance of a
Certificate, each Certificateholder confirms its understanding that the
Operating Adviser may take actions that favor the interests of one or more
Classes of the Certificates over other Classes of the Certificates, and that
the Operating Adviser may have special relationships and interests that
conflict with those of holders of some Classes of the Certificates, and
further each Certificateholder agrees to take no action against the Operating
Adviser or any of its officers, directors, employees, principals or agents as
a result of such a special relationship or conflict.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Substantially all of the Mortgages contain "due-on-sale" and
"due-on-encumbrance" provisions, that, in general, entitle the holder thereof
to accelerate the maturity of the related Mortgage Loan upon any sale or
other transfer of, or upon the creation of any lien or other encumbrance
upon, a related Mortgaged Property or prohibit the borrower from doing so
without the consent of the lender. The Special Servicer (in the case of any
Mortgage Loan) will determine whether to exercise any right the Trustee may
have under any such due-on-sale or due-on-encumbrance provision in a manner
consistent with the applicable Accepted Servicing Practices; provided that,
in the case of Mortgage Loans other than Specially Serviced Mortgage Loans,
the enforcement of such rights shall be performed by the Servicer at the
direction of the Special Servicer. See "--The Operating Adviser" above
regarding the Operating Adviser's rights to direct or object to the Special
Servicer's actions in connection with respect to the foregoing. The Special
Servicer will be entitled to retain as additional servicing compensation any
fee collected in connection with the permitted transfer of a Mortgaged
Property.
MAINTENANCE OF INSURANCE
To the extent consistent with applicable Accepted Servicing Practices, for
each Mortgage Loan that requires the borrower to, or permits the mortgagee to
require the borrower to, maintain such insurance, the Servicer is to cause
the related borrower to maintain fire and casualty insurance with extended
coverage in an amount which is not less than the lesser of (i) the full
replacement cost of the improvements securing such Mortgage Loan or (ii) the
unpaid principal balance of such Mortgage Loan, but, in any event, in an
amount sufficient to avoid the application of any co-insurance clause, unless
otherwise specified by the related Mortgage Loan. If the borrower fails to
maintain the fire and casualty insurance required by the related Mortgage
Loan, the Servicer will be obligated to obtain such insurance (which may be
through a master or single interest blanket insurance policy). The cost
(including any deductible relating to such insurance) of such insurance (or,
in the case of a master or single interest blanket insurance policy, the
incremental cost (including any deductible relating to such insurance) of
such insurance related to the specific Mortgaged Property), will be a
Servicing Advance reimbursable to
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the Servicer as described herein. See "DESCRIPTION OF THE
CERTIFICATES--Advances" herein. If, at any time, a Mortgaged Property is
located in an area identified in the Flood Hazard Boundary Map or Flood
Insurance Rate Map issued by the Federal Emergency Management Agency as
having special flood hazards (and such flood insurance has been made
available), the Servicer will be obligated, if and to the extent the Mortgage
Loan requires the borrower or permits the mortgagee to require the borrower
to do so, cause the related borrower to maintain a flood insurance policy
meeting the requirements of the current guidelines of the Federal Insurance
Administration in the maximum amount of insurance coverage available under
the National Flood Insurance Act of 1968, the Flood Disaster Protection Act
of 1973 or the National Flood Insurance Reform Act of 1994, as amended,
unless otherwise specified by the related Mortgage Loan. If the borrower is
required, pursuant to the terms of the Mortgage Loan, to maintain such
insurance but fails to maintain such flood insurance, the Servicer will be
obligated to obtain such insurance, the cost of which shall be a Servicing
Advance reimbursable to the Servicer as described herein. The Servicer is
also to cause to be maintained with respect to each Mortgaged Property all
other insurance coverage required by the related Mortgage Loan documents, and
to the extent that such Mortgage Loan documents provide that the insurance
coverage required with respect to such Mortgaged Property shall be within the
discretion of the mortgagee, the Servicer is to require all such coverage
required by law and consistent with applicable Accepted Servicing Practices,
including insurance relating to vandalism and malicious mischief, business
interruption, loss of rental value, business automobile liability, liquor
liability, personal and advertising liability, false arrest, libel and
slander, as applicable. If the borrower fails to maintain such other
insurance coverage, the Servicer will be obligated to obtain such insurance,
the cost of which shall be a Servicing Advance reimbursable to the Servicer
as described herein. All such policies are to name the Servicer on behalf of
the Trust as loss payee and to be endorsed with a standard mortgagee clause.
For each REO Property, to the extent consistent with applicable Accepted
Servicing Practices, the Special Servicer will be required to maintain fire
and casualty insurance with extended coverage in an amount which is not less
than the full replacement cost of the improvements of such REO Property, with
a deductible not to exceed a customary amount for the risk insured. If, at
any time, any REO Property is located in an area identified in the Flood
Hazard Boundary Map or Flood Insurance Rate Map issued by the Federal
Emergency Management Agency as having special flood hazards (and such flood
insurance has been made available), the Special Servicer is to cause a flood
insurance policy to be maintained for such REO Property 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 coverage required under the National Flood Insurance Act
of 1968, the Flood Disaster Protection Act of 1973 or the National Flood
Insurance Reform Act of 1994, as amended. The Special Servicer will be
obligated to cause to be maintained with respect to each REO Property all
other insurance coverage required by law and consistent with applicable
Accepted Servicing Practices, including insurance relating to vandalism and
malicious mischief, business interruption, loss of rental value, business
automobile liability, liquor liability, personal and advertising liability,
false arrest, libel and slander, as applicable. All such policies are to name
the Trustee on behalf of the Trust as loss payee and to be endorsed with a
standard mortgagee clause. The cost of maintaining all such insurance
coverage (whether through direct payment or reimbursement to the Special
Servicer) shall constitute a Servicing Advance reimbursable to the Servicer
as described herein.
In the event that the Servicer or Special Servicer shall obtain and
maintain a blanket policy insuring against hazard losses on all of the
related Mortgaged Properties (in the case of the Servicer) or the REO
Properties (in the case of the Special Servicer), it will conclusively be
deemed to have satisfied its obligation to maintain fire and casualty
insurance as set forth above. However, such policy may contain a deductible
clause, in which case the Servicer or the Special Servicer, as the case may
be, will, in the event that there shall not have been maintained on the
related Mortgaged Property or REO Property a fire and casualty insurance
policy complying with the requirements described above and there shall have
been a loss which would have been covered by such a policy had it been
maintained, be required to cover out of its own funds the amount not
otherwise payable under the blanket policy because of such deductible clause.
The cost of any such blanket policy shall be an expense of the Servicer or
the Special Servicer, as
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the case may be, and not of the Trust, except that any incremental cost
attributable to a particular Mortgage Loan or REO Property shall be paid, or
reimbursed to the Special Servicer, as the case may be, by a Servicing
Advance reimbursable to the Servicer as described herein.
Consistent with Accepted Servicing Practices, the Servicer and the Special
Servicer will each be required to prepare and present, or cause to be
prepared and presented, on behalf of the Trustee, all claims under the
insurance policies described above with respect to, as applicable, each
Mortgage Loan (in the case of the Servicer) and REO Property (in the case of
the Special Servicer), and take such actions (including the negotiation,
settlement, compromise or enforcement of the insured's claim) as shall be
necessary to realize recovery under such policies. Any extraordinary costs
(but not ordinary, routine costs) of taking the actions required by the
preceding sentence shall be paid, or reimbursed to the Special Servicer, as
the case may be, by a Servicing Advance reimbursable to the Servicer as
described herein.
MORTGAGE LOAN MODIFICATIONS
The Servicer will, at the direction of the Special Servicer, agree to
extend the maturity date of a Balloon Loan for one year or less from or after
the maturity date of such Balloon Loan if: (i) the Special Servicer
determines (such determination to be documented to the Trustee) that such
extension is likely to produce a greater recovery of Net Collections on a
present value basis (the relevant discounting to be performed at the related
Net Mortgage Rate) than liquidation of such Balloon Loan; (ii) a payment
default has occurred at maturity of such Balloon Loan or, in the good faith
judgment of the Servicer, is reasonably foreseeable at maturity of the
Mortgage Loan and will not be cured within sixty days from the maturity date;
(iii) the debt service coverage ratio of such Mortgage Loan (or, if such
Mortgage Loan is part of a Group of Cross-Collateralized Mortgage Loans, of
such Group) is greater than or equal to 125%; and (iv) except as contemplated
in clause (ii) above, no payment due from the related borrower on such
Mortgage Loan has been 30 or more days delinquent within the past twelve
months. However, no extension entered into by the Servicer may be for a
period of more than one year from the maturity date of such Mortgage Loan or
shall extend the maturity date beyond two years prior to the Rated Final
Distribution Date. No more than one such extension may be granted by the
Servicer with respect to any particular Mortgage Loan. The Servicer may not
otherwise agree to any modification, waiver or amendment of a Mortgage Loan,
except as described under "--Due-on-Sale and Due-on-Encumbrance Provisions"
above.
If, but (except as otherwise described under "--Due-on-Sale and
Due-on-Encumbrance Provisions" above) only if, the Special Servicer
determines (such determination to be documented to the Trustee), after
consultation with the Operating Adviser, that a modification, waiver or
amendment (including the substitution or release of collateral or the pledge
of additional collateral) of the terms of a Specially Serviced Mortgage Loan
with respect to which a payment default or other material default has
occurred or a payment default is, in the Special Servicer's judgment,
reasonably foreseeable, is reasonably likely to produce a greater recovery of
Net Collections on a present value basis (the relevant discounting to be
performed at the related Net Mortgage Rate) than liquidation of such
Specially Serviced Mortgage Loan, then the Special Servicer, may, but is not
required to, agree to a modification, waiver or amendment of such Specially
Serviced Mortgage Loan, subject to the restrictions and limitations described
below. See "--The Operating Adviser" above regarding the Operating Adviser's
rights to direct or object to the Special Servicer's actions with respect to
the foregoing.
The Special Servicer may not agree to a modification, waiver or amendment
of any term of any Specially Serviced Mortgage Loan if such modification,
waiver or amendment would:
(i) extend the maturity date of any such Specially Serviced Mortgage Loan
to a date occurring later than two years prior to the Rated Final
Distribution Date;
(ii) extend the maturity date of any such Specially Serviced Mortgage
Loan, unless, if the related Mortgage Rate is below the then prevailing
interest rate as determined by the Special Servicer, such Mortgage Rate is
modified to equal such then prevailing interest rate;
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(iii) provide for the deferral of interest unless (A) interest accrues
thereon at the related Mortgage Rate and (B) the aggregate amount of such
deferred interest does not exceed 5% of the unpaid principal balance of
the Specially Serviced Mortgage Loan;
(iv) reduce the Mortgage Rate on any such Specially Serviced Mortgage
Loan to less than the then prevailing interest rate as determined by the
Special Servicer; or
(v) result in a prepayment (other than from Liquidation Proceeds,
Insurance Proceeds or Condemnation Proceeds) on a date other than the
Mortgage Loan's Due Date.
Except for consenting to an extension of the maturity of a Balloon Loan
for a period of one year or less, and except as otherwise discussed under
"--Due-on-Sale and Due-on-Encumbrance Provisions" above, the Special Servicer
may not agree to any modification, waiver or amendment of a Mortgage Loan
that is not a Specially Serviced Mortgage Loan.
In addition, the Servicer and the Special Servicer must in certain cases
receive certain opinions of counsel as to certain REMIC matters prior to any
modification, waiver or amendment of any Mortgage Loan.
SALE OF DEFAULTED MORTGAGE LOANS AND REO PROPERTIES
The Special Servicer may offer to sell, in accordance with the terms of
the Trust Agreement, any defaulted Mortgage Loan, without recourse, or any
REO Property to any person (including the Servicer, the Special Servicer or
any Certificateholder, but excluding the Trustee and its affiliates) for
cash, but in any event shall so offer to sell any REO Property no later than
the time determined by the Special Servicer to be sufficient to result in the
sale of such REO Property on or before the date specified under
"--Foreclosures" below. The Special Servicer will accept the highest bid
received from any person in an amount at least equal to the unpaid principal
balance of the defaulted Mortgage Loan or, in the case of an REO Property,
the related Mortgage Loan, as the case may be, together with all unpaid
interest accrued thereon through the date of sale and all related
unreimbursed Servicing Advances. In the absence of any such bid, the Special
Servicer will accept the highest bid received from any person, so long as
such bid is a fair price and accepting a lower bid would not in the judgment
of the Special Servicer be in the best interests of the Certificateholders.
See "--The Operating Adviser" above regarding the Operating Adviser's rights
to direct or object to the Special Servicer's actions with respect to the
foregoing.
If the Trustee receives any bid or bids to purchase a Mortgage Loan as to
which a default has occurred and is continuing for a price at least equal to
the principal balance of such Mortgage, together with all unpaid interest
accrued thereon through the date of sale and all related unreimbursed
Servicing Advances, the Trustee is to sell such Mortgage Loan to the highest
bidder, subject to certain limitations set forth in the Trust Agreement. The
Trustee is under no obligation to solicit any such bid. The Depositor, its
affiliates or any other person (other than the Trustee and its affiliates)
may make any such bid for a defaulted Mortgage Loan.
FORECLOSURES
The Special Servicer, on behalf of the Trust Fund, will generally be
required to institute foreclosure proceedings, exercise any power of sale
contained in any Mortgage, obtain a deed in lieu of foreclosure or otherwise
acquire title to a Mortgaged Property by operation of law or otherwise, if
such action is consistent with the applicable Accepted Servicing Practices
and a default on the related Mortgage Loan has occurred; provided that the
Special Servicer may not, on behalf of the Trust, obtain title to a Mortgaged
Property as a result of or in lieu of foreclosure or otherwise, and may not
otherwise acquire possession of, or take any other action with respect to,
any Mortgaged Property, if, as a result of any such action, the Trustee would
be considered to hold title to, to be a "mortgagee-in-possession" of, or to
be an "owner" or "operator" of such Mortgaged Property within the meaning of
CERCLA (as defined in the Prospectus), or any applicable comparable federal,
state or local law, or a "discharger" or "responsible party" thereunder,
unless the Special Servicer has previously determined in accordance with
applicable Accepted Servicing Practices, based on an environmental site
assessment which was conducted by a
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person (who may be an employee of the Servicer or the Special Servicer or of
an affiliate of either) who regularly conducts such assessments and which was
performed in accordance with the standards of FNMA, in the case of Specially
Serviced Mortgage Loans that are multifamily mortgage loans, and applicable
Accepted Servicing Practices, in the case of Specially Serviced Mortgage
Loans that are commercial mortgage loans, for environmental assessments,
that:
(i) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, that acquiring such Mortgaged Property and
taking such actions as are necessary to bring the Mortgaged Property in
compliance therewith is reasonably likely to produce a greater recovery of
Net Collections on a net present value basis (the relevant discounting to
be performed at the related Net Mortgage Rate) than not acquiring such
Mortgaged Property and not taking such actions; and
(ii) there are no circumstances or conditions present or threatened at
such Mortgaged Property relating to the use, management, disposal or
release of any hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials for which investigation, testing,
monitoring, removal, clean-up or remediation could be required under any
federal, state or local law or regulation or, if any such circumstances or
conditions are present for which any such actions could be required, that
acquiring such Mortgaged Property and taking such actions with respect to
the Mortgaged Property is reasonably likely to produce a greater recovery
of Net Collections on a present value basis (the relevant discounting to
be performed at the related Net Mortgage Rate) than not acquiring such
Mortgaged Property and not taking such actions.
See "--The Operating Adviser" above regarding the Operating Adviser's rights
to direct or object to the Special Servicer's actions with respect to the
foregoing.
The cost of any such compliance or other action contemplated by clauses
(i) and/or (ii) above, shall be paid, or reimbursed to the Special Servicer,
by a Servicing Advance reimbursable to the Servicer or other appropriate
person as described herein; provided that such compliance pursuant to clause
(i) above or the taking of such actions pursuant to this clause (ii) above
shall only be permitted if no portion of the Servicing Advance that would be
required to be made to cover the cost thereof is determined to be a
Nonrecoverable Advance.
If the Special Servicer determines that acquiring any Mortgaged Property
and taking such actions as are necessary to bring such Mortgaged Property
into compliance with applicable environmental laws, or taking such actions
with respect to the containment, removal, cleanup or remediation of hazardous
substances, hazardous materials, hazardous wastes, or petroleum-based
materials affecting such Mortgaged Property, is not reasonably likely to
produce a greater recovery of Net Collections on a net present value basis
than not acquiring such Mortgaged Property and not taking such actions, or if
the Special Servicer is prohibited (based upon the objection of the Operating
Adviser) from effecting such compliance or taking such actions, then the
Special Servicer shall take such action as it deems to be in the best
economic interests of the Certificateholders (taken as a whole), including,
without limitation, releasing the lien of the related Mortgage(s).
The Special Servicer may maintain any action with respect to any Specially
Serviced Mortgage Loan, including, without limitation, any action to obtain a
deficiency judgment with respect to any Specially Serviced Mortgage Loan, if
it determines that such action is likely to produce a greater recovery of Net
Collections on a net present value basis (the relevant discounting to be
performed at the related Net Mortgage Rate) than not taking such action.
If any Mortgaged Property is acquired as described above, the Special
Servicer will, after consultation with the Operating Advisor, sell the REO
Property within two years of acquisition or any applicable extension period
granted by the Internal Revenue Service, unless the Special Servicer has
previously delivered to the Trustee an opinion of counsel to the effect that
the holding of the REO Property by the Trust Fund subsequent to two years
after its acquisition or such extension period will not result in certain
adverse tax consequences for the Trust Fund at any time that any Certificate
is outstanding.
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to
the extent commercially feasible, maximize the
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Trust Fund's net after-tax proceeds from such property. After the Special
Servicer reviews the operation of such property and consults with the Trustee
to determine the Trustee's federal income tax reporting position with respect
to the income it is anticipated that the Trust Fund would derive from such
property, the Special Servicer could determine (particularly in the case of
an REO Property that is a hotel) that it would not be commercially feasible
to manage and operate such property in a manner that would avoid the
imposition of a tax on "net income from foreclosure property," within the
meaning of Section 857(b)(4)(B) of the Code or a tax on "prohibited
transactions" under Section 860F of the Code (either such tax referred to
herein as an "REO Tax"). To the extent that income the Trust Fund receives
from an REO Property is subject to a tax on (i) "net income from foreclosure
property," such income would be subject to federal tax at the highest
marginal corporate tax rate (currently 35%) or (ii) "prohibited
transactions," such income would be subject to federal tax at a 100% rate.
The determination as to whether income from an REO Property would be subject
to an REO Tax will depend on the specific facts and circumstances relating to
the management and operation of each REO Property. Generally, income from an
REO Property that is directly operated by the Special Servicer would be
apportioned and classified as "service" or "non-service" income. The
"service" portion of such income could be subject to federal tax either at
the highest marginal corporate tax rate or at the 100% rate on "prohibited
transactions," and the "non-service" portion of such income could be subject
to federal tax at the highest marginal corporate tax rate or, although it
appears unlikely, at the 100% rate applicable to "prohibited transactions."
Any such REO Tax imposed on the Trust Fund's income from an REO Property
would be an expense of the Trust and would reduce the amount available for
distribution to Certificateholders. Certificateholders are advised to consult
their tax advisors regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs. See
"FEDERAL INCOME TAX CONSIDERATIONS" herein and in the Prospectus.
The Special Servicer may, at the expense of the Trust, employ an
independent contractor to manage and operate any REO Property.
CERTAIN MATTERS REGARDING THE SERVICER AND THE SPECIAL SERVICER
Fidelity Bond and Errors and Omissions Insurance Policy
The Servicer and the Special Servicer will each be required to maintain a
fidelity bond and errors and omissions insurance 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 or omissions,
subject to certain limitations as to amount of coverage, deductible amounts,
conditions, exclusions and exceptions permitted under the Transaction
Documents.
Resignation
Except as otherwise provided in the following paragraph, neither the
Servicer nor the Special Servicer may resign from the obligations and duties
imposed on it under the Transaction Documents unless (as evidenced by an
opinion of counsel to such effect) it determines that its duties under the
Transaction Documents are no longer permissible under applicable law.
The Special Servicer or the Servicer may resign from its respective
obligations and duties imposed on it under the Transaction Documents upon
reasonable notice to the Trustee, provided that (i) a successor special
servicer or servicer, as applicable, is (A) available, (B) reasonably
acceptable to the Operating Adviser, the Depositor, and the Trustee and (C)
willing to assume the obligations, responsibilities and covenants to be
performed under the Transaction Documents by the Special Servicer or
Servicer, as applicable, on substantially the same terms and conditions, and
for not more than equivalent compensation, as therein provided, and (ii) the
Rating Agencies shall have confirmed in writing that such resignation and
designation of a successor special servicer or servicer, as applicable, shall
not result in a qualification, downgrade or withdrawal of any rating of any
of the Certificates then rated.
No such resignation by either the Servicer or the Special Servicer will
become effective unless and until a successor thereto assumes the obligations
and responsibilities thereof under the Transaction Documents.
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Limitation on Liability
None of the Servicer, the Special Servicer or any of the directors,
officers, employees or agents of the Servicer or Special Servicer will be
under any liability to the Certificateholders, the Depositor or the Trustee
for any action taken or for refraining from the taking of any action in good
faith pursuant to the Transaction Documents, or for errors in judgment;
provided that the Servicer, the Special Servicer and such other persons will
not be protected against any breach of a representation, warranty or covenant
contained in any of the Transaction Documents or any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in its performance of duties or by reason of reckless disregard
for its obligations and duties under the Transaction Documents. The Servicer,
the Special Servicer and any director, officer, employee or agent of the
Servicer or Special Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any person respecting any
matters arising under the Transaction Documents. Neither the Servicer nor the
Special Servicer will be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its duties to service the
Mortgage Loans serviced by it in accordance with the Transaction Documents;
provided that the Servicer or the Special Servicer in its sole discretion may
undertake any such action which it may reasonably deem necessary or desirable
in order to protect the interests of the Certificateholders and the Trustee
in the Mortgage Loans serviced by it, and is required to undertake any such
action if instructed to do so by the Depositor or Trustee (unless it
reasonably believes such action would result in a material unreimbursed
liability of it). All legal expenses and costs of such action will be
expenses and costs of the Trust.
Indemnification of the Servicer and Special Servicer
The Servicer, the Special Servicer and any director, officer, employee or
agent of the Servicer or the Special Servicer shall be indemnified and held
harmless by the Trust out of the Custodial Account against any and all
claims, losses, penalties, fines, forfeitures, legal fees and related costs,
judgments and any other costs, liabilities, fees and expenses incurred in
connection with any legal action relating to (i) the Transaction Documents
(unless such legal action is incidental to the performance of its obligations
and duties thereunder, in which case such expenses on such items will be
reimbursable to the Servicer or the Special Servicer, as the case may be,
only as and to the extent otherwise provided in the Transaction Documents),
(ii) any action taken by the Servicer or the Special Servicer, as the case
may be, in accordance with instructions delivered in writing to the Servicer
or the Special Servicer, as the case may be, by the Trustee pursuant to any
provision of the Transaction Documents, and (iii) in the case of the Servicer
(A) any defect in the Mortgage Loans and related documents as of the Cut-off
Date or (B) any action taken based on information provided by the Special
Servicer, in each case, other than any loss, liability or expense incurred by
reason of the Servicer's or Special Servicer's, as the case may be, breach of
any representation, warranty or covenant in any of the Transaction Documents,
by reason of the Servicer's or Special Servicer's, as the case may be,
willful misfeasance, bad faith or negligence in the performance of duties
under the Transaction Documents or by reason of the Servicer's or Special
Servicer's, as the case may be, reckless disregard of obligations and duties
under any of the Transaction Documents. The Servicer or Special Servicer, as
the case may be, is to immediately notify the Trustee if a claim is made by a
third party with respect to the Transaction Documents or the Mortgage Loans
entitling the Servicer or Special Servicer, as the case may be, to
indemnification, whereupon the Trustee on behalf of the Trust is to assume
the defense of any such claim and, subject to reimbursement out of the
Collection Account, to pay all expenses in connection therewith, including
counsel fees, and promptly pay, discharge and satisfy any judgment or decree
that may be entered against it or them in respect of such claim.
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EVENTS OF DEFAULT
The Servicer
An "Event of Default" in respect of the Servicer will include:
(i) any failure by the Servicer to deposit in the Custodial Account when
required any amount required to be so deposited under the terms of the
Transaction Documents or any failure by the Servicer to make when due any
required Advances;
(ii) any failure by the Servicer to remit to the Trustee or deposit in
the Collection Account on any Servicer Remittance Date any amount required
to be so remitted or deposited on such date under the terms of the
Transaction Documents, which failure continues unremedied after expiration
of a specified cure period;
(iii) any failure on the part of the Servicer to duly observe or perform
in any material respect any other of the covenants or agreements on the
part of the Servicer contained in any of the Transaction Documents, or any
breach of the representations and warranties of the Servicer contained in
the Servicing Agreement that materially and adversely affects the
interests of any Class of Certificateholders, which failure or other
breach continues unremedied for a period of 45 days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Depositor or the Trustee,
except that to the extent the Trustee determines that the Servicer is in
good faith attempting to remedy such failure or other breach and the
Certificateholders shall not be materially and adversely affected thereby,
such cure period may be extended to the extent necessary to permit the
Servicer to cure such failure (no such cure period to exceed 60 days,
however, unless agreed to in writing by the Rating Agencies);
(iv) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings in respect of the Servicer
or its assets, and certain actions on the part of the Servicer to indicate
its insolvency or inability to pay its obligations; and
(v) a change in the status of the Servicer that would result in a
qualification, downgrading or withdrawal of the ratings on the
Certificates that are rated.
The Special Servicer
An "Event of Default" in respect of the Special Servicer will include: (i)
any failure by the Special Servicer to remit to the Servicer or to deposit in
the Custodial Account or any account maintained with respect to an REO
Property when due any amount required to be so remitted or deposited under
the terms of any of the Transaction Documents; (ii) any breach on the part of
the Special Servicer of any material obligation set forth in the Transaction
Documents which continues unremedied for 60 days after notice of such breach
given by the Trustee or the Servicer; (iii) the Special Servicer shall have
made one or more false or misleading representations or warranties in the
Special Servicing Agreement that materially and adversely affect the
interests of the Certificateholders and shall not have remedied each such
false or misleading representation or warranty within 60 days of notice
thereof given by the Trustee or the Servicer; (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities, or
similar proceedings in respect of or relating to the Special Servicer or its
assets, and certain actions by or on behalf of the Special Servicer
indicating its insolvency or inability to pay its obligations; and (v) a
change in the status of the Special Servicer that would result in a
qualification, downgrading or withdrawal of the ratings on the Certificates
that are rated.
TERMINATION OF THE SERVICER OR SPECIAL SERVICER
If an Event of Default in respect of the Servicer or the Special Servicer
occurs and is continuing, then either the Trustee or the Depositor may, and
at the direction of the holders of Certificates entitled to at least 25% of
the Voting Rights, the Trustee is required to terminate all authority, power
and rights of the defaulting party as Servicer or Special Servicer, as the
case may be, under the Transaction Documents.
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The Trustee will be required to terminate the services of the Special
Servicer under the Transaction Documents if (i) it receives from the
Operating Adviser written notice that the Operating Adviser wishes to appoint
a successor Special Servicer and (ii) such successor will, among other
things, be reasonably acceptable to the Trustee and the Depositor; provided
that (as confirmed in writing by the Rating Agencies) the succession of such
proposed successor will not adversely affect the then current ratings on the
Certificates.
APPOINTMENT OF A SUCCESSOR SERVICER OR SPECIAL SERVICER
On or after the time the Servicer or the Special Servicer is terminated
for cause or resigns as such, and provided that, in connection with the
resignation of the Special Servicer or the termination thereof at the
direction of the Operating Adviser, no acceptable successor has been
furnished by the Special Servicer or appointed by the Operating Adviser, as
applicable, as described above, the Trustee will be the successor to the
Servicer or the Special Servicer, as the case may be, in all respects;
provided that if the Trustee is unwilling or unable to so act, the Trustee
may appoint, or petition a court of competent jurisdiction to appoint, a loan
servicing institution having, solely in the case of a successor Servicer, a
net worth of not less than $10,000,000, meeting such other standards for such
a successor as are set forth in the Servicing Agreement in the case of the
Servicer or the Special Servicing Agreement in the case of the Special
Servicer and the appointment of which, as confirmed in writing by the Rating
Agencies, will not adversely affect the then current ratings on the
Certificates.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The yield to maturity on any Offered Certificate will be affected by the
price paid by the holder thereof, the related Certificate Interest Rate, the
rate and timing of principal payments on the Mortgage Loans (including, for
this purpose, principal prepayments, which may include amounts received by
virtue of voluntary prepayments, condemnation, casualty, defaults and
repurchases due to breaches by the Depositor of its representations and
warranties contained in the Trust Agreement) and the extent to which such
principal payments are applied in reduction of the Certificate Principal
Amount or Certificate Notional Amount of such Offered Certificate.
The Certificate Interest Rate for the Class IO Certificates will vary as
the relative sizes of the various Components of the aggregate Certificate
Notional Amount of such Class of Certificates (that is, the aggregate
Certificate Principal Amounts of the other Classes of Regular Interest
Certificates) change. The sizes of the various Components will be affected by
the rate and timing at which payments of principal are made, and Realized
Losses and Additional Expense Losses are allocated, in reduction of the
aggregate Certificate Principal Amounts of the other Classes of Regular
Interest Certificates.
The Certificate Interest Rate applicable to each other Class of Offered
Certificates for any Distribution Date will also be variable and will equal
the Weighted Average Net Mortgage Rate for such date, minus a fixed number of
basis points. Accordingly, the yields on the Class A, Class B, Class C, Class
D and Class E Certificates will be sensitive to changes in the relative
composition of the Mortgage Pool as a result of scheduled amortization,
voluntary prepayments and liquidations of Mortgage Loans following default.
The rate of principal payments on the respective Classes of Sequential Pay
Certificates (and, accordingly, in reduction of the related Component (that
is, the Component with the same letter designation) of the aggregate
Certificate Notional Amount of the Class IO Certificates) will be affected by
the rate of principal payments (including voluntary prepayments) on the
Mortgage Loans. Generally, prepayments on the Mortgage Loans (including
prepayments resulting from defaults) will tend to shorten the weighted
average lives of the Class A, Class B, Class C, Class D and/or Class E
Certificates, whereas delays in liquidations of defaulted Mortgage Loans and
modifications extending the maturity of Mortgage Loans will tend to lengthen
the weighted average lives of such Offered Certificates. Any changes in such
weighted average lives may adversely affect the yield to holders of the Class
A, Class B, Class C, Class
S-112
<PAGE>
D and/or Class E Certificates. Prepayments resulting in a shortening of such
weighted average lives may be made at a time of low interest rates when
holders of the Class A, Class B, Class C, Class D and/or Class E Certificates
may be unable to reinvest such prepayments at interest rates equal to the
Certificate Interest Rates payable on their Offered Certificates, while
delays and extensions resulting in the lengthening of such weighted average
lives may occur at a time of high interest rates when Certificateholders may
have been able to reinvest payments received by them at higher rates.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the Mortgage Rates on
such Mortgage Loans (although it should be noted that the Mortgage Loans
provide for Lock-out Periods and/or Prepayment Premiums). Conversely, if
prevailing interest rates rise significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayment would be expected to decrease. Other
factors affecting prepayment of the Mortgage Loans include the availability
of credit for mortgage refinancing, changes in tax laws (including
depreciation benefits), changes in borrowers' net equity in the Mortgaged
Properties, servicing decisions, prevailing general economic conditions and
the relative economic vitality of the areas in which the Mortgaged Properties
are located, the terms of the Mortgage Loans (for example, the existence of
due-on-sale and due-on-encumbrance clauses and, as stated above, provisions
imposing Lock-out Periods and Prepayment Premiums), the quality of management
of the Mortgaged Properties and the availability of other opportunities for
investment.
In the cases of two of the three Groups of Cross-Collateralized Mortgage
Loans, representing 3.16% and 4.16% of the Initial Pool Balance,
respectively, the related Mortgage Loan documents provide that any one or
more of the individual hotels constituting the Mortgaged Properties for each
such Group may be released from the lien of the related Mortgage provided
that certain specified conditions are met, including the payment by the
related borrower to the lender of, among other specified amounts, an amount
equal to 125% of the portion of the aggregate unpaid principal amount of the
related debt that has been allocated to each of the Mortgaged Properties to
be released, together with the applicable Prepayment Premium.
One Mortgage Loan, which represents 1.88% of the Initial Pool Balance, in
addition to having one of the versions of prepayment provisions described
above, provides for the deposit in escrow of $600,000 of the Mortgage Loan
proceeds in connection with three leases of space at the related Mortgaged
Property. As certain leasing criteria are met with respect to each such
lease, a specified percentage of the escrowed funds is to be disbursed to the
borrower. In the event that such criteria are not met with respect to one or
more of such leases by July 31, 1997, the remaining undisbursed escrowed
proceeds are to be applied as a partial Principal Prepayment of the Mortgage
Loan during what would otherwise be the related Lockout Period; provided that
such Principal Prepayment is required to be accompanied by the applicable
Prepayment Premium, for which funds have not been escrowed.
The Depositor makes no representation as to the particular factors that
will affect the rate of prepayment of the Mortgage Loans, the relative
importance of any such factors, the percentage of the principal balance of
the Mortgage Loans that will be paid as of any date or the overall rate of
prepayments on the Mortgage Loans. Because the Mortgage Loans are subject to
prepayment, the aggregate Certificate Principal Amount or Certificate
Notional Amount, as the case may be, of one or more Classes of the Offered
Certificates may be reduced to zero prior to their respective Assumed Final
Distribution Dates. In addition, delinquencies could result in distributions
on one or more Classes of Offered Certificates occurring after their
respective Assumed Final Distribution Dates. As a result, the aggregate
Certificate Principal Amount or Certificate Notional Amount, as the case may
be, of each Class of Offered Certificates may be reduced to zero
significantly earlier or later than its Assumed Final Distribution Date.
The effective yield to holders of the Offered Certificates will differ
from the yield otherwise produced by the applicable Certificate Interest
Rates and purchase prices of such Certificates because interest distributions
will not be payable to such holders until at least the 25th day of the month
following the month of accrual (without any additional distribution of
interest or earnings thereon in respect of such delay).
S-113
<PAGE>
If the purchaser of an Offered Certificate offered at a discount from its
initial Certificate Principal Amount calculates its anticipated yield to
maturity based on an assumed rate of principal payments that is faster than
that actually experienced on the Mortgage Loans, the actual yield to maturity
may be lower than that so calculated. Conversely, if the purchaser of a Class
IO Certificate or other Offered Certificate offered at a premium calculates
its anticipated yield to maturity based on an assumed rate of principal
payments that is slower than that actually experienced on the Mortgage Loans,
the actual yield to maturity may be lower than that so calculated.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the
Mortgage Loans occurs, the greater the effect on an investor's yield to
maturity. The effect on an investor's yield of principal payments occurring
at a rate higher (or lower) than the rate anticipated by the investor during
the period immediately following the issuance of the Offered Certificates may
not be offset by a subsequent like decrease (or increase) in the rate of
principal payments.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement ("CPR") represents an assumed constant rate of prepayment each
month (which is quoted on a per annum basis) relative to the then outstanding
principal balance of a pool of mortgage loans for the life of such mortgage
loans. CPR does not purport to be either an historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Pool. The Depositor does not make any representations about the
appropriateness of the CPR model.
EFFECTS OF LOSSES ON THE MORTGAGE LOANS, ADDITIONAL TRUST FUND EXPENSES AND
OTHER MATTERS
The yield to maturity of any Class of Offered Certificates will be
sensitive to the loss experience on the Mortgage Loans as well as the extent
to which Additional Expense Losses (including shortfalls due to certain
additional compensation being required to be paid to the Special Servicer as
a result of Mortgage Loans becoming Specially Serviced Mortgage Loans and
interest on Advances not being fully compensated by default interest and late
payment charges) may be incurred from time to time. Because of the priority
of payments on the Certificates and the allocation of Realized Losses and
Additional Expense Losses, any shortfalls and losses realized at any time
generally will be borne as described above in "DESCRIPTION OF THE
CERTIFICATES--Subordination; Allocation of Losses and Certain Expenses"
herein and will, through the diminished cash distributions from the Mortgage
Loans to be made in respect of the affected Class of Certificates, negatively
impact the yield to maturity of any Certificateholder of such Class. In
addition, because the aggregate Certificate Notional Amount used to calculate
interest distributions on the Class IO Certificates is equal to the aggregate
Certificate Principal Amount of the other Classes of Regular Interest
Certificates, amounts otherwise distributable on the Class IO Certificates
will be affected by Realized Losses and Additional Expense Losses allocated
to reduce the aggregate Certificate Principal Amount of such other Classes of
Regular Interest Certificates.
In addition, to the extent that the holders of any Class of Offered
Certificates experience a shortfall in the payment of any Distributable
Certificate Interest to which they are entitled, such interest shortfall will
be payable on subsequent Distribution Dates, but will not bear interest and
would therefore adversely affect the yield to maturity of such Class of
Certificates for as long as such interest shortfall is outstanding.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The "weighted average life" of a Class A,
Class B, Class C, Class D or Class E Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the outstanding
Certificate Principal Amount of such Certificate by the number of years from
the date of issuance of such Certificate to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the original
Certificate Principal Amount of such Certificate. The
S-114
<PAGE>
table set forth below for each of the Class A, Class B, Class C, Class D and
Class E Certificates indicates the weighted average life of each such Class
of Offered Certificates that would result, and the percentage of the initial
aggregate Certificate Principal Amount of each such Class of Offered
Certificates that would be outstanding after each of the dates shown, if the
Mortgage Loans were to prepay in accordance with the assumptions set forth in
the following paragraph.
The tables below have been prepared generally on the basis of the
assumptions (collectively, the "Mortgage Loan Assumptions") that (i) the
aggregate Certificate Principal Amount or Certificate Notional Amount of each
Class of Regular Interest Certificates is as set forth herein, (ii) the
Certificate Interest Rates for the respective Classes of Sequential Pay
Certificates are equal to the Weighted Average Net Mortgage Rate from time to
time, minus 125 basis points, in the case of the Class A Certificates, 120
basis points, in the case of the Class B Certificates, 100 basis points, in
the case of the Class C Certificates, and 90 basis points, in the case of
each other Class of Sequential Pay Certificates, (iii) the Component A Rate
is 1.25% per annum, the Component B Rate is 1.20% per annum, the Component C
Rate is 1.00% per annum and the Component D Rate, Component E Rate, Component
F Rate, Component G Rate, Component H Rate and Component J Rate are, in each
case, 0.90% per annum, (iv) the settlement date for the sale of the
Certificates is October 30, 1996, (v) distributions on the Certificates are
made on the 25th day of each month, commencing in November 1996, (vi) except
as otherwise specifically described in these assumptions, the Mortgage Loans
have the characteristics set forth under "DESCRIPTION OF THE MORTGAGE POOL"
herein, (vii) there are no delinquencies or defaults with respect to the
Mortgage Loans, and all Monthly Payments, including all Balloon Payments, on
the Mortgage Loans are timely received on their respective Due Dates
commencing during the initial Collection Period, (viii) each of the Mortgage
Loans prepays monthly at the specified percentages of CPR as set forth in the
following tables (without regard to Lock-out Periods or provisions
prohibiting partial Principal Prepayments), (ix) each Principal Prepayment is
received on the related Mortgage Loan's Due Date in each month (commencing
during the initial Collection Period) and is accompanied by one month's
interest thereon, (x) there are no breaches of the Depositor's
representations and warranties with respect to the Mortgage Loans, (xi) no
Mortgage Loan is modified, (xii) no Additional Trust Fund Expense occurs,
(xiii) no Prepayment Premiums are collected, and (xiv) no optional
termination of the Trust occurs.
It is not likely that all of the Mortgage Loans will have the
characteristics assumed, even if the Mortgage Loans have the weighted average
characteristics set forth herein. Furthermore, it is unlikely that the
Mortgage Loans will all prepay at any of the levels of CPR indicated in the
tables or at any constant level.
S-115
<PAGE>
CLASS A CERTIFICATES
PREPAYMENT ASSUMPTION
- ------------------------------------------------
DISTRIBUTION DATE 0% CPR 1% CPR 2% CPR 3% CPR 4%
CPR
- -------------------------------- -------- -------- -------- --------
- --------
Initial ......................... 100 100 100 100
100
October 25, 1997 ................ 98 97 96 94
93
October 25, 1998 ................ 97 94 91 88
85
October 25, 1999 ................ 95 91 87 82
79
October 25, 2000 ................ 93 87 82 77
72
October 25, 2001 ................ 91 84 77 71
65
October 25, 2002 ................ 79 72 65 58
52
October 25, 2003 ................ 35 30 24 19
15
October 25, 2004 ................ 33 27 21 16
11
October 25, 2005 ................ 25 19 13 8
3
October 25, 2006 and thereafter 0 0 0 0
0
Weighted Average Life (years) .. 7.01 6.54 6.11 5.69
5.30
CLASS B CERTIFICATES
PREPAYMENT ASSUMPTION
- ------------------------------------------------
DISTRIBUTION DATE 0% CPR 1% CPR 2% CPR 3% CPR 4%
CPR
- -------------------------------- -------- -------- -------- --------
- --------
Initial ......................... 100 100 100 100
100
October 25, 1997 ................ 100 100 100 100
100
October 25, 1998 ................ 100 100 100 100
100
October 25, 1999 ................ 100 100 100 100
100
October 25, 2000 ................ 100 100 100 100
100
October 25, 2001 ................ 100 100 100 100
100
October 25, 2002 ................ 100 100 100 100
100
October 25, 2003 ................ 100 100 100 100
100
October 25, 2004 ................ 100 100 100 100
100
October 25, 2005 ................ 100 100 100 100
100
October 25, 2006 and thereafter 0 0 0 0
0
Weighted Average Life (years) .. 9.71 9.62 9.51 9.39
9.28
S-116
<PAGE>
CLASS C CERTIFICATES
PREPAYMENT ASSUMPTION
- ------------------------------------------------
DISTRIBUTION DATE 0% CPR 1% CPR 2% CPR 3% CPR 4%
CPR
- -------------------------------- -------- -------- -------- --------
- --------
Initial ......................... 100 100 100 100
100
October 25, 1997 ................ 100 100 100 100
100
October 25, 1998 ................ 100 100 100 100
100
October 25, 1999 ................ 100 100 100 100
100
October 25, 2000 ................ 100 100 100 100
100
October 25, 2001 ................ 100 100 100 100
100
October 25, 2002 ................ 100 100 100 100
100
October 25, 2003 ................ 100 100 100 100
100
October 25, 2004 ................ 100 100 100 100
100
October 25, 2005 ................ 100 100 100 100
100
October 25, 2006 and thereafter 0 0 0 0
0
Weighted Average Life (years) .. 9.82 9.79 9.75 9.68
9.59
CLASS D CERTIFICATES
PREPAYMENT ASSUMPTION
- ------------------------------------------------
DISTRIBUTION DATE 0% CPR 1% CPR 2% CPR 3% CPR 4%
CPR
- -------------------------------- -------- -------- -------- --------
- --------
Initial ......................... 100 100 100 100
100
October 25, 1997 ................ 100 100 100 100
100
October 25, 1998 ................ 100 100 100 100
100
October 25, 1999 ................ 100 100 100 100
100
October 25, 2000 ................ 100 100 100 100
100
October 25, 2001 ................ 100 100 100 100
100
October 25, 2002 ................ 100 100 100 100
100
October 25, 2003 ................ 100 100 100 100
100
October 25, 2004 ................ 100 100 100 100
100
October 25, 2005 ................ 100 100 100 100
100
October 25, 2006 and thereafter 0 0 0 0
0
Weighted Average Life (years) .. 9.85 9.82 9.82 9.82
9.78
S-117
<PAGE>
CLASS E CERTIFICATES
PREPAYMENT ASSUMPTION
- ------------------------------------------------
DISTRIBUTION DATE 0% CPR 1% CPR 2% CPR 3% CPR 4%
CPR
- -------------------------------- -------- -------- -------- --------
- --------
Initial ......................... 100 100 100 100
100
October 25, 1997 ................ 100 100 100 100
100
October 25, 1998 ................ 100 100 100 100
100
October 25, 1999 ................ 100 100 100 100
100
October 25, 2000 ................ 100 100 100 100
100
October 25, 2001 ................ 100 100 100 100
100
October 25, 2002 ................ 100 100 100 100
100
October 25, 2003 ................ 100 100 100 100
100
October 25, 2004 ................ 100 100 100 100
100
October 25, 2005 ................ 100 100 100 100
100
October 25, 2006 and thereafter 0 0 0 0
0
Weighted Average Life (years) .. 9.90 9.90 9.85 9.82
9.82
PRICE/YIELD TABLES
The tables set forth below show the pre-tax corporate bond equivalent
("CBE") yield, modified duration, weighted average life, first Distribution
Date on which principal is to be paid ("First Principal Distribution Date")
and final Distribution Date on which principal is to be paid ("Last Principal
Distribution Date") with respect to each Class of Offered Certificates (other
than the Class IO Certificates) under the Mortgage Loan Assumptions and
assuming the specified purchase prices. Assumed purchase prices are expressed
in 32nds (i.e. 9-12 means 9 12/32%) as a percentage of the initial aggregate
Certificate Principal Amount of each such Class of Offered Certificates.
The yields set forth in the following tables were calculated by
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on each Class of Offered Certificates (other
than the Class IO Certificates), would cause the discounted present value of
such assumed stream of cash flows as of October 30, 1996 to equal the assumed
purchase prices, plus accrued interest at the applicable initial Certificate
Interest Rate from and including the Cut-off Date to but excluding the
Closing Date, and converting such monthly rates to semi-annual corporate bond
equivalent rates. Such calculation does not take into account variations that
may occur in the interest rates at which investors may be able to reinvest
funds received by them as reductions of the aggregate Certificate Principal
Amounts of such Classes of Offered Certificates and consequently does not
purport to reflect the return on any investment in such Classes of Offered
Certificates when such reinvestment rates are considered. For purposes of
these tables, "modified duration" has been calculated using the modified
Macaulay Duration as specified in the "PSA Standard Formulas." The Macaulay
Duration is calculated as the present value weighted average time to receive
future payments of principal and interest, and the PSA Standard Formula
modified duration is calculated by dividing the Macaulay Duration by the
appropriate semi-annual compounding factor. The duration of a security may be
calculated according to various methodologies; accordingly, no representation
is made by the Depositor or any other person that the "modified duration"
approach used herein is appropriate. Duration, like yield, will be affected
by the prepayment rate of the Mortgage Loans and extensions in respect of
Balloon Payments that actually occur during the life of the Class A, Class B,
Class C, Class D and Class E Certificates and by the actual performance of
the Mortgage Loans, all of which may differ, and may differ significantly,
from the assumptions used in preparing the tables below.
S-118
<PAGE>
THE CLASS A CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPION
------------------------------------------------------------------------------
0% CPR 1% CPR 2% CPR 3% CPR 4% CPR
------------ ----------- ----------- ----------- ------------
CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED
YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION
PRICE (32S) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.)
- ----------- ----- ------- ----- ------- ------ ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
101-08 7.336 5.20 7.316 4.91 7.294 4.63 7.271 4.36 7.247 4.11
101-12 7.312 5.20 7.291 4.91 7.268 4.63 7.243 4.36 7.217 4.11
101-16 7.289 5.20 7.266 4.91 7.241 4.63 7.215 4.37 7.187 4.11
101-20 7.265 5.21 7.241 4.91 7.215 4.63 7.187 4.37 7.158 4.11
101-24 7.242 5.21 7.216 4.92 7.188 4.64 7.159 4.37 7.128 4.12
101-28 7.218 5.21 7.191 4.92 7.162 4.64 7.131 4.37 7.098 4.12
102-00 7.195 5.21 7.166 4.92 7.136 4.64 7.103 4.37 7.069 4.12
102-04 7.171 5.22 7.141 4.92 7.110 4.64 7.076 4.38 7.039 4.12
102-08 7.148 5.22 7.117 4.92 7.083 4.65 7.048 4.38 7.010 4.13
102-12 7.125 5.22 7.092 4.93 7.057 4.65 7.020 4.38 6.980 4.13
102-16 7.102 5.22 7.067 4.93 7.031 4.65 6.992 4.38 6.951 4.13
102-20 7.078 5.22 7.043 4.93 7.005 4.65 6.965 4.39 6.922 4.13
102-24 7.055 5.23 7.018 4.93 6.979 4.65 6.937 4.39 6.892 4.14
Weighted Average
Life (yrs.) 7.01 6.54 6.11 5.69 5.30
First Principal
Distribution Date Nov 25, 1996 Nov 25, 1996 Nov 25, 1996 Nov 25, 1996 Nov 25, 1996
Last Principal
Distribution Date Jun 25, 2006 Apr 25, 2006 Feb 25, 2006 Feb 25, 2006 Dec 25, 2005
</TABLE>
S-119
<PAGE>
THE CLASS B CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPION
------------------------------------------------------------------------------
0% CPR 1% CPR 2% CPR 3% CPR 4% CPR
------------ ----------- ----------- ----------- ------------
CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED
YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION
PRICE (32S) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.)
- ----------- ----- ------- ----- ------- ------ ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100-08 7.613 6.65 7.610 6.61 7.607 6.55 7.604 6.50 7.602 6.44
100-12 7.594 6.65 7.592 6.61 7.588 6.55 7.585 6.50 7.582 6.45
100-16 7.576 6.65 7.573 6.61 7.569 6.56 7.566 6.50 7.563 6.45
100-20 7.557 6.66 7.554 6.61 7.550 6.56 7.547 6.50 7.544 6.45
100-24 7.539 6.66 7.536 6.62 7.532 6.56 7.528 6.51 7.525 6.45
100-28 7.520 6.66 7.517 6.62 7.513 6.56 7.509 6.51 7.506 6.46
101-00 7.502 6.66 7.498 6.62 7.494 6.57 7.490 6.51 7.487 6.46
101-04 7.483 6.67 7.480 6.62 7.475 6.57 7.471 6.51 7.468 6.46
101-08 7.465 6.67 7.461 6.63 7.457 6.57 7.452 6.52 7.449 6.46
101-12 7.446 6.67 7.443 6.63 7.438 6.57 7.433 6.52 7.430 6.47
101-16 7.428 6.67 7.424 6.63 7.419 6.58 7.415 6.52 7.411 6.47
101-20 7.410 6.68 7.406 6.63 7.401 6.58 7.396 6.52 7.392 6.47
101-24 7.391 6.68 7.387 6.64 7.382 6.58 7.377 6.53 7.373 6.47
Weighted Average
Life (yrs.) 9.71 9.62 9.51 9.39 9.28
First Principal
Distribution Date Jun 25, 2006 Apr 25, 2006 Feb 25, 2006 Feb 25, 2006 Dec 25, 2005
Last Principal
Distribution Date Aug 25, 2006 Jul 25, 2006 Jun 25, 2006 Apr 25, 2006 Apr 25, 2006
</TABLE>
S-120
<PAGE>
THE CLASS C CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPION
------------------------------------------------------------------------------
0% CPR 1% CPR 2% CPR 3% CPR 4% CPR
------------ ----------- ----------- ----------- ------------
CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED
YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION
PRICE (32S) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.)
- ----------- ----- ------- ----- ------- ------ ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
98-00 8.160 6.59 8.160 6.58 8.160 6.56 8.160 6.53 8.159 6.48
98-16 8.083 6.60 8.083 6.59 8.083 6.57 8.083 6.54 8.081 6.49
99-00 8.007 6.61 8.007 6.60 8.007 6.58 8.006 6.55 8.004 6.51
99-16 7.931 6.62 7.931 6.61 7.930 6.59 7.929 6.56 7.927 6.52
100-00 7.856 6.63 7.856 6.62 7.855 6.60 7.853 6.57 7.851 6.53
100-16 7.782 6.64 7.781 6.63 7.780 6.61 7.778 6.58 7.775 6.54
101-00 7.707 6.65 7.707 6.64 7.705 6.62 7.703 6.59 7.699 6.55
101-16 7.634 6.66 7.633 6.65 7.631 6.63 7.629 6.60 7.625 6.56
102-00 7.560 6.67 7.559 6.66 7.558 6.64 7.555 6.61 7.550 6.57
102-16 7.488 6.68 7.486 6.67 7.485 6.65 7.481 6.62 7.476 6.58
103-00 7.415 6.69 7.414 6.68 7.412 6.66 7.408 6.63 7.403 6.59
103-16 7.343 6.70 7.342 6.69 7.340 6.67 7.336 6.64 7.330 6.60
104-00 7.272 6.71 7.270 6.70 7.268 6.68 7.263 6.65 7.257 6.60
Weighted Average
Life (yrs.) 9.82 9.79 9.75 9.68 9.59
First Principal
Distribution Date Aug 25, 2006 Jul 25, 2006 Jun 25, 2006 Apr 25, 2006 Apr 25, 2006
Last Principal
Distribution Date Aug 25, 2006 Aug 25, 2006 Aug 25, 2006 Jul 25, 2006 Jul 25, 2006
</TABLE>
S-121
<PAGE>
THE CLASS D CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPION
------------------------------------------------------------------------------
0% CPR 1% CPR 2% CPR 3% CPR 4% CPR
------------ ----------- ----------- ----------- ------------
CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED
YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION
PRICE (32S) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.)
- ----------- ----- ------- ----- ------- ------ ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
97-00 8.418 6.55 8.419 6.54 8.419 6.54 8.419 6.53 8.420 6.52
97-16 8.340 6.56 8.341 6.55 8.341 6.55 8.341 6.55 8.341 6.53
98-00 8.263 6.57 8.263 6.56 8.263 6.56 8.263 6.56 8.263 6.54
98-16 8.186 6.58 8.186 6.57 8.186 6.57 8.186 6.57 8.186 6.55
99-00 8.110 6.59 8.110 6.58 8.110 6.58 8.110 6.58 8.109 6.56
99-16 8.034 6.60 8.034 6.59 8.034 6.59 8.034 6.59 8.033 6.57
100-00 7.959 6.61 7.958 6.60 7.958 6.60 7.958 6.60 7.958 6.58
100-16 7.884 6.63 7.883 6.61 7.883 6.61 7.883 6.61 7.882 6.59
101-00 7.809 6.64 7.809 6.62 7.809 6.62 7.809 6.62 7.808 6.60
101-16 7.735 6.65 7.735 6.63 7.735 6.63 7.734 6.63 7.733 6.61
102-00 7.662 6.66 7.661 6.64 7.661 6.64 7.661 6.64 7.659 6.62
102-16 7.589 6.67 7.588 6.65 7.588 6.65 7.588 6.65 7.586 6.63
103-00 7.517 6.68 7.515 6.66 7.515 6.66 7.515 6.66 7.513 6.64
Weighted Average
Life (yrs.) 9.85 9.82 9.82 9.82 9.78
First Principal
Distribution
Date Aug 25, 2006 Aug 25, 2006 Aug 25, 2006 Jul 25, 2006 Jul 25, 2006
Last Principal
Distribution
Date Sep 25, 2006 Sep 25, 2006 Aug 25, 2006 Aug 25, 2006 Aug 25, 2006
</TABLE>
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<PAGE>
THE CLASS E CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPION
------------------------------------------------------------------------------
0% CPR 1% CPR 2% CPR 3% CPR 4% CPR
------------ ----------- ----------- ----------- ------------
CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED CBE MODIFIED
YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION YIELD DURATION
PRICE (32S) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.) (%) (YRS.)
- ----------- ----- ------- ----- ------- ------ ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
93-00 9.058 6.48 9.058 6.48 9.062 6.46 9.064 6.44 9.064 6.44
93-16 8.976 6.49 8.976 6.49 8.980 6.47 8.981 6.46 8.981 6.46
94-00 8.895 6.50 8.895 6.50 8.898 6.48 8.899 6.47 8.899 6.47
94-16 8.814 6.52 8.814 6.52 8.816 6.49 8.818 6.48 8.818 6.48
95-00 8.733 6.53 8.733 6.53 8.736 6.50 8.737 6.49 8.737 6.49
95-16 8.654 6.54 8.654 6.54 8.656 6.51 8.657 6.50 8.657 6.50
96-00 8.574 6.55 8.574 6.55 8.576 6.52 8.577 6.51 8.577 6.51
96-16 8.496 6.56 8.496 6.56 8.497 6.54 8.498 6.52 8.498 6.52
97-00 8.417 6.57 8.417 6.57 8.419 6.55 8.419 6.54 8.419 6.54
97-16 8.340 6.58 8.340 6.58 8.341 6.56 8.341 6.55 8.341 6.55
98-00 8.263 6.59 8.263 6.59 8.263 6.57 8.263 6.56 8.263 6.56
98-16 8.186 6.60 8.186 6.60 8.186 6.58 8.186 6.57 8.186 6.57
99-00 8.110 6.62 8.110 6.62 8.110 6.59 8.110 6.58 8.110 6.58
Weighted Average
Life (yrs.) 9.90 9.90 9.85 9.82 9.82
First Principal
Distribution Date Sep 25, 2006 Sep 25, 2006 Aug 25, 2006 Aug 25, 2006 Aug 25, 2006
Last Principal
Distribution Date Sep 25, 2006 Sep 25, 2006 Sep 25, 2006 Aug 25, 2006 Aug 25, 2006
</TABLE>
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<PAGE>
YIELD SENSITIVITY OF THE CLASS IO CERTIFICATES
The yield to investors on the Class IO Certificates will be highly
sensitive to the rate and timing of principal payments (including
prepayments) on the Mortgage Loans. INVESTORS IN THE CLASS IO CERTIFICATES
SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK THAT AN
EXTREMELY RAPID RATE OF PREPAYMENT ON AND/OR LIQUIDATION OF THE MORTGAGE
LOANS COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO RECOUP THEIR INITIAL
INVESTMENTS.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984. As a
result, the appropriate characterization of the Offered Certificates under
various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase the Offered Certificates of any
Class, may be subject to significant interpretative uncertainties. In
addition, institutions whose investment activities are subject to review by
federal or state regulatory authorities may be or may become subject to
restrictions on the investment by such institutions in certain forms of
mortgage related securities.
The Depositor makes no representation as to the ability of particular
investors to purchase the Offered Certificates under applicable legal
investment or other restrictions. 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 legal investments for them or are subject to
investment, capital or other restrictions. See "LEGAL INVESTMENT" in the
Prospectus.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS LOCATED IN GEORGIA
The following discussion contains a summary of certain legal aspects of
Mortgage Loans secured by real property in Georgia (approximately 12.37% of
the Initial Pool Balance) which is general in nature. The summary does not
purport to be complete and is qualified in its entirety by reference to the
applicable federal and state laws governing the Mortgage Loans.
Mortgage loans in Georgia are generally secured by deeds to secure debt
and most foreclosures are accomplished by nonjudicial foreclosure under a
power of sale. The procedural requirements for nonjudicial foreclosure in
Georgia include four weeks of newspaper publication, notice to debtor and
sale by public outcry at times and locations specified by statute. There is
not a general right of redemption available to a debtor after a foreclosure
sale under Georgia law. The holder of a security instrument may also
foreclose in Georgia in equity or by judicial foreclosure, each by petition
to the superior court. Judicial sales are conducted by the sheriff. Georgia
does not have a "one action rule", however, a deficiency judgement following
foreclosure by nonjudicial power of sale will not be granted unless (i) a
confirmation of sale is filed with the superior court within 30 days of the
sale and (ii) the court confirms that all notice and sale requirements were
followed and that the purchase price was not less than the true market value
of the property.
USE OF PROCEEDS
Certain of the net proceeds from the sale of the Offered Certificates will
be used by the Depositor to purchase the Mortgage Loans from the Seller and
to pay certain expenses in connection with the issuance of the Offered
Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code (each, a
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<PAGE>
"Plan") should carefully review with its legal advisors whether the purchase
or holding of Offered Certificates could give rise to a transaction that is
prohibited or is not otherwise permitted either under ERISA or Section 4975
of the Code or whether there exists any statutory or administrative exemption
applicable thereto.
The U.S. Department of Labor issued to Lehman Brothers an individual
prohibited transaction exemption, Prohibited Transaction Exemption 91-14 (the
"Exemption"), which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed
on such prohibited transactions pursuant to Sections 4975(a) and (b) of the
Code and Section 502(i) of ERISA, certain transactions, among others,
relating to the servicing and operation of mortgage pools, such as the
Mortgage Pool, and the purchase, sale and holding of mortgage pass-through
certificates, such as the Senior Certificates, underwritten by an
"underwriter," provided that certain conditions set forth in the Exemption
are satisfied. For purposes of this discussion, the term "underwriter" shall
include (a) Lehman Brothers, (b) any person directly or indirectly, through
one or more intermediaries, controlling, controlled by or under common
control with Lehman Brothers and (c) any member of the underwriting syndicate
or selling group of which a person described in (a) or (b) is a manager or
co-manager with respect to the Senior Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Senior
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Senior Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party. Second, the rights and interests
evidenced by the Senior Certificates must not be subordinated to the rights
and interests evidenced by the other Certificates of the Trust. Third, the
Senior Certificates at the time of acquisition by the Plan must be rated in
one of the three highest generic rating categories by Standard & Poor's
Ratings Services ("S&P"), DCR, Moody's or Fitch. Fourth, the Trustee cannot
be an affiliate of any other member of the "Restricted Group", which consists
of any underwriter, the Depositor, the Servicer, the Special Servicer, the
Trustee, any sub-servicer, and any borrower with respect to Mortgage Loans
constituting more than 5% of the aggregate unamortized principal balance of
the Mortgage Loans as of the date of initial issuance of the Senior
Certificates. Fifth, the sum of all payments made to and retained by the
underwriter must represent not more than reasonable compensation for
underwriting the Senior 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 must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the
Servicer, the Special Servicer and any sub-servicer must represent not more
than reasonable compensation for such person's services under the relevant
servicing agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited
investor as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act.
Because the Senior Certificates are not subordinated to any other Class of
Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class
A and Class IO Certificates that they be rated not lower than "Aaa" by
Moody's and "AAA" by each of DCR and Fitch; thus, the third general condition
set forth above is satisfied with respect to such Certificates as of the
Closing Date. In addition, the fourth general condition set forth above is
also satisfied as of the Closing Date. A fiduciary of a Plan contemplating
purchasing a Senior Certificate in the secondary market must make its own
determination that, at the time of such purchase, the Senior Certificates
continue to satisfy the third and fourth general conditions set forth above.
A fiduciary of a Plan contemplating purchasing any Senior Certificate must
make its own determination that the first, fifth and sixth general conditions
set forth above will be satisfied with respect to such Senior Certificate as
of the date of such purchase.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools; (ii) certificates in such
other investment pools must have been rated in one of the three highest
categories of S&P, DCR, Moody's or Fitch for at least one year prior to the
Plan's acquisition of Senior Certificates; and (iii)
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<PAGE>
certificates 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 Senior Certificates. The Depositor has confirmed to its
satisfaction that such requirements have been satisfied as of the date
hereof.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code)
in connection with (i) the direct or indirect sale, exchange or transfer of
Senior Certificates in the initial issuance of Certificates between the
Depositor or an underwriter and a Plan when the Depositor, any underwriter,
the Trustee, the Servicer, the Special Servicer, any sub-servicer or any
mortgagor is a "Party in Interest," as defined in the Prospectus, with
respect to the investing Plan, (ii) the direct or indirect acquisition or
disposition in the secondary market of Senior Certificates by a Plan and
(iii) the holding of Senior Certificates by a Plan. However, no exemption is
provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of
ERISA for the acquisition or holding of a Senior Certificate on behalf of an
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For
purposes hereof, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E)
of the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Senior Certificates in the initial issuance of Senior
Certificates between the Depositor or an underwriter and a Plan when the
person who has discretionary authority or renders investment advice with
respect to the investment of Plan assets in such Senior Certificates is (a) a
mortgagor with respect to 5% or less of the fair market value of the Mortgage
Loans or (b) an affiliate of such a person, (2) the direct or indirect
acquisition or disposition in the secondary market of Senior Certificates by
a Plan and (3) the holding of Senior Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by
Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation
of the Mortgage Pool. The Depositor expects that the specific conditions of
the Exemption required for this purpose will be satisfied with respect to the
Senior Certificates.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D)
of the Code if such restrictions are deemed to otherwise apply merely because
a person is deemed to be a Party in Interest with respect to an investing
Plan by virtue of providing services to the Plan (or by virtue of having
certain specified relationships to such a person) solely as a result of the
Plan's ownership of Senior Certificates. A purchaser of a Senior Certificate
should be aware, however, that even if the conditions specified in one or
more exemptions are satisfied, the scope of relief provided by an exemption
may not cover all acts that may be considered prohibited transactions.
Before purchasing a Senior Certificate, a fiduciary of a Plan should
itself confirm that the specific and general conditions of the Exemption and
the other requirements set forth in the Exemption would be satisfied. In
addition to making its own determination as to the availability of the
exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. See
"ERISA CONSIDERATIONS" in the Prospectus.
BECAUSE THE CHARACTERISTICS OF THE CLASS B, CLASS C, CLASS D AND CLASS E
CERTIFICATES DO NOT MEET THE REQUIREMENTS OF THE EXEMPTION, THE PURCHASE OR
HOLDING OF SUCH CERTIFICATES BY A PLAN MAY RESULT IN PROHIBITED TRANSACTIONS
OR THE IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES. IN NO EVENT MAY ANY
TRANSFER OF A CLASS B, CLASS C, CLASS D OR CLASS E CERTIFICATE OR ANY
INTEREST THEREIN BE MADE TO A PLAN OR TO ANY PERSON WHO IS DIRECTLY OR
INDIRECTLY PURCHASING SUCH CERTIFICATE OR INTEREST THEREIN ON BEHALF OF, AS
NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH ASSETS OF A PLAN, UNLESS THE
PURCHASE AND HOLDING OF SUCH CERTIFICATE OR INTEREST THEREIN IS EXEMPT FROM
THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION
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<PAGE>
4975 OF THE CODE UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, WHICH
PROVIDES AN EXEMPTION FROM THE PROHIBITED TRANSACTION RULES FOR CERTAIN
TRANSACTIONS INVOLVING AN INSURANCE COMPANY GENERAL ACCOUNT. ANY PERSON TO
WHOM A TRANSFER OF ANY SUCH CERTIFICATE OR INTEREST THEREIN IS MADE SHALL BE
DEEMED TO HAVE REPRESENTED TO THE DEPOSITOR, THE SERVICER, THE SPECIAL
SERVICER, THE TRUSTEE, ANY SUB-SERVICER AND ANY BORROWER WITH RESPECT TO THE
MORTGAGE LOANS THAT EITHER (I) IT IS NOT A PLAN AND IS NOT DIRECTLY OR
INDIRECTLY PURCHASING SUCH CERTIFICATE OR INTEREST THEREIN ON BEHALF OF, AS
NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH ASSETS OF A PLAN OR (II) THE
PURCHASE AND HOLDING OF SUCH CERTIFICATE OR INTEREST THEREIN IS SO EXEMPT ON
THE BASIS OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver its opinion generally to the effect
that, assuming compliance with all provisions of the Trust Agreement, for
federal income tax purposes, the portions of the Trust Fund designated in the
Trust Agreement as "REMIC I", "REMIC II" and "REMIC III", respectively, will
each qualify as a REMIC under the Internal Revenue Code of 1986 (the "Code").
For federal income tax purposes, (a) the Class R-I Certificates will be the
sole class of "residual interests" in REMIC I, (b) the separate
non-certificated regular interests in REMIC I will be the "regular interests"
in REMIC I and will constitute the assets of "REMIC II", (c) the Class R-II
Certificates will be the sole class of "residual interests" in REMIC II, (d)
the separate non-certificated regular interests in REMIC II will be the
"regular interests" in REMIC II and will constitute the assets of "REMIC
III", (e) the Regular Interest Certificates will evidence the "regular
interests" in, and generally will be treated as debt instruments of, REMIC
III, and (f) the Class R-III Certificates will be the sole class of "residual
interests" in REMIC III. See "FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus.
Notwithstanding the statement in the Prospectus that interest with respect
to certain REMIC regular interests based on a weighted average of the
interest rates on the underlying mortgage loans should be treated as original
issue discount, the Class A, Class B, Class C, Class D and Class E
Certificates will be treated as having been issued with original issue
discount only to the extent that the Certificate Principal Amount of any such
Offered Certificate exceeds its issue price by more than a de minimis amount.
The Class A, Class B, Class C and Class D Certificates will not, and the
Class E and Class IO Certificates will, be treated as having been issued with
original issue discount for federal income tax reporting purposes. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium, if any, for federal
income tax purposes will be based on the assumption that subsequent to the
date of any determination the Mortgage Loans will prepay at a rate equal to a
CPR of 0%. No representation is made that the Mortgage Loans will not prepay
or that, if they do, they will prepay at any particular rate.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder (in particular, the holder of a Class IO Certificate), the
amount of original issue discount allocable to such period would be zero and
such Certificateholder will be permitted to offset such negative amount only
against future original issue discount (if any) attributable to such
Certificates. Although the matter is not free from doubt, a holder of a Class
IO Certificate may be permitted to deduct a loss to the extent that his or
her respective remaining basis in such Certificate exceeds the maximum amount
of future payments to which such Certificateholder is entitled, assuming no
further prepayments of the Mortgage Loans. Any such loss might be treated as
a capital loss.
The OID 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 the holder of
an Offered Certificate may be able to select a method for recognizing
original issue discount that differs from that used by the Trustee in
preparing reports to the Certificateholders and the IRS. Prospective
purchasers of Offered Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
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<PAGE>
The Offered Certificates will be treated as "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code. In addition, interest
(including original issue discount) on the Offered Certificates will be
interest described in Section 856(c)(3)(B) of the Code. However, the Offered
Certificates will generally only be considered assets described in Section
7701(a)(19)(C) of the Code to the extent that the Mortgage Loans are secured
by residential property and, accordingly, investment in the Offered
Certificates may not be suitable for certain thrift institutions.
Prepayment Premiums actually collected, exclusive of any portion thereof
constituting Retained Yield, will be distributed among the holders of the
respective Classes of Certificates as described herein under "DESCRIPTION OF
THE CERTIFICATES--Distributions--Distributions of Prepayment Premiums". It is
not entirely clear under the Code when the amount of a Prepayment Premium
should be taxed to the holder of an Offered Certificate, but it is not
expected, for federal income tax reporting purposes, that Prepayment Premiums
will be treated as giving rise to any income to the holders of an Offered
Certificate prior to the Servicer's actual receipt of a Prepayment Premium.
It appears that Prepayment Premiums, if any, will be treated as ordinary
income rather than capital gain. However, that is not entirely clear and
Certificateholders should consult their own tax advisors concerning the
treatment of Prepayment Premiums.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (a "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Loan, the receipt of income from a source other
than a Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the Certificates. Net gain on the sale of the assets of a
REMIC pursuant to a qualified liquidation is not subject to a Prohibited
Transactions Tax. It is not anticipated than any of REMIC I, REMIC II or
REMIC III will engage in any prohibited transactions in which it would
recognize a material amount of net income.
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 (a
"Contributions Tax").
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to
the rules applicable to real estate investment trusts. "Net income from
foreclosure property" generally means gain from the sale of a foreclosure
property that is inventory property and gross income from foreclosure
property other than qualifying rents and other qualifying income for a real
estate investment trust. Because the Special Servicer in general is obligated
to operate and manage any Mortgaged Property acquired as an REO Property in a
manner that would, to the extent commercially feasible, maximize the Trust
Fund's net after-tax proceeds from such property, but is authorized in
appropriate circumstances to allow the Trust Fund to incur taxes in the
course of such operations and management (in particular, in the case of a
hotel property or a senior assisted living/congregate care facility) a tax on
"net income from foreclosure property" may be imposed on the Trust Fund. See
"SERVICING OF THE MORTGAGE LOANS--Foreclosures" herein. Any such tax will be
charged against amounts otherwise payable on the Certificates.
It is not anticipated that any material state or local income or franchise
tax will be imposed on any of REMIC I, REMIC II or REMIC III.
To the extent permitted by then applicable laws, any Prohibited
Transactions Tax, Contributions Tax, tax on "net income from foreclosure
property" or state or local income or franchise tax that may be imposed on
any of REMIC I, REMIC II or REMIC III will be borne by the Servicer, Special
Servicer, Fiscal Agent or Trustee in each case out of its own funds, provided
that the Servicer, Special Servicer, Fiscal Agent or Trustee, as the case may
be, has sufficient assets to do so, and provided further that such tax arises
out of a breach of the Servicer's, Special Servicer's Fiscal Agent's or
Trustee's obligations, as the case may be, under the Trust Agreement and in
respect of compliance with then applicable law. Any such
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<PAGE>
tax not borne by the Servicer, Special Servicer, Fiscal Agent or Trustee will
be charged against the Trust Fund resulting in a reduction in amounts payable
to holders of Certificates.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "FEDERAL INCOME TAX
CONSIDERATIONS" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement dated the date hereof (the "Underwriting Agreement") relating to
the Offered Certificates between the Depositor and Lehman Brothers, the
Depositor has agreed to sell to Lehman Brothers, and Lehman Brothers has
agreed to purchase from the Depositor, all of the Offered Certificates.
The Underwriting Agreement provides that Lehman Brothers' obligations
thereunder are subject to certain conditions precedent, and that Lehman
Brothers will be obligated to purchase all of such Certificates if any are
purchased.
The distribution of such Certificates by Lehman Brothers will be effected
from time to time in one or more negotiated transactions, or otherwise, at
varying prices to be determined, in each case, at the time of sale. Lehman
Brothers may effect such transactions by selling such Certificates to or
through dealers, and such dealers may receive from Lehman Brothers, for whom
they act as agent, compensation in the form of underwriting discounts,
concessions or commissions. Lehman Brothers and any dealers that participate
with Lehman Brothers in the distribution of such Certificates may be deemed
to be underwriters, and any discounts, commissions or concessions received by
them, and any profit on the resale of such Certificates purchased by them,
may be deemed to be underwriting discounts and commissions under the
Securities Act. The Underwriting Agreement provides that the Depositor will
indemnify Lehman Brothers against certain liabilities, including liabilities
under the Securities Act.
Lehman Brothers is an affiliate of the Depositor. See "PLAN OF
DISTRIBUTION" in the Prospectus.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor and for Lehman Brothers by Thacher Proffitt & Wood, New
York, New York.
CERTIFICATE RATING
It is a condition of the issuance of the Offered Certificates that they
receive the following credit ratings from Moody's, Fitch and DCR:
CLASS MOODY'S FITCH DCR
- ------------ ----------- --------- -------
Class A Aaa AAA AAA
Class IO Aaa AAA AAA
Class B Aa2 AA AA
Class C A2 A A
Class D Baa2 BBB BBB
Class E Baa3 BBB- BBB-
The ratings on the Offered Certificates address the likelihood of the
timely receipt by the holders thereof of all payments of interest to which
they are entitled and, in the case of the Class A, Class B, Class C, Class D
and Class E Certificates, the ultimate receipt by the holders thereof of all
payments of principal to which they are entitled on or before the Rated Final
Distribution Date. The ratings on the Offered Certificates take into
consideration the credit quality of the Mortgage Pool, structural and legal
aspects associated with the Offered Certificates, and the extent to which the
payment stream from the Mortgage Pool is adequate to make payments required
under the Offered Certificates. The ratings on the Offered Certificates do
not, however, represent any assessment of (i) the likelihood or frequency of
prepayments on the Mortgage Loans, (ii) the degree to which the frequency of
prepayments might differ from that
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originally anticipated, (iii) whether or to what extent Prepayment Premiums
or Default Interest may be received, or (iv) in the case of the Class IO
Certificates, that a holder thereof might not fully recover its investment in
the event of a rapid rate of prepayments (including both voluntary and
involuntary prepayments) on and/or liquidations of the Mortgage Loans. In
general, the ratings thus address credit risk and not prepayment risk. As
described herein, the amounts payable with respect to the Class IO
Certificates consist only of interest and, to the extent described herein,
Prepayment Premiums. If the entire pool were to prepay in the initial month,
with the result that the Class IO Certificateholders receive only a single
month's interest and thus suffer a nearly complete loss of their investment,
all amounts "due" to such Holders will nevertheless have been paid, and such
result is a consistent with the "Aaa" and "AAA" ratings received on the Class
IO Certificates. The aggregate Certificate Notional Amount upon which
interest is calculated in respect of the Class IO Certificates is reduced by
the allocation of Realized Losses and prepayments, whether voluntary or
involuntary. The rating does not address the timing or magnitude of
reductions of such notional amount, but only the obligation to pay interest
timely on the notional amount as so reduced from time to time. Accordingly,
the ratings of the Class IO Certificates should be evaluated independently
from similar ratings on other types of securities.
There can be no assurance that any rating agency not requested to rate the
Offered Certificates will not nonetheless issue a rating to any or all
Classes thereof and, if so, what such rating or ratings would be. A rating
assigned to any Class of Offered Certificates by a rating agency that has not
been requested by the Depositor to do so may be lower than the rating
assigned thereto by any or all of the Rating Agencies.
The ratings on 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.
S-130
<PAGE>
INDEX OF PRINCIPAL TERMS
ABN AMRO S-70
Accepted Servicing Practices S-100, S-101
Accrued Certificate Interest S-54
ACMs S-78
Additional Expense Loss S-29, S-60
Additional Trust Fund Expenses S-29, S-60
Administrative Cost Rate S-35, S-102
Advance S-11, S-36, S-63
A&E Report S-79, S-81
AL/CC S-80
Annual Debt Service S-82
Appraisal Reduction Amount S-64
ASAP S-66
Assigned Asset Value S-103
Assumed Final Distribution Date S-67
Assumed Payment S-62
Available Distribution Amount S-24, S-50
Balloon Loans S-33
Balloon Payment S-33
Blanchard Loans S-42
Book-Entry Certificates S-48
Cash Management Agreement S-77
Certificate Interest Rate S-23, S-49
Certificate Notional Amount S-2, S-23, S-48
Certificate Owner S-48
Certificate Principal Amount S-2, S-23, S-48
Certificate Registrar S-49
Certificates S-1, S-20, S-47
Class S-1, S-20
Closing Date S-1
Code S-127
Collection Account S-73
Collection Period S-27, S-50
Component S-48
Component A S-48
Component B S-48
Component C S-48
Component D S-48
Component E S-48
Component F S-48
Component G S-48
Component H S-48
Component J S-48
Component Rates S-49
Controlling Class S-103
Corporate Trust Office S-70
CPR S-114
Cross-Collateralized Mortgage Loans S-32, S-74
CRWQCB S-79
S-131
<PAGE>
Custodial Account S-72
Custodian S-95
Cut-off Date S-1, S-74
Cut-off Date Balance S-31, S-74
Cut-off Date Debt Service Coverage Ratio S-82
Cut-off Date DSC Ratio S-82
Cut-off Date LTV Ratio S-82
DCR S-1, S-38
Definitive Certificate S-48
Depositor S-1, S-20
Determination Date S-50
Distributable Certificate Interest S-27, S-54
Distribution Date S-2, S-50
Distribution Date Statement S-64
DTC S-48
Due Date S-33
Due Period S-50
Eligible Account S-72
ERISA S-39, S-124
Event of Default S-111
Excess Prepayment Interest S-29, S-61
Exemption S-125
FF&E S-81
Fiscal Agent S-1, S-21
Fitch S-1, S-38
Form 8-K S-98
GAAP S-82
Group S-32, S-74
Initial Pool Balance S-1, S-31, S-74
Interest Payment Adjustment Period S-56
LaSalle S-69
Leasing Costs S-82
Lehman Brothers S-1
Lock-out Period S-14, S-33
Maturity Date LTV Ratio S-82
Modified Mortgage Loan S-64
Monthly Payments S-32
Moody's S-1, S-38
Mortgage S-74
Mortgage File S-95
Mortgage Loan Assumptions S-115
Mortgage Loan Schedule S-95
Mortgage Loans S-1, S-74
Mortgage Note S-74
Mortgage Pool S-1
Mortgage Rate S-32
Mortgaged Property S-31, S-74
Net Aggregate Excess Prepayment Interest S-61
Net Aggregate Prepayment Interest Shortfall S-30, S-61
Net Collections S-102
Net Mortgage Rate S-24, S-49
S-132
<PAGE>
Net REO Income S-50
Non-Borrower Participant S-77
Non-Offered Certificates S-20, S-47
Nonrecoverable Advance S-63
Occupancy Rate S-82
Offered Certificates S-1, S-20, S-47
O&M S-78
Operating Adviser S-11, S-22, S-102
Original Value S-78
Participants S-48
Payment Differential S-76
Percentage Interest S-50
P&I Advances S-62
Plan S-39, S-125
Prepayment Interest Shortfall S-29, S-61
Prepayment Period S-50
Prepayment Premium S-14, S-33
Primary Mortgaged Property S-32, S-74
Principal Payment Amount S-27, S-54
Principal Window S-7
Purchase Price S-95
PV Yield Loss Amount S-56
Rated Final Distribution Date S-2, S-38, S-68
Rating Agencies S-1, S-38
Realized Losses S-29, S-60
Record Date S-22, S-50
Regular Interest Certificates S-1, S-20, S-47
Rehabilitated Mortgage Loan S-99
Reinvestment Yield S-56
REMIC S-3, S-37
REMIC I S-3, S-37, S-127
REMIC II S-3, S-37, S-127
REMIC III S-3, S-37, S-127
REO Property S-30, S-47
REO Tax S-109
Repurchase Proceeds S-51
Required Appraisal Loan S-63
Residual Interest Certificates S-1, S-20, S-47
Restricted Group S-125
Retained Yield S-35, S-79
Retained Yield Holder S-80
Scheduled Principal Balance S-62
Securities Act S-20, S-47
Seller S-1, S-21
Senior Certificates S-1, S-20, S-47
Sequential Pay Certificates S-23, S-47
Servicer S-1, S-21
Servicer Remittance Date S-50, S-73
Servicing Advances S-63
Servicing Agreement S-98
Servicing Fee S-100
S-133
<PAGE>
Servicing Fee Rate S-100
Servicing Transfer Event S-99
Servico S-77
Servico Account S-77
Servico Cash Management Mortgage Loans S-77
Servico Manager S-77
Servico Mortgage Loans S-42
Servico Participating Borrower S-77
S&P S-125
Special Servicer S-1, S-21
Special Servicer Reports S-66
Special Servicing Agreement S-98
Special Servicing Basic Fee S-102
Special Servicing Basic Fee Rate S-102
Special Servicing Supplemental Fee S-102
Specially Serviced Mortgage Loan S-21, S-98
Stated Principal Balance S-49, S-50
Subordinate Certificates S-1, S-20, S-47
Sub-Servicer S-100
Sub-Servicing Agreement S-101
System S-77
Termination Price S-68
Transaction Documents S-98
Treasury Yield S-76
Trust S-1, S-22, S-47
Trust Agreement S-22, S-47
Trust Fund S-1, S-47
Trustee S-1, S-21
Trustee Fee S-70
Trustee Fee Rate S-70
Uncovered Portion S-103
Underwriter S-1
Underwriting Agreement S-129
Underwriting NOI S-80
Units S-82
UST S-78
UST Fund S-79
Voting Rights S-68
Weighted Average Net Mortgage Rate S-24, S-49
S-134
ANNEX A
<TABLE>
<CAPTION>
LOAN ZIP PROPERTY
NO PROPERTY NAME ADDRESS CITY STATE CODE TYPE
- ---- ----------------------------- ----------------------------- --------------- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
1 Congressional Plaza 1400 Block of Rockville Pike Rockville MD 20849 Retail
2 Hilton Hotel Pleasanton 7050 Johnson Industrial Drive Pleasanton CA 94566 Hotel
3 Sheraton Crystal City 1800 S. Jefferson Davis Hwy Crystal City VA 22202 Hotel
4 Concord Plaza Shopping Center 11241 Southwest 40th Street Miami FL 33165 Retail
5 Village at Mableton 5590 Mableton Parkway Mableton GA 30059 Retail
6 Arlington Plaza 150 East 286 West Rand Road Arlington Heights IL 60005 Retail
7 Candletree Apartments 10535 Ellison Plaza Omaha NE 68134 Multifamily
8 Country House 11284 Grand Oak Drive Grand Blanc MI 48439 Multifamily
9 Doubletree Shopping Center Route 47 --North Delsea Drive Glassboro NJ 08028 Retail
10 Sunkist Plaza Shopping Center 13847-13965 East Amar Road La Puente CA 91746 Retail
11 Newington Plaza 2985-3017 Berlin Turnpike Newington CT 06111 Retail
12 Old Colony Grand & Monmouth Streets Jersey City NJ 07302 Retail
13 Holiday Inn Providence 21 Atwells Avenue Providence RI 02903 Hotel
14 Barrington Manor 126 Kent Avenue Haddonfield NJ 08033 Multifamily
15 Evergreen Apartments 5400 West Cheyenne Las Vegas NV 89108 Multifamily
16 Comfort Inn Warwick 1940 Post Road Warwick RI 02886 Hotel
17 Bahama Glen 2540 Bahama Dr. Dallas TX 75211 Multifamily
18 Tourist Plaza 8510-8560 International Drive Orlando FL 32819 Retail
19 Park Central 626-640-650 Ocean Drive Miami FL 33139 Hotel
20 Hilton Hotel Sioux City 707 Fourth Street Sioux City IA 51101 Hotel
21 Holiday Inn Lansing 7501 W. Saginaw Highway Lansing MI 48917 Hotel
22 Cotswold Village Apartments 1075 North Hairston Road Stone Mountain GA 30083 Multifamily
23 Briarwood Gardens 5209 East 126th St Grandview MO 64030 Multifamily
24 Cedar Grove Shopping Center 120 Cedar Grove Lane Franklin Township NJ 08873 Retail
25 Poplar Springs Apartments I & II 6095 West Lee's Mill Road College Park GA 30349 Multifamily
26 Lakeside Townhouse 5577 Riverdale Road College Park GA 30349 Multifamily
27 Homosassa Springs Plaza 3902-3956 S. Suncoast Boulevard Homosassa Springs FL 34448 Retail
28 Best Western Omaha 3650 72nd Street Omaha NE 68124 Hotel
29 Holiday Inn Wichita 5500 West Kellogg Wichita KS 67209 Hotel
30 Hampton Inn Mt. Laurel 4000 Crawford Lane Mt. Laurel NJ 08054 Hotel
31 Bay Bridge Mobile Home Park Bay Bridge Road Brunswick ME 04011 Mobile Home Park
32 Versailles Apartments 600-620 State Street Los Angeles CA 90005 Multifamily
33 Autumn Run Apartments 1 Trafalgar Square Louisville KY 40218 Multifamily
34 Best Western Charleston 237 Meeting Street Charleston SC 29401 Hotel
35 Sandal Ridge 645 North Country Club Dr. Mesa AZ 85201 Multifamily
36 Cherry Creek So. Governors Hwy/183rd Street Homewood IL 60430 Retail
37 Holiday Inn Augusta 1075 Stevens Creek Augusta GA 30907 Hotel
38 Metro III Office Building 12200-12300 Ford Road Farmers Branch TX 75234 Office
39 Ludren Park 12101 Fondren Rd. Houston TX 77071 Multifamily
40 McQueen Village 601 McQueen Village Road Prattville AL 36066 Multifamily
41 Chateau Estates 103 Hart Street Taunton MA 02780 Multifamily
42 American Self Storage 1985 East Bayshore Blvd. East Palo Alto CA 94303 Self Storage
43 Canal House Apartments 4312 Main Street Philadelphia PA 19127 Multifamily
44 Second Street Shoppes 581 Second Street Manchester NH 03102 Retail
45 Circle Mgmt. 3414-3428 Ct. Ave. 3414-3428 Connecticut Ave. N.W. Washington DC 20037 Retail
46 Best Western Des Moines 11040 Hickman Road Des Moines IA 50325 Hotel
47 Holiday Inn Richfield 4747 Brecksville Richfield OH 44286 Hotel
48 Hudson Bridge Apartments 141 Hudson Bridge Lane Stockbridge GA 30281 Multifamily
49 Lawnmont Apartments 2207 Lawnmont Austin TX 78756 Multifamily
50 Hampton Inn Austell 1100 N. Blairs Bridge Rd. Austell GA 30001 Hotel
51 Hawthorne Hotel 18 Washington Square West Salem MA 02726 Hotel
52 Hampden House Apartments 2001 Hampden Boulevard Reading PA 19604 Multifamily
53 Holiday Inn Oxford 400 N. Lamar Oxford MS 38655 Hotel
54 Franciscan Manor 1420 West North Avenue Lompoc CA 93436 AL/CC
55 Beckford Place Apartments 13150 Bissonet Houston TX 77042 Multifamily
56 Comfort Inn Pensacola 3 New Warrington Road Pensacola FL 32506 Hotel
57 Comfort Inn Herndon 200 Elden Street Herndon VA 22070 Hotel
58 Corder Crossing Apartments 750 Corder Road Warner Robins GA 31088 Multifamily
59 New Paltz Shopping Center 263 Main Street New Paltz NY 12561 Retail
60 Sheraton Omaha 4888 South 118th Street Omaha NE 68137 Hotel
61 Villa Rose Retirement Apartments 401 South Morland Road Bethalto IL 62010 AL/CC
62 Comfort Inn Duncan 1391 East Main Street Duncan SC 29334 Hotel
63 The Citizens Trust Company Bldg. 75 Piedmont Avenue Atlanta GA 30303 Office
64 Habersham Court 15 Habersham Road Atlanta GA 30325 Multifamily
65 El Presidente Apartments 2200 West North Loop Austin TX 78751 Multifamily
66 Sutton Square Apartments 601 Bellaire Drive Hurst TX 76053 Multifamily
67 Holiday Hills Apartments 811 North Plymouth Road Dallas TX 75211 Multifamily
68 Ridgewood Apartments 2100 Apalachee Parkway Tallahasse FL 32302 Multifamily
69 Holiday Inn Express Barstow, CA 1861 West Main Street Barstow CA 92311 Hotel
70 Payvand Tower 145-18 34th Avenue Flushing NY 11354 Multifamily
71 Cambridge Commons Shopping Center 15-45 East Dundee Road Buffalo Grove IL 60089 Retail
72 Forest Place Apartments 34, 36, 44, 48 & 50 Forest Street Hartford CT 06105 Multifamily
73 Amerihost Inn Plainfield 6105 Cambridge Way Plainfield IN 46231 Hotel
74 Oakley Shoals Apartments 6295 Oakley Road Union City GA 30291 Multifamily
75 Poplar Springs Apartments Ph.III 6095 West Lee's Mill Road College Park GA 30349 Multifamily
76 Days Inn Plainfield 6111 Cambridge Way Plainfield IN 46168 Hotel
77 Walmart Plaza Cobleskill Rte. 7 & 145 at Borst Noble Road Cobleskill NY 12043 Retail
78 Sleep Inn South Jordan 10676 South 300 West South Jordan UT 84065 Hotel
79 Pineview Apartments 3910 W. Walnut Street Garland TX 75042 Multifamily
80 Oak Trails Apartments 2911 Clydedale Drive Dallas TX 75220 Multifamily
81 Days Inn Marysville 16420 Allenby Drive Marysville OH 43040 Hotel
82 Best Western Council Bluff 3537 West Broadway Council Bluffs IA 51501 Hotel
83 Circle Mgmt. 1218-1220 Ct. Ave. 1218-1220 Connecticut Ave. NW LLC Washington DC 20037 Retail
84 Econo Lodge King One Vesta Street King NC 27021 Hotel
85 Bentwood Apartments 6929 West University Ave. Gainesville FL 32607 Multifamily
86 Dorset Avenue Shopping Center 305-319 North Dorset Avenue Ventnor NJ 08406 Retail
87 Whisperwood Apartments 4100 Northwest 28th Land Gainesville FL 32606 Multifamily
88 Westchester Apartments 2905 Arrowhead Drive Augusta GA 30909 Multifamily
89 Walmart Plaza Jamestown Fairmount Avenue, Town of Busti Jamestown NY 14750 Retail
90 Days Inn Cloverdale 1031 North Main Street Cloverdale IN 46120 Hotel
91 Comfort Inn Gainesville 2435 Southwest 13th Street Gainesville FL 32608 Hotel
92 Westpark Village Apartments 370 Westfork Boulevard Lithia Springs GA 30057 Multifamily
93 Ivywood Apartments 1556 Clough Street Bowling Green OH 43402 Multifamily
94 Granada Apartments 4711-4757 NW 24 Court Lauderdale Lakes FL 33313 Multifamily
95 Comfort Inn Forrest City 115 Barrow Hill Road Forrest City AR 72235 Hotel
96 Comfort Inn Gallup 3208 West Highway 66 Gallup NM 87301 Hotel
97 Lakeside Villa Apts 3665 Sykes Park Drive Jackson MS 39212 Multifamily
98 Tara Village 1009-1101 Cheek Sparger Road Colleyville TX 76034 Retail
99 Spanish Main Apartments 4443 Rittiman Road San Antonio TX 78218 Multifamily
100 60 Clarkson Street 60 Clarkson Avenue Brooklyn NY 11226 Multifamily
101 Ashley Apartments 8330 Carvel Lane Houston TX 77036 Multifamily
102 329 Main Street 329 Main Street Lodi NJ 07644 Multifamily
103 Days Inn Crawfordsville 1040 Corey Boulevard Crawfordsville IN 46933 Hotel
104 Bent Tree Apartments Phase I 2209 Ivy Court Findlay OH 45840 Multifamily
105 Bent Tree Apartments Phase II 2209 Ivy Court Findlay OH 45840 Multifamily
106 Aspen Oaks 1112 Village Rd Chaska MN 55318 Multifamily
107 Pleasantdale Village Shopping Ctr 3210 Tucker-Norcross Road Tucker GA 30084 Retail
108 Elmwood 326 South Normandie Avenue Los Angeles CA 90020 Multifamily
109 Landmark Apartments 929 Vista Del Cerro Dr. Tempe AZ 85281 Multifamily
110 32nd Street Shops/Denny's 3251 North Federal Highway Boca Raton FL 33432 Retail
111 Chapin Place 590 Wethersfield Ave Hartford CT 06114 Multifamily
<CAPTION>
ORIGINAL REMAINING
LOAN YEAR YEAR ORIGINAL CUT-OFF DATE AMORTIZATION TERM TO TERM TO
NO SIZE BUILT RENOVATED BALANCE BALANCE TYPE MATURITY MATURITY
- ---- ---------- ----- --------- -------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 166,512 SF 1986 $16,950,000 $16,940,106 Balloon 84 83
2 294 Rooms 1985 1996 16,250,000 16,215,978 Balloon 120 117
3 217 Rooms 1983 1996 14,900,000 14,852,558 Balloon 84 80
4 281,952 SF 1962 1992 12,350,000 12,323,244 Balloon 84 80
5 231,594 SF 1958 1988 10,670,000 10,658,824 Balloon 120 118
6 269,248 SF 1970 1982 10,610,000 10,595,473 Balloon 120 118
7 408 Units 1972 9,350,000 9,205,303 Balloon 84 67
8 284 Units 1970 8,787,000 8,732,039 Balloon 120 110
9 138,836 SF 1987 8,500,000 8,449,864 Balloon 84 74
10 173,185 SF 1955 1985 8,400,000 8,395,627 Balloon 120 119
11 171,667 SF 1987 1990 7,700,000 7,693,391 Balloon 120 119
12 100,300 SF 1970 7,615,000 7,607,073 Balloon 120 118
13 274 Rooms 1968 1995 7,500,000 7,443,589 Self Am 276 269
14 324 Units 1950 1994 7,200,000 7,106,674 Balloon 120 104
15 228 Units 1986 6,250,000 6,192,068 Balloon 120 105
16 196 Rooms 1983 1989 6,200,000 6,129,569 Self Am 276 264
17 288 Units 1984 1995 6,150,000 6,116,544 Balloon 120 112
18 50,234 SF 1991 6,000,000 5,991,516 Balloon 84 81
19 128 Rooms 1937 1987 5,940,000 5,931,566 Balloon 120 118
20 193 Rooms 1973 1993 5,890,000 5,834,300 Balloon 84 76
21 245 Rooms 1974 1996 5,687,000 5,669,270 Balloon 84 80
22 280 Units 1970 5,525,000 5,494,029 Balloon 120 112
23 359 Units 1969 1996 5,510,000 5,463,306 Balloon 120 112
24 59,711 SF 1988 5,500,000 5,456,361 Balloon 84 70
25 240 Units 1988 5,250,000 5,237,835 Balloon 120 116
26 177 Units 1986 5,240,000 5,220,966 Balloon 120 114
27 93,997 SF 1986 1995 5,100,000 5,091,404 Balloon 84 81
28 213 Rooms 1970 1996 4,905,000 4,897,416 Balloon 84 82
29 152 Rooms 1973 1996 4,875,000 4,867,463 Balloon 84 82
30 127 Rooms 1989 1995 4,800,000 4,753,116 Balloon 120 111
31 493 Pads 1961 1988 4,650,000 4,609,831 Balloon 84 64
32 161 Units 1925 1987 4,400,000 4,370,295 Balloon 120 110
33 204 Units 1972 1993 4,300,000 4,232,088 Balloon 84 69
34 91 Units 1957 1996 4,150,000 4,099,145 Self Am 276 265
35 196 Units 1979 1993 4,080,000 4,057,175 Balloon 120 112
36 112,458 SF 1971 4,030,000 4,027,892 Balloon 120 119
37 242 Rooms 1979 1995 3,970,000 3,932,457 Balloon 84 76
38 168,813 SF 1981 3,946,000 3,922,869 Balloon 84 74
39 320 Units 1981 1995 3,600,000 3,565,945 Balloon 180 171
40 136 Units 1995 3,346,000 3,342,454 Balloon 180 177
41 120 Units 1973 1995 3,252,000 3,213,797 Balloon 120 108
42 49,858 SF 1978 3,215,000 3,212,380 Balloon 120 119
43 71 Units 1840 1989 3,216,000 3,199,562 Balloon 84 79
44 29,826 SF 1989 3,190,000 3,186,195 Balloon 84 82
45 22,289 SF 1930 1994 3,150,000 3,132,821 Balloon 120 114
46 161 Rooms 1973 1994 3,060,000 3,055,269 Balloon 84 82
47 219 Rooms 1966 1996 3,050,000 3,021,105 Balloon 84 76
48 102 Units 1987 1996 2,950,000 2,950,000 Balloon 120 120
49 178 Units 1973 2,900,000 2,843,735 Self Am 240 228
50 73 Rooms 1994 2,800,000 2,771,675 Balloon 240 230
51 89 Rooms 1925 1986 2,775,000 2,770,524 Balloon 84 82
52 144 Units 1953 1994 2,755,000 2,738,617 Balloon 120 114
53 123 Rooms 1962 1996 2,710,000 2,700,428 Balloon 120 116
54 65 Units 1991 2,700,000 2,697,231 Balloon 84 81
55 143 Units 1983 1995 2,700,000 2,689,847 Balloon 120 114
56 102 Rooms 1985 1994 2,660,000 2,647,403 Self Am 180 178
57 103 Rooms 1984 1993 2,560,000 2,535,275 Balloon 84 76
58 104 Units 1987 1995 2,550,000 2,531,324 Balloon 84 72
59 48,715 SF 1974 2,500,000 2,497,792 Balloon 120 119
60 168 Rooms 1975 1996 2,435,000 2,431,235 Balloon 84 82
61 128 Units 1984 $2,312,000 $2,309,757 Balloon 84 81
62 81 Rooms 1988 1995 2,325,000 2,300,589 Balloon 120 110
63 156,419 SF 1969 1995 2,500,000 2,285,626 Self Am 120 103
64 54 Units 1961 1994 2,250,000 2,248,698 Balloon 84 83
65 141 Units 1973 1994 2,200,000 2,166,424 Self Am 240 231
66 154 Units 1979 1992 2,128,000 2,116,539 Balloon 120 112
67 104 Units 1961 1994 2,100,000 2,088,576 Balloon 120 112
68 105 Units 1981 2,000,000 1,996,937 Self Am 240 239
69 65 Rooms 1991 2,000,000 1,987,382 Self Am 276 270
70 41 Units 1989 1,975,000 1,962,061 Balloon 120 110
71 48,113 SF 1976 1992 1,960,000 1,956,952 Balloon 120 117
72 147 Units 1870 1995 1,740,000 1,734,194 Balloon 120 116
73 60 Rooms 1992 1992 1,740,000 1,721,029 Balloon 180 171
74 86 Units 1986 1,695,000 1,691,073 Balloon 120 116
75 80 Units 1989 1,672,500 1,668,625 Balloon 120 116
76 64 Rooms 1990 1,680,000 1,661,683 Balloon 180 171
77 24,506 SF 1995 1,660,000 1,654,612 Balloon 120 115
78 68 Rooms 1992 1,670,000 1,648,088 Self Am 276 262
79 152 Units 1969 1987 1,650,000 1,634,590 Balloon 120 111
80 248 Units 1972 1996 1,610,000 1,607,281 Balloon 120 118
81 79 Rooms 1990 1994 1,610,000 1,592,446 Balloon 180 171
82 89 Rooms 1963 1996 1,565,000 1,562,580 Balloon 84 82
83 14,707 SF 1912 1995 1,550,000 1,542,981 Balloon 120 114
84 60 Rooms 1986 1993 1,550,000 1,533,726 Balloon 120 110
85 93 Units 1982 1993 1,500,000 1,500,000 Self Am 240 240
86 17,172 SF 1956 1988 1,500,000 1,491,410 Balloon 84 75
87 80 Units 1981 1995 1,450,000 1,450,000 Self Am 240 240
88 69 Units 1970 1994 1,447,500 1,437,505 Balloon 120 109
89 29,700 SF 1968 1993 1,431,000 1,430,320 Balloon 120 119
90 60 Rooms 1989 1994 1,370,000 1,355,063 Balloon 180 171
91 59 Rooms 1987 1994 1,300,000 1,295,123 Balloon 120 115
92 68 Units 1989 1,260,000 1,257,080 Balloon 120 116
93 67 Units 1979 1996 1,256,250 1,254,026 Balloon 120 118
94 78 Units 1972 1,250,000 1,239,965 Self Am 240 235
95 76 Rooms 1986 1995 1,200,000 1,184,355 Self Am 240 231
96 51 Rooms 1992 1,150,000 1,143,012 Balloon 120 114
97 145 Units 1974 1995 1,155,800 1,139,300 Balloon 120 106
98 37,820 SF 1987 1,100,000 1,098,272 Balloon 84 81
99 89 Units 1970 1993 1,073,000 1,069,969 Balloon 84 79
100 83 Units 1930 1,050,000 1,037,665 Balloon 120 108
101 76 Units 1972 1995 1,030,000 1,028,886 Balloon 120 118
102 28 Units 1974 1996 900,000 894,928 Balloon 120 114
103 60 Rooms 1989 1994 800,000 791,277 Balloon 180 171
104 51 Units 1975 770,000 768,695 Balloon 120 118
105 51 Units 1980 750,000 748,730 Balloon 120 118
106 44 Units 1971 670,000 664,277 Balloon 120 112
107 13,202 SF 1984 673,716 640,249 Self Am 166 151
108 49 Units 1930 1987 587,000 583,231 Balloon 120 110
109 42 Units 1971 1994 575,000 565,489 Balloon 120 98
110 9,618 SF 1973 1995 550,000 548,493 Self Am 240 238
111 48 Units 1969 470,000 466,744 Balloon 120 113
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL REMAINING FIRST NET CUT-OFF
LOAN AMORTIZATION AMORTIZATION PAYMENT MATURITY MORTGAGE RETAINED ADMINISTRA- MORTGAGE APPRAISAL APPRAISAL DATE
NO TERM TERM DATE DATE RATE YIELD TIVE FEE RATE VALUE DATE LTV
- ---- ------------ ------------ -------- ---------- -------- -------- ------------ -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 360 359 10/01/96 09/01/2003 8.680% 0.000 0.297 8.383% $28,200,000 06/28/96 60.07
2 300 297 08/01/96 07/01/2006 10.500 0.000 0.295 10.205 26,000,000 03/12/96 62.37
3 300 296 07/01/96 06/01/2003 9.750 0.000 0.295 9.455 23,300,000 01/01/96 63.74
4 360 356 07/01/96 06/01/2003 9.095 0.000 0.297 8.798 17,500,000 09/29/95 70.42
5 360 358 09/01/96 08/01/2006 9.220 0.000 0.297 8.923 14,250,000 06/10/96 74.80
6 324 322 09/01/96 08/01/2006 9.380 0.000 0.297 9.083 16,000,000 04/19/96 66.22
7 300 283 06/01/95 05/01/2002 9.250 0.890 0.297 8.063 12,480,000 12/04/94 73.76
8 360 350 01/01/96 12/01/2005 8.500 0.000 0.297 8.203 12,500,000 08/07/95 69.86
9 360 350 01/01/96 12/01/2002 8.790 0.000 0.297 8.493 12,500,000 09/15/95 67.60
10 360 359 10/01/96 09/01/2006 9.230 0.000 0.297 8.933 12,520,000 05/20/96 67.06
11 300 299 10/01/96 09/01/2006 9.230 0.000 0.297 8.933 12,200,000 12/01/95 63.06
12 360 358 09/01/96 08/01/2006 9.250 0.000 0.297 8.953 11,000,000 06/12/96 69.16
13 276 269 04/01/96 03/01/2019 9.250 0.000 0.295 8.955 13,200,000 12/01/95 56.39
14 324 308 07/01/95 06/01/2005 8.740 0.280 0.297 8.163 10,000,000 03/15/95 71.07
15 360 345 08/01/95 07/01/2005 8.650 0.000 0.297 8.353 9,175,000 03/22/95 67.49
16 276 264 11/01/95 10/01/2018 10.250 0.000 0.295 9.955 9,300,000 08/01/95 65.91
17 360 352 03/01/96 02/01/2006 8.050 0.000 0.297 7.753 8,200,000 12/04/95 74.59
18 360 357 08/01/96 07/01/2003 9.740 0.000 0.297 9.443 12,475,000 04/12/96 48.03
19 300 298 09/01/96 08/01/2006 10.375 0.000 0.295 10.080 10,000,000 01/01/96 59.32
20 276 268 03/01/96 02/01/2003 8.625 0.000 0.295 8.330 9,500,000 02/21/96 61.41
21 300 296 07/01/96 06/01/2003 9.875 0.000 0.295 9.580 10,000,000 01/01/96 56.69
22 360 352 03/01/96 02/01/2006 7.900 0.000 0.297 7.603 7,200,000 11/29/95 76.31
23 300 292 03/01/96 02/01/2006 8.100 0.000 0.297 7.803 7,940,000 11/17/95 68.81
24 360 346 09/01/95 08/01/2002 9.060 0.000 0.297 8.763 8,325,000 06/29/95 65.54
25 360 356 07/01/96 06/01/2006 8.770 0.000 0.297 8.473 7,000,000 03/23/96 74.83
26 360 354 05/01/96 04/01/2006 8.590 0.000 0.297 8.293 7,020,000 03/04/96 74.37
27 360 357 08/01/96 07/01/2003 8.900 0.000 0.297 8.603 7,075,000 04/20/96 71.96
28 300 298 09/01/96 08/01/2003 9.875 0.000 0.295 9.580 9,100,000 06/01/96 53.82
29 300 298 09/01/96 08/01/2003 9.875 0.000 0.295 9.580 6,500,000 06/13/96 74.88
30 276 267 02/01/96 01/01/2006 9.250 0.000 0.295 8.955 6,900,000 08/16/95 68.89
31 360 340 03/01/95 02/01/2002 10.500 0.000 0.297 10.203 7,300,000 10/17/94 63.15
32 360 350 01/01/96 12/01/2005 8.120 0.000 0.297 7.823 7,000,000 08/17/95 62.43
33 300 285 08/01/95 07/01/2002 8.290 0.000 0.297 7.993 5,600,000 03/07/95 75.57
34 276 265 12/01/95 11/01/2018 9.125 0.000 0.295 8.830 7,800,000 07/01/95 52.55
35 360 352 03/01/96 02/01/2006 7.910 0.000 0.297 7.613 5,670,000 10/26/95 71.56
36 360 359 10/01/96 09/01/2006 9.210 0.000 0.297 8.913 5,820,000 08/01/96 69.21
37 276 268 03/01/96 02/01/2003 8.625 0.000 0.295 8.330 9,100,000 02/21/96 43.21
38 360 350 01/01/96 12/01/2002 8.820 0.000 0.297 8.523 6,300,000 08/22/95 62.27
39 300 291 02/01/96 01/01/2011 8.170 0.000 0.297 7.873 4,800,000 05/23/95 74.29
40 360 357 08/01/96 07/01/2011 9.164 0.000 0.297 8.867 5,420,000 05/31/96 61.67
41 300 288 11/01/95 10/01/2005 8.680 0.000 0.297 8.383 4,700,000 05/25/95 68.38
42 300 299 10/01/96 09/01/2006 9.540 0.000 0.297 9.243 4,550,000 05/07/96 70.60
43 360 355 06/01/96 05/01/2003 8.750 0.000 0.297 8.453 4,850,000 03/15/96 65.97
44 336 334 09/01/96 08/01/2003 9.570 0.000 0.297 9.273 4,300,000 04/09/96 74.10
45 300 294 05/01/96 04/01/2006 9.000 0.000 0.297 8.703 4,200,000 11/09/95 74.59
46 300 298 09/01/96 08/01/2003 9.875 0.000 0.295 9.580 5,000,000 07/11/96 61.11
47 276 268 03/01/96 02/01/2003 8.625 0.000 0.295 8.330 6,000,000 02/21/96 50.35
48 360 360 11/01/96 10/01/2006 8.685 0.000 0.297 8.388 4,120,000 03/25/96 71.60
49 240 228 11/01/95 10/01/2015 8.710 0.000 0.297 8.413 4,390,000 06/21/95 64.78
50 276 266 01/01/96 12/01/2015 9.750 0.000 0.295 9.455 4,300,000 07/01/95 64.46
51 300 298 09/01/96 08/01/2003 9.625 0.000 0.295 9.330 5,200,000 02/28/96 53.28
52 300 294 05/01/96 04/01/2006 8.470 0.000 0.287 8.183 3,790,000 05/02/95 72.26
53 300 296 07/01/96 06/01/2006 10.625 0.000 0.295 10.330 3,900,000 04/04/96 69.24
54 360 357 08/01/96 07/01/2003 9.320 0.000 0.297 9.023 4,000,000 04/05/96 67.43
55 360 354 05/01/96 04/01/2006 8.420 0.000 0.297 8.123 3,650,000 01/10/96 73.69
56 180 178 09/01/96 08/01/2011 10.250 0.000 0.295 9.955 5,500,000 02/28/95 48.13
57 276 268 03/01/96 02/01/2003 8.500 0.000 0.295 8.205 4,200,000 10/01/95 60.36
58 360 348 11/01/95 10/01/2002 8.660 0.000 0.297 8.363 3,850,000 09/05/95 65.75
59 300 299 10/01/96 09/01/2006 9.060 0.000 0.297 8.763 4,200,000 07/16/96 59.47
60 300 298 09/01/96 08/01/2003 9.875 0.000 0.295 9.580 7,000,000 06/01/96 34.73
61 360 357 08/01/96 07/01/2003 9.585% 0.000 0.297 9.288% $3,875,000 11/24/95 59.61
62 276 266 01/01/96 12/01/2005 9.500 0.000 0.297 9.203 3,100,000 09/01/95 74.21
63 120 103 06/01/95 05/01/2005 10.680 1.180 0.297 9.203 4,900,000 02/08/94 46.65
64 360 359 10/01/96 09/01/2003 8.725 0.000 0.297 8.428 3,000,000 12/12/95 74.96
65 240 231 02/01/96 01/01/2016 8.230 0.000 0.297 7.933 3,250,000 06/21/95 66.66
66 360 352 03/01/96 02/01/2006 8.100 0.000 0.297 7.803 3,375,000 10/12/95 62.71
67 360 352 03/01/96 02/01/2006 8.050 0.000 0.297 7.753 2,800,000 11/17/95 74.59
68 240 239 10/01/96 09/01/2016 8.820 0.000 0.297 8.523 3,000,000 04/04/96 66.56
69 276 270 05/01/96 04/01/2019 9.375 0.000 0.295 9.080 3,100,000 08/30/95 64.11
70 360 350 01/01/96 12/01/2005 8.270 0.000 0.297 7.973 3,700,000 08/04/95 53.03
71 360 357 08/01/96 07/01/2006 9.290 0.000 0.297 8.993 3,000,000 04/08/96 65.23
72 300 296 07/01/96 06/01/2006 9.470 0.000 0.297 9.173 2,350,000 10/25/95 73.80
73 276 267 02/01/96 01/01/2011 8.500 0.000 0.295 8.205 2,900,000 09/01/95 59.35
74 360 356 07/01/96 06/01/2006 8.770 0.000 0.297 8.473 2,260,000 03/27/96 74.83
75 360 356 07/01/96 06/01/2006 8.770 0.000 0.297 8.473 2,230,000 03/26/96 74.83
76 276 267 02/01/96 01/01/2011 8.500 0.000 0.295 8.205 2,800,000 09/01/95 59.35
77 360 355 06/01/96 05/01/2006 8.230 0.000 0.297 7.933 2,225,000 04/01/96 74.36
78 276 262 09/01/95 08/01/2018 10.375 0.000 0.295 10.080 2,700,000 06/01/95 61.04
79 300 291 02/01/96 01/01/2006 8.250 0.000 0.297 7.953 2,250,000 09/29/95 72.65
80 300 298 09/01/96 08/01/2006 9.350 0.000 0.297 9.053 2,650,000 01/24/96 60.65
81 276 267 02/01/96 01/01/2011 8.500 0.000 0.295 8.205 2,800,000 09/01/95 56.87
82 300 298 09/01/96 08/01/2003 9.875 0.000 0.295 9.580 2,800,000 06/01/96 55.81
83 300 294 05/01/96 04/01/2006 9.000 0.000 0.297 8.703 2,400,000 11/09/95 64.29
84 276 266 01/01/96 12/01/2005 9.500 0.000 0.297 9.203 2,400,000 09/01/95 63.91
85 240 240 11/01/96 10/01/2016 9.000 0.000 0.297 8.703 2,610,000 03/26/96 57.47
86 360 351 02/01/96 01/01/2003 8.400 0.000 0.297 8.103 2,175,000 11/15/95 68.57
87 240 240 11/01/96 10/01/2016 9.000 0.000 0.297 8.703 2,600,000 03/26/96 55.77
88 360 349 12/01/95 11/01/2005 8.500 0.000 0.297 8.203 2,100,000 08/29/95 68.45
89 360 359 10/01/96 09/01/2006 9.670 0.000 0.297 9.373 2,030,000 04/08/96 70.46
90 276 267 02/01/96 01/01/2011 8.500 0.000 0.295 8.205 2,300,000 09/01/95 58.92
91 300 295 06/01/96 05/01/2006 10.125 0.000 0.295 9.830 2,300,000 01/08/96 56.31
92 360 356 07/01/96 06/01/2006 8.770 0.000 0.297 8.473 1,680,000 03/27/96 74.83
93 300 298 09/01/96 08/01/2006 9.070 0.000 0.297 8.773 1,675,000 06/14/96 74.87
94 240 235 06/01/96 05/01/2016 8.560 0.000 0.297 8.263 2,150,000 01/25/96 57.67
95 240 231 02/01/96 01/01/2016 9.500 0.000 0.295 9.205 1,700,000 09/01/95 69.67
96 276 270 05/01/96 04/01/2006 9.625 0.000 0.295 9.330 1,700,000 10/04/95 67.24
97 300 286 09/01/95 08/01/2005 8.470 0.000 0.297 8.173 1,825,000 05/26/95 62.43
98 300 297 08/01/96 07/01/2003 9.780 0.000 0.297 9.483 1,700,000 04/25/96 64.60
99 360 355 06/01/96 05/01/2003 8.910 0.000 0.297 8.613 1,800,000 03/07/96 59.44
100 300 288 11/01/95 10/01/2005 8.680 0.000 0.297 8.383 1,700,000 08/14/95 61.04
101 360 358 09/01/96 08/01/2006 9.070 0.000 0.297 8.773 1,550,000 05/29/96 66.38
102 300 294 05/01/96 04/01/2006 8.800 0.000 0.297 8.503 1,340,000 02/01/96 66.79
103 276 267 02/01/96 01/01/2011 8.500 0.000 0.295 8.205 2,000,000 09/01/95 39.56
104 300 298 09/01/96 08/01/2006 9.340 0.000 0.297 9.043 1,150,000 06/14/96 66.84
105 300 298 09/01/96 08/01/2006 9.340 0.000 0.297 9.043 1,100,000 06/14/96 68.07
106 300 292 03/01/96 02/01/2006 8.050 0.000 0.297 7.753 1,020,000 08/10/95 65.13
107 166 151 08/01/95 05/01/2009 8.750 0.000 0.297 8.453 1,050,000 01/31/94 60.98
108 360 350 01/01/96 12/01/2005 8.370 0.000 0.297 8.073 1,600,000 08/17/95 36.45
109 300 278 01/01/95 12/01/2004 10.560 1.160 0.297 9.103 900,000 10/10/94 62.83
110 240 238 09/01/96 08/01/2016 9.730 0.000 0.297 9.433 880,000 06/21/96 62.33
111 300 293 04/01/96 03/01/2006 8.500 0.000 0.297 8.203 750,000 08/08/95 62.23
<CAPTION>
MATURITY DATE OCCUPANCY
LOAN BALANCE BALLOON OCCUPANCY RATE AS
NO (0% CPR) LTV RATE OF DATE
- ---- -------------- ------- --------- ---------
<S> <C> <C> <C> <C>
1 $15,944,426.15 56.54 93.20% Q296
2 14,033,443.95 53.97 78.00 Q196
3 13,629,094.77 58.49 67.80 Q495
4 11,677,441.19 66.73 93.00 Q396
5 9,666,862.81 67.84 97.30 Q196
6 9,269,596.88 57.94 90.00 Q296
7 8,489,912.59 68.03 94.60 Q495
8 7,853,070.44 62.82 97.80 Q495
9 8,006,985.06 64.06 96.00 Q296
10 7,611,648.46 60.80 97.00 Q296
11 6,470,070.14 53.03 93.20 Q196
12 6,902,833.55 62.75 95.23 Q296
13 0.00 0.00 64.55 Q495
14 6,205,173.72 62.05 98.00 Q196
15 5,602,220.59 61.06 94.00 Q196
16 0.00 0.00 68.42 Q395
17 5,445,951.59 66.41 96.00 Q296
18 5,715,571.99 45.82 100.00 Q296
19 5,116,760.40 51.17 68.00 Q296
20 5,157,713.91 54.29 76.26 Q495
21 5,211,151.82 52.11 45.30 Q196
22 4,876,903.94 67.73 95.00 Q495
23 4,504,221.25 56.73 87.50 Q296
24 5,198,290.19 62.44 100.00 Q296
25 4,716,787.62 67.38 100.00 Q296
26 4,691,395.52 66.83 92.60 Q196
27 4,810,766.53 68.00 93.70 Q296
28 4,494,584.00 49.39 68.00 Q296
29 4,467,094.31 68.72 76.20 Q296
30 3,850,726.61 55.81 77.00 Q395
31 4,465,017.79 61.16 83.00 Q296
32 3,902,018.30 55.74 97.00 Q495
33 3,845,220.92 68.66 100.00 Q296
34 0.00 0.00 83.75 Q296
35 3,602,179.66 63.53 93.00 Q296
36 3,650,564.59 62.72 99.00 Q296
37 3,476,422.78 38.20 50.31 Q296
38 3,718,497.04 59.02 96.29 Q495
39 2,334,707.72 48.64 95.30 Q495
40 2,695,016.64 49.72 97.00 Q296
41 2,697,283.32 57.39 93.30 Q196
42 2,720,489.26 59.79 81.00 Q296
43 3,027,908.85 62.43 95.70 Q196
44 2,991,873.13 69.58 94.60 Q296
45 2,632,751.76 62.68 100.00 Q296
46 2,803,960.49 56.08 66.80 Q296
47 2,670,803.84 44.51 51.72 Q395
48 2,646,047.22 64.22 100.00 Q396
49 0.00 0.00 100.00 Q395
50 818,031.54 19.02 76.00 Q295
51 2,533,746.78 48.73 68.00 Q196
52 2,273,272.70 59.98 94.40 Q196
53 2,346,217.49 60.16 66.00 Q495
54 2,559,793.66 63.99 89.20 Q196
55 2,409,177.37 66.00 94.00 Q196
56 0.00 0.00 83.53 Q196
57 2,236,760.12 53.26 79.00 Q495
58 2,398,203.26 62.29 94.20 Q196
59 2,092,405.48 49.82 95.50 Q196
60 2,231,256.09 31.88 61.00 Q296
61 2,198,608.92 56.74 95.00 Q296
62 1,876,846.59 60.54 77.30 Q395
63 0.00 0.00 87.25 Q196
64 2,117,781.18 70.59 100.00 Q196
65 0.00 0.00 100.00 Q495
66 1,886,368.33 55.89 96.70 Q495
67 1,859,593.63 66.41 94.20 Q296
68 0.00 0.00 100.00 Q296
69 0.00 0.00 80.00 Q196
70 1,756,915.76 47.48 97.00 Q196
71 1,778,042.54 59.27 91.60 Q296
72 1,470,061.38 62.56 94.50 Q495
73 1,013,108.04 34.93 68.00 Q395
74 1,522,848.33 67.38 100.00 Q296
75 1,502,633.42 67.38 100.00 Q296
76 978,173.42 34.93 76.00 Q395
77 1,475,486.38 66.31 100.00 Q196
78 0.00 0.00 83.00 Q295
79 1,353,993.74 60.18 98.60 Q196
80 1,356,548.80 51.19 90.00 Q296
81 937,416.26 33.48 67.10 Q395
82 1,434,052.06 51.22 67.00 Q296
83 1,295,511.06 53.98 80.00 Q296
84 1,251,231.06 52.13 72.72 Q395
85 0.00 0.00 100.00 Q196
86 1,405,910.98 64.64 100.00 Q495
87 0.00 0.00 100.00 Q196
88 1,293,651.57 61.60 95.00 Q395
89 1,306,763.42 64.37 93.00 Q296
90 797,677.10 34.68 75.00 Q395
91 1,114,047.78 48.44 73.00 Q495
92 1,132,029.08 67.38 100.00 Q296
93 1,051,710.23 62.79 92.50 Q296
94 0.00 0.00 93.00 Q196
95 0.00 0.00 66.00 Q295
96 931,179.77 54.78 73.84 Q395
97 953,701.73 52.26 96.55 Q296
98 1,006,605.68 59.21 93.00 Q196
99 1,012,273.44 56.24 91.00 Q196
100 870,881.98 51.23 97.00 Q196
101 930,668.82 60.04 96.00 Q296
102 748,637.35 55.87 100.00 Q495
103 465,797.20 23.29 70.80 Q395
104 648,732.04 56.41 94.10 Q296
105 631,837.46 57.44 94.10 Q296
106 546,993.99 53.63 100.00 Q196
107 0.00 0.00 100.00 Q196
108 523,245.36 32.70 96.00 Q495
109 497,167.18 55.24 97.60 Q196
110 0.00 0.00 100.00 Q196
111 388,106.49 51.75 100.00 Q495
</TABLE>
<TABLE>
<CAPTION>
PREMIUM
YIELD PERIOD
ANNUAL LOCK OUT MAINTENANCE (MONTHS)
UNDERWRITING DEBT UNDERWRITING EXPIRATION EXPIRATION FOLLOWING LOAN
NOI SERVICE DSCR 1995 NOI DATE DATE PREPAYMENT PROVISION YM NO.
- ------------ ---------- ------------ ---------- ---------- ----------- -------------------------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,136,898 $1,589,991 1.34 $2,446,774 08/20/96 03/01/2003 NO LO/TYM 0 1
2,671,814 1,841,154 1.45 2,523,359 06/21/96 01/01/2006 NO LO/TYM 0 2
2,204,211 1,593,354 1.38 2,406,823 06/17/96 07/01/2002 NO LO/TYM 0 3
1,551,610 1,202,595 1.29 1,502,996 06/01/99 12/01/2002 3YR LO/TYM 0 4
1,341,511 1,050,571 1.28 1,311,843 07/31/96 08/01/2006 NO LO/TYM 0 5
1,406,635 1,082,039 1.30 1,322,515 07/25/96 08/01/2006 NO LO/TYM 0 6
1,222,117 960,860 1.27 1,105,861 04/21/95 05/01/2001 NO LO/TYM/1% 6 7
1,034,419 810,773 1.28 1,130,312 11/09/95 06/01/2005 NO LO/TYM 0 8
1,425,281 805,357 1.77 1,240,508 12/01/96 09/01/2002 1YR LO/TYM 0 9
1,114,194 827,796 1.35 1,215,275 09/01/00 03/01/2006 4YR LO/TYM 0 10
1,157,468 790,022 1.47 1,256,777 09/01/98 09/01/2006 2YR LO/TYM 0 11
1,029,798 751,764 1.37 1,097,728 08/01/97 02/01/2006 1YR LO/TYM 0 12
1,447,065 788,451 1.84 1,447,065 02/13/96 03/01/2011 NO LO/TYM 0 13
941,064 695,529 1.35 966,019 05/25/95 06/01/2002 NO LO/TYM/1% 30 14
807,765 584,677 1.38 817,241 06/12/95 07/01/2002 NO LO/TYM/1% 30 15
986,165 702,683 1.40 0 09/29/95 10/01/2010 NO LO/TYM 0 16
808,076 544,093 1.49 778,066 01/11/96 08/01/2005 NO LO/TYM 0 17
1,154,295 618,063 1.87 1,280,987 07/01/97 04/01/2003 1YR LO/TYM 0 18
974,332 666,659 1.46 974,332 07/17/96 08/01/2003 NO LO/TYM/3-1% 30 19
818,724 589,706 1.39 818,724 01/17/96 08/01/2002 NO LO/TYM 0 20
894,743 614,130 1.46 969,392 05/07/96 12/01/2002 NO LO/TYM 0 21
669,628 481,872 1.39 813,844 01/04/96 08/01/2005 NO LO/TYM 0 22
595,338 514,713 1.16 546,444 01/05/96 08/01/2005 NO LO/TYM 0 23
811,602 533,904 1.52 726,584 08/01/96 05/01/2002 1YR LO/TYM 0 24
709,827 496,521 1.43 757,168 05/23/96 12/01/2005 NO LO/TYM 0 25
644,245 487,509 1.32 606,623 03/15/96 10/01/2005 NO LO/TYM 0 26
613,716 488,032 1.26 377,338 07/01/97 01/01/2003 1YR LO/TYM 0 27
748,936 529,683 1.41 691,563 07/18/96 02/01/2003 NO LO/TYM 0 28
781,494 526,444 1.48 855,693 07/18/96 02/01/2003 NO LO/TYM 0 29
795,999 504,609 1.58 795,999 12/15/95 01/01/2003 NO LO/TYM/3-1% 30 30
634,166 510,461 1.24 682,842 01/13/95 08/01/2001 NO LO/TYM 0 31
493,473 391,854 1.26 515,630 11/08/95 06/01/2005 NO LO/TYM 0 32
544,784 408,220 1.33 521,727 05/24/95 06/01/2001 NO LO/TYM/1% 6 33
1,005,025 432,088 2.33 1,005,025 10/27/95 11/01/2005 NO LO/TYM/5-1% 153 34
554,660 356,184 1.56 483,470 01/02/96 08/01/2005 NO LO/TYM 0 35
533,540 396,456 1.35 520,257 09/01/97 06/01/2006 1YR LO/TYM 0 36
600,602 397,476 1.51 600,602 01/17/96 08/01/2002 NO LO/TYM 0 37
517,959 374,888 1.38 625,377 11/17/95 06/01/2002 NO LO/TYM 0 38
566,295 338,304 1.67 580,276 12/08/95 01/01/2006 NO LO/TYM/5-1% 57 39
377,399 327,821 1.15 42,824 07/01/03 01/01/2011 7YR LO/TYM 0 40
438,872 318,984 1.38 421,385 09/28/95 04/01/2005 NO LO/TYM 0 41
481,672 338,145 1.42 505,720 09/01/99 09/01/2006 3YR LO/TYM 0 42
433,223 303,603 1.43 408,573 05/01/97 02/01/2003 1YR LO/TYM 0 43
426,573 328,023 1.30 460,862 07/16/96 08/01/2003 NO LO/TYM 0 44
439,614 317,220 1.39 459,732 04/01/97 01/01/2006 1YR LO/TYM 0 45
467,570 330,445 1.42 434,132 07/18/96 02/01/2003 NO LO/TYM 0 46
431,106 305,366 1.41 431,106 01/17/96 08/01/2002 NO LO/TYM 0 47
347,968 276,850 1.26 363,095 10/01/98 04/01/2006 2YR LO/TYM 0 48
480,531 306,644 1.57 733,167 09/19/95 10/01/2010 NO LO/TYM/1% 54 49
761,065 305,766 2.49 761,065 11/10/95 12/01/2010 NO LO/TYM 0 50
420,039 293,840 1.43 396,475 07/08/96 02/01/2003 NO LO/TYM 0 51
332,118 265,540 1.25 402,319 03/07/96 10/01/2005 NO LO/TYM 0 52
455,266 309,956 1.47 455,266 05/14/96 12/01/2005 NO LO/TYM 0 53
373,339 268,192 1.39 399,294 08/01/01 01/01/2003 5YR LO/TYM 0 54
326,386 247,293 1.32 355,551 03/11/96 10/01/2005 NO LO/TYM 0 55
760,103 347,912 2.18 760,103 07/10/96 08/01/2008 NO LO/TYM 0 56
500,545 253,774 1.97 500,545 01/26/96 08/01/2002 NO LO/TYM 0 57
418,391 238,776 1.75 357,063 10/01/96 07/01/2002 1YR LO/TYM 0 58
360,539 252,993 1.43 491,987 08/09/96 09/01/2006 NO LO/TYM 0 59
372,005 262,952 1.41 428,245 07/18/96 02/01/2003 NO LO/TYM 0 60
<CAPTION>
PREMIUM
YIELD PERIOD
ANNUAL LOCK OUT MAINTENANCE (MONTHS)
UNDERWRITING DEBT UNDERWRITING EXPIRATION EXPIRATION FOLLOWING LOAN
NOI SERVICE DSCR 1995 NOI DATE DATE PREPAYMENT PROVISION YM NO.
- ------------ ---------- ------------ ---------- ---------- ----------- -------------------------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
329,271 235,009 1.40 305,293 06/19/96 01/01/2003 NO LO/TYM 0 61
411,294 249,140 1.65 411,294 11/17/95 06/01/2005 NO LO/TYM 0 62
829,436 407,835 2.03 362,259 05/01/96 02/01/2005 1YR LO/TYM 0 63
270,040 211,932 1.27 223,552 09/01/98 03/01/2003 2YR LO/5% or TYM/1% or TYM 0 64
361,828 224,614 1.61 378,306 12/12/95 01/01/2011 NO LO/TYM/1% 54 65
254,291 189,157 1.34 224,502 01/18/96 08/01/2005 NO LO/TYM 0 66
276,543 185,788 1.49 262,726 01/11/96 08/01/2005 NO LO/TYM 0 67
295,660 213,156 1.39 321,824 08/12/96 06/01/2016 NO LO/TYM 0 68
349,958 212,280 1.65 349,958 03/01/96 04/01/2011 NO LO/TYM 0 69
263,074 178,383 1.47 315,722 11/09/95 06/01/2005 NO LO/TYM 0 70
303,548 194,184 1.56 274,424 07/01/97 01/01/2006 1YR LO/TYM 0 71
242,229 181,993 1.33 291,266 06/01/97 12/01/2005 1YR LO/TYM 0 72
390,200 172,487 2.26 390,200 12/27/95 07/01/2010 NO LO/TYM 0 73
219,335 160,305 1.37 246,169 05/23/96 12/01/2005 NO LO/TYM 0 74
234,002 158,178 1.48 265,592 05/23/96 12/01/2005 NO LO/TYM 0 75
378,180 166,539 2.27 378,180 12/27/95 07/01/2010 NO LO/TYM 0 76
209,715 149,372 1.40 0 05/01/97 02/01/2006 1YR LO/TYM 0 77
349,692 191,012 1.83 349,692 07/25/95 08/01/2010 NO LO/TYM 0 78
208,144 156,113 1.33 170,843 12/06/95 07/01/2005 NO LO/TYM 0 79
208,846 166,788 1.25 219,497 07/29/96 02/01/2006 NO LO/TYM 0 80
333,157 159,600 2.09 333,157 12/28/95 07/01/2010 NO LO/TYM 0 81
321,778 169,002 1.90 347,321 07/18/96 02/01/2003 NO LO/TYM 0 82
188,734 156,096 1.21 120,817 04/01/97 01/01/2006 1YR LO/TYM 0 83
243,136 166,093 1.46 243,136 11/17/95 06/01/2005 NO LO/TYM 0 84
228,408 161,951 1.41 244,007 09/09/96 04/01/2016 NO LO/TYM 0 85
199,102 137,136 1.45 234,722 01/01/97 10/01/2002 1YR LO/TYM 0 86
222,462 156,552 1.42 265,706 09/09/96 04/01/2016 NO LO/TYM 0 87
209,390 133,560 1.57 208,489 10/12/95 05/01/2005 NO LO/TYM 0 88
190,532 146,532 1.30 207,679 09/01/97 03/01/2006 1YR LO/TYM 0 89
259,630 135,809 1.91 259,630 12/27/95 07/01/2010 NO LO/TYM 0 90
222,509 143,134 1.55 222,509 04/30/96 05/01/2003 NO LO/TYM/3-1% 30 91
164,539 119,165 1.38 182,923 05/23/96 12/01/2005 NO LO/TYM 0 92
161,728 127,236 1.27 155,607 08/01/97 05/01/2006 1YR LO/TYM 0 93
174,931 130,744 1.34 164,956 05/01/97 02/01/2016 1YR LO/TYM 0 94
207,352 134,227 1.54 207,352 12/21/95 01/01/2011 NO LO/TYM 0 95
172,427 124,404 1.39 0 03/11/96 04/01/2003 NO LO/TYM/3-1% 30 96
142,355 111,402 1.28 130,640 07/20/95 02/01/2005 NO LO/TYM 0 97
172,686 117,908 1.46 139,127 06/21/96 01/01/2003 NO LO/TYM 0 98
123,314 102,771 1.20 114,389 05/01/97 02/01/2003 1YR LO/TYM 0 99
187,537 102,992 1.82 149,363 09/27/95 04/01/2005 NO LO/TYM 0 100
151,725 100,080 1.52 142,174 08/01/97 05/01/2006 1YR LO/TYM 0 101
143,877 89,159 1.61 150,356 03/04/96 10/01/2005 NO LO/TYM 0 102
132,178 79,304 1.67 132,178 12/28/95 07/01/2010 NO LO/TYM 0 103
118,813 79,716 1.49 118,620 08/01/97 05/01/2006 1YR LO/TYM 0 104
100,932 77,640 1.30 105,867 08/01/97 05/01/2006 1YR LO/TYM 0 105
79,502 62,321 1.28 82,840 01/26/96 08/01/2005 NO LO/TYM 0 106
131,254 84,384 1.56 115,909 05/01/95 02/01/2009 NO LO/TYM 0 107
72,388 53,515 1.35 79,792 11/08/95 06/01/2005 NO LO/TYM 0 108
87,308 65,444 1.33 91,210 12/01/95 09/01/2004 1YR LO/TYM 0 109
82,756 62,520 1.32 88,732 08/01/97 02/01/2016 1YR LO/TYM 0 110
83,874 45,415 1.85 69,328 02/08/96 09/01/2005 NO LO/TYM 0 111
</TABLE>
<PAGE>
STRUCTURED ASSET SECURITIES CORPORATION
MORTGAGE-BACKED SECURITIES, ISSUABLE IN SERIES
This Prospectus relates to Collateralized Mortgage Obligations (the
"Bonds") and Mortgage-Backed Certificates (the "Certificates," together with
the Bonds, the "Securities") which may be issued from time to time in one or
more series ("Series") under this Prospectus and the related Prospectus
Supplement ("Prospectus Supplement"). As specified in the related Prospectus
Supplement, the Securities of each Series will be either Bonds issued
pursuant to an Indenture and representing indebtedness of Structured Asset
Securities Corporation (the "Company") or an owner trust (the "Owner Trust")
established by it, or Certificates which will evidence a beneficial ownership
interest in assets deposited into a trust (a "Trust Fund") by the Company as
depositor pursuant to a Trust Agreement, as described herein. The issuer (the
"Issuer") with respect to a Series of Bonds will be the Company or the Owner
Trust established to issue such Bonds, and, with respect to a Series of
Certificates, will be the Trust Fund established in respect of such
Certificates. Capitalized terms not otherwise defined herein or the related
Prospectus Supplement have the meanings specified in the Glossary attached
hereto.
The Securities will be sold from time to time under this Prospectus on
terms determined for each Series at the time of the sale and as described in
the related Prospectus Supplement. Each Series will consist of one or more
Classes, one or more of which may be Compound Interest Securities, Variable
Interest Securities, Individual Investor Securities, Planned Amortization
Class ("PAC") Securities, Zero Coupon Securities, Principal Only Securities,
Interest Only Securities, Participating Securities or another particular
Class of Securities, if any, included in such Series of Securities. Zero
Coupon Securities and Principal Only Securities will not accrue and will not
be entitled to receive any interest. Payments or distributions of interest on
each Class of Securities, other than Zero Coupon Securities, Principal Only
Securities and Compound Interest Securities will be made on each Payment Date
or Distribution Date as specified in the related Prospectus Supplement.
Interest will not be paid or distributed on Compound Interest Securities on a
current basis until all Securities of the related Series having a Stated
Maturity or Final Scheduled Distribution Date prior to the Stated Maturity or
Final Scheduled Distribution Date of such Class of Compound Interest
Securities have been paid in full or until such other date or period as may
be specified in the related Prospectus Supplement. Prior to such time,
interest on such Class of Compound Interest Securities will accrue and the
amount of interest so accrued will be added to the principal thereof on each
Payment Date or Distribution Date. The amount of principal and interest
available and payable on each Series on each Payment Date or Distribution
Date will be applied to the Classes of such Series in the order and as
otherwise specified in the related Prospectus Supplement. Principal payments
or distributions on each Class of a Series will be made on either a pro rata
or a random lot basis among Securities of such Class, as specified in the
related Prospectus Supplement. Any Series may include one or more Classes of
"Subordinate Securities," which are subordinated in right and priority to the
extent described in the related Prospectus Supplement to payment of principal
and interest, and may be allocated losses and shortfalls prior to the
allocation thereof to all other Classes of Securities of such Series (the
"Senior Securities"). Securities of a Series will be subject to redemption or
repurchase only under the circumstances and according to the priorities
described herein and in the related Prospectus Supplement.
Each Series will be secured by or offer a beneficial interest in one or
more types of mortgage assets ("Mortgage Assets") and other assets, including
any reserve funds established with respect to such Series, insurance policies
or other enhancement described in the related Prospectus Supplement. The
Mortgage Assets may consist of a pool of multifamily or commercial mortgage
loans or participation interests therein (collectively, "Mortgage Loans") and
may include FHA Loans. Mortgage Assets may also consist of mortgage
participations or pass-through certificates or collateralized mortgage
obligations ("Private Mortgage-Backed Securities") issued with respect to or
secured by a pool of Mortgage Loans. The Private Mortgage-Backed Securities
and Mortgage Loans securing a Series will not be guaranteed or insured by any
agency or instrumentality of the United States Government unless otherwise
stated in the related Prospectus Supplement. Some Mortgage Loans comprising
or underlying the Mortgage Assets may be delinquent or non-performing as
specified in the related Prospectus Supplement. The Mortgage Assets securing
a Series or comprising the Trust Fund may consist of a single Mortgage Loan
or obligations of a single obligor or related obligors as specified in the
related Prospectus Supplement. The Mortgage Loans underlying or comprising
the Mortgage Assets may be originated by or acquired from an affiliate of the
Issuer and an affiliate of the Issuer may be an obligor with respect to any
such Mortgage Loans. See "SECURITY FOR THE BONDS OR CERTIFICATES."
Bonds of a Series constitute non-recourse obligations of the Issuer, and
Certificates of a Series evidence an interest in the related Trust Fund only.
Neither the Bonds or Certificates of a Series are insured or guaranteed by
any governmental agency or instrumentality, by any person or entity
affiliated with the Company or Issuer, or, unless otherwise specified in the
related Prospectus Supplement, by any other person or entity. The Issuer has
no significant assets other than the Mortgage Assets and certain other assets
pledged to secure the Bonds or in which the Certificates represent a
beneficial interest. See "RISK FACTORS."
An election may be made, with respect to any Series of Securities, to
treat all or a specified portion of the assets securing such Series or
comprising the Trust Fund as a "real estate mortgage investment conduit" (a
"REMIC"), or an election may be made to treat the arrangement by which a
Series of Securities is issued as a REMIC. If such an election is made, each
Class of Securities of a Series will be either Regular Interest or Residual
Interest, as specified in the related Prospectus Supplement. See "FEDERAL
INCOME TAX CONSIDERATIONS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by Lehman Brothers and the other underwriters, if any,
subject to prior sale, to withdrawal, cancellation or modification of the
offer without notice, to delivery to and acceptance by Lehman Brothers and
the other underwriters, if any, and certain further conditions. Retain this
Prospectus for future reference. This Prospectus may not be used to
consummate sales of the securities offered hereby unless accompanied by a
Prospectus Supplement.
LEHMAN BROTHERS
January 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Supplement 5
Additional Information 5
Incorporation of Certain Documents by Reference 5
Summary of Terms 7
Risk Factors 26
Description of the Securities 32
General 32
The Bonds--General 32
The Certificates--General 33
Bearer Securities and Registered Securities 34
Book-Entry Registration 35
Valuation of Mortgage Assets 36
Payments and Distributions of Interest 36
Payments and Distributions of Principal 38
Special Redemption 38
Optional Redemption 39
Mandatory Redemption 39
Optional Termination 40
Optional Repurchase of Certificates 40
Other Repurchases 40
Yield and Prepayment Considerations 41
Timing of Payment of Distribution of Interest and Principal 41
Principal Prepayments 41
Prepayments and Weighted Average Life 41
Other Factors Affecting Weighted Average Life 43
Security for the Bonds and Certificates 44
General 44
Mortgage Loans 45
Private Mortgage-Backed Securities 48
Substitution of Mortgage Assets 50
Collection Account 50
Other Funds or Accounts 51
Investment of Funds 51
Guaranteed Investment Contract 51
Enhancement 51
Servicing of Mortgage Loans 52
General 52
Collection Procedures 52
Payments on Mortgage Loans; Deposits to Custodial Accounts 53
Advances 53
Maintenance of Insurance Policies and Other Servicing Procedures 54
Enforcement of Due-On-Sale Clauses 55
Modification; Waivers 55
Servicing Compensation and Payment of Expenses 55
Evidence as to Compliance 55
Certain Matters Regarding the Master Servicer and Special Servicer 56
Enhancement 56
General 56
2
<PAGE>
PAGE
--------
Subordinate Securities 57
Cross-Support Features 57
Insurance on the Mortgage Loans 57
Letter of Credit 58
Bond Guarantee Insurance 58
Reserve Funds 58
Description of Insurance on the Mortgage Loans 59
Mortgage Insurance on the Mortgage Loans 59
Hazard Insurance on the Mortgage Loans 59
Certain Legal Aspects of Mortgage Loans 61
Mortgages 61
Junior Mortgages; Rights of Senior Mortgages or Beneficiaries 61
Foreclosure of Mortgage 63
Rights of Redemption 64
Environmental Matters 64
Certain Laws and Regulations 65
Leases and Rents 65
Anti-Deficiency Legislation and Other Limitations on Lenders 65
Due on Sale Clauses in Mortgage Loans 68
Enforceability of Prepayment and Late Payment Fees 68
Equitable Limitations on Remedies 68
Applicability of Usur Laws 69
Alternative Mortgage Instruments 69
Secondary Financing; Due-on-Encumbrance Provisions 69
The Indenture 71
Certain Covenants 71
Modification of Indenture 71
Events of Default 72
Authentication and Delivery of Bonds 74
Satisfaction and Discharge of the Indenture 74
Issuer's Annual Compliance Statement 74
List of Bondholders 74
Meetings of Bondholders 74
Fiscal Year 75
Trustee's Annual Report 75
The Trustee 75
The Trust Agreement 76
Assignment of Mortgage Assets 76
Repurchase of Non-Conforming Loans 76
Reports to Certificateholders 77
Event of Default 78
Rights Upon Event of Default 78
The Trustee 79
Duties of the Trustee 80
Resignation of Trustee 80
Amendment of Trust Agreement 80
Voting Rights 81
List of Certificateholders 81
REMIC Administrator 81
Termination 81
3
<PAGE>
PAGE
--------
The Issuer 82
The Company 82
Owner Trust 82
Administrator 82
Use of Proceeds 83
Limitations on Issuance of Bearer Securities 83
Federal Income Tax Considerations 84
General 84
Characterization of Securities 84
Taxation of Regular Interest Securities 85
Sale or Exchange of Regular Interest Securities 89
REMIC Expenses 89
Taxation of the REMIC 90
Taxation of Holders of Residual Interest Securities 91
Excess Inclusion Income 92
Restrictions on Ownership and Transfer of Residual Interest Securities 93
Administrative Matters 93
Tax Status as a Grantor Trust 94
Miscellaneous Tax Aspects 97
Tax Treatment of Foreign Investors 98
State and Local Tax Considerations 98
ERISA Considerations 99
Legal Investment 101
Plan of Distribution 101
Legal Matters 102
Glossary 102
</TABLE>
4
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby will, among other things, set forth with respect to such Series: (a)
whether such Securities are Bonds or Certificates, (b) the initial aggregate
principal amount, the Bond Interest Rate or Certificate Interest Rate (or
method for determining it) and authorized denominations of each Class of such
Series; (c) certain information concerning the Primary Assets securing such
Series or assets comprising the Trust Fund, including the principal amount,
type and characteristics of the Primary Assets securing such Bonds or assets
comprising the Trust Fund on the date of issue, and, if applicable, the
amount of any Reserve Funds for such Series; (d) in the case of Mortgage
Assets consisting in whole or in part of Private Mortgage-Backed Securities,
information concerning the issuer thereof or sponsor thereof, the PMBS
Trustee, the Master Servicer, if any, and the Underlying Collateral; (d) the
circumstances, if any, under which the Securities of such Series are subject
to redemption prior to maturity or repurchase prior to the Final Scheduled
Distribution Date; (e) the Stated Maturity of each Class of Bonds or Final
Scheduled Distribution Date of the Certificates; (f) the method used to
calculate the aggregate amount of principal available and required to be
applied to the Securities of such Series on each Payment Date or Distribution
Date, as applicable, the timing of the application of principal and the order
of priority of the application of such principal to the respective classes
and the allocation of the principal to be so applied; (g) the extent of
subordination of any Subordinate Securities; (h) the identity of each Class
of Compound Interest Securities, Variable Interest Securities, Planned
Amortization Class Securities, Subordinate Securities, Individual Investor
Securities, Zero Coupon Securities, Principal Only Securities, Interest Only
Securities and Participating Securities included in such Series, if any, or
such other type of Class of Securities; (i) the principal amount of each
Class of such Series that would be outstanding on specified Payment Dates or
Distribution Dates, if the Mortgage Loans underlying or comprising the
Mortgage Assets pledged as security for such Series or comprising the Trust
Fund were prepaid at various assumed rates; (j) the Payment Dates or
Distribution Dates, as applicable for the respective Classes; (k) the Assumed
Reinvestment Rate, if any, and (if applicable) the percentage of Excess Cash
Flow to be applied to payments of principal of the Series; (l) relevant
financial information with respect to the Mortgagor(s) and the Mortgaged
Property underlying the Mortgage Assets, if applicable; (m) information with
respect to any required Insurance Policies relating to any Mortgage Loans
comprising Mortgage Assets or Underlying Collateral; (n) additional
information with respect to any Enhancement, Guaranteed Investment Contract
or other agreement relating to the Series; (o) the plan of distribution of
such Series; and (p) whether the Securities are to be issuable in registered
form or bearer form or both, and if bearer securities are issued, whether
bearer securities may be exchanged for registered securities and the
circumstances and places for such exchange, if permitted.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part
of the Registration Statement, omits certain information contained in such
Registration Statement pursuant to the Rules and Regulations of the
Commission. The Registration Statement and the exhibits thereto can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain
of its Regional Offices located as follows: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 75 Park Place, 14th Floor,
New York, New York 10007. Copies of such material can also be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Issuer and Company do not
intend to send any financial reports to holders of Securities.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
5
<PAGE>
hereof from the date of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such
person, a copy of any and all of the documents incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Requests for
such copies should be directed to the office of the Secretary, Structured
Asset Securities Corporation, 200 Vesey Street, New York, New York 10285,
telephone number (212) 526-5594.
6
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the Prospectus
Supplement with respect to the Series offered thereby and to the Trust
Indenture (the "Trust Indenture") or Trust Agreement (the "Trust Agreement"),
as applicable and the supplemental or terms indenture or agreement with
respect to such Series (the "Series Supplement") between the Company and
Bankers Trust Company of California, N.A., a national banking association, or
Marine Midland Bank, N.A., a national banking association (or another bank or
trust company qualified under the TIA and named in the Prospectus Supplement
for the related Series), as trustee (the "Trustee") or a Trust and the
Trustee (collectively, the Trust Indenture and any Series Supplement relating
to Bonds are sometimes referred to as the "Indenture," and the Trust
Agreement and any Series Supplement relating to Certificates are sometimes
referred to as the "Trust Agreement").
SECURITIES OFFERED
A. THE BONDS .......... Collateralized Mortgage Obligations (the
"Bonds"). The Bonds may be issued from
time to time in separately secured Series
pursuant to the Indenture and a related
Series Supplement. Each Series will
consist of one or more Classes, one or
more of which may be Classes of Compound
Interest Securities, Planned Amortization
Class ("PAC") Securities, Variable
Interest Securities, Zero Coupon
Securities, Principal Only Securities,
Interest Only Securities, Participating
Securities, Senior Securities or
Subordinate Securities. Each Class may
differ in, among other things, the amounts
allocated to and the priority of principal
and interest payments, maturity date,
Payment Dates and Bond Interest Rate.
Additionally, one or more Classes may
consist of Subordinate Securities which
are subordinated to other Classes of Bonds
with respect to the right to receive
payments of principal, interest, or both,
and may be allocated losses and shortfalls
prior to the allocation thereof to other
Classes of Bonds under the circumstances
and in such amounts as described herein
and in the related Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the Bonds of each
Class will be issued in fully registered
form in the minimum denominations
specified in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Bonds or
certain Classes of such Bonds offered
thereby may be available in book-entry
form only. The Bonds may be issued in
registered form or bearer form with
coupons attached. Bonds in bearer form
will be offered only outside the United
States to non-United States persons and to
offices located outside the United States
of certain United States financial
institutions. See "DESCRIPTION OF THE
SECURITIES--The Bonds--General" and
"ENHANCEMENT--Subordinated Securities."
B. THE CERTIFICATES .... Mortgage-Backed Certificates (the
"Certificates"). The Certificates are
issuable from time to time in separate
Series pursuant to separate Trust
Agreements and a related Series
Supplement. Each Certificate of a Series
will evidence a beneficial ownership
interest in the Trust Fund for such
7
<PAGE>
Series. Each Series of Certificates will
consist of one or more Classes of
Certificates, one or more of which may be
Classes of Compound Interest Securities,
PAC Securities, Variable Interest
Securities, Zero Coupon Securities,
Principal Only Securities, Interest Only
Securities, Participating Securities,
Subordinate Securities or Senior
Securities. If a Series consists of
multiple Classes, the respective Classes
may differ with respect to the amount,
percentage and timing of distributions or
principal, interest or both. Additionally,
one or more Classes may consist of
Subordinate Securities which are
subordinated to other Classes of
Certificates with respect to the right to
receive distributions of principal,
interest, or both under the circumstances
and in such amounts as described herein
and in the related Prospectus Supplement.
The Certificates will be issuable in fully
registered form in the authorized minimum
denominations and multiples thereof
specified in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Certificates or
certain Classes of such Certificates
offered thereby may be available in
book-entry form only.
ISSUER ................. The Issuer with respect to a Series of Bonds
will be Structured Asset Securities
Corporation (the "Company") or an owner
trust established by it ("Owner Trust")
for the purpose of issuing one or more
Series of Bonds. Each such Owner Trust
will be created by an agreement (the
"Deposit Trust Agreement") between the
Company, acting as depositor, and a bank,
trust company or other fiduciary, acting
as owner trustee (the "Owner Trustee").
The Bonds will be non-recourse obligations
of the Issuer. The Series Supplement for a
particular Series of Bonds may permit the
assets pledged to secure the related Bonds
to be transferred by the Issuer to a trust
or other limited purpose affiliate of the
Company, subject to the obligations of the
Bonds of such Series, thereby relieving
the Issuer of its obligations with respect
to such Bonds.
The Issuer with respect to a Series of
Certificates will be a trust fund (the
"Trust Fund") established by the Company
for the purpose of issuing one or more
Series of Certificates. Such Trust Fund
will be created by an agreement (the
"Trust Agreement") between the Company,
acting as depositor, and a bank, trust
company or other fiduciary, acting as
trustee (the "Trustee").
The Issuer will not have, nor be expected in
the future to have, any significant assets
available for payments on a Series of
Bonds or distributions on a Series of
Certificates, other than the assets
pledged as security for a specific Series
of Bonds issued by it, or assets deposited
into a Trust Fund, the Certificates issued
by such Trust Fund as Issuer representing
a beneficial ownership interest in such
assets. Unless otherwise specified in the
related Prospectus Supplement, (i) each
8
<PAGE>
Series of Bonds will be separately secured
and no Series of Bonds will have any claim
against or security interest in the assets
pledged to secure any other Series, and
(ii) no Series of Certificates will have a
beneficial ownership interest in any other
Series.
The Company, a Delaware corporation, is a
limited-purpose finance subsidiary
organized for the purpose of issuing one
or more Series and other similar
obligations directly or through one or
more Trust Funds established by it.
Although all of the outstanding capital
stock of the Company is owned by Lehman
Commercial Paper Inc. ("LCPI"), a wholly
owned subsidiary of Lehman Brothers Inc.
("Lehman Brothers"), neither LCPI nor
Lehman Brothers nor any of their
affiliates has guaranteed or is otherwise
obligated with respect to any Series,
except with respect to any representations
and warranties given by any such affiliate
as originator, seller or servicer of
Mortgage Assets relating to a Series.
The Company's principal office is located at
200 Vesey Street, New York, New York 10285
and its telephone number is (212)
526-5594. See "RISK FACTORS" and "THE
ISSUER."
INTEREST PAYMENTS ON THE
BONDS .................. Each Class of a Series of Bonds (other than
a Class of Zero Coupon Securities or
Principal Only Securities) will accrue
interest at the rate set forth in (or, in
the case of Variable Interest Securities,
as determined by the method described in)
the related Prospectus Supplement (the
"Bond Interest Rate"). Interest on all
Bonds which bear interest, other than
Compound Interest Securities, will be due
and payable on the Payment Dates specified
in the related Prospectus Supplement.
However, failure to pay interest on a
current basis may not necessarily be an
Event of Default with respect to a
particular Series of Bonds. Payments of
interest on a Class of Variable Interest
Securities will be made on the dates set
forth in the related Prospectus Supplement
(the "Variable Interest Payment Dates").
Interest on any Class of Compound Interest
Securities will not be paid currently, but
will accrue and the amount of interest so
accrued will be added to the principal
thereof on each Payment Date through the
Accrual Termination Date specified in the
related Prospectus Supplement. Following
the applicable Accrual Termination Date,
interest payments on such Bonds will be
made on the Compound Value thereof.
Interest Only Bonds may be assigned a
"Notional Amount" which is used solely for
convenience in expressing the calculation
of interest and for certain other
purposes. Unless otherwise specified in
the related Prospectus Supplement, the
Notional Amount will be determined at the
time of issuance of such Bonds based on
the principal balances or Bond Value of
the Mortgage Loans attributable to the
Bonds of a Series entitled to receive
principal, and will be adjusted monthly
over the life of the Bonds based upon
adjustments to the Bond Value of such
9
<PAGE>
Mortgage Loans. Reference to the Notional
Amount is solely for convenience in
certain calculations and does not
represent the right to receive any
distributions allocable to principal. Zero
Coupon Securities and Principal Only
Securities will not accrue, and will not
be entitled to receive, any interest.
Each payment of interest on each Class of
Bonds (or addition to principal of a Class
of Compound Interest Securities) on a
Payment Date will include all interest
accrued during the Interest Accrual Period
specified in the related Prospectus
Supplement preceding such Payment Date. If
the Interest Accrual Period for a Series
ends on a date other than a Payment Date
for such Series, the yield realized by the
Holders of such Bonds may be lower than
the yield that would result if the
Interest Accrual Period ended on such
Payment Date. Additionally, if so
specified in the related Prospectus
Supplement, interest accrued for an
Interest Accrual Period for one or more
Classes may be calculated on the
assumption that principal payments (and
additions to principal of the Bonds), and
allocations of losses on the Mortgage
Assets (if so specified in the related
Prospectus Supplement), are made on the
first day of the preceding Interest
Accrual Period and not on the Payment Date
for such preceding Interest Accrual Period
when actually made or added. Such method
would produce a lower effective yield than
if interest were calculated on the basis
of the actual principal amount
outstanding. See "YIELD AND PREPAYMENT
CONSIDERATIONS."
With respect to any Class of Variable
Interest Securities, the related
Prospectus Supplement will set forth: (a)
the initial Bond Interest Rate (or the
manner of determining the initial Bond
Interest Rate); (b) the formula, index or
other method by which the Bond Interest
Rate will be determined from time to time;
(c) the periodic intervals at which such
determination will be made; (d) the
interest rate cap (the "Maximum Variable
Interest Rate") or the interest rate floor
(the "Minimum Variable Interest Rate") on
the Bond Interest Rate, if any, for such
Variable Interest Securities; and (e) the
Variable Interest Period and any other
terms relevant to such Class of Bonds. See
"DESCRIPTION OF THE SECURITIES--Payments
and Distributions of Interest."
INTEREST DISTRIBUTIONS
ON THE CERTIFICATES .......... Interest distributions on the Certificates
of a Series (other than Certificates that
are Zero Coupon Securities or Principal
Only Securities) will be made from amounts
available therefor on each Distribution
Date at the applicable rate specified in
(or determined in the manner set forth in)
the related Prospectus Supplement. The
interest rate on Certificates of a Series
may be variable or change with changes in
the mortgage rates or annual percentage
rates of the Mortgage
10
<PAGE>
Assets included in the related Trust Fund
and/or as prepayments occur with respect
to such Mortgage Assets. Zero Coupon
Securities and Principal Only Securities
may not be entitled to receive any
interest distributions or may be entitled
to receive only nominal interest
distributions. Compound Interest
Securities will not receive distributions
of interest but accrued interest will be
added to the principal balance thereof on
each Distribution Date until the Accrual
Termination Date. Following the Accrual
Termination Date, interest distributions
with respect to such Compound Interest
Securities will be made on the basis of
their Compound Value.
PRINCIPAL PAYMENTS ON
THE BONDS .............. All payments of principal of a Series will
be allocated among the Classes of such
Series in the order and amounts, and will
be applied either on a pro rata or a
random lot basis among all Bonds of any
such Class, as specified in the related
Prospectus Supplement.
Except with respect to Zero Coupon
Securities, Compound Interest Securities
and Interest Only Securities, unless
specified otherwise in the related
Prospectus Supplement, on each Payment
Date principal payments will be made on
the Bonds of each Series in an amount (the
"Principal Payment Amount") as determined
by a formula specified in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus
Supplement, if the Series of Bonds has a
Class of Compound Interest Securities,
additional principal payments on the Bonds
will be made on each Payment Date in an
amount equal to the interest accrued, but
not then payable, on such Bonds for the
related Interest Accrual Period. If the
Series of Bonds has a Class of PAC
Securities, such PAC Securities will have
certain priorities of payment with respect
to principal to the extent of certain
targeted amounts with respect to each
Payment Date, as set forth in the related
Prospectus Supplement.
PRINCIPAL DISTRIBUTIONS
ON THE CERTIFICATES .......... Principal distributions on the Certificates
of a Series will be made from amounts
available therefor on each Distribution
Date, unless otherwise specified in the
related Prospectus Supplement, in an
aggregate amount determined as set forth
in the related Prospectus Supplement and
will be allocated among the respective
Classes of a Series of Certificates at the
times, in the manner and in the priority
(which may, in certain cases, include
allocation by random lot) set forth in the
related Prospectus Supplement.
Except with respect to Zero Coupon
Securities, Compound Interest Securities
and Interest Only Securities, unless
specified otherwise in the related
Prospectus Supplement, on each
Distribution Date principal payments will
be made on the Certificates of each Series
in the Principal Payment Amount
11
<PAGE>
as determined by a formula specified in
the related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, if the Series of
Certificates has a Class of Compound
Interest Securities, additional principal
payments on the Certificates will be made
on each Distribution Date in an amount
equal to the interest accrued, but not
then payable, on such Certificates for the
related Interest Accrual Period. If the
Series of Certificates has a Class of PAC
Securities, such PAC Securities will have
certain priorities of distribution with
respect to principal to the extent of
certain targeted amounts with respect to
each Distribution Date, as set forth in
the related Prospectus Supplement.
ALLOCATION OF LOSSES ... If so specified in the related Prospectus
Supplement, on any Payment Date or
Distribution Date, as applicable, on which
the principal balance of the Mortgage
Assets is reduced due to losses on the
Mortgage Assets, (i) the amount of such
losses will be allocated first, to reduce
the Aggregate Outstanding Principal of the
Subordinate Securities or other
subordination, if any, and, thereafter, to
reduce the Aggregate Outstanding Principal
of the remaining Securities in the
priority and manner specified in such
Prospectus Supplement until the Aggregate
Outstanding Principal of each Class of
Securities so specified has been reduced
to zero or paid in full, thus reducing the
amount of principal payable or
distributable on each such Class of
Securities or (ii) such losses may be
allocated in any other manner set forth in
the related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, such reductions of
principal of a Class or Classes of
Securities shall be allocated to the
Holders of the Securities of such Class or
Classes pro rata in the proportion which
the outstanding principal of each Bond or
Certificate of such Class or Classes bears
to the Aggregate Outstanding Principal of
all Securities of such Class. See
"DESCRIPTION OF THE SECURITIES--Payments
and Distributions of Principal."
STATED MATURITY OF THE
BONDS .................. The "Stated Maturity" for each Class of a
Series is the date specified in the
related Prospectus Supplement no later
than which all the Bonds of such Class
will be fully paid, calculated on the
basis of the assumptions set forth in the
related Prospectus Supplement. However,
the actual maturity of the Bonds is likely
to occur earlier and may occur
significantly earlier than their Stated
Maturity. The rate of prepayments on the
Mortgage Assets pledged as security for
any Series will depend on a variety of
factors, including the characteristics of
the Mortgage Loans underlying or
comprising the Mortgage Assets and the
prevailing level of interest rates from
time to time, as well as on a variety of
economic, demographic, geographic, tax,
legal and other factors. No assurance can
be given as to the actual prepayment
experi-
12
<PAGE>
ence of such Mortgage Assets. See "YIELD
AND PREPAYMENT CONSIDERATIONS."
FINAL SCHEDULED
DISTRIBUTION DATE OF
THE CERTIFICATES ...... The Final Scheduled Distribution Date for
each Class of Certificates of a Series is
the date after which no Certificates of
such Class will remain outstanding,
assuming timely payments or distributions
are made on the Mortgage Assets in the
related Trust Fund in accordance with
their terms. The Final Scheduled
Distribution Date of a Class may equal the
maturity date of the Mortgage Asset in the
related Trust Fund which has the latest
stated maturity or will be determined as
described herein and in the related
Prospectus Supplement.
The actual maturity date of the Certificates
of a Series will depend primarily upon the
level of prepayments with respect to the
Mortgage Loans comprising the Mortgage
Assets in the related Trust Fund. The
actual maturity of any Certificate is
likely to occur earlier and may occur
substantially earlier than its Final
Scheduled Distribution Date as a result of
the application of prepayments to the
reduction of the principal balances of the
Certificates. The rate of prepayments on
the Mortgage Loans comprising Mortgage
Assets in the Trust Fund for a Series will
depend on a variety of factors, including
certain characteristics of such Mortgage
Loans and the prevailing level of interest
rates from time to time, as well as on a
variety of economic, demographic, tax,
legal, social and other factors. No
assurance can be given as to the actual
prepayment experience with respect to a
Series. See "RISK FACTORS" and
"DESCRIPTION OF THE SECURITIES--Weighted
Average Life of the Securities" herein.
REDEMPTION OF BONDS ..... The Bonds will be redeemable only as
follows:
A. SPECIAL REDEMPTION .. If specified in the related Prospectus
Supplement, Bonds of a Series will be
subject to special redemption, in whole or
in part, if, as a result of principal
payments on the Mortgage Assets securing
such Series or low reinvestment yields or
both, the Trustee determines (based on
assumptions, if any, specified in the
Indenture and after giving effect to the
amounts, if any, available to be withdrawn
from any Reserve Fund for such Series)
that the amount anticipated to be
available in the Collection Account for
such Series on the date specified in the
related Prospectus Supplement will be
insufficient to meet debt service
requirements on any portion of the Bonds.
Any such redemption would be limited to
the aggregate amount of all scheduled
principal payments and prepayments on the
Mortgage Assets received since the last
Payment Date or Special Redemption Date,
whichever is later, and may shorten the
maturity of any Bond so redeemed
13
<PAGE>
by no more than the period between the
date of such special redemption and the
next Payment Date. Unless otherwise
specified in the related Prospectus
Supplement, special redemptions of Bonds
of a Series will be made in the same
priority and manner as principal payments
are made on a Payment Date. Bonds subject
to special redemption shall be redeemed on
the applicable Special Redemption Date at
100% of their unpaid principal amount plus
accrued interest on such principal to the
date specified in the related Prospectus
Supplement. To the extent described in the
related Prospectus Supplement, Bonds of a
Series may be subject to special
redemption in whole or in part following
certain defaults under an Enhancement
Agreement or other agreement, and in
certain other events at the Redemption
Price. See "DESCRIPTION OF THE
SECURITIES--Special Redemption."
B. OPTIONAL
REDEMPTION ....... To the extent specified in the related
Prospectus Supplement, one or more Classes
of any Series may be redeemed in whole, or
in part, at, unless otherwise specified in
the related Prospectus Supplement, the
Issuer's option on any Payment Date on or
after the date specified in the related
Prospectus Supplement and at the
Redemption Price. See "DESCRIPTION OF THE
SECURITIES--Optional Redemption."
C. MANDATORY
REDEMPTION ....... If specified in the related Prospectus
Supplement for a Series, the Bonds of one
or more Classes ("Individual Investor
Bonds") may be subject to mandatory
redemptions by lot or by such other method
set forth in the Prospectus Supplement.
The related Prospectus Supplement relating
to a Series of Bonds with Individual
Investor Securities will set forth Class
priorities, if any, and conditions with
respect to redemptions. Individual
Investor Securities to be redeemed shall
be selected by random lot in $1,000 units,
after making all permitted redemptions
requested by holders of Individual
Investor Securities or by such other
method set forth in the Prospectus
Supplement. See "DESCRIPTION OF THE
SECURITIES--Mandatory Redemption."
OPTIONAL TERMINATION OF
TRUST FUND ............ If so specified in the related Prospectus
Supplement, the Company, as depositor of
the Primary Assets into the Trust Fund
(acting in such capacity, and in such
capacity in respect of an Owner Trust the
"Depositor"), the Servicer, or such other
entity that is specified in the related
Prospectus Supplement, may, at its option,
cause an early termination of the related
Trust Fund by repurchasing all of the
Primary Assets remaining in the Trust Fund
on or after a specified date, or on or
after such time as the aggregate principal
balance of the Certificates of any Class
of the Series is less than the amount or
percentage specified in the related
Prospectus Supple-
14
<PAGE>
ment. See "DESCRIPTION OF THE
SECURITIES--Optional Termination."
REPURCHASES OF
CERTIFICATES ........... If so specified in the related Prospectus
Supplement, one or more classes of the
Certificates of such Series may be
repurchased, in whole or in part, at the
option of the Depositor, at such times and
under the circumstances specified in such
Prospectus Supplement and at the
repurchase price set forth therein. See
"DESCRIPTION OF THE SECURITIES--Optional
Repurchase of Certificates" herein.
If so specified in the related Prospectus
Supplement, any Class of the Certificates
may be subject to repurchase at the
request of the holders of such Class or to
mandatory repurchase by the Depositor
(including by random lot). See
"DESCRIPTION OF THE SECURITIES--Other
Repurchases" herein.
SECURITY FOR THE BONDS,
OR THE TRUST
FUND FOR THE
CERTIFICATES ........... Each Series of Bonds will be separately
secured by Primary Assets consisting of
one or more of the assets described below,
as specified in the Prospectus Supplement.
The Trust Fund for a Series of
Certificates will consist of one or more
of the assets described below, as
specified in the related Prospectus
Supplement.
A. MORTGAGE ASSETS .... The Primary Assets for a Series may consist
of any combination of the following, to
the extent and as specified in the related
Prospectus Supplement:
(1) MORTGAGE LOANS ... Mortgage Assets for a Series may consist, in
whole or in part, of Mortgage Loans,
including participation interests therein
owned by the Issuer. Some Mortgage Loans
or Mortgage Loans underlying such
participation interests may be delinquent
or non-performing as specified in the
related Prospectus Supplement. The
Mortgage Assets may consist of a single
Mortgage Loan or obligations of a single
obligor or related obligors as specified
in the related Prospectus Supplement.
Mortgage Loans comprising or underlying
the Mortgage Assets may be originated by
or acquired from an affiliate of the
Issuer and an affiliate of the Issuer may
be an obligor with respect to any such
Mortgage Loan. Payments on such Mortgage
Loans will be collected by the Trustee or
by the Servicer or Master Servicer with
respect to a Series and remitted to the
Trustee as described in the related
Prospectus Supplement and will be
available in the priority described in the
related Prospectus Supplement to make
payments on the Bonds of that Series. To
the extent specified in the related
Prospectus Supplement, Mortgage Loans
owned by the Issuer will be serviced by
Servicers, and, if applicable, a Master
Servicer, either of which may be
affiliates or shareholders of the Issuer.
15
<PAGE>
Mortgaged Properties securing Mortgage Loans
may consist of multifamily residential
rental property or cooperatively owned
multifamily property consisting of five or
more dwelling units, mixed
multifamily/commercial property or
commercial property. Mortgage Loans
secured by Multifamily Property may
consist of FHA Loans. Mortgage Loans may,
as specified in the related Prospectus
Supplement, have various payment
characteristics and may consist of fixed
rate loans or ARMs or Mortgage Loans
having balloon or other irregular payment
features. Unless otherwise specified in
the related Prospectus Supplement, the
Mortgage Loans will be secured by first
mortgages or deeds of trust or other
similar security instruments creating a
first lien on Mortgaged Property. If so
specified in the related Prospectus
Supplement, Mortgage Loans relating to
real estate projects under construction
may be included in the Mortgage Assets for
a Series. The related Prospectus
Supplement will describe certain
characteristics of the Mortgage Loans
comprising the Mortgage Assets for a
Series, including, without limitation, (a)
the aggregate unpaid principal balance of
the Mortgage Loans comprising the Mortgage
Assets; (b) the weighted average Mortgage
Rate on the Mortgage Loans, and, in the
case of adjustable Mortgage Rates, the
weighted average of the current adjustable
Mortgage Rates, the minimum and maximum
permitted adjustable Mortgage Rates, if
any, and the weighted average thereof; (c)
the average outstanding principal balance
of the Mortgage Loans; (d) the weighted
average remaining scheduled term to
maturity of the Mortgage Loans and the
range of remaining scheduled terms to
maturity; (e) the range of Loan-to-Value
Ratios of the Mortgage Loans; (f) the
relative percentage (by principal balance
as of the Cut-off Date) of Mortgage Loans
that are ARMs, fixed interest rate, FHA
Loans or other types of Mortgage Loans;
(g) any enhancement relating to the
Mortgage Assets; (h) the relative
percentage (by principal balance as of the
Cut-Off Date) of Mortgage Loans that are
secured by Multifamily Property or
Commercial Property; (i) the geographic
dispersion of Mortgaged Properties
securing the Mortgage Loans; and (j) the
use or type of each Mortgaged Property
securing a Mortgage Loan.
If permitted by applicable law, the Mortgage
Pool may also include Mortgaged Properties
acquired by foreclosure or by deed-in-lieu
of foreclosure ("REO Property"). To the
extent specified in the related Prospectus
Supplement, the Servicer or the Master
Servicer or the Special Servicer, if any,
may establish and maintain a trust account
or accounts to be used in connection with
REO Properties and other Mortgaged
Properties being operated by it or on its
behalf on behalf of the Trust Estate, by
the mortgagor as debtor-in-possession or
otherwise. See "SECURITY FOR THE BONDS AND
CERTIFICATES--Mortgage Loans" and
"--Maintenance
16
<PAGE>
of Insurance Policies and Other Servicing
Procedures; Presentation of Claims;
Realization Upon Defaulted Mortgage
Loans."
(2) PRIVATE
MORTGAGE-BACKED
SECURITIES .......... Private Mortgage-Backed Securities may
include (a) mortgage participations or
pass-through certificates representing
beneficial interests in certain Mortgage
Loans, (b) debt obligations interest
payments on which may be tax-exempt in
whole or in part secured by mortgages or
(c) participations or other interests in
any of the foregoing. Although individual
Mortgage Loans underlying a Private
Mortgage-Backed Security may be insured or
guaranteed by the United States or an
agency or instrumentality thereof, they
need not be, and the Private
Mortgage-Backed Securities themselves will
not be, so insured or guaranteed. Unless
otherwise specified in the Prospectus
Supplement relating to a Series, payments
on the Private Mortgage-Backed Securities
will be distributed directly to the
Trustee (on behalf of the Trust Estate) as
registered owner of such Private
Mortgage-Backed Securities. Unless
otherwise specified in the Prospectus
Supplement relating to a Series, if
payments with respect to interest on the
underlying obligations are tax-exempt,
such Prospectus Supplement will disclose
the relevant federal income tax
characteristics relating to the tax-exempt
status of such obligations.
The related Prospectus Supplement for a
Series will specify, to the extent
applicable, (i) the aggregate approximate
principal amount and type of any Private
Mortgage-Backed Securities to be included
in the Trust Estate or Trust Fund for such
Series; (ii) certain characteristics of
the Mortgage Loans, participations or
other interests which comprise the
underlying assets for the Private
Mortgage-Backed Securities including (A)
the payment features of such Mortgage
Loans, participations or other interests
(i.e., whether they are fixed interest
rate or adjustable rate and whether they
provide for fixed level payments, negative
amortization, or other payment features),
(B) the approximate aggregate principal
amount, if known, of the underlying
Mortgage Loans, participations or other
interests which are insured or guaranteed
by a governmental entity, (C) the
servicing fee or range of servicing fees
with respect to the Mortgage Loans, and
(D) the stated maturities of the Mortgage
Loans, participations or other interests
at origination; (iii) the maximum original
term-to-stated maturity of the Private
Mortgage-Backed Securities; (iv) the
weighted average term-to-stated maturity
of the Private Mortgage-Backed Securities;
(v) the pass-through or bond rate or
ranges thereof for the Private
Mortgage-Backed Securities or formula
therefor; (vi) the weighted average
pass-through or certificate rate of the
Private Mortgage-Backed Securities or
formula therefor;
17
<PAGE>
(vii) the issuer of the Private
Mortgage-Backed Securities (the "PMBS
Issuer"), the Servicer or Master Servicer
of the Private Mortgage-Backed Securities
and the trustee of the Private
Mortgage-Backed Securities (the "PMBS
Trustee"); (viii) certain characteristics
of credit support, if any, such as reserve
funds, insurance policies, letters of
credit, guarantees or
overcollateralization, relating to the
Mortgage Loans underlying the Private
Mortgage-Backed Securities, or to such
Private Mortgage-Backed Securities
themselves; (ix) the terms on which
underlying Mortgage Loans, participations
or other interests for such Private
Mortgage-Backed Securities or the Private
Mortgage-Backed Securities may, or are
required to, be repurchased prior to
maturity; and (x) the terms on which
substitute Mortgage Loans, participations
or other interests may be delivered to
replace those initially deposited with the
PMBS Trustee.
(3) DETERMINATION OF
ASSET VALUE ......... If provided in the applicable Prospectus
Supplement, each item of Mortgage Assets
for a Series will be assigned an Asset
Value. Unless otherwise specified in the
related Prospectus Supplement, the
aggregate of the Asset Values of the
Primary Assets securing a Series of Bonds
or comprising a Trust Fund will equal not
less than the original Aggregate
Outstanding Principal of such Series. The
Asset Value of an item of Primary Assets
securing any Series of Bonds or comprising
a Trust Fund is intended to represent the
principal amount of Securities of such
Series that, based on certain assumptions
stated in the related Series Supplement,
can be supported by payments on such item
of Primary Assets, irrespective of
prepayments thereon, together with,
depending on the type of Primary Assets
and method used to determine its Asset
Value, reinvestment earnings at the
related Assumed Reinvestment Rate, if any,
and amounts in any Reserve Fund
established for that Series. In such a
case, the related Prospectus Supplement
will set forth the method or methods and
related assumptions used to determine
Asset Value, if such method is used, for
the Primary Assets securing the related
Series. See "DESCRIPTION OF THE SECU-
RITIES--Valuation of Mortgage Collateral."
B. COLLECTION ACCOUNT .. Unless otherwise provided in the related
Prospectus Supplement, all payments on the
Primary Assets pledged as security for a
Series or comprising the assets of a Trust
Fund will be remitted to a Collection
Account to be established with the
Trustee, or if the Trustee is not also the
Paying Agent, with the Paying Agent, for
such Series. Unless otherwise provided in
the related Prospectus Supplement, such
payments, together with the Reinvestment
Income thereon, if any, the amount of
cash, if any, initially deposited in the
Collection Account by the Issuer together
with Reinvestment Income thereon, if any,
and any amounts withdrawn from any
18
<PAGE>
Reserve Fund established for such Series,
will be available to make payments or
distributions of principal of and interest
on such Series on the next Payment Date or
Distribution Date, as applicable. Any
funds remaining in the Collection Account
for a Series immediately following a
Payment Date or Distribution Date, as
applicable (unless required to be
deposited into one or more Reserve Funds,
as described below, or applied to pay
certain expenses or other payments
provided for in the Indenture or Trust
Agreement, as applicable) will be promptly
paid as provided in the Indenture or Trust
Agreement to the Issuer or, in certain
circumstances, to owners of residual
interests and, upon such payment, will be
released from the lien of the Indenture or
Trust Agreement, as applicable. See
"SECURITY FOR THE BONDS AND
CERTIFICATES--Collection Account."
C. GUARANTEED
INVESTMENT CONTRACTS
AND OTHER AGREEMENTS ... The Issuer may obtain and deliver to the
Trustee Guaranteed Investment Contracts
pursuant to which moneys held in the funds
and accounts established for such Series
will be invested at a specified rate for
the Series. The Issuer may also obtain and
deliver to the Trustee certain other
agreements such as interest rate swap
agreements, interest rate cap or floor
agreements or similar agreements issued by
a bank, insurance company, savings bank,
savings and loan association or other
entity which reduce the effects of
interest rate fluctuations on the Mortgage
Assets or the Securities. The principal
terms of any such Guaranteed Investment
Contract or other agreement, including,
without limitation, provisions relating to
the timing, manner and amount of payments
thereunder and provisions relating to the
termination thereof, will be described in
the Prospectus Supplement for the related
Series. Additionally, the related
Prospectus Supplement will provide certain
information with respect to the issuer of
such Guaranteed Investment Contract or
other agreement.
ENHANCEMENT ............ Enhancement in the form of reserve funds,
subordination, overcollateralization,
insurance policies, letters of credit or
other types of credit support may be
provided with respect to the Mortgage
Assets or with respect to one or more
Classes of Securities of a Series. If the
Mortgage Assets are divided into separate
Mortgage Groups, each securing or
supporting a separate Class or Classes of
a Series, credit support may be provided
by a cross-support feature which requires
that distributions be made with respect to
Securities secured by one Mortgage Group
prior to distributions to Subordinate
Securities secured by another Mortgage
Group within the Trust Estate or Trust
Fund.
The type, characteristics and amount of
enhancement will be determined based on
the characteristics of the Mortgage
19
<PAGE>
Loans underlying or comprising the
Mortgage Assets and other factors and will
be established on the basis of
requirements of each Rating Agency rating
the Securities of such Series. If so
specified in the related Prospectus
Supplement, any such enhancement may apply
only in the event of certain types of
losses or delinquencies and the protection
against losses or delinquencies provided
by such enhancement will be limited. See
"ENHANCEMENT" and "RISK FACTORS" herein.
A. SUBORDINATE
SECURITIES ........... A Series of Securities may include one or
more Classes of Subordinate Securities.
The rights of holders of such Subordinate
Securities to receive distributions on any
Payment Date or Distribution Date, as
applicable, will be subordinate in right
and priority to the rights of holders of
Senior Securities of the Series, but only
to the extent described in the related
Prospectus Supplement. If so specified in
the related Prospectus Supplement,
subordination may apply only in the event
of certain types of losses not covered by
other enhancement. Unless otherwise
specified in the related Prospectus
Supplement, such subordination will be in
lieu of providing insurance policies or
other credit support with respect to
losses arising from such events. Unless
otherwise specified in the related
Prospectus Supplement, the related Series
Supplement may require a trustee that is
not the Trustee to be appointed to act on
behalf of holders of Subordinate
Securities.
The related Prospectus Supplement will set
forth information concerning the amount of
subordination of a Class or Classes of
Subordinate Securities in a Series, the
circumstances in which such subordination
will be applicable, the manner, if any, in
which the amount of subordination will
decrease over time, the manner of funding
any related Reserve Fund and the
conditions under which amounts in any
related Reserve Fund will be used to make
distributions to holders of Senior
Securities and/or to holders of
Subordinate Securities or be released from
the related Trust Estate or Trust Fund. If
cash flows otherwise distributable to
holders of Subordinate Securities secured
by a Mortgage Group will be used as credit
support for Senior Securities secured by
another Mortgage Group within the Trust
Estate or Trust Fund, the related
Prospectus Supplement will specify the
manner and conditions for applying such a
cross-support feature. See
"ENHANCEMENT--Subordinate Securities."
B. INSURANCE .......... If so specified in the related Prospectus
Supplement, certain insurance policies
will be required to be maintained with
respect to the Mortgage Loans included in
the Trust Estate or Trust Fund for a
Series. Such insurance policies may
include, but are not limited to, a
standard hazard insurance policy or with
respect to FHA Loans, FHA Insurance. See
20
<PAGE>
"ENHANCEMENT" and "DESCRIPTION OF
INSURANCE ON THE MORTGAGE LOANS" herein.
The Prospectus Supplement for a Series
will provide information concerning any
such insurance policies, including (a) the
types of coverage provided by each, (b)
the amount of such coverage and (c)
conditions to payment under each. To the
extent described in the related Prospectus
Supplement, certain insurance policies to
be maintained with respect to the Mortgage
Loans may be terminated, reduced or
replaced following the occurrence of
certain events affecting the authority or
creditworthiness of the insurer.
Additionally, such insurance policies may
be terminated, reduced or replaced by the
Servicer or Master Servicer, if any,
provided that no rating assigned to
Securities of the related Series offered
hereby and by the related Prospectus
Supplement is adversely affected and such
insurance policies may apply only in the
event of certain types of losses, all as
set forth in the related Prospectus
Supplement.
C. LETTER OF CREDIT ... If so specified in the related Prospectus
Supplement, credit support may be provided
by one or more letters of credit. A letter
of credit may provide limited protection
against certain losses in addition to or
in lieu of other credit support. The
issuer of the letter of credit (the "L/C
Bank") will be obligated to honor demands
with respect to such letter of credit, to
the extent of the amount available
thereunder, to provide funds under the
circumstances and subject to such
conditions as are specified in the related
Prospectus Supplement. The liability of
the L/C Bank under its letter of credit
may be reduced by the amount of
unreimbursed payments thereunder.
The maximum liability of an L/C Bank under
its letter of credit will be an amount
equal to a percentage specified in the
related Prospectus Supplement of the
initial aggregate outstanding principal
balance of the Mortgage Loans in the Trust
Estate or Trust Fund or one or more
Classes of Securities of the related
Series (the "L/C Percentage"). The maximum
amount available at any time to be paid
under a letter of credit will be
determined in the manner specified therein
and in the related Prospectus Supplement.
See "ENHANCEMENT--Letter of Credit."
D. BOND GUARANTEE
INSURANCE .............. If so specified in the related Prospectus
Supplement, credit support for a Series
may be provided by an insurance policy
(the "Bond Guarantee Insurance") issued by
one or more insurance companies. Such Bond
Guarantee Insurance may guarantee timely
distributions of interest and full
distributions of principal on the basis of
a schedule of principal distributions set
forth in or determined in the manner
specified in the related Prospectus
Supplement. See "ENHANCEMENT--Bond
Guarantee Insurance."
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E. RESERVE FUNDS ...... The Issuer may deposit in one or more
reserve funds (collectively, the "Reserve
Funds") for any Series cash, Eligible
Investments, demand notes or a combination
thereof in the aggregate amount, if any,
specified in the related Prospectus
Supplement. Any Reserve Funds for a Series
may also be funded over time through
application of a specified amount of cash
flow, to the extent described in the
related Prospectus Supplement. Such a
Reserve Fund may be established to
increase the likelihood of the timely
distributions on the Securities of such
Series or to reduce the likelihood of a
special redemption with respect to any
Series. Reserve Funds may be established
to provide protection against certain
losses or delinquencies in addition to or
in lieu of other credit support. Amounts
on deposit in the Reserve Funds for a
Series, together with (unless otherwise
specified in the related Prospectus
Supplement) the reinvestment income
thereon, if any, will be applied for the
purposes, in the manner and to the extent
provided by the related Prospectus
Supplement.
On each Payment Date or Distribution Date,
as applicable, for a Series, all amounts
on deposit in any Reserve Funds for the
Series in excess of the amounts required
to be maintained therein by the related
Indenture or Trust Agreement, as
applicable, and specified in the related
Prospectus Supplement may be released from
the Reserve Funds and will not be
available for future payments or
distributions on the Securities of such
Series.
Additional information concerning any
Reserve Funds, including whether any such
Reserve Fund is a part of the Trust Estate
or Trust Fund, the circumstances under
which moneys therein will be applied to
make distributions to Bondholders or
Certificateholders, the balance required
to be maintained in such Reserve Funds,
the manner in which such required balance
will decrease over time and the manner of
funding any such Reserve Fund, will be set
forth in the related Prospectus
Supplement. See "ENHANCEMENT--Reserve
Funds."
F. OVERCOLLATERALIZATION .. To the extent applicable and as specified in
the related Prospectus Supplement, a
Series may be structured such that the
outstanding principal balances or
Aggregate Asset Value of the Mortgage
Assets securing a Series may exceed the
Aggregate Outstanding Principal of such
Series, thereby resulting in
overcollateralization. See "DESCRIPTION OF
THE SECURITIES--Valuation of Mortgage
Assets."
SERVICING AGREEMENTS .. Various Servicers will perform certain
servicing functions with respect to any
Mortgage Loans comprising Mortgage Assets
or Underlying Collateral for a Series. In
addition, if so specified in the related
Prospectus Supplement, a Master Servicer
identified in the related Prospectus
Supplement may
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<PAGE>
service Mortgage Loans directly or
administer and supervise the performance
by the Servicers of their duties and
responsibilities under separate servicing
agreements. Each Servicer must meet the
requirements of the Master Servicer, if
any, and be approved by the Issuer, and,
if specified in the related Prospectus
Supplement, the Master Servicer and each
Servicer must be approved by either FNMA
or FHLMC as a seller-servicer of mortgage
loans and, in the case of FHA Loans, by
HUD as an FHA mortgagee. Each Servicer
will be obligated under a servicing
agreement to perform customary servicing
functions and may be obligated to advance
funds to cover certain payments not made
by the Mortgagors to the extent described
herein and in the related Prospectus
Supplement. The Master Servicer, if any,
may, if so specified in the related
Prospectus Supplement, be obligated to
advance funds to cover any required
Advances not made by the Servicers to the
extent that, in the judgment of the Master
Servicer, such Advances are recoverable
under the Insurance Policies, any
Enhancement or from the proceeds of
liquidation of the Mortgage Loans or as
provided in the related Prospectus
Supplement. The related Prospectus
Supplement will specify the conditions to
and any limitations on such Advances and
the conditions under which such Advances
will be recoverable. With respect to any
such Series, the Issuer may (i) enter into
a standby agreement with an independent
standby Servicer acceptable to each Rating
Agency rating such Securities providing
that such standby Servicer will assume the
Servicer's or Master Servicer's
obligations in the event of a default by
the Master Servicer or Servicer or (ii)
obtain a servicer performance bond
acceptable to each Rating Agency rating
such Securities that will guarantee
certain of the Servicer's or Master
Servicer's obligations. The Issuer will
assign to the Trustee its rights under any
Master Servicing Agreement and any
servicing agreements so provided with
respect to a Series as security for the
Series. See "SERVICING OF MORTGAGE LOANS"
and "SECURITY FOR THE BONDS AND
CERTIFICATES--Mortgage Loans" herein.
SPECIAL SERVICER ....... If so specified in the related Prospectus
Supplement, to the extent a Mortgage Loan
on or after the Closing Date meets certain
criteria set forth in the related
Prospectus Supplement, (i) all or a
portion of the servicing responsibilities
with respect to such Mortgage Loan may be
transferred to a Special Servicer or (ii)
the Special Servicer will provide advisory
services with respect to the servicing of
such Mortgage Loan. See "SERVICING OF
MORTGAGE LOANS" herein.
FEDERAL INCOME TAX
CONSIDERATION .......... Unless otherwise stated in the applicable
Prospectus Supplement, a real estate
mortgage investment conduit (a "REMIC")
election will be made with respect to each
Series
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<PAGE>
of Securities. Securities of such Series
will be designated as "regular interests"
in a REMIC ("Regular Interest Securities")
or as "residual interests" in a REMIC
("Residual Interest Securities").
If the applicable Prospectus Supplement so
specifies with respect to a Series of
Securities, the Securities of such Series
will not be treated as regular or residual
interests in a REMIC for federal income
tax purposes but instead will be treated
as (i) indebtedness of the Issuer, (ii) an
undivided beneficial ownership interest in
the Mortgage Loans (and the arrangement
pursuant to which the Mortgage Loans will
be held and the Securities will be issued
will be treated as a grantor trust under
Subpart E, part I of subchapter J of the
Code and not as an association taxable as
a corporation for federal income tax
purposes); (iii) equity interests in an
association that will satisfy the
requirements for qualification as a real
estate investment trust; or (iv) interests
in an entity that will satisfy the
requirements for qualification as a
partnership for federal income tax
purposes. The federal income tax
consequences to Bondholders or
Certificateholders of any such Series will
be described in the applicable Prospectus
Supplement.
Compound Interest Securities and Zero Coupon
Securities will, and certain other Classes
of Securities may, be issued with original
issue discount that is not de minimis. In
such cases, the Bondholder or
Certificateholder will be required to
include the original issue discount in
gross income as it accrues, which may be
prior to the receipt of cash attributable
to such income. If a Security is issued at
a premium, the holder will be entitled to
make an election to amortize such premium
on a constant yield method. Securities
constituting regular or residual interests
in a REMIC will generally represent
"qualifying real property loans" for
mutual savings banks and domestic building
and loan associations, "loans secured by
an interest in real property" for domestic
building and loan associations and "real
estate assets" for real estate investment
trusts to the extent that the underlying
mortgage loans and interest thereon
qualify for such treatment. Non-REMIC
Securities (other than interests in
grantor trusts) will not qualify for such
treatment.
A holder of a Residual Interest Security
will be required to include in its income
its pro rata share of the taxable income
of the REMIC. In certain circumstances,
the holder of a Residual Interest Security
may have REMIC taxable income or tax
liability attributable to REMIC taxable
income for a particular period in excess
of cash distributions for such period or
have an after-tax return that is less than
the after-tax return on comparable debt
instruments. In addition, a portion (or,
in some cases, all) of the income from a
Residual Interest Security (i) except in
certain circumstances
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with respect to a holder classified as a
thrift institution under the Code, may not
be subject to offset by losses from other
activities, (ii) for a holder that is
subject to tax under the Code on unrelated
business taxable income, may be treated as
unrelated business taxable income and
(iii) for a foreign holder, may not
qualify for exemption from or reduction of
withholding. Further, individual holders
are subject to limitations on the
deductibility of expenses of the REMIC.
See "FEDERAL INCOME TAX CONSIDERATIONS."
LEGAL INVESTMENT ....... Unless otherwise specified in the related
Prospectus Supplement, Securities of each
Series offered by this Prospectus and the
related Prospectus Supplement will not
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Securities constitute legal investments
for them. See "LEGAL INVESTMENT."
USE OF PROCEEDS ........ The Issuer will use the net proceeds from
the sale of each Series to (i) purchase
Mortgage Loans and/or Private
Mortgage-Backed Securities comprising the
Mortgage Assets securing such Securities,
(ii) repay indebtedness which has been
incurred to acquire Mortgage Assets to be
pledged by the Issuer as security for the
Bonds or to be deposited into a Trust
Fund, (iii) establish any Reserve Funds
described in the related Prospectus
Supplement, or (iv) pay costs of
structuring, guaranteeing and issuing such
Securities. If so specified in the related
Prospectus Supplement, the purchase of the
Mortgage Assets for a Series may be
effected by an exchange of Securities with
the seller of such Mortgage Assets. See
"USE OF PROCEEDS."
RATINGS ................ It will be a condition to the issuance of
any Securities offered by this Prospectus
and the related Prospectus Supplement that
they be rated in one of the four highest
applicable rating categories by at least
one Rating Agency. The rating or ratings
applicable to Securities of each Series
will be as set forth in the related
Prospectus Supplement.
A security rating should be evaluated
independently of similar ratings of
different types of securities. A security
rating does not address the effect that
the rate of prepayment on Mortgage Loans
comprising or underlying the Mortgage
Assets or the effect that reinvestment
rates may have on the yield to investors
in the Securities. A rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization. Each rating should be
evaluated independently of any other
rating. See "RISK FACTORS."
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
Limited Liquidity. There can be no assurance that a secondary market for
the Securities of any Series will develop or, if it does develop, that it
will provide holders with liquidity of investment or will continue while
Securities of such Series remain outstanding. The market value of Securities
will fluctuate with changes in prevailing rates of interest. Consequently,
sale of the Securities by a holder in any secondary market which may develop
may be at a discount from par value or from their purchase price.
Furthermore, secondary purchasers may look only to the Prospectus Supplement
attached hereto and to the reports to Bondholders or Certificateholders, as
applicable, delivered pursuant to the Indenture or Trust Agreement, as
applicable and as described herein under the heading "DESCRIPTION OF THE
SECURITIES--General," "--The Bonds--General," and "--The
Certificates--General" for information concerning the Securities. Except to
the extent described in the related Prospectus Supplement, Bondholders or
Certificateholders, as applicable, will have no optional redemption or early
termination rights, respectively. The Bonds are subject to redemption, and
the Certificates are subject to early termination or repurchase, by the
Issuer only under certain specified circumstances described herein and in the
related Prospectus Supplement. See "DESCRIPTION OF THE SECURITIES--Special
Redemption," "--Optional Redemption," "--Optional Termination," "--Optional
Repurchase of Certificates," and "--Other Repurchases." Shearson Lehman
Brothers Inc. ("Lehman Brothers"), through one or more of its affiliates, and
the other underwriters, if any, presently expect to make a secondary market
in the Securities, but have no obligation to do so.
Limited Assets. The Issuer will not have, nor be expected in the future to
have, any significant assets available for payments on a Series of Securities
other than the assets pledged as security or deposited into a Trust Fund for
a specific Series. The Bonds will be non-recourse obligations of the Issuer
and each Series of Bonds will be separately secured. Unless otherwise
specified in the related Prospectus Supplement, no Series will have any claim
against or security interest in the Primary Assets pledged to secure any
other Series. If the Primary Assets securing a Series of Bonds is
insufficient to make payments on such Bonds, no other assets of the Issuer
will be available for payment of the deficiency.
Unless otherwise set forth in the Prospectus Supplement for a Series of
Certificates, the Trust Fund for such Series will be the only available
source of funds to make distributions on the Certificates of such Series. The
only obligations, if any, of the Depositor with respect to the Certificates
of any Series will be pursuant to certain representation and warranties. The
Depositor does not have, and is not expected in the future to have, any
significant assets with which to meet any obligation to repurchase Mortgage
Assets with respect to which there has been a breach of any representation or
warranty. If, for example, the Depositor were required to repurchase a
Mortgage Loan which constitutes a Mortgage Asset, its only sources of funds
to make such repurchase would be from funds obtained from the enforcement of
a corresponding obligation, if any, on the part of the originator of the
Mortgage Loans or the Servicer, as the case may be, or from a reserve fund
established to provide funds for such repurchases.
Additionally, certain amounts remaining in certain funds or accounts,
including the Collection Account and any Reserve Funds, may be withdrawn
under certain conditions and circumstances described in the related
Prospectus Supplement. In the event of such withdrawal, such amounts will not
be pledged to, or available for, future payment or distribution of principal
of or interest on the Securities. If so specified in the related Prospectus
Supplement, on any Payment Date or Distribution Date on which the principal
balance of the Mortgage Assets is reduced due to losses on the Mortgage
Assets, (i) the amount of such losses will be allocated first, to reduce the
Aggregate Outstanding Principal of the Subordinate Securities or other
subordination, if any, and, thereafter, to reduce the Aggregate Outstanding
Principal of the remaining Securities in the priority and manner specified in
such Prospectus Supplement until the Aggregate Outstanding Principal of each
Class of Securities so specified has been reduced to zero or paid in full,
thus, reducing the amount of principal payable on each such Class of
Securities or (ii) such losses may be allocated in any other manner set forth
in the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, such reductions of
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<PAGE>
principal of a Class or Classes of Securities shall be allocated to the
Holders of the Securities of such Class or Classes pro rata in the proportion
which the outstanding principal of each Security of such Class or Classes
bears to the Aggregate Outstanding Principal of all Securities of such Class.
Yield and Prepayment Considerations. Prepayments on the Mortgage Loans
comprising or underlying the Mortgage Assets securing a Series or deposited
into a Trust Fund, as the case may be, generally will result in a faster rate
of principal payments on such Securities than if payments on such Mortgage
Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Loans comprising or underlying the Mortgage Assets will affect the
average life of each Class secured thereby and the extent to which each such
Class is paid prior to its Stated Maturity or Final Scheduled Distribution
Date. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be
no assurance as to the rate of prepayment on the Mortgage Assets securing any
Series of Bonds or deposited into a Trust Fund, as the case may be, or that
the rate of payments will conform to any model described herein or in any
Prospectus Supplement. If prevailing interest rates fall significantly below
the applicable mortgage rates, principal prepayments are likely to be higher
than if prevailing rates remain at or above the rates borne by the Mortgage
Loans comprising or underlying the Primary Assets securing a Series of Bonds
or deposited into a Trust Fund, as the case may be. As a result, the actual
maturity of or final distribution on any Class could occur significantly
earlier than its Stated Maturity or Final Scheduled Distribution Date. The
actual maturity of the Bonds or final distribution on the Certificates will
also be affected by the extent to which Excess Cash Flow is applied to
payments or distributions of principal on the Securities. A Series of
Securities may include Classes of PAC Securities or other Securities with
priorities of payment and, as a result, yields on other Classes of Securities
of such Series may be more sensitive to prepayments on Mortgage Loans. A
Series may include a Class offered at a significant premium or discount.
Yields on such Class of Securities will be sensitive, and in some cases
extremely sensitive, to prepayments on Mortgage Loans and, in the case of a
premium Class, where the amount of interest payable with respect to such
Class is extremely disproportionate to principal, a holder might, in some
prepayment scenarios, fail to recoup its original investment. See "YIELD AND
PREPAYMENT CONSIDERATIONS."
Limited Nature of Rating. Any rating assigned to the Securities by a
Rating Agency will reflect such Rating Agency's assessment solely of the
likelihood that holders of such Securities will receive payments required to
be made under the Indenture or Trust Agreement, as the case may be. Such
rating will not constitute an assessment of the likelihood that principal
prepayments on the Mortgage Loans underlying or comprising the Mortgage
Assets will be made by Mortgagors or of the degree to which the rate of such
prepayments might differ from that originally anticipated. Such rating will
not address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that investors purchasing a Security at a significant
premium might fail to recoup their initial investment under certain
prepayment scenarios.
The amount of Primary Assets, including any applicable Enhancement,
required to support a Series of Securities will be determined on the basis of
criteria established by each Rating Agency rating such Series. Such criteria
are sometimes based upon actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of Enhancement required with respect to each
Series of Securities. There can be no assurance that the historical data
supporting such actuarial analysis will accurately reflect future experience
generally nor any assurance that the data derived from a large pool of
mortgages will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
analysis may be based upon the value of the property underlying the Mortgage
Assets. There can be no assurance that such value will accurately reflect the
future value of the property and, therefore, whether or not the Securities
will be paid in full.
Certain legal aspects of the Mortgage Loans comprising or underlying
Mortgage Assets for a Series will be described in the related Prospectus
Supplement.
Certain Mortgage Loans and Mortgaged Property; Obligor Default. Mortgage
Loans made with respect to Multifamily or Commercial Property may entail
risks of loss in the event of delinquency and
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<PAGE>
foreclosure that are greater than similar risks associated with traditional
single-family property. Many of the Mortgage Loans may be nonrecourse loans
as to which, in the event of an obligor default, recourse may be had only
against the specific Commercial or Multifamily Property and such limited
other assets as have been pledged to secure such Mortgage Loan, and not
against the obligor's other assets. Furthermore, the repayment of loans
secured by income producing properties is typically dependent upon the
successful operation of the related real estate project rather than upon the
liquidation value of the underlying real estate. If the net operating income
from the project is reduced (for example, if rental or occupancy rates
decline or real estate and personal property tax rates or other operating
expenses increase), the obligor's ability to repay the loan may be impaired.
A number of the Mortgage Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the obligor or single tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the liquidation
value of any Mortgaged Property may be adversely affected by risks generally
incident to interests in real property, including changes in general or local
economic conditions and/or specific industry segments; declines in real
estate values; declines in rental or occupancy rates; increases in interest
rates, real estate and personal property tax rates and other operating
expenses including energy costs; changes in governmental rules, regulations
and fiscal policies, including environmental legislation; acts of God; and
other factors which are beyond the Master Servicer's or the Special
Servicer's, if any, control. Although the Servicer or the Master Servicer is
obligated to cause standard hazard insurance to be maintained with respect to
each Mortgage Loan, insurance with respect to extraordinary hazards such as
earthquakes and floods is generally not required to be maintained, and
insurance is not available with respect to many of the other risks listed
above.
Certain of the Mortgage Loans as of the Cut-Off Date may not be fully
amortizing over their terms to maturity, and, thus, will have substantial
principal balances due at their stated maturity. Mortgage Loans with balloon
payments involve a greater degree of risk because the ability of an obligor
to make a balloon payment typically will depend upon its ability either to
refinance the loan or to sell the related Mortgaged Property. The ability of
an obligor to accomplish either of these goals will be affected by a number
of factors, including the level of available mortgage rates at the time of
sale or refinancing, the obligor's equity in the related Mortgaged Property,
the financial condition and operating history of the obligor and the related
Mortgaged Property, tax laws, prevailing general economic conditions and the
availability of credit for commercial or multifamily, as the case may be,
real estate projects generally.
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, the Special Servicer, if any, will
have considerable flexibility under the Special Servicing Agreement to extend
and modify Mortgage Loans which are in default or as to which a payment
default is reasonably foreseeable, including in particular with respect to
balloon payments. In addition, the Special Servicer may receive a workout fee
based on receipts from or proceeds of such Mortgage Loans. While the Special
Servicer generally will be required to determine that any such extension or
modification is likely to produce a greater recovery on a present value basis
than liquidation, there can be no assurance that such flexibility with
respect to extensions or modifications or payment of a workout fee to the
Special Servicer will increase the present value of receipts from or proceeds
of Mortgage Loans which are in default or as to which a default is reasonably
foreseeable. To the extent losses on such Mortgage Loans exceed levels of
available enhancement, the Holders of the Bonds of a Series may experience a
loss. See "SERVICING OF MORTGAGE LOANS--Maintenance of Insurance Policies and
Other Servicing Procedures" and "ENHANCEMENT."
Enhancement Limitations. The amount, type and nature of Insurance
Policies, subordination, Bond Guarantee Insurance, letters of credit,
overcollateralization, Reserve Funds and other enhancement, if any, required
with respect to a Series will be determined on the basis of criteria
established by each Rating Agency rating such Series. Such criteria are
sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of Enhancement required with respect to each
Series of Securities. There can be
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<PAGE>
no assurance that the historical data supporting any such actuarial analysis
will accurately reflect future experience nor any assurance that the data
derived from a large pool of mortgage loans accurately predicts the
delinquency, foreclosure or loss experience of any particular pool of
Mortgage Loans.
In addition, if principal payments on Securities of a Series are made in a
specified order of priority, any limits with respect to the aggregate amount
of claims under any related insurance policy, letters of credit or other
enhancement may be exhausted before the principal of the lower priority
Classes has been repaid. As a result, the impact of significant losses on the
Mortgage Loans may bear primarily upon the Securities of the later maturing
Classes.
The Prospectus Supplement for a Series will describe any Reserve Funds,
Insurance Policies, letter of credit, subordination, Bond Guarantee
Insurance, over collateralization or other credit support relating to the
Mortgage Assets or to the Securities of such Series. Use of such Reserve
Funds and payments under such Insurance Policies, Bond Guarantee Insurance,
letter of credit or other third-party credit support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Reserve Funds, Insurance Policies, letter of
credit or other credit support may not cover all potential losses or risks;
for example, Enhancement may or may not cover fraud or negligence by the
Issuer, the Master Servicer or other parties. Moreover, if a form of
enhancement covers more than one Series of Securities (each, a "Covered
Trust"), holders of Securities issued by any of such Covered Trusts will be
subject to the risk that such credit support will be exhausted by the claims
of other Covered Trusts prior to such Covered Trust receiving any of its
intended share of such coverage. The obligations of the issuers of any credit
support will not be guaranteed or insured by the United States, or by any
agency or instrumentality thereof. A Series of Bonds may include a Class or
multiple Classes of Subordinate Securities to the extent described in the
related Prospectus Supplement. Although such subordination is intended to
reduce the risk of delinquent distributions or ultimate losses to Holders of
Senior Securities, the amount of subordination will be limited and will
decline under certain circumstances and any related Reserve Fund could be
depleted in certain circumstances. See "DESCRIPTION OF THE SECURITIES,"
"SECURITY FOR THE BONDS AND CERTIFICATES" and "ENHANCEMENT."
Overcollateralization and Subordination. To provide Bondholders and
Certificateholders with a degree of protection against loss, Mortgage Assets
having an Asset Value in excess of the principal amount of the Securities may
be pledged to secure a Series or deposited into the related Trust Fund, as
the case may be, or Excess Cash Flow may be applied to create
overcollateralization. Alternatively, a Series of Securities may include one
or more Classes of Subordinate Securities to the extent described in the
related Prospectus Supplement. Such overcollateralization or subordination
will be at amounts established by the Rating Agency rating the Series based
on an assumed level of defaults, delinquencies, other losses, application of
Excess Cash Flow or other factors. There can, however, be no assurance that
the loss experience on the Mortgage Assets securing the Securities will not
exceed such assumed levels, adversely affecting the ability of the Issuer to
meet debt service or distribution requirements on the Securities.
Although overcollateralization and subordination are intended to reduce
the risk of delinquent payments or losses to holders of Senior Securities,
the amount of overcollateralization or subordination, as the case may be,
will be limited and will decline under certain circumstances and any related
Reserve Fund could be depleted in certain circumstances.
Delinquent and Non-Performing Mortgage Loans. As set forth in the related
Prospectus Supplement, the Mortgage Pool for a particular Series may include,
as of the Cut-Off Date, REO Properties or Mortgage Loans that are past due or
are non-performing. If so specified in the related Prospectus Supplement,
management of such REO Properties or servicing with respect to such Mortgage
Loans will be transferred to the Special Servicer as of the Closing Date.
Enhancement provided with respect to a particular Series may not cover all
losses related to such delinquent or non-performing Mortgage Loans or to such
REO Properties. Investors should consider the risk that the inclusion of such
Mortgage Loans or such REO Properties in the Mortgage Pool may affect the
rate of defaults and prepayments on such Mortgage Pool and the yield on the
Securities of such Series. See "SECURITY FOR THE BONDS AND
CERTIFICATES--Mortgage Loans."
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Remedies Following Default. The market value of the Mortgage Assets
securing a Series will fluctuate as general interest rates fluctuate.
Following an Event of Default with respect to a Series of Bonds, there is no
assurance that the market value of the Mortgage Assets securing the Series,
will be equal to or greater than the unpaid principal and accrued interest
due on the Bonds of such Series, together with any other expenses or
liabilities payable thereon. If the Mortgage Assets securing a Series are
sold by the Trustee following an Event of Default, the proceeds of such sale
may be insufficient to pay in full the principal of and interest on such
Bonds. However, in certain events the Trustee may be restricted from selling
the Mortgage Assets securing a Series. See "THE INDENTURE--Events of
Default."
In addition, upon an Event of Default with respect to a Series and a
resulting sale of the Mortgage Assets securing such Bonds, unless otherwise
specified in the related Prospectus Supplement, the proceeds of such sale
will be applied, first, to the payment of certain amounts due to the Trustee,
second, to the payment of accrued interest on, and then to the payment of the
then Aggregate Outstanding Principal of, such Bonds (including interest on
and the Aggregate Outstanding Principal of any Residual Interest Bond) (as
specified in the related Prospectus Supplement), third, to the payment of the
remaining Administration Fee, if any, and, fourth, to the payment of any
additional amounts due the Issuer or to the holders of the Residual Interest
Bonds as applicable. Consequently, in the event of any such Event of Default
and sale of Mortgage Assets, any Classes on which principal payments have
previously been made may have, in the aggregate, a greater proportion of
their principal repaid than will Classes on which principal payments have not
previously been made.
In the event the principal of the Securities of a Series is declared due
and payable, the holders of any such Securities issued at a discount from par
("original issue discount") may be entitled, under applicable provisions of
the federal Bankruptcy Code, to receive no more than an amount equal to the
unpaid principal amount thereof less unamortized original issue discount
("accreted value"). There is no assurance as to how such accreted value would
be determined if such event occurred.
Enforceability. As specified in the related Prospectus Supplement, the
Mortgages may contain due-on-sale clauses, which permit the lender to
accelerate the maturity of the Mortgage Loan if the borrower sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Such clauses are generally enforceable subject to certain
exceptions.
As specified in the related Prospectus Supplement, the Mortgage Loans may
include a debt-acceleration clause, which permits the lender to accelerate
the debt upon a monetary or non-monetary default 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 any state, however, may
refuse to foreclose a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances would render
the acceleration unconscionable.
To the extent specified in the related Prospectus Supplement, the Mortgage
Loans will be secured by an assignment of leases and rents pursuant to which
the obligor typically assigns its right, title and interest as landlord under
the leases on the related Mortgaged Property and the income derived therefrom
to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In
the event the obligor defaults, the license terminates and the lender is
entitled to collect rents. Such assignments must usually be recorded to be
perfected as security interests. In addition, some state laws require that
the lender take possession of the Mortgaged Property and/or obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. See
also "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Anti-Deficiency
Legislation and Other Limitations on Lenders."
Environmental Risks. Real property pledged as security to a lender may be
subject to certain environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to assure
the costs of clean-up. In several states, such a lien has priority over the
lien of an existing mortgage against such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), a lender may be
liable, as an "owner" or "operator," for costs of addressing releases or
threatened
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releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the environmental
damage or threat was actually caused or exacerbated by the lender's agents or
employees. A lender also risks such liability on and following foreclosure of
the Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, the Servicing Agreement, Master Servicing Agreement or Special
Servicing Agreement, as applicable, provides that the Servicer, the Master
Servicer or the Special Servicer, as applicable, acting on behalf of the
Trust Estate, may not acquire title to a Mortgaged Property underlying a
Mortgage Loan or take over its operation unless the Servicer, the Master
Servicer or the Special Servicer, as applicable, has previously determined,
based upon a report prepared by a person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions as
are necessary to bring the Mortgaged Property in compliance therewith is
reasonably likely to produce a greater recovery on a present value basis than
not taking such actions and (ii) there are no circumstances or conditions
present that have resulted in any contamination or if such circumstances or
conditions are present for which such action could be required, taking such
actions with respect to the affected Mortgaged Property is reasonably likely
to produce a greater recovery on a present value basis than not taking such
actions. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Environmental
Matters."
ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans.
Due to the complexity of regulations which govern such plans, prospective
investors that are subject to ERISA are urged to consult their own counsel
regarding consequences under ERISA of acquisition, ownership and disposition
of the Securities of any Series. See "ERISA CONSIDERATIONS."
Certain Federal Tax Considerations Regarding Residual Interest Bonds and
Residual Interest Certificates. Holders of Residual Interest Bonds and
Residual Interest Certificates will be required to report on their federal
income tax returns as ordinary income their pro rata share of the taxable
income of the REMIC regardless of the amount or timing of their receipt of
cash payments as described in "FEDERAL INCOME TAX CONSIDERATIONS--Residual
Interests in a REMIC." Accordingly, under certain circumstances, holders of
Securities which constitute Residual Interest Bonds and Residual Interest
Certificates may have taxable income and tax liabilities arising from such
investment during a taxable year in excess of the cash received during such
period. The requirement that holders of Residual Interest Bonds and Residual
Interest Certificates report their pro rata share of the taxable income and
net loss of the REMIC will continue until the principal balances of all
Classes of Bonds or Certificates of the related Series have been reduced to
zero, even though holders of Residual Interest Bonds and Residual Interest
Certificates have received full payment of their stated interest and
principal. A portion (or, in certain circumstances, all) of a holder of a
Residual Interest Bond's or Residual Interest Certificate's share of the
REMIC taxable income may be treated as "excess inclusion" income to such
holder which (i) generally, will not be subject to offset by losses from
other activities, (ii) for a tax-exempt holder, will be treated as unrelated
business taxable income and (iii) for a foreign holder, will not qualify for
exemption from withholding tax. Individual holders of Securities constituting
Residual Interest Bonds and Residual Interest Certificates may be limited in
their ability to deduct servicing fees and other expenses of the REMIC. In
addition, Residual Interest Bonds and Residual Interest Certificates are
subject to certain restrictions on transfer. Because of the special tax
treatment of Residual Bonds, the taxable income arising in a given year on a
Residual Interest Bond and Residual Interest Certificates will not be equal
to the taxable income associated with investment in a corporate bond or
stripped instrument having similar cash flow characteristics and pre-tax
yield. Therefore, the after-tax yield on the Residual Interest Bond and
Residual Interest Certificates may be significantly less than that of a
corporate bond or stripped instrument having similar cash flow
characteristics, or may be negative.
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DESCRIPTION OF THE SECURITIES
GENERAL
The following summaries describe certain provisions common to each Series.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the provisions of the Indenture
or Trust Agreement and the Prospectus Supplement relating to each Series.
When particular provisions or terms used in the Indenture or Trust Agreement
are referred to, such provisions or terms shall be as specified in the
Indenture or Trust Agreement.
THE BONDS--GENERAL
The Bonds will be issued in Series pursuant to a Trust Indenture between
the Company and Bankers Trust or Marine Midland (or another bank or trust
company qualified under the TIA and named in the related Prospectus
Supplement for a Series), as Trustee, or a Trust and the Trustee, each as
supplemented by or as incorporated by reference by a Series Supplement with
respect to each Series. A copy of the form of Trust Indenture has been filed
with the Commission as an exhibit to the Registration Statement of which the
Prospectus forms a part. A copy of the Series Supplement for a Series, if
any, will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of issuance of the
Bonds of the related Series.
The Indenture does not limit the amount of Bonds that can be issued
thereunder and provides that any Series may be issued thereunder up to the
aggregate principal amount specified in the related Series Supplement that
may be authorized from time to time by the Issuer. Each Series will consist
of one or more Classes, one or more of which may be Compound Interest
Securities, Variable Interest Securities, Individual Investor Securities,
Planned Amortization Class Securities, Zero Coupon Securities, Principal Only
Securities, Interest Only Securities or Participating Securities. A Series
may also include one or more Classes of Subordinate Securities. If so
specified in related Prospectus Supplement, such Subordinate Securities may
be offered hereby and by the related Prospectus Supplement. Each Class of a
Series will be issued in registered or bearer form, as designated in the
related Prospectus Supplement for a Series, in the minimum denominations
specified in the related Prospectus Supplement. See "--Bearer Securities and
Registered Securities." Bonds of a Series may be issued in whole or part in
book-entry form. The transfer of the Bonds may be registered and the Bonds
may be exchanged without the payment of any service charge payable in
connection with such registration of transfer or exchange.
Payments of principal of and interest on the Bonds which are registered
securities will be made by the Trustee, or if the Trustee is not the paying
agent, the Paying Agent. Payments of principal of and interest on a Series
will be made on the Payment Dates specified in the related Prospectus
Supplement, to Bondholders of such Series registered as such on the close of
business on the record date specified in the related Prospectus Supplement at
their addresses appearing on the Bond Register. All payments will be made by
check mailed to the Bondholder or by wire transfer to accounts maintained by
such Bondholder as specified in the related Prospectus Supplement, except
that final payments of principal in retirement of each Bond will be made only
upon presentation and surrender of such Bond at the office of the New York
Presenting Agent. Notice will be mailed to the holder of such Bond before the
Payment Date on which the final principal payment in retirement of the Bond
is expected to be made.
The Trustee will include with each payment on a Bond a statement showing
among other things, the allocation of such payment to interest, if any, and
principal, if any, and the remaining unpaid principal amount of a Bond of
each Class having the minimum denomination for Bonds of such Class of that
Series, the amount of Advances made by the Primary Servicer, the amount of
servicing compensation paid with respect to the Mortgage Assets, the
aggregate principal balance of delinquent, foreclosed Mortgage Loans and REO
Property, the realized losses for the Mortgage Assets, if applicable, the
number and aggregate principal balance of Deleted and Substitute Mortgage
Loans, and on each Payment Date prior to the commencement of principal
payments on a Class of Compound Interest Bonds, the aggregate unpaid
principal amount of each Class of Bonds, the interest accrued since the prior
Payment Date and added to the principal of a Compound Interest Bond having
the minimum denomination for Bonds of such Class and the new principal
balance of such Bond.
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THE CERTIFICATES--GENERAL
The Certificates will be issued in Series pursuant to separate Trust
Agreements between the Depositor and Bankers Trust or Marine Midland (or
another bank or trust company qualified under the TIA and named in the
Prospectus Supplement for a Series). A form of Trust Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The Trust Agreement relating to each Series of Certificates will be
filed as an exhibit to a report on Form 8-K to be filed with the Commission
within 15 days following the issuance of such Series of Certificates. The
following summaries describe certain provisions common to each Series of
Certificates. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Trust Agreement and the Prospectus Supplement relating to each Series of
Certificates. When particular provisions or terms used in the Trust Agreement
are referred to, such provisions or terms shall be as specified in the Trust
Agreement.
Each Series of Certificates will consist of one or more Classes, one or
more of which may consist of Compound Interest Securities, Variable Interest
Securities, Interest Only Certificates, Principal Only Certificates, Zero
Coupon Securities or Planned Amortization Class Securities ("PACs"). A Series
of Certificates may also include one or more Classes of Subordinate
Securities.
Each Series will be issued in fully registered form or bearer form, in the
minimum original amount or notional amount for Certificates of each Class
specified in the related Prospectus Supplement. The transfer of the
Certificates may be registered, and the Certificates may be exchanged,
without the payment of any service charge payable in connection with such
registration of transfer or exchange. If specified in the related Prospectus
Supplement, one or more Classes of a Series may be available in book-entry
form only. See "--Bearer Securities and Registered Securities."
Commencing on the date specified in the related Prospectus Supplement,
distributions of principal and interest on the Certificates will be made on
each Distribution Date as set forth in the related Prospectus Supplement.
Distribution of principal of and interest on Certificates of a Series in
registered form will be made by check mailed to Certificateholders of such
Series registered as such on the close of business on the record date
specified in the related Prospectus Supplement at their addresses appearing
on the Certificate Register, except that (a) distributions may be made by
wire transfer (at the expense of the Certificateholder requesting payment by
wire transfer) in certain circumstances described in the related Prospectus
Supplement and (b) the final distribution in retirement of a Certificate will
be made only upon presentation and surrender of such Certificate at the
corporate trust office of the Trustee for such Series or such other office of
the Trustee as specified in the Prospectus Supplement. Notice of the final
distribution on a Certificate will be mailed to the Holder of such
Certificate before the Distribution Date on which such final distribution in
retirement of the Certificate is expected to be made.
The Trustee will include with each distribution on a Certificate a
statement showing among other things, the allocation of such payment to
interest, if any, and principal, if any, and the remaining unpaid principal
amount of a Certificate of each Class having the minimum denomination for
Certificates of such Class of that Series, the amount of Advances made by the
Primary Servicer, the amount of servicing compensation paid with respect to
the Mortgage Assets, the aggregate principal balance of delinquent,
foreclosed Mortgage Loans and REO Property, the realized losses for the
Mortgage Assets, if applicable, the number and aggregate principal balance of
Deleted and Substitute Mortgage Loans, and on each Distribution Date prior to
the commencement of principal payments on a Class of Compound Interest
Securities, the aggregate unpaid principal amount of each Class of
Certificates, the interest accrued since the prior Distribution Date and
added to the principal of a Compound Interest Certificate having the minimum
denomination for Certificates of such Class and the new principal balance of
such Certificate. See "THE TRUST AGREEMENT--Reports to Certificateholders."
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BEARER SECURITY AND REGISTERED SECURITIES
Unless otherwise provided with respect to a Series of Securities, the
Securities will be issuable as registered securities without coupons. If so
provided with respect to a Series of Securities, Securities of such Series
will be issuable solely as bearer securities with coupons attached or as both
registered securities and bearer securities. Any such bearer securities will
be issued in accordance with U.S. tax and securities laws then applicable to
the sale of such securities.
Unless applicable law at the time of issuance of any bearer securities
provides otherwise, in connection with the sale during the "restricted
period' as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States
Treasury Regulations (generally, the first 40 days after the Closing Date
and, with respect to unsold allotments, until sold) no bearer security shall
be mailed or otherwise delivered to any location in the United States (as
defined under "LIMITATIONS ON ISSUANCE OF BEARER SECURITIES"). A bearer
security in definitive form may be delivered only if the Person entitled to
receive such bearer security furnishes written certification, in the form
required by the Indenture, to the effect that such bearer security is not
owned by or on behalf of a United States person (as defined under
"LIMITATIONS ON ISSUANCE OF BEARER SECURITIES"), or, if a beneficial interest
in such bearer security is owned by or on behalf of a United States person,
that such United States person (i) acquired and holds the bearer security
through a foreign branch of a United States financial institution, (ii) is a
foreign branch of a United States financial institution purchasing for its
own account or resale (and in either case (i) or (ii), such financial
institution agreed to comply with the requirements of Section 165(j)(3)(A),
(B), or (C) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder) or (iii) is a financial institution purchasing for
resale during the restricted period only to non-United States persons outside
the United States. See "LIMITATION ON ISSUANCE OF BEARER SECURITIES."
Registered securities of any Series (other than in book-entry form) will
be exchangeable for other registered securities of the same Series and of a
like aggregate principal amount and tenor but of different authorized
denominations. In addition, if specified in the related Prospectus
Supplement, if Securities of any Series are issuable as both registered
securities and as bearer securities, at the option of the Holder, upon
request confirmed in writing, and subject to the terms of the Indenture or
Trust Agreement, as the case may be, bearer securities (with all unmatured
coupons, except as provided below, and all matured coupons in default) of
such Series will be exchangeable into registered securities of the same
Series of any authorized denominations and of a like aggregate principal
amount and tenor. Unless otherwise indicated in an applicable Prospectus
Supplement, any bearer security surrendered in exchange for a registered
security between the relevant record date and the relevant date for payment
of interest shall be surrendered without the coupon relating to such date for
payment of interest and interest will not be payable in respect of the
registered security issued in exchange for such bearer security, but will be
payable only to the holder of such coupon when due in accordance with the
terms of the Indenture or Trust Agreement, as the case may be. Except as
provided in an applicable Prospectus Supplement, bearer securities will not
be issued in exchange for registered securities. If Securities of a Series
are issuable as bearer securities, the Issuer will be required to maintain a
transfer agent for such Series outside the United States.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
or distribution of principal of and interest on bearer securities will be
payable or distributable, subject to any applicable laws and regulations, at
the offices of such Paying Agents outside the United States as the Issuer may
designate from time to time by check or by wire transfer, at the option of
the holder, to an account maintained by the payee with a bank located outside
the United States. Unless otherwise indicated in an applicable Prospectus
Supplement, payment or distribution of interest on bearer securities on any
Payment Date or Distribution Date, as applicable, will be made only against
surrender of the coupon relating to such Payment Date or Distribution Date,
as applicable. No payment or distribution of interest on a bearer security
will be made unless on the earlier of the date of the first such payment by
the Paying Agent or the delivery by the Issuer of the bearer security in
definitive form (the "Certification Date"), a written certificate in the form
and to the effect described above is provided to the Issuer. No payment or
distribution with respect to any bearer security will be made at any office
or agency in the United States or by check mailed to any address in the
United States or by transfer to an account maintained with a
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bank located in the United States. Notwithstanding the foregoing, payment or
distribution of principal of and interest on bearer securities denominated
and payable in U.S. dollars will be made at the office of the Issuer's Paying
Agent in the Borough of Manhattan, The City of New York if, and only if,
payment of the full amount thereof in U.S. dollars at all offices or agencies
outside the United States is illegal or effectively precluded by exchange
controls or other similar restrictions.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Securities will
be issued in book-entry form in the minimum denominations specified in such
Prospectus Supplement and integral multiples thereof, and each Class will be
represented by one or more single Securities registered in the name of the
nominee of the depository, The Depository Trust Company ("DTC"), a
limited-purpose trust company organized under the laws of the State of New
York. Unless otherwise specified in the related Prospectus Supplement, no
person acquiring an interest in book-entry Securities (a "Securities Owner")
will be entitled to receive Securities representing such person's interest in
the Securities except in the event that Definitive Securities (as defined
herein) are issued under the limited circumstances set forth below. Unless
and until Definitive Securities are issued, it is anticipated that the only
holder of book-entry Securities will be Cede & Co., as nominee of DTC.
Securities Owners will not be "Holders," "Bondholders" or
"Certificateholders" under the Indenture or Trust Agreement, as applicable,
and Securities Owners will only be permitted to exercise the rights of
Bondholders or Certificateholders, as applicable, indirectly through DTC and
its Participants.
DTC was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is
available to entities that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect Participants").
Securities Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of book-entry
Securities may do so only through Participants and Indirect Participants.
Because DTC can only act on behalf of Participants and Indirect Participants,
the ability of a Securities Owner to pledge such owner's interest in a
book-entry Security to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest in a book-entry
Security, may be limited. In addition, under a book-entry format, Securities
Owners may experience some delay in their receipt of principal and interest
distributions with respect to the book-entry Securities since such
distributions will be forwarded to DTC and DTC will then forward such
distributions to its Participants which in turn will forward them to Indirect
Participants or Securities Owners.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the book-entry
Securities and is required to receive and transmit principal and interest
distributions and other distributions with respect to the book-entry
Securities. Participants and Indirect Participants with which Securities
Owners have accounts with respect to book-entry Securities similarly are
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Securities Owners. Accordingly,
although Securities Owners will not possess book-entry Securities, the Rules
provide a mechanism by which Securities Owners will receive distributions and
will be able to transfer their interests.
The Issuer understands that DTC will take any action permitted to be taken
by a Bondholder or Certificateholder under the Indenture or Trust Agreement,
as applicable, only at the direction of one or more Participants to whose
account with DTC ownership of the book-entry Securities is credited.
Additionally, the Issuer understands that DTC will take such actions with
respect to Securities Owners who are holders of a certain specified interest
in book-entry Securities or holders having a certain specified voting
interest only at the direction of and on behalf of Participants whose
holdings represent that specified interest or voting interest. DTC may take
conflicting actions with respect to other Securities Owners to the extent
that such actions are taken on behalf of Participants whose holdings
represent that specified interest or voting interest.
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Unless otherwise specified in the related Prospectus Supplement,
Securities of a Series issued initially in book-entry form only will be
issued in fully registered, certificated form ("Definitive Securities") to
Securities Owners, rather than to DTC, only if (i) DTC advises the Trustee in
writing that DTC is no longer willing or able properly to discharge its
responsibilities as depository with respect to the Securities, and the Issuer
is unable to locate a qualified successor, (ii) the Issuer, at its sole
option, elects to terminate the book-entry system through DTC or (iii) after
the occurrence of an Event of Default under the Indenture or Trust Agreement,
as applicable, Bond owners representing a majority of the aggregate
outstanding principal amount of the Securities advise DTC through
Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of Securities
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Securities. Upon surrender by DTC of
the Securities registered in the name of its nominee and instructions for
registration, the Trustee will issue all, but not less than all, of the
principal amount of the formerly DTC-held Securities then outstanding in the
form of Definitive Securities, and thereafter the Trustee will recognize the
holders of such Definitive Securities as Bondholders under the Indenture, or
Certificateholders under the Trust Agreement, as applicable.
VALUATION OF MORTGAGE ASSETS
If stated in the applicable Prospectus Supplement, each item of Mortgage
Assets securing a Series, or comprising the Trust Fund, as the case may be,
will be assigned an initial Asset Value determined in the manner and subject
to the assumptions specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, the aggregate of the Asset
Values of the Mortgage Assets pledged to secure a Series or comprising the
Trust Fund, as the case may be, will not be less than the initial Aggregate
Outstanding Principal of the related Series at the date of issuance thereof.
With respect to the Mortgage Assets pledged to collateralize the Bonds of
a Series, or comprising the Trust Fund, as the case may be, as of any date,
the Aggregate Asset Value, unless otherwise specified in the related
Prospectus Supplement, shall be equal to the aggregate of the Asset Values
for each Mortgage Loan or Private Mortgage-Backed Security or other Mortgage
Assets in the Trust Estate or Trust Fund, as applicable, for a Series of
Securities plus the amount, if any, remaining in the Collection Account and
any other Pledged Fund or Account subsequent to an initial deposit therein on
the Delivery Date, together with Reinvestment Income thereon, if any, at the
Assumed Reinvestment Rate, if any.
There are a number of alternative means of determining Asset Value of the
Mortgage Assets, including determinations based on the discounted present
value of the remaining scheduled payments on such Mortgage Assets,
determinations based on the relationship between the interest rate borne by
such Mortgage Assets and the Bond Interest Rate or Rates or Certificate
Interest Rate or Rates for the related Classes of Securities, or based upon
the aggregate outstanding principal balances of the Mortgage Assets. If
applicable, the Prospectus Supplement for a Series will specify the method or
methods and summarize the related assumptions used to determine the Asset
Values of the Mortgage Assets for such Series of Securities.
The Assumed Reinvestment Rate, if any, for a Series will be the rate on
which amounts deposited in the Collection Account will be assumed to accrue
interest or a rate insured or guaranteed by means of a surety bond,
Guaranteed Investment Contract, or similar arrangement. If the Assumed
Reinvestment Rate is insured or guaranteed, the related Prospectus Supplement
will set forth the terms of such arrangement.
PAYMENTS OR DISTRIBUTIONS OF INTEREST
Each Class of a Series (other than a Class of Zero Coupon Securities or
Principal Only Securities) will accrue interest at the rate per annum
specified, or in the manner determined and set forth, in the related
Prospectus Supplement (calculated on the basis of a 360-day year of twelve
30-day months, unless otherwise specified in the related Prospectus
Supplement). Interest on all Securities which accrue interest,
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other than Compound Interest Securities, will be due and payable on the
Payment Dates or Distribution Dates specified in the related Prospectus
Supplement. However, failure to pay interest on a current basis may not
necessarily be an Event of Default with respect to a particular Series of
Securities. Unless otherwise specified in the related Prospectus Supplement,
payment of interest on a Class of Compound Interest Securities will commence
only following the Accrual Termination Date. Prior to such time, interest on
such Class of Compound Interest Securities will accrue and the amount of
interest so accrued will be added to the principal thereof on each Payment
Date or Distribution Date. Following the applicable Accrual Termination Date,
interest payments will be made on such Class on the Compound Value of such
Class. The Compound Value of a Class of Compound Interest Securities equals
the original principal amount of the Class, plus accrued and unpaid interest
added to such Class through the immediately preceding Payment Date or
Distribution Date, less any principal payments previously made on that Class,
and if specified in the related Prospectus Supplement, losses allocable
thereto. Each payment of interest on each Class of Securities (or addition to
principal of a Class of Compound Interest Securities) on a Payment Date or
Distribution Date will include all interest accrued during the related
Interest Accrual Period preceding such Payment Date or Distribution Date,
which Interest Accrual Period will end on the day preceding each Payment Date
or Distribution Date or such earlier date as may be specified in the related
Prospectus Supplement. If the Interest Accrual Period for a Series ends on a
date other than a Payment Date or Distribution Date for such Series, the
yield realized by the holders of such Securities may be lower than the yield
that would result if the Interest Accrual Period ended on such Payment Date
or Distribution Date. Additionally, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
Classes may be calculated on the assumption that principal payments (and
additions to principal of the Securities), and allocations of losses on the
Primary Assets (if so specified in the related Prospectus Supplement), are
made on the first day of the preceding Interest Accrual Period and not on the
Payment Date or Distribution Date for such preceding Interest Accrual Period
when actually made or added. Such method would produce a lower effective
yield than if interest were calculated on the basis of the actual principal
amount outstanding.
To the extent provided in the related Prospectus Supplement, a Series may
include one or more Classes of Variable Interest Securities. The Variable
Interest Rate of Variable Interest Securities will be a variable or
adjustable rate, subject to a Maximum Variable Interest Rate and a Minimum
Variable Interest Rate. It is the Issuer's present intention, subject to
changing market conditions, that the Variable Interest Rate formula or index
be based on an established financial index in the national or international
financial markets. The Variable Interest Payment Dates or Variable Interest
Distribution Dates, as applicable, for Variable Interest Securities will be
set forth in the related Prospectus Supplement and need not be the same as
the Payment Dates or Distribution Dates for other Securities in such Series,
but may be either more or less frequent. Unless otherwise specified in the
related Prospectus Supplement or herein, references to Payment Date or
Distribution Dates include Variable Interest Payment Dates or Variable
Interest Distribution Dates, as applicable. For each Class of Variable
Interest Securities, the related Prospectus Supplement will set forth the
initial Bond Interest Rate or Certificate Interest Rate, as applicable, (or
the method of determining it), the Variable Interest Period and the formula,
index or other method by which the Bond Interest Rate or Certificate Interest
Rate, as applicable, for each Variable Interest Period will be determined.
Interest Only Securities or Interest Weighted Securities, among others,
may be assigned a "Notional Amount" which is used solely for convenience in
expressing the calculation of interest and for certain other purposes. Unless
otherwise specified in the related Prospectus Supplement, the Notional Amount
will be determined at the time of issuance of such Securities based on the
principal balances or Bond Value of the Mortgage Loans attributable to the
Securities of a Series entitled to receive principal, and will be adjusted
monthly over the life of the Securities based upon adjustments to the Asset
Value or principal amounts of such Mortgage Loans. Reference to the Notional
Amount is solely for convenience in certain calculations and does not
represent the right to receive any distributions allocable to principal.
If so specified in the related Prospectus Supplement, if funds in the
Collection Account are insufficient to make required payments of interest to
Bondholders or Certificateholders on any Payment Date or Distribution Date,
as applicable, amounts available for payment to the Bondholders or
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Certificateholders of each Class will be allocated pro rata in the proportion
in which the outstanding principal balance of each Bond or Certificate bears
to the aggregate outstanding principal balance of all Bonds or Certificates
of such Class, except that Subordinate Bondholders or Subordinate
Certificateholders, if any, will not, unless otherwise specified in the
related Prospectus Supplement, receive any payments of interest on the
Subordinate Bonds or Subordinate Certificates until Senior Bondholders or
Senior Certificateholders receive payments of interest due them (in each case
as described in the related Prospectus Supplement).
PAYMENTS OR DISTRIBUTIONS OF PRINCIPAL
On each Payment Date or Distribution Date for a Series, the Issuer will
make principal payments to the holders of the Securities of such Series on
which principal is then due and payable. Payments of principal on a Series
will be allocated among Classes of such Series in the order of priority and
amounts specified in the related Prospectus Supplement. All payments or
distributions of principal of Securities of a Class will be applied either on
a pro rata or random lot basis, as specified in the related Prospectus
Supplement.
Except as specified otherwise in the related Prospectus Supplement, the
total amount of principal payments or distributions required to be made on
the Securities of any Series on a Payment Date or Distribution Date (the
"Principal Payment Amount") will be determined as specified in the related
Prospectus Supplement. If the Series of Bonds has a Class of PAC Securities,
such PAC Securities will have certain priorities of payment with respect to
principal to the extent of certain targeted amounts with respect to each
Payment Date or Distribution Date, as set forth in the related Prospectus
Supplement. There can be no assurance that the Principal Payment Amount on
any Payment Date or Distribution Date will be sufficient to pay in full the
PAC Amount payable on such Payment Date or Distribution Date. The failure to
pay in full the PAC Amount payable on a Payment Date or Distribution Date
shall not constitute an Event of Default under the Indenture or Trust
Agreement.
If so specified in the related Prospectus Supplement, on any Payment Date
or Distribution Date on which the principal balance of the Mortgage Assets is
reduced due to losses on the Mortgage Assets, (i) the amount of such losses
will be allocated first, to reduce the Aggregate Outstanding Principal of the
Subordinate Bonds or Subordinate Certificates or other subordination, if any,
and, thereafter, to reduce the Aggregate Outstanding Principal of the
remaining Securities in the priority and manner specified in such Prospectus
Supplement until the Aggregate Outstanding Principal of each Class of
Securities so specified has been reduced to zero or paid in full, thus,
reducing the amount of principal payable on each such Class of Securities or
(ii) such losses may be allocated in any other manner set forth in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, such reductions of principal of a Class or Classes of
Securities shall be allocated to the holders of the Securities of such Class
or Classes pro rata in the proportion which the outstanding principal of each
Security of such Class or Classes bears to the Aggregate Outstanding
Principal of all Securities of such Class.
One or more Classes of a Series may consist of Subordinate Bonds or
Subordinate Certificates. Subordinate Bonds or Subordinate Certificates may
be included in a Series to provide credit support as described herein under
"ENHANCEMENT" in lieu of or in addition to other forms of credit support. The
extent of subordination of a Class of Subordinate Bonds or Subordinate
Certificates may be limited as described in the related Prospectus
Supplement. See "ENHANCEMENT." If the Mortgage Assets are divided into
separate Mortgage Groups securing separate Classes of a Series, credit
support may be provided by a cross-support feature which requires that
distributions be made to Senior Bonds or Senior Certificates secured by one
Mortgage Group prior to making distributions on Subordinate Bonds or Senior
Certificates secured by another Mortgage Group within the Trust Estate or
Trust Fund. Subordinate Bonds or Subordinate Certificates will be offered
hereby and by the related Prospectus Supplement so long as such Bonds or
Certificates are rated in one of the four highest rating categories by at
least one Rating Agency.
SPECIAL REDEMPTION
If specified in the related Prospectus Supplement, the Bonds of a Series
may be subject to special redemption on the day of any month specified
therein if, as a result of the prepayment experience on the
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Mortgage Assets securing such Bonds or the low yield available for
reinvestment or both, the Trustee determines (based on assumptions specified
in the Indenture and after giving effect to the amounts, if any, available to
be withdrawn from any Reserve Fund for such Series) that the amount
anticipated to be available in the Collection Account on the date specified
in the related Prospectus Supplement for such Series, is anticipated to be
insufficient to pay debt service on the Bonds of such Series on such Payment
Date. The principal amount of Bonds of such Series required to be so redeemed
will not exceed the Principal Payment Amount otherwise required to be paid on
the next Payment Date. Therefore, the primary result of such a special
redemption of Bonds is payment of principal prior to the next scheduled
Payment Date.
To the extent described in the related Prospectus Supplement, Bonds of a
Series may be subject to special redemption in whole or in part following
certain defaults under an Enhancement Agreement and, in certain other events,
at the Redemption Price.
All payments of principal pursuant to any special redemption will be made
in the order of priority and in the manner specified in the related
Prospectus Supplement. Notice of any special redemption will be mailed by the
Issuer or the Trustee prior to the Special Redemption Date. Unless otherwise
specified in the related Prospectus Supplement, the Redemption Price for any
Bonds so redeemed will be equal to 100% of the principal amount of such Bonds
(or 100% of the Compound Value of any Compound Interest Securities) or
portions thereof so redeemed, together with interest accrued thereon to the
date specified in the related Prospectus Supplement.
In the event that Mortgage Assets having an Aggregate Bond Value at least
equal to the original Aggregate Outstanding Principal of a Series is not
pledged and delivered to the Trustee on the related Closing Date, the Issuer
will deposit cash or Eligible Investments on an interim basis with the
Trustee on such Closing Date in lieu of such Undelivered Mortgage Assets. If
Mortgage Assets are not subsequently delivered within 90 days of issuance of
the Bonds, the amount of such deposit corresponding to principal may be used
to pay a corresponding amount of principal of the Bonds to the extent set
forth, and on the Payment Dates specified, in the Prospectus Supplement.
OPTIONAL REDEMPTION
The Issuer, or such other Person specified in the related Prospectus
Supplement, may, at its option and if so specified in the related Prospectus
Supplement, redeem, in whole or in part, one or more Classes of any Series on
any Payment Date for such Series on or after the dates, if any, specified in
such Prospectus Supplement. Notice of such redemption will be given by the
Issuer or Trustee prior to the Redemption Date. In the case of a REMIC, the
Issuer may effect an optional redemption only if it obtains an opinion of
counsel that such redemption, or any contribution made to the REMIC in
connection with such redemption, will not cause the REMIC to fail to qualify
as such or cause the REMIC to be subject to tax. The Redemption Price for any
Bond so redeemed will be equal to 100% of the outstanding principal amount of
such Bond, together with interest accrued thereon to the date specified in
the related Prospectus Supplement.
MANDATORY REDEMPTION
If specified in the related Prospectus Supplement, Bonds of one or more
Classes of a Series ("Individual Investor Bonds") may be subject to mandatory
redemption by lot or by such other method set forth in the Prospectus
Supplement. Except as otherwise specified in the related Prospectus
Supplement, no Bonds of a particular Class will be redeemed until all Bonds
in each Class having a higher priority of redemption have been paid in full.
Residual Interest Bonds will not be redeemed except in connection with the
liquidation of the applicable REMIC, in which event the Residual Interest
Bonds of the applicable Series will be redeemed in full.
Individual Investor Bonds within a Class will be selected for redemption
by random lot in $1,000 units after all redemptions requested by holders of
Individual Investor Bonds in the Class have been made or by such other method
set forth in the Prospectus Supplement. Procedures relating to optional
redemptions requested by holders of Individual Investor Bonds and to
mandatory redemptions by the
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Issuer of Individual Investor Bonds, and the Class priorities, if any, and
conditions with respect to such redemptions, will be described in the related
Prospectus Supplement.
OPTIONAL TERMINATION
If so specified in the related Prospectus Supplement for a Series, the
Depositor, the Servicer, or another entity designated in the related
Prospectus Supplement may, at its option, cause an early termination of a
Trust Fund by repurchasing all of the Mortgage Assets from such Trust Fund on
or after a date specified in the related Prospectus Supplement, or on or
after such time as the aggregate outstanding principal amount of the
Certificates is less than a specified percentage of their initial aggregate
principal amount. In the case of a Trust Fund for which a REMIC election has
been made, the Trustee shall receive a satisfactory opinion of counsel that
the repurchase price will not jeopardize the status of the REMIC and that the
optional termination will be conducted so as to constitute a "qualified
liquidation" under Section 860F of the Code. See "THE TRUST
AGREEMENT--Termination."
OPTIONAL REPURCHASE OF CERTIFICATES
If so specified in the related Prospectus Supplement for a Series, one or
more Classes of the Certificates of such Series may be repurchased, in whole
or in part, at the option of the Depositor, at such times and under the
circumstances specified in such Prospectus Supplement. Notice of any such
repurchase must be given by the Trustee prior to the optional repurchase
date, as specified in the related Prospectus Supplement. The repurchase price
for any Certificate so repurchased will be set forth in the related
Prospectus Supplement.
OTHER REPURCHASES
If so specified in the related Prospectus Supplement for a Series, any
Class of the Certificates of such Series may be subject to repurchase at the
request of the holders of such Class or to mandatory repurchase by the
Depositor. Any such redemption at the request of holders or mandatory
repurchase with respect to a Class of a Series of the Certificates will be
described in the related Prospectus Supplement and will be on such terms and
conditions as described therein.
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YIELD AND PREPAYMENT CONSIDERATIONS
TIMING OF PAYMENT OR DISTRIBUTION OF INTEREST AND PRINCIPAL
Each payment or distribution of interest on the Securities (or addition to
principal of a Class of Compound Interest Securities) on a Payment Date or
Distribution Date will include all interest accrued during the Interest
Accrual Period specified in the related Prospectus Supplement preceding such
Payment Date or Distribution Date. If the Interest Accrual Period for a
Series ends on a date other than a Payment Date or Distribution Date for such
Series, the yield realized by the holders of such Securities may be lower
than the yield that would result if the Interest Accrual Period ended on such
Payment Date or Distribution Date. Additionally, if so specified in the
related Prospectus Supplement, interest accrued for an Interest Accrual
Period for one or more Classes may be calculated on the assumption that
principal payments or distributions (and additions to principal of the
Securities) and allocations of losses on the Mortgage Assets are made on the
first day of the preceding Interest Accrual Period and not on the Payment
Date or Distribution Date with respect to such preceding Interest Accrual
Period. Such method would produce a lower effective yield than if interest
were calculated on the basis of the actual principal amount outstanding
during such Interest Accrual Period.
PRINCIPAL PREPAYMENTS
The yield to maturity or final distribution on the Securities will be
affected by the rate of principal payments on the Mortgage Loans (including
principal prepayments resulting from both voluntary prepayments by the
Mortgagors and involuntary liquidations). The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, tax, legal and other factors. The rate of principal payments or
distributions on the Securities will correspond to the rate of principal
payments on the Mortgage Assets. Principal prepayments on the Mortgage Assets
are likely to be affected by the existence of provisions prohibiting
prepayment of a Mortgage Loan underlying or comprising the Mortgage Assets
for a defined period of time (a "Lock-Out Period") or provisions requiring
the payment of a prepayment premium in the event of a prepayment (a "Yield
Maintenance Payment"), and by the extent to which the Primary Servicer is
able to enforce such provisions. Mortgage Loans with a Lock-Out Period or a
Yield Maintenance Payment, to the extent enforceable, generally would be
expected to experience a lower rate of principal prepayments than otherwise
identical Mortgage Loans without such provisions, with shorter Lock-Out
Periods or with lower Yield Maintenance Payments.
If the purchaser of a Security offered at a discount calculates its
anticipated yield to maturity or final distribution based on an assumed rate
of distributions of principal that is faster than that actually experienced
on the Mortgage Loans, the actual yield to maturity or final distribution
will be lower than that so calculated. Conversely, if the purchaser of a
Security offered at a premium calculates its anticipated yield to maturity or
final distribution based on an assumed rate of distributions of principal
that is slower than that actually experienced on the Mortgage Loans, the
actual yield to maturity or final distribution will be lower than that so
calculated.
The timing of changes in the rate of principal prepayments on the Mortgage
Loans may significantly affect an investor's actual yield to maturity, even
if the average rate of distributions of principal is consistent with an
investor's expectation. In general, the earlier a principal prepayment is
received on the Mortgage Loans and paid on an investor's Securities, the
greater the effect on such investor's yield to maturity or final
distribution. The effect on an investor's yield of principal payments or
distributions occurring at a rate higher (or lower) than the rate anticipated
by the investor during a given period may not be offset by a subsequent like
decrease (or increase) in the rate of principal payments or distributions.
PREPAYMENTS AND WEIGHTED AVERAGE LIFE
The Stated Maturity for a Class is the date specified in the related
Prospectus Supplement, calculated on the basis of the assumptions applicable
to such Series set forth therein, no later than which the entire Aggregate
Outstanding Principal thereof will be fully paid.
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The rate of return on reinvestment of distributions of principal and
interest on the Mortgage Assets securing a Series, the rates at which
principal payments are received on such Mortgage Assets and the rate at which
payments are made from any Reserve Fund or other Enhancement for such Series
may affect the ultimate maturity of each Class of such Series. Prepayments on
the Mortgage Assets will accelerate the rate at which principal is paid or
distributed on the Securities. High reinvestment rates tend to increase the
amount of Excess Cash Flow, which, to the extent applied to principal
payments or distributions on the Securities, will accelerate principal
payments or distributions on such Securities.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of
the Securities of a Series will be influenced by the rate at which principal
on the Mortgage Loans comprising or underlying the Mortgage Assets pledged as
security for such Bonds, or deposited in the Trust Fund, as the case may be,
is paid, which may be in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes prepayments, in whole or in
part, and liquidations due to default).
The rate of principal prepayments on pools of mortgages is influenced by a
variety of economic, demographic, geographic, tax, legal and other factors.
The rate of prepayments of housing loans has fluctuated significantly in
recent years. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans comprising or
underlying the Mortgage Assets pledged as security for a Series, such
Mortgage Loans are likely to be the subject of higher principal prepayments
than if prevailing rates remain at or above the rates borne by such
mortgages. In this regard, it should be noted that certain Mortgage Assets
pledged as security for a Series may be backed by Mortgage Loans with
different interest rates and the stated pass-through or pay-through interest
rate of certain Mortgage Assets may be a number of percentage points less
than the underlying Mortgage Loans. In addition, the weighted average life of
the Securities may be affected by the varying maturities of the Mortgage
Loans comprising or underlying the Mortgage Assets. If any Mortgage Loans
comprising or underlying the Mortgage Assets for a Series have actual terms
to maturity of less than those assumed in calculating Stated Maturity or the
Final Scheduled Distribution Date, one or more Classes of the Series may be
fully paid prior to their respective Stated Maturities or the Final Scheduled
Distribution Dates, even in the absence of prepayments and a reinvestment
return higher than the Assumed Reinvestment Rate, if any. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of interest rates and maturities of the Mortgage Loans
comprising or underlying such Mortgage Assets. See "SECURITY FOR THE BONDS
AND CERTIFICATES."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model or the Standard Prepayment Assumption ("SPA") prepayment model, each as
described below. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans
for the life of such loans. SPA represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans.
A prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the 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 purports
to be a historical description of prepayment experience or a prediction of
the anticipated rate of prepayment of any pool of loans, including the
Mortgage Loans underlying or comprising the Mortgage Assets. Thus, it is
likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular level of
CPR or SPA.
The Issuer is not aware of any publicly available statistics that set
forth prepayment experience or prepayment forecasts of commercial or
multifamily mortgage loans over an extended period of time.
Except with respect to Interest Only Securities, the Prospectus Supplement
will contain tables setting forth the projected weighted average life of each
Class of such Series and the percentage of the original
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principal amount of each Class of such Series that would be outstanding on
specified Payment Dates or Distribution Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Mortgage Loans comprising or underlying the related
Mortgage Assets are made at rates corresponding to various percentages of
CPR, SPA or at such other rates specified in such Prospectus Supplement. Such
tables and assumptions are intended to illustrate the sensitivity of weighted
average life of the Securities to various prepayment rates and will not be
intended to predict or to provide information which will enable investors to
predict the actual weighted average life of the Securities or prepayment
rates of the Mortgage Loans comprising or underlying the related Mortgage
Assets. It is unlikely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any Series will conform to any particular
level of CPR, SPA or any other rate specified in the related Prospectus
Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Loan. Mortgage Loans comprising or underlying the
Mortgage Assets may consist of ARMs. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. ARMs may be subject to a
greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly
below the then current mortgage interest rates on the Mortgage Loans, the
rate of prepayment on the Mortgage Loans would be expected to increase.
Conversely, if prevailing interest rates rise significantly above the then
current mortgage interest rates on the Mortgage Loans, the rate of prepayment
on the Mortgage Loans would be expected to decrease. No assurances can be
given as to the rate of prepayments on the Mortgage Loans in stable or
changing interest rate environments.
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a borrower to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the Servicer, the Master
Servicer or the Special Servicer, if any, may extend the maturity of such a
Mortgage Loan in connection with a workout. In the case of defaults, recovery
of proceeds may be delayed by, among other things, bankruptcy of the borrower
or adverse conditions in the market where the property is located. In order
to minimize losses on defaulted Mortgage Loans, the Servicer, the Master
Servicer or the Special Servicer, if any, may, to the extent and under the
circumstances set forth in the related Prospectus Supplement, be given
considerable flexibility to modify Mortgage Loans which are in default or as
to which a default is reasonably foreseeable. Any defaulted balloon payment
or modification which extends the maturity of a Mortgage Loan will tend to
extend the weighted average life of the Securities thereby lengthening the
period of time elapsed from the date of issuance of a Security until each
dollar of principal will be repaid to the investor.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans comprising or underlying the Mortgage
Assets which are foreclosed in relation to the number of Mortgage Loans which
are repaid in accordance with their terms will affect the weighted average
life of the Mortgage Loans comprising or underlying the Mortgage Assets and
that of the related Series of Securities. Servicing decisions made with
respect to the Mortgage Loans, including the use of payment plans prior to a
demand for acceleration and the restructuring of Mortgage Loans in bankruptcy
proceedings, may also have an impact upon the payment patterns of particular
Mortgage Loans. The return to Holders of Securities may be adversely affected
by servicing policies and decisions relating to foreclosures.
Due on Sale Clauses. Acceleration of mortgage payments as a result of
certain transfers of underlying Mortgaged Property is another factor
affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of
the Mortgage Loans underlying Private Mortgage-Backed Securities and Mortgage
Loans in a Mortgage Pool may include "due-on-sale" clauses which allow the
holder of the Mortgage Loans to demand payment in full of the remaining
principal balance of the Mortgage Loans upon sale or certain other transfers
of the underlying Mortgaged Property. Except as otherwise described in the
Prospectus Supplement for a Series, the Primary Servicer of Mortgage Loans
comprising or underlying Mortgage Assets securing such Series
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will not exercise its right to enforce any "due-on-sale" clause applicable to
the related Mortgage Loan so long as the new mortgagor satisfies the
applicable underwriting criteria for similar loans serviced by the Primary
Servicer. The Primary Servicer will not enforce such clause to the extent
enforcement would be unlawful or would prejudice recovery under any
applicable Insurance Policy. If the Primary Servicer determines not to
enforce such "due-on-sale" clause, it will enter into an assumption and
modification agreement with the person to whom the Mortgaged Property is to
be conveyed. FHA Loans are not permitted to contain "due-on-sale" clauses and
are freely assumable by qualified persons.
Single Mortgage Loan or Single Obligor. The Mortgage Assets securing a
Series may consist of a single Mortgage Loan or obligations of a single
obligor or related obligors as specified in the related Prospectus
Supplement. Assumptions used with respect to the prepayment standards or
models based upon analysis of the behavior of mortgage loans in a larger
group will not necessarily be relevant in determining prepayment experience
on a single Mortgage Loan or with respect to a single obligor.
SECURITY FOR THE BONDS AND CERTIFICATES
GENERAL
Each Series of Bonds will be secured by a pledge by the Issuer to the
Trustee of all right, title and interest of the Issuer in the Primary Assets
for such Series, and each Series of Certificates will represent a beneficial
interest in a Trust Fund comprised of Primary Assets transferred to the
Trustee by the Depositor. The Primary Assets may include (a) Mortgage Assets
directly owned by the Issuer, (b) amounts payable under the Mortgage Assets,
(c) funds, instruments or securities deposited or held from time to time in
any Reserve Fund, (d) funds, instruments or securities initially deposited in
the Collection Account for such Series, (e) an assignment of leases and
rents, if any, (f) reinvestment income, if any, on moneys deposited in any
Pledged Fund or Account, (g) Enhancement Agreements, if any, (h) Servicing
Agreements, if any, related to the Mortgage Loans of such Series, and (i)
other funds, instruments or securities specified as Primary Assets in the
related Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, certain
amounts received by the Trustee or a Servicer with respect to a Private
Mortgage-Backed Security or Mortgage Loan securing a Series may not be
pledged as Mortgage Assets for such Series or deposited into the Trust Fund
for such Series, as the case may be, but will be payable to the seller of
such Private Mortgage-Backed Security or Mortgage Loan or to a Servicer free
and clear of the lien of the Indenture, or interest granted under the Trust
Agreement.
Mortgage Assets for a Series may consist of any combination of the
following to the extent and as specified in the related Prospectus
Supplement: (a) Mortgage Loans or participation interests therein and (b)
Private Mortgage-Backed Securities. Mortgage Loans for a Series will be
purchased by the Issuer directly or through an affiliate in the open market
or in privately negotiated transactions. Private Mortgage-Backed Securities
will in turn be secured by Underlying Collateral which will consist of
Mortgage Loans. Participation interests pledged as Mortgage Assets for a
Series may be acquired by the Issuer pursuant to a Participation Agreement or
may be purchased in the open market.
The Trustee or its agents or nominees will have possession of any Mortgage
Loans constituting Mortgage Assets and will be the registered owner of any
Private Mortgage-Backed Security which constitutes Mortgage Assets. The
Trustee will not, unless otherwise specified in the related Prospectus
Supplement, be in possession of or be the registered owner of any Underlying
Collateral for any Private Mortgage-Backed Security. See "Private
Mortgage-Backed Securities" below.
Unless otherwise specified in the related Prospectus Supplement for a
Series, scheduled distributions of principal of and interest on the Mortgage
Assets pledged to secure a Series or deposited into the Trust Fund for such
Series, as the case may be, the amounts available to be withdrawn from any
related Reserve Fund, the amount of cash, if any, initially deposited in the
related Collection Account and any other Mortgage Assets pledged to secure
such Series or deposited into the Trust Fund for such Series, as the case may
be, together with the Reinvestment Income thereon at the Assumed Reinvestment
Rate, if any, will be sufficient irrespective of the rate of prepayments on
the Mortgage Assets to make required
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payments of interest on the Securities of such Series and to retire each
Class of such Series not later than its Stated Maturity or Final Scheduled
Distribution Date, as applicable. See "YIELD AND PREPAYMENT CONSIDERATIONS."
The Mortgage Assets for a Series will equally and ratably secure each Class
of such Series, or will represent beneficial interest in the Trust Fund, as
the case may be, without priority of one Class over the other (subject to any
subordination of Subordinate Securities of a Series as set forth in the
related Prospectus Supplement), and the Mortgage Assets securing each Series,
or comprising the Trust Fund, will serve as Mortgage Assets only for that
Series.
MORTGAGE LOANS
General. Mortgage Loans for a Series may consist of Mortgage Loans or
participation interests therein. Mortgage Loans comprising the Mortgage
Assets, Mortgage Loans in which participation interests are conveyed to the
Trustee, and Mortgage Loans underlying Private Mortgage-Backed Securities are
referred to herein as the "Mortgage Loans." Some of the Mortgage Loans may
have been originated by or acquired from an affiliate of the Issuer and an
affiliate of the Issuer may be an obligor with respect to a Mortgage Loan.
Mortgage Loans may, as specified in the related Prospectus Supplement,
consist of fixed rate, level payment, fully amortizing Mortgage Loans, ARMs
or Mortgage Loans having balloon or other payment characteristics as
described in the related Prospectus Supplement. ARMs may have a feature which
permits the borrower to convert the rate thereon to a fixed rate. Unless
otherwise specified in the applicable Prospectus Supplement, the Mortgage
Loans will be secured by first mortgages or deeds of trust or other similar
security instruments creating a first lien on Mortgaged Property.
The Mortgaged Properties may include Multifamily Property (i.e.,
multifamily residential rental properties or cooperatively owned properties
consisting of five or more dwelling units) or Commercial Property.
Multifamily Property may include mixed commercial and residential structures
and may consist of property securing FHA-insured Mortgage Loans made by
private lending institutions to help finance construction or substantial
rehabilitation of the related multifamily rental or cooperative housing for
moderate-income or displaced families. See "DESCRIPTION OF INSURANCE ON THE
MORTGAGE LOANS--FHA Insurance."
Each Mortgaged Property will be located on land owned in fee simple by the
Mortgagor or on land leased by the Mortgagor for a term at least two years
greater than the term of the related Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, the fee interest in leased
land will be subject to the lien securing the related Mortgage Loan. Mortgage
Loans secured by Multifamily Property or Commercial Property will generally
also be secured by an assignment of leases and rents and/or operating or
other cash flow guarantees relating to the Mortgage Loan.
If so specified in the related Prospectus Supplement, Mortgage Loans
relating to real estate projects under construction may be included in the
Mortgage Assets for a Series. The related Prospectus Supplement will set
forth the procedures and timing for making disbursements from construction
reserve funds as portions of the related real estate project are completed.
If permitted by applicable law, the Mortgage Pool may also include Mortgaged
Properties acquired by foreclosure or by deed-in-lieu of foreclosure ("REO
Property"). To the extent specified in the related Prospectus Supplement, the
Servicer, the Master Servicer or the Special Servicer, if any, may establish
and maintain a trust account or accounts to be used in connection with REO
Properties and other Mortgaged Properties being operated by it or on its
behalf on behalf of the Trust Estate or the Trust Fund, as the case may be,
by the mortgagor as debtor-in-possession or otherwise. See "SECURITY FOR THE
BONDS AND CERTIFICATES--Maintenance of Insurance Policies and Other Servicing
Procedures; Presentation of Claims; Realization Upon Defaulted Mortgage
Loans." In addition, the Mortgage Pool for a particular Series may include
Mortgage Loans which consist of cash flow mortgages, installment contracts,
mortgage loans with equity features or other mortgage loans described in the
related Prospectus Supplement.
The related Prospectus Supplement for each Series will provide information
with respect to the Mortgage Pool as of the Cut-Off Date, including, among
other things, (a) the aggregate unpaid principal balance of the Mortgage
Loans comprising the Mortgage Pool; (b) the weighted average Mortgage Rate on
the Mortgage Loans, and, in the case of adjustable Mortgage Rates, the
weighted average of the current adjustable Mortgage Rates, the minimum and
maximum permitted adjustable Mortgage Rates, if
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any, and the weighted average thereof; (c) the average outstanding principal
balance of the Mortgage Loans; (d) the weighted average remaining scheduled
term to maturity of the Mortgage Loans and the range of remaining scheduled
terms to maturity; (e) the range of Loan-to-Value Ratios of the Mortgage
Loans; (f) the relative percentage (by principal balance as of the Cut-Off
Date) of Mortgage Loans that are ARMs, fixed interest rate, FHA Loans or
other types of Mortgage Loans; (g) any Enhancement relating to the Mortgage
Pool; (h) the relative percentage (by principal balance as of the Cut-Off
Date) of Mortgage Loans that are secured by Multifamily Property or
Commercial Property; (i) the geographic dispersion of Mortgaged Properties
securing the Mortgage Loans; and (j) the use or type of each Mortgaged
Property securing a Mortgage Loan. The related Prospectus Supplement will
also specify other characteristics of Mortgage Loans which may be included in
the Mortgage Pool for a Series. If Private Mortgage-Backed Securities
representing ownership interests in multiple mortgage pools constitute
Mortgage Assets for a Series, the Prospectus Supplement will set forth, to
the extent available, the above-specified information on an aggregate basis
for the respective mortgage pools. If specific information respecting the
Mortgage Loans is not known to the Issuer at the time the related Series is
initially offered, more general information of the nature described above
will be provided in the Prospectus Supplement, and final specific information
will be set forth in a Current Report on Form 8-K to be available to
investors on the date of issuance of the Series and to be filed with the
Commission within 15 days after the initial issuance of such Series.
If so specified in the related Prospectus Supplement, the terms of a
Mortgage Loan may provide that upon the sale of the Mortgaged Property, the
obligor may, in lieu of the payment in full of the amount of principal and
interest then outstanding or accrued on the related Mortgage Loan,
irrevocably deposit cash or other specified obligations into an account with
the Trustee in an amount which, together with interest thereon, will be
sufficient to make timely payments or distributions of principal and interest
on the Mortgage Loan and, therefore, on the Securities according to their
terms.
The characteristics of the Mortgage Loans comprising or underlying the
Mortgage Assets may affect the rate of prepayment of Securities and the risk
of delinquencies, foreclosures and losses. See "RISK FACTORS" and "YIELD AND
PREPAYMENT CONSIDERATIONS."
Mortgage Underwriting Standards and Procedures. The underwriting
procedures and standards for Mortgage Loans included in a Mortgage Pool will
be specified in the related Prospectus Supplement to the extent such
procedures and standards are known or available. Such Mortgage Loans may be
originated in contemplation of the transactions contemplated by this
Prospectus and the related Prospectus Supplement. If stated in the related
Prospectus Supplement, the originator of the Mortgage Loans (or another
entity specified in the related Prospectus Supplement) will make
representations and warranties concerning compliance with such underwriting
procedures and standards.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the originator of a Mortgage Loan will have applied underwriting
procedures intended to evaluate, among other things, the income derived from
the Mortgaged Property, the capabilities of the management of the project,
including a review of management's past performance record, its management
reporting and control procedures (to determine its ability to recognize and
respond to problems) and its accounting procedures to determine cash
management ability, the obligor's credit standing and repayment ability and
the value and adequacy of the Mortgaged Property as collateral. FHA Loans
will have been originated by mortgage lenders which are approved by HUD as an
FHA mortgagee in the ordinary course of their real estate lending activities
and will comply with the underwriting policies of FHA. Except as described
below or in the related Prospectus Supplement, the Issuer believes that
underwriting procedures used were consistent with those utilized by mortgage
lenders generally during the period of origination.
Unless otherwise specified in the related Prospectus Supplement, the
adequacy of a Mortgaged Property as security for repayment will generally
have been determined by appraisal by appraisers selected in accordance with
preestablished guidelines established by or acceptable to the loan originator
for appraisers. Unless otherwise specified in the related Prospectus
Supplement, the appraiser must personally inspect the property and verify
that it was in good condition and that construction, if new, has
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been completed. Unless otherwise stated in the applicable Prospectus
Supplement, the appraisal will have been based upon a cash flow analysis or a
market data analysis of recent sales of comparable properties and, when
deemed applicable, a replacement cost analysis based on the current cost of
constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that appreciation of
real estate values generally will limit loss experiences on Commercial
Property or on non-traditional housing such as Multifamily Property. If the
residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans and
any additional financing on the Mortgaged Properties in a particular Mortgage
Pool become equal to or greater than the value of the Mortgaged Properties,
the actual rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. To the
extent that such losses are not covered by the methods of Enhancement or the
insurance policies described herein, the ability of the Issuer to pay
principal of and interest on the Securities may be adversely affected. Even
where credit support covers all losses resulting from defaults and
foreclosure, the effect of defaults and foreclosures may be to increase
prepayment experience on the Mortgage Assets, thus shortening weighted
average life and affecting yield to maturity. See "YIELD AND PREPAYMENT
CONSIDERATIONS."
Determination of Compliance With Pool Requirements and Underwriting
Procedures. As more specifically set forth in the related Prospectus
Supplement, the Issuer will represent and warrant, upon pledge of the
Mortgage Loans to the Trustee under the Indenture or deposit of such Mortgage
Loans into the Trust Fund, as applicable, among other things, as to the
accuracy of the information in the related Mortgage Loan Schedule. If
specified in the related Prospectus Supplement, the originator of a Mortgage
Loan may make representations and warranties with respect to such Mortgage
Loan. If so specified in the related Prospectus Supplement, the Issuer will
assign its rights and the seller's obligations under the agreement pursuant
to which the Issuer acquired the Mortgage Assets for the related Series to
the Trustee.
If so specified in the related Prospectus Supplement, upon the discovery
of the breach of certain representations or warranties made by the Issuer in
respect of a Mortgage Loan that materially and adversely affects the
interests of the Bondholders or Certificateholders of the related Series, the
Issuer will be obligated to cause the seller of such Mortgage Loans to
repurchase such Mortgage Loan or deliver a substitute conforming Mortgage
Loan as described below under "Repurchase and Substitution of Non-Conforming
Mortgage Loans." The Trustee will be required to enforce this obligation for
the benefit of the Bondholders or Certificateholders, following the practices
it would employ in its good faith business judgment were it the owner of such
Mortgage Loan. If so specified in the related Prospectus Supplement, the
Master Servicer, if any, may be obligated to enforce such obligations rather
than the Trustee.
Repurchase and Substitution of Non-Conforming Mortgage Loans. The Trustee,
or if so specified in the related Prospectus Supplement, a custodian, will
review Mortgage Loan documents after receipt thereof. Unless otherwise
provided in the related Prospectus Supplement, if any such document is found
to be defective in any material respect, or if it is determined that the
Issuer has breached any representation or warranty, the Trustee or the
custodian shall immediately notify the Issuer and the Master Servicer, if
any, and the Trustee, if the custodian. Unless otherwise specified in the
related Prospectus Supplement, if the Issuer cannot cure such defect
thereafter, the Issuer will be obligated to cause the seller of such Mortgage
Loan to repurchase within 90 days of the execution of the related Series
Supplement, or within such other period specified in the related Prospectus
Supplement, the related Mortgage Loan or any property acquired in respect
thereof from the Trustee at a purchase price equal to the unpaid principal
balance of the Mortgage Loan (or, in the case of a foreclosed Mortgage Loan,
the unpaid principal balance of such Mortgage Loan immediately prior to
foreclosure) plus accrued interest.
Unless otherwise provided in the related Prospectus Supplement, the Issuer
may, rather than cause the repurchase of the Mortgage Loan as described
above, remove such Mortgage Loan from the Trust Estate ("Deleted Mortgage
Loan") or Trust Fund, as applicable, and substitute in its place one or more
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other Mortgage Loans (each, a "Substitute Mortgage Loan"); provided, however
with respect to a Series for which no REMIC election is made, such
substitution must be effected within the period specified in the related
Prospectus Supplement. Any Substitute Mortgage Loan will, on the date of
substitution, have the characteristics specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation constitutes the sole remedy
available to the Bondholders, Certificateholders or the Trustee for a
material defect in a Mortgage Loan document or for breach of representations
and warranties with respect to any Mortgage Loan. With respect to Mortgage
Loans underlying Private Mortgage-Backed Securities, the PMBS Agreement may
have terms relating to the repurchase or substitution obligations which
differ from those set forth above.
The Master Servicer, if any, may also make certain warranties with respect
to the Mortgage Loans comprising the Mortgage Pool for a Series. See
"SERVICING OF MORTGAGE LOANS--Certain Matters Regarding the Master Servicer."
Upon a breach of any such warranty that materially and adversely affects the
interests of Bondholders or Certificateholders of the related Series, the
related Mortgage Loan will be required to be repurchased, subject to the
conditions described in the preceding paragraph and in the related Prospectus
Supplement. If the Master Servicer fails to repurchase such a Mortgage Loan,
payment to Bondholders or Certificateholders could be reduced to the extent
payments are not made on the Mortgage Loan.
Various Servicers will provide certain customary servicing functions with
respect to any Mortgage Loans pursuant to servicing agreements. Such
Servicers may include affiliates of the Issuer. If so specified in the
related Prospectus Supplement, a Master Servicing Agreement may be entered
into between the Issuer and a Master Servicer. The Master Servicer will
supervise the performance by the Servicers of their duties and
responsibilities under the servicing agreements with respect to Mortgage
Loans for the related Series. Alternatively, if so specified in the related
Prospectus Supplement, the Master Servicer may be obligated to service
Mortgage Loans directly or through one or more Servicers. In such a case, the
Master Servicer will be primarily responsible for servicing of the Mortgage
Loans. The specific duties to be performed by any Servicers and Master
Servicer, if any, with respect to the Mortgage Loans of a particular Series
will be set forth in the Prospectus Supplement to the extent they differ from
the servicing obligations described herein under "SERVICING OF THE MORTGAGE
LOANS." Servicers and the Master Servicer, if any, may be required to advance
funds to cover delinquent payments on Mortgage Loans, to the extent specified
in the related Prospectus Supplement. The Prospectus Supplement also will
specify criteria to be met by each Servicer and the Master Servicer. Such
criteria will be determined by the Issuer consistent with the requirements of
each Rating Agency rating such Series. See "SERVICING OF MORTGAGE LOANS."
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
participations and pass-through certificates, evidencing an undivided
interest in a pool of Mortgage Loans, (b) debt obligations (interest payments
on which may be tax-exempt in whole or in part), secured by mortgages or (c)
participations or other interests in any of the foregoing. Private
Mortgage-Backed Securities will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement, or a participation
agreement or similar agreement (a "PMBS Agreement"). The seller or servicer
of the underlying Mortgage Loans will have entered into the PMBS Agreement
with the trustee under such PMBS Agreement (the "PMBS Trustee"). The PMBS
Trustee or its agent, or a custodian, will possess the Mortgage Loans,
participations or other interest, underlying such Private Mortgage-Backed
Security. Mortgage Loans underlying a Private Mortgage-Backed Security will
be serviced by the Master Servicer directly or by one or more Servicers who
may be subject to the supervision of the Master Servicer. Unless otherwise
specified in the Prospectus Supplement relating to a Series, if payments with
respect to interest on the underlying obligations are tax-exempt, such
Prospectus Supplement will disclose the relevant federal tax characteristics
relating to the tax-exempt status of such obligations.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
may be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government or a limited purpose corporation organized for
the
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purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts, and selling beneficial interests in such
trusts. If so specified in the Prospectus Supplement, the PMBS Issuer may be
an affiliate of the Issuer. The obligations of the PMBS Issuer will generally
be limited to certain representations and warranties with respect to the
assets conveyed by it to the related trust. Unless otherwise specified in the
related Prospectus Supplement, the PMBS Issuer will not have guaranteed any
of the assets conveyed to the related trust or any of the Private
Mortgage-Backed Securities issued under the PMBS Agreement. Additionally,
although the Mortgage Loans, participations or other interest, underlying the
Private Mortgage-Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Mortgage-Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest
distributions. Principal and interest distributions will be made on the
Private Mortgage-Backed Securities by the PMBS Trustee or the Servicer. The
PMBS Issuer or the Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the Private Mortgage-Backed Securities after a
certain date or under other circumstances specified in the related Prospectus
Supplement.
Underlying Mortgage Loans. The Mortgage Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level payment, fully
amortizing Mortgage Loans, ARMs, or Mortgage Loans having balloon or other
special payment features. Mortgage Loans underlying the Private
Mortgage-Backed Securities will be secured primarily by Multifamily Property
or Commercial Property. Unless otherwise stated in the related Prospectus
Supplement, the underwriting procedures set forth above will also apply to
Underlying Mortgage Loans.
Enhancement Relating to Private Mortgage-Backed Securities. Enhancement in
the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS Agreement, letters of credit, insurance
policies or other types of credit support may be provided with respect to the
Mortgage Loans, participations or other interest, underlying the Private
Mortgage-Backed Securities or with respect to the Private Mortgage-Backed
Securities themselves. The type, characteristics and amount of enhancement,
if any, will be a function of certain characteristics of the Mortgage Loans,
participations or other interest, and other factors and will have been
established for the Private Mortgage-Backed Securities on the basis of
requirements of the Rating Agency which assigned a rating to the Private
Mortgage-Backed Securities.
Additional Information. The Prospectus Supplement for a Series which
includes Private Mortgage-Backed Securities will specify, to the extent
available, (i) the aggregate approximate principal amount and type of the
Private Mortgage-Backed Securities to be included in the Trust Estate or
Trust Fund, as applicable, (ii) certain characteristics of the Mortgage
Loans, participations or other interests which comprise the underlying assets
for the Private Mortgage-Backed Securities including (A) the payment features
of such Mortgage Loans, participations or other interests (i.e., whether they
are fixed rate or adjustable rate and whether they provide for fixed level
payments, adjustable payments or other payment features), (B) the approximate
aggregate principal balance, if known, of Underlying Mortgage Loans,
participations or other interests insured or guaranteed by a governmental
entity, (C) the servicing fee or range of servicing fees with respect to the
Mortgage Loans, and (D) the minimum and maximum stated maturities of the
underlying Mortgage Loans, participations or other interests at origination,
(iii) the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities, (iv) the weighted average pass-through or bond
rate of the Private Mortgage-Backed Securities or formula therefor, (v) the
pass-through or bond rate or ranges thereof for the Private Mortgage-Backed
Securities or formula therefor, (vi) the PMBS Issuer, Master Servicer and the
PMBS Trustee for such Private Mortgage-Backed Securities, (vii) certain
characteristics of enhancement, if any, such as subordination, reserve funds,
insurance policies, letters of credit or guarantees relating to the Mortgage
Loans, participations or other interests underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves, (viii) the terms on which the Underlying Mortgage Loans,
participations or other interests for such Private Mortgage-Backed Securities
or the Private Mortgage-Backed Securities may, or
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are required to, be purchased prior to their maturity or the maturity of the
Private Mortgage-Backed Securities and (ix) the terms on which Mortgage
Loans, participations or other interests may be substituted for those
originally underlying the Private Mortgage-Backed Securities.
SUBSTITUTION OF MORTGAGE ASSETS
Unless otherwise provided in the related Prospectus Supplement, subject to
the limitations set forth in the Indenture or Trust Agreement for a Series,
the Issuer or Depositor may deliver to the Trustee other Mortgage Assets in
substitution for any Mortgage Assets originally pledged as security for a
Series, or deposited in the Trust Fund for a Series, as the case may be. Any
such Substitute Mortgage Assets will have an outstanding principal balance or
Asset Value (determined in a manner consistent with the Mortgage Assets for
which it is substituted) that is less than or equal to the outstanding
principal balance or Aggregate Asset Value of the Mortgage Assets for which
it is substituted, unless otherwise specified in the related Prospectus
Supplement, and will otherwise have such characteristics as shall be
necessary to cause the Mortgage Assets, upon such substitution, to conform
more fully to the description thereof set forth in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
(1) no substitution will be permitted which would delay the Stated Maturity
or Final Scheduled Distribution Date, of any Class of Securities of the
related Series, (2) no more than 40% of the Mortgage Assets (including any
cash deposited on the Closing Date) securing a Series may be substituted for,
(3) only like kind Mortgage Assets may be substituted for Mortgage Assets
(or, with respect to a substitution for cash deposited in any Pledged Fund or
Account on the Closing Date, the Substitute Mortgage Assets must be of like
kind as the Mortgage Assets securing the related Series) and (4) there can be
no substitutions for Substitute Mortgage Assets. No substitution may be made
(1) if such substitution would result in the Issuer becoming required to
register as an "Investment Company" for purposes of the Investment Company
Act of 1940, (2) if the Rating Agencies will, as a result of such
substitution, downgrade the rating on the related Series of Securities or any
Class thereof or (3) in the event that the Issuer has elected to be treated
as a REMIC and such substitution would cause the REMIC to lose its status as
a REMIC or result in a tax on "prohibited contributions" to or "prohibited
transactions" of the REMIC.
If the Issuer elects to treat the Mortgage Assets securing a Series of
Bonds, or deposited into the Trust Fund, as a REMIC or an election is made to
treat the arrangement by which a Series of Securities is issued as a REMIC,
no Substitute Mortgage Assets may be pledged by the Issuer (a) in the case of
the substitution for a "defective obligation" (within the meaning of Section
860G(a)(4)(B) of the Code), more than two years after the "Start Up Day" (as
defined in Section 860G(a)(9) of the Code) of the REMIC, or (b) in the case
of any other Mortgage Assets, more than three months after the Start Up Day.
COLLECTION ACCOUNT
Unless otherwise provided in the related Series Supplement, a separate
Collection Account for each Series will be established by the Trustee, or if
the Trustee is not also the Paying Agent, by the Paying Agent, for receipt of
all monthly principal and interest payments on the Primary Assets securing
such Series and the amount of cash, if any, to be initially deposited therein
by the Issuer, Reinvestment Income, if any, thereon and any amounts withdrawn
from any Reserve Funds for such Series. If specified in the related
Prospectus Supplement, Reinvestment Income, if any, or other gain from
investments of moneys in the Collection Account will be credited to the
Collection Account for such Series and any loss resulting from such
investments will be charged to such Collection Account. Funds on deposit in
the Collection Account will be available for application to the payment of
principal of and interest on the Securities of the related Series and for
certain other payments provided for in the Indenture or Trust Agreement and
described in the related Prospectus Supplement. To the extent that amounts
remaining on deposit in the Collection Account on each Payment Date or
Distribution Date represent Excess Cash Flow not required to be applied to
such payments or distributions, unless otherwise specified in the related
Prospectus Supplement, such amounts may be paid as provided in the Indenture
or Trust Agreement to the Issuer (or, in the case of a REMIC, to the holder
of the residual interest therein).
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OTHER FUNDS OR ACCOUNTS
A Series may also be secured by certain other funds and accounts for the
purpose of, among other things, (i) paying certain administrative fees and
operating expenses and (ii) accumulating funds that are credited to the
Issuer's account pending their distribution to the Issuer. See "Enhancement."
INVESTMENT OF FUNDS
The Collection Account, Servicing Accounts and certain other funds and
accounts for a Series are to be invested by the Trustee or the Paying Agent,
as directed by the Issuer, in certain Eligible Investments acceptable to each
Rating Agency rating such Series, which may include, without limitation, (a)
direct obligations of, and obligations fully guaranteed by, the United States
of America, FHLMC, FNMA or any agency or instrumentality of the United States
of America, the obligations of which are backed by the full faith and credit
of the United States of America, (b) demand and time deposits, certificates
of deposit or bankers' acceptances, (c) repurchase obligations pursuant to a
written agreement with respect to (1) any security described in clause (a)
above or (2) any other security issued or guaranteed by an agency or
instrumentality of the United States of America, (d) securities bearing
interest or sold at a discount issued by any corporation incorporated under
the laws of the United States of America or any state, (e) commercial paper
(including both non-interest-bearing discount obligations and
interest-bearing obligations payable on demand or on a specified date not
more than one year after the date of issuance thereof), (f) a Guaranteed
Investment Contract, (g) certificates or receipts representing ownership
interests in future interest or principal payments on obligations described
in clause (a) above, and (h) any other demand, money market or time deposit
obligation, security or investment acceptable to the Rating Agencies.
Eligible Investments with respect to a Series will include only
obligations or securities that mature on or before the date on which the
Collection Account or any other Pledged Fund or Account for such Series are
required or may be anticipated to be required to be applied for the benefit
of the holders of such Series. Any gain or loss from such investments for a
Series will be credited or charged to the appropriate fund or account for
such Series unless otherwise specified in the related Prospectus Supplement.
GUARANTEED INVESTMENT CONTRACT
If specified in the related Prospectus Supplement, on or prior to the
Delivery Date the Issuer and the Trustee will enter into a Guaranteed
Investment Contract with a guarantor acceptable to the Rating Agencies rating
the Securities (the "Guarantor"), pursuant to which all distributions on the
Mortgage Assets will be invested by the Trustee with the Guarantor, and the
Guarantor will pay to the Trustee interest at the rate per annum set forth in
such Guaranteed Investment Contract on all amounts invested. Whenever funds
are required under the Indenture to be paid to Bondholders or under the Trust
Agreement to be paid to the Certificateholders, the Guarantor, upon the
request of the Trustee, will remit such funds to the Trustee.
ENHANCEMENT
Enhancement may be provided with respect to a Series, or with respect to
any Mortgage Loans or Private Mortgage-Backed Securities securing a Series.
See "ENHANCEMENT."
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SERVICING OF MORTGAGE LOANS
GENERAL
The servicing obligations with respect to a particular Series may be
performed by various Servicers or by the Trustee. If so specified in the
related Prospectus Supplement, a Master Servicer or a Special Servicer may be
appointed. The related Prospectus Supplement for each Series will describe
the extent, if any, such rights, duties and obligations vary or differ with
respect to such Series from those described herein.
If so specified in the related Prospectus Supplement, pursuant to a Master
Servicing Agreement or Trust Agreement, customary servicing functions with
respect to Mortgage Loans which comprise Mortgage Assets for a Series, or
which constitute Underlying Collateral for a Private Mortgage-Backed Security
will be provided by the Master Servicer directly or by one or more Servicers
subject to supervision by the Master Servicer. To the extent specified in the
related Prospectus Supplement, a special servicer (the "Special Servicer")
may be appointed. The related Prospectus Supplement will describe the duties
and obligations of such Special Servicer. To the extent specified in the
related Prospectus Supplement, the Master Servicer or Special Servicer, if
any, may have the authority to sell or otherwise dispose of Mortgage Loans or
the related REO Property in order to maximize the value of such Mortgage
Loans or property. The entity which has primary liability for servicing
Mortgage Loans directly is sometimes referred to herein as the "Primary
Servicer." If the Master Servicer is not required under the Master Servicing
Agreement, Trust Agreement or PMBS Agreement, as applicable, to act as
Primary Servicer, then the Master Servicer, if any, will (i) administer and
supervise the performance by the Servicers (who will act as Primary
Servicers) of their servicing responsibilities under the Servicing
Agreements, (ii) to the extent not maintained by a Primary Servicer, maintain
any insurance policy required for the related Mortgage Pool and (iii) advance
funds as described below under "Advances" and in the related Prospectus
Supplement. If a Master Servicer undertakes to service Mortgage Loans
directly it may do so through Servicers as its agents. In such case, the
Master Servicer will be responsible for all aspects of the servicing of the
related Mortgage Loans notwithstanding such use of Servicers. The Master
Servicer or a Servicer may be an affiliate of the Issuer. Unless otherwise
specified in the related Prospectus Supplement, in the case of FHA Loans, the
Master Servicer and each Servicer will be required to be approved by HUD as
an FHA mortgagee. The Master Servicer will only be responsible for the duties
and obligations of the Special Servicer to the extent set forth in the
related Prospectus Supplement.
To the extent applicable, Master Servicing Agreements (direct or
supervisory), Servicing Agreements and Special Servicing Agreements, if any,
with respect to a Series will be filed as exhibits to a Current Report on
Form 8-K within 15 days following the issuance of the Securities of a Series.
The Master Servicer will be paid a servicing fee for the performance of
its services and duties under each Master Servicing Agreement, as specified
in the related Prospectus Supplement. Each Servicer, if any, will be entitled
to receive a servicing fee. The Special Servicer, if any, will also be
entitled to a servicing fee. In addition, the Master Servicer, Special
Servicer or Servicer may be entitled to retain late charges, assumption fees
and similar charges to the extent collected from Mortgagors. If a Servicer or
the Special Servicer is terminated by the Master Servicer, the servicing
function of the Servicer or the Special Servicer will be either transferred
to a substitute Servicer or Special Servicer, as the case may be, or
performed by the Master Servicer. The Master Servicer will be entitled to
retain the portion of the Servicing Fee paid to a Servicer, under a
terminated Servicing Agreement, or the Special Servicer, under the Special
Servicing Agreement, if the Master Servicer elects to perform such servicing
functions itself. See "Servicing Compensation and Payment of Expenses" below.
COLLECTION PROCEDURES
The Primary Servicer or, if so specified in the related Prospectus
Supplement, the Trustee, will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will follow such collection
procedures as it follows with respect to mortgage loans serviced by it that
are comparable to the Mortgage Loans.
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Unless otherwise specified in the related Prospectus Supplement, the
Primary Servicer, to the extent permitted by law and the terms of the related
Mortgage Loans, will establish and maintain an escrow account (the "Escrow
Account") in which payments by Mortgagors to pay taxes, assessments, mortgage
and hazard insurance premiums, and other comparable items will be deposited.
Withdrawals from the Escrow Account are to be made to effect timely payment
of taxes, assessments and hazard insurance premiums, to refund to Mortgagors
amounts determined to be overages, to pay interest to Mortgagors on balances
in the Escrow Account to the extent required by law, to repair or otherwise
protect the Mortgaged Property and to clear and terminate such account.
Alternatively, the terms of the related Mortgage Loan may require, upon the
occurrence of a delinquency or default by the obligor, an impound account
("Impound Account") to be established and maintained and into which payments
by Mortgagors to pay taxes, assessments, mortgage and hazard insurance
premiums and other comparable items will be deposited pending distribution of
such items. The Primary Servicer will be responsible for the administration
of the Escrow Account or the Impound Account and may be obligated to make
escrow or impound advances to the relevant account when a deficiency exists
therein if so specified in the related Prospectus Supplement.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO CUSTODIAL ACCOUNTS
With respect to any Series, the Master Servicer, if any, will establish an
account (the "Custodial Account") in the name of the Trustee, unless
otherwise specified in the related Prospectus Supplement. The Custodial
Account will be established so as to comply with the standards of each Rating
Agency rating the Securities of a Series. Amounts to be remitted to the
Trustee shall be remitted by the Master Servicer to the Trustee from the
Custodial Account for deposit in the Collection Account for the related
Series.
In those cases where a Servicer is servicing Mortgage Loans pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with the standards set forth below for
the Custodial Account and that is otherwise acceptable to the Master
Servicer, if any. The Servicer will be required to deposit into the Servicing
Account on a daily basis (or upon identification) all mortgage related
receipts received by it with respect to Mortgage Loans serviced by such
Servicer subsequent to the Cut-Off Date less its servicing fee and certain
other amounts specified in the Servicing Agreement. On each Servicer
Remittance Date, the Servicer shall remit all funds held in the Servicing
Account (other than payments due on or before the Cut-Off Date and other
amounts permitted to be withdrawn from or held in the Servicing Account
pursuant to the Servicing Agreement) with respect to each Mortgage Loan
together with any Advances made by such Servicer for deposit to the Custodial
Account, or if a Custodial Account has not been established, directly to the
Collection Account. See "Advances" below.
If so specified in the related Prospectus Supplement, the Custodial
Account and each Servicing Account may be maintained as an interest-bearing
account, or the funds held therein may be invested pending remittance to the
Trustee in Eligible Investments. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer or the Servicer will be entitled
to receive any such interest or other income earned on funds in the Custodial
Account or Servicing Account as additional compensation.
The Master Servicer will deposit in the Custodial Account on a daily basis
all mortgage related receipts (including amounts remitted by the Servicer)
received by it subsequent to the Cut-off Date (other than payments of
principal and interest due on or before the Cut-off Date).
With respect to any other type of Mortgage Loan which provides for
payments other than on the basis of level payments, an account may be
established as described in the related Prospectus Supplement.
ADVANCES
General. To the extent provided in the related Prospectus Supplement, the
Primary Servicer may make periodic advances of cash ("Advances") from its own
funds or, if so specified in the related Prospectus Supplement, from excess
funds in the Custodial Account or Servicing Account, but only to the
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extent such Advances are, in the good faith business judgment of the Servicer
or the Master Servicer, as the case may be, ultimately recoverable from
future payments and collections on the Mortgage Loans or otherwise. Neither
the Master Servicer nor the Servicers will be required to make such Advances,
unless otherwise specified in the related Prospectus Supplement. The Master
Servicer's obligation to make Advances, if any, may, as specified in the
related Prospectus Supplement, be limited in amount or may be limited to
Advances received from Servicers. If so specified in the related Prospectus
Supplement, the Master Servicer will not be obligated to make Advances until
all or a specified portion of a Reserve Fund is depleted. Advances are
intended to enable the Issuer to make timely payment of the scheduled
principal and interest payments or distributions on the Securities of such
Series, not to guarantee or insure against losses. Accordingly, any funds so
advanced are recoverable by the Servicer or the Master Servicer, as the case
may be, out of amounts received on particular Mortgage Loans which represent
late recoveries of principal or interest respecting which any such Advance
was made. If an Advance is made and subsequently determined to be
nonrecoverable from late collections, Insurance Proceeds or Liquidation
Proceeds from the related Mortgage Loans, or any other source described in
the related Prospectus Supplement, the Servicer or Master Servicer will be
entitled to reimbursements from other funds in the Custodial Account or
Servicing Account, as applicable.
Adjustments to Servicing Fee or Advances in Connection with Prepaid
Mortgage Loans. With respect to each Mortgage Pool, if an obligor makes a
principal prepayment between scheduled payment dates, the obligor may be
required to pay interest on the principal balance only to the date of
prepayment in full. If and to the extent provided in the related Prospectus
Supplement, the amount of the servicing fee may be reduced, or the Primary
Servicer may be otherwise obligated to advance moneys from its own funds or
any reserve maintained for such purpose, to the extent necessary to include
an amount equal to a full month's interest payment at the applicable Mortgage
Rate. Partial principal prepayments may be treated as having been received on
the next Due Date, and, if so, no reduction in interest remitted for deposit
to the Collection Account will occur. See "YIELD AND PREPAYMENT
CONSIDERATIONS."
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
General. To the extent specified in the related Prospectus Supplement and
the Servicing Agreement, the Primary Servicer will be required to cause to be
maintained a standard hazard insurance policy with respect to each Mortgaged
Property. In addition, all or a portion of the Mortgage Loans comprising a
Mortgage Pool or constituting Underlying Collateral may be insured by the
FHA. The Primary Servicer will be required to take such steps as are
reasonably necessary to keep such insurance in full force and effect. See
"DESCRIPTION OF INSURANCE."
Presentation of Claims; Realization Upon Defaulted Mortgage Loans. The
market value of any property obtained in foreclosure or by deed in lieu of
foreclosure may be based substantially on the operating income obtained by
renting the applicable property. As a default on a Mortgage Loan secured by
Multifamily Property or Commercial Property is likely to have occurred
because operating income, net of expenses, is insufficient to make debt
service payments on the related Mortgage Loan, it can be anticipated that the
market value of such property generally will be less than anticipated when
such Mortgage Loan was originated. To the extent that equity does not cushion
the loss in market value upon any liquidation and such loss is not covered by
other credit support, a loss may be experienced by the related Bondholders or
Certificateholders, as applicable.
The Primary Servicer, on behalf of itself, the Trustee, the Bondholders or
Certificateholders, as applicable and the Issuer, will be required to
present, or cause to be presented, claims with respect to any insurance
policy. The Primary Servicer will be required to present claims and take such
reasonable steps as are necessary to permit recovery under any FHA insurance
respecting defaulted Mortgage Loans.
The Primary Servicer may foreclose upon or otherwise comparably convert
the ownership of properties securing such of the related Mortgage Loans as
come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such foreclosure or other conversion, the Primary Servicer will follow
such practices and procedures as it shall deem necessary or advisable and as
shall be normal and usual in its general mortgage servicing activities.
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ENFORCEMENT OF DUE-ON SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, when any
Mortgaged Property is about to be conveyed by the Mortgagor, the Primary
Servicer will not exercise its rights to accelerate the maturity of such
Mortgage Loan under the applicable "due-on-sale" clause, if any, so long as
the new mortgagor satisfies the applicable underwriting criteria for similar
loans serviced by the Primary Servicer. If such conditions are met or the
Primary Servicer reasonably believes enforcement of a due-on-sale clause will
not be enforceable, the Primary Servicer is authorized to take or enter into
an assumption agreement from or with the person to whom such Mortgaged
Property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and pursuant to which the original
Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Mortgage Note. Unless otherwise
specified in the related Prospectus Supplement, any fee collected in
connection with an assumption will be retained as additional servicing
compensation.
MODIFICATION; WAIVERS
As set forth in the related Prospectus Supplement, the Master Servicer or
Special Servicer, if any, may have the discretion, subject to certain
conditions set forth therein, to modify, waive or amend the terms of any
Mortgage Loan without the consent of the Trustee, or any Bondholder or
Certificateholders, as applicable.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer or the Special Servicer, if any, will not agree to any
modification, waiver or amendment of the payment terms of a Mortgage Loan
unless the Master Servicer or the Special Servicer, if any, has determined
that such modification, waiver or amendment is reasonably likely to produce a
greater recovery on a present value basis than liquidation of the Mortgage
Loan.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer, the Special Servicer, if any, and each Servicer will
be entitled to a servicing fee in an amount specified or to be calculated in
a manner described in the related Prospectus Supplement. The servicing fee
may be fixed or variable, as specified in the related Prospectus Supplement.
In addition, unless otherwise specified in the related Prospectus Supplement,
the Master Servicer, the Special Servicer, if any, or a Servicer will be
entitled to additional servicing compensation in the form of assumption fees,
late payment charges and modification fees.
The Primary Servicer will be entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans. The ability of the Issuer of the related Series to pay
principal of and interest on the Securities will not be affected to the
extent claims are paid under the related insurance policies. If claims are
either not made or paid under such insurance policies or if coverage
thereunder has ceased or is insufficient, the ability of the Issuer to meet
debt service requirements on the related Series may be adversely affected. In
addition, the Primary Servicer will be entitled to reimbursement of
expenditures incurred by it in connection with the restoration of Mortgaged
Property, such right of reimbursement being prior to the rights of the
Bondholders to receive any related Insurance Proceeds or Liquidation
Proceeds.
EVIDENCE AS TO COMPLIANCE
The Master Servicer and the Special Servicer, if any, will deliver to the
Trustee, on or before 120 days after the end of each fiscal year of the
Master Servicer and the Special Servicer, if applicable, an officer's
certificate stating that (i) a review of the activities of the Master
Servicer, the Special Servicer and the Servicers during the preceding
calendar year and of performance under the Master Servicing Agreement,
Special Servicing Agreement, if applicable, and the Servicing Agreements has
been made under the supervision of such officer and (ii) the Master Servicer
and the Special Servicer, if applicable, has fulfilled all its obligations
under the Master Servicing Agreement and Special Servicing Agreement, if
applicable, throughout such year, and, to the best of such officer's
knowledge, based on such review, each Servicer has fulfilled its obligations
under the related Servicing Agreement throughout such year, or, if there has
been
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a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. Such
officer's certificate shall be accompanied by a statement of a firm of
independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to servicing of the
Mortgage Loans, conducted in accordance with generally accepted accounting
principles in the mortgage banking industry, the Master Servicer's and the
Special Servicer's, if applicable, duties and duties of the Servicers have
been conducted in compliance with the provisions of the applicable agreement,
except for (i) such exceptions as such firm believes to be immaterial and
(ii) such other exceptions as are set forth in such statement. Copies of the
annual officer's certificate and accountants' statement may be obtained
without charge upon written request to the Trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND SPECIAL SERVICER
The Master Servicer and any Special Servicer for each Series will be
specified in the related Prospectus Supplement. The Master Servicer and any
Special Servicer may be an affiliate of the Issuer and may have other
business relationships with the Issuer and its affiliates.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer may not resign from its obligations and duties except with the
consent of the Trustee or upon a determination that its duties thereunder are
no longer permissible under applicable law. No such resignation will become
effective until the Trustee or a successor servicer has assumed the Master
Servicer's obligations and duties under such Master Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Master Servicing Agreement will also provide that neither the Master
Servicer, nor any director, officer, employee or agent of the Master
Servicer, will be under any liability to the Bondholders or
Certificateholders for any action taken or for refraining from the taking of
any action in good faith pursuant to the Master Servicing Agreement, or for
errors in judgment; provided, however, that neither the Master Servicer nor
any such person will be protected against any liability which would otherwise
be imposed by reason of failure to perform its obligations in compliance with
the standards of care set forth in the Master Servicing Agreement. The Master
Servicer may, in its discretion, undertake any such action which it may deem
necessary or desirable with respect to the rights and duties of the parties
to the Master Servicing Agreement and the interests of the Bondholders, or
Certificateholders thereunder. In such event, the Master Servicer will be
entitled to be reimbursed for legal expenses and costs of such action out of
the related Custodial Account.
ENHANCEMENT
GENERAL
For any Series, Enhancement may be provided with respect to one or more
Classes thereof or the related Mortgage Assets. Enhancement may be in the
form of a letter of credit, the subordination of one or more Classes of the
Securities of such Series, the establishment of one or more reserve funds,
overcollateralization, guarantee insurance, the use of cross-support features
or another method of Enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. If so specified in the
related Prospectus Supplement, any form of Enhancement (including but not
limited to insurance, letters of credit or guarantee insurance) may be
structured so as to be drawn upon by more than one Series to the extent
described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Securities and interest thereon. If losses occur which exceed the amount
covered by Enhancement or which are not covered by the Enhancement,
Bondholders or Certificateholders, as applicable will bear their allocable
share of deficiencies. Moreover, if a form of Enhancement covers more than
one Series of Securities (each, a "Covered Trust"), holders of Securities
issued by any of such Covered Trusts will be subject to the risk that such
Enhancement will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Enhancement is provided with respect to a Series, or the related
Mortgage Assets, the related Prospectus Supplement will include a description
of (a) the amount payable under such Enhancement, (b)
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any conditions to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such Enhancement may
be reduced and under which such Enhancement may be terminated or replaced and
(d) the material provisions of any agreement relating to such Enhancement.
Additionally, the related Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party Enhancement,
including (i) a brief description of its principal business activities, (ii)
its principal place of business, place of incorporation and the jurisdiction
under which it is chartered or licensed to do business, (iii) if applicable,
the identity of regulatory agencies which exercise primary jurisdiction over
the conduct of its business and (iv) its total assets, and its stockholders'
or policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement.
SUBORDINATE SECURITIES
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be Subordinate Securities. If so specified in the related
Prospectus Supplement, the rights of the Holders of Subordinate Securities to
receive distributions of principal and interest from the Collection Account
on any Payment Date or Distribution Date will be subordinated to such rights
of the Holders of Senior Securities to the extent specified in the related
Prospectus Supplement. Unless otherwise provided in the Prospectus
Supplement, the amount of subordination will decrease whenever amounts
otherwise payable to the Holder of Subordinate Securities are paid to the
Holders of Senior Securities (including amounts withdrawn from any related
Reserve Fund and paid to the Holders of Senior Securities), and will (unless
otherwise specified in the related Prospectus Supplement) increase whenever
there is distributed to the Holders of Subordinate Securities amounts in
respect of which subordination payments have previously been paid to the
Holders of Senior Securities. Unless otherwise specified in the related
Prospectus Supplement, the related Series Supplement may require a trustee
that is not the Trustee to be appointed to act on behalf of Holders of
Subordinate Securities.
A Series may include one or more Classes of Subordinate Securities
entitled to receive cash flows remaining after distributions are made to all
other Classes designated as being senior thereto. Such right will effectively
be subordinate to the rights of other Holders of Senior Securities, but will
be not be limited to a specified dollar amount of subordination. If so
specified in the related Prospectus Supplement, the subordination of a Class
may apply only in the event of (or may be limited to) certain types of losses
not covered by Insurance Policies or other credit support, such as losses
arising from damage to property securing a Mortgage Loan not covered by
standard hazard insurance policies.
The related Prospectus Supplement will set forth information concerning
the amount of subordination of a Class or Classes of Subordinate Securities
in a Series, the circumstances in which such subordination will be
applicable, the manner, if any, in which the amount of subordination will
decrease over time, the manner of funding any related Reserve Fund and the
conditions under which amounts in any related Reserve Fund will be used to
make distributions to Holders of Senior Securities and/or to Holders of
Subordinate Securities or be released from the related Trust Estate or Trust
Fund. If cash flows otherwise distributable to holders of Subordinate
Securities secured by a Mortgage Group will be used as credit support for
Senior Securities secured by another Mortgage Group within the Trust Estate
or Trust Fund, the related Prospectus Supplement will specify the manner and
conditions for applying such a cross-support feature.
CROSS-SUPPORT FEATURES
If the Mortgage Assets for a Series are divided into separate Mortgage
Groups, each securing a separate Class or Classes of a Series, credit support
may be provided by a cross-support feature which requires that distributions
be made on Senior Securities secured by one Mortgage Group prior to
distributions on Subordinate Securities secured by another Mortgage Group
within the Trust Estate or Trust Fund. The related Prospectus Supplement for
a Series which includes a cross-support feature will describe the manner and
conditions for applying such cross-support feature.
INSURANCE ON THE MORTGAGE LOANS
Credit support with respect to a Series may be provided by insurance
policies that include standard hazard insurance and may, if specified in the
related Prospectus Supplement, include FHA Insurance. See "DESCRIPTION OF
INSURANCE ON THE MORTGAGE LOANS."
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LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Securities will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). Under the letter of credit, the L/C
Bank will be obligated to honor drawings thereunder in an aggregate fixed
dollar amount, net of unreimbursed payments thereunder, equal to the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the related Cut-Off Date or of one
or more Classes of Securities (the "L/C Percentage"). If so specified in the
related Prospectus Supplement, the letter of credit may permit drawings in
the event of losses not covered by insurance policies or other credit
support, such as losses arising from damage not covered by standard hazard
insurance policies. The amount available under the letter of credit will, in
all cases, be reduced to the extent of the unreimbursed payments thereunder.
The obligations of the L/C Bank under the letter of credit for each Series of
Securities will expire at the earlier of the date specified in the related
Prospectus Supplement or the termination of the Trust Estate or Trust Fund,
as applicable. A copy of the letter of credit for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on Form 8-K to be
filed within 15 days of issuance of the Securities of the related Series.
BOND GUARANTEE INSURANCE
Bond guarantee insurance, if any, with respect to a Series of Bonds will
be provided by one or more insurance companies. Such bond guarantee insurance
will guarantee, with respect to one or more Classes of Bonds of the related
Series, timely distributions of interest and full distributions of principal
on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement, the bond guarantee
insurance will also guarantee against any payment made to a Bondholder which
is subsequently recovered as a "voidable preference" payment under the
Bankruptcy Code. A copy of the bond guarantee insurance for a Series, if any,
will be filed with the Commission as an exhibit to a Current Report on Form
8-K to be filed with the Commission within 15 days of issuance of the Bonds
of the related Series.
RESERVE FUNDS
One or more Reserve Funds may be established with respect to a Series, in
which cash, a letter of credit, Eligible Investments, a demand note or a
combination thereof, in the amounts, if any, so specified in the related
Prospectus Supplement will be deposited. The Reserve Funds for a Series may
also be funded over time by depositing therein a specified amount of the
distributions received on the related Mortgage Assets as specified in the
related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for a Series, together with the
reinvestment income thereon, if any, will be applied by the Trustee for the
purposes, in the manner, and to the extent specified in the related
Prospectus Supplement. A Reserve Fund may be provided to increase the
likelihood of timely payments or distributions of principal of and interest
on the Securities, if required as a condition to the rating of such Series by
each Rating Agency, or to reduce the likelihood of special redemptions with
respect to any Series. If so specified in the related Prospectus Supplement,
Reserve Funds may be established to provide limited protection, in an amount
satisfactory to each Rating Agency, against certain types of losses not
covered by Insurance Policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies. Following each
Payment Date or Distribution Date amounts in such Reserve Fund in excess of
any amount required to be maintained therein may be released from the Reserve
Fund under the conditions and to the extent specified in the related
Prospectus Supplement and will not be available for further application by
the Trustee.
Moneys deposited in any Reserve Funds will be invested in Eligible
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited
to the related Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such
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Reserve Fund. However, such income may be payable to the Master Servicer or a
Servicer as additional servicing compensation. See "SERVICING OF MORTGAGE
LOANS". The Reserve Fund, if any, for a Series will not be a part of the
Trust Estate or Trust Fund, as applicable, unless otherwise specified in the
related Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make payments or distributions to Bondholders or
Certificateholders and use of investment earnings from the Reserve Fund, if
any.
DESCRIPTION OF INSURANCE ON THE MORTGAGE LOANS
The following descriptions of standard hazard insurance policies and FHA
insurance and the respective coverages thereunder are general descriptions
only and do not purport to be complete.
MORTGAGE INSURANCE ON THE MORTGAGE LOANS
General. Each Mortgaged Property will be covered by a standard hazard
insurance policy, as described in the related Prospectus Supplement. The
coverage under standard hazard insurance policies will be subject to
conditions and limitations described in the Prospectus Supplement and under
"Hazard Insurance on the Mortgage Loans" below. Certain hazard risks will,
therefore, not be insured and the occurrence of such hazards could adversely
affect payments or distributions to Holders. Additionally, to the extent that
losses on a defaulted or foreclosed Mortgage Loan are not covered by other
credit support for such Series, such losses, if any, would affect payments or
distributions to Holders.
HAZARD INSURANCE ON THE MORTGAGE LOANS
Standard Hazard Insurance Policies. The standard hazard insurance policies
will provide for coverage at least equal to the applicable state standard
form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the standard hazard insurance policies relating to the
Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not
contain identical terms and conditions. The basic terms, however, generally
will be determined by state law and generally will be similar. Most such
policies typically will not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquake, landslides, and mudflows), nuclear
reaction, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive.
Uninsured risks not covered by a special hazard insurance policy or other
form of credit support may adversely affect the ability of the Issuer to make
payments of principal or interest on the Bonds. When a Mortgaged Property is
located in a flood area identified by FEMA pursuant to the Flood Disaster
Protection Act of 1973, the Master Servicer or the Servicer will be required
to cause flood insurance to be maintained with respect to such Mortgaged
Property.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which
will require the insured at all times to carry hazard insurance of a
specified percentage (generally 80% to 90%) of the actual cash value of the
improvements on the Mortgaged Property in order to recover the full amount of
any partial loss. If the insured's coverage falls below this specified
percentage, such clause will provide that the hazard insurer's liability in
the event of partial loss will not exceed the greater of (i) the actual cash
value (the replacement cost less physical depreciation) of the improvements
damaged or destroyed or (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of the actual cash value
of such improvements.
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In the event of partial loss, hazard insurance proceeds may be
insufficient to restore fully the damaged property. Under the terms of the
Mortgage Loans, Mortgagors are required to present claims to insurers under
hazard insurance policies maintained on the Mortgaged Properties. The Primary
Servicer, on behalf of the Trustee, Bondholders, and Certificateholders, is
obligated to present or cause to be presented claims under any blanket
insurance policy insuring against hazard losses on Mortgaged Properties;
however, the ability of the Primary Servicer to present or cause to be
presented such claims is dependent upon the extent to which information in
this regard is furnished to the Primary Servicer by Mortgagors.
FHA Insurance. The FHA is responsible for administering various federal
programs, including mortgage insurance, authorized under the Housing Act, as
amended, and the United States Housing Act of 1937, as amended. To the extent
specified in the related Prospectus Supplement, all or a portion of the
Mortgage Loans may be insured by the FHA. The Primary Servicer will be
required to take such steps as are reasonably necessary to keep such
insurance in full force and effect.
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the
Mortgaged Properties are situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Mortgage Loans.
MORTGAGES
Each Mortgage Loan will be secured by a mortgage, a deed of trust or a
deed to secure debt, depending upon the prevailing practice and law in the
state in which the related Mortgaged Property is located. The filing of a
mortgage, deed of trust or deed to secure debt creates a lien on title
interest upon the real property covered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by
a promissory note. It is generally not prior to the lien for real estate
taxes and assessments or other charges imposed under governmental police
powers. Priority with respect to such instruments depends on their terms, the
knowledge of the parties to the mortgage and generally on the order of
recording with the applicable state, county or municipal office. There are
two parties to a mortgage: the mortgagor, who is the owner of the property
and usually the borrower, and the mortgagee, who is the lender. Under the
mortgage instruments, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage to secure the indebtedness. In the case
of a land trust, there are three parties because title to the property is
held by a land trustee under a land trust agreement of which the borrower is
the beneficiary at origination of a mortgage loan involving a land trust, the
borrower executes a separate undertaking to make payments on the mortgage
note. A deed of trust has three parties: the owner of the property and
usually the borrower, called the trustor (similar to a mortgagor), a lender,
called the beneficiary (similar to the mortgagee), and a third-party grantee,
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure payment of the mortgage loan. The trustee's
authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the express provisions of the deed of trust or
mortgage, the law of the state in which the real property is located and, in
some cases, in deed of trust transactions, the directions of the beneficiary.
Some states use a security deed or deed to secure debt which is similar to a
deed of trust except it has only two parties: a grantor (similar to a
mortgagor) and a grantee (similar to a mortgagee).
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES OR BENEFICIARIES
If specified in the applicable Prospectus Supplement, some of the Mortgage
Loans included in the Mortgage Pool will be secured by junior mortgages or
deeds of trust which are subordinate to senior mortgages or deeds of trust
held by other lenders or institutional investors. The rights of the Trust
Fund (and therefore the Certificateholders), as beneficiary under a junior
deed of trust or as mortgagee under a junior mortgage, are subordinate to
those of the mortgagee or beneficiary under the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive rents, hazard insurance and condemnation proceeds and to cause the
property securing the Mortgage Loan to be sold upon default of the mortgagor
or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the Special Servicer asserts its subordinate
interest in a property in foreclosure litigation or satisfies the defaulted
senior loan. As discussed more fully below, in many states a junior mortgagee
or beneficiary may satisfy a defaulted senior loan in full, or may cure such
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. Absent a provision in the
senior mortgage, no notice of default is required to be given to the junior
mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgage
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or beneficiary may determine. Thus, in the event improvements on the property
are damaged or destroyed by fire or other casualty, or in the event the
property is taken by condemnation, the mortgagee or beneficiary under the
senior mortgage or deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, by
applied to the indebtedness of a junior mortgage or trust deed. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply
the proceeds of hazard insurance and partial condemnation awards to the
secured indebtedness. In such states, the mortgagor or trustor must be
allowed to use the proceeds of hazard insurance to repair the damage unless
the security of the mortgagee or beneficiary has been impaired. Similarly, in
certain states, the mortgagee or beneficiary is entitled to the award for a
partial condemnation of the real property security only to the extent that
its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence,
that additional amounts advanced to or on behalf of the mortgagor or trustor
by the mortgagee or beneficiary are to be secured by the mortgage or deed of
trust. While such a clause is valid under the laws of most states, the
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance may be entitled to receive the same priority as amounts initially
made under the mortgage or deed of trust, notwithstanding that there may be
intervening junior mortgages or deeds of trust and other liens between the
date of recording of the mortgage or deed of trust and the date of the future
advance, and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance the additional amounts and has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens, the advance
may be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under a "future advance" clause rests, in
many other states, on state law giving priority to all advances made under
the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor
to pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on
the property, to maintain and repair the property and not to commit or permit
any waste thereof, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee or
beneficiary under the mortgage or deed of trust. Upon a failure of the
mortgagor or trustor to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor
agreeing to reimburse the mortgagee or beneficiary for any sums expended by
the mortgagee or beneficiary on behalf of the trustor. All sums so expended
by the mortgagee or beneficiary become part of the indebtedness secured by
the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute a lease unless the mortgagee or beneficiary executes
a written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or
beneficiary with the result that the value of the security for the junior
mortgage or deed of trust is diminished. For example, a senior mortgagee or
beneficiary may decide not to approve a lease or to refuse to grant a tenant
a non-disturbance agreement. If, as a result, the lease is not executed, the
value of the mortgaged property may be diminished.
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FORECLOSURE OF MORTGAGE
Foreclosure of a deed of trust or deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in
the deed of trust which authorizes the trustee to sell the property upon any
default by the borrower under the terms of the note or deed of trust or deed
to secure debt. In some states, prior to such sale, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person
who has recorded a request for a copy of a notice of default and notice of
sale. In addition, the trustee in some states must provide notice of any
other individual having an interest in the real property, including any
junior lienholders. In some states there is a reinstatement period. The
trustor, borrower, or any person having a junior encumbrance on the real
estate may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. In other states, after acceleration of the debt, the borrower
is not provided with a period to reinstate the loan, but has only the right
to pay off the entire debt to prevent the foreclosure sale. Generally, state
law controls the amount of foreclosure expenses and costs, including
attorneys' fees, which may be recovered by a lender. If the deed of trust is
not reinstated, a notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property, recorded and sent to all parties having an
interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated
by statutes and rules and subject throughout to the court's equitable powers.
Generally, a borrower is bound by the terms of the mortgage note and the
mortgage and cannot be relieved from his default if the mortgagee has
exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may
exercise equitable powers to relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that either the mortgagor's default was
neither willful nor in bad faith or the mortgagee's action established a
waiver, fraud, bad faith, or oppressive or unconscionable conduct such as to
warrant a court of equity refusing affirmative relief to the mortgagee. Under
certain circumstances, a court of equity may relieve the borrower from an
entirely technical default where such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes
requiring up to several years to complete. Moreover, a non-collusive,
regularly conducted foreclosure sale may be challenged as a fraudulent
conveyance, regardless of the parties' intent, if a court determines that the
sale was for less than fair consideration and such sale occurred while the
mortgagor was insolvent and within the state statute of limitations (which is
tolled by the filing of a bankruptcy case). Similarly, in some states, a suit
against the debtor on the mortgage note may take several years and,
generally, is a remedy alternative to foreclosure, the mortgagee being
precluded from pursuing both at the same time.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty potential third-party purchasers at
the sale have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
property at a foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or referee for an amount which may be
equal to the principal amount of the mortgage or deed of trust plus accrued
and unpaid interest and the expenses of foreclosure, in which event the
borrower's debt will be extinguished or the lender may purchase for a lesser
amount in order to preserve its right against a borrower to seek a deficiency
judgment in states where such a judgment is available. Thereafter, and
subject in some states to the right of the borrower to stay in possession
during a redemption period, the lender will assume the burdens of ownership,
including obtaining casualty insurance, paying taxes and making such repairs
at its own expense as are necessary to render the property suitable for sale.
The lender will commonly obtain the services of a real estate broker and pay
the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Moreover, a
lender typically incurs substantial legal fees and court costs in acquiring a
mortgaged property through
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contested foreclosure. Furthermore, certain states require that any
environmental hazards be eliminated before a property may be resold. In
addition, a lender may be responsible under federal or state law for the cost
of cleaning up a mortgaged property that is environmentally contaminated. As
a result, a lender could realize an overall loss on a mortgage loan even if
the related 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 mortgage loan, plus accrued interest. Any loss may be
reduced by the receipt of any mortgage guaranty insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the trustor or borrower and foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale.
The right of redemption should be distinguished from the equity of
redemption, which is a nonstatutory right that must be exercised prior to the
foreclosure sale. In some states, redemption may occur only upon payment of
the foreclosure sales price and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of
the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The right of
redemption would defeat the title of any purchaser from the lender subsequent
to foreclosure or sale under a deed of trust. Consequently, the practical
effect of a right of redemption is to force the lender to retain the property
and pay expenses of ownership until the redemption period has run. In some
states, there is no right to redeem property after a trustee's sale under a
deed of trust.
ENVIRONMENTAL MATTERS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of
clean-up. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA"), a lender may be liable,
as an "owner" or "operator," for costs of addressing releases or threatened
releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the environmental
damage or threat was actually caused or exacerbated by the lender's agents or
employees. A lender also risks such liability on and following foreclosure of
the Mortgaged Property. 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." On April 29, 1992, the United States Environmental Protection
Agency ("EPA") issued a final rule intended to protect lenders from liability
under CERCLA. This rule was in response to a 1990 decision of the United
States Court of Appeals for the Eleventh Circuit, United States v. Fleet
Factors Corp., which narrowly construed the security interest exemption under
CERCLA to hold lenders liable if they had the capacity to influence their
borrower's management of hazardous waste. On February 4, 1994, the United
States Court of Appeal for the District of Columbia Circuit in Kelley v. EPA
invalidated this EPA rule. As a result of the Kelley case, the state of the
law with respect to the secured creditor exemption and the scope of
permissible activities in which a lender may engage to protect its security
interest remain uncertain. In addition, even if a new version of the EPA rule
were to be adopted formally by EPA, followed informally by EPA, enacted by
statute, or otherwise reinstated, the rule would not necessarily affect the
potential for lender liability in actions by parties other than EPA or under
laws or legal theories other than CERCLA. If a lender is or becomes liable,
it can bring an action for contribution against the owner or operator who
created the environmental hazard, but that person or entity may be bankrupt
or otherwise judgment proof. Such clean-up costs may be substantial. It is
possible that such costs could become a liability of the Trust Estate and
occasion a loss to Bondholders in certain circumstances described above if
such remedial costs were incurred.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.
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Unless otherwise specified in the related Prospectus Supplement, the
Servicing Agreement, Master Servicing Agreement or Special Servicing
Agreement, as applicable, provides that the Servicer, the Master Servicer or
the Special Servicer, as applicable, acting on behalf of the Trust Estate or
Trust Fund, as applicable, may not acquire title to a Mortgaged Property
underlying a Mortgage Loan or take over its operation unless the Servicer,
the Master Servicer or the Special Servicer, as applicable, has previously
determined, based upon a report prepared by a person who regularly conducts
environmental audits, that (i) the Mortgaged Property is in compliance with
applicable environmental laws and regulations or, if not, that taking such
actions as are necessary to bring the Mortgaged Property in compliance
therewith is reasonably likely to produce a greater recovery on a present
value basis than not taking such actions and (ii) there are no circumstances
or conditions present that have resulted in any contamination or if such
circumstances or conditions are present for which such action could be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a present value basis
than not taking such actions.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties are subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material diminution in
the value of a Mortgaged Property which could, together with the limited
alternative uses for such Mortgaged Property, result in a failure to realize
the full principal amount of the Mortgage Loans.
For instance, Mortgaged Properties which are hospitals, nursing homes or
convalescent homes may present special risks in large part due to significant
governmental regulation of the operation, maintenance, control and financing
of health care institutions. Mortgaged Properties which are hotels or motels
may present additional risk in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements which may
be terminable by the operator, and (ii) the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchase or foreclosure is subject to the vagaries of local law
requirements.
LEASES AND RENTS
Multifamily and commercial mortgage loan transactions often provide for an
assignment of the leases and rents pursuant to which the borrower typically
assigns its right, title and interest, as landlord under each lease and the
income derived therefrom, to the lender while either obtaining a license to
collect rents for so long as there is no default or providing for the direct
payment to the lender. In some instances, local law, however, may require
that the lender take possession of the property and appoint a receiver before
becoming entitled to collect the rents under the lease.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or
sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal in most cases to the difference between the
amount due to the lender and the net amount realized upon the foreclosure
sale. Other statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against
the borrower. In certain other states, the lender has the option of bringing
a personal action against the borrower on the debt without first exhausting
such security; however, in some of these states, the lender, following
judgment on such personal action, may be deemed to have elected a remedy and
may be precluded from exercising remedies with respect to the security.
Consequently, the practical effect of the election requirement, when
applicable, is that lenders will usually proceed first against the security
rather than bringing personal action against the borrower. Finally, other
statutory provisions may limit any deficiency judgment against the former
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of such sale. The
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purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the judicial sale. In some states, exceptions to the
anti-deficiency statutes are provided for in certain instances where the
value of the lender's security has been impaired by acts or omissions of the
borrower, for example, in the event of waste of the property.
In addition, substantive requirements are imposed upon lenders in
connection with the origination and the servicing of mortgage loans by
numerous federal and some state consumer protection laws. The laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting
Act and related statutes and regulations. These federal laws impose specific
statutory liabilities upon lenders who originate loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
Federal Bankruptcy and Other Laws Affecting Creditors' Rights. In addition
to laws limiting or prohibiting deficiency judgments, numerous other
statutory provisions, including the federal bankruptcy laws (the "Bankruptcy
Code") and state laws affording relief to debtors, may interfere with or
affect the ability of the secured lender to realize upon collateral and/or
enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, the filing of a petition acts as a stay against the
enforcement of remedies (including the right of foreclosure) for collection
of a debt. Also, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay a senior lender from taking action to foreclose out
the junior lien.
In a Chapter 11 case under the Bankruptcy Code, the lender's lien may be
transferred to other collateral and/or be limited in amount to the value of
the lender's interest in the collateral as of the date of the bankruptcy. The
loan term may be extended, the interest rate may be adjusted to market rates
and the priority of the loan may be subordinated to bankruptcy court-approved
financing. The bankruptcy court can reinstate accelerated indebtedness and
also, in effect, invalidate due-on-sale clauses through confirmed Chapter 11
plans of reorganization. Under Section 363(b) and (f) of the Bankruptcy Code,
a trustee for a lessor, or a lessor as debtor-in-possession, may, despite the
provisions of the related Mortgage Loan to the contrary, sell the Mortgaged
Property free and clear of all liens, which liens would then attach to the
proceeds of such sale.
The Bankruptcy Code has recently been amended to provide that a lender's
perfected pre-petition security interest in leases, rents and hotel revenues
continues in the post-petition leases, rents and hotel revenues, unless a
bankruptcy court orders to the contrary "based on the equities of the case."
Thus, unless a court orders otherwise, revenues from a Mortgaged Property
generated after the date the bankruptcy petition is filed will constitute
"cash collateral" under the Bankruptcy Code. Debtors may only use cash
collateral upon obtaining the lender's consent or a prior court order finding
that the lender's interest in the Mortgaged Properties and the cash
collateral is "adequately protected" and such term is defined and interpreted
under the Bankruptcy Code. It should be noted, however, that the court may
find that the lender has no security interest in either pre-petition or
post-petition revenues if the court finds that the loan documents do not
contain language covering accounts, room rents, or other forms of personalty
necessary for a security interest to attach to hotel revenues.
Lessee bankruptcies at the Mortgaged Properties could have an adverse
impact on the Mortgagors' ability to meet their obligations. For example,
Section 365(e) of the Bankruptcy Code provides generally that rights and
obligations under an unexpired lease may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely
because of a provision in the lease conditioned upon the commencement of a
case under the Bankruptcy Code or certain other similar events. In addition,
Section 362 of the Bankruptcy Code operates as an automatic stay of, among
other things, any act to obtain possession of property of or from a debtor's
estate, which may delay the Trustee's exercise of such remedies in the event
that the lessee becomes the subject of a proceeding under the Bankruptcy
Code.
Section 365(a) of the Bankruptcy Code generally provides that a trustee or
a debtor-in-possession in a case under the Bankruptcy Code has the power to
assume or to reject an executory contract or an unexpired lease of the
debtor, in each case subject to the approval of the bankruptcy court
administering
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such case. If the trustee or debtor-in-possession rejects an executory
contract or an unexpired lease, such rejection generally constitutes a breach
of the executory contract or unexpired lease immediately before the date of
the filing of the petition. As a consequence, the other party or parties to
such executory contract or unexpired lease, such as the Mortgagor, as lessor
under a lease, would have only an unsecured claim against the debtor for
damages resulting from such breach, which could adversely affect the security
for the related Mortgage Loan. Moreover, under Section 502(b)(6) of the
Bankruptcy Code, the claim of a lessor for such damages from the termination
of a lease of real property will be limited to the sum of (i) the rent
reserved by such lease, without acceleration, for the greater of one year or
15 percent, not to exceed three years, of the remaining term of such lease,
following the earlier of the date of the filing of the petition and the date
on which such lender repossessed, or the lessee surrendered, the leased
property, and (ii) any unpaid rent due under such lease, without
acceleration, on the earlier of such dates.
Under Section 365(f) of the Bankruptcy Code, if a trustee or
debtor-in-possession assumes an executory contract or an unexpired lease of
the debtor, the trustee or debtor-in-possession generally may assign such
executory contract or unexpired lease, notwithstanding any provision therein
or in applicable law that prohibits, restricts or conditions such assignment,
provided that the trustee or debtor-in-possession provides "adequate
assurance of future performance" by the assignee. The Bankruptcy Code
specifically provides, however, that adequate assurance of future performance
for purposes of a lease of real property in a shopping center includes
adequate assurance of the source of rent and other consideration due under
such lease, and in the case of an assignment, that the financial condition
and operating performance of the proposed assignee and its guarantors, if
any, shall be similar to the financial condition and operating performance of
the debtor and its guarantors, if any, as of the time the debtor became the
lessee under the lease, that any percentage rent due under such lease will
not decline substantially, that the assumption and assignment of the lease is
subject to all the provisions thereof, including (but not limited to)
provisions such as a radius location, use or exclusivity provision, and will
not breach any such provision contained in any other lease, financing
agreement, or master agreement relating to such shopping center, and that the
assumption or assignment of such lease will not disrupt the tenant mix or
balance in such shopping center. Thus, an undetermined third party may assume
the obligations of the lessee under a lease in the event of commencement of a
proceeding under the Bankruptcy Code with respect to the lessee.
Under Section 365(h) of the Bankruptcy Code, if a trustee for a lessor, or
a lessor as a debtor-in-possession, rejects an unexpired lease of real
property, the lessee may treat such lease as terminated by such rejection or,
in the alternative, may remain in possession of the leasehold for the balance
of such term and for any renewal or extension of such term that is
enforceable by the lessee under applicable nonbankruptcy law. The Bankruptcy
Code provides that if a lessee elects to remain in possession after such a
rejection of a lease, the lessee may offset against rents reserved under the
lease for the balance of the term after the date of rejection of the lease,
and any such renewal or extension thereof, any damages occurring after such
date caused by the nonperformance of any obligation of the lessor under the
lease after such date.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise
accept. Moreover, the laws of certain states also give priority to certain
tax liens over the lien of a mortgage or deed of trust. Under the Bankruptcy
Code, if the court finds that actions of the mortgagee have been
unreasonable, the lien of the related mortgage may be subordinated to the
claims of unsecured creditors.
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DUE ON-SALE CLAUSES IN MORTGAGE LOANS
A note, mortgage or deed of trust relating to the Mortgage Loans generally
contains a "due-on-sale" clause permitting acceleration of the maturity of a
loan if the borrower transfers its interest in the property. In recent years,
court decisions and legislative actions placed substantial restrictions on
the right of lenders to enforce such clauses in many states. By virtue,
however, of the Garn St. Germain Depository Institutions Act of 1982 (the
"Garn Act") effective October 15, 1982 (which purports to preempt state laws
which prohibit the enforcement of due-on-sale clauses by providing among
other matters, that "due-on-sale" clauses in certain loans made after the
effective date of the Garn Act are enforceable, within certain limitations as
set forth in the Garn Act and the regulations promulgated thereunder) the
Servicer or the Master Servicer may nevertheless be able to accelerate many
of the Mortgage Loans that contain a "due-on-sale" provision upon transfer of
an interest in the property subject to the Mortgage Loans, regardless of the
Servicer's or the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon the late charges which a lender
may collect from a borrower for delinquent payments. Certain states also
limit the amounts that a lender may collect from a borrower as an additional
charge if the loan is prepaid. The enforceability, under the laws of a number
of states of provisions providing for prepayment fees or penalties upon an
involuntary prepayment is unclear, and no assurance can be given that, at the
time a prepayment fee or penalty is required to be made on a Mortgage Loan in
connection with an involuntary prepayment, the obligation to make such
payment will be enforceable under applicable state law. Late charges and
prepayment fees are typically retained by servicers as additional servicing
compensation. The absence of a restraint on prepayment, particularly with
respect to Mortgage Loans having higher mortgage rates, may increase the
likelihood of refinancing or other early retirements of the Mortgage Loans.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles
are generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. Examples of judicial remedies that have
been fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have substituted their judgment for the lender's
judgment and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from temporary
financial disability. In other cases, courts have limited the right of a
lender to realize upon his security if the default under the security
agreement is not monetary, such as the borrower's failure to adequately
maintain the property or the borrower's execution of secondary financing
affecting the property. Finally, some courts have been faced with the issue
of whether or not federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under security
agreements receive notices in addition to the statutorily prescribed
minimums. For the most part, these cases have upheld the notice provisions as
being reasonable or have found that, in cases involving the sale by a trustee
under a deed of trust or by a mortgagee under a mortgage having a power of
sale, there is insufficient state action to afford constitutional protections
to the borrower.
The Mortgage Loans may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary default of the borrower,
after the applicable cure period. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment
default. However, courts of any state, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust and the
circumstances would render the acceleration unconscionable.
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APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. Similar federal
statutes were in effect with respect to mortgage loans made during the first
three months of 1980. The OTS, as successor to the Federal Home Loan Bank
Board, is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. Title V authorizes any
state to reimpose interest rate limits by adopting, before April 1, 1983, a
state law, or by certifying that the voters of such state have voted in favor
of any provision, constitutional or otherwise, which expressly rejects an
application of the federal law. Fifteen states adopted such a law prior to
the April 1, 1983 deadline. In addition, even where Title V is not so
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.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will be eligible
as Mortgage Assets unless (i) such Mortgage Loan provides for such interest
rate, discount points and charges as are permitted in such state or (ii) such
Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the Mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect. No Mortgage Loan originated prior to January 1, 1980 will bear
interest or provide for discount points or charges in excess of permitted
levels.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including ARMs originated by
non-federally chartered lenders, have historically been subject to a variety
of restrictions. Such restrictions differed from state to state, resulting in
difficulties in determining whether a particular alternative mortgage
instrument originated by a state-chartered lender complied with applicable
law. These difficulties were alleviated substantially as a result of the
enactment of Title VIII of the Garn St. Germain Act ("Title VIII"). Title
VIII provides that, notwithstanding any state law to the contrary,
state-chartered banks may originate "alternative mortgage instruments"
(including ARMs) in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks; state chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration with respect to
origination of alternative mortgage instruments by federal credit unions and
all other non-federally chartered housing creditors, including
state-chartered savings and loan associations; and state-chartered savings
banks and mortgage banking companies may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal
Home Loan Bank Board, as succeeded by the OTS, with respect to origination of
alternative mortgage instruments by federal savings and loan associations.
Title VIII provides that any state may reject applicability of the provisions
of Title VIII by adopting, prior to October 15, 1985, a law or constitutional
provision expressly rejecting the applicability of such provisions. Certain
states have taken such action.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may not restrict secondary financing,
thereby permitting the borrower to use the Mortgaged Property as security for
one or more additional loans. Certain of the Mortgage Loans may preclude
secondary financing (by permitting the first lender to accelerate the
maturity of its loan if the borrower further encumbers the Mortgaged Property
or in some other fashion) or may require the consent of the senior lender to
any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances.
Where the borrower encumbers the Mortgaged Property with one or more
junior liens, the senior lender is subjected to additional risk. For example,
the borrower may have difficulty servicing and repaying multiple loans or
acts of the senior lender which prejudice the junior lender or impair the
junior
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lender's security may create a superior equity in favor of the junior lender.
For example, if the borrower and the senior lender agree to an increase in
the principal amount of or the interest rate payable on the senior loan, the
senior lender may lose its priority to the extent any existing junior lender
is harmed or the borrower is additionally burdened. In addition, 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, delay and in
certain circumstances even prevent the taking of action by the senior lender.
In addition, the bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
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THE INDENTURE
The following summaries describe certain provisions of the Indenture. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Indenture. Where
particular provisions or terms used in the Indenture are referred to, such
provisions or terms are as specified in the Indenture.
CERTAIN COVENANTS
The Issuer may not liquidate or dissolve, without the consent of the
holders of not less than 66 2/3% of the Aggregate Outstanding Principal of
each Series. The Issuer also may not consolidate or merge with or into any
other Person or convey or transfer its properties and assets substantially as
an entirety without the consent of holders of not less than 66 2/3% of the
Aggregate Outstanding Principal of each Series, and unless (a) the Person (if
other than the Issuer) formed or surviving such merger or consolidation or
acquiring such assets is a Person organized under the laws of the United
States of America or any State and shall have expressly assumed, by
supplemental indenture in form satisfactory to the Trustee, the due and
punctual payment of principal of and interest on all Bonds and the
performance of every applicable covenant of the Indenture to be performed, by
the Issuer, (b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred, and be continuing, (c) the
Trustee shall have received a letter from each Rating Agency rating any
outstanding Bonds to the effect that the rating issued with respect to such
Bonds is confirmed notwithstanding the consummation of such transaction and
(d) the Trustee shall have received from the Issuer an Officers' Certificate
and an Opinion of Counsel, each to the effect that, among other things, such
transaction complies with the foregoing requirements.
The Issuer may incur, assume, have outstanding or guarantee any
indebtedness other than pursuant to the Indenture only subject to certain
conditions and limitations.
MODIFICATION OF INDENTURE
Except as set forth below, with the consent of the holders of not less
than a majority of the then Aggregate Outstanding Principal of each Series or
Class of such Series to be affected, the Trustee and the Issuer may amend the
Indenture or execute a supplemental indenture, to add provisions to or change
or eliminate any provisions of the Indenture or Trust Agreement, as
applicable, relating to such Series, or modify the rights of the holders of
the Bonds of that Series.
Without the consent of the holder of each outstanding Bond affected,
however, except as provided below, no such amendment or supplemental
indenture shall (i) change the Stated Maturity of the principal of or any
installment of principal of or interest on any Bond or reduce the principal
amount thereof, the Bond Interest Rate for any Bond or the Redemption Price
with respect thereto, or change the provisions of the Trust Indenture or the
related Series Supplement relating to the application of the Trust Estate to
payment principal of or interest on the affected Bonds, or change any place
of payment where, or the coin or currency in which, any affected Bond or any
interest thereon is payable, or impair the right to institute suit for the
enforcement of the provisions of the Indenture regarding payment, (ii) reduce
the percentage of Aggregate Outstanding Principal of the Bonds of the
affected Series or Class of such Series, the consent of the holders of which
is required for the authorization of any such amendment or supplemental
indenture or for any waiver of compliance with certain provisions of the
Indenture or certain defaults thereunder and their consequences, (iii) modify
or alter the provisions of the Indenture defining the term "Outstanding,"
(iv) permit the creation of any lien ranking prior to or on a parity with the
lien of the Indenture with respect to any part of the property subject to the
lien of the Indenture or terminate the lien of the Indenture on any property
at any time subject thereto or deprive the holder of any Bond of the security
afforded by the lien of the Indenture, (v) reduce the percentage of the
Aggregate Outstanding Principal of any Series (or Class of such Series), the
consent of the holders of which is required to direct the Trustee to
liquidate the Mortgage Assets for such Series, (vi) modify any of the
provisions of the Indenture if such modification affects the calculation of
the amount of any payment of interest or principal due and payable on any
Bond on any Payment Date or to affect the rights of the holders of Bonds of
any Series (or Class of such Series) to the benefit of any provisions for the
mandatory redemption of Bonds
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of such Series (or Class of such Series) contained therein or in the related
Series Supplement or (vii) modify the provisions of the Indenture regarding
any modifications of such Indenture requiring consent of the holders of
Bonds, except to increase the percentage or number of holders required to
consent to such modification of such Indenture or Trust Agreement, as
applicable, or to provide that additional provisions of the Indenture cannot
be modified or waived without the consent of the holder of each Bond affected
thereby.
The Issuer and the Trustee may also amend the Indenture or enter into
supplemental indentures, without obtaining the consent of holders of any
Series, to cure any ambiguity or to correct or supplement any provision of
the Indenture or any supplemental indenture which may be defective or
inconsistent with any other provision, or to make or to amend any other
provisions with respect to matters or questions arising under the Indenture
or any supplemental indenture, provided that such action shall not materially
adversely affect the interests of the holders of the Bonds. Such amendments
may also be made and such supplemental indentures may also be entered into
without the consent of Bondholders or Certificateholders to set forth the
terms of and security for additional Series, to evidence the succession of
another person to the Issuer, to add to the conditions, limitations and
restrictions on certain terms of any Series and to the covenants of the
Issuer, to surrender any right or power conferred upon the Issuer, to convey,
transfer, assign, mortgage or pledge any property to the Trustee, to correct
or amplify the description of any property subject to the lien of the
Indenture to modify the Indenture to the extent necessary to effect the
Trustee's qualification under the TIA or comply with the requirements of the
TIA, to provide for the issuance of Bonds of any Series, to make any
amendment necessary or desirable to maintain the status of a REMIC as a REMIC
and to amend the provisions of the Indenture relating to authentication and
delivery of a Series with respect to which a supplemental indenture has not
theretofore been authorized or to evidence and provide for the acceptance of
appointment by a successor trustee.
EVENTS OF DEFAULT
Unless otherwise stated in the related Prospectus Supplement, an "Event of
Default" with respect to any Series is defined in the Indenture as being: (i)
a continuing default for 5 days in the payment of interest on any Bond of
such Series; (ii) a continuing default for five days in the payment of
principal, when due, of any Bond of such Series; (iii) the impairment of the
validity or effectiveness of the Indenture or any grant thereunder, or the
subordination, termination or discharge of the lien of the Indenture with
respect to such Series, or the release of any Person from any covenants or
obligations under the Indenture with respect to such Series, unless otherwise
expressly permitted, or the creation of any lien, charge, security interest,
mortgage or other encumbrance with respect to any part of the property
subject to the lien of the Indenture, or any interest in or proceeds of such
property, or the failure of the lien of the Indenture to constitute a valid
first priority security interest in the property subject to the lien of the
Indenture and the continuation of any of such defaults for a period of 30
days after notice to the Issuer by the Trustee or to the Issuer and the
Trustee by the Holders of at least 25% of the then Aggregate Outstanding
Principal of such Series; (iv) a default in the observance of, or breach of,
any covenant or negative covenant of the Issuer made in the Indenture, or a
material breach of any representation or warranty of the Issuer made in the
Indenture or in any certificate or other document delivered pursuant thereto
or in connection therewith as of the time when the same shall have been made,
and the continuation of any such default or breach for a period of 60 days
after notice to the Issuer by the Trustee or to the Issuer and the Trustee by
the holders of at least 25% of the then Aggregate Outstanding Principal of
such Series (unless the default or breach is with respect to certain
covenants specified in the Indenture not requiring such continuation or
notice); and (v) certain events of bankruptcy, insolvency, receivership or
reorganization of the Issuer. Notwithstanding the foregoing, if a Series
includes a Class of Subordinate Bonds, the Series Supplement for such a
Series may provide that certain defaults which relate only to such
Subordinate Securities shall not constitute an Event of Default with respect
to the Bonds, under certain circumstances, and may limit the rights of
holders of Subordinate Securities to direct the Trustee to pursue remedies
with respect to such defaults, or other Events of Default. Such limitations,
if any, will be specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, in case an
Event of Default with respect to any Series should occur and be continuing,
the Trustee may and, upon the written request of
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the holders of at least 25% of the then Aggregate Outstanding Principal of
such Series shall, declare all Bonds of such Series to be due and payable,
together with accrued and unpaid interest thereon. Such declaration may under
certain circumstances be rescinded by the holders of a majority of the then
Aggregate Outstanding Principal of such Series. The Indenture provides that
the Trustee shall, within 90 days after the occurrence of an Event of Default
with respect to a Series, mail to the holders of such Series notice of all
uncured or unwaived defaults known to it; provided that, except in the case
of an Event of Default in the payment of the principal or purchase price of
or interest on any Bond, the Trustee shall be protected in withholding such
notice if it determines in good faith that the withholding of such notice is
in the interest of the Bondholders of such Series, and provided, further,
that, in the case of a default specified in clause (iv) of the first
paragraph of this "Events of Default" subsection the Trustee is not required
to give such notice until at least 30 days after the occurrence of such
default or breach and that, in the case of any default or breach specified in
clause (v) of the first paragraph of this "Events of Default" subsection, the
Trustee is not required to give such notice until at least 60 days after the
occurrence of such default or breach.
An Event of Default with respect to one Series will not necessarily be an
Event of Default with respect to any other Series.
Unless otherwise provided in the related Prospectus Supplement, if
following an Event of Default with respect to any Series, the Bonds of such
Series have been declared to be due and payable, the Trustee may, but shall
not be obligated to, in its sole discretion, refrain from liquidating the
related Mortgage Assets if (i) the Trustee determines that the amounts
receivable with respect to such Mortgage Assets and any Enhancement will be
sufficient to pay (a) all principal of and interest on the Bonds in
accordance with their terms without regard to the declaration of acceleration
and (b) all sums due the Trustee and any other administrative amounts
required to be paid under the Indenture and (ii) Holders of the requisite
percentage of the Securities of such Series have not directed the Trustee to
sell the related Mortgage Assets as so specified in the Indenture. In
addition, unless otherwise specified in the related Prospectus Supplement,
the Trustee is prohibited from selling the Trust Estate following certain
Events of Default unless (a) the amounts receivable with respect to the
Mortgage Assets and any Enhancement are not sufficient to pay in full the
principal of and accrued interest on the Bonds of such Series and to pay sums
due the Trustee and other administrative expenses specified in the Indenture
and the Trustee obtains the consent of holders of 66 2/3% of the Aggregate
Outstanding Principal of such Series or (b) the Trustee obtains the consent
of 100% of the Aggregate Outstanding Principal of such Series, and subject to
the provisions of the related Prospectus Supplement, the obligor under the
Enhancement. Unless otherwise provided in the related Prospectus Supplement,
the proceeds of a sale of Mortgage Assets will be applied to the payment of
amounts due the Trustee and other administrative expenses specified in the
Indenture and then distributed pro rata among the Bondholders of such Series
(without regard to Class, provided that Subordinate Securities will be
subordinate to Senior Securities of the Series to the extent provided in the
related Prospectus Supplement) according to the amounts due and payable on
the Bonds for principal and interest at the time such proceeds are
distributed by the Trustee.
The Trustee shall not be deemed to have knowledge of any Event of Default
or Default described in clauses (iv) through (vi) of the first paragraph of
this "Events of Default" subsection unless an officer in the Trustee's
corporate trust department has actual knowledge thereof. Subject to the
provisions of the Indenture relating to the duties of the Trustee, in case an
Event of Default shall occur and be continuing, the Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Bondholders of a Series, unless such
Bondholders shall have offered to the Trustee reasonable security or
indemnity. Subject to such provisions for indemnification and certain
limitations contained in the Indenture the holders of a majority of the then
Aggregate Outstanding Principal of a Series (or of such Classes specified in
the related Prospectus Supplement) will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee with
respect to the Series. In addition, the Holders of a majority of the then
Aggregate Outstanding Principal of a Series (or of such Classes specified in
the related Prospectus Supplement) may, in certain cases, waive any default
with respect to such Series, except a default in payment of principal or
interest or in respect of a covenant or provision which cannot be modified
without the consent of all Bondholders affected.
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Unless otherwise specified in the related Prospectus Supplement, no holder
of Bonds of a Series will have the right to institute any Proceeding with
respect to the Indenture, unless (i) such Holder previously has given to the
Trustee written notice of a continuing Event of Default with respect to such
Series and has offered the Trustee satisfactory indemnity, (ii) the Holders
of not less than 25% of the then Aggregate Outstanding Principal of such
Series have made written request upon the Trustee to institute such
Proceeding as Trustee and have offered satisfactory indemnity, (iii) the
Trustee has, for 60 days after receipt of such notice, request and offer of
indemnity, failed to institute any such Proceeding and (iv) no direction
inconsistent with such written request has been given to the Trustee during
such 60-day period by the Holders of a majority of the then Aggregate
Outstanding Principal of such Series; provided, however, that in the event
that the Trustee receives conflicting requests and indemnities from two or
more groups of Bondholders, each representing less than a majority of the
Aggregate Outstanding Principal of such Series, the Trustee may in its sole
discretion determine what action with respect to the Proceeding, if any,
shall be taken.
AUTHENTICATION AND DELIVERY OF BONDS
The Issuer may from time to time deliver Bonds executed by it to the
Trustee and order that the Trustee authenticate such Bonds. Upon the receipt
of such Bonds and such order and subject to the Issuer's compliance with
certain conditions specified in the Indenture the Trustee will authenticate
and deliver such Bonds as the Issuer may direct. Unless otherwise specified
in the related Prospectus Supplement, the Trustee will be authorized to
appoint an agent for purposes of authenticating and delivering any Series of
Bonds (the "Authenticating Agent").
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged as to a Series (except with respect to
certain continuing rights specified in the Indenture or Trust Agreement, as
applicable), (a)(1) upon the delivery to the Trustee for cancellation of all
of the Bonds of such Series other than Bonds which have been mutilated, lost
or stolen and have been replaced or paid and Bonds for which money has been
deposited in trust for the full payment thereof (and thereafter repaid to the
Issuer and discharged from such trust) as provided in of the Indenture, or
(2) at such time as all Bonds of such Series not previously cancelled by the
Trustee have become, or, within one year, will become, due and payable or
called for redemption and the Issuer shall have deposited with the Trustee an
amount sufficient to repay all of the Bonds and (b) the Issuer shall have
paid all other amounts payable under the Indenture or Trust Agreement, as
applicable, with respect to such Series.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Trustee a written
statement as to fulfillment of its obligations under the Indenture.
LIST OF BONDHOLDERS
Three or more Holders of a Series which have each owned the Bonds for at
least six months may, by written application to the Trustee, request access
to the list maintained by the Trustee of all holders of the same Series or of
all Bonds, as specified in the request, for the purpose of communicating with
other Bondholders with respect to their rights under the Indenture.
MEETINGS OF BONDHOLDERS
Meetings of Bondholders or Certificateholders may be called at any time
and from time to time to (i) give any notice to the Issuer or to the Trustee,
give directions to the Trustee, consent to the waiver of any Default or Event
of Default under the Indenture, or to take any other action authorized to be
taken by Bondholders in connection therewith, (ii) remove the Trustee and to
appoint a successor Trustee, (iii) consent to the execution of supplemental
indentures or (iv) take any other action authorized to be taken
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by or on behalf of the Bondholders of any specified percentage of the
Aggregate Outstanding Principal of the Bonds. Such meetings may be called by
the Trustee, the Issuer or by the holders of 10% in Aggregate Outstanding
Principal of any such Series.
FISCAL YEAR
The fiscal year of each Issuer ends on December 31.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Bondholders a brief
report relating to its eligibility and qualification to continue as the
Trustee under the Indenture any amounts advanced by it under the Indenture
which remain unpaid on the date of the report, the amount, interest rate and
maturity date of certain indebtedness owing by the Issuer (or any other
obligor on such Series) to the Trustee in its individual capacity, the
property and funds physically held by the Trustee as such, any release or
release and substitution of property subject to the lien of the Indenture
which has not been previously reported, any additional issuance of Bonds not
previously reported and any action taken by it which materially affects the
Bonds and which has not been previously reported.
THE TRUSTEE
Bankers Trust or Marine Midland (or another bank or trust company
qualified under the TIA and named in the Prospectus Supplement related to a
Series) will be the Trustee under the Indenture for the Bond. The Issuer may
maintain other banking relationships in the ordinary course of business with
the Trustee. If Bankers Trust Company of California, N.A. serves as Trustee,
the Trustee's "Corporate Trust Office" is 3 Park Plaza, 16th Floor, Irvine,
California 92714, and if Marine Midland Bank, N.A. serves as Trustee, the
Trustee's "Corporate Trust Office" is 140 Broadway, New York, New York 10015,
or at such other addresses as the Trustee may designate from time to time by
notice to the Bondholders and the Issuer. With respect to the presentment and
surrender of Bonds for final payment of principal in retirement thereof on
any Payment Date, Redemption Date, Special Payment Date or Special Redemption
Date and, with respect to any other presentment and surrender of such Bonds
and for all other purposes, unless otherwise specified in the related
Prospectus Supplement, such Bonds may be presented at the Corporate Trust
Office of the Trustee or at the office of the Issuer's agent in the State of
New York (the "New York Presenting Agent"), which (if Bankers Trust Company
of California, N.A. is the Trustee) will be Bankers Trust Company, Four
Albany Street, New York, New York 10006. If another bank or trust company
serves as Trustee or as the New York Presenting Agent, the address of its
Corporate Trust Office or such office of the New York Presenting Agent will
be specified in the related Prospectus Supplement.
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THE TRUST AGREEMENT
The following summaries describe certain provisions of the Trust
Agreement. The summaries do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the provisions of the Trust
Agreement. Where particular provisions or terms used in the Trust Agreement
are referred to, such provisions or terms are as specified in the Trust
Agreement.
ASSIGNMENT OF MORTGAGE ASSETS
General. The Depositor will transfer, convey and assign to the Trustee all
right, title and interest of the Depositor in the Mortgage Assets and other
property to be included in the Trust Fund for a Series. Such assignment will
include all principal and interest due on or with respect to the Mortgage
Assets after the Cut-off Date specified in the related Prospectus Supplement.
The Trustee will, concurrently with such assignment, execute and deliver the
Certificates.
Assignment of Mortgage Loans. The Depositor will, as to each Mortgage
Loan, deliver or cause to be delivered to the Trustee, or, as specified in
the related Prospectus Supplement, the Custodian, the Mortgage Note endorsed
without recourse to the order of the Trustee or in blank, the original
Mortgage with evidence of recording indicated thereon (except for any
Mortgage not returned from the public recording office, in which case a copy
of such Mortgage will be delivered, together with a certificate that the
original of such Mortgage was delivered to such recording office) and an
assignment of the Mortgage in recordable form. The Trustee, or, if so
specified in the related Prospectus Supplement, the Custodian, will hold such
documents in trust for the benefit of the Certificateholders.
If so specified in the related Prospectus Supplement, the Depositor will,
at the time of delivery of the Certificates, cause assignments to the Trustee
of the Mortgage Loans to be recorded in the appropriate public office for
real property records, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the Mortgage Loan. If specified in the related
Prospectus Supplement, the Depositor will cause such assignments to be so
recorded within the time after delivery of the Certificates as is specified
in the related Prospectus Supplement, in which event, the Trust Agreement
may, as specified in the related Prospectus Supplement, require the Depositor
to repurchase from the Trustee any Mortgage Loan required to be recorded but
not recorded within such time, at the price described below with respect to
repurchase by reason of defective documentation. Unless otherwise provided in
the related Prospectus Supplement, the enforcement of the repurchase
obligation would constitute the sole remedy available to the
Certificateholders or the Trustee for the failure of a Mortgage Loan to be
recorded.
Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the Trust Agreement (the "Mortgage Loan Schedule"). Such Mortgage
Loan Schedule will specify with respect to each mortgage loan: the original
principal amount and unpaid principal balance as of the Cut-off Date; the
current interest rate; the current Scheduled Payment of principal and
interest; the maturity date of the related mortgage note; if the Mortgage
Loan is an adjustable rate mortgage, the lifetime mortgage rate cap, if any,
and the current index; and, if the Mortgage Loan is a loan with other than
fixed Scheduled Payments and level amortization, the terms thereof.
REPURCHASE OF NON-CONFORMING LOANS
Unless otherwise provided in the related Prospectus Supplement, if any
document in the Mortgage Loan file delivered by the Depositor to the Trustee
is found by the Trustee within 45 days of the execution of the related Trust
Agreement (or promptly after the Trustee's receipt of any document permitted
to be delivered after the Closing Date) to be defective in any material
respect and the Depositor does not cure such defect within 90 days, or within
such other period specified in the related Prospectus Supplement, the
Depositor will, not later than 90 days or within such other period specified
in the related Prospectus Supplement, after the Trustee's notice to the
Depositor or the Master Servicer, as the case may be, of the defect,
repurchase the related Mortgage Loan or any property acquired in respect
thereof from the Trustee at a price equal to (a) the outstanding principal
balance of such Mortgage Loan (or, in the case of a foreclosed Mortgage Loan,
the outstanding principal balance of such Mortgage Loan immediately
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prior to foreclosure) and (b), accrued and unpaid interest to the date of the
next scheduled payment on such Mortgage Loan at the related Certificate
Interest Rate (less any unreimbursed Advances respecting such Mortgage Loan).
Unless otherwise provided in the related Prospectus Supplement, the
above-described repurchase obligation constitute the sole remedies available
to the Certificateholders or the Trustee for a material defect in a Mortgage
Loan document.
The Depositor or another entity will make representations and warranties
with respect to Mortgage Loans which comprise the Mortgage Assets for a
Series. If the Depositor or such entity cannot cure a breach of any such
representations and warranties in all material respects within 90 days after
notification by the Trustee of such breach, and if such breach is of a nature
that materially and adversely affects the value of such Mortgage Loan, the
Depositor or such entity is obligated to repurchase the affected Mortgaged
Loan or, if provided in the related Prospectus Supplement, provide a
Substitute Mortgage Loan therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations
of the responsible originator or seller of such Mortgage Loans. See "RISK
FACTORS".
REPORTS TO CERTIFICATEHOLDERS
The Trustee will prepare and forward to each Certificateholder on each
Distribution Date, or as soon thereafter as is practicable, a statement
setting forth, to the extent applicable to any Series, among other things:
(i) with respect to a Series the amount of such distribution allocable to
principal on the Mortgage Assets, separately identifying the aggregate
amount of any principal prepayments included therein and the amount, if
any, advanced by the Servicer or by a Servicer;
(ii) with respect to a Series, the amount of such distribution allocable
to interest on the Mortgage Assets and the amount, if any, advanced by a
Servicer;
(iii) the amount of servicing compensation with respect to the Mortgage
Assets and paid during the Due Period commencing on the Due Date to which
such distribution relates and the amount of servicing compensation during
such period attributable to penalties and fees;
(iv) the aggregate outstanding principal balance of the Mortgage Assets
as of the opening of business on the Due Date, after giving effect to
distributions allocated to principal and reported under (i) above;
(v) the aggregate outstanding principal amount of the Certificates of
such series as of the Due Date, after giving effect to distributions
allocated to principal reported under (i) above;
(vi) with respect to Compound Interest Securities, prior to the Accrual
Termination Date in addition to the information specified in (i)(B) above,
the amount of interest accrued on such Securities during the related
Interest Accrual Period and added to the Compound Value thereof;
(vii) in the case of Variable Rate Securities, the Variable Interest Rate
applicable to the distribution being made;
(viii) if applicable, the amount of any shortfall (i.e., the difference
between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds to distribute and the amounts actually distributed);
(ix) if applicable, the number and aggregate principal balances of
Mortgage Loans delinquent for (A) two consecutive payments and (B) three
or more consecutive payments, as of the close of the business on the
Determination Date to which such distribution relates;
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(x) if applicable, the book value of any REO Property acquired on behalf
of Certificateholders through foreclosure, grant of a deed in lieu of
foreclosure or repossession as of the close of the business on the
Business Day preceding the Distribution Date to which such distribution
relates;
(xi) if applicable, the amount of coverage under any pool insurance
policy as of the close of business on the applicable Distribution Date;
(xii) if applicable, the amount of coverage under any special hazard
insurance policy as of the close of business on the applicable
Distribution Date;
(xiii) if applicable, the amount of coverage under any bankruptcy bond as
of the close of business on the applicable Distribution Date;
(xiv) in the case of any other Enhancement described in the related
Prospectus Supplement, the amount of coverage of such credit support as of
the close of business on the applicable Distribution Date;
(xv) in the case of any Series which includes a Subordinate Securities,
the subordinated amount, if any, determined as of the related
Determination Date and if the distribution to the Holders Senior
Securities is less than their required distribution, the amount of the
shortfall;
(xvi) the amount of any withdrawal from any applicable reserve fund
included in amounts actually distributed to Certificateholders and the
remaining balance of each reserve fund, if any, on such Distribution Date,
after giving effect to distributions made on such date; and
(xvii) such other information as specified in the related Trust
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related
Prospectus Supplement, will furnish to each Certificateholder of record at
any time during such calendar year: (a) the aggregate of amounts reported
pursuant to (i) through (iv), (vi), (viii) and (xvi) above for such calendar
year and (b) such information specified in the Trust Agreement to enable
Certificateholders to prepare their tax returns including, without
limitation, the amount of original issue discount accrued on the
Certificates, if applicable. Information in the Distribution Date and annual
reports provided to the Certificateholders will not have been examined and
reported upon by an independent public accountant. However, the Master
Servicer will provide to the Trustee a report by independent public
accountants with respect to the Master Servicer's servicing of the Mortgage
Loans. See "SERVICING OF MORTGAGE LOANS--Evidence as to Compliance" herein.
EVENT OF DEFAULT
Events of Default under the Trust Agreement for each Series include (i)
any failure by the Master Servicer to distribute to Certificateholders of
such Series any required payment which continues unremedied for five days
after the giving of written notice of such failure to the Master Servicer by
the Trustee for such Series, or to the Master Servicer and the Trustee by the
Holders of Certificates of such Series evidencing not less than 25% of the
aggregate outstanding principal amount of the Certificates for such Series,
(ii) any failure by the Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Trust Agreement which
continues unremedied for 30 days (or 15 days in the case of a failure to
maintain any insurance policy required to be maintained pursuant to the Trust
Agreement) after the giving of written notice of such failure to the Master
Servicer by the Trustee, or to the Master Servicer and the Trustee by the
Holders of Certificates of such Series evidencing not less than 25% of the
aggregate outstanding principal amount of the Certificates and (iii) certain
events in insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Master Servicer
indicating its insolvency, reorganization or inability to pay its
obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Trust
Agreement for a Series, the Trustee for such Series or Holders of
Certificates of such Series evidencing not less than 25% of the aggregate
outstanding principal amount of the Certificates for such Series may
terminate all of the rights
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and obligations of the Master Servicer as servicer under the Trust Agreement
and in and to the Mortgage Loans (other than its right to recovery of other
expenses and amounts advanced pursuant to the terms of the Trust Agreement
which rights the Master Servicer will retain under all circumstances),
whereupon the Trustee will succeed to all the responsibilities, duties and
liabilities of the Master Servicer under the Trust Agreement and will be
entitled to reasonable servicing compensation not to exceed the applicable
servicing fee, together with other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in the Trust
Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a housing
and home finance institution, bank or mortgage servicing institution with a
net worth of at least $15,000,000 to act as successor Master Servicer under
the provisions of such Trust Agreement relating to the servicing of the
Mortgage Loans. The successor Servicer would be entitled to reasonable
servicing compensation in an amount not to exceed the servicing fee as set
forth in the related Prospectus Supplement, together with the other servicing
compensation in the form of assumption fees, late payment charges or
otherwise, as provided in the Trust Agreement.
During the continuance of any Event of Default under the Trust Agreement
for a Series, the Trustee for such Series will have the right to take action
to enforce its rights and remedies and to protect and enforce the rights and
remedies of the Certificateholders of such Series, and Holders of
Certificates evidencing not less than 25% of the aggregate outstanding
principal amount of the Certificates for such Series may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred upon that Trustee.
However, the Trustee will not be under any obligation to pursue any such
remedy or to exercise any of such trusts or powers unless such
Certificateholders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the
Trustee therein or thereby. Also, the Trustee may decline to follow any such
direction if the Trustee determines that the action or proceeding so directed
may not lawfully be taken or would involve it in personal liability or be
unjustly prejudicial to the nonassenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such Holder's status
as a Certificateholder, will have any right under the Trust Agreement for
such Series to institute any proceeding with respect to the Trust Agreement,
unless such Holder previously has given to the Trustee for such Series
written notice of default and unless the Holders of Certificates evidencing
not less than 25% of the aggregate outstanding principal amount of the
Certificates for such Series have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity, and the Trustee for 60 days has
neglected or refused to institute any such proceeding.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or trust
company named as the Trustee for each Series of Certificates will be set
forth in the related Prospectus Supplement, and such Trustee may be Bankers
Trust or Marine Midland. The entity serving as Trustee may have normal
banking relationships with the Depositor or the Master Servicer. In addition,
for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust Fund relating to a Series
of Certificates. In the event of such appointment, all rights, powers, duties
and obligations conferred or imposed upon the Trustee by the Trust Agreement
relating to such Series will be conferred or imposed upon the Trustee and
each such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform certain
acts, singly upon such separate trustee or co-trustee who shall exercise and
perform such rights, powers, duties and obligations solely at the direction
of the Trustee. The Trustee may also appoint agents to perform any of the
responsibilities of the Trustee, which agents shall have any or all of the
rights, powers, duties and obligations of the Trustee conferred on them by
such appointment; provided that the Trustee shall continue to be responsible
for its duties and obligations under the Trust Agreement.
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DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Trust Agreement, the Certificates or of any Mortgage Asset or related
documents. If no Event of Default (as defined in the related Trust Agreement)
has occurred, the Trustee is required to perform only those duties
specifically required of it under the Trust Agreement. Upon receipt of the
various certificates, statements, reports or other instruments required to be
furnished to it, the Trustee is required to examine them to determine whether
they are in the form required by the related Trust Agreement, however, the
Trustee will not be responsible for the accuracy or content of any such
documents furnished by it or the Certificateholders to the Master Servicer
under the Trust Agreement.
The Trustee may be held liable for its own grossly negligent action or
failure to act, or for its own willful misconduct; provided, however, that
the Trustee will not be personally liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance with the
direction of the Certificateholders in an Event of Default, see "Rights Upon
Event of Default" above. The Trustee is not required to expend or risk its
own funds or otherwise incur any financial liability in the performance of
any of its duties under a Trust Agreement, or in the exercise of any of its
rights or powers, if it has reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Depositor, resign at any time,
in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and
has accepted the appointment within 30 days after giving such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. The Trustee may also be
removed at any time (i) by the Depositor, if the Trustee ceases to be
eligible to continue as such under the Trust Agreement, (ii) if the Trustee
becomes insolvent, (iii) if a tax is imposed or threatened with respect to
the Trust Fund by any state in which the Trustee or the Trust Fund held by
the Trustee pursuant to the Trust Agreement is located, or (iv) by the
Holders of Certificates evidencing over 50% of the aggregate outstanding
principal amount of the Certificates in the Trust Fund upon 30 days' advance
written notice to the Trustee and to the Depositor. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
AMENDMENT OF TRUST AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the Trust
Agreement for each Series of Certificates may be amended by the Depositor,
the Master Servicer, and the Trustee with respect to such Series, without
notice to or consent of the Certificateholders (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein which may be inconsistent
with any other provision therein or in the Prospectus Supplement, (iii) to
make any other provisions with respect to matters or questions arising under
such Trust Agreement or (iv) to comply with any requirements imposed by the
Code; provided that any such amendment pursuant to clause (iii) above will
not adversely affect in any material respect the interests of any
Certificateholders of such Series not consenting thereto. Any such amendment
pursuant to clause (iii) of the preceding sentence shall be deemed not to
adversely affect in any material respect the interests of any
Certificateholder if the Trustee receives written confirmation from each
Rating Agency rating such Certificates that such amendment will not cause
such Rating Agency to reduce the then current rating thereof. The Trust
Agreement for each Series may also be amended by the Trustee, the Master
Servicer and the Depositor with respect to such Series with the consent of
the Holders possessing not less than 66 2/3% of the aggregate outstanding
principal amount of the Certificates of each Class of such Series affected
thereby, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Trust Agreement or
modifying in any manner the rights of Certificateholders of such Series;
provided, however, that no such amendment may (a) reduce the amount or delay
the timing of payments on any Certificate without the consent of the Holder
of such Certificate; or (b) reduce the aforesaid percentage of aggregate
outstanding principal amount of
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Certificates of each Class, the Holders of which are required to consent to
any such amendment without the consent of the Holders of 100% of the
aggregate outstanding principal amount of each Class of Certificates affected
thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of determining
allocation of voting rights with respect to a Series, if other than set forth
herein.
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with
respect to their rights under the Trust Agreement or under the Certificates
for such Series, which request is accompanied by a copy of the communication
which such Certificateholders propose to transmit, the Trustee will afford
such Certificateholders access during business hours to the most recent list
of Certificateholders of that Series held by the Trustee.
No Trust Agreement will provide for the holding of any annual or other
meeting of Certificateholders.
REMIC ADMINISTRATOR
With respect to any Series, preparation of certain reports and certain
other administrative duties with respect to the Trust Fund may be performed
by a REMIC administrator, who may be an affiliate of the Depositor.
TERMINATION
The obligations created by the Trust Agreement for a Series will terminate
upon the distribution to Certificateholders of all amounts distributable to
them pursuant to such Trust Agreement after (i) the later of the final
payment or other liquidation of the last Mortgage Loan remaining in the Trust
Fund for such Series or the disposition of all REO Property or (ii) the
repurchase, as described below, by the Servicer from the Trustee for such
Series of all Loans at that time subject to the Trust Agreement and all REO
Property. The Trust Agreement for each Series permits, but does not require,
the Servicer to repurchase from the Trust Fund for such Series all remaining
Mortgage Loans at a price equal to 100% of the Aggregate Asset Value of such
Mortgage Loans plus, with respect to REO Property, if any, the outstanding
principal balance of the related Mortgage Loan, less, in either case, related
unreimbursed Advances (in the case of the Mortgage Loans, only to the extent
not already reflected in the computation of the Aggregate Asset Value of such
Mortgage Loans) and unreimbursed expenses (that are reimburseable pursuant to
the terms of the Trust Agreement) plus, in either case, accrued interest
thereon at the weighted average Mortgage Rate through the last day of the Due
Period in which such repurchase occurs; provided, however, that if an
election is made for treatment as a REMIC under the Code, the repurchase
price may equal the greater of (a) 100% of the Aggregate Asset Value of such
Loans, plus accrued interest thereon at the applicable net Mortgage Rates
through the last day of the month of such repurchase and (b) the aggregate
fair market value of such Mortgage Loans; plus the fair market value of any
property acquired in respect of a Mortgage Loan and remaining in the Trust
Fund. The exercise of such right will effect early retirement of the
Certificates of such Series, but the Servicer's right to so purchase is
subject to the Aggregate Value of the Mortgage Loans at the time of
repurchase being less than a fixed percentage, to be set forth in the related
Prospectus Supplement, of the Cut-off Date Aggregate Asset Value. In no
event, however, will the trust created by the Trust Agreement continue beyond
the expiration of 21 years from the death of the last survivor of certain
persons identified therein. For each Series, the Servicer or the Trustee, as
applicable, will give written notice of termination of the Trust Agreement to
each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency
specified in the notice of termination. If so provided in the related
Prospectus Supplement for a Series, the Depositor or another entity may
effect an optional termination of the Trust Fund or repurchase all or certain
Classes of Certificates of a Series under the circumstances described in such
Prospectus Supplement. See "DESCRIPTION OF THE SECURITIES--Optional
Termination," "Optional Repurchase of Certificates," and "--Other
Repurchases" herein.
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THE ISSUER
THE COMPANY
The Company was incorporated in the State of Delaware on January 2, 1987.
The principal office of the Company is located at 200 Vesey Street, New York,
New York 10285. Its telephone number is (212) 526-5594.
The Certificate of Incorporation of the Company provides that the Company
may not conduct any activities other than those related to the issue and sale
of one or more Series and to serve as depositor of one or more trusts that
may issue and sell Bonds or Certificates. The Certificate of Incorporation of
the Company provides that any Securities, except for subordinated Securities,
issued by the Company must be rated in one of the three highest categories
available by any Rating Agency rating the Series. Pursuant to the terms of
the Indenture or Trust Agreement, as applicable, the Company may not issue
any Securities which would result in the lowering of the then current ratings
of the outstanding Securities of any Series.
The Series Supplement for a particular Series may permit the Primary
Assets pledged to secure the related Series of Bonds to be transferred by the
Issuer to a trust, subject to the obligations of the Bonds of such Series,
thereby relieving the Issuer of its obligations with respect to such Bonds.
OWNER TRUST
Each owner trust established to act as Issuer of a Series of bonds (each,
an "Owner Trust") will be created pursuant to a deposit trust agreement (the
"Deposit Trust Agreement") between the Company which will act as Depositor
and the bank, trust company or other fiduciary named in the related
Prospectus Supplement which will act solely in its fiduciary capacity as
Owner Trustee. Under the terms of each Deposit Trust Agreement, the Company
will convey to the Owner Trustee Mortgage Assets and other Primary Assets to
secure one or more Series in return for certificates or other instruments
evidencing beneficial ownership of the Owner Trust and the net proceeds of
the sale of the Bonds. The Company may in turn sell or assign the
certificates of beneficial interest to another entity or entities, including
affiliates of the Company.
The Owner Trust will pledge the Mortgage Assets and other Primary Assets
to the Trustee under the related Indenture as security for a Series. The
Trustee will hold such Mortgage Assets as security only for that Series, and
Holders of the Bonds of such Series will be entitled to the equal and
proportionate benefits of such security, subject to the express subordination
of certain Classes thereof, as if the same had been granted by a corporate
issuer.
Each Deposit Trust Agreement will provide that the related Trust may not
conduct any activities other than those related to the issuance and sale of
the particular Series. No Deposit Trust Agreement will be subject to
amendment without the prior written consent of the Owner Trustee, the holders
representing a majority of the beneficial interest of the Owner Trust and the
Trustee, except that the holders of not less than 66 2/3% of the Aggregate
Outstanding Principal of each Series must consent to any amendment of, among
other provisions, the limitation on activities of the Owner Trust and the
provision regarding amendments to the Deposit Trust Agreement. The holders of
the beneficial interests in an Owner Trust which issues a Series will not be
liable for payment of principal of or interest on the Bonds and each holder
of Bonds of such Series will be deemed to have released such beneficial
owners from any such liability.
ADMINISTRATOR
Unless otherwise specified in the related Prospectus Supplement, it is
expected that the Issuer will enter into an administration agreement with an
administrator acceptable to the Rating Agencies rating the applicable Series
of Securities (the "Administrator") pursuant to which advisory,
administrative, accounting and clerical services will be provided to the
Issuer with respect to the Securities. The Trustee or the Master Servicer may
serve as the Securities Administrator. In addition, under the Indenture or
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Trust Agreement, as applicable, the Issuer is responsible for certain
administrative and accounting matters relating to the Securities. It is
intended that the Administrator will perform these services on behalf of the
Issuer, and amounts payable with respect to such services, unless otherwise
provided in the related Prospectus Supplement, will be subordinate to the
Issuer's obligations to pay principal and interest to the Bondholders or
Certificateholders (including any Residual Interest Bondholders or Residual
Interest Certificateholders) but, unless otherwise specified in the related
Prospectus Supplement, will be senior to the Issuer's obligation to pay any
Excess Cash Flow to the Residual Interest Bondholders or Residual Interest
Certificateholders.
USE OF PROCEEDS
The Issuer will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Mortgage Assets securing each Series
simultaneously with the issuance and sale of such Securities. The proceeds
may also be used to repay indebtedness which has been incurred to acquire
Mortgage Assets, to establish the Reserve Funds, if any, for the Series and
to pay costs of structuring, guaranteeing and issuing the Securities. If so
specified in the related Prospectus Supplement, the purchase of the Mortgage
Assets for a Series may be effected by an exchange of Securities with the
Seller of such Mortgage Assets.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
Any bearer securities will be issued in compliance with United States
federal tax laws and regulations applicable at the time of issuance. Under
current law, bearer securities may not be offered or sold during the
restricted period, or delivered in definitive form in connection with a sale
during the restricted period (as defined under "DESCRIPTION OF THE
SECURITIES--Bearer Securities and Registered Securities"), in the United
States or to United States persons other than to (a) the United States office
of (i) an international organization (as defined in Section 7701(a)(18) of
the Code), (ii) a foreign central bank (as defined in Section 895 of the
Code), or (iii) any underwriter, agent, or dealer offering or selling bearer
securities during the restricted period (a "Distributor") pursuant to a
written contract with the Issuer or with another Distributor, that purchases
bearer securities for resale or for its own account and agrees to comply with
the requirements of Section 165(j)(3)(A), (B), or (C) of the Code, or (b) the
foreign branch of a United States financial institution purchasing for its
own account or for resale, which institution agrees to comply with the
requirements of Section 165(j)(3)(A), (B), or (C) of the Code. In addition, a
sale of a bearer security may be made during the restricted period to a
United States person who acquired and holds the bearer security on the
certification date through a foreign branch of a United States financial
institution that agrees to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Code. Any Distributor (including an affiliate
of a Distributor) offering or selling bearer securities during the restricted
period must agree not to offer or sell bearer securities in the United States
or to United States persons (except as discussed above) and must employ
procedures reasonably designed to ensure that its employees or agents
directly engaged in selling bearer securities are aware of these
restrictions.
Bearer securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds
this obligation will be subject to limitations under the United States income
tax laws, including the limitations provided in Section 165(j) and 1287(a) of
the Internal Revenue Code."
Purchasers of bearer securities may be affected by certain limitations
under United States tax laws. See "FEDERAL INCOME TAX
CONSIDERATIONS--Miscellaneous Tax Aspects."
As used herein, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States and an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source, and "United States" means the United States of
America (including the States and the District of Columbia) and its
possessions including Puerto Rico, the U.S. Virgin Islands, Guam, American
Samoa, Wake Island and the Northern Mariana Islands.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain anticipated federal income tax
consequences of the purchase, ownership, and disposition of the Securities.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations,
and the judicial and administrative rulings and decisions now in effect, all
of which are subject to change or possible differing interpretations. The
statutory provisions, regulations, and interpretations on which this
interpretation is based are subject to change, and such a change could apply
retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily
upon investors who will hold Securities as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
but much of the discussion is applicable to other investors as well.
Potential purchasers of Securities are advised to consult their own tax
advisers concerning the federal, state or local tax consequences to them of
the purchase, holding and disposition of the Securities.
CHARACTERIZATION OF SECURITIES
Unless otherwise stated in the applicable Prospectus Supplement, a REMIC
election will be made with respect to each Series of Securities. In such a
case, special counsel to the Issuer will deliver its opinion to the effect
that the arrangement by which the Securities of that Series are issued will
be treated as a REMIC as long as all of the provisions of the applicable
Indenture or Trust Agreement, as applicable, are complied with and the
statutory and regulatory requirements are satisfied. Securities of such
Series will be designated as "regular interests" or "residual interests" in a
REMIC, as specified in the related Prospectus Supplement.
If the applicable Prospectus Supplement so specifies with respect to a
Series of Securities, the Securities of such Series will not be treated as
regular or residual interests in a REMIC for federal income tax purposes but
instead will be treated as (i) indebtedness of the Issuer; (ii) an undivided
beneficial ownership interest in the Mortgage Loans (and the arrangement
pursuant to which the Mortgage Loans will be held and the Securities will be
issued will be treated as a grantor trust under Subpart E, part I of
subchapter J of the Code and not as an association taxable as a corporation
for federal income tax purposes); (iii) equity interests in an association
that will satisfy the requirements for qualification as a real estate
investment trust; or (iv) interests in an entity that will satisfy the
requirements for qualification as a partnership for federal income tax
purposes. The federal income tax consequences to Bondholders or
Certificateholders of any such Series will be described in the applicable
Prospectus Supplement.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a
REMIC for such year and thereafter. In that event, such entity may be taxable
as a corporation under Treasury regulations, and the related REMIC
Certificates may not be accorded the status or given the tax treatment
described below. Although the Code authorizes the Treasury Department to
issue regulations providing relief in the event of an inadvertent termination
of REMIC status, no such regulations have been issued. Any such relief,
moreover, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the Trust Fund's income for the period
in which the requirements for such status are not satisfied. The Pooling
Agreement with respect to each REMIC will include provisions designed to
maintain the Trust Fund's status as a REMIC under the REMIC Provisions. It is
not anticipated that the status of any Trust Fund as a REMIC will be
terminated.
Except to the extent the related Prospectus Supplement specifies
otherwise, if a REMIC election is made with respect to a Series of
Securities, (i) Securities held by a mutual savings bank or domestic building
and loan association will represent interests in "qualifying real property
loans" within the meaning of Code Section 593(d) (assuming that at least 95%
of the REMIC's assets are "qualifying real
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property loans"); (ii) Securities held by a domestic building and loan
association will constitute "a regular or a residual interest in a REMIC"
within the meaning of Code Section 7701(a)(19)(C)(xi) (assuming that at least
95% of the REMIC's assets consist of cash, government securities, "loans . .
. secured by an interest in real property," and other types of assets
described in Code Section 7701(a)(19)(C)); and (iii) Securities held by a
real estate investment trust will constitute "real estate assets" within the
meaning of Code Section 856(c)(6)(B), and income with respect to the
Securities will be considered "interest on obligations secured by mortgages
on real property or on interest in real property" within the meaning of Code
Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of the
REMIC's assets are qualifying assets). If less than 95% of the REMIC's assets
consist of assets described in (i), (ii) or (iii) above, then Securities will
qualify for the tax treatment described in (i), (ii), or (iii) in the
proportion that such REMIC assets are qualifying assets. In general, Mortgage
Loans secured by non-residential real property will not constitute "loans . .
. secured by an interest in real property" within the meaning of Section
7701(a)(19)(C).
It is possible that various reserves or funds will reduce the proportion
of REMIC assets which qualify under the standards described above.
TAXATION OF REGULAR INTEREST SECURITIES
Interest and Acquisition Discount. Securities that qualify as regular
interests in a REMIC ("Regular Interest Securities") are generally treated as
indebtedness for federal income tax purposes. Stated interest on a Regular
Interest Security will be taxable as ordinary income using the accrual method
of accounting, regardless of the Bondholder's or Certificateholder's normal
accounting method. Reports will be made annually to the IRS and to holders of
Regular Interest Securities that are not excepted from the reporting
requirements regarding amounts treated as interest (including accrual of
original issue discount) on Regular Interest Securities.
Compound Interest Securities, Interest Weighted Securities, and Zero
Coupon Securities will, and other Securities constituting Regular Interest
Securities may, be issued with "original issue discount" ("OID") within the
meaning of Code Section 1273. Rules governing original issue discount are set
forth in sections 1271-1275 of the Code and the Treasury regulations
thereunder (the "OID Regulations"). The OID Regulations do not address the
treatment of instruments having contingent payments. However, Treasury
regulations (the "Proposed Contingent Regulations") governing the treatment
of contingent payment obligations have recently been proposed. As described
more fully below, Code Section 1272(a)(6) requires the use of an income tax
accounting methodology that utilizes (i) a single constant yield to maturity
and (ii) the Prepayment Assumptions. Under Section 1272(a)(6) of the Code,
special rules apply to the computation of OID on instruments, such as the
Regular Interest Securities, on which principal is prepaid based on
prepayments of the underlying assets. Neither the OID Regulations nor the
Proposed Contingent Regulations contain rules applicable to instruments
governed by Section 1272(a)(6). Although technically not applicable to
prepayable securities and not yet finalized, the Proposed Contingent
Regulations may represent a possible method to be applied in calculating OID
on certain Classes of Certificates. Until the Treasury issues guidance to the
contrary, the Servicer or other person responsible for computing the amount
of original issue discount to be reported to a Regular Interest
Securityholder each taxable year (the "Tax Administrator") intends to base
its computations on Code Section 1272(a)(6), the OID Regulations and the
Proposed Contingent Regulations as described below. However, because no
regulatory guidance currently exists under Code Section 1272(a)(6), there can
be no assurance that the methodology described below represents the correct
manner of calculating original issue discount on the Regular Interest
Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Regular Interest Security and its issue
price. A holder of a Regular Interest Security must include such OID in gross
income as ordinary interest income as it accrues under a method taking into
account an economic accrual of the discount. In general, OID must be included
in income in advance of the receipt of the cash representing that income. The
amount of OID on a Regular Interest Security will be
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considered to be zero if it is less than a de minimis amount determined under
the Code. However, the amount of any de minimis OID must be included in
income as principal payments are received on an Offered Certificate, in the
proportion that each such payment bears to the original principal balance of
the Certificate.
The issue price of a Regular Interest Security of a Class will generally
be the initial offering price at which a substantial amount of the Securities
in the Class are sold, and will be treated by the Issuer as including, in
addition, the amount paid by the Bondholder or Certificateholder for accrued
interest that relates to a period prior to the Closing Date of such Regular
Interest Security. Under the OID Regulations, the stated redemption price at
maturity is the sum of all payments on the Security other than any "qualified
stated interest" payments. Qualified stated interest is defined as any one of
a series of payments equal to the product of the outstanding principal
balance of the Security and a single fixed rate, or certain variable rates of
interest that is unconditionally payable at least annually. See "Variable
Rate Securities" below. In the case of the Compound Interest Securities, and
certain of the other Regular Interest Securities, none of the payments under
the instrument will be considered "qualified stated interest," and thus the
aggregate amount of all payments will be included in the stated redemption
price. For example, any securities upon which interest can be deferred and
added to principal ("Deferred Interest Securities"), and certain securities
the interest rate on which is based on a weighted average of the rates on
certain of the underlying mortgage loans, will not be "qualified stated
interest." In addition, because Securities Owners are entitled to receive
interest only to the extent that payments are made on the Mortgage Loans,
interest on all Regular Interest Securities may not be "unconditionally
payable." In that case, all of the yield on a Regular Interest Security will
be taxed as OID, but interest would not then be includable in income again
when received. Unless otherwise specified in the related Prospectus
Supplement, the Issuer intends to take the position that interest on the
Regular Interest Securities is "unconditionally payable."
The holder of a Regular Interest Security issued with OID must include in
gross income, for all days during its taxable year on which it holds such
Regular Interest Security, the sum of the "daily portions" of such OID. Such
daily portions are computed by allocating to each day during a taxable year a
pro rata portion of the OID that accrued during the relevant accrual period.
In the case of a debt instrument, subject to Section 1272(a)(6) of the Code,
such as a Regular Interest Security, that is subject to acceleration due to
prepayments on other debt obligations securing such instrument, OID is
computed by taking into account the anticipated rate of prepayments assumed
in pricing the debt instrument (the "Prepayment Assumption"). The amount of
OID that will accrue during an accrual period (generally the period between
interest payments or compounding dates) is the excess (if any) of (i) the sum
of (a) the present value of all payments remaining to be made on the Regular
Interest Security as of the close of the accrual period and (b) the payments
during the accrual period of amounts included in the stated redemption price
of the Regular Interest Security, over (ii) an "adjusted issue price" of the
Regular Interest Security at the beginning of the accrual period. The
adjusted issue price of a Regular Interest Security is the sum of its issue
price plus prior accruals of OID, reduced by the total payments made with
respect to such Regular Interest Security in all prior periods, other than
qualified stated interest payments. The present value of the remaining
payments is determined on the basis of three factors: (i) the original yield
to maturity of the Regular Interest Security (determined on the basis of
compounding at the end of each accrual period and properly adjusted for the
length of the accrual period), (ii) events which have occurred before the end
of the accrual period and (iii) the assumption that the remaining payments
will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to
be included in income by a Bondholder or Certificateholder to take into
account prepayments with respect to the Mortgage Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any
period) the portions of OID required to be included in income by a Bondholder
or Certificateholder to take into account prepayments with respect to the
Mortgage Loans at a rate that is slower than the Prepayment Assumption.
Although original issue discount will be reported to Bondholders or
Certificateholders based on the Prepayment Assumption, no representation is
made to Bondholders or Certificateholders that Mortgage Loans will be prepaid
at that rate or at any other rate.
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The Issuer may adjust the accrual of OID on a Class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it
believes to be appropriate, to take account of realized losses on the
Mortgage Assets, although the OID Regulations do not provide for such
adjustments. If the Service challenges the method adopted by the Issuer, the
rate of accrual of OID for a Class of Regular Interest Securities could
increase.
Certain classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. Unless the applicable Prospectus Supplement
specifies otherwise, the Trustee intends, based on the OID Regulations, to
calculate OID on such Regular Interest Securities as if, solely for the
purposes of computing OID, the separate regular interests were a single debt
instrument.
Certain Series of Securities may be structured to include two or more
REMICs, one or more of which (each, an "Upper Tier REMIC") hold regular
interests ("Lower Tier Interests") in other REMICs (each, a "Lower Tier
REMIC"). Under the OID Regulations, OID on all of the Lower Tier Interests
issued by a single Lower Tier REMIC that are held by a second REMIC will be
calculated by treating all of such Lower Tier Interests as a single debt
instrument.
A holder of a Regular Interest Security, which acquires the Regular
Interest Security for an amount that exceeds its stated redemption price,
will not include any original issue discount in gross income. A subsequent
holder of a Regular Interest Security which acquires the Regular Interest
Security for an amount that is less than its stated redemption price, will be
required to include original issue discount in gross income, but such a
holder who purchases such Regular Interest Security for an amount that
exceeds its adjusted issue price will be entitled (as will an initial holder
who pays more than a Regular Interest Security's issue price) to offset such
original issue discount by comparable economic accruals of portions of such
excess.
Interest Weighted Securities. It is not clear how income should be accrued
with respect to Regular Interest Securities the payments on which consist
solely or primarily of a specified portion of the interest payments on
qualified mortgages held by a REMIC ("Interest Weighted Securities"). Absent
guidance to the contrary, the Issuer intends to take the position that all of
the income derived from Interest Weighted Securities should be treated as OID
and that the amount and rate of accrual of such OID should be calculated in
the same manner as for a Compound Interest Security. However, the Internal
Revenue Service could assert that income derived from an Interest Weighted
Security should be calculated as if the Interest Weighted Security were a
bond purchased at a premium equal to the excess of the price paid by such
holder for the Interest Weighted Security over its stated principal amount,
if any. Under this approach, a holder would be entitled to amortize such
premium only if it has in effect an election under Section 171 of the Code
with respect to all taxable debt instruments held by such holder, as
described below. Alternatively, the Internal Revenue Service could assert
that the Interest Weighted Security should be taxable under the proposed
rules governing bonds issued with contingent principal payments or otherwise
treated as contingent payment instruments. The OID Regulations do not, at the
present time, include regulations governing instruments that provide for
contingent payments. Under the Proposed Contingent Regulations, if they were
finalized, and were applicable to Interest Weighted Securities (which, as
1272(a)(6) instruments, are specifically excluded from the scope of the
Proposed Contingent Regulations) income on certain Certificates would be
computed under the "noncontingent bond method." The noncontingent bond method
would generally apply in a manner similar to the method prescribed by the
Code under Section 1272(a)(6). See "--Variable Rate Regular Securities."
Under the noncontingent bond method, however, if the interest payable for any
period is greater or less than the amount projected, the amount of income
included for that period would be either increased or decreased accordingly.
Any reduction in the income accrual for a period below zero (a "Negative
Adjustment") would be treated by a Certificateholder as ordinary loss to the
extent of prior income accruals and may be carried forward to offset future
interest accruals. At maturity, any remaining Negative Adjustment would be
treated as a loss on retirement of the Certificate. The legislative history
or relevant Code provisions indicates, however, that negative amount of OID
on an instrument such as a REMIC regular interest may not give rise to
taxable losses in any accrual period prior to the instrument's disposition or
retirement. Thus, it is not clear whether any losses resulting from a
Negative Adjustment could be recognized currently or would be carried forward
until disposition or retirement of the debt obligation.
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Variable Rate Regular Securities. The REMIC regulations (the "REMIC
Regulations") permit REMICs to issue regular interests bearing a variety of
variable rates including rates based on (i) "qualified floating rates" or
(ii) a weighted average of the interest rates on some or all of the qualified
mortgages held by the REMIC (a "Variable Rate Security"). Under the OID
Regulations, the amount and accrual of OID on a Variable Rate Security that
qualifies for treatment under the rules applicable to variable rate debt
instruments (a "VRDI Security") is determined, in general, by converting the
VRDI Security into a hypothetical fixed rate security and applying the rules
applicable to fixed rate securities described above to the hypothetical fixed
rate security. A VRDI Security providing for a qualified floating rate or
rates or a qualified inverse floating rate is converted to a hypothetical
fixed rate security by assuming that each qualified floating rate or the
qualified inverse floating rate will remain at its value as of the issue
date. A VRDI Security providing for an objective rate or rates is converted
to a hypothetical fixed rate security by assuming that each objective rate
will equal a fixed rate that reflects the yield that reasonably is expected
for the instrument. Such hypothetical fixed rate securities are assumed to
have terms identical to those provided under the related VRDI Securities,
except for the substitution of fixed rates for the qualified floating rates,
objective rates, or qualified inverse floating rate as described above. In
the case of a VRDI Security that does not provide for the payment of interest
at least annually, appropriate adjustments to the OID accruals and the
qualified stated interest payments are made in each accrual period to the
extent that the interest actually accrued or paid during the accrual period
is greater or less than the interest assumed to be accrued or paid under the
hypothetical fixed rate security.
Regular Interest Securities of certain Series may provide for interest
based on a weighted average of the interest rates on some or all of the
Mortgage Loans of the related Trust ("Weighted Average Securities"). Under
the OID Regulations, it appears that Weighted Average Securities relating to
a Trust whose Mortgage Loans are exclusively ARM Loans bear interest at an
"objective rate," since the ARM Loans themselves bear interest at qualified
floating rates. Under the existing OID Regulations, Weighted Average
Securities relating to a Trust whose Mortgage Loans are not exclusively ARM
Loans ("Non-Objective Weighted Average Securities") do not bear interest at
an objective or a qualified floating rate and, consequently, are not governed
by the rules applicable to VRDI Securities described above. Accordingly,
absent additional regulatory guidance, it appears that Non-Objective Weighted
Average Securities would be taxed under the rules applicable to contingent
payment instruments. As noted above, there currently are no effective
regulations governing such instruments. Under the Proposed Contingent
Regulations, however, which will not be effective until 60 days after
published in final form, it appears that a weighted average of fixed rates
would qualify as an objective rate.
Effect of Defaults and Delinquencies. Each holder of a Regular Interest
Security will be required to accrue interest and original issue discount on
such Security without giving effect to any reductions in distributions
attributable to defaults or delinquencies on the Mortgage Loans, until it can
be established that any such reduction ultimately will not be recoverable. As
a result, the amount of taxable income reported in any period by the holder
of a Regular Interest Security could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a
Regular Interest Security eventually will recognize a loss or reduction in
income attributable to previously accrued and included income that, as a
result of such loss, ultimately will not be paid, the law is unclear with
respect to the timing and character of such losses or reduction in income.
Under Section 166 of the Code, both corporate and noncorporate holders of
Regular Interest Securities that hold such Securities in connection with a
trade of business should be allowed to deduct, as ordinary losses, any losses
sustained during a taxable year in which their Regular Interest Securities
become wholly or partially worthless as the result of one or more realized
losses on the Mortgage Loans. However, it appears that a noncorporate holder
that does not acquire a Regular Interest Security in connection with a trade
or business will not be entitled to deduct a loss under Section 166 of the
Code until such holder's Regular Interest Security becomes wholly worthless
(that is, until its outstanding principal balance has been reduced to zero)
and that the loss will be characterized as a short-term capital loss.
Market Discount and Premium. A purchaser of a Regular Interest Security
may also be subject to the market discount rules of the Code. Such purchaser
generally will be required to recognize accrued
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market discount as ordinary income as payments of principal are received on
such Regular Interest Security, or upon sale or exchange of the Regular
Interest Security. In general terms, until regulations are promulgated,
market discount may be treated as accruing, at the election of the holder,
either (i) under a constant yield method, taking into account the Prepayment
Assumption, or (ii) in proportion to accruals of original issue discount (or,
if there is no original issue discount, in proportion to accruals of stated
interest). A holder of a Regular Interest Security having market discount may
also be required to defer a portion of the interest deductions attributable
to any indebtedness incurred or continued to purchase or carry the Regular
Interest Security. As an alternative to the inclusion of market discount in
income on the foregoing basis, the holder may elect to include such market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, in which case the
interest deferral rule will not apply.
A holder who purchases a Regular Interest Security (other than an Interest
Weighted Security, to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an
offset to interest income on such Security (and not as a separate deduction
item) on a constant yield method. Although no regulations addressing the
computation of premium accrual on collateralized mortgage obligations or
REMIC regular interests have been issued, applicable legislative history
indicates that premium is to be accrued in the same manner as market
discount. Accordingly, it appears that the accrual of premium on a Regular
Interest Security will be calculated using the prepayment assumption used in
pricing such Regular Interest Security. If a holder makes an election to
amortize premium on a Security, such election will apply to all taxable debt
instruments (including all REMIC regular interests) held by the holder at the
beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the Internal Revenue Service. Purchasers
who pay a premium for the Regular Interest Security should consult their tax
advisers regarding the election to amortize premium and the method to be
employed.
SALE OR EXCHANGE OF REGULAR INTEREST SECURITIES
A Regular Bondholder's or Regular Certificateholder's tax basis in its
Regular Interest Securities is the price such holder pays for a Security,
plus amounts of original issue discount included in income and reduced by any
payments received (other than qualified periodic interest payments) and any
amortized premium. Gain or loss recognized on a sale, exchange, or redemption
of a Regular Interest Securities, measured by the difference between the
amount realized and the Regular Interest Security's basis as so adjusted,
will generally be capital gain or loss, assuming that the Regular Interest
Security is held as a capital asset. If, however, a Regular Bondholder or
Regular Certificateholder is a bank, thrift, or similar institution described
in Section 582 of the Code, gain or loss realized on the sale or exchange of
a Regular Interest Security will be taxable as ordinary income or loss. In
addition, gain from the disposition of a Regular Interest Security that might
otherwise be capital gain will be treated as ordinary income to the extent of
the excess, if any, of (i) the amount that would have been includable in the
holder's income if the yield on such Regular Interest Security had equaled
110% of the applicable federal rate as of the beginning of such holder's
holding period, over (ii) the amount of ordinary income actually recognized
by the holder with respect to such Regular Interest Security.
REMIC EXPENSES
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities or the REMIC residual
interest. In the case of a "single class REMIC," however, the expenses will
be allocated, under temporary Treasury regulations, among the holders of the
Regular Interest Securities and the holders of the Residual Interest
Securities on a daily basis in proportion to the relative amounts of income
accruing to each Bondholder or Certificateholder on that day. In the case of
a holder of a Regular Interest Security who is an individual or a
"pass-through interest holder" (including certain pass-through entities but
not including real estate investment trusts), such expenses will be
deductible only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the Bondholder or Certificateholder exceed 2% of such
Bondholder's or Certificateholder's
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adjusted gross income and will not be deductible in computing alternative
minimum taxable income. In addition, Code Section 68 provides that the amount
of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (for
1991, $100,000, or $50,000 in the case of a separate return by a married
individual within the meaning of Code Section 7703, which amount will be
adjusted annually for inflation) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the applicable amount, or (ii) 80%
of the amount of itemized deductions otherwise allowable for such taxable
year. The disallowance of this deduction may have a significant impact on the
yield of the Regular Interest Security to such a holder. In general terms, a
single class REMIC is one that either (i) would qualify, under existing
Treasury regulations, as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt
for federal income tax purposes) or (ii) is similar to such a trust and which
is structured with the principal purpose of avoiding the single class REMIC
rules.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. The regular interests are generally taxable as debt of
the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any original
issue discount or market discount on loans and other assets, and (ii)
deductions, including stated interest and original issue discount accrued on
a Regular Interest Security, amortization of any premium with respect to
loans, and servicing fees and other expenses of the REMIC. A holder of a
Residual Interest Security that is an individual or a "pass-through interest
holder" (including certain pass-through entities, but not including real
estate investment trusts) will be unable to deduct servicing fees payable on
the loans or other administrative expenses of the REMIC for a given taxable
year, to the extent that such expenses, when aggregated with the Residual
Interest Securityholder's other miscellaneous itemized deductions for that
year, do not exceed two percent of such holder's adjusted gross income. In
addition, Code Section 68 provides that the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted
gross income exceeds the applicable amount (for 1996, $117,950, or $[58,975]
in the case of a separate return by a married individual within the meaning
of Code Section 7703, which amounts will be adjusted annually for inflation)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross
income over the applicable amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. See "REMIC Expenses"
above.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Start
Up Day (generally, the day that the interests are issued). That aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The original issue discount provisions of the Code apply to loans of
individuals originated on or after March 2, 1984, and the market discount
provisions apply to all loans. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of original issue discount
on such loans will be equivalent to the method under which holders of Regular
Interest Securities accrue original issue discount (i.e., under the constant
yield method taking into account the Prepayment Assumption). The REMIC will
deduct original issue discount on the Regular Interest Securities in the same
manner that the holders of the Securities include such discount in income,
but without regard to the de minimis rules. See "Taxation of Regular Interest
Securities" above. However, a REMIC that acquires loans at a market discount
must include such market discount in income currently, as it accrues, on a
constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the
life of the loans (taking into account the Prepayment Assumption) on a
constant yield method.
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Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
Income from Foreclosure Property. To the extent that the Lower Tier REMIC
derives income from Foreclosed Properties that is treated as "net income from
foreclosure property," that income will be subject to taxation at the highest
corporate tax rate. Net income from foreclosure property generally includes
gain from the sale of a foreclosure property that is inventory property and
net income from the property that would not be treated as "rents from real
property" or other certain other qualifying income. In addition, if the
operation of the Foreclosed Property is treated as a trade or business
carried on by the REMIC, then unless the property is operated through an
independent contractor, the income from the foreclosed property will be
subject to tax on "income from nonpermitted assets" at a rate of 100%. A
trust agreement or indenture may permit the Servicer to operate a Foreclosed
Property in a manner that produces income subject to the foregoing taxes if
certain conditions are satisfied.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a REMIC residual interest (a
"Residual Interest Security") will take into account the "daily portion" of
the taxable income or net loss of the REMIC for each day during the taxable
year on which such holder held the Residual Interest Security. The daily
portion is determined by allocating to each day in any calendar quarter its
ratable portion of the taxable income or net loss of the REMIC for such
quarter, and by allocating that amount among the holders (on such day) of the
Residual Interest Securities in proportion to their respective holdings on
such day.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction." For
this purpose, net income will be calculated without taking into account any
losses from other prohibited transactions or any deductions attributable to
any prohibited transaction that resulted in a loss. In general, prohibited
transactions include (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject
to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or
other compensation for services rendered by the REMIC. It is anticipated that
a REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number
of exceptions, a tax is imposed at the rate of 100% on amounts contributed to
a REMIC after the close of the three-month period beginning on the Start Up
Day. The holders of Residual Interest Securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such Holders or otherwise, however, such taxes will be
paid out of the assets of the REMIC and, unless otherwise specified in the
related Prospectus Supplement, will be allocated pro rata to all outstanding
Classes of Securities of such REMIC.
The holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The
reporting of taxable income without corresponding distributions could occur,
for example, in certain REMIC issues in which the loans held by the REMIC
were issued or acquired at a discount, since mortgage prepayments cause
recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
Regular Interest Securities issued without any discount or at an
insubstantial discount. (If this occurs, it is likely that cash distributions
will exceed taxable income in later years.) Taxable income may also be
greater in earlier years of certain REMIC issues as a result of the fact that
interest expense deductions, as a percentage of outstanding principal on
Regular Interest Securities, will typically increase over time as lower
yielding Securities are paid, whereas interest income with respect to loans
will generally remain constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the
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taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pretax yield.
Therefore, the after-tax yield on the Residual Interest Security may be less
than that of such a bond or instrument, or may be negative.
Limitation on Losses. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the
end of the calendar quarter in which such loss arises. A holder's basis in a
Residual Interest Security will initially equal such holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable
income allocated to the holder, and decreased (but not below zero) by the
amount of distributions made and the amount of the REMIC's net loss allocated
to the holder. Any disallowed loss may be carried forward indefinitely, but
may be used only to offset income generated by the same REMIC. The ability of
Residual Bondholders or Residual Certificateholders to deduct net losses may
be subject to additional limitations under the Code, as to which such holders
should consult their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a holder of a Residual
Interest Security. If the amount of such payment exceeds a holder's adjusted
basis in the Residual Interest Security, however, the holder will recognize
gain (treated as gain from the sale of the Residual Interest Security) to the
extent of such excess.
Mark-to-Market Rules. A Residual Interest Security is not treated as a
security and thus may not be marked to market under proposed Treasury
regulations that generally require a securities dealer to mark to market
securities held for sale to customers.
Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Bond equal to the
difference, if any, between the amount realized and such Bondholder's or
Certificateholder's adjusted basis in the Residual Interest Security at the
time of such sale or exchange. Except to the extent provided in regulations,
which have not yet been issued, any loss upon disposition of a Residual
Interest Security will be disallowed if the selling Bondholder or
Certificateholder acquires any residual interest in a REMIC or similar
mortgage pool within six months before or after such disposition.
EXCESS INCLUSION INCOME
The portion of a Residual Bondholder's or Residual Certificateholder's
REMIC taxable income consisting of "excess exclusion" income may not be
offset by other deductions or losses, including net operating losses, on such
Bondholder's or Certificateholder's federal income tax return. An exception
applies to organizations to which Code Section 593 applies (generally,
certain thrift institutions); however, such exception will not apply if the
aggregate value of the Residual Interest Securities is not considered to be
"significant," as described below. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such Residual Bondholder's or Residual
Certificateholder's excess inclusion income will be treated as unrelated
business taxable income of such Bondholder or Certificateholder's. In
addition, under Treasury regulations yet to be issued, if a real estate
investment trust, a regulated investment company, a common trust fund, or
certain cooperatives were to own a Residual Interest Security, a portion of
dividends (or other distributions) paid by the real estate investment trust
(or other entity) would be treated as excess inclusion income. If a Residual
Interest Security is owned by a foreign person excess inclusion income is
subject to tax at a rate of 30% which may not be reduced by treaty and is not
eligible for treatment as "portfolio interest." The REMIC Regulations provide
that a Residual Interest Security has significant value only if (i) the
aggregate issue price of the Residual Bonds is at least 2% of the aggregate
of the issue prices of all Regular Interest Securities and Residual Interest
Securities in the REMIC and (ii) the anticipated weighted average life
(determined as specified in the REMIC Regulations) of the Residual Interest
Securities is at least 20% of the anticipated weighted average life of the
REMIC.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to
a Residual Interest Security, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Start Up
Day
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multiplied by (ii) the adjusted issue price of such Residual Interest
Security at the beginning of such quarterly period. The adjusted issue price
of a Residual Interest Security at the beginning of each calendar quarter
will equal its issue price (calculated in a manner analogous to the
determination of the issue price of a Regular Interest Security), increased
by the aggregate of the daily accruals for prior calendar quarters, and
decreased (but not below zero) by the amount of loss allocated to a holder
and the amount of distributions made on the Residual Interest Security before
the beginning of the quarter. The long-term federal rate, which is announced
monthly by the Treasury Department, is an interest rate that is based on the
average market yield of outstanding marketable obligations of the United
States government having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Interest Securities may be disregarded. See "Restrictions on
Ownership and Transfer of Residual Interest Securities" and "Tax Treatment of
Foreign Investors" below.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST SECURITIES
As a condition to qualification as a REMIC, reasonable arrangements must
be made to prevent the ownership of a REMIC residual interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of
the foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the Indenture or Trust Agreement, as
applicable, will prohibit Disqualified Organizations from owning a Residual
Interest Security. In addition, no transfer of a Residual Interest Security
will be permitted unless the proposed transferee shall have furnished to the
Issuer an affidavit representing and warranting that it is neither a
Disqualified Organization nor an agent or nominee acting on behalf of a
Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a
substantial tax will be imposed on the transferor of such Residual Interest
Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity (including, among
others, a partnership, trust, real estate investment trust, regulated
investment company, or any person holding as nominee), that owns a Residual
Interest Security, the pass-through entity will be required to pay an annual
tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Security is a
"noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the Residual Interest
Security at least equals the product of the present value of the anticipated
excess inclusions and the highest rate of tax for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The present value is calculated
based on the Prepayment Assumption, using a discount rate equal to the
"applicable federal rate" at the time of transfer. If a transfer of a
residual interest is disregarded, the transferor would be liable for any
Federal income tax imposed upon taxable income derived by the transferee from
the REMIC. A significant purpose to impede the assessment or collection of
tax exists if the transferor, at the time of transfer, knew or should have
known that the transferee would be unwilling or unable to pay taxes on its
share of the taxable income of the REMIC. A similar limitation exists with
respect to certain transfers of residual interests by foreign persons to
United States persons. See "Tax Treatment of Foreign Investors" below.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of
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the Code applicable to partnerships, including the determination of any
adjustments to, among other things, items of REMIC income, gain, loss,
deduction, or credit, by the Internal Revenue Service in a unified
administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. If the applicable Prospectus Supplement so specifies with respect
to a Series of Securities, the Securities of such Series will not be treated
as regular or residual interests in a REMIC for federal income tax purposes
but instead, special tax counsel to the Issuer will deliver its opinion to
the effect that the arrangement by which the Securities of that Series are
issued will be treated as a "grantor" or "fixed investment" trust as long as
all of the provisions of the applicable Trust Agreement are complied with and
the statutory and regulatory requirements are satisfied. In some Series
("Pass-Through Certificates"), there will be no separation of the principal
and interest payments on the Mortgage Loans. In such circumstances, a
Certificateholder will be considered to have purchased an undivided interest
in each of the Mortgage Loans. In other cases ("Stripped Certificates"), sale
of the Certificates will produce a separation in the ownership of the
principal payments and interest payments on the Mortgage Loans.
Each Certificateholder must report on its federal income tax return its
pro rata share of the gross income derived from the Mortgage Loans (not
reduced by the amount payable as fees to the Trustee and the Master Servicer
and similar fees (collectively, the "Servicing Fee")), at the same time and
in the same manner as such items would have been reported under the
Certificateholder's tax accounting method had it held its interest in the
Mortgage Loans directly, received directly its share of the amounts received
with respect to the Mortgage Loans, and paid directly its share of the
Servicing Fees. In the case of Pass-Through Certificates, such gross income
will consist of a pro rata share of all of the income derived from all of the
Mortgage Loans and, in the case of Stripped Certificates, such income will
consist of a pro rata share of the income derived from each stripped bond or
stripped coupon in which the Certificateholder owns an interest. The holder
of a Certificate will generally be entitled to deduct such Servicing Fees
under Section 162 or Section 212 of the Code to the extent that such
Servicing Fees represent "reasonable" compensation for the services rendered
by the Trustee, the Master Servicer, and any other service providers. In the
case of a noncorporate holder, however, Servicing Fees (to the extent not
otherwise disallowed, e.g., because they exceed reasonable compensation) will
be deductible in computing such holder's regular tax liability only to the
extent that such fees, when added to other miscellaneous itemized deductions,
exceed 2% of adjusted gross income and may not be deductible to any extent in
computing such holder's alternative minimum tax liability. In addition, Code
Section 68 provides that the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (for 1996, $117,950, or $[58,975] in the case
of a separate return by a married individual, which amounts will be adjusted
annually for inflation) will be reduced by the lesser of (i) 3% of the excess
of adjusted gross income over the applicable amount, or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Certificates. The holder's purchase
price of a Pass-Through Certificate is to be allocated among the Mortgage
Loans in proportion to their fair market values, determined as of the time of
purchase of the Certificates. In the typical case, the Trustee believes it is
reasonable for this purpose to treat each Mortgage Loan as having a fair
market value proportional to the share of the aggregate principal balances of
all of the Mortgage Loans that it represents, to the extent that the Mortgage
Loans underlying a series have a relatively uniform interest rate and other
common characteristics. To the extent that the portion of the purchase price
of a Certificate allocated to a Mortgage Loan (other than to a right to
receive any accrued interest thereon and any undistributed principal
payments) is less than or greater than the portion of the principal balance
of the Mortgage Loan allocable to the Certificate, the interest in the
Mortgage Loan allocable to the Certificate will be deemed to have been
acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents original issue discount or market discount. In the case of a
Mortgage Loan with original issue discount in excess of a prescribed de
minimis amount, a holder of a Certificate will be required to report as
interest income in each taxable year its share of the amount of original
issue discount that accrues during that year, determined under a
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constant yield method by reference to the initial yield to maturity of the
Mortgage Loan, in advance of receipt of the cash attributable to such income
and regardless of the method of federal income tax accounting employed by
that holder. Original issue discount with respect to a Mortgage Loan could
arise for example by virtue of the financing of points by the originator of
the Mortgage Loan, or by virtue of the charging of points by the originator
of the Mortgage Loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently
deductible pursuant to applicable Code provisions. However, the OID
Regulations provide that if a holder acquires an obligation at a price that
exceeds its stated redemption price, the holder will not include any original
issue discount in gross income. In addition, if a subsequent holder acquires
an obligation for an amount that exceeds its adjusted issue price, the
subsequent holder will be entitled to offset the original issue discount with
economic accruals of portions of such excess. Accordingly, if the Mortgage
Loans acquired by a Certificateholder are purchased at a price that exceeds
the adjusted issue price of such Mortgage Loans, any original issue discount
will be reduced or eliminated.
Certificateholders also may be subject to the market discount rules of
Sections 1276-1278 of the Code. A Certificateholder that acquires an interest
in Mortgage Loans with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Mortgage
Loans over the purchaser's purchase price) will be required under Section
1276 of the Code to include accrued market discount in income as ordinary
income in each month, but limited to an amount not exceeding the principal
payments on the Mortgage Loans received in that month and, if the
Certificates are sold, the gain realized. Such market discount would accrue
in a manner to be provided in Treasury regulations. The relevant legislative
history of the 1986 Act indicates that, until such regulations are issued,
such market discount would in general accrue either (i) on the basis of a
constant interest rate or (ii) in the ratio of (a) in the case of Mortgage
Loans not originally issued with original issue discount, stated interest
payable in the relevant period to total stated interest remaining to be paid
at the beginning of the period or (b) in the case of Mortgage Loans
originally issued at a discount, original issue discount in the relevant
period to total original issue discount remaining to be paid.
Section 1277 of the Code provides that the excess of interest paid or
accrued to purchase or carry a loan with market discount over interest
received on such loan is allowed as a current deduction only to the extent
such excess is greater than the market discount that accrued during the
taxable year in which such interest expense was incurred. In general, the
deferred portion of any interest expense will be deductible when such market
discount is included in income, including upon the sale, disposition, or
repayment of the loan. A holder may elect to include market discount in
income currently as it accrues, on all market discount obligations acquired
by such holder during the taxable year such election is made and thereafter,
in which case the interest deferral rule discussed above will not apply.
A Certificateholder who purchases a Certificate at a premium generally
will be deemed to have purchased its interest in the underlying Mortgage
Loans at a premium. A Certificateholder who holds a Certificate as a capital
asset may generally elect under Section 171 of the Code to amortize such
premium as an offset to interest income on the Mortgage Loans (and not as a
separate deduction item) on a constant yield method. The legislative history
of the 1986 Act suggests that the same rules that will apply to the accrual
of market discount (described above) will generally also apply in amortizing
premium with respect to Mortgage Loans originated after September 27, 1985.
If a holder makes an election to amortize premium, such election will apply
to all taxable debt instruments held by such holder at the beginning of the
taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such holder, and will be irrevocable
without the consent of the Internal Revenue Service. Purchasers who pay a
premium for the Certificates should consult their tax advisers regarding the
election to amortize premium and the method to be employed. Although the law
is somewhat unclear regarding recovery of premium allocable to Mortgage Loans
originated before September 28, 1985, it is possible that such premium may be
recovered in proportion to payments of Mortgage Loan principal.
Discount or Premium on Stripped Certificates. A Stripped Certificate may
represent a right to receive only a portion of the interest payments on the
Mortgage Loans, a right to receive only principal payments on the Mortgage
Loans, or a right to receive certain payments of both interest and principal.
Certain Stripped Certificated ("Ratio Strip Certificates") may represent a
right to receive differing
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percentages of both the interest and principal on each Mortgage Loan.
Pursuant to Section 1286 of the Code, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments
results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. Section
1286 of the Code applies the original issue discount rules to stripped bonds
and stripped coupons. For purposes of computing original issue discount, a
stripped bond or a stripped coupon is treated as a debt instrument issued on
the date that such stripped interest is purchased with an issue price equal
to its purchase price or, if more than one stripped interest is purchased,
the ratable share of the purchase price allocable to such stripped interest.
The Code, the OID Regulations, and judicial decisions provide no direct
guidance as to how the interest and original issue discount rules are to
apply to Stripped Certificates. Under the method described above for REMIC
Regular Interest Certificates (the "Cash Flow Bond Method"), a prepayment
assumption is used and periodic recalculations are made which take into
account with respect to each accrual period the effect of prepayments during
such period. The 1986 Act prescribed the same method for debt instruments
"secured by" other debt instruments, the maturity of which may be affected by
prepayments on the underlying debt instruments. However, the 1986 Act does
not, absent Treasury regulations, appear specifically to cover instruments
such as the Stripped Certificates which technically represent ownership
interests in the underlying Mortgage Loans, rather than being debt
instruments "secured by" those loans. Nevertheless, it is believed that the
Cash Flow Bond Method is a reasonable method of reporting income for such
Certificates, and it is expected that original issue discount will be
reported on that basis except in the case of Certificates which it determines
should more appropriately be treated as contingent payment instruments. In
applying the calculation to a class of Certificates, the Trustee will treat
all payments to be received with respect to the Certificates, whether
attributable to principal or interest on the loans, as payments on a single
installment obligation, in the case of a Class of Certificates that has no
right, or a nominal right, to receive principal, and as includable in the
stated redemption price at maturity. In the case of a "stripped bond" which
is entitled to a significant amount of principal, the Trustee intends to take
the position that interest payments are "qualified stated interest." The
Internal Revenue Service could, however, assert that original issue discount
must be calculated separately for each Mortgage Loan underlying a
Certificate. In addition, in the case of Ratio Strip or similar Certificates,
the Internal Revenue Service could assert that original issue discount must
be calculated separately for each stripped coupon or stripped bond underlying
a Certificate.
Under certain circumstances, if the Mortgage Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Certificateholder's recognition of income. If, however, the
Mortgage Loans prepay at a rate slower than the prepayment assumption, in
some circumstances the use of this method may decelerate a
Certificateholder's recognition of income.
A Stripped Certificate which either embodies only interest payments on the
underlying loans or (if it embodies some principal payments on the Mortgage
Loans) is issued at a price that exceeds the principal payments (an "Interest
Weighted Certificate"), may be taxed as a contingent payment instrument.
Under proposed Treasury Regulations applicable to contingent payment
instruments (the "Proposed Contingent Regulations"), income on Stripped
Certificates would be calculated by determining a projected payment schedule
and a projected yield, and reporting income accruals on that basis. If the
amount payable for a period were, however, greater or less than the amount
projected, the income included for that period would be increased or
decreased accordingly. Any reduction in the income accrual for a period below
zero (a "Negative Adjustment") would be treated by a Certificateholder as an
ordinary loss to the extent of prior income accruals and may be carried
forward to offset future interest accruals. At maturity, any remaining
Negative Adjustment would be treated as a loss on retirement of the
Certificate.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates described above are not the only possible
interpretations of the applicable Code provisions. Among other possibilities,
the Internal Revenue Service could contend that (i) in certain Series, each
non-Interest Weighted Certificate is composed of an unstripped undivided
ownership interest in Loans and an installment obligation consisting of
stripped principal payments; (ii) the non-Interest Weighted Certifi-
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cates are subject to the OID Regulations; (iii) each Interest Weighted
Certificate is composed of an unstripped undivided ownership interest in the
Mortgage Loans and an installment obligation consisting of stripped interest
payments; or (iv) there are as many stripped bonds or stripped coupons as
there are scheduled payments of principal and/or interest on each Mortgage
Loan.
Given the variety of alternatives for treatment of the Certificates and
the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Certificates for federal income tax
purposes.
Character as Qualifying Mortgage Loans. In the case of Stripped
Certificates there is no specific legal authority existing regarding whether
the character of the Certificates, for federal income tax purposes, will be
the same as the Mortgage Loans. The IRS could take the position that the
Mortgage Loans' character is not carried over to the Certificates in such
circumstances. Pass-Through Certificates will be, and, although the matter is
not free from doubt, Stripped Certificates should be considered to represent
"qualifying real property loans" within the meaning of Section 593(d) of the
Code, "real estate assets" within the meaning of Section 856(c)(6)(B) of the
Code, and "loans(Trademark) secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; and interest income
attributable to the Certificates should be considered to represent "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. However,
Mortgage Loans secured by non-residential real property will not constitute
"loans(Trademark) secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C) of the Code. In addition, it is possible that
various reserves or funds underlying the Certificates may cause a
proportionate reduction in the above-described qualifying status categories
of Certificates.
Sale of Certificates. As a general rule, if a Certificate is sold, gain or
loss will be recognized by the holder thereof in an amount equal to the
difference between the amount realized on the sale and the
Certificateholder's adjusted tax basis in the Certificate. Such gain or loss
will generally be capital gain or loss if the Certificate is held as a
capital asset. In the case of Pass-Through Certificates, such tax basis will
generally equal the holder's cost of the Certificate increased by any
discount income with respect to the loans represented by such Certificate
previously included in income, and decreased by the amount of any
distributions of principal previously received with respect to the
Certificate. Such gain, to the extent not otherwise treated as ordinary
income, will be treated as ordinary income to the extent of any accrued
market discount not previously reported as income. In the case of Stripped
Certificates, the tax basis will generally equal the Certificateholder's cost
for the Certificate, increased by any discount income with respect to the
Certificate previously included in income, and decreased by the amount of all
payments previously received with respect to such Certificate.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. A Bondholder or Certificateholder, other than a
Residual Bondholder or Residual Certificateholder, may, under certain
circumstances, be subject to "backup withholding" at the rate of 31% with
respect to distributions or the proceeds of a sale of certificates to or
through brokers that represent interest or original issue discount on the
Securities. This withholding generally applies if the holder of a Security
(i) fails to furnish the Issuer with its taxpayer identification number
("TIN"); (ii) furnishes the Issuer an incorrect TIN; (iii) fails to report
properly interest, dividends or other "reportable payments" as defined in the
Code; or (iv) under certain circumstances, fails to provide the Issuer or
such holder's securities broker with a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and that the
holder is not subject to backup withholding. Backup withholding will not
apply, however, with respect to certain payments made to Bondholders or
Certificateholders, including payments to certain exempt recipients (such as
exempt organizations) and to certain Nonresidents (as defined below). Holders
of the Securities should consult their tax advisers as to their qualification
for exemption from backup withholding and the procedure for obtaining the
exemption.
The Issuer will report to the Securityholders and to the Internal Revenue
Service for each calendar year the amount of any "reportable payments" during
such year and the amount of tax withheld, if any, with respect to payments on
the Securities.
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TAX TREATMENT OF FOREIGN INVESTORS
Under the Code, unless interest (including OID) paid on a Security (other
than a Residual Interest Security) is considered to be "effectively
connected" with a trade or business conducted in the United States by a
nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of
10% or more of the capital or profits interest in the Issuer or (ii) the
recipient is a controlled foreign corporation to which the Issuer is a
related person) and will be exempt from federal income tax. Upon receipt of
appropriate ownership statements, the Issuer normally will be relieved of the
obligation to withhold federal income tax from such interest payments. These
provisions supersede the generally applicable provisions of United States law
that would otherwise require the Issuer to withhold at a 30% rate (unless
such rate were reduced or eliminated by an applicable tax treaty) on, among
other things, interest and other fixed or determinable, annual or periodic
income paid to Nonresidents.
Interest and original issue discount of Bondholders or Certificateholders
who are foreign persons are not subject to withholding if they are
effectively connected with a United States business conducted by the
Bondholder or Certificateholders. They will, however, generally be subject to
the regular United States income tax.
Payments to holders of Residual Interest Securities who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax
as "portfolio interest." To the extent that a payment represents a portion of
REMIC taxable income that constitutes excess inclusion income, a holder of a
Residual Interest Security will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require
such amounts to be taken into account at an earlier time in order to prevent
the avoidance of tax. Such regulations could, for example, require
withholding prior to the distribution of cash in the case of Residual
Interest Securities that do not have significant value. Under the REMIC
Regulations, if a Residual Interest Security has tax avoidance potential, a
transfer of a Residual Interest Security to a Nonresident will be disregarded
for all Federal tax purposes. A Residual Interest Security has tax avoidance
potential unless, at the time of the transfer the transferor reasonably
expects that the REMIC will distribute to the transferee residual holder
amounts that will equal at least 30% of each excess inclusion, and that such
amounts will be distributed at or after the time at which the excess
inclusion accrues and not later than the close of the calendar year following
the calendar year of accrual. If a Nonresident transfers a Residual Interest
Security to a United States person, and if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the
owner of the Residual Interest Security for purposes of the withholding tax
provisions of the Code. See "Excess Inclusion Income."
STATE AND LOCAL TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "FEDERAL
INCOME TAX CONSIDERATIONS," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or locality. Therefore,
potential investors should consult their own tax advisors with respect to the
various state and local tax consequences of investment in the Bonds or
Certificates. In particular, potential investors in Residual Interest
Securities should consult their tax advisers regarding the taxation of the
Residual Interest Securities in general and the effect of foreclosure on the
Mortgaged Properties on such taxation.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") subject to
ERISA and persons who have certain specified relationships to such Plans
("Parties in Interest"). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions
between a Plan and Parties in Interest with respect to such Plans
("Prohibited Transactions"). Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Similar restrictions also apply to Plans that
are subject to the Code.
The Issuer, the Master Servicer, if any, the Servicer, the Trustee or the
provider of Enhancement, if any, because of their activities or the
activities of their respective affiliates, may be considered to be Parties in
Interest with respect to certain Plans. If the Securities are acquired by a
Plan with respect to which the Issuer, the Master Servicer, if any, the
Servicer, the Trustee or the provider of Enhancement, if any, is a Party in
Interest, such transaction would violate the Prohibited Transaction rules of
ERISA and the Code unless such transaction were subject to one or more
statutory or administrative exemptions such as: Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving
employee benefit plans and certain broker-dealers, reporting dealers and
banks; PTCE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and Parties in Interest; PTCE 91-38, which
exempts certain transactions between bank collective investment funds and
Parties in Interest; PTCE 84-14, which exempts certain transactions effected
on behalf of a Plan by a "qualified plan asset manager;" or any other
available exemption. Accordingly, prior to making an investment in the
Securities, investing Plans should determine whether the Issuer is a Party in
Interest with respect to such Plan and, if so, whether such transaction is
subject to one or more statutory or administrative exemptions.
The Certificates of a Series will, and the Bonds of a Series could, be
treated as "equity" for purposes of ERISA. Under regulations issued by the
Department of Labor ("DOL") (the "Plan Asset Regulations"), if a Plan makes
an "equity" investment in a corporation, partnership, trust or certain other
entities, the underlying assets and properties of such entity will be deemed
for purposes of ERISA to be assets of the investing Plan unless certain
exceptions set forth in the regulation apply. If a particular Series is
treated as "equity" for purposes of the Plan Asset Regulations such that the
underlying assets of the Issuer could be treated as assets of a Plan
purchasing Securities of such Series and the Mortgage Assets securing such
Series consists of a single Mortgage Loan or obligations of a single obligor
or related obligors as specified in the related Prospectus Supplement (e.g.,
affiliates of the Issuer), and Securities of such Series are acquired by a
Plan with respect to which the obligor or related obligors are Parties in
Interest, such transaction would violate the Prohibited Transaction rules of
ERISA and the Code unless such transaction were subject to one or more
statutory or administrative exemptions such as those described above or any
other available exemption. Accordingly, prior to making an investment in
Securities of such Series, a Plan investor should determine whether such
obligor or related obligors are Parties in Interest with respect to such Plan
and, if so, whether such transaction is subject to one or more of the
statutory or administrative exemptions.
If a particular Series is treated as "equity" for purposes of the Plan
Asset Regulations such that the underlying assets of the Issuer could be
treated as assets of a Plan purchasing Securities of such Series and the
Mortgage Assets securing such Series consists of multiple Mortgage Loans or
obligations of multiple unrelated obligors as specified in the related
Prospectus Supplement, an investing Plan may not be able to determine whether
any of the obligors is a Party in Interest with respect to such Plan. In that
event, prior to making an investment in Securities of such Series, such Plan
investor should determine whether (i) one or more statutory or administrative
exemptions is applicable or (ii) one or more exceptions to the Plan Asset
Regulations is applicable such that the underlying assets of the Issuer will
not be treated as assets of such investing Plan.
One such exception applies if the class of "equity" interests in question
is (i) held by 100 or more investors who are independent of the Issuer and
each other, (ii) freely transferable, and (iii) sold as part
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of an offering pursuant to (a) an effective registration statement under the
Securities Act of 1933, and then subsequently registered under the Securities
Exchange Act of 1934 or (b) an effective registration statement under Section
12(b) or 12(g) of the Securities Exchange Act of 1934 ("Publicly Offered
Securities"). In addition, the regulation provides that if at all times more
than 75% of the value of all classes of equity interests in the Issuer are
held by investors other than benefit plan investors (which is defined as
including plans subject to ERISA, government plans and individual retirement
accounts), the investing Plan's assets will not include any of the underlying
assets of the Issuer.
Furthermore, if the Issuer were deemed to hold plan assets by reason of a
Plan's investment in a Security, the persons providing services with respect
to the assets of the Issuer, including the Mortgage Loans, may be subject to
the fiduciary responsibility provisions of Title I of ERISA and be subject to
the prohibited transactions provisions of ERISA and Section 4975 of the Code
with respect to transactions involving such assets unless such transactions
are subject to a statutory or administrative exemption, such as those
described above.
An additional exemption may also be available if the Issuer is a trust.
The DOL granted to Shearson Lehman Hutton, Inc. an administrative exemption
(the "Exemption") from certain of the prohibited transaction rules of ERISA
with respect to the initial purchase, the holding and the subsequent resale
by Plans of certificates representing interests in asset-backed pass through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of the Exemption. The obligations
covered by the Exemption include obligations such as the Mortgage Assets. The
Exemption will apply to the acquisition, holding and resale of the Securities
by a Plan, provided that certain conditions (certain of which are described
below) are met.
Among the conditions which must be satisfied for the Exemption to apply
are the following:
1. The acquisition of the Securities by a Plan is on terms (including the
price for the Securities) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party;
2. The rights and interests evidenced by the Securities acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust;
3. The Securities acquired by the Plan have received a rating at the time
of such acquisition that is in one of the three highest generic rating
categories from either Standard & Poor's Ratings Group ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co. ("DCR") or Fitch Investors Service, L.P. ("Fitch");
4. The sum of all payments made to the underwriter in connection with the
distribution of the Securities represents not more than reasonable
compensation for underwriting the Securities. The sum of all payments made
to and retained by the seller pursuant to the sale of the obligations to
the trust represents not more than the fair market value of such
obligations. The sum of all payments made to and retained by the servicer
represents not more than reasonable compensation for the servicer's
services under the related servicing agreement and reimbursement of the
servicer's reasonable expenses in connection therewith;
5. The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below); and
6. The Plan investing in the Securities is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust also must meet the following requirements:
(i) the corpus of the trust must consist solely of assets of the type
which have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of Standard & Poor's, Moody's,
DCR or Fitch for at least one year prior to the Plan's acquisition of
certificates; and
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(iii) 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 Securities.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or
its affiliate) is an obligor on the receivables held in the trust provided
that, among other requirements: (i) in the case of an acquisition in
connection with the initial issuance of Securities, at least fifty (50)
percent of each class of Securities in which Plans have invested is acquired
by persons independent of the Restricted Group and at least fifty (50)
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate)
is an obligor with respect to five (5) percent or less of the fair market
value of the obligations contained in the trust; (iii) the Plan's investment
in Securities does not exceed twenty-five (25) percent of all of the
Securities outstanding after the acquisition; and (iv) no more than
twenty-five (25) percent of the assets of the Plan are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Issuer, the Underwriter, the Trustee, the Servicer, the
Master Servicer, if any, the Special Servicer, if any, any obligor with
respect to obligations included in a Trust constituting more than five (5)
percent of the aggregate unamortized principal balance of the assets in a
Trust, or any affiliate of such parties (the "Restricted Group").
There can be no assurance that the Securities will not be treated as
equity interests in the Issuer for purposes of the Plan Asset Regulations.
Moreover, if the Securities are treated as equity interests for purposes of
ERISA, there can be no assurance that any of the exceptions set forth in the
Plan Asset Regulations will apply to the purchase of Securities offered
hereby.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code and the potential consequences to
their specific circumstances, prior to making an investment in the
Securities. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute "mortgage-related securities" within the
meaning of the Secondary Mortgage Market Enhancement Act of 1984
("Enhancement Act"). Accordingly, investors whose investment authority is
subject to legal restrictions should consult their own legal advisors to
determine whether and to what extent the Securities constitute legal
investments for them.
PLAN OF DISTRIBUTION
The Issuer may sell the Securities offered hereby through Lehman Brothers,
as agent or as underwriter, or through underwriting syndicates represented by
Lehman Brothers (collectively, the "Underwriters") or by one or more other
underwriters, in each case, to be specified in the related Prospectus
Supplement. The Prospectus Supplement relating to a Series will set forth the
terms of the offering of such Series and each Class within such Series,
including the name or names of the Underwriters, the proceeds to and their
intended use by the Issuer, and either the initial public offering price, the
discounts and commissions to the Underwriters and any discounts or
concessions allowed or reallowed to certain dealers, or the method by which
the price at which the Underwriters will sell the Securities will be
determined.
The Underwriters will be obligated, subject to certain conditions, to
purchase all of the Securities described in the Prospectus Supplement
relating to a Series if any such Securities are purchased. The Securities may
be acquired by the Underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time
of sale. If specified in the related Prospectus Supplement, a Series
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may be offered in whole or in part in exchange for the Mortgage Assets that
would be pledged to secure such Series. In such event, the Prospectus
Supplement will specify the amount of compensation to be paid to the
Underwriters and expenses, if any, in connection with such distribution. If
so indicated in the Prospectus Supplement, the Issuer will authorize
Underwriters or other persons acting as the Issuer's agents to solicit offers
by certain institutions to purchase the Securities on such terms and subject
to such conditions as so specified.
The Issuer may also sell the Securities offered hereby and by means of the
related Prospectus Supplements from time to time in negotiated transactions
or otherwise, at prices determined at the time of sale. The Issuer may effect
such transactions by selling Securities to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Issuer and any purchasers of Securities
for whom they may act as agents.
If any Certificates are offered other than through underwriters pursuant
to such underwriting agreements, the related Prospectus Supplement or
Prospectus Supplements will contain information regarding the terms of such
offering and any agreements to be entered into in connection with such
offering.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
in connection with reoffers and sales by them of Certificates.
Certificateholders should consult with their legal advisors in this regard
prior to any such reoffer and sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor, any affiliate thereof or any other person or
persons specified therein may purchase some or all of one or more Classes of
Certificates of such Series from the underwriter or underwriters of such
other person or persons specified in such Prospectus Supplement. The
consideration for such purchase may be cash or Mortgage Assets. Such
purchaser may thereafter from time to time offer and sell, pursuant to this
Prospectus and the related Prospectus Supplement, some or all of such
Certificates so purchased, directly, through one or more underwriters to be
designated at the time of the offering of such Certificates, through dealers
acting as agent and/or principal as in such other manner as may be specified
in the related Prospectus Supplement. Such offering may be restricted in the
manner specified in such Prospectus Supplement. Such transactions may be
effected at market prices prevailing at the time of sale, at negotiated
prices or at fixed prices. Any underwriters and dealers participating in such
purchaser's offering of such Certificates may receive compensation in the
form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing such
Certificates for whom they may act as agent (which discounts or commissions
will not exceed those customary in those types of transactions involved). Any
dealer that participates in the distribution of such Certificates may be
deemed to be an "underwriter" within the meaning of the Securities Act and
any commissions and discounts received by such dealer and any profit on the
resale of such Certificates by such dealer might be deemed to be underwriting
discounts and commissions under the Securities Act.
The place and time of delivery for the Series in respect of which this
Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered hereby
will be passed upon for the Issuer and for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom, New York, New York, Weil, Gotshal and Manges, New
York, New York or Cadwalader, Wickersham & Taft, New York, New York.
GLOSSARY
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. Unless otherwise provided in the Prospectus
Supplement for a Series, such definitions shall apply to capitalized terms
used in such Prospectus Supplement. The definitions may vary from those in
the Indenture or Trust Agreement, as applicable, and the Indenture or Trust
Agreement, as applicable, generally provides a
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more complete definition of certain of the terms. Reference should be made to
the Indenture or Trust Agreement, as applicable, for a more complete
definition of such terms.
"Accrual Date" means, with respect to any Series, the date upon which
interest begins accruing on the Securities of the Series, as specified in the
related Prospectus Supplement.
"Accrual Payment Amount" means, with respect to any Payment Date or
Distribution Date for a Series that occurs prior to or on the Accrual
Termination Date, the aggregate amount of interest which has accrued on the
Compound Interest Securities of such Series during the Interest Accrual
Period relating to such Payment Date or Distribution Date and which is not
then required to be paid.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Payment Date or Distribution Date on which all
Securities of the related Series with Stated Maturities or Final Scheduled
Termination Dates earlier than that of such Class of Compound Interest
Securities have been fully paid, or such other date or period as may be
specified in the related Prospectus Supplement.
"Administration Agreement" means, with respect to a Series, an agreement
pursuant to which the Administrator agrees to perform certain ministerial,
administrative, accounting and clerical duties on behalf of the Issuer with
respect to such Series.
"Administration Fee" means the fee specified as such in the Administration
Agreement.
"Advances" means, unless otherwise specified in a Prospectus Supplement,
cash advances with respect to delinquent payments of principal and interest
on any Mortgage Loan made by the Primary Servicer from its own funds or, if
so specified in the related Prospectus Supplement, from excess funds in the
Custodial Account or Servicing Account, but only to the extent that such
advances are, in the good faith business judgment of the Servicer or the
Master Servicer, as the case may be, ultimately recoverable from future
payments and collections on the Mortgage Loans or otherwise.
"Aggregate Asset Value" means, with respect to any Series, the aggregate
amount obtained by adding the Asset Value of each Mortgage Loan or Private
Mortgage-Backed Security or other Mortgage Assets in the Trust Estate for
such Series, plus the Asset Value, as determined in the related Series
Supplement, of any cash remaining in the Collection Account or any other
Pledged Fund or Account subsequent to an initial deposit therein by the
Issuer.
"Aggregate Outstanding Principal" means, with respect to any Series or
Class thereof, the principal amount of all Securities of such Series or Class
outstanding at the date of determination, including, in respect of any Class
of Compound Interest Securities of such Series (or other Class of Securities
on which interest accrues and is added to the outstanding principal amount
thereof), the Compound Value (or accreted value) of such Securities through
the Payment Date or Distribution Date immediately preceding the date of
determination.
"Appraised Value" means, unless otherwise specified in a Prospectus
Supplement, the lesser of the appraised value determined in an appraisal
obtained at origination or the sales price of a Mortgaged Property.
"ARM," "ARM Loan," or "Adjustable Rate Mortgage Loan" means a Mortgage
which provides for adjustment from time to time to the Mortgage Rate in
accordance with an approved index.
"Asset Value" means, unless specified otherwise in the related Prospectus
Supplement, with respect to each Private Mortgage-Backed Security or Mortgage
Loan or other Mortgage Assets included in the Trust Estate or Trust Fund for
a Series, its Scheduled Principal Balance. In addition, the related Series
Supplement shall set forth, for purposes of calculating the Asset Value of
Mortgage Assets, the dates on which the scheduled principal and interest
payments with respect to such Mortgage Assets are assumed to be deposited in
the Collection Account. The Asset Value of any cash deposited in any Pledged
Fund or Account shall be as set forth in the related Series Supplement.
"Assumed Deposit Date" means the date specified therefor in the Series
Supplement for a Series, upon which distributions on the Primary Assets are
assumed to be deposited in the Collection Account for purposes of calculating
Reinvestment Income thereon.
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"Assumed Reinvestment Rate" means, with respect to a Series, the per annum
rate or rates specified in the related Prospectus Supplement or the related
Guaranteed Investment Contract for a particular period or periods as the
"Assumed Reinvestment Rate" for funds held in Pledged Funds and Accounts for
the Series.
"Bankers Trust" means Bankers Trust Company of California, N.A., a
national banking association.
"BIF" means Bank Insurance Fund.
"Bondholder" means the Person in whose name a Bond is registered in the
Bond Register.
"Bond Interest Rate" means the interest rate on the outstanding principal
amount of a Bond payable on the applicable Payment Date for such Bond, as
specified in the related Prospectus Supplement.
"Bond Register" means the register maintained pursuant to the Trust
Indenture for a Series, providing for the registration of the Bonds of a
Series and the transfers and exchanges thereof.
"Bonds" means Collateralized Mortgage Obligations sold by the Issuer
pursuant to this Prospectus and a related Prospectus Supplement.
"Business Day" means, with respect to any Series that does not include any
Class of Variable Interest Securities, any day that is not a Saturday, Sunday
or other day on which commercial banking institutions in New York, New York,
or in the cities in which the Corporate Trust Office or, if applicable, the
offices of the Servicer or the Special Servicer, are then located, are
authorized or obligated by law or executive order to be closed, and with
respect to any Series that includes any Class of Variable Interest
Securities, a day that is not a Saturday or Sunday, and that is not a legal
holiday nor a day on which banking institutions are authorized or obligated
by law, regulation or executive order to close in either London or New York
City or in the city in which the Corporate Trust Office is then located.
"Cash Liquidation" means as to any defaulted Mortgage Loan other than a
Mortgage Loan with respect to which the related Mortgaged Property became REO
Property, the recovery of all Insurance Proceeds, Liquidation Proceeds and
other payments or recoveries that the Master Servicer or Servicer, as
applicable, expects to be finally recoverable.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980.
"Certificateholder" means the Person in whose name a Certificate is
registered in the Certificate Register.
"Certificate Interest Rate" means the per annum interest rate on the
outstanding principal amount of a Certificate payable on the applicable
Distribution Date for such Certificate, as specified in the related
Prospectus Supplement.
"Certificate Register" means the register maintained pursuant to the Trust
Agreement for a Series, providing for the registration of the Certificates of
a Series and the transfers and exchanges thereof.
"Certificates" means the Mortgage-Backed Certificates sold by the Issuer
pursuant to this Prospectus and a related Prospectus Supplement.
"Class" means a class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in the
related Series Supplement as the date on which Securities of such Series are
first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
designated as such and created pursuant to the Trust Indenture or Trust
Agreement, as applicable.
"Commercial Property" means any property securing a Mortgage Loan that
used for commercial purposes.
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"Commission" means the Securities and Exchange Commission.
"Company" means Structured Asset Securities Corporation.
"Compound Interest Security" means any Security of a Series on which
interest accrues and is added to the principal of such Security periodically,
but with respect to which no interest or principal shall be payable except
during the period or periods specified in the related Prospectus Supplement.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, as of any determination date, the original principal amount of
such Class, plus all accrued and unpaid interest, if any, previously added to
the principal thereof and reduced by any payments of principal previously
made on such Class of Compound Interest Securities and by any losses
allocated to such Class.
"Condemnation Proceeds" means any awards resulting from the full or
partial condemnation or any eminent domain proceeding or any conveyance in
lieu or in anticipation thereof with respect to a Mortgaged Property by or to
any governmental or quasi-governmental authority other than amounts to be
applied to the restoration, preservation or repair of such Mortgaged Property
or released to the related Mortgagor in accordance with the terms of the
Mortgage Loan.
"Corporate Trust Office" means the corporate trust office of the Trustee,
which, unless otherwise specified in the related Prospectus Supplement, shall
be the office of Bankers Trust Company of California, N.A., 3 Park Plaza,
16th Floor, Irvine, California 92714, if Bankers Trust Company of California,
N.A. is the Trustee, or Marine Midland Bank, N.A., 140 Broadway, New York,
New York 10015, if Marine Midland Bank, N.A. is the Trustee.
"Covered Trust" means a Trust Estate or Trust Fund covered by a form of
credit support.
"CPR" means the Constant Prepayment Rate prepayment model.
"Custodial Account" means an account established by a Master Servicer, a
Servicer, or a Special Servicer in the name of the Trustee for the deposit on
a daily basis of all Mortgage Loan related receipts received by it subsequent
to the Cut-Off Date.
"Custodian" means any bank, savings and loan association, trust company or
other entity appointed to hold documentation with respect to any Mortgage
Loans.
"Cut-Off Date" means, with respect to a Series, the date specified in the
related Series Supplement on which, as of the close of business on such date,
the Mortgage Loans securing or included in such Series are sold to a Trust or
subject to the lien of the Indenture.
"Deferred Interest" means the excess resulting when the amount of interest
required to be paid by a Mortgagor on a Mortgage Loan on any Due Date for
such Mortgage Loan is less than the amount of interest accrued on the
Scheduled Principal Balance thereof, to the extent such excess is added to
the Scheduled Principal Balance of such Mortgage Loan.
"Deferred Interest Securities" means Bonds or Certificates on which
interest accrued during an Interest Accrual Period may be added to the
principal amount of such Bonds or Certificates rather than being paid in cash
on the related Distribution Date.
"Definitive Securities" means the Bonds or the Certificates for a Series
when and if issued in definitive form to the Securities Owners of such Series
or their nominees.
"Deleted Mortgage Loan" means a Mortgage Loan removed from the Trust
Estate or Trust Fund in order to substitute a Substitute Mortgage Loan.
"Delivery Date" means with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which the Securities of such
Series are to be delivered to the original purchasers thereof.
"Depositor" means the Company (i) when acting in such capacity under a
Deposit Trust Agreement to deposit Primary Assets into an Owner Trust
relating to a Series of Bonds, or (ii) when acting in such capacity under a
Trust Agreement to deposit Primary Assets into a Trust Fund relating to a
Series of Certificates.
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"Deposit Trust Agreement" means a deposit trust agreement between the
Company and an Owner Trustee pursuant to which an Owner Trust is created and
Primary Assets are deposited therein.
"Designated Interest Accrual Date" means, as specified in the related
Prospectus Supplement, (a) the day preceding a Redemption Date or Special
Redemption Date as the date through which accrued interest is paid upon
redemption or special redemption, or (b) the date through which accrued
interest is paid upon the occurrence of an Event of Default.
"Determination Date" means the date specified in the related Prospectus
Supplement.
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any
foreign government, any international organization, or any agency or
instrumentality of any of the foregoing, a rural electric or telephone
cooperative described in section 1381(a)(2)(C) of the Code, or any entity
exempt from the tax imposed by sections 1-1399 of the Code, if such entity is
not subject to tax on its unrelated business income.
"Distribution Date" means the date on which distributions of principal of
and interest on Certificates of a Series will be made.
"DOL" means Department of Labor.
"Due Date" means each date on which a payment is due and payable on any
Mortgage Assets.
"Due Period" means, unless other specified in the related Prospectus
Supplement, for each Payment Date or Distribution Date, as applicable, the
period beginning on the second day of the month preceding the month in which
such Payment Date or Distribution Date, as applicable, occurs and ending on
the first day of the month in which such Payment Date or Distribution Date,
as applicable, occurs.
"Eligible Investments" means any one or more of the obligations or
securities described herein under "SECURITY FOR THE BONDS AND
CERTIFICATES--Investment of Funds."
"Enhancement" means the Enhancement for a Series, if any, specified in the
related Prospectus Supplement.
"Enhancement Agreement" means the agreement or instrument pursuant to
which any Enhancement is issued or the terms of any Enhancement are set
forth.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means qualified employee benefit plans established under
ERISA or the Code.
"Escrow Account" means an escrow account established and maintained by the
Primary Servicer in which payments by Mortgagors to pay taxes, assessments,
mortgage and hazard insurance premiums and other comparable items will be
deposited.
"Event of Default" unless otherwise specified in the Prospectus Supplement
shall have the meaning set forth herein under "THE INDENTURE AND TRUST
AGREEMENT--Events of Default."
"Excess Cash Flow" shall have the meaning set forth in the related
Prospectus Supplement.
"Exchange Act" means the Securities Exchange Act of 1934.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration, a division of HUD. "FHA
Loan" means a fixed-rate mortgage loan insured by the FHA. "FHLMC" means the
Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"Final Scheduled Distribution Date" means the Distribution Date on which
principal of and interest on a Series of Certificates is scheduled to be paid
in full.
"First Mandatory Principal Distribution Date" means the date specified in
the related Prospectus Supplement as the Distribution Date on which the
Issuer must begin paying installments of principal of the Certificates of the
related Series or Class if the Issuer has not already begun making such
distributions.
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"First Mandatory Principal Payment Date" means the date specified in the
related Prospectus Supplement as the Payment Date on which the Issuer must
begin paying installments of principal of the Bonds of the related Series or
Class if the Issuer has not already begun making such payments.
"First PAC Paydown Date" means the date on which the initial PAC Principal
Payment is applied to the PAC Bonds, as set forth in the related Prospectus
Supplement.
"Garn-St. Germain Act" means the Garn-St. Germain Depository Institutions
Act of 1982.
"Guarantor" means a guarantor acceptable to the Rating Agencies rating the
Securities.
"Grant" means to mortgage, pledge, bargain, sell, warrant, alienate,
remise, convey, assign, transfer, create and grant a lien upon and a security
interest in and right of setoff against, deposit, set over and confirm.
"Guaranteed Investment Contract" means a guaranteed investment contract
providing for the investment of all distributions on the Mortgage Assets
guaranteeing a minimum or a fixed rate of return on the investment of moneys
deposited therein.
"Highest Bond Interest Rate" means, unless specified otherwise in the
related Prospectus Supplement, with respect to any Series of Bonds, the
highest Bond Interest Rate borne by outstanding Bonds of the Series.
"Highest Certificate Interest Rate" means, unless otherwise specified in
the related Prospectus Supplement, with respect to any Series of
Certificates, the highest Certificate Interest Rate borne by outstanding
Certificates of a Series.
"Holder" means a Bondholder or Certificateholder, as applicable.
"Housing Act" means the National Housing Act of 1934, as amended.
"HUD" means the United States Department of Housing and Urban Development.
"Indenture" means, with respect to any Series of Bonds, collectively the
Trust Indenture and any related Series Supplement.
"Individual Investor Bonds" means each of the Bonds of a Class identified
as such in the related Prospectus Supplement.
"Individual Investor Certificates" means each of the Certificates of a
Class identified as such in the related Prospectus Supplement.
"Insurance Proceeds" means amounts received by the Trustee from the Master
Servicer or a Servicer in connection with sums paid or payable under any
insurance policies, to the extent not applied to the restoration or repair of
the Mortgaged Property.
"Insurance Policies" means hazard insurance and other insurance policies
required to be maintained with respect to Mortgage Loans.
"Interest Accrual Period" means the period specified in the related
Prospectus Supplement for a Series, during which interest accrues on
Securities of the related Series or Class with respect to any Payment Date,
Distribution Date, Redemption Date, or Special Redemption Date.
"Interest Only Securities" means a Security entitled to receive payments
of interest only based upon the Notional Amount of the Security.
"Interest Weighted Securities" means, with respect to Certificates issued
by a grantor Trust, Certificates that embody only interest payments on the
underlying Mortgage Loans or which consist in whole or in part of stripped
coupons or, in the case of a regular interest in a REMIC, which qualify as
such pursuant to Section 860G(a)(1)(B)(ii) of the Code.
"IRS" means the Internal Revenue Service.
"Issuer" means the Company Owner Trust, or a separate trust established by
the Company as issuer of a Series of Securities.
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"L/C Bank" means the issuer of the letter of credit.
"LCPI" means Lehman Commercial Paper Inc.
"Lehman Brothers" means Lehman Brothers Inc.
"Liquidation Proceeds" means amounts (other than Insurance Proceeds)
received and retained in connection with liquidation of defaulted Mortgage
Loans whether through foreclosure or otherwise, net of related liquidation
expenses and certain other expenses.
"Loan-to-Value Ratio" means, as of any date of determination, the ratio of
the then outstanding principal amount to the lesser of the appraised value
and the purchase price of the Mortgaged Property at the time of origination.
"Marine Midland" means Marine Midland Bank, N.A., a national banking
association.
"Master Servicer" means, with respect to a Series secured by Mortgage
Loans or Private Mortgage-Backed Securities, the Person, if any, designated
in the related Prospectus Supplement to manage and supervise the
administration and servicing by the Servicers of the Mortgage Loans
comprising Mortgage Assets or Underlying Collateral for that Series, or the
successors or assigns of such Person.
"Master Servicing Agreement" means the Master Servicing Agreement between
the Issuer and the Master Servicer, if any, specified in the related
Prospectus Supplement.
"Maximum Variable Interest Rate" means the interest rate cap on the Bond
Interest Rate or Certificate Interest Rate for Variable Interest Securities.
"Minimum Variable Interest Rate" means the interest rate floor on the Bond
Interest Rate or Certificate Interest Rate for Variable Interest Securities.
"Mortgage" means a mortgage, deed of trust or other security instrument
evidencing the lien on the Mortgaged Property.
"Mortgage Assets" means the Mortgage Loans, including participation
interests therein, REO Property and Private Mortgage-Backed Securities which
are Granted to the Trustee as security for a Series of Bonds or deposited
into the Trust Fund in respect of a Series of Certificates; an item of
Mortgage Assets refers to a specific Mortgage Loan, REO Property or Private
Mortgage-Backed Security.
"Mortgaged Properties" means the real properties on which liens are
created pursuant to Mortgages for purposes of securing the Mortgage Loans.
"Mortgage Loan Group" means groups of Mortgage Assets.
"Mortgage Loan" means a mortgage loan or participation interest therein
that is owned by the Issuer and constitutes a part of the Mortgage Assets for
a Series, or that is Underlying Collateral for a Private Mortgage-Backed
Security that constitutes a part of the Mortgage Assets for a Series.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor with respect to a Mortgage Loan.
"Mortgage Pool" means, with respect to a Series, the pool of Mortgage
Loans.
"Mortgage Rate" means, with respect to each Mortgage Loan, the annual
interest rate required to be paid by the Mortgagor under the terms of the
related Mortgage Note.
"Mortgagor" means the Person indebted under the Mortgage Note relating to
a Mortgage Loan.
"Multifamily Property" means any property securing a Mortgage Loan
consisting of multifamily residential rental property or cooperatively owned
multifamily property consisting of five or more dwelling units.
"New York Presenting Agent" means the Issuer's agent in the State of New
York, which, unless otherwise specified in the Prospectus Supplement for a
Series, will be Bankers Trust Company, Four Albany Street, New York, New York
10006.
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"Nonresidents" means a nonresident alien individual, foreign partnership
or foreign corporation.
"OID" means "original issue discount" within the meaning of section 1273
of the Code.
"OTS" means the Office of the Thrift Supervision.
"Owner Trust" means the trust fund established by the Company pursuant to
a Deposit Trust Agreement to hold Primary Assets and issue a Series of Bonds.
"Owner Trustee" means the bank or trust company named in the Prospectus
Supplement related to a Series of Bonds, not in its individual capacity but
solely as trustee pursuant to a Deposit Trust Agreement, and its successors
and assigns.
"PAC" means Planned Amortization Class Securities.
"PAC Amount" means the scheduled amounts of principal payments to be
applied on each Payment Date or Distribution Date to the PAC Securities, as
set forth in the related Prospectus Supplement.
"PAC Security" or "Planned Amortization Class Security" means a Security
on which the Principal Amortization Amount in an amount equal to the PAC
Principal Payment or PAC Principal Distribution will be applied to such
Securities commencing on the First PAC Paydown Date, and each Payment Date or
Distribution Dates thereafter.
"PAC Paydown Date" means the date on which each PAC Amount is applied to
the PAC Securities as set forth in the related Prospectus Supplement.
"PAC Principal Payment" means, with respect to a particular Payment Date,
the scheduled PAC Amount, if any, for such Payment Date less any principal
payments made on the PAC Securities due to a special redemption subsequent to
the preceding Payment Date.
"Participating Securities" means a Security entitled to receive payments
of principal and interest and an additional return on investment as described
in the related Prospectus Supplement.
"Participation Agreement" means the agreement through which participation
interests in a Series will be acquired.
"Pass-Through Certificates" means, in respect of Certificates issued by a
grantor trust, Certificates in which there is no separation of the principal
and interest payments on the underlying Mortgage Loans.
"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Paying Agent specified in the Indenture or
Trust Agreement, as applicable and is authorized and appointed pursuant to
the Indenture or Trust Agreement, as applicable by the Issuer to pay the
principal of or interest on any Securities on behalf of the Issuer.
"Payment Date" means the date on which payments of principal of and
interest on the Bonds will be made.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
"Pledged Fund or Account" means any fund or account, including, without
limitation, the Collection Account or any Reserve Fund established with
respect to, and Granted as security for, a Series.
"PMBS Agreement" means the pooling and servicing agreement, indenture or
similar agreement pursuant to which Private Mortgage-Backed Securities have
been issued.
"PMBS Issuer" means the issuer of the Private Mortgage-Backed Securities.
"PMBS Trustee" means the trustee of the Private Mortgage-Backed
Securities.
"Policy Statement" means the supervisory policy statement adopted by the
Federal Financial Institution Examination Council.
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"Prepayment Assumption" means the anticipated rate of prepayments assumed
in pricing the Securities.
"Prepayment Period" means, if specified in any Prospectus Supplement with
respect to any Series, the calendar month preceding the month in which the
related Payment Date occurs.
"Primary Assets" means that portion of the Trust Estate pledged to secure
a Series of Bonds, or comprising the Trust Fund relating to a Series of
Certificates.
"Primary Servicer" means the entity which has primary liability for
servicing Mortgage Loans directly.
"Principal Balance" means, unless otherwise specified in a Prospectus
Supplement, with respect to any Mortgage Loan or related REO Property, for
any Due Date and the Due Period with respect thereto, the principal balance
of such Mortgage Loan (or, in the case of REO Property, of the related
Mortgage Loan on the last date on which a payment was made thereon)
outstanding as of the Cut-Off Date, after application of principal payments
due on or before the Cut-Off Date, whether or not received, plus all amounts
of Deferred Interest accrued on such Mortgage Loan to the Due Date in the Due
Period immediately preceding the date of determination minus the sum of (a)
the principal portion of the Scheduled Payment due on or prior to such Due
Date, but only if received from or on behalf of the Mortgagor, (b) all
Principal Prepayments, and all Insurance Proceeds, Condemnation Proceeds,
Liquidation Proceeds and other amounts applied as recoveries of principal to
the extent identified and applied by the Master Servicer, Special Servicer or
Servicer, as applicable, as recoveries of principal through the close of the
related Prepayment Period for the Master Servicer or Servicer, as applicable,
and (c) any Realized Loss on such Mortgage Loan to the extent treated as a
principal loss and which is realized during such Prepayment Period.
"Principal Determination Date" means the day specified in the related
Prospectus Supplement.
"Principal Payment Amount" means, with respect to any Payment Date or
Distribution Date related to a particular Series, the amount that is
specified in the related Prospectus Supplement.
"Principal Payment Dates" means, with respect to a Class, the dates
specified in the related Prospectus Supplement on which principal of the
Securities of such Class is to be paid.
"Principal Prepayment" means, with respect to any Private Mortgage-Backed
Security or Mortgage Loan, any payment of principal on such Private
Mortgage-Backed Security or Mortgage Loan in excess of the Scheduled Payment,
resulting from prepayment, partial prepayment, (other than Liquidation
Proceeds, Condemnation Proceeds or Insurance Proceeds) with respect to the
Mortgage Loan or Mortgage Loans underlying such Private Mortgage-Backed
Security but not including any Scheduled Payment received prior to the Due
Period in which it was scheduled to be paid.
"Principal Only Securities" means a Security entitled to receive payments
of principal only.
"Private Mortgage-Backed Security" means a mortgage participation or other
interest, pass-through certificate or collateralized mortgage obligation.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"PTE" means Prohibited Transactions Exemption.
"Rating Agency" means a nationally recognized statistical rating agency.
"Realized Losses" means, unless otherwise specified in a Prospectus
Supplement, with respect to each Mortgage Loan or REO Property, as the case
may be, as to which a Cash Liquidation or REO Disposition has occurred, an
amount equal to (i) the Principal Balance of the Mortgage Loan as of the date
of Cash Liquidation or REO Disposition, plus (ii) interest at the applicable
Mortgage Rate, from the date as to which interest was last paid up to the Due
Date in the period in which such Cash Liquidation or REO Disposition has
occurred on the Principal Balance of such Mortgage Loan outstanding during
each Due Period that accrued interest was not paid, minus (iii) Liquidation
Proceeds received during the
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month in which such Cash Liquidation or REO Disposition occurred, net of
related expenses, including but not limited to, amounts that are payable to a
Master Servicer, Servicer, or Special Servicer, as applicable, with respect
to such Mortgage Loan and (iv) any other amounts applied as a recovery of
principal or interest on the Mortgage Loan.
"Redemption Date" means, with respect to any Series, the Payment Date
specified by the Issuer for the redemption of Bonds of such Series pursuant
to the Indenture.
"Redemption Price" means, with respect to any Bond of a Series or Class to
be redeemed, an amount equal to the percentage specified in the related
Prospectus Supplement of the principal amount (or of the Compound Value of
any Compound Interest Security) of such Security so redeemed, together with
accrued and unpaid interest thereon at the applicable Bond Interest Rate to
the Designated Interest Accrual Date for such Series.
"Regular Bondholder" means a Holder of a Regular Interest Bond.
"Regular Certificateholder" means a Holder of a Regular Interest
Certificate.
"Regular Interest Bonds" means Classes of Bonds constituting regular
interests in a REMIC.
"Regular Interest Certificates" means Classes of Certificates constituting
regular interests in a REMIC.
"Regular Interest Securities" means Regular Interest Bonds, Regular
Interest Certificates or Uncertificated Regular Interests, as applicable.
"Reinvestment Income" means any interest or other earnings on Pledged
Funds or Accounts that are part of the Primary Assets for a Series.
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder.
"REMIC Regulations" means final Treasury regulations under Sections 860A
through 860G of the Code or related provisions.
"REO Disposition" means the receipt by the Master Servicer, Servicer, or
Special Servicer, as applicable, of Liquidation Proceeds, Insurance Proceeds
and other payments and recoveries (including proceeds of a final sale) from
the sale or other disposition of the REO Property.
"REO Property" means Mortgaged Properties the beneficial interest in which
has been acquired by a Trust Fund or by a Trustee on behalf of Bondholders by
foreclosure, by deed-in-lieu of foreclosure or otherwise.
"Reserve Fund" means, with respect to a Series, any reserve fund described
in the applicable Prospectus Supplement, including a Subordination Reserve
Fund.
"Reserve Funds" means, collectively, more than one reserve fund.
"Residual Bondholder" means the Holder of a Residual Interest Bond.
"Residual Certificateholder" means the Holder of a Residual Interest
Certificate.
"Residual Interest Bonds" means Classes of Bonds constituting the residual
interest in a REMIC.
"Residual Interest Certificates" means Classes of Certificates
constituting residual interests in a REMIC.
"Residual Interest Securities" means Residual Interest Bonds or Residual
Interest Certificates, as applicable.
"SAIF" means Savings Association Insurance Fund.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the Mortgagor on a Mortgage Loan in accordance with
the terms of the related Mortgage Note, as modified by any permitted
modification of a Mortgage Note.
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<PAGE>
"Scheduled Principal Balance" means the principal balance of a Mortgage
Loan outstanding as of the Cut-Off Date, after application of principal
payments due on or before the Cut-Off Date, whether or not received, plus all
amounts of Deferred Interest accrued on such Mortgage Loan to the Due Date in
the Due Period immediately preceding the date of determination, minus the sum
of (a) the principal portion of all Scheduled Payments due on or prior to
such Due Date, irrespective of any delinquency in payment by the Mortgagor,
(b) all Principal Prepayments and all Insurance Proceeds, Condemnation
Proceeds, Liquidation Proceeds and other amounts applied as recoveries of
principal to the extent identified and applied by the Master Servicer,
Special Servicer, or Servicer, as applicable, as recoveries of principal
through the close of the related Prepayment Period, and (c) any Realized Loss
on such Mortgage Loan to the extent treated as a principal loss and that is
realized during such Prepayment Period.
"Securities" means Bonds of Certificates.
"Securities Owners" means the owners of the beneficial interests in a
Series of Bonds or Certificates.
"Senior Securities" means a Class of Securities which are senior in right
and priority to the extent described in the related Prospectus Supplement to
payment of principal and interest to certain other Classes of Securities of
such Series.
"Series" means a separate series of Bonds sold pursuant to this Prospectus
and the related Prospectus Supplement.
"Series Supplement" means the supplemental indenture to or terms indenture
incorporating by reference the Trust Indenture or Trust Agreement, as
applicable, between the Issuer of a Series of Securities and the Trustee
relating to such Series of Securities.
"Servicer" means, for any Mortgage Loan, the Person approved by the Issuer
and by the Master Servicer, if any, as servicer of such Mortgage Loan, which
Person shall also be a FNMA or FHLMC-approved seller and servicer.
"Servicer Remittance Date" means with respect to each Mortgage Loan, the
date on which the Servicer shall remit all funds held in the Servicing
Account together with any Advances made by such Servicer for deposit to the
Collection Account.
"Servicing Account" means an account established by a Servicer which
complies with the standards set forth herein for a Custodial Account.
"Servicing Agreements" means the Master Servicing Agreement, Servicing
Agreement and Special Servicing Agreement, if any.
"Servicing Fee" means for any Series, the aggregate fees paid to the
Trustee, Master Servicer or other similar fees.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984.
"SPA" means the Standard Prepayment Assumption prepayment model.
"Special Redemption Date" means, with respect to a Series, the date each
month (other than any month in which a Payment Date occurs) on which Bonds of
that Series may be redeemed pursuant to the Trust Indenture or the related
Series Supplement; such date shall be the same day of the month as the day on
which the Payment Date for the Bonds of that Series occurs.
"Special Servicer" means a special servicer identified in the related
Prospectus Supplement appointed to perform the activities set forth in the
related Prospectus Supplement.
"Start Up Day" means the "startup day" of the REMIC as defined in section
860G(a)(9) of the Code.
"Stated Maturity" means the date specified in the related Prospectus
Supplement no later than which all the Bonds of such Class will be fully
paid, calculated on the basis of the assumptions set forth in the related
Prospectus Supplement.
"Stripped Certificates" means, in respect of Certificates issued by a
grantor trust, Certificates in which there is considered to be a separate
ownership of the payments of principal and interest on the underlying
Mortgage Loans.
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"Subordinate Securities" means a Class of Securities which are subordinate
in right and priority to the extent described in the related Prospectus
Supplement to payment of principal and interest to Senior Classes of
Securities of such Series.
"Substitute Mortgage Asset" means any Mortgage Asset that is Granted to
the Trustee as security for a Series of Bonds or deposited into the Trust
Fund in respect of a Series of Certificates in lieu of any Mortgage Assets
then pledged as security.
"Substitute Mortgage Loan" means a Mortgage Loan substituted for one or
more Deleted Mortgage Loans in the Trust Estate or Trust Fund.
"TIN" means Taxpayer Identification Number.
"Trust Agreement" means the trust agreement between the Company and a
Trustee pursuant to which a Series of Certificates is issued.
"Trust Estate" means, with respect to any Series of Bonds, all money,
instruments, securities and other property, including all proceeds thereof,
which are subject or intended to be subject to the lien of the Indenture for
the benefit of the Series as of any particular time (including, without
limitation, all property and interests Granted to the Trustee pursuant to the
Series Supplement for such Series).
"Trust Fund" means the trust fund established pursuant to a Trust
Agreement into which Primary Assets are deposited for the purpose of issuing
a Series of Certificates.
"Trust Indenture" means the trust indenture between the Company and the
Trustee or a Trust and the Trustee pursuant to which a Series of Bonds are
issued.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 and
rules and regulations promulgated by the Commission with respect thereto.
"Trustee" means Bankers Trust or Marine Midland or another bank or trust
company qualified under the TIA and named in the Prospectus Supplement for a
Series as trustee or the Trustee for any series of Certificates named in the
Prospectus Supplement.
"Uncertificated Regular Interest" means a regular interest in a REMIC that
is not represented by a physical Certificate.
"Unavailable Amount" means, with respect to a Series, the amount, if any,
remaining in the related Collection Account on a related Payment Date that
represents (1) payments of scheduled payments of principal of and interest on
the Mortgage Assets due subsequent to the Principal Determination Date
immediately preceding the related Payment Date or Distribution Date, (2) the
amount of all related prepayments received or deemed received subsequent to
the Principal Determination Date immediately preceding such Payment Date or
Distribution Date, or (3) any investment income that has accrued subsequent
to the Principal Determination Date immediately preceding such Payment Date
or Distribution Date.
"Undelivered Mortgage Assets" means Mortgage Assets that are not pledged
and delivered to the Trustee on the related Closing Date.
"Underwriters" means, collectively, Lehman Brothers, as agent or as
underwriter, or underwriting syndicates represented by Lehman Brothers.
"Underlying Collateral" means, with respect to a Private Mortgage-Backed
Security, the underlying Mortgage Loans.
"VRDI Security" means a Regular Interest Security that qualifies as a
"variable rate debt instrument" under Section 1.7275-5 of the Treasury
Regulations.
"Variable Interest Distribution Date" means, with respect to a Class of
Variable Interest Securities issued as part of a Series of Certificates, the
date specified in the related Prospectus Supplement, it being expressly
provided herein that Variable Interest Distribution Dates may be monthly,
quarterly, semi-annual or annual.
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"Variable Interest Payment Date" means, with respect to any Class of
Variable Interest Securities issued as part of a Series of Bonds, the date
specified in the related Prospectus Supplement, it being expressly provided
herein that Variable Interest Payment Dates may be monthly, quarterly,
semi-annual or annual.
"Variable Interest Period" means, with respect to any Class of Variable
Interest Securities, the period commencing immediately subsequent to the
preceding Variable Interest Period (or, in the case of the Variable Interest
Period appliable to the first Variable Interest Payment Date with respect to
such Class of Variable Interest Securities, commencing on the Accrual Date
for such Class) and ending on the date specified in the related Prospectus
Supplement, during which such Class of Variable Interest Securities shall
accrue interest, payable on the immediately succeeding Variable Interest
Payment Date or Variable Interest Distribution Date, at the Bond Interest
Rate or Certificate Interest Rate determined on the immediately preceding
Determination Date.
"Variable Interest Rate" means the interest rate in respect of a Variable
Interest Security.
"Variable Interest Security" means a Security on which interest accrues at
a Bond Interest Rate or Certificate Interest Rate that is adjusted, based
upon a predetermined index, at fixed periodic intervals, all as set forth in
the related Prospectus Supplement.
"Weighted Average Securities" means Regular Interest Securities that bear
interest at a rate based on a weighted average of the interest rates on some
or all of the Mortgage Loans of the related trust.
"Zero Coupon Bonds" means a Security entitled to receive payments or
distributions of Principal only.
"1986 Act" means the Tax Reform Act of 1986, as amended.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR LEHMAN BROTHERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH THEY
RELATE OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THEIR RESPECTIVE DATES.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Table of Contents ..................................... S-4
Executive Summary ..................................... S-6
Summary of Terms ...................................... S-20
Risk Factors .......................................... S-40
Description of the Certificates ....................... S-47
Description of the Mortgage Pool ...................... S-74
Servicing of Mortgage Loans ........................... S-98
Yield, Prepayment and Maturity Considerations ........ S-112
Legal Investment Considerations ....................... S-124
Certain Legal Aspects of Mortgage Loans Located in
Georgia .............................................. S-124
Use of Proceeds ....................................... S-124
ERISA Considerations .................................. S-124
Federal Income Tax Considerations ..................... S-127
Underwriting .......................................... S-129
Legal Matters ......................................... S-129
Certificate Rating .................................... S-129
Index of Principal Terms .............................. S-131
Annex A ............................................... A-1
PROSPECTUS
Table of Contents ..................................... 2
Prospectus Supplement ................................. 5
Additional Information ................................ 5
Incorporation of Certain Documents by Reference ...... 5
Summary of Terms ...................................... 7
Risk Factors .......................................... 26
Description of the Securities ......................... 32
Yield and Prepayment Considerations ................... 41
Security for the Bonds and Certificates ............... 44
Servicing of Mortgage Loans ........................... 52
Enhancement ........................................... 56
Description of Insurance on the Mortgage Loans ....... 59
Certain Legal Aspects of Mortgage Loans ............... 61
The Indenture ......................................... 71
The Trust Agreement ................................... 76
The Issuer ............................................ 82
Use of Proceeds ....................................... 83
Limitations on Issuance of Bearer Securities ......... 83
Federal Income Tax Considerations ..................... 84
State and Local Tax Considerations .................... 98
ERISA Considerations .................................. 99
Legal Investment ...................................... 101
Plan of Distribution .................................. 101
Legal Matters ......................................... 102
Glossary .............................................. 102
</TABLE>
$351,749,135
(APPROXIMATE)
STRUCTURED ASSET
SECURITIES CORPORATION
(DEPOSITOR)
LB COMMERCIAL CONDUIT
MORTGAGE TRUST II
MULTICLASS PASS-THROUGH CERTIFICATES,
SERIES 1996-C2
PROSPECTUS SUPPLEMENT
OCTOBER , 1996
LEHMAN BROTHERS
