<PAGE> 1
PROSPECTUS SUPPLEMENT FILED PURSUANT TO RULE 424(b)(5)
(TO PROSPECTUS DATED MAY 21, 1996) REGISTRATION NO. 33-99598
$439,334,268 (APPROXIMATE)
STRUCTURED ASSET SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-4
The Structured Asset Securities Corporation Mortgage Pass-Through
Certificates, Series 1997-4 (the "Certificates") will evidence, in the
aggregate, the entire beneficial ownership interest in a trust fund (the "Trust
Fund") consisting primarily of two pools of fixed rate, fully amortizing,
conventional, first lien residential mortgage loans (the "Mortgage Loans") to be
deposited by Structured Asset Securities Corporation (the "Depositor") into the
Trust Fund for the benefit of Certificateholders. The Mortgage Loans will be
sold by Lehman Capital, A Division of Lehman Brothers Holdings Inc. (the
"Seller" or "Lehman Capital"), to the Depositor on the date of the initial
issuance of the Certificates. Certain characteristics of the Mortgage Loans are
described herein under "DESCRIPTION OF THE MORTGAGE POOLS."
FOR A DISCUSSION OF CERTAIN SIGNIFICANT FACTORS AFFECTING INVESTMENTS IN
THE OFFERED CERTIFICATES, SEE "RISK FACTORS" HEREIN AT PAGE S-14 AND IN THE
PROSPECTUS AT PAGE 19.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE SELLER, THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE DEPOSITOR,
THE SELLER, THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES OR
BY ANY OTHER PERSON OR ENTITY, EXCEPT TO THE EXTENT DESCRIBED HEREIN.
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 ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Class Certificate Certificate
Class Principal Amount(1) Interest Rate CUSIP Number
- --------------------- ------------------- ------------- ------------
<S> <C> <C> <C>
1-A1 ................ $56,794,000 6.75% 863572 Q X 4
1-A2 ................ 18,000,000 6.75% 863572 Q Y 2
1-AP................. 61,215 (5) 863572 Q Z 9
1-AX................. (2) 6.75% 863572 R E 5
2-A1 ................ 5,000,000 7.00% 863572 R A 3
2-A2 ................ 100,000,000 7.00% 863572 R B 1
2-A3 ................ 98,155,000 6.75% 863572 R C 9
2-A4 ................ 10,000,000 6.60% 863572 R D 7
2-A5 ................ (3) 0.33% 863572 R F 2
2-A6 ................ 12,268,000 9.00% 863572 R G 0
2-A7 ................ 33,850,000 7.00% 863572 R H 8
<CAPTION>
Class Certificate Certificate
Class Principal Amount(1) Interest Rate CUSIP Number
- --------------------- ------------------- ------------- ------------
<S> <C> <C> <C>
2-A8................. $19,180,000 7.00% 863572 R J 4
2-A9................. 71,500,000 7.00% 863572 R K 1
2-AP................. 27,853 (5) 863572 R L 9
2-AX................. (4) 7.00% 863572 R M 7
1-B1................. 768,000 6.75% 863572 R N 5
2-B1................. 6,413,000 7.00% 863572 R P 0
B2................... 4,521,000 (6) 863572 R Q 8
B3................... 2,796,000 (6) 863572 R R 6
R1................... 100 7.00% 863572 R S 4
R2................... 100 7.00% 863572 R T 2
</TABLE>
- ---------------
(1) Approximate.
(2) The Class 1-AX Certificates will have no Certificate Principal Amount and
will accrue interest on a calculated aggregate Notional Amount equal, as to
any Distribution Date, to the product of (x) the fraction, the numerator of
which is the excess of the weighted average (by Scheduled Principal Balance)
of the Net Mortgage Rates of the Pool 1 Premium Mortgage Loans (as defined
herein) over 6.75%, and the denominator of which is 6.75%, and (y) the
aggregate Scheduled Principal Balance of the Pool 1 Premium Mortgage Loans
as of the first day of the related Interest Accrual Period. The aggregate
Notional Amount for the Class 1-AX Certificates for the initial Interest
Accrual Period is expected to be approximately $1,913,636. The Class 1-AX
Certificates will be interest-only Certificates; accordingly, they will not
be entitled to distributions of principal.
(3) The Class 2-A5 Certificates will have no Certificate Principal Amount and
will accrue interest on an aggregate Notional Amount equal, as to any
Distribution Date, to the Class Certificate Principal Amount of the Class
2-A4 Certificates for such date. The Class 2-A5 Certificates will be
interest-only Certificates; accordingly, they will not be entitled to
distributions of principal.
(4) The Class 2-AX Certificates will have no Certificate Principal Amounts and
will accrue interest on a calculated aggregate Notional Amount equal, as to
any Distribution Date, to the product of (x) the fraction, the numerator of
which is the excess of the weighted average (by Scheduled Principal Balance)
of the Net Mortgage Rates of the Pool 2 Premium Mortgage Loans (as defined
herein) over 7.00%, and the denominator of which is 7.00%, and (y) the
aggregate Scheduled Principal Balance of the Pool 2 Premium Mortgage Loans
as of the first day of the related Interest Accrual Period. The aggregate
Notional Amount for the Class 2-AX Certificates for the initial Interest
Accrual Period is expected to be approximately $13,670,003. The Class 2-AX
Certificates will be interest-only Certificates; accordingly, they will not
be entitled to distributions of principal.
(5) The Class 1-AP Certificates and the Class 2-AP Certificates will be
principal-only Certificates; accordingly, they will not accrue interest.
(6) Interest will accrue on the Class B2 and Class B3 Certificates at a per
annum rate equal in each case to the weighted average (by Component
Principal Amount) of the Component Interest Rates (each as defined herein)
applicable to the Components of such Class. The Certificate Interest Rates
applicable to such Classes of Certificates for the initial Interest Accrual
Period are expected to be approximately as follows: Class B2, 6.98302% per
annum; and Class B3, 6.97943% per annum.
The Class 1-A1, Class 1-A2, Class 1-AP, Class 1-AX, Class 2-A1, Class 2-A2,
Class 2-A3, Class 2-A4, Class 2-A5, Class 2-A6, Class 2-A7, Class 2-A8, Class
2-A9, Class 2-AP, Class 2A-X, Class 1-B1, Class 2-B1, Class B2, Class B3, Class
R1 and Class R-2 Certificates (the "Offered Certificates") will be purchased
from the Depositor by Lehman Brothers Inc. (the "Underwriter") and will be
offered by the Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The Class 2-A4
Certificates will also be offered by Edward D. Jones & Co., L.P. (the "Dealer")
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the Depositor from the sale of
the Offered Certificates will be approximately 101.2% of the aggregate initial
Certificate Principal Amount thereof, plus accrued interest thereon from the
Cut-off Date, before deducting expenses payable by the Depositor.
The Offered Certificates are offered by the Underwriter, subject to prior
sale, withdrawal, cancellation or modification of the offer without notice, to
delivery to and acceptance by the Underwriter and certain further conditions. It
is expected that the Offered Certificates (other than the Class R1 and Class R2
Certificates) will be delivered in book-entry form through the Same-Day Funds
Settlement System of The Depository Trust Company on or about November 25, 1997.
It is expected that the Class R1 and Class R2 Certificates will be delivered in
certificated form at the offices of Lehman Brothers Inc., New York, New York on
or about November 25, 1997.
---------------------------
LEHMAN BROTHERS EDWARD D. JONES & CO., L.P.
The date of this Prospectus Supplement is November 21, 1997
<PAGE> 2
The Mortgage Loans are divided into two pools ("Pool 1" and "Pool 2", and
each, a "Mortgage Pool"). Pool 1 includes fully amortizing Mortgage Loans with
original maturities of 15 years and Pool 2 includes fully amortizing Mortgage
Loans with original maturities of generally 30 years.
The Group 1 Certificates relate to the Pool 1 Mortgage Loans and the Group
2 Certificates relate to the Pool 2 Mortgage Loans. As used herein, the terms
"Group 1 Certificates" and "Group 2 Certificates" (each, a "Certificate Group")
include, unless the context requires otherwise, in the case of the Group 1
Certificates, the related Senior Certificates, the Class 1-B1 Certificates and
the related Components of the remaining Classes of Subordinate Certificates and,
in the case of the Group 2 Certificates, the related Senior Certificates, the
Class 2-B1 Certificates and the related Components of the remaining Classes of
Subordinate Certificates.
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates but
has 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 -- Limited Liquidity" herein and in the Prospectus.
Distributions on the Offered Certificates will be made monthly on the 25th
day of each month or, if such 25th day is not a Business Day, on the next
succeeding Business Day, commencing on December 26, 1997 (each, a "Distribution
Date"). As more fully described herein, interest on the Offered Certificates
will be calculated on the basis of the Certificate Principal Amounts or Notional
Amounts thereof and the applicable Certificate Interest Rates.
For purposes of determining distributions of interest and principal, the
Class B2 and Class B3 Certificates will each consist of two payment components
(each, a "Component") relating to Group 1 and Group 2, respectively. SUCH
COMPONENTS WILL NOT BE CROSS-COLLATERALIZED. The Class B2 and Class B3
Certificates in each case to the extent of the related Components thereof, and
the Class 1-B1 and Class 2-B1 Certificates (together, the "Offered Subordinate
Certificates") are subordinate to the Senior Certificates of the related
Certificate Group to the extent described herein. Investors should consider
that, as a result of such subordination, the yields to maturity on the Offered
Subordinate Certificates will be sensitive, in varying degrees (and will each be
more sensitive than the yields to maturity on the Senior Certificates), to
delinquencies and losses on the Mortgage Loans in the related Mortgage Pools.
THE OFFERED SUBORDINATE CERTIFICATES MAY NOT BE TRANSFERRED TO PLANS (AS
DEFINED HEREIN), EXCEPT AS DESCRIBED HEREIN. THE CLASS R1 AND CLASS R2
CERTIFICATES (THE "RESIDUAL CERTIFICATES") MAY NOT BE TRANSFERRED TO PLANS AND
ARE SUBJECT TO ADDITIONAL TRANSFER RESTRICTIONS AS DESCRIBED HEREIN. SEE "ERISA
CONSIDERATIONS" AND "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" HEREIN AND IN
THE ACCOMPANYING PROSPECTUS.
For federal income tax purposes, the Trust Fund will consist of two real
estate mortgage investment conduits (the "Lower Tier REMIC" and the "Upper Tier
REMIC," respectively, and each a "REMIC"). Each Certificate (or in the case of
the Class B2 and Class B3 Certificates, each Component), other than the Residual
Certificates, will be designated as a "regular interest" in the Upper Tier
REMIC. Each of the Class R1 and Class R2 Certificates will be designated as the
sole class of "residual interest" in the Lower Tier REMIC and Upper Tier REMIC,
respectively. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" herein and in the
accompanying Prospectus.
THE YIELDS TO MATURITY OF OFFERED CERTIFICATES PURCHASED AT A PREMIUM OR
DISCOUNT WILL BE ESPECIALLY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS. INVESTORS SHOULD CONSIDER THE RISK THAT IN THE CASE OF OFFERED
CERTIFICATES PURCHASED AT A DISCOUNT, IN PARTICULAR THE CLASS 1-AP AND CLASS
2-AP CERTIFICATES, A SLOWER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD
RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD, AND THAT IN
THE CASE OF OFFERED CERTIFICATES PURCHASED AT A PREMIUM, IN PARTICULAR THE CLASS
1-AX, CLASS 2-A5 AND CLASS 2-AX CERTIFICATES, A FASTER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE
ANTICIPATED YIELD, AND COULD RESULT IN THE FAILURE OF INVESTORS TO RECOVER THEIR
INITIAL INVESTMENTS. SEE "YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE" HEREIN.
S-2
<PAGE> 3
Distributions of principal on the Class 2-A4 Certificates are subject to
the procedures regarding requests for distribution and random lot distribution
described herein under "DESCRIPTION OF THE CERTIFICATES -- Distributions in
Reduction of the Class 2-A4 Certificates." The allocation of principal
distributions in respect of any particular Class 2-A4 Certificate may result in
a yield to maturity that varies significantly from the anticipated yield, and
such yields will vary among holders of Class 2-A4 Certificates. THE CLASS 2-A4
CERTIFICATES MAY NOT BE AN APPROPRIATE INVESTMENT FOR AN INVESTOR WHO REQUIRES A
DISTRIBUTION OF A PARTICULAR AMOUNT OF PRINCIPAL ON A PREDETERMINED DATE OR
REQUIRES AN OTHERWISE PREDICTABLE STREAM OF PRINCIPAL DISTRIBUTIONS.
The Class 2-A4 Certificates will have the benefit of an irrevocable
financial guaranty insurance policy (the "Class 2-A4 Certificate Insurance
Policy") to be issued by MBIA Insurance Corporation (the "Class 2-A4 Certificate
Insurer") pursuant to which the Class 2-A4 Certificate Insurer will
unconditionally and irrevocably guarantee the payment of Guaranteed
Distributions (as defined herein) on the Class 2-A4 Certificates on each
Distribution Date to the extent described in the Class 2-A4 Certificate
Insurance Policy. See "THE CLASS 2-A4 CERTIFICATE INSURANCE POLICY" herein.
This Prospectus Supplement does not contain complete information about the
offering of the Offered 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 of the Offered
Certificates. Sales of the 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.
The information set forth herein under "FIRST NATIONWIDE MORTGAGE
CORPORATION" has been provided by First Nationwide Mortgage Corporation, a
Delaware corporation and a wholly-owned indirect subsidiary of California
Federal Bank, FSB ("First Nationwide Mortgage"), and the information set forth
herein under "THE CLASS 2-A4 CERTIFICATE INSURANCE POLICY" has been provided by
MBIA Insurance Corporation. No representation is made by the Depositor, the
Underwriter or any of their respective affiliates as to the accuracy or
completeness of the information provided by First Nationwide Mortgage or MBIA
Insurance Corporation.
---------------------------
No person is authorized in connection with this offering to give any
information or to make any representation about the Seller, the Depositor, First
Nationwide Mortgage, MBIA Insurance Corporation, the Offered Certificates or any
other matter referred to herein, other than those contained in this Prospectus
Supplement or the Prospectus. If any other information or representation is
given or made, such information or representation may not be relied upon as
having been authorized by the Depositor or the Underwriter. This Prospectus
Supplement and the Prospectus do not constitute an offer to sell or a
solicitation of an offer to buy securities other than the Offered Certificates,
or an offer to sell or a solicitation of an offer to buy securities in any
jurisdiction or to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus Supplement or the
Prospectus nor any sale hereunder or thereunder shall, under any circumstances,
create any implication that the information contained herein or therein is
correct as of any time subsequent to their respective dates.
S-3
<PAGE> 4
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF TERMS................................................................................ S- 5
RISK FACTORS.................................................................................... S-14
Special Yield Considerations for Certain Classes of Certificates.............................. S-14
Geographical Concentration of the Mortgage Loans.............................................. S-14
Status of the Mortgage Loans in the Event of Insolvency....................................... S-14
Limited Liquidity............................................................................. S-15
DESCRIPTION OF THE CERTIFICATES................................................................. S-15
General....................................................................................... S-15
Book-Entry Registration of Certain Classes of Certificates.................................... S-17
Priority of Distributions..................................................................... S-18
Distributions of Interest..................................................................... S-20
Distributions of Principal.................................................................... S-21
Available Distribution Amount................................................................. S-25
Distributions in Reduction of the Class 2-A4 Certificates..................................... S-26
Example of Distributions...................................................................... S-30
The Residual Certificates..................................................................... S-30
Allocation of Realized Losses................................................................. S-30
Final Scheduled Distribution Date............................................................. S-33
Optional Termination of the Trust............................................................. S-33
The Trustee................................................................................... S-34
DESCRIPTION OF THE MORTGAGE POOLS............................................................... S-34
General....................................................................................... S-34
Pool 1........................................................................................ S-35
Pool 2........................................................................................ S-38
ADDITIONAL INFORMATION.......................................................................... S-42
FIRST NATIONWIDE MORTGAGE CORPORATION........................................................... S-42
Mortgage Loan Underwriting.................................................................... S-42
Loan Origination.............................................................................. S-43
Delinquency Experience........................................................................ S-43
SERVICING OF THE MORTGAGE LOANS................................................................. S-45
Insurance Coverage............................................................................ S-45
Servicing Compensation and Payment of Expenses................................................ S-45
Prepayment Interest Shortfalls................................................................ S-45
Advances...................................................................................... S-45
Purchases of Defaulted Mortgage Loans......................................................... S-46
Collection of Taxes, Assessments and Similar Items............................................ S-46
Certain Rights Related to Foreclosure......................................................... S-46
TRUST AGREEMENT................................................................................. S-46
General....................................................................................... S-46
Assignment of Mortgage Loans.................................................................. S-47
Voting Rights................................................................................. S-47
YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE..................................................... S-48
General....................................................................................... S-48
Sensitivity of the Class 1-AP, Class 2-A5, Class 2-AP, Class 1-AX and Class 2-AX
Certificates................................................................................ S-49
Subordination of the Offered Subordinate Certificates......................................... S-51
Weighted Average Life......................................................................... S-52
THE CLASS 2-A4 CERTIFICATE INSURANCE POLICY..................................................... S-71
The Financial Guaranty Insurance Policy....................................................... S-71
MBIA Insurance Corporation.................................................................... S-73
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS....................................................... S-75
Residual Certificates......................................................................... S-75
LEGAL INVESTMENT CONSIDERATIONS................................................................. S-77
USE OF PROCEEDS................................................................................. S-77
UNDERWRITING.................................................................................... S-77
ERISA CONSIDERATIONS............................................................................ S-78
EXPERTS......................................................................................... S-78
LEGAL MATTERS................................................................................... S-78
RATINGS......................................................................................... S-78
GLOSSARY........................................................................................ S-80
</TABLE>
S-4
<PAGE> 5
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
accompanying Prospectus. Capitalized terms used and not otherwise defined herein
have the respective meanings assigned to them in the Prospectus. Wherever
reference is made herein to a percentage of some or all of the Mortgage Loans,
such percentage is determined (unless otherwise specified) on the basis of the
aggregate Scheduled Principal Balance of such Mortgage Loans as of the Cut-off
Date.
THE OFFERED CERTIFICATES... Mortgage Pass-Through Certificates, Series 1997-4,
in the Classes indicated on the cover page
hereof. The Offered Certificates will be issued
pursuant to a Trust Agreement, to be dated as of
November 1, 1997, between the Depositor and the
Trustee (the "Trust Agreement").
Interest and principal will be payable on the Group
1 Offered Certificates (as defined herein) out of
amounts collected in respect of the Pool 1
Mortgage Loans and on the Group 2 Offered
Certificates (as defined herein) out of amounts
collected in respect of the Pool 2 Mortgage
Loans. See "DESCRIPTION OF THE CERTIFICATES"
herein.
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) 526-5594. See "The
Issuer" in the Prospectus.
SELLER..................... Lehman Capital, A Division of Lehman Brothers
Holdings Inc. The Seller's principal offices are
located at 200 Vesey Street, New York, New York
10285, telephone (212) 526-3305.
SERVICER................... First Nationwide Mortgage Corporation, a Delaware
corporation and a wholly owned subsidiary of
California Federal Bank, FSB ("First Nationwide
Mortgage" or the "Servicer"), will service the
Mortgage Loans pursuant to an agreement (the
"Sale and Servicing Agreement") that will be
assigned to the Trustee. The Servicer will
receive a monthly fee (the "Servicing Fee") with
respect to each Mortgage Loan. See "First
Nationwide Mortgage" and "Servicing of the
Mortgage Loans" herein.
TRUSTEE.................... U.S. Bank National Association, a national banking
association. See "DESCRIPTION OF THE
CERTIFICATES -- The Trustee" herein.
CUT-OFF DATE............... November 1, 1997.
CLOSING DATE............... On or about November 25, 1997 (the "Closing Date").
DISTRIBUTION DATE.......... The distribution date (the "Distribution Date")
will be the 25th day of each month or, if such
25th day is not a Business Day, then on the next
succeeding Business Day, commencing on December
26, 1997.
RECORD DATE................ The record date (the "Record Date") for each
Distribution Date will be the close of business
on the last Business Day of the month immediately
preceding the month in which such Distribution
Date occurs.
DISTRIBUTIONS OF INTEREST
AND PRINCIPAL.............. Interest accrued during the calendar month (each,
an "Interest Accrual Period") preceding the month
in which the related Distribution Date occurs on
each Class of Offered Certificates (other than
the
S-5
<PAGE> 6
Class 1-AP and Class 2-AP Certificates) at the
applicable per annum rate set forth or described
on the cover page hereof will be distributable on
each Distribution Date. Each of the Class 1-AP
and Class 2-AP Certificates will be
principal-only Certificates; accordingly, they
will not accrue interest. See "DESCRIPTION OF THE
CERTIFICATES -- Distributions of Interest"
herein.
The approximate initial Class Certificate Principal
Amount or aggregate Notional Amount of each Class
of Offered Certificates is set forth or described
on the cover page hereof.
On each Distribution Date, an amount equal to the
Principal Distribution Amount (as defined herein)
for each Certificate Group for such Distribution
Date will be applied, as more fully described
herein, to make distributions of principal on the
Offered Certificates or related Components (other
than the Class 1-AX, Class 2-A5 and Class 2-AX
Certificates). See "DESCRIPTION OF THE
CERTIFICATES -- Distributions of Principal"
herein.
Distributions of interest and principal on the
Certificates (and, in the case of the Subordinate
Certificates other than the Class 1-B1 and Class
2-B1 Certificates, on the related Components) of
each Certificate Group will be made out of
Available Funds for the related Mortgage Pool.
See "DESCRIPTION OF THE
CERTIFICATES -- Distributions of Interest" and
"-- Distributions of Principal" herein.
Distributions of principal on the Class 2-A4
Certificates will be made pursuant to requests
for distributions or by random lot, as described
under "DESCRIPTION OF THE
CERTIFICATES -- Distributions in Reduction of the
Class 2-A4 Certificates" herein.
ALLOCATION OF PRINCIPAL
PAYMENTS AMONG SENIOR
CERTIFICATES............. The applicable Non-AP Percentage (as defined
herein) of principal prepayments on the Mortgage
Loans in each Mortgage Pool will be allocated to
the related Senior Certificates (other than the
Class 1-AP and Class 1-AX Certificates, in the
case of Group 1, and the Class 2-AP, Class 2-A5
and Class 2-AX Certificates, in the case of Group
2), as a group, during the first five years
following the Closing Date (except as described
herein). This allocation will have the effect of
accelerating the amortization of such related
Senior Certificates, as a group, and slowing the
amortization of the Subordinate Certificates. In
addition, the entire amount of the applicable
Non-AP Percentage of scheduled and unscheduled
principal payments on the Pool 2 Mortgage Loans
allocable to the Group 2 Senior Certificates
during such five year period will be allocated to
the Class 2-A1, Class 2-A2, Class 2-A3, Class
2-A4, Class 2-A6, Class 2-A7, Class 2-A8, Class
R-1 and Class R-2 Certificates, as described
herein, thus accelerating the amortization of
such Classes of Certificates and resulting in no
amortization of the Class 2-A9 Certificates
during such five year period. See "DESCRIPTION OF
THE CERTIFICATES" herein.
THE MORTGAGE POOL.......... Pool 1 will consist of approximately 231 Mortgage
Loans (the "Pool 1 Mortgage Loans") having an
aggregate Scheduled Principal Balance as of the
Cut-off Date of approximately $76,775,398. The
Pool 1
S-6
<PAGE> 7
Mortgage Loans are fully amortizing mortgage
loans having original terms to maturity from the
first due date of the scheduled monthly payment
of principal and interest thereon (each such
payment, a "Scheduled Payment") of 15 years.
Pool 2 will consist of approximately 1,110 Mortgage
Loans (the "Pool 2 Mortgage Loans") having an
aggregate Scheduled Principal Balance as of the
Cut-off Date of approximately $366,472,499. The
Pool 2 Mortgage Loans are fully amortizing
Mortgage Loans having original terms to maturity
from the first Scheduled Payment of generally 30
years.
Each of the Mortgage Loans is secured by a first
lien on a one- to four-family residential real
property (each, a "Mortgaged Property") and bears
interest at a fixed rate (each, a "Mortgage
Rate"). See "DESCRIPTION OF THE MORTGAGE POOLS"
herein.
ADVANCES................... The Servicer is required to make advances
("Advances") in respect of Scheduled Payments on
the Mortgage Loans, net of the Servicing Fee,
subject to the limitations described herein. The
Trustee will be obligated to make any such
Advance if the Servicer fails in its obligation
to do so, to the extent provided in the Trust
Agreement. See "SERVICING OF THE MORTGAGE LOANS
-- Advances" herein.
ALLOCATION OF LOSSES;
SUBORDINATION............ The Class 1-B1 and Class 2-B1 Certificates and each
Component of the Class B2, Class B3, Class B4,
Class B5 and Class B6 Certificates are
subordinate to the Senior Certificates (as
defined herein) of the related Certificate Group
and to each Class or Component of the related
Certificate Group having a higher priority (i.e.,
each Component of the Class B6 Certificates is
subordinate to the related Component of the Class
B5 Certificates, each Component of the Class B5
Certificates is subordinate to the related
Component of the Class B4 Certificates, and so
forth) to the extent described herein.
The limited protection afforded to the holders of
the Senior Certificates by means of the
subordination feature described above will be
accomplished by (i) the preferential right of
such holders to receive, prior to any
distribution being made on a Distribution Date in
respect of the Subordinate Certificates or
Components in the related Certificate Group, the
amount due them on each Distribution Date from
the applicable Available Distribution Amount and,
if necessary, by the right of such holders to
receive future distributions with respect to the
related Mortgage Loans that would otherwise have
been payable in respect of such Classes or
Components and (ii) the allocation of Realized
Losses (as defined herein) on the Mortgage Loans
in each Mortgage Pool in the following manner.
Subject to the limitations described below, the
applicable Non-AP Percentage of the principal
portion of Realized Losses on the Mortgage Loans
in each Mortgage Pool will be allocated, first,
to the Components of the related Certificate
Group, in inverse order of priority, second, to
the Class 1-B1 or Class 2-B1 Certificates, as
applicable, and then to the related Classes of
Senior Certificates, all as more fully described
herein under "DESCRIPTION OF THE
CERTIFICATES -- Allocation of Real-
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<PAGE> 8
ized Losses." Any such losses allocable to the
Class 2-A4 Certificates will be covered by the
Class 2-A4 Certificate Insurance Policy. The
protection provided to the Senior Certificates by
the subordination of the related Classes or
Components of the Subordinate Certificates will
be limited in the case of Special Hazard Losses,
Bankruptcy Losses and Fraud Losses, as described
herein. See "DESCRIPTION OF THE
CERTIFICATES -- Allocation of Realized Losses"
herein.
The subordination of each Component relative to
each related Class of Subordinate Certificates or
Component having a higher ranking is intended to
confer a similar benefit on such higher ranking
Class or Components. However, the degree of
protection afforded any Class of Subordinate
Certificates by such subordination, relative to
delinquencies and losses that might occur on the
Mortgage Loans in either Mortgage Pool, is less
than the protection afforded to the Senior
Certificates by virtue of the subordination of
the related Class or Components of the
Subordinate Certificates.
CLASS 2-A4 CERTIFICATE
INSURANCE POLICY........... In addition to the limited protection provided by
the subordination features described above, the
Depositor will obtain in the name of the Trustee,
for the benefit of the Class 2-A4
Certificateholders, a Financial Guaranty
Insurance Policy (the "Class 2-A4 Certificate
Insurance Policy") from MBIA Insurance
Corporation (the "Class 2-A4 Certificate
Insurer"), the principal operating subsidiary of
MBIA, Inc., a New York Stock Exchange-listed
company, pursuant to which the Class 2-A4
Certificate Insurer will guarantee the payment of
Guaranteed Distributions (as defined herein) on
the Class 2-A4 Certificates to the extent
described in the Class 2-A4 Certificate Insurance
Policy. Only the Class 2-A4 Certificates will be
insured by the Class 2-A4 Certificate Insurance
Policy. The Class 2-A4 Certificate Insurer's
obligations will be discharged to the extent
Guaranteed Distributions are received by the
Trustee, whether or not such Guaranteed
Distributions are properly applied by the
Trustee. The Class 2-A4 Certificate Insurance
Policy is noncancellable for any reason. Such
policy does not guarantee any specified rate of
prepayments. See "THE CLASS 2-A4 CERTIFICATE
INSURANCE POLICY" herein.
FINAL SCHEDULED
DISTRIBUTION DATE.......... Scheduled distributions on the Mortgage Loans,
assuming no defaults or losses that are not
covered by the credit support described elsewhere
herein, will be sufficient to make timely
distributions of interest and reduce the
Certificate Principal Amounts of the Offered
Certificates to zero not later than December 26,
2012, in the case of the Group 1 Senior
Certificates and the Class 1-B1 Certificates, and
December 27, 2027, in the case of the other
Classes of Certificates. The actual final
Distribution Date for the Offered Certificates
may be earlier or later, and could be
substantially earlier, than the Final Scheduled
Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES -- Final Scheduled Distribution
Date" and "YIELD, PREPAYMENT AND WEIGHTED AVERAGE
LIFE" herein.
OPTIONAL TERMINATION....... On any Distribution Date after the aggregate
Scheduled Principal Balance of the Mortgage Loans
is less than 5% of the aggregate
S-8
<PAGE> 9
Scheduled Principal Balance of the Mortgage Loans
on the Cut-off Date (the "Cut-off Date Balance"),
the Depositor (subject to the terms of the Trust
Agreement) will have the option to cause the sale
of the assets of the Trust Fund, consisting of
the Mortgage Loans, any REO Property, and any
other property remaining in the Trust Fund, and
thereby effect the termination of the Trust Fund.
The proceeds of such a sale will be treated as a
prepayment of the Mortgage Loans for purposes of
distributions to Certificateholders. See
"DESCRIPTION OF THE CERTIFICATES -- Optional
Termination of the Trust" herein.
DENOMINATIONS.............. The Class 1-A1, Class 1-A2, Class 1-AP, Class 1-AX,
Class 2-A1, Class 2-A2, Class 2-A3, Class 2-A4,
Class 2-A5, Class 2-A6, Class 2-A7, Class 2-A8,
Class 2-A9, Class 2-AP, Class 2-AX, Class 1-B1,
Class 1-B2, Class B2 and Class B3 Certificates
(collectively the "Book-Entry Certificates") will
be issued, maintained and transferred on the
book-entry records of The Depository Trust
Company ("DTC") and its Participants in the
minimum denominations specified under
"DESCRIPTION OF THE CERTIFICATES -- General"
herein. Each of the Residual Certificates will be
issued as a single Certificate and maintained in
definitive, fully registered form, representing
the entire Certificate Principal Amount of such
Class.
BOOK-ENTRY CERTIFICATES.... The Book-Entry Certificates will be represented by
one or more Certificates registered in the name
of Cede & Co., as nominee of DTC. No person
acquiring a beneficial interest in a Book-Entry
Certificate (each, a "Beneficial Owner") will be
entitled to receive a Certificate of such Class
in certificated form, except under the limited
circumstances described herein. For each
Book-Entry Certificate, DTC will effect payments
to and transfers of the Book-Entry Certificates
among the respective Beneficial Owners by means
of its electronic recordkeeping services, acting
through organizations that participate in DTC.
This arrangement may result in certain delays in
receipt of distributions by Beneficial Owners and
may restrict a Beneficial Owner's ability to
pledge the Book-Entry Certificates beneficially
owned by it. All references in this Prospectus
Supplement to the Book-Entry Certificates reflect
the rights of Beneficial Owners only as such
rights may be exercised through DTC and its
participating organizations so long as such
Certificates are held by DTC. See "DESCRIPTION OF
THE CERTIFICATES -- Book-Entry Registration" in
the Prospectus.
USE OF PROCEEDS............ The Depositor will apply the net proceeds from the
sale of the Offered Certificates toward the
purchase of the Mortgage Loans. See "USE OF
PROCEEDS" herein.
PREPAYMENT
CONSIDERATIONS............. The rate of principal payments on the Offered
Certificates will depend on, among other things,
the rate and timing of principal payments
(including prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans in the
related Mortgage Pool. As is the case with
mortgage-backed securities generally, the Offered
Certificates are subject to substantial inherent
cash flow uncertainties because the Mortgage
Loans may be prepaid at any time. Generally, when
prevailing interest rates increase, prepayment
rates on mortgage loans tend to decrease in
subsequent periods, resulting in a reduced rate
of return of
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<PAGE> 10
principal to investors at a time when
reinvestment at such higher prevailing rates
would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on
mortgage loans tend to increase in subsequent
periods, resulting in an accelerated rate of
return of principal to investors at a time when
reinvestment at comparable yields may not be
possible. The Mortgage Loans require a prepayment
penalty in connection with any prepayment in
excess of 20% of the original principal balance
of such Mortgage Loan made in any twelve-month
period during the first three years after
origination. Such prepayment penalties may have
the effect of reducing the amount or likelihood
of prepayments on the Mortgage Loans. See "RISK
FACTORS -- Special Yield Considerations for
Certain Classes of Certificates" and "YIELD,
PREPAYMENT AND WEIGHTED AVERAGE LIFE."
The rate and timing of principal prepayments on the
Mortgage Loans in either Mortgage Pool, which
have Mortgage Rates and remaining terms to
maturity that differ from those of the Mortgage
Loans in the other Mortgage Pool, may differ
significantly from the rate and timing of
prepayments on the Mortgage Loans in such other
Mortgage Pool. See "DESCRIPTION OF THE MORTGAGE
POOLS" and "YIELD, PREPAYMENT AND WEIGHTED
AVERAGE LIFE" herein.
The applicable Non-AP Percentage of principal
prepayments on the Mortgage Loans in each
Mortgage Pool will be allocated to the related
Senior Certificates (other than the Class 1-AP
and Class 1-AX Certificates, in the case of Group
1, and the Class 2-AP, Class 2-A5 and Class 2-AX
Certificates, in the case of Group 2), as a
group, during the first five years following the
Closing Date (except as otherwise described
herein). This allocation will have the effect of
accelerating the amortization of such related
Senior Certificates as a group, and slowing the
amortization of the related Class or Components
of the Subordinate Certificates. In addition, the
entire amount of the applicable Non-AP Percentage
of scheduled and unscheduled principal payments
on the Pool 2 Mortgage Loans allocable to the
Group 2 Senior Certificates during such five year
period will be allocated to the Class 2-A1, Class
2-A2, Class 2-A3, Class 2-A4, Class 2-A6, Class
2-A7, Class 2-A8, Class R1 and Class R2
Certificates, as described herein. See
"DESCRIPTION OF THE CERTIFICATES" herein.
YIELD CONSIDERATIONS....... The yields to maturity on the Offered Certificates
will depend on, among other things, the rate and
timing of principal payments (including
prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans in the
related Mortgage Pool and the allocation thereof
to reduce the Certificate Principal Amounts of
such Certificates. The yields to maturity on the
Offered Certificates will also depend on other
factors, such as the applicable Certificate
Interest Rate and the purchase price for such
Certificates. The yields on the Offered
Certificates will be adversely affected by the
allocation thereto of any Net Prepayment Interest
Shortfalls (as defined herein) on the related
Mortgage Loans. Any Net Prepayment Interest
Shortfalls allocable to the Class 2-A4
Certificates will be covered by the Class 2-A4
Reserve
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<PAGE> 11
Fund (as defined herein) or the Class 2-A4
Certificate Insurance Policy.
In general, in the case of any Offered Certificates
purchased at a premium, if principal payments on
the related Mortgage Loans occur at a rate faster
than anticipated at the time of purchase, the
investor's actual yield to maturity may be lower
than that originally anticipated, and, in the
case of the Class 1-AX, Class 2A-5 and Class 2-AX
Certificates, investors could fail to recover
their initial investments. Conversely, in the
case of any Offered Certificates purchased at a
discount, if principal payments on the related
Mortgage Loans occur at a rate slower than that
assumed at the time of purchase, the investor's
actual yield to maturity, particularly in the
case of Class 1-AP and Class 2-AP Certificates,
may be lower than that originally anticipated.
See "YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE"
herein.
FEDERAL INCOME TAX
CONSIDERATIONS........... An election will be made to treat each of the Lower
Tier REMIC and the Upper Tier REMIC as a REMIC
for federal income tax purposes. The Senior
Certificates (other than the Class R1 and Class
R2 Certificates) and the Subordinate Certificates
(or in the case of the Class B2, Class B3, Class
B4, Class B5 and Class B6 Certificates, each
Component) (collectively, the "Regular
Certificates") will be "regular interests" in the
Upper Tier REMIC. Each of the Class R1 and Class
R2 Certificates, respectively, will be designated
as the sole class of "residual interest" in the
Lower Tier REMIC and Upper Tier REMIC,
respectively.
The holders of the Offered Certificates (other than
the Residual Certificate) must include interest
income derived therefrom in income as it accrues,
regardless of such holders' usual methods of
accounting. The Class 1-AP, Class 1-AX, Class
2-A5, Class 2-AP and Class 2-AX Certificates will
be, and the other Classes of Offered Certificates
may be, issued with original issue discount for
federal income tax purposes. Original issue
discount must be included in income as it accrues
on a constant yield method, regardless or whether
a holder receives concurrently the cash
attributable to such original issue discount.
A Residual Certificateholder generally will be
required to report as federal taxable income its
pro rata share of the applicable REMIC's net
income, without regard to the timing or amount of
cash distributions. The tax liability may exceed
the amount of cash distributed to a Residual
Certificateholder in many or all taxable years.
As the residual interest in the REMIC, a Residual
Certificate will be taxable as described in the
Prospectus under "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS -- Taxation of Holders of Residual
Interest Certificates."
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS" herein and in the Prospectus.
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<PAGE> 12
TRANSFER RESTRICTIONS ON
RESIDUAL CERTIFICATES.... A Residual Certificate may not be transferred,
sold, pledged or otherwise assigned unless, prior
to such transfer, the proposed transferee
delivers to the Trustee an affidavit or, at the
option of the Trustee, an opinion to the effect
that, among other things, such transferee is not
a "disqualified organization," within the meaning
of the Code. If, notwithstanding such
restrictions, a Residual Certificate is
transferred to a "disqualified organization," a
substantial tax may be imposed on the transferor.
In the case of a transfer to or from a non-U.S.
person, certain additional conditions must be
satisfied prior to transfer of a Residual
Certificate. In addition to the foregoing,
regulations permit certain transfers of Residual
Certificates to be disregarded with the result
that the transferor will continue to be treated
as the owner of the Residual Certificate. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS"
herein and in the Prospectus.
RATINGS.................... It is a condition to the issuance of the Senior
Certificates (other than the Class 1-AP, Class
1-AX, Class 2-A5, Class 2-AP and Class 2-AX
Certificates) that they be rated "AAA" by each of
Duff & Phelps Credit Rating Co. ("DCR") and
Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc. ("S&P," and
together with DCR, the "Rating Agencies"). It is
a condition to the issuance of the Class 1-AP,
Class 1-AX, Class 2-A5, Class 2-AP and Class 2-AX
Certificates that they be rated "AAA" by DCR and
"AAAr" by S&P. It is a condition to the issuance
of the Class 1-B1 and Class 2-B1 Certificates
that they be rated "AA" by DCR and S&P; it is a
condition to the issuance of the Class B2
Certificates that they be rated "A" by DCR; it is
a condition to the issuance of the Class B3
Certificates that they be rated "BBB" by DCR. See
"RATINGS" herein.
ERISA CONSIDERATIONS....... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Code, should
carefully review with its legal advisors whether
the purchase or holding of the Offered
Certificates could give rise to a transaction
prohibited or not otherwise permissible under
ERISA or the Code. THE OFFERED SUBORDINATE
CERTIFICATES MAY NOT BE PURCHASED BY PLANS (AS
DEFINED HEREIN), EXCEPT AS DESCRIBED HEREIN, AND
TRANSFER THEREOF WILL BE RESTRICTED AS PROVIDED
IN THE TRUST AGREEMENT. See "ERISA
CONSIDERATIONS" herein and in the Prospectus.
LEGAL INVESTMENT........... The Senior Certificates and the Class 1-B1 and the
Class 2-B1 Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
for so long as they are rated as described herein
and, as such, are legal investments for certain
entities to the extent provided in SMMEA. SMMEA,
however, provides for state limitations on the
authority of such entities to invest in "mortgage
related securities" to the extent described
herein and in the Prospectus.
The Depositor makes no representations as to the
proper characterization of the Offered
Certificates for legal investment or other
purposes, or as to the ability of particular
investors to purchase the Offered Certificates
under applicable legal investment restrictions.
These uncertainties may adversely affect the
liquidity of the Offered Certificates.
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<PAGE> 13
Accordingly, all institutions whose investment
activities are subject to legal investment laws
and regulations, regulatory capital requirements
or review by regulatory authorities should
consult with their own legal advisors in
determining whether and to what extent the
Offered Certificates constitute a legal
investment or are subject to investment, capital
or other restrictions. Institutions whose
investment activities are subject to review by
federal or state regulatory authorities should
consult with their counsel or the applicable
authorities in order to determine whether an
investment in the Offered Certificates complies
with applicable guidelines, policy statements or
restrictions. See "LEGAL INVESTMENT
CONSIDERATIONS" herein and "LEGAL INVESTMENT" in
the Prospectus.
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<PAGE> 14
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the accompanying Prospectus, prospective investors should
carefully consider the following factors before deciding to invest in the
Offered Certificates.
SPECIAL YIELD CONSIDERATIONS FOR CERTAIN CLASSES OF CERTIFICATES
The yields to maturity of the Class 1-AP and Class 2-AP Certificates will
be very sensitive, and the yields to maturity of the Class 1-AX, Class 2-A5 and
Class 2-AX Certificates will be extremely sensitive, to the rate and timing of
principal prepayments on the Pool 1 Mortgage Loans, in the case of the Class
1-AP and Class 1-AX Certificates, and on the Pool 2 Mortgage Loans, in the case
of Class 2-AP, Class 2-A5 and Class 2-AX Certificates. Investors in the Class
1-AP and Class 2-AP Certificates should consider the risk that a slower than
anticipated rate of prepayments (including liquidations, insurance payments and
repurchases due to breaches of representations and warranties) on the Pool 1
Discount Mortgage Loans (in the case of the Class 1-AP Certificates) and the
Pool 2 Discount Loans (in the case of the Class 2-AP Certificates), each of
which have Mortgage Rates that are lower than those of the other Mortgage Loans
in their respective Pools and may therefore be less likely to prepay, could
result in actual yields that are lower than the anticipated yields. Investors in
the Class 1-AX, Class 2-A5 and Class 2-AX Certificates should carefully consider
the risk that a faster than anticipated rate of prepayments on the related
Mortgage Loans and particularly, in the case of the Class 1-AX and Class 2-AX
Certificates, the Premium Mortgage Loans in the related Mortgage Pool, which
have Mortgage Rates that are higher than those of the other Mortgage Loans in
the related Mortgage Pool and may therefore be more likely to prepay, could
result in actual yields that are lower than the anticipated yields, and could
result in the failure of such investors to fully recover their initial
investments.
The Mortgage Loans require a prepayment penalty in connection with any
prepayment made in any twelve-month period in excess of 20% of the original
principal balance of such Mortgage Loan during the first three years after
origination, which, if not waived by the Servicer, may affect the rate of
prepayment of the Mortgage Loans. Any prepayment penalties will be retained by
the Servicer, as part of its servicing compensation. See "YIELD, PREPAYMENT AND
WEIGHTED AVERAGE LIFE" herein.
GEOGRAPHICAL CONCENTRATION OF THE MORTGAGE LOANS
Approximately 88.2% of the Pool 1 Mortgage Loans and approximately 95.1% of
the Pool 2 Mortgage Loans are secured by Mortgaged Properties located in the
state of California. The economy of California may be adversely affected to a
greater degree than the economics of other areas of the country by certain
developments affecting industries concentrated in such state. In recent periods,
several regions of the United States (including California) have experienced
significant downturns in the market value of real estate. In addition, Mortgaged
Properties located in California may be more susceptible to certain types of
hazards, such as wildfires and mudslides, and certain types of special hazards
not covered by insurance, such as earthquakes, than properties located in other
parts of the country.
For additional information regarding the geographic distribution of the
Mortgage Loans, see "DESCRIPTION OF THE MORTGAGE POOLS" herein.
STATUS OF THE MORTGAGE LOANS IN THE EVENT OF INSOLVENCY
Each transfer of a Mortgage Loan to the Seller, from the Seller to the
Depositor and from the Depositor to the Trust Fund is intended to be an absolute
and unconditional sale of such Mortgage Loan. However, in the event of
insolvency of a prior owner of a Mortgage Loan, a trustee in bankruptcy or a
creditor of the insolvent party could attempt to recharacterize the sale of such
Mortgage Loan by such insolvent party as a borrowing secured by a pledge of such
Mortgage Loan. Such an attempt, even if unsuccessful, could result in delays in
payments on the Offered Certificates. If such an attempt were successful,
holders of the Offered Certificates could suffer losses, and could fail to fully
recover their initial investments.
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<PAGE> 15
LIMITED LIQUIDITY
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates but
has 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.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1997-4 Mortgage Pass-Through Certificates (the "Certificates")
will consist of the following Classes: (i) the Class 1-A1, Class 1-A2, Class
1-AP, Class 1-AX, Class 2-A1, Class 2-A2, Class 2-A3, Class 2-A4, Class 2-A5,
Class 2-A6, Class 2-A7, Class 2-A8, Class 2-A9, Class 2-AP and Class 2-AX (the
"Class A Certificates" and, together with the Residual Certificates, the "Senior
Certificates"), (ii) the Class 1-B1, Class 2-B1, Class B2, Class B3, Class B4,
Class B5 and Class B6 Certificates (the "Subordinate Certificates"), and (iii)
the Class R1 and Class R2 Certificates (the "Residual Certificates"). The Senior
Certificates and the Offered Subordinate Certificates are sometimes referred to
herein as the "Offered Certificates." Only the Offered Certificates are offered
hereby.
The Group 1 Certificates. The Class 1-A1, Class 1-A2, Class 1-AP and Class
1-AX Certificates, together with the Class 1-B1 Certificates and the B2(1) and
B3(1) Components of the Class B2 and Class B3 Certificates, respectively, are
referred to herein as the "Group 1 Offered Certificates." Such Classes and
Components, together with the remaining Group 1 Components (as defined below),
are referred to herein as the "Group 1 Certificates," and collectively as "Group
1." The Class 1-A1, Class 1-A2, Class 1-AP and Class 1-AX Certificates are
referred to herein as the "Group 1 Senior Certificates."
The Group 2 Certificates. The Class 2-A1, Class 2-A2, Class 2-A3, Class
2-A4, Class 2-A5, Class 2-A6, Class 2-A7, Class 2-A8, Class 2-A9, Class 2-AP,
Class 2-AX, Class R1 and Class R2 Certificates, together with the Class 2-B1
Certificates and the B2(2) and B3(2) Components of the Class B2 and Class B3
Certificates, respectively, are referred to herein as the "Group 2 Offered
Certificates." Such Classes and Components, together with the remaining Group 2
Components (as defined below), are referred to herein as the "Group 2
Certificates," and collectively as "Group 2." The Senior Certificates included
in Group 2 are referred to herein as the "Group 2 Senior Certificates."
Solely for purposes of certain distributions of interest and principal and
for allocation of Realized Losses, the Class B2, Class B3, Class B4, Class B5
and Class B6 Certificates will be composed of two payment components (each a
"Component") having the designations and approximate initial principal amount
per Component (the "Component Principal Amounts") set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL
COMPONENT
PRINCIPAL
AMOUNT
-----------
<S> <C>
B2(1) Component.................................................. $ 307,000
B2(2) Component.................................................. 4,214,000
B3(1) Component.................................................. 230,000
B3(2) Component.................................................. 2,566,000
B4(1) Component.................................................. 231,000
B4(2) Component.................................................. 1,099,000
B5(1) Component.................................................. 230,000
B5(2) Component.................................................. 1,100,000
B6(1) Component.................................................. 154,183
B6(2) Component.................................................. 1,099,446
</TABLE>
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<PAGE> 16
The holder of a Class B2, Class B3, Class B4, Class B5 or Class B6
Certificate will not have a severable interest in any Component but will have an
undivided interest in the entire Class. Any amounts distributed in respect of
any Component, and any Realized Losses allocated thereto, will be distributed or
allocated pro rata to all holders of Certificates of such Class.
The B2(1), B3(1), B4(1), B5(1) and B6(1) Components (the "Group 1
Components") relate to the Mortgage Loans in Pool 1. The B2(2), B3(2), B4(2),
B5(2) and B6(2) Components (the "Group 2 Components") relate to the Mortgage
Loans in Pool 2. Consequently, each Class of Subordinate Certificates (other
than the Class 1-B1 and Class 2-B1 Certificates) will initially evidence
undivided interests in both Mortgage Pools.
Each Class of Offered Certificates will have the respective approximate
initial aggregate Certificate Principal Amount (a "Class Certificate Principal
Amount") or aggregate Notional Amount set forth or described on the cover page
hereof.
The Certificates will evidence the entire beneficial ownership interest in
the Trust Fund. The Trust Fund will generally consist of (i) the Mortgage Loans,
(ii) such assets as from time to time are identified as deposited in respect of
the Mortgage Loans in the Certificate Account, (iii) property acquired by
foreclosure of such Mortgage Loans or deed in lieu of foreclosure and (iv) any
applicable insurance policies and all proceeds thereof.
Distributions on the Offered Certificates will be made on each Distribution
Date, commencing December 26, 1997, to Certificateholders of record on the
applicable Record Date. The "Record Date" for each Distribution Date will be the
close of business on the last Business Day of the month immediately preceding
the month in which such Distribution Date occurs. A "Business Day" is generally
any day other than a Saturday or Sunday or a day on which banks in New York,
Minnesota or Maryland are closed.
Distributions on the Offered Certificates will be made to each registered
holder entitled thereto, either (i) by check mailed to the address of such
Certificateholder as it appears on the books of the Trustee, or (ii) at the
request, submitted to the Trustee in writing at least five Business Days prior
to the related Record Date, of any holder of an Offered Certificate having (x)
an initial Certificate Principal Amount of not less than $2,500,000 (or, in the
case of the Class 2-A5 Certificates, an initial Notional Amount of not less than
$10,000,000, or (y) in the case of either of the Class 1-AX or Class 2-AX
Certificates, a percentage interest of not less than 50%, by wire transfer (at
the expense of such holder) in immediately available funds; provided, that the
final distribution in respect of any Offered Certificate will be made only upon
presentation and surrender of such Certificate at the Corporate Trust Office of
the Trustee. See "-- The Trustee" herein.
The Class 1-A1, Class 1-A2, Class 1-AP, Class 1-AX, Class 2-A1, Class 2-A2,
Class 2-A3, Class 2-A4, Class 2-A5, Class 2-A6, Class 2-A7, Class 2-A8, Class
2-A9, Class 2-AP, Class 2-AX, Class 1-B1, Class 2-B1, Class B2 and Class B3
Certificates (collectively, the "Book-Entry Certificates") will be issued,
maintained and transferred on the book-entry records of The Depository Trust
Company ("DTC") and its Participants. The Book-Entry Certificates will be issued
in the following minimum denominations: $100,000, in the case of the Class 1-A1,
Class 1-A2, Class 2-A1, Class 2-A2, Class 2-A3, Class 2-A6, Class 2-A7, Class
2-A8 and Class 2-A9 Certificates; $1,000, in the case of the Class 2-A4
Certificates; the entire Class Certificate Balance Amount of such Class, in the
case of the Class 1-AP and Class 2-AP Certificates; and $250,000, in the case of
the Class 1-B1, Class 2-B1, Class B2 and Class B3 Certificates, and, in each
case, integral multiples of $1 in excess thereof. The Class 2-A5 Certificates
will be issued in minimum denominations in notional amount of $5,000,000 and the
Class 1-AX and Class 2-AX Certificates will be issued in minimum percentage
interests of 25% and 3%, respectively.
Each Class of Book-Entry Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Depositor has
been informed by DTC that DTC's nominee will be Cede & Co. ("Cede"). No person
acquiring an interest in a Book-Entry Certificate (each, a "Beneficial Owner")
will be entitled to receive a certificate representing such person's interest (a
"Definitive Certificate"), except as set forth below under "-- Book-Entry
Registration of Certain Classes of Certificates -- Definitive Certificates."
Unless and until Definitive Certificates are issued for the Book-Entry
Certificates under the limited
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<PAGE> 17
circumstances described herein, all references to actions by Certificateholders
with respect to the Book-Entry Certificates shall refer to actions taken by DTC
upon instructions from its Participants, and all references herein to
distributions, notices, reports and statements to Certificateholders with
respect to the Book-Entry Certificates shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Book-Entry Certificates, for distribution to Beneficial Owners by DTC in
accordance with DTC procedures.
The Residual Certificates will each be issued as a single Certificate and
maintained in fully registered, certificated form.
BOOK-ENTRY REGISTRATION OF CERTAIN CLASSES OF CERTIFICATES
General. Beneficial Owners that are not brokerage firms, banks, thrift
institutions or other financial intermediaries (each, a "Financial
Intermediary") or participating firms that act as agent for a Financial
Intermediary (each, a "Participant") but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, the related Book-Entry
Certificates may do so only through Participants and Financial Intermediaries.
In addition, Beneficial Owners will receive all distributions of principal and
interest on the related Book-Entry Certificates through DTC and its
Participants. Accordingly, Beneficial Owners may experience delays in their
receipt of payments. Unless and until Definitive Certificates are issued for the
related Book-Entry Certificates, it is anticipated that the only registered
Certificateholder of such Book-Entry Certificates will be Cede, as nominee of
DTC. Beneficial Owners will not be recognized by the Depositor or the Trustee as
Certificateholders, as such term is used in the Trust Agreement, and Beneficial
Owners will be permitted to receive information furnished to Certificateholders
and to exercise the rights of Certificateholders only indirectly through DTC,
its Participants and Financial Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Certificates among Participants and to receive and transmit
distributions of principal and interest on such Book-Entry Certificates.
Participants and Financial Intermediaries with which Beneficial Owners have
accounts with respect to such Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such distributions on behalf
of their respective Beneficial Owners. Accordingly, although Beneficial Owners
will not possess physical certificates evidencing their interests in the
Book-Entry Certificates, the Rules provide a mechanism by which Beneficial
Owners, through their Participants and Financial Intermediaries, will receive
distributions and will be able to transfer their interests in the Book-Entry
Certificates.
Neither the Depositor nor the Trustee or any of their respective affiliates
will have any liability for any actions taken by DTC or its nominee including,
without limitation, actions with respect to any aspect of the records relating
to or payments made on account of beneficial ownership interests in the
Book-Entry Certificates held by Cede, as nominee for DTC, or with respect to
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"DESCRIPTION OF THE CERTIFICATES -- Book-Entry Registration."
Upon the occurrence of an event described in the Prospectus in clauses (i),
(ii) or (iii) of the last paragraph under "-- Book-Entry Registration" therein,
the Trustee (through DTC) is required to notify Participants who have ownership
of Book-Entry Certificates as indicated on the records of DTC of the
availability of Definitive Certificates for their Book-Entry Certificates. Upon
surrender by DTC of the Definitive Certificates representing the Book-Entry
Certificates and upon receipt of instructions from DTC for re-registration, the
Trustee will re-issue the Book-Entry Certificates as Definitive Certificates in
the respective principal amounts owned by individual Beneficial Owners, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Trust Agreement.
For additional information regarding DTC and the Book-Entry Certificates,
see "DESCRIPTION OF THE CERTIFICATES -- Book-Entry Registration" in the
Prospectus.
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<PAGE> 18
PRIORITY OF DISTRIBUTIONS
Distributions in respect of the Certificates and Components of each
Certificate Group will be made on each Distribution Date from the related
Available Distribution Amount (as defined herein), in the following order of
priority:
(i) to payment of the monthly premium for the Class 2-A4 Certificate
Insurance Policy, from the Available Distribution Amount for Pool 2;
(ii) to payment of Accrued Certificate Interest on each Class of
Senior Certificates of the related Certificate Group, other than, in the
case of Group 1, the Class 1-AP Certificates and, in the case of Group 2,
the Class 2-AP Certificates (reduced by any Net Prepayment Interest
Shortfalls for the related Mortgage Pool allocated to such Class of
Certificates on such Distribution Date), from the related Available
Distribution Amount for such Distribution Date, pro rata in proportion to
Accrued Certificate Interest (as so reduced) on each such Class;
(iii) to payment of any outstanding Interest Shortfalls (as defined
herein) on each Class of Senior Certificates of the related Certificate
Group, (other than, in the case of Group 1, the Class 1-AP Certificates
and, in the case of Group 2, the Class 2-AP Certificates) from the related
Available Distribution Amount for such Distribution Date, pro rata in
proportion to any outstanding Interest Shortfalls;
(iv) to the Senior Certificates of each Certificate Group, to the
extent of the remaining related Available Distribution Amount, as follows:
(A) to the payment of principal on the Group 1 Senior Certificates
(other than the Class 1-AX Certificates), in reduction of their
respective Class Certificate Principal Amounts, from the Available
Distribution Amount for Pool 1 for such Distribution Date, concurrently,
as follows:
(1) to the Class 1-A1 and Class 1-A2 Certificates, the related
Senior Principal Distribution Amount (as defined herein) for such
Distribution Date, in the following order of priority:
first, to the Class 1-A1 Certificates, until the Class
Certificate Principal Amount thereof has been reduced to zero;
and
second, to the Class 1-A2 Certificates, until the Class
Certificate Principal Amount thereof has been reduced to zero;
and
(2) to the Class 1-AP Certificates, the AP Principal
Distribution Amount for Group 1 for such Distribution Date, until the
Class Certificate Principal Amount thereof has been reduced to zero:
and
(B) to the payment of principal on the Group 2 Senior Certificates
(other than the Class 2-A5 and Class 2-AX Certificates), in reduction of
their Class Certificate Principal Amounts, from the Available
Distribution Amount for Pool 2 for such Distribution Date, concurrently
as follows:
(1) to the Class 2-A9 Certificates, to the extent of the related
Senior Principal Distribution Amount for such Distribution Date, the
Class 2-A9 Priority Amount (as defined herein) for such Distribution
Date, until the Class Certificate Principal Amount thereof has been
reduced to zero;
(2) to the Class 2-A1, Class 2-A2, Class 2-A3, Class 2-A4, Class
2-A6, Class 2-A7, Class 2-A8, Class R1, Class R2 and Class 2-A9
Certificates, the related Senior Principal Distribution Amount for
such Distribution Date (less the Class 2-A9 Priority Amount for such
date), in the following order of priority:
first, if such Distribution Date occurs on or after the
Distribution Date in December 2000 and provided that on or prior
to such date the Class Certificate Principal Amount of the Class
2-A7 Certificates has not been reduced to zero, to the Class 2-A4
Certificates,
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<PAGE> 19
an amount equal to $10,000, until the Class Certificate Principal
Amount thereof has been reduced to zero;
second, until the Class Certificate Principal Amount of the
Class 2-A1 Certificates has been reduced to zero, concurrently to
the Class 2-A1, Class 2-A3 and Class 2-A6 Certificates,
approximately 27.4468902673%, 64.4947027502% and 8.0584069825%,
respectively;
third, to the Class 2-A2, Class 2-A3 and Class 2-A6
Certificates, pro rata in proportion to their respective Class
Certificate Principal Amounts outstanding, until the Class
Certificate Principal Amount of each such Class has been reduced
to zero;
fourth, to the Class 2-A7 Certificates, until the Class
Certificate Principal Amount thereof has been reduced to zero;
fifth, to the Class 2-A4 and Class 2-A8 Certificates, pro
rata in proportion to their respective Class Certificate
Principal Amounts outstanding, until the Class Certificate
Principal Amount of each such class has been reduced to zero;
sixth, to the Class R1 and Class R2 Certificates, pro rata
in proportion to their respective Class Certificate Principal
Amounts outstanding, until the Class Certificate Principal Amount
of each such Class has been reduced to zero; and
seventh, to the Class 2-A9 Certificates, until the Class
Certificate Principal Amount thereof has been reduced to zero;
and
(3) to the Class 2-AP Certificates, the AP Principal
Distribution Amount for Group 2 for such Distribution Date, until the
Class Certificate Principal Amount thereof has been reduced to zero;
(v) to the Class 1-AP and Class 2-AP Certificates, to the extent of
the remaining related Available Distribution Amount, as follows:
(A) to the Class 1-AP Certificates, from the Available Distribution
Amount for Pool 1 for such Distribution Date, the Class 1-AP Deferred
Amount (as defined herein) for such Distribution Date, until the Class
Certificate Principal Amount thereof has been reduced to zero; provided,
that distributions pursuant to this priority (v)(A) shall not exceed the
Subordinate Principal Distribution Amount for Group 1 for such
Distribution Date, and such distributions shall not reduce the Class
Certificate Principal Amount of the Class 1-AP Certificates;
(B) to the Class 2-AP Certificates, from the Available Distribution
Amount for Pool 2 for such Distribution Date, the Class 2-AP Deferred
Amount (as defined herein) for such Distribution Date, until the Class
Certificate Principal Amount thereof has been reduced to zero; provided,
that distributions pursuant to this priority (v)(B) shall not exceed the
Subordinate Principal Distribution Amount for Group 2 for such
Distribution Date, and such distributions shall not reduce the Class
Certificate Principal Amount of the Class 2-AP Certificates; and
(vi) to the Subordinate Certificates and Components of each
Certificate Group, to the extent of the remaining related Available
Distribution Amount, as follows:
(A) to the extent of the remaining Available Distribution Amount
for Pool 1 for such Distribution Date, to payment to the Class 1-B1
Certificates, the B2(1) Component of the Class B2 Certificates, the
B3(1) Component of the Class B3 Certificates, the B4(1) Component of the
Class B4 Certificates, the B5(1) Component of the Class B5 Certificates
and the B6(1) Component of the Class B6 Certificates, in that order, of
the following amounts, in the following order of priority: (x) Accrued
Certificate Interest thereon (as reduced by any Net Prepayment Interest
Shortfalls for the related Mortgage Pool allocated to such Class or
Component on such Distribution Date), (y) any outstanding Interest
Shortfalls previously allocated to such Class or Component, and (z) such
Class's or Component's Subordinate Class Percentage of the Subordinate
Principal
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<PAGE> 20
Distribution Amount for Group 1 for such Distribution Date, except as
provided below, in reduction of the Class Certificate Principal Amount
or Component Principal Amounts thereof; and
(B) to the extent of the remaining Available Distribution Amount
for Pool 2 for such Distribution Date, to payment to the Class 2-B1
Certificates, the B2(2) Component of the Class B2 Certificates, the
B3(2) Component of the Class B3 Certificates, the B4(2) Component of the
Class B4 Certificates, the B5(2) Component of the Class B5 Certificates
and the B6(2) Component of the Class B6 Certificates, in that order, of
the following amounts, in the following order of priority: (x) Accrued
Certificate Interest thereon (as reduced by any Net Prepayment Interest
Shortfalls for the related Mortgage Pool allocated to such Class or
Component on such Distribution Date), (y) any outstanding Interest
Shortfalls previously allocated to such Class or Component, and (z) such
Class's or Component's Subordinate Class Percentage of the Subordinate
Principal Distribution Amount for Group 2 for such Distribution Date,
except as provided below, in reduction of the Class Certificate
Principal Amount or Component Principal Amounts thereof.
With respect to the Class 1-B1 and Class 2-B1 Certificates and each
Component other than the B6(1) and B6(2) Components, if on any Distribution Date
the Credit Support Percentage for such Class or Component is less than the
Original Credit Support Percentage for such Class or Component, then no
distributions in respect of clauses (ii) and (iii) of the definition of
Subordinate Principal Distribution Amount for the related Certificate Group will
be made to any related Class or Component of lower priority (the "Restricted
Classes"), and the amount otherwise distributable to the Restricted Classes in
respect of such payments will be allocated among the remaining Class of
Subordinate Certificates and Components of the related Certificate Group, pro
rata, based upon their respective Class Certificate Principal Amount or
Component Principal Amounts. The "Credit Support Percentage" for a Class of
Subordinate Certificates or Component for any Distribution Date is equal to the
sum of the Class Percentages (as defined herein) of each Component of lower
priority in the related Certificate Group (without giving effect to
distributions on such date). The "Original Credit Support Percentage" for a
Class of Subordinate Certificates or Component is the Credit Support Percentage
for such Class of Subordinate Certificates or Component on the Closing Date.
On and after the Distribution Date on which the aggregate Certificate
Principal Amounts and Component Principal Amounts of the Subordinate
Certificates and Components in any Certificate Group has been reduced to zero
(the "Credit Support Depletion Date" for such Certificate Group), the Available
Distribution Amount with respect to the related Mortgage Pool remaining after
distribution of interest to the related Senior Certificates on such date will be
distributed among the Senior Certificates in such Certificate Group remaining
outstanding, pro rata, in proportion to their respective Certificate Principal
Amounts, until the Certificate Principal Amounts thereof have been reduced to
zero, regardless of the priorities and allocations set forth above.
DISTRIBUTIONS OF INTEREST
The amount of interest distributable on each Distribution Date in respect
of each Class of Certificates (other than the Class 1-AP and the Class 2-AP
Certificates) will equal the Accrued Certificate Interest (as defined below) for
such Class on such Distribution Date, as reduced by any Net Prepayment Interest
Shortfalls allocable to such Class for such date. "Accrued Certificate Interest"
for each Class of Certificates and each Component on any Distribution Date will
equal the amount of interest accrued during the related Interest Accrual Period
(as defined below) on the Class Certificate Principal Amount, aggregate Notional
Amount or Component Principal Amount thereof immediately prior to such
Distribution Date at the applicable Certificate Interest Rate or Component
Interest Rate, as applicable, as reduced by such Class's or Component's pro rata
share of (i) the interest portion of any Excess Losses and, after the related
Credit Support Depletion Date, any Realized Losses, in each case for such
Distribution Date and the related Mortgage Pool and (ii) after the related
Credit Support Depletion Date, such Class's or Component's pro rata share of any
Relief Act Reduction (as defined herein) on a Mortgage Loan in the related
Mortgage Pool. Interest will accrue on the Certificates and Components on the
basis of a 360-day year consisting of twelve 30-day months. Such interest will
be distributed from the related Available Distribution Amount on each
Distribution Date. Accrued Certificate Interest not distributed on the
Distribution Date related to the Interest
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<PAGE> 21
Accrual Period in which it accrued, other than any Net Prepayment Interest
Shortfalls, will be an "Interest Shortfall." Interest will not accrue on
Interest Shortfalls.
The "Certificate Interest Rate" for each Class of Offered Certificates will
be the applicable per annum rate set forth or described on the cover page
hereof. The "Net Mortgage Rate" for any Mortgage Loan at any time equals the
Mortgage Rate thereof minus the applicable Servicing Fee Rate. A "Pool 1 Premium
Mortgage Loan" is any Pool 1 Mortgage Loan with a Net Mortgage Rate in excess of
6.75% per annum. A "Pool 2 Premium Mortgage Loan" is any Pool 2 Mortgage Loan
with a Net Mortgage Rate in excess of 7.00% per annum. The "Pool Rate" for Pool
1 is 6.75% per annum (the "Pool 1 Rate") and for Pool 2 is 7.00% per annum (the
"Pool 2 Rate"). The "Certificate Principal Amount" of any Certificate other than
a Class 1-AX, Class 2-A5 or Class 2-AX Certificate as of any Distribution Date
will equal such Certificate Principal Amount as of the Closing Date as reduced
by all amounts previously distributed on such Certificate in respect of
principal and the principal portion of any Realized Losses previously allocated
to such Certificate. The "Interest Accrual Period" for each Class of
Certificates will be the calendar month immediately preceding the month in which
the related Distribution Date occurs.
The "Component Interest Rate" for each Component will be equal to the Pool
Rate for the related Mortgage Pool. Interest will accrue on the Class B4, Class
B5 and Class B6 Certificates at a per annum rate equal in each case to the
weighted average (by Component Principal Amount) of the Component Interest Rates
applicable to the Components of such Class. The Certificate Interest Rates
applicable to such Classes of Certificates for the initial Interest Accrual
Period are expected to be approximately as follows: Class B4, 6.95658% per
annum; Class B5, 6.95677% per annum; and Class B6, 6.96925% per annum.
When a principal prepayment in full is made on a Mortgage Loan, the
borrower is charged interest only to the date of such prepayment, instead of for
a full month, with a resulting reduction in interest payable for the month
during which the prepayment is made. Full or partial prepayments (or proceeds of
other liquidations) received in any calendar month will be distributed to
related Certificateholders on the Distribution Date following the applicable
prepayment period. To the extent that, as a result of a full or partial
prepayment, a mortgagor is not required to pay a full month's interest on the
amount prepaid, a shortfall in the amount available to make distributions of
interest on the related Certificates could result. The difference between one
month's interest at the Mortgage Rate, as reduced by the applicable Servicing
Fee Rate, on a Mortgage Loan as to which a voluntary prepayment has been made
and the amount of interest actually received in connection with such prepayment
is a "Prepayment Interest Shortfall." With respect to prepayments in full or in
part, the Servicer is obligated to reduce the aggregate of its Servicing Fees
(as defined herein) for the related Distribution Date to fund any resulting
Prepayment Interest Shortfalls. See "SERVICING OF THE MORTGAGE
LOANS -- Prepayment Interest Shortfall" herein. Any Prepayment Interest
Shortfalls not funded by the Servicer ("Net Prepayment Interest Shortfalls")
will be allocated among the Classes of Certificates and Components of the
related Certificate Group, pro rata in proportion to Accrued Certificate
Interest thereon for such Distribution Date.
In order to provide protection to holders of the Class 2-A4 Certificates
against Net Prepayment Interest Shortfalls allocated to such Class, a reserve
fund (the "Class 2-A4 Reserve Fund") will be established, into which $2,000 will
be deposited on the Closing Date. No additional amounts will be deposited into
the Class 2-A4 Reserve Fund. The amount of any Net Prepayment Interest
Shortfalls allocated to the Class 2-A4 Certificates on any Distribution Date
will be withdrawn from the Class 2-A4 Reserve Fund for distribution to holders
of Class 2-A4 Certificates. After the amount on deposit in the Class 2-A4
Reserve Fund has been exhausted, any Net Prepayment Interest Shortfalls
allocated to the Class 2-A4 Certificates will be covered by the Class 2-A4
Certificate Insurance Policy.
DISTRIBUTIONS OF PRINCIPAL
Distributions of principal on the Certificates and Components of each
Certificate Group will be made on each Distribution Date as described herein in
an aggregate amount equal to the related Principal Distribution Amount, to the
extent of the related Available Distribution Amount available to make such
payments in accordance with the priorities set forth under "-- Priority of
Distributions" above. The "Principal Distribution
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<PAGE> 22
Amount" for any Distribution Date and any Certificate Group will equal the sum
of (x) the Senior Principal Distribution Amount for such Certificate Group, (y)
the Subordinate Principal Distribution Amount for such Certificate Group and (z)
the AP Principal Distribution Amount for such Certificate Group for such date.
The "Senior Principal Distribution Amount" for each Certificate Group for each
Distribution Date is equal to the sum of:
(i) the product of (a) the related Senior Percentage and (b) the
principal portion (multiplied by the applicable Non-AP Percentage) of each
Scheduled Payment (without giving effect to any Debt Service Reduction
occurring prior to the applicable Bankruptcy Coverage Termination Date) on
a Mortgage Loan in the related Mortgage Pool due during the related Due
Period;
(ii) the product of (a) the related Senior Prepayment Percentage and
(b) each of the following amounts (multiplied by the applicable Non-AP
Percentage): (1) the principal portion of each full and partial principal
prepayment made by a mortgagor on a Mortgage Loan in the related Mortgage
Pool during the related Prepayment Period (as defined herein), (2) each
other unscheduled collection, including Insurance Proceeds and net
Liquidation Proceeds (other than with respect to any related Mortgage Loan
that was finally liquidated during the related Prepayment Period)
representing or allocable to recoveries of principal of such related
Mortgage Loans received during the related Prepayment Period and (3) the
principal portion of all proceeds of the purchase (or, in the case of a
permitted substitution, amounts representing a principal adjustment) of any
Mortgage Loan in the related Mortgage Pool actually received by the Trustee
with respect to the related Prepayment Period;
(iii) with respect to unscheduled recoveries allocable to principal of
any Mortgage Loan in the related Mortgage Pool that was finally liquidated
during the related Prepayment Period, the lesser of (a) the related net
Liquidation Proceeds allocable to principal (multiplied by the applicable
Non-AP Percentage) and (b) the product of the related Senior Prepayment
Percentage for such date and the remaining Scheduled Principal Balance
(multiplied by the applicable Non-AP Percentage) of such related Mortgage
Loan at the time of liquidation; and
(iv) any amounts described in clauses (i) through (iii) for any
previous Distribution Date that remain unpaid.
The "Non-AP Percentage" with respect to any Pool 1 Mortgage Loan with a Net
Mortgage Rate less than 6.75% per annum (each such Mortgage Loan, a "Pool 1
Discount Mortgage Loan") will be the percentage equivalent of the fraction, the
numerator of which is the applicable Net Mortgage Rate and the denominator of
which is 6.75%. The Non-AP Percentage with respect to any Pool 1 Mortgage Loan
with a Net Mortgage Rate equal to or greater than 6.75% will be 100%. The "AP
Percentage" with respect to any Pool 1 Discount Mortgage Loan will be the
percentage equivalent of the fraction, the numerator of which is 6.75% minus the
applicable Net Mortgage Rate and the denominator of which is 6.75%. The AP
Percentage with respect to any Pool 1 Mortgage Loan with a Net Mortgage Rate
equal to or greater than 6.75% will be zero.
The "Non-AP Percentage" with respect to any Pool 2 Mortgage Loan with a Net
Mortgage Rate less than 7.00% per annum (each such Mortgage Loan, a "Pool 2
Discount Mortgage Loan") will be the percentage equivalent of the fraction, the
numerator of which is the applicable Net Mortgage Rate and the denominator of
which is 7.00%. The Non-AP Percentage with respect to any Pool 2 Mortgage Loan
with a Net Mortgage Rate equal to or greater than 7.00% will be 100%. The "AP
Percentage" with respect to any Pool 2 Discount Mortgage Loan will be the
percentage equivalent of the fraction, the numerator of which is 7.00% minus the
applicable Net Mortgage Rate and the denominator of which is 7.00%. The AP
Percentage with respect to any Pool 2 Mortgage Loan with a Net Mortgage Rate
equal to or greater than 7.00% will be zero.
The "Scheduled Principal Balance" of any Mortgage Loan as of any date of
determination is generally equal to the principal balance thereof as of the
Cut-off Date, reduced by (i) the principal portion of all Scheduled Payments due
on or before such date of determination, whether or not received, and (ii) all
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<PAGE> 23
amounts allocable to unscheduled principal payments received on or before the
last day of the Prepayment Period preceding such date of determination.
The "Class Percentage" for each Class of Certificates and each Component
for each Distribution Date will be equal to the percentage obtained by dividing
the Class Certificate Principal Amount or Component Principal Amount of such
Class or Component immediately prior to such Distribution Date by the sum of the
Certificate Principal Amounts of all Certificates and the Component Principal
Amounts of all Components of the related Certificate Group immediately prior to
such date. The "Subordinate Class Percentage" for each Class of Class 1-B1 and
Class 1-B2 Certificates and for each Component for each Distribution Date will
be equal to the percentage obtained by dividing the Class Certificate Principal
Amount or the Component Principal Amount of such Class or Component immediately
prior to such Distribution Date by the sum of the Certificate Principal Amounts
of the Class 1-B1 and Class 1-B2 Certificates and the Component Principal
Amounts of all Components in the related Certificate Group immediately prior to
such date.
The "Senior Percentage" for each Certificate Group for any Distribution
Date is the percentage equivalent of a fraction, the numerator of which is the
aggregate Certificate Principal Amount of the related Senior Certificates (other
than, in the case of Group 1, the Class 1-AP Certificates and, in the case of
Group 2, the Class 2-AP Certificates) immediately prior to such date and the
denominator of which is the sum of the Class Certificate Principal Amounts of
all such related Classes of Senior Certificates and the Class Certificate
Principal Amount or the Component Principal Amounts of the related Classes of
Subordinate Certificates and the related Components immediately prior to such
date. The "Subordinate Percentage" for each Certificate Group for any
Distribution Date is the difference between 100% and the Senior Percentage for
such Certificate Group for such date.
The "Senior Prepayment Percentage" for each Certificate Group for any
Distribution Date occurring during the five years beginning on the first
Distribution Date will equal 100%. Thereafter, the Senior Prepayment Percentage
for each Certificate Group will, except as described below, be subject to
gradual reduction as described in the following paragraph. This disproportionate
allocation of certain unscheduled payments in respect of principal will have the
effect of accelerating the amortization of the related Senior Certificates
(other than, in the case of Group 1, the Class 1-AP Certificates and, in the
case of Group 2, the Class 2-AP Certificates), as a group, while, in the absence
of Realized Losses, increasing the relative percentage interest in the Mortgage
Pool evidenced by the related Components.
The Senior Prepayment Percentage for each Certificate Group for any
Distribution Date occurring on or after the fifth anniversary of the first
Distribution Date will be as follows: for any Distribution Date in the first
year thereafter, the related Senior Percentage plus 70% of the related
Subordinate Percentage for such Distribution Date; for any Distribution Date in
the second year thereafter, the related Senior Percentage plus 60% of the
related Subordinate Percentage for such Distribution Date; for any Distribution
Date in the third year thereafter, the related Senior Percentage plus 40% of the
related Subordinate Percentage for such Distribution Date; for any Distribution
Date in the fourth year thereafter, the related Senior Percentage plus 20% of
the related Subordinate Percentage for such Distribution Date; and for any
subsequent Distribution Date, the related Senior Percentage for such
Distribution Date (unless on any of the foregoing Distribution Dates the Senior
Percentage for either Certificate Group exceeds the initial Senior Percentage
for such Certificate Group, in which case the Senior Prepayment Percentage for
such Certificate Group for such Distribution Date will once again equal 100%).
Notwithstanding the foregoing, no decrease in the Senior Prepayment Percentage
for either Certificate Group below the level in effect for the most recent prior
period specified above will be effective if, as of such Distribution Date as to
which any such decrease applies, (i) the average outstanding principal balance
on such Distribution Date and for the preceding five Distribution Dates of all
Mortgage Loans in the related Mortgage Pool that were delinquent 60 days or more
(including for this purpose any Mortgage Loans in foreclosure and Mortgage Loans
with respect to which the related Mortgaged Property has been acquired by the
Trust Fund) is greater than or equal to 50% of the sum of (x) the Class
Certificate Principal Amount of the Class 1-B1 Certificates, in the case of
Group 1, or the Class 2-B1 Certificates, in the case of Group 2, and (y) the
aggregate Component Principal Amount of the related Components immediately prior
to such Distribution Date or (ii) cumulative Realized Losses with respect to the
Mortgage Loans in the related Mortgage Pool exceed (a) with respect to the
Distribution Date on the fifth
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<PAGE> 24
anniversary of the first Distribution Date, 30% of the sum of (x) the Class
Certificate Principal Amount of the Class 1-B1 Certificates, in the case of
Group 1, or the Class 2-B1 Certificates, in the case of Group 2, and (y) the
aggregate Component Principal Amount of the related Components as of the Closing
Date (the "Original Subordinate Principal Balance" with respect to such Mortgage
Pool), (b) with respect to the Distribution Date on the sixth anniversary of the
first Distribution Date, 35% of the Original Subordinate Principal Balance, (c)
with respect to the Distribution Date on the seventh anniversary of the first
Distribution Date, 40% of the Original Subordinate Principal Balance, (d) with
respect to the Distribution Date on the eighth anniversary of the first
Distribution Date, 45% of the Original Subordinate Principal Balance and (e)
with respect to the Distribution Date on the ninth anniversary of the first
Distribution Date, 50% of the Original Subordinate Principal Balance.
The "Class 2-A9 Priority Amount" for any Distribution Date is equal to the
lesser of (i) the sum of (x) the product of the Class 2-A9 Percentage for such
date, the Class 2-A9 Scheduled Principal Percentage for such date and the
Scheduled Principal Amount for such date and (y) the product of the Class 2-A9
Percentage for such date, the Class 2-A9 Prepayment Shift Percentage for such
date and the Unscheduled Principal Amount for such date, and (ii) the Class
Certificate Principal Amount of the Class 2-A9 Certificates immediately prior to
such date. The "Class 2-A9 Percentage" for any Distribution Date will be equal
to the percentage obtained by dividing the Class Certificate Principal Amount of
the Class 2-A9 Certificates immediately prior to such date by the sum of the
Certificate Principal Amounts of all Certificates in Group 2 (other than the
Class 2-AP Certificates) and the Component Principal Amounts of all Components
in Group 2 immediately prior to such date.
The "Scheduled Principal Amount" for any Distribution Date and each Pool 2
Mortgage Loan is equal to the amount described in clause (i)(b) of the
definition of Senior Principal Distribution Amount for Group 2. The "Unscheduled
Principal Amount" for any Distribution Date and each Pool 2 Mortgage Loan is
equal to the sum of the amounts described in clauses (ii)(b) and (iii) (without
regard to the reference to the related Senior Prepayment Percentage in clause
(iii)) of the definition of Senior Principal Distribution Amount for Group 2.
The "Class 2-A9 Scheduled Principal Percentage" for any Distribution Date
during the five years beginning on the first Distribution Date will be 0%.
Thereafter, the "Class 2-A9 Scheduled Principal Percentage" for any Distribution
Date occurring on or after the fifth anniversary of the first Distribution Date
will be 100%. The "Class 2-A9 Prepayment Shift Percentage" for any Distribution
Date during the five years beginning on the first Distribution Date will be 0%.
Thereafter, the "Class 2-A9 Prepayment Shift Percentage" for any Distribution
Date occurring on or after the fifth anniversary of the first Distribution Date
will be as follows: for any Distribution Date in the first year thereafter, 30%;
for any Distribution Date in the second year thereafter, 40%; for any
Distribution Date in the third year thereafter, 60%; for any Distribution Date
in the fourth year thereafter, 80%; and for any subsequent Distribution Date,
100%. Notwithstanding the foregoing, on and after (i) the Credit Support
Depletion Date, the Class 2-A9 Certificates shall be entitled to their pro rata
share of all scheduled and unscheduled payments of principal or (ii) the date on
which the Class Certificate Principal Amounts of all of the Group 2 Senior
Certificates (other than the Class 2-A9 Certificates) have been reduced to zero,
the Class 2-A9 Certificates shall be entitled to all of the Group 2 Senior
Principal Distribution Amount.
The "Subordinate Prepayment Percentage" for each Certificate Group for any
Distribution Date will be the difference between 100% and the related Senior
Prepayment Percentage for such date.
The "AP Principal Distribution Amount" for each Certificate Group and each
Distribution Date is equal to the sum of:
(i) the applicable AP Percentage of the principal portion of each
Scheduled Payment (without giving effect to any Debt Service Reduction
occurring prior to the applicable Bankruptcy Coverage Termination Date) on
a Mortgage Loan in the related Mortgage Pool due during the related Due
Period;
(ii) the applicable AP Percentage of each of the following amounts:
(1) the principal portion of each full and partial principal prepayment
made by a mortgagor on a Mortgage Loan in the related
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<PAGE> 25
Mortgage Pool during the related Prepayment Period, (2) each other
unscheduled collection, including Insurance Proceeds and net Liquidation
Proceeds (other than with respect to any Mortgage Loan in the related
Mortgage Pool that was finally liquidated during the related Prepayment
Period) representing or allocable to recoveries of principal of such
Mortgage Loan in the related Mortgage Pool received during the related
Prepayment Period and (3) the principal portion of all proceeds of the
purchase (or, in the case of a permitted substitution, amounts representing
a principal adjustment) of any Mortgage Loan in the related Mortgage Pool
actually received by the Trustee with respect to the related Prepayment
Period;
(iii) with respect to unscheduled recoveries allocable to principal of
any Mortgage Loan in the related Mortgage Pool that was finally liquidated
during the related Prepayment Period, the applicable AP Percentage of the
related net Liquidation Proceeds allocable to principal; and
(iv) any amounts described in clauses (i) through (iii) for any
previous Distribution Date that remain unpaid.
The "Subordinate Principal Distribution Amount" for each Certificate Group
for each Distribution Date is equal to the sum of:
(i) the product of (a) the related Subordinate Percentage and (b) the
principal portion (multiplied by the applicable Non-AP Percentage) of each
Scheduled Payment (without giving effect to any Debt Service Reduction
occurring prior to the applicable Bankruptcy Coverage Termination Date) on
a Mortgage Loan in the related Mortgage Pool due during the related Due
Period;
(ii) the product of (a) the related Subordinate Prepayment Percentage
and (b) each of the following amounts (multiplied by the applicable Non-AP
Percentage): (1) the principal portion of each full and partial principal
prepayment made by a mortgagor on a Mortgage Loan in the related Mortgage
Pool during the related Prepayment Period, (2) each other unscheduled
collection, including Insurance Proceeds and net Liquidation Proceeds
(other than with respect to any related Mortgage Loan that was finally
liquidated during the related Prepayment Period), representing or allocable
to recoveries of principal of such related Mortgage Loans received during
the related Prepayment Period and (3) the principal portion of all proceeds
of the purchase (or, in the case of a permitted substitution, amounts
representing a principal adjustment) of any Mortgage Loan in the related
Mortgage Pool actually received by the Trustee with respect to the related
Prepayment Period;
(iii) with respect to unscheduled recoveries allocable to principal of
any Mortgage Loan in the related Mortgage Pool that was finally liquidated
during the related Prepayment Period, the related net Liquidation Proceeds
allocable to principal (multiplied by the applicable Non-AP Percentage), to
the extent not distributed pursuant to subsection (iii) of the definition
of Senior Principal Distribution Amount); and
(iv) any amounts described in clauses (i) through (iii) for any
previous Distribution Date that remain unpaid.
AVAILABLE DISTRIBUTION AMOUNT
The due period (the "Due Period") related to each Distribution Date
commences on the second day of the month preceding the month in which such
Distribution Date occurs and ends on the first day of the month in which such
Distribution Date occurs. The "Prepayment Period" is the calendar month
preceding the month in which the related Distribution Date occurs. The
"Remittance Date" is the 18th day (of if such 18th day is not a Business Day,
the Business Day immediately following such date) of the month in which the
related Distribution Date occurs.
The "Available Distribution Amount" in respect of each Mortgage Pool on
each Distribution Date, as more fully described in the Trust Agreement, will
generally equal the sum of the following amounts:
(1) the total amount of all cash received by the Servicer with respect
to the related Collection Period (or the related Prepayment Period, in the
case of Principal Prepayments) with respect to the
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<PAGE> 26
Mortgage Loans in such Mortgage Pool and remitted to the Trustee on the
related Remittance Date, which includes (i) Scheduled Payments due on the
related Mortgage Loans during the Due Period and collected prior to the
related Remittance Date or advanced by the Servicer (or the Trustee), (ii)
payments allocable to principal on the related Mortgage Loans (other than
Liquidation Proceeds and Insurance Proceeds) to the extent received in
advance of their scheduled due dates and applied to reduce the principal
balance of such Mortgage Loans ("Principal Prepayments"), together with
accrued interest thereon, if any, identified as having been received on the
related Mortgage Loans during the applicable Prepayment Period, plus any
amounts paid by the Servicer in respect of Prepayment Interest Shortfalls,
in each case for such Distribution Date, (iii) the proceeds of any
repurchase of a related Mortgage Loan repurchased by the Seller, the
Servicer or any other party as a result of a breach of a representation or
warranty or document defect, and (iv) recoveries through liquidation of any
REO Property with respect to the related Mortgage Loans, including
Insurance Proceeds and Liquidation Proceeds, minus:
(a) all Scheduled Payments of principal and interest on the related
Mortgage Loans collected but due on a date subsequent to the related Due
Period;
(b) all Principal Prepayments on the related Mortgage Loans
received or identified after the applicable Prepayment Period (together
with any interest payments, if any, received with such prepayments to
the extent that they represent (in accordance with the applicable
Servicer's usual application of funds) the payment of interest accrued
on the related Mortgage Loans for the period subsequent to the
applicable Prepayment Period);
(c) Liquidation Proceeds and Insurance Proceeds received after the
applicable Prepayment Period with respect to the related Mortgage Loans;
and
(d) all amounts due or reimbursable to the Trustee pursuant to the
Trust Agreement and to the Servicer pursuant to the Sale and Servicing
Agreement; and
(2) any other payments made by the Servicer, the Seller or the
Depositor with respect to such Distribution Date.
"Insurance Proceeds" means all proceeds (net of unreimbursed payments of
property taxes, insurance premiums and similar items incurred, and unreimbursed
Advances made by the Servicer (or the Trustee), if any) of applicable insurance
policies, to the extent such proceeds are not applied to the restoration of the
Mortgaged Property or released to the borrower.
"Liquidation Proceeds" means all amounts (net of unreimbursed expenses
incurred in connection with liquidation or foreclosure and unreimbursed
Advances, if any) received and retained in connection with the liquidation of
defaulted Mortgage Loans, by foreclosure or otherwise, together with any net
proceeds received on a monthly basis with respect to any properties acquired on
behalf of the Certificateholders by foreclosure or deed in lieu of foreclosure.
DISTRIBUTIONS IN REDUCTION OF THE CLASS 2-A4 CERTIFICATES
General. As to distributions of principal among Class 2-A4
Certificateholders, Deceased Holders (as defined below) will be entitled to a
first priority, and beneficial owners other than Deceased Holders ("Living
Holders") will be entitled to a second priority. Beneficial owners of the Class
2-A4 Certificates have the right to request that distributions of principal be
made with respect to their Class 2-A4 Certificates on each Distribution Date on
which distributions of principal are made with respect to the Class 2-A4
Certificates. All such requested distributions are subject to the priorities
described below under "-- Payments to Requesting Beneficial Owners" and are
further subject to the limitations that they be made (i) only in lots equal to
$1,000 of initial Certificate Principal Amount (each, an "Individual Class 2-A4
Certificate") and (ii) only to the extent that the portion of the Senior
Principal Distribution Amount for Group 2 allocated to the Class 2-A4
Certificates on the applicable Distribution Date (plus any amounts available
from the Rounding Account) provides sufficient funds for such requested
distributions. To the extent that amounts available for distribution of
principal on the Class 2-A4 Certificates on any Distribution Date exceed the
aggregate requests for principal distributions applicable to such Distribution
Date, such excess amounts will be distributed to the
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beneficial owners of Class 2-A4 Certificates by random lot, as described under
"-- Mandatory Distributions of Principal on Class 2-A4 Certificates" below.
On each Distribution Date on which amounts are available for distribution
of principal on the Class 2-A4 Certificates, the aggregate amount allocable to
such distribution will be rounded, as necessary, to an amount equal to an
integral multiple of $1,000, except as provided below, in accordance with the
priorities and limitations set forth herein. Such rounding will be accomplished
on the first Distribution Date on which distributions of principal on the Class
2-A4 Certificates are made by withdrawing, from a non-interest bearing account
to be established on the Closing Date with a deposit of $999.99 by the
Underwriter (the "Rounding Account"), the amount of funds, if any, needed to
round the amount otherwise available for such distribution upward to the next
higher integral multiple of $1,000. On each succeeding Distribution Date on
which distributions of principal on the Class 2-A4 Certificates are to be made,
the aggregate amount allocable to the Class 2-A4 Certificates will be applied
first to repay any funds withdrawn from the Rounding Account for the Class 2-A4
Certificates on the prior Distribution Date, and then the remainder of such
allocable amount, if any, will be similarly rounded upward through another
withdrawal from the Rounding Account and distributed as principal on the Class
2-A4 Certificates. This process will continue on succeeding Distribution Dates
until the Class Certificate Principal Amount of the Class 2-A4 Certificates has
been reduced to zero. Thus, the aggregate distribution made in reduction of the
principal balance of the Class 2-A4 Certificates on each Distribution Date may
be slightly more or less than would be the case in the absence of such rounding
procedures, but such difference will be no more than $999.99 on any Distribution
Date. Under no circumstances will the sum of all distributions of principal on
the Class 2-A4 Certificates through any Distribution Date be less than the
amount that would have resulted in the absence of such rounding procedures.
There can be no assurance that a beneficial owner of a Class 2-A4
Certificate who has submitted a request for a distribution will receive such
distribution at any particular time after such distribution is requested,
because there can be no assurance that funds will be available to make such
distributions on any particular Distribution Date, or, even if funds are
available to make such distributions, that such distribution with respect to the
Class 2-A4 Certificates owned by any particular beneficial owner will be made.
Also, due to the procedure for mandatory distributions described below, there
can be no assurance that, on any Distribution Date on which the funds available
for distribution of principal on the Class 2-A4 Certificates exceed the
aggregate amount of distributions requested by beneficial owners of the Class
2-A4 Certificates, any particular beneficial owner will receive a principal
distribution from such excess funds. Thus, the timing of distributions of
principal with respect to any particular Class 2-A4 Certificate is highly
uncertain, and such distributions may be made earlier or later than the date
that may be desired by a beneficial owner of a Class 2-A4 Certificate.
Accordingly, the allocation of principal distributions in respect of the Class
2-A4 Certificates may result in actual yields to investors and weighted average
lives that vary significantly from those anticipated, and such yields and
weighted average lives will vary among the holders of the Class 2-A4
Certificates.
Notwithstanding any provisions herein to the contrary, on each Distribution
Date on and after the Credit Support Depletion Date for Group 2, distributions
of principal on the Class 2-A4 Certificates (including amounts paid, if any,
under the Class 2-A4 Certificate Insurance Policy) will be made pro rata among
the holders of the Class 2-A4 Certificates and will not be made in integral
multiples of $1,000 or pursuant to requested distributions or mandatory
distributions by random lot.
Procedure for Requested Distributions. A beneficial owner may request that
distributions of principal on such beneficial owner's Class 2-A4 Certificates be
made on a Distribution Date by delivering a written request therefor to the
Participant or Financial Intermediary that maintains such beneficial owner's
account in the Class 2-A4 Certificates so that the request for such distribution
is received by the Trustee on or before the Record Date for such Distribution
Date. In the case of a request on behalf of a Deceased Holder, a certified copy
of the death certificate and any additional appropriate evidence of death and
any tax waivers are required to be forwarded to the Trustee under separate
cover. Furthermore, such requests of Deceased Holders that are incomplete may
not be honored by the Trustee and, if not honored, will lose their priority and
must be rerequested. The Participant should in turn make the request of the
Depository (or, in the case of a Financial Intermediary, such firm must notify
the related Participant of such request, which Participant should make the
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request of the Depository) on a form required by the Depository and provided to
the Participant. Upon receipt of such request, the Depository will date and time
stamp such request and forward such request to the Trustee. The Depository may
establish such procedures as it deems fair and equitable to establish the order
of receipt of requests for such distributions received by it on the same day.
Neither the Servicer nor the Trustee will be liable for any delay by the
Depository, any Participant or any Financial Intermediary in the delivery of
requests for distributions to the Trustee. Requests for distributions in
reduction of principal balance forwarded to the Trustee from the Depository
after the Record Date for such Distribution Date and requests for distributions
received in a timely manner but not accepted with respect to a particular
Distribution Date will be treated as requests for distributions on the next
succeeding Distribution Date and each succeeding Distribution Date thereafter
until each request is accepted or is withdrawn as described below. Each request
for distributions of principal on a Class 2-A4 Certificate submitted by a
beneficial owner of a Class 2-A4 Certificate will be held by the Trustee until
such request has been accepted or has been withdrawn in writing. Each Individual
Class 2-A4 Certificate covered by such request will continue to bear interest at
the related Certificate Interest Rate through the Record Date for such
Distribution Date.
With respect to Class 2-A4 Certificates as to which beneficial owners have
requested distributions on a particular Distribution Date on which distributions
of principal on the Class 2-A4 Certificates are being made, the Trustee will
notify the Depository prior to such Distribution Date whether, and the extent to
which, such Class 2-A4 Certificates have been accepted for distributions.
Participants and Financial Intermediaries holding Class 2-A4 Certificates should
forward such notices to the beneficial owners of such Certificates. Individual
Class 2-A4 Certificates that have been accepted for a distribution will be due
and payable on the applicable Distribution Date and will cease to bear interest
after the Record Date for such Distribution Date.
Any beneficial owner of a Class 2-A4 Certificate that has requested a
distribution may withdraw such request by so notifying in writing the
Participant or Financial Intermediary that maintains such beneficial owner's
account. The Participant should forward the withdrawal, on a form required by
the Depository, to the Trustee. In the event that such account is maintained by
an Financial Intermediary, such Financial Intermediary must notify the related
Participant, which in turn must forward the withdrawal of such request on such
form to the Trustee. If such notice of withdrawal of a request for distribution
has not been received by the Trustee on or before the Record Date for such
Distribution Date, the previously made request for distribution will be
irrevocable with respect to the making of distributions of principal on the
Class 2-A4 Certificates on the applicable Distribution Date.
Mandatory Distributions of Principal on Class 2-A4 Certificates. To the
extent, if any, that amounts available for distribution in respect of principal
on the Class 2-A4 Certificates on a Distribution Date exceed the dollar amount
of requests for distributions that have been received by the applicable date,
additional Class 2-A4 Certificates in lots equal to Individual Class 2-A4
Certificates will be selected to receive principal distributions in accordance
with the then-applicable established random lot procedures of the Depository,
and with the then-applicable established procedures of the Participants and
Financial Intermediaries, which may or may not be by random lot. Investors
should ask such Participants or Financial Intermediaries which allocation
procedures they use. Participants and Financial Intermediaries holding Class
2-A4 Certificates selected for mandatory distributions of principal should
provide notice of such mandatory distributions to the affected beneficial
owners.
Payments to Requesting Beneficial Owners. On any Distribution Date on
which principal distributions are made on the Class 2-A4 Certificates, priority
of payment on the Class 2-A4 Certificates will be given to beneficial owners for
whom principal distribution requests are in effect. The Depository will honor
requests in the following order of priority:
First, the Depository will honor requests submitted on behalf of
Deceased Holders in the order of their receipt by the Depository, until
such requests have been honored in an amount up to $100,000 for each
requesting Deceased Holder; and
Second, the Depository will honor requests submitted on behalf of
Living Holders in the order of priority established by the Depository,
until such requests have been honored in an amount up to $10,000 for each
requesting Living Holder.
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<PAGE> 29
Thereafter, the Depository will honor requests submitted on behalf of each
Deceased Holder as provided in step First up to a second $100,000 and requests
submitted on behalf of each Living Holder as provided in step Second up to a
second $10,000. This sequence of priorities will be repeated until all Class
2-A4 Certificate principal distribution requests have been honored to the extent
of amounts available in reduction of the Class Certificate Principal Amount of
the Class 2-A4 Certificates.
If the amount of principal available for distribution on the Class 2-A4
Certificates on a particular Distribution Date is insufficient to honor all
requests, such requests will be honored on succeeding Distribution Dates as
principal becomes available. In the case of requests on behalf of Living
Holders, the Depository will establish a new order of priority for each
Distribution Date. This order will apply both to previously unsatisfied payment
requests and to newly submitted requests. A Class 2-A4 Certificate principal
payment request submitted on behalf of a Living Holder who later dies will
become entitled to the priority of a newly submitted request on behalf of a
Deceased Holder. Such priority will be effective for each subsequent
Distribution Date if the Depository has received a certified copy of the death
certificate for such Deceased Holder and any additional appropriate evidence of
death and any requested tax waivers by the last Business Day of the preceding
calendar month.
Definition of "Deceased Holder." A "Deceased Holder" is a beneficial owner
of a Class 2-A4 Certificate who was living at the time such interest was
acquired and whose executor or other authorized representative causes to be
furnished to the Trustee a certified copy of the death certificate for such
Deceased Holder and any additional evidence of death satisfactory to the Trustee
and any tax waivers requested by the Trustee. Class 2-A4 Certificates
beneficially owned by tenants by the entirety, joint tenants or tenants in
common will be considered to be beneficially owned by a single owner. The death
of a tenant by the entirety, joint tenant or tenant in common will be deemed to
be the death of the beneficial owner, and the Class 2-A4 Certificates so
beneficially owned will be eligible for priority with respect to distributions
of principal, subject to the limitations stated herein. Class 2-A4 Certificates
beneficially owned by a trust will be considered to be beneficially owned by
each beneficiary of the trust to the extent of such beneficiary's beneficial
interest therein, but in no event will a trust's beneficiaries collectively be
deemed to be beneficial owners of a number of Individual Class 2-A4 Certificates
greater than the number of Individual Class 2-A4 Certificates of which such
trust is the owner. The death of a beneficiary of a trust will be deemed to be
the death of a beneficial owner of the Class 2-A4 Certificates beneficially
owned by the trust to the extent of such beneficiary's beneficial interest in
such trust. The death of an individual who was a tenant by the entirety, joint
tenant or tenant in common in a tenancy that is the beneficiary of a trust will
be deemed to be the death of the beneficiary of the trust. The death of a person
who, during his or her lifetime, was entitled to substantially all of the
beneficial ownership interest in a Class 2-A4 Certificate will be deemed to be
the death of the beneficial owner of such Class 2-A4 Certificate regardless of
the registration of ownership, if such beneficial ownership interest can be
established to the satisfaction of the Trustee; expenses incurred by the Trustee
in an effort to determine the beneficial ownership interest, including, without
limitation, attorney's fees, shall be paid by the beneficial owner. Such
beneficial interest will be deemed to exist in typical cases of street name or
nominee ownership, ownership by a trustee, ownership under the Uniform Gifts to
Minors Act and community property or other joint ownership arrangements between
a husband and wife. Beneficial interest shall include the power to sell,
transfer or otherwise dispose of a Class 2-A4 Certificate and the right to
receive the proceeds therefrom, as well as interest and distributions in
reduction of principal balance payable with respect thereto. As used in this
Prospectus Supplement, a request for a distribution of principal of a Class 2-A4
Certificate by a Deceased Holder shall mean a request by the personal
representative, surviving tenant by the entirety, surviving joint tenant or
surviving tenant in common of such Deceased Holder.
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EXAMPLE OF DISTRIBUTIONS
The following sets forth an example of distributions on the Certificates.
<TABLE>
<S> <C> <C>
December 1 through Prepayment Period. Partial principal prepayments and prepayments in
December 31.......... full with interest thereon to the date of such
prepayment received at any time during this
period will be deposited into the Servicer's
custodial account for distribution to related
Certificateholders on January 25.
December 31............ Record Date. Distributions on January 25 will be made to
Certificateholders of record at the close of
business on the last Business Day of the month
immediately preceding the month of distribution.
December 18 through Collection Period. Payments due during the related Due Period
January 17........... (December 2 through January 1) from mortgagors
will be deposited in the Servicer's custodial
account as received and will include scheduled
principal payments plus interest on the December
1 principal balances of the Mortgage Loans.
January 18............. Remittance Date. On January 18 (or if such day is not a Business
Day, the next succeeding Business Day), the
Servicer will be required to remit to the Trustee
the amount of principal and interest to be
distributed to Certificateholders with respect to
the related Mortgage Loans on January 25 (or if
such day is not a Business Day, the next
succeeding Business Day), including any Advances
required to be made by the Servicer for such
Distribution Date.
January 25............. Distribution Date. On January 25 (or if such day is not a Business
Day, the next succeeding Business Day), the
Trustee will make distributions to
Certificateholders.
</TABLE>
Succeeding months follow the same pattern.
THE RESIDUAL CERTIFICATES
In addition to distributions of principal and interest, each holder of the
Residual Certificate will be entitled to receive, generally, (i) the amount, if
any, of any Available Distribution Amount remaining in the related REMIC on any
Distribution Date after distributions of principal and interest are made on the
related regular interests and on such Residual Certificate on such date and (ii)
the proceeds, if any, of the assets of the Trust Fund remaining in such REMIC
after the principal amounts of the related regular interests and of the Residual
Certificate have been reduced to zero. It is generally not anticipated that any
material assets will be remaining for such distributions at any such time.
See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" herein and in the
accompanying Prospectus.
ALLOCATION OF REALIZED LOSSES
If a Realized Loss occurs on the Mortgage Loans in either Mortgage Pool,
then, on each Distribution Date, the applicable Non-AP Percentage of the
principal portion of such Realized Loss other than an Excess Loss will be
allocated first, to reduce the Component Principal Amounts of the related
Components in decreasing order of numerical designation, until the related
Component Principal Amount has been reduced to
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zero, second, to reduce the Class Certificate Principal Amounts of the Class
1-B1 or Class 2-B1 Certificates, as applicable, and third, to the Senior
Certificates of the related Certificate Group, pro rata, on the basis of their
respective Certificate Principal Amounts.
The AP Percentage of the principal portion of any Realized Loss on a Pool 1
Discount Mortgage Loan will be allocated to and reduce the Class Certificate
Principal Amount of the Class 1-AP Certificates until the Class Certificate
Principal Amount thereof has been reduced to zero. With respect to any
Distribution Date through the related Credit Support Depletion Date, the
aggregate of all amounts so allocable to the Class 1-AP Certificates on such
date in respect of Realized Losses (other than Excess Losses) on Pool 1 Mortgage
Loans and all amounts previously allocated in respect of such losses to the
Class 1-AP Certificates and not distributed on prior Distribution Dates will be
the "Class 1-AP Deferred Amount." To the extent that funds are available
therefor on any Distribution Date through the related Credit Support Depletion
Date, distributions in respect of the Class 1-AP Deferred Amount will be made on
the Class 1-AP Certificates in accordance with priority (v)(A) under
"-- Priority of Distributions" herein. Any distribution in respect of the Class
1-AP Deferred Amount will not reduce the Class Certificate Principal Amount of
the Class 1-AP Certificates. No interest will accrue on the Class 1-AP Deferred
Amount. No distributions in respect of the Class 1-AP Deferred Amount will be
made after the Distribution Date on which the Class Certificate Principal Amount
of the Class 1-AP Certificates has been reduced to zero. On each Distribution
Date through the related Credit Support Depletion Date, the Component Principal
Amount of the lowest ranking Component in Group 1 will be reduced by the amount
of any distributions in respect of the Class 1-AP Deferred Amount on such
Distribution Date. Any such reduction will be allocated in the same manner as a
Realized Loss, as described above. After the related Credit Support Depletion
Date, no distributions will be made in respect of, and losses allocated to the
Class 1-AP Certificates will not be added to, the Class 1-AP Deferred Amount.
The AP Percentage of the principal portion of any Realized Loss on a Pool 2
Discount Mortgage Loan will be allocated to and reduce the Class Certificate
Principal Amount of the Class 2-AP Certificates until the Class Certificate
Principal Amount thereof has been reduced to zero. With respect to any
Distribution Date through the related Credit Support Depletion Date, the
aggregate of all amounts so allocable to the Class 2-AP Certificates on such
date in respect of Realized Losses (other than Excess Losses) on Pool 2 Mortgage
Loans and all amounts previously allocated in respect of such losses to the
Class 2-AP Certificates and not distributed on prior Distribution Dates will be
the "Class 2-AP Deferred Amount." To the extent that funds are available
therefor on any Distribution Date through the related Credit Support Depletion
Date, distributions in respect of the Class 2-AP Deferred Amount will be made on
the Class 2-AP Certificates in accordance with priority (v)(B) under "--
Priority of Distributions" herein. Any distribution in respect of the Class 2-AP
Deferred Amount will not reduce the Class Certificate Principal Amount of the
Class 2-AP Certificates. No interest will accrue on the Class 2-AP Deferred
Amount. No distributions in respect of the Class 2-AP Deferred Amount will be
made after the Distribution Date on which the Class Certificate Principal Amount
of the Class 2-AP Certificates has been reduced to zero. On each Distribution
Date through the related Credit Support Depletion Date, the Component Principal
Amount of the lowest ranking Component in Group 2 will be reduced by the amount
of any distributions in respect of the Class 2-AP Deferred Amount on such
Distribution Date. Any such reduction will be allocated in the same manner as a
Realized Loss, as described above. After the related Credit Support Depletion
Date, no distributions will be made in respect of, and losses allocated to the
Class 2-AP Certificates will not be added to, the Class 2-AP Deferred Amount.
The Component Principal Amount of the lowest ranking Component then
outstanding in each Certificate Group, and, after the Component Principal
Amounts of all related Components have been reduced to zero, the Class
Certificate Principal Amount of the Class 1-B1 or Class 2-B1 Certificates, as
applicable, will be reduced by the amount, if any, by which the aggregate
Certificate Principal Amount of all related Senior Certificates and Subordinate
Certificates and the aggregate Component Principal Amount of the related
Components on any Distribution Date (after giving effect to distributions of
principal and allocation of Realized Losses on such date) exceeds the aggregate
Scheduled Principal Balance of the Mortgage Loans in the related Mortgage Pool
for such Distribution Date.
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<PAGE> 32
Any Realized Losses allocable to the Class 2-A4 Certificates will be
covered by the Class 2-A4 Certificate Insurance Policy.
In general, a "Realized Loss" means (i) with respect to a Liquidated
Mortgage Loan, the amount by which the remaining unpaid principal balance of
such Mortgage Loan plus all accrued and unpaid interest thereon and any related
expenses exceeds the amount of Liquidation Proceeds applied to the principal
balance of such Mortgage Loan, or (ii) the amount by which, in the event of
bankruptcy of a borrower, a bankruptcy court reduces the secured debt to the
value of the related Mortgaged Property (a "Deficient Valuation"). "Bankruptcy
Losses" are losses that are incurred as a result of Deficient Valuations and any
reduction, in a bankruptcy proceeding, of the amount of the Scheduled Payment on
a Mortgage Loan other than as a result of a Deficient Valuation (a "Debt Service
Reduction"). The principal portion of Debt Service Reductions will not be
allocated in reduction of the Class Certificate Principal Balances of any
Classes of Certificates. "Special Hazard Losses" are, in general terms, Realized
Losses arising out of certain direct physical loss or damage to Mortgaged
Properties that are not covered by a standard hazard insurance policy, but
excluding, among other things, faulty design or workmanship and normal wear and
tear. "Fraud Losses" are losses sustained on a Liquidated Mortgage Loan by
reason of a default arising from fraud, dishonesty or misrepresentation. In
determining whether a Realized Loss is a loss of principal or of interest,
Liquidation Proceeds and other recoveries on a Mortgage Loan will be applied
first to outstanding expenses incurred with respect to such Mortgage Loan, then
to accrued, unpaid interest, and finally to principal.
A "Liquidated Mortgage Loan" generally is a defaulted Mortgage Loan as to
which such Mortgage Loan or related REO Property has been disposed of and all
amounts expected to be recovered in respect of such Mortgage Loan have been
received by the Servicer on behalf of the Trust.
The principal portion of Special Hazard Losses, Bankruptcy Losses (other
than Debt Service Reductions), and Fraud Losses on the Mortgage Loans in a
Mortgage Pool that exceed the "Special Hazard Loss Limit," "Bankruptcy Loss
Limit," and "Fraud Loss Limit," respectively ("Excess Losses"), applicable to
such Mortgage Pool will be allocated as described above. The "Special Hazard
Loss Limit" will initially be approximately $1,868,381, in the case of Pool 1,
and $9,475,187, in the case of Pool 2, the "Bankruptcy Loss Limit" will
initially be approximately $100,000, in the case of Pool 1, and $132,408, in the
case of Pool 2, and the "Fraud Loss Limit" will initially be approximately
$766,753, in the case of Pool 1, and $7,329,448, in the case of Pool 2.
Each Special Hazard Loss Limit will be reduced, from time to time, to an
amount equal on any Distribution Date to the lesser of (a) the greatest of (i)
1% of the aggregate of the Scheduled Principal Balances of the Mortgage Loans in
the related Mortgage Pool, (ii) twice the Scheduled Principal Balance of the
Mortgage Loan in the related Mortgage Pool having the highest Scheduled
Principal Balance and (iii) the aggregate Scheduled Principal Balances of the
Mortgage Loans in the related Mortgage Pool secured by Mortgaged Properties
located in the single California postal zip code area having the highest
aggregate Scheduled Principal Balance of any such zip code area and (b) the
applicable Special Hazard Loss Limit as of the Closing Date less the amount, if
any, of Special Hazard Losses on Mortgage Loans in the related Mortgage Pool
incurred since the Closing Date.
Each Bankruptcy Loss Limit will be reduced, from time to time, by the
amount of Bankruptcy Losses on Mortgage Loans in the related Mortgage Pool
allocated to the Certificates and Components of the related Certificate Group.
The date on which the applicable Bankruptcy Loss Limit has been reduced to zero
is the "Bankruptcy Coverage Termination Date" for such Mortgage Pool.
Each Fraud Loss Limit will be reduced, from time to time, by the amount of
Fraud Losses on Mortgage Loans in the related Mortgage Pool allocated to the
Certificates and Components of the related Certificate Group. In the case of
Mortgage Pool 1, on each anniversary of the Cut-off Date, the applicable Fraud
Loss Limit will be reduced as follows: (a) on the first and second anniversaries
of the Cut-Off Date, to an amount equal to the excess of 1% of the aggregate
Scheduled Principal Balance of the Mortgage Loans in Pool 1 as of the Cut-Off
Date over the cumulative amount of Fraud Losses allocated to the Certificates
and Components of Group 1, (b) on the third and fourth anniversaries of the
Cut-off Date, to an amount equal to the excess of 0.5% of the aggregate
Scheduled Principal Balance of the Mortgage Loans in Pool 1 as of the Cut-off
Date
S-32
<PAGE> 33
over the cumulative amount of Fraud Losses allocated to the Certificates and
Components of Group 1 and (b) on the fifth anniversary of the Cut-off Date, to
zero.
In the case of Mortgage Pool 2, the applicable Fraud Loss Limit will be
reduced as follows: (a) on the first anniversary of the Cut-off Date, to an
amount equal to the excess of 2% of the aggregate Scheduled Principal Balance of
the Mortgage Loans in Pool 2 as of the Cut-off Date over the cumulative amount
of Fraud Losses allocated to the Certificates and Components of Group 2, (b) on
the second, third and fourth anniversaries of the Cut-off Date, to an amount
equal to the excess of 1% of the aggregate Scheduled Principal Balance of the
Mortgage Loans in Pool 2 as of the Cut-off Date over the cumulative amount of
Fraud Losses allocated to the Certificates and Components of Group 2 and (c) on
the fifth anniversary of the Cut-off Date, to zero.
In the event that any amount is recovered in respect of principal of a
Liquidated Mortgage Loan after any related Realized Loss has been allocated as
described herein, such amount will be distributed to the Certificates and
Components of the related Certificate Group still outstanding, pro rata on the
basis of any Realized Losses previously allocated thereto. It is generally not
anticipated that any such amounts will be recovered.
The interest portion of (i) Realized Losses (other than Excess Losses)
occurring prior to the Credit Support Depletion Date for any Certificate Group
and (ii) notwithstanding anything to the contrary in the Prospectus, with
respect to any Mortgage Loan as to which there has been a reduction in the
amount of interest collectible as a result of application of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the "Relief Act," and any such
reduction, a "Relief Act Reduction"), the amount of any such reduction occurring
prior to the Credit Support Depletion Date for the related Certificate Group,
will not be allocated among the related Certificates, but will reduce the
Available Distribution Amount for such Certificate Group. Such losses will be
borne first by the related Components in inverse order of priority, then by the
Class 1-B1, or Class 2-B1 Certificates, as applicable, before being borne, pro
rata, by the related Senior Certificates. See "CERTAIN LEGAL ASPECTS OF
LOANS -- Soldiers' and Sailors' Civil Relief Act of 1940" in the Prospectus.
FINAL SCHEDULED DISTRIBUTION DATE
Scheduled distributions on the Mortgage Loans in each Mortgage Pool,
assuming no defaults or losses that are not covered by the limited credit
support described elsewhere herein, will be sufficient to make timely
distributions of interest on the Offered Certificates and to reduce the
aggregate Certificate Principal Amount of the Offered Certificates to zero not
later than December 26, 2012, in the case of the Group 1 Senior Certificates and
the Class 1-B1 Certificates, and December 27, 2027, in the case of the other
Classes of Certificates. The actual final Distribution Dates for the Offered
Certificates may be earlier or later, and could be substantially earlier, than
their applicable Final Scheduled Distribution Dates.
The Final Scheduled Distribution Dates for the Offered Certificates have
been determined by adding one month to the month of scheduled maturity of the
latest maturing Mortgage Loan in each Mortgage Pool.
OPTIONAL TERMINATION OF THE TRUST
On any Distribution Date after the date on which the aggregate Scheduled
Principal Balance of the Mortgage Loans is less than 5% of the Cut-off Date
Balance, the Depositor (subject to the terms of the Trust Agreement) will have
the option to cause the sale of the Mortgage Loans, any REO Property and any
other property remaining in the Trust Fund and thereby effect the termination of
the Trust Fund and the retirement of the Certificates. The purchase price of the
Mortgage Loans must be equal to the sum of (a) 100% of the aggregate outstanding
principal balance of such Mortgage Loans, plus accrued interest thereon at the
applicable Mortgage Rate and (b) the fair market value of all other property
remaining in the Trust Fund. Such liquidation will be treated as a prepayment of
the Mortgage Loans for purposes of distributions to Certificateholders. Upon
such payment in full to Certificateholders of such amounts, the Trust Fund will
be terminated.
S-33
<PAGE> 34
THE TRUSTEE
U.S. Bank National Association will be the Trustee under the Trust
Agreement. The Trustee will be entitled to retain, as its compensation, any
interest or other income earned on funds deposited in the Certificate Account
pending distribution to Certificateholders. The Trustee will be entitled to
reimbursement for certain expenses prior to distribution of any amounts to
Certificateholders. The Trustee's "Corporate Trust Office" for purposes of
presentment and surrender of the Offered Certificates for the final distribution
thereon and for all other purposes is located at 180 East Fifth Street, St.
Paul, Minnesota 55101, or such address as the Trustee may designate from time to
time by notice to the Certificateholders, the Depositor and the Servicer.
DESCRIPTION OF THE MORTGAGE POOLS
GENERAL
The Mortgage Pools will consist of approximately 1,341 conventional, fixed
rate, fully-amortizing Mortgage Loans with original terms to maturity from the
first due date of the scheduled monthly payment (a "Scheduled Payment") of not
more than 15 years, in the case of Pool 1, or 30 years, in the case of Pool 2,
having an aggregate Scheduled Principal Balance as of the Cut-off Date of
approximately $443,247,897. The Mortgage Loans were originated or acquired by
First Nationwide Mortgage Corporation generally in accordance with the
underwriting criteria then in effect as described herein.
Wherever reference is made herein to a percentage of some or all of the
Mortgage Loans, such percentage is determined (unless otherwise specified) on
the basis of the aggregate Scheduled Principal Balance of such Mortgage Loans as
of the Cut-off Date.
Pursuant to its terms, each Mortgage Loan, other than a loan secured by a
condominium unit, is required to be covered by a standard hazard insurance
policy in an amount equal to the lower of the unpaid principal amount thereof or
the replacement value of the improvements on the Mortgaged Property. Generally,
a condominium association is responsible for maintaining hazard insurance
covering the entire building. See "Description of Mortgage and Other
Insurance -- Hazard Insurance on the Loans -- Standard Hazard Insurance
Policies" in the Prospectus.
Approximately 4.85% of the Pool 1 Mortgage Loans and approximately 9.12% of
the Pool 2 Mortgage Loans have original Loan-to-Value Ratios in excess of 80%.
All of such Mortgage Loans are covered by primary mortgage guaranty insurance
policies, which policies insure, generally, any portion of the unpaid principal
balance of such Mortgage Loan in excess of 75% of the value of the related
Mortgaged Property. No such primary mortgage guaranty insurance policy will be
required with respect to any such Mortgage Loan after the date on which the
related Loan-to-Value Ratio is 80% or less. The "Loan-to-Value Ratio" of a
Mortgage Loan at any time is the ratio of the principal balance of such Mortgage
Loan at the date of determination to (a) in the case of a purchase, the lesser
of the sale price of the Mortgaged Property and its appraised value at the time
of sale, or (b) in the case of a refinance or modification, the appraised value
of the Mortgaged Property at the time of such refinance or modification.
As of the Cut-off Date, none of the Pool 1 Mortgage Loans or Pool 2
Mortgage Loans were delinquent.
S-34
<PAGE> 35
POOL 1
The Mortgage Loans included in Pool 1 (the "Pool 1 Mortgage Loans") are
expected to have the following approximate aggregate characteristics as of the
Cut-off Date. Prior to the issuance of the Certificates, Pool 1 Mortgage Loans
may be removed from the Trust Fund as a result of incomplete documentation or
otherwise, if the Depositor deems such removal necessary or appropriate. In
addition, a limited number of other mortgage loans may be included in the Trust
Fund (and in Pool 1) prior to the issuance of the Offered Certificates.
<TABLE>
<S> <C>
Number of Pool 1 Mortgage Loans........................... 231
Aggregate Scheduled Principal Balance..................... $76,775,398
Mortgage Rates:
Weighted Average........................................ 7.362%
Range................................................... 6.750% to 8.250%
Weighted Average Remaining Term to Maturity (in months)... 177
</TABLE>
The Scheduled Principal Balances of the Pool 1 Mortgage Loans range from
approximately $74,788 to approximately $914,178. The Pool 1 Mortgage Loans had
an average Scheduled Principal Balance of approximately $332,361.
The weighted average Loan-to-Value Ratio at origination of the Pool 1
Mortgage Loans is approximately 67.84%, and no Pool 1 Mortgage has a
Loan-to-Value Ratio at origination exceeding 90%.
No more than approximately 2.43% of the Pool 1 Mortgage Loans are secured
by Mortgaged Properties located in any one zip code area.
Approximately 18.23% of the Pool 1 Mortgage Loans (by Scheduled Principal
Balance as of the Cut-off Date) were originated under the Servicer's "reduced
documentation" program. See "First Nationwide Mortgage
Corporation -- Underwriting".
The following tables set forth as of the Cut-off Date the number, aggregate
Scheduled Principal Balance and percentage of the Pool 1 Mortgage Loans having
the stated characteristics shown in the tables in each range. (The sum of the
amounts of the aggregate Scheduled Principal Balances and the percentages in the
following tables may not equal the totals due to rounding.)
ORIGINAL LOAN-TO-VALUE RATIOS -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF ORIGINAL LOAN-TO- NUMBER OF PRINCIPAL SCHEDULED
VALUE RATIOS (%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
20.01 to 30.00............................ 5 $ 1,718,630.82 2.24%
30.01 to 40.00............................ 6 1,649,692.54 2.15
40.01 to 50.00............................ 13 4,275,477.13 5.57
50.01 to 60.00............................ 35 11,307,339.29 14.73
60.01 to 70.00............................ 47 16,446,792.67 21.42
70.01 to 80.00............................ 112 37,657,081.48 49.05
80.01 to 90.00............................ 13 3,720,384.20 4.85
--- -------------- ------
Total........................... 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
The weighted average original loan-to-value ratio is approximately 67.84%.
S-35
<PAGE> 36
MORTGAGE RATES -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
6.501 to 7.000............................ 35 $12,849,995.76 16.74%
7.001 to 7.500............................ 139 47,434,254.63 61.78
7.501 to 8.000............................ 55 16,137,000.92 21.02
8.001 to 8.500............................ 2 354,146.82 0.46
--- -------------- ------
Total........................... 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
The weighted average Mortgage Rate is approximately 7.362% per annum.
ORIGINAL TERMS TO MATURITY -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
121 to 180...................................... 231 $76,775,398.13 100.00%
--- -------------- ------
Total................................. 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
The weighted average original term to maturity is approximately 180 months.
REMAINING TERMS TO MATURITY -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
121 to 180...................................... 231 $76,775,398.13 100.00%
--- -------------- ------
Total................................. 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
The weighted average remaining term to maturity is approximately 177 months.
S-36
<PAGE> 37
GEOGRAPHIC DISTRIBUTION -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
STATE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
California...................................... 199 $67,711,372.34 88.19%
Florida......................................... 8 2,346,853,83 3.06
Washington...................................... 6 2,117,340.98 2.76
Georgia......................................... 7 1,891,277.87 2.46
Texas........................................... 2 776,232.53 1.01
Nevada.......................................... 3 371,996.17 0.48
Colorado........................................ 1 371,618.06 0.48
Virginia........................................ 1 362,715.03 0.47
Arizona......................................... 1 286,711.56 0.37
Missouri........................................ 1 224,335.25 0.29
Other........................................... 2 314,944.51 0.41
--- -------------- ------
Total................................. 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
SCHEDULED PRINCIPAL BALANCES ($) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
50,000.01 to 100,000.00........................ 5 $ 429,305.85 0.56%
100,000.01 to 150,000.00........................ 7 899,790.62 1.17
150,000.01 to 200,000.00........................ 12 2,137,438.89 2.78
200,000.01 to 250,000.00........................ 38 8,986,230.99 11.70
250,000.01 to 300,000.00........................ 53 14,734,638.50 19.19
300,000.01 to 350,000.00........................ 38 12,349,817.73 16.09
350,000.01 to 400,000.00........................ 30 11,335,715.97 14.76
400,000.01 to 450,000.00........................ 10 4,228,221.56 5.51
450,000.01 to 500,000.00........................ 14 6,690,058.93 8.71
500,000.01 to 550,000.00........................ 7 3,697,317.12 4.82
550,000.01 to 600,000.00........................ 7 3,988,196.09 5.19
600,000.01 to 650,000.00........................ 4 2,530,713.36 3.30
700,000.01 to 750,000.00........................ 1 745,304.88 0.97
750,000.01 to 800,000.00........................ 4 3,108,469.68 4.05
900,000.01 to 950,000.00........................ 1 914,177.96 1.19
--- -------------- ------
Total................................. 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
The average Cut-off Date Scheduled Principal Balance is approximately $332,361.
S-37
<PAGE> 38
PROPERTY TYPE -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
PROPERTY TYPE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Single-Family................................... 180 $60,454,420.45 78.74%
Planned Unit Development........................ 38 12,225,720.61 15.92
Condominium..................................... 12 3,760,321,40 4.90
Two- to Four-Family............................. 1 334,935.67 0.44
--- -------------- ------
Total................................. 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
LOAN PURPOSE -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
LOAN PURPOSE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Cash Out Refinance.............................. 21 $ 7,027,651.22 9.15%
Purchase........................................ 81 26,760,262.83 34.86
Rate/Term Refinance............................. 129 42,987,484.08 55.99
--- -------------- ------
Total................................. 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
OCCUPANCY STATUS -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
OCCUPANCY STATUS MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ---------------------------------------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Primary Home.................................. 228 $75,905,908.58 98.87%
Second Home................................... 3 869,489.55 1.13
--- -------------- ------
Total............................... 231 $76,775,398.13 100.00%
=== ============== ======
</TABLE>
POOL 2
The Mortgage Loans included in Pool 2 (the "Pool 2 Mortgage Loans") are
expected to have the following approximate aggregate characteristics as of the
Cut-off Date. Prior to the issuance of the Certificates, Pool 2 Mortgage Loans
may be removed from the Trust Fund as a result of incomplete documentation or
otherwise, if the Depositor deems such removal necessary or appropriate. In
addition, a limited number of other mortgage loans may be included in the Trust
Fund (and in Pool 2) prior to the issuance of the Offered Certificates.
<TABLE>
<S> <C>
Number of Pool 2 Mortgage Loans............................ 1,110
Aggregate Scheduled Principal Balance...................... $366,472,499
Mortgage Rates:
Weighted Average......................................... 7.751%
Range.................................................... 7.000% to 8.750%
Weighted Average Remaining Term to Maturity (in months).... 357
</TABLE>
The Scheduled Principal Balances of the Pool 2 Mortgage Loans range from
approximately $31,114 to approximately $997,973. The Pool 2 Mortgage Loans had
an average Scheduled Principal Balance of approximately $330,155.
S-38
<PAGE> 39
The weighted average Loan-to-Value Ratio at origination of the Pool 2
Mortgage Loans is approximately 74.73%, and no Pool 2 Mortgage has a
Loan-to-Value Ratio at origination exceeding 95.00%.
No more than approximately 2.59% of the Pool 2 Mortgage Loans are secured
by Mortgaged Properties located in any one zip code area.
Approximately 14.43% of the Pool 2 Mortgage Loans (by Scheduled Principal
Balance as of the Cut-off Date) were originated under the Servicer's "reduced
documentation" program. See "FIRST NATIONWIDE MORTGAGE
CORPORATION -- Underwriting."
The following tables set forth as of the Cut-off Date the number, aggregate
Scheduled Principal Balance and percentage of the Pool 2 Mortgage Loans having
the stated characteristics shown in the tables in each range. (The sum of the
amounts of the aggregate Scheduled Principal Balances and the percentages in the
following tables may not equal the totals due to rounding.)
ORIGINAL LOAN-TO-VALUE RATIOS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF ORIGINAL NUMBER OF PRINCIPAL SCHEDULED
LOAN-TO-VALUE RATIOS (%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
10.01 to 20.00................................ 1 $ 69,824.09 0.02%
20.01 to 30.00................................ 3 998,429.35 0.27
30.01 to 40.00................................ 14 4,199,083.19 1.15
40.01 to 50.00................................ 30 8,728,679.94 2.38
50.01 to 60.00................................ 68 24,243,028.50 6.62
60.01 to 70.00................................ 146 53,621,074.68 14.63
70.01 to 80.00................................ 727 241,196,692.27 65.82
80.01 to 90.00................................ 98 27,877,414.76 7.61
90.01 to 100.00................................ 23 5,538,272.20 1.51
----- -------------- ------
Total................................ 1,110 $366,472,498.98 100.00%
===== ============== ======
</TABLE>
The weighted average original loan-to-value ratio is approximately 74.73%.
MORTGAGE RATES -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
6.501 to 7.000................................. 1 $ 295,909.93 0.08%
7.001 to 7.500................................. 222 71,300,174.75 19.46
7.501 to 8.000................................. 795 265,532,879.00 72.46
8.001 to 8.500................................. 87 28,163,286.83 7.68
8.501 to 9.000................................. 5 1,180,248.47 0.32
----- --------------- ------
Total................................ 1,110 $366,472,498.98 100.00%
===== =============== ======
</TABLE>
The weighted average Mortgage Rate is approximately 7.751% per annum.
S-39
<PAGE> 40
ORIGINAL TERMS TO MATURITY -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
181 to 240..................................... 1 $ 317,093.67 0.09%
241 to 300..................................... 1 275,648.60 0.08
301 to 360..................................... 1,108 365,879,756.71 99.84
----- --------------- ------
Total................................ 1,110 $366,472,498.98 100.00%
====== =============== ======
</TABLE>
The weighted average original term to maturity is approximately 360 months.
REMAINING TERMS TO MATURITY TO POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
181 to 240..................................... 1 $ 317,093.67 0.09%
241 to 300..................................... 1 275,648.60 0.08
301 to 360..................................... 1,108 365,879,756.71 99.84
----- --------------- ------
Total................................ 1,110 $366,472,498.98 100.00%
===== =============== ======
</TABLE>
The weighted average remaining term to maturity is approximately 357 months.
GEOGRAPHIC DISTRIBUTION TO POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
STATE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
California..................................... 1,053 $348,640,255.75 95.13%
Hawaii......................................... 16 5,959,838.65 1.63
Washington..................................... 6 2,267,080.93 0.62
Oregon......................................... 6 1,829,455.02 0.50
Texas.......................................... 7 1,814,834.91 0.50
Georgia........................................ 5 1,423,116.45 0.39
Tennessee...................................... 1 995,851.65 0.27
Florida........................................ 6 989,139.24 0.27
Pennsylvania................................... 2 566,561.12 0.15
Nevada......................................... 2 522,913.33 0.14
Other.......................................... 6 1,463,451.93 0.40
----- --------------- ------
Total................................ 1,110 $366,472,498.98 100.00%
===== =============== ======
</TABLE>
S-40
<PAGE> 41
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
SCHEDULED PRINCIPAL BALANCES($) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
0.01 to 50,000.00..................... 1 $ 31,114.03 0.01%
50,000.01 to 100,000.00..................... 10 814,359.04 0.22
100,000.01 to 150,000.00..................... 18 2,196,644.81 0.60
150,000.01 to 200,000.00..................... 22 3,889,233.57 1.06
200,000.01 to 250,000.00..................... 213 50,084,889.23 13.67
250,000.01 to 300,000.00..................... 296 81,756,763.84 22.31
300,000.01 to 350,000.00..................... 189 61,320,014.69 16.73
350,000.01 to 400,000.00..................... 143 53,790,018.73 14.68
400,000.01 to 450,000.00..................... 74 31,557,633.57 8.61
450,000.01 to 500,000.00..................... 52 24,799,113.37 6.77
500,000.01 to 550,000.00..................... 30 15,618,056.62 4.26
550,000.01 to 600,000.00..................... 24 13,744,145.63 3.75
600,000.01 to 650,000.00..................... 22 13,975,709.29 3.81
650,000.01 to 700,000.00..................... 2 1,377,698.70 0.38
700,000.01 to 750,000.00..................... 5 3,649,552.21 1.00
750,000.01 to 800,000.00..................... 3 2,308,750.88 0.63
800,000.01 to 850,000.00..................... 1 808,881.46 0.22
850,000.01 to 900,000.00..................... 2 1,781,749.25 0.49
950,000.01 to 1,000,000.00..................... 3 2,968,170.06 0.81
----- --------------- ------
Total................................ 1,110 $366,472,498.98 100.00%
===== =============== ======
</TABLE>
The average Cut-off Date Scheduled Principal Balance is approximately $330,155.
PROPERTY TYPE -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
PROPERTY TYPE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ----------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Single-Family.................................. 837 $278,435,705.53 75.98%
Planned Unit Development....................... 203 68,054,538.14 18.57
Condominium.................................... 59 16,366,128.52 4.47
Two- to Four-Family............................ 11 3,616,126.79 0.99
----- --------------- ------
Total................................ 1,110 $366,472,498.98 100.00%
===== =============== ======
</TABLE>
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<PAGE> 42
LOAN PURPOSE -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
LOAN PURPOSE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Rate/Term Refinance.............................. 311 $106,953,908.89 29.18%
Purchase......................................... 732 239,589,321.87 65.38
Cash Out Refinance............................... 67 19,929,268.22 5.44
----- --------------- ------
Total.................................. 1,110 $366,472,498.98 100.00%
===== =============== ======
</TABLE>
OCCUPANCY STATUS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
OCCUPANCY STATUS MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Primary Home..................................... 1,101 $364,095,553.91 99.35%
Investment....................................... 1 246,922.64 0.07
Second Home...................................... 8 2,130,022.43 0.58
----- --------------- ------
Total.................................. 1,110 $366,472,498.98 100.00%
===== =============== ======
</TABLE>
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Trust Fund and the
Mortgaged Properties is based upon the Trust Fund as constituted at the close of
business on the Cut-off Date, as adjusted for Scheduled Payments due on or
before such date. A Current Report on Form 8-K will be available to purchasers
of the Offered Certificates 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 that Mortgage
Loans are removed from or added to the Trust Fund as set forth under
"DESCRIPTION OF THE MORTGAGE POOLS," such removal or addition will be noted in
the Current Report on Form 8-K.
FIRST NATIONWIDE MORTGAGE CORPORATION
The information set forth in this section has been provided by First
Nationwide Mortgage Corporation ("First Nationwide Mortgage") and neither the
Depositor nor the Underwriter makes any representations or warranties as to the
accuracy or completeness of such information.
First Nationwide Mortgage, a wholly-owned subsidiary of California Federal
Bank, FSB, is a mortgage company engaged in the business of originating and
servicing a variety of loan products including non-conforming residential
mortgage loans (also known as "jumbo" mortgage loans). Its executive offices are
located at 5280 Corporate Drive, Frederick, Maryland. First Nationwide Mortgage
originates mortgage loans through various channels, including wholesale brokers,
correspondents, California Federal Bank branches and its own regional offices.
MORTGAGE LOAN UNDERWRITING
The Mortgage Loans were originated by First Nationwide Mortgage or a third
party originator, generally in accordance with the underwriting criteria
described herein. Although the underwriting policies used in originating the
Mortgage Loans have changed from time to time, the policies described herein
generally apply to the Mortgage Loans in all material aspects.
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<PAGE> 43
The underwriting process is intended to assess both the prospective
borrower's credit standing and ability to repay, and the value and adequacy of
the mortgage property as collateral. In underwriting a Mortgage Loan, First
Nationwide Mortgage relies primarily on the borrower's ability to repay the
loan, determined by analyzing the borrower's cash flow, liquidity and overall
financial condition and the value of the mortgaged property as a measure of the
extent of its recovery in the event of a default. In determining the adequacy of
the property as collateral for a loan, appraisals are obtained from qualified
outside appraisers approved by First Nationwide Mortgage. The qualifications of
appraisers are reviewed at least annually.
First Nationwide Mortgage's appraisal requirements satisfy or exceed
FNMA/FHLMC guidelines. Multiple appraisals may be required depending upon the
loan amount and the location of the mortgage property. The appraiser is
instructed to inspect the interior and exterior of the property and prepares a
report that includes a market data analysis based on reported recent sales of
comparable homes and, in certain cases, a cost analysis based on the estimated
current cost of constructing a similar home. This report is reviewed by a
representative of First Nationwide Mortgage who makes a final determination
regarding the appraised value of the home.
Each prospective borrower submits an application package that includes
information with respect to the applicant's bank and brokerage accounts, assets,
liabilities, income, credit history and employment history. To establish the
applicant's ability to make timely payments, First Nationwide Mortgage obtains a
credit report on each borrower. First Nationwide Mortgage endeavors to verify
the income, current employment and liquid assets of the applicant except in the
case of its "reduced documentation" programs where First Nationwide Mortgage
accepts stated income from prospective borrowers with excellent credit histories
and who are willing to make substantial downpayments on the mortgaged property.
First Nationwide Mortgage will generally obtain a verification of mortgage for
mortgage loans not reported on the credit report. Information relative to legal
actions and most adverse credit must be explained in writing by the applicant
and must be acceptable to First Nationwide Mortgage. The origination process
also requires that adequate title insurance, standard fire and hazard insurance
and, where necessary, flood insurance be obtained and maintained.
Once all applicable employment, credit and property information is
received, a determination is made as to whether the prospective borrower has (i)
sufficient income available to meet both housing and total debt obligations and
(ii) sufficient post-loan liquidity. First Nationwide Mortgage generally
requires that the applicant's total housing related expenses and other current
obligations not exceed 38% of the applicant's stable income. However, a high
ratio of expenses to income will not disqualify an applicant if other factors
indicating the applicant's ability to make the mortgage payments are present.
The amount of each loan is limited by First Nationwide Mortgage to an
applicable loan-to-value ratio, which is equal to the original principal balance
of the mortgage loan divided by (i) in the case of a mortgage loan to refinance
an existing mortgage loan, the appraised value of the mortgaged property
determined at the time of application as reviewed by a representative of First
Nationwide Mortgage or (ii) in the case of a mortgage loan to purchase a
residence, the lessor of the appraised value as reviewed by a representative of
First Nationwide Mortgage or the sales price of the residence.
LOAN ORIGINATION
During the years ended December 31, 1995, December 31, 1996 and
year-to-date through October 31, 1997, First Nationwide Mortgage originated
residential mortgage loans having aggregate principal balances of approximately
$5,071 million, $9,779 million and $7,637 million, respectively.
DELINQUENCY EXPERIENCE
Generally, when a mortgagor fails to make a required payment on a mortgage
loan and does not cure the deficiency promptly, the loan is classified as
delinquent. In many cases, delinquencies are cured promptly, but if not,
foreclosure proceedings are generally commenced within 90-120 days from
delinquency. The procedural steps necessary for foreclosure vary from state to
state, but generally, if the loan is not reinstated within certain periods
specified by the relevant mortgage loan documents, the property securing the
loan can be sold by the lender by means of foreclosure or transfer sale. If a
mortgagor liquidates the property either by foreclosure sale
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<PAGE> 44
or by marketing the REO property, but the mortgaged property has a value lower
than the outstanding amount of debt, the law in certain states permits such
mortgagee to obtain a deficiency judgment in the amount of the difference. The
laws of certain other states restrict or prohibit such deficiency judgments,
particularly on owner-occupied, purchase-money mortgages. It is anticipated
that, in those states where deficiency judgments are permitted, the Servicer
will determine on a case-by-case basis whether to seek such a judgment. However,
the Servicer rarely pursues deficiency judgments.
Loan Servicing Activities. As of October 30, 1997, First Nationwide
Mortgage's total loan servicing portfolio contained loans with the aggregate
outstanding principal balance of approximately $61.8 billion, or 821,156 loans.
The loans contained in First Nationwide Mortgage's servicing portfolio include
fixed and adjustable rate loans, first and second lien loans and one- to
four-family loans, and therefore may differ significantly from the Mortgage
Loans. There can be no assurance, and no representation is made, that the
delinquency experience with respect to the Mortgage Loans will be similar to
that reflected in the table below, nor is any representation made as to the rate
at which losses may be experienced on liquidation of defaulted Mortgage Loans.
The following table sets forth certain information regarding the
delinquency experience of First Nationwide Mortgage with respect to all mortgage
loans serviced by it. The indicated periods of delinquency are based on the
number of days past due on a contractual basis.
MORTGAGE LOAN PORTFOLIO(1)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 OCTOBER 31, 1997
---------------------------- ---------------------------- ----------------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT PERCENT OF LOANS AMOUNT PERCENT OF LOANS AMOUNT PERCENT
-------- ------- ------- -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Principal
Balance................ 571,521 $34,296 100.00% 790,001 $49,906 100.00% 821,156 $61,804 100.00%
Delinquent Loans 30-59
days delinquent........ 33,832 $ 1,762 5.14% 38,859 $ 2,062 4.13% 28,689 $ 1,806 2.92%
60-89 days
delinquent........... 7,438 $ 401 1.17% 8,560 $ 475 0.95% 5,941 $ 386 0.62%
90+ days
delinquent(2)........ 16,194 $ 1,052 3.07% 25,157 $ 1,734 3.47% 22,912 $ 1,704 2.76%
------- ------- ------- ------- ------- ------- ------- ------- -------
Total.................... 57,464 $ 3,215 9.37% 72,576 $ 4,271 8.56% 57,542 $ 3,897 6.30%
</TABLE>
- ---------------
(1) Percentages in the table are rounded to the nearest 0.01%; dollar amounts
are rounded to the nearest dollar.
(2) Includes foreclosures, delinquent bankruptcies and REO properties.
The above delinquency statistics represent the recent experience of First
Nationwide Mortgage. There can be no assurance, however, that the delinquency
experience on the Mortgage Loans will be comparable. In addition, the foregoing
statistics include mortgage loans with a variety of payment and other
characteristics that may not correspond to those of the Mortgage Loans. Further,
the Mortgage Loans were not chosen from First Nationwide Mortgage's portfolio on
the basis of any methodology which could or would make them representative of
the total pool of mortgage loans in First Nationwide Mortgage's portfolio. The
actual loss and delinquency experience on the Mortgage Loans will depend on,
among other things, the value of the real estate securing such Mortgage Loans
and ability of the mortgagors to make required payments. If First Nationwide
Mortgage undertakes litigation or retains outside attorneys or investigators,
the cost thereof will be borne by the Trust Fund or the Certificateholders.
First Nationwide Mortgage will not be required to advance funds for the conduct
of such litigation or the hiring of such outside attorneys or investigators, if
it reasonably believes that such advance will not be promptly reimbursed.
The likelihood that mortgagors will become delinquent in the payment of
their mortgage loans and the rate of any subsequent foreclosures may be affected
by a number of factors related to borrower's personal circumstances, including,
for example, unemployment or change in employment (or in the case of self-
employed mortgagors relying on commission income, fluctuations in income),
marital separation and a mortgagor's equity in the related mortgaged property.
In addition, delinquency and foreclosure experience may be sensitive to adverse
economic conditions, either nationally or regionally, may exhibit seasonal
variations and
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<PAGE> 45
may be influenced by the level of interest rates as they affect real estate
sales activity. Regional economic
conditions (including declining real estate values) may particularly affect
delinquency and foreclosure experience on mortgage loans to the extent that
mortgaged properties are concentrated in certain geographic areas.
SERVICING OF THE MORTGAGE LOANS
The Mortgage Loans will be serviced by First Nationwide Mortgage, as
Servicer (the "Servicer"), generally in accordance with the procedures as
described in the Prospectus under the heading "SERVICING OF LOANS," pursuant to
an agreement (the "Sale and Servicing Agreement") between the Seller and First
Nationwide Mortgage. The Seller's rights under the Servicing Agreement will be
assigned to the Trustee. References in the Prospectus to the "Master Servicer"
generally include the Servicer.
The Servicer will retain ownership of the servicing rights with respect to
the Mortgage Loans and may transfer such servicing to one or more servicers at
any time, subject to the conditions set forth in the Servicing Agreement,
including the requirements that any such successor servicer be qualified to
service mortgage loans for FNMA or FHLMC and that each Rating Agency confirm in
writing that such transfer will not result in a qualification, withdrawal or
downgrade of the then-current ratings of any of the Certificates.
INSURANCE COVERAGE
The Servicer is required to obtain and thereafter maintain in effect a
bond, corporate guaranty or similar form of insurance coverage (which may
provide blanket coverage), or any combination thereof, insuring against loss
occasioned by the errors and omissions of the Servicer's officers and employees.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be paid a monthly fee with respect to each Mortgage Loan
calculated as a fixed percentage ranging from 0.25% to 0.50% (the "Servicing Fee
Rates") of the principal balance of each such Mortgage Loan (the "Servicing
Fee"). The weighted average of the Servicing Fee Rates as of the Cut-off Date
for Pool 1 is approximately 0.45% and for Pool 2 is approximately 0.49%. The
Servicing Fee is subject to reduction with respect to any Distribution Date as
described under "Prepayment Interest Shortfalls."
The Servicer will also be entitled to receive, as additional compensation,
any interest or other income earned on funds it has deposited in a custodial
account pending remittance to the Trustee, as well as certain customary fees and
charges, including any prepayment penalties, paid by borrowers.
The Servicer will also be entitled to reimbursement for certain expenses
prior to distribution of any amounts to Certificateholders, See "SERVICING OF
LOANS -- Servicing Compensation and Payment of Expenses" in the Prospectus.
PREPAYMENT INTEREST SHORTFALLS
When a borrower prepays a Mortgage Loan in full between Due Dates, the
mortgagor pays interest on the amount prepaid only from the last scheduled Due
Date to the date of prepayment. Partial principal prepayments are applied as of
the first day of the month of receipt, with a resulting reduction in interest
payable for the month during which the partial prepayment is made. Any
Prepayment Interest Shortfall is required to be paid by the Servicer to the
extent that such amount does not exceed the aggregate of 0.25% per annum of the
principal balance of the Mortgage Loans serviced by it for the applicable
Distribution Date, through a reduction in the amount of such Servicing Fees. See
"DESCRIPTION OF THE CERTIFICATES -- Distributions of Interest" herein.
ADVANCES
The Servicer will be obligated to make Advances with respect to delinquent
payments of principal of and interest on the Mortgage Loans, adjusted to the
related Net Mortgage Rate, to the extent that such Advances,
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<PAGE> 46
in its judgment, are recoverable from future payments and collections, insurance
payments or proceeds of liquidation of a Mortgage Loan. The Trustee will be
obligated to make any such Advances if the Servicer fails to do so, to the
extent provided in the Trust Agreement. The Servicer or the Trustee, as
applicable, will be entitled to recover any Advances made by it with respect to
a Mortgage Loan out of late payments thereon or out of related Liquidation
Proceeds and Insurance Proceeds or, if such amounts are insufficient, from
collections on other Mortgage Loans. Such reimbursements may result in Realized
Losses.
The purpose of making such Advances is to maintain a regular cash flow to
the Certificateholders, rather than to guarantee or insure against losses. No
party will be required to make any Advance with respect to a reduction in the
amount of the monthly payment on a Mortgage Loan due to a reduction made by a
bankruptcy court in the amount of a Scheduled Payment owed by a mortgagor or a
Relief Act Reduction.
PURCHASES OF DEFAULTED MORTGAGE LOANS
The Servicer may, at its option, purchase from the Trust Fund any Mortgage
Loan that is at least three Scheduled Payments delinquent for a purchase price
equal to the unpaid principal balance of such Mortgage Loan plus interest
accrued thereon through the end of the Prepayment Period during which such
purchase occurs. The Servicer will also have the option to purchase any REO
Property from the Trust Fund for a purchase price equal to the average of two
independent appraisals obtained at the expense of the Servicer.
COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS
The Servicer will maintain escrow accounts for the collection of hazard
insurance premiums and real estate taxes with respect to certain of the Mortgage
Loans, and will make advances with respect to delinquencies in required escrow
payments by the related mortgagors.
CERTAIN RIGHTS RELATED TO FORECLOSURE
Certain rights in connection with foreclosure of defaulted Mortgage Loans
may be granted to the holders of the Class B6 Certificates and, when such
Certificates (or either Component thereof) are no longer outstanding, to the
holders of the Class B5 Certificates (in respect of the related Components).
Such rights would include the right to delay foreclosure until a Mortgage Loan
has been delinquent for six months, provided that upon election to delay
foreclosure such holder establishes a reserve fund for the benefit of the Trust
Fund in an amount equal to 125% of the greater of the Scheduled Principal
Balance of such Mortgage Loan and the appraised value of the related Mortgaged
Property, plus three months' accrued interest on such Mortgage Loan. Any
exercise of such right to delay foreclosure could affect the amount recovered
upon liquidation of the related Mortgaged Property.
TRUST AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Trust Agreement (the "Trust
Agreement") dated as of November 1, 1997 between the Depositor and the Trustee.
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Trust Agreement
and the Offered Certificates. Notwithstanding anything to the contrary in the
Prospectus, the Mortgage Loans will not be assigned Asset Values and the
provisions described therein under "THE TRUST AGREEMENTS -- Deficiency Event"
will not apply. Offered Certificates in certificated form will be transferable
and exchangeable at the corporate trust office of the Trustee, which will serve
as Certificate Registrar and Paying Agent. The Depositor will provide to a
prospective or actual Certificateholder, without charge, on written request, a
copy (without exhibits) of the Trust Agreement. Requests should be addressed to
Contract Finance, Lehman Brothers Inc., 3 World Financial Center, New York, New
York 10285.
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<PAGE> 47
ASSIGNMENT OF MORTGAGE LOANS
The Mortgage Loans will be assigned to the Trustee, together with all
principal and interest due on the Mortgage Loans after the Cut-off Date. The
Trustee will, concurrently with such assignment, authenticate and deliver the
Certificates. Each Mortgage Loan will be identified in a schedule appearing as
an exhibit to the Trust Agreement which will specify with respect to each
Mortgage Loan, among other things, the original principal amount and the
outstanding principal amount as of the close of business on the Cut-off Date,
the Scheduled Payment, and the maturity date.
As to each Mortgage Loan, the following documents are generally required to
be delivered to the Trustee (or its custodian) in accordance with the Trust
Agreement: (i) the related original Mortgage Note endorsed without recourse to
the Trustee or in blank, (ii) the original Mortgage with evidence of recording
indicated thereon, (or, if such original recorded Mortgage has not yet been
returned by the recording office, a copy thereof certified to be a true and
complete copy of such Mortgage sent for recording), (iii) an original assignment
of the Mortgage to the Trustee or in blank in recordable form, (iv) the policies
of title insurance issued with respect to each Mortgage Loan (or evidence of the
insurer's commitment to provide such policy), and (v) the originals of any
assumption, modification, extension or guaranty agreements. Where necessary to
protect the interest of the Trustee in the Mortgage Loans, the assignments to
the Trustee in connection with the Mortgage Loans are required to be submitted
for recording promptly after the Closing Date. A custodian acting on behalf of
the Seller will have reviewed each Mortgage File prior to the Closing Date and,
if any such document is found to be defective in any material respect and First
Nationwide Mortgage does not cure such defect within 90 days of notice thereof,
First Nationwide Mortgage will obligated to purchase the related Mortgage Loan
from the Trust Fund (or, in certain circumstances, substitute another mortgage
loan).
Pursuant to the terms of the Sale and Servicing Agreement, First Nationwide
Mortgage has made, as of the date of such agreement (the "Sale Date"), to the
Seller certain representations and warranties concerning the Mortgage Loans that
include representations and warranties similar to those summarized in the
Prospectus under the heading "LOAN UNDERWRITING PROCEDURES AND STANDARDS --
Representations and Warranties." The Seller's rights under the Sale and
Servicing Agreement will be assigned to the Trustee for the benefit of
Certificateholders. Within 90 days following its discovery of a breach of any
representation or warranty that materially or adversely affects the interests of
Certificateholders in a Mortgage Loan, or receipt of notice of such breach,
First Nationwide Mortgage will be obligated to purchase the affected Mortgage
Loan from the Trust Fund for a price equal to the unpaid principal balance
thereof plus accrued interest thereon (or, in certain circumstances, substitute
another mortgage loan).
The Seller will make to the Depositor (and the Depositor will assign its
rights thereunder to the Trustee for the benefit of Certificateholders) only
certain limited representations and warranties intended to address certain
material conditions that may arise with respect to the Mortgage Loans between
the Sale Date and the Closing Date. In the event of a breach of any such
representation or warranty that does not constitute a breach of any
representation or warranty made by First Nationwide Mortgage as described above,
the Seller will be obligated in the same manner as First Nationwide Mortgage, as
described above.
To the extent that any such Mortgage Loan is not repurchased by First
Nationwide Mortgage or the Seller and a Realized Loss occurs on such Mortgage
Loan, holders of Offered Certificates, in particular the Subordinate
Certificates, may incur a loss.
VOTING RIGHTS
Voting rights under the Trust Agreement will be allocated among the
Certificates in proportion to their respective Certificate Principal Amounts or
Notional Amounts.
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<PAGE> 48
YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE
GENERAL
The yields to maturity on the Offered Certificates will be affected by the
rate of principal payments on the Mortgage Loans in the related Mortgage Pool
(including prepayments, which may include amounts received by virtue of
repurchase, condemnation, insurance or foreclosure), the extent to which
Mortgage Loans in the related Mortgage Pool bearing higher Mortgage Rates prepay
at a more rapid rate than Mortgage Loans with lower Mortgage Rates, the amount
and timing of mortgagor delinquencies and defaults resulting in Realized Losses,
the purchase price for the Certificates and other factors.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, social, tax, legal and other factors. In general, if
prevailing interest rates fall below the interest rates on the Mortgage Loans,
the Mortgage Loans are likely to be subject to higher prepayments than if
prevailing rates remain at or above the interest rates on such Mortgage Loans.
Conversely, if prevailing interest rates rise above the interest rates on such
Mortgage Loans, the rate of prepayment would be expected to decrease. Other
factors affecting prepayment of the Mortgage Loans include such factors as
changes in borrowers' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties, changes in the value of the mortgaged
properties, mortgage market interest rates and servicing decisions.
The Mortgage Loans are subject to prepayment penalties during the first
three years after origination (the "Penalty Period"). In any twelve-month period
during the Penalty Period, the borrower may prepay up to 20% of the original
principal balance of the Mortgage Loan without penalty. The penalty for
prepayments in excess of 20% of the original principal balance will be equal to
the lesser of (a) six months' interest on any amount prepaid in excess of 20% or
(b) 2% of any prepayment in excess of 20%. No prepayment penalty is assessed for
any prepayment made after the Penalty Period or if such prepayment is concurrent
with the sale of the Mortgaged Property. Such prepayment penalties may have the
effect of reducing the amount or the likelihood of prepayment on the Mortgage
Loans during the Penalty Period.
The rate of principal payments on the Mortgage Loans will also be affected
by the amortization schedules of the Mortgage Loans, the rate and timing of
prepayments thereon by the mortgagors, liquidations of defaulted Mortgage Loans
and repurchases of Mortgage Loans due to certain breaches of representations and
warranties or defective documentation. The timing of changes in the rate of
prepayments, liquidations and repurchases of the related Mortgage Loans may, and
the timing of Realized Losses will, significantly affect the yield to an
investor, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. Because the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described more fully herein and in the Prospectus under
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS"), no assurance can be given as
to such rate or the timing of principal payments on the Offered Certificates. In
general, the earlier a prepayment of principal of the related Mortgage Loans,
the greater the effect on an investor's yield to maturity. The effect on an
investor's yield of principal payments occurring at a rate higher (or lower)
than the rate anticipated by the investor during the period immediately
following the issuance of the Certificates may not be offset by a subsequent
like decrease (or increase) in the rate of principal payments.
The rate and timing of principal prepayments on the Mortgage Loans in
either Mortgage Pool, which have Mortgage Rates and original terms to maturity
that differ from those of the Mortgage Loans in the other Mortgage Pool, may
differ significantly from the rate and timing of prepayments on the Mortgage
Loans in such other Mortgage Pool.
Prepayments, liquidations and repurchases of the Mortgage Loans will result
in distributions to holders of the related Certificates of principal amounts
that would otherwise be distributed over the remaining terms of such Mortgage
Loans. The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years.
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<PAGE> 49
As described under "DESCRIPTION OF THE CERTIFICATES" herein, the applicable
Non-AP Percentage of the amount of principal prepayments on the Mortgage Loans
in each Mortgage Pool will be allocated to the related Senior Certificates
(other than, in the case of Group 1, the Class 1-AP Certificates and, in the
case of Group 2, the Group 2-AP Certificates), as a group, during the first five
years following the Closing Date (except as described herein). In addition, the
entire amount of the applicable Non-AP Percentage of scheduled and unscheduled
principal payments on the Pool 2 Mortgage Loans allocable to the Pool 2 Senior
Certificates during such five year period will be allocated to the Class 2-A1,
Class 2-A2, Class 2-A3, Class 2-A4, Class 2-A6, Class 2-A7 and Class 2-A8
Certificates (except as described herein).
If the purchaser of a Certificate offered at a discount from its initial
principal amount, particularly the Class 1-AP and Class 2-AP Certificates,
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal that is faster than that actually experienced on the related
Mortgage Loans, the actual yield to maturity may be lower than that so
calculated. Investors in the Class 1-AP and Class 2-AP Certificates should
carefully consider that a slower than anticipated rate of prepayment on the Pool
1 Discount Mortgage Loans (in the case of the Class 1-AP Certificates) and the
Pool 2 Discount Mortgage Loans (in the case of the Class 2-AP Certificates)
which have Mortgage Rates that are lower than those of the other Pool 1 Mortgage
Loans or Pool 2 Mortgage Loans, as the case may be, and may therefore be more
likely to prepay, could result in an actual yield that is lower than the
anticipated yield. Conversely, if the purchaser of a Certificate offered at a
premium, particularly a Class 1-AX, Class 2-A5 or Class 2-AX Certificate,
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal that is slower than that actually experienced on the related
Mortgage Loans, the actual yield to maturity may be lower than that so
calculated. Investors in the Class 1-AX, Class 2-A5 or Class 2-AX Certificates
should carefully consider that a faster than anticipated rate of prepayments on
the Pool 1 Premium Mortgage Loans (in the case of the Class 1-AX Certificates)
or the Pool 2 Premium Mortgage Loans (in the case of the Class 2-AX
Certificates) which have Mortgage Rates that are higher than those of the other
Pool 1 Mortgage Loans or Pool 2 Mortgage Loans, as the case may be, and may
therefore be more likely to prepay, could result in an actual yield that is
lower than the anticipated yield, and could result in the failure of such
investors to fully recover their initial investments. See "RISK
FACTORS -- Special Yield Considerations for Certain Classes of Certificates".
The effective yield to holders of the Offered Certificates will be lower
than the yield otherwise produced by the applicable Certificate Interest Rate
and the related purchase price because monthly distributions will not be payable
to such holders until the 25th day of the month (or the immediately following
Business Day if such day is not a Business Day) following the month in which
interest accrues on the Mortgage Loans (without any additional distribution of
interest or earnings thereon in respect of such delay).
SENSITIVITY OF THE CLASS 1-AP, CLASS 1-AX, CLASS 2-A5, CLASS 2-AP AND CLASS 2-AX
CERTIFICATES
The yields to maturity of the Class 1-AP and Class 2-AP Certificates will
be very sensitive, and the yields to maturity of the Class 1-AX, Class 2-A5 and
Class 2-AX Certificates will be extremely sensitive, to the rate and timing of
principal prepayments on the Pool 1 Mortgage Loans, in the case of the Class
1-AP and Class 1-AX Certificates, and on the Pool 2 Mortgage Loans, in the case
of Class 2-AP, Class 2-A5 and Class 2-AX Certificates. Investors in the Class
1-AP and Class 2-AP Certificates should consider the risk that a slower than
anticipated rate of prepayments (including liquidations, insurance payments and
repurchases due to breaches of representations and warranties) on the Pool 1
Discount Mortgage Loans (in the case of the Class 1-AP Certificates) and the
Pool 2 Discount Mortgage Loans (in the case of the Class 2-AP Certificates),
each of which have Mortgage Rates that are lower than those of the other
Mortgage Loans in their respective Pools and may therefore be less likely to
prepay, could result in actual yields that are lower than the anticipated
yields. Investors in the Class 1-AX, Class 2-A5 and Class 2-AX Certificates
should carefully consider the risk that a faster than anticipated rate of
prepayments on the related Mortgage Loans and particularly, in the case of the
Class 1-AX and Class 2-AX Certificates, the Premium Mortgage Loans in the
related Mortgage Pool, which have Mortgage Rates that are higher than those of
the other Mortgage Loans in the related Pool and may therefore be more likely to
prepay, could result in actual yields that are lower than the anticipated
yields, and could result in the failure of such investors to fully recover their
initial investments.
S-49
<PAGE> 50
To illustrate the significance of prepayments on the yields on such
Certificates, the following tables indicate the pre-tax yields to maturity (on a
corporate bond equivalent basis) and weighted average lives under the specified
assumptions at the constant percentages of the prepayment assumption (the
"Prepayment Assumption", as described below) shown. The yields shown were
calculated by determining the monthly discount rates that, when applied to the
assumed streams of cash flows to be paid on the applicable Class of
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the assumed aggregate purchase price of such Class and
converting such monthly rates to corporate bond equivalent rates. Such
calculations do 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
distributions on such Certificates and consequently do not purport to reflect
the return on any investment in any such Class of Certificates when such
reinvestment rates are considered. The weighted average lives shown were
determined by (i) multiplying the net reduction, if any, of the applicable Class
Certificate Principal Amount or aggregate Notional Amount by the number of years
from the date of issuance of the applicable Class of Certificates to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
aggregate of the net reductions of Class Certificate Principal Amount or
aggregate Notional Amount described in clause (i) above. It is unlikely that
either the Pool 1 or Pool 2 Mortgage Loans will prepay at any of the assumed
constant rates shown or at any other constant rate until maturity. (Such
weighted average lives are shown for illustrative purposes only in the case of
the Class 1-AX, Class 2-A5 and Class 2-AX Certificates. Such Certificates are
not entitled to distributions of principal and therefore have no weighted
average lives.) The timing of changes in the rate of prepayments may
significantly affect the actual yields to maturity and weighted average lives,
even if the average rate of principal prepayments is consistent with an
investor's expectation.
Each of the following tables was prepared on the basis of the
characteristics of the Mortgage Loans expected to be included in Pool 1 and Pool
2, the Modeling Assumptions set forth under "-- Weighted Average Life" below and
the additional assumptions that (i) the applicable assumed purchase price,
exclusive of accrued interest in the case of the Class 1-AX, Class 2-A5 and
Class 2-AX Certificates (expressed as a percentage of the applicable Class
Certificate Principal Amount or aggregate Notional Amount) for each Class of
Certificates is as set forth below and (ii) the initial Class Certificate
Principal Amount of the Class 1-AP and Class 2-AP Certificates and the initial
aggregate Notional Amount and Certificate Interest Rate of the Class 1-AX, Class
2-A5 and Class 2-AX Certificates are as set forth or described on the cover page
hereof.
PRE-TAX YIELD* TO MATURITY OF THE CLASS 1-AP CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE: 70.0%)
<TABLE>
<CAPTION>
PERCENTAGES OF PREPAYMENT ASSUMPTION
--------------------------------------
0% 50% 100% 150% 200%
--- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Yield*.................................................... 4.4% 5.9% 7.6% 9.3% 11.1%
Weighted Average Life in Years............................ 8.6 6.6 5.2 4.3 3.6
</TABLE>
- ---------------
* Corporate bond equivalent basis
PRE-TAX YIELD* TO MATURITY OF THE CLASS 2-AP CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE: 60.0%)
<TABLE>
<CAPTION>
PERCENTAGES OF PREPAYMENT ASSUMPTION
--------------------------------------
0% 50% 100% 150% 200%
--- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Yield*.................................................... 2.7% 5.4% 8.5% 11.5% 14.2%
Weighted Average Life in Years............................ 19.9 10.9 7.1 5.3 4.2
</TABLE>
- ---------------
* Corporate bond equivalent basis
S-50
<PAGE> 51
PRE-TAX YIELD* TO MATURITY OF THE CLASS 1-AX CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE: 20.0%)
<TABLE>
<CAPTION>
PERCENTAGES OF PREPAYMENT ASSUMPTION
----------------------------------------
0% 50% 100% 150% 200%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Yield*.................................................. 28.7% 23.5% 18.1% 12.7% 7.2 %
Weighted Average Life in Years.......................... 8.8 6.7 5.3 4.3 3.6
</TABLE>
- ---------------
* Corporate bond equivalent basis
PRE-TAX YIELD* TO MATURITY OF THE CLASS 2-A5 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE: 2.25%)
<TABLE>
<CAPTION>
PERCENTAGES OF PREPAYMENT ASSUMPTION
----------------------------------------
0% 50% 100% 150% 200%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Yield*.................................................. 13.9% 13.7% 12.1% 3.6 % (9.3)%
Weighted Average Life in Years.......................... 25.1 22.5 15.6 8.0 5.3
</TABLE>
- ---------------
* Corporate bond equivalent basis
PRE-TAX YIELD* TO MATURITY OF THE CLASS 2-AX CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE: 24.5%)
<TABLE>
<CAPTION>
PERCENTAGES OF PREPAYMENT ASSUMPTION
----------------------------------------
0% 50% 100% 150% 200%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Yield*.................................................. 28.3% 22.7% 16.9% 11.0% 5.1 %
Weighted Average Life in Years.......................... 20.2 10.9 7.1 5.2 4.2
</TABLE>
- ---------------
* Corporate bond equivalent basis
The Pool 1 Mortgage Loans and the Pool 2 Mortgage Loans may not have the
characteristics assumed for purposes of the tables above, and there can be no
assurance that the Mortgage Loans will prepay at any of the constant rates
assumed, that the actual pre-tax yields to maturity and weighted average lives
for the Class 1-AP, Class 2-AP, Class 1-AX, Class 2-A6 and Class 2-AX
Certificates will correspond to any of the calculated yields and weighted
average lives shown herein, or that the purchase prices of such Certificates
will be as assumed. Each investor should make its own determination as to the
appropriate assumptions to be used and factors to be considered in deciding
whether to purchase a Class 1-AP, Class 2-AP, Class 1-AX, Class 2-A6 or Class
2-AX Certificate.
SUBORDINATION OF THE OFFERED SUBORDINATE CERTIFICATES
On each Distribution Date, the holders of any related higher ranking Class
of Certificates or Component will have a preferential right to receive amounts
of interest and principal due to them on such Distribution Date before any
distributions are made on any Class of Certificates or Component of the related
Certificate Group subordinate to such higher ranking Class or Component. As a
result, the yields to maturity and the aggregate amount of distributions on the
Class 1-B1, Class 2-B1, Class B2 and Class B3 Certificates will be more
sensitive than the yields of higher ranking Certificates to the rate of
delinquencies and defaults on the Mortgage Loans.
As more fully described herein, the principal portion of Realized Losses
(other than Excess Losses) on the Mortgage Loans in each Mortgage Pool will be
allocated first to the lower ranking Components of the related Certificate
Group, then to the higher ranking Class of Subordinate Certificates or
Components of such Certificate Group, in inverse order of priority, until the
Class Certificate Principal Amount or Component Principal Amount of each such
Class or Component has been reduced to zero, before any such Realized Losses
will be allocated to the related Senior Certificates. The interest portion of
Realized Losses on the
S-51
<PAGE> 52
Mortgage Loans in a Mortgage Pool (other than Excess Losses) will reduce the
amount available for distribution on the related Distribution Date to the lowest
ranking related Class or Component outstanding on such date.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of each dollar distributed in net reduction of principal of such
security (assuming no losses). The weighted average lives of the Offered
Certificates will be influenced by, among other things, the rate at which
principal of the related Mortgage Loans is paid, which may be in the form of
scheduled amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a constant
prepayment standard or model. The model used in this Prospectus Supplement for
the Mortgage Loans is a prepayment assumption (the "Prepayment Assumption"),
which represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of the related pool of Mortgage Loans for the life
of such Mortgage Loans. A 100% Prepayment Assumption assumes a constant
prepayment rate of 2% per annum of the outstanding principal balance of such
Mortgage Loans in the first month of the life of such Mortgage Loans and an
additional approximately 0.285714% (expressed as a percentage per annum) in each
month thereafter until the thirty-sixth month; beginning in the thirty-seventh
month and in each month thereafter during the life of such Mortgage Loans, a
constant prepayment rate of 14% per annum is assumed. As used in the tables
below, a 0% Prepayment Assumption assumes prepayment rates equal to 0% of the
Prepayment Assumption, i.e. no prepayments; a 50% Prepayment Assumption assumes
prepayment rates equal to 50% of the Prepayment Assumption, and so forth. The
Prepayment Assumption does not purport to be either a historical description of
the prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any mortgage loans, including the Mortgage
Loans to be included in the Trust Fund.
The following tables were prepared based on the characteristics of the
Mortgage Loans expected to be included in each Mortgage Pool and the following
additional assumptions (collectively, the "Modeling Assumptions"): (i) the
initial Class Certificate Principal Amounts or aggregate Notional Amount and the
Certificate Interest Rates are as set forth or described on the cover of this
Prospectus Supplement; (ii) each Scheduled Payment of principal and interest is
timely received on the first day of each month commencing in December 1997;
(iii) principal prepayments are received in full on the last day of each month
commencing in November 1997 and there are no Net Prepayment Interest Shortfalls;
(iv) there are no defaults or delinquencies on the Mortgage Loans; (v) there are
no repurchases or substitutions of the Mortgage Loans; (vi) there is no optional
termination of the Trust Fund, (vii) the Certificates are issued on November 25,
1997 and (viii) Distribution Dates occur on the 25th day of each month
commencing in December 1997.
The actual characteristics of the Mortgage Loans may, and the performance
of the Mortgage Loans will, differ from the assumptions used in constructing the
tables set forth below, which are hypothetical in nature and are provided only
to give a general sense of how the principal cash flows might behave under
varying prepayment scenarios. For example, it is not expected that the Mortgage
Loans will prepay at a constant rate until maturity, that all of the Mortgage
Loans will prepay at the same rate or that there will be no defaults or
delinquencies on the Mortgage Loans. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the tables at the various percentages of the
Prepayment Assumption specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Mortgage
Loans, or actual prepayment or loss experience, will cause the percentages of
initial Class Certificate Principal Amounts outstanding over time and the
weighted average lives of the Offered Certificates to differ (which difference
could be material) from the corresponding information in the tables for each
indicated percentage of the Prepayment Assumption.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average lives of the Offered Certificates and set forth
the percentages of the initial Class Certificate Principal Amounts
S-52
<PAGE> 53
of the Offered Certificates that would be outstanding after each of the
Distribution Dates shown at various percentages of the Prepayment Assumption.
The weighted average life of an Offered Certificate is determined by (i)
multiplying the net reduction, if any, of the applicable Class Certificate
Principal Amount by the number of years from the date of issuance of the Offered
Certificate to the related Distribution Date, (ii) adding the results and (iii)
dividing the sum by the aggregate of the net reductions of Class Certificate
Principal Amount described in (i) above.
S-53
<PAGE> 54
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 1-A1 CERTIFICATES
--------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
November 1998.......................................... 95 92 89 86 84
November 1999.......................................... 89 82 75 68 61
November 2000.......................................... 83 70 57 46 35
November 2001.......................................... 77 57 40 26 13
November 2002.......................................... 70 46 26 10 0
November 2003.......................................... 63 35 14 0 0
November 2004.......................................... 55 25 4 0 0
November 2005.......................................... 46 16 0 0 0
November 2006.......................................... 37 7 0 0 0
November 2007.......................................... 27 0 0 0 0
November 2008.......................................... 16 0 0 0 0
November 2009.......................................... 5 0 0 0 0
November 2010.......................................... 0 0 0 0 0
November 2011.......................................... 0 0 0 0 0
November 2012.......................................... 0 0 0 0 0
November 2013.......................................... 0 0 0 0 0
November 2014.......................................... 0 0 0 0 0
November 2015.......................................... 0 0 0 0 0
November 2016.......................................... 0 0 0 0 0
November 2017.......................................... 0 0 0 0 0
November 2018.......................................... 0 0 0 0 0
November 2019.......................................... 0 0 0 0 0
November 2020.......................................... 0 0 0 0 0
November 2021.......................................... 0 0 0 0 0
November 2022.......................................... 0 0 0 0 0
November 2023.......................................... 0 0 0 0 0
November 2024.......................................... 0 0 0 0 0
November 2025.......................................... 0 0 0 0 0
November 2026.......................................... 0 0 0 0 0
November 2027.......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years......................... 7.2 4.8 3.6 2.9 2.5
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-54
<PAGE> 55
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 1-A2 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 100 100 100 100 100
November 1999......................................... 100 100 100 100 100
November 2000......................................... 100 100 100 100 100
November 2001......................................... 100 100 100 100 100
November 2002......................................... 100 100 100 100 93
November 2003......................................... 100 100 100 96 61
November 2004......................................... 100 100 100 68 39
November 2005......................................... 100 100 87 48 25
November 2006......................................... 100 100 66 34 16
November 2007......................................... 100 98 49 23 10
November 2008......................................... 100 74 34 15 6
November 2009......................................... 100 53 22 9 3
November 2010......................................... 76 32 13 5 1
November 2011......................................... 34 14 5 2 *
November 2012......................................... 0 0 0 0 0
November 2013......................................... 0 0 0 0 0
November 2014......................................... 0 0 0 0 0
November 2015......................................... 0 0 0 0 0
November 2016......................................... 0 0 0 0 0
November 2017......................................... 0 0 0 0 0
November 2018......................................... 0 0 0 0 0
November 2019......................................... 0 0 0 0 0
November 2020......................................... 0 0 0 0 0
November 2021......................................... 0 0 0 0 0
November 2022......................................... 0 0 0 0 0
November 2023......................................... 0 0 0 0 0
November 2024......................................... 0 0 0 0 0
November 2025......................................... 0 0 0 0 0
November 2026......................................... 0 0 0 0 0
November 2027......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years........................ 13.7 12.2 10.3 8.5 7.1
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-55
<PAGE> 56
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 1-AP CERTIFICATES
--------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
November 1998.......................................... 96 94 92 89 87
November 1999.......................................... 92 86 81 75 70
November 2000.......................................... 87 77 68 59 51
November 2001.......................................... 82 67 55 44 35
November 2002.......................................... 76 58 44 32 23
November 2003.......................................... 71 50 35 24 16
November 2004.......................................... 65 43 27 17 10
November 2005.......................................... 58 36 21 12 7
November 2006.......................................... 51 29 16 8 4
November 2007.......................................... 43 23 12 6 3
November 2008.......................................... 35 18 8 4 2
November 2009.......................................... 27 12 5 2 1
November 2010.......................................... 18 8 3 1 *
November 2011.......................................... 8 3 1 * *
November 2012.......................................... 0 0 0 0 0
November 2013.......................................... 0 0 0 0 0
November 2014.......................................... 0 0 0 0 0
November 2015.......................................... 0 0 0 0 0
November 2016.......................................... 0 0 0 0 0
November 2017.......................................... 0 0 0 0 0
November 2018.......................................... 0 0 0 0 0
November 2019.......................................... 0 0 0 0 0
November 2020.......................................... 0 0 0 0 0
November 2021.......................................... 0 0 0 0 0
November 2022.......................................... 0 0 0 0 0
November 2023.......................................... 0 0 0 0 0
November 2024.......................................... 0 0 0 0 0
November 2025.......................................... 0 0 0 0 0
November 2026.......................................... 0 0 0 0 0
November 2027.......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years......................... 8.6 6.6 5.2 4.3 3.6
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-56
<PAGE> 57
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A1 CERTIFICATES
--------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
November 1998.......................................... 83 40 0 0 0
November 1999.......................................... 64 0 0 0 0
November 2000.......................................... 44 0 0 0 0
November 2001.......................................... 23 0 0 0 0
November 2002.......................................... * 0 0 0 0
November 2003.......................................... 0 0 0 0 0
November 2004.......................................... 0 0 0 0 0
November 2005.......................................... 0 0 0 0 0
November 2006.......................................... 0 0 0 0 0
November 2007.......................................... 0 0 0 0 0
November 2008.......................................... 0 0 0 0 0
November 2009.......................................... 0 0 0 0 0
November 2010.......................................... 0 0 0 0 0
November 2011.......................................... 0 0 0 0 0
November 2012.......................................... 0 0 0 0 0
November 2013.......................................... 0 0 0 0 0
November 2014.......................................... 0 0 0 0 0
November 2015.......................................... 0 0 0 0 0
November 2016.......................................... 0 0 0 0 0
November 2017.......................................... 0 0 0 0 0
November 2018.......................................... 0 0 0 0 0
November 2019.......................................... 0 0 0 0 0
November 2020.......................................... 0 0 0 0 0
November 2021.......................................... 0 0 0 0 0
November 2022.......................................... 0 0 0 0 0
November 2023.......................................... 0 0 0 0 0
November 2024.......................................... 0 0 0 0 0
November 2025.......................................... 0 0 0 0 0
November 2026.......................................... 0 0 0 0 0
November 2027.......................................... 0 0 0 0 0
--- --- ---- ---- ----
Weighted Average Life in Years......................... 2.7 0.9 0.6 0.4 0.4
=== === ==== ==== ====
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-57
<PAGE> 58
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A2 CERTIFICATES
---------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 100 100 100 96 92
November 1999......................................... 100 95 85 74 64
November 2000......................................... 100 84 65 47 31
November 2001......................................... 100 71 44 20 *
November 2002......................................... 100 59 26 0 0
November 2003......................................... 98 49 13 0 0
November 2004......................................... 96 41 3 0 0
November 2005......................................... 94 34 0 0 0
November 2006......................................... 92 28 0 0 0
November 2007......................................... 90 22 0 0 0
November 2008......................................... 87 18 0 0 0
November 2009......................................... 84 13 0 0 0
November 2010......................................... 81 9 0 0 0
November 2011......................................... 78 5 0 0 0
November 2012......................................... 74 1 0 0 0
November 2013......................................... 70 0 0 0 0
November 2014......................................... 66 0 0 0 0
November 2015......................................... 61 0 0 0 0
November 2016......................................... 56 0 0 0 0
November 2017......................................... 51 0 0 0 0
November 2018......................................... 45 0 0 0 0
November 2019......................................... 39 0 0 0 0
November 2020......................................... 32 0 0 0 0
November 2021......................................... 25 0 0 0 0
November 2022......................................... 17 0 0 0 0
November 2023......................................... 9 0 0 0 0
November 2024......................................... 0 0 0 0 0
November 2025......................................... 0 0 0 0 0
November 2026......................................... 0 0 0 0 0
November 2027......................................... 0 0 0 0 0
---- --- ---- ---- ----
Weighted Average Life in Years........................ 19.0 6.8 3.9 2.9 2.4
==== === ==== ==== ====
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-58
<PAGE> 59
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A3 CERTIFICATES
---------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 98 93 88 84 81
November 1999......................................... 96 84 74 65 57
November 2000......................................... 93 74 57 42 27
November 2001......................................... 91 62 39 18 *
November 2002......................................... 88 52 23 0 0
November 2003......................................... 86 44 11 0 0
November 2004......................................... 85 36 2 0 0
November 2005......................................... 83 30 0 0 0
November 2006......................................... 81 24 0 0 0
November 2007......................................... 79 20 0 0 0
November 2008......................................... 77 15 0 0 0
November 2009......................................... 74 11 0 0 0
November 2010......................................... 71 8 0 0 0
November 2011......................................... 68 4 0 0 0
November 2012......................................... 65 1 0 0 0
November 2013......................................... 62 0 0 0 0
November 2014......................................... 58 0 0 0 0
November 2015......................................... 54 0 0 0 0
November 2016......................................... 50 0 0 0 0
November 2017......................................... 45 0 0 0 0
November 2018......................................... 40 0 0 0 0
November 2019......................................... 34 0 0 0 0
November 2020......................................... 28 0 0 0 0
November 2021......................................... 22 0 0 0 0
November 2022......................................... 15 0 0 0 0
November 2023......................................... 8 0 0 0 0
November 2024......................................... 0 0 0 0 0
November 2025......................................... 0 0 0 0 0
November 2026......................................... 0 0 0 0 0
November 2027......................................... 0 0 0 0 0
---- --- ---- ---- ----
Weighted Average Life in Years........................ 17.1 6.1 3.5 2.6 2.2
==== === ==== ==== ====
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-59
<PAGE> 60
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A4 CERTIFICATES
---------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 100 100 100 100 100
November 1999......................................... 100 100 100 100 100
November 2000......................................... 100 100 100 100 100
November 2001......................................... 99 99 99 99 99
November 2002......................................... 98 98 98 98 68
November 2003......................................... 96 96 96 96 0
November 2004......................................... 95 95 95 61 0
November 2005......................................... 94 94 94 29 0
November 2006......................................... 93 93 93 14 0
November 2007......................................... 92 92 92 11 0
November 2008......................................... 90 90 90 9 0
November 2009......................................... 89 89 82 7 0
November 2010......................................... 88 88 69 5 0
November 2011......................................... 87 87 57 4 0
November 2012......................................... 86 86 48 3 0
November 2013......................................... 84 84 39 2 0
November 2014......................................... 83 83 32 2 0
November 2015......................................... 82 82 27 1 0
November 2016......................................... 81 81 22 1 0
November 2017......................................... 80 80 17 1 0
November 2018......................................... 78 78 14 1 0
November 2019......................................... 77 74 11 * 0
November 2020......................................... 76 62 9 * 0
November 2021......................................... 75 51 6 * 0
November 2022......................................... 74 41 5 * 0
November 2023......................................... 72 31 3 * 0
November 2024......................................... 71 22 2 * 0
November 2025......................................... 70 14 1 * 0
November 2026......................................... 48 6 1 * 0
November 2027......................................... 0 0 0 0 0
---- ---- ---- --- ---
Weighted Average Life in Years**...................... 25.1 22.5 15.6 8.0 5.3
==== ==== ==== === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
** The weighted average lives shown for the Class 2-A4 Certificates apply to the
Class 2-A4 Certificates as a group and, because principal distribution on the
Class 2-A4 Certificates will be made on the basis of requests for
distributions or by random lot, are not likely to reflect the experience of
any particular investor, even if the Pool 2 Mortgage Loans were to prepay at
the interest rates assumed.
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<PAGE> 61
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A6 CERTIFICATES
---------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 98 93 88 84 81
November 1999......................................... 96 84 74 65 57
November 2000......................................... 93 74 57 42 27
November 2001......................................... 91 62 39 18 *
November 2002......................................... 88 52 23 0 0
November 2003......................................... 86 44 11 0 0
November 2004......................................... 85 36 2 0 0
November 2005......................................... 83 30 0 0 0
November 2006......................................... 81 24 0 0 0
November 2007......................................... 79 20 0 0 0
November 2008......................................... 77 15 0 0 0
November 2009......................................... 74 11 0 0 0
November 2010......................................... 71 8 0 0 0
November 2011......................................... 68 4 0 0 0
November 2012......................................... 65 1 0 0 0
November 2013......................................... 62 0 0 0 0
November 2014......................................... 58 0 0 0 0
November 2015......................................... 54 0 0 0 0
November 2016......................................... 50 0 0 0 0
November 2017......................................... 45 0 0 0 0
November 2018......................................... 40 0 0 0 0
November 2019......................................... 34 0 0 0 0
November 2020......................................... 28 0 0 0 0
November 2021......................................... 22 0 0 0 0
November 2022......................................... 15 0 0 0 0
November 2023......................................... 8 0 0 0 0
November 2024......................................... 0 0 0 0 0
November 2025......................................... 0 0 0 0 0
November 2026......................................... 0 0 0 0 0
November 2027......................................... 0 0 0 0 0
---- --- ---- ---- ----
Weighted Average Life in Years........................ 17.1 6.1 3.5 2.6 2.2
==== === ==== ==== ====
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-61
<PAGE> 62
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A7 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 100 100 100 100 100
November 1999......................................... 100 100 100 100 100
November 2000......................................... 100 100 100 100 100
November 2001......................................... 100 100 100 100 100
November 2002......................................... 100 100 100 96 0
November 2003......................................... 100 100 100 20 0
November 2004......................................... 100 100 100 0 0
November 2005......................................... 100 100 74 0 0
November 2006......................................... 100 100 44 0 0
November 2007......................................... 100 100 24 0 0
November 2008......................................... 100 100 8 0 0
November 2009......................................... 100 100 0 0 0
November 2010......................................... 100 100 0 0 0
November 2011......................................... 100 100 0 0 0
November 2012......................................... 100 100 0 0 0
November 2013......................................... 100 88 0 0 0
November 2014......................................... 100 70 0 0 0
November 2015......................................... 100 53 0 0 0
November 2016......................................... 100 37 0 0 0
November 2017......................................... 100 23 0 0 0
November 2018......................................... 100 9 0 0 0
November 2019......................................... 100 0 0 0 0
November 2020......................................... 100 0 0 0 0
November 2021......................................... 100 0 0 0 0
November 2022......................................... 100 0 0 0 0
November 2023......................................... 100 0 0 0 0
November 2024......................................... 97 0 0 0 0
November 2025......................................... 39 0 0 0 0
November 2026......................................... 0 0 0 0 0
November 2027......................................... 0 0 0 0 0
---- ---- --- --- ---
Weighted Average Life in Years........................ 27.8 18.3 9.1 5.6 4.4
==== ==== === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-62
<PAGE> 63
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A8 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 100 100 100 100 100
November 1999......................................... 100 100 100 100 100
November 2000......................................... 100 100 100 100 100
November 2001......................................... 100 100 100 100 100
November 2002......................................... 100 100 100 100 69
November 2003......................................... 100 100 100 100 0
November 2004......................................... 100 100 100 63 0
November 2005......................................... 100 100 100 30 0
November 2006......................................... 100 100 100 15 0
November 2007......................................... 100 100 100 12 0
November 2008......................................... 100 100 100 9 0
November 2009......................................... 100 100 92 7 0
November 2010......................................... 100 100 77 5 0
November 2011......................................... 100 100 64 4 0
November 2012......................................... 100 100 53 3 0
November 2013......................................... 100 100 44 2 0
November 2014......................................... 100 100 36 2 0
November 2015......................................... 100 100 30 1 0
November 2016......................................... 100 100 24 1 0
November 2017......................................... 100 100 19 1 0
November 2018......................................... 100 100 16 1 0
November 2019......................................... 100 95 12 * 0
November 2020......................................... 100 80 10 * 0
November 2021......................................... 100 66 7 * 0
November 2022......................................... 100 52 5 * 0
November 2023......................................... 100 40 4 * 0
November 2024......................................... 100 28 2 * 0
November 2025......................................... 100 18 1 * 0
November 2026......................................... 69 7 1 * 0
November 2027......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years........................ 29.3 25.4 16.5 8.2 5.3
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-63
<PAGE> 64
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-A9 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 100 100 100 100 100
November 1999......................................... 100 100 100 100 100
November 2000......................................... 100 100 100 100 100
November 2001......................................... 100 100 100 100 100
November 2002......................................... 100 100 100 100 100
November 2003......................................... 99 96 94 92 87
November 2004......................................... 97 92 87 82 59
November 2005......................................... 95 87 79 70 40
November 2006......................................... 94 80 68 57 27
November 2007......................................... 92 73 58 44 19
November 2008......................................... 90 67 48 34 14
November 2009......................................... 88 60 41 26 10
November 2010......................................... 85 55 34 20 7
November 2011......................................... 83 49 28 16 5
November 2012......................................... 80 44 24 12 3
November 2013......................................... 77 40 19 9 2
November 2014......................................... 74 35 16 7 2
November 2015......................................... 70 31 13 5 1
November 2016......................................... 66 28 11 4 1
November 2017......................................... 62 24 9 3 *
November 2018......................................... 58 21 7 2 *
November 2019......................................... 53 18 5 2 *
November 2020......................................... 48 15 4 1 *
November 2021......................................... 42 12 3 1 *
November 2022......................................... 36 10 2 1 *
November 2023......................................... 30 7 2 * *
November 2024......................................... 23 5 1 * *
November 2025......................................... 15 3 1 * *
November 2026......................................... 7 1 * * *
November 2027......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years........................ 21.2 15.1 12.1 10.4 8.3
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-64
<PAGE> 65
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-AP CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 99 97 95 93 91
November 1999......................................... 98 92 87 82 77
November 2000......................................... 97 86 77 67 59
November 2001......................................... 95 79 65 53 42
November 2002......................................... 94 73 55 41 30
November 2003......................................... 93 67 47 32 21
November 2004......................................... 91 61 39 25 15
November 2005......................................... 90 56 33 19 11
November 2006......................................... 88 51 28 15 7
November 2007......................................... 86 46 24 12 5
November 2008......................................... 84 42 20 9 4
November 2009......................................... 82 38 17 7 3
November 2010......................................... 79 34 14 5 2
November 2011......................................... 77 31 12 4 1
November 2012......................................... 74 28 10 3 1
November 2013......................................... 71 25 8 2 1
November 2014......................................... 68 22 7 2 *
November 2015......................................... 65 19 5 1 *
November 2016......................................... 61 17 4 1 *
November 2017......................................... 57 15 3 1 *
November 2018......................................... 53 13 3 1 *
November 2019......................................... 49 11 2 * *
November 2020......................................... 44 9 2 * *
November 2021......................................... 39 8 1 * *
November 2022......................................... 33 6 1 * *
November 2023......................................... 27 5 1 * *
November 2024......................................... 21 3 * * *
November 2025......................................... 14 2 * * *
November 2026......................................... 7 1 * * *
November 2027......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years........................ 19.9 10.9 7.1 5.3 4.2
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-65
<PAGE> 66
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 1-B1 CERTIFICATES
--------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
November 1998.......................................... 96 96 96 96 96
November 1999.......................................... 92 92 92 92 92
November 2000.......................................... 87 87 87 87 87
November 2001.......................................... 83 83 83 83 83
November 2002.......................................... 77 77 77 77 77
November 2003.......................................... 72 70 69 67 65
November 2004.......................................... 66 62 59 56 52
November 2005.......................................... 59 54 49 44 39
November 2006.......................................... 52 45 38 32 26
November 2007.......................................... 45 36 28 22 16
November 2008.......................................... 37 27 20 14 10
November 2009.......................................... 28 19 13 8 5
November 2010.......................................... 18 12 7 4 2
November 2011.......................................... 8 5 3 2 1
November 2012.......................................... 0 0 0 0 0
November 2013.......................................... 0 0 0 0 0
November 2014.......................................... 0 0 0 0 0
November 2015.......................................... 0 0 0 0 0
November 2016.......................................... 0 0 0 0 0
November 2017.......................................... 0 0 0 0 0
November 2018.......................................... 0 0 0 0 0
November 2019.......................................... 0 0 0 0 0
November 2020.......................................... 0 0 0 0 0
November 2021.......................................... 0 0 0 0 0
November 2022.......................................... 0 0 0 0 0
November 2023.......................................... 0 0 0 0 0
November 2024.......................................... 0 0 0 0 0
November 2025.......................................... 0 0 0 0 0
November 2026.......................................... 0 0 0 0 0
November 2027.......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years......................... 8.7 8.2 7.7 7.4 7.0
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-66
<PAGE> 67
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS 2-B1 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 99 99 99 99 99
November 1999......................................... 98 98 98 98 98
November 2000......................................... 97 97 97 97 97
November 2001......................................... 96 96 96 96 96
November 2002......................................... 95 95 95 95 95
November 2003......................................... 93 91 89 87 85
November 2004......................................... 92 87 83 78 73
November 2005......................................... 90 82 74 67 59
November 2006......................................... 89 76 65 54 45
November 2007......................................... 87 69 55 42 32
November 2008......................................... 85 63 46 32 22
November 2009......................................... 83 57 38 25 16
November 2010......................................... 81 52 32 19 11
November 2011......................................... 78 47 27 15 8
November 2012......................................... 76 42 22 11 5
November 2013......................................... 73 38 18 9 4
November 2014......................................... 70 33 15 6 3
November 2015......................................... 66 30 12 5 2
November 2016......................................... 63 26 10 4 1
November 2017......................................... 59 23 8 3 1
November 2018......................................... 55 20 7 2 1
November 2019......................................... 50 17 5 1 *
November 2020......................................... 45 14 4 1 *
November 2021......................................... 40 12 3 1 *
November 2022......................................... 34 9 2 * *
November 2023......................................... 28 7 2 * *
November 2024......................................... 21 5 1 * *
November 2025......................................... 14 3 1 * *
November 2026......................................... 7 1 * * *
November 2027......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years........................ 20.2 14.4 11.6 10.0 9.0
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-67
<PAGE> 68
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS B2 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 99 99 99 99 99
November 1999......................................... 98 98 98 98 98
November 2000......................................... 96 96 96 96 96
November 2001......................................... 95 95 95 95 95
November 2002......................................... 94 94 94 94 94
November 2003......................................... 92 90 88 86 83
November 2004......................................... 90 86 81 77 72
November 2005......................................... 88 80 73 65 58
November 2006......................................... 86 74 63 53 43
November 2007......................................... 84 67 53 41 31
November 2008......................................... 82 61 44 31 21
November 2009......................................... 79 55 37 24 15
November 2010......................................... 76 49 31 18 10
November 2011......................................... 74 44 25 14 7
November 2012......................................... 70 39 21 10 5
November 2013......................................... 68 35 17 8 3
November 2014......................................... 65 31 14 6 2
November 2015......................................... 62 28 12 5 2
November 2016......................................... 59 24 9 3 1
November 2017......................................... 55 21 8 3 1
November 2018......................................... 51 18 6 2 *
November 2019......................................... 47 16 5 1 *
November 2020......................................... 42 13 4 1 *
November 2021......................................... 37 11 3 1 *
November 2022......................................... 32 9 2 * *
November 2023......................................... 26 7 1 * *
November 2024......................................... 20 5 1 * *
November 2025......................................... 13 3 1 * *
November 2026......................................... 6 1 * * *
November 2027......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years........................ 19.4 14.0 11.3 9.8 8.9
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-68
<PAGE> 69
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS B3 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 99 99 99 99 99
November 1999......................................... 98 98 98 98 98
November 2000......................................... 96 96 96 96 96
November 2001......................................... 95 95 95 95 95
November 2002......................................... 93 93 93 93 93
November 2003......................................... 92 90 88 85 83
November 2004......................................... 90 85 81 76 72
November 2005......................................... 88 80 72 65 58
November 2006......................................... 86 74 63 52 43
November 2007......................................... 84 67 52 40 30
November 2008......................................... 81 60 44 31 21
November 2009......................................... 78 54 36 24 15
November 2010......................................... 76 49 30 18 10
November 2011......................................... 73 43 25 14 7
November 2012......................................... 69 39 20 10 5
November 2013......................................... 67 35 17 8 3
November 2014......................................... 64 31 14 6 2
November 2015......................................... 61 27 11 4 2
November 2016......................................... 58 24 9 3 1
November 2017......................................... 54 21 7 2 1
November 2018......................................... 50 18 6 2 *
November 2019......................................... 46 15 5 1 *
November 2020......................................... 42 13 4 1 *
November 2021......................................... 37 11 3 1 *
November 2022......................................... 31 8 2 * *
November 2023......................................... 26 6 1 * *
November 2024......................................... 20 5 1 * *
November 2025......................................... 13 3 1 * *
November 2026......................................... 6 1 * * *
November 2027......................................... 0 0 0 0 0
--- --- --- --- ---
Weighted Average Life in Years........................ 19.2 13.9 11.3 9.8 8.9
=== === === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-69
<PAGE> 70
PERCENTAGE OF INITIAL CLASS CERTIFICATE PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT
ASSUMPTION
<TABLE>
<CAPTION>
CLASS R1 AND R2 CERTIFICATES
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
November 1998......................................... 100 100 100 100 100
November 1999......................................... 100 100 100 100 100
November 2000......................................... 100 100 100 100 100
November 2001......................................... 100 100 100 100 100
November 2002......................................... 100 100 100 100 100
November 2003......................................... 100 100 100 100 0
November 2004......................................... 100 100 100 100 0
November 2005......................................... 100 100 100 100 0
November 2006......................................... 100 100 100 100 0
November 2007......................................... 100 100 100 100 0
November 2008......................................... 100 100 100 100 0
November 2009......................................... 100 100 100 100 0
November 2010......................................... 100 100 100 100 0
November 2011......................................... 100 100 100 100 0
November 2012......................................... 100 100 100 100 0
November 2013......................................... 100 100 100 100 0
November 2014......................................... 100 100 100 100 0
November 2015......................................... 100 100 100 100 0
November 2016......................................... 100 100 100 100 0
November 2017......................................... 100 100 100 100 0
November 2018......................................... 100 100 100 100 0
November 2019......................................... 100 100 100 100 0
November 2020......................................... 100 100 100 100 0
November 2021......................................... 100 100 100 100 0
November 2022......................................... 100 100 100 100 0
November 2023......................................... 100 100 100 100 0
November 2024......................................... 100 100 100 100 0
November 2025......................................... 100 100 100 100 0
November 2026......................................... 100 100 100 100 0
November 2027......................................... 0 0 0 0 0
---- ---- --- --- ---
Weighted Average Life in Years........................ 30.0 30.0 30.0 29.9 5.9
==== ==== === === ===
</TABLE>
- ---------------
* Indicates a value between 0.0% and 0.5%.
S-70
<PAGE> 71
THE CLASS 2-A4 CERTIFICATE INSURANCE POLICY
The following information has been supplied by MBIA Insurance Corporation
(the "Class 2-A4 Certificate Insurer") for inclusion in this Prospectus
Supplement. A copy of the Class 2-A4 Certificate Insurance Policy may be
obtained from the Trustee upon request.
THE FINANCIAL GUARANTY INSURANCE POLICY
The Class 2-A4 Certificate Insurer in consideration of the payment of the
premium and subject to the terms of the Certificate Guaranty Insurance Policy
(the "Class 2-A4 Certificate Insurance Policy") thereby unconditionally and
irrevocably guarantees to any holder of the Class 2-A4 Certificates (an "Owner")
that an amount equal to each full and complete Insured Payment will be received
by the Trustee or its successor, as trustee for the Owners, on behalf of the
Owners from the Class 2-A4 Certificate Insurer, for distribution by the Trustee
to each Owner of each Owner's proportionate share of the Insured Payment. The
Class 2-A4 Certificate Insurer's obligations under the Class 2-A4 Certificate
Insurance Policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Amount are
received by the Trustee whether or not such funds are properly applied by the
Trustee. Insured Payments shall be made only at the time set forth in the Class
2-A4 Certificate Insurance Policy and no accelerated Insured Payments shall be
made regardless of any acceleration of the Class 2-A4 Certificates, unless such
acceleration is at the sole option of the Class 2-A4 Certificate Insurer.
Notwithstanding the foregoing paragraph, the Class 2-A4 Certificate
Insurance Policy does not cover shortfalls, if any, attributable to any
liability of a REMIC, the Trust Fund or the Trustee for withholding taxes, if
any (including interest and penalties in respect of any such liability). THE
CLASS 2-A4 CERTIFICATE INSURANCE POLICY WILL NOT PROVIDE CREDIT ENHANCEMENT FOR
ANY CLASS OF CERTIFICATES OTHER THAN THE CLASS 2-A4 CERTIFICATES.
The Class 2-A4 Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day by the
Fiscal Agent (as described below) of (i) a certified copy of the order requiring
the return of a preference payment, (ii) an opinion of counsel satisfactory to
the Class 2-A4 Certificate Insurer that such order is final and not subject to
appeal, (iii) an assignment in such form as is reasonably required by the Class
2-A4 Certificate Insurer, irrevocably assigning to the Class 2-A4 Certificate
Insurer all rights and claims of the Owner relating to or arising under the
Class 2-A4 Certificates against the debtor which made such preference payment or
otherwise with respect to such preference payment and (iv) appropriate
instruments to effect the appointment of the Class 2-A4 Certificate Insurer as
agent for such Owner in any legal proceeding related to such preference payment,
such instruments being in a form satisfactory to the Class 2-A4 Certificate
Insurer, provided that if such documents are received after 12:00 noon New York
City on such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Owner and not to any Owner directly unless such Owner has returned
principal or interest paid on the Class 2-A4 Certificates to such receiver or
trustee in bankruptcy, in which case such payment shall be disbursed to such
Owner.
The Class 2-A4 Certificate Insurer will pay any other amount payable under
the Class 2-A4 Certificate Insurance Policy no later than 12:00 noon New York
City time on the later of the Distribution Date on which the related Guaranteed
Distribution is due or the second Business Day following receipt in New York,
New York on a Business Day by State Street Bank and Trust Company, N.A., as
Fiscal Agent for the Class 2-A4 Certificate Insurer or any successor fiscal
agent appointed by the Class 2-A4 Certificate Insurer (the "Fiscal Agent") of a
Notice (as described below); provided that if such Notice is received after
12:00 noon New York City time on such Business Day, it will be deemed to be
received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making claim under the Class 2-A4 Certificate Insurance Policy it shall be
deemed not to have been received by the Fiscal Agent for purposes of this
paragraph, and the Class 2-A4 Certificate Insurer or the Fiscal Agent, as the
case may be, shall promptly so advise the Trustee and the Trustee may submit an
amended Notice.
Insured Payments due under the Class 2-A4 Certificate Insurance Policy,
unless otherwise stated therein, will be disbursed by the Fiscal Agent to the
Trustee on behalf of the Owners by wire transfer of immediately
S-71
<PAGE> 72
available funds in the amount of the Insured Payment less, in respect of Insured
Payments related to Preference Amounts, any amount held by the Trustee for the
payment of such Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Class 2-A4 Certificate Insurer only
and the Fiscal Agent shall in no event be liable to Owners for any acts of the
Fiscal Agent or any failure of the Class 2-A4 Certificate Insurer to deposit or
cause to be deposited, sufficient funds to make payments due under the Class
2-A4 Certificate Insurance Policy.
Upon and to the extent of any disbursement under the Class 2-A4 Certificate
Insurance Policy, the Class 2-A4 Certificate Insurer shall become the owner or
holder of such right to payment and shall be subrogated to the rights of the
Owner, including the right to payment of the Class 2-A4 Certificates to the
extent paid by the Class 2-A4 Certificate Insurer.
As used herein and in the Class 2-A4 Certificate Insurance Policy, the
following terms shall have the following meanings:
"Agreement" means the Trust Agreement, dated as of November 1, 1997,
between Structured Asset Securities Corporation, as Depositor, and U.S. Bank
National Association, as Trustee, without regard to any amendment or supplement
thereto.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which the Class 2-A4 Certificate Insurer or banking institutions in New York
City or in the city in which the corporate trust office of the Trustee under the
Agreement is located are authorized or obligated by law or executive order to
close.
"Deficiency Amount" means the excess, if any, of Guaranteed Distributions
over Available Distribution Amounts.
"Guaranteed Distributions" means (a) for any Distribution Date, (i) the
Accrued Certificate Interest for the Class 2-A4 Certificates for such
Distribution Date including any Net Prepayment Interest Shortfalls allocable to
such Class of Certificates on such Distribution Date that are not covered by the
Class 2-A4 Reserve Fund, net of any Relief Act Reductions and (ii) the amount of
any Realized Loss, including any Excess Loss, allocated to the Class 2-A4
Certificates on such Distribution Date, and (b) for the Final Distribution Date,
the Class Certificate Balance of the Class 2-A4 Certificates to the extent
unpaid on the Final Scheduled Distribution Date or earlier termination of the
Trust Fund pursuant to the terms of the Agreement.
"Insured Payment" means (i) as of any Distribution Date any Deficiency
Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable Distribution Date.
"Owner" means each Class 2-A4 Certificateholder (as defined in the
Agreement) who, on the applicable Distribution Date, is entitled under the terms
of the Class 2-A4 Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Class 2-A4 Certificates that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Class 2-A4 Certificate Insurance Policy and
not otherwise defined in such Policy shall have the respective meanings set
forth in the Agreement as of the date of execution of such Class 2-A4
Certificate Insurance Policy, without giving effect to any subsequent amendment
or modification to the Agreement unless such amendment or modification has been
approved in writing by the Class 2-A4 Certificate Insurer.
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<PAGE> 73
Any notice under the Class 2-A4 Certificate Insurance Policy or service of
process on the Fiscal Agent may be made at the address listed below for the
Fiscal Agent or such other address as the Class 2-A4 Certificate Insurer shall
specify in writing to the Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
The Class 2-A4 Certificate Insurance Policy is being issued under and
pursuant to, and shall be construed under, the laws of the State of New York,
without giving effect to the conflict of laws principles thereof.
The insurance provided by the Class 2-A4 Certificate Insurance Policy is
not covered by the Property/ Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law.
The Class 2-A4 Certificate Insurance Policy is not cancelable for any
reason except by delivery to the Trustee of a replacement policy in accordance
with the Agreement and provided that the Class 2-A4 Certificate Insurance Policy
shall remain in effect with respect to any claims for Guaranteed Distributions
relating to Preference Amounts resulting from distributions made on the Class
2-A4 Certificates prior to the effective date of the cancellation of the Class
2-A4 Certificate Insurance Policy. The premium on the Class 2-A4 Certificate
Insurance Policy is not refundable for any reason including payment, or
provision being made for payment, prior to maturity of the Class 2-A4
Certificates; provided, however, that no premium on the Class 2-A4 Certificate
Insurance Policy shall be due after the effective date of cancellation of the
Class 2-A4 Certificate Insurance Policy set forth above.
MBIA INSURANCE CORPORATION
The Class 2-A4 Certificate Insurer is the principal operating subsidiary of
MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated
to pay the debts of or claims against the Insurer. The Class 2-A4 Certificate
Insurer is domiciled in the State of New York and licensed to do business in and
is subject to regulation under the laws of all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands of the United States and the Territory of
Guam. The Class 2-A4 Certificate Insurer has two European branches, one in the
Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Class 2-A4 Certificate Insurer, changes
in control and transactions among affiliates. Additionally, the Class 2-A4
Certificate Insurer is required to maintain contingency reserves on its
liabilities in certain amounts and for certain periods of time.
On November 14, 1997, MBIA Inc. announced the signing of a definitive
agreement to merge with CapMAC Holdings Inc. ("CHI"), the parent company of
Capital Markets Assurance Corporation ("CapMAC"), in a stock-for-stock
transaction valued at $607 million. The announcement also stated that all
outstanding policies issued by CapMAC will be backed by the full financial
resources of MBIA Inc., and that the agreement is subject to regulatory
approvals and approval by CHI shareholders.
The consolidated statements of the Class 2-A4 Certificate Insurer, a wholly
owned subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1996 and
December 31, 1995 and for the three years ended December 31, 1996, prepared in
accordance with generally accepted accounting principles ("GAAP"), included in
the Annual Report on Form 10-K of MBIA Inc. for the year ended December 31, 1996
and the consolidated financial statements of the Class 2-A4 Certificate Insurer
and its subsidiaries for the nine months ended September 30, 1997 and for the
periods ending September 30, 1997 and September 30, 1996 included in the
Quarterly Report on Form 10-Q of MBIA Inc. for the period ending September 30,
1997, are hereby incorporated by reference into this Prospectus Supplement and
shall be deemed to be a part hereof. Any statement contained in a document
incorporated by reference herein shall be modified or superseded for purposes of
this Prospectus Supplement to the extent that a statement contained herein or in
any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such
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<PAGE> 74
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Class 2-A4 Certificate Insurer and its
subsidiaries included in documents filed by MBIA Inc. pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Class 2-A4 Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The tables below present selected financial information of the Class 2-A4
Certificate Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and GAAP:
<TABLE>
<CAPTION>
SAP
----------------------------------------
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets............................ $ 4,476 $5,165
Liabilities................................ 3,009 3,457
Capital and Surplus........................ 1,467 1,708
</TABLE>
<TABLE>
<CAPTION>
GAAP
----------------------------------------
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets......................... $ 5,066 $5,819
Liabilities............................. 2,262 2,594
Shareholders' Equity.................... 2,804 3,225
</TABLE>
Copies of the financial statements of the Class 2-A4 Certificate Insurer
incorporated by reference herein and copies of the Class 2-A4 Certificate
Insurer's 1996 year-end audited financial statements prepared in accordance with
statutory accounting practices are available, without charge, form the Class
2-A4 Certificate Insurer. The address of the Class 2-A4 Certificate Insurer is
113 King Street, Armonk, New York 10504. The telephone number of the Class 2-A4
Certificate Insurer is (914) 273-4545.
The Class 2-A4 Certificate Insurer does not accept any responsibility for
the accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Class 2-A4 Certificate Insurance
Policy and the Class 2-A4 Certificate Insurer set forth under the heading "The
Class 2-A4 Certificate Insurance Policy". Additionally, the Class 2-A4
Certificate Insurer makes no representation regarding the Class 2-A4
Certificates or the advisability of investing in the Class 2-A4 Certificates.
Moody's Investors Service, Inc. rates the claims paying ability of the
Class 2-A4 Certificate Insurer "Aaa."
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
Inc. rates the claims paying ability of the Class 2-A4 Certificate Insurer
"AAA."
Fitch Investors Service, L.P. rates the claims paying ability of the Class
2-A4 Certificate Insurer "AAA."
Each rating of the Class 2-A4 Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Class 2-A4 Certificate Insurer and its
ability to pay claims on its policies of insurance. Any further explanation as
to the significance of the above ratings may be obtained only from the
applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Class
2-A4 Certificates, and such ratings may be subject to revision or withdrawal at
any time by the rating agencies. Any downward revision or withdrawal of any of
the above ratings may have an adverse effect on the market price of the Class
2-A4 Certificates. The Class 2-A4 Certificate Insurer does not guarantee the
market price of the Class 2-A4
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<PAGE> 75
Certificates nor does it guarantee that the ratings on the Class 2-A4
Certificates will not be revised or withdrawn.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
An election will be made to treat each of the Lower Tier REMIC and the
Upper Tier REMIC as a REMIC for federal income tax purposes. In the opinion of
Brown & Wood LLP, assuming compliance with all provisions of the Trust
Agreement, for federal income tax purposes the Lower Tier REMIC and the Upper
Tier REMIC will each qualify as a REMIC pursuant to Section 860D of the Internal
Revenue Code of 1986, as amended (the "Code"), each Offered Certificate (or in
the case of the Class B2 and Class B3 Certificates, each Component) other than
the Residual Certificates (the "Regular Certificates") will be considered to be
a "regular interest" in the Upper Tier REMIC within the meaning of the Code, and
each Residual Certificate will be considered to be the sole class of "residual
interest" in a REMIC within the meaning of the Code. See "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS" in the Prospectus. Although the matter is not free from
doubt, the Depositor intends to report stated interest on the Group 1 and Group
2 Certificates as "qualified stated interest" and not as original issue
discount.
The Class 1-AP, Class 2-AP, Class 1-AX, Class 2-AX and Class 2-A5
Certificates will be, and the other Classes of Offered Certificates may be,
issued with original issue discount for federal income tax purposes. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Taxation of Regular Interest
Certificates -- Interest and Acquisition Discount" in the Prospectus. 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 a rate equal to 100% of the Prepayment Assumption. No
representation is made that the Mortgage Loans will prepay at these rates or at
any other rates. Original issue discount must be included in income as it
accrues on a constant yield method, regardless or whether a holder receives
concurrently the cash attributable to such original issue discount.
The Small Business Job Protection Act of 1996 (the "Small Business Act"),
as part of the repeal of the bad debt reserve method for thrift institutions,
repealed the application of Code section 593(d) to any taxable year beginning
after December 31, 1995.
RESIDUAL CERTIFICATES
Special tax considerations apply to an investment in Residual Certificates.
In certain circumstances, the method of taxation of Residual Certificates can
produce a significantly less favorable after-tax return for beneficial owners of
Residual Certificates than would be the case, if (i) Residual Certificates were
taxable as debt instruments or (ii) no portion of the taxable income on a
Residual Certificate in each period were treated as "excess inclusion" income.
A Residual Certificateholder will be the holder of a residual interest in
the applicable REMIC and will generally be required to include in gross income a
pro rata share of the net income of the applicable REMIC. This may result in
such Residual Certificateholder being required to recognize "phantom" income,
i.e., income recognized for tax purposes which exceeds economic income
attributable to such Residual Certificate. Acceleration of taxable income
arising from timing differences will result in an after-tax yield on a Residual
Certificate that may be lower than that on a corporate bond with similar cash
flow characteristics and pre-tax yield. The amount and timing of phantom income
are dependent upon the rate of prepayment of the Mortgage Loans, and, therefore,
cannot be predicted.
Residual Certificates will not be treated as "securities" for purposes of
the "mark-to-market" provisions of the Code and consequently dealers in
securities may not account for Residual Certificates by marking them to market.
The Small Business Act has eliminated the special rule permitting Section
593 institutions ("thrift institutions") to use net operating losses and other
allowable deductions to offset their excess inclusion income from REMIC residual
certificates that have "significant value" within the meaning of the REMIC
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<PAGE> 76
Regulations, effective for taxable years beginning after December 31, 1995,
except with respect to residual certificates continuously held by a thrift
institution since November 1, 1995.
In addition, the Small Business Act provides three rules for determining
the effect of excess inclusions on the alternative minimum taxable income of a
residual holder. First, alternative minimum taxable income for such residual
holder is determined without regard to the special rule that taxable income
cannot be less than excess inclusions. Second, a residual holder's alternative
minimum taxable income for a tax year cannot be less than the excess inclusions
for the year. Third, the amount of any alternative minimum tax net operating
loss deductions must be computed without regard to any excess inclusions. These
rules are effective for tax years beginning after December 31, 1986, unless a
residual holder elects to have such rules apply only to tax years beginning
after August 20, 1996.
Under applicable regulations (the "REMIC Regulations"), if a Residual
Certificate is a "noneconomic residual interest," as described below, a transfer
of such Residual Certificate to a U.S. 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 is a "noneconomic
residual interest" unless, at the time of the transfer (i) the present value of
the expected future distributions on such Residual Certificate at least equals
the product of the present value of the anticipated excess inclusions
(determined as of the date of the transfer) 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 Certificate
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 taxes 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 type of limitation exists with respect to certain
transfers of Residual Certificates by Nonresidents to United States persons.
Under the REMIC Regulations, if a Residual Certificate has tax avoidance
potential, a transfer of a Residual Certificate to a Foreign Person will be
disregarded for all Federal tax purposes. A Residual Certificate has tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee residual
interest 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 calendar year following the
calendar year of accrual. If a transfer of a Residual Certificate to a Foreign
Person is disregarded, the transferor would be liable for any federal income tax
imposed upon taxable income derived by the transferee from the REMIC. If a
Foreign Person transfers a Residual Certificate to a United States person, and
if the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusion income (for example, if the transferor does not pay all
tax liability up to the date of the transfer), then the transfer is disregarded
and the transferor continues to be treated as the owner of the Residual
Certificate for purposes of Sections 871(a), 881, 1441 and 1442 of the Code. As
a result of the foregoing provisions, a transferor or transferee that is a
Foreign Person would be required to deliver to the Trustee certain
certifications (and satisfy certain other conditions) in connection with such a
transfer of a Residual Certificate. For purposes of the discussion set forth
above, a Foreign Person is a person that is not a U.S. Person. The term "U.S.
Person" means (i) a citizen or resident of the United States; (ii) a corporation
(or entity treated as a corporation for tax purposes) created or organized in
the United States or under the laws of the United States or of any state; (iii)
a partnership (or entity treated as a partnership for tax purposes) organized in
the United States or under the laws of the United States or of any state (unless
provided otherwise by future Treasury regulations); (iv) an estate whose income
is includible in gross income for United States income tax purposes regardless
of its source; or (v) a trust, if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. Persons have authority to control all substantial decisions of the
trust. Notwithstanding the last clause of the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as U.S. Persons prior to such date, may elect to continue to
be U.S. Persons.
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<PAGE> 77
It is expected that each Residual Certificate will be a "noneconomic
residual interest" and will have "tax avoidance potential" within the meaning of
the proposed regulations.
Residual Certificates may not be transferred, sold, pledged or otherwise
assigned unless, prior to such transfer, the proposed transferee delivers to the
Trustee an affidavit certifying that such transferee is not a Disqualified
Organization and is not purchasing a Residual Certificate on behalf of a
Disqualified Organization and certifying as to such matters as may be necessary
to verify that no significant purpose of such transfer is to impede the
assessment or collection of tax, including the ability of such transferee to pay
applicable taxes. In addition, Residual Certificates may not be held by a
nominee. Each proposed transferee must also sign a transferee letter which, in
the case of a transfer to or from a Nonresident, generally would require
furnishing evidence that such transfer would be respected for federal income tax
purposes.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" in the Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The Senior Certificates and the Class 1-B1 and Class 2-B1 Certificates will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") for so long as they are rated in one of
the two highest rating categories by one or more nationally recognized
statistical rating agencies, and, as such, are legal investments for certain
entities to the extent provided in SMMEA. Such investments, however, will be
subject to general regulatory considerations governing investment practices
under state and federal laws.
Moreover, institutions whose investment activities are subject to review by
certain regulatory authorities may be or may become subject to restrictions,
which may be retroactively imposed by such regulatory authorities, on the
investment by such institutions in certain mortgage related securities. In
addition, several states have adopted or may adopt regulations that prohibit
certain state-chartered institutions from purchasing or holding similar types of
securities.
Accordingly, investors should consult their own legal advisors to determine
whether and to what extent the Offered Certificates may be purchased by such
investors.
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates will be applied
by the Depositor, or an affiliate thereof, toward the purchase of the Mortgage
Loans. The Mortgage Loans will be acquired by the Depositor from the Seller in a
privately negotiated transaction.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
and in a terms agreement (collectively, the "Underwriting Agreement") between
the Depositor and the Underwriter, the Depositor has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Depositor, all
of the Offered Certificates.
The distribution of the Offered Certificates by the Underwriter will be
effected in each case from time to time in one or more negotiated transactions,
or otherwise, at varying prices to be determined, in each case, at the time of
sale. The Underwriter may effect such transactions by selling the Certificates
to or through dealers, and such dealers may receive from the Underwriter, for
whom they act as agent, compensation in the form of underwriting discounts,
concessions or commissions. The Underwriter and any dealers that participate
with the Underwriter in the distribution of the Certificates may be deemed to be
an underwriter, and any discounts, commissions or concessions received by them,
and any profit on the resale of the Certificates purchased by them, may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as
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amended (the "Act"). The Underwriting Agreement provides that the Depositor will
indemnify the Underwriter against certain civil liabilities, including
liabilities under the Act.
Lehman Brothers Inc. has entered into an agreement with the Depositor to
purchase the Class B4, Class B5 and Class B6 Certificates simultaneously with
the purchase of the Offered Certificates, subject to certain conditions.
Lehman Brothers Inc. is an affiliate of the Depositor.
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 the Code should carefully review with its legal advisors whether
the purchase or holding of Certificates could give rise to a transaction
prohibited or not otherwise permissible under ERISA or the Code. See "ERISA
CONSIDERATIONS" in the accompanying Prospectus.
Employee benefit plans ("Plans") that are subject to ERISA, and any person
utilizing the assets of such a Plan, may not purchase the Subordinate
Certificates, except that any insurance company may purchase such Certificates
with assets of its general account if the exemptive relief granted by the
Department of Labor for transactions involving insurance company general
accounts in Prohibited Transaction Exemption 95-60, 60 Fed. Reg. 35925 (July 12,
1995) is available with respect to such investment. The Trust Agreement will
include certain restrictions on the transfer of the Subordinate Certificates.
EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the periods ended December 31, 1994, 1995 and 1996,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
Notwithstanding anything to the contrary in the Prospectus, certain legal
matters with respect to the Certificates will be passed upon for the Depositor
and for the Underwriter by Brown & Wood LLP, Washington, D.C.
RATINGS
It is a condition to the issuance of the Senior Certificates other than the
Class 1-AP, Class 2-AP, Class 1-AX, Class 2-A5 and Class 2-AX Certificates that
they be rated "AAA" by each of DCR and S&P. It is a condition to the issuance of
the Class 1-AP, Class 2-AP, Class 1-AX, Class 2-A5 and Class 2-AX Certificates
that they be rated "AAA" by DCR and "AAAr" by S&P. It is a condition to the
issuance of the Class 1-B1 and Class 2-B1 Certificates that they be rated "AA"
by each of DCR and S&P. It is a condition to the issuance of the Class B2
Certificates that they be rated "A" by DCR. It is a condition to the issuance of
the Class B3 Certificates that they be rated "BBB" by DCR.
The rating of "AAA" is the highest rating that DCR and S&P assign to
securities. The "r" symbol is appended to the rating by S&P of those
Certificates that S&P believes may experience high volatility or variability in
expected returns due to non-credit risks. The absence of the "r" symbol in the
ratings of other Certificates offered hereby should not be taken as an
indication that such Certificates will exhibit no volatility or variability in
total return.
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<PAGE> 79
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. A securities rating addresses the likelihood of the receipt by
Offered Certificateholders of distributions in the amount of scheduled payments
on the Mortgage Loans. The rating takes into consideration the characteristics
of the Mortgage Loans and the structural, legal and tax aspects associated with
the Offered Certificates. The ratings on the Offered Certificates do not
represent any assessment of the likelihood or rate of principal prepayments. The
ratings do not address the possibility that the Offered Certificateholders
(particularly, the Class 1-AX, Class 2-AX and Class 2-A5 Certificates) might
suffer a lower than anticipated yield due to prepayments or may fail to recoup
their initial investments. Additionally, the rating on the Class 1-AP, Class
2-AP, Class R, and Class R2 Certificates address only the return of the class
principal balance and interest thereon at the stated rate.
The security ratings assigned to 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 Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other rating
agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
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<PAGE> 80
GLOSSARY
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Accrued Certificate Interest..................................................... S-20
Act.............................................................................. S-78
Advances......................................................................... S- 7
Agreement........................................................................ S-72
AP Percentage.................................................................... S-22
AP Principal Distribution Amount................................................. S-24
Available Distribution Amount.................................................... S-25
Bankruptcy Coverage Termination Date............................................. S-32
Bankruptcy Loss Limit............................................................ S-32
Bankruptcy Losses................................................................ S-32
Beneficial Owner................................................................. S- 9
Book-Entry Certificates.......................................................... S- 9
Business Day..................................................................... S-16
CapMAC........................................................................... S-73
Cede............................................................................. S-16
Certificate Group................................................................ S- 2
Certificate Principal Amount..................................................... S-21
Certificate Interest Rate........................................................ S-21
Certificates..................................................................... S- 1
CHI.............................................................................. S-73
Class A Certificates............................................................. S-15
Class Certificate Principal Amount............................................... S-16
Class 1-AP Deferred Amount....................................................... S-31
Class 2-AP Deferred Amount....................................................... S-31
Class 2-A4 Certificate Insurer................................................... S- 3
Class 2-A4 Certificate Insurance Policy.......................................... S- 3
Class 2-A4 Reserve Fund.......................................................... S-21
Class 2-A9 Percentage............................................................ S-24
Class 2-A9 Prepayment Shift Percentage........................................... S-24
Class 2-A9 Priority Amount....................................................... S-24
Class 2-A9 Scheduled Principal Percentage........................................ S-24
Class Percentage................................................................. S-23
Closing Date..................................................................... S- 5
Code............................................................................. S-75
Component........................................................................ S- 2
Component Interest Rate.......................................................... S-21
Component Principal Amount....................................................... S-15
Corporate Trust Office........................................................... S-34
Credit Support Depletion Date.................................................... S-20
Credit Support Percentage........................................................ S-20
Cut-off Date..................................................................... S- 5
Cut-off Date Balance............................................................. S-9
DCR.............................................................................. S-12
Dealer........................................................................... S- 1
Debt Service Reduction........................................................... S-32
Deceased Holder.................................................................. S-29
</TABLE>
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<PAGE> 81
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Deficiency Amount................................................................ S-72
Deficient Valuation.............................................................. S-32
Definitive Certificate........................................................... S-16
Depositor........................................................................ S- 1
Distribution Date................................................................ S- 2
DTC.............................................................................. S- 9
Due Period....................................................................... S-25
ERISA............................................................................ S-12
Excess Losses.................................................................... S-32
FHA.............................................................................. Prospectus
FHLMC............................................................................ Prospectus
Final Scheduled Distribution Date................................................ S-33
Financial Intermediary........................................................... S-17
First Nationwide Mortgage........................................................ S- 3
Fiscal Agent..................................................................... S-71
FNMA............................................................................. Prospectus
Fraud Loss Limit................................................................. S-32
Fraud Losses..................................................................... S-32
GAAP............................................................................. S-73
GNMA............................................................................. Prospectus
Group 1.......................................................................... S-15
Group 1 Certificates............................................................. S- 2
Group 1 Components............................................................... S-16
Group 1 Offered Certificates..................................................... S-15
Group 1 Senior Certificates...................................................... S-15
Group 2.......................................................................... S-15
Group 2 Certificates............................................................. S- 2
Group 2 Components............................................................... S-16
Group 2 Offered Certificates..................................................... S-15
Group 2 Senior Certificates...................................................... S-15
Guaranteed Distributions......................................................... S-72
HUD.............................................................................. Prospectus
Individual Class 2-A4 Certificate................................................ S-26
Insured Payment.................................................................. S-72
Insurance Proceeds............................................................... S-26
Interest Accrual Period.......................................................... S- 5
Interest Shortfall............................................................... S-21
Lehman Capital................................................................... S- 1
Liquidated Mortgage Loan......................................................... S-32
Liquidation Proceeds............................................................. S-26
Living Holders................................................................... S-26
Loan-to-Value Ratio.............................................................. S-34
Lower Tier REMIC................................................................. S- 2
MBIA Inc......................................................................... S-73
MBIA Insurance Corporation....................................................... S-73
Modeling Assumptions............................................................. S-52
Mortgage......................................................................... Prospectus
Mortgage Loans................................................................... S- 1
Mortgage Note.................................................................... Prospectus
</TABLE>
S-81
<PAGE> 82
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Mortgage Pool.................................................................... S- 2
Mortgage Rate.................................................................... S- 7
Mortgaged Property............................................................... S- 7
Net Mortgage Rate................................................................ S-21
Net Prepayment Interest Shortfalls............................................... S-21
Non-AP Percentage................................................................ S-22
Nonresident...................................................................... Prospectus
Notice........................................................................... Prospectus
Offered Certificates............................................................. S- 1
Offered Subordinate Certificates................................................. S- 2
Original Credit Support Percentage............................................... S-20
Original Subordinate Principal Balance........................................... S-24
Owner............................................................................ S-72
Participant...................................................................... S-17
Penalty Period................................................................... S-48
Plans............................................................................ S-78
Pool Rate........................................................................ S-21
Pool 1........................................................................... S- 2
Pool 1 Discount Mortgage Loan.................................................... S-22
Pool 1 Mortgage Loans............................................................ S- 6
Pool 1 Premium Mortgage Loan..................................................... S-21
Pool 1 Rate...................................................................... S-21
Pool 2........................................................................... S- 2
Pool 2 Discount Mortgage Loan.................................................... S-22
Pool 2 Mortgage Loans............................................................ S- 7
Pool 2 Premium Mortgage Loan..................................................... S-21
Pool 2 Rate...................................................................... S-21
Preference Amount................................................................ S-72
Prepayment Assumption............................................................ S-50
Prepayment Interest Shortfall.................................................... S-21
Prepayment Period................................................................ S-25
Principal Distribution Amount.................................................... S-21
Principal Prepayments............................................................ S-26
Prospectus....................................................................... S- 1
Rating Agencies.................................................................. S-12
Realized Loss.................................................................... S-32
Record Date...................................................................... S- 5
Regular Certificates............................................................. S-11
Relief Act....................................................................... S-33
Relief Act Reduction............................................................. S-33
REMIC............................................................................ S- 2
REMIC Regulations................................................................ S-76
Remittance Date.................................................................. S-25
Residual Certificates............................................................ S-15
Restricted Classes............................................................... S-20
Rounding Account................................................................. S-27
Rules............................................................................ S-17
Sale and Servicing Agreement..................................................... S-45
</TABLE>
S-82
<PAGE> 83
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Sale Date........................................................................ S-47
SAP.............................................................................. S-74
Scheduled Payment................................................................ S- 7
Scheduled Principal Amount....................................................... S-24
Scheduled Principal Balance...................................................... S-22
Seller........................................................................... S- 1
Senior Certificates.............................................................. S-15
Senior Percentage................................................................ S-23
Senior Prepayment Percentage..................................................... S-23
Senior Principal Distribution Amount............................................. S-22
Servicer......................................................................... S- 5
Servicing Fee.................................................................... S- 5
Servicing Fee Rate............................................................... S-45
Small Business Act............................................................... S-75
SMMEA............................................................................ S-77
S&P.............................................................................. S-12
Special Hazard Loss Limit........................................................ S-32
Special Hazard Losses............................................................ S-32
Subordinate Certificates......................................................... S-15
Subordinate Class Percentage..................................................... S-23
Subordinate Percentage........................................................... S-23
Subordinate Prepayment Percentage................................................ S-24
Subordinate Principal Distribution Amount........................................ S-25
Thrift Institutions.............................................................. S-75
Trust Agreement.................................................................. S- 5
Trust Fund....................................................................... S- 1
U.S. Person...................................................................... S-76
Underwriter...................................................................... S- 1
Underwriting Agreement........................................................... S-77
Unscheduled Principal Amount..................................................... S-24
Upper Tier REMIC................................................................. S- 2
</TABLE>
S-83
<PAGE> 84
PROSPECTUS
STRUCTURED ASSET SECURITIES CORPORATION
DEPOSITOR
ASSET TRUST PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
This Prospectus relates to Asset Trust Pass-Through Certificates (the
"Certificates") which may be sold from time to time under this Prospectus and
related Prospectus Supplement in one or more series (each a "Series") by
Structured Asset Securities Corporation (the "Depositor"). (Capitalized terms
not otherwise defined herein shall have the meaning specified in the Glossary
attached hereto.)
Each Certificate of a Series will evidence a beneficial ownership interest
in assets deposited into a trust (a "Trust Fund") by the Depositor pursuant to a
Trust Agreement executed by the Depositor, the Trustee and the Master Servicer
for such Series specified in the related Prospectus Supplement. The Trust Fund
will consist of Primary Assets, which may include Mortgage Loans or
participation interests therein, Manufactured Home Loans or participation
interests therein, FHLMC Certificates, GNMA Certificates, FNMA Certificates
(collectively, "Agency Certificates") Private Mortgage-Backed Securities or any
combination of the foregoing and other assets, including any insurance policies,
reserve funds or other credit supports specified in the related Prospectus
Supplement. Manufactured Home Loans and the Mortgage Loans in the Trust Fund for
a Series will have been originated by various financial institutions and other
entities engaged generally in the business of originating and/or servicing
housing loans. The Mortgage Loans and the Manufactured Home Loans may include
(without limitation) fixed rate or adjustable rate Conventional Loans, FHA Loans
or VA Loans and may provide for graduated equity, graduated payment, "buy-down"
or other payment features, and may call for payments from the obligors other
than monthly, as specified in the related Prospectus Supplement. Mortgage Loans
underlying or comprising the Primary Assets will be secured by property
consisting of single family (one-to-four family) attached or detached
residential housing or multifamily residential rental properties or
cooperatively owned properties consisting of five or more attached or detached
dwelling units. Mortgage Loans that are Cooperative Loans will be secured by
assignments of shares and a proprietary lease or occupancy agreement on a
cooperative apartment. Manufactured Home Loans underlying or comprising the
Primary Assets will be secured by property consisting of a Manufactured Home.
See "THE TRUST FUNDS" herein. Manufactured Home Loans and the Mortgage Loans (or
participation interests therein) will be serviced by various servicers under the
supervision of a Master Servicer or by the Master Servicer directly as specified
in the related Prospectus Supplement. The Master Servicer's and any Servicer's
obligations will be limited to its contractual, supervisory and/or servicing
obligations and such other obligations as are specified in the related
Prospectus Supplement. See "SERVICING OF LOANS" herein.
Each Series of Certificates will consist of one or more Classes, and any
Class may include subclasses. If a Series includes multiple Classes, such
Classes may vary with respect to the amount, percentage and timing of
distributions of principal, interest or both and one or more Classes may be
subordinated to other Classes with respect to distributions of principal,
interest or both as described herein and in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Primary Assets held
under the Trust Agreement may be divided into one or more Asset Groups and the
Certificates of each separate Class will evidence beneficial ownership of each
corresponding Asset Group. A Series or Class of Certificates may be subject to
redemption in certain circumstances if so specified in the related Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES" herein.
Distributions of principal and interest on the Certificates of each Series
will be made on each Distribution Date for a Series. The rate of reduction of
the aggregate principal balance of each Class of a Series will depend
principally upon the rate of payment (including prepayments) with respect to the
Loans comprising or underlying the Primary Assets. A rate of prepayment lower or
higher than anticipated will affect yield on Certificates of a Series in the
manner described herein and in the related Prospectus Supplement. Under certain
limited circumstances described herein and in the related Prospectus Supplement,
the Primary Assets may be purchased by the entity specified in the related
Prospectus Supplement and the related Trust Fund terminated prior to the
maturity of the Primary Assets or the Final Scheduled Distribution Date of the
Certificates of the related Series. If so specified in the related Prospectus
Supplement, Certificates of a Series may be subject to special distributions in
reduction of principal balance under certain circumstances. See "DESCRIPTION OF
THE CERTIFICATES" and "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" herein.
The Certificates evidence an interest in the related Trust Fund only, and
are not guaranteed by any governmental agency, or by the Depositor, the Trustee,
the Master Servicer, or by any of their respective affiliates or, unless
otherwise specified in the related Prospectus Supplement, by any other person or
entity. The Depositor's only obligations with respect to any Series will be
pursuant to certain representations and warranties set forth in the related
Trust Agreement as described herein or in the related Prospectus Supplement. See
"THE TRUST AGREEMENTS" herein.
If specified in the related Prospectus Supplement, an election may be made
to treat the Trust Fund for a Series as a "Real Estate Mortgage Investment
Conduit" (a "REMIC") for federal income tax purposes. See "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS" herein.
Certificates of a Series offered hereby and by the related Prospectus
Supplement may be offered through one or more different methods, including
offerings through Lehman Brothers, an affiliate of the Depositor, as more fully
described herein and in the related Prospectus Supplement. See "PLAN OF
DISTRIBUTION" herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Certificates are offered when, as and if delivered to and accepted by
the Underwriters subject to prior sale, withdrawal or modification of the offer
without notice, the approval of counsel and other 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
The date of this Prospectus is May 21, 1996
<PAGE> 85
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates will,
among other things, set forth with respect to such Series: (a) the aggregate
initial principal balances, the Pass-Through Rate or Certificate Rate (or method
for determining it in the case of Floating Rate Certificates) and authorized
denominations of each Class of such Series; (b) certain information concerning
the Trust Fund for such Series, including the principal amount, type and
characteristics of Primary Assets included in the Trust Fund on the date of
issue, and, if applicable, the amount of Reserve Funds, if any, for such Series;
(c) where Private Mortgage-Backed Securities are included in the Trust Fund,
information concerning the PMBS Issuer, the PMBS Trustee, the PMBS Servicer, if
any, and the Loans or Agency Certificates which constitute the underlying assets
for such Private Mortgage-Backed Securities; (d) the circumstances, if any,
under which Special Distributions of principal may be made or a Trust Fund
terminated prior to the Final Scheduled Distribution Date; (e) the Final
Scheduled Distribution Date of each Class of a Multi-Class Series; (f) the
method used to calculate the aggregate amount of principal to be distributed
with respect to the Certificates of such Series on each Distribution Date; (g)
the order of the application of principal distributions to the respective
Classes and the allocation of principal to be so applied; (h) the extent of
subordination of each Class of Subordinate Certificates, if any; (i) the
identity of each Class of Compound Interest Certificates, Floating Rate
Certificates, Principal Weighted Certificates, Interest Weighted Certificates,
Subordinate Certificates and Planned Amortization Certificates ("PACs") included
in such Series, if any; (j) the principal amount of each Class of a Multi-Class
Series that would be outstanding on specified Distribution Dates, if the Loans
or Agency Certificates underlying or comprising the Primary Assets for such
Series were prepaid at various assumed rates; (k) the Distribution Dates for the
respective Classes; (l) the Assumed Reinvestment Rate (if applicable); (m) the
percentage of Excess Cash Flow to be applied to distributions in reduction of
principal balance of Certificates of a Multi-Class Series; (n) additional
information with respect to any pool insurance policy, special hazard insurance
policy, bankruptcy bond or repurchase bond or other credit support, if any,
relating to the Series or the Primary Assets; and (o) the plan of distribution
for such Series.
ADDITIONAL INFORMATION
The Depositor 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 Certificates. 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, 7 World Trade Center, New York, New York 10048. 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.
Copies of the most recent FNMA Prospectus for FNMA Certificates and FNMA's
annual report and quarterly financial statements as well as other financial
information are available from the Director of Investor Relations of FNMA, 3900
Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-752-7115). The Depositor did
not participate in the preparation of FNMA's Prospectus or its annual or
quarterly reports or other financial information and, accordingly, makes no
representation as to the accuracy or completeness of the information set forth
therein.
Copies of the most recent Offering Circular for FHLMC Certificates as well
as FHLMC's most recent Information Statement and Information Statement
Supplement and any quarterly report made available by FHLMC can be obtained by
writing or calling the Investor Relations Department of FHLMC at Post Office Box
4112, Reston, Virginia 22090 (outside Washington, D.C. metropolitan area,
telephone 800-424-5401, ext. 8160; within Washington, D.C. metropolitan area,
telephone 703-759-8160). The Depositor did not participate in the preparation of
FHLMC's Offering Circular, Information Statement or any supplement thereto or
any quarterly report thereof and, accordingly, makes no representations as to
the accuracy or completeness of the information set forth therein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Certificates issued by such Trust Fund shall
be deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the 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 all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
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 Trustee on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee specified in the accompanying Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the related Trust Fund are required
under the Trust Agreement to be forwarded to Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, such reports will not
be examined and reported on by an independent public accountant. See "THE TRUST
AGREEMENTS -- Reports to Certificateholders" herein.
2
<PAGE> 86
SUMMARY OF TERMS OF THE CERTIFICATES
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 Agreement
(the "Trust Agreement") executed by the Depositor, the Master Servicer (the
"Master Servicer") and the trustee (the "Trustee") as specified in the related
Prospectus Supplement. All capitalized terms not otherwise defined in this
Prospectus or the related Prospectus Supplement for a Series have the respective
meanings assigned to them in the "GLOSSARY."
SECURITIES OFFERED............ The Asset Trust Pass-Through Certificates (the
"Certificates") are issuable from time to
time in separate Series pursuant to separate
Trust Agreements. Each Certificate of a
Series will evidence a beneficial ownership
interest in the Trust Fund for such Series,
or in an Asset Group specified 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.
The Certificates of a Series will evidence
interests in the related Trust Fund only and
will not be guaranteed by any governmental
agency, by the Depositor, the Trustee, the
Master Servicer or by any of their respective
affiliates, or unless otherwise specified in
the related Prospectus Supplement, by any
other person or entity. See "SPECIAL
CONSIDERATIONS" and "CREDIT SUPPORT" herein.
Each Series of Certificates will consist of one
or more Classes. If a Series consists of
multiple Classes, the respective Classes may
differ with respect to the amount, percentage
and timing of distributions of principal,
interest or both. Additionally, one or more
Classes may consist of Subordinate
Certificates 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. Any Class
of Certificates of a Series will be offered
hereby and by the related Prospectus
Supplement only if rated by at least one
Rating Agency in one of its four highest
rating categories. See "DESCRIPTION OF THE
CERTIFICATES -- General," "CREDIT SUPPORT --
Subordinated Certificates" and "Special
Considerations" herein.
DEPOSITOR..................... Structured Asset Securities Corporation, a
Delaware corporation (the "Depositor"), is a
limited purpose corporation organized
primarily for the purpose of acquiring the
Primary Assets for each Trust Fund. The
principal executive offices of the Depositor
are located at 200 Vesey Street, New York,
New York 10285 and its telephone number is
(212) 526-5594. All of the outstanding
capital stock of the Depositor is owned by
Lehman Commercial Paper Incorporated, a
wholly-owned subsidiary of Lehman Brothers
Inc. The Depositor's only obligations with
respect to the Certificates will be pursuant
to certain representations and warranties
described herein under "THE TRUST
3
<PAGE> 87
AGREEMENTS." Neither the Depositor, its
parent nor any affiliate of the Depositor
will guarantee the Certificates or the assets
included in the Trust Fund for a Series. See
"SPECIAL CONSIDERATIONS" and "THE DEPOSITOR."
TRUSTEE....................... The Trustee with respect to a Series will be
specified in the related Prospectus
Supplement. See "THE TRUST AGREEMENTS" herein
for a description of the Trustee's rights and
obligations.
INTEREST DISTRIBUTIONS........ Interest distributions on the Certificates of a
Series will be made from amounts available
therefor in the related Certificate Account
on each Distribution Date at the applicable
Pass-Through Rate or Certificate Rate
specified in (or, with respect to Floating
Rate Certificates, determined in the manner
set forth in) the related Prospectus
Supplement. The Pass-Through Rate on
Certificates of a Series may be variable and
change with changes in the mortgage rates or
pass-through rates of the Primary Assets
included in the related Trust Fund and/or as
prepayments occur with respect to such
Primary Assets.
Principal Weighted Certificates may not be
entitled to receive any interest
distributions or may be entitled to receive
only nominal interest distributions.
Compound Interest Certificates 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 Certificates will be made on the
basis of their Compound Value.
A Multi-Class Series may include one or more
Classes of Floating Rate Certificates. With
respect to any such Class of Floating Rate
Certificates, the related Prospectus
Supplement will set forth: (a) the initial
Floating Rate (or manner of determining the
initial Floating Rate); (b) the method by
which the Floating Rate will be determined
from time to time; (c) the periodic intervals
at which such determination will be made; and
(d) the Maximum Floating Rate and the Minimum
Floating Rate, if any. See "DESCRIPTION OF
THE CERTIFICATES" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS" herein.
PRINCIPAL DISTRIBUTIONS
(INCLUDING PREPAYMENTS)..... Principal distributions on the Certificates of
a Series will be made from amounts available
therefor in the related Certificate Account
on each Distribution Date in an aggregate
amount determined as specified in the related
Prospectus Supplement. Principal
distributions will be allocated among the
respective Classes of a Series in the manner
and in the priority (which may, in certain
cases, include allocation by random lot) set
forth in the related Prospectus Supplement.
Interest Weighted Certificates may not be
entitled to any principal distributions or
may be entitled to receive only nominal
principal distributions.
4
<PAGE> 88
To the extent specified in the related
Prospectus Supplement, Certificates of a
Multi-Class Series having other than monthly
Distribution Dates may, if so specified in
the related Prospectus Supplement, be subject
to Special Distributions of principal if, as
a result of principal prepayments with
respect to the Loans (as defined below)
comprising or underlying the Primary Assets
in the related Trust Fund, low reinvestment
yields or both, it is determined (based on
assumptions specified in the related Trust
Agreement) that the amount of cash
anticipated to be available in the
Certificate Account for such Series on the
next Distribution Date may be less than the
scheduled distributions to be made on such
Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS" herein.
FINAL SCHEDULED DISTRIBUTION
DATE.......................... The Final Scheduled Distribution Date for each
Class 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 Primary 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 Primary 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 Loans
comprising or underlying the Primary 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 Loans comprising or
underlying Primary Assets in the Trust Fund
for a Series will depend on a variety of
factors, including certain characteristics of
such 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 "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS" herein.
OPTIONAL TERMINATION.......... If so specified in the related Prospectus
Supplement, the Depositor, the Master
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 Asset Principal balance of the
Certificates of any Class of the Series is
less than the amount or percentage specified
in the related Prospectus Supplement. See
"DESCRIPTION OF THE CERTIFICATES -- 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
5
<PAGE> 89
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
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
CERTIFICATES" herein.
THE TRUST FUND................ The Trust Fund for a Series will consist of
Private Mortgage-Backed Securities, Agency
Certificates, Mortgage Loans or participation
interests therein, Manufactured Home Loans or
participation interests therein, or any
combination of the foregoing (the "Primary
Assets"), together with certain accounts,
reserve funds, insurance policies and related
agreements specified in the related
Prospectus Supplement. (Mortgage Loans and
Manufactured Home Loans are referred to
herein as "Loans".) If so specified in the
related Prospectus Supplement, the Primary
Assets may be divided into Asset Groups and
the Certificates of separate Classes will
evidence beneficial interests of a
corresponding Asset Group. The Trust Fund for
a Series will also include the Collection
Account, the Certificate Account, and may
include certain policies of insurance
relating to the Primary Assets, and various
credit supports, all as specified in the
related Prospectus Supplement. See "THE TRUST
FUNDS -- Collection Account and Certificate
Account" and "CREDIT SUPPORT" and
"DESCRIPTION OF MORTGAGE AND OTHER INSURANCE"
herein.
A. PRIMARY ASSETS........... The Primary Assets for a Series of Certificates
may consist of any combination of the
following, to the extent and as specified in
the related Prospectus Supplement (such
Prospectus Supplement may contain information
on an approximate basis as of the Cut-off
Date, in which case a report on Form 8-K
containing additional information will be
available to purchasers of the Certificates
at or promptly after initial issuance):
(1) AGENCY CERTIFICATES
AND PRIVATE
MORTGAGE-BACKED
SECURITIES........... Agency Certificates may include:
(A) GNMA Certificates. GNMA's guarantee is
backed by the full faith and credit of the
United States. See "THE TRUST FUNDS -- GNMA
Certificates."
(B) FNMA Certificates. FNMA's guarantee is not
backed by the full faith and credit of the
United States. See "THE TRUST FUNDS -- FNMA
Certificates."
(C) FHLMC Certificates. FHLMC's guarantee is
not backed by the full faith and credit of
the United States. See "THE TRUST
FUNDS -- FHLMC Certificates."
Private Mortgage-Backed Securities may include
(a) mortgage participations or pass-through
certificates representing beneficial
6
<PAGE> 90
interests in Agency Certificates or Loans or
(b) collateralized mortgage obligations
secured by Agency Certificates or Loans.
Although individual Loans or Agency
Certificates 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. See "THE TRUST FUNDS -- Private
Mortgage-Backed Securities." Unless otherwise
specified in the Prospectus Supplement
relating to a Series of Certificates,
payments on the Private Mortgage-Backed
Securities will be distributed directly to
the Trustee as registered owner of such
Private Mortgage-Backed Securities. See "THE
TRUST FUNDS -- Private Mortgage-Backed
Securities" herein.
The related Prospectus Supplement for a Series
will specify (such disclosure may be on an
approximate basis, as described above): to
the extent relevant, (i) the aggregate
approximate principal amount and type of any
Agency Certificates and Private
Mortgage-Backed Securities to be included in
the Trust Fund for such Series; (ii) certain
characteristics of the Agency Certificates or
Loans which comprise the underlying assets
for the Private Mortgage-Backed Securities
including, in the case of Loans, (A) the
payment features of such Loans (i.e., whether
they are fixed 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 Loans which are insured or
guaranteed by a governmental entity, (C) the
servicing fee or range of servicing fees with
respect to the Loans, and (D) the minimum and
maximum stated maturities of the Loans 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 certificate rate or ranges
thereof for the Private Mortgage-Backed
Securities; (vi) the weighted average
pass-through or certificate rate of the
Private Mortgage-Backed Securities; (vii) the
Issuer of the Private Mortgage-Backed
Securities (the "PMBS Issuer"), the Servicer
of the Private Mortgage-Backed Securities
(the "PMBS Servicer") 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
or guarantees, relating to the Loans
underlying the Private Mortgage-Backed
Securities, or to such Private
Mortgage-Backed Securities themselves; (ix)
the terms on which underlying Loans for such
Private Mortgage-Backed Securities may, or
are required to, be repurchased prior to
stated maturity; and (x) the terms on which
substitute Loans or Agency Certificates may
be delivered to replace those initially
deposited with the PMBS Trustee. See "THE
TRUST FUNDS" herein.
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<PAGE> 91
(2) MORTGAGE LOANS....... Primary Assets for a Series may consist, in
whole or in part, of Mortgage Loans or
participation interests therein.
Participation interests in Mortgage Loans
will be purchased pursuant to participation
agreements. See "THE TRUST FUNDS -- General"
herein. Payments on Mortgage Loans will be
collected by the Master Servicer (or by a
Servicer), as specified in the related
Prospectus Supplement, and such payments (net
of servicing fees and certain other amounts)
will be available to make distributions on
the Certificates of that Series. See
"SERVICING OF LOANS" herein. Mortgage Loans
may, as specified in the related Prospectus
Supplement, include Conventional Loans, FHA
Loans or VA Loans and may have various
payment characteristics and may include
growing equity mortgage loans ("GEM Loans"),
graduated payment mortgage loans ("GPM
Loans"), buy-down mortgage loans ("Buy-Down
Loans"), bi-weekly payment loans ("Bi-Weekly
Loans") or Loans having balloon or other
special payment features. The Mortgage Loans
may have fixed or adjustable interest rates
(Mortgage Loans having such adjustable rates
hereinafter sometimes referred to herein as
"Adjustable Rate Mortgages," or "ARMs"). ARMs
will, as described in the related Prospectus
Supplement, permit or require periodic
changes in the mortgage rate and in the
scheduled payments of principal and interest
due from the obligor on the related mortgage
note. The Mortgage Loans may include Mortgage
Loans secured by mortgages, deeds of trust or
other security instruments creating a first
lien on related Mortgaged Properties. The
Mortgage Loans may include Cooperative Loans
secured by an assignment by the borrower (the
"tenant-stockholder") of a security interest
in shares issued by a private, non-profit,
cooperative housing association (a
"Cooperative") and related proprietary lease
or occupancy agreement on a cooperative
dwelling (the "Cooperative Dwelling"). The
Mortgage Loans may also include Condominium
Loans secured by a Mortgage on the
Condominium Unit, together with such
Condominium Unit's appurtenant interest in
the common elements. The Mortgaged Properties
may consist of one to four-family attached or
detached residential housing (including
shares in a Cooperative and the related
proprietary lease or occupancy agreement)
("Single Family Property") or multifamily
residential rental property or cooperatively
owned multifamily property consisting of five
or more dwelling units ("Multifamily
Property"). Single Family Property may be
owner occupied and may include vacation or
second homes or may consist in whole or in
part of non-owner occupied investment
properties, as specified in the related
Prospectus Supplement.
To the extent described herein or in the
related Prospectus Supplement, all Mortgaged
Property will be covered by standard hazard
insurance policies (which may be a blanket
policy) insuring against losses due to
various causes, including fire, lightning and
windstorm. Mortgaged Property located in a
federally designated special hazard flood
zone will be required to be covered by flood
insurance. With respect to a Cooperative
Dwelling, the Coopera-
8
<PAGE> 92
tive is responsible for maintaining standard
hazard insurance on the real property owned
by the Cooperative, and standard hazard
insurance on the Cooperative Dwelling
securing a Mortgage Loan will not generally
be required. With respect to a Condominium
Unit, the Condominium Association is
responsible for maintaining standard hazard
insurance insuring the entire Condominium
Building (including each individual
Condominium Unit) and separate standard
hazard insurance on the Condominium Unit
securing a Mortgage Loan will not generally
be required. Mortgage Loans that are
Conventional Loans secured by Single Family
Property will be required to be covered by
primary mortgage insurance policies to the
extent described herein or in the related
Prospectus Supplement. See "DESCRIPTION OF
MORTGAGE AND OTHER INSURANCE" herein.
The related Prospectus Supplement will describe
the principal characteristics of the Mortgage
Loans included in the Trust Fund (such
information may be on an approximate basis),
including, without limitation, (a) the
aggregate outstanding principal balance of
the Mortgage Loans as of the related Cut-off
Date; (b) the geographical distribution of
the Mortgaged Properties securing the
Mortgage Loans; (c) the weighted average
original and remaining scheduled
term-to-stated maturity of the Mortgage
Loans; (d) the relative percentages (by
aggregate outstanding principal balance) of
Mortgage Loans that have fixed interest rates
or are ARMs, Buy-Down Loans, GEM Loans,
Bi-Weekly Loans, GPM Loans or Mortgage Loans
having other special payment characteristics;
(e) the relative percentages of Mortgage
Loans secured by Cooperative Dwellings; (f)
the relative percentages of Mortgage Loans
that are secured by Mortgaged Properties
which are owner-occupied or are investment
properties or vacation and second homes; (g)
the range of Loan-to-Value Ratios for the
Mortgage Loans; (h) the average outstanding
principal balance of the Mortgage Loans as of
the Cut-off Date; (i) any primary or pool
insurance policies, guarantees or other
credit support for such Mortgage Loans; and
(j) the weighted average Mortgage Rate on
such Mortgage Loans. Unless otherwise
specified in the related Prospectus
Supplement, each Mortgage Loan will have a
10- to 40-year term at origination and a
Loan-to-Value Ratio at origination not
exceeding 95%. Unless otherwise described in
the related Prospectus Supplement, each
Mortgage Loan that is a Conventional Loan
secured by a Single Family Property having a
Loan-to-Value Ratio exceeding 80% will be
required to be covered by a primary mortgage
insurance policy as described herein or in
the related Prospectus Supplement.
Mortgage Loans that constitute Primary Assets
will be purchased by the Depositor in the
open market or in privately negotiated
transactions, including transactions with
entities affiliated with the Depositor or
with the Master Servicer.
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<PAGE> 93
(3) MANUFACTURED HOME
LOANS................. Primary Assets may consist, in whole or in
part, of manufactured housing conditional
sales contracts and installment loan
agreements with respect to Manufactured Homes
(the "Manufactured Home Loans") or
participation interests therein.
Participation interests in Manufactured Home
Loans will be purchased pursuant to a
participation agreement. See "THE TRUST
FUNDS -- General."
Each Manufactured Home Loan will be secured by
a new or used Manufactured Home. Manufactured
Home Loans may be a Conventional Loan, FHA
Loan or VA Loan. Unless otherwise specified
in the related Prospectus Supplement,
Manufactured Home Loans that are Conventional
Loans will not be covered by primary mortgage
insurance policies. Each Manufactured Home
which secures a Manufactured Home Loan will
be covered by a standard hazard insurance
policy (which may be a blanket policy) to the
extent described herein or in the related
Prospectus Supplement insuring against hazard
losses due to various causes, including fire,
lightning and windstorm. A Manufactured Home
located in a federally designated special
hazard flood zone will be required to be
covered by flood insurance. See "DESCRIPTION
OF MORTGAGE AND OTHER INSURANCE" herein.
Unless otherwise specified in a related
Prospectus Supplement, each Manufactured Home
Loan will have a 3- to 25-year term at
origination and a Loan-to-Value Ratio at
origination not in excess of 95%.
The Prospectus Supplement for each Series will
describe the principal characteristics of the
Manufactured Home Loans included in the Trust
Fund for the related Series (such information
may be on an approximate basis), including,
without limitation, the (a) aggregate
outstanding principal balance of the
Manufactured Home Loans, as of the related
Cut-off Date; (b) weighted average interest
rate on the Manufactured Home Loans; (c)
weighted average term-to-maturity at
origination; (d) weighted average remaining
scheduled term-to-maturity as of the Cut-off
Date and the range of terms-to-maturity; (e)
respective percentages of Manufactured Home
Loans relating to new versus used
Manufactured Homes; (f) average outstanding
principal balance of the Manufactured Home
Loans as of the Cut-off Date; (g) range of
Loan-to-Value Ratios of the Manufactured Home
Loans; (h) hazard insurance required to be
maintained with respect to each Manufactured
Home; (i) amounts, if any, and terms of any
form of credit support to be provided with
respect to all or any Manufactured Home Loan
or Loans; and (j) geographical distribution
of the Manufactured Homes by state.
The Manufactured Home Loans which constitute
Primary Assets will be purchased by the
Depositor in the open market or in privately
negotiated transactions, including
transactions with entities affiliated with
the Depositor.
10
<PAGE> 94
B. COLLECTION ACCOUNT AND
CERTIFICATE ACCOUNT...... Payments or distributions with respect to the
Primary Assets for a Series will initially be
remitted for deposit in a Collection Account
maintained by the Master Servicer and then
transferred to a Certificate Account to be
established with the Trustee for such Series.
The amounts remitted may be net of servicing
fees, Retained Interests and other amounts
specified in the related Prospectus
Supplement. Amounts so deposited will be used
to make distributions on the Certificates of
such Series on the applicable Distribution
Date. See "THE TRUST FUNDS -- Collection
Account and Certificate Account."
C. DETERMINATION OF ASSET
VALUE.................... Each Primary Asset for a Multi-Class Series
will be assigned an Asset Value. The
aggregate of the Asset Values of the Primary
Assets included in the Trust Fund for a
Multi-Class Series will equal not less than
the initial aggregate principal balances of
the Certificates of such Series. The related
Prospectus Supplement for a Multi-Class
Series will summarize the method or methods
and related assumptions used to determine
Asset Value for the Primary Assets for the
related Multi-Class Series. See "DESCRIPTION
OF THE CERTIFICATES -- Valuation of Trust
Assets."
D. GUARANTEED INVESTMENT
CONTRACTS AND OTHER
AGREEMENTS............... The Depositor may obtain and deliver to the
Trustee guaranteed investment contracts or
reinvestment agreements ("Guaranteed
Investment Contracts") pursuant to which
moneys held in one or more of the funds and
accounts established for such Series will be
invested at a specified rate which will
constitute the "Assumed Reinvestment Rate"
for the Series. With respect to any
Multi-Class Series which includes a Class of
Floating Rate Certificates, the Depositor may
obtain and deliver to the Trustee an interest
rate swap contract, interest rate cap
agreement or similar contract issued by a
bank, insurance company, savings bank or
savings and loan association to provide
limited protection against interest rate
risks. The principal terms of any such
Guaranteed Investment Contract or such other
agreement, including, without limitation,
provisions relating to the timing, manner and
amount of payments thereunder and provisions
relating to the termination thereof, together
with information relating to the issuer
thereof, will be described in the related
Prospectus Supplement.
CREDIT SUPPORT................ Credit support in the form of reserve funds,
subordination, insurance policies, letters of
credit or other types of credit support may
be provided with respect to the Primary
Assets or with respect to one or more Classes
of Certificates of a Series. If the Primary
Assets are divided into separate Asset
Groups, the beneficial ownership of which is
evidenced by 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
Certificates evidencing beneficial ownership
of one Asset Group prior to distributions to
Subordinate Certificates evidencing a
beneficial ownership interest in another
Asset
11
<PAGE> 95
Group within the Trust Fund. If so specified
in the related Prospectus Supplement, any
form of credit support (including but not
limited to insurance, letters of credit or
Certificate guarantee insurance) may be
structured so as to be drawn upon by more
than one Trust Fund to the extent described
therein.
The type, characteristics and amount of credit
support will be determined based on the
characteristics of the Loans underlying or
comprising the Primary Assets and other
factors and will be established on the basis
of requirements of each Rating Agency rating
the Certificates of such Series. The
protection against losses provided by such
credit support will be limited. See "CREDIT
SUPPORT" and "RISK FACTORS" herein.
A. SUBORDINATE CERTIFICATES;
SUBORDINATION RESERVE
FUND....................... A Series of Certificates may include one or
more Classes of Subordinate Certificates. The
rights of Holders of such Subordinate
Certificates to receive distributions on any
Distribution Date will be subordinate in
right and priority to the rights of Holders
of Senior Certificates 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 (or be limited
as to) certain types of losses not covered by
other credit support, such as hazard losses
not covered by the standard hazard insurance
policies, losses resulting from the
bankruptcy of a borrower due to application
of provisions of the Bankruptcy Code, or
losses resulting from the denial of insurance
coverage due to fraud or misrepresentation in
connection with the origination of a Loan.
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.
A Subordination Reserve Fund may be established
at the level specified in the related
Prospectus Supplement. The related Prospectus
Supplement will also set forth information
concerning the amount of subordination of a
Class or Classes of Subordinate Certificates
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 the related Subordination Reserve
Fund, if any, and the conditions under which
amounts in any Subordination Reserve Fund
will be used to make distributions to Holders
of Senior Certificates or be released from
the related Trust Fund. If cash flows
otherwise distributable to Holders of
Subordinate Certificates evidencing a
beneficial ownership interest in an Asset
Group will be used as cross support for
Senior Certificates evidencing a beneficial
ownership interest in another Asset Group
within the Trust Fund, the related Prospectus
Supplement will specify the manner and
conditions for applying such a cross support
feature. See "CREDIT SUPPORT -- Subordinate
Certificates; Subordination Reserve Fund."
12
<PAGE> 96
B. INSURANCE................ If so specified in the related Prospectus
Supplement, certain insurance policies in
addition to any primary mortgage insurance
policies or standard hazard insurance
policies described above under "Primary
Assets" will be required to be maintained
with respect to the Loans included in the
Trust Fund for a Series. Such insurance
policies may include, but are not limited to,
(i) a pool insurance policy insuring against
losses due to defaults or delinquencies in
payment, (ii) a special hazard insurance
policy insuring against losses which are not
covered by the standard hazard insurance
policies, (iii) bankruptcy bonds or insurance
policies insuring losses due to bankruptcy of
a borrower and application of certain
provisions of the Bankruptcy Code and (iv)
repurchase bonds insuring the repurchase of
Loans by the originator of such Loan in the
event of the loss of other insurance coverage
due to certain misrepresentations in the
origination or sale of any such Loans or in
other circumstances specified in the related
Prospectus Supplement. See "RISK FACTORS,"
"CREDIT SUPPORT" and "DESCRIPTION OF MORTGAGE
AND OTHER INSURANCE" 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, (c) conditions to payment under
each and (d) certain information relating to
the issuers of such insurance policies. To
the extent described in the related
Prospectus Supplement, certain insurance
policies to be maintained with respect to the
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 Master Servicer, provided
that no rating assigned to Certificates of
the related Series offered hereby and by the
related Prospectus Supplement is adversely
affected.
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, such as losses
resulting from delinquent payments on the
Loans in the Trust Fund, losses from risks
not covered by standard hazard insurance
policies, losses due to bankruptcy of a
borrower and application of certain
provisions of the Bankruptcy Code, and losses
due to denial of insurance coverage due to
misrepresentations made in connection with
the origination or sale of a Loan. 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 will be
reduced by the amount of unreimbursed
payments thereunder.
The maximum liability of a L/C Bank under its
letter of credit will be an amount equal to a
percentage specified in the related
13
<PAGE> 97
Prospectus Supplement of the initial
aggregate outstanding principal balance of
the Loans in the Trust Fund or one or more
Classes of Certificates 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.
D. CERTIFICATE GUARANTEE
INSURANCE................ If so specified in the related Prospectus
Supplement, credit support for a Series may
be provided by an insurance policy (the
"certificate guarantee insurance") issued by
one or more insurance companies. Such
certificate guarantee insurance will
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.
E. RESERVE FUNDS............ The Depositor may deposit in one or more
reserve funds (collectively the "Reserve
Funds") for any Series cash, Eligible Reserve
Fund 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
Certificates of such Series or to reduce the
likelihood of a Special Distribution with
respect to any Multi-Class Series. Reserve
Funds may be established to provide
protection against certain losses in addition
to or in lieu of other credit support,
including, without limitation, losses
resulting from delinquent payments on Loans,
losses from risks not covered by standard
hazard insurance policies, losses due to
bankruptcy of a borrower and application of
certain provisions of the Bankruptcy Code,
and losses due to denial of insurance
coverage due to misrepresentations made in
connection with the origination of a Loan.
Amounts on deposit in the Reserve Funds for a
Series, together with (unless otherwise
specified in the related Prospectus
Supplement) the reinvestment income thereon,
will be applied for the purposes, in the
manner and to the extent provided by the
related Prospectus Supplement.
On each Distribution Date 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 Trust
Agreement and specified in the related
Prospectus Supplement may be released from
the Reserve Funds and will not be available
for future distributions on the Certificates
of such Series.
Additional information concerning any Reserve
Funds, including whether the Reserve Fund is
a part of the Trust Fund, the circumstances
under which moneys therein will be applied to
make distributions to Certificateholders, the
required balance to be maintained in such
Reserve Funds, the manner in which such
required balance will decrease over time and
the manner of
14
<PAGE> 98
funding the Reserve Fund will be set forth in
the related Prospectus Supplement. See
"CREDIT SUPPORT -- Reserve Funds."
SERVICING OF LOANS............ The Master Servicer identified in the related
Prospectus Supplement will service the Loans
directly or administer and supervise the
performance by Servicers of their duties and
responsibilities under separate servicing
agreements (the "Servicing Agreements")
entered into between the Master Servicer and
such Servicers. Unless otherwise 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, approved by HUD as an FHA mortgagee.
Each Servicer will be obligated under its
Servicing Agreement to perform customary
servicing functions. Advances with respect to
delinquent payments of principal or interest
on a Loan will be made by the Master Servicer
or the Servicers only to the extent described
in the related Prospectus Supplement. Such
advances will be intended to provide
liquidity only and, unless otherwise
specified in the related Prospectus
Supplement, will be reimbursable to the
Master Servicer or the Servicer, as the case
may be, from scheduled payments of principal
and interest, late collections, or from the
proceeds of liquidation of the related Loans,
from other recoveries relating to such Loans
(including any insurance proceeds or payments
from other credit supports). The Master
Servicer or the Servicers will be obligated
to repurchase Mortgage Loans for which
insurance coverage has been denied on the
grounds of fraud or misrepresentation only to
the extent specified in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, the Depositor
may (i) obtain and assign to the Trustee an
agreement with an independent standby
servicer acceptable to each Rating Agency
rating such Certificates, which will provide
that such standby servicer will assume a
Servicer's or the Master Servicer's
obligations in the event of a default by the
Servicer or Master Servicer or (ii) obtain a
performance bond acceptable to each Rating
Agency rating such Certificates that will
guarantee certain of the Servicer's or Master
Servicer's obligations. See "SERVICING OF
LOANS."
FEDERAL INCOME TAX
CONSIDERATIONS................ If an election is made for treatment as a REMIC
under Sections 860A-G of the Internal Revenue
Code of 1986 (the "Code"), one or more
Classes of Certificates will be treated as
REMIC "Regular Interests." The Holder of such
a Regular Interest will be treated as holding
a debt obligation for federal income tax
purposes and will be required to report
stated interest income on the accrual method.
Compound Interest Certificates will be, and
certain other Classes of Certificates
constituting Regular Interests may be, issued
with original issue discount that is not de
minimis. In such cases, the Certificateholder
will be required to include the original
issue discount in gross income as it accrues,
which may be prior to the
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<PAGE> 99
receipt of cash attributable to such income.
If a Regular Interest Certificate is issued
at a premium, the holder thereof will be
entitled to make an election to amortize such
premium on a constant yield method.
Certificates constituting Regular Interests
will 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 loans qualify for such treatment.
In the case of a REMIC election, a Class of
Certificates will be treated as REMIC
"Residual Interests." Certificates classified
as REMIC Residual Interests will generally be
treated as representing "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 same
extent as REMIC Regular Interests.
The holder of a REMIC Residual Interest
Certificate must include in income its pro
rata share of the REMIC's taxable income.
Accordingly, in certain circumstances, the
holder of a REMIC Residual Interest might (i)
have REMIC taxable income or tax liability
attributable to REMIC taxable income for a
particular period or periods in excess of
cash distributions for such period or periods
or (ii) have an after-tax return on its
investment that is less than the after-tax
return on comparable debt instruments or
stripped bonds. In addition, a portion (or,
in some cases, all) of the income from a
REMIC Residual Interest: (i) except, in
certain circumstances, 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 withholding under
any treaty. Further, individual holders are
subject to limitations on the deductibility
of expenses of the REMIC. In addition,
certain types of tax-exempt organizations,
including governmental entities, will not be
able to acquire ownership of a Residual
Interest Certificate.
If no REMIC election is made, the Trust Fund
will be treated as a grantor trust and will
not be classified as an association taxable
as a corporation for federal income tax
purposes. The treatment of a particular
Series of Certificates will depend on the
characteristics of such Series of
Certificates. The holders of Certificates
will either be treated as owners of undivided
pro rata interests in the underlying Loans
("Pass-Through Certificates"), or as owners
of stripped bonds or stripped coupons
("Stripped Certificates") under the Code. All
income with respect to a Stripped Certificate
will be accounted for as original issue
discount and, unless otherwise specified in
the related Prospectus Supplement,
16
<PAGE> 100
will be reported by the Trustee on an accrual
basis, which may be prior to the receipt of
cash associated with such income.
The holder of a Pass-Through Certificate must
include in income its allocable share of all
interest and other income of the Trust and
may, subject to certain limitations for
individual Certificateholders, deduct its
allocable share of all expenses of the Trust.
Pass-Through Certificates will be considered
to 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
loans qualify for such treatment. Although
there is no direct authority and the matter
is not free from doubt, Stripped Certificates
should also qualify for such treatment to the
extent that the underlying loans qualify for
such treatment. See "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS."
ERISA CONSIDERATIONS.......... A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or the Code should carefully review with its
own legal advisors whether the purchase or
holding of Certificates could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code. See
"ERISA CONSIDERATIONS."
LEGAL INVESTMENT.............. Certificates of each Series offered by this
Prospectus and the related Prospectus
Supplement which are rated in one of the two
highest applicable rating categories by at
least one Rating Agency will constitute
"mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are so rated
and, as such, will be legal investments for
certain types of institutional investors to
the extent provided in SMMEA, subject, in any
case, to any other regulations which may
govern investments by such institutional
investors. Certain Certificates of some
Series offered by this Prospectus and the
related Prospectus Supplement may not be
rated in one of the two highest applicable
rating categories by at least one Rating
Agency and, accordingly, will not constitute
"mortgage related securities" for purposes of
SMMEA. Investors should consult their own
legal advisors to determine the extent to
which such Certificates may be purchased by
such investors. See "LEGAL INVESTMENT."
USE OF PROCEEDS............... The Depositor will use the net proceeds from
the sale of each Series for one or more of
the following purposes: (i) to purchase the
related Primary Assets, (ii) to repay
indebtedness which has been incurred to
obtain funds to acquire such Primary Assets,
(iii) to establish any reserve funds
described in the related Prospectus
Supplement and (iv) to pay costs of
structuring, guaranteeing and issuing such
Certificates. If so specified in the related
Prospectus Supplement, the purchase of the
Primary Assets for a Series may be effected
by an exchange of Certificates with the
Depositor of such Primary Assets. See "USE OF
PROCEEDS."
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<PAGE> 101
RATINGS....................... It will be a requirement for issuance of any
Series that the Certificates offered by this
Prospectus and the related Prospectus
Supplement be rated by at least one Rating
Agency in one of its four highest applicable
rating categories. The rating or ratings
applicable to Certificates of each Series
offered hereby and by the related Prospectus
Supplement will be as set forth in the
related Prospectus Supplement. A securities
rating should be evaluated independently of
similar ratings on different types of
securities. A securities rating does not
address the effect that the rate of
prepayments on Loans comprising or underlying
the Primary Assets may have on the yield to
investors in the Certificates. See "RISK
FACTORS."
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<PAGE> 102
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with an investment in the Certificates.
Limited Liquidity. There can be no assurance that a secondary market for
the Certificates of any Series will develop or, if it does develop, that it will
provide Certificateholders with liquidity of investment or will continue for the
life of the Certificates. Lehman Brothers Inc. (through one or more of its
affiliates) intends to make a secondary market in the Certificates, but has no
obligation to do so. In addition, the market value of Certificates of each
Series will fluctuate with changes in prevailing rates of interest, although in
the case of Floating Rate Certificates, such fluctuations may be less than those
which may occur with respect to Certificates that have a fixed rate of interest.
Consequently, sale of the Certificates by a Holder in any secondary market which
may develop may be at a discount from par value or from their purchase price.
Certificateholders have no optional redemption rights.
Yield, Prepayment and Maturity. The rate at which prepayments (which
include both voluntary prepayments by the Obligors on the Loans and liquidations
due to defaults and foreclosures) occur on the Loans underlying or comprising
the Primary Assets for a Series will be affected by a variety of factors,
including, without limitation, the level of prevailing interest rates and
economic, demographic, tax, social, legal and other factors. Prepayments on the
Loans comprising or underlying the Primary Assets for a Series generally will
result in a faster rate of distributions of principal on the Certificates. Thus,
the prepayment experience on the Loans comprising or underlying the Primary
Assets will affect the average life and yield to investors of each Class and the
extent to which principal on any such Class is fully paid prior to its Final
Scheduled Distribution Date, if at all. A Series may include an Interest
Weighted Class offered at a significant premium or a Principal Weighted Class
offered at a substantial discount. Yields on such Classes of Certificates will
be extremely sensitive to prepayments on the Loans comprising or underlying the
Primary Assets for such Series. Where the amount of interest allocated with
respect to an Interest Weighted Class is extremely disproportionate to
principal, a Certificateholder purchasing such a Certificate at a significant
premium could, under some prepayment scenarios, fail to recoup its original
investment. If the Certificate Rate or Pass-Through Rate on Certificates of a
Series is based upon a weighted average of the interest rates on the Loans
comprising or underlying the related Primary Assets, interest on such
Certificates may be paid or accrued in the future at a rate lower than the
initial interest rate to the extent that those of such Loans which bear higher
rates of interest are prepaid more quickly than those of such Loans which bear
lower rates of interest. Any rating assigned to the Certificates by a Rating
Agency will reflect only such Rating Agency's assessment of the likelihood that
timely distributions will be made with respect to such Certificates in
accordance with the related Trust Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the Loans underlying
or comprising the Primary Assets will be made by borrowers or of the degree to
which the rate of such prepayments might differ from that originally
anticipated. As a result, such rating will not address the possibility that
prepayment rates higher or lower than anticipated by an investor may cause such
investor to experience a lower than anticipated yield, or that an investor
purchasing an Interest Weighted Certificate at a significant premium might fail
to recoup its initial investment. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS".
Credit Support Limitations. The amount, type and nature of Insurance
Policies, subordination, Certificate Guarantee Insurance, letters of credit and
other credit support, 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 necessarily based upon an actuarial analysis of
the behavior of Loans in a larger group. Such actuarial analysis is the basis
upon which each Rating Agency determines (a) required amounts and types of pool
insurance, special hazard insurance, Reserve Funds, subordination or other
credit support and (b) limits on the number and amount of Loans which have
various special payment characteristics, have various Loan-to-Value Ratios
and/or were made for various purposes (e.g., primary residence, second home,
refinancing). There can be no assurance that the historical data supporting such
actuarial analysis will accurately reflect future experience nor any assurance
that the data derived from a large pool of housing loans accurately predicts the
delinquency, foreclosure or loss experience of any particular pool of Loans.
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<PAGE> 103
In addition, if distributions in reduction of the principal balance of
Certificates of a Series of Multi-Class Certificates are made in order of the
respective Final Scheduled Distribution Dates of the Class, any limits with
respect to the aggregate amount of claims under any related pool insurance,
special hazard insurance or other insurance policy, letters of credit or other
credit support may be exhausted before the principal of the later-maturing
Classes has been repaid. As a result, the impact of significant losses on the
Loans may bear primarily upon the Certificates of the later-maturing Classes.
The Prospectus Supplement for a Series will describe any Reserve Funds,
Insurance Policies, letter of credit or other third-party credit support
relating to the Primary Assets or to the Certificates of such Series. Use of
such Reserve Funds and payments under such Insurance Policies, 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
will not cover all potential losses or risks. Moreover, if a form of credit
support covers more than one Trust Fund (each, a "Covered Trust"), holders of
Certificates 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 such as a pool
insurance policy, special hazard insurance policy, bankruptcy bond, letter of
credit, Certificate Guarantee Insurance, repurchase bond or other third-party
credit support will not be guaranteed or insured by the United States, or by any
agency or instrumentality thereof. A Series of Certificates may include a Class
or multiple Classes of Subordinate Certificates 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
Certificates, the Subordinated Amount will be limited and will decline under
certain circumstances and the related Subordination Reserve Fund, if any, could
be depleted in certain circumstances. See "DESCRIPTION OF THE CERTIFICATES",
"THE TRUST FUNDS" and "CREDIT SUPPORT".
Certain Loans and Mortgaged Property. Loans such as GPM Loans, GEM Loans,
ARMs, Bi-Weekly Loans and Buy-Down Loans are of recent origin. As a result,
reliable prepayment, loss and foreclosure statistics relating to such Loans are
not available. Such Loans may be underwritten on the basis of an assessment that
the borrower will have the ability to make payments in higher amounts in later
years and, in the case of Loans with adjustable mortgage rates, after relatively
short periods of time. See "LOAN UNDERWRITING PROCEDURES AND STANDARDS" and
"CREDIT SUPPORT". Other Loans may be underwritten principally on the basis of
the initial Loan-to-Value Ratio thereof. To the extent losses on Loans exceed
levels estimated by the Rating Agency rating the Series in determining required
levels of overcollateralization or other credit support, the Trust Fund may
experience a loss. Furthermore, Loans made with respect to Multifamily Property,
Manufactured Homes or Cooperative Dwellings may entail risks of loss in the
event of delinquency and foreclosure or repossession that are greater than
similar risks associated with traditional single-family property. To the extent
losses on such Loans exceed levels estimated by the Rating Agency in determining
required levels of overcollateralization or other credit support, the Trust Fund
may experience a loss. See "SERVICING OF LOANS -- Maintenance of Insurance
Policies and Other Servicing Procedures" and "CREDIT SUPPORT".
Limited Obligations and Assets of Depositor. Unless otherwise set forth in
the Prospectus Supplement for a Series of Certificates, the Trust Fund for a
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
representations and warranties. See "THE TRUST AGREEMENTS -- Assignment of
Primary Assets" herein. 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 Primary 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 Loan which constitutes a Primary 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 Loans,
Servicer or Master Servicer, as the case may be, or from a reserve fund
established to provide funds for such repurchases. See "THE DEPOSITOR".
FNMA and FHLMC Guaranties. Although payments on FNMA and FHLMC
Certificates are guaranteed by FNMA and FHLMC, respectively, in the manner
described herein (and though both FNMA
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<PAGE> 104
and FHLMC are federally-chartered corporations), such guaranties are backed by
the credit of FNMA or FHLMC, respectively, and not the full faith and credit of
the United States. Neither the United States nor any agency thereof is obligated
to finance the operations of FNMA or FHLMC or to assist either of them in any
other manner. See "ADDITIONAL INFORMATION" for the availability of certain
additional information concerning FNMA and FNMA Certificates or FHLMC and FHLMC
Certificates.
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
Certificates of any Series. See "ERISA CONSIDERATIONS".
Certain Federal Tax Considerations Regarding REMIC Residual
Interests. Holders of REMIC Residual Interests 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 "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- Residual Interests in a REMIC." Accordingly, under certain
circumstances, holders of Certificates which constitute REMIC Residual Interests
might 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 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 Certificates of the related Series have
been reduced to zero, even though holders of Residual Interests have received
full payment of their stated interest and principal. A portion (or, in certain
circumstances, all) of a Residual Interest Certificateholder's share of the
REMIC taxable income may be treated as "excess inclusion" income to such holder
which (i) except in the case of certain thrift institutions, 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
Certificates constituting Residual Interests may be limited in their ability to
deduct servicing fees and other expenses of the REMIC. Because of the special
tax treatment of REMIC residual interests, the taxable income arising in a given
year on a REMIC residual interest 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 Certificates may be significantly less than that
of a corporate bond or stripped instrument having similar cash flow
characteristics.
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<PAGE> 105
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in Series pursuant to separate Trust
Agreements between the Depositor and the Trustee for the related Series
identified in the related Prospectus Supplement. 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 Trust Agreement and the Prospectus
Supplement relating to each Series. 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 will consist of one or more Classes, one or more of which may
consist of Compound Interest Certificates, Floating Rate Certificates, Interest
Weighted Certificates, Principal Weighted Certificates or Planned Amortization
Certificates ("PACs"). A Series may also include one or more Classes of
Subordinate Certificates. A Class of Subordinate Certificates will be offered
hereby or by any Prospectus Supplement only if rated by a Rating Agency in at
least its second highest applicable rating category. If so specified in the
related Prospectus Supplement, the Primary Assets in a Trust Fund may be divided
into multiple Asset Groups and the Certificates of each separate Class will
evidence beneficial ownership of each corresponding Asset Group.
Each Series will be issued in fully registered form, in the minimum
original principal 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.
VALUATION OF TRUST ASSETS
Each Primary Asset included in the Trust Fund for a Multi-Class Series will
be assigned an initial Asset Value determined in the manner and subject to the
assumptions summarized in the related Prospectus Supplement. The Asset Value of
the Primary Assets will not be less than the initial aggregate principal amount
of the Certificates of the related Multi-Class Series at the date of issuance
thereof.
The Asset Value of Primary Assets represents the principal amount of
Certificates of a Multi-Class Series that, based on certain assumptions, can be
supported by the scheduled principal and interest due on the Primary Assets
irrespective of prepayments thereon, the reinvestment income thereon at the
Assumed Reinvestment Rate (which may be zero) and the moneys available to be
withdrawn from related Reserve Funds, if any, as specified in the related
Prospectus Supplement. Individual Primary Assets for a Series which share
similar characteristics may be aggregated into one or more groups (each an
"Asset Group"), each of which will be assigned a single aggregate Asset Value.
If so specified in the related Prospectus Supplement, the Primary Assets in a
Trust Fund may be divided into multiple Asset Groups and the Certificates of
separate Classes will evidence beneficial ownership of each corresponding Asset
Group. Unless the related Prospectus Supplement provides otherwise, the
aggregate Asset Value of an Asset Group will be calculated as though the
underlying Primary Assets constitute a single Loan having such of the
characteristics of the Primary Assets included in the Asset Group that would
result in the lowest Asset Value being assigned to each Primary Asset included
in such Asset Group.
There are a number of alternative means of determining Asset Value of a
Primary Asset, including determinations based on the discounted present value of
the remaining scheduled payments on such Primary Asset, determinations based on
the relationship between the interest rate borne by such Primary Asset and the
Certificate Rate or Rates for the related Classes of Certificates, or based upon
the aggregate outstanding principal balances of the Primary Assets. The
Prospectus Supplement for a Multi-Class Series will specify the method or
methods and summarize the related assumptions used to determine the Asset Values
of the Primary Assets in the related Trust Fund.
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<PAGE> 106
The Assumed Reinvestment Rate, if any, for a Multi-Class Series will be the
highest rate permitted by each Rating Agency rating such Series or a rate
insured, guaranteed or otherwise provided for by means of a surety bond,
interest rate swap agreement, interest rate cap agreement, Guaranteed Investment
Contract, or other arrangement satisfactory to each such Rating Agency. See "THE
TRUST AGREEMENTS -- Investment of Funds".
DISTRIBUTIONS ON THE CERTIFICATES
General. 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 to the extent of the "Available Distribution
Amount" as set forth in the related Prospectus Supplement.
Distributions of interest on Certificates which receive interest will be
made periodically at the intervals and at the Pass-Through Rate or Certificate
Rate specified or, with respect to Floating Rate Certificates, determined in the
manner described in the related Prospectus Supplement. Interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months unless otherwise specified in the related Prospectus
Supplement. Distributions of principal on each class of the Certificates of a
Series will be made on either a pro rata or random lot basis among all of the
Certificates of such Class, as specified in the related Prospectus Supplement.
Principal payments will be allocated to each Class of a Series as specified in
the related Prospectus Supplement.
If funds in the Certificate Account (together with any amounts transferred
from any Reserve Fund or applicable credit support) are insufficient to make the
full distribution to Certificateholders described above on any Distribution
Date, the funds available for distribution to the Certificateholders of each
Class will be distributed in accordance with their respective interests therein,
except that Subordinate Certificateholders, if any, will not, subject to the
limitations described in the related Prospectus Supplement, receive any
distributions until Senior Certificateholders receive the amount of present
distributions due them and the amount of distributions owed them which were not
timely distributed thereon and to which they are entitled (in each case
calculated as described in the related Prospectus Supplement). The difference
between the amount which the Certificateholders would have received if there had
been sufficient eligible funds available for distribution and the amount
actually distributed, plus interest at the applicable Pass-Through Rate or
Certificate Rate will be included in the calculation of the amount which the
Certificateholders are entitled to receive on the next Distribution Date. See
"THE TRUST AGREEMENTS -- Deficiency Events".
Distributions of principal of and interest on Certificates of a Series 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. If
specified in the related Prospectus Supplement, the Certificates of a Series or
certain Classes of a Series may be available only in book-entry form. See
"Book-Entry Registration" herein.
With respect to reports to be furnished to Certificateholders concerning a
distribution, see "THE TRUST AGREEMENTS -- Reports to Certificateholders".
Pass-Through Certificates Generally. With respect to a Series other than a
Multi-Class Series, distributions on the Certificates on each Distribution Date
will generally be allocated to each Certificate entitled thereto on the basis of
the undivided percentage interest (the "Percentage Interest") evidenced by such
Certificate in the Trust Fund or on the basis of their outstanding principal
amounts or notional amounts (subject to any subordination of the rights of any
Subordinate Classes to receive current distributions). See "Subordinate
Certificates" below as specified in the related Prospectus Supplement.
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<PAGE> 107
If the Primary Assets for a Series have adjustable or variable interest or
pass-through rates, then the Pass-Through Rate of the Certificates of such
Series may also vary, due to changes in such rates and due to prepayments with
respect to Loans comprising or underlying the related Primary Assets. If the
Primary Assets for a Series have fixed interest or pass-through rates, then the
Pass-Through Rate on Certificates of the related Series may be fixed, or may
vary, to the extent prepayments cause changes in the weighted average interest
rate or pass-through rate of the Primary Assets. If the Primary Assets have
lifetime or periodic adjustment caps on the respective pass-through rates, then
the Pass-Through Rate on the Certificates of the related Series may also reflect
such caps.
If so specified in the related Prospectus Supplement, a Series may include
a Class of Interest Weighted Certificates, a Class of Principal Weighted
Certificates, or both. Unless otherwise specified in the Prospectus Supplement,
payments received from the Primary Assets will be allocated on the basis of the
Percentage Interest of each Class in the principal component of such
distributions, the interest component of such distributions, or both, and will
be further allocated on a pro rata basis among the Certificates within each
Class. The method or formula for determining the Percentage Interest of a
Certificate will be set forth in the related Prospectus Supplement.
Multi-Class Series. Unless otherwise specified in the Prospectus
Supplement, each Certificate of a Multi-Class Series will have a principal
amount or a notional amount and a specified Certificate Rate (which may be
zero). Interest distributions on a Multi-Class Series will be made on each
Certificate entitled to an interest distribution on each Distribution Date at
the Certificate Rate specified or, with respect to Floating Rate Certificates,
determined as described in the related Prospectus Supplement, to the extent
funds are available in the Certificate Account, subject to any subordination of
the rights of any Subordinate Class to receive current distributions. See
"Subordinate and Other Certificates" below and "CREDIT SUPPORT".
Distributions of interest on a Class of Compound Interest Certificates will
commence only after the related Accrual Termination Date specified in the
related Prospectus Supplement. On each Distribution Date prior to and including
the Accrual Termination Date, interest on such Class of Compound Interest
Certificates will accrue and the amount of interest accrued on such Distribution
Date (the "Accrual Distribution Amount") will be added to the principal balance
thereof on the related Distribution Date. On each Distribution Date after the
Accrual Termination Date, interest distributions will be made on Classes of
Compound Interest Certificates on the basis of the current Compound Value of
such Class. The Compound Value of a Class of Compound Interest Certificates
equals the initial aggregate principal balance of the Class, plus accrued and
undistributed interest added to such Class through the immediately preceding
Distribution Date, less any principal distributions previously made in reduction
of the aggregate outstanding principal balance of such Class.
To the extent provided in the related Prospectus Supplement, a Series of
Multi-Class Certificates may include one or more Classes of Floating Rate
Certificates. The Certificate Rate of a Floating Rate Certificate will be a
variable or adjustable rate, subject to a Maximum Floating Rate, Minimum
Floating Rate, or both. For each Class of Floating Rate Certificates, the
related Prospectus Supplement will set forth the initial Floating Rate (or the
method of determining it), the Floating Rate Period, and the formula, index, or
other method by which the Floating Rate for each Floating Rate Period will be
determined.
To the extent provided in the related Prospectus Supplement, a Series of
Multi-Class Certificates may include one or more sequences of Planned
Amortization Certificates ("PACs").
Distributions of principal will be allocated among the Classes of a
Multi-Class Series in the order of priority and amount specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Principal Distribution Amount for a Multi-Class Series on each
Distribution Date will be an amount equal to the sum of (a) the Accrual
Distribution Amount, if any, (b) the Minimum Principal Distribution Amount and
(c) the percentage, if any, of Excess Cash Flow specified in the related
Prospectus Supplement.
Subordinate Certificates. One or more Classes of a Series may consist of
Subordinate Certificates. Subordinate Certificates may be included in a Series
to provide credit support as described herein under
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<PAGE> 108
"CREDIT SUPPORT" in lieu of or in addition to other forms of credit support. The
extent of subordination of a Class of Subordinate Certificates may be limited as
described in the related Prospectus Supplement. See "CREDIT SUPPORT". If the
Primary Assets are divided into separate Asset Groups, beneficial ownership of
which is evidenced by separate Classes of a Series, credit support may be
provided by a cross-support feature which requires that distributions be made to
Senior Certificates evidencing beneficial ownership of one Asset Group prior to
making distributions on Subordinate Certificates evidencing a beneficial
ownership interest in another Asset Group within the Trust Fund. Unless rated in
one of the four highest rating categories by at least one Rating Agency,
Subordinate Certificates will not be offered hereby or by the related Prospectus
Supplement.
SPECIAL DISTRIBUTIONS AND OTHER DISTRIBUTIONS
Special Distributions. To the extent specified in the related Prospectus
Supplement, Special Distributions in reduction of Certificate principal amount
may be made with respect to the Certificates of a Multi-Class Series on the day
or days of any month specified therein if, as a result of the prepayment
experience on the Primary Assets for such Series or the low yields available for
reinvestment, or both, it is determined (based on assumptions specified in the
Trust Agreement 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 Certificate Account on the date specified in the related
Prospectus Supplement for such Series will be insufficient to make scheduled
distributions of principal and interest on the Certificates of such Series on
the next Distribution Date. The amount distributed in reduction of principal
amount will not exceed the Principal Distribution Amount otherwise required to
be paid on the next Distribution Date. Therefore, the result of such a Special
Distribution with respect to the Certificates of a Multi-Class Series will be to
reduce their aggregate principal amount prior to the next scheduled Distribution
Date.
All distributions in reduction of the Certificate principal amount pursuant
to any Special Distribution will be made in the order of priority and in the
manner specified in the related Prospectus Supplement. Notice of any Special
Distribution will be mailed by the Trustee to the Certificateholders of the
related Series prior to the Special Distribution Date.
Other Distributions. In the event that Primary Assets having an aggregate
Asset Value at least equal to the initial aggregate principal amount of the
Certificates of a Multi-Class Series are not delivered to the Trustee on the
related Closing Date, the Depositor will deposit cash or Eligible Investments on
an interim basis with the Trustee on such Closing Date in lieu of such
undelivered Primary Assets. If Primary Assets are not delivered by the date
specified in the related Prospectus Supplement, the Trustee will make a
distribution from the interim deposit and any reinvestment income thereon in
reduction of principal amount of the Certificates on the next succeeding
Distribution Date. Such a distribution would affect weighted average life and
yield to maturity of the affected Certificates. See "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS".
OPTIONAL TERMINATION
If so specified in the related Prospectus Supplement for a Series, the
Depositor, the Master 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 Primary 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. Such
optional termination will be in addition to terminations which may result from
other events. See "THE TRUST AGREEMENTS -- Deficiency Event" and
"-- Termination".
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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.
The Depositor also may, at its option, obtain for any Series of the
Certificates, one or more guarantees from a company or companies acceptable to
the Rating Agency. Such guarantees may provide for one or more of the following
for any Series of the Certificates: (i) call protection for any Class of the
Certificates of such Series; (ii) a guarantee of a certain prepayment rate of
some or all of the Loans underlying such Series; or (iii) certain other
guarantees, all as specified in the related Prospectus Supplement.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Certificates 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 a single Certificate 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. If so specified in
the related Prospectus Supplement, no person acquiring an interest in the
Certificates (a "Certificateowner") will be entitled to receive a Certificate
representing such person's interest in the Certificates except in the event that
Definitive Certificates (as defined herein) are issued under the limited
circumstances set forth under "Definitive Certificates" below. Unless and until
Definitive Certificates are issued, it is anticipated that the only
Certificateholder of the Certificates will be Cede & Co., as nominee of DTC.
Certificateowners will not be "Certificateholders" or "Holders" under the Trust
Agreement, and Certificateowners will only be permitted to exercise the rights
of Certificateholders 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").
Certificateowners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of Certificates may do
so only though Participants and Indirect Participants. Because DTC can only act
on behalf of Participants and Indirect Participants, the ability of a
Certificateowner to pledge such owner's Certificate to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such Certificate, may be limited. In addition, under a book-entry format,
Certificateowners may experience some delay in their receipt of principal and
interest distributions with respect to the Certificates 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
Certificateowners.
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 Certificates and is
required to receive and transmit principal and interest distributions and
distributions with
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respect to the Certificates. Participants and Indirect Participants with which
Certificateowners have accounts with respect to Certificates similarly are
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Certificateowners. Accordingly,
although Certificateowners will not possess certificates, the Rules provide a
mechanism by which Certificateowners will receive distributions and will be able
to transfer their interests.
The Depositor understands that DTC will take any action permitted to be
taken by a Certificateholder under the Trust Agreement only at the direction of
one or more Participants to whose account with DTC the Certificates are
credited. Additionally, the Depositor understands that DTC will take such
actions with respect to holders of a certain specified interest in the
Certificates 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 Holders of Certificates to the extent that such actions are
taken on behalf of Participants whose holdings represent that specified interest
or voting interest.
If so specified in the related Prospectus Supplement, if Certificates of a
Series are issued initially in book-entry form only, the Certificates will be
issued in fully registered, certified form ("Definitive Certificates") to
Certificateowners, rather than to DTC, only if (i) DTC or the Depositor advises
the Trustee in writing that DTC is no longer willing or able properly to
discharge its responsibilities as depository with respect to the Certificates,
and the Depositor is unable to locate a qualified successor, (ii) the Depositor,
at its sole option, elects to terminate the book-entry system through DTC, (iii)
after the occurrence of an Event of Default under the Trust Agreement,
Certificateowners representing a majority of the aggregate outstanding principal
amount of the Certificates 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 Certificateowners or (iv) a Certificateowner
provides written evidence that its corporate investment policies prohibit its
holding of investments in other than certificated form in its own name.
Upon the occurrence of any of the events described in clauses (i), (ii) or
(iii) of the immediately preceding paragraph, DTC is required to notify all
Participants of the availability through DTC of Definitive Certificates. Upon
surrender by DTC of the certificates representing the Certificates and
instructions for registration the Trustee will issue all, but not less than all
of the remaining formerly DTC-held Certificates then outstanding in the form of
Definitive Certificates, and thereafter the Trustee and the Master Servicer will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement. Upon the occurrence of the event described in clause
(iv) of the immediately preceding paragraph and the surrender by DTC of the
certificates representing the Certificates a portion of which a Certificateowner
has requested be issued in its name in accordance with clause (iv) and
instructions for registration, a Definitive Certificate will be issued to such
Certificateowner and a replacement certificate representing the remaining
portion of the certificates representing the Certificates to DTC, and thereafter
the Trustee will recognize the holder of such Definitive Certificate and DTC as
holder of the Certificate as Certificateholders under the Trust Agreement.
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YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
PAYMENT DELAYS
With respect to any Series, a period of time will elapse between receipt of
payments or distributions on the Primary Assets and the Distribution Date on
which such payments or distributions are passed through to Certificateholders.
Such a delay will effectively reduce the yield that would otherwise be obtained
if payments or distributions were distributed on or near the date of receipt.
The related Prospectus Supplement will set forth an example of the timing of
receipts and the distribution thereof to Certificateholders so that the impact
of such a delay can be understood.
PRINCIPAL PREPAYMENTS
With respect to a Series for which the Primary Assets consist of Loans or
participation interests therein, when a Loan prepays in full, the borrower will
generally be required to pay interest on the amount of prepayment only to the
prepayment date. In addition, the prepayment may not be required to be passed
through to Certificateholders until the month following receipt. The effect of
these provisions is to reduce the aggregate amount of interest which would
otherwise be available for distributions on the Certificates, thus effectively
reducing the yield that would be obtained if interest continued to accrue on the
Loan until the date on which the principal prepayment was scheduled to be paid.
To the extent specified in the related Prospectus Supplement, this effect on
yield may be mitigated by, among other things, an adjustment to the servicing
fee otherwise payable to the Master Servicer or Servicer with respect to any
such prepaid Loans. Further, if the Certificate Rate or Pass-Through Rate on
Certificates of a Series is based upon a weighted average of the interest rates
on the Loans comprising or underlying the related Primary Assets, interest on
such Certificates may be paid or accrued in the future at a rate lower than the
initial interest rate to the extent that those of such Loans which bear higher
rates of interest initial are prepaid more quickly than those of such Loans
which bear lower rates of interest. See "SERVICING OF LOANS -- Advances and
Limitations Thereon".
TIMING OF REDUCTION OF PRINCIPAL AMOUNT
A Multi-Class Series may provide that, for purposes of calculating interest
distributions, the principal amount of the Certificates is deemed reduced as of
a date prior to the Distribution Date on which principal thereon is actually
distributed. Consequently, the amount of interest accrued during any Interest
Accrual Period will be less than the amount that would have accrued on the
actual principal amount of the Certificate outstanding. The effect of such
provisions is to produce a lower yield on the Certificates than would be
obtained if interest were to accrue on the Certificates on the actual unpaid
principal amount of such Certificates to each Distribution Date. The related
Prospectus Supplement will specify the time at which the principal amounts of
the Certificates are determined or are deemed to reduce for purposes of
calculating interest distributions on Certificates of a Multi-Class Series.
INTEREST OR PRINCIPAL WEIGHTED CERTIFICATES
If a Class of Certificates consists of Interest Weighted Certificates or
Principal Weighted Certificates, a lower rate of principal prepayments than
anticipated will negatively affect yield to investors in Principal Weighted
Certificates, and a higher rate of principal prepayments than anticipated will
negatively affect yield to investors in Interest Weighted Certificates. The
Prospectus Supplement for a Series including such Certificates will include a
table showing the effect of various levels of prepayment on yields on such
Certificates. Such tables will be intended to illustrate the sensitivity of
yields to various prepayment rates and will not be intended to predict, or
provide information which will enable investors to predict, yields or prepayment
rates.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date of each Class of any Multi-Class
Series will be specified in the related Prospectus Supplement and will be the
date (calculated on the basis of the assumptions applicable to
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such Series described therein) on which the entire aggregate principal balance
of such Class will be reduced to zero. Since prepayments on the Loans underlying
or comprising the Primary Assets will be used to make distributions in reduction
of the outstanding principal amount of the Certificates, it is likely that the
actual maturity of any such Class will occur earlier, and may occur substanially
earlier, than its Final Scheduled Distribution Date.
PREPAYMENTS AND WEIGHTED AVERAGE LIFE
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 the principal of such
security will be repaid to the investor. The weighted average life of the
Certificates of a Series will be influenced by the rate at which principal on
the Loans comprising or underlying the Primary Assets for such Certificates 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 housing loans is influenced
by a variety of economic, demographic, geographic, legal, tax, social and other
factors. The rate of prepayments of conventional housing loans has fluctuated
significantly in recent years. In general, however, if prevailing interest rates
fall significantly below the interest rates on the Loans comprising or
underlying the Primary Assets for a Series, such Loans are likely to prepay at
rates higher than if prevailing interest rates remain at or above the interest
rates borne by such Loans. In this regard, it should be noted that the Loans
comprising or underlying the Primary Assets for a Series may have different
interest rates, and the stated pass-through or interest rate of certain Primary
Assets or the Certificate Rate or Pass-Through Rate on the Certificates may be a
number of percentage points less than interest rates on such Loans. In addition,
the weighted average life of the Certificates may be affected by the varying
maturities of the Loans comprising or underlying the Primary Assets. If any
Loans comprising or underlying the Primary Assets for a Series have actual
terms-to-stated maturity of less than those assumed in calculating the Final
Scheduled Distribution Date of the related Certificates, one or more Classes of
the Series may be fully paid prior to their respective Stated Maturities, even
in the absence of prepayments and a reinvestment return higher than the Assumed
Reinvestment Rate.
It is customary in the mortgage industry to compute the yield on a pool of
30-year, fixed rate, level payment mortgages as if the pool were a single loan
amortized according to the 30-year schedule and then prepaid in full at the end
of the twelfth year, and to compute the yield on a pool of 15-year, fixed rate,
level payment mortgages as if the pool were a single loan that is amortized
according to a 15-year schedule and then prepaid in full at the end of the
seventh year. 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
or the FHA Prepayment Experience, 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.
The FHA, a division of HUD, has compiled statistics relating to fixed rate,
level-payment mortgage loans secured by Single Family Property and insured by
the FHA under the National Housing Act of 1934, as amended (the "Housing Act"),
at various interest rates, all of which permit assumption by the new buyer if
the home is sold. Such statistics indicate that while some of such mortgage
loans remain outstanding until their scheduled maturities, a substantial number
are paid prior to their respective stated maturities. The Actuarial Division of
HUD has prepared tables which, assuming full mortgage prepayments at the rates
experienced by the FHA, set forth the percentages of the original number of FHA
Loans in pools of fixed rate, level payment mortgage loans of varying maturities
that will remain outstanding on each anniversary of the
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original date of such mortgage loans (assuming they all have the same
origination date). Data relating to fixed-rate mortgage loans with original
maturities of 15 to 30 years for the period 1970 to 1983, as compiled by HUD,
indicate, for example, that for a pool of 30-year mortgage loans having a
mortgage rate of 12% per annum, the aggregate principal balance of the loans
outstanding 12 years after origination is expected to be approximately 46% of
the original principal balance. By comparison, 90.87% of the aggregate principal
balance of such mortgage loans would have been outstanding if such mortgage
loans had amortized in accordance with the applicable repayment schedule,
without prepayments. The HUD data also indicate that for a pool of 15-year
mortgage loans having a mortgage rate of 12% per annum the aggregate principal
balance of the loans outstanding seven years after origination is expected to be
approximately 40% of the original principal balance. By comparison, 73.84% of
the aggregate principal balance of such mortgage loans would have been
outstanding if such mortgage loans had amortized in accordance with the
applicable repayment schedule, without prepayments. The percentage of loans in a
pool that remains outstanding, as indicated by the HUD data, is referred to
herein as the "FHA Prepayment Experience."
There may be substantial differences between the portfolio on which the FHA
statistics were based and the Loans comprising or underlying the Primary Assets
for a Series. To the extent that the Loans comprising or underlying the Primary
Assets for such Series have scheduled maturities differing from those of the
mortgage loans in the FHA statistics, the probability of prepayment of the Loans
comprising or underlying the Primary Assets may differ from that of mortgage
loans included in the FHA statistics. There is also no assurance that the
economic and other factors existing during the period covered by the FHA
statistics are applicable today or will be applicable in the future.
Neither CPR, SPA, or the FHA Prepayment Experience 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 Loans underlying or comprising the Primary Assets. Thus, it
is likely that prepayment of any Loans comprising or underlying the Primary
Assets for any Series will not conform to the FHA Prepayment Experience or to
any level of CPR or SPA.
The Prospectus Supplement for each Multi-Class Series will describe the
prepayment standard or model used to prepare the illustrative tables setting
forth the weighted average life of each Class of such Series under a given set
of prepayment assumptions. The related Prospectus Supplement will also describe
the percentage of the initial principal balance of each Class of such Series
that would be outstanding on specified Distribution Dates for such Series based
on the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Loans comprising or underlying the related Primary
Assets are made at rates corresponding to various percentages of the FHA
Prepayment Experience, 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 Certificates 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
Certificates or prepayment rates of the Loans comprising or underlying the
related Primary Assets.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Loan. Mortgage Loans made with respect to Multifamily Properties
may have provisions which prevent prepayment for a number of years and may
provide for payments of interest only during a certain period followed by
amortization of principal on the basis of a schedule extending beyond the
maturity of the related mortgage loan. ARMs, Bi-weekly Loans, GEM Loans, GPM
Loans or Buy-Down Loans comprising or underlying the Primary Assets may
experience a rate of principal prepayments which is different from the principal
prepayment rate for ARMs, Bi-weekly Loans, GEM Loans and GPM Loans included in
any other mortgage pool or from Conventional fixed rate Loans or from other
adjustable rate or graduated equity mortgages having different characteristics.
Because ARMs, Bi-weekly Loans, GEM Loans and GPM Loans have not been originated
in large quantities until recently, no statistics exist which indicate reliably
the respective rates of prepayment of such Loans in either stable or changing
interest rate environments, and accordingly no certainty exists as to what such
rates of prepayment might be.
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In the case of Negatively Amortizing ARMs, if interest rates rise without a
simultaneous increase in the related Scheduled Payment, Deferred Interest and
Negative Amortization may result. However, borrowers may pay amounts in addition
to their Scheduled Payments in order to avoid such Negative Amortization and to
increase tax deductible interest payments. To the extent that any of such
Mortgage Loans Negatively Amortize over their respective terms, future interest
accruals are computed on the higher outstanding principal balance of such
Mortgage Loan and a smaller portion of the Scheduled Payment is applied to
principal than would be required to amortize the unpaid principal over its
remaining term. Accordingly, the weighted average life of such Mortgage Loans
will increase. During a period of declining interest rates, the portion of each
Scheduled Payment in excess of the scheduled interest and principal due will be
applied to reduce the outstanding principal balance of the related Mortgage
Loan, thereby resulting in accelerated amortization of such ARM. Any such
acceleration in amortization of the principal balance of any Negatively
Amortizing ARM will shorten the weighted average life of such Mortgage Loan. The
application of partial prepayments to reduce the outstanding principal balance
of a Negatively Amortizing ARM will tend to reduce the weighted average life of
the Mortgage Loan and will adversely affect the yield to Holders who purchased
their Certificates at a premium, if any, and Holders of Interest Weighted
Classes. The pooling of Negatively Amortizing ARMs having Rate Adjustment Dates
in different months, together with different initial Mortgage Rates, Lifetime
Mortgage Rate Caps, Minimum Mortgage Rates and stated maturity dates, could
result in some Negatively Amortizing ARMs which comprise or underlie the Primary
Assets experiencing negative amortization while the amortization of other
Negatively Amortizing ARMs may be accelerated.
If the Loans comprising or underlying the Primary Assets for a Series
include ARMs that permit the borrower to convert to a long-term fixed interest
rate loan, the Master Servicer, Servicer, or PMBS Servicer, as applicable, may,
if specified in the related Prospectus Supplement, be obligated to repurchase
any Loan so converted. Any such conversion and repurchase would reduce the
average weighted life of the Certificates of the related Series.
A GEM Loan provides for scheduled annual increases in the borrower's
Scheduled Payment. Because the additional portion of the Scheduled Payment is
applied to reduce the unpaid principal balance of the GEM Loan, the stated
maturity of a GEM Loan will be significantly shorter than the 25 to 30 year term
used as the basis for calculating the installments of principal and interest
applicable until the first adjustment date.
The prepayment experience with respect to Manufactured Home Loans will
generally not correspond to the prepayment experience on other types of housing
loans. Even though some Manufactured Home Loans may be FHA Loans, no statistics
similar to those describing the FHA experience above are available with respect
to Manufactured Home Loans.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Loans comprising or underlying the Primary Assets which
are foreclosed in relation to the number of Loans which are repaid in accordance
with their terms will affect the weighted average life of the Loans comprising
or underlying the Primary Assets and that of the related Series of Certificates.
Servicing decisions made with respect to the Loans, including the use of payment
plans prior to a demand for acceleration and the restructuring of Loans in
bankruptcy proceedings, may also have an impact upon the payment patterns of
particular Loans. In particular, the return to Holders of Certificates who
purchased their Certificates at a premium, if any, and the return on an Interest
Weighted Class may be adversely affected by servicing policies and decisions
relating to foreclosures.
Due on Sale Clauses. The acceleration of repayment as a result of certain
transfers of the Mortgaged Property securing a Loan is another factor affecting
prepayment rates, and is a factor that is not reflected in the FHA experience.
While each of the Mortgage Loans included in the FHA statistics is assumable by
a purchaser of the underlying mortgaged property, the Loans constituting or
underlying the Primary Assets may include "due-on-sale" clauses. Except as
otherwise described in the Prospectus Supplement for a Series, the PMBS Servicer
of Loans underlying Private Mortgage-Backed Securities and the Master Servicer
or the Servicer of Loans constituting the Primary Assets for a Series will be
required, to the extent it knows of any conveyance or prospective conveyance of
the related residence by any borrower, to enforce any "due-on-sale" clause
applicable to the related Loan under the circumstances and in the manner it
enforces such clauses with
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respect to other similar loans in its portfolio. FHA Loans and VA Loans are not
permitted to contain "due-on-sale" clauses and are freely assumable by qualified
persons. However, as homeowners move or default on their housing loans, the
Mortgaged Property is generally sold and the loans prepaid, even though, by
their terms, the loans are not "due-on-sale" and could have been assumed by new
buyers.
Optional Termination. If so specified in the related Prospectus
Supplement, the entity specified therein may cause an early termination of the
related Trust Fund by its repurchase of the remaining Primary Assets therein.
See "DESCRIPTION OF THE CERTIFICATES -- Optional Termination".
THE TRUST FUNDS
GENERAL
The Trust Fund for each Series will be held by the Trustee for the benefit
of the related Certificateholders. Each Trust Fund will consist of (a) the
Primary Assets; (b) amounts held from time to time in the Collection Account and
the Certificate Account established for such Series; (c) Mortgaged Property
which secured a Loan and which is acquired on behalf of the Certificateholders
by foreclosure, deed in lieu of foreclosure or repossession; (d) any Reserve
Fund for such Series, if specified in the related Prospectus Supplement; (e) the
Servicing Agreements, if any, relating to Loans in the Trust Fund; (f) any
primary mortgage insurance policies relating to Loans in the Trust Fund; (g) any
pool insurance policy, any special hazard insurance policy, any bankruptcy bond
or other credit support relating to the Series; (h) investments held in any fund
or account or any Guaranteed Investment Contract and, if so specified in the
Prospectus Supplement, income from the reinvestment of such funds; and (i) any
other instrument or agreement relating to the Trust Fund and specified in the
related Prospectus Supplement (which may include an interest rate swap agreement
or an interest rate cap agreement or similar agreement issued by a bank,
insurance company or savings and loan association).
To the extent specified in the related Prospectus Supplement, certain
amounts in respect of Retained Interests which are received with respect to an
Agency Certificate, a Private Mortgage-Backed Security or a Loan comprising the
Primary Assets for a Series will not be included in the Trust Fund for such
Series, but will be payable to the seller of such Agency Certificate, Private
Mortgage-Backed Security or Loan, to the Master Servicer, if any, to a Servicer
or to the Depositor, free and clear of the interest of Certificateholders under
the related Trust Agreement.
Primary Assets in the Trust Fund for a Series may consist of any
combination of the following to the extent and as specified in the related
Prospectus Supplement: (a) GNMA Certificates (which may be GNMA I Certificates
or GNMA II Certificates), (b) FNMA Certificates, (c) FHLMC Certificates, (d)
Private Mortgage-Backed Securities, (e) Mortgage Loans or participation
interests therein and (f) Manufactured Home Loans or participation interests
therein. Private Mortgage-Backed Securities will evidence a beneficial ownership
interest in underlying assets which will consist of Agency Certificates or
Loans. Participation interests in a Loan Pool will be purchased by the
Depositor, or an affiliate, pursuant to a participation agreement (a
"Participation Agreement"). The interest acquired by the Depositor under such
Participation Agreement will be evidenced by a Pool Participation Certificate.
Unless otherwise specified in the related Prospectus Supplement, the terms of
such Participation Agreement are substantially the same as the terms of the
Trust Agreement and, except as noted herein, the description of provisions of
the Trust Agreement are equally descriptive of the terms of the Participation
Agreement. The Trustee will be the "certificateholder" with respect to a Pool
Participation Certificate. The executed Participation Agreement will be filed as
an exhibit to a Current Report on Form 8-K within 15 days following the issuance
of the Certificates. Loans which comprise the Primary Assets will be purchased
by the Depositor directly or through an affiliate in the open market or in
privately negotiated transactions. Some, none or all of the Loans may have been
originated by the Depositor or any of its affiliates. See "THE TRUST
AGREEMENTS -- Assignment of Primary Assets."
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GNMA CERTIFICATES
General. The GNMA Certificates will be "fully modified pass-through"
mortgage-backed certificates issued and serviced by GNMA-approved issuers of
GNMA certificates (the "GNMA Servicers") under the GNMA I and/or the GNMA II
program. The full and timely payment of principal of and interest on such GNMA
Certificates is guaranteed by GNMA, which obligation is backed by the full faith
and credit of the United States of America. The GNMA Certificates will be based
on and backed by a pool of eligible mortgage loans and will provide for the
payment by or on behalf of the GNMA Servicer to the registered holder of such
GNMA Certificate of monthly payments of principal and interest equal to the
aggregated amount of the monthly constant principal and interest payments on
each such mortgage loan, less servicing and guarantee fees aggregating the
excess of the interest on the mortgage loans over the GNMA Certificate's
pass-through rate. Each repayment to a holder of a GNMA Certificate will include
pass-through payments of any prepayments of principal of the mortgage loans
underlying the GNMA Certificate and the remaining principal balance in the event
of a foreclosure or other disposition of any such mortgage loan.
The GNMA Certificates do not constitute a liability of, or evidence any
recourse against, the GNMA Servicer, the Depositor or any affiliate of the
Depositor, and the only recourse of a registered holder, such as the Trustee or
its nominee, is to enforce the guarantee of GNMA.
GNMA approves the issuance of each GNMA Certificate in accordance with a
guaranty agreement (the "Guaranty Agreement") between GNMA and the GNMA Servicer
of such GNMA Certificate. Pursuant to the Guaranty Agreement, the GNMA Servicer
is required to advance its own funds in order to make timely payments of all
amounts due on the GNMA Certificate, whether or not the payments received by the
GNMA Servicer on the underlying mortgage loans equal the amounts due on such
GNMA Certificate. If a GNMA Servicer is unable to make a payment as it becomes
due, it must promptly notify GNMA and request GNMA to make the payment. Upon
notification and request, GNMA will make such payments directly to the
registered holder of the GNMA Certificate. In the event no payment is made by a
GNMA Servicer and the GNMA Servicer fails to notify and request GNMA to make
such payment, the holder of the GNMA Certificate has recourse only against GNMA
to obtain such payment. The Trustee or its nominee, as registered holder of the
GNMA Certificates, may proceed directly against GNMA under the terms of any GNMA
Certificate or the Guaranty Agreement relating to the GNMA Certificate for any
amounts that are not paid under the GNMA Certificate.
Monthly installment payments on a GNMA Certificate will be comprised of
interest due as specified on the GNMA Certificate plus the scheduled principal
payments on the mortgage loans backing such GNMA Certificate due on the first
day of the month in which the scheduled monthly installment on the GNMA
Certificate is due. The monthly installments on the GNMA Certificate will be
paid each month to the Trustee or its nominee as registered holder. In addition,
any principal prepayments or any other early recovery of principal on the
mortgage loans backing such GNMA Certificate received during any month will be
passed through to the registered holder of the GNMA Certificate the following
month.
With respect to GNMA Certificates issued under the GNMA I program, the GNMA
Servicer must make scheduled monthly payments of principal and interest, plus
pass-throughs of prepayments of principal and proceeds of foreclosures and other
dispositions of the mortgage loans, to registered holders no later than the
fifteenth day of each month. GNMA Certificates issued under the GNMA II program
provide for such payments to be mailed to registered holders by Chemical Bank,
as paying agent, no later than the twentieth day of each month. A further
difference between the two programs is that, under the GNMA I program single
issuer approach, an individual GNMA issuer assembles a pool of mortgages against
which it issues and markets GNMA I Certificates while, under the GNMA II
program, multiple issuer pools may be formed through the aggregation of loan
packages of more than one GNMA issuer. Under this option, packages submitted by
various GNMA issuers for a particular issue date and interest rate are
aggregated into a single pool which backs a single issue of GNMA II
Certificates. However, single issuer pools may be formed under the GNMA II
program as well.
The Underlying Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, mortgage loans underlying the GNMA Certificates included
in the Trust Fund for a Series will consist of
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FHA Loans or VA Loans, all of which are assumable by a purchaser. GNMA
Certificates securing a Series may be backed by level payment mortgage loans,
GNMA Loans, GEM Loans or Buy-Down Loans or adjustable rate mortgage loans or
other mortgage loans eligible for inclusion in a GNMA Certificate. The mortgage
loans may be secured by Manufactured Homes, Single Family Property or
Multifamily Property.
All mortgages underlying any GNMA Certificate issued under the GNMA I
program must have the same annual interest rate (except for pools of loans
secured by manufactured homes). The annual interest rate on each such GNMA
Certificate is equal to one-half percentage point less than the annual interest
rate on the mortgage loans backing such GNMA Certificate.
Mortgages underlying a GNMA Certificate issued under the GNMA II program
may have annual interest rates that vary from each other by up to one percentage
point. The annual interest rate on each such GNMA II Certificate is between
one-half percentage point and one and one-half percentage points less than the
highest annual interest rate on the mortgage loans included in the pool of
mortgages backing such GNMA Certificate.
All of the GNMA Certificates in a Trust Fund for a Series will have
original maturities of not more than 30 years and one month (but may have
original maturities of substantially less than 30 years but not less than 15
years). In general, GNMA requires that at least 90% of the original principal
amount of the mortgage pool underlying a GNMA Certificate must be composed of
mortgages with maturities of 20 years or more. However, in certain circumstances
GNMA Certificates may be backed by pools of mortgage loans in which at least 90%
of the original principal amount of the mortgage loans have original maturities
of only 15 years. No mortgage loan underlying a GNMA Certificate may be
originated more than 12 months prior to the date on which GNMA issues its
guarantee commitment for the GNMA Certificate.
The GNMA Certificates included in the Trust Fund for a Series may have
other characteristics and terms different from those described above, so long as
such GNMA Certificates and underlying mortgage loans meet the criteria of each
Rating Agency rating the Certificates of such Series. Such GNMA Certificates and
underlying mortgage loans will be described in the related Prospectus
Supplement.
GNMA. GNMA is a wholly owned corporate instrumentality to the United
States of America. Section 306(g) of Title III of the Housing Act authorizes
GNMA to guarantee the timely payment of the principal of and the interest on
certificates which are based on and backed by a pool of mortgages insured by the
FHA under the Housing Act or Title V of the Housing Act of 1949, or partially
guaranteed by the VA under the Servicemen's Readjustment Act of 1944, as
amended, or Chapter 37 of Title 38, United States Code, or by other eligible
mortgage loans.
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection." To meet its
obligations under such guarantees, GNMA may, under Section 306(d) of the Housing
Act, borrow from the United States Treasury an amount which is at any time
sufficient to enable GNMA, with no limitations as to amount, to perform its
obligations under its guarantee.
FNMA CERTIFICATES
General. FNMA Certificates are either Guaranteed Mortgage Pass-Through
Certificates, Stripped Mortgage Backed Securities or Guaranteed REMIC
Pass-Through Certificates. FNMA Certificates represent factional undivided
interests in a pool of mortgage loans formed by FNMA. Unless otherwise specified
in the related Prospectus Supplement, each pool consists of mortgage loans
secured by a first lien on a one- to four-family residential property. Mortgage
loans comprising a pool are either provided by FNMA from its own portfolio or
purchased pursuant to the criteria set forth under the FNMA purchase program.
FNMA guarantees to each holder of a FNMA certificate that it will
distribute amounts representing scheduled principal and interest (at the rate
provided for by such FNMA Certificate) on the mortgage loans in the pool
represented by such FNMA Certificate, whether or not received, and the holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of FNMA under its guarantees are obligations
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solely of FNMA and are neither backed by nor entitled to the full faith and
credit of the United States of America. If FNMA were unable to satisfy such
obligations, distributions on FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly,
delinquencies and defaults would affect monthly distributions on such FNMA
Certificates and could adversely affect the payments on the Certificates of a
Series secured by such FNMA Certificates.
Unless otherwise specified in the related Prospectus Supplement, FNMA
Certificates evidencing interests in pools formed on or after May 1, 1985 (other
than FNMA Certificates backed by pools containing GPM Loans or mortgage loans
secured by multifamily projects) will be available in book-entry form only.
Distributions of principal of and interest on each FNMA Certificate will be made
by FNMA on the twenty-fifth day of each month to the persons in whose name the
FNMA Certificates are entered in the books of the Federal Reserve Bank of New
York (or registered on the FNMA Certificate register in the case of fully
registered FNMA Certificates) as of the close of business on the last day of the
preceding month. With respect to FNMA Certificates issued in book-entry form,
distributions will be made by wire; with respect to FNMA Certificates issued in
fully registered form, distributions will be made by check.
The Underlying Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, mortgage loans underlying FNMA Certificates in the Trust
Fund for a Series will consist of (i) fixed-rate level payment mortgage loans
that are Conventional Loans, (ii) fixed-rate level payment FHA Loans or VA
Loans, (iii) adjustable rate mortgage loans or GEM Loans, Buy-Down Loans or GPM
Loans, and (iv) mortgage loans secured by Single Family Property or by
Multifamily Property. Each mortgage loan must meet the applicable standards set
forth under the FNMA purchase program.
The original maturities of substantially all of the fixed rate level
payment Conventional Mortgage Loans are expected to be between either eight to
15 years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
FNMA Stripped Mortgage Backed Securities are issued by FNMA in series of
two or more classes, with each class representing a specified undivided
fractional interest in principal distributions and/or interest distributions
(adjusted to the series pass-through rate) on the underlying pool of mortgage
loans. The fractional interests of each class in principal and interest
distributions are not identical, but the classes in the aggregate represent 100%
of the principal distributions and interest distributions (adjusted to the
series pass-through rate) on the respective pool. Because of such difference
between the fractional interests in principal and interest of each class, the
effective rate of interest on the principal of each class of FNMA Stripped
Mortgage Backed Securities may be significantly higher or lower than the series
pass-through rate and/or the weighted average interest rate of the underlying
mortgage loans. The Guaranteed REMIC Pass-Through Certificates are
multiple-class pass-through certificates (representing beneficial interests in a
pool consisting primarily of FNMA or GNMA Certificates) as to which FNMA has
elected REMIC status for federal income tax purposes.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate (and the series pass-through rate payable
with respect to a FNMA Stripped Mortgage Backed Security) is equal to the lowest
interest rate of any mortgage loan in the related pool, less a specified minimum
annual percentage representing servicing compensation and FNMA's guarantee fee.
Under a regular servicing option (pursuant to which the mortgagee or other
servicer assumes the risk of foreclosure losses), the annual interest rates on
the mortgage loans underlying a FNMA Certificate will be between .50 and 2.50
percentage points greater than the annual interest rate for the FNMA Certificate
(or the series pass-through rate payable with respect to a FNMA Stripped
Mortgage Backed Security), and, under a special servicing option (pursuant to
which the mortgagee or other servicer is reimbursed by FNMA for foreclosure
losses), the annual interest rates on the mortgage loans underlying a FNMA
Certificate will be between .55 and 2.55 percentage points greater than the
annual FNMA Certificate interest rate (or the series pass-through rate payable
with respect to a FNMA Stripped Mortgage Backed Security).
The Trust Fund for a Series may include FNMA Certificates having
characteristics and terms different from those described above, so long as such
FNMA Certificates and underlying mortgage loans meet the
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criteria of each Rating Agency rating the Series. Such FNMA Certificates and
underlying mortgage loans will be described in the related Prospectus
Supplement.
FNMA. FNMA is a federally chartered and stockholder-owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended (12 U.S.C. sec.1716 et seq.). FNMA was originally established in
1938 as a United States government agency to provide supplemental liquidity to
the mortgage market and was transformed into a stockholder-owned and privately
managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from lenders, thereby replenishing their funds for additional
lending. FNMA acquires funds to purchase loans from any capital market investors
that may not ordinarily invest in mortgage loans, thereby expanding the total
amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas. In
addition, FNMA issues mortgage backed securities, primarily in exchange for
pools of mortgage loans from lenders. See "ADDITIONAL INFORMATION" herein for
the availability of further information with respect to FNMA and FNMA
Certificates.
FHLMC CERTIFICATES
General. The FHLMC Certificates represent an undivided interest in a group
of mortgages or participations therein (a "PC Pool") purchased by FHLMC. FHLMC
Certificates are sold under the terms of a Mortgage Participation Certificate
Agreement and may be issued under either FHLMC's "Cash Program" or "Guarantor
Program" or may be Multiclass Mortgage Participation Certificates (Guaranteed)
representing multiple classes of certificates of beneficial interest in a pool
consisting primarily of FHLMC Certificates.
Under FHLMC's Cash Program, with respect to PC Pools formed prior to June
1, 1987 there is no limitation on the amount by which interest rates on the
mortgage loans underlying a FHLMC Certificate may exceed the pass-through rate
on the FHLMC Certificate; with respect to FHLMC Certificates issued on or after
that date, the maximum interest rate on the mortgage loans underlying such FHLMC
Certificates cannot exceed the pass-through rate on such FHLMC Certificates by
more than two hundred basis points. Under such program, FHLMC purchases groups
of whole mortgage loans from a number of sellers at specified percentages of
their unpaid principal balances, adjusted for accrued or prepaid interest,
which, when applied to the interest rate of the mortgage loans and
participations purchased, results in the yield (expressed as a percentage)
required by FHLMC. The required yield, which includes a minimum servicing fee
retained by the servicer, is calculated using the outstanding principal balance
of the mortgage loans, an assumed term and a prepayment period as determined by
FHLMC. No loan or participation is purchased by FHLMC at greater than 100% of
the outstanding principal balance. The range of interest rates on the mortgage
loans and participations in a PC Pool for a FHLMC Certificate issued under the
Cash Program will vary since mortgage loans and participations are purchased and
assigned to a PC Pool based upon their yield to FHLMC rather than on the
interest rate on the underlying mortgage loans. However, beginning with PC Pools
formed on or after June 1, 1987, the range of interest rates on the mortgages in
Cash Program PC Pools will not exceed 100 basis points.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC
Certificate is established based upon the lowest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guaranty income as agreed upon between the seller and FHLMC. For FHLMC
Certificate groups formed under the Guarantor Program, the range between the
lowest and highest annual interest rates on the mortgage loans in a PC Pool may
not exceed two hundred basis points, and beginning with PC Pools formed in
December 1987 under the Guarantor Program, the range of the interest rates on
the mortgage loans in a PC Pools will not exceed 100 basis points.
The FHLMC Certificates will be guaranteed by FHLMC as to the timely payment
of interest at the applicable FHLMC Certificate rate on the holder's pro rata
share of the unpaid principal balance outstanding on the underlying mortgage
loans, whether or not received. FHLMC also guarantees payment of principal on
the underlying mortgage loans, without any offset or deduction, to the extent of
the registered holder's pro rata share thereof, but does not, except with
respect to "Scheduled Principal" FHLMC Certificates issued under
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the Guarantor Program, guarantee the timely payment of scheduled principal.
Pursuant to its guarantee, FHLMC indemnifies holders of FHLMC Certificates
against any diminution in principal by reason of charges for property repairs,
maintenance and foreclosure. FHLMC may remit the amount due on account of its
guarantee of collection of principal at any time after default on an underlying
mortgage loan, but not later than (i) 30 days following foreclosure sale, (ii)
30 days following payment of the claim by any mortgage insurer or (iii) 30 days
following the expiration of any right of redemption, whichever occurs later, but
in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. In taking actions regarding the
collection of principal after default on the mortgage loans underlying FHLMC
Certificates, including the timing of demand for acceleration, FHLMC requires
servicers to service mortgages in substantially the same manner as for mortgages
which FHLMC has purchased but not sold. The length of time necessary for FHLMC
to determine that a mortgage loan should be accelerated varies with the
particular circumstances of each mortgagor, and FHLMC has not adopted servicing
standards which require that the demand be made within any specified period.
Holders of FHLMC Certificates are entitled to receive their pro rata share
of all principal payments on the underlying mortgage loans received by FHLMC,
including any scheduled principal payments, full and partial prepayments of
principal and principal received by FHLMC by virtue of condemnation, insurance,
liquidation or foreclosure, including repayments of principal resulting from
acquisition by FHLMC of the real property securing the mortgage. FHLMC is
required to remit to each holder its pro rata share of principal payments on the
underlying mortgage loans, interest at an applicable FHLMC Certificate rate and
any other sums, such as prepayment fees, within 60 days of the date on which
FHLMC is deemed to receive such payments.
FHLMC Certificates are not guaranteed by, and do not constitute debts or
obligations of, either the United States of America or any Federal Home Loan
Bank. If FHLMC were unable to satisfy such obligations, distributions on FHLMC
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans, and, accordingly, delinquencies and defaults would
affect monthly distributions on such FHLMC Certificates and could adversely
affect distributions on the Certificates of such Series.
Requests for registration of ownership of FHLMC Certificates made on or
before the last business day of a month are made effective as of the first day
of that month. With respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, the Federal Reserve Bank of New York maintains book-entry
accounts with respect thereto and makes payments of interest and principal each
month to holders in accordance with the holders' instructions. The first payment
to a holder of an FHLMC Certificate will normally be received by the holder by
the fifteenth day of the second month following the month in which such person
became a holder of the FHLMC Certificate. Thereafter, payments will normally be
received by the fifteenth day of each month.
The Underlying Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, each PC Pool underlying the FHLMC Certificates in the
Trust Fund for a Series will consist of first lien, fixed-rate, fully
amortizing, conventional residential mortgages or participation interests
therein. Unless otherwise specified in the related Prospectus Supplement, all of
the mortgage loans evidenced by a FHLMC Certificate are conventional mortgages
and therefore do not have the benefit of any guarantee or insurance by, and are
not obligations of, the United States of America. All mortgages purchased by
FHLMC must meet certain standards set forth in the FHLMC Act (as defined below).
The Trust Fund for a Series may include FHLMC Certificates having other
characteristics and terms different from those described above, so long as such
FHLMC Certificates and the underlying mortgage loans meet the criteria of each
Rating Agency rating the Certificates of such Series. Such FHLMC Certificates
and underlying mortgage loans will be described in the related Prospectus
Supplement.
FHLMC. FHLMC is a corporate instrumentality of the United States of
America created pursuant to an Act of Congress (title III of the Emergency Home
Finance Act of 1970, as amended, 12 U.S.C. sec.sec.1451-1459) on July 24, 1970
(the "FHLMC Act"). FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of needed housing. It
provides an enhanced degree of liquidity for residential mortgage investments
primarily by assisting in the development of secondary
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markets for conventional mortgages. The principal activity of FHLMC consists of
the purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans from mortgage lending
institutions and the resale of the whole loans and participations so purchased
in the form of guaranteed mortgage securities, primarily FHLMC Certificates. In
1981, FHLMC initiated its Guarantor Program under which FHLMC purchases
mortgages from sellers in exchange for FHLMC Certificates representing interests
in the mortgages so purchased. Transactions under the Guarantor Program have
resulted in a significant increase in the volume of FHLMC's purchases of
mortgages and sales of FHLMC Certificates. All mortgage loans purchased by FHLMC
must meet certain standards set forth in the FHLMC Act. FHLMC is confined to
purchasing, so far as practicable, mortgage loans which it deems to be of such
quality, type and class as to meet generally the purchase standards imposed by
private institutional mortgage investors. See "ADDITIONAL INFORMATION" for the
availability of further information with respect to FHLMC and FHLMC
Certificates.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates, evidencing an undivided interest in a pool of Loans
or Agency Certificates, or (b) collateralized mortgage obligations secured by
Loans or Agency Certificates. Private Mortgage-Backed Securities will have been
issued pursuant to a pooling and servicing agreement, a trust agreement, an
indenture or similar agreement (a "PMBS Agreement"). The seller/servicer of the
underlying Loans, or the issuer of the collateralized mortgage obligations, as
the case may be, 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 Loans underlying such Private Mortgage-Backed
Security. Loans underlying a Private Mortgage-Backed Security will be serviced
by a servicer (the "PMBS Servicer") directly or by one or more sub-servicers who
may be subject to the supervision of the PMBS Servicer. The PMBS Servicer will
be an FNMA or FHLMC approved servicer and, if FHA Loans underlie the Private
Mortgage-Backed Securities, approved by HUD as an FHA mortgagee.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
will 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
purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts, and selling beneficial interests in such trusts;
or one of such trusts. If so specified in the Prospectus Supplement, the PMBS
Issuer may be an affiliate of the Depositor. 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 Loans 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 PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Loans. The Loans underlying the Private Mortgage-Backed
Securities may consist of fixed rate, level payment, fully amortizing Loans or
GEM Loans, GPM Loans, Buy-Down Loans, Bi-Weekly Loans, ARMs, or Loans having
balloon or other irregular payment features. Loans may be secured by Single
Family Property, Multifamily Property, Manufactured Homes, or, in the case of
Cooperative Loans, by an assignment of the proprietary lease or occupancy
agreement relating to a Cooperative Dwelling and the shares issued by the
related cooperative. Except as otherwise specified in the related Prospectus
Supplement, (i) no
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Loan shall have had a Loan-to-Value Ratio at origination in excess of 95%, (ii)
each Mortgage Loan secured by Single Family Property and having a Loan-to-Value
Ratio in excess of 80% at origination will be covered by a primary mortgage
insurance policy, (iii) each Loan will have had an original term to stated
maturity of not less than 10 years and not more than 40 years, (iv) no Loan that
was more than 30 days delinquent as to the payment of principal or interest will
have been eligible for inclusion in the assets under the related PMBS Agreement,
(v) each Loan (other than a Cooperative Loan) will be required to be covered by
a standard hazard insurance policy (which may be a blanket policy), and (vi)
each Loan (other than a Cooperative Loan or a Loan secured by a Manufactured
Home) will be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support 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
Loans underlying the Private Mortgage-Backed Securities or with respect to the
Private Mortgage-Backed Securities themselves. The type, characteristics and
amount of credit support will be a function of certain characteristics of the
Loans and other factors and will have been established for the Private
Mortgage-Backed Securities on the basis of requirements of the Rating Agency.
Additional Information. The Prospectus Supplement for a Series for which
the Trust Fund includes Private Mortgage-Backed Securities will specify, to the
extent relevant, (i) the aggregate approximate principal amount and type of the
Agency Certificates and Private Mortgage-Backed Securities to be included in the
Trust Fund; (ii) certain characteristics of the Agency Certificates or Loans
which comprise the underlying assets for the Private Mortgage-Backed Securities
including, in the case of Loans, (A) the payment features of such Loans (i.e.,
whether they are fixed rate or adjustable rate and whether they provide for
fixed level payments or other payment features), (B) the approximate aggregate
principal balance, if known, of underlying Loans insured or guaranteed by a
governmental entity, (C) the servicing fee or range of servicing fees with
respect to the Loans, and (D) the minimum and maximum stated maturities of the
underlying Loans 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 certificate rate or ranges thereof for the Private
Mortgage-Backed Securities; (vi) the weighted average pass-through or
certificate rate of the Private Mortgage-Backed Securities; (vii) the PMBS
Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee
for such Private Mortgage-Backed Securities; (viii) certain characteristics of
credit support, if any, such as Reserve Funds, Insurance Policies, letters of
credit or guarantees relating to the Loans underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves; (ix) the terms on which the underlying Loans for such Private
Mortgage-Backed Securities may, or are required to, be purchased prior to their
stated maturity or the stated maturity of the Private Mortgage-Backed Securities
and (x) the terms on which Loans may be substituted for those originally
underlying the Private Mortgage-Backed Securities.
If information of the nature described above representing the Private
Mortgage-Backed Securities or Agency Certificates is not known to the Depositor
at the time the Certificates are initially offered, approximate or more general
information of the nature described above will be provided in the Prospectus
Supplement and the additional 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 related
Series and to be filed with the Commission within 15 days after the initial
issuance of such Certificates.
THE MORTGAGE LOANS
General. The Trust Fund for a Series may consist of Mortgage Loans or
participation interests therein. Mortgage Loans comprising the Primary Assets
and Mortgage Loans in which participation interests are conveyed to the Trustee
are both referred to herein as the "Mortgage Loans". The Mortgage Loans will
have been originated by a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution which is
supervised and examined by a Federal or State authority or by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to sections
203 and 211 of the National Housing Act. Some, none or all of the Mortgage Loans
may have been originated by the
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Depositor or an affiliate thereof. The Mortgage Loans may include Conventional
Loans, FHA Loans or VA Loans. The Mortgage Loans may have fixed interest rates
or adjustable interest rates and may provide for fixed level payments or may be
GPM Loans, GEM Loans, Buy-Down Loans, Bi-Weekly Loans or Mortgage Loans with
other payment characteristics as described below and under "YIELD, PREPAYMENT
AND MATURITY CONSIDERATIONS" herein and in the related Prospectus Supplement.
The Mortgage Loans may be secured by mortgages or deeds of trust or other
similar security instruments creating a first lien on Mortgaged Property. The
Mortgage Loans may also include Cooperative Loans evidenced by promissory notes
secured by a lien on the shares issued by private, non-profit, cooperative
housing corporations and on the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific Cooperative Dwellings.
The Mortgage Loans may also include Condominium Loans secured by a Mortgage on a
Condominium Unit together with such Condominium Unit's appurtenant interest in
the common elements.
The Mortgaged Properties may include Single Family Property (i.e., one- to
four-family residential housing, including Condominium Units, and Cooperative
Dwellings) or Multifamily Property (i.e., multifamily residential rental
properties or cooperatively-owned properties consisting of five or more dwelling
units). The Mortgaged Properties may consist of detached individual dwellings,
individual condominiums, townhouses, duplexes, row houses, individual units in
planned unit developments and other attached dwelling units. Multifamily
Property may include mixed commercial and residential structures. Each Single
Family Property and Multifamily Property will be located on land owned in fee
simple by the borrower or on land leased by the borrower for a term at least two
years greater than the term of the related Mortgage Loan. The fee interest in
any leased land will be subject to the lien securing the related Mortgage Loan.
Attached dwellings may include owner-occupied structures where each borrower
owns the land upon which the unit is built, with the remaining adjacent land
owned in common or dwelling units subject to a proprietary lease or occupancy
agreement in a cooperatively owned apartment building. The proprietary lease or
occupancy agreement securing a Cooperative Loan is generally subordinate to any
blanket mortgage on the related cooperative apartment building and/or on the
underlying land. Additionally, in the case of a Cooperative Loan, the
proprietary lease or occupancy agreement is subject to termination and the
cooperative shares are subject to cancellation by the cooperative if the
tenant-stockholder fails to pay maintenance or other obligations or charges owed
by such tenant-stockholder. See "CERTAIN LEGAL ASPECTS OF LOANS".
The aggregate principal balance of Mortgage Loans which are owner-occupied
will be disclosed in the related Prospectus Supplement. Unless otherwise
specified in the Prospectus Supplement, the sole basis for a representation that
a given percentage of the Mortgage Loans are secured by Single-Family Property
that is owner-occupied will be either (i) the making of a representation by the
mortgagor at origination of the Mortgage Loan either that the underlying
Mortgaged Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Mortgaged Property as
a primary residence, or (ii) a finding that the address of the underlying
Mortgaged Property is the borrower's mailing address as reflected in the
Servicer's records. To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include non-owner occupied investment
properties and vacation and second homes. Mortgage Loans secured by investment
properties and Multifamily Property may also be secured by an assignment of
leases and rents and operating or other cash flow guarantees relating to the
Loans to the extent specified in the related Prospectus Supplement.
The characteristics of the Mortgage Loans comprising or underlying the
Primary Assets for a Series may vary to the extent that credit support is
provided in levels satisfactory to the Rating Agency which assigns a rating to a
Series of Certificates. Unless otherwise specified in the related Prospectus
Supplement for a Series, the following selection criteria shall apply with
respect to the Mortgage Loans comprising the Primary Assets:
(a) no Mortgage Loan shall have had a Loan-to-Value Ratio at
origination in excess of 95%;
(b) no Mortgage Loan that is a Conventional Loan secured by a Single
Family Property may have a Loan-to-Value Ratio in excess of 80%, unless
covered by a primary mortgage insurance policy as described herein;
(c) each Mortgage Loan must have an original term to maturity of not
less than 10 years and not more than 40 years;
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(d) no Mortgage Loan may be included which, as of the Cut-off Date, is
more than 30 days delinquent as to payment of principal or interest;
(e) no Mortgage Loan (other than a Cooperative Loan) may be included
unless a title insurance policy or, in lieu thereof, an attorney's opinion
of title, and a standard hazard insurance policy (which may be a blanket
policy) is in effect with respect to the Mortgaged Property securing such
Mortgage Loan.
The initial Loan-to-Value Ratio of any Mortgage Loan represents the ratio
of the principal amount of the Mortgage Loan outstanding at the origination of
such loan divided by the fair market value of the mortgaged property, as shown
in the appraisal prepared in connection with origination of the Mortgage Loan
(the "Appraised Value"). The fair market value of the Mortgaged Property
securing any Mortgage Loan is the lesser of the purchase price paid by the
borrower or the Appraised Value of such Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, with
respect to Buy-Down Loans, during the period (the "Buy-Down Period") when the
borrower is not obligated, on account of the buy-down plan, to pay the full
Scheduled Payment otherwise due on such loan, each of the Buy-Down Loans will
provide for Scheduled Payments based on a hypothetical reduced interest rate
(the "Buy-Down Mortgage Rate") that will not have been more than 3% below the
mortgage rate at origination, and for annual increases in the Buy-Down Mortgage
Rate during the Buy-Down Period that will not exceed 1%. The Buy-Down Period
will not exceed three years. The maximum amount of the Buy-Down Amounts that may
be contributed with respect to a Mortgaged Property having a Loan-to-Value Ratio
(i) of 90% or less at origination is limited to 10% of the Appraised Value of
the Mortgaged Property, and (ii) in excess of 90% at origination is limited to
6% of the Appraised Value of the Mortgaged Property, unless otherwise indicated
in the applicable Prospectus Supplement. Unless specified otherwise in the
related Prospectus Supplement, the maximum amount of Funds ("Buy-Down Amounts")
that may be contributed by the Servicer of the related Mortgaged Loan is limited
to 6% of the Appraised Value of the Mortgaged Property. This limitation does not
apply to contributions from immediate relatives or the employer of the
mortgagor. Except as may be otherwise indicated in the related Prospectus
Supplement, the borrower under each Buy-Down Loan will have been qualified at a
mortgage rate which is not more than 3% per annum below the current mortgage
rate at origination. Accordingly, the repayment of a Buy-Down Loan is dependent
on the ability of the borrower to make larger Scheduled Payments after the
Buy-Down Amounts have been depleted and, for certain Buy-Down Loans, while such
Buy-Down Amounts are being depleted.
Unless otherwise specified in the related Prospectus Supplement, with
respect to Multifamily Property, (a) no Mortgage Loan will have been delinquent
for more than 30 days within the 12-month period ending with the Cut-off Date,
(b) no more than two payments will have been 30 days or more delinquent during a
three-year period ending on the Cut-off Date, (c) Mortgage Loans with respect to
any single borrower will not exceed 5% of the aggregate principal balance of the
Loans comprising the Primary Assets as of the Cut-off Date, and (d) the debt
service coverage ratio with respect to each Mortgage Loan (calculated as
described in the related Prospectus Supplement) will not be less than 1.1:1.
Unless otherwise specified in the related Prospectus Supplement, the
Bi-Weekly Loans will consist of fixed-rate, bi-weekly payment, conventional,
fully-amortizing Mortgage Loans payable on every other Friday during the term
thereof and secured by first mortgages on one-to-four family residential
properties.
Unless otherwise specified in the related Prospectus Supplement, the ARMs
will provide for a fixed initial mortgage rate for either the first six or
twelve scheduled Scheduled Payments. Thereafter, the Mortgage Rates are subject
to periodic adjustment based, subject to the applicable limitations, on changes
in the relevant Index described in the applicable Prospectus Supplement, to a
rate equal to the Index plus the Gross Margin, which is a fixed percentage
spread over the Index established contractually for each ARM at the time of its
origination. An ARM may be convertible into a fixed-rate Mortgage Loan. To the
extent specified in the related Prospectus Supplement, any ARM so converted may
be subject to repurchase by the Servicer.
ARMs have features that are relatively new for the residential lending
market in the United States. In particular, adjustable mortgage rates can cause
payment increases that some borrowers may find difficult to
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make. However, each of the ARMs provides that its mortgage rate may not be
adjusted to a rate above the applicable lifetime mortgage rate cap (the
"Lifetime Mortgage Rate Cap") or below the applicable lifetime minimum mortgage
rate (the "Minimum Mortgage Rate"), if any, for such ARM. In addition, certain
of the ARMs provide for limitations on the maximum amount by which their
mortgage rates may adjust for any single adjustment period (the "Maximum
Mortgage Rate Adjustment"). Some ARMs are payable in self-amortizing payments of
principal and interest. Other ARMs ("Negatively Amortizing ARMs") instead
provide for limitations on changes in the Scheduled Payment on such ARMs to
protect borrowers from payment increases due to rising interest rates. Such
limitations can result in Scheduled Payments which are greater or less than the
amount necessary to amortize a Negatively Amortizing ARM by its original
maturity at the mortgage rate in effect during any particular adjustment period.
In the event that the Scheduled Payment is not sufficient to pay the interest
accruing on a Negatively-Amortizing ARM, then the Deferred Interest is added to
the principal balance of such ARM causing the negative amortization thereof, and
will be repaid through future Scheduled Payments. If specified in the related
Prospectus Supplement, Negatively-Amortizing ARMs may provide for the extension
of their original stated maturity to accommodate changes in their mortgage rate.
The relevant Prospectus Supplement will specify whether the ARMs comprising or
underlying the Primary Assets are Negatively Amortizing ARMs.
Unless otherwise specified in the related Prospectus Supplement, the index
applicable to any ARMs comprising the Primary Assets (the "Index") will be the
three-year Treasury Index, the one-year Treasury Index, the Six Month Treasury
Index, the Eleventh District Costs of Funds Index or the National Monthly Median
Cost of Funds Ratio to FSLIC-Insured Institutions. The Prospectus Supplement for
each Series will specify the applicable Index with respect to any Mortgage Loans
underlying such Series.
The related Prospectus Supplement for each Series will provide information
with respect to the Mortgage Loans as of the Cut-off Date, including, among
other things, (a) the aggregate outstanding principal balance of the Mortgage
Loans; (b) the weighted average Mortgage Rate on the Mortgage Loans, and, in the
case of ARMs, the weighted average of the current mortgage rates and the
Lifetime Mortgage Rate Caps, if any; (c) the average outstanding principal
balance of the Mortgage Loans; (d) the weighted average term-to-stated maturity
of the Mortgage Loans and the range of remaining terms-to-stated maturity; (e)
the range of Loan-to-Value Ratios for the Mortgage Loans; (f) the relative
percentage (by outstanding principal balance as of the Cut-off Date) of Mortgage
Loans that are ARMs, Buy-Down Loans, GEM Loans, GPM Loans, Cooperative Loans,
Conventional Loans, Bi-Weekly Loans, FHA Loans and VA Loans; (g) the percentage
of Mortgage Loans (by outstanding principal balance as of the Cut-off Date) that
are covered by primary mortgage insurance policies; (h) any pool insurance
policy, special hazard insurance policy or bankruptcy bond or other credit
support relating to the Mortgage Loans; (i) the geographic distribution of the
Mortgaged Properties securing the Mortgage Loans and (j) the percentage of
Mortgage Loans (by principal balance as of the Cut-off Date) that are secured by
Single Family Property, Multifamily Property, Cooperative Dwellings, investment
property and vacation or second homes. The related Prospectus Supplement will
also specify any other limitations on the types or characteristics of Mortgage
Loans which may comprise or underlie the Primary Assets for a Series.
If information of the nature described above respecting the Mortgage Loans
is not known to the Depositor at the time the Certificates are initially
offered, approximate or more general information of the nature described above
will be provided in the Prospectus Supplement and additional 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 related Series and to be filed with the Commission
within 15 days after the initial issuance of such Certificates.
THE MANUFACTURED HOME LOANS
The Manufactured Home Loans comprising or underlying the Primary Assets for
a Series of Certificates will consist of manufactured housing conditional sales
contracts and installment loan agreements originated by a manufactured housing
dealer in the ordinary course of business and purchased by the Depositor. Each
Manufactured Home Loan will have been originated by a bank or savings
institution which is a FNMA- or FHLMC-approved seller/servicer or by any
financial institution approved for insurance by the Secretary of Housing and
Urban Development pursuant to Section 2 of the National Housing Act.
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The Manufactured Home Loans may be Conventional Loans, FHA Loans or VA
Loans. Each Manufactured Home Loan will be secured by a Manufactured Home.
Unless otherwise specified in the related Prospectus Supplement, the
Manufactured Home Loans will be fully amortizing and will bear interest at a
fixed interest rate.
The Manufactured Homes securing the Manufactured Home Loans consist of
manufactured homes within the meaning of 42 United States Code, Section 5402(6),
which defines a "manufactured home" as "a structure, transportable in one or
more sections, which in the traveling mode, is eight body feet or more in width
or forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air-
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of [this] paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under [this] chapter."
Unless otherwise specified in the related Prospectus Supplement for a
Series, the following restrictions apply with respect to Manufactured Home Loans
comprising or underlying the Primary Assets for a Series:
(a) no Manufactured Home Loan shall have had a Loan-to-Value Ratio at
origination in excess of 95%;
(b) each Manufactured Home Loan must have an original term to maturity
of not less than three years and not more than 25 years;
(c) no Manufactured Home Loan may be as of the Cut-off Date more than
30 days delinquent as to payment of principal or interest; and
(d) each Manufactured Home Loan must have, as of the Cut-off Date, a
standard hazard insurance policy (which may be a blanket policy) in effect
with respect thereto.
The initial Loan-to-Value Ratio of any Manufactured Home Loan represents
the ratio of the principal amount of the Manufactured Home Loan outstanding at
the origination of such loan divided by the fair market value of the
Manufactured Home, as shown in the appraisal prepared in connection with
origination of the Manufactured Home Loan (the "Appraised Value"). The fair
market value of the Manufactured Home securing any Manufactured Home Loan is the
lesser of the purchase price paid by the borrower or the Appraised Value of such
Manufactured Home. With respect to underwriting of Manufactured Home Loans, see
"LOAN UNDERWRITING PROCEDURES AND STANDARDS". With respect to servicing of
Manufactured Home Loans, see "SERVICING OF LOANS".
The related Prospectus Supplement for each Series will provide information
with respect to the Manufactured Home Loans comprising the Primary Assets as of
the Cut-off Date, including, among other things, (a) the aggregate outstanding
principal balance of the Manufactured Home Loans comprising or underlying the
Primary Assets; (b) the weighted average interest rate on the Manufactured Home
Loans; (c) the average outstanding principal balance of the Manufactured Home
Loans; (d) the weighted average scheduled term to maturity of the Manufactured
Home Loans and the range of remaining scheduled terms to maturity; (e) the range
of Loan-to-Value Ratios of the Manufactured Home Loans; (f) the relative
percentages (by principal balance as of the Cut-off Date) of Manufactured Home
Loans that were made on new Manufactured Homes and on used Manufactured Homes;
(g) any pool insurance policy, special hazard insurance policy or bankruptcy
bond or other credit support relating to the Manufactured Home Loans; and (h)
the distribution by state of Manufactured Homes securing the Loans. The related
Prospectus Supplement will also specify any other limitations on the types or
characteristics of Manufactured Home Loans which may be included in the Primary
Assets for a Series.
If information of the nature specified above respecting the Manufactured
Home Loans is not known to the Depositor at the time the Certificates are
initially offered, approximate or more general information of the nature
described above will be provided in the Prospectus Supplement and additional
information will be set
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forth in a Current Report on Form 8-K to be available to investors on the date
of issuance of the related Series and to be filed with the Commission within 15
days after the initial issuance of such Certificates.
COLLECTION ACCOUNT AND CERTIFICATE ACCOUNT
A separate Collection Account for each Series will be established by the
Master Servicer in the name of the Trustee for deposit of all distributions
received with respect to the Primary Assets for such Series, the amount of cash
to be initially deposited therein, if any, and reinvestment income thereon.
Unless otherwise specified in the related Prospectus Supplement, any
reinvestment income or other gain from investments of funds in the Collection
Account will be credited to such Collection Account, and any loss resulting from
such investments will be charged to such Collection Account. Such reinvestment
income may, however, be payable to the Master Servicer or to a Servicer as
additional servicing compensation. See "SERVICING OF LOANS" and "THE TRUST
AGREEMENTS -- Investment of Funds." In such a case, such reinvestment income
would not be included in calculation of the Available Distribution Amount. See
"DESCRIPTION OF THE CERTIFICATES -- Distributions on the Certificates."
Funds on deposit in the Collection Account will be available for remittance
to the Trustee for deposit into the Certificate Account to the extent of the
Available Distribution Amount and for certain other payments provided for in the
Trust Agreement. Unless otherwise specified in the Prospectus Supplement,
amounts in the Collection Account constituting reinvestment income which is
payable to the Master Servicer as additional servicing compensation or for the
reimbursement of advances or expenses, amounts in respect of any Excess
Servicing Fee, Retained Interest, and amounts to be deposited into any reserve
fund will not be included in determining amounts to be remitted to the Trustee
for deposit into the Certificate Account.
A separate Certificate Account will be established by the Trustee in the
name of the Trustee for the benefit of the Certificateholders into which all
funds received from the Master Servicer and all required withdrawals from any
reserve funds for such Series will be deposited, pending distribution to the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, any reinvestment income or other gain from investments of funds in
the Certificate Account will be credited to the Certificate Account and any loss
resulting from such investments will be charged to such Certificate Account.
Such reinvestment income, may, however, be payable to the Master Servicer as
additional servicing compensation. On each Distribution Date, all funds on
deposit in the Certificate Account, subject to certain permitted withdrawals by
the Trustee as set forth in the Trust Agreement, will be available for
remittance to the Certificateholders. See also "THE TRUST
AGREEMENTS -- Certificate Account" herein.
OTHER FUNDS OR ACCOUNTS
A Trust Fund may include certain other funds and accounts or a security
interest in certain funds and accounts for the purpose of, among other things,
paying certain administrative fees and expenses of the Trust and accumulating
funds pending their distribution. If so specified in the related Prospectus
Supplement, certain funds may be established with the Trustee with respect to
Buy-Down Loans, GPM Loans, or other Loans having special payment features
included in the Trust Fund in addition to or in lieu of any such similar funds
to be held by the Servicer. See "SERVICING OF LOANS -- Payments on Loans;
Deposits to Custodial Accounts." If Private Mortgage-Backed Securities are
backed by GPM Loans and the Asset Value with respect to a Multi-Class Series is
determined on the basis of the scheduled maximum principal balance of the GPM
Loans, a GPM Fund will be established which will be similar to that which would
be established if GPM Loans constituted the Primary Assets. See "SERVICING OF
LOANS -- Payments on Loans; Deposits to Custodial Accounts" herein. Other
similar accounts may be established as specified in the related Prospectus
Supplement.
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LOAN UNDERWRITING PROCEDURES AND STANDARDS
UNDERWRITING STANDARDS
The Depositor expects that all Loans comprising the Primary Assets for a
Series will have been originated in accordance with the underwriting procedures
and standards described herein, except as otherwise set forth in the related
Prospectus Supplement.
The originator of the Loans (or another entity specified in the related
Prospectus Supplement) will make representations and warranties concerning
compliance with such underwriting procedures and standards. Additionally, unless
otherwise specified in the related Prospectus Supplement, all or a
representative sample of the Loans comprising Primary Assets for a Series will
be reviewed by or on behalf of the Depositor to determine compliance with such
underwriting standards and procedures and compliance with other requirements for
inclusion in the Trust Fund.
Mortgage Loans will have been originated by a savings and loan association,
savings bank, commercial bank, credit union, insurance company or similar
institution which is supervised and examined by a federal or state authority; a
mortgagee approved by the Secretary of Housing and Urban Development pursuant to
Sections 203 and 211 of the National Housing Act or a wholly-owned subsidiary
thereof; or by a subsidiary of the Depositor. Manufactured Home Loans may have
been originated by such institutions (other than a subsidiary of the Depositor)
or by a financial institution approved for insurance by the Secretary of Housing
and Urban Development pursuant to Section 2 of the National Housing Act. Except
as otherwise set forth in the related Prospectus Supplement for a Series of
Certificates, the originator of a Loan will have applied underwriting procedures
intended to evaluate the borrower's credit standing and repayment ability and
the value and adequacy of the related property as collateral. FHA Loans and VA
Loans will have been originated in compliance with the underwriting policies of
FHA and VA, respectively.
Each borrower will have been required to complete an application designed
to provide to the original lender pertinent credit information about the
borrower. As part of the description of the borrower's financial condition, the
borrower will have furnished information with respect to its assets,
liabilities, income, credit history, employment history and personal
information, and furnish an authorization to apply for a credit report which
summarizes the borrower's credit history with local merchants and lenders and
any record of bankruptcy. If the borrower was self-employed, the borrower will
have been required to submit copies of recent tax returns. The borrower may also
have been required to authorize verifications of deposits at financial
institutions where the borrower had demand or savings accounts. With respect to
Multifamily Property, information concerning operating income and expenses will
have been obtained from the borrower showing operating income and expenses
during the preceding three calendar years. Certain considerations may cause an
originator of Loans to depart from these guidelines. For example, when two
individuals co-sign the loan documents, the incomes and expenses of both
individuals may be included in the computation.
The adequacy of the property financed by the related Loan as security for
repayment of such Loan will generally have been determined by appraisal in
accordance with pre-established appraisal procedure guidelines for appraisals
established by or acceptable to the originator. Appraisers may be staff
appraisers employed by the Loan originator or independent appraisers selected in
accordance with pre-established guidelines established by the Loan originator.
The appraisal procedure guidelines will have required that the appraiser or an
agent on its behalf to personally inspect the property and to verify that it was
in good condition and that construction, if new, had been completed. The
appraisal will have been based upon 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.
Based on the data provided, certain verifications and the appraisal, a
determination will have been made by the original lender that the borrower's
monthly income would be sufficient to enable the borrower to meet its monthly
obligations on the Loan and other expenses related to the property (such as
property taxes, utility costs, standard hazard and primary mortgage insurance
and, if applicable, maintenance fees and other levies assessed by a Cooperative)
and certain other fixed obligations other than housing expenses. The originating
lender's guidelines for Loans secured by Single Family Property generally will
specify that Scheduled
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Payments plus taxes and insurance and all Scheduled Payments extending beyond
one year (including those mentioned above and other fixed obligations, such as
car payments) would equal no more than specified percentages of the prospective
borrower's gross income. These guidelines will generally be applied only to the
payments to be made during the first year of the Loan. Except as otherwise
specified in the related Prospectus Supplement, with respect to Mortgage Loans
that are Conventional Loans, underwriting guidelines used to establish the
relevant percentages of gross income will be similar to underwriting guidelines
used by FNMA and FHLMC at the time of origination of the Loan, except that the
ratio of Scheduled Payments and certain other fixed obligations to monthly gross
income may exceed the comparable FNMA or FHLMC limits as specified in the
related Prospectus Supplement.
With respect to FHA Loans and VA Loans, traditional underwriting guidelines
used by the FHA and the VA, as the case may be, which were in effect at the time
of origination of each Loan will generally have been applied. With respect to
Manufactured Home Loans that are Conventional Loans, the related Prospectus
Supplement will specify the required minimum downpayment, the maximum amount of
purchase price eligible for financing, the maximum original principal amount
that may be financed, and the limitations on ratios of borrower's Scheduled
Payment to gross monthly income and monthly income net of other fixed payment
obligations. With respect to Multifamily Property, the Loan originator will have
made an assessment of 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. Income derived from the Mortgaged Property constituting investment
property may have been considered for underwriting purposes, rather than the
income of the borrower from other sources. With respect to Mortgaged Property
consisting of vacation or second homes, no income derived from the property will
have been considered for underwriting purposes.
Certain types of Loans that may be included in the Primary Assets for a
Series are recently developed and may involve additional uncertainties not
present in traditional types of loans. For example, Buy-Down Loans, GEM Loans
and GPM Loans provide for escalating or variable payments by the borrower. These
types of Loans are underwritten on the basis of a judgment that the borrower
will have the ability to make larger Scheduled Payments in subsequent years.
ARMs may involve similar assessments.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Loans (or participation interests therein) for inclusion in a Trust
Fund that are underwritten under standards and procedures which vary from and
are less stringent than those described herein. For instance, Loans may be
underwritten under a "limited documentation program," if specified in the
Prospectus Supplement. With respect to such Loans, minimal investigation into
the borrowers' credit history and income profile is undertaken by the originator
and such Loans may be underwritten primarily on the basis of an appraisal of the
Mortgaged Property and Loan-to-Value Ratio on origination. Thus, if the
Loan-to-Value Ratio is less than a percentage specified in the related
Prospectus Supplement, the originator may forego certain aspects of the review
relating to monthly income, and traditional ratios of monthly or total expenses
to gross income may not be applied.
In addition, Mortgage Loans may have been originated in connection with a
governmental program under which underwriting standards were significantly less
stringent and designed to promote home ownership or the availability of
affordable residential rental property notwithstanding higher risks of default
and losses. The related Prospectus Supplement will specify the underwriting
standards applicable to such Mortgage Loans.
The underwriting standards applied by the Loan originator require that the
underwriting officers be satisfied that the value of the property being
financed, as indicated by an appraisal, currently supports and is anticipated to
support in the future the outstanding loan balance, and provides sufficient
value to mitigate the effects of adverse shifts in real estate values. In fact,
certain states where the Mortgaged Properties may be located have
"antideficiency" laws requiring, in general, that lenders providing credit on
Single Family Property look solely to the property for repayment in the event of
foreclosure. See "CERTAIN LEGAL ASPECTS OF LOANS" herein.
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LOSS EXPERIENCE
The general appreciation of real estate values experienced in the past has
been a factor in limiting the general loss experience on Conventional Loans.
However, there can be no assurance that the past pattern of appreciation in
value of the real property securing such Loans will continue. Further, there is
no assurance that appreciation of real estate values generally will limit loss
experiences on non-traditional housing such as Multifamily Property,
Manufactured Homes or Cooperative Dwellings. Similarly, no assurance can be
given that the value of the Mortgaged Property (including Cooperative Dwellings)
securing a Loan has remained or will remain at the level existing on the date of
origination of such Loan. If the residential real estate market should
experience an overall decline in property values such that the outstanding
balances of the Loans and any secondary financing on the Mortgaged Properties
securing such Loans become equal to or greater than the value of such Mortgaged
Properties, then the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. In addition, the value of property securing Cooperative Loans and the
delinquency rates with respect to Cooperative Loans, could be adversely affected
if the current favorable tax treatment of cooperative tenant stockholders were
to become less favorable. See "CERTAIN LEGAL ASPECTS OF LOANS" herein.
No assurance can be given that values of Manufactured Homes have or will
remain at the levels existing on the dates of origination of the related Loan.
Manufactured Homes are less likely to experience appreciation in value and more
likely to experience depreciation in value over time than other types of
Mortgaged Property. Additionally, delinquency, loss and foreclosure experience
on Manufactured Home Loans may be adversely affected to a greater degree by
regional and local economic conditions than more traditional Mortgaged Property.
Loans secured by Multifamily Property may also be more susceptible to losses due
to changes in local and regional economic conditions than Loans secured by
Single Family Property. For example, unemployment resulting from an economic
downturn in local industry may sharply affect occupancy rates. Also, interest
rate fluctuations can make home ownership a more attractive alternative to
renting, causing occupancy rates and market rents to decline. New construction
can create an oversupply, particularly in a market that has experienced low
vacancy rates.
To the extent that losses resulting from delinquencies, losses and
foreclosures or repossession of Mortgaged Property with respect to Loans
included in the Primary Assets for a Series of Certificates are not covered by
the methods of credit support or the insurance policies described herein or in
the related Prospectus Supplement, such losses will be borne by Holders of the
Certificates of such Series. Even where credit support covers all losses
resulting from delinquency and foreclosure or repossession, the effect of
foreclosures and repossessions may be to increase prepayment experience on the
Primary Assets, thus reducing average weighted life and affecting yield to
maturity. See "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS".
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related Prospectus Supplement, in the
Trust Agreement, the Depositor, the Master Servicer or another entity will
represent and warrant to the Trustee with respect to the Mortgage Loans
comprising the Primary Assets in a Trust Fund, upon delivery of the Mortgage
Loans to the Trustee hereunder, among other things, that: (i) any required title
insurance (or in the case of Mortgaged Properties located in areas where such
policies are generally not available, an attorney's certificate of title) and
any required standard hazard and primary mortgage insurance was in effect as of
the date of such representation and warranty; (ii) immediately prior to the
transfer and assignment of the Mortgage Loans the Depositor (or such other
entity) with respect to each Mortgage Loan had good title to and was sole owner
of each such Mortgage Loan; (iii) each Mortgage constituted a valid first lien
on the related Mortgaged Property (subject only to permissible title insurance
exceptions) and that the related Mortgaged Property was free from damage and was
in good repair; (iv) each Mortgage Loan at the time it was made complied in all
material respects with applicable state and federal laws, including usury, equal
credit opportunity and truth-in-lending or similar disclosure laws; and (v) each
Mortgage Loan was current as to all required payments (i.e., not more than 30 or
60 days delinquent).
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If the Mortgage Loans include Cooperative Loans, no representations or
warranties with respect to title insurance or hazard insurance will be given. In
addition, if the Mortgage Loans include Condominium Loans, no representation
regarding hazard insurance will be given. Generally, the Cooperative or
Condominium Association itself is responsible for the maintenance of hazard
insurance for property owned by the Cooperative and the Condominium Association
is responsible for maintaining standard hazard insurance, insuring the entire
Condominium Building (including each individual Condominium Unit), and the
borrowers of that Cooperative or Condominium do not maintain separate hazard
insurance on their individual Cooperative Dwellings or Condominium Units. See
"SERVICING OF LOANS -- Maintenance of Insurance Policies and Other Servicing
Procedures" herein. With respect to a Cooperative Loan, the Depositor will
represent and warrant based, in part, upon representations and warranties of the
originator of such Cooperative Loan that (i) the security interest created by
the cooperative security agreements is a valid first lien on the collateral
securing the Cooperative Loan (subject to the right of the related Cooperative
to cancel shares and terminate the proprietary lease for unpaid assessments) and
(ii) the related Cooperative Dwelling is free of material damage and in good
repair.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Manufactured Home Loan, the Depositor based upon representations
and warranties of the originator of such Manufactured Home Loan will represent
and warrant, among other things that (i) immediately prior to the transfer and
assignment of the Manufactured Home Loans to the Trustee, the Depositor had good
title to, and was the sole owner of, each Manufactured Home Loan; (ii) as of the
date of such transfer and assignment, the Manufactured Home Loans are subject to
no offsets, defenses or counterclaims; (iii) each Manufactured Home Loan at the
time it was made complied in all material respects with applicable state and
federal laws, including usury, equal credit opportunity and truth-in-lending or
similar disclosure laws; (iv) as of the date of such transfer and assignment,
each Manufactured Home Loan constitutes a valid first lien on the related
Manufactured Home and such Manufactured Home is free of material damage and is
in good repair; (v) as of the date of such representation and warranty, no
Manufactured Home Loan is more than 30 days delinquent and there are no
delinquent tax or assessment liens against the related Manufactured Home; and
(vi) with respect to each Manufactured Home Loan, any required hazard insurance
policy was effective at the origination of each Manufactured Home Loan and
remained in effect on the date of the transfer and assignment of the
Manufactured Home Loan from the Depositor and that all premiums due on such
insurance have been paid in full.
Upon the discovery of the breach of any representation or warranty made by
the Depositor, the Master Servicer or another entity in respect of a Loan that
materially and adversely affects the value of such Loan, such entity will be
obligated to cure such breach in all material respects, repurchase such Loan
from the Trustee, or, unless specified otherwise in the related Prospectus
Supplement, deliver a Qualified Substitute Mortgage Loan as described below
under "THE TRUST AGREEMENTS -- Assignment of Primary Assets." The Depositor does
not have, and is not expected in the future to have, any significant assets with
which to meet its obligations to repurchase or substitute Loans as to which
there has been a breach of any representation or warranty, and its only source
of funds to make such a substitution or repurchase would be from funds obtained
from the enforcement of a corresponding obligation, if any, on the part of the
originator or seller of the Loans. See "Special Considerations -- Limited
Obligations and Assets of the Depositor." The PMBS Trustee (in the case of
Private Mortgage-Backed Securities) or the Trustee, as applicable, will be
required to enforce this obligation following the practices it would employ in
its good faith business judgment were it the owner of such Loan. If so specified
in the related Prospectus Supplement, the Master Servicer may be obligated to
enforce such obligations rather than the Trustee or PMBS Trustee.
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SERVICING OF LOANS
GENERAL
Customary servicing functions with respect to Loans constituting the
Primary Assets in the Trust Fund will be provided by the Master Servicer
directly or through one or more servicers (the "Servicers") subject to
supervision by the Master Servicer. If the Master Servicer is not directly
servicing the Loans, then the Master Servicer will (i) administer and supervise
the performance by the Servicers of their servicing responsibilities under their
servicing agreements ("Servicing Agreements") with the Master Servicer, (ii)
maintain any standard or special hazard insurance policy, primary mortgage
insurance bankruptcy bond or pool insurance policy required for the related
Loans and (iii) advance funds as described below under "Advances". If the Master
Servicer services the Loans through Servicers as its agents, the Master Servicer
will be ultimately responsible for the performance of all servicing activities,
including those performed by the Servicers, notwithstanding its delegation of
certain responsibilities to such Servicers.
The Master Servicer will be a party to the Trust Agreement for any Series
for which Loans comprise the Primary Assets and may be a party to a
Participation Agreement executed with respect to any Participation Certificates
which constitute the Primary Assets. The Master Servicer may be an affiliate of
the Depositor. Unless otherwise specified in the related Prospectus Supplement,
the Master Servicer and each Servicer will be required to be a FNMA- or
FHLMC-approved seller/servicer and, in the case of FHA Loans, approved by HUD as
an FHA mortgagee.
The Master Servicer will be paid a Servicing Fee for the performance of its
services and duties under each Trust Agreement as specified in the related
Prospectus Supplement. Each Servicer, if any, will be entitled to receive a
portion of the Servicing Fee. In addition, the Master Servicer or Servicer may
be entitled to retain late charges, assumption fees and similar charges to the
extent collected from mortgagors. If a Servicer is terminated by the Master
Servicer, the servicing function of the Servicer will be either transferred to a
substitute Servicer or performed by the Master Servicer. The Master Servicer
will be entitled to retain the portion of the Servicing Fee paid to the Servicer
under a terminated Servicing Agreement if the Master Servicer elects to perform
such servicing functions itself.
The Master Servicer, at its election, may pay itself the Servicing Fee for
a Series with respect to each Mortgage Loan either by (a) withholding the
Servicing Fee from any scheduled payment of interest prior to the deposit of
such payment in the Collection Account for such Series, (b) withdrawing the
Servicing Fee from the Collection Account after the entire Scheduled Payment has
been deposited in the Collection Account, or (c) requesting that the Trustee pay
the Servicing Fee out of amounts in the Certificate Account.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Master Servicer will make reasonable efforts to collect all payments
required to be made under the Mortgage Loans and will, consistent with the Trust
Agreement for a Series and any applicable insurance policies and other credit
supports, follow such collection procedures as it follows with respect to
comparable loans held in its own portfolio. Consistent with the above, the
Master Servicer may, in its discretion, (i) waive any assumption fee, late
payment charge, or other charge in connection with a Loan and (ii) arrange with
a mortgagor a schedule for the liquidation of delinquencies by extending the Due
Dates for Scheduled Payments on such Loan.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer, to the extent permitted by law, will establish and maintain escrow or
impound accounts ("Escrow Accounts") in which payments by borrowers to pay
taxes, assessments, mortgage and hazard insurance premiums, and other comparable
items that are required to be paid to the mortgagee will be deposited. Mortgage
Loans and Manufactured Home Loans may not require such payments under the loan
related documents, in which case the Master Servicer would not be required to
establish any Escrow Account with respect to such Loans. Withdrawals from the
Escrow Accounts are to be made to effect timely payment of taxes, assessments,
mortgage and hazard insurance, to refund to borrowers amounts determined to be
overages, to pay interest to borrowers on balances in the Escrow Account to the
extent required by law, to repair or otherwise protect the
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property securing the related Loan and to clear and terminate such Escrow
Account. The Master Servicer will be responsible for the administration of the
Escrow Accounts and generally will make Advances to such account when a
deficiency exists therein.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Master Servicer will establish a separate account (the "Collection
Account") in the name of the Trustee. Unless otherwise indicated in the related
Prospectus Supplement, the Collection Account will be a non-interest bearing
account maintained (i) at a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit therein are rated within the two
highest rating categories by each Rating Agency rating the Certificates of such
Series or (ii) in an account or accounts the deposits in which are insured to
the maximum extent available by the FDIC or which are secured in a manner
meeting requirements established by each Rating Agency.
If so specified in the related Prospectus Supplement, the Collection
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. If so specified in the related Prospectus Supplement, the Master
Servicer will be entitled to receive as additional compensation any interest or
other income earned on funds in the Collection Account.
The Master Servicer will deposit into the Collection Account for each
Series on the Business Day following the Closing Date any amounts representing
Scheduled Payments due after the related Cut-Off Date but received by the Master
Servicer on or before the Closing Date, and thereafter, after the date of
receipt thereof, the following payments and collections received or made by it
(other than in respect of principal of and interest on the related Loans due on
or before such Cut-Off Date):
(i) All payments on account of principal, including prepayments, on
such Loans;
(ii) All payments on account of interest on such Loans after deducting
therefrom, at the discretion of the Master Servicer but only to the extent
of the amount permitted to be withdrawn or withheld from the Collection
Account in accordance with the related Trust Agreement, the Servicing Fee
in respect of such Loans;
(iii) All amounts received by the Master Servicer in connection with
the liquidation of defaulted Loans or property acquired in respect thereof,
whether through foreclosure sale or otherwise, including payments in
connection with such Loans received from the mortgagor, other than amounts
required to be paid to the mortgagor pursuant to the terms of the
applicable Mortgage or otherwise pursuant to law ("Liquidation Proceeds"),
exclusive of, in the discretion of the Master Servicer but only to the
extent of the amount permitted to be withdrawn from the Collection Account
in accordance with the related Trust Agreement, the Servicing Fee, if any,
in respect of the related Loan;
(iv) All proceeds received by the Trust under any title, hazard or
other insurance policy covering any such Loan, other than proceeds to be
applied to the restoration or repair of the Mortgaged Property or released
to the mortgagor in accordance with the related Trust Agreement (which
shall be retained by the Master Servicer and not deposited in the
Collection Account);
(v) All amounts required to be deposited therein from any applicable
Reserve Fund for such series pursuant to the related Trust Agreement;
(vi) All Advances for such Series made by the Master Servicer pursuant
to the related Trust Agreement; and
(vii) All proceeds of any such Loans repurchased by the Depositor
pursuant to the related Trust Agreement.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer is permitted, from time to time, to make withdrawals from the
Collection Account for each Series for the following purposes:
(i) to reimburse itself for Advances for such Series made by it
pursuant to the related Trust Agreement; the Master Servicer's right to
reimburse itself is limited to amounts received on or in respect
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of particular Loans (including, for this purpose, Liquidation Proceeds and
amounts representing proceeds of insurance policies covering the related
Mortgaged Property) which represent late recoveries of Scheduled Payments
respecting which any such Advance was made;
(ii) to reimburse itself for any Advances for such Series that the
Master Servicer determines in good faith it will be unable to recover from
amounts representing late recoveries of Scheduled Payments respecting which
such Advance was made or from Liquidation Proceeds or the proceeds of
insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for liquidation
expenses and for amounts expended by it in good faith in connection with
the restoration of damaged Mortgaged Property and, to the extent that
Liquidation Proceeds after such reimbursement are in excess of the
outstanding principal balance of the related Loan, together with accrued
and unpaid interest thereon at the applicable Pass-Through Rate to the Due
Date next succeeding the date of its receipt of such Liquidation Proceeds,
to pay to itself out of such excess the amount of any unpaid Servicing Fee
and any assumption fees, late payment charges, or other charges on the
related Loan;
(iv) in the event it has elected not to pay itself the Servicing Fee
out of any the interest component of any Scheduled Payment, late payment or
other recovery with respect to a particular Loan prior to the deposit of
such Scheduled Payment, late payment or recovery into the Collection
Account, to pay to itself the Servicing Fee, as adjusted pursuant to the
related Trust Agreement, from any such Scheduled Payment, late payment or
such other recovery, to the extent permitted by such Trust Agreement;
(v) to reimburse itself for expenses incurred by and recoverable by or
reimbursable to it pursuant to the related Trust Agreement;
(vi) to pay to itself with respect to each Loan or REO Property
acquired in respect thereof that has been repurchased by the Depositor
pursuant to the related Trust Agreement all amounts received thereon and
not distributed as of the date on which the related repurchase price was
determined;
(vii) to reimburse itself for the excess of any unreimbursed Advances
with respect to a particular Loan over the related Liquidation Proceeds;
(viii) to make payments to the Trustee of such Series for deposit into
the Certificate Account, if any, or for remittance to the
Certificateholders of such Series in the amounts and in the manner provided
for in the related Trust Agreement; and
(ix) to clear and terminate the Collection Account pursuant to the
related Trust Agreement.
In addition, if the Master Servicer deposits in the Collection Account for
a series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
SERVICING ACCOUNTS
In those cases where a Servicer is servicing a Mortgage Loan, the Servicer
will establish and maintain an account (a "Servicing Account") that will comply
with the standards set forth above, and which is otherwise acceptable to the
Master Servicer. The Servicer is required to deposit into the Servicing Account
all amounts enumerated in the preceding paragraph in respect of the Mortgage
Loans received by the Servicer, less its servicing compensation. On the date
specified in the related Prospectus Supplement, the Servicer will remit to the
Master Servicer all funds held in the Servicing Account with respect to each
Mortgage Loan. The Servicer may, to the extent described in the related
Prospectus Supplement, be required to advance any monthly installment of
principal and interest that was not received, less its servicing fee, by the
date specified in the related Prospectus Supplement.
BUY-DOWN LOANS, GPM LOANS AND OTHER SUBSIDIZED LOANS
With respect to each Buy-Down Loan, if any, included in a Trust Fund the
Master Servicer will deposit all Buy-Down Amounts in a custodial account (which
may be interest-bearing) complying with the
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requirements set forth above for the Collection Account (the "Buy-Down Fund").
The amount of such deposit, together with investment earnings thereon at the
rate specified in the related Prospectus Supplement, will provide sufficient
funds to support the payments on such Buy-Down Loan on a level debt service
basis. The Master Servicer will not be obligated to add to the Buy-Down Fund
should amounts therein and investment earnings prove insufficient to maintain
the scheduled level of payments on the Buy-Down Loans, in which event
distributions to the Certificateholders may be affected. Unless otherwise
provided in the related Prospectus Supplement, a Buy-Down Fund will not be
included in or deemed to be a part of the Trust Fund. Unless otherwise specified
in the related Prospectus Supplement, the terms of all Buy-Down Loans provide
for the contribution of buy-down funds in an amount equal to or exceeding either
(i) the total payments to be made from such funds pursuant to the related
buydown plan or (ii) if such buy-down funds are present valued, that amount of
buy-down funds which, together with investment earnings thereon at a specified
rate, compounded monthly, will support the scheduled level of payments due under
the Buy-Down Loan. Neither the Master Servicer, any Servicer nor the Depositor
will be obligated to add to such buy-down funds any of its own funds should
investment earnings prove insufficient to maintain the scheduled level of
payments on the Buy-Down Loan, in which event distributions to
Certificateholders may be affected. With respect to each Buy-Down Loan, the
Master Servicer will deposit in the Collection Account the amount, if any, of
the buy-down funds (and, if applicable, investment earnings thereon) for each
Buy-Down Loan that, when added to the amount due from the borrower on such
Buy-Down Loan, equals the full monthly payment which would be due on the
Buy-Down Loan if it were not subject to the buy-down plan.
If the borrower on a Buy-Down Loan prepays such Loan in its entirety during
the Buy-Down Period, the Master Servicer will withdraw from the Buy-Down Fund
and remit to the borrower in accordance with the related buy-down plan any
buy-down funds remaining in the Buy-Down Fund. If a prepayment by a borrower
during the Buy-Down Period together with buy-down funds will result in a
prepayment in full, the Master Servicer will withdraw from the Buy-Down Fund for
deposit in the Collection Account the buy-down funds and investment earnings
thereon, if any, which together with such prepayment will result in a prepayment
in full. If the borrower defaults during the Buy-Down Period with respect to a
Buy-Down Loan and the property securing the related Loan is sold in liquidation
(either by the Master Servicer of the insurer under any related insurance
policy), the Master Servicer will withdraw from the Buy-Down Fund the buy-down
funds and all investment earnings thereon, if any, for deposit in the Collection
Account or remit the same to the insurer if the mortgaged property is
transferred to such insurer and such insurer pays all of the loss incurred in
respect of such default. In the case of any such prepaid or defaulted Buy-Down
Loan the buy-down funds in respect of which were supplemented by investment
earnings, the Master Servicer will withdraw from the Buy-Down Fund and retain or
remit to the borrower, depending upon the terms of the buy-down plan, any
investment earnings remaining in the related Buy-Down Fund.
The terms of certain of the Loans may provide for the contribution of
subsidy funds by the seller of the related Mortgaged Property or by another
entity. With respect to each such Loan, the Master Servicer will deposit the
subsidy funds in a custodial account (which may be interest-bearing) complying
with the requirements set forth above for the Collection Account set forth above
(a "Subsidy Fund"). Unless otherwise specified in the related Prospectus
Supplement, the terms of each such Loan will provide for the contribution of the
entire undiscounted amount of subsidy amounts necessary to maintain the
scheduled level of payments due during the early years of such Loan. Neither the
Master Servicer, any Servicer nor the Depositor will be obligated to add to such
Subsidy Fund any of its own funds. Unless otherwise provided in the related
Prospectus Supplement, such Subsidy Fund will not be included in or deemed to be
a part of the Trust Fund.
If the Depositor values any GPM Loans deposited into the Trust Fund for a
Multi-Class Series on the basis of such GPM Loan's scheduled maximum principal
balance, the Master Servicer will, if and to the extent provided in the related
Prospectus Supplement, deposit in a custodial account (which may be interest
bearing) (the "GPM Fund") complying with the requirements set forth above for
the Collection Account an amount which, together with reinvestment income
thereon at the rate set forth in the related Prospectus Supplement, will be
sufficient to cover the amount by which payments of principal and interest on
such GPM Loans assumed in calculating payments due on the Certificates of such
Multi-Class Series exceed the scheduled payments on such GPM Loans. The Trustee
will withdraw amounts from the GPM Fund for a
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Series upon a prepayment of such GPM Loan as necessary and apply such amounts to
the payment of principal and interest on the Certificates of such Series.
Neither the Depositor, the Master Servicer nor any Servicer will be obligated to
supplement the GPM Fund should amounts therein and investment earnings thereon
prove insufficient to maintain the scheduled level of payments, in which event,
distributions to the Certificateholders may be affected. Unless otherwise
specified in the related Prospectus Supplement, such GPM Fund will not be
included in or deemed to be part of the Trust Fund.
With respect to any other type of 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 on terms similar to those relating to the
Buy-Down Fund, Subsidy Fund or the GPM Fund.
ADVANCES AND LIMITATIONS THEREON
General. The related Prospectus Supplement will describe the circumstances
under which the Master Servicer or Servicer will make Advances with respect to
delinquent payments on Loans. Unless otherwise specified in the related
Prospectus Supplement, neither the Master Servicer nor any Servicer will be
obligated to make Advances, and such obligation may be limited in amount, may be
limited to advances received from the Servicers, if any, or may not be activated
until a certain portion of a specified reserve fund is depleted. If the Master
Servicer is obligated to make Advances, a surety bond or other credit support
may be provided with respect to such obligation as described in the related
Prospectus Supplement. Advances are intended to provide liquidity and not to
guarantee or insure against losses. Accordingly, any funds advanced are
recoverable by the Servicer or the Master Servicer, as the case may be, out of
amounts received on particular Loans which represent late recoveries of
principal or interest, proceeds of insurance policies or Liquidation Proceeds
respecting which any such Advance was made. If an Advance is made and
subsequently determined to be nonrecoverable from late collections, proceeds of
Insurance Policies, or Liquidation Proceeds from the related Loan, the Servicer
or Master Servicer will be entitled to reimbursement from other funds in the
Collection Account or Servicing Account, as the case may be, or from a specified
Reserve Fund as applicable, to the extent specified in the related Prospectus
Supplement.
Advances in Connection With Prepaid Loans. In addition when a borrower
makes a principal prepayment in full between Due Dates on the related Loan, the
borrower will generally be required to pay interest on the principal amount
prepaid only to the date of such prepayment. If and to the extent provided in
the related Prospectus Supplement, in order that one or more Classes of the
Certificateholders of a Series will not be adversely affected by any resulting
shortfall in interest, the Master Servicer may be obligated to advance moneys
from its own funds to the extent necessary to include in its remittance to the
Trustee for deposit into the Certificate Account an amount equal to a full
Scheduled Payment of interest on the related Loan (adjusted to the applicable
Pass-Through Rate). Any such principal prepayment, together with a full
Scheduled Payment of interest thereon at the applicable Pass-Through Rate (to
the extent of such adjustment or advance), will be distributed to
Certificateholders on the related Distribution Date. If the amount necessary to
include a full Scheduled Payment of interest as described above exceeds the
amount which the Master Servicer is obligated to advance, as applicable, a
shortfall may occur as a result of a prepayment in full. See "YIELD, PREPAYMENT
AND MATURITY CONSIDERATIONS".
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
Standard Hazard Insurance; Flood Insurance. Except as otherwise specified
in the related Prospectus Supplement, the Master Servicer will be required to
maintain or to cause the borrower on each Loan to maintain or will use its best
reasonable efforts to cause each Servicer of a Loan to maintain a standard
hazard insurance policy providing coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is customary in
the state in which the property securing the related Loan is located. See
"DESCRIPTION OF MORTGAGE AND OTHER INSURANCE" herein. Unless otherwise specified
in the related Prospectus Supplement, coverage will be in an amount at least
equal to the greater of (i) the amount necessary to avoid the enforcement of any
co-insurance clause contained in the policy or (ii) the outstanding principal
balance of the related Loan. The Master Servicer will also maintain on REO
Property that secured a defaulted Loan and that has been acquired upon
foreclosure, deed in lieu of foreclosure, or
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repossession, a standard hazard insurance policy in an amount that is at least
equal to the maximum insurable value of such REO Property. No earthquake or
other additional insurance will be required of any borrower or will be
maintained on REO Property acquired in respect of a defaulted Loan, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and shall require such additional insurance. When, at the time of
origination of a Loan, the property securing that Loan is located in a federally
designated special flood hazard area, the Master Servicer will cause to be
maintained or use its best reasonable efforts to cause the Servicer to maintain
with respect to such property flood insurance as required under the Flood
Disaster Protection Act of 1973, to the extent available, or as described in the
related Prospectus Supplement.
Any amounts collected by the Master Servicer or the Servicer, as the case
may be, under any such policies of insurance (other than amounts to be applied
to the restoration or repair of the Mortgaged Property, released to the borrower
in accordance with normal servicing procedures or used to reimburse the Master
Servicer for amounts to which it is entitled to reimbursement) will be deposited
in the Collection Account. In the event that the Master Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the Loans,
written by an insurer then acceptable to each Rating Agency which assigns a
rating to such Series, it will conclusively be deemed to have satisfied its
obligations to cause to be maintained a standard hazard insurance policy for
each Loan or related REO Property. This blanket policy may contain a deductible
clause, in which case the Master Servicer will, in the event that there has been
a loss that would have been covered by such policy absent such deductible
clause, deposit in the Collection Account the amount not otherwise payable under
the blanket policy because of the application of such deductible clause.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the Cooperative itself is responsible for maintenance of hazard
insurance for the property owned by the cooperative and the tenant-stockholders
of that cooperative do not maintain individual hazard insurance policies. To the
extent, however, that a Cooperative and the related borrower on a Cooperative
Loan do not maintain such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to such borrower's Cooperative Dwelling or such Cooperative's building
could significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support. Similarly, the Depositor
will not require that a standard hazard or flood insurance policy be maintained
on a Condominium Unit relating to any Condominium Loan. Generally, the
Condominium Association is responsible for maintenance of hazard insurance
insuring the entire Condominium building (including each individual Condominium
Unit), and the owner(s) of an individual Condominium Unit do not maintain
separate hazard insurance policies. To the extent, however, that a Condominium
Association and the related borrower on a Condominium Loan do not maintain such
insurance or do not maintain adequate coverage or any insurance proceeds are not
applied to the restoration of damaged property, any damage to such borrower's
Condominium Unit or the related Condominium Building could significantly reduce
the value of the collateral securing such Condominium Loan to the extent not
covered by other credit support.
Special Hazard Insurance Policy. If, and to the extent specified in the
related Prospectus Supplement, the Master Servicer will maintain a special
hazard insurance policy, in the amount set forth in the related Prospectus
Supplement, in full force and effect with respect to the Loans. Unless otherwise
specified in the related Prospectus Supplement, the special hazard insurance
policy will provide for a fixed premium rate based on the declining aggregate
outstanding principal balance of the Loans. The Master Servicer will agree to
pay the premium for any special hazard insurance policy on a timely basis. If
the special hazard insurance policy is cancelled or terminated for any reason
(other than the exhaustion of total policy coverage), the Master Servicer will
exercise its best reasonable efforts to obtain from another insurer a
replacement policy comparable to the special hazard insurance policy with a
total coverage which is equal to the then existing coverage of the terminated
special hazard insurance policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated special hazard
insurance policy, the amount of coverage under the replacement policy will,
unless otherwise specified in the related Prospectus Supplement, be reduced to a
level such that the applicable premium does not exceed 150% of the cost of the
special hazard insurance policy that was replaced. Any amounts collected by the
Master Servicer under the special hazard insurance policy in the nature of
insurance proceeds will be deposited in the Collection Account (net of amounts
to be used to
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repair, restore or replace the related property securing the Loan or to
reimburse the Master Servicer (or a Servicer) for related amounts owed to it).
Certain characteristics of the special hazard insurance policy are described
under "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE -- Hazard Insurance on the
Loans."
Primary Mortgage Insurance. To the extent described in the related
Prospectus Supplement, the Master Servicer will be required to use its best
reasonable efforts to keep, or to cause each Servicer to keep, in full force and
effect, a primary mortgage insurance policy with respect to each Conventional
Loan secured by Single Family Property for which such coverage is required for
as long as the related mortgagor is obligated to maintain such primary mortgage
insurance under the terms of the related Loan. The Master Servicer will not
cancel or refuse to renew any such primary mortgage insurance policy in effect
at the date of the initial issuance of the Certificates that is required to be
kept in force unless a replacement primary mortgage insurance policy for such
cancelled or nonrenewed policy is maintained with a Qualified Insurer.
Primary insurance policies will be required with respect to Manufactured
Home Loans only to the extent described in the related Prospectus Supplement. If
primary mortgage insurance is to be maintained with respect to Manufactured Home
Loans, the Master Servicer will be required to maintain such insurance as
described above. For further information regarding the extent of coverage under
a primary mortgage insurance policy, see "DESCRIPTION OF MORTGAGE AND OTHER
INSURANCE -- Mortgage Insurance on the Loans."
FHA Insurance and VA Guarantees. To the extent specified in the related
Prospectus Supplement, all or a portion of the Loans may be insured by the FHA
or guaranteed by the VA. The Master Servicer will be required to take such steps
as are reasonably necessary to keep such insurance and guarantees in full force
and effect. See "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE -- Mortgage
Insurance on the Loans."
Pool Insurance Policy. If so specified in the related Prospectus
Supplement, the Master Servicer will be obligated to use its best reasonable
efforts to maintain a pool insurance policy with respect to the Loans in the
amount and with the coverage described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the pool
insurance policy will provide for a fixed premium rate on the declining
aggregate outstanding principal balance of the Loans. The Master Servicer will
be obligated to pay the premiums for such pool insurance policy on a timely
basis.
The related Prospectus Supplement will identify the pool insurer for each
Series of Certificates. If the pool insurer ceases to be a Qualified Insurer
because it is not approved as an insurer by FHLMC or FNMA or because its
claims-paying ability is no longer rated in the category required by the related
Prospectus Supplement, the Master Servicer will be obligated to review, no less
often than monthly, the financial condition of the pool insurer to determine
whether recoveries under the pool insurance policy are jeopardized by reason of
the financial condition of the pool insurer. If the Master Servicer determines
that recoveries may be so jeopardized or if the pool insurer ceases to be
qualified under applicable law to transact a mortgage guaranty insurance
business, the Master Servicer will exercise its best reasonable efforts to
obtain from another Qualified Insurer a comparable replacement pool insurance
policy with a total coverage equal to the then outstanding coverage of the pool
insurance policy to be replaced; provided that, if the premium rate on the
replacement policy is greater than that of the existing pool insurance policy,
then the coverage of the replacement policy will, unless otherwise specified in
the related Prospectus Supplement, be reduced to a level such that its premium
rate does not exceed 150% of the premium rate on the pool insurance policy to be
replaced. Payments made under a pool insurance policy will be deposited into the
Collection Account (net of expenses of the Master Servicer or any related
unreimbursed advances or unpaid Servicing Fee). Certain characteristics of the
pool insurance policy are described under "DESCRIPTION OF MORTGAGE AND OTHER
INSURANCE -- Mortgage Insurance on the Loans."
Bankruptcy Bond. If so specified in the related Prospectus Supplement, the
Master Servicer will be obligated to use its best reasonable efforts to obtain
and thereafter maintain a bankruptcy bond or similar insurance or guaranty in
full force and effect throughout the term of the related Trust Agreement, unless
coverage thereunder has been exhausted through payment of claims. If so
specified in the Prospectus
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Supplement, the Master Servicer will be required to pay from its servicing
compensation the premiums for the bankruptcy bond on a timely basis. Coverage
under the bankruptcy bond may be cancelled or reduced by the Master Servicer at
any time, provided that such cancellation or reduction does not adversely affect
the then current rating of the related Series of Certificates. See "DESCRIPTION
OF MORTGAGE AND OTHER INSURANCE -- Bankruptcy Bond" herein.
PRESENTATION OF CLAIMS; REALIZATION UPON DEFAULTED LOANS.
The Master Servicer, on behalf of the Trustee and the Certificateholders,
will be required to present or cause to be presented, claims with respect to any
standard hazard insurance policy, pool insurance policy, special hazard
insurance policy bankruptcy bond, or primary mortgage insurance policy, and to
the FHA and the VA, if applicable in respect of any FHA insurance or VA
guarantee respecting defaulted Mortgage Loans.
The Master Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the real properties
securing such of the related 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 Master
Servicer will follow such practices and procedures as it deems necessary or
advisable and as are normal and usual in its servicing activities with respect
to comparable loans serviced by it. However, the Master Servicer will not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of the property unless it determines that: (i) such restoration
or foreclosure will increase the Liquidation Proceeds in respect of the related
Mortgage Loan available to the Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable by it either
through Liquidation Proceeds or the proceeds of insurance. Notwithstanding
anything to the contrary herein, in the case of a Trust Fund for which a REMIC
election has been made, the Master Servicer shall not liquidate any collateral
acquired through foreclosure later than one year after the acquisition of such
collateral. While the holder of Mortgaged Property acquired through foreclosure
can often maximize its recovery by providing financing to a new purchaser, the
Trust Fund will have no ability to do so and neither the Master Servicer nor any
Servicer will be required to do so.
Similarly, if any property securing a defaulted Loan is damaged and
proceeds, if any, from the related standard hazard insurance policy or the
applicable special hazard insurance policy, if any, are insufficient to restore
the damaged property to a condition sufficient to permit recovery under any pool
insurance policy or any primary mortgage insurance policy, FHA insurance, or VA
guarantee, neither the Master Servicer nor any Servicer will be required to
expend its own funds to restore the damaged property unless it determines (i)
that such restoration will increase the Liquidation Proceeds in respect of such
Loan after reimbursement of the expenses incurred by such Servicer or the Master
Servicer and (ii) that such expenses will be recoverable by it through proceeds
of the sale of the property or proceeds of the related pool insurance policy or
any related primary mortgage insurance policy, FHA insurance, or VA guarantee.
As to collateral securing a Cooperative Loan, any prospective purchaser
will generally have to obtain the approval of the board of directors of the
relevant cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing that Cooperative Loan. See
"CERTAIN LEGAL ASPECTS OF LOANS -- Foreclosure on Shares of Cooperatives"
herein. This approval is usually based on the purchaser's income and net worth
and numerous other factors. Although the Cooperative's approval is unlikely to
be unreasonably withheld or delayed, the necessity of acquiring such approval
could limit the number of potential purchasers for those shares and otherwise
limit the Trust Fund's ability to sell and realize the value of those shares.
With respect to a Loan secured by a Multifamily Property, the market value
of any property obtained in foreclosure or by deed in lieu of foreclosure will
be based substantially on the operating income obtained by renting the dwelling
units. As a default on a Loan secured by Multifamily Property is likely to have
occurred because operating income, net of expenses, is insufficient to make debt
service payments on the related Loan, it can be anticipated that the market
value of such property will be less than anticipated when such Loan was
originated. To the extent that equity does not cushion the loss in market value
and such loss is not covered by other credit support, a loss may be experienced
by the related Trust Fund. With respect to a defaulted
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Manufactured Home Loan, the value of the related Manufactured Home can be
expected to be less on resale Manufactured Home than a new Manufactured Home. To
the extent equity does not cushion the loss in market value, and such loss is
not covered by other credit support, a loss may be experienced by the Trust
Fund.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement for a
Series, when any Mortgaged Property is about to be conveyed by the borrower, the
Master Servicer will, to the extent it has knowledge of such prospective
conveyance and prior to the time of the consummation of such conveyance,
exercise its rights to accelerate the maturity of such Loan under the applicable
"due-on-sale" clause, if any, unless it reasonably believes that such clause is
not enforceable under applicable law or if the enforcement of such clause would
result in loss of coverage under any primary mortgage insurance policy. If such
conditions are not met or the Master Servicer reasonably believes that
enforcement of a due-on-sale clause will not be enforceable, the Master Servicer
is authorized to accept from or enter into an assumption agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Loan and pursuant to which the
original borrower is released from liability and such person is substituted as
the borrower and becomes liable under the Loan. Any fee collected in connection
with an assumption will be retained by the Master Servicer as additional
servicing compensation. The terms of a Loan may not be changed in connection
with an assumption except that, if the terms of the Loan so permit, and subject
to certain other conditions, the interest rate may be increased (but not
decreased) to a prevailing market rate. Unless otherwise specified in the
related Prospectus Supplement, Certificateholders would not benefit from any
such increase.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Except as otherwise provided in the related Prospectus Supplement, the
Master Servicer or any Servicer will be entitled to a servicing fee in an amount
to be determined as specified 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 or any Servicer will be entitled to servicing
compensation in the form of assumption fees, late payment charges, or excess
proceeds following disposition of property in connection with defaulted Loans.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will pay the fees of the Servicers, if any, and certain expenses
incurred in connection with the servicing of the Loans, including, without
limitation, the payment of the fees and expenses of the Trustee and independent
accountants, payment of insurance policy premiums and the cost of credit
support, if any, payment of expenses incurred in enforcing the obligations of
Servicers and in preparation of reports to Certificateholders. Certain of these
expenses may be reimbursable pursuant to the terms of the Trust Agreement from
Liquidation Proceeds and the proceeds of insurance policies and, in the case of
enforcement of the obligations of Servicers, from any recoveries in excess of
amounts due with respect to the related Loans or from specific recoveries of
costs.
The Master Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Loans. The
related Trust Fund will suffer no loss by reason of such expenses to the extent
claims are paid under related insurance policies or from the Liquidation
Proceeds. If claims are either not made or paid under the applicable insurance
policies or if coverage thereunder has been exhausted, the related Trust Fund
will suffer a loss to the extent that Liquidation Proceeds, after reimbursement
of the Master Servicer's expenses, are less than the outstanding principal
balance of and unpaid interest on the related Loan which would be distributable
to Certificateholders. In addition, the Master Servicer will be entitled to
reimbursement of expenditures incurred by it in connection with the restoration
of property securing a defaulted Loan, such right of reimbursement being prior
to the rights of the Certificateholders to receive any related proceeds of
insurance policies, Liquidation Proceeds or amounts derived from other credit
supports. The Master Servicer is also entitled to reimbursement from the
Collection Account for Advances. In addition, when a borrower makes a principal
prepayment in full between Due Dates on the related Loan, the borrower will
generally be required to pay interest on the amount prepaid only to the date of
prepayment. If
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and to the extent provided in the related Prospectus Supplement, in order that
one or more Classes of the Certificateholders of a Series will not be adversely
affected by any resulting shortfall in interest, the amount of the Servicing Fee
may be reduced to the extent necessary to include in the Master Servicer's
remittance to the Trustee for deposit into the Certificate Account an amount
equal to a full scheduled payment of interest on the related Loan (adjusted to
the applicable Pass-Through Rate). Any such principal prepayment, together with
a full Scheduled Payment of interest thereon at the applicable Pass- Through
Rate (to the extent of such adjustment or advance), will be distributed to
Certificateholders on the related Distribution Date. If the amount necessary to
include a full Scheduled Payment of interest as described above exceeds the
amount of Servicing Fee, a shortfall to Certificateholders may occur as a result
of a prepayment in full. See "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS".
The rights of the Master Servicer to receive funds from the Collection
Account for a Series, whether as the Servicing Fee or other compensation, or for
the reimbursement of Advances, expenses or otherwise, are not subordinate to the
rights of Certificateholders of such Series.
EVIDENCE AS TO COMPLIANCE
The Trust Agreement for each Series will provide that each year, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that such firm has examined certain documents and records relating to the
servicing of the Loans by the Master Servicer and that, on the basis of such
examination, such firm is of the opinion that the servicing has been conducted
in compliance with the Trust 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.
The Trust Agreement for each Series will also provide for delivery to the
Trustee for such Series of an annual statement signed by an officer of the
Master Servicer to the effect that the Master Servicer has fulfilled its
obligations under the Trust Agreement throughout the preceding calendar year.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Master Servicer for each Series will be identified in the related
Prospectus Supplement. The Master Servicer may be an affiliate of the Depositor
and may have other business relationships with the Depositor and its affiliates.
In the event of an Event of Default under the Trust Agreement, the Master
Servicer may be replaced by the Trustee or a successor Master Servicer. See "THE
TRUST AGREEMENTS -- Rights upon Events of Default" herein.
Unless otherwise provided in the Prospectus Supplement, the Master Servicer
has the right to assign its rights and delegate its duties and obligations under
the Trust Agreement for each Series; provided that the purchaser or transferee
accepting such assignment or delegation (i) is qualified to service mortgage
loans for FNMA or FHLMC, (ii) is reasonably satisfactory to the Trustee for the
related Series (iii) has a net worth of not less than $15,000,000, (iv) each
Rating Agency's rating of the Certificates for such Series in effect immediately
prior to such assignment, sale or transfer is not qualified, downgraded or
withdrawn as a result of such assignment, sale or transfer; and (v) executes and
delivers to the Trustee an agreement, in form and substance reasonably
satisfactory to the Trustee, which contains an assumption by such purchaser or
transferee of the due and punctual performance and observance of each covenant
and condition to be performed or observed by the Master Servicer under the Trust
Agreement from and after the date of such agreement. No such assignment will
become effective until the Trustee or a successor Master Servicer has assumed
the Master Servicer's obligations and duties under the Trust Agreement. To the
extent that the Master Servicer transfers its obligations to a wholly-owned
subsidiary or affiliate, such subsidiary or affiliate need not satisfy the
criteria set forth above, however, in such instance, the assigning Master
Servicer will remain liable for the servicing obligations under the Trust
Agreement. Any entity into which the Master Servicer is merged or consolidated
or any successor corporation resulting from any merger, conversion or
consolidation will succeed to the Master Servicer's obligations under the
related Trust Agreement, provided
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that such successor or surviving entity meets the requirements for a successor
Master Servicer set forth in the preceding paragraph.
Each Trust 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 related Trust Fund or the Certificateholders for any
action taken or for failing to take any action in good faith pursuant to the
Trust Agreement or for errors in judgment; provided, however, that neither the
Master Servicer nor any such person will be protected against any breach of
warranty or representations made under the Trust Agreement or the failure to
perform its obligations in compliance with any standard of care set forth in the
Trust Agreement or liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties thereunder.
Each Trust Agreement will further provide that the Master Servicer and any
director, officer, employee or agent of the Master Servicer is entitled to
indemnification from the related Trust Fund and will be held harmless against
any loss, liability or expense incurred in connection with any legal action
relating to the Trust Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, the Trust Agreement
provides that the Master Servicer is not under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its servicing
responsibilities under the Trust Agreement which, in its opinion, may involve it
in any expense or liability. The Master Servicer may, in its discretion,
undertake any such action which it may deem necessary or desirable with respect
to the Trust Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs, and liabilities of the Trust Fund and the Master Servicer will
be entitled to be reimbursed therefor out of the Collection Account.
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CREDIT SUPPORT
GENERAL
For any Series, credit support may be provided with respect to one or more
Classes thereof or the related Primary Assets. Credit support may be in the form
of a letter of credit, the subordination of one or more Classes of the
Certificates of such series, the establishment of one or more reserve funds, use
of a pool insurance policy, bankruptcy bond, repurchase bond or special hazard
insurance policy, certificate guarantee insurance, the use of cross-support
features or another method of credit support described in the related Prospectus
Supplement, or any combination of the foregoing, in any case, in such amounts
and having such terms and conditions as are acceptable to each Rating Agency. If
so specified in the related Prospectus Supplement, any form of credit support
(including but not limited to insurance, letters of credit or Certificate
guarantee insurance) may be structured so as to be drawn upon by more than one
Trust Fund to the extent described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the credit support will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon at the Pass-Through Rate or Certificate Rate,
as applicable. If losses occur which exceed the amount covered by credit support
or which are not covered by the credit support, Certificateholders will bear
their allocable share of deficiencies. See "THE TRUST AGREEMENTS -- Deficiency
Event." Moreover, if a form of credit support covers more than one Trust Fund
(each, a "Covered Trust"), holders of Certificates 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. If credit support is provided with respect
to a Series, or the related Primary Assets, the related Prospectus Supplement
will include a description of (a) the amount payable under such credit support,
(b) any conditions to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such credit support may
be reduced and under which such credit support may be terminated or replaced and
(d) the material provisions of any agreement relating to such credit support.
Additionally, the related Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party credit support,
including (a) a brief description of its principal business activities, (b) its
principal place of business, place of incorporation and the jurisdiction under
which it is chartered or licensed to do business, (c) if applicable, the
identity of regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (d) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement.
SUBORDINATE CERTIFICATES; SUBORDINATION RESERVE FUND
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the Subordinate Certificateholders to
receive distributions of principal and interest from the Certificate Account on
any Distribution Date will be subordinated to such rights of the Senior
Certificateholders to the extent of the then applicable Subordinated Amount as
defined in the related Prospectus Supplement. The Subordinated Amount will
decrease whenever amounts otherwise payable to the Subordinate
Certificateholders are paid to the Senior Certificateholders (including amounts
withdrawn from the Subordination Reserve Fund, if any, and paid to the Senior
Certificateholders), and will (unless otherwise specified in the related
Prospectus Supplement) increase whenever there is distributed to the Subordinate
Certificateholders amounts in respect of which subordination payments have
previously been paid to the Senior Certificateholders (which will occur when
subordination payments in respect of delinquencies and certain other
deficiencies have been recovered).
A Series may include a Class of Subordinate Certificates entitled to
receive cash flows remaining after distributions are made to all other Classes.
Such right will effectively be subordinate to the rights of other
Certificateholders, but will not be limited to the Subordinated Amount. 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 Loan not covered by standard hazard insurance
policies, losses resulting from
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the bankruptcy of a borrower and application of certain provisions of the
Bankruptcy Code, or losses resulting from the denial of insurance coverage due
to fraud or misrepresentation in connection with the origination of a Loan.
With respect to any Series which includes one or more Classes of
Subordinate Certificates, a Subordination Reserve Fund may be established if so
specified in the related Prospectus Supplement. The Subordination Reserve Fund,
if any, will be funded with cash, a letter of credit, a demand note or Eligible
Reserve Fund Investments, or by the retention of amounts of principal or
interest otherwise payable to Holders of Subordinate Certificates, or both, as
specified in the related Prospectus Supplement. The Subordination Reserve Fund
will not be a part of the Trust Fund, unless otherwise specified in the related
Prospectus Supplement. If the Subordination Reserve Fund is not a part of the
Trust Fund, the Trustee will have a security interest therein on behalf of the
Senior Certificateholders. Moneys will be withdrawn from the Subordination
Reserve Fund to make distributions of principal of or interest on Senior
Certificates under the circumstances set forth in the related Prospectus
Supplement.
Moneys deposited in any Subordinated Reserve Fund will be invested in
Eligible Reserve Fund Investments. Unless otherwise specified in the related
Prospectus Supplement, any reinvestment income or other gain from such
investments will be credited to the Subordinated Reserve Fund for such Series,
and any loss resulting from such investments will be charged to such
Subordinated Reserve Fund. Amounts in any Subordinated Reserve Fund in excess of
the Required Reserve Fund Balance may be periodically released to the
Subordinate Certificateholders under the conditions and to the extent specified
in the related Prospectus Supplement. Additional information concerning any
Subordinated Reserve Fund will be set forth in the related Prospectus
Supplement, including the amount of any initial deposit to such Subordinated
Reserve Fund, the Required Reserve Fund Balance to be maintained therein, the
purposes for which funds in the Subordinated Reserve Fund may be applied to make
distributions to Senior Certificateholders and the employment of reinvestment
earnings on amounts in the Subordinated Reserve Fund, if any.
CROSS-SUPPORT FEATURES
If the Primary Assets for a Series are divided into separate Asset Groups,
the beneficial ownership of which is evidenced by 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 Certificates evidencing the
beneficial ownership of one Asset Group prior to distributions on Subordinate
Certificates evidencing the beneficial ownership interest in another Asset Group
within the 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
Credit support with respect to a Series may be provided by various forms of
insurance policies, subject to limits on the aggregate dollar amount of claims
that will be payable under each such insurance policy, with respect to all Loans
comprising or underlying the Primary Assets for a Series, or such of the Loans
as have certain characteristics. Such insurance policies include primary
mortgage insurance and standard hazard insurance and may, if specified in the
related Prospectus Supplement, include a pool insurance policy covering losses
in amounts in excess of coverage of any primary insurance policy, a special
hazard insurance policy covering certain risks not covered by standard hazard
insurance policies, a bankruptcy bond covering certain losses resulting from the
bankruptcy of a borrower and application of certain provisions of the Bankruptcy
Code, a repurchase bond covering the repurchase of a Loan for which mortgage
insurance or hazard insurance coverage has been denied due to misrepresentations
in connection with the organization of the related Loan, or other insurance
covering other risks associated with the particular type of Loan. See
"DESCRIPTION OF MORTGAGE AND OTHER INSURANCE." Copies of the actual pool
insurance policy, special hazard insurance policy, bankruptcy bond or repurchase
bond, if any, relating to the Loans comprising the Primary Assets for a Series
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 Certificates of the related
Series.
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LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Certificates will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). 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 Loans on the related Cut-off Date or of one or more Classes of
Certificates (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, losses resulting
from the bankruptcy of a borrower and the application of certain provisions of
the Bankruptcy Code, or losses resulting from denial of insurance coverage due
to misrepresentations in connection with the origination of a Loan. 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 Certificates will expire at the
earlier of the date specified in the related Prospectus Supplement or the
termination of the Trust Fund. See "DESCRIPTION OF THE CERTIFICATES -- Optional
Termination" and "THE TRUST AGREEMENTS -- Termination." 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
Certificates of the related Series.
CERTIFICATE GUARANTEE INSURANCE
Certificate guarantee insurance, if any, with respect to a Series of
Certificates will be provided by one or more insurance companies. Such
certificate guarantee insurance will guarantee, with respect to one or more
Classes of Certificates 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
certificate guarantee insurance will also guarantee against any payment made to
a Certificateholder which is subsequently recovered as a "voidable preference"
payment under the Bankruptcy Code. A copy of the certificate 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 Certificates 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 Reserve Fund 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 Primary Assets as specified in the related
Prospectus Supplement.
Amounts on deposit in any Reserve Fund for a Series, together with the
reinvestment income thereon, 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 of
principal of and interest on the Certificates, if required as a condition to the
rating of such Series by each Rating Agency, or to reduce the likelihood of
Special Distributions with respect to any Multi-Class 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, losses resulting from the bankruptcy of a borrower and the
application of certain provisions of the Bankruptcy Code or losses resulting
from denial of insurance coverage due to fraud or misrepresentation in
connection with the origination of a Loan. Following each Distribution Date
amounts in such Reserve Fund in excess of any required Reserve Fund balance 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.
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Moneys deposited in any Reserve Funds will be invested in Eligible Reserve
Fund 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 Reserve Fund. However, such income may be
payable to the Master Servicer or a Servicer as additional servicing
compensation. See "SERVICING OF LOANS" and "THE TRUST AGREEMENTS -- Investment
of Funds." The Reserve Fund, if any, for a Series will not be a part of the
Trust Fund 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 required Reserve Fund balance to be maintained, the purposes for which
funds in the Reserve Fund may be applied to make distributions to
Certificateholders and use of investment earnings from the Reserve Fund, if any.
DESCRIPTION OF MORTGAGE AND OTHER INSURANCE
The following descriptions of primary mortgage insurance policies, pool
insurance policies, special hazard insurance policies, standard hazard insurance
policies, bankruptcy bonds, repurchase bonds and other insurance and the
respective coverages thereunder are general descriptions only and do not purport
to be complete. If so specified in the relevant Prospectus Supplement, any of
such insurance may be structured so as to protect against losses relating to
more than one Trust Fund in the manner described therein.
MORTGAGE INSURANCE ON THE LOANS
General. Unless otherwise specified in the related Prospectus Supplement,
all Mortgage Loans that are Conventional Loans secured by Single Family Property
and which had initial Loan-to-Value Ratios of greater than 80% will be covered
by primary mortgage insurance policies providing coverage on the amount of each
such Mortgage Loan in excess of 75% of the original Appraised Value of the
related Mortgaged Property and remaining in force until the principal balance of
such Mortgage Loan is reduced to 80% of such original Appraised Value. In
addition, each Mortgage Loan that is a Conventional Loan secured by a vacation
or second home and which had a Loan-to-Value Ratio of more than 70% at
origination will be covered by a primary mortgage insurance policy until the
principal balance of such Mortgage Loan is reduced to below 70% of Appraised
Value.
A pool insurance policy will be obtained if so specified in the related
Prospectus Supplement to cover any loss (subject to limitations described
herein) occurring as a result of default by the borrowers to the extent not
covered by any primary mortgage insurance policy or FHA Insurance. See "Pool
Insurance Policy" below. Neither the primary mortgage insurance policies nor any
pool insurance policy will insure against certain losses sustained in the event
of a personal bankruptcy of the borrower under a Mortgage Loan. See "CERTAIN
LEGAL ASPECTS OF LOANS" herein. Such losses will be covered to the extent
described in the related Prospectus Supplement by the bankruptcy bond or other
credit support, if any.
To the extent that the primary mortgage insurance policies do not cover all
losses on a defaulted or foreclosed Mortgage Loan, and to the extent such losses
are not covered by the pool insurance policy or other credit support for such
Series, such losses, if any, would affect payments to Certificateholders. In
addition, the pool insurance policy and primary mortgage insurance policies do
not provide coverage against hazard losses. See "Hazard Insurance on the Loans"
below. Certain hazard risks will not be insured and the occurrence of such
hazards could adversely affect payments to Certificateholders.
Primary Mortgage Insurance. Although the terms and conditions of primary
mortgage insurance vary, the amount of a claim for benefits under a primary
mortgage insurance policy covering a Mortgage Loan (herein referred to as the
"Insured Loss") generally will consist of the insured percentage (typically
ranging from 12% to 25%) of the unpaid principal amount of the covered Mortgage
Loan and accrued and unpaid interest thereon and reimbursement of certain
expenses, less (i) all rents or other payments collected or received by the
insured (other than the proceeds of hazard insurance) that are derived from or
in any way
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related to the Mortgaged Property, (ii) hazard insurance proceeds in excess of
the amount required to restore the mortgaged property and which have not been
applied to the payment of the Mortgage Loan, (iii) amounts expended but not
approved by the mortgage insurer, (iv) claim payments previously made by the
mortgage insurer and (v) unpaid premiums.
Primary mortgage insurance policies reimburse certain losses sustained by
reason of defaults in payments by borrowers. Primary mortgage insurance policies
will not insure against, and exclude from coverage, a loss sustained by reason
of a default arising from or involving certain matters, including (i) fraud or
negligence in origination or servicing of the Mortgage Loans, including
misrepresentation by the originator, borrower or other persons involved in the
origination of the Mortgage Loan; (ii) failure to construct the Mortgaged
Property subject to the Mortgage Loan in accordance with specified plans; (iii)
physical damage to the Mortgaged Property; and (d) the related Servicer not
being approved as a servicer by the mortgage insurer.
Primary mortgage insurance policies generally contain provisions
substantially as follows: (i) under the policy, a claim includes unpaid
principal, accrued interest at the applicable loan interest rate to the date of
filing of a claim thereunder and certain advances (with a limitation on
attorneys' fees for foreclosures of 3% of the unpaid principal balance and
accumulated delinquent interest) described below; (ii) when a claim is
presented, the mortgage insurer will have the option of (a) paying the claim in
full and taking title to the property and arranging for the sale thereof or (b)
paying the insured percentage of the claim and allowing the insured to retain
title to the property; (iii) unless earlier directed by the mortgage insurer,
claims must be made within a specified period of time (typically, 60 days) after
the insured has acquired good and merchantable title to the property; and (iv) a
claim must be paid within a specific period of time (typically, 60 days) after
the claim is accepted by the mortgage insurer.
As conditions precedent to the filing of or payment of a claim under a
primary mortgage insurance policy covering a Mortgage Loan, the insured will be
required to (i) advance or discharge (a) all hazard insurance policy premiums
and (b) as necessary and approved in advance by the mortgage insurer, (1) real
estate property taxes, (2) all expenses required to maintain the related
Mortgaged Property in at least as good a condition as existed at the effective
date of such primary mortgage insurance policy, ordinary wear and tear excepted,
(3) Mortgaged Property sales expenses, (4) any outstanding liens (as defined in
such primary mortgage insurance policy) on the Mortgaged Property and (5)
foreclosure costs, including court costs and reasonable attorneys' fees; (ii) in
the event of any physical loss or damage to the Mortgaged Property, have
restored and repaired the Mortgaged Property to at least as good a condition as
existed at the effective date of such primary mortgage insurance policy,
ordinary wear and tear excepted; and (iii) tender to the mortgage insurer good
and merchantable title to and possession of the Mortgaged Property.
Other provisions and conditions of each primary mortgage insurance policy
covering a Mortgage Loan will generally include that: (a) no change may be made
in the terms of such Mortgage Loan without the consent of the mortgage insurer;
(b) written notice must be given to the mortgage insurer within 10 days after
the insured becomes aware that a borrower is delinquent in the payment of a sum
equal to the aggregate of two Scheduled Payments due under such Mortgage Loan or
that any proceedings affecting the borrower's interest in the Mortgaged Property
securing such Mortgage Loan have been commenced, and thereafter the insured must
report monthly to the mortgage insurer the status of any such Mortgage Loan
until such Mortgage Loan is brought current, such proceedings are terminated or
a claim is filed; (c) the mortgage insurer will have the right to purchase such
Mortgage Loan, at any time subsequent to the 10 days' notice described in (b)
above and prior to the commencement of foreclosure proceedings, at a price equal
to the unpaid principal amount of the Mortgage Loan plus accrued and unpaid
interest thereon at the applicable Mortgage Rate and reimbursable amounts
expended by the insured for the real estate taxes and fire and extended coverage
insurance on the Mortgaged Property for a period not exceeding 12 months and
less the sum of any claim previously paid under the policy with respect to such
Mortgage Loan and any due and unpaid premium with respect to such policy; (d)
the insured must commence proceedings at certain times specified in the policy
and diligently proceed to obtain good and merchantable title to and possession
of the mortgaged property; (e) the insured must notify the mortgage insurer of
the institution of such proceedings, provide it with copies of documents
relating thereto, notify the mortgage insurer of the price amounts specified in
(c) above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the mortgage
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insurer specifies a lower or higher amount; and (f) the insured may accept a
conveyance of the Mortgaged Property in lieu of foreclosure with written
approval of the mortgage insurer, provided the ability of the insured to assign
specified rights to the mortgage insurer are not thereby impaired or the
specified rights of the mortgage insurer are not thereby adversely affected.
The mortgage insurer will be required to pay to the insured either: (i) the
insured percentage of the loss; or (ii) at its option under certain of the
primary mortgage insurance policies, the sum of the delinquent Scheduled
Payments plus any advances made by the insured, both to the date of the claim
payment, and thereafter, Scheduled Payments in the amount that would have become
due under the Mortgage Loan if it had not been discharged plus any advances made
by the insured until the earlier of (a) the date the Mortgage Loan would have
been discharged in full if the default had not occurred, or (b) an approved
sale. Any rents or other payments collected or received by the insured which are
derived from or are in any way related to the mortgaged property will be
deducted from any claim payment.
FHA Insurance and VA Guarantees. The FHA is responsible for administering
various federal programs, including mortgage insurance, authorized under the
Housing Act, as amended, and the United States Housing Act of 1937, as amended.
The insurance premiums for FHA Loans will be collected by HUD-approved
lenders or by the Master Servicer or Servicer and paid to the FHA. The
regulations governing FHA single-family mortgage insurance programs provide that
insurance benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted Mortgage Loan to HUD. With respect to a defaulted FHA Loan, the
Master Servicer or Servicer is limited in its ability to initiate foreclosure
proceedings. When it is determined, by the Master Servicer or Servicer or HUD,
that default was caused by circumstances beyond the mortgagor's control, the
Master Servicer or Servicer is expected to make an effort to avoid foreclosure
by entering, if feasible, into one of a number of available forms of forbearance
plans with the mortgagor. Such plans may involve the reduction or suspension of
Scheduled Payments for a specified period, with such payments to be made up on
or before the maturity date of the Mortgage Note, or the rescheduling or other
adjustment of payments due under the Mortgage Note up to or beyond the scheduled
maturity date. In addition, when a default caused by such circumstances is
accompanied by certain other criteria, HUD may provide relief by making payments
to the Master Servicer or the Servicer in partial or full satisfaction of
amounts due under the Mortgage Loan (which payments are to be repaid by the
borrower to HUD) or by accepting assignment of the Mortgage Loan from the Master
Servicer or the Servicer. With certain exceptions, at least three full
installments must be due and unpaid under the Mortgage Loan, and HUD must have
rejected any request for relief from the mortgagor before the Master Servicer or
the Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Master Servicer or the Servicer of each FHA Loan
will be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the unpaid principal
balance of the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or the Servicer for certain costs and expenses and
to deduct certain amounts received or retained by the Master Servicer or the
Servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance to HUD, the
Master Servicer or the Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Mortgage Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA Loan, bears interest from a
date 30 days after the borrower's first uncorrected failure to perform any
obligation or make any payment due under the Mortgage Loan and, upon assignment,
from the
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date of assignment, to the date of payment of the claim, in each case at the
same mortgage rate as the applicable HUD debenture interest rate as described
above.
With respect to a defaulted VA Loan, the Master Servicer or the Servicer
is, absent exceptional circumstances, authorized to announce its intention to
foreclose only when the default has continued for three months. Generally, a
claim for the guarantee is submitted after liquidation of the mortgaged
property.
The amount payable under the guarantee will be the percentage of the VA
Loan originally guaranteed applied to indebtedness outstanding as of the
applicable date of computation as specified in the VA regulations. Payments
under the guarantee will equal the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
The maximum guarantee that may be issued by the VA under a VA Loan as of
January 1, 1986 is the lesser of 60% of the original principal amount of the VA
Loan or $27,500. The liability on the guarantee is reduced or increased pro rata
with any reduction or increase in the amount of indebtedness, but in no event
will the amount payable on the guarantee exceed the amount of the original
guarantee. The VA may, at its option and without regard to the guarantee, make
full payment to a mortgagee of unsatisfied indebtedness on a mortgage upon its
assignment to the VA.
Pool Insurance Policy. If so specified in the related Prospectus
Supplement, the Master Servicer will be required to maintain a pool insurance
policy and to present or cause the Servicers, if any, to present claims
thereunder on behalf of the Trustee and the Certificateholders. See "SERVICING
OF LOANS -- Maintenance of Insurance Policies and Other Servicing Procedures."
Although the terms and conditions of pool insurance policies vary to some
degree, the following describes material aspects of such policies generally. The
related Prospectus Supplement will describe any provisions of a pool insurance
policy which are materially different from those described below. It may also be
a condition precedent to the payment of any claim under the pool insurance
policy that the insured maintain a primary mortgage insurance policy that is
acceptable to the pool insurer on all Mortgage Loans in the related Trust Fund
that have Loan-to-Value Ratios at the time of origination in excess of 80% and
that a claim under such primary mortgage insurance policy has been submitted and
settled. FHA Insurance and VA Guarantees may be deemed to be acceptable primary
insurance policies under the pool insurance policy. Assuming satisfaction of
these conditions, the pool insurer will pay to the insured the amount of the
loss which will generally be: (i) the amount of the unpaid principal balance of
the defaulted Mortgage Loan immediately prior to the approved sale of the
Mortgaged Property, (ii) the amount of the accumulated unpaid interest on such
Mortgage Loan to the date of claim settlement at the contractual rate of
interest and (iii) advances made by the insured as described above less certain
payments. An "approved sale" is (i) a sale of the Mortgaged Property acquired by
the insured because of a default by the borrower to which the pool insurer has
given prior approval, (ii) a foreclosure or trustee's sale of the Mortgaged
Property at a price exceeding the maximum amount specified by the pool insurer,
(iii) the acquisition of the Mortgaged Property under the primary mortgage
insurance policy by the mortgage insurer or (iv) the acquisition of the
Mortgaged Property by the pool insurer.
As a condition precedent to the payment of any loss, the insured must
provide the pool insurer with good and merchantable title to the Mortgaged
Property. If any Mortgaged Property securing a defaulted Mortgage Loan is
damaged and the proceeds, if any, from the related standard hazard insurance
policy or the applicable special hazard insurance policy, if any, are
insufficient to restore the damaged Mortgaged Property to a condition sufficient
to permit recovery under the pool insurance policy, the Master Servicer will not
be required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to the
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it through liquidation proceeds or insurance proceeds.
The original amount of coverage under the mortgage pool insurance policy
will be reduced over the life of the Certificates by the aggregate net dollar
amount of claims paid less the aggregate net dollar amount realized
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by the pool insurer upon disposition of all foreclosed mortgaged properties
covered thereby. The amount of claims paid includes certain expenses incurred by
the Master Servicer as well as accrued interest at the applicable interest rate
on delinquent Mortgage Loans to the date of payment of the claim. See "CERTAIN
LEGAL ASPECTS OF LOANS" herein. Accordingly, if aggregate net claims paid under
a mortgage pool insurance policy reach the original policy limit, coverage under
the mortgage pool insurance policy will lapse and any further losses will be
borne by the Trust Fund, and thus will affect adversely payments on the
Certificates. In addition, the exhaustion of coverage under any mortgage pool
insurance policy may affect the Master Servicer's or Servicer's willingness or
obligation to make Advances. If the Master Servicer or a Servicer determines
that an Advance in respect of a delinquent Loan would not be recoverable from
the proceeds of the liquidation of such Loan or otherwise, it will not be
obligated to make an advance respecting any such delinquency since the Advance
would not be ultimately recoverable by it. See "SERVICING OF LOANS -- Advances
and Limitations Thereon."
Mortgage Insurance with Respect to Manufactured Home Loans. A Manufactured
Home Loan may be an FHA Loan or a VA Loan. Any primary mortgage or similar
insurance and any pool insurance policy with respect to Manufactured Home Loans
will be described in the related Prospectus Supplement.
HAZARD INSURANCE ON THE 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 for property of the type
securing the related Loans. In general, the standard form of fire and extended
coverage policy will cover physical damage to or destruction of, the
improvements on the 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 Loans will be underwritten by different hazard insurers
and will cover 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 earthquakes, landslides, and mudflows), nuclear reaction, wet or dry
rot, vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. Uninsured risks not covered by a
special hazard insurance policy or other form of credit support will adversely
affect distributions to Certificateholders. When a property securing a Loan is
located in a flood area identified by HUD pursuant to the Flood Disaster
Protection Act of 1973, as amended, the Master Servicer will be required to
cause flood insurance to be maintained with respect to such property, to the
extent available.
The standard hazard insurance policies covering properties securing Loans
typically will contain a "coinsurance" clause which, in effect, will require the
insured at all times to carry hazard insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the dwellings,
structures and other improvements on the Mortgaged Property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clause will provide that the 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
dwellings, structures and other improvements damaged or destroyed or (ii) such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such dwellings, structures and other improvements on the Mortgaged Property.
Since the amount of hazard insurance to be maintained on the improvements
securing the Loans declines as the principal balances owing thereon decrease,
and since the value of residential real estate in the areas which the Mortgaged
Property is located fluctuates in value over time, the effect of this
requirement in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damage to the Mortgaged Property.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained for any Cooperative Loan. Generally, the Cooperative is
responsible for maintenance of hazard insurance for the property owned by the
Cooperative and the tenant-stockholders of that Cooperative do not maintain
individual
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hazard insurance policies. To the extent, however, that either the Cooperative
or the related borrower do not maintain such insurance, or do not maintain
adequate coverage, or do not apply any insurance proceeds to the restoration of
damaged property, then damage to such borrower's Cooperative Dwelling or such
Cooperative's building could significantly reduce the value of the Mortgaged
Property securing such Cooperative Loan. Similarly, the Depositor will not
require that a standard hazard or flood insurance policy be maintained for any
Condominium Loan. Generally, the Condominium Association is responsible for
maintenance of hazard insurance for the Condominium Building (including the
individual Condominium Units) and the owner(s) of an individual Condominium Unit
do not maintain separate hazard insurance policies. To the extent, however, that
either the Condominium Association or the related borrower do not maintain such
insurance, or do not maintain adequate coverage, or do not apply any insurance
proceeds to the restoration of damaged property, then damage to such borrower's
Condominium Unit or such Condominium Building could significantly reduce the
value of the Mortgaged Property securing such Condominium Loan.
Special Hazard Insurance Policy. Although the terms of such policies vary
to some degree, a special hazard insurance policy typically provides that, where
there has been damage to property securing a defaulted or foreclosed Loan (title
to which has been acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood insurance policy,
if applicable, required to be maintained with respect to such property, or in
connection with partial loss resulting from the application of the coinsurance
clause in a standard hazard insurance policy, the special hazard insurer will
pay the lesser of (i) the cost of repair or replacement of such property or (ii)
upon transfer of the property to the special hazard insurer, the unpaid
principal balance of such Loan at the time of acquisition of such property by
foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of
claim settlement and certain expenses incurred by the Master Servicer or the
Servicer with respect to such property. If the unpaid principal balance plus
accrued interest and certain expenses is paid by the special hazard insurer, the
amount of further coverage under the special hazard insurance policy will be
reduced by such amount less any net proceeds from the sale of the property. Any
amount paid as the cost of repair of the property will reduce coverage by such
amount. Special hazard insurance policies typically do not cover losses
occasioned by war, civil insurrection, certain governmental actions, errors in
design, faulty workmanship or materials (except under certain circumstances),
nuclear reaction, flood (if the mortgaged property is in a federally designated
flood area), chemical contamination and certain other risks.
Restoration of the property with the proceeds described under (i) above is
expected to satisfy the condition under the pool insurance policy that the
property be restored before a claim under such pool insurance policy may be
validly presented with respect to the defaulted Loan secured by such property.
The payment described under (ii) above will render unnecessary presentation of a
claim in respect of such Loan under the pool insurance policy. Therefore, so
long as the pool insurance policy remains in effect, the payment by the special
hazard insurer of the cost of repair or of the unpaid principal balance of the
related Loan plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to holders of the Certificates, but will affect
the relative amounts of coverage remaining under the special hazard insurance
policy and pool insurance policy.
Other Hazard-Related Insurance; Liability Insurance. With respect to Loans
secured by Multifamily Property, certain additional insurance policies may be
required with respect to the Multifamily Property; for example, general
liability insurance for bodily injury or death and property damage occurring on
the property or the adjoining streets and sidewalks, steam boiler coverage where
a steam boiler or other pressure vessel is in operation, interest coverage
insurance, and rent loss insurance to cover operating income losses following
damage or destruction of the mortgaged property. With respect to a Series for
which Loans secured by Multifamily Property are included in the Trust Fund, the
related Prospectus Supplement will specify the required types and amounts of
additional insurance and describe the general terms of such insurance and
conditions to payment thereunder.
BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the property securing the related Loan at an amount less
than the then outstanding principal balance of such Loan. The
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amount of the secured debt could be reduced to such value, and the holder of
such Loan thus would become an unsecured creditor to the extent the outstanding
principal balance of such Loan exceeds the value so assigned to the property by
the bankruptcy court. In addition, certain other modifications of the terms of a
Loan can result from a bankruptcy proceeding. See "CERTAIN LEGAL ASPECTS OF
LOANS" herein. If so provided in the related Prospectus Supplement, the Master
Servicer will obtain a bankruptcy bond or similar insurance contract (the
"bankruptcy bond") for proceedings with respect to borrowers under the
Bankruptcy Code. The bankruptcy bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal of and
interest on a Loan or a reduction by such court of the principal amount of a
Loan and will cover certain unpaid interest on the amount of such a principal
reduction from the date of the filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount specified
in the related Prospectus Supplement for all Loans in the Pool secured by single
unit primary residences. Such amount will be reduced by payments made under such
bankruptcy bond in respect of such Loans, unless otherwise specified in the
related Prospectus Supplement, and will not be restored.
REPURCHASE BOND
If so specified in the related Prospectus Supplement, the Depositor or
Master Servicer will be obligated to repurchase any Loan (up to an aggregate
dollar amount specified in the related Prospectus Supplement) for which
insurance coverage is denied due to dishonesty, misrepresentation or fraud in
connection with the origination or sale of such Loan. Such obligation may be
secured by a surety bond guaranteeing payment of the amount to be paid by the
Depositor or the Master Servicer.
THE TRUST AGREEMENTS
The following summaries describe certain provisions of the Trust
Agreements. 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
Agreements. Where particular provisions or terms used in the Trust Agreements
are referred to, such provisions or terms are as specified in the Trust
Agreements.
ASSIGNMENT OF PRIMARY ASSETS
General. The Depositor will transfer, convey and assign to the Trustee all
right, title and interest of the Depositor in the Primary 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 Primary Assets
after the Cut-off Date specified in the related Prospectus Supplement (except
for any Retained Interests). The Trustee will, concurrently with such
assignment, execute and deliver the Certificates.
Assignment of Private Mortgage-Backed Securities. The Depositor will cause
Private Mortgage- Backed Securities to be registered in the name of the Trustee
(or its nominee or correspondent). The Trustee (or its agent or correspondent)
will have possession of any certificated Private Mortgage-Backed Securities.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will not be in possession of or be assignee of record of any underlying assets
for a Private Mortgage-Backed Security. See "THE TRUST FUNDS -- Private
Mortgage-Backed Securities" herein. Each Private Mortgage- Backed Security will
be identified in a schedule appearing as an exhibit to the related Trust
Agreement (the "Mortgage Certificate Schedule"), which will specify the original
principal amount, outstanding principal balance as of the Cut-off Date, annual
pass-through rate or interest rate and maturity date for each Private
Mortgage-Backed Security conveyed to the Trustee. In the Trust Agreement, the
Depositor will represent and warrant to the Trustee regarding the Private
Mortgage-Backed Securities: (i) that the information contained in the Mortgage
Certificate Schedule is true and correct in all material respects; (ii) that,
immediately prior to the conveyance of the Private Mortgage-Backed Securities,
the Depositor had good title thereto, and was the sole owner thereof, (subject
to any Retained Interests); (iii) that there has been no other sale by it of
such Private Mortgage-Backed Securities and (iv) that there is no existing lien,
charge, security interest or other encumbrance (other than any Retained
Interest) on such Private Mortgage-Backed Securities.
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Assignment of Mortgage Loans. In addition, 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.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee, its agent, or a custodian,
the related original cooperative note endorsed to the order of the Trustee, the
original security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The Depositor will file in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
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 the number of Mortgage Loans which are Cooperative Loans
and, 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 ARM, the Lifetime Mortgage
Rate Cap, if any, and the current Index; and, if the Mortgage Loan is a GPM
Loan, a GEM Loan, a Buy-Down Loan or a Mortgage Loan with other than fixed
Scheduled Payments and level amortization, the terms thereof.
Assignment of Manufactured Home Loans. The Depositor will cause any
Manufactured Home Loans included in the Primary Assets for a Series of
Certificates to be assigned to the Trustee, together with principal and interest
due on or with respect to the Manufactured Home Loans after the Cut-off Date
specified in the related Prospectus Supplement. Each Manufactured Home Loan will
be identified in a loan schedule (the "Loan Schedule") appearing as an exhibit
to the related Trust Agreement. Such Loan Schedule will specify, with respect to
each Manufactured Home Loan, among other things: the original principal balance
and the outstanding principal balance as of the close of business on the Cut-off
Date; the interest rate; the current scheduled Payment of principal and
interest; and the maturity date of the Manufactured Home Loan.
In addition, with respect to each Manufactured Home Loan, the Depositor
will deliver or cause to be delivered to the Trustee, or, as specified in the
related Prospectus Supplement, the custodian, the original Manufactured Home
Loan and copies of documents and instruments related to each Manufactured Home
Loan and the security interest in the Manufactured Home securing each
Manufactured Home Loan. To give notice of the right, title and interest of the
Certificateholders to the Manufactured Home Loans, the Depositor will cause a
UCC-1 financing statement to be filed identifying the Trustee as the secured
party and identifying all Manufactured Home Loans as collateral. Unless
otherwise specified in the related Prospectus Supplement, the Manufactured Home
Loans will not be stamped or otherwise marked to reflect their assignment from
the Depositor to the Trustee. Therefore, if a subsequent purchaser were able to
take physical possession of the
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Manufactured Home Loans without notice of such assignment, the interest of the
Certificateholders in the Manufactured Home Loans could be defeated. See
"CERTAIN LEGAL ASPECTS OF LOANS -- Manufactured Home Loans."
The Depositor will provide limited representations and warranties to the
Trustee concerning the Manufactured Home Loans. Such representations and
warranties will include: (i) that the information contained in the Loan Schedule
provides an accurate listing of the Manufactured Home Loans and that the
information respecting such Manufactured Home Loans set forth in such Loan
Schedule is true and correct in all material respects at the date or dates
respecting which such information is furnished; (ii) that, immediately prior to
the conveyance of the Manufactured Home Loans, the Depositor had good title to,
and was sole owner of, each such Manufactured Home Loan (subject to any Retained
Interests); (iii) that there has been no other sale by it of such Manufactured
Home Loans and that the Manufactured Home Loan is not subject to any lien,
charge, security interest or other encumbrance; (iv) if the Master Servicer will
not directly service the Manufactured Home Loans, each Servicing Agreement
entered into with a Servicer with respect to Manufactured Home Loans comprising
the Primary Assets has been assigned and conveyed to the Trustee and is not
subject to any offset, counterclaim, encumbrance or other charge; and (v) the
Depositor has obtained from the Master Servicer, the Servicer, the originator of
the Manufactured Home Loans or such other entity that is the seller of the
Manufactured Home Loans, representations and warranties relating to certain
information respecting the origination of and current status of the Manufactured
Home Loans, and has no knowledge of any fact which would cause it to believe
that such representations and warranties are inaccurate in any material respect.
See "LOAN UNDERWRITING PROCEDURES AND STANDARDS" herein.
Assignment of Participation Certificates. The Depositor will cause any
Participation Certificates obtained under a participation agreement to be
assigned to the Trustee by delivering to the Trustee such Participation
Certificates, which will be reregistered in the name of the Trustee. Unless
otherwise specified in the related Prospectus Supplement, the Trustee will not
be in possession of or be assignee of record with respect to the Loans
represented by any Participation Certificate. Each Participation Certificate
will be identified in a "Participation Certificate Schedule" which will specify
the original principal balance, outstanding principal balance as of the Cut-off
Date, pass-through rate and maturity date for each Participation Certificate. In
the Trust Agreement, the Depositor will represent and warrant to the Trustee
regarding each Participation Certificate: (i) that the information contained in
the Participation Certificate Schedule is true and correct in all material
respects; (ii) that, immediately prior to the conveyance of the Participation
Certificates, the Depositor had good title to and was sole owner of such
Participation Certificates; (iii) that there has been no other sale by it of
such Participation Certificates and (iv) that such Participation Certificates
are not subject to any existing lien, charge, security interest or other
encumbrance (other than any Retained Interests).
REPURCHASE AND SUBSTITUTION OF NON-CONFORMING LOANS
Unless otherwise provided in the related Prospectus Supplement, if any
document in the 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 lesser of (i) 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 prior to foreclosure) and (ii) the Trust Fund's
federal income tax basis in the Mortgage Loan, and (b), accrued and unpaid
interest to the date of the next scheduled payment on such Mortgage Loan at the
related Pass-Through Rate or Certificate Rate (less any unreimbursed Advances
respecting such Mortgage Loan), provided, however, the purchase price shall not
be limited in (i) above to the Trust Fund's federal income tax basis if the
repurchase
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at a price equal to the outstanding principal balance of such Mortgage Loan will
not result in any prohibited transaction tax under Section 860F(a) of the Code.
If provided in the related Prospectus Supplement, the Depositor may, rather
than repurchase the Loan as described above, remove such Loan from the Trust
Fund (the "Deleted Loan") and substitute in its place one or more other Loans
(each, a "Qualifying Substitute Mortgage Loan") provided, however, that (i) with
respect to a Trust Fund for which no REMIC election is made, such substitution
must be effected within 120 days of the date of initial issuance of the
Certificates and (ii) with respect to a Trust Fund for which a REMIC election is
made, after a specified time period, the Trustee must have received a
satisfactory opinion of counsel that such substitution will not cause the Trust
Fund to lose its status as a REMIC or otherwise subject the Trust Fund to a
prohibited transaction tax.
Any Qualifying Substitute Mortgage Loan will have, on the date of
substitution, (i) an outstanding principal balance, after deduction of all
Scheduled Payments due in the month of substitution, not in excess of the
outstanding principal balance of the Deleted Loan (the amount of any shortfall
to be deposited to the Certificate Account in the month of substitution for
distribution to Certificateholders), (ii) an interest rate not less than (and
not more than 2% greater than) the interest rate of the Deleted Loan, (iii) a
remaining term-to-stated maturity not greater than (and not more than two years
less than) that of the Deleted Loan, and will comply with all of the
representations and warranties set forth in the applicable agreement as of the
date of substitution.
Unless otherwise provided in the related Prospectus Supplement, the
above-described cure, repurchase or substitution obligations constitute the sole
remedies available to the Certificateholders or the Trustee for a material
defect in a Loan document.
The Depositor or another entity will make representations and warranties
with respect to Loans which comprise the Primary Assets for a Series. See "LOAN
UNDERWRITING PROCEDURES AND STANDARDS -- Representations and Warranties" above.
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 Loan, the Depositor or such entity is
obligated to repurchase the affected Loan or, if provided in the related
Prospectus Supplement, provide a Qualifying 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 Loans. See "SPECIAL
CONSIDERATIONS".
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) (A) with respect to a Series other than a Multi-Class Series, the
amount of such distribution allocable to principal on the Primary Assets,
separately identifying the aggregate amount of any principal prepayments
included therein and the amount, if any, advanced by the Master Servicer or
by a Servicer or (B) with respect to a Multi-Class Series, the amount of
the principal distribution in reduction of stated principal amount (or
Compound Value) of each Class and the aggregate unpaid principal amount (or
Compound Value) of each Class following such distribution;
(ii) (A) with respect to a Series other than a Multi-Class Series, the
amount of such distribution allocable to interest on the Primary Assets and
the amount, if any, advanced by the Master Servicer or a Servicer or (B)
with respect to a Multi-Class Series, the amount of the interest
distribution;
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(iii) the amount of servicing compensation with respect to the
Principal 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 Principal
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 Certificates, prior to the
Accrual Termination Date in addition to the information specified in (i)(B)
above, the amount of interest accrued on such Certificates during the
related Interest Accrual Period and added to the Compound Value thereof;
(vii) in the case of Floating Rate Certificates, the Floating 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 in the Certificate Account and the amounts actually distributed);
(ix) if applicable, the number and aggregate principal balances of
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;
(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 credit support 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 Class, the
Subordinated Amount, if any, determined as of the related Determination
Date and if the distribution to the Senior Certificateholders 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 (including any Subordinated 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
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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 Loans. See "SERVICING OF LOANS -- Evidence as to Compliance" herein.
INVESTMENT OF FUNDS
The Certificate Account, Collection Account or Custodial Account, if any,
and any other funds and accounts for a Series that may be invested by the
Trustee or by the Master Servicer (or by the Servicer, if any), can be invested
only in Eligible Investments acceptable to each Rating Agency, which may
include, without limitation, (i) direct obligations of, and obligations fully
guaranteed as to timely payment of principal and interest 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, (ii) demand and time deposits, certificates of deposit
or bankers' acceptances, (iii) repurchase obligations pursuant to a written
agreement with respect to any security described in clause (i) above, (iv)
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, (v)
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), (vi) a Guaranteed Investment
Contract issued by an entity having a credit rating acceptable to each Rating
Agency and (vii) any other demand, money market or time deposit or obligation,
security or investment as would not adversely affect the then current rating by
the Rating Agencies.
Funds held in a reserve fund or Subordinated Reserve Fund may be invested
in certain Eligible Reserve Fund Investments which may include Eligible
Investments, mortgage loans, mortgage pass-through or participation securities,
mortgage-backed bonds or notes or other investments to the extent specified in
the related Prospectus Supplement.
Eligible Investments or Eligible Reserve Fund Investments with respect to a
Series will include only obligations or securities that mature on or before the
date on which the amounts in the Collection Account are required to be remitted
to the Trustee and amounts in the Certificate Account, any Reserve Fund or the
Subordinated Reserve Fund for such Series are required or may be anticipated to
be required to be applied for the benefit of Certificateholders of such Series.
If so provided in the related Prospectus Supplement, the reinvestment
income from the Subordination Reserve Fund, other Reserve Fund, Servicer
Account, Collection Account or the Certificate Account may be property of the
Master Servicer or a Servicer and not available for distributions to
Certificateholders. See "SERVICING OF LOANS" 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 Master 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 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.
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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 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 Master 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 non- assenting 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.
DEFICIENCY EVENT
Unless otherwise defined in the Prospectus Supplement, a "Deficiency Event"
with respect to the Certificates of a Multi-Class Series is defined in the Trust
Agreement as being the inability of the Trustee to distribute to Holders of one
or more Classes of Certificates of such Series (other than any Class of
Subordinate Certificates prior to the time that the Available Distribution
Amount is reduced to zero), in accordance with the terms thereof and the Trust
Agreement, any distribution of principal or interest thereon when and as
distributable, in each case because of the insufficiency for such purpose of the
funds then held in the related Trust Fund.
Upon the occurrence of a Deficiency Event, the Master Servicer (unless
otherwise specified in the related Prospectus Supplement) is required to
determine whether or not the application on a monthly basis (regardless of the
frequency of regular Distribution Dates) of all future Scheduled Payments on the
Primary Assets included in the related Trust Fund and other amounts receivable
with respect to such Trust Fund towards payments on such Certificates in
accordance with the priorities as to distributions of principal and
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interest set forth in such Certificates will be sufficient to make distributions
of interest at the applicable Certificate Rates and to distribute in full the
principal amount of each such outstanding Certificate on or before its
respective Stated Maturity.
The Master Servicer (unless otherwise specified in the related Prospectus
Supplement) will obtain and rely upon an opinion or report of a firm of
independent accountants of recognized national reputation as to the sufficiency
of the amounts receivable with respect to such Trust Fund to make such
distributions on the Certificates, which opinion or report will be conclusive
evidence as to such sufficiency. Pending the making of any such determination,
distributions on the Certificates will continue to be made in accordance with
their terms.
In the event that the Master Servicer (unless otherwise specified in the
related Prospectus Supplement) makes a determination of sufficiency, the Trustee
will apply all amounts received in respect of the related Trust Fund (after
payment of fees and expenses of the Trustee and accountants for the Trust Fund)
to distributions on the Certificates of such Series in accordance with their
terms, except that such distributions will be made monthly and without regard to
the amount of principal that would otherwise be distributable on any
Distribution Date. Under certain circumstances following such positive
determination, the Trustee may resume making distributions on such Certificates
expressly in accordance with their terms.
If the Master Servicer (unless otherwise specified in the related
Prospectus Supplement) is unable to make the positive determination described
above, the Trustee will apply all amounts received in respect of the related
Trust Fund (after payment of Trustee and accountants' fees and expenses) to
monthly distributions on the Certificates of such Series pro rata, without
regard to the priorities as to distribution of principal set forth in such
Certificates, and such Certificates will, to the extent permitted by applicable
law, accrue interest at the highest Certificate Rate borne by any Certificate of
such Series (excluding any Interest Weighted Class or any Class with a Floating
Rate that varies inversely with a current Index) or, with respect to each Class
of Floating Rate Certificates, at the weighted average Certificate Rate,
calculated on the basis of the maximum interest rate applicable to such Class on
the original principal amount of the Certificates of that Class (excluding any
Interest Weighted Class or any Class with a Floating Rate that varies inversely
with a current Index). In such event, the Holders evidencing not less than at
least 66 2/3% or more of the aggregate outstanding principal amount of the
Certificate of such Series may direct the Trustee to sell the related Trust
Fund, any such direction being irrevocable and binding upon the Holders of all
Certificates of such Series and upon the owners of the residual interests in
such Trust Fund. In the absence of such a direction, the Trustee may not sell
all or any portion of such Trust Fund.
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. 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 Primary 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.
CERTIFICATE ACCOUNT
The Trustee will establish a separate account (the "Certificate Account")
in its name as Trustee for the Certificateholders. If specified in the related
Prospectus Supplement, the Certificate Account may be maintained as an interest
bearing account or the funds held therein may be invested, pending disbursement
to Certificateholders of the related Series, pursuant to the terms of the Trust
Agreement, in Eligible Investments. If so specified in the related Prospectus
Supplement, the Master Servicer will be entitled to receive as additional
compensation, any interest or other income earned on funds in the Certificate
Account. The Trustee will deposit into the Certificate Account on the Business
Day received all funds received from the Master Servicer and required
withdrawals from any Reserve Funds. Unless otherwise specified in the related
Prospectus Supplement, the Trustee is permitted from time to time to make
withdrawals from the Certificate Account for each Series to remove amounts
deposited therein in error, to pay to the Master Servicer any reinvestment
income on funds held in the Certificate Account to the extent it is entitled, to
remit to the Master Servicer its Servicing Fee to the extent not previously
withdrawn from the Collection Account, to make deposits to any Reserve Fund, to
make regular distributions to the Certificateholders and to clear and terminate
the Certificate Account.
EXPENSE RESERVE FUND
If specified in the Prospectus Supplement relating to a Series, the
Depositor may deposit on the related Closing Date in an account to be
established with the Trustee (the "Expense Reserve Fund") cash or eligible
investments which will be available to pay anticipated fees and expenses of the
Trustee or other agents. The
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Expense Reserve Fund for a Series may also be funded over time through the
deposit therein of all or a portion of cash flow, to the extent described in the
related Prospectus Supplement. The Expense Reserve Fund, if any, will not be
part of the Trust Fund held for the benefit of the Holders. Amounts on deposit
in any Expense Reserve Fund will be invested in one or more Eligible
Investments.
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 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 Multi-Class 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 property acquired upon foreclosure or deed in
lieu of foreclosure in respect of any
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Mortgage Loan ("REO Property") or (ii) the repurchase, as described below, by
the Master Servicer from the Trustee for such Series of all Mortgage 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 Master Servicer to
repurchase from the Trust Fund for such Series all remaining Mortgage Loans at a
price equal to 100% of the Aggregate Asset Principal Balance 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 Principal Balance of such
Mortgage Loans) and unreimbursed expenses (that are reimbursable pursuant to the
terms of the Trust Agreement) plus, in either case, accrued interest thereon at
the weighted average Mortgage Loan Pass-Through 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 Principal Balance of
such Mortgage 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 Master Servicer's right to so purchase is
subject to the Aggregate Principal Balance 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 Principal Balance. 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 person
identified therein. For each Series, the Master 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 under the circumstances described in such
Prospectus Supplement. See "DESCRIPTION OF THE CERTIFICATES -- Optional
Termination of the Trust Fund" herein.
CERTAIN LEGAL ASPECTS OF LOANS
The following discussion contains summaries of certain legal aspects of
housing loans which are general in nature. Because certain of 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
properties securing the housing loans are situated. The summaries are qualified
in their entirety by reference to the applicable federal and state laws
governing the Loans.
MORTGAGES
The Mortgage Loans comprising or underlying the Primary Assets for a Series
will be secured by either mortgages or deeds of trust or deeds to secure debt,
depending upon the prevailing practice in the state in which the property
subject to a Mortgage Loan is located. The filing of a mortgage, deed of trust
or deed to secure debt creates a lien or title interest upon the real property
covered by such instrument and represents the security for the repayment of an
obligation that is customarily evidenced by a promissory note. It is not prior
to the lien for real estate taxes and assessments or other charges imposed under
governmental police powers. Priority with respect to such instruments depends on
their terms, the knowledge of the parties to the mortgage and generally on the
order of recording with the applicable state, county or municipal office. There
are two parties to a mortgage, the mortgagor, who is the borrower/homeowner or
the land trustee (as described below), and the mortgagee, who is the lender.
Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or
bond and the mortgage. In 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/homeowner is the beneficiary; at origination of
a mortgage loan, the borrower executes a separate undertaking to make payments
on the mortgage note. A deed of trust transaction normally has three parties,
the trustor, who is the borrower/homeowner; the beneficiary, who is the lender,
and the trustee, a third-party grantee. Under a deed
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of trust, the trustor 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 obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the property which it covers, the priority of which will depend on
the terms of the particular security agreement as well as the order of
recordation of the agreement in the appropriate recording office. Such a lien or
title interest is not prior to the lien for real estate taxes and assessments
and other charges imposed under governmental police powers.
Unless otherwise specified in the related Prospectus Supplement, all
cooperative apartments relating to the Cooperative Loans are located in the
State of New York. A corporation which is entitled to be treated as a housing
cooperative under the Code owns all the real property or some interest therein
sufficient to permit it to own the building and all separate dwelling units
therein. The Cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is generally the case, or an underlying lease of the
land, as is the case in some instances, the Cooperative, as property mortgagor,
is also responsible for meeting these mortgage or rental obligations. The
interest of the occupant under proprietary leases or occupancy agreements as to
which that Cooperative is the landlord are generally subordinate to the interest
of the holder of a blanket mortgage and to the interest of the holder of a land
lease. If the Cooperative is unable to meet the payment obligations (i) arising
under a blanket mortgage, the mortgagee holding a blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements or (ii) arising under its land lease, the holder of the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity. The
inability of the Cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the inability of the
Cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. A foreclosure by
the holder of a blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed an individual
tenant-stockholder of Cooperative shares or, in the case of the Mortgage Loans,
the collateral securing the Cooperative Loans. Similarly, the termination of the
land lease by its holder could eliminate or significantly diminish the value of
any collateral held by the lender who financed an individual tenant-stockholder
of the Cooperative shares or, in the case of the Mortgage Loans, the collateral
securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a Cooperative must make a monthly payment to the
Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights are financed through
a Cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related Cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement and a
financing statement covering the
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proprietary lease or occupancy agreement and the Cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "Realizing on Cooperative
Loan Security" below.
Tax Aspects of Cooperative Ownership. In general, a "tenant-stockholder"
(as defined in Section 216(b)(2) of the Code) of a corporation that qualifies as
a "cooperative housing corporation" within the meaning of Section 216(b)(1) of
the Code is allowed a deduction for amounts paid or accrued within his taxable
year to the corporation representing his proportionate share of certain interest
expenses and certain real estate taxes allowable as a deduction under Section
216(a) of the Code to the corporation under Sections 163 and 164 of the Code. In
order for a corporation to qualify under Section 216(b)(1) of the Code for its
taxable year in which such items are allowable as a deduction to the
corporation, such section requires, among other things, that at least 80% of the
gross income of the corporation be derived from its tenant-stockholders. By
virtue of this requirement, the status of a corporation for purposes of Section
216(b)(1) of the Code must be determined on a year-to-year basis. Consequently,
there can be no assurance that cooperatives relating to the Cooperative Loans
will qualify under such section for any particular year. In the event that such
a cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies under Section 216(b)(1) of the Code, the likelihood that such a
failure would be permitted to continue over a period of years appears remote.
FORECLOSURE ON MORTGAGES
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust which authorizes
the trustee to sell the property upon any default by the borrower under the
terms of the note or deed of trust. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person who
has recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other individual
having an interest in the real property, including any junior lienholders. 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.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorney's 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 specific 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 mortgagor is bound by the terms of the mortgage note and the
mortgage as made 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 to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the mortgagor 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
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mortgagor was insolvent and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy. Similarly, 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 mortgagor'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, 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. Any loss may be reduced by the
receipt of any mortgage guaranty insurance proceeds.
REALIZING UPON COOPERATIVE LOAN SECURITY
The Cooperative shares and proprietary lease or occupancy agreement owned
by the tenant- stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the Cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the Cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the Cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the Cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the tenant-
stockholder under the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from a sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement or which have become liens on the shares relating
to the proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the Cooperative Loan and accrued and unpaid
interest thereon.
Recognition agreements also provide that in the event the lender succeeds
to the tenant-shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon its collateral for a Cooperative Loan, the
lender must obtain the approval or consent of the Cooperative as required by the
proprietary lease before transferring the Cooperative shares or assigning the
proprietary lease.
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In New York, lenders generally have realized upon the pledged shares and
proprietary lease or occupancy agreement given to secure a Cooperative Loan by
public sale in accordance with the provisions of Article 9 of the New York
Uniform Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the sale. Generally, a
sale conducted according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the trustor or mortgagor 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 entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. 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 the
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.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which 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 net amount realized
upon the public sale of the real property and the amount due to the lender.
Other statutes 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.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally 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.
Cooperative Loans. Generally, lenders realize on cooperative shares and
the accompanying proprietary lease given to secure a Cooperative Loan under
Article 9 of the UCC. Some courts have interpreted section 9-504 of the UCC to
prohibit a deficiency award unless the creditor establishes that the sale of the
collateral (which, in the case of a Cooperative Loan, would be the shares of the
Cooperative and the related proprietary lease or occupancy agreement) was
conducted in a commercially reasonable manner.
Leases and Rents. Multifamily 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
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long as there is no default or providing for the direct payment to the lender.
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.
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 Federal Soldiers' and
Sailors' Relief Act, 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 for collection of a debt. Moreover, a court with federal bankruptcy
jurisdiction may permit a debtor through a Chapter 13 under the Bankruptcy Code
rehabilitative plan to cure a monetary default with respect to a loan on a
debtor's residence by paying arrearages within a reasonable time period and
reinstating the original loan payment schedule even though the lender
accelerated the loan and the lender has taken all steps to realize upon his
security (provided no sale of the property has yet occurred) prior to the filing
of the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a loan default by permitting
the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a loan secured by property of the debtor may be modified if the
borrower has filed a petition under Chapter 13. These courts have suggested that
such modifications may include reducing the amount of each monthly payment,
changing the rate of interest, altering the repayment schedule and reducing the
lender's security interest to the value of the residence, thus leaving the
lender a general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan. Federal bankruptcy law and
limited case law indicate that the foregoing modifications could not be applied
to the terms of a loan secured by property that is the principal residence of
the debtor. In all cases, the secured creditor is entitled to the value of its
security plus post-petition interest, attorney's fees and costs to the extent
the value of the security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. 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, in effect, invalidate due-
on-sale clauses through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the
lender's security. This may delay or interfere with the enforcement of rights in
respect of a defaulted Loan. 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 Laws Relating to Mortgage Loans Secured by Multifamily
Property. Section 365(a) of the Bankruptcy Code generally provides that a
trustee or a debtor-in-possession in a bankruptcy or reorganization 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 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
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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(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.
Under Section 365(f) of the Bankruptcy Code, if a trustee 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. In addition, no party to an executory contract or an unexpired lease
may terminate or modify any rights or obligations under an executory contract or
an unexpired lease at any time after the commencement of a case under the
Bankruptcy Code solely because of a provision in the executory contract or
unexpired lease or in applicable law conditioned upon the assignment of the
executory contract or unexpired lease. Thus, an undetermined third party may
assume the obligations of the lessee or a Mortgagor under a lease in the event
of commencement of a proceeding under the Bankruptcy Code with respect to the
lessee or a Mortgagor, as applicable.
Under Sections 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.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of all
branches of the military on active duty, including draftees and reservists in
military service, (i) are entitled to have interest rates reduced and capped at
6% per annum, on obligations (including mortgage loans and manufactured home
loans) incurred prior to the commencement of military service for the duration
of military service, (ii) may be entitled to a stay of proceedings on any kind
of foreclosure or repossession action in the case of defaults on such
obligations entered into prior to military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or (iii)
above are subject to challenge by creditors and if, in the opinion of the court,
the ability of a person to comply with such obligations is not materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a
Mortgage Loan or Manufactured Home Loan included in a Trust for a Series is
relieved pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940,
neither the Servicer, the Master Servicer nor the Trustee will be required to
advance such amounts, and any loss in respect thereof may reduce the amounts
available to be paid to the holders of the Certificates of such Series. Any
shortfalls in interest collections on Mortgage Loans included in a Trust for a
Series resulting from application of the Soldiers' and Sailors' Civil Relief Act
of 1940 will be allocated to each Class of Certificates of such Series that is
entitled to receive interest in respect of such Mortgage Loans or Manufactured
Home Loans in proportion to the interest that each such Class of Certificates
would have otherwise been entitled to receive in respect of such Mortgage Loans
had such interest shortfall not occurred.
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DUE-ON-SALE CLAUSES IN MORTGAGE LOANS
Due-on-Sale clauses permit the lender to accelerate the maturity of the
loan if the borrower sells or transfers, whether voluntarily or involuntarily,
all or part of the real property securing the loan without the lender's prior
written consent. The enforceability of these clauses has been impaired in
various ways in certain states by statutory or decisional law. The ability of
lenders and their assignees and transferees to enforce due-on-sale clauses was
addressed by Congress when it enacted the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act"). The legislation, subject
to certain exceptions, provides for federal preemption of all state restrictions
on the enforceability of due-on-sale clauses. Excluded from the preemption are
loans originated or assumed during a "window period" ("Window Period Loans").
The window period runs from the date the state restricted the enforcement of the
clauses, either by constitution, statute, or statewide judicial proclamation, to
October 15, 1982. All Window Period Loans are governed by the restrictive state
law until October 15, 1985, unless the state acted to extend the effect of the
window period by further regulating such loans. The Garn-St Germain Act further
provides that loans originated by a federal savings bank or a federally
chartered savings and loan association shall be governed by the regulations of
the Federal Home Loan Bank Board. These regulations preempt any state law
restrictions and expressly allow these federal lenders to enforce due-on-sale
clauses. Loans originated by such institutions are not subject to the window
period and therefore due-on-sale clauses in such loans are enforceable
regardless of the date the loans originated.
Although neither the Garn-St Germain Act nor the Federal Home Loan Bank
Board regulations promulgated thereunder actually lists the states with window
periods ("Window Period States"), FHLMC has taken the position, in prescribing
mortgage loan servicing standards with respect to loans which it has purchased,
that the Window Period States are Arizona, Arkansas, California, Colorado,
Florida, Georgia, Iowa, Michigan, Minnesota, New Mexico, Utah and Washington.
(Despite Florida's status as a Window Period State, Florida case law indicates
that courts no longer require a lender to show an impairment of security before
enforcing a due-on-sale clause.) In regulations issued on November 8, 1983, as
amended on December 9, 1983, the Comptroller of the Currency indicated that
certain loans which were originated by national banks prior to October 15, 1982
and which were secured by property located in the states listed above were
Window Period Loans. These regulations limit the effect of state law
restrictions on the enforcement of due-on-sale clauses, with respect to Window
Period Loans originated by national banks, by shortening the window period. On
December 3, 1982, the National Credit Union Administration issued final
regulations allowing federal credit unions to enforce due-on-sale clauses in
long term first mortgage loans for transfers occurring on or after November 18,
1982, notwithstanding state law restrictions.
Under the Garn-St Germain Act, unless a Window Period State took action by
October 15, 1985 to further regulate enforcement of due-on-sale clauses, such
clauses would become enforceable even in Window Period Loans. Five of the Window
Period States (Arizona, Minnesota, Michigan, Washington and Utah) have acted to
restrict the enforceability of due-on-sale clauses in Window Period Loans beyond
October 15, 1985. The actions taken vary among such states. The Garn-St Germain
Act also sets forth nine specific instances in which no lender covered by the
Garn-St Germain Act may exercise its option pursuant to a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred. The
inability to enforce a due-on-sale clause may result in a loan bearing an
interest rate below the current market rate being assumed by a new home buyer
rather than being paid off, which may have an impact upon the average life of
the Loans related to a Series and the number of such Loans which may be
outstanding until maturity.
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. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
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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.
Most conventional single-family mortgage loans may be prepaid in full or in
part without penalty. The regulations of the Federal Home Loan Bank Board
prohibit the imposition of a prepayment penalty or equivalent fee for or in
connection with the acceleration of a loan by exercise of a due-on-sale clause.
A mortgagee to whom a prepayment in full has been tendered may be compelled to
give either a release of the mortgage or an instrument assigning the existing
mortgage. The absence of a restraint on prepayment, particularly with respect to
Mortgage Loans having higher mortgage rates, may increase the likelihood of
refinancing or other early retirements of the Mortgage Loans.
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 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.
The Depositor has been advised by counsel that a court interpreting Title V
would hold that Mortgage Loans related to a Series originated on or after
January 1, 1980 are subject to federal preemption. Therefore, in a state that
has not taken the requisite action to reject application of Title V or to adopt
a provision limiting discount points or other charges prior to origination of
such Mortgage Loans, any such limitation under such state's usury law would not
apply to such Mortgage Loans.
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
Loans originated after the date of such state action will be eligible as Primary
Assets if such Mortgage Loans bear interest or provide for discount points or
charges in excess of permitted levels. No Mortgage Loan originated prior to
January 1, 1980 will bear interest or provide for discount points or charges in
excess of permitted levels.
ADJUSTABLE INTEREST RATE LOANS
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
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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 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.
The Depositor has been advised by its counsel that it is their opinion that
a court interpreting Title VIII would hold that ARMs which were originated by
state-chartered lenders before the date of enactment of any state law or
constitutional provision rejecting applicability of Title VIII would not be
subject to state laws imposing restrictions or prohibitions on the ability of
state-chartered lenders to originate alternative mortgage instruments.
MANUFACTURED HOME LOANS
Security Interests in the Manufactured Homes. Law governing perfection of
a security interest in a Manufactured Home varies from state to state. Security
interests in Manufactured Homes may be perfected either by notation of the
secured party's lien on the certificate of title or by delivery of the required
documents and payment of a fee to the state motor vehicle authority, depending
on state law. In some nontitle states, perfection pursuant to the provisions of
the UCC is required. The lender or a servicer may effect such notation or
delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a Manufactured Home Loan is registered. In the event
such notation or delivery is not effected or the security interest is not filed
in accordance with the applicable law (for example, is filed under a motor
vehicle title statute rather than under the UCC, in a few states), a first
priority security interest in the Manufactured Home securing a Manufactured Home
Loan may not be obtained. As Manufactured Homes have become larger and often
have been attached to their sites without any apparent intention to move them,
courts in many states have held that Manufactured Homes, under certain
circumstances, may become subject to real estate title and recording laws. As a
result, a security interest in a Manufactured Home could be rendered subordinate
to the interests of other parties claiming an interest in the Manufactured Home
under applicable state real estate law. In order to perfect a security interest
in a Manufactured Home under real estate laws, the holder of the security
interest must file either a "fixture filing" under the provisions of the UCC or
a real estate mortgage under the real estate laws of the state where the home is
located. These filings must be made in the real estate records office of the
county where the home is located. Manufactured Home Loans typically contain
provisions prohibiting the borrower from permanently attaching the Manufactured
Home to its site. So long as the borrower does not violate this agreement, a
security interest in the Manufactured Home will be governed by the certificate
of title laws or the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home is permanently attached to its site,
other parties could obtain an interest in the Manufactured Home which is prior
to the security interest originally retained by the lender or its assignee. With
respect to a Series of Certificates evidencing interests in a Trust Fund that
includes Manufactured Home Loans and as described in the related Prospectus
Supplement, the Depositor may be required to perfect a security interest in the
Manufactured Home under applicable real estate laws. If such real estate filings
are not made and if any of the foregoing events were to occur, the only recourse
of the Certificateholders would be against the Depositor pursuant to its
repurchase obligation for breach of
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warranties. A PMBS Agreement pursuant to which Private Mortgage-Backed
Securities backed by Manufactured Home Loans are issued will, unless otherwise
specified in the related Prospectus Supplement, have substantially similar
requirements for perfection of a security interest.
In general, upon an assignment of a Manufactured Home Loan, the certificate
of title relating to the Manufactured Home will not be amended to identify the
assignee as the new secured party. In most states, an assignment is an effective
conveyance of such security interest without amendment of any lien noted on the
related certificate of title and the new secured party succeeds to the
assignor's rights as the secured party. However, in some states there exists a
risk that, in the absence of an amendment to the certificate of title, such
assignment of the security interest might not be held effective against
creditors of the assignor.
Relocation of a Manufactured Home. In the event that the owner of a
Manufactured Home moves the home to a state other than the state in which such
Manufactured Home initially is registered, under the laws of most states the
perfected security interest in the Manufactured Home would continue for four
months after such relocation and thereafter only if and after the owner
reregisters the Manufactured Home in such state. If the owner were to relocate a
Manufactured Home to another state and not reregister the Manufactured Home in
such state, and if steps are not taken to reperfect the Trustee's security
interest in such state, the security interest in the Manufactured Home would
cease to be perfected. A majority of states generally require surrender of a
certificate of title to reregister a Manufactured Home; accordingly, possession
of the certificate of title to such Manufactured Home must be surrendered or, in
the case of Manufactured Homes registered in states which provide for notation
of lien, the notice of surrender must be given to any person whose security
interest in the Manufactured Home is noted on the certificate of title.
Accordingly, the owner of the Manufactured Home Loan would have the opportunity
to reperfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, reregistration could defeat perfection. In
the ordinary course of servicing the Manufactured Home Loans, the Master
Servicer will be required to take steps to effect reperfection upon receipt of
notice of reregistration or information from the borrower as to relocation.
Similarly, when a borrower under a Manufactured Home Loan sells the related
Manufactured Home, the Trustee must surrender possession of the certificate of
title or the Trustee will receive notice as a result of its lien noted thereon
and accordingly will have an opportunity to require satisfaction of the related
Manufactured Home Loan before release of the lien. Under the Trust Agreement,
the Depositor is obligated to take such steps, at the Primary Servicer's
expense, as are necessary to maintain perfection of security interests in the
Manufactured Homes. PMBS Agreements pursuant to which Private Mortgage-Backed
Securities backed by Manufactured Home Loans are issued will impose
substantially similar requirements.
Intervening Liens. Under the laws of most states, liens for repairs
performed on a Manufactured Home take priority even over a perfected security
interest. The Depositor will represent that it has no knowledge of any such
liens with respect to any Manufactured Home securing payment on any Manufactured
Home Loan. However, such liens could arise at any time during the term of a
Manufactured Home Loan. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises. PMBS Agreements pursuant to
which Private Mortgage-Backed Securities backed by Manufactured Home Loans are
issued will contain substantially similar requirements.
Enforcement of Security Interests in Manufactured Homes. So long as the
Manufactured Home has not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Manufactured Home Loan by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without breach
of the peace) or in the absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial process. The holder of a
Manufactured Home Loan must give the debtor a number of days' notice, which
varies from 10 to 30 days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the debtor be given notice of any sale prior to resale
of the unit so that the debtor may redeem at or before such resale. In the event
of such repossession and resale of a Manufactured Home, the holder of a
Manufactured Home Loan would be entitled to be paid out of the sale proceeds
before such proceeds could be
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applied to the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the borrower.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a borrower for any deficiency on repossession and
resale of the Manufactured Home securing such borrower's loan. However, some
states impose prohibitions or limitations on deficiency judgments. See
"Antideficiency Legislation and Other Limitations on Lenders" above.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment. See "Federal Bankruptcy and Other Law Affecting Creditors' Rights" and
"Equitable Limitations on Remedies" above.
Consumer Protection Laws. The so-called "Holder-In-Due-Course" rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract who is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the borrower thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the borrower could assert against the seller of goods. Liability under
this rule is limited to amounts paid under a Manufactured Home Loan; however,
the borrower also may be able to assert the rule to set off remaining amounts
due as a defense against a claim brought against such borrower. Numerous other
federal and state consumer protection laws impose requirements applicable to the
origination and lending pursuant to the Manufactured Home Loan, including the
Truth-in-Lending Act, the Federal Trade Commission Act, the Fair Credit Billing
Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair
Debt Collection Practices Act and the Uniform Consumer Credit Code. In the case
of some of these laws, the failure to comply with their provisions may affect
the enforceability of the related Manufactured Home Loan.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale"
Clauses. Loans and installment sale contracts relating to a Manufactured Home
Loan typically prohibit the sale or transfer of the related Manufactured Homes
without the consent of the lender and permit the acceleration of the maturity of
the Manufactured Home Loans by the lender upon any such sale or transfer for
which no such consent is granted.
In the case of a transfer of a Manufactured Home, the lender's ability to
accelerate the maturity of the related Manufactured Home Loan will depend on the
enforceability under state law of the "due-on-sale" clause. The Garn-St. Germain
Depositary Institutions Act of 1982 preempts, subject to certain exceptions and
conditions, state laws prohibiting enforcement of "due-on-sale" clauses
applicable to the Manufactured Homes. See " 'Due-On-Sale' Clauses in Mortgage
Loans" above. With respect to any Manufactured Home Loan secured by a
Manufactured Home occupied by the borrower, the ability to accelerate will not
apply to those types of transfers discussed in " 'Due-On-Sale' Clauses in
Mortgage Loans" above. FHA Loans and VA Loans are not permitted to contain
"due-on-sale" clauses, and so are freely assumable.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"), provides
that, subject to the following conditions, state usury limitations shall not
apply to any loan which is secured by a first lien on certain kinds of
Manufactured Homes. The Manufactured Home Loans would be covered if they satisfy
certain conditions, among other things, governing the terms of any prepayments,
late charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of or foreclosure with respect to
the related unit. See "Applicability of Usury Laws" above.
CERTAIN 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 Certificates.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations (and
in particular,
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proposed regulations governing the treatment of contingent payment instruments
issued in December, 1994 (the "Proposed Contingent 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 Certificates 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
Certificates 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 Certificates.
CHARACTERIZATION OF CERTIFICATES
Unless otherwise stated in the applicable Prospectus Supplement, a REMIC
election will be made with respect to each Series of Certificates. In such a
case, special counsel to the Issuer will deliver its opinion to the effect that
under then-current law, the arrangement by which the Certificates 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. Certificates of such
Series will be designated as "regular interests" or "residual interests" in a
REMIC, as specified in the related Prospectus Supplement. The opinion will
assume the accuracy of certain representations of the Depositor contained in the
Trust Agreement.
If the applicable Prospectus Supplement so specifies with respect to a
Series of Certificates, the Certificates 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 Certificates 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.
Except to the extent the related Prospectus Supplement specifies otherwise,
if a REMIC election is made with respect to a Series of Certificates, (i)
Certificates 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 property loans"); (ii) Certificates 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)
Certificates 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 Certificates 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
Certificates 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.
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QUALIFICATION AS A REMIC
In order for a pool of assets (each, a "REMIC Pool") to qualify as a REMIC,
it must comply with certain ongoing requirements set forth in the Code. First,
the REMIC must fulfill an asset test, which requires that substantially all of
the assets of the REMIC as of the close of the third calendar month beginning
after the "Startup Day" (generally the date that the Certificates or Bonds are
issued) and at all times thereafter consist of "qualified mortgages" and
"permitted investments" (generally, temporary investments of collections on
qualified mortgages) as those terms are defined in the Code. In addition, a
REMIC must also establish reasonable arrangements to insure that residual
interests therein are not held by "disqualified organizations" (in general,
entities that are not subject to federal income tax). The Pooling and Servicing
Agreement will require compliance with the REMIC provisions.
The Code and applicable regulations define a "qualified mortgage" to
include an obligation that is principally secured by interest in real property
as those terms are defined in applicable regulations. In addition to the
foregoing, in order for a mortgage loan to be a "qualified mortgage," the fair
market value of the "interest in real property" (as specifically defined for
this purpose) securing the mortgage loan (reduced by certain items, including
the amount of any senior liens and a pro rata portion of any parity liens) must
equal at least 80% of the adjusted issue price of the mortgage loan (generally,
the proceeds of the loan to the borrower) at either (a) the time it was
originated or, if the Mortgage Loan has been significantly modified (as
described in applicable regulations), the time of such modification, or (b) the
time of contribution to the REMIC. Tax Counsel has not independently
investigated the qualification of the Mortgage Loans as "qualified mortgages"
pursuant to these provisions, but in rendering its opinion has relied on
representations of the Depositor in the Trust Agreement.
If a REMIC fails to comply with one or more of the ongoing requirements of
the Code for REMIC status during any taxable year, the Code provides that the
entity will not be treated as a REMIC for such year or for any year thereafter.
In such case, the classification of the REMIC for federal income tax purposes is
uncertain. Some Classes of the Certificates or Bonds may continue to be treated
as debt instruments for federal income tax purposes. On the other hand, all or a
part of the REMIC may be treated as a separate association taxable as a
corporation under Treasury regulations, and the Certificates or Bonds may be
treated as stock interests therein and not as debt instruments. The Code grants
regulatory authority to the Treasury Department to issue regulations that would
grant relief from disqualification where failure to meet one or more of the
requirements for REMIC status occurs inadvertently and in good faith. Any such
relief may be accompanied by sanctions, however, such as the imposition of a
corporate tax on all or a portion of the REMIC's income for the period of time
during which the requirements for REMIC status were not satisfied.
TAXATION OF REGULAR INTEREST CERTIFICATES
Interest and Acquisition Discount. Certificates that qualify as regular
interests in a REMIC ("Regular Interest Certificates") 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 Certificates that are not excepted from the reporting
requirements regarding amounts treated as interest (including accrual of
original issue discount) on Regular Interest Certificates.
Compound Interest Certificates, Interest Weighted Certificates, and Zero
Coupon Certificates will, and other Certificates constituting Regular Interest
Certificates 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
Assumption. Under Section 1272(a)(6) of the Code, special rules apply to the
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computation of OID on instruments, such as the Regular Interest Certificates, 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 the likely 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 Certificates.
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 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 Certificates 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 Certificates"
below. In the case of the Compound Interest Certificates, and certain of the
other Regular Interest Certificates, 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 Certificates") will not be "qualified stated interest." In addition,
because Certificates Owners are entitled to receive interest only to the extent
that payments are made on the Mortgage Loans, interest on all Regular Interest
Certificates 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 includible 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 Certificates 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
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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.
The Issuer may adjust the accrual of OID on a Class of Regular Interest
Certificates (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 Certificates could increase.
Certain classes of Regular Interest Certificates 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 Certificates as if,
solely for the purposes of computing OID, the separate regular interests were a
single debt instrument.
Certain Series of Certificates 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 Certificates. It is not clear how income should be
accrued with respect to a Regular Interest Certificates 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 Certificates"). Absent
guidance to the contrary, the Issuer intends to take the position that all of
the income derived from Interest Weighted Certificates 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 rules comparable to those governing bonds issued with
contingent principal payments or otherwise treated as contingent payment
instruments (although the Proposed Contingent Regulations explicitly do not
apply to REMIC regular interests). 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
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applicable to Interest Weighted Certificates (which, as Section 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 Certificates." 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 "Net Negative Adjustment") would be treated
by a Certificateholder as ordinary loss to the extent that prior income
inclusions exceed the total Net Negative Adjustments previously treated as
ordinary loss by the Certificateholder, and may be carried forward to offset
future interest accruals. At maturity, any remaining Net Negative Adjustment
would be treated as a loss on retirement of the Certificate. The legislative
history of 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 Net
Negative Adjustment may be recognized currently or must be carried forward until
disposition or retirement of the debt obligation.
Variable Rate Regular Certificates. 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 Certificates, 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 Certificates 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 Certificates"). Under the OID
Regulations, it appears that Weighted Average Certificates 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 Certificates relating to a
Trust whose Mortgage Loans are not exclusively ARM Loans ("Non-Objective
Weighted Average Certificates") do not bear interest at an objective or a
qualified floating rate and, consequently, are not governed by the rules
applicable to VRDI Certificates described above. Accordingly, absent additional
regulatory guidance, it appears that Non-Objective Weighted Average Certificates
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
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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 Certificates that hold such Certificates 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 Certificates
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 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 CERTIFICATES
A Regular Bondholder's or Regular Certificateholder's tax basis in its
Regular Interest Certificates is the price such holder pays for a Security,
increased by 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 Certificates, 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, except to the extent of (i)
accrued market discount and (ii) in the case of a redemption or prepayment of a
Regular Interest Security, any OID, including OID that did not previously
accrue. 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
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capital gain will be treated as ordinary income to the extent of the excess, if
any, of (i) the amount that would have been includible 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 Certificates 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 Certificates and the holders of the Residual Interest
Certificates 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 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 1995, $114,700, or $57,350 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
1995, $114,700, or $57,350 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
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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
Certificates 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 Certificates in the same manner
that the holders of the Certificates include such discount in income, but
without regard to the de minimis rules. See "Taxation of Regular Interest
Certificates" 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. 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 a 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.
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 Certificates 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 Certificates of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST CERTIFICATES
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
Certificates in proportion to their respective holdings on such day.
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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 Certificates 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 Certificates, will typically increase
over time as lower yielding Certificates 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 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.
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. Under proposed regulations that are proposed to be
effective for residual interests acquired on or after January 4, 1995, a
residual interest in a REMIC, or an interest or arrangement that is determined
by the Commissioner to have substantially the same effect, is not a "security"
for purposes of the mark-to-market rules and accordingly is not eligible to be
marked to market.
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 Certificates 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
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Residual Certificateholder's excess inclusion income will be treated as
unrelated business taxable income of such Bondholder or Certificateholders. 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 Certificates and Residual Interest
Certificates in the REMIC and (ii) the anticipated weighted average life
(determined as specified in the REMIC Regulations) of the Residual Interest
Certificates 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 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 Certificates may be disregarded. See "Restrictions on
Ownership and Transfer of Residual Interest Certificates" and "Tax Treatment of
Foreign Investors" below.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST CERTIFICATES
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
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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 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 Certificates, the Certificates 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 an undivided beneficial ownership interest in the
Mortgage Loans and the arrangement pursuant to which the Mortgage Loans will be
held and the Certificates will be issued, will be classified for federal income
tax purposes as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code and not as an association taxable as a corporation. In such a case, special
counsel to the Issuer will deliver its opinion to the effect that the
arrangement by which the Certificates of that Series are issued will be treated
as a grantor 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 and the Master Servicer
(and Servicer, if other than the Master Servicer). 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
1995, $114,700, or $57,350 in the case of a separate return by a married
individual within the meaning of Code
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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.
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, since the Mortgage Loans, unless otherwise
specified in the applicable Prospectus Supplement, will 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 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 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.
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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 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. In applying the
calculation to such 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 and as
includible in the stated redemption price at maturity. 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 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.
In the case of 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"), additional uncertainty exists because of the
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enhanced potential for applicability of the proposed contingent principal
provisions of the Original Proposed OID Regulations.
Under the contingent principal provisions, "contingent principal"
represents the portion of the purchase price in excess of the amount of
principal payments. Under this method, the Certificateholder is in effect put on
the cash method with respect to interest income at the applicable federal rate.
First, each payment denominated "interest" is treated as interest to the extent
of accrued and unpaid interest on the debt instrument at the time that the
payment is received. Second, the portion of a payment denominated interest that
is not treated as interest, as described in the preceding sentence, is treated
as a repayment of contingent principal. The interest for any accrual period,
other than an initial short period, is the product of the applicable federal
rate (published monthly by the Treasury Department) at the time of the debt
instrument's issuance and the adjusted issue price at the beginning of the
accrual period (the sum of the purchase price of the instrument plus the accrued
interest for all prior accrual periods, reduced by the total of payments
received in all prior periods). The total of the payments denominated interest
with respect to the Interest Weighted Certificate that may be treated as
principal may not exceed the amount of contingent principal. If the contingent
principal has been completely recovered, all subsequent payments will be treated
as interest.
The Original Proposed OID Regulations provide that if all contingent
principal is not recovered as of the final payment, then the final payment will
be treated as principal to the extent of such unrecovered principal and interest
to the extent of the remainder, if any. To the extent the final payment is not
sufficient to cover the principal amount, the Certificateholders will recognize
a loss. If the loss generating Mortgage Loan was issued by a natural person,
such loss may be an ordinary loss since loss recognized on retirement of a debt
instrument issued by a natural person is not a loss from a sale or exchange.
However, the IRS might contend that such loss should be a capital loss if the
Certificateholder held its Certificate as a capital asset within the meaning of
Section 1221 of the Code.
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 Certificates are subject to the
Proposed 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
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 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.
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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 Certificates.
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 Certificates 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 Certificates.
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 Certificates 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
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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 Certificates 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."
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STATE 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
Certificates. 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 Certificates should consult
their tax advisers regarding the taxation of the Residual Interest Certificates
in general and the effect of foreclosure on the Mortgaged Properties on such
taxation.
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on employee benefit plans
("Plans") that are subject to ERISA and on persons who have certain specified
relationships to such Plans (so-called "parties in interest" within the meaning
of ERISA or "disqualified persons" within the meaning of the Code, hereinafter
referred to collectively as "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
Plan. Under ERISA, any person who exercises any authority or control respecting
the management or disposition of the assets of a Plan, and any person who
provides investment advice with respect to such assets for a fee, is a fiduciary
of such Plan.
A final regulation promulgated by the Department of Labor (the "DOL")
defining the term "plan assets" was published in the Federal Register (the "DOL
Regulation"). Under the DOL Regulation, generally, when a Plan makes an equity
investment in another entity (for example, the purchase of a REMIC Certificate),
the underlying assets of that entity may be considered Plan assets unless
certain exceptions apply. There can be no assurance that any of the exceptions
set forth in the DOL Regulation will apply to the purchase or holding of
Certificates. A Plan's investment in Certificates may cause the Loans or other
assets comprising or underlying the Primary Assets to be deemed Plan assets. If
the Loans or other assets constitute Plan assets, then any party exercising
management or discretionary control regarding those assets may be deemed to be a
Plan "fiduciary," and thus subject to the fiduciary requirements and prohibited
transaction provisions of ERISA and the Code with respect to the Loans and other
assets. Certain affiliates of the Depositor, including Lehman Brothers Inc., the
Underwriter of the Certificates, and Lehman Commercial Paper Incorporated, the
parent of the Depositor, might be considered or might become fiduciaries or
other Parties in Interest with respect to investing Plans. Moreover, the
Trustee, the Master Servicer or any other Servicer, any insurer, special hazard
insurer, primary insurer or any other issuer of a credit support instrument
relating to the Primary Assets in a Trust Fund or certain of their respective
affiliates might be considered fiduciaries or other Parties in Interest with
respect to investing Plans. Prohibited transactions within the meaning of ERISA
and the Code could arise if Certificates are acquired by a Plan with respect to
which any such person is a Party in Interest.
One or more exemptions may be available, however, with respect to any such
prohibited transaction, including, but not limited to: Prohibited Transaction
Exemption ("PTE") 90-1, regarding investments by insurance company pooled
separate accounts; PTE 95-60, regarding investments by insurance company general
accounts; PTE 80-51, regarding investments by bank collective investment funds;
PTE 83-1, regarding mortgage pool investment trusts; or PTE 84-14, regarding
transactions effected by a "qualified professional asset manager."
The DOL has issued Prohibited Transaction Class Exemption 83-1 ("PTCE
83-1"), which exempts from the prohibited transaction provisions of ERISA
certain transactions involving single family residential mortgage pool
investment trusts. With respect to Mortgage Loans secured solely by property
consisting of single family residential housing, PTCE 83-1 permits, subject to
certain general and specific conditions, transactions which might otherwise be
prohibited between Plans and parties in interest with respect to those Plans,
related to the origination, maintenance and termination of mortgage pools and
the acquisition and
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holding of certain mortgage pool pass-through certificates by Plans, whether or
not the Plan's assets would be deemed to include an ownership interest in the
mortgages in the mortgage pool. PTCE 83-1 does not apply to investments in
Subordinate Certificates to Certificates that evidence an interest in
distributions of principal only. Because certain of the Certificates may, if
specified in the related Prospectus Supplement, be Subordinated Certificates or
evidence an interest in distributions of principal only or interest only from
the pooled Mortgage Loans, PTCE 83-1 will not be applicable to such
Certificates.
PTCE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (1) the maintenance of a system of
insurance or other protection for the pooled housing loans and property securing
such loans, and for indemnifying certificate holders against reductions in
pass-through payments due to property damage or defaults in loan payments; (2)
the existence of a pool trustee who is not an affiliate of the pool sponsor; and
(3) a limitation on the amount of the payment retained by the pool sponsor
together with other benefits inuring to its benefit, to not more than adequate
consideration for selling the housing loans plus reasonable compensation for
services provided by the pool sponsor to the loan pool. PTCE 83-1 also imposes
additional specific conditions for certain types of transactions and where
certain parties in interest are fiduciaries with respect to a Plan that acquires
a Certificate.
If a Trust Fund consists of Agency Certificates, then under the terms of
the DOL Regulation, even if the acquisition or holding by an ERISA Plan of a
Certificate with respect to such Trust Fund were characterized as the
acquisition of ownership rights in the assets of the Trust Fund (including the
Agency Certificates) such acquisition or holding would not constitute
acquisition of ownership rights in the mortgage loans underlying the Agency
Certificates.
In addition, the DOL has granted to Lehman Brothers Inc. an administrative
exemption (Prohibited Transaction Exemption 91-14 et al.; Exemption Application
No. D-7958 et al., 56 Fed. Reg. 7413 (1991)) (the "Exemption") from certain of
the prohibited transaction rules of ERISA with respect to the initial purchase,
the holding, and the subsequent resale by Benefit Plans of certificates in
pass-through trusts that consist of certain receivables, loans, and other
obligations that meet the conditions and requirements of the Exemption. The
loans covered by the Exemption include mortgage loans and manufactured home
loans such as the Loans.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other Certificates of the Trust Fund;
(3) The Certificates 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 Corporation,
Moody's Investors Service, Inc., Fitch Investors Service, Inc. or Duff &
Phelps Credit Rating Co.;
(4) The sum of all payments made to the underwriter in connection with
the distribution of the Certificates represents not more than reasonable
compensation for underwriting the Certificates. The sum of all payments
made to and retained by the Depositor pursuant to the assignment of the
Loans to the Trust Fund represents not more than the fair market value of
such Loans. The sum of all payments made to and retained by the Master
Servicer and any other Servicer represents not more than reasonable
compensation for such person's services under the Trust Agreement and
reimbursement of such person's reasonable expenses in connection therewith;
and
(5) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions only if, among other requirements: (i) no
fiduciary (or its affiliate) is an obligor with respect to more
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than five percent of the fair market value of the obligations contained in the
trust; (ii) the Plan's investment in certificates does not exceed twenty-five
percent of all of the certificates outstanding at the time of the acquisition
and (iii) immediately after the acquisition, no more than twenty-five 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 Depositor believes that the Exemption will apply to the acquisition and
holding of Certificates rated in one of the three highest applicable rating
categories by at least one Rating Agency by Plans and that in such cases all
conditions of the Exemption other than those within the control of the investors
will have been met. In addition, as of the date hereof, there is no single
obligor with respect to Loans included in the Trust Fund that constitutes more
than five percent of the aggregate unamortized principal balance of the assets
of the Trust Fund.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1, the
Exemption or other exemptions, and the potential consequences to their specific
circumstances, prior to making an investment in the Certificates. Moreover, each
Plan fiduciary should determine whether under the general fiduciary standards of
investment procedure and diversification an investment in the Certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
LEGAL INVESTMENT
Unless otherwise set forth in the related Prospectus Supplement, sequences
of any series rated in one of the two highest applicable rating categories by at
least one Rating Agency will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are so rated and, as such, will be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including, but not limited to, state-chartered savings banks,
commercial banks, savings and loan associations and insurance companies, as well
as trustees and state government employee retirement systems) created pursuant
to or existing under the laws of the United States or of any State (including
the District of Columbia and Puerto Rico) whose authorized investments are
subject to State regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities.
Certain sequences of some series may not be rated in one of the two highest
applicable rating categories by at least one Rating Agency and, accordingly,
will not constitute "mortgage related securities" for purposes of SMMEA.
Investors should consult their own legal advisors to determine the extent to
which such sequences may be purchased by such investors.
Under SMMEA, if a State enacts legislation prior to October 4, 1991
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," the Certificates will constitute legal
investments for entities subject to such legislation only to the extent provided
in such legislation. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in any securities, or require the sale or
other disposition of any securities, so long as such contractual commitment was
made or such securities acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with
mortgage-related securities without limitations as to the percentage of their
assets represented thereby; federal credit unions may invest in mortgage-related
securities, and national banks may purchase mortgage-related securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. sec. Section 24 (Seventh), subject
in each case to such regulations as the applicable federal regulatory authority
may prescribe.
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Certain regulatory authorities (such as the banking or insurance regulatory
authorities) in certain states have issued public statements to the effect that
notwithstanding SMMEA, institutions under their jurisdiction may not invest in
certain types of mortgage-related securities. In addition, institutions the
investment activities of which are subject to review by certain regulatory
authorities may be or may become subject to restrictions, which may be
retroactively imposed by such regulatory authorities, on the investment by such
institutions in certain types of mortgage related securities. Each of the
Federal Financial Institutions Examination Council, the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the Federal Home Loan Bank
Board, the Board of Governors of the Federal Reserve System and the National
Credit Union Administration have issued either policy statements or guidelines
relating to investments by the institutions regulated by them in various types
of mortgage or asset backed or derivative securities, including in particular
zero coupon, residual or stripped instruments. In addition, several states have
adopted or are considering regulations that prohibit state-chartered savings
institutions from purchasing or holding similar types of securities. Under
certain of these policy statements or guidelines, certain of such investments
(most likely those in zero coupon, residual, stripped or other instruments) will
receive increased regulatory scrutiny and may well be considered unsuitable
investments for depository institutions other than those having highly
sophisticated and well-managed securities portfolios, mortgage portfolios or
mortgage banking functions. There may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase
Certificates or to purchase Certificates representing more than a specified
percentage of such investor's assets. All investors should consult their own
legal advisors in determining whether and to what extent the Certificates
constitute legal investments for such investors.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters, and the material
federal income tax consequences of the Certificates will be passed upon for the
Depositor, by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on January 2, 1987.
The principal office of the Depositor is located at 200 Vesey Street, New York,
New York 10285. Its telephone number is (212) 526-5594.
The Certificate of Incorporation of the Depositor provides that the
Depositor 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 Depositor provides that any securities, except for subordinated
securities, issued by the Depositor must be rated in one of the three highest
categories available by any Rating Agency rating the Series.
The Series Supplement for a particular Series may permit the Primary Assets
pledged to secure the related Series of Certificates to be transferred by the
Issuer to a trust, subject to the obligations of the Certificates of such
Series, thereby relieving the Issuer of its obligations with respect to such
Certificates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus Supplement
to purchase the Primary Assets, to repay indebtedness which has been incurred to
obtain funds to acquire the Primary Assets, to establish the Reserve Funds, if
any, for the Series and to pay costs of structuring and issuing the
Certificates. If so specified in the related Prospectus Supplement, Certificates
may be exchanged by the Depositor for Primary Assets. Unless otherwise specified
in the related Prospectus Supplement, the Primary Assets for each Series of
Certificates will be acquired by the Depositor either directly, or through one
or more affiliates which will have acquired such Primary Assets from time to
time either in the open market or in privately negotiated transactions.
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PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be offered through any one or more of the following:
Lehman Brothers Inc., an affiliate of the Depositor; underwriting syndicates
represented by Lehman Brothers Inc.; any originator of Loans underlying a
Series; or underwriters, agents or dealers selected by such originator
(collectively, the "Underwriters"). The Prospectus Supplement with respect to
each such Series of Certificates will set forth the terms of the offering of
such Series of Certificates and each Sequence within such Series, including the
name or names of the Underwriters (if known), the proceeds to the Depositor (if
any), and including either the initial public offering price, the discounts and
commissions to the Underwriters and any discounts or commissions allowed or
reallowed to certain dealers, or the method by which the prices at which the
Underwriters will sell the Certificates will be determined.
The Underwriters may or may not be obligated to purchase all of the
Certificates of a Series described in the Prospectus Supplement with respect to
such Series if any such Certificates are purchased. The Certificates may be
acquired by the Underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit offers
by certain institutions to purchase the Certificates from the Depositor pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Depositor. The obligation of any purchaser under any such
contract will be subject to the condition that the purchase of the offered
Certificates shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The Underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated transactions
or otherwise, at prices determined at the time of sale. The Depositor may effect
such transactions by selling Certificates to or through dealers and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Depositor and any purchasers of Certificates for whom they
may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
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GLOSSARY
The following are abbreviated definitions of certain capitalized terms used
in this Prospectus. Unless otherwise provided in a "Supplemental Glossary" 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 Trust Agreement and the Trust Agreement generally provides a
more complete definition of certain of the terms. Reference should be made to
the Trust Agreement for a more complete definition of such terms.
"Accrual Date" means, with respect to any Multi-Class Series, the date upon
which interest begins accruing on the Certificates of the Series, as specified
in such Certificates and the related Prospectus Supplement.
"Accrual Distribution Amount" means, with respect to any Distribution Date
for a Multi-Class Series that occurs prior to or on the Accrual Termination
Date, the aggregate amount of interest which has accrued on the Compound
Interest Certificates of such Series during the Interest Accrual Period ending
on or prior to such Distribution Date but which is not then required to be paid.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Certificates, the Distribution Date on which all Certificates of the
related Series with Stated Maturities earlier than that of such Class of
Compound Interest Certificates have been fully paid, or such other date or
period as may be specified in the related Prospectus Supplement.
"Advance" means a cash advance by the Master Servicer or a Servicer in
respect of delinquent payments of principal of and interest on a Loan, and for
the other purposes specified herein and in the related Prospectus Supplement.
"Agency Certificates" means GNMA Certificates, FNMA Certificates, and FHLMC
Certificates.
"Aggregate Asset Principal Balance" means, with respect to the Mortgage
Loans in the Trust Fund, the aggregate of the Asset Principal Balances for all
such Mortgage Loans at the time of any determination.
"Appraised Value" means, with respect to a property securing a Loan, the
lesser of the appraised value determined in an appraisal obtained at origination
of the Loan or the sales price of such mortgaged property.
"ARM" or "Adjustable Rate Mortgage" means a Mortgage Loan as to which the
related Mortgage Note provides for periodic adjustments in the interest rate
component of the Scheduled Payment pursuant to an Index as described in the
related Prospectus Supplement.
"Asset Group" means a group of individual Primary Assets which share
similar characteristics and are aggregated into one group for purposes of
assigning a single aggregate Asset Value.
"Asset Principal Balance" means, with respect to any Mortgage Loan, at the
time of any determination, its outstanding principal balance as of the Cut-off
Date reduced by all amounts distributed to Certificateholders (or used to fund
the Subordination Reserve Fund, if any) and reported as allocable to principal
payments on such Mortgage Loan.
"Asset Value" means, unless otherwise specified in the related Prospectus
Supplement for a Series, with respect to Primary Assets comprising the Trust
Fund for a Multi-Class Series, an amount equal to, as of the date of such
determination, the lesser of (a) the present value of the stream of remaining
regularly Scheduled Payments of principal and interest on the Primary Assets
(less any Retained Interest) through the earlier of (1) the Final Scheduled
Distribution Date of the Class of such Series having the latest Final Scheduled
Distribution Date or (2) the Distribution Date next succeeding the latest
maturity date of such Primary Assets (after taking into account applicable
withdrawals from any Funds or Accounts and charges for servicing, insurance and
related matters, as specified in the related Prospectus Supplement), together
with Reinvestment Income thereon at the Assumed Reinvestment Rate for such
Series, from the Assumed Deposit Date to the next succeeding Distribution Date,
discounted from such Distribution Date to the date for which such determination
is made with the same frequency as payments are made on the Certificates of such
Series at the highest Certificate Rate for such Series; provided that if any
Class pays more frequently than another
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Class, such determination shall be made as provided in the related Series
Supplement and (b) the maximum Asset Value specified in the related Prospectus
Supplement.
"Assumed Deposit Date" means the date specified therefor in the Prospectus
Supplement for a Series, upon which distributions on the Primary Assets are
assumed to be received for purposes of calculating Reinvestment Income thereon.
"Assumed Reinvestment Rate" means, with respect to a Series, the per annum
rate or rates specified in the related Prospectus Supplement for a particular
period or periods as the "Assumed Reinvestment Rate" for funds held in any Fund
or Account for the Series.
"Available Distribution Amount" means the amount in the Certificate Account
(including amounts deposited therein from any reserve fund or other fund or
account) eligible for distribution to Certificateholders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States Code
101 et seq., and related rules and regulations promulgated thereunder.
"Bi-Weekly Loan" means a Mortgage Loan which provides for payments of
principal and interest by the borrower once every two weeks.
"Business Day" means a day that, in the City of New York or in the city or
cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulation or executive order to be closed.
"Buy-Down Fund" means a custodial account, established by the Master
Servicer or the Servicer for a Buy- Down Loan, that meets the requirements set
forth herein.
"Buy-Down Loan" means a level payment Mortgage Loan for which funds have
been provided by a Person other than the mortgagor to reduce the mortgagor's
Scheduled Payment during the early years of such Mortgage Loan.
"Buy-Down Period" means, with respect to a Buy-Down Loan, the period when
the related mortgagor is not obligated, on account of the buy-down plan, to pay
the full monthly payment otherwise due on the Buy-Down Loan.
"Certificate Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Master Servicer in respect of the Primary Assets in a Trust Fund.
"certificate guarantee insurance" means an insurance policy issued by one
or more insurance companies which will guarantee timely distributions of
interest and full distributions of principal of a Series on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement for the Series.
"Certificateholder" or "Holder" means the Person in whose name a
Certificate is registered in the Certificate register.
"Certificate Rate" means, with respect to any Multi-Class Series, the per
annum rate at which interest accrues on the principal balance of the
Certificates of such Series or a Class of such Series, which rate may be fixed
or variable, as specified in the related Prospectus Supplement.
"Certificates" means the Asset Trust Pass-Through Certificates. "Class"
means a Class of Certificates of a Series.
"Closing Date" means, with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which Certificates of such Series
are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder.
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"Collection Account" means, with respect to a Series, the account
established in the name of the Master Servicer for the deposit by the Master
Servicer of payments received from the Primary Assets in a Trust Fund (or from
the Servicers, if any).
"Compound Interest Certificate" means any Certificate of a Multi-Class
Series on which interest accrues and is added to the principal balance of such
Certificate 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
Certificates, as of any Determination Date, the original principal balance of
such Class, plus all accrued and unpaid interest, if any, previously added to
the principal balance thereof and reduced by any payments of principal
previously made on such Class of Compound Interest Certificates.
"Condominium" means a form of ownership of real property wherein each owner
is entitled to the exclusive ownership and possession of his or her individual
Condominium Unit and also owns a proportionate undivided interest in all parts
of the Condominium Building (other than the individual Condominium Units) and
all areas or facilities, if any, for the common use of the Condominium Units.
"Condominium Association" means the person(s) appointed or elected by the
Condominium Unit owners to govern the affairs of the Condominium.
"Condominium Building" means a multi-unit building or buildings, or a group
of buildings whether or not attached to each other, located on property subject
to Condominium ownership.
"Condominium Loan" means a Loan secured by a Mortgage on a Condominium Unit
(together with its appurtenant interest in the common elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Conventional Loan" means a Loan that is not insured or guaranteed by the
FHA or the VA.
"Cooperative" means a corporation owned by tenant-stockholders who, through
the ownership of stock, shares or membership certificates in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units.
"Cooperative Dwelling" means an individual housing unit in a building owned
by a Cooperative.
"Cooperative Loan" means a housing loan made with respect to a Cooperative
Dwelling and secured by an assignment by the borrower (tenant-stockholder) of a
security interest in shares issued by the applicable Cooperative.
"Cut-off Date" means the date designated in the Trust Agreement for a
Series on or before which amounts due and payable with respect to a Primary
Asset will not inure to the benefit of Certificateholders of the Series.
"Cut-off Date Aggregate Asset Principal Balance" means, with respect to the
Loans in the Trust Fund as of the Cut-off Date, the Aggregate Asset Principal
Balance for all such Loans as of the Cut-off Date, reduced by all payments of
principal due on or before the Cut-off Date and not paid, and increased by
scheduled payments of principal due after the Cut-off Date but received by the
Master Servicer on or before the Cut-off Date.
"Deferred Interest" means excess interest resulting when the amount of
interest paid by a Mortgagor on a Negatively Amortizing ARM in any month is less
than the amount of interest accrued on the Stated Principal Balance thereof.
"Deficiency Event" means, with respect to a Series, the inability of the
Trustee to distribute to Holders of one or more Classes of Certificates of the
Series (other than any Class of Subordinate Certificates prior to the time that
the Available Distribution Amount is reduced to zero), in accordance with the
terms thereof and the related Trust Agreement, any distribution of principal or
interest thereon when and as distributable due to insufficient funds for such
purpose then held in the related Trust Fund.
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"Deleted Mortgage Loan" means a Mortgage Loan which is repurchased from the
Trust Fund by the Depositor or as to which a Qualifying Substitute Loan is
substituted therefor.
"Depositor" means Structured Asset Securities Corporation.
"Determination Date" means the day specified in the related Prospectus
Supplement as the day on which the Master Servicer calculates the amounts to be
distributed to Certificateholders on the next succeeding Distribution Date.
"Distribution Date" means, with respect to a Series or Class, each date
specified as a distribution date for such Series or Class in the related
Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable to the Trustee or its nominee on any Primary Asset.
"Eligible Investments" means any one or more of the obligations or
securities described as such at "THE TRUST AGREEMENTS -- Investment of Funds."
"Eligible Reserve Fund Investments" means Eligible Investments and any
other obligations or securities described as Eligible Reserve Fund Investments
in the applicable Trust Agreement, as described in the related Prospectus
Supplement for a Series.
"ERISA" means the Employer Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the Master
Servicer or the Servicer for a Loan, into which payments by borrowers to pay
taxes, assessments, mortgage and hazard insurance premiums and other comparable
items that are required to be paid to the mortgagee are deposited.
"Excess Cash Flow" means, with respect to a Multi-Class Series, the amount,
if any, by which (a) the cash flow received from the Primary Assets in the
related Trust Fund and deposited in the related Certificate Account (excluding
any Retained Interest but including transfers from any applicable Reserve Fund),
net of applicable servicing fees, guarantee fees, insurance premiums and other
administrative expenses, on the relevant determination date exceeds (b) the sum
of (1) the Minimum Principal Distribution Amount for such Series on such
Distribution Date and (2) the Accrual Distribution Amount, if any, on such
Distribution Date.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration, a division of HUD.
"FHA Loan" means a fixed-rate housing loan insured by the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FHLMC Certificate" means a mortgage participation certificate or other
pass-through certificate guaranteed by FHLMC as to the timely payment of
interest and, except as specified in the related Prospectus Supplement, the
ultimate collection of principal, which represents ultimately a proportional
beneficial ownership interest in a pool of residential mortgage loans.
"Final Scheduled Distribution Date" means, with respect to a Class of a
Series, the date after which no Certificates of such Class will remain
outstanding assuming timely payments or distributions are made on the Primary
Assets in the related Trust Fund.
"Floating Rate" means a Certificate Rate which is subject to change from
time to time.
"Floating Rate Certificate" means any Certificate of a Multi-Class Series
which accrues interest at a Floating Rate.
"Floating Rate Distribution Date" means the Distribution Date for a Class
of Floating Rate Certificates, which may be either more or less frequent than
the Distribution Date for other Classes of the Series.
"Floating Rate Period" means the period of time during which a given
Certificate Rate applies to a Class of Floating Rate Certificates.
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"FNMA" means the Federal National Mortgage Association.
"FNMA Certificate" means a guaranteed mortgage pass-through certificate or
a stripped mortgage-backed security, the full and timely payment of principal of
and interest on which is guaranteed by FNMA, which represents ultimately a
proportional beneficial ownership interest in a pool of residential mortgage
loans.
"FSLIC" means the Federal Savings and Loan Insurance Corporation or any
successor thereto.
"fund or account" means any fund or account, including, without limitation,
the Certificate Account or any reserve fund established under the Trust
Agreement for a Series, excluding any fund or account not available to make
distributions to Certificateholders.
"GEM Loan" means, unless specified otherwise in the related Prospectus
Supplement for a Series, a fixed rate, fully amortizing mortgage loan providing
for monthly payments based on a 10- to 30-year amortization schedule, with
further provisions for scheduled annual payment increases for a number of years
with the full amount of such increases being applied to principal, and with
further provision for level payments thereafter.
"GNMA" means the Government National Mortgage Association.
"GNMA Certificate" means a mortgage pass-through certificate the full and
timely payment of principal of and interest on which is guaranteed by GNMA and
issued under either the GNMA I or the GNMA II program, which represents
ultimately a proportional beneficial ownership interest in a pool of residential
housing loans. A "GNMA I Certificate" is a GNMA Certificate issued under the
GNMA I program, and a "GNMA II Certificate" is a GNMA Certificate issued under
the GNMA II program.
"GPM Fund" means a trust account established by the Master Servicer or the
Servicer of a GPM Loan into which funds sufficient to cover the amount by which
payments of principal and interest on such GPM Loan assumed in calculating
payments due on the Certificates of the related Multi-Class Series exceed
scheduled payments on such GPM Loan.
"GPM Certificate" means a Certificate backed by GPM Loans.
"GPM Loan" means a mortgage loan providing for graduated payments, having
an amortization schedule (a) requiring the mortgagor's monthly installments of
principal and interest to increase at a predetermined rate annually for a
predetermined period of time after which the monthly installments become fixed
for the remainder of the mortgage term, (b) providing for deferred payment of a
portion of the interest due monthly during such period of time and (c) providing
for recoupment of the interest deferred through negative amortization whereby
the difference between the scheduled payment of interest on the mortgage note
and the amount of interest actually accrued is added monthly to the outstanding
principal balance of the mortgage note.
"Guaranteed Investment Contract" means a guaranteed investment contract or
reinvestment agreement providing for the investment of funds held in a fund or
account, guaranteeing a minimum or a fixed rate of return on the investment of
moneys deposited therein.
"HUD" means the United States Department of Housing and Urban Development.
"Index" means the index applicable to any adjustments in the Mortgage Rates
of any ARMs included in the Primary Assets.
"Insurance Policies" means certain mortgage insurance, hazard insurance and
other insurance policies required to be maintained with respect to Loans.
"Insurance Proceeds" means, unless otherwise provided in a Supplement,
amounts paid by the insurer under any of the Insurance Policies covering any
Loan or Mortgaged Property.
"Interest Accrual Period" means the period specified in the related
Prospectus Supplement for a Multi-Class Series, during which interest accrues on
the Certificates or a Class of Certificates of such Series with respect to any
Distribution Date or Special Distribution Date.
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"Interest Weighted Certificates" means a Class of Certificates entitled to
a greater percentage of interest on the Loans underlying or comprising the
Primary Assets for the Series than the percentage of principal on such Loans to
which it is entitled.
"IRS" means the Internal Revenue Service.
"L/C Bank" means the issuer of a letter of credit.
"L/C Percentage" means the maximum liability of a L/C Bank under a letter
of credit, equal to the percentage specified in the related Prospectus
Supplement for a Series for which a letter of credit is issued of the initial
aggregate principal balance of the Loans in the related Trust Fund or one or
more Class of Certificates of the Series.
"letter of credit" means an irrevocable letter of credit issued by the L/C
Bank to provide limited protection against certain losses relating to Loans, as
described in the related Prospectus Supplement for a Series.
"Lifetime Mortgage Rate Cap" means the lifetime limit on the Mortgage Rate
during the life of each ARM.
"Liquidation Proceeds" means amounts received by the Master Servicer or
Servicer in connection with the liquidation of a mortgage, net of liquidation
expenses.
"Loan" means a Mortgage Loan (including an interest therein) or a
Manufactured Home Loan (including an interest therein) that is deposited by the
Depositor into the Trust Fund for a Series.
"Loan-to-Value Ratio" means the ratio, expressed as a percentage, of the
principal amount of a Loan at the date of determination to the Appraised Value.
"Manufactured Home" means a manufactured home within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which meets
all the requirements of [this] paragraph except the size requirements and with
respect to which the manufacturer voluntarily files a certification required by
the Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter."
"Manufactured Home Loan" means a loan secured by a Manufactured Home.
"Master Servicer" means, with respect to a Series secured by Loans, the
Person, if any, designated in the related Prospectus Supplement to manage and
supervise the administration and servicing by the Servicers of the Loans
comprising or underlying the Primary Assets for that Series, or the successors
or assigns of such Person.
"Maximum Floating Rate" means, as to any Multi-Class Series, the per annum
interest rate cap specified for any Floating Rate Certificates of such Series in
the related Prospectus Supplement.
"Minimum Floating Rate" means, as to any Multi-Class Series, the per annum
interest rate floor specified for any Floating Rate Certificates of such Series
in the related Prospectus Supplement.
"Minimum Principal Distribution Amount" means, with respect to a
Distribution Date for a Multi-Class Series, the amount, if any, by which (a) the
outstanding principal balance of the Certificates of such Series (before giving
effect to any payment of principal on that Distribution Date) exceeds (b) the
aggregate Asset Value of the Primary Assets for the Series as of that
Distribution Date.
"Minimum Mortgage Rate" means the lifetime minimum Mortgage Rate during the
life of each ARM.
"Mortgage" means the mortgage, deed of trust or other instrument securing a
Mortgage Note.
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"Mortgage Loan" means a mortgage loan (including an interest therein)
secured by Mortgaged Property including Cooperative Loans and Condominium Loans.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Mortgage Loan.
"Mortgage Rate" means, unless otherwise indicated herein or in the
Prospectus Supplement, the interest rates borne by each Loan.
"Mortgaged Property" means the real property securing a Mortgage Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"Multifamily Property" means any property securing a Loan consisting of
multifamily residential rental property or cooperatively owned multifamily
property consisting of five or more dwelling units.
"Multi-Class Series" means a Series of Certificates that may include,
Floating Rate Certificates, Compound Interest Certificates and Planned
Amortization Certificates, and/or Subordinate and Senior Classes embodying a
subordination feature which protects the Senior Class or Classes in the event of
failure of timely payment of Primary Assets. With respect to Series of Asset
Trust Pass-Through Certificates other than Multi-Class Series, each Class is
designated to receive a particular portion of future principal or interest cash
flows on the Primary Assets, which designation does not change over the term of
the Certificates; provided, however, a Series may be so characterized if the
designation changes only on account of a subordination feature in one or more
Subordinate Classes which protects one or more Senior Classes in the event of
failure of timely payment of Primary Assets.
"1986 Act" means the Tax Reform Act of 1986.
"Negatively Amortizing ARMs" means ARMs which provide for limitations on
changes in the Scheduled Payment which can result in Scheduled Payments which
are greater or less than the amount necessary to amortize such ARM by its stated
maturity at the Mortgage Rate in effect in any particular month.
"Pass-Through Rate" means the rate of interest paid to the
Certificateholders in respect of the Primary Assets.
"PAC" ("Planned Amortization Certificates") means a Class of Certificates
of a Series on which no payment of principal will need to be made until the
earlier of the date specified in the related Prospectus Supplement or the date
on which the principal of all Certificates of the Series having an earlier Final
Scheduled Distribution Date have been paid in full.
"Percentage Interest" means, with respect to a Certificate, the proportion
(expressed as a percentage) of the percentage amounts of all of the Certificates
in the related Class represented by such Certificate, as specified in the
related Prospectus Supplement.
"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.
"PMBS Agreement" means the pooling and servicing agreement, indenture,
trust agreement or similar agreement pursuant to which a Private Mortgage-Backed
Security is issued.
"PMBS Issuer" means, with respect to Private Mortgage-Backed Securities,
the depositor or seller/ servicer under a PMBS Agreement.
"PMBS Servicer" means the servicer of the Loans underlying a Private
Mortgage-Backed Security.
"PMBS Trustee" means the trustee designated under a PMBS Agreement.
"Participation Certificate" means a certificate evidencing a participation
interest in a pool of Loans.
118
<PAGE> 202
"Prepayment Period" means, with respect to any Distribution Date, the
period specified in the related Prospectus Supplement for a Series.
"Primary Assets" means the Agency Certificates, Private Mortgage-Backed
Securities or Loans, as the case may be, which are included in the Trust Fund
for such Series. A Primary Asset refers to a specific Agency Certificate,
Private Mortgage-Backed Security or Loan, as the case may be.
"Principal Distribution Amount" means, unless specified otherwise in the
Prospectus Supplement for a Multi-Class Series, the sum of (a) the Accrual
Distribution Amount, if any, (b) the Minimum Principal Distribution Amount and
(c) the percentage, if any, of Excess Cash Flow specified in the related
Prospectus Supplement.
"Principal Weighted Certificates" means a Class of Certificates entitled to
a greater percentage of principal on the Loans underlying or comprising the
Primary Assets in the Trust Fund for the related Series than the percentage of
interest to which it is entitled.
"Private Mortgage-Backed Security" means a mortgage participation or
pass-through certificate representing a fractional, undivided interest in Loans
or collateralized mortgage obligations secured by Loans.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"Proposed Regulations" means the proposed Treasury regulations issued under
Sections 1271-1273 and 1275 of the Code.
"Qualified Insurer" means a mortgage guarantee or insurance company duly
qualified as such under the laws of the states in which the Mortgage Properties
are located duly authorized and licenced in such states to transact the
applicable insurance business and to write the insurance provided.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Certificates upon the original issuance thereof.
"Regular Interest" means a regular interest in a REMIC as described herein
under "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Tax Status as a REMIC."
"Reinvestment Income" means any interest or other earnings on Funds or
Accounts that are part of the Trust Fund for a Series.
"REMIC" means a real estate mortgage investment conduit under Section 860D
of the Code.
"REMIC Administrator" means the Person, if any, specified in the related
Prospectus Supplement for a Series for which a REMIC election is made, to serve
as administrator of the Series.
"Remittance Date" means the calendar day or days of each month, as
specified in the related Prospectus Supplement for a Series, on which the
Servicer is required to withdraw funds from the related Servicer Account for
remittance to the Master Servicer.
"REO Property" means real property which secured a defaulted Loan which has
been acquired upon foreclosure, deed in lieu of foreclosure or repossession.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the Trust Agreement.
"Residual Interest" means a residual interest in a REMIC as described
herein under "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Tax Status as a
REMIC."
"Retained Interest" means, with respect to a Primary Asset, the amount or
percentage specified in the related Prospectus Supplement which is not sold by
the Depositor or seller of the Primary Asset and, therefore, is not included in
the Trust Fund for the related Series.
"Scheduled Payments" the scheduled payments of principal and interest to be
made by the borrower on a Mortgage Loan in accordance with the terms of the
related Mortgage Note.
119
<PAGE> 203
"Senior Certificateholder" means the Holder of a Senior Certificate.
"Senior Certificates" means a Class of Certificates as to which the
Holders' rights to receive distributions of principal and interest are senior to
the rights of Holders of Subordinate Certificates, to the extent specified in
the related Prospectus Supplement.
"Servicer" means the entity which has primary liability for servicing Loans
if other than the Master Servicer.
"Servicer Account" means an account established by a Servicer (other than
the Master Servicer) who is directly servicing Loans, into which such Servicer
will be required to deposit all receipts received by it with respect to the
Primary Assets serviced by such Servicer.
"Single Family Property" means property securing a Loan consisting of
one-to four-family attached or detached residential housing, including
Cooperative Dwellings.
"Special Distribution" means, with respect to a Multi-Class Series, a
distribution (other than a regular distribution on a Distribution Date) made on
account of particular circumstances specified herein.
"Special Distribution Date" means, with respect to a Multi-Class Series,
the date each month (other than any month in which a Distribution Date occurs)
on which Special Distributions may be made on Certificates of that Series
pursuant to the related Trust Agreement; such date shall be the same day of the
month as the day on which Distribution Dates for the Certificates of that Series
occurs.
"Subordinate Certificateholder" means a Holder of a Subordinate
Certificate.
"Subordinate Certificates" means a Class of Certificates as to which the
rights of Holders to receive distributions of principal and interest is
subordinated to the rights of Holders of Senior Certificates, to the extent and
under the circumstances specified in the related Prospectus Supplement.
"Subordinated Amount" means the amount, if any, specified in the related
Prospectus Supplement for a Series with a Class of Subordinated Certificates,
that the Subordinate Certificates are subordinated to the Senior Certificates of
the same Series.
"Subordination Reserve Fund" means the subordination reserve fund, if any,
for a Series with a Class of Subordinate Certificates, established pursuant to
the related Trust Agreement.
"Subsidy Account" means a custodial account established by the Master
Servicer or the Servicer for a Loan into which subsidy funds contributed by the
seller of the property securing the Loan (or by another party) necessary to
maintain the scheduled level of payments due on the Loan are deposited.
"Trust Agreement" means the trust agreement relating to a Series among the
Depositor, the Master Servicer, and the Trustee.
"Trustee" means the trustee under a Trust Agreement, and its successors.
"Trust Fund" means all property and assets held for the benefit of the
Certificateholders by the Trustee under the Trust Agreement for a Series of
Certificates including, without limitation, the Primary Assets (except any
Retained Interests), all amounts in the Certificate Account, Collection Account
or Servicer Accounts, distributions on the Primary Assets (net of servicing
fees), and reinvestment earnings on such net distributions and amounts deposited
in any reserve fund and the proceeds of any insurance policies required to be
maintained with respect to the Loans.
"UCC" means the Uniform Commercial Code.
"VA" means the Veterans Administration.
"VA Loans" means housing loans partially guaranteed by the VA.
120
<PAGE> 204
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No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus Supplement or the
Prospectus and, if given or made, such information or representation must not be
relied upon. This Prospectus Supplement and the Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
securities offered hereby nor an offer of such securities to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus Supplement and the Prospectus at any time does not imply that
information herein is correct as of any time subsequent to their respective
dates.
---------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................... S- 5
Risk Factors............................... S-14
Description of the Certificates............ S-15
Description of the Mortgage Pools.......... S-34
Additional Information..................... S-42
First Nationwide Mortgage Corporation...... S-42
Servicing of the Mortgage Loans............ S-45
Trust Agreement............................ S-46
Yield, Prepayment and Weighted Average
Life..................................... S-48
The Class 2-A4 Certificate Insurance
Policy................................... S-71
Certain Federal Income Tax
Considerations........................... S-75
Legal Investment Considerations............ S-77
Use of Proceeds............................ S-77
Underwriting............................... S-77
ERISA Considerations....................... S-78
Experts.................................... S-78
Legal Matters.............................. S-78
Ratings.................................... S-78
Glossary................................... S-80
PROSPECTUS
PAGE
----
Prospectus Supplement...................... 2
Additional Information..................... 2
Incorporation of Certain Documents by
Reference................................ 2
Reports to Certificateholders.............. 2
Summary of Terms of the Certificates....... 3
Risk Factors............................... 19
Description of the Certificates............ 22
Yield, Prepayment and Maturity
Considerations........................... 28
The Trust Funds............................ 32
Loan Underwriting Procedures and
Standards................................ 45
Servicing of Loans......................... 49
Credit Support............................. 60
Description of Mortgage and Other
Insurance................................ 63
The Trust Agreements....................... 69
Certain Legal Aspects of Loans............. 79
Certain Federal Income Tax
Considerations........................... 90
State Tax Considerations................... 107
ERISA Considerations....................... 107
Legal Investment........................... 109
Legal Matters.............................. 110
The Depositor.............................. 110
Use of Proceeds............................ 110
Plan of Distribution....................... 111
Glossary................................... 112
</TABLE>
================================================================================
$439,334,268
(APPROXIMATE)
STRUCTURED ASSET
SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-4
---------------------------
PROSPECTUS SUPPLEMENT
NOVEMBER 21, 1997
---------------------------
LEHMAN BROTHERS
EDWARD D. JONES & CO., L.P.
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