PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 15, 1999)
$581,483,000 (APPROXIMATE)
STRUCTURED ASSET SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-SP1
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
MASTER SERVICER
-------------------------
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-11 OF THIS
PROSPECTUS SUPPLEMENT AND ON PAGE 9 OF THE PROSPECTUS.
For a list of capitalized terms used in this prospectus supplement and the
prospectus, see the glossary beginning on page S-95 of this prospectus
supplement and on page 116 in the prospectus.
The certificates will represent interests in the trust fund only and will
not represent interests in or obligations of any other entity.
This prospectus supplement may be used to offer and sell the certificates
only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
The trust fund will issue certificates including the following:
CLASS INTEREST CUSIP
CLASS PRINCIPAL AMOUNT(1) RATE NUMBER
- ----- ------------------- -------- ---------
A1.................... $136,150,000 6.42% 863572A94
A2.................... 244,430,000 (2) 863572B28
A3.................... 35,000,000 (2) 863572B36
A4.................... 55,421,000 (2) 863572B44
AIO................... (3) 4.00% 863572B51
M1.................... 46,518,000 (2) 863572B69
M2.................... 29,075,000 (2) 863572B77
B..................... 34,889,000 9.00% 863572B85
(1) These balances are approximate, as described in this prospectus supplement.
(2) Interest will accrue on the Class A2, A3, A4, M1 and M2 Certificates at the
variable rates described in this prospectus supplement.
(3) The Class AIO Certificates will be interest-only certificates; they will not
have a principal amount and will not be entitled to payments of principal.
Interest will accrue on the Class AIO Certificates as described in this
prospectus supplement.
This prospectus supplement and the accompanying prospectus relate only to
the offering of the certificates listed in the table above and not to the other
classes of certificates that will be issued by the trust fund as described in
this prospectus supplement.
The assets of the trust fund primarily consist of mortgage loans that were
originated in accordance with underwriting guidelines that are not as strict as
Fannie Mae and Freddie Mac guidelines. As a result, these mortgage loans may
experience higher rates of delinquency, foreclosure and bankruptcy than if they
had been underwritten in accordance with higher standards.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE CERTIFICATES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The certificates offered by this prospectus supplement will be purchased by
Lehman Brothers Inc. from Structured Asset Securities Corporation, and are being
offered by Lehman Brothers Inc. from time to time for sale to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to Structured Asset Securities Corporation from the sale
of these certificates will be approximately 101.27% of their initial total
principal amount, plus accrued interest, before deducting expenses.
On or about May 10, 1999, delivery of the certificates offered by this
prospectus supplement will be made through the book-entry facilities of The
Depository Trust Company, Cedelbank and the Euroclear System.
Underwriter:
LEHMAN BROTHERS
This date of this prospectus supplement is May 5, 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS:
We provide information to you about the certificates offered by this
prospectus supplement in two separate documents that progressively provide more
detail: (1) the accompanying prospectus, which provides general information,
some of which may not apply to your certificates, and (2) this prospectus
supplement, which describes the specific terms of your certificates.
IF INFORMATION VARIES BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the certificates in any state where the offer is not
permitted. We do not claim that the information in this prospectus supplement
and prospectus is accurate as of any date other than the dates stated on their
respective covers.
---------------
After the initial distribution of the certificates offered by this
prospectus supplement, this prospectus and prospectus supplement may be used by
Lehman Brothers Inc., which is an affiliate of the depositor and the servicer,
in connection with market making transactions in those certificates. Lehman
Brothers Inc. may act as principal or agent in these transactions. These
transactions will be at market prices at the time of sale and not at the prices
of the initial offering. Certain information in this prospectus supplement will
be updated from time to time for as long as Aurora Loan Services Inc. continues
to be the servicer.
---------------
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the certificates and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the certificates will be
required to deliver a prospectus supplement and prospectus for ninety days
following the date of this prospectus supplement.
---------------
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
S-2
<PAGE>
TABLES OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary of Terms.............................. S-6
Risk Factors.................................. S-11
Risks Relating to Bankruptcy of Southern
Pacific.................................. S-11
Limited Warranties and Representations
Relating to the Mortgage Loans........... S-12
Higher Expected Delinquencies of
Sub-prime Mortgage Loans................. S-12
Mortgage Loan Interest Rates May Limit
Interest Rates on the Certificates....... S-13
Potential Inadequacy of Credit
Enhancement.............................. S-13
Lack of Primary Mortgage Insurance.......... S-15
Some Mortgage Loans are Secured Only by
Junior Liens............................. S-16
Unpredictability and Effect of
Prepayments.............................. S-16
Special Risks for the Class AIO
Certificates............................. S-16
Geographic Concentration of Mortgage
Loans.................................... S-16
Potential Disruption of Computer
Systems.................................. S-17
Limited Ability to Resell Certificates...... S-17
Description of the Certificates............... S-18
General..................................... S-18
Book-Entry Registration..................... S-19
Distributions of Interest................... S-23
Determination of LIBOR...................... S-27
Distributions of Principal.................. S-28
Credit Enhancement.......................... S-34
Final Scheduled Distribution Date........... S-37
Optional Purchase of Mortgage Loans;
Termination of the Trust................. S-37
The Trustee................................. S-37
Description of the Mortgage Pools............. S-38
General..................................... S-38
Adjustable Rate Mortgage Loans.............. S-40
The Indices................................. S-40
Pool 1 Mortgage Loans....................... S-42
Pool 2 Mortgage Loans....................... S-48
Pool 3 Mortgage Loans....................... S-59
Origination of the Mortgage Loans........... S-68
Bankruptcy Status of Southern Pacific....... S-69
Additional Information........................ S-69
The Master Servicer........................... S-70
The Servicer.................................. S-70
<CAPTION>
PAGE
-----
<S> <C>
The Special Servicer.......................... S-72
Servicing of the Mortgage Loans............... S-75
General..................................... S-75
Special Servicing of Delinquent Mortgage
Loans.................................... S-75
Servicing Compensation and Payment of
Expenses................................. S-75
Prepayment Interest Shortfalls.............. S-76
Advances.................................... S-76
Collection of Taxes, Assessments and Similar
Items.................................... S-77
Insurance Coverage.......................... S-77
Evidence as to Compliance................... S-77
Certain Rights Related to Foreclosure, the
Servicer and the Special Servicer........ S-77
Trust Agreement............................... S-78
General..................................... S-78
Assignment of Mortgage Loans................ S-78
Purchase of Certain Defaulted Mortgage
Loans.................................... S-79
Voting Rights............................... S-79
Yield, Prepayment and Weighted
Average Life................................ S-79
General..................................... S-79
Overcollateralization....................... S-82
Subordination of the Offered Subordinate
Certificates............................. S-82
Weighted Average Life....................... S-82
Material Federal Income Tax
Considerations.............................. S-91
General..................................... S-91
Taxation of Regular Interests............... S-91
Status of the Offered Certificates.......... S-92
The Basis Risk Reserve Fund................. S-92
Legal Investment Considerations............... S-93
Use of Proceeds............................... S-93
Underwriting.................................. S-93
ERISA Considerations.......................... S-94
Legal Matters................................. S-94
Ratings....................................... S-94
Glossary...................................... S-95
Global Clearance, Settlement and Tax
Documentation Procedures................. S-99
Initial Settlement.......................... S-99
Secondary Market Trading.................... S-99
Certain U.S. Federal Income Tax
Documentation Requirements............... S-101
</TABLE>
S-3
<PAGE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms............................... 5
Depositor.................................... 5
Certificates Offered......................... 5
Distributions................................ 5
The Trust Fund............................... 6
Mortgage Backed Securities................... 6
Mortgage Loans............................... 6
Guaranteed Investment Contracts and Other
Agreements................................ 6
Pre-Funding Account.......................... 6
Collection and Certificate Accounts.......... 7
Final Scheduled Distribution Date............ 7
Optional Termination or Purchase of
Certificates.............................. 7
Trustee...................................... 7
Servicing of Mortgage Loans.................. 7
Credit Enhancement........................... 7
Material Federal Income Tax Consequences..... 8
Legal Investment Considerations.............. 8
Erisa Considerations......................... 8
Use of Proceeds.............................. 8
Ratings...................................... 8
Risk Factors................................... 9
Limited Ability to Resell Certificates....... 9
Adverse Effect of Prepayments on the Yield
and Maturity of Certificates.............. 9
Principal Prepayments Not Addressed by
Ratings................................... 10
Potential Inadequacy of Credit
Enhancement............................... 10
Bankruptcy................................... 10
Recent Origin of Certain Loan
Types..................................... 11
Greater Risks Involving Certain Property
Types..................................... 11
Limited Obligations and Assets of the
Depositor................................. 11
Limitations of FNMA and FHLMC Guaranties..... 12
ERISA Considerations......................... 12
Description of the Certificates................ 13
General...................................... 13
Distributions on the Certificates............ 13
Optional Termination......................... 15
Optional Purchase of Certificates............ 16
Other Purchases.............................. 16
Book-Entry Registration...................... 16
<CAPTION>
PAGE
----
<S> <C>
Yield, Prepayment and Maturity
Considerations............................... 17
Payment Delays............................... 17
Principal Prepayments........................ 18
Timing of Reduction of Principal
Amount.................................... 18
Interest or Principal Weighted
Certificates.............................. 18
Final Scheduled Distribution Date............ 18
Prepayments and Weighted Average
Life...................................... 19
Other Factors Affecting Weighted
Average Life.............................. 20
The Trust Funds................................ 21
General...................................... 21
GNMA Certificates............................ 22
FNMA Certificates............................ 24
FHLMC Certificates........................... 25
Private Mortgage-Backed Securities........... 28
The Mortgage Loans........................... 30
The Manufactured Home Loans.................. 33
Pre-Funding Arrangements..................... 35
Collection Account and Certificate Account... 35
Other Funds or Accounts...................... 36
Loan Underwriting Procedures and
Standards.................................... 37
Underwriting Standards....................... 37
Loss Experience.............................. 38
Representations and Warranties............... 39
Substitution of Primary Assets............... 40
Servicing of Loans............................. 41
General...................................... 41
Collection Procedures; Escrow
Accounts.................................. 42
Deposits to and Withdrawals from the
Collection Account........................ 42
Servicing Accounts........................... 44
Buy-Down Loans, GPM Loans and Other
Subsidized Loans.......................... 44
Advances and Limitations Thereon............. 46
Maintenance of Insurance Policies and Other
Servicing Procedures...................... 46
Presentation of Claims; Realization Upon
Defaulted Loans........................... 49
Enforcement of Due-On-Sale Clauses........... 50
Certain Rights Related to Foreclosure........ 50
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
Servicing Compensation and Payment of
Expenses.................................. 51
<S> <C>
Evidence as to Compliance.................... 51
Certain Matters Regarding the Master
Servicer.................................. 52
Credit Support................................. 53
General...................................... 53
Subordinate Certificates; Subordination
Reserve Fund.............................. 53
Cross-Support Features....................... 54
Insurance.................................... 55
Letter of Credit............................. 55
Certificate Guarantee Insurance.............. 55
Reserve Funds................................ 56
Description of Mortgage and Other
Insurance.................................... 56
Mortgage Insurance on the Loans.............. 57
Hazard Insurance on the Loans................ 61
Bankruptcy Bond.............................. 63
Repurchase Bond.............................. 64
The Trust Agreements........................... 64
Assignment of Primary Assets................. 64
Repurchase and Substitution of Non-Conforming
Loans..................................... 67
Reports To Certificateholders................ 68
Investment of Funds.......................... 69
Event of Default............................. 70
Rights Upon Event of Default................. 70
The Trustee.................................. 71
Duties of the Trustee........................ 71
Resignation of Trustee....................... 72
Certificate Account.......................... 72
Expense Reserve Fund......................... 72
Amendment of Trust Agreement................. 72
Voting Rights................................ 73
List of Certificateholders................... 73
REMIC or FASIT Administrator................. 73
Termination.................................. 73
Certain Legal Aspects of Loans................. 74
Mortgages.................................... 74
Junior Mortgages; Rights of Senior
Mortgages................................. 75
Cooperative Loans............................ 76
Foreclosure on Mortgages..................... 78
Realizing Upon Cooperative Loan
Security.................................. 79
Rights of Redemption......................... 80
Anti-Deficiency Legislation and Other
Limitations on Lenders.................... 81
<CAPTION>
PAGE
----
<S> <C>
Soldiers' and Sailors' Civil Relief Act of
1940...................................... 83
Environmental Risks.......................... 83
Due-on-Sale Clauses in Mortgage
Loans..................................... 84
Enforceability of Prepayment and Late Payment
Fees...................................... 85
Equitable Limitations on Remedies............ 85
Applicability of Usury Laws.................. 86
Adjustable Interest Rate Loans............... 86
Manufactured Home Loans...................... 87
Material Federal Income Tax
Considerations............................... 89
General...................................... 89
Characterization of Certificates............. 90
Qualification as a REMIC..................... 90
Qualification as a FASIT..................... 91
Taxation of Regular Interest
Certificates.............................. 93
Sale or Exchange of Regular Interest
Certificates.............................. 97
Taxation of the REMIC........................ 98
Taxation of Holders of Residual Interest
Certificates.............................. 99
Restrictions on Ownership and Transfer of
REMIC Residual Interest Certificates...... 101
REMIC Expenses............................... 102
Administrative Matters....................... 102
Taxation of Holders of FASIT
High-Yield Interests...................... 102
Taxation of Holders of FASIT
Ownership Interests....................... 103
Tax Status as a Grantor Trust................ 103
Miscellaneous Tax Aspects.................... 107
Tax Treatment of Foreign Investors........... 108
State Tax Considerations....................... 108
ERISA Considerations........................... 109
Legal Investment Considerations................ 112
Legal Matters.................................. 113
The Depositor.................................. 113
Use of Proceeds................................ 113
Plan of Distribution........................... 114
Additional Information......................... 114
Incorporation of Certain Documents by
Reference.................................... 115
Reports to Certificateholders.................. 115
Glossary....................................... 116
</TABLE>
S-5
<PAGE>
SUMMARY OF TERMS
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE
CERTIFICATES, IT IS NECESSARY THAT YOU READ CAREFULLY THIS ENTIRE DOCUMENT AND
ACCOMPANYING PROSPECTUS.
o WHILE THIS SUMMARY CONTAINS AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOW
PRIORITIES, AND OTHER INFORMATION TO AID YOUR UNDERSTANDING, YOU SHOULD READ
CAREFULLY THE FULL DESCRIPTION OF THESE CALCULATIONS, CASH FLOW PRIORITIES AND
OTHER INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS BEFORE MAKING ANY INVESTMENT DECISION.
o WHENEVER WE REFER TO A PERCENTAGE OF SOME OR ALL OF THE MORTGAGE LOANS IN THE
TRUST FUND OR IN ANY POOL, THAT PERCENTAGE HAS BEEN CALCULATED ON THE BASIS OF
THE TOTAL SCHEDULED PRINCIPAL BALANCE OF THOSE MORTGAGE LOANS AS OF APRIL 1,
1999, UNLESS WE SPECIFY OTHERWISE. WE EXPLAIN IN THIS PROSPECTUS SUPPLEMENT
UNDER 'DESCRIPTION OF THE CERTIFICATES -- DISTRIBUTIONS OF PRINCIPAL' HOW THE
SCHEDULED PRINCIPAL BALANCE OF A MORTGAGE LOAN IS DETERMINED. WHENEVER WE
REFER IN THIS SUMMARY OR IN THE RISK FACTORS SECTION OF THIS PROSPECTUS
SUPPLEMENT TO THE TOTAL PRINCIPAL BALANCE OF ANY MORTGAGE LOANS, WE MEAN THE
TOTAL OF THEIR SCHEDULED PRINCIPAL BALANCES, UNLESS WE SPECIFY OTHERWISE.
THE OFFERED CERTIFICATES
Structured Asset Securities Corporation's Mortgage Pass-Through
Certificates, Series 1999-SP1 consist of the following classes: A1, A2, A3, A4,
AIO, M1, M2, B, X and R. Only the Class A1, A2, A3, A4, AIO, M1, M2 and B
Certificates are being offered by this prospectus supplement. These certificates
will be issued in book-entry form.
See 'Description of the Certificates -- General' in this prospectus
supplement for a discussion of the minimum denominations and the incremental
denominations of each class of certificates.
The certificates represent ownership interests in a trust fund, the assets
of which consist primarily of three separate pools of mortgage loans: 'pool 1,'
'pool 2,' and 'pool 3.' As is described in greater detail in this prospectus
supplement, the mortgage loans in pool 1 are fixed rate mortgage loans with
original principal balances equal to or less than $240,000, in the case of
mortgage loans secured by single-family mortgaged properties, or $307,100, in
the case of mortgage loans secured by two- to four-family mortgaged properties;
the mortgage loans in pool 2 are adjustable rate mortgage loans with original
principal balances equal to or less than $240,000, in the case of mortgage loans
secured by single-family mortgaged properties, or $307,100, in the case of
mortgage loans secured by two- to four-family mortgaged properties; and the
mortgage loans in pool 3 are adjustable and fixed rate mortgage loans with
original principal balances in excess of those amounts.
Payments of principal on the Class A1 Certificates will be based, mostly,
on collections on the pool 1 mortgage loans, payments of principal on the Class
A2 Certificates will be based, mostly, on collections on the pool 2 mortgage
loans and payments of principal on the Class A3 and A4 Certificates will be
based, mostly, on collections on the pool 3 mortgage loans. Payments of
principal on the Class M1, M2 and B Certificates will be based on collections on
all three pools of mortgage loans. Payments of interest on all of these
certificates will based on collections on all three pools of mortgage loans.
The rights of holders of the Class M1, M2 and B Certificates to payments
will be subordinate to the rights of the holders of certificates having a higher
priority of payment, as described in this Summary of Terms under '-- Enhancement
of Likelihood of Payment on the Certificates -- Subordination of Payments'
below. We refer to those certificates as subordinate certificates,
S-6
<PAGE>
and we refer to the Class A1, A2, A3, A4 and AIO Certificates as senior
certificates.
The certificates will have an approximate total initial principal amount of
$581,483,000. Any difference between the total principal amount of the
certificates on the date they are issued and the approximate total principal
amount of the certificates on the date of this prospectus supplement will not
exceed 5%.
PAYMENTS ON THE CERTIFICATES
Principal and interest on the certificates will be payable on the 25th day
of each month, beginning in May 1999. However, if the 25th day is not a business
day, distributions will be made on the next business day after the 25th day of
the month.
INTEREST PAYMENTS
Interest will accrue on each class of certificates, other than the Class X
and R Certificates, at the applicable annual rate described in this prospectus
supplement. Interest will not be payable on the Class AIO Certificates after
October 25, 2001.
See 'Description of the Certificates -- Distributions of Interest' in this
prospectus supplement.
PRINCIPAL PAYMENTS
The amount of principal payable on the certificates, other than the Class
AIO Certificates, will be determined by (1) formulas that allocate portions of
principal payments received on the mortgage loans among the different classes,
and (2) funds actually received on the mortgage loans that are available to make
payments on the certificates. Funds actually received on the mortgage loans may
consist of expected, scheduled payments, and unexpected payments resulting from
prepayments or defaults by borrowers.
The manner of allocating payments of principal will differ, as described in
this prospectus supplement, depending upon whether a payment date occurs before
the distribution date in May 2002 or on or after that date, and depending upon
whether the delinquency and loss performance of the mortgage loans is worse than
certain levels set by the rating agencies.
We explain how principal is paid on the certificates under 'Description of
the Certificates -- Distributions of Principal' in this prospectus supplement.
LIMITED RECOURSE
The only source of cash available to make interest and principal payments
on the certificates will be the assets of the trust fund. The trust fund will
have no source of cash and no other entity will be required or expected to make
any payments on the certificates.
ENHANCEMENT OF LIKELIHOOD OF PAYMENT ON THE CERTIFICATES
The payment structure includes overcollateralization, subordination, loss
allocation and cross-collateralization features to enhance the likelihood that
certificateholders of more senior classes will receive regular payments of
interest and principal. The Class B Certificates are more likely to experience
losses than the Class M2, M1, A1, A2, A3, A4 and AIO Certificates. The Class M2
Certificates are more likely to experience losses than the Class M1, A1, A2, A3,
A4 and AIO Certificates. The Class M1 Certificates are more likely to experience
losses than the Class A1, A2, A3, A4 and AIO Certificates.
See 'Risk Factors -- Potential Inadequacy of Credit Enhancement' and
'Description of the Certificates -- Credit Enhancement' in this prospectus
supplement for a more detailed description of overcollateralization,
subordination, loss allocation and cross-collateralization.
Subordination of Payments
Certificates with an 'A' in their class designation will have a payment
priority as a group over other certificates. The Class M1 Certificates will have
a payment priority over the Class M2 and B Certificates, and the Class M2
Certificates will have a payment priority over the Class B Certificates.
S-7
<PAGE>
See 'Description of the Certificates -- Credit
Enhancement -- Subordination' in this prospectus supplement.
Allocation of Losses
As described in this prospectus supplement, amounts representing losses on
the mortgage loans in excess of overcollateralization will be applied to reduce
the principal amount of the class of certificates still outstanding that has the
lowest payment priority, until the principal amount of that class of
certificates has been reduced to zero. For example, losses in excess of
overcollateralization will first be allocated in reduction of the principal
amount of the Class B Certificates until it is reduced to zero and then to the
principal amount of the Class M2 Certificates until it is reduced to zero, and
finally to the principal amount of the M1 Certificates until it is reduced to
zero. If the applicable subordination is insufficient to absorb losses, then
holders of senior certificates will incur losses and may never receive all of
their principal payments
o If a loss has been allocated to reduce the principal amount of your
certificate, you will receive no payment in respect of that reduction.
See 'Description of the Certificates Credit -- Enhancement -- Application
of Realized Losses' in this prospectus supplement.
Overcollateralization
On the closing date, the total principal amount of the certificates is
expected to equal the total principal balance of the mortgage loans. Any
interest and prepayment premiums received on the mortgage loans in excess of the
amount needed to pay interest on the certificates and certain expenses and fees
of the trust fund will be used to reduce the total principal amount of the
certificates to a level set by the rating agencies until the mortgage loans have
a total principal balance that exceeds the total outstanding principal amount of
the certificates by the amount required by the rating agencies. This condition
is referred to as 'overcollateralization.' We cannot assure you that sufficient
interest will be generated by the mortgage loans to create
overcollateralization, or to maintain it after it has been created.
See 'Risk Factors -- Potential Inadequacy of Credit Enhancement' and
'Description of the Certificates -- Credit Enhancement -- Overcollateralization'
in this prospectus supplement.
Cross-collateralization
Under certain limited circumstances, payments on the mortgage loans in a
pool may be distributed to holders of the Class A Certificates corresponding to
another pool (or pools). For example,
o If the Class A1 Certificates have been retired but the Class A2, Class A3
and Class A4 Certificates are outstanding, then certain payments on the
pool 1 loans may be paid to the Class A2, A3 and A4 Certificates before
being paid to the Class M and B Certificates.
o If the Class A1 and A2 Certificates have each been retired but the Class
A3 and A4 Certificates are outstanding, then certain payments on the pool
1 and pool 2 loans may be paid to the Class A3 and Class A4 Certificates
before being paid to the Class M and B Certificates.
These are examples. The same sort of payments to similar classes of senior
certificates may occur if the same situations apply to certificates of the same
priority relating to other mortgage pools.
THE MORTGAGE LOANS
On the closing date, which is expected to be on or about May 10, 1999, the
assets of the trust fund will consist of three pools of mortgage loans with a
total principal balance of approximately $581,483,156.73. The mortgage loans
will be secured by mortgages, deeds of trust, or other security instruments, all
of which are referred to in this prospectus supplement as mortgages.
The mortgage loans are adjustable and fixed rate, fully amortizing and
balloon,
S-8
<PAGE>
conventional, senior and junior lien residential and mixed use mortgage loans,
substantially all of which have original terms to stated maturity of 30 years.
The mortgage loans were generally originated or acquired in accordance with
underwriting guidelines that are less strict than Fannie Mae and Freddie Mac
guidelines. As a result, the mortgage loans are likely to experience higher
rates of delinquency, foreclosure and bankruptcy than mortgage loans
underwritten in accordance with higher standards.
The mortgage loans in the trust fund will not be insured or guaranteed by
any government agency.
See 'Description of the Mortgage Pools' in this prospectus supplement and
'The Trust Fund -- The Mortgage Loans' in the prospectus for a general
description of the mortgage loans.
SERVICING OF THE MORTGAGE LOANS
The mortgage loans will be master serviced by Norwest Bank Minnesota,
National Association. The master servicer will oversee the servicing of the
mortgage loans by primary loan servicers. Initially, the primary loan servicer
will be Aurora Loan Services Inc. Initially, Ocwen Federal Bank FSB will
specially service certain delinquent mortgage loans and provide ongoing
servicing of those loans if they are not liquidated as described in this
prospectus supplement. The Class X holder will have certain rights relating to
the mortgage loans, including the right to terminate and replace either the
servicer or the special servicer, or both, at any time, without cause. If the
Class X holder terminates both the servicer and the special servicer, the Class
X holder may replace them with a single servicer that will act as and receive
the compensation of both the servicer and the special servicer.
See 'The Master Servicer,' 'The Servicer,' 'The Special Servicer' and
'Servicing of the Mortgage Loans' in this prospectus supplement.
OPTIONAL PURCHASE OF MORTGAGE LOANS
The Class X holder may purchase the mortgage loans after the total
principal balance of the mortgage loans declines to less than 10% of the initial
total principal balance of the mortgage loans. In addition, the depositor will
have the option to purchase the mortgage loans in the event that the Class X
holder does not exercise its optional purchase right as described in this
prospectus supplement.
If the mortgage loans are purchased, the certificateholders will be paid
accrued interest and principal equal to the outstanding principal amount of the
certificates.
If the Class X holder does not exercise its option to purchase the mortgage
loans as described above when it is first entitled to do so, the interest rates
of the certificates will be increased as described in this prospectus
supplement.
See 'Description of the Certificates -- Optional Purchase of Mortgage
Loans; Termination of the Trust Fund' in this prospectus supplement for a
description of the purchase price to be paid for the mortgage loans. See
'Description of the Certificates -- Distributions of Interest' in this
prospectus supplement for a description of the increased interest rates to be
paid on the certificates in the event that the Class X holder does not exercise
its option to purchase the mortgage loans as described above.
TAX STATUS
The trustee will elect to treat all or a portion of the trust fund as
multiple REMICs for federal income tax purposes. Each of the certificates, other
than the Class R Certificate, will represent ownership of 'regular interests' in
a REMIC and the Class R Certificate will be designated as the sole class of
'residual interest' in each of the REMICs.
The Class AIO Certificates will be, and the other certificates may be,
issued with original issue discount for federal income tax purposes.
See 'Material Federal Income Tax Considerations' in this prospectus
supplement and in the accompanying prospectus for
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additional information concerning the application of federal income tax laws to
the certificates.
ERISA CONSIDERATIONS
The certificates may not be purchased by employee benefit plans or
individual retirement accounts subject to the Employee Retirement Income
Security Act of 1974 or Section 4975 of the Internal Revenue Code of 1986.
See 'ERISA Considerations' in this prospectus supplement and in the
prospectus for a more complete discussion of this issue.
LEGAL INVESTMENT CONSIDERATIONS
The certificates will not constitute 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984.
There are other restrictions on the ability of certain types of investors
to purchase the certificates that prospective investors should consider.
See 'Legal Investment Considerations' in this prospectus supplement and in
the prospectus.
RATINGS OF THE CERTIFICATES
The certificates offered by this prospectus supplement will initially have
the following ratings from Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., and Duff & Phelps Credit Rating Co.:
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STANDARD & DUFF &
POOR'S PHELPS
CLASS RATING RATING
- ----- ---------- ------
<S> <C> <C>
A1 AAA AAA
A2 AAA AAA
A3 AAA AAA
A4 AAA AAA
AIO AAAr AAA
M1 AA AA
M2 A A
B BBB BBB
</TABLE>
o These ratings are not recommendations to buy, sell or hold these certificates.
A rating may be changed or withdrawn at any time by the assigning rating
agency.
o The ratings do not address the possibility that, as a result of principal
prepayments, the yield on your certificates may be lower than anticipated.
See 'Ratings' in this prospectus supplement for a more complete discussion
of the certificate ratings.
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RISK FACTORS
o THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER 'RISK FACTORS' IN THE PROSPECTUS.
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RISKS RELATING TO BANKRUPTCY OF SOUTHERN
PACIFIC................................. Lehman Capital, A Division of Lehman Brothers Holdings Inc.,
purchased the mortgage loans from Southern Pacific Funding
Corporation, a corporation that is a debtor in Chapter 11 bankruptcy
proceedings. Lehman Capital will sell the mortgage loans on the
closing date to Structured Assets Securities Corporation, which is
referred to in this prospectus supplement as the depositor. The
depositor will simultaneously sell the mortgage loans to the trust
fund.
Lehman Capital purchased the mortgage loans in two separate
transactions. The first transaction occurred a few days before
Southern Pacific filed its bankruptcy petition. If, in connection
with an action brought by a bankruptcy trustee, by Southern Pacific
as debtor in possession, or by another interested party, the court
were to find that Southern Pacific did not receive fair consideration
or reasonably equivalent value for those mortgage loans, the court
could, among other things, void the transfer of those mortgage loans
from Southern Pacific to Lehman Capital as a fraudulent transfer. In
addition, if an interested party were to claim that the sale of the
mortgage loans by Southern Pacific to Lehman Capital was in reality a
borrowing secured by a pledge of assets, the court could
recharacterize the sale as financing.
If the court were to void the transfer, or if the transaction were
successfully attacked on other grounds, the mortgage loans would be
returned to Southern Pacific, the trust fund would be reimbursed by
Lehman Capital and the certificates would be prepaid as though all of
the affected mortgage loans had been prepaid. However, no matter what
the outcome of any action brought to void the transfer of the
mortgage loans, any such action may cause delays in payments to
investors.
Lehman Capital will be obligated to repurchase from the trust fund
all of the mortgage loans purchased from Southern Pacific in the
first transaction if the bankruptcy court recharacterizes the sale as
a financing.
The second mortgage loan purchase transaction took place after
Southern Pacific's bankruptcy filing pursuant to an order issued by
the bankruptcy court. Lehman Capital has obtained an opinion of legal
counsel to the effect that the bankruptcy court's order was validly
entered and, on the date the second mortgage loan purchase
transaction closed, in full force and effect.
Southern Pacific's bankruptcy proceedings and the legal opinion are
described in more detail under 'Description of
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the Mortgage Pools -- Bankruptcy Status of Southern Pacific' in this
prospectus supplement.
LIMITED WARRANTIES AND REPRESENTATIONS
RELATING TO THE MORTGAGE LOANS.......... Although Lehman Capital's rights under the purchase agreements
between Southern Pacific and Lehman Capital will be assigned to the
trustee for the benefit of certificateholders, these agreements will
not provide you with much protection. Southern Pacific made only very
limited representations and warranties to Lehman Capital regarding
the mortgage loans and is under no obligation to repurchase the
mortgage loans if those representations and warranties were not true.
In any event, Southern Pacific is involved in bankruptcy proceedings
that are likely to result in the liquidation of its assets, making
any remedy that the trustee might have against Southern Pacific under
the purchase agreements essentially meaningless.
Lehman Capital will make to the depositor, and the depositor will
assign to the trustee for the benefit of certificateholders, more
extensive representations and warranties than those made by Southern
Pacific. In the event of a breach of any of its representations and
warranties, Lehman Capital will be obligated to repurchase the
affected mortgage loan or substitute another mortgage loan. You
should consider the possibility that a breach of some of those
representations or warranties could affect all of the mortgage loans.
For example, Southern Pacific may not have conveyed clear title to
the mortgage loans to Lehman Capital, or there may have been prior
liens on the mortgage loans unknown to Lehman Capital when it
purchased the mortgage loans. If affected mortgage loans are not
repurchased by Lehman Capital, investors could incur losses on their
investments.
See 'Trust Agreement -- Assignment of Mortgage Loans' for a more
detailed description of the representations and warranties relating
to the mortgage loans.
HIGHER EXPECTED DELINQUENCIES OF SUB-PRIME
MORTGAGE LOANS.......................... We have only very limited information about the origination of the
mortgage loans. We don't know exactly what underwriting guidelines
were applied by the lenders or whether those guidelines were applied
uniformly to all borrowers. However, we believe that the mortgage
loans were originated by various lenders in accordance, generally,
with underwriting guidelines that are not as strict as Fannie Mae or
Freddie Mac guidelines. For this reason, the mortgage loans are
likely to experience rates of delinquency, foreclosure and bankruptcy
that are higher, and that may be substantially higher, than those
experienced by mortgage loans underwritten in accordance with higher
standards.
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Changes in the values of mortgaged properties related to the mortgage
loans may have a greater effect on the delinquency, foreclosure,
bankruptcy and loss experience of the mortgage loans in the trust
fund than on mortgage loans originated under stricter guidelines. We
cannot assure you that the values of the mortgaged properties have
remained or will remain at levels in effect on the dates of
origination of the related mortgage loans.
See 'Description of the Mortgage Pools -- General' in this prospectus
supplement for a description of the characteristics of each mortgage
loan pool and 'Description of the Mortgage Pools -- Origination of
the Mortgage Loans' for a general description of the underwriting
guidelines used in originating the mortgage loans.
MORTGAGE LOAN INTEREST RATES MAY LIMIT
INTEREST RATES ON THE CERTIFICATES...... LIBOR may increase or decrease at different times and in different
amounts than the indices applicable to the adjustable rate mortgage
loans.
In addition, because the interest rates on the adjustable rate
mortgage loans adjust at different times and in different amounts,
and because the interest rates on the rest of the mortgage loans are
fixed, if the interest rates of the Class A1, A2, A3, A4, M1, M2, and
B Certificates were not capped as described in this prospectus
supplement under 'Description of the Certificates -- Distributions of
Interest,' there may be times when those rates would exceed the
weighted average of the interest rates on the mortgage loans (after
deduction of fees). If that happens, the caps will have the effect of
reducing the interest rates on your certificates, at least
temporarily. The difference will be paid to you on future payment
dates only if there is enough excess cashflow to pay it.
See 'Description of the Certificates -- Credit
Enhancement -- Overcollateralization' in this prospectus supplement.
For detailed information on the interest rates of the mortgage loans,
see 'Description of the Mortgage Pools' in this prospectus
supplement.
POTENTIAL INADEQUACY OF CREDIT
ENHANCEMENT............................. The certificates are not insured by any financial guaranty insurance
policy. The overcollateralization, subordination, loss allocation and
cross-collateralization features described in this prospectus
supplement are intended to enhance the likelihood that
certificateholders of more senior classes will receive regular
payments of interest and principal, but are limited in nature and may
be insufficient to cover all losses on the mortgage loans.
OVERCOLLATERALIZATION. In order to create overcollateralization, it
will be necessary that the mortgage
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loans generate more interest than is needed to pay interest on the
certificates as well as fees and expenses of the trust fund. We
expect that the mortgage loans will generate more interest than is
needed to pay those amounts, at least during certain periods, because
the weighted average of the interest rates on the mortgage loans is
higher than the weighted average of the interest rates on the
certificates. We cannot assure you, however, that enough excess
interest will be generated to reach the overcollateralization levels
required by the rating agencies. The following factors will affect
the amount of excess interest that the mortgage loans will generate:
o Prepayments. Every time a mortgage loan is prepaid, total excess
interest after the date of prepayment will be reduced because that
mortgage loan will no longer be outstanding and generating
interest. The effect on your certificates of this reduction will be
influenced by the amount of prepaid loans and the characteristics
of the prepaid loans. Prepayment of a disproportionately high
number of high interest rate mortgage loans would have a greater
negative effect on future excess interest.
o Defaults. The rate of defaults on the mortgage loans may turn out
to be higher than expected. Defaulted mortgage loans may be
liquidated, and liquidated mortgage loans will no longer be
outstanding and generating interest.
o Level of LIBOR. If LIBOR increases, more money will be needed to
pay interest to certain certificateholders, so less money will be
available as excess interest.
o Class AIO Certificates. After the distribution date in October
2001 the Class AIO Certificates will not accrue any more interest,
so more money will be available as excess interest.
See 'Description of the Certificates -- Credit
Enhancement -- Overcollateralization' in this prospectus supplement.
SUBORDINATION. If applicable subordination is insufficient to absorb
such losses, then certificateholders will likely incur losses and may
never receive all of their principal payments. You should consider
the following:
o if you buy a Class B Certificate and losses on the mortgage loans
exceed excess interest and any overcollateralization that has been
created, the principal amount of your certificate will be reduced
proportionately with the principal amounts of the other Class B
Certificates by the amount of that excess;
o if you buy a Class M2 Certificate and losses on the mortgage loans
exceed excess interest and any overcollateralization that has been
created plus the total principal amount of the Class B
Certificates, the principal
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<S> <C>
amount of your certificate will be reduced proportionately with the
principal amounts of the other Class M2 Certificates by the amount
of that excess; and
o if you buy a Class M1 Certificate and losses on the mortgage loans
exceed excess interest and any overcollateralization that has been
created plus the total principal amount of the Class B and Class M2
certificates, the principal amount of your certificate will be
reduced proportionately with the principal amounts of the other
Class M1 Certificates by the amount of that excess.
Losses on the mortgage loans will not reduce the principal amount or
notional amount of the Class A1, A2, A3, A4 or AIO Certificates.
If, after overcollateralization is created in the required amount,
the mortgage loans generate interest in excess of the amount needed
to pay interest and principal on the certificates and fees and
expenses of the trust fund, the excess interest will be used to pay
you and other certificateholders the amount of any reduction in the
principal balances of the certificates caused by application of
losses. These payments will be made in order of seniority. We cannot
assure you, however, that any excess interest will be generated and,
in any event, no interest will be paid to you on the amount by which
your principal balance was reduced because of the application of
losses.
See 'Description of the Certificates -- Credit
Enhancement -- Subordination' and '-- Application of Realized Losses'
in this prospectus supplement.
CROSS-COLLATERALIZATION. If you buy a Class A1, A2, A3 or A4
Certificate, your principal payments will depend, for the most part,
on collections on the mortgage loans in the pool that relates to your
class of certificates. However, your certificates will have the
benefit of credit enhancement, in the form of overcollateralization
and subordination, from all three pools. That means that even if the
rate of losses on the mortgage loans in the pool that relates to your
certificates is low, losses in either of the other pools will reduce
the loss protection for your certificates.
LACK OF PRIMARY MORTGAGE
INSURANCE............................... Approximately 33.90% of the mortgage loans have combined
loan-to-value ratios greater than 80%. Most of these mortgage loans
are not covered by a primary mortgage insurance policy. If borrowers
without primary mortgage insurance default on their mortgage loans,
there is a greater likelihood of losses than if the loans were
insured. We cannot assure you that the applicable credit enhancement
will be adequate to cover those losses.
See 'Description of the Certificates -- Credit
Enhancement -- Subordination' and '-- Application of Realized Losses'
in this prospectus supplement.
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SOME MORTGAGE LOANS ARE SECURED ONLY BY
JUNIOR LIENS............................ Some of the mortgage loans are secured by junior mortgages that are
subordinate to senior mortgages held by lenders. If the property
securing a junior mortgage loan is sold, you will not receive any
distributions from the proceeds until the senior mortgage loan has
been paid in full. If a borrower defaults on a junior mortgage loan
and the related property is sold, there may not be enough proceeds to
pay both the senior mortgage loan and the junior mortgage loan. If
that happens, holders of the lowest priority certificates outstanding
may suffer losses.
See 'Description of the Mortgage Pools' in this prospectus
supplement.
UNPREDICTABILITY AND EFFECT OF
PREPAYMENTS............................. Borrowers may prepay their mortgage loans in whole or in part at any
time; however, 65.90% of the mortgage loans in Pool 1, 67.55% of the
mortgage loans in Pool 2 and 67.75% of the mortgage loans in Pool 3
require the payment of a prepayment penalty in connection with any
voluntary prepayment, which may discourage these borrowers from
prepaying their mortgage loans. Prepayments of principal may also be
caused by liquidations of or insurance payments on the mortgage
loans. A prepayment of a mortgage loan will usually result in a
prepayment on the certificates.
o If you purchase your certificates at a discount and principal is
repaid slower than you anticipate, then your yield may be lower
than you anticipate.
o If you purchase your certificates at a premium and principal is
repaid faster than you anticipate, then your yield may be lower
than you anticipate.
See 'Yield, Prepayment, and Weighted Average Life' in this prospectus
supplement for a description of factors that may influence the rate
and timing of prepayments on the mortgage loans.
SPECIAL RISKS FOR THE CLASS AIO
CERTIFICATES............................ Interest will accrue on the Class AIO Certificates on a declining
scheduled notional amount described in this prospectus supplement.
After the distribution date in October 2001, the notional amount of
the Class AIO Certificates will be zero and, therefore, current
interest will no longer be payable on the Class AIO Certificates. In
the event that the mortgage loans prepay at an extremely rapid rate
resulting in their prepayment in full while the Class AIO
Certificates are outstanding, investors in the Class AIO Certificates
could fail to recover their initial investments.
GEOGRAPHIC CONCENTRATION OF MORTGAGE
LOANS................................... Approximately 13.44% of the mortgage loans expected to be in pool 1,
approximately 14.76% of the mortgage loans
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expected to be in pool 2 and approximately 44.27% of the mortgage
loans expected to be in pool 3 on the closing date are secured by
property in California. Delinquencies, defaults and losses on the
mortgage loans may be higher than if fewer of the mortgage loans were
concentrated in one state because the following conditions in
California will have a disproportionate impact on the mortgage loans
in general:
o weak economic conditions, which may or may not affect real property
values, may affect the ability of borrowers to repay their loans on
time.
o declines in the California residential real estate market may
reduce the values of properties located in that state, which would
result in an increase in the loan-to-value ratios.
o property in California may be more susceptible than homes located
in other parts of the country to certain types of uninsurable
hazards, such as earthquakes, as well as floods, wildfires,
mudslides and other natural disasters.
Natural disasters, such as wildfires that recently occurred in parts
of Florida, affect regions of the United States from time to time,
and may result in increased losses on mortgage loans in those
regions, or in insurance payments that will constitute prepayments of
those mortgage loans.
For additional information regarding the geographic distribution of
the mortgage loans in each mortgage pool, see the applicable table
under 'Description of the Mortgage Pools' in this prospectus
supplement.
POTENTIAL DISRUPTION OF COMPUTER
SYSTEMS................................. The transition from the year 1999 to the year 2000 may interfere with
the ability of computer systems used by the master servicer, the
servicer, the special servicer, the trustee, The Depository Trust
Company and other parties to process information, unless
modifications to those systems are completed in time. This could
disrupt collection of payments on the mortgage loans and calculation
and distribution of payments on the certificates.
LIMITED ABILITY TO RESELL
CERTIFICATES............................ The underwriter is not required to assist in resales of the
certificates, although it may do so. A secondary market for any class
of certificates may not develop. If a secondary market does develop,
it might not continue or it might not be sufficiently liquid to allow
you to resell any of your certificates.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1999-SP1 Mortgage Pass-Through Certificates will consist of the
following Classes: Class A1, Class A2, Class A3, Class A4, Class AIO, Class M1,
Class M2, Class B, Class X and Class R (together, the 'Certificates').
The Class A1, A2, A3, A4 and AIO Certificates are referred to herein as the
'Senior Certificates,' and the Class M1, Class M2 and Class B Certificates are
referred to together herein as the 'Offered Subordinate Certificates.' Only the
Class A1, Class A2, Class A3, Class A4, Class AIO, Class M1, Class M2 and Class
B Certificates (the 'Offered Certificates') are offered hereby. The Class A2,
Class A3, Class A4, Class M1 and Class M2 Certificates are referred to herein as
the 'LIBOR Certificates.' The Class M1, Class M2, Class B, Class X and Class R
Certificates are referred to herein as the 'Subordinate Certificates.' The Class
R Certificate is also referred to as the 'Residual Certificate.'
Each of the Class X Certificate and the Class R Certificate will be issued
as a single Certificate in fully registered, certificated form.
The Certificates represent beneficial ownership interests in a trust fund
(the 'Trust Fund'), the assets of which consist primarily of (1) three pools
('Pool 1,' 'Pool 2,' and 'Pool 3,' respectively, and each, a 'Mortgage Pool') of
conventional, adjustable and fixed rate, fully amortizing, senior and junior
lien residential and mixed use mortgage loans (the 'Mortgage Loans'), (2) such
assets as from time to time are identified as deposited in respect of the
Mortgage Loans in the Certificate Account, (3) property acquired by foreclosure
of such Mortgage Loans or deed in lieu of foreclosure, (4) any applicable
insurance policies and all proceeds thereof, and (5) the Basis Risk Reserve Fund
(as defined herein).
Each Class of Offered Certificates will be issued in the respective
approximate initial aggregate principal amount (a 'Class Principal Amount') or
aggregate notional amount (a 'Class Notional Amount') set forth on the cover
page hereof. The Class X and Class R Certificates will be issued without
principal amounts or interest rates, and will be entitled only to such amounts
as are described herein. The aggregate Certificate Principal Amount (as defined
herein) of the Certificates and the initial Class Principal Amount of each Class
of Offered Certificates may be increased or decreased by up to five percent to
the extent that the Cut-off Date Balance (as defined herein) of the Mortgage
Loans is increased or decreased as described under 'Description of the Mortgage
Pools' herein.
For purposes of distributions of principal, the Class A1 Certificates will
relate to the Mortgage Loans in Pool 1, the Class A2 Certificates will relate to
the Mortgage Loans in Pool 2, and the Class A3 and Class A4 Certificates will
relate to the Mortgage Loans in Pool 3. Holders of such Certificates will be
entitled to receive distributions of principal with respect to the Mortgage
Loans in the related Mortgage Pool, except as described herein, and will be
entitled to receive distributions of interest with respect to all of the
Mortgage Loans in the aggregate. Holders of the Subordinate Certificates will be
entitled to receive distributions of interest and principal with respect to all
of the Mortgage Loans in the aggregate; such rights will be subordinate to the
rights of the holders of the Senior Certificates to the extent described herein.
Distributions on the Certificates will be made on the 25th day of each
month or, if such 25th day is not a Business Day, on the next succeeding
Business Day, commencing in May 1999 (each a 'Distribution Date'), to
Certificateholders of record on the applicable Record Date. The 'Record Date'
for the LIBOR Certificates and the Class AIO Certificates and each Distribution
Date will be the close of business on the Business Day immediately preceding
such Distribution Date. The 'Record Date' for the Class A1 and Class B
Certificates and each Distribution Date will be the close of business on the
last Business Day of the month immediately preceding the month in which the
Distribution Date occurs (or, in the case of the first Distribution Date, May
10, 1999 (the
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'Closing Date')). A 'Business Day' is generally any day other than a Saturday or
Sunday or a day on which banks in New York, Illinois, Minnesota or Maryland (or,
as to the Servicer, such other states as are specified in the Servicing
Agreement) are closed.
Distributions on the Offered Certificates will be made to each registered
holder entitled thereto, either (1) by check mailed to the address of such
Certificateholder as it appears on the books of the Trustee (as defined herein),
or (2) at the request, submitted to the Trustee in writing at least five
Business Days prior to the related Record Date, of (x) any holder of a Class AIO
Certificate having an initial Class Notional Amount of not less than $25,000,000
or (y) any other Offered Certificate having an initial Certificate Principal
Amount of not less than $2,500,000, by wire transfer (at the expense of such
holder) in immediately available funds; provided, that the final distribution in
respect of any Certificate will be made only upon presentation and surrender of
such Certificate at the Corporate Trust Office (as defined herein) of the
Trustee. See '-- The Trustee' herein.
The Offered Certificates (the 'Book-Entry Certificates') will be issued,
maintained and transferred on the book-entry records of The Depository Trust
Company ('DTC') and its Participants (as defined herein). The Book-Entry
Certificates other than the Class AIO Certificates will be issued in minimum
denominations in principal amount of $25,000 and integral multiples of $1 in
excess thereof. The Class AIO Certificates will be issued in minimum
denominations in notional amount of $250,000 and integral multiples of $1 in
excess thereof.
Each Class of Book-Entry Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. Structured Asset
Securities Corporation (the 'Depositor') has been informed by DTC that DTC's
nominee will be Cede & Co. 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 -- Definitive
Certificates.' Unless and until Definitive Certificates are issued for the
Book-Entry Certificates under the limited 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 &
Co., as the registered holder of the Book-Entry Certificates, for distribution
to Beneficial Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION
GENERAL. Persons acquiring beneficial ownership interests in the
Book-Entry Certificates ('Certificate Owners') will hold their Certificates
through DTC in the United States, or Cedelbank ('Cedel') or the Euroclear System
('Euroclear') in Europe if they are participants of such systems, or indirectly
through organizations which are participants in such systems. Each Class of
Book-Entry Certificates will be issued in one or more certificates that equal
the initial Class Principal Amount of the related Class of Offered Certificates
and will initially be registered in the name of Cede & Co., the nominee of DTC.
Cedel and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries names on the books of DTC.
Citibank will act as depositary for Cedel and Chase will act as depositary for
Euroclear (in such capacities, individually the 'Relevant Depositary' and
collectively, the 'European Depositaries'). Except as described below, no person
acquiring a Book-Entry Certificate (each, a 'beneficial owner') will be entitled
to receive a physical certificate representing such Certificate. Unless and
until Definitive Certificates are issued, it is anticipated that the only
'Certificateholder' of the Offered Certificates will be Cede & Co., as nominee
of DTC. Certificate Owners will not be Certificateholders as that term is
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used in the Agreement. Certificate Owners are only permitted to exercise their
rights indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm (a 'Participant') that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, if the beneficial owner's Financial Intermediary is not a DTC
participant and on the records of Cedel or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), 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 Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates, the Rules provide a mechanism by which
Certificate Owners will receive distributions and will be able to transfer their
interest.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificate Owners who are not Participants may
transfer ownership of Offered Certificates only through Participants and
indirect participants by instructing such Participants and indirect participants
to transfer Offered Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Offered Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfer of ownership of Book-Entry Certificates
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and indirect
participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant (as defined
below) or Euroclear Participant (as defined below) to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlement in DTC. For information with respect to tax documentation procedures
relating to the Certificates, see 'Material Federal Income Tax
Considerations -- Tax Treatment of Foreign Investors' in the Prospectus and
'Global Clearance, Settlement and Tax Documentation Procedures -- Certain U.S.
Federal Income Tax Documentation Requirements' in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with the DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ('Cedel
Participants') and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally-traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
('Euroclear Participants') and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing, and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the 'Euroclear Operator'), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
'Cooperative'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board
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of Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payment to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Distributions with respect to Certificates
held through Cedel or Euroclear will be credited to the cash accounts of Cedel
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See 'Material Federal Income Tax
Considerations -- Tax Treatment of Foreign Investors' in the Prospectus. Because
DTC can only act on behalf of Financial Intermediaries, the ability of a
beneficial owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance of
the Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Monthly and annual reports will be provided to Cede & Co., as nominee of
DTC, and may be made available by Cede & Co. to beneficial owners upon request,
in accordance with the rules, regulations and procedures creating and affecting
the Depository, and to the Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive Certificates
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Certificates under the Agreement only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Certificates are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC. DTC may take actions, at the direction
of the related Participants, with respect to some Book-Entry Certificates which
conflict with actions taken with respect to other Offered Certificates.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Book-Entry Certificates among participants
of DTC, Cedel and Euroclear, they
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are under no obligation to perform or continue to perform such procedures and
such procedures may be discontinued at any time.
None of the Depositor, the Seller, the Master Servicer or the Trustee (as
such terms are defined herein) will have any responsibility for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of the Book-Entry Certificates held by Cede & Co., as nominee for DTC,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Certain computer applications and systems that DTC uses for processing
dates ('Systems') based upon calendar dates, including dates before, on, and
after January 1, 2000, may encounter certain problems related to such Systems'
use of only two digits to calculate calendar dates ('Year 2000 Problems'). Year
2000 Problems could cause DTC's Systems, as they relate to the timely payment of
distributions (including principal and interest payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC, to cease functioning
appropriately. DTC has advised the Depositor that it has developed and is
implementing a technical assessment and remediation plan (which includes a
testing phase) to deal with Year 2000 Problems. However, DTC's ability to
perform its services also depends upon other parties including, among others,
issuers and their agents, third party software and hardware vendors, and third
party service and information providers (including telecommunication and
electrical utility service providers). DTC has advised the Depositor that it is
attempting to determine the extent of the efforts of its vendors to deal with
Year 2000 Problems as they relate to the provision of such services. In
addition, DTC is in the process of developing such contingency plans as it deems
appropriate.
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 penultimate paragraph thereunder, the
Trustee is required to direct DTC 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 (as defined
herein).
DISTRIBUTIONS OF INTEREST
The amount of interest distributable on each Distribution Date in respect
of each Class of Certificates (other than the Class X and Class R Certificates)
will equal the sum of (1) Current Interest (as defined herein) for such Class on
such date, and (2) any Carryforward Interest (as defined herein) for such Class
and date. Interest will accrue on the Offered Certificates other than the Class
A1, Class B and the Class AIO Certificates on the basis of a 360-day year and
the actual number of days elapsed in each Accrual Period. Interest will accrue
on the Class A1, Class B and the Class AIO Certificates on the basis of a
360-day year consisting of twelve 30-day months.
o The 'Interest Rate' for each Class of Certificates will be the applicable
annual rate described below.
If the Class X Certificateholder does not exercise its option to purchase the
Mortgage Loans when it is first entitled to do so, as described under
'-- Optional Purchase of Mortgage Loans; Termination of the Trust' herein, then
with respect to each succeeding Distribution Date, the A2 Spread will be
increased to 0.60%, the A3 Spread will be increased to 0.20%, the Class A4
Spread will be increased to 0.66%, the M1 Spread will be increased to 1.08% and
the M2 Spread will be increased to 1.54%. Subject to the preceding proviso, the
Interest Rates for the Class A1, Class A2,
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Class A3, Class A4, Class M1, Class M2 and Class B Certificates will be the
applicable annual rate determined as follows:
o Class A1 Certificates: the lesser of (1) 6.42% and (2) the Net Funds Cap
(as defined herein).
o Class A2 Certificates: the least of (1) LIBOR plus 0.30% (the 'A2
Spread'), (2) 10.00% and (3) the Net Funds Cap.
o Class A3 Certificates: the least of (1) LIBOR plus 0.10% (the 'A3
Spread'), (2) 10.00% and (3) the Net Funds Cap.
o Class A4 Certificates: the least of (1) LIBOR plus 0.33% (the 'A4
Spread'), (2) 10.00% and (3) the Net Funds Cap.
o Class M1 Certificates: the least of (1) LIBOR plus 0.58% (the 'M1
Spread'), (2) 10.00% and (3) the Net Funds Cap.
o Class M2 Certificates: the lesser of (1) LIBOR plus 1.04% (the 'M2
Spread'), (2) 10.00% and (3) the Net Funds Cap.
o Class B Certificates: the lesser of (1) 9.00% and (2) the Net Funds Cap.
o The 'Net Funds Cap' with respect to each Distribution Date will be
the annual rate equal to (a) a fraction, expressed as a percentage,
the numerator of which is the product of (1) the amount by which the
Optimal Interest Remittance Amount for such date exceeds the amount
of interest distributable on the Class AIO Certificates for such
date, and (2) 12, and the denominator of which is the Aggregate Loan
Balance for the immediately preceding Distribution Date, multiplied
by (b) a fraction, the numerator of which is 30 and the denominator
of which is the greater of 30 and the actual number of days in the
immediately preceding calendar month.
o The 'Optimal Interest Remittance Amount' with respect to each
Distribution Date will be equal to the product of (1) the
weighted average of the Net Mortgage Rates (as defined below) of
the Mortgage Loans as of the first day of the related Collection
Period and (2) the Aggregate Loan Balance for the immediately
preceding Distribution Date.
o Each of the A2 Spread, the A3 Spread, the A4 Spread, the M1 Spread
and the M2 Spread is referred to herein as the 'Spread' applicable
to the related Class.
o The annual rate of interest referred to in clause (2) of each
Interest Rate formula set forth above is referred to herein as the
'Interest Rate Cap' applicable to the related Certificates.
The 'Net Mortgage Rate' for any Mortgage Loan at any time equals the
Mortgage Rate thereof minus the Aggregate Expense Rate.
o The 'Aggregate Expense Rate' equals the sum of the Servicing Fee Rate (or
Basic Fee Rate, as applicable), the Trustee Fee Rate and the Master
Servicing Fee Rate (each as defined herein).
The 'Certificate Principal Amount' of any Offered Certificate with respect
to any date of determination will equal such Certificate Principal Amount on the
Closing Date as reduced by all amounts previously distributed on such
Certificate in respect of principal and any Applied Loss Amount previously
allocated to such Certificate.
The Class Notional Amount of the Class AIO Certificates for any
Distribution Date will be calculated as follows:
o from May 25, 1999 through April 25, 2001, the Class Notional Amount will
equal $90,000,000;
o from May 25, 2001 through October 25, 2001 the Class Notional Amount will
equal $45,000,000; and
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<PAGE>
o from November 25, 2001 and thereafter, the Class Notional Amount will
equal zero.
After the Distribution Date in October 2001, Current Interest will no
longer be distributable on the Class AIO Certificates.
Interest will accrue on the Class Notional Amount of the Class AIO
Certificates at an Interest Rate equal to 4.00% per annum.
With respect to each Distribution Date, the 'Accrual Period' applicable to
each Class of Offered Certificates other than the Class A1 and Class B
Certificates will be the period beginning on the immediately preceding
Distribution Date (or on April 25, 1999, in the case of the first Accrual
Period) and ending on the day immediately preceding the related Distribution
Date. The 'Accrual Period' applicable to the Class A1 and Class B Certificates
with respect to each Distribution Date will be the calendar month immediately
preceding the month of such Distribution Date.
With respect to each Distribution Date, to the extent that (a) the amount
payable if clause (1) or (2) of the definition of Interest Rate applicable to
any Class of the Offered Certificates other than the Class A1, Class B and Class
AIO Certificates, or clause (1) in the case of the Interest Rate applicable to
the Class A1 or Class B Certificates, is used to calculate interest exceeds (b)
the applicable Net Funds Cap (such excess, a 'Basis Risk Shortfall'), such Class
will be entitled to the amount of such Basis Risk Shortfall or Unpaid Basis Risk
Shortfall (as defined below) with interest thereon at the applicable Interest
Rate before the Class X Certificate and the Class R Certificate are entitled to
any distributions. Such Class will be entitled to receive the amount of such
Basis Risk Shortfall from Monthly Excess Cashflow (as defined herein), with a
portion thereof treated as paid from and to the extent of funds on deposit in a
reserve fund (the 'Basis Risk Reserve Fund'). The source of funds on deposit in
the Basis Risk Reserve Fund will be limited to an initial deposit of $1,000 and
amounts that would otherwise be distributed on the Class X Certificate.
Notwithstanding the foregoing, the amount of Basis Risk Shortfall for any Class
in respect of any Distribution Date may not exceed the excess of (x) the amount
payable at the applicable Maximum Interest Rate over (y) the amount payable at
the applicable Net Funds Cap.
o The 'Unpaid Basis Risk Shortfall' for any Class of Certificates on any
Distribution Date will equal the aggregate of all Basis Risk Shortfalls
for such Class for all previous Distribution Dates, together with
interest thereon at the applicable Interest Rate, less all payments made
with respect to such Class in respect of such Basis Risk Shortfalls on or
prior to such Distribution Date.
o The 'Maximum Interest Rate' for any Class of Certificates and any
Distribution Date will be an annual rate equal to the lesser of (a) the
weighted average of the Maximum Rates (as defined herein) of the
Adjustable Rate Mortgage Loans and the Mortgage Rates of the Fixed Rate
Mortgage Loans less the Aggregate Expense Rate and (b) 10.00% annually.
o 'Current Interest' with respect to each Offered Certificate will equal
with respect to any Distribution Date the aggregate amount of interest
accrued at the applicable Interest Rate during the related Accrual Period
on the Class Principal Amount or Class Notional Amount of such Class.
o 'Carryforward Interest' with respect to each Certificate will equal with
respect to any Distribution Date the sum of (1) the amount, if any, by
which the Current Interest for such Class for the immediately preceding
Distribution Date and (B) any unpaid Carryforward Interest from previous
Distribution Dates exceeds (y) the amount distributed in respect of
interest on such Class on such immediately preceding Distribution Date,
and (2) interest on such amount for the related Accrual Period at the
applicable Interest Rate.
The 'Interest Remittance Amount' with respect to any Distribution Date will
equal (a) the sum of (1) all interest collected (other than Payaheads (as
defined herein)) or advanced in respect of Scheduled Payments (as defined
herein) on the Mortgage Loans, including any prepayment
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premiums, during the related Collection Period (as defined herein), less (x) the
Servicing Fee or Basic Fee and Master Servicing Fee (each as defined herein)
with respect to the Mortgage Loans and (y) unreimbursed Advances and other
amounts due to the Master Servicer, the Servicers or the Trustee with respect to
the Mortgage Loans, to the extent allocable to interest, (2) all Compensating
Interest (as defined herein) paid by the Master Servicer or any Servicer with
respect to the Mortgage Loans with respect to the related Prepayment Period (as
defined herein), (3) the portion of any Substitution Amount (as defined herein)
paid with respect to the Mortgage Loans during the related Prepayment Period
allocable to interest, and (4) all Net Liquidation Proceeds and any other
recoveries (net of unreimbursed Advances and expenses, to the extent allocable
to interest, and unpaid Servicing Fees) collected with respect to the Mortgage
Loans during the related Prepayment Period, to the extent allocable to interest,
as reduced by (b) any other amounts reimbursable to the Trustee. The Depositor
will be entitled to any interest or other income earned on funds on deposit in
the Collection Account prior to deposit into the Certificate Account and to any
interest or other income earned on funds on deposit in the Certificate Account
pending distribution to Certificateholders.
o A 'Payahead' is generally any Scheduled Payment intended by the related
borrower to be applied in a Collection Period subsequent to the
Collection Period in which such payment was received.
o The 'Substitution Amount' will be generally equal to the amount, if any,
by which the Scheduled Principal Balance of a Mortgage Loan required to
be removed from a Mortgage Pool due to a breach of representation or
warranty or defective documentation exceeds the principal balance of the
related substitute Mortgage Loan, plus unpaid interest accrued thereon.
On each Distribution Date, the Interest Remittance Amount for such date
will be distributed in the following order of priority:
(1) to the Trustee, the Trustee Fee;
(2) pro rata, on the basis of interest otherwise payable, to the Class
A1, Class A2, Class A3, Class A4 and Class AIO Certificates, Current
Interest for each such Class and such Distribution Date and any
Carryforward Interest for each such Class and such Distribution Date;
(3) to the Class M1 Certificates, Current Interest for such Class and
such Distribution Date;
(4) to the Class M2 Certificates, Current Interest for such Class and
such Distribution Date;
(5) to the Class B Certificates, Current Interest for such Class and
such Distribution Date; and
(6) for application as part of Monthly Excess Cashflow for such
Distribution Date, as described under '-- Credit
Enhancement -- Overcollateralization' below, any such Interest Remittance
Amount remaining after application pursuant to clauses (1) through (5)
above (such amount, 'Monthly Excess Interest') for such Distribution Date.
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. Prepayments in part may be applied,
depending upon the practices of the applicable Servicer, as of the date of
receipt or as of the first day of the related Prepayment Period. Full or partial
prepayments (or proceeds of other liquidations) received in any calendar month
will be distributed to holders of Offered Certificates on the Distribution Date
following the applicable Prepayment Period. To the extent that, as a result of a
full or partial prepayment, a borrower 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
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<PAGE>
Certificates could result. The amount by which one month's interest at the
Mortgage Rate, as reduced by the Servicing Fee Rate (or Basic Fee Rate) on a
Mortgage Loan as to which a voluntary prepayment has been made exceeds the
amount of interest actually received in connection with such prepayment is a
'Prepayment Interest Shortfall.' With respect to prepayments in full and in
part, the applicable Servicer is generally obligated to fund any resulting
Prepayment Interest Shortfalls (such payment obligation being limited to the
aggregate of the Servicer's Servicing Fees or Basic Fees, as applicable, on the
Mortgage Loans serviced by it for the applicable Distribution Date). The Master
Servicer is obligated to reduce its Master Servicing Fee for the related
Distribution Date to the extent necessary to fund any Prepayment Interest
Shortfalls required to be paid but not paid by the applicable Servicer. See
'Servicing of the Mortgage Loans -- Prepayment Interest Shortfalls' herein. Any
such payment by a Servicer or the Master Servicer is referred to herein as
'Compensating Interest.' Any Prepayment Interest Shortfalls not funded by a
Servicer or the Master Servicer ('Net Prepayment Interest Shortfalls') will
reduce the Interest Remittance Amount available for distribution on the related
Distribution Date.
DETERMINATION OF LIBOR
On the second London Banking Day (as defined below) immediately preceding
the first day of each Accrual Period other than the first Accrual Period (each,
a 'LIBOR Determination Date'), the Master Servicer will determine the arithmetic
mean of the LIBOR quotations for one-month Eurodollar deposits ('LIBOR') for the
succeeding Accrual Period on the basis of the offered LIBOR quotations provided
to the Master Servicer as of 11:00 a.m. (London time) on such LIBOR
Determination Date. As used herein with respect to a LIBOR Determination Date,
'London Banking Day' means any day on which commercial banks and foreign
exchange markets settle payments in London and New York City; 'Reference Banks'
means four leading banks engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (1) with an established place of business in
London, (2) whose quotations appear on the Bloomberg Screen LIUS01M Index Page
on the LIBOR Determination Date in question and (3) which have been designated
as such by the Depositor and are able and willing to provide such quotations to
the Master Servicer on each LIBOR Determination Date; and 'Bloomberg Screen
LIUS01M Index Page' means the display designated as page 'LIUS01M' on the
Bloomberg Financial Markets Commodities News (or such other pages as may replace
such page on that service for the purpose of displaying LIBOR quotations of
major banks). If any Reference Bank is removed from the Bloomberg Screen LIUS01M
Index Page or in any other way fails to meet the qualifications of a Reference
Bank, the Depositor may, in its sole discretion, designate an alternative
Reference Bank.
On each LIBOR Determination Date, LIBOR for the next succeeding Accrual
Period will be established by the Master Servicer as follows:
(1) If on any LIBOR Determination Date two or more of the Reference
Banks provide offered LIBOR quotations on the Bloomberg Screen LIUS01M
Index Page, LIBOR for the next applicable Accrual Period will be the
arithmetic mean of such offered quotations (rounding such arithmetic mean
if necessary to the nearest five decimal places).
(2) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
applicable Accrual Period will be the higher of (x) LIBOR as determined on
the previous LIBOR Determination Date and (y) the Reserve Interest Rate.
The 'Reserve Interest Rate' will be the annual rate that the Master
Servicer determines to be either (A) the arithmetic mean (rounding such
arithmetic mean if necessary to the nearest five decimal places) of the
one-month Eurodollar lending rate that New York City banks selected by the
Depositor are quoting, on the relevant LIBOR Determination Date, to the
principal London offices of at least two leading banks in the London
interbank market or (B) in the event that the Master Servicer can determine
no such arithmetic mean, the lowest one-month Eurodollar lending rate that
the New York City banks
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selected by the Depositor are quoting on such LIBOR Determination Date to
leading European banks.
(3) If on any LIBOR Determination Date the Master Servicer is required
but is unable to determine the Reserve Interest Rate in the manner provided
in paragraph (2) above, LIBOR for the next applicable Accrual Period will
be LIBOR as determined on the previous LIBOR Determination Date.
Notwithstanding the foregoing, LIBOR for the next succeeding Accrual Period
shall not be based on LIBOR for the previous Accrual Period for two consecutive
LIBOR Determination Dates. If, under the priorities described above, LIBOR for
the next succeeding Accrual Period would be based on LIBOR for the previous
LIBOR Determination Date for the second consecutive LIBOR Determination Date,
the Master Servicer shall select an alternative index (over which the Master
Servicer has no control) used for determining Eurodollar lending rates that is
calculated and published (or otherwise made available) by an independent third
party.
The establishment of LIBOR by the Master Servicer and the Master Servicer's
subsequent calculation of the rate of interest applicable to the LIBOR
Certificates for the relevant Accrual Period, in the absence of manifest error,
will be final and binding.
LIBOR for the first Accrual Period will be 4.9025%.
DISTRIBUTIONS OF PRINCIPAL
Distributions of principal on the Class A1, Class A2, Class A3 and Class A4
Certificates will be made primarily from the Principal Distribution Amount for
the related Mortgage Pool and secondarily from the Principal Distribution
Amounts for the other Mortgage Pools, to the extent of available funds, as
described below. Distributions of principal on the Class M1, Class M2 and Class
B Certificates will be made from the aggregate of the Principal Distribution
Amounts for all Mortgage Pools after distributions of principal on the Senior
Certificates.
o The 'Principal Distribution Amount' for each Mortgage Pool for any
Distribution Date will be equal to the Principal Remittance Amount for
such Mortgage Pool for such date minus the Overcollateralization Release
Amount, if any, for such Mortgage Pool for such date.
o The 'Principal Remittance Amount' for each Mortgage Pool for any
Distribution Date will be equal to the sum of (1) all principal collected
(other than Payaheads) or advanced in respect of Scheduled Payments on
the Mortgage Loans in such Mortgage Pool during the related Collection
Period (less unreimbursed Advances and other amounts due to the Master
Servicer, the Servicers or the Trustee with respect to such Mortgage
Loans, to the extent allocable to principal), (2) all prepayments in full
or in part received during the related Prepayment Period, (3) the
outstanding principal balance of each Mortgage Loan that was purchased
from such Mortgage Pool during the related Prepayment Period, (4) the
portion of any Substitution Amount paid with respect to such Mortgage
Loans during the related Prepayment Period allocable to principal, and
(5) all Net Liquidation Proceeds (as defined herein) and any other
recoveries (net of unreimbursed Advances and expenses, to the extent
allocable to principal) collected with respect to such Mortgage Loans
during the related Prepayment Period, to the extent allocable to
principal.
o The 'Collection Period' with respect to any Distribution Date is the
one-month period beginning on the second day of the calendar month
immediately preceding the month in which such Distribution Date occurs
and ending on the first day of the month in which such Distribution Date
occurs.
o The 'Prepayment Period' with respect to each Distribution Date is the
one-month period beginning on the Cut-off Date, in the case of the first
Distribution Date, and on the second day of the calendar month
immediately preceding the month in which the related Distribution Date
occurs, in the case of each subsequent Distribution Date, and ending on
the first day of the month in which such Distribution Date occurs.
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The Principal Distribution Amount for each Mortgage Pool will be
distributed on each Distribution Date as follows:
first, until the aggregate Certificate Principal Amount of all of the
Offered Certificates equals Target Amount 1 for such Distribution Date, on
each Distribution Date (a) prior to the Stepdown Date or (b) with respect
to which a Trigger Event has occurred, the Principal Distribution Amount
for Pool 1 will be distributed in the following order of priority:
(1) to the Class A1 Certificates, until their Class Principal
Amount has been reduced to zero;
(2) concurrently, pro rata, to the Class A2 Certificates and to the
Class A3 and Class A4 Certificates as a group, as follows:
(a) to the Class A2 Certificates, until their Class Principal
Amount has been reduced to zero;
(b) to the Class A3 and Class A4 Certificates, sequentially in
that order, until their Class Principal Amounts have been reduced to
zero;
(3) to the Class M1 Certificates, until their Class Principal
Amount has been reduced to zero;
(4) to the Class M2 Certificates, until their Class Principal
Amount has been reduced to zero;
(5) to the Class B Certificates, until their Class Principal Amount
has been reduced to zero; and
(6) for application as part of Monthly Excess Cashflow for such
Distribution Date, as described under '-- Credit
Enhancement -- Overcollateralization' below, any such Principal
Distribution Amount remaining after application pursuant to clauses (1)
through (5) above.
second, until the aggregate Certificate Principal Amount of all of the
Offered Certificates equals Target Amount 2 for such Distribution Date, on
each Distribution Date (a) prior to the Stepdown Date or (b) with respect
to which a Trigger Event has occurred, the Principal Distribution Amount
for Pool 2 will be distributed in the following order of priority:
(1) to the Class A2 Certificates, until their Class Principal
Amount has been reduced to zero;
(2) concurrently, pro rata, to the Class A1 Certificates and to the
Class A3 and Class A4 Certificates as a group, as follows:
(a) to the Class A1 Certificates, until their Class Principal
Amount has been reduced to zero;
(b) to the Class A3 and Class A4 Certificates, sequentially in
that order, until their Class Principal Amounts have been reduced to
zero;
(3) to the Class M1 Certificates, until their Class Principal
Amount has been reduced to zero;
(4) to the Class M2 Certificates, until their Class Principal
Amount has been reduced to zero;
(5) to the Class B Certificates, until their Class Principal Amount
has been reduced to zero; and
(6) for application as part of Monthly Excess Cashflow for such
Distribution Date, as described under '-- Credit
Enhancement -- Overcollateralization' below, any such Principal
Distribution Amount remaining after application pursuant to clauses (1)
through (5) above.
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<PAGE>
third, until the aggregate Certificate Principal Amount of all of the
Offered Certificates equals Target Amount 3, on each Distribution Date (a)
prior to the Stepdown Date or (b) with respect to which a Trigger Event has
occurred, the Principal Distribution Amount for Pool 3 will be distributed
in the following order of priority:
(1) to the Class A3 and Class A4 Certificates, sequentially in that
order, until their Class Principal Amounts have been reduced to zero;
(2) concurrently, pro rata, to the Class A1 and Class A2
Certificates, until their Class Principal Amounts have been reduced to
zero;
(3) to the Class M1 Certificates, until their Class Principal
Amount has been reduced to zero;
(4) to the Class M2 Certificates, until their Class Principal
Amount has been reduced to zero;
(5) to the Class B Certificates, until their Class Principal Amount
has been reduced to zero; and
(6) for application as part of Monthly Excess Cashflow for such
Distribution Date, as described under '-- Credit
Enhancement -- Overcollateralization' below, any such Principal
Distribution Amount remaining after application pursuant to clauses (1)
through (5) above.
On each Distribution Date (a) on or after the Stepdown Date and (b) with
respect to which a Trigger Event has not occurred, the Principal Distribution
Amounts for all Mortgage Pools for such date will be distributed in the
following order of priority:
(1) to the Class A1 Certificates (in the case of Pool 1), to the Class
A2 Certificates (in the case of Pool 2), and to the Class A3 and Class A4
Certificates, sequentially in that order (in the case of Pool 3), an amount
equal to the lesser of (x) the Principal Distribution Amount for the
related Mortgage Pool for such Distribution Date and (y) the Senior
Principal Distribution Amount for such Mortgage Pool for such date, in each
case until their Class Principal Amount (or Amounts) has been reduced to
zero;
(2) concurrently, pro rata on the basis of their Class Principal
Amounts after giving effect to distributions pursuant to clause (1) above,
to the Class A1 Certificates, to the Class A2 Certificates and to the Class
A3 and Class A4 Certificates, as a group, the lesser of (x) the aggregate
of the Principal Distribution Amounts for such Distribution Date remaining
after distributions pursuant to clause (1) above and (y) the aggregate of
the Senior Principal Distribution Amounts for such date remaining after
distributions pursuant to clause (1) above, as follows:
(a) to the Class A1 Certificates, until their Class Principal
Amount has been reduced to zero;
(b) to the Class A2 Certificates, until their Class Principal
Amount has been reduced to zero; and
(c) to the Class A3 and Class A4 Certificates, sequentially in that
order, until their Class Principal Amounts have been reduced to zero;
(3) to the Class M1 Certificates, an amount equal to the lesser of (x)
the excess of (a) the aggregate Principal Distribution Amounts for each of
Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount
distributed to the Senior Certificates on such date pursuant to clauses (1)
and (2) above, and (y) the M1 Principal Distribution Amount for such date,
until their Class Principal Amount has been reduced to zero;
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<PAGE>
(4) to the Class M2 Certificates, an amount equal to the lesser of (x)
the excess of (a) the aggregate Principal Distribution Amounts for each of
Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount
distributed to the Senior Certificates and the Class M1 Certificates on
such date pursuant to clauses (1) through (3) above, and (y) the M2
Principal Distribution Amount for such date, until their Class Principal
Amount has been reduced to zero;
(5) to the Class B Certificates, an amount equal to the lesser of (x)
the excess of (a) the aggregate Principal Distribution Amounts for each of
Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount
distributed to the Senior Certificates and the Class M1 and Class M2
Certificates on such date pursuant to clauses (1) through (4) above, and
(y) the B Principal Distribution Amount for such date, until their Class
Principal Amount has been reduced to zero; and
(6) for application as part of Monthly Excess Cashflow for such
Distribution Date, as described under '-- Credit
Enhancement -- Overcollateralization' below, any such Principal
Distribution Amount remaining after application pursuant to clauses (1)
through (5) above.
Notwithstanding the foregoing, on any Distribution Date on which the Class
Principal Amount of each Class of Certificates having a higher priority of
distribution has been reduced to zero, any remaining Principal Distribution
Amount will be distributed to the remaining Certificates in the order of
priority set forth above until the Class Principal Amount of each such
Class has been reduced to zero.
o 'Target Amount 1' with respect to any Distribution Date will be
equal to the sum of (1) Target Amount 2 for such Distribution Date
and (2) the Principal Distribution Amount for Pool 2 for such
Distribution Date.
o 'Target Amount 2' with respect to any Distribution Date will be
equal to the sum of (1) Target Amount 3 for such Distribution Date
and (2) the Principal Distribution Amount for Pool 3 for such
Distribution Date.
o 'Target Amount 3' with respect to any Distribution Date will be
equal to the Aggregate Loan Balance (as defined herein) as of such
Distribution Date minus the product of (1) 3.70% and (2) the Cut-off
Date Balance.
o A 'Trigger Event' has occurred with respect to any Distribution Date
if the Rolling Three Month Delinquency Rate as of the last day of
the immediately preceding month equals or exceeds 50% of the Senior
Enhancement Percentage for such Distribution Date.
o As provided in the Trust Agreement, the 'Rolling Three Month
Delinquency Rate' with respect to any Distribution Date will be,
generally, the fraction, expressed as a percentage, equal to the
average of the Delinquency Rates for each of the three (or one
and two, in the case of the first and second Distribution Dates)
immediately preceding months.
o The 'Delinquency Rate' for any month will be, generally, the
fraction, expressed as a percentage, the numerator of which is
the aggregate outstanding principal balance of all Mortgage Loans
60 or more days delinquent (including all foreclosures and REO
Properties) as of the close of business on the last day of such
month, and the denominator of which is the Aggregate Loan Balance
as of the close of business on the last day of such month.
o The 'Stepdown Date' is the later to occur of (x) the Distribution
Date in May 2002 and (y) the first Distribution Date on which the
Senior Enhancement Percentage (calculated for this purpose after
giving effect to payments or other recoveries in
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<PAGE>
respect of the Mortgage Loans during the related Collection Period
but before giving effect to distributions on any Certificates on
such Distribution Date) is greater than or equal to approximately
45.40%.
o The 'Senior Principal Distribution Amount' for each Mortgage Pool
for any Distribution Date will be equal to the product of (i) the
applicable Senior Proportionate Percentage and (ii) the amount, if
any, by which (x) the aggregate Certificate Principal Amount of the
Senior Certificates immediately prior to such Distribution Date
exceeds (y) the lesser of (A) the product of (1) approximately
54.60% and (2) the Aggregate Loan Balance for such Distribution Date
and (B) the amount, if any, by which (1) the Aggregate Loan Balance
for such Distribution Date exceeds (2) 0.50% of the Cut-Off Date
Balance.
o The 'M1 Principal Distribution Amount' for any Distribution Date
will be equal to the amount, if any, by which (x) the sum of (1) the
aggregate Certificate Principal Amount of the Senior Certificates
after giving effect to distributions on such Distribution Date and
(2) the Class Principal Amount of the Class M1 Certificates
immediately prior to such Distribution Date exceeds (y) the lesser
of (A) the product of (1) approximately 70.60% and (2) the Aggregate
Loan Balance for such Distribution Date and (B) the amount, if any,
by which (1) the Aggregate Loan Balance for such Distribution Date
exceeds (2) 0.50% of the Cut-off Date Balance.
o The 'M2 Principal Distribution Amount' for any Distribution Date
will be equal to the amount, if any, by which (x) the sum of (1) the
aggregate Certificate Principal Amount of the Senior Certificates
and the Class Principal Amount of the Class M1 Certificates, in each
case, after giving effect to distributions on such Distribution Date
and (2) the Class Principal Amount of the Class M2 Certificates
immediately prior to such Distribution Date exceeds (y) the lesser
of (A) the product of (1) approximately 80.60% and (2) the Aggregate
Loan Balance for such Distribution Date and (B) the amount, if any,
by which (1) the Aggregate Loan Balance for such Distribution Date
exceeds (2) 0.50% of the Cut-off Date Balance.
o The 'B Principal Distribution Amount' for any Distribution Date will
be equal to the amount, if any, by which (x) the sum of (1) the
aggregate Certificate Principal Amount of the Senior Certificates
and the aggregate Certificate Principal Amount of the Class M1 and
Class M2 Certificates, in each case, giving effect to distributions
on such Distribution Date and (2) the Class Principal Amount of the
Class B Certificates immediately prior to such Distribution Date
exceeds (y) the lesser of (A) the product of (1) approximately
92.60% and (2) the Aggregate Loan Balance for such Distribution Date
and (B) the amount, if any, by which (1) the Aggregate Loan Balance
for such Distribution Date exceeds (2) 0.50% of the Cut-off Date
Balance.
o The 'Senior Proportionate Percentage' for Pool 1 with respect to any
Distribution Date will be the fraction, expressed as a percentage,
the numerator of which is the Class Principal Amount of the Class A1
Certificates immediately prior to such Distribution Date and the
denominator of which is the aggregate Certificate Principal Amount
of the Senior Certificates immediately prior to such date. The
'Senior Proportionate Percentage' for Pool 2 with respect to any
Distribution Date will be the fraction, expressed as a percentage,
the numerator of which is the Class Principal Amount of the Class A2
Certificates immediately prior to such Distribution Date and the
denominator of which is the aggregate Certificate Principal Amount
of the Senior Certificates immediately prior to such date. The
'Senior Proportionate Percentage' for Pool 3 with respect to any
Distribution Date will be the fraction, expressed as a percentage,
the numerator of which is the aggregate Certificate Principal Amount
of the Class A3 and Class A4 Certificates immediately prior to such
Distribution Date and the denominator
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<PAGE>
of which is the aggregate Certificate Principal Amount of the Senior
Certificates immediately prior to such date.
o The 'Senior Enhancement Percentage' with respect to any Distribution
Date will be the fraction, expressed as a percentage, the numerator
of which is the sum of the aggregate Certificate Principal Amount of
the Offered Subordinate Certificates and the Overcollateralization
Amount (which, for purposes of this definition only, shall not be
less than zero), in each case after giving effect to distributions
on such Distribution Date, and the denominator of which is the
Aggregate Loan Balance for such Distribution Date.
o The 'Overcollateralization Amount' with respect to any Distribution
Date will be equal to the amount, if any, by which (x) the Aggregate
Loan Balance for such Distribution Date exceeds (y) the aggregate
Certificate Principal Amount of the Offered Certificates after
giving effect to distributions on such Distribution Date.
o The 'Overcollateralization Deficiency' with respect to any
Distribution Date will be equal to the amount, if any, by which (x)
the Targeted Overcollateralization Amount for such Distribution Date
exceeds (y) the Overcollateralization Amount for such Distribution
Date, calculated for this purpose after giving effect to the
reduction on such Distribution Date of the Certificate Principal
Amounts of the Certificates resulting from the distribution of the
Principal Remittance Amounts on such Distribution Date, but prior to
allocation of any Applied Loss Amount on such Distribution Date.
o The 'Aggregate Overcollateralization Release Amount' with respect to
any Distribution Date will be equal to the lesser of (x) the
Principal Remittance Amount for such Distribution Date and (y) the
amount, if any, by which (1) the Overcollateralization Amount for
such date exceeds (2) the Targeted Overcollateralization Amount for
such date.
o The 'Overcollateralization Release Amount' with respect to each
Mortgage Pool and any Distribution Date will be equal to the
product of (1) the Aggregate Overcollateralization Release Amount
for such Distribution Date and (2) the Pool Percentage for such
Mortgage Pool for such Distribution Date.
o The 'Pool Percentage' for each Mortgage Pool and any Distribution
Date will be the fraction, expressed as a percentage, the
numerator of which is the Pool Balance for such Mortgage Pool for
such date and the denominator of which is the Aggregate Loan
Balance for such date.
o The 'Targeted Overcollateralization Amount' with respect to any
Distribution Date will be equal to (x) prior to the Stepdown Date,
the product of approximately 3.70% and the Cut-off Date Balance, (y)
on and after the Stepdown Date if no Trigger Event has occurred with
respect to such Distribution Date, the greater of (1) the product of
approximately 7.40% and the Aggregate Loan Balance as of the last
day of the related Collection Period and (2) 0.50% of the Cut-off
Date Balance and (z) on and after the Stepdown Date if a Trigger
Event has occurred with respect to such Distribution Date, the
amount calculated in accordance with clause (x) above.
o The 'Scheduled Principal Balance' of any Mortgage Loan as of any
date of determination will be generally equal to its outstanding
principal balance as of the Cut-off Date, after giving effect to
Scheduled Payments due on or before such date, whether or not
received, reduced by (1) the principal portion of all Scheduled
Payments due on or before the due date in the Collection Period
immediately preceding such date of determination, whether or not
received, and (2) all amounts allocable to unscheduled
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<PAGE>
principal payments received on or before the last day of the
Collection Period immediately preceding such date of determination.
o The 'Aggregate Loan Balance' as of any date of determination will be
equal to the aggregate of the Scheduled Principal Balances of the
Mortgage Loans as of such date.
o The 'Pool Balance' for any Mortgage Pool as of any date of
determination will be equal to the aggregate of the Scheduled
Principal Balances of the Mortgage Loans in such Mortgage Pool as of
such date.
o 'Net Liquidation Proceeds' means all amounts, net of (1)
unreimbursed expenses, (2) Special Servicer Incentive Fees (as
defined herein) and (3) unreimbursed Advances, 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.
CREDIT ENHANCEMENT
Credit enhancement for the Offered Certificates consists of the
subordination of the Subordinate Certificates, the priority of application of
Realized Losses (as defined herein) and overcollateralization, in each case as
described herein. In addition, under certain limited circumstances described
under '-- Distributions of Principal' above, holders of Class A1, Class A2,
Class A3 and Class A4 Certificates will be entitled to distributions of
principal in respect of the Mortgage Loans in unrelated Mortgage Pools.
SUBORDINATION. The rights of holders of the Subordinate Certificates to
receive distributions with respect to the Mortgage Loans will be subordinated,
to the extent described herein, to such rights of holders of each Class of
Offered Certificates having a higher priority of distribution, as described
under '-- Distributions of Interest' and '-- Distributions of Principal.' This
subordination is intended to enhance the likelihood of regular receipt by
holders of Offered Certificates having a higher priority of distribution of the
full amount of interest and principal distributable thereon, and to afford such
Certificateholders limited protection against Realized Losses incurred with
respect to the Mortgage Loans.
The limited protection afforded to holders of Class A1, Class A2, Class A3,
Class A4, Class AIO, Class M1, Class M2 and Class B Certificates by means of the
subordination of Subordinate Certificates having a lower priority of
distribution will be accomplished by the preferential right of holders of
Offered Certificates to receive, prior to any distribution in respect of
interest or principal, respectively, being made on any Distribution Date in
respect of Certificates having a lower priority of distribution, the amounts of
interest due them and principal available for distribution, respectively, on
such Distribution Date.
APPLICATION OF REALIZED LOSSES. If a Mortgage Loan becomes a Liquidated
Mortgage Loan during any Collection Period, the related Net Liquidation
Proceeds, to the extent allocable to principal, may be less than the outstanding
principal balance of such Mortgage Loan. The amount of such insufficiency is a
'Realized Loss.' Realized Losses on Mortgage Loans will have the effect of
reducing amounts distributable in respect of, first, the Class X Certificate
(both through the application of Monthly Excess Interest to fund such deficiency
and through a reduction in the Overcollateralization Amount for the related
Distribution Date); second, the Class B Certificates; third, the Class M2
Certificates; and fourth, the Class M1 Certificates, before reducing amounts
distributable in respect of the Senior Certificates. A 'Liquidated Mortgage
Loan' is, in general, a defaulted Mortgage Loan as to which the applicable
Servicer has determined that all amounts that it expects to recover in respect
of such Mortgage Loan have been recovered (exclusive of any possibility of a
deficiency judgment).
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<PAGE>
To the extent that Realized Losses occur, such Realized Losses will reduce
the Aggregate Loan Balance, and thus may reduce the Overcollateralization
Amount. As described herein, the Overcollateralization Amount is created,
increased and maintained by application of Monthly Excess Cashflow to make
distributions of principal on the Offered Certificates.
If on any Distribution Date after giving effect to all Realized Losses
incurred during the related Collection Period and distributions of principal on
such Distribution Date, the aggregate Certificate Principal Amount of the
Certificates exceeds the Aggregate Loan Balance for such Distribution Date (such
excess, an 'Applied Loss Amount'), the Class Principal Amounts of the Offered
Subordinate Certificates will be reduced in inverse order of priority of
distribution. Applied Loss Amounts will be allocated in reduction of the Class
Principal Amount of first, the Class B Certificates, until the Class Principal
Amount thereof has been reduced to zero; second, the Class M2 Certificates,
until the Class Principal Amount thereof has been reduced to zero; and third,
the Class M1 Certificates, until the Class Principal Amount thereof has been
reduced to zero. The Class Principal Amounts of the Senior Certificates will not
be reduced by allocation of Applied Loss Amounts.
Holders of Offered Subordinate Certificates will not receive any
distributions in respect of Applied Loss Amounts, except to the extent of
available Monthly Excess Cashflow as described below.
OVERCOLLATERALIZATION. The weighted average Net Mortgage Rate of the
Mortgage Loans is generally expected to be higher than the weighted average of
the interest rates of the Certificates, thus generating certain excess interest
collections. To the extent described above, Monthly Excess Interest will be
applied on any Distribution Date in reduction of the Certificate Principal
Amounts of the Certificates (other than the Class AIO Certificates). Such
application of interest collections as distributions of principal will cause the
aggregate Certificate Principal Amounts of the Certificates to amortize more
rapidly than the Aggregate Loan Balance, creating and maintaining
overcollateralization. However, Realized Losses will reduce
overcollateralization, and could result in an Overcollateralization Deficiency.
As described herein, on and after the Stepdown Date, to the extent that the
Overcollateralization Amount exceeds the Targeted Overcollateralization Amount,
a portion of the Principal Remittance Amount will not be applied in reduction of
the Certificate Principal Amounts of the Senior Certificates, but will instead
be applied as described below.
The sum of Monthly Excess Interest for any Distribution Date and the
Aggregate Overcollateralization Release Amount for such date will be the
'Monthly Excess Cashflow' for such date, which will be distributed in the
following order of priority:
(1) until the aggregate Certificate Principal Amount of all of the
Offered Certificates equals the Aggregate Loan Balance for such
Distribution Date minus the Targeted Overcollateralization Amount for such
date, on each Distribution Date (a) prior to the Stepdown Date or (b) with
respect to which a Trigger Event has occurred, to the extent of Monthly
Excess Interest for such Distribution Date, to the Offered Certificates, in
the following order of priority:
(a) concurrently, pro rata, in proportion to their respective Class
Principal Amounts after giving effect to distributions on such
Distribution Date, to the Class A1 Certificates, to the Class A2
Certificates and to the Class A3 and Class A4 Certificates as a group,
as follows:
(i) to the Class A1 Certificates, until their Class Principal
Amount has been reduced to zero;
(ii) to the Class A2 Certificates, until their Class Principal
Amount has been reduced to zero;
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<PAGE>
(iii) to the Class A3 and Class A4 Certificates, sequentially
in that order, until their Class Principal Amounts have been reduced
to zero;
(b) to the Class M1 Certificates, until their Class Principal
Amount has been reduced to zero;
(c) to the Class M2 Certificates, until their Class Principal
Amount has been reduced to zero; and
(d) to the Class B Certificates, until their Class Principal Amount
has been reduced to zero;
(2) pro rata, to the Class A2, Class A3 and Class A4 Certificates, any
applicable Basis Risk Shortfall and Unpaid Basis Risk Shortfall for each
such Class and such Distribution Date;
(3) to the Class M1 Certificates, any applicable Basis Risk Shortfall
and Unpaid Basis Risk Shortfall for such Distribution Date;
(4) to the Class M2 Certificates, any applicable Basis Risk Shortfall
and Unpaid Basis Risk Shortfall for such Distribution Date;
(5) to the Class B Certificates, any applicable Basis Risk Shortfall
and Unpaid Basis Risk Shortfall for such Distribution Date;
(6) to the Class M1 Certificates, any Carryforward Interest for such
Class and such date;
(7) to the Class M1 Certificates, any Deferred Amount (as defined
below) for such Class and such date;
(8) to the Class M2 Certificates, any Carryforward Interest for such
Class and such date;
(9) to the Class M2 Certificates, any Deferred Amount for such Class
and such date;
(10) to the Class B Certificates, any Carryforward Interest for such
Class and such date;
(11) to the Class B Certificates, any Deferred Amount for such Class
and such date;
(12) to the Special Servicer, any monthly servicing compensation with
respect to the Mortgage Loans, other than the Basic Fee and any Special
Servicer Incentive Fees, that is owed to the Special Servicer as provided
in the Trust Agreement;
(13) to the Basis Risk Reserve Fund, any amounts required under the
Trust Agreement to be deposited therein;
(14) to the Class X Certificate, the amount distributable thereon
under the Trust Agreement; and
(15) to the Class R Certificate, any remaining amount.
With respect to each Distribution Date, the 'Deferred Amount' for each
Class of Certificates will be equal to the amount by which (x) the aggregate of
Applied Loss Amounts previously applied in reduction of the Class Principal
Amount thereof exceeds (y) the aggregate of amounts previously distributed in
reimbursement thereof.
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<PAGE>
FINAL SCHEDULED DISTRIBUTION DATE
It is expected that scheduled distributions on the Mortgage Loans, assuming
no defaults or losses that are not covered by the limited credit support
described herein, will be sufficient to make timely distributions of interest on
the Offered Certificates and to reduce the Class Principal Amount (or Class
Notional Amount) of each Class of the Offered Certificates to zero not later
than the dates set forth below.
<TABLE>
<CAPTION>
FINAL SCHEDULED
CLASS DISTRIBUTION DATE
- ----------------------------------------------------------- ------------------
<S> <C>
A1......................................................... August 25, 2028
A2......................................................... August 25, 2028
A3......................................................... January 25, 2015
A4......................................................... August 25, 2028
AIO........................................................ October 25, 2001
M1......................................................... May 25, 2029
M2......................................................... May 25, 2029
B.......................................................... May 25, 2029
</TABLE>
As to each Class, the actual final Distribution Date may be earlier or
later, and could be substantially earlier, than such Class's Final Scheduled
Distribution Date.
The Final Scheduled Distribution Date for the Class A1, Class A2, Class A3
and Class A4 Certificates has been determined on the basis of the Modeling
Assumptions (as defined herein) and the additional assumption that there are no
principal prepayments. The Final Scheduled Distribution Date for the Class AIO
Certificates has been determined on the basis of the schedule of declining Class
Notional Amounts described under '-- Distributions of Interest' herein. The
Final Scheduled Distribution Date for the remaining Classes of Offered
Certificates is the Distribution Date thirty years after the Closing Date.
OPTIONAL PURCHASE OF MORTGAGE LOANS; TERMINATION OF THE TRUST
On any Distribution Date after the date on which the Aggregate Loan Balance
is less than 10% of the Cut-off Date Balance (such date the 'Initial Purchase
Date'), the holder of the Class X Certificate will (subject to the terms of the
Trust Agreement) have the option to purchase the Mortgage Loans, any REO
Property and any other related property for a price (the 'Purchase Price') 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,
(b) the fair market value of all other property being purchased, and (c) any
Master Servicing Fees, Servicing Fees (or Basic Fees), and certain other amounts
payable to the Servicers, the Master Servicer and the Trustee. If the Class X
Certificateholder has not exercised such option by the third Distribution Date
following the related Initial Purchase Date, the Depositor will have the option
to purchase the related Mortgage Loans and property for the Purchase Price. If
either such option is exercised, the Trust Fund will be terminated (such event,
an 'Optional Termination').
If the Class X Certificateholder does not exercise its option as described
above when it is first entitled to do so, the Interest Rates of the LIBOR
Certificates will be increased as described under '-- Distributions of Interest'
herein.
THE TRUSTEE
The First National Bank of Chicago will be the Trustee under the Trust
Agreement (in such capacity, the 'Trustee'). The Trustee will be paid a monthly
fee of $4,000 per year (the 'Trustee Fee'). 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
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<PAGE>
other purposes is located at One First National Plaza, Suite 0126, Chicago,
Illinois, 60670-0126 Attention: Global Corporate Trust Services, or such address
as the Trustee may designate from time to time by notice to the
Certificateholders, the Depositor and the Master Servicer. The 'Trustee Fee
Rate' is the Trustee Fee expressed as an annual percentage rate.
DESCRIPTION OF THE MORTGAGE POOLS
GENERAL
The Mortgage Pools will consist of approximately 7,117 conventional,
adjustable and fixed rate, fully-amortizing and balloon Mortgage Loans with
original terms to maturity from the first due date of the scheduled monthly
payment (a 'Scheduled Payment') of not more than 30 years, having an aggregate
Scheduled Principal Balance as of the Cut-off Date (after giving effect to
Scheduled Payments due on such date) of approximately $581,483,156.73 (the
'Cut-off Date Balance'). The Mortgage Loans were originated or acquired by the
originators described herein generally in accordance with the underwriting
guidelines described herein. Because such underwriting guidelines do not conform
to Fannie Mae or Freddie Mac guidelines, the Mortgage Loans are likely to
experience higher rates of delinquency, foreclosure and bankruptcy than if they
had been underwritten to a higher standard. Interest on the Mortgage Loans
accrues on the basis of a 360-day year consisting of twelve 30-day months.
The Mortgage Loans will be divided into three Mortgage Pools, each having
the weighted average characteristics as of the Cut-off Date, as described below.
The Mortgage Loans in Pool 1 consist of fixed rate Mortgage Loans ('Fixed Rate
Mortgage Loans') with original principal balances equal to or less than
$240,000, in the case of Mortgage Loans secured by single-family Mortgaged
Properties, or $307,100, in the case of Mortgage Loans secured by two- to
four-family Mortgaged Properties; the Mortgage Loans in Pool 2 are adjustable
rate Mortgage Loans ('Adjustable Rate Mortgage Loans') with original principal
balances equal to or less than $240,000, in the case of Mortgage Loans secured
by single-family Mortgaged Properties, or $307,100, in the case of Mortgage
Loans secured by two- to four-family Mortgaged Properties; and the Mortgage
Loans in Pool 3 are adjustable and fixed rate Mortgage Loans with original
principal balances in excess of such amounts. The aggregate Scheduled Principal
Balance of the Mortgage Loans in each Mortgage Pool as of the Cut-off Date
(after giving effect to Scheduled Payments due on such date) is referred to
herein as the 'Cut-off Date Pool Balance.' The Mortgage Pools will be
cross-collateralized 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.
Pool 1 will include Fixed Rate Mortgage Loans, which will consist of
approximately 3,152 Mortgage Loans having an aggregate principal balance as of
the Cut-off Date of approximately $168,087,146.14. Pool 2 will include
approximately 3,523 Adjustable Rate Mortgage Loans having an aggregate principal
balance as of the Cut-Off Date of approximately $301,765,630.39. Pool 3 will
include approximately 214 Fixed Rate Mortgage Loans having an aggregate
principal balance as of the Cut-off Date of approximately $29,828,260.23, and
approximately 228 Adjustable Rate Mortgage Loans having an aggregate principal
balance as of the Cut-off Date of approximately $81,802,119.97. Generally, each
Adjustable Rate Mortgage Loan provides for semi-annual adjustment of the
applicable Mortgage Rate, as specified in the related Mortgage Note, based on
either the Six-Month LIBOR Index or the One-Year Libor Index (each, an 'Index,'
as defined under '-- The Indices' below) and for corresponding adjustments to
the monthly payment amount
S-38
<PAGE>
due thereon, in each case as specified in the related Mortgage Note and subject
to the limitations described under '-- Adjustable Rate Mortgage Loans' herein,
except that with respect to approximately 91.05% of such Mortgage Loans in Pool
2 and 83.75% of such Mortgage Loans in Pool 3 (the 'Delayed Adjustment Mortgage
Loans'), the first Mortgage Rate adjustment for such Mortgage Loan will occur
after an initial period ranging from one to seven years as described herein.
All of the Mortgage Loans are secured by mortgages or deeds of trust or
other similar security instruments creating senior or junior liens on one- to
four-family residential or mixed use properties consisting of one- to
four-family dwelling units, individual condominium units, manufactured housing
or individual units in planned unit developments. The Mortgage Loans to be
included in the Mortgage Pools will be acquired by the Depositor from Lehman
Capital, A Division of Lehman Brothers Holdings Inc. ('Lehman Capital' or the
'Seller'), which acquired the Mortgage Loans from Southern Pacific Funding
Corporation ('Southern Pacific'). See 'Trust Agreement -- Assignment of Mortgage
Loans' herein.
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 34.37% of the Mortgage Loans in Pool 1, 33.13% of the
Mortgage Loans in Pool 2 and 35.29% of the Mortgage Loans in Pool 3 have
Combined Loan-to-Value Ratios in excess of 80%. None of such Mortgage Loans are
covered by primary mortgage insurance policies. The 'Combined 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 plus, in the case of a Mortgage
Loan secured by a junior lien, the principal balance of each mortgage loan
senior thereto based upon the most recent information available to the Seller,
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 March 31, 1999, approximately 4.67% of the Mortgage Loans in Pool 1,
4.01% of the Mortgage Loans in Pool 2 and 4.22% of the Mortgage Loans in Pool 3
were one Scheduled Payment delinquent. None of the Mortgage Loans were more than
one Scheduled Payment delinquent.
Approximately 96.28% of the Mortgage Loans are fully amortizing.
Approximately 8.00% of the Pool 1 Mortgage Loans and 7.36% of the Pool 3
Mortgage Loans will have original terms to maturity that are shorter than their
amortization schedules, leaving final payments ('Balloon Payments') due on their
maturity dates that are significantly larger than other monthly payments (such
loans, 'Balloon Loans'). The Balloon Loans are generally expected to have
original terms to maturity of 15 years. The ability of the borrower to repay a
Balloon Loan at maturity frequently will depend on such borrower's ability to
refinance such loan. Any loss on a Balloon Loan as a result of the borrower's
inability to refinance such loan will be borne by Certificateholders, to the
extent not covered by the applicable credit enhancement. Neither any Servicer,
the Master Servicer, nor the Trustee will make any Advances with respect to
delinquent Balloon Payments.
Approximately 6.00% of the Mortgage Loans are secured by junior liens on
the related Mortgaged Properties. The related senior mortgage loans are not
included in the Mortgage Pools.
Approximately 65.90% of the Mortgage Loans in Pool 1, 67.55% of the
Mortgage Loans in Pool 2 and 67.75% of the Mortgage Loans in Pool 3 provide for
payment by the mortgagor of a prepayment premium in connection with certain full
or partial prepayments of principal. Generally,
S-39
<PAGE>
each such Mortgage Loan provides for payment of a prepayment premium in
connection with certain partial prepayments and prepayments in full made within
the period of time specified in the related Mortgage Note, ranging from one to
five years from the date of origination of such Mortgage Loan, as described
herein. The amount of the applicable prepayment premium, to the extent permitted
under applicable state law, is as provided in the related Mortgage Note;
generally, such amount is equal to six months' interest on any amounts prepaid
in excess of 20% of the then original principal balance of the related Mortgage
Loan during any 12 month period.
ADJUSTABLE RATE MORTGAGE LOANS
The substantial majority of the Adjustable Rate Mortgage Loans provide for
semi-annual adjustment (with the remainder generally providing for annual
adjustment) of the related Mortgage Rate, as specified in the related Mortgage
Note, and for corresponding adjustments to the monthly payment amount due
thereon, in each case on each adjustment date applicable thereto (each such
date, an 'Adjustment Date'); provided that the first such adjustment for the
Delayed Adjustment Mortgage Loans in Pool 2 will occur after an initial period
of one year following origination, in the case of approximately 0.03% of the
Adjustable Rate Mortgage Loans two years, in the case of approximately 90.63% of
the Adjustable Rate Mortgage Loans, three years, in the case of approximately
0.32% of the Adjustable Rate Mortgage Loans, and seven years, in the case of
approximately 0.07% of the Adjustable Rate Mortgage Loans, and for the Delayed
Adjustment Mortgage Loans in Pool 3 will occur after an initial period of two
years following origination, in the case of approximately 83.75% of the
Adjustable Rate Mortgage Loans. On each Adjustment Date for each Adjustable Rate
Mortgage Loan, the Mortgage Rate thereon will be adjusted to equal the sum,
rounded generally to the nearest multiple of 1/8%, of the applicable Index (as
described below) and a fixed percentage amount (the 'Gross Margin'), provided
that in the substantial majority of cases the Mortgage Rate on each such
Mortgage Loan generally will not increase or decrease by more than a fixed
percentage specified in the related Mortgage Note (the 'Periodic Cap') on any
related Adjustment Date, except in the case of the first such adjustment with
respect to a Delayed Adjustment Mortgage Loan, and will not exceed a specified
maximum Mortgage Rate over the life of such Mortgage Loan (the 'Maximum Rate')
or be less than a specified minimum Mortgage Rate over the life of such Mortgage
Loan (the 'Minimum Rate'). The Mortgage Rate on a Delayed Adjustment Mortgage
Loan generally will not increase or decrease on the first Adjustment Rate by
more than a fixed percentage specified in the related Mortgage Note (the
'Initial Cap'); the Initial Cap is approximately 3.00% annually for such
Mortgage Loans in Pool 2 and Pool 3. Effective with the first monthly payment
due on each Adjustable Rate Mortgage Loan after each related Adjustment Date,
the monthly payment amount will be adjusted to an amount that will amortize
fully the outstanding principal balance of the related Mortgage Loan over its
remaining term, and pay interest at the Mortgage Rate as so adjusted. Due to the
application of the Initial Caps, Periodic Caps and Maximum Rates, the Mortgage
Rate on each such Mortgage Loan, as adjusted on any related Adjustment Date, may
be less than the sum of the Index and the related Gross Margin, rounded as
described herein. See '-- The Indices' herein. The Adjustable Rate Mortgage
Loans generally do not permit the related mortgagor to convert the adjustable
Mortgage Rate thereon to a fixed Mortgage Rate.
THE INDICES
The Six-Month LIBOR Index. The Index applicable to the determination of
the Mortgage Rates for approximately 83.48% of the Adjustable Rate Mortgage
Loans will be the average of the interbank offered rates for six-month United
States dollar deposits in the London market, calculated as provided in the
related Mortgage Note (the 'Six-Month LIBOR Index') and as most recently
available either (1) as of the first business day a specified period of time
prior to such Adjustment Date, (2) as of the first business day of the month
preceding the month of such Adjustment Date or
S-40
<PAGE>
(3) the last business day of the second month preceding the month in which such
Adjustment Date occurs, as specified in the related Mortgage Note.
The One-Year LIBOR Index. The Index applicable to the determination of the
Mortgage Rates for approximately 16.34% of the Adjustable Rate Mortgage Loans
will be the average of the interbank offered rates for one-year United States
dollar deposits in the London market, calculated as provided in the related
Mortgage Note (the 'One-Year LIBOR Index') and as most recently available either
(1) as of the first business day a specified period of time prior to such
Adjustment Date, (2) as of the first business day of the month preceding the
month of such Adjustment Date or (3) the last business day of the second month
preceding the month in which such Adjustment Date occurs, as specified in the
related Mortgage Note.
The Indices applicable to the determination of the Mortgage Rates for
approximately 0.19% of the Adjustable Rate Mortgage Loans include various
alternative indices.
Each of the Six-Month LIBOR Index, the One-Year LIBOR Index and the other
miscellaneous indices applicable to the Adjustable Rate Mortgage Loans is
referred to herein as an 'Index.' In the event that an Index becomes unavailable
or otherwise unpublished, the Master Servicer will select a comparable
alternative index over which it has no direct control and which is readily
verifiable.
The performance of the Mortgage Pools will differ significantly.
S-41
<PAGE>
POOL 1 MORTGAGE LOANS
The Mortgage Loans in Pool 1 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............................................... 3,152
Aggregate Scheduled Principal Balance......................................... $168,087,146.14
Mortgage Rates:
Weighted Average............................................................ 10.692%
Range....................................................................... 6.500% to 16.570%
Weighted Average Remaining Term to Maturity (in months)....................... 295
</TABLE>
The Scheduled Principal Balances of the Mortgage Loans in Pool 1 range from
approximately $9,342 to approximately $275,333. No Mortgage Loans in Pool 1 that
relate to single-family properties have a Scheduled Principal Balance in excess
of $240,000 and no other Mortgage Loans in Pool 1 have a Scheduled Principal
Balance in excess of $307,100. The Mortgage Loans in Pool 1 had an average
Scheduled Principal Balance of approximately $53,327.
The weighted average Combined Loan-to-Value Ratio at origination of the
Mortgage Loans in Pool 1 is approximately 77.00%, and approximately 2.32% of the
Pool 1 Mortgage Loans have a Combined Loan-to-Value Ratio at origination
exceeding 100%.
No more than approximately 0.43% of the Mortgage Loans in Pool 1 are
secured by Mortgaged Properties located in any one zip code area.
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.)
COMBINED LOAN-TO-VALUE RATIOS -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF COMBINED LOAN-TO- NUMBER OF PRINCIPAL PRINCIPAL
VALUE RATIOS (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
10.01 to 20.00.................................. 17 $ 581,456.77 0.35%
20.01 to 30.00.................................. 23 815,022.73 0.48
30.01 to 40.00.................................. 45 1,998,198.47 1.19
40.01 to 50.00.................................. 97 5,134,732.90 3.05
50.01 to 60.00.................................. 169 9,177,605.84 5.46
60.01 to 70.00.................................. 687 36,376,421.46 21.64
70.01 to 80.00.................................. 829 56,233,530.90 33.45
80.01 to 90.00.................................. 542 34,821,492.14 20.72
90.01 to 100.00.................................. 628 19,052,519.37 11.33
100.01 to 110.00.................................. 109 3,382.899.14 2.01
110.01 to 120.00.................................. 5 475,000.08 0.28
120.01 to 122.00.................................. 1 38,266.34 0.02
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average Combined Loan-to-Value Ratio is approximately 77.00%.
S-42
<PAGE>
MORTGAGE RATES -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
6.001 to 6.500.................................. 4 $ 655,038.80 0.39%
6.501 to 7.000.................................. 20 2,316,253.39 1.38
7.001 to 7.500.................................. 20 1,911,871.55 1.14
7.501 to 8.000.................................. 13 989,299.95 0.59
8.001 to 8.500.................................. 71 6,233,922.80 3.71
8.500 to 9.000.................................. 158 13,859,616.32 8.25
9.001 to 9.500.................................. 183 14,862,370.41 8.84
9.501 to 10.000.................................. 340 23,987,830.88 14.27
10.001 to 10.500.................................. 257 16,791,609.63 9.99
10.501 to 11.000.................................. 389 21,686,997.67 12.90
11.001 to 11.500.................................. 300 14,639,560.89 8.71
11.501 to 12.000.................................. 377 16,494,239.73 9.81
12.001 to 12.500.................................. 254 9,065,973.77 5.39
12.501 to 13.000.................................. 267 9,296,740.80 5.53
13.001 to 13.500.................................. 261 7,872,953.82 4.68
13.501 to 14.000.................................. 138 4,314,537.11 2.57
14.001 to 14.500.................................. 61 1,737,351.81 1.03
14.501 to 15.000.................................. 19 601,474.73 0.36
15.001 to 15.500.................................. 14 578,559.21 0.34
15.501 to 16.000.................................. 3 127,994.15 0.08
16.001 to 16.500.................................. 2 49,456.85 0.03
16.501 to 17.000.................................. 1 13,491.87 0.01
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average Mortgage Rate is approximately 10.692%.
LOAN TYPE -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LOAN TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Fully Amortizing.................................. 2,825 $154,648,530.86 92.00%
Balloon........................................... 327 13,438,615.28 8.00
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-43
<PAGE>
ORIGINAL TERMS TO MATURITY -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF MATURITIES NUMBER OF PRINCIPAL PRINCIPAL
(MONTHS) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
60 to 72........................................ 1 $ 27,865.82 0.02%
73 to 120........................................ 23 677,919.85 0.40
121 to 144........................................ 1 72,706.25 0.04
145 to 192........................................ 1,366 49,358,622.66 29.36
193 to 240........................................ 84 3,466,519.11 2.06
241 to 312........................................ 86 2,792,758.72 1.66
313 to 360........................................ 1,591 111,690,753.73 66.45
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average original term to maturity is approximately 303 months.
REMAINING TERMS TO MATURITY -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF MATURITIES NUMBER OF PRINCIPAL PRINCIPAL
(MONTHS) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
45 to 48........................................ 1 $ 27,865.82 0.02%
49 to 108........................................ 4 112,068.27 0.07
109 to 120........................................ 19 565,851.58 0.34
121 to 144........................................ 1 72,706.25 0.04
145 to 156........................................ 1 16,780.95 0.01
157 to 168........................................ 144 3,798,998.42 2.26
169 to 180........................................ 1,221 45,542,843.29 27.09
181 to 228........................................ 6 192,241.97 0.11
229 to 240........................................ 78 3,274,277.14 1.95
241 to 288........................................ 21 632,407.36 0.38
289 to 300........................................ 65 2,160,351.36 1.29
301 to 348........................................ 6 332,282.46 0.20
349 to 360........................................ 1,585 111,358,471.27 66.25
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average remaining term to maturity of the fully amortizing Pool 1
Mortgage Loans is approximately 295 months.
S-44
<PAGE>
GEOGRAPHIC DISTRIBUTION -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
STATE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Alabama........................................... 229 $ 11,768,039.76 7.00%
Alaska............................................ 13 764,516.59 0.45
Arizona........................................... 134 5,183,820.61 3.08
Arkansas.......................................... 22 844,759.69 0.50
California........................................ 374 22,597,461.17 13.44
Colorado.......................................... 111 5,522,354.12 3.29
Connecticut....................................... 25 1,601,168.40 0.95
Delaware.......................................... 19 1,078,725.73 0.64
District of Columbia.............................. 11 1,059,374.61 0.63
Florida........................................... 263 15,355,860.86 9.14
Georgia........................................... 122 7,150,457.46 4.25
Hawaii............................................ 5 468,829.64 0.28
Idaho............................................. 25 1,227,702.60 0.73
Illinois.......................................... 46 2,085,679.63 1.24
Indiana........................................... 153 6,869,377.75 4.09
Iowa.............................................. 7 439,956.07 0.26
Kansas............................................ 7 243,420.95 0.14
Kentucky.......................................... 21 980,987.89 0.58
Louisiana......................................... 3 79,538.19 0.05
Maine............................................. 5 172,414.51 0.10
Maryland.......................................... 140 6,673,293.34 3.97
Massachusetts..................................... 17 740,992.84 0.44
Michigan.......................................... 99 4,245,063.69 2.53
Minnesota......................................... 22 1,300,833.81 0.77
Mississippi....................................... 26 1,137,716.13 0.68
Missouri.......................................... 43 2,049,598.33 1.22
Montana........................................... 11 423,832.69 0.25
Nebraska.......................................... 5 348,615.06 0.21
Nevada............................................ 8 415,571.31 0.25
New Hampshire..................................... 8 512,364.53 0.30
New Jersey........................................ 23 1,919,982.44 1.14
New Mexico........................................ 29 1,789,836.17 1.06
New York.......................................... 62 5,537,369.22 3.29
North Carolina.................................... 72 3,768,385.73 2.24
Ohio.............................................. 72 3,617,930.74 2.15
Oklahoma.......................................... 27 1,558,035.75 0.93
Oregon............................................ 121 7,578,559.57 4.51
Pennsylvania...................................... 128 5,747,108.02 3.42
Rhode Island...................................... 7 353,272.90 0.21
South Carolina.................................... 21 1,164,824.06 0.69
Tennessee......................................... 116 6,234,493.18 3.71
Texas............................................. 167 6,734,474.22 4.01
Utah.............................................. 100 3,537,964.82 2.10
Vermont........................................... 2 104,215.45 0.06
Virginia.......................................... 42 2,898,295.04 1.72
Washington........................................ 161 10,379,779.04 6.18
West Virginia..................................... 11 946,500.87 0.56
Wisconsin......................................... 13 582,859.70 0.35
Wyoming........................................... 4 290,931.26 0.17
------ --------------- -------
Total................................... 3,152 $168,087,146.14 100.00%
------ --------------- -------
------ --------------- -------
</TABLE>
S-45
<PAGE>
LIEN PRIORITY -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LIEN PRIORITY MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
First Lien........................................ 2,203 $143,551,332.24 85.40%
Second Lien....................................... 944 24,433,313.54 14.54
Unknown........................................... 5 102,500.36 0.06
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
SCHEDULED PRINCIPAL BALANCES ($) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
9,001 to 50,000................................ 1,885 $ 56,675,286.17 33.72%
50,001 to 100,000................................ 950 65,476,766.22 38.95
100,001 to 150,000................................ 211 25,585,953.74 15.22
150,001 to 200,000................................ 65 11,278,779.22 6.71
200,001 to 250,000................................ 39 8,544,357.73 5.08
250,001 to 300,000................................ 2 526,003.06 0.31
------- --------------- --------------
Total............................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The average Cut-off Date Scheduled Principal Balance is approximately $53,327.
PROPERTY TYPE -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
PROPERTY TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Single-Family..................................... 2,312 $122,536,710.61 72.90%
Manufactured Housing.............................. 422 20,100,593.33 11.96
Two- to Four-Family............................... 151 11,872,121.12 7.06
Condominium....................................... 109 5,468,141.32 3.25
Planned Unit Development.......................... 84 4,071,039.25 2.42
Townhouse......................................... 54 2,186,163.64 1.30
Mixed Use......................................... 20 1,852,376.87 1.10
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-46
<PAGE>
LOAN PURPOSE -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LOAN PURPOSE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Cash Out Refinance................................ 1,798 $ 95,805,389.18 57.00%
Purchase.......................................... 763 41,182,314.60 24.50
Rate/Term Refinance............................... 577 30,695,375.32 18.26
Debt Consolidation................................ 12 321,780.99 0.19
Home Improvement.................................. 1 26,377.86 0.02
Unknown........................................... 1 55,908.19 0.03
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
OCCUPANCY STATUS -- POOL 1
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
OCCUPANCY STATUS MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Primary Home...................................... 2,689 $142,511,144.25 84.78%
Investment........................................ 443 24,397,819.53 14.51
Second Home....................................... 18 1,119,655.20 0.67
Unknown........................................... 2 58,527.16 0.03
------- --------------- --------------
Total.................................. 3,152 $168,087,146.14 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-47
<PAGE>
POOL 2 MORTGAGE LOANS
The Mortgage Loans in Pool 2 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 Certificates.
<TABLE>
<S> <C>
Number of Pool 2 Mortgage Loans.............................................. 3,523
Aggregate Scheduled Principal Balance........................................ $301,765,630.39
Mortgage Rates:
Weighted Average........................................................... 10.167%
Range...................................................................... 6.250% to 16.275%
Weighted Average Remaining Term to Maturity (in months)...................... 352
</TABLE>
The Scheduled Principal Balances of the Mortgage Loans in Pool 2 range from
approximately $12,100 to $298,601. No Mortgage Loans in Pool 2 relating to
single-family properties have a Scheduled Principal Balance in excess of
$240,000 and no other Mortgage Loans in Pool 2 have a Scheduled Principal
Balance in excess of $307,100. The Mortgage Loans in Pool 2 had an average
Scheduled Principal Balance of approximately $85,656.
The weighted average Combined Loan-to-Value Ratio at origination of the
Mortgage Loans in Pool 2 is approximately 77.22%, and approximately 0.10% of the
Pool 2 Mortgage Loans have a Combined Loan-to-Value Ratio at origination
exceeding 100%.
No more than approximately 0.48% of the Mortgage Loans in Pool 2 are
secured by Mortgaged Properties located in any one zip code area.
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.)
COMBINED LOAN-TO-VALUE RATIOS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF COMBINED LOAN-TO- NUMBER OF PRINCIPAL PRINCIPAL
VALUE RATIOS (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
3.01 to 10.00.................................. 2 $ 246,990.55 0.08%
10.01 to 20.00.................................. 1 49,808.02 0.02
20.01 to 30.00.................................. 8 472,871.96 0.16
30.01 to 40.00.................................. 19 1,259,390.63 0.42
40.01 to 50.00.................................. 54 3,120,293.72 1.03
50.01 to 60.00.................................. 167 11,170,399.84 3.70
60.01 to 70.00.................................. 984 65,169,869.30 21.60
70.01 to 80.00.................................. 1,324 120,311,319.54 39.87
80.01 to 90.00.................................. 952 98,586,311.69 32.67
90.01 to 100.00.................................. 9 1,063,888.03 0.35
100.01 to 110.00.................................. 3 314,487.11 0.10
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average Combined Loan-to-Value Ratio is approximately 77.22%.
S-48
<PAGE>
MORTGAGE RATES* -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
6.001 to 6.500.................................. 1 $ 164,387.50 0.05%
6.501 to 7.000.................................. 1 133,778.88 0.04
7.001 to 7.500.................................. 10 1,085,985.02 0.36
7.501 to 8.000.................................. 43 4,937,520.36 1.64
8.001 to 8.500.................................. 134 15,774,788.04 5.23
8.500 to 9.000.................................. 307 33,143,048.58 10.98
9.001 to 9.500.................................. 409 40,294,358.57 13.35
9.501 to 10.000.................................. 652 63,020,262.52 20.88
10.001 to 10.500.................................. 540 44,115,193.25 14.62
10.501 to 11.000.................................. 457 35,230,795.82 11.67
11.001 to 11.500.................................. 264 19,059,020.81 6.32
11.501 to 12.000.................................. 266 18,312,347.73 6.07
12.001 to 12.500.................................. 185 12,344,865.83 4.09
12.501 to 13.000.................................. 106 6,633,025.58 2.20
13.001 to 13.500.................................. 62 3,433,300.76 1.14
13.501 to 14.000.................................. 41 2,175,840.13 0.72
14.001 to 14.500.................................. 23 935,134.62 0.31
14.501 to 15.000.................................. 13 605,379.90 0.20
15.001 to 15.500.................................. 2 61,101.22 0.02
15.501 to 16.000.................................. 4 155,041.81 0.05
16.001 to 16.500.................................. 3 150,453.46 0.05
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
- -------------------------
* Reflects current Mortgage Rates of Adjustable Rate Mortgage Loans.
The weighted average Mortgage Rate is approximately 10.167%.
LOAN TYPE -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LOAN TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Fully Amortizing.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-49
<PAGE>
ORIGINAL TERMS TO MATURITY -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
180 to 192........................................ 2 $ 104,322.81 0.03%
193 to 360........................................ 3,521 301,661,307.58 99.97
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average original term to maturity is approximately 360 months.
REMAINING TERMS TO MATURITY -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
170 to 180........................................ 2 $ 104,322.81 0.03%
181 to 348........................................ 8 1,099,446.35 0.36
349 to 360........................................ 3,513 300,561,861.23 99.60
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average remaining term to maturity is approximately 352 months.
S-50
<PAGE>
GEOGRAPHIC DISTRIBUTION -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
STATE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Alabama........................................... 129 $ 9,116,521.11 3.02%
Alaska............................................ 3 172,881.38 0.06
Arizona........................................... 18 1,178,913.97 0.39
Arkansas.......................................... 6 318,631.78 0.11
California........................................ 317 44,531,666.39 14.76
Colorado.......................................... 169 17,696,088.84 5.86
Connecticut....................................... 81 5,712,655.58 1.89
Delaware.......................................... 18 1,101,554.89 0.37
District of Columbia.............................. 23 2,515,960.17 0.83
Florida........................................... 183 15,144,588.07 5.02
Georgia........................................... 118 10,498,064.47 3.48
Hawaii............................................ 2 240,324.74 0.08
Idaho............................................. 32 2,404,016.64 0.80
Illinois.......................................... 122 11,828,884.94 3.92
Indiana........................................... 209 12,235,342.45 4.05
Iowa.............................................. 21 1,270,220.05 0.42
Kansas............................................ 7 552,916.82 0.18
Kentucky.......................................... 8 506,738.28 0.17
Louisiana......................................... 10 997,857.08 0.33
Maine............................................. 25 1,988,887.49 0.66
Maryland.......................................... 178 13,076,088.77 4.33
Massachusetts..................................... 48 5,478,204.13 1.82
Michigan.......................................... 159 9,532,269.80 3.16
Minnesota......................................... 72 6,395,742.62 2.12
Mississippi....................................... 20 1,180,137.69 0.39
Missouri.......................................... 87 5,485,015.37 1.82
Montana........................................... 14 1,331,440.55 0.44
Nebraska.......................................... 7 514,852.85 0.17
Nevada............................................ 8 831,294.67 0.28
New Hampshire..................................... 11 1,073,920.31 0.36
New Jersey........................................ 54 5,166,840.22 1.71
New Mexico........................................ 58 5,285,118.36 1.75
New York.......................................... 60 6,909,707.13 2.29
North Carolina.................................... 37 3,006,570.81 1.00
Ohio.............................................. 181 11,132,963.01 3.69
Oklahoma.......................................... 22 1,594,598.39 0.53
Oregon............................................ 94 8,782,581.92 2.91
Pennsylvania...................................... 110 6,161,703.50 2.04
Rhode Island...................................... 12 729,761.55 0.24
South Carolina.................................... 14 1,188,688.48 0.39
Tennessee......................................... 94 5,699,980.32 1.89
Texas............................................. 343 28,762,208.68 9.53
Utah.............................................. 22 2,078,743.99 0.69
Vermont........................................... 4 371,899.17 0.12
Virginia.......................................... 95 9,959,901.14 3.30
Washington........................................ 179 17,360,821.75 5.75
West Virginia..................................... 6 662,934.74 0.22
Wisconsin......................................... 14 706,228.57 0.23
Wyoming........................................... 19 1,292,696.76 0.43
------ --------------- -------
Total................................... 3,523 $301,765,630.39 100.00%
------ --------------- -------
------ --------------- -------
</TABLE>
S-51
<PAGE>
LIEN PRIORITY -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LIEN PRIORITY MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
First Lien........................................ 3,522 $301,751,345.76 100.00%
Second Lien....................................... 1 14,284.63 0.00
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
SCHEDULED PRINCIPAL BALANCES ($) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
12,001 to 50,000................................ 933 $ 34,888,351.32 11.56%
50,001 to 100,000................................ 1,522 109,532,505.87 36.30
100,001 to 150,000................................ 650 78,363,919.87 25.97
150,001 to 200,000................................ 284 49,145,206.85 16.29
200,001 to 250,000................................ 125 27,358,297.19 9.07
250,001 to 300,000................................ 9 2,477,349.29 0.82
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The average Cut-off Date Scheduled Principal Balance is approximately $85,656.
PROPERTY TYPE -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
PROPERTY TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Single-Family..................................... 2,455 $212,437,236.54 70.40%
Two- to Four-Family............................... 310 29,627,652.32 9.82
Manufactured Housing.............................. 419 27,147,325.39 9.00
Planned Unit Development.......................... 138 16,957,601.35 5.62
Condominium....................................... 133 11,230,225.00 3.72
Townhouse......................................... 50 2,766,673.81 0.92
Mixed Use......................................... 18 1,598,915.98 0.53
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-52
<PAGE>
LOAN PURPOSE -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LOAN PURPOSE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Purchase.......................................... 1,476 $130,657,524.81 43.30%
Cash Out Refinance................................ 1,450 122,247,618.07 40.51
Rate/Term Refinance............................... 595 48,701,754.32 16.14
Permanent Construction............................ 2 158,733.19 0.05
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
OCCUPANCY STATUS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
OCCUPANCY STATUS MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Primary Home...................................... 2,868 $257,765,730.54 85.42%
Investment........................................ 636 41,751,094.38 13.84
Second Home....................................... 19 2,248,805.47 0.75
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-53
<PAGE>
MAXIMUM RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MAXIMUM RATES (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
10.001 to 10.500.................................. 2 $ 195,961.55 0.06%
10.501 to 11.000.................................. 1 143,307.01 0.05
11.501 to 12.000.................................. 2 298,166.38 0.10
12.001 to 12.500.................................. 2 229,990.07 0.08
13.001 to 13.500.................................. 2 209,873.84 0.07
13.501 to 14.000.................................. 6 652,669.85 0.22
14.001 to 14.500.................................. 16 1,850,854.46 0.61
14.501 to 15.000.................................. 70 7,809,135.43 2.59
15.001 to 15.500.................................. 163 19,498,274.77 6.46
15.501 to 16.000.................................. 337 36,360,171.84 12.05
16.001 to 16.500.................................. 425 40,769,112.00 13.51
16.501 to 17.000.................................. 637 60,733,899.16 20.13
17.001 to 17.500.................................. 512 40,917,002.38 13.56
17.501 to 18.000.................................. 428 32,119,965.66 10.64
18.001 to 18.500.................................. 239 17,061,754.83 5.65
18.501 to 19.000.................................. 252 17,073,300.62 5.66
19.001 to 19.500.................................. 184 12,239,105.81 4.06
19.501 to 20.000.................................. 107 6,727,747.38 2.23
20.001 to 20.500.................................. 56 3,031,629.98 1.00
20.501 to 21.000.................................. 38 1,962,951.36 0.65
21.001 to 21.500.................................. 23 935,134.62 0.31
21.501 to 22.000.................................. 12 572,417.87 0.19
22.001 to 22.500.................................. 2 61,101.22 0.02
22.501 to 23.000.................................. 4 155,041.81 0.05
23.001 to 23.500.................................. 2 60,634.17 0.02
Unknown........................................... 1 $ 96,426.32 0.03%
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average Maximum Rate of the Adjustable Rate Mortgage Loans
is approximately 17.047%.
S-54
<PAGE>
MINIMUM RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MINIMUM RATES (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
2.501 to 3.000.................................. 1 $ 133,778.88 0.04%
5.501 to 6.000.................................. 2 280,307.75 0.09
6.501 to 7.000.................................. 4 536,738.55 0.18
7.001 to 7.500.................................. 14 1,482,319.63 0.49
7.501 to 8.000.................................. 56 6,231,285.19 2.06
8.001 to 8.500.................................. 155 18,655,878.29 6.18
8.501 to 9.000.................................. 337 35,947,936.36 11.91
9.001 to 9.500.................................. 423 40,943,903.17 13.57
9.501 to 10.000.................................. 631 60,772,230.56 20.14
10.001 to 10.500.................................. 526 42,265,155.47 14.01
10.501 to 11.000.................................. 444 33,618,578.21 11.14
11.001 to 11.500.................................. 242 17,391,343.86 5.76
11.501 to 12.000.................................. 255 17,380,117.01 5.76
12.001 to 12.500.................................. 180 11,903,497.48 3.94
12.501 to 13.000.................................. 103 6,428,380.94 2.13
13.001 to 13.500.................................. 60 3,321,541.85 1.10
13.501 to 14.000.................................. 40 2,104,751.71 0.70
14.001 to 14.500.................................. 23 935,134.62 0.31
14.501 to 15.000.................................. 13 605,379.90 0.20
15.001 to 15.500.................................. 2 61,101.22 0.02
15.501 to 16.000.................................. 4 155,041.81 0.05
16.001 to 16.500.................................. 3 150,453.46 0.05
Unknown........................................... 5 $ 460,774.47 0.15%
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average Minimum Rate of the Adjustable Rate Mortgage Loans
is approximately 10.091%.
S-55
<PAGE>
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF GROSS MARGINS (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
2.501 to 2.750.................................. 2 $ 298,166.38 0.10%
4.001 to 4.250.................................. 8 1,063,151.76 0.35
4.251 to 4.500.................................. 2 224,986.80 0.07
4.501 to 4.750.................................. 69 7,189,246.36 2.38
4.751 to 5.000.................................. 22 2,381,600.46 0.79
5.001 to 5.250.................................. 79 8,664,883.04 2.87
5.251 to 5.500.................................. 75 8,884,397.24 2.94
5.501 to 5.750.................................. 148 14,769,316.04 4.89
5.751 to 6.000.................................. 219 23,278,662.85 7.71
6.001 to 6.250.................................. 225 21,252,255.64 7.04
6.251 to 6.500.................................. 341 34,087,697.37 11.30
6.501 to 6.750.................................. 334 30,942,848.13 10.25
6.751 to 7.000.................................. 347 32,634,838.80 10.81
7.001 to 7.250.................................. 387 30,308,340.43 10.04
7.251 to 7.500.................................. 283 22,433,398.31 7.43
7.501 to 7.750.................................. 318 23,664,460.82 7.84
7.751 to 8.000.................................. 237 17,669,006.95 5.86
8.001 to 8.250.................................. 155 8,501,025.91 2.82
8.251 to 8.500.................................. 118 6,404,702.04 2.12
8.501 to 8.750.................................. 81 3,127,924.62 1.04
8.751 to 9.000.................................. 31 1,915,328.04 0.63
9.001 to 9.250.................................. 23 1,149,168.94 0.38
9.251 to 9.500.................................. 6 439,398.82 0.15
9.501 to 9.750.................................. 6 194,230.06 0.06
9.751 to 10.000.................................. 2 101,558.06 0.03
10.251 to 10.500.................................. 2 80,734.21 0.03
10.501 to 10.750.................................. 1 26,976.72 0.01
Unknown........................................... 2 $ 77,325.59 0.03%
------- --------------- --------------
Total.................................. 3,523..... $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
The weighted average Gross Margin of the Adjustable Rate Mortgage Loans
is approximately 6.750%.
S-56
<PAGE>
NEXT ADJUSTMENT DATE OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
NEXT ADJUSTMENT DATE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
June 1999......................................... 2 $ 246,415.52 0.08%
July 1999......................................... 31 3,078,777.06 1.02
August 1999....................................... 120 12,084,992.88 4.00
September 1999.................................... 90 7,996,070.46 2.65
October 1999...................................... 35 3,377,543.59 1.12
January 2000...................................... 2 213,560.49 0.07
March 2000........................................ 1 142,369.12 0.05
April 2000........................................ 5 533,193.09 0.18
May 2000.......................................... 9 1,091,661.50 0.36
June 2000......................................... 38 2,833,029.09 0.94
July 2000......................................... 377 33,778,276.22 11.19
August 2000....................................... 1,184 100,811,614.42 33.41
September 2000.................................... 1,080 91,445,290.10 30.30
October 2000...................................... 534 42,799,620.73 14.18
November 2000..................................... 3 237,471.12 0.08
July 2001......................................... 3 425,896.95 0.14
August 2001....................................... 7 437,600.49 0.15
September 2001.................................... 1 98,468.68 0.03
July 2005......................................... 1 133,778.88 0.04
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
INITIAL FIXED TERM/SUBSEQUENT ADJUSTABLE RATE TERM
OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
INITIAL FIXED TERM/SUBSEQUENT NUMBER OF PRINCIPAL PRINCIPAL
ADJUSTABLE RATE TERM MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Two Years/Twenty-Eight Years...................... 3,228 $273,490,576.26 90.63%
One Year/Twenty-Nine Years........................ 1 104,613.37 0.03
Three Years/Twenty-Seven Years.................... 11 961,966.12 0.32
Seven Years/Twenty-Three Years.................... 2 199,532.22 0.07
No Delayed Adjustment............................. 281 27,008,942.42 8.95
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-57
<PAGE>
PERIODIC CAPS OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
PERIODIC CAP (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
1.000............................................. 265 $ 24,526,307.81 8.13%
1.500............................................. 2,727 220,263,755.52 72.99
2.000............................................. 19 2,285,442.05 0.76
3.000............................................. 507 54,077,587.81 17.92
No Periodic Cap................................... 5 612,537.20 0.20
------- --------------- --------------
Total.................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
INITIAL CAPS OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 2
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
INITIAL CAP (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
3.000............................................. 3,523 $301,765,630.39 100.00%
------- --------------- --------------
Total..................................... 3,523 $301,765,630.39 100.00%
------- --------------- --------------
------- --------------- --------------
</TABLE>
S-58
<PAGE>
POOL 3 MORTGAGE LOANS
The Mortgage Loans in Pool 3 are expected to have the following approximate
aggregate characteristics as of the Cut-off Date. Prior to the issuance of the
Certificates, Pool 3 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 3) prior to the
issuance of the Certificates.
<TABLE>
<S> <C>
Number of Pool 3 Mortgage Loans.............................................. 442
Aggregate Scheduled Principal Balance........................................ $111,630,380.20
Mortgage Rates:
Weighted Average........................................................... 9.859%
Range...................................................................... 6.990% to 15.625%
Weighted Average Remaining Term to Maturity (in months)...................... 332
</TABLE>
The Scheduled Principal Balances of the Mortgage Loans in Pool 3 range from
approximately $13,356 to $746,560. The Mortgage Loans in Pool 3 had an average
Scheduled Principal Balance of approximately $252,557.
The weighted average Combined Loan-to-Value Ratio at origination of the
Mortgage Loans in Pool 3 is approximately 77.87%,and approximately 1.06% of the
Pool 3 Mortgage Loans have a Combined Loan-to-Value Ratio at origination
exceeding 100%.
No more than approximately 2.12% of the Mortgage Loans in Pool 3 are
secured by Mortgaged properties located in any one zip code area.
The following tables set forth as of the Cut-off Date the number, aggregate
Scheduled Principal Balance and percentage of the Pool 3 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.)
COMBINED LOAN-TO-VALUE RATIOS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF COMBINED LOAN-TO- NUMBER OF PRINCIPAL PRINCIPAL
VALUE RATIOS (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
44.01 to 50.00.................................. 4 $ 1,817,438.10 1.63%
50.01 to 60.00.................................. 20 7,102,452.56 6.36
60.01 to 70.00.................................. 49 16,432,933.65 14.72
70.01 to 80.00.................................. 138 46,884,911.27 42.00
80.01 to 90.00.................................. 133 33,028,734.29 29.59
90.01 to 100.00.................................. 89 5,179,517.41 4.64
100.01 to 110.00.................................. 9 1,184,392.92 1.06
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
The weighted average Combined Loan-to-Value Ratio is approximately 77.87%.
S-59
<PAGE>
MORTGAGE RATES* -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
6.501 to 7.000.................................. 1 $ 239,798.16 0.21%
7.001 to 7.500.................................. 2 612,267.36 0.55
7.501 to 8.000.................................. 14 5,409,407.39 4.85
8.001 to 8.500.................................. 22 7,946,870.87 7.12
8.500 to 9.000.................................. 56 18,786,407.38 16.83
9.001 to 9.500.................................. 54 19,142,237.40 17.15
9.501 to 10.000.................................. 53 20,488,457.26 18.35
10.001 to 10.500.................................. 39 12,183,312.59 10.91
10.501 to 11.000.................................. 38 10,867,840.86 9.74
11.001 to 11.500.................................. 17 3,219,438.53 2.88
11.501 to 12.000.................................. 36 3,655,010.08 3.27
12.001 to 12.500.................................. 26 2,329,910.37 2.09
12.501 to 13.000.................................. 33 3,293,312.26 2.95
13.001 to 13.500.................................. 24 1,344,486.07 1.20
13.501 to 14.000.................................. 17 1,300,602.74 1.17
14.001 to 14.500.................................. 6 366,510.22 0.33
14.501 to 15.000.................................. 3 359,214.79 0.32
15.501 to 16.000.................................. 1 85,295.87 0.08
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
- -------------------------
* Reflects current Mortgage Rates of Adjustable Rate Mortgage Loans.
The weighted average Mortgage Rate is approximately 9.859%.
LOAN TYPE -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LOAN TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Fully Amortizing.................................. 356 $103,416,128.06 92.64%
Balloon........................................... 86 8,214,252.14 7.36
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
S-60
<PAGE>
RATE TYPE -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RATE TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Adjustable........................................ 228 $ 81,802,119.97 73.28%
Fixed............................................. 214 29,828,260.23 26.72
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
ORIGINAL TERMS TO MATURITY -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
118 to 120........................................ 2 $ 203,847.76 0.18%
121 to 192........................................ 141 11,950,510.81 10.71
193 to 240........................................ 7 321,177.42 0.29
241 to 312........................................ 19 1,186,238.53 1.06
313 to 360........................................ 273 97,968,605.68 87.76
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
The weighted average original term to maturity is approximately 339 months.
REMAINING TERMS TO MATURITY -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
109 to 120........................................ 2 $ 203,847.76 0.18%
157 to 168........................................ 25 1,917,681.39 1.72
169 to 180........................................ 116 10,032,829.42 8.99
229 to 240........................................ 7 321,177.42 0.29
277 to 288........................................ 1 79,504.95 0.07
289 to 300........................................ 18 1,106,733.58 0.99
337 to 348........................................ 3 1,484,972.36 1.33
349 to 360........................................ 270 96,483,633.32 86.43
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
The weighted average remaining term to maturity is approximately 332 months.
S-61
<PAGE>
GEOGRAPHIC DISTRIBUTION -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
STATE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Alabama........................................... 3 $ 1,510,092.69 1.35%
Alaska............................................ 2 441,249.66 0.40
Arizona........................................... 2 127,523.36 0.11
Arkansas.......................................... 1 49,921.36 0.04
California........................................ 236 49,414,314.44 44.27
Colorado.......................................... 22 6,911,322.49 6.19
Connecticut....................................... 6 1,995,062.38 1.79
District of Columbia.............................. 4 1,764,569.14 1.58
Florida........................................... 18 6,027,046.10 5.40
Georgia........................................... 15 5,776,554.47 5.17
Hawaii............................................ 2 102,783.34 0.09
Idaho............................................. 1 287,705.01 0.26
Illinois.......................................... 12 3,258,071.22 2.92
Indiana........................................... 4 914,207.57 0.82
Kentucky.......................................... 1 278,877.23 0.25
Maryland.......................................... 20 7,558,665.50 6.77
Massachusetts..................................... 5 2,191,133.10 1.96
Michigan.......................................... 6 1,553,333.15 1.39
Minnesota......................................... 2 571,860.38 0.51
Missouri.......................................... 3 474,713.44 0.43
New Hampshire..................................... 1 313,842.16 0.28
New Jersey........................................ 5 964,716.80 0.86
New Mexico........................................ 5 1,290,993.88 1.16
New York.......................................... 6 1,480,343.67 1.33
North Carolina.................................... 2 315,541.07 0.28
Ohio.............................................. 4 1,529,190.31 1.37
Oklahoma.......................................... 1 193,411.14 0.17
Oregon............................................ 6 1,444,863.59 1.29
Pennsylvania...................................... 5 1,432,262.89 1.28
Texas............................................. 11 3,866,223.10 3.46
Utah.............................................. 10 1,657,275.90 1.48
Virginia.......................................... 12 3,837,542.10 3.44
Washington........................................ 7 1,801,254.54 1.61
Wisconsin......................................... 1 49,838.23 0.04
Wyoming........................................... 1 244,074.79 0.22
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
S-62
<PAGE>
LIEN PRIORITY -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LIEN PRIORITY MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
First Lien........................................ 282 $101,307,167.37 90.75%
Second Lien....................................... 160 10,323,212.83 9.25
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL
SCHEDULED PRINCIPAL BALANCES ($) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
13,001 to 50,000................................ 68 $ 2,663,267.12 2.39%
50,001 to 100,000................................ 79 5,540,311.43 4.96
100,001 to 150,000................................ 6 819,101.10 0.73
150,001 to 200,000................................ 6 1,085,222.55 0.97
200,001 to 250,000................................ 28 6,820,905.49 6.11
250,001 to 300,000................................ 102 28,020,045.85 25.10
300,001 to 350,000................................ 44 14,314,613.89 12.82
350,001 to 400,000................................ 28 10,599,004.76 9.49
400,001 to 450,000................................ 20 8,511,302.32 7.62
450,001 to 500,000................................ 24 11,516,352.23 10.32
500,001 to 550,000................................ 13 6,857,086.97 6.14
550,001 to 600,000................................ 9 5,189,876.61 4.65
600,001 to 650,000................................ 12 7,593,329.09 6.80
650,001 to 700,000................................ 2 1,353,400.69 1.21
700,001 to 750,000................................ 1 746,560.10 0.67
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
The average Cut-off Date Scheduled Principal Balance is approximately $252,557.
S-63
<PAGE>
PROPERTY TYPE -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
PROPERTY TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Single-Family..................................... 360 $ 90,941,592.09 81.47%
Planned Unit Development.......................... 42 9,581,201.12 8.58
Condominium....................................... 16 4,204,472.11 3.77
Two- to Four-Family............................... 14 3,923,472.21 3.51
Mixed Use......................................... 7 2,215,689.85 1.98
Townhouse......................................... 2 515,086.28 0.46
Manufactured Housing.............................. 1 248,866.54 0.22
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
LOAN PURPOSE -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
LOAN PURPOSE MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Cash Out Refinance................................ 247 $ 59,497,843.54 53.30%
Purchase.......................................... 125 35,645,187.99 31.93
Rate/Term Refinance............................... 70 16,487,348.67 14.77
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
OCCUPANCY STATUS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
OCCUPANCY STATUS MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Primary Home...................................... 424 $105,820,464.70 94.80%
Investment........................................ 15 4,716,981.49 4.23
Second Home....................................... 3 1,092,934.01 0.98
----- --------------- --------------
Total.................................. 442 $111,630,380.20 100.00%
----- --------------- --------------
----- --------------- --------------
</TABLE>
S-64
<PAGE>
MAXIMUM RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MAXIMUM RATES (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
10.501 to 11.000.................................. 1 $ 270,826.14 0.33%
13.501 to 14.000.................................. 2 737,178.36 0.90
14.001 to 14.500.................................. 5 1,562,143.64 1.91
14.501 to 15.000.................................. 16 6,485,168.23 7.93
15.001 to 15.500.................................. 19 7,680,627.29 9.39
15.501 to 16.000.................................. 45 15,744,733.01 19.25
16.001 to 16.500.................................. 43 14,762,795.16 18.05
16.501 to 17.000.................................. 37 13,412,846.75 16.40
17.001 to 17.500.................................. 27 9,441,022.30 11.54
17.501 to 18.000.................................. 17 6,664,304.98 8.15
18.001 to 18.500.................................. 4 1,468,856.07 1.80
18.501 to 19.000.................................. 5 1,397,284.14 1.71
19.001 to 19.500.................................. 2 515,527.61 0.63
19.501 to 20.000.................................. 3 967,968.28 1.18
20.501 to 21.000.................................. 1 439,371.25 0.54
21.501 to 22.000.................................. 1 251,466.76 0.31
--- -------------- -------
Total................................... 228 $81,802,119.97 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
The weighted average Maximum Rate of the Adjustable Rate Mortgage Loans
is approximately 16.420%.
S-65
<PAGE>
MINIMUM RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF MINIMUM RATES (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
6.501 to 7.000.................................. 1 $ 239,798.16 0.29%
7.001 to 7.500.................................. 5 1,562,143.64 1.91
7.501 to 8.000.................................. 16 6,615,011.28 8.09
8.001 to 8.500.................................. 18 7,416,924.15 9.07
8.501 to 9.000.................................. 43 15,226,540.29 18.61
9.001 to 9.500.................................. 42 13,841,642.55 16.92
9.501 to 10.000.................................. 40 14,575,747.47 17.82
10.001 to 10.500.................................. 28 10,067,783.63 12.31
10.501 to 11.000.................................. 18 6,928,816.18 8.47
11.001 to 11.500.................................. 5 1,756,094.58 2.15
11.501 to 12.000.................................. 5 1,397,284.14 1.71
12.001 to 12.500.................................. 2 515,527.61 0.63
12.501 to 13.000.................................. 3 967,968.28 1.18
13.501 to 14.000.................................. 1 439,371.25 0.54
14.501 to 15.000.................................. 1 251,466.76 0.31
--- -------------- -------
Total................................... 228 $81,802,119.97 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
The weighted average Minimum Rate of the Adjustable Rate Mortgage Loans
is approximately 9.484%.
S-66
<PAGE>
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF GROSS MARGINS (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
3.501 to 3.750.................................... 1 $ 239,798.16 0.29%
4.001 to 4.250.................................... 1 490,605.12 0.60
4.501 to 4.750.................................... 6 2,104,427.45 2.57
4.751 to 5.000.................................... 5 2,196,550.37 2.69
5.001 to 5.250.................................... 10 2,946,727.15 3.60
5.251 to 5.500.................................... 11 3,853,832.40 4.71
5.501 to 5.750.................................... 22 7,924,864.39 9.69
5.751 to 6.000.................................... 13 3,603,722.96 4.41
6.001 to 6.250.................................... 17 5,407,402.00 6.61
6.251 to 6.500.................................... 31 11,108,605.92 13.58
6.501 to 6.750.................................... 27 11,481,738.05 14.04
6.751 to 7.000.................................... 32 11,586,762.44 14.16
7.001 to 7.250.................................... 13 4,973,104.87 6.08
7.251 to 7.500.................................... 15 6,241,076.61 7.63
7.501 to 7.750.................................... 13 4,388,885.24 5.37
7.751 to 8.000.................................... 5 1,473,900.20 1.80
8.001 to 8.250.................................... 3 862,794.86 1.05
8.251 to 8.500.................................... 2 642,909.04 0.79
8.751 to 9.000.................................... 1 274,412.74 0.34
----- -------------- --------------
Total.................................. 228 $81,802,119.97 100.00%
----- -------------- --------------
----- -------------- --------------
</TABLE>
The weighted average Gross Margin of the Adjustable Rate Mortgage Loans
is approximately 6.471%.
NEXT ADJUSTMENT DATE OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
NEXT ADJUSTMENT MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
July 1999......................................... 6 $ 2,207,485.78 2.70%
August 1999....................................... 16 6,097,672.95 7.45
September 1999.................................... 6 2,437,472.56 2.98
October 1999...................................... 6 2,553,289.81 3.12
December 1999..................................... 1 646,025.38 0.79
June 2000......................................... 3 791,710.01 0.97
July 2000......................................... 33 11,845,212.69 14.48
August 2000....................................... 60 21,914,754.83 26.79
September 2000.................................... 67 22,883,828.35 27.97
October 2000...................................... 30 10,424,667.61 12.74
----- -------------- --------------
Total.................................. 228 $81,802,119.97 100.00%
----- -------------- --------------
----- -------------- --------------
</TABLE>
S-67
<PAGE>
INITIAL FIXED TERM/SUBSEQUENT ADJUSTABLE RATE TERM
OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
INITIAL FIXED TERM/SUBSEQUENT NUMBER OF PRINCIPAL PRINCIPAL
ADJUSTABLE RATE TERM MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Two Years/Twenty-Eight Years ARM.................. 194 $68,506,198.87 83.75%
No Delayed Adjustment............................. 34 13,295,921.10 16.25
----- -------------- --------------
Total.................................. 228 $81,802,119.97 100.00%
----- -------------- --------------
----- -------------- --------------
</TABLE>
PERIODIC CAPS OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
PERIODIC CAP (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
1.000............................................. 26 $10,750,636.25 13.14%
1.500............................................. 156 56,396,612.25 68.94
2.000............................................. 3 894,580.49 1.09
3.000............................................. 42 13,489,464.84 16.49
No Periodic Cap................................... 1 270,826.14 0.33
----- -------------- --------------
Total.................................. 228 $81,802,119.97 100.00%
----- -------------- --------------
----- -------------- --------------
</TABLE>
INITIAL CAPS OF THE ADJUSTABLE RATE MORTGAGE LOANS -- POOL 3
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
SCHEDULED SCHEDULED
NUMBER OF PRINCIPAL PRINCIPAL
INITIAL CAP (%) MORTGAGE LOANS BALANCE BALANCE
- -------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
3.00.............................................. 228 $81,802,119.97 100.00%
----- -------------- --------------
Total.................................. 228 $81,802,119.97 100.00%
----- -------------- --------------
----- -------------- --------------
</TABLE>
ORIGINATION OF THE MORTGAGE LOANS
The Mortgage Loans were purchased by the Seller from Southern Pacific,
which originated some of the Mortgage Loans and acquired the others from various
originators. Only very limited information is available with respect to the
origination of the Mortgage Loans. There can be no assurance as to what
underwriting guidelines were applied by the various lenders in originating the
Mortgage Loans, or the extent to which such underwriting guidelines were applied
uniformly to all borrowers.
S-68
<PAGE>
In general, the Depositor believes that the underwriting criteria applied
in origination of the Mortgage Loans did not comply with Fannie Mae or Freddie
Mac guidelines. It is likely that at the time the Mortgage Loans were originated
many borrowers had payment histories and debt ratios that would not satisfy the
origination guidelines of either Fannie Mae or Freddie Mac, and in many cases
had records of major derogatory credit items such as outstanding judgments or
prior bankruptcies. A substantial portion of the Mortgage Loans may have been
originated under 'limited documentation' programs under which the borrowers'
income and certain other information was not verified, or under 'no
documentation' programs under which no information was obtained regarding the
borrowers' income or employment and there was no verification of the borrowers'
assets.
It is likely that a substantial portion of the Mortgage Loans were
classified by the related originators in relatively low -- that is, relatively
higher risk -- credit categories. The incidence of delinquency, default and
bankruptcy with respect to such Mortgage Loans is expected to be greater than if
such Mortgage Loans had been classified in relatively higher categories.
BANKRUPTCY STATUS OF SOUTHERN PACIFIC
Southern Pacific is a Lake Oswego, Oregon based specialty finance company
that was in the business of originating, purchasing and selling mortgage loans
made to borrowers of relatively poor credit quality. On October 1, 1998,
Southern Pacific filed a petition for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Oregon. Based on information available as of the date of this prospectus
supplement, these proceedings appear to be likely to result in the controlled
liquidation of the assets of Southern Pacific. Pursuant to Sections 1107 and
1108 of the Bankruptcy Code, Southern Pacific continues to manage its business.
As described herein under 'Risk Factors -- Risks Relating to Bankruptcy of
Southern Pacific,' Lehman Capital purchased the Mortgage Loans from Southern
Pacific in two separate transactions. Lehman Capital has obtained an opinion of
legal counsel to the effect that on the date the second mortgage purchase
transaction between Lehman Capital and Southern Pacific closed, the bankruptcy
court's order authorizing the sale was validly entered, final and in full force
and effect. This opinion is based on certain assumptions, including the
following: (1) each entity having an interest in the assets sold (or any portion
thereof), other than the Southern Pacific estate, received due and adequate
notice of Southern Pacific's motion seeking authorization to sell the assets,
the bankruptcy court's hearing on the motion, and the entry of the bankruptcy
court's order authorizing the sale; (2) the bankruptcy court docket accurately
reflects all motions, appeals and requests relating to Southern Pacific's
bankruptcy case; and (3) all orders, other than the order authorizing the sale
of assets from Southern Pacific to Lehman Capital, accurately describe the
subject and content of the order. The opinion does not address whether the
requirements for a sale of the property free and clear of any interest therein
of an entity other than the estate were satisfied, nor does it address the
effect of any subsequent revocation or modification of the bankruptcy court's
order approving the sale of assets to Lehman Capital.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pools and the
Mortgaged Properties is based upon the Mortgage Pools 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
S-69
<PAGE>
added to the Mortgage Pools as set forth herein under 'Description of the
Mortgage Pools,' such removal or addition, to the extent material, will be noted
in the Current Report on Form 8-K.
THE MASTER SERVICER
The information set forth in this section has been provided by Norwest Bank
Minnesota, National Association ('Norwest' or the 'Master Servicer'), and
neither the Depositor nor Lehman Brothers Inc. (the 'Underwriter' or 'Lehman
Brothers') makes any representations or warranties as to the accuracy or
completeness of such information.
Norwest is a national banking association, with executive offices located
at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479 and its
master servicing offices located at 11000 Broken Land Parkway, Columbia,
Maryland 21044.
The Servicers, including the Special Servicer, will directly service the
Mortgage Loans under the supervision of the Master Servicer. The Master Servicer
will not be ultimately responsible for the servicing of the Mortgage Loans
except to the extent described under 'Servicing of the Mortgage Loans' herein.
The Master Servicer is engaged in the business of master servicing single
family residential mortgage loans secured by properties located in all 50 states
and the District of Columbia. As of December 31, 1998, the Master Servicer
master serviced more than 570,000 mortgage loans with an aggregate outstanding
principal balance of approximately $67 billion.
THE SERVICER
The Mortgage Loans will initially be serviced by Aurora Loan Services Inc.
('Aurora'). Aurora may be terminated as Servicer at any time by the Directing
Holder (as defined herein) without cause. See 'Servicing of the Mortgage
Loans -- Certain Rights Related to Foreclosure, the Servicer and the Special
Servicer' herein.
The information set forth in this section has been provided by Aurora, and
neither the Depositor nor the Underwriter makes any representations or
warranties as to the accuracy or completeness of such information.
Aurora, an affiliate of Lehman Brothers Holdings Inc., began operation as a
servicer of residential mortgage loans in August 1997 following the acquisition
of substantially all of the assets and a majority of the management and
employees of Harbourton Financial Services L.P. ('Harbourton'). Prior to such
acquisition, Harbourton liquidated a substantial portion of its servicing
portfolio, generally retaining loans with higher rates of delinquency.
Aurora's executive offices are located at 2530 South Parker Road, Suite
601, Aurora, Colorado 80014 and its centralized real estate loan servicing
facility is located at 601 Fifth Avenue, Scottsbluff, Nebraska 69361. Aurora has
been approved to service mortgage loans for Ginnie Mae, Fannie Mae, and Freddie
Mac.
As of December 31, 1998, Aurora's total loan servicing and subservicing
portfolio included loans with an aggregate outstanding principal balance of
approximately $11.9 billion, of which the substantial majority are subserviced
for Lehman Brothers Holdings Inc. The following table sets forth certain
information regarding the delinquency and foreclosure experience of Aurora and
Harbourton with respect to mortgage loans that are not insured by FHA or
guaranteed by VA. The indicated periods of delinquency are based on the number
of days past due on a contractual basis.
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DELINQUENCIES AND FORECLOSURES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1994 1995 1996 1997(3) 1998(4)
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Total mortgage loans............................................. $1,061 $1,625 $1,765 $1,203 $6,096
Percentage of mortgage loans delinquent by period of
delinquency(1)(2)
30 to 59 days.................................................. 1.93% 2.26% 1.92% 3.21 % 3.21 %
60 to 89 days.................................................. 0.40 0.46 0.45 0.73 0.92
90 days or more................................................ 0.35 0.24 0.25 0.28 0.42
------ ------ ------ ------- -------
Total percentage of mortgage loans delinquent(1)(2).............. 2.68% 2.96% 2.62% 4.22 % 4.55 %
In foreclosure (excluding bankruptcies)........................ 0.50 0.99 1.16 1.99 2.10
In bankruptcy.................................................. 0.57 0.36 0.47 0.78 0.61
------ ------ ------ ------- -------
Total(2)......................................................... 3.75% 4.31% 4.25% 6.99 % 7.26 %
</TABLE>
- -------------------------
(1) Delinquency information is for mortgage loans that are not insured by FHA or
guaranteed by VA only, excluding bankruptcies.
(2) Percentages are based on the number of mortgage loans.
(3) Excludes information related to the servicing of certain sub-prime loans
acquired in 1997.
(4) A weighted average of the MBS method for conventional loans and the ABS
method for subprime loans is used in calculation of delinquency percentage.
Under the MBS methodology, the period of delinquency of a mortgage loan is
generally calculated on the basis of the actual number of days in a month.
In contrast, under the ABS methodology, the period of delinquency of a
mortgage loan is calculated on the basis of the assumption that each month
consists of 30 days. Consequently, under the MBS methodology, a payment due
on December 1, 1998 is considered 30 days delinquent on December 31, 1998,
but under the ABS methodology, the same payment is not considered 30 days
delinquent until January 1, 1999.
The above delinquency and foreclosure statistics represent the recent
experience of Aurora. The loans in Aurora's servicing portfolio may differ
significantly from the Mortgage Loans (in particular, not all the mortgage loans
in Aurora's portfolio were originated on the basis of underwriting criteria
similar to that used in originating the Mortgage Loans). The actual loss and
delinquency experience on the Mortgage Loans will depend, among other things, on
the value of the Mortgaged Properties securing such Mortgage Loans and the
ability of borrowers to make required payments. 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 tables above, nor is any
representation made as to the rate at which losses may be experienced on
liquidation of defaulted Mortgage Loans.
The likelihood that borrowers 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 borrowers' personal circumstances, including,
for example, unemployment or change in employment (or in the case of
self-employed borrowers or borrowers 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 may be influenced by the level of interest rates and
servicing decisions on the applicable mortgage loans. 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.
With respect to Year 2000 Problems, Aurora is following the guidelines set
forth for servicers by Freddie Mac and Fannie Mae. However, Aurora's ability to
perform its servicing duties is
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largely dependent upon third parties, including, among others, service bureaus
and other third party service and information providers. Aurora is determining
the extent of the efforts of its vendors to deal with Year 2000 Problems as they
relate to the performance of Aurora's servicing functions. The preceding
statement constitutes a 'Year 2000 Readiness Disclosure Statement' made by
Aurora under the Year 2000 Information Readiness Disclosure Act.
THE SPECIAL SERVICER
The Mortgage Loans will initially be special serviced by Ocwen Federal Bank
FSB ('Ocwen' or the 'Special Servicer'). Ocwen may be terminated as Special
Servicer at any time by the Directing Holder without cause. See 'Servicing of
the Mortgage Loans -- Certain Rights Related to Foreclosure, the Servicer and
the Special Servicer' herein.
The information set forth in this section has been provided by the Special
Servicer, and neither the Depositor nor the Underwriter makes any
representations or warranties as to the accuracy or completeness of such
information.
Ocwen, a federally chartered savings bank with its home office in Fort Lee,
New Jersey and its servicing operations and corporate offices in West Palm
Beach, Florida, will serve as the Special Servicer of the Mortgage Loans
pursuant to a special servicing agreement (the 'Special Servicing Agreement'),
as described under 'Servicing of the Mortgage Loans' below. Ocwen is a wholly-
owned subsidiary of Ocwen Financial Corporation, a public financial services
holding company. At December 31, 1998, Ocwen had approximately $2.6 billion in
assets, approximately $2.3 billion in liabilities and approximately $241 million
in equity. At December 31, 1998, Ocwen's tangible and leverage capital ratio was
approximately 9.07% and its risk-based capital ratio was approximately 17.26%.
For the four quarters ending December 31, 1998, Ocwen's income from continuing
operations was approximately $60.0 million.
The primary business of the Special Servicer has been the resolution of
nonperforming single-family, multifamily and commercial mortgage loan portfolios
acquired from the Resolution Trust Corporation, from private investors, from the
United States Department of Housing and Urban Development ('HUD') through HUD's
auction of defaulted FHA Loans, and third-party mortgage loan servicing for
third parties.
The following tables set forth, for the non-conforming credit mortgage loan
('BCD Mortgage Loan') servicing portfolio serviced by the Special Servicer,
certain information relating to the delinquency, foreclosure, REO and loss
experience with respect to such mortgage loans (including loans in foreclosure
included in the Special Servicer's servicing portfolio (which portfolio does not
include mortgage loans that are subserviced by others)) at the end of the
indicated periods. The indicated periods of delinquency are based on the number
of days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until it is one month past due on a contractual
basis. The information contained in the monthly remittance reports that will be
sent to investors will be compiled, to the extent relating to Mortgage Loans
serviced by the Special Servicer, using the same methodology as that used to
compile the information contained in the tables below.
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<PAGE>
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------------------------ --------------------------------------------
PERCENT PERCENT PERCENT PERCENT
BY BY NO. BY BY BY NO. BY
BY NO. DOLLAR OF DOLLAR BY NO. DOLLAR OF DOLLAR
OF LOANS AMOUNT LOANS AMOUNT OF LOANS AMOUNT LOANS AMOUNT
-------- -------- ------- ------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio............... 2,834 $305,085 100.00% 100.00% 21,827 $2,318,261 100.00% 100.00%
Period of Delinquency:
30-59 Days.................. 107 10,554 3.78% 3.46% 437 41,429 2.00% 1.79%
60-89 Days.................. 38 4,321 1.34% 1.42% 171 17,803 0.78% 0.77%
90 Days or more............. 138 17,969 4.87% 5.89% 302 36,878 1.38% 1.59%
Total Delinquent Loans........ 283 32,844 9.99% 10.77% 910 96,110 4.17% 4.15%
Loans in Foreclosure(1)....... 136 17,805 4.80% 5.84% 281 34,663 1.29% 1.50%
<CAPTION>
AS OF
DECEMBER 31, 1998
--------------------------------------------
PERCENT PERCENT
BY BY NO. BY
BY NO. DOLLAR OF DOLLAR
OF LOANS AMOUNT LOANS AMOUNT
-------- ---------- ------- -------
<S> <C> <C> <C> <C>
Total Portfolio............... 68,274 $6,099,336 100.00% 100.00%
Period of Delinquency:
30-59 Days.................. 3,325 265,396 4.87% 4.35%
60-89 Days.................. 1,555 129,439 2.28% 2.12%
90 Days or more............. 6,322 561,709 9.26% 9.21%
Total Delinquent Loans........ 11,202 956,544 16.41% 15.68%
Loans in Foreclosure(1)....... 3,158 297,859 4.63% 4.88%
</TABLE>
- -------------------------
(1) Loans in foreclosure are also included under the heading 'Total Delinquent
Loans.'
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<PAGE>
REAL ESTATE OWNED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BY BY BY
BY NO. DOLLAR BY NO. DOLLAR BY NO. DOLLAR
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
-------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio..................... 2,834 $305,085 21,827 $2,318,261 68,274 $6,099,336
Foreclosed Loans(1)................. 34 3,329 66 7,387 808 70,592
Foreclosure Ratio(2)................ 1.20% 1.09% 0.30% 0.32% 1.18% 1.16%
</TABLE>
- -------------------------
(1) For the purposes of these tables, 'Foreclosed Loans' means the principal
balance of mortgage loans secured by mortgaged properties the title to which
has been acquired by the Special Servicer.
(2) The 'Foreclosure Ratio' is equal to the aggregate principal balance or
number of Foreclosed Loans divided by the aggregate principal balance, or
number, as applicable, of mortgage loans in the total portfolio at the end
of the indicated period.
LOAN GAIN/(LOSS) EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Total Portfolio(1)................................ $ 305,085 $ 2,318,261 $ 6,099,336
Net Gains/(Losses)(2)............................. 24 (1,209) (26,068)
Net Gains/(Losses) as a Percentage of Total
Portfolio....................................... 0.01% (0.05)% (0.43)%
</TABLE>
- -------------------------
(1) 'Total Portfolio' on the date stated above is the principal balance of the
mortgage loans outstanding on the last day of the period.
(2) 'Net Gains/(Losses)' are actual gains or losses incurred on liquidated
properties and shortfall payoffs for each respective period. Gains or losses
on liquidated properties are calculated as net sales proceeds less book
value (exclusive of loan purchase premium or discount). Shortfall payoffs
are calculated as the difference between principal payoff amount and unpaid
principal at the time of payoff.
The above delinquency, foreclosure, real estate owned and loss statistics
represent the recent experience of Ocwen. The loans in Ocwen's servicing
portfolio may differ significantly from the Mortgage Loans. The actual loss and
delinquency experience on the Mortgage Loans will depend, among other things, on
the value of the Mortgaged Properties securing such Mortgage Loans and the
ability of borrowers to make required payments. 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 tables above, nor is any
representation made as to the rate at which losses may be experienced on
liquidation of defaulted Mortgage Loans.
With respect to Year 2000 Problems, Ocwen has made an assessment of the
microchip and computer-based systems, hardware, software and other equipment
used by Ocwen in connection with its performance of its special servicing duties
(collectively, 'Servicing Systems') and represents that its mission critical
Servicing Systems will be Year 2000 Ready by January 1, 2000. As used herein,
'Year 2000 Ready' means the Servicing Systems correctly process, (provided the
data received from third party providers is year 2000 compliant), so as to avoid
the occurrence of a material adverse effect thereon, date information after
January 1, 2000, including leap year calculations.
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<PAGE>
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Mortgage Loans will initially be serviced by Aurora and, to the extent
applicable as described below, the Special Servicer, under the supervision of
the Master Servicer in accordance with the provisions of the servicing agreement
or, as applicable, the Special Servicing Agreement (each, a 'Servicing
Agreement'). The Servicer and the Special Servicer are referred to together
herein, unless the context requires otherwise, as the 'Servicers.' The Sellers
rights under the Servicing Agreements, other than the Sellers right to transfer
the servicing, as described below, will be assigned to the Trustee.
Notwithstanding anything to the contrary in the Prospectus, the Master
Servicer will not be ultimately responsible for the performance of the servicing
activities by the Servicers, except as described under '-- Prepayment Interest
Shortfalls' and '-- Advances' below. If a Servicer fails to fulfill its
obligations under the applicable Servicing Agreement, the Master Servicer is
obligated to terminate such Servicer and appoint a successor servicer as
provided in the Trust Agreement.
As of the date of this Prospectus Supplement, it is expected that Lehman
Brothers will be the initial holder of the Class X Certificate. Lehman Brothers
or any subsequent holder of the Class X Certificate may, subject to the
conditions set forth in the Trust Agreement and the applicable Servicing
Agreement, including the requirements that any successor servicer be qualified
to service mortgage loans for Fannie Mae or Freddie Mac and that each Rating
Agency confirm in writing that such transfer of servicing will not result in a
qualification, withdrawal or downgrade of the then-current ratings of any of the
Certificates, terminate and replace either the Servicer, the Special Servicer,
or both. See '-- Certain Rights Related to Foreclosure, the Servicer and the
Special Servicer.'
SPECIAL SERVICING OF DELINQUENT MORTGAGE LOANS
If a Mortgage Loan becomes more than 90 days delinquent, the responsibility
for servicing such Mortgage Loan (a 'Transferred Mortgage Loan') will be
transferred to the Special Servicer. The Special Servicer will be required under
the Special Servicing Agreement to diligently attempt to collect all amounts due
under each Transferred Mortgage Loan. The Special Servicer will be authorized
under such agreement to foreclose on any Transferred Mortgage Loan or to pursue
such alternatives to foreclosure as modification of the terms of such loan,
negotiation of a repayment plan and forbearance of foreclosure, or acceptance of
a discounted payoff. If the borrower resumes payment on a Transferred Mortgage
Loan, such loan will continue to be serviced by the Special Servicer pursuant to
the provisions of the Special Servicing Agreement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Each Servicer (other than the Special Servicer) will be paid a monthly fee
(a 'Servicing Fee') with respect to each Mortgage Loan serviced by it calculated
as 0.50% annually (the 'Servicing Fee Rate') on the outstanding principal
balance of each such Mortgage Loan. Each Servicer will also be entitled to
receive, to the extent provided in the applicable Servicing Agreement,
additional compensation, in the form of any interest or other income earned on
funds it has deposited in a custodial account pending remittance to the Master
Servicer, as well as certain customary fees and charges paid by borrowers (other
than prepayment premiums).
The Master Servicer will be paid a monthly fee (the 'Master Servicing Fee')
with respect to each Mortgage Loan master serviced by it calculated as 0.015%
annually (the 'Master Servicing Fee Rate') on the outstanding principal balance
of each such Mortgage Loan.
The Special Servicer will be paid a monthly fee (the 'Basic Fee') with
respect to each Transferred Mortgage Loan calculated as 0.50% annually (the
'Basic Fee Rate') on the
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outstanding principal balance of each such Mortgage Loan. The Special Servicer
will also be paid a fee (the 'Special Servicer Incentive Fee') in connection
with the liquidation or final payment of certain Transferred Mortgage Loans that
will be calculated as described below, and will be entitled to additional
compensation as provided in the Trust Agreement.
The Special Servicer Incentive Fee will be generally equal to a percentage
specified in the Special Servicing Agreement, typically 50%, of any amount by
which (1) the aggregate net proceeds of liquidation or final payment of
Transferred Mortgage Loans that become 150 days or more delinquent (before
giving effect to payment of the Special Servicer Incentive Fee) exceed (2)
either 75% or 80%, as specified in such agreement, of the unpaid principal
balance of such Mortgage Loans. The payment of the Special Servicer Incentive
Fee will reduce the Net Liquidation Proceeds otherwise available for
distribution to Certificateholders.
The Master Servicing Fee, the Servicing Fee and the Basic Fee are subject
to reduction as described below under '-- Prepayment Interest Shortfalls.' See
'Servicing of Loans -- Servicing Compensation and Payment of Expenses' in the
Prospectus for information regarding expenses payable by the Master Servicer and
the Servicers (including the Special Servicer). The Master Servicer and each
Servicer (including the Special Servicer) will 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 or in part between
Scheduled Payment dates, the borrower pays interest on the amount prepaid only
from the last Scheduled Payment date to the date of prepayment (or to the first
day of the applicable month, in the case of certain prepayments in part), with a
resulting reduction in interest payable for the month during which the
prepayment is made. Any Prepayment Interest Shortfall resulting from a
prepayment in full or in part, is generally required to be paid by the
applicable Servicer, but only to the extent that such amount does not exceed the
aggregate of the Servicing Fees or, in the case of the Special Servicer, the
Basic Fees on the Mortgage Loans serviced by it for the applicable Distribution
Date.
Any Prepayment Interest Shortfall required to be funded but not funded by
the applicable Servicer is required to be funded by the Master Servicer, to the
extent that such amount does not exceed the Master Servicing Fee for the
applicable Distribution Date, through a reduction in the amount of such
compensation.
ADVANCES
Each Servicer will generally be obligated to make Advances with respect to
delinquent payments of principal of and interest on the Mortgage Loans (other
than Balloon Payments), adjusted to the related Mortgage Rate less the Servicing
Fee Rate (or Basic Fee Rate), to the extent that such Advances, in its judgment,
are reasonably recoverable from future payments and collections, insurance
payments or proceeds of liquidation of a Mortgage Loan. The Master Servicer will
be obligated to make any such Advances if the applicable Servicer fails in its
obligation to do so, and the Trustee will be obligated to make any required
Advance if the Master Servicer fails in its obligation to do so, to the extent
provided in the Trust Agreement. The Master Servicer, the applicable 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 Advances with respect to reductions in the
amount of the monthly payments on
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<PAGE>
Mortgage Loans due to reductions made by a bankruptcy court in the amount of a
Scheduled Payment owed by a borrower or a reduction of the applicable Mortgage
Rate by application of the Relief Act.
COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS
The Servicers will, to the extent required by the related loan documents,
maintain escrow accounts for the collection of hazard insurance premiums and
real estate taxes with respect to the Mortgage Loans, and will make advances
with respect to delinquencies in required escrow payments by the related
borrowers.
INSURANCE COVERAGE
The Master Servicer and each Servicer are 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 their respective
officers and employees.
EVIDENCE AS TO COMPLIANCE
The Trust Agreement will provide that each year during which the Master
Servicer directly services any of the Mortgage Loans, as Servicer, a firm of
independent 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 mortgage loans similar to the Mortgage Loans by the Master Servicer
and that, on the basis of such examination, such firm is of the opinion that the
master servicing has been conducted in accordance with the terms of the Trust
Agreement, except for (1) such exceptions as the firm believes to be immaterial
and (2) such other exceptions set forth in such statement.
CERTAIN RIGHTS RELATED TO FORECLOSURE, THE SERVICER AND THE SPECIAL SERVICER
Certain rights in connection with foreclosure of defaulted Mortgage Loans
will be granted to the holder of the Class X Certificate (the 'Directing
Holder'). Such rights will include the right to recommend foreclosure or
alternatives to foreclosure, which recommendation the Special Servicer will be
required to follow to the extent consistent with the servicing standards
prescribed by the Special Servicing Agreement. If the Special Servicer does not
follow such recommendation, the Directing Holder may purchase the related
Mortgage Loan. The Directing Holder will also have the option, under certain
circumstances, to purchase certain seriously delinquent Mortgage Loans. Any such
purchase may affect the yields of the Offered Certificates.
The Directing Holder will also have the right to terminate the rights and
obligations of the Servicer under the Servicing Agreement and the Special
Servicer under the Special Servicing Agreement at any time, without cause, and
to appoint a successor servicer, or successor special servicer, as applicable,
provided that (1) such successor is reasonably acceptable to the Master
Servicer, (2) a letter is provided to the Trustee from each Rating Agency to the
effect that such termination and appointment will not result in the
qualification, reduction or withdrawal of the ratings then applicable to the
Certificates and (3) all other applicable requirements of the Trust Agreement
and the applicable Servicing Agreement are satisfied. The Directing Holder may
terminate both the Servicer and the Special Servicer and replace them with a
single entity reasonably acceptable to the Master Servicer that will (1) act as
both Servicer and Special Servicer and (2) receive the compensation of both the
Servicer and the Special Servicer (except for the Basic Fee) as described
herein.
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<PAGE>
TRUST AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Trust Agreement (the 'Trust
Agreement') dated as of April 1, 1999 among the Depositor, the Master Servicer
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. 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 Trustee 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 The First National Bank of Chicago,
One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126, Attention:
Global Corporate Trust Services.
ASSIGNMENT OF MORTGAGE LOANS
The Mortgage Loans will be assigned to the Trustee, together with all
principal and interest received with respect to the Mortgage Loans on and after
the Cut-off Date, other than Scheduled Payments due on such 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 balance and the
Scheduled Principal Balance as of the close of business on the Cut-off Date, the
Mortgage Rate, 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: (1) the related original Mortgage Note endorsed without recourse to
the Trustee or in blank, (2) 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), the original security
agreement and related documents, (3) an original assignment of the Mortgage to
the Trustee or in blank in recordable form (except as described below), (4) the
policies of title insurance issued with respect to each Mortgage Loan, and (5)
the originals of any assumption, modification, extension or guaranty agreements.
It is expected that the Mortgages or assignments of Mortgage with respect to
each Mortgage Loan will have been recorded in the name of an agent on behalf of
the holder of the related Mortgage Note. In that case, no Mortgage assignment in
favor of the Trustee will be required to be prepared, delivered or recorded.
Instead, the Servicer will be required to take all actions as are necessary to
cause the Trustee to be shown as the owner of the related Mortgage Loan on the
records of such agent for purposes of the system of recording transfers of
beneficial ownership of mortgages maintained by such agent.
One or more of the documents described above, or other documents, are not
available with respect to certain of the Mortgage Loans. The Depositor will not
be obligated to repurchase or substitute for any such defective Mortgage Loan
unless a loss that would otherwise constitute a Realized Loss is incurred with
respect to such Mortgage Loan and such loss resulted from the failure to deliver
such documents.
Pursuant to the terms of the agreements (each, a 'Sale Agreement') whereby
the Mortgage Loans were purchased by the Seller, Southern Pacific made only very
limited representations and warranties concerning the related Mortgage Loans.
Although the Seller's rights under each Sale Agreement will be assigned to the
Trustee for the benefit of Certificateholders, Southern Pacific has no
obligation to repurchase the Mortgage Loans, and because Southern Pacific is
insolvent such rights are of no material value.
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<PAGE>
However, pursuant to the terms of a sale and assignment agreement (the
'Sale and Assignment Agreement') whereby the Mortgage Loans will be purchased by
the Depositor, the Seller will make to the Depositor (and the Depositor will
assign its rights thereunder to the Trustee for the benefit of
Certificateholders) representations and warranties that include representations
and warranties similar to those summarized in the Prospectus under the heading
'Loan Underwriting Procedures and Standards -- Representations and Warranties.'
In the event of a breach of any such representation or warranty, the Seller will
be obligated, within sixty 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, to
cure such breach or 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, to substitute another mortgage loan).
In addition, the Seller will represent and warrant that as of the Closing
Date it has no reason to believe that any borrower will default under the
related Mortgage Loan. Such representation and warranty will be deemed to be
breached only if, as to any Mortgage Loan, (1) such Mortgage Loan had a Combined
Loan-to-Value Ratio as of the Cut-off Date in excess of 80%; (2) such Mortgage
Loan is in default and is liquidated within six months after the Closing Date;
(3) a Realized Loss is incurred on such Mortgage Loan and (4) prior to such
liquidation, Realized Losses had been incurred on the Mortgage Loans in an
amount sufficient to reduce the aggregate Certificate Principal Amount of the
Subordinate Certificates to zero.
To the extent that any Mortgage Loan as to which a representation or
warranty has been breached is not repurchased by the Seller and a Realized Loss
occurs on such Mortgage Loan, holders of Offered Certificates, in particular the
Offered Subordinate Certificates, may incur a loss.
PURCHASE OF CERTAIN DEFAULTED MORTGAGE LOANS
Pursuant to the terms of the Trust Agreement and the Special Servicing
Agreement, the Special Servicer (and in certain circumstances, the Directing
Holder) will have the option to purchase certain seriously delinquent Mortgage
Loans. Any such purchase may affect the yields of the Offered Certificates. The
aggregate of such purchases by the Special Servicer as to any Mortgage Pool may
not exceed five percent of the applicable Cut-off Date Balance.
The Directing Holder will also have the right to purchase any related
defaulted Mortgage Loan serviced by the Special Servicer under the circumstances
described under 'Servicing of the Mortgage Loans -- Certain Rights Related to
Foreclosure, the Servicer and the Special Servicer' herein.
VOTING RIGHTS
Voting rights under the Trust Agreement will be allocated among the Classes
of Certificates and among the Certificates of each Class as provided in the
Trust Agreement.
YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE
GENERAL
The yields to maturity (or to early termination) on the Offered
Certificates will be affected by the rate of principal payments on the Mortgage
Loans (including prepayments, which may include amounts received by virtue of
purchase, condemnation, insurance or foreclosure) on the Mortgage Loans. Such
yields will also be affected by the extent to which Mortgage Loans 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
S-79
<PAGE>
application of Monthly Excess Cashflow, the purchase price for the Offered
Certificates and other factors.
Yields on the Class A1, Class A2, Class A3 and Class A4 Certificates will
be affected by the rate of principal payments on the Mortgage Loans in the
related Mortgage Pools, primarily, and only to a lesser extent (if at all) by
the rate of principal prepayments on the Mortgage Loans in the other Mortgage
Pools.
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 the Mortgage Loans.
Conversely, if prevailing interest rates rise above the interest rates on the
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, borrowers' net
equity in the mortgaged properties, changes in the value of the mortgaged
properties, mortgage market interest rates and servicing decisions. The Mortgage
Loans generally have due-on-sale clauses.
Approximately 65.90% of the Mortgage Loans in Pool 1, 67.55% of the
Mortgage Loans in Pool 2 and 67.75% of the Mortgage Loans in Pool 3 are subject
to prepayment premiums during intervals ranging from one to five years following
origination, as described under 'Description of the Mortgage Pools' herein. Such
prepayment premiums may have the effect of reducing the amount or the likelihood
of prepayment of such Mortgage Loans during such intervals.
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 borrowers, liquidations of defaulted Mortgage Loans,
repurchases of Mortgage Loans due to certain breaches of representations and
warranties or defective documentation and purchases of defaulted Mortgage Loans
by the Special Servicer or the Directing Holder as described under 'Trust
Agreement -- Purchase of Certain Defaulted Mortgage Loans' and 'Servicing of the
Mortgage Loans -- Certain Rights Related to Foreclosure, the Servicer and the
Special Servicer' herein. The timing of changes in the rate of prepayments,
liquidations and purchases 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. 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 any
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
the other Mortgage Pool.
From time to time, areas of the United States may be affected by flooding,
severe storms, landslides, wildfires or other natural disasters. Under the Sale
and Assignment Agreement, Lehman Capital will represent and warrant that as of
the Closing Date each Mortgaged Property was free of material damage. In the
event of an uncured breach of such representation and warranty that materially
and adversely affects the interests of Certificateholders, Lehman Capital will
be required
S-80
<PAGE>
to repurchase the affected Mortgage Loan or substitute another mortgage loan
therefor. If any damage caused by flooding, storms, wildfires, or landslides (or
other cause) occurs after the Closing Date, Lehman Capital will not have any
such obligation. In addition, the standard hazard policies covering the
Mortgaged Properties generally do not cover damage caused by flooding and
landslides, and flood or landslide insurance may not have been obtained with
respect to such Mortgaged Properties. As a consequence, Realized Losses could
result. To the extent that the insurance proceeds received with respect to any
damaged Mortgage Properties are not applied to the restoration thereof, such
proceeds will be used to prepay the related Mortgage Loans in whole or in part.
Any repurchases or repayments of the Mortgage Loans may reduce the weighted
average lives of the Offered Certificates and will reduce the yields on such
Certificates to the extent they are purchased at a premium (other than the Class
AIO Certificates).
Prepayments, liquidations and purchases 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.
The yields on the Offered Certificates may be adversely affected by Net
Prepayment Interest Shortfalls on the Mortgage Loans.
The yields to investors in the Offered Certificates will be affected by the
exercise by the holder of the Class X Certificate or the Depositor of their
respective rights to purchase the Mortgage Loans, as described under
'Description of the Certificates -- Optional Purchase of Mortgage Loans;
Termination of the Trust' herein, or the failure of such parties to exercise
such rights.
If the purchaser of a Certificate offered at a discount from its initial
principal amount calculates its anticipated yield to maturity (or early
termination) based on an assumed rate of payment of principal that is faster
than that actually experienced on the related Mortgage Loans, the actual yield
may be lower than that so calculated. Conversely, if the purchaser of a
Certificate offered at a premium calculates its anticipated yield based on an
assumed rate of payment of principal that is slower than that actually
experienced on the related Mortgage Loans, the actual yield may be lower than
that so calculated.
The Class AIO Certificates will have no principal amount and therefore are
offered at a premium. The Class Notional Amount of the Class AIO Certificates
will decrease according to a schedule as described herein. After the
Distribution Date in October 2001, the Class Notional Amount of the Class AIO
Certificates will be zero and the Class AIO Certificates will not be entitled to
distributions in respect of Current Interest. In the event that the Mortgage
Loans prepay at an extremely rapid rate resulting in their prepayment in full
while the Class AIO Certificates are outstanding, investors in such Certificates
could fail to recover their initial investments.
The effective yield to holders of the Class AIO Certificates will be lower
than the yield otherwise produced by the applicable interest rate and applicable
purchase price because, while interest will accrue from the first day of each
month, the distribution of such interest will not be made until the 25th day (or
if such day is not a business day, the immediately following business day) of
the month following the month of accrual.
The Interest Rates applicable to the Offered Certificates will be affected
by the level of LIBOR from time to time, and by the Mortgage Rates of the
Mortgage Loans from time to time as described under 'Risk Factors -- Mortgage
Loan Interest Rates May Limit Interest Rates on the Certificates.'
S-81
<PAGE>
OVERCOLLATERALIZATION
The yields of the Offered Certificates will be affected by the application
of Monthly Excess Cashflow as described herein and by the amount of
overcollateralization. The amount of Monthly Excess Cashflow will be affected by
the delinquency, default and prepayment experience of the Mortgage Loans.
Prepayment premiums paid by borrowers will be included in the Interest
Remittance Amount for each applicable Distribution Date and, to the extent not
required for distribution of interest on the Certificates on such date, will be
included in Monthly Excess Cashflow for such date. There can be no assurance as
to the rate at which overcollateralization will be created, or whether such
overcollateralization will be maintained at the levels described herein.
SUBORDINATION OF THE OFFERED SUBORDINATE CERTIFICATES
As described herein, the Senior Certificates are senior to the Offered
Subordinate Certificates, and such Certificates will have a preferential right
to receive amounts in respect of interest to the extent of the Interest
Remittance Amount and amounts in respect of principal to the extent of the
Principal Distribution Amount. In addition, Applied Loss Amounts will be
allocated among the Class B, Class M2 and Class M1 Certificates in inverse order
of priority of distribution. As a result, the yields of the Subordinate
Certificates will be more sensitive, in varying degrees, to delinquencies and
losses on the Mortgage Loans than the yields of the Senior Certificates and
Classes of Offered Subordinate Certificates which have a relatively higher
priority of distribution.
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 ('CPR') represents an assumed constant rate of prepayment
each month relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. CPR does not purport to be
either 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.
S-82
<PAGE>
The tables beginning on page S-87 were prepared based on the following
assumptions among other things (collectively, the 'Modeling Assumptions'): (1)
the initial Class Principal Amounts are as set forth on the cover of this
Prospectus Supplement, and the Interest Rates are as described herein; (2) each
Scheduled Payment of principal and interest is timely received on the first day
of each month commencing in May 1999; (3) principal prepayments are received in
full on the last day of each month commencing in April 1999 and there are no Net
Prepayment Interest Shortfalls; (4) there are no defaults or delinquencies on
the Mortgage Loans; (5) Distribution Dates occur on the 25th day of each month,
commencing in May 1999; (6) there are no purchases or substitutions of the
Mortgage Loans; (7) the Mortgage Rate of each Adjustable Rate Mortgage Loan is
adjusted on the next applicable Adjustment Date to equal the value of the
applicable Index set forth below plus the related Gross Margin, subject to any
Periodic Cap; (8) the Mortgage Rates of the Adjustable Rate Mortgage Loans
adjust semi-annually, in the case of Mortgage Rates based on 6 month LIBOR,
annually in the case of Mortgage Rates based on 1 year LIBOR, 1 year CMT and 10
year CMT (except for one Adjustable Rate Mortgage Loan with a principal balance
of $1,157,157.75 which will adjust every eleven months); (9) the value of 1
month LIBOR is 4.9025%; (10) the value of 6 month LIBOR is 5.04250%; (11) the
value of 1 year LIBOR is 5.22625%; (12) the value of 1 year CMT is 4.65000%;
(13) the value of 10 year CMT is 5.23000%; (14) there is no Optional Termination
of the Trust Fund; (15) neither the Depositor nor the holder of the Class X
Certificate exercises its right to purchase the Mortgage Loans; (16) the
Certificates are issued on May 10, 1999; (17) no prepayment premiums have been
collected on the Mortgage Loans; and (18) the Mortgage Loans were aggregated
into assumed Mortgage Loans having the following characteristics:
ASSUMED MORTGAGE LOAN CHARACTERISTICS OF POOL 1
<TABLE>
<CAPTION>
REMAINING REMAINING
CURRENT TERM TO AMORTIZATION
PRINCIPAL MORTGAGE MATURITY TERM
LOAN TYPE BALANCE ($) RATE (%) (MONTHS) (MONTHS)
- ------------------------------------------------------ ------------- -------- --------- ------------
<S> <C> <C> <C> <C>
Fixed................................................. 15,506,055.29 11.379 170 170
Fixed................................................. 843,872.73 11.455 168 168
Fixed................................................. 1,757,633.06 11.028 172 172
Fixed................................................. 17,780,040.33 10.954 171 171
Fixed................................................. 877,054.78 9.824 170 170
Fixed................................................. 34,875,175.01 10.491 344 344
Fixed................................................. 4,923,390.07 11.254 352 352
Fixed................................................. 5,317,325.04 9.772 350 350
Fixed................................................. 66,446,144.23 10.477 349 349
Fixed................................................. 384,886.45 12.126 353 353
Fixed................................................. 5,936,953.87 10.119 349 349
Fixed/Balloon......................................... 6,941,303.22 11.247 172 349
Fixed/Balloon......................................... 283,863.97 11.706 194 351
Fixed/Balloon......................................... 1,280,974.16 12.618 172 352
Fixed/Balloon......................................... 4,932,473.93 11.490 172 352
</TABLE>
S-83
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS OF POOL 2
<TABLE>
<CAPTION>
REMAINING
CURRENT NEXT RATE TERM TO
PRINCIPAL MORTGAGE ADJUSTMENT GROSS PERIODIC MATURITY ARM
LOAN TYPE BALANCE ($) RATE (%) DATE MARGIN (%) CAP (%) (MONTHS) INDEX
- --------------------------- ------------- -------- ---------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Adjustable................. 1,157,157.75 10.904 11/01/99 7.111 3.000 353 1Y LIBOR
Adjustable................. 424,581.03 9.364 07/01/99 6.507 3.000 352 1Y LIBOR
Adjustable................. 111,228.39 11.000 07/01/99 6.875 3.000 351 1Y LIBOR
Adjustable................. 104,613.37 9.950 08/01/99 7.825 3.000 352 6M LIBOR
Adjustable................. 212,859.67 10.430 08/01/00 5.940 3.000 352 10Y CMT
Adjustable................. 25,165,122.75 10.586 09/01/00 6.797 3.000 353 1Y LIBOR
Adjustable................. 1,951,934.57 9.898 08/01/00 6.631 3.000 352 1Y LIBOR
Adjustable................. 11,187,610.36 9.775 08/01/00 6.381 3.000 352 1Y LIBOR
Adjustable................. 9,700,012.76 11.368 08/01/00 7.200 3.000 352 1Y LIBOR
Adjustable................. 54,284,459.85 10.003 08/01/00 6.555 3.000 352 6M LIBOR
Adjustable................. 5,066,705.41 9.974 08/01/00 6.867 3.000 352 6M LIBOR
Adjustable................. 64,865,413.67 9.704 08/01/00 6.563 3.000 352 6M LIBOR
Adjustable................. 91,526,548.93 10.353 08/01/00 7.051 3.000 353 6M LIBOR
Adjustable................. 784,851.87 10.716 08/01/00 7.655 3.000 352 6M LIBOR
Adjustable................. 8,549,094.87 10.136 08/01/00 7.150 3.000 352 6M LIBOR
Adjustable*................ 74,474.09 8.910 07/01/00 6.560 3.000 351 1Y CMT
Adjustable**............... 121,487.46 8.650 09/01/00 5.900 3.000 353 1Y CMT
Adjustable................. 194,085.51 10.374 08/01/01 6.711 3.000 353 6M LIBOR
Adjustable................. 97,067.55 9.950 08/01/01 6.605 3.000 352 6M LIBOR
Adjustable................. 506,425.56 10.283 07/01/01 6.739 3.000 351 6M LIBOR
Adjustable................. 164,387.50 6.250 07/01/01 2.750 3.000 350 1Y CMT
Adjustable................. 16,540,807.84 10.314 08/01/99 6.079 3.000 352 6M LIBOR
Adjustable................. 1,378,624.44 10.574 08/01/99 6.592 3.000 353 6M LIBOR
Adjustable................. 778,546.69 9.772 10/01/99 6.823 3.000 352 6M LIBOR
Adjustable................. 6,196,811.64 10.668 08/01/99 6.956 3.000 353 6M LIBOR
Adjustable................. 421,184.64 10.888 08/01/99 7.242 3.000 352 6M LIBOR
Adjustable................. 65,753.34 11.250 09/01/99 6.250 3.000 352 6M LIBOR
Adjustable................. 133,778.88 6.625 07/01/05 2.750 3.000 350 1Y CMT
</TABLE>
- -------------------------
* Assumes a Maximum Rate of 10.41%.
** Assumes a Maximum Rate of 10.15%.
S-84
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS OF POOL 3
<TABLE>
<CAPTION>
REMAINING REMAINING
CURRENT NEXT RATE TERM TO AMORTIZATION
PRINCIPAL MORTGAGE ADJUSTMENT GROSS PERIODIC MATURITY TERM
LOAN TYPE BALANCE ($) RATE (%) DATE MARGIN (%) CAP (%) (MONTHS) (MONTHS)
- --------------------------- ------------- -------- ---------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Adjustable................. 894,580.49 10.285 08/01/99 6.904 3.000 353 353
Adjustable................. 5,401,193.16 9.788 08/01/00 6.213 3.000 352 352
Adjustable................. 343,285.87 8.500 08/01/00 7.125 3.000 352 352
Adjustable................. 4,240,314.34 9.975 07/01/00 6.821 3.000 352 352
Adjustable................. 2,098,338.32 9.757 08/01/00 6.958 3.000 352 352
Adjustable................. 13,013,255.57 9.570 08/01/00 6.222 3.000 352 352
Adjustable................. 496,135.91 9.312 08/01/00 6.048 3.000 352 352
Adjustable................. 19,671,816.81 9.355 08/01/00 6.490 3.000 352 352
Adjustable................. 21,310,980.70 9.734 08/01/00 6.702 3.000 353 353
Adjustable................. 418,552.65 8.850 09/01/00 5.620 3.000 353 353
Adjustable................. 1,512,325.54 9.465 08/01/00 6.865 3.000 352 352
Adjustable................. 8,352,833.47 9.636 08/01/99 5.916 3.000 352 352
Adjustable................. 1,484,865.79 10.829 07/01/99 6.725 3.000 352 352
Adjustable................. 2,563,641.35 10.049 08/01/99 6.650 3.000 353 353
Fixed...................... 1,897,410.12 11.225 N/A N/A N/A 165 165
Fixed...................... 190,923.65 13.550 N/A N/A N/A 170 170
Fixed...................... 312,975.44 12.912 N/A N/A N/A 169 169
Fixed...................... 1,538,797.22 11.887 N/A N/A N/A 170 170
Fixed...................... 3,289,933.56 9.706 N/A N/A N/A 344 344
Fixed...................... 347,489.42 10.938 N/A N/A N/A 330 330
Fixed...................... 2,325,969.78 9.151 N/A N/A N/A 352 352
Fixed...................... 9,821,486.73 9.753 N/A N/A N/A 344 344
Fixed...................... 1,889,022.17 8.984 N/A N/A N/A 352 352
Fixed/Balloon.............. 3,156,762.71 11.204 N/A N/A N/A 172 352
Fixed/Balloon.............. 749,486.70 12.494 N/A N/A N/A 170 350
Fixed/Balloon.............. 637,109.84 12.951 N/A N/A N/A 171 351
Fixed/Balloon.............. 3,449,218.31 11.636 N/A N/A N/A 172 352
Fixed/Balloon.............. 221,674.58 12.271 N/A N/A N/A 169 349
<CAPTION>
ARM
LOAN TYPE INDEX
- --------------------------- ----------
<S> <C>
Adjustable................. 1Y LIBOR
Adjustable................. 1Y LIBOR
Adjustable................. 1Y LIBOR
Adjustable................. 1Y LIBOR
Adjustable................. 1Y LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Adjustable................. 6M LIBOR
Fixed...................... N/A
Fixed...................... N/A
Fixed...................... N/A
Fixed...................... N/A
Fixed...................... N/A
Fixed...................... N/A
Fixed...................... N/A
Fixed...................... N/A
Fixed...................... N/A
Fixed/Balloon.............. N/A
Fixed/Balloon.............. N/A
Fixed/Balloon.............. N/A
Fixed/Balloon.............. N/A
Fixed/Balloon.............. N/A
</TABLE>
S-85
<PAGE>
The actual characteristics 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 CPR 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 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 CPR.
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 Principal Amounts of the Offered
Certificates that would be outstanding after each of the Distribution Dates
shown at various percentages of CPR.
The weighted average life of an Offered Certificate is determined by (1)
multiplying the net reduction, if any, of the applicable Class Principal Amount
by the number of years from the date of issuance of the Offered Certificate to
the related Distribution Date, (2) adding the results and (3) dividing the sum
by the aggregate of the net reductions of Class Principal Amount described in
(1) above.
S-86
<PAGE>
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS A1 CERTIFICATES
--------------------------------------------
DISTRIBUTION DATE 0% 9% 18% 25% 35% 50%
- -------------------------------------------------------------------------- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100 100
April 2000................................................................ 94 84 73 65 53 35
April 2001................................................................ 93 72 53 40 23 3
April 2002................................................................ 91 62 38 22 5 0
April 2003................................................................ 89 52 29 20 5 0
April 2004................................................................ 87 44 23 15 5 0
April 2005................................................................ 85 36 19 11 4 0
April 2006................................................................ 82 30 15 8 3 0
April 2007................................................................ 79 27 12 6 2 0
April 2008................................................................ 76 24 10 4 1 0
April 2009................................................................ 72 21 8 3 1 0
April 2010................................................................ 68 19 6 2 * 0
April 2011................................................................ 64 17 5 2 0 0
April 2012................................................................ 59 15 4 1 0 0
April 2013................................................................ 53 13 3 1 0 0
April 2014................................................................ 42 11 2 1 0 0
April 2015................................................................ 40 10 2 * 0 0
April 2016................................................................ 37 9 2 * 0 0
April 2017................................................................ 34 7 1 0 0 0
April 2018................................................................ 31 6 1 0 0 0
April 2019................................................................ 27 6 1 0 0 0
April 2020................................................................ 23 5 * 0 0 0
April 2021................................................................ 19 4 * 0 0 0
April 2022................................................................ 16 3 0 0 0 0
April 2023................................................................ 14 3 0 0 0 0
April 2024................................................................ 12 2 0 0 0 0
April 2025................................................................ 10 2 0 0 0 0
April 2026................................................................ 7 1 0 0 0 0
April 2027................................................................ 4 * 0 0 0 0
April 2028................................................................ 1 0 0 0 0 0
April 2029................................................................ 0 0 0 0 0 0
---- --- --- --- --- ---
Weighted Average Life in Years:
Without Optional Termination............................................ 14.6 6.4 3.6 2.6 1.5 0.9
With Optional Termination............................................... 14.6 6.1 3.4 2.4 1.4 0.9
</TABLE>
<TABLE>
<CAPTION>
CLASS A2 CERTIFICATES
--------------------------------------------
DISTRIBUTION DATE 0% 9% 18% 25% 35% 50%
- -------------------------------------------------------------------------- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100 100
April 2000................................................................ 95 84 73 65 53 35
April 2001................................................................ 94 73 54 41 24 3
April 2002................................................................ 93 64 39 23 5 0
April 2003................................................................ 93 55 30 21 5 0
April 2004................................................................ 92 47 24 16 5 0
April 2005................................................................ 91 40 20 12 5 0
April 2006................................................................ 90 34 16 9 3 0
April 2007................................................................ 89 30 13 6 2 0
April 2008................................................................ 88 27 10 5 1 0
April 2009................................................................ 86 24 8 3 1 0
April 2010................................................................ 85 22 7 3 * 0
April 2011................................................................ 83 19 5 2 0 0
April 2012................................................................ 81 17 4 1 0 0
April 2013................................................................ 78 15 3 1 0 0
April 2014................................................................ 76 13 3 1 0 0
April 2015................................................................ 73 11 2 * 0 0
April 2016................................................................ 70 10 2 * 0 0
April 2017................................................................ 66 9 1 0 0 0
April 2018................................................................ 62 8 1 0 0 0
April 2019................................................................ 57 6 1 0 0 0
April 2020................................................................ 52 6 * 0 0 0
April 2021................................................................ 46 5 * 0 0 0
April 2022................................................................ 41 4 0 0 0 0
April 2023................................................................ 36 3 0 0 0 0
April 2024................................................................ 31 2 0 0 0 0
April 2025................................................................ 25 2 0 0 0 0
April 2026................................................................ 18 1 0 0 0 0
April 2027................................................................ 11 * 0 0 0 0
April 2028................................................................ 3 0 0 0 0 0
April 2029................................................................ 0 0 0 0 0 0
---- --- --- --- --- ---
Weighted Average Life in Years:
Without Optional Termination............................................ 19.5 6.8 3.6 2.6 1.5 0.8
With Optional Termination............................................... 19.5 6.5 3.4 2.3 1.4 0.8
</TABLE>
- -------------------------
* Indicates a value between 0.0% and 0.5%.
S-87
<PAGE>
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS A3 CERTIFICATES
-------------------------------------------
DISTRIBUTION DATE 0% 9% 18% 25% 35% 50%
- -------------------------------------------------------------------------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100 100
April 2000................................................................ 87 59 31 9 0 0
April 2001................................................................ 84 30 0 0 0 0
April 2002................................................................ 82 5 0 0 0 0
April 2003................................................................ 79 0 0 0 0 0
April 2004................................................................ 76 0 0 0 0 0
April 2005................................................................ 73 0 0 0 0 0
April 2006................................................................ 70 0 0 0 0 0
April 2007................................................................ 66 0 0 0 0 0
April 2008................................................................ 61 0 0 0 0 0
April 2009................................................................ 56 0 0 0 0 0
April 2010................................................................ 51 0 0 0 0 0
April 2011................................................................ 45 0 0 0 0 0
April 2012................................................................ 38 0 0 0 0 0
April 2013................................................................ 30 0 0 0 0 0
April 2014................................................................ 4 0 0 0 0 0
April 2015................................................................ 0 0 0 0 0 0
April 2016................................................................ 0 0 0 0 0 0
April 2017................................................................ 0 0 0 0 0 0
April 2018................................................................ 0 0 0 0 0 0
April 2019................................................................ 0 0 0 0 0 0
April 2020................................................................ 0 0 0 0 0 0
April 2021................................................................ 0 0 0 0 0 0
April 2022................................................................ 0 0 0 0 0 0
April 2023................................................................ 0 0 0 0 0 0
April 2024................................................................ 0 0 0 0 0 0
April 2025................................................................ 0 0 0 0 0 0
April 2026................................................................ 0 0 0 0 0 0
April 2027................................................................ 0 0 0 0 0 0
April 2028................................................................ 0 0 0 0 0 0
April 2029................................................................ 0 0 0 0 0 0
--- --- --- --- --- ---
Weighted Average Life in Years:
Without Optional Termination............................................ 9.5 1.4 0.7 0.5 0.4 0.2
With Optional Termination............................................... 9.5 1.4 0.7 0.5 0.4 0.2
</TABLE>
<TABLE>
<CAPTION>
CLASS A4 CERTIFICATES
---------------------------------------------
DISTRIBUTION DATE 0% 9% 18% 25% 35% 50%
- -------------------------------------------------------------------------- ---- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100 100
April 2000................................................................ 100 100 100 100 86 57
April 2001................................................................ 100 100 88 66 38 5
April 2002................................................................ 100 100 63 37 8 0
April 2003................................................................ 100 88 48 34 8 0
April 2004................................................................ 100 75 39 25 8 0
April 2005................................................................ 100 63 32 19 8 0
April 2006................................................................ 100 54 26 14 5 0
April 2007................................................................ 100 48 21 10 3 0
April 2008................................................................ 100 43 17 8 2 0
April 2009................................................................ 100 39 13 6 1 0
April 2010................................................................ 100 34 11 4 1 0
April 2011................................................................ 100 30 9 3 0 0
April 2012................................................................ 100 27 7 2 0 0
April 2013................................................................ 100 24 5 2 0 0
April 2014................................................................ 100 20 4 1 0 0
April 2015................................................................ 98 17 3 * 0 0
April 2016................................................................ 93 15 3 * 0 0
April 2017................................................................ 87 13 2 0 0 0
April 2018................................................................ 81 12 2 0 0 0
April 2019................................................................ 74 10 1 0 0 0
April 2020................................................................ 66 9 1 0 0 0
April 2021................................................................ 58 7 * 0 0 0
April 2022................................................................ 51 6 0 0 0 0
April 2023................................................................ 45 5 0 0 0 0
April 2024................................................................ 38 4 0 0 0 0
April 2025................................................................ 31 3 0 0 0 0
April 2026................................................................ 23 2 0 0 0 0
April 2027................................................................ 13 1 0 0 0 0
April 2028................................................................ 3 0 0 0 0 0
April 2029................................................................ 0 0 0 0 0 0
---- ---- --- --- --- ---
Weighted Average Life in Years:
Without Optional Termination............................................ 23.1 10.0 5.5 3.8 2.2 1.2
With Optional Termination............................................... 23.1 9.5 5.0 3.5 2.0 1.2
</TABLE>
- -------------------------
* Indicates a value between 0.0% and 0.5%.
S-88
<PAGE>
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS M1 CERTIFICATES
----------------------------------------------
DISTRIBUTION DATE 0% 9% 18% 25% 35% 50%
- -------------------------------------------------------------------------- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100 100
April 2000................................................................ 100 100 100 100 100 100
April 2001................................................................ 100 100 100 100 100 100
April 2002................................................................ 100 100 100 100 100 0
April 2003................................................................ 100 100 88 61 100 0
April 2004................................................................ 100 100 71 45 46 0
April 2005................................................................ 100 100 58 34 14 0
April 2006................................................................ 100 97 47 25 9 0
April 2007................................................................ 100 87 38 18 6 0
April 2008................................................................ 100 77 30 14 4 0
April 2009................................................................ 100 69 24 10 1 0
April 2010................................................................ 100 62 20 7 0 0
April 2011................................................................ 100 55 16 5 0 0
April 2012................................................................ 100 48 12 4 0 0
April 2013................................................................ 100 42 10 2 0 0
April 2014................................................................ 100 36 8 0 0 0
April 2015................................................................ 100 32 6 0 0 0
April 2016................................................................ 100 28 5 0 0 0
April 2017................................................................ 100 24 4 0 0 0
April 2018................................................................ 100 21 2 0 0 0
April 2019................................................................ 100 18 * 0 0 0
April 2020................................................................ 100 16 0 0 0 0
April 2021................................................................ 100 13 0 0 0 0
April 2022................................................................ 94 11 0 0 0 0
April 2023................................................................ 83 9 0 0 0 0
April 2024................................................................ 71 7 0 0 0 0
April 2025................................................................ 57 5 0 0 0 0
April 2026................................................................ 42 3 0 0 0 0
April 2027................................................................ 25 0 0 0 0 0
April 2028................................................................ 6 0 0 0 0 0
April 2029................................................................ 0 0 0 0 0 0
----- ----- ---- ---- ---- ----
Weighted Average Life in Years:
Without Optional Termination............................................ 26.3 14.1 7.9 5.8 5.3 2.4
With Optional Termination............................................... 26.2 13.3 7.1 5.2 4.8 2.4
</TABLE>
<TABLE>
<CAPTION>
CLASS M2 CERTIFICATES
----------------------------------------------
DISTRIBUTION DATE 0% 9% 18% 25% 35% 50%
- -------------------------------------------------------------------------- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100 100
April 2000................................................................ 100 100 100 100 100 100
April 2001................................................................ 100 100 100 100 100 100
April 2002................................................................ 100 100 100 100 100 50
April 2003................................................................ 100 100 88 61 36 50
April 2004................................................................ 100 100 71 45 22 48
April 2005................................................................ 100 100 58 34 14 20
April 2006................................................................ 100 97 47 25 9 5
April 2007................................................................ 100 87 38 18 6 0
April 2008................................................................ 100 77 30 14 1 0
April 2009................................................................ 100 69 24 10 0 0
April 2010................................................................ 100 62 20 7 0 0
April 2011................................................................ 100 55 16 5 0 0
April 2012................................................................ 100 48 12 1 0 0
April 2013................................................................ 100 42 10 0 0 0
April 2014................................................................ 100 36 8 0 0 0
April 2015................................................................ 100 32 6 0 0 0
April 2016................................................................ 100 28 4 0 0 0
April 2017................................................................ 100 24 1 0 0 0
April 2018................................................................ 100 21 0 0 0 0
April 2019................................................................ 100 18 0 0 0 0
April 2020................................................................ 100 16 0 0 0 0
April 2021................................................................ 100 13 0 0 0 0
April 2022................................................................ 94 11 0 0 0 0
April 2023................................................................ 83 9 0 0 0 0
April 2024................................................................ 71 7 0 0 0 0
April 2025................................................................ 57 4 0 0 0 0
April 2026................................................................ 42 0 0 0 0 0
April 2027................................................................ 25 0 0 0 0 0
April 2028................................................................ 6 0 0 0 0 0
April 2029................................................................ 0 0 0 0 0 0
----- ----- ---- ---- ---- ----
Weighted Average Life in Years:
Without Optional Termination............................................ 26.3 14.1 7.8 5.7 4.5 4.4
With Optional Termination............................................... 26.2 13.3 7.1 5.1 4.2 3.1
</TABLE>
- -------------------------
* Indicates a value between 0.0% and 0.5%.
S-89
<PAGE>
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE
OFFERED CERTIFICATES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS B CERTIFICATES
----------------------------------------------
DISTRIBUTION DATE 0% 9% 18% 25% 35% 50%
- -------------------------------------------------------------------------- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100 100
April 2000................................................................ 100 100 100 100 100 100
April 2001................................................................ 100 100 100 100 100 100
April 2002................................................................ 100 100 100 100 100 100
April 2003................................................................ 100 100 88 61 35 51
April 2004................................................................ 100 100 71 45 22 1
April 2005................................................................ 100 100 58 34 14 0
April 2006................................................................ 100 97 47 25 6 0
April 2007................................................................ 100 87 38 18 1 0
April 2008................................................................ 100 77 30 14 0 0
April 2009................................................................ 100 69 24 8 0 0
April 2010................................................................ 100 62 20 4 0 0
April 2011................................................................ 100 55 16 * 0 0
April 2012................................................................ 100 48 12 0 0 0
April 2013................................................................ 100 42 8 0 0 0
April 2014................................................................ 100 36 4 0 0 0
April 2015................................................................ 100 32 1 0 0 0
April 2016................................................................ 100 28 0 0 0 0
April 2017................................................................ 100 24 0 0 0 0
April 2018................................................................ 100 21 0 0 0 0
April 2019................................................................ 100 18 0 0 0 0
April 2020................................................................ 100 16 0 0 0 0
April 2021................................................................ 100 13 0 0 0 0
April 2022................................................................ 94 9 0 0 0 0
April 2023................................................................ 83 6 0 0 0 0
April 2024................................................................ 71 3 0 0 0 0
April 2025................................................................ 57 0 0 0 0 0
April 2026................................................................ 42 0 0 0 0 0
April 2027................................................................ 25 0 0 0 0 0
April 2028................................................................ 2 0 0 0 0 0
April 2029................................................................ 0 0 0 0 0 0
----- ----- ---- ---- ---- ----
Weighted Average Life in Years:
Without Optional Termination............................................ 26.3 13.9 7.7 5.5 4.2 4.1
With Optional Termination............................................... 26.2 13.3 7.1 5.1 3.9 3.3
</TABLE>
- -------------------------
* Indicates a value between 0.0% and 0.5%.
S-90
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The Trust Agreement provides that the Trust Fund, exclusive of the assets
held in the Basis Risk Reserve Fund, will comprise several 'Lower Tier REMICs'
and an 'Upper Tier REMIC' organized in a tiered REMIC structure. Each Lower Tier
REMIC will issue uncertificated regular interests and those interests will be
held entirely by the REMIC immediately above it in the tiered structure. Each of
the Lower Tier REMICs and the Upper Tier REMIC will designate a single class of
interests as the residual interest in that REMIC. The Class R Certificate will
represent ownership of the residual interests in each of the REMICs. Elections
will be made to treat each Lower Tier REMIC and the Upper Tier REMIC as a REMIC
for federal income tax purposes.
Each class of Offered Certificates and the Class X Certificate will
represent beneficial ownership of a corresponding class of regular interests
issued by the Upper Tier REMIC. In addition, each of the Offered Certificates
will represent a beneficial interest in the right to receive payments from the
Basis Risk Reserve Fund.
Upon the issuance of the Offered Certificates, Brown & Wood LLP ('Tax
Counsel') will deliver its opinion to the effect that, assuming compliance with
the Trust Agreement, for federal income tax purposes, each Lower Tier REMIC and
the Upper Tier REMIC will qualify as a REMIC within the meaning of Section 860D
of the Internal Revenue Code of 1986, as amended (the 'Code'). In addition, Tax
Counsel will deliver an opinion to the effect that the Basis Risk Reserve Fund
is an 'outside reserve fund' that is beneficially owned by the holder of the
Class X Certificate. Moreover, Tax Counsel will deliver an opinion to the effect
that the rights of the holders of the Offered Certificates to receive payments
from the Basis Risk Reserve Funds represent, for federal income tax purposes,
interests in an interest rate cap contract.
TAXATION OF REGULAR INTERESTS
A holder of a Class of Offered Certificates will be treated for federal
income tax purposes as owning an interest in the corresponding Class of Regular
Interests in the Upper Tier REMIC and an interest in limited recourse interest
rate cap contracts (the 'Cap Contracts'). A holder of an Offered Certificate
must allocate its purchase price for the Offered Certificate between its
components -- the REMIC Regular Interest component and the Cap Contract
components. For information reporting purposes, the Trustee will assume that,
with respect to any Offered Certificate, the Cap Contract components will have
only nominal value relative to the value of the Regular Interest component. The
IRS could, however, argue that the Cap Contract components have significant
value, and if that argument were to be sustained, the Regular Interest component
could be viewed as having been issued with an additional amount of original
issue discount ('OID') (which could cause the total amount of OID to exceed a
statutorily defined de minimis amount). See 'Certain Federal Income Tax
Considerations -- Taxation of Regular Interest Certificates -- Interest and
Acquisition Discount' in the Prospectus.
Upon the sale, exchange, or other disposition of an Offered Certificate,
the holder must allocate the amount realized between the components of the
Offered Certificate based on the relative fair market values of those components
at the time of sale. Assuming that an Offered Certificate is held as a 'capital
asset' within the meaning of section 1221 of the Code, gain or loss on the
disposition of an interest in the Cap Contract component should be capital gain
or loss, and gain or loss on the disposition of the Regular Interest component
should, subject to the limitation described below, be capital gain or loss. Gain
attributable to the Regular Interest components of an Offered Certificate will
be treated as ordinary income, however, to the extent such gain does not exceed
the excess, if any, of (1) the amount that would have been includible in the
holder's gross income with respect to the Regular Interest component had income
thereon accrued at a rate equal to 110% of the applicable federal rate as
defined in section 1274(d) of the
S-91
<PAGE>
Code determined as of the date of purchase of the Offered Certificate over (2)
the amount actually included in such holder's income.
The Internal Revenue Service Restructuring and Reform Act of 1998, which
was enacted into law on July 22, 1998, reduced from 18 months to one year the
period during which an individual holder of Offered Certificates must hold such
Certificates in order to benefit from the 20% preferential maximum capital gains
rate upon the sale or exchange of such Certificates. The new provision generally
applies to taxable years ending after December 31, 1997.
Interest on the Regular Interest component of an Offered Certificate must
be included in income by a holder under the accrual method of accounting,
regardless of the holder's regular method of accounting. In addition, the
Regular Interest component of an Offered Certificate could be considered to have
been issued with OID. 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
accrual of any OID, market discount, or bond premium, if any, will be a rate
equal to 25% CPR. No representation is made that the Mortgage Loans will prepay
at such a rate or at any other rate. OID must be included in income as it
accrues on a constant yield method, regardless of whether the holder receives
currently the cash attributable to such OID.
STATUS OF THE OFFERED CERTIFICATES
The Regular Interest components of the Offered Certificates will be treated
as assets described in Section 7701(a)(19)(C) of the Code, and as 'real estate
assets' under Section 856(c)(5)(B) of the Code, generally, in the same
proportion that the assets of the Trust Fund, exclusive of the Basis Risk
Reserve Fund, would be so treated. In addition, to the extent the Regular
Interest component of an Offered Certificate represents real estate assets under
section 856(c)(5)(B) of the Code, the interest derived from that component would
be interest on obligations secured by interests in real property for purposes of
section 856(c)(3) of the Code. The Cap Contract components of an Offered
Certificate will not, however, qualify as an asset described in Section
7701(a)(19)(C) of the Code or as a real estate asset under Section 856(c)(5)(B)
of the Code.
THE BASIS RISK RESERVE FUND
As indicated above, a portion of the purchase price paid by a holder to
acquire an Offered Certificate will be attributable to the Cap Contract
components of such Offered Certificate. The portion of the overall purchase
price attributable to the Cap Contract components must be amortized over the
life of an Offered Certificate, taking into account the declining balance of the
related Regular Interest component. Treasury regulations concerning notional
principal contracts provide alternative methods for amortizing the purchase
price of an interest rate cap contract. Under one method -- the level yield
constant interest method -- the price paid for an interest rate cap is amortized
over the life of the cap as though it were the principal amount of a loan
bearing interest at a reasonable rate. Holders are urged to consult their tax
advisors concerning the methods that can be employed to amortize the portion of
the purchase price paid for the Cap Contract components of an Offered
Certificate.
Any payments made to a holder from the Basis Risk Reserve Fund will be
treated as periodic payments on an interest rate cap contract. To the extent the
sum of such periodic payments for any year exceeds that year's amortized cost of
the Cap Contract component, such excess is ordinary income. If for any year the
amount of that year's amortized cost exceeds the sum of the periodic payments,
such excess is allowable as an ordinary deduction.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see 'Certain Federal Income Tax
Considerations' in the Prospectus.
S-92
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Certificates will not constitute 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended.
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.
See 'Legal Investment Considerations' in the Prospectus.
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 amended (the 'Act'). The Underwriting Agreement provides that the
Depositor will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Act.
Expenses incurred by the Depositor in connection with this offering are
expected to be approximately $525,000.
Lehman Brothers has entered into an agreement with the Depositor to
purchase the Class X Certificate and the Residual Certificate simultaneously
with the purchase of the Offered Certificates, subject to certain conditions.
The Underwriter is an affiliate of the Depositor and Aurora.
After the initial distribution of the Offered Certificates by the
Underwriter, the Prospectus and Prospectus Supplement may be used by the
Underwriter, which is an affiliate of the Seller, the Depositor and Aurora, in
connection with market making transactions in the Offered Certificates. The
Underwriter may act as principal or agent in such transactions. Such
transactions will be at prices related prevailing market prices at the time of
sale.
S-93
<PAGE>
ERISA CONSIDERATIONS
EMPLOYEE BENEFIT PLANS ('PLANS') THAT ARE SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ('ERISA'), AND ANY PERSON
UTILIZING THE ASSETS OF SUCH A PLAN, MAY NOT PURCHASE THE OFFERED 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 Offered Certificates.
See 'ERISA Considerations' in the accompanying Prospectus.
LEGAL MATTERS
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 Class A1, Class A2, Class A3 and
Class A4 Certificates that they be rated 'AAA' by each of Standard & Poor's
Rating Services, a division of the McGraw-Hill Companies, Inc. ('S&P') and Duff
& Phelps Credit Rating Co. ('DCR' and together with S&P, the 'Rating Agencies'
or a 'Rating Agency'). It is a condition to the issuance of the Class AIO
Certificates that they be rated 'AAAr' by S&P and 'AAA' by DCR. It is a
condition to the issuance of the Class M1 Certificates that they be rated 'AA'
by each Rating Agency. It is a condition to the issuance of the Class M2
Certificates that they be rated 'A' by each Rating Agency. It is a condition to
the issuance of the Class B Certificates that they be rated 'BBB' by each Rating
Agency.
The rating of 'AAA' is the highest rating that each Rating Agency assigns
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.
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
holders of Offered Certificates 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 holders
of Offered Certificates might suffer a lower than anticipated yield due to
prepayments. In addition, the ratings do not address the likelihood that any
Basis Risk Shortfall or Unpaid Basis Risk Shortfall will be repaid to
Certificateholders from Monthly Excess Cashflow.
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.
S-94
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ---------------------------------------- ----------
<S> <C>
A-2 Spread.............................. S-24
A-3 Spread.............................. S-24
A-4 Spread.............................. S-24
Accrual Period.......................... S-25
Act..................................... S-93
Adjustable Rate Mortgage Loans ......... S-38
Adjustment Date......................... S-40
Advances................................ Prospectus
Aggregate Expense Rate.................. S-24
Aggregate Loan Balance.................. S-34
Aggregate Overcollateralization Release
Amount................................ S-33
Applied Loss Amount..................... S-35
Aurora.................................. S-70
B Principal Distribution Amount ........ S-32
Balloon Loans........................... S-39
Balloon Payments........................ S-39
Basic Fee............................... S-75
Basic Fee Rate.......................... S-75
Basis Risk Reserve Fund................. S-25
Basis Risk Shortfall.................... S-25
BCD Mortgage Loan....................... S-72
Beneficial Owner........................ S-19
Bloomberg Screen LIUS01M Index Page..... S-27
Book-Entry Certificates................. S-19
Business Day............................ S-19
Cap Contracts........................... S-91
Carryforward Interest................... S-25
Cedel................................... S-19
Cedel Participants...................... S-21
Certificate Account..................... Prospectus
Certificate Owners...................... S-19
Certificate Principal Amount............ S-24
Certificateholder....................... Prospectus
Certificates............................ S-18
Class Notional Amount................... S-18
Class Principal Amount.................. S-18
Closing Date............................ S-19
Code.................................... S-91
Collection Account...................... Prospectus
Collection Period....................... S-28
Combined Loan-to-Value Ratio ........... S-39
Compensating Interest................... S-27
Cooperative............................. S-21
<CAPTION>
DEFINED TERMS PAGE
- ---------------------------------------- ----------
<S> <C>
Corporate Trust Office.................. S-37
CPR..................................... S-82
Current Interest........................ S-25
Cut-off Date............................ Prospectus
Cut-off Date Balance.................... S-38
Cut-off Date Pool Balance............... S-38
DCR..................................... S-94
Deferred Amount......................... S-36
Definitive Certificate.................. S-19
Delayed Adjustment Mortgage Loans....... S-39
Delinquency Rate........................ S-31
Depositor............................... S-19
Directing Holder........................ S-77
Distribution Date....................... S-18
DTC..................................... S-19
ERISA................................... S-94
Euroclear............................... S-19
Euroclear Operator...................... S-21
Euroclear Participants.................. S-21
European Depositaries................... S-19
Fannie Mae.............................. Prospectus
FHA..................................... Prospectus
Final Scheduled Distribution Date ...... Prospectus
Financial Intermediary.................. S-20
Fixed Rate Mortgage Loans............... S-38
Freddie Mac............................. Prospectus
Ginnie Mae.............................. Prospectus
Global Securities....................... S-99
Gross Margin............................ S-40
Harbourton.............................. S-70
HUD..................................... S-72
Index................................... S-41
Initial Cap............................. S-40
Initial Purchase Date................... S-37
Interest Rate........................... S-23
Interest Rate Cap....................... S-24
Interest Remittance Amount.............. S-25
Lehman Brothers......................... S-70
Lehman Capital.......................... S-39
LIBOR................................... S-27
LIBOR Certificates...................... S-18
LIBOR Determination Date................ S-27
Liquidated Mortgage Loan................ S-34
London Banking Day...................... S-27
</TABLE>
S-95
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ---------------------------------------- ----------
Lower Tier REMICs....................... S-91
<S> <C>
M-1 Principal Distribution Amount....... S-32
M-1 Spread.............................. S-24
M-2 Principal Distribution Amount....... S-32
M-2 Spread.............................. S-24
Master Servicer......................... S-70
Master Servicing Fee.................... S-75
Master Servicing Fee Rate............... S-75
Maximum Interest Rate................... S-25
Maximum Rate............................ S-40
Minimum Rate............................ S-40
Modeling Assumptions.................... S-83
Monthly Excess Cashflow................. S-35
Monthly Excess Interest................. S-26
Mortgage................................ Prospectus
Mortgage Loans.......................... S-18
Mortgage Note........................... Prospectus
Mortgage Pool........................... S-18
Mortgage Rate........................... Prospectus
Mortgaged Property...................... Prospectus
Net Funds Cap........................... S-24
Net Liquidation Proceeds................ S-34
Net Mortgage Rate....................... S-24
Net Prepayment Interest Shortfalls ..... S-27
Nonresident............................. Prospectus
Norwest................................. S-70
Ocwen................................... S-72
Offered Certificates.................... S-18
Offered Subordinate Certificates ....... S-18
OID..................................... S-91
One-Year LIBOR Index.................... S-41
Optimal Interest Remittance Amount...... S-24
Optional Termination.................... S-37
Overcollateralization Amount............ S-33
Overcollateralization Deficiency ....... S-33
Overcollateralization Release Amount.... S-33
Participant............................. S-20
Payahead................................ S-26
Periodic Cap............................ S-40
Plans................................... S-94
Pool 1.................................. S-18
Pool 2.................................. S-18
Pool 3.................................. S-18
<CAPTION>
DEFINED TERMS PAGE
- ---------------------------------------- ----------
<S> <C>
Pool Balance............................ S-34
Pool Percentage......................... S-33
Prepayment Interest Shortfall........... S-27
Prepayment Period....................... S-28
Principal Distribution Amount........... S-28
Principal Remittance Amount............. S-28
Prospectus.............................. Prospectus
Purchase Price.......................... S-37
Rating Agencies......................... S-94
Realized Loss........................... S-34
Record Date............................. S-18
Reference Banks......................... S-27
Relevant Depositary..................... S-19
REMIC................................... Prospectus
REO Property............................ Prospectus
Reserve Interest Rate................... S-27
Residual Certificate.................... S-18
Rolling Three Month Delinquency Rate.... S-31
Rules................................... S-20
S&P..................................... S-94
Sale Agreement.......................... S-78
Sale and Assignment Agreement .......... S-79
Scheduled Payment....................... S-38
Scheduled Principal Balance............. S-33
Seller.................................. S-39
Senior Certificates..................... S-18
Senior Enhancement Percentage .......... S-33
Senior Principal Distribution Amount.... S-32
Senior Proportionate Percentage ........ S-32
Servicers............................... S-75
Servicing Agreement..................... S-75
Servicing Fee........................... S-75
Servicing Fee Rate...................... S-75
Servicing Systems....................... S-74
Six-Month LIBOR Index................... S-40
Southern Pacific........................ S-39
Special Servicer........................ S-72
Special Servicer Incentive Fee.......... S-76
Special Servicing Agreement............. S-72
Spread.................................. S-24
Stepdown Date........................... S-31
Subordinate Certificates................ S-18
Substitution Amount..................... S-26
Systems................................. S-23
Target Amount 1......................... S-31
</TABLE>
S-96
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ---------------------------------------- ----------
Target Amount 2......................... S-31
<S> <C>
Target Amount 3......................... S-31
Targeted Overcollateralization Amount... S-33
Tax Counsel............................. S-91
Terms and Conditions.................... S-22
Transferred Mortgage Loan............... S-75
Trigger Event........................... S-31
Trust Agreement......................... S-78
Trust Fund.............................. S-18
Trustee................................. S-37
<CAPTION>
DEFINED TERMS PAGE
- ---------------------------------------- ----------
<S> <C>
Trustee Fee............................. S-37
Trustee Fee Rate........................ S-38
U.S. Person............................. S-102
Underwriter............................. S-70
Underwriting Agreement.................. S-93
Unpaid Basis Risk Shortfall............. S-25
Upper Tier REMIC........................ S-91
Year 2000 Problems...................... S-23
Year 2000 Ready......................... S-74
</TABLE>
S-97
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S-98
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Structured
Asset Securities Corporation Mortgage Pass-Through Certificates, Series 1999-SP1
(the 'Global Securities') will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior mortgage loan asset backed
certificates issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior mortgage loan asset backed
certificates issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset backed certificates issues in same-day funds.
S-99
<PAGE>
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of either the actual number of days
in such accrual period and a year assumed to consist of 360 days or a 360-day
year of twelve 30-day months as applicable to the related class of Global
Securities. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary of the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Cedel Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
S-100
<PAGE>
coupon payment to and excluding the settlement date on the basis of either the
actual number of days in such accrual period and a year assumed to consist of
360 days or a 360-day year of twelve 30-day months as applicable to the related
class of Global Securities. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one day period.
If settlement is not completed on the intended value date (i.e., the trade
fails), receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to the settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (1) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(2) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the
S-101
<PAGE>
United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by the Certificate Owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term 'U.S. Person' means (1) a citizen or resident of the United
States, (2) a corporation or partnership organized in or under the laws of the
United States or any state or the District of Columbia (other than a partnership
that is not treated as a United States person under any applicable Treasury
regulations), (3) an estate the income of which is includible in gross income
for United States tax purposes, regardless of its source, or (4) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in regulations, certain trusts in existence on
August 20, 1996 and treated as United States persons prior to such date that
elect to continue to be so treated also shall be considered U.S. Persons. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
S-102
<PAGE>
PROSPECTUS
STRUCTURED ASSET SECURITIES CORPORATION
DEPOSITOR
ASSET TRUST PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
-------------------------
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
For a list of capitalized terms used in this prospectus, see the Glossary
beginning on page 116.
The certificates will represent interest in the trust fund only and will
not represent interests in or obligations of any other entity.
This prospectus may be used to offer and sell any series of certificates
only if accompanied by the prospectus supplement for that series.
- --------------------------------------------------------------------------------
The Trustee, on behalf of the Trust Fund:
o may periodically issue asset trust pass-through certificates in one or more
series with one or more classes; and
o will own --
o mortgage loans or participation interests in mortgage loans, including
manufactured home loans;
o mortgage backed certificates insured or guaranteed by FNMA, FHLMC or
GNMA;
o private mortgage backed certificates as described in this prospectus;
o payments due on those mortgage loans and mortgage backed certificates;
o other property described in this prospectus and the accompanying
prospectus supplement; and
o may elect to have the assets of the trust fund characterized as a real
estate mortgage investment conduit or financial asset securitization
investment trust for tax purposes.
The Certificates:
o will represent interests in the trust fund and will be paid only from the
trust fund assets described in this prospectus;
o may have one or more forms of credit enhancement; and
o will be issued as part of a designated series which may include one or more
classes of certificates and forms of credit enhancement.
The Certificateholders:
o will receive distributions of principal and interest that are dependent
upon the rate of payments, including prepayments, on the mortgage loans,
mortgage backed certificates and other assets in the trust fund.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
LEHMAN BROTHERS
The date of this prospectus is January 15, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate
documents that progressively provide more detail: (a) this prospectus which
provides general information, some of which may not apply to a particular series
of certificates, including your certificates, and (b) the accompanying
prospectus supplement, which will describe the specific terms of your series of
certificates, including:
o the timing of interest and principal payments;
o information about the particular mortgage loans, mortgage backed
certificates and other assets in a trust fund;
o information about any credit enhancement provided for a class of
certificates;
o the ratings for each class of certificates; and
o the method for selling the certificates.
IF THE TERMS OF A PARTICULAR SERIES OF CERTIFICATES VARY BETWEEN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference to other public filings made by the Depositor. We have not authorized
anyone to provide you with any other information. We are not offering the
certificates in any state where the offer is not permitted. We do not claim that
the information in this prospectus or the accompanying prospectus supplement is
accurate as of any date other than the dates stated on their respective covers.
We include cross references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms............................... 5
Depositor.................................... 5
Certificates Offered......................... 5
Distributions................................ 5
The Trust Fund............................... 6
Mortgage Backed Securities................... 6
Mortgage Loans............................... 6
Guaranteed Investment Contracts and Other
Agreements................................ 6
Pre-Funding Account.......................... 6
Collection and Certificate Accounts.......... 7
Final Scheduled Distribution Date............ 7
Optional Termination or Purchase of
Certificates.............................. 7
Trustee...................................... 7
Servicing of Mortgage Loans.................. 7
Credit Enhancement........................... 7
Material Federal Income Tax Consequences..... 8
Legal Investment Considerations.............. 8
Erisa Considerations......................... 8
Use of Proceeds.............................. 8
Ratings...................................... 8
Risk Factors................................... 9
Limited Ability to Resell Certificates....... 9
Adverse Effect of Prepayments on the Yield
and Maturity of Certificates.............. 9
Principal Prepayments Not Addressed by
Ratings................................... 10
Potential Inadequacy of Credit
Enhancement............................... 10
Bankruptcy................................... 10
Recent Origin of Certain Loan
Types..................................... 11
Greater Risks Involving Certain Property
Types..................................... 11
Limited Obligations and Assets of the
Depositor................................. 11
Limitations of FNMA and FHLMC Guaranties..... 12
ERISA Considerations......................... 12
Description of the Certificates................ 13
General...................................... 13
Distributions on the Certificates............ 13
Optional Termination......................... 15
Optional Purchase of Certificates............ 16
Other Purchases.............................. 16
Book-Entry Registration...................... 16
<CAPTION>
PAGE
----
<S> <C>
Yield, Prepayment and Maturity
Considerations............................... 17
Payment Delays............................... 17
Principal Prepayments........................ 18
Timing of Reduction of Principal
Amount.................................... 18
Interest or Principal Weighted
Certificates.............................. 18
Final Scheduled Distribution Date............ 18
Prepayments and Weighted Average
Life...................................... 19
Other Factors Affecting Weighted
Average Life.............................. 20
The Trust Funds................................ 21
General...................................... 21
GNMA Certificates............................ 22
FNMA Certificates............................ 24
FHLMC Certificates........................... 25
Private Mortgage-Backed Securities........... 28
The Mortgage Loans........................... 30
The Manufactured Home Loans.................. 33
Pre-Funding Arrangements..................... 35
Collection Account and Certificate Account... 35
Other Funds or Accounts...................... 36
Loan Underwriting Procedures and
Standards.................................... 37
Underwriting Standards....................... 37
Loss Experience.............................. 38
Representations and Warranties............... 39
Substitution of Primary Assets............... 40
Servicing of Loans............................. 41
General...................................... 41
Collection Procedures; Escrow
Accounts.................................. 42
Deposits to and Withdrawals from the
Collection Account........................ 42
Servicing Accounts........................... 44
Buy-Down Loans, GPM Loans and Other
Subsidized Loans.......................... 44
Advances and Limitations Thereon............. 46
Maintenance of Insurance Policies and Other
Servicing Procedures...................... 46
Presentation of Claims; Realization Upon
Defaulted Loans........................... 49
Enforcement of Due-On-Sale Clauses........... 50
Certain Rights Related to Foreclosure........ 50
Servicing Compensation and Payment of
Expenses.................................. 51
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
Evidence as to Compliance.................... 51
<S> <C>
Certain Matters Regarding the Master
Servicer.................................. 52
Credit Support................................. 53
General...................................... 53
Subordinate Certificates; Subordination
Reserve Fund.............................. 53
Cross-Support Features....................... 54
Insurance.................................... 55
Letter of Credit............................. 55
Certificate Guarantee Insurance.............. 55
Reserve Funds................................ 56
Description of Mortgage and Other
Insurance.................................... 56
Mortgage Insurance on the Loans.............. 57
Hazard Insurance on the Loans................ 61
Bankruptcy Bond.............................. 63
Repurchase Bond.............................. 64
The Trust Agreements........................... 64
Assignment of Primary Assets................. 64
Repurchase and Substitution of Non-Conforming
Loans..................................... 67
Reports To Certificateholders................ 68
Investment of Funds.......................... 69
Event of Default............................. 70
Rights Upon Event of Default................. 70
The Trustee.................................. 71
Duties of the Trustee........................ 71
Resignation of Trustee....................... 72
Certificate Account.......................... 72
Expense Reserve Fund......................... 72
Amendment of Trust Agreement................. 72
Voting Rights................................ 73
List of Certificateholders................... 73
REMIC or FASIT Administrator................. 73
Termination.................................. 73
Certain Legal Aspects of Loans................. 74
Mortgages.................................... 74
Junior Mortgages; Rights of Senior
Mortgages................................. 75
Cooperative Loans............................ 76
Foreclosure on Mortgages..................... 78
Realizing Upon Cooperative Loan
Security.................................. 79
Rights of Redemption......................... 80
Anti-Deficiency Legislation and Other
Limitations on Lenders.................... 81
Soldiers' and Sailors' Civil Relief Act of
1940...................................... 83
<CAPTION>
PAGE
----
<S> <C>
Environmental Risks.......................... 83
Due-on-Sale Clauses in Mortgage
Loans..................................... 84
Enforceability of Prepayment and Late Payment
Fees...................................... 85
Equitable Limitations on Remedies............ 85
Applicability of Usury Laws.................. 86
Adjustable Interest Rate Loans............... 86
Manufactured Home Loans...................... 87
Material Federal Income Tax
Considerations............................... 89
General...................................... 89
Characterization of Certificates............. 90
Qualification as a REMIC..................... 90
Qualification as a FASIT..................... 91
Taxation of Regular Interest
Certificates.............................. 93
Sale or Exchange of Regular Interest
Certificates.............................. 97
Taxation of the REMIC........................ 98
Taxation of Holders of Residual Interest
Certificates.............................. 99
Restrictions on Ownership and Transfer of
REMIC Residual Interest Certificates...... 101
REMIC Expenses............................... 102
Administrative Matters....................... 102
Taxation of Holders of FASIT
High-Yield Interests...................... 102
Taxation of Holders of FASIT
Ownership Interests....................... 103
Tax Status as a Grantor Trust................ 103
Miscellaneous Tax Aspects.................... 107
Tax Treatment of Foreign Investors........... 108
State Tax Considerations....................... 108
ERISA Considerations........................... 109
Legal Investment Considerations................ 112
Legal Matters.................................. 113
The Depositor.................................. 113
Use of Proceeds................................ 113
Plan of Distribution........................... 114
Additional Information......................... 114
Incorporation of Certain Documents by
Reference.................................... 115
Reports to Certificateholders.................. 115
Glossary....................................... 116
</TABLE>
4
<PAGE>
SUMMARY OF TERMS
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE
CERTIFICATES, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
o THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS AND
OTHER INFORMATION TO AID YOUR UNDERSTANDING, BUT IT IS QUALIFIED BY THE FULL
DESCRIPTION OF THESE CALCULATIONS, CASH FLOWS AND OTHER INFORMATION IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
DEPOSITOR
Structured Asset Securities Corporation, a limited purpose Delaware
corporation organized primarily for the purpose of acquiring assets for each
trust fund.
See 'The Depositor.'
CERTIFICATES OFFERED
The Depositor will establish separate trust funds, each of which will issue
a series of asset trust pass-through certificates. The certificates of each
series will evidence beneficial interests in the trust fund or in a segregated
pool of trust fund assets.
Each series of certificates may be divided into one or more classes. The
related prospectus supplement will describe the certificates in detail.
The certificates of each series will be entitled to payment only from the
assets of the related trust fund.
The certificates of any class of any series may be:
o subordinated in right to receive payments and subject to allocation of losses
in favor or one or more other classes of certificates of such series,
o entitled to receive payments:
o allocable only to principal, only to interest or to any combination of
principal and interest,
o allocable to prepayments of principal throughout the life of such certificates
or only during specified periods,
o only after the occurrence of specified events, or
o in accordance with a specified schedule or formula or on the basis of
payments, on specified portions of the mortgage assets.
In the case of certificates entitled to receive payments allocable to
interest, such certificates may receive:
o interest at a specified annual interest rate, which may be fixed, variable or
adjustable and may differ from the interest rate at which other classes of
certificates of such series are entitled to receive interest, and
o such payments only after the occurrence of specified events with interest
accruing until such events occur, in each case as specified in the related
prospectus supplement.
Unless otherwise specified in the related prospectus supplement, the
certificates of a series will not be guaranteed by any governmental agency or
instrumentality or any other person or entity.
The Depositor, a seller or one of their affiliates may retain or hold for
sale from time to time one or more classes of certificates.
See 'Description of the Certificates.'
DISTRIBUTIONS
Each prospectus supplement will specify:
o when payments will be made to the certificates
o the amount of each payment allocable to principal and interest; and
o how the amounts distributed will be determined.
See 'Description of the Certificates -- Allocation of Distributions.'
5
<PAGE>
THE TRUST FUND
The trust fund for a series will consist of one or a combination of the
assets listed below, a collection account and certificate account, and may
include certain insurance policies and other various forms of credit support to
be specified in the related prospectus supplement.
See 'The Trust Funds -- Collection Account and Certificate Account,'
'Credit Support,' and 'Description of Mortgage and Other Insurance.'
The primary assets for a series of certificates may consist of any
combination of the following:
MORTGAGE BACKED SECURITIES
o securities insured or guaranteed by FNMA, FHLMC or GNMA; and
o mortgage backed debt or equity securities that are not guaranteed or insured
by the United States or an agency or instrumentality of the United States.
MORTGAGE LOANS
o Single family loans: mortgage loans secured by liens on one- to four-family
residential and mixed use properties, or participation interests in such
loans;
o Cooperative loans: loans secured by security interests in or similar liens on
shares in private, non-profit cooperative housing corporations and on the
related proprietary leases or occupancy agreements, or participation interests
in such loans;
o Condominium loans: loans secured by a mortgage on a condominium unit, together
with the condominium unit's interest in the common elements, or participation
interests in such loans;
o Multifamily loans: mortgage loans secured by liens on residential and mixed
use properties with five or more dwelling units, including buildings owned by
cooperatives, or participation interests in such loans; and
o Manufactured home loans: manufactured housing conditional sales contracts and
installment loan agreements, or participation interests in such loans.
All liens may be first, second or more -- junior liens.
All or a portion of the mortgage loans in a mortgage pool may be insured by
the FHA and may be partially guaranteed by the VA, if so specified in the
related prospectus supplement.
The mortgaged properties may be located in any of the 50 states, the
District of Columbia and Commonwealth of Puerto Rico. The principal
characteristics of the mortgage loans included in a trust fund will be described
in the related prospectus supplement.
GUARANTEED INVESTMENT CONTRACTS AND OTHER AGREEMENTS
o investment contracts or reinvestment agreements pursuant to which money will
be held in one or more funds or accounts on behalf of a series of certificates
and invested at a specified rate.
PRE-FUNDING ACCOUNT
A trust may enter into a pre-funding arrangement with the Depositor for the
transfer of additional mortgage assets to the trust following the issuance of
the related certificates. If a pre-funding agreement is used, the trustee will
be required to deposit in a segregated pre-funding account a portion of the
proceeds of sale of the related certificates. Thereafter, the trustee will
acquire additional mortgage assets in exchange for money in the segregated
account pre-funding account.
The trustee will apply any proceeds remaining in the pre-funding account at
the end of a specified period, not to exceed three months, as a mandatory
prepayment of certificates as specified in the related prospectus supplement.
See 'The Trust Funds -- Pre-Funding Arrangements.'
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COLLECTION AND CERTIFICATE ACCOUNTS
Payments on the assets in a trust fund will initially be remitted for
deposit in a collection account maintained by the trustee, servicer or master
servicer. Funds on deposit in the collection account will then be transferred to
a certificate account to be established with the trustee for the series of
certificates related to the trust fund. Certain amounts may be subtracted from
the amount deposited in the certificate account to cover servicing fees and
other amounts specified in the related prospectus supplement. The remaining
funds on deposit in the certificate account will be distributed by the trustee
to the certificateholders of a series as described in the related prospectus
supplement.
See 'The Trust Funds -- Collection Account and Certificate Account.'
FINAL SCHEDULED DISTRIBUTION DATE
The final scheduled distribution date for each class of a series will be
set forth in the related prospectus supplement and will be determined as
described in the related prospectus supplement. The final scheduled distribution
date may vary from the actual maturity date of the certificates of a series
because the actual maturity date will depend primarily upon the level of
prepayments with respect to the assets in the related trust fund and the
applicable payment priorities.
See 'Risk Factors' and 'Yield, Prepayment and Maturity Considerations.'
OPTIONAL TERMINATION OR PURCHASE OF CERTIFICATES
The certificates may be subject to early retirement or mandatory purchase.
See 'Description of the Certificates -- Optional Termination' and
'-- Purchases.'
TRUSTEE
The trustee for each series of certificates will be identified in the
related prospectus supplement.
SERVICING OF MORTGAGE LOANS
One or more servicers, which may include an affiliate of the Depositor,
will perform customary servicing functions for the mortgage loans included in
each trust fund. The servicer or servicers for a trust will be identified in the
related prospectus supplement.
A special servicer may be appointed to service, make certain decisions with
respect to, and take various actions with respect to delinquent or defaulted
mortgage loans or mortgage loans that are secured by mortgaged properties
acquired by foreclosure or by deed-in-lieu of foreclosure. The special servicer
for a series, if any, will be identified in the related prospectus supplement.
See 'Servicing of Mortgage Loans.'
CREDIT ENHANCEMENT
A trust may include, or the related certificates may be entitled to the
benefits of, certain ancillary or incidental assets intended to provide credit
enhancement for ultimate or timely distributions to the holders of such
certificates. These forms of credit enhancement may include reserve accounts,
insurance policies, guaranties, surety bonds, letters of credit, guaranteed
investment contracts, swap agreements, cap agreements and option agreements.
In addition, one or more classes of certificates of a series may be
entitled to the benefits of other credit enhancement arrangements, including
subordination, overcollateralization or cross support. The protection against
losses or delays afforded by any such assets or credit enhancement arrangements
may be limited.
The specific forms of credit enhancement available for a trust fund or one
or more classes of certificates representing beneficial interests in such trust
fund will be described in the related prospectus supplement.
See 'Credit Enhancement.'
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to the certificateholders will depend
on, among other factors, whether the related trust fund and/or specified
portions of the trust fund elect to be treated as 'real estate mortgage
investment conduits' (each, a 'REMIC') or 'financial asset securitization
investment trusts' (each, a 'FASIT') under the provisions of the Internal
Revenue Code of 1986, as amended, or if the trust fund does not elect to be
treated as a REMIC or FASIT, whether the certificates are considered to be trust
certificates, partnership interests or debt instruments.
The prospectus supplement for each series of certificates will specify
whether the related trust fund will make a REMIC or FASIT election.
We recommend that you consult your tax advisors concerning the application
of federal income tax laws to your particular situation.
See 'Material Federal Income Tax Consequences' herein and in the related
prospectus supplement.
LEGAL INVESTMENT CONSIDERATIONS
Some, but not all, of the certificates of a series may constitute
'mortgage-related securities' under the Secondary Mortgage Market Enhancement
Act of 1984 ('SMMEA') if they are rated in one of the two highest applicable
rating categories by at least one rating agency. Mortgage-related securities
will be 'legal investments' for certain types of institutional investors to the
extent provided in SMMEA, subject, in each case, to state laws overriding SMMEA
and to any other regulations which may govern investments by such institutional
investors. Certificates that do not constitute 'mortgage-related securities' may
not be legal investments to the same extent as mortgage-related securities which
will limit certain investors' ability to invest in, sell or otherwise deal in
such certificates.
See 'Legal Investment Considerations' herein and in the related prospectus
supplement.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended, or the Code, should carefully review
whether an investment in certificates could give rise to a transaction
prohibited or not otherwise permissible. Certain classes of certificates may not
be offered for sale or transfer to such plans.
See 'ERISA Considerations' herein and in the related prospectus supplement.
USE OF PROCEEDS
The Depositor will use the net proceeds from the sale of a series of
certificates for one or more purposes described in the prospectus supplement.
See 'Use of Proceeds' herein and in the related prospectus supplement.
RATINGS
Each class of certificates offered by this prospectus and the related
prospectus supplement will be rated in one of the four highest rating categories
by one or more nationally recognized statistical rating organizations.
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RISK FACTORS
THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER
'RISK FACTORS' IN THE RELATED PROSPECTUS SUPPLEMENT.
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LIMITED ABILITY TO RESELL
CERTIFICATES............................ The underwriter is not required to assist in resales of the
certificates, although it may do so. A secondary market for any class
of certificates may not develop. If a secondary market does develop,
it might not continue or it might not be sufficiently liquid to allow
you to resell any of your certificates.
Because the market value of the certificates of each series will
fluctuate with changes in prevailing rates of interest, the sale of
the certificates by a certificateholder in any secondary market that
may develop may be at a discount from par value or from their
purchase price.
ADVERSE EFFECT OF PREPAYMENTS
ON THE YIELD AND MATURITY OF
CERTIFICATES............................ Prepayments, unless described otherwise in the related prospectus
supplement, include:
o voluntary prepayments by the obligors on the loans in a trust fund,
and
o liquidations on such loans due to defaults and foreclosures.
The rate at which prepayments occur on the loans underlying or
comprising the assets of a trust fund will be affected by a variety
of factors, such as the level of prevailing interest rates and
economic, demographic, tax, social, legal and other factors.
Prepayments will affect the average life and yield to investors of
each class of certificates, and the extent to which principal on any
such class is fully paid prior to its final scheduled distribution
date, if at all. This is particularly true where a series of
certificates includes 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 assets for such
series of certificates.
o Where the amount of interest allocated to an interest weighted
class is extremely disproportionate to principal,
certificateholders purchasing such certificates at a significant
premium could, under some rapid prepayment scenarios, fail to
recover their original investments.
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o If the interest rate on certificates of a series is based upon a
weighted average of interest rates on the loans comprising or
underlying the related trust fund 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 loans that bear
higher rates of interest are prepaid more quickly than those loans
that bear lower rates of interest.
See 'Yield, Prepayment and Maturity Considerations' herein.
PRINCIPAL PREPAYMENTS NOT
ADDRESSED BY RATINGS.................... Ratings assigned to certificates do not assess the likelihood of
principal prepayments on the loans underlying or comprising assets of
the trust fund, or the degree to which the rate of such prepayments
might differ from that originally anticipated. Ratings reflect only a
rating agency's assessment of the likelihood that timely
distributions will be made with respect to the certificates rated in
accordance with the related trust agreement. The rating assigned to a
certificate will not address the possibility that prepayment rates
higher or lower than anticipated by an investor may cause that
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 his or her initial investment.
See 'Yield, Prepayment and Maturity Considerations' herein.
POTENTIAL INADEQUACY OF CREDIT
ENHANCEMENT............................. The credit enhancement, if any, for a series of certificates may be
limited in amount and may be subject to periodic reduction in
accordance with a schedule or formula. In addition, such credit
enhancement may provide only very limited coverage as to certain
types of losses and may provide no coverage as to certain other types
of losses. The trustee may be permitted to reduce, terminate or
substitute all or a portion of the credit enhancement for any series
of certificates to the extent specified in the related prospectus
supplement.
See 'Credit Enhancement.'
BANKRUPTCY................................ The sellers and the Depositor intend that the transfers of assets to
the Depositor and, in turn, to the related trust fund constitute
sales rather than pledges to secure indebtedness for insolvency
purposes. In the event of the bankruptcy of a prior owner of the
assets, a trustee in bankruptcy or a creditor of the insolvent party
could attempt to recharacterize the sale of the assets by the
insolvent party as a borrowing secured by a pledge of assets. That
position, if argued or accepted by a court, could result in delays in
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payment on the certificates of the related series. If such an attempt
were successful, holders of the related certificates could suffer
losses, and could fail to fully recover their initial investments.
RECENT ORIGIN OF CERTAIN LOAN
TYPES................................... Certain loan types that may be included in the assets of a trust fund
such as GPM Loans, GEM Loans, ARMs and Buy-Down Loans are of
relatively recent origin. As a result, reliable prepayment, loss and
foreclosure statistics relating to these loan types may not be
available and the rating agencies may have difficulty in estimating
potential losses on such loans. To the extent that losses on these
loans exceed the levels estimated by the rating agency rating the
series of certificates in determining the required levels of
overcollateralization or other credit support, the trust fund may
experience a loss.
See 'Loan Underwriting Procedures and Standards' and 'Credit
Support.'
GREATER RISKS INVOLVING CERTAIN
PROPERTY TYPES.......................... 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 related trust fund may experience a loss.
See 'Servicing of Loans -- Maintenance of Insurance Policies or Other
Servicing Procedures' and 'Credit Support.'
LIMITED OBLIGATIONS AND ASSETS OF
THE 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 made in the trust agreement for a
specific trust fund. The Depositor does not have, and is not expected
in the future to have, any significant assets to meet any obligations
to repurchase assets that are the subject of a breach of any
representation or warranty. If the Depositor were required to
repurchase a loan, its only source of funds 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, servicer or
master servicer, or from a reserve fund established to provide funds
for such repurchases. If the Depositor cannot enforce a corresponding
obligation or
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there is no corresponding obligation to repurchase a loan, then the
trust fund will bear the full risk of holding such loan.
See 'The Depositor' herein.
LIMITATIONS OF FNMA AND FHLMC
GUARANTIES.............................. Although payments on FNMA and FHLMC Certificates are guaranteed by
FNMA and FHLMC, respectively, and FNMA and FHLMC are federally
chartered corporations, FNMA and FHLMC guaranties are not backed by
the full faith and credit of the United States. Neither the United
States nor any U.S. agency is obligated to finance or otherwise
assist either FNMA or FHLMC in any manner. So if the trust assets for
your certificates include FNMA and FHLMC certificates, although these
certificates will be guaranteed by the respective federally chartered
corporations, they will not be backed by the full faith and credit of
the United States.
See 'Additional Information' for the availability of further
information regarding FNMA and FHLMC.
ERISA CONSIDERATIONS...................... ERISA generally applies to investments made by employee benefit plans
and transactions involving the assets of such plans. Due to the
complexity of regulations that govern these plans, we recommend that
prospective investors subject to ERISA consult their own counsel
regarding the consequences under ERISA of acquiring, holding and
disposing of any certificates of any series.
See 'ERISA Considerations.'
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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, Planned Amortization
Certificates ('PACs') or such other Certificates as are described in the related
Prospectus Supplement. 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 one
of its four highest applicable rating categories. If so specified in the related
Prospectus Supplement, the Primary Assets in a Trust Fund may be divided into
multiple Asset Groups.
Each Series will be issued in 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. See '-- Book-Entry
Registration' herein.
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 that receive interest will be
made periodically at the intervals and at the Certificate Interest 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 a pro rata or random lot basis among all of the
Certificates of such Class, or otherwise, 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
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funds available for distribution and the amount actually distributed will be
included in the calculation of the amount which the Certificateholders are
entitled to receive on the next Distribution Date.
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.
If the Primary Assets for a Series have adjustable or variable interest
rates, then the Certificate Interest 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 rates, then the Certificate Interest 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 Certificate
Interest 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
one or more Classes of Interest Weighted Certificates, one or more Classes 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 Interest 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 Interest 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'.
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Distributions of interest on a Class of Compound Interest Certificates will
commence only after the related Accretion Termination Date specified in the
related Prospectus Supplement. On each Distribution Date prior to and including
the Accretion Termination Date, interest on such Class of Compound Interest
Certificates will accrue and the amount of interest accrued on such Distribution
Date (the 'Accrual Amount') will be added to the principal balance thereof on
the related Distribution Date. On each Distribution Date after the Accretion
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 Interest Rate of a Floating Rate Certificate will
be a variable or adjustable rate, which may be 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 Classes of Planned Amortization
Certificates ('PACs'), Targeted Amortization Certificates ('TACs') or other
Certificates whose entitlement to distributions of principal is based on a
schedule of balances or amounts.
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. The Principal Distribution Amount for a Multi-Class
Series on each Distribution Date will be as 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 '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.
OPTIONAL TERMINATION
If so specified in the related Prospectus Supplement for a Series, the
Depositor, the Servicer or Master Servicer, or another entity designated in the
related Prospectus Supplement may, at its option, purchase or direct the sale of
a portion of the Primary Assets of a Trust Fund, or cause an early termination
of a Trust Fund by repurchasing all of the Primary Assets from such Trust Fund
or directing the sale of such Primary Assets, on or after a date specified in
the related Prospectus Supplement, or on or after such time as the Aggregate
Asset Principal Balance of the Primary Assets is less than a specified
percentage of the initial Aggregate Asset Principal Balance, or the aggregate
principal amount of the Certificates (or of certain Classes thereof) is less
than a specified percentage of their initial aggregate principal amount, all as
described in the related Prospectus
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Supplement. Such optional termination will be in addition to terminations which
may result from other events. See 'The Trust Agreements -- Deficiency Event' and
'-- Termination'.
OPTIONAL PURCHASE 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 purchased, in whole or in
part, at the option of the Depositor, the Servicer or Master Servicer, or
another entity designated in the related Prospectus Supplement, at such times
and under the circumstances specified in such Prospectus Supplement. Notice of
any such purchase must be given by the Trustee prior to the optional purchase
date, as specified in the related Prospectus Supplement. The purchase price for
any Certificate so purchased will be set forth in the related Prospectus
Supplement.
OTHER PURCHASES
If so specified in the related Prospectus Supplement for a Series, any
Class of the Certificates of such Series may be subject to redemption, in whole
or in part, at the request of the holders of such Class or to mandatory purchase
by the Depositor, the Servicer or Master Servicer, or another entity designated
in the related Prospectus Supplement. Any such redemption at the request of
holders or mandatory purchase 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 Agencies. 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 through Participants and Indirect Participants. Because DTC can only act
on behalf of Participants and Indirect Participants, the
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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 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.
Unless otherwise 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, or (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.
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.
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.
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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 Interest 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 Certificates 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 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 substantially
earlier, than its Final Scheduled Distribution Date.
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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 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. 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
Interest 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 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.
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ('CPR') prepayment model
or the Standard Prepayment Assumption ('SPA') prepayment model, each as
described below.
CPR represents a constant assumed rate of prepayment each month relative to
the then outstanding principal balance of a pool of loans for the life of such
loans. SPA represents an assumed rate of prepayment each month relative to the
then outstanding principal balance of a pool of loans. A prepayment assumption
of 100% of SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such loans in the first month of the life of
the loans and an additional 0.2% per annum in each month thereafter until the
thirtieth month. Beginning in the thirtieth month and in each month thereafter
during the life of the loans, 100% of SPA assumes a constant prepayment rate of
6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the 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 any 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 CPR or 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.
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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.
There can be no assurance as to the respective rates of prepayment of such Loans
in either stable or changing interest rate environments.
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
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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 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, to the extent
that such agreements are assigned to the Trustee; (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 asset,
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,
the Depositor or another party, free and clear of the interest of
Certificateholders under the related Trust Agreement.
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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. 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.'
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.
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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 FHA Loans and/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.
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 of the United
States of America. Section 306(g) of Title III of the National Housing Act of
1934, as amended (the 'Housing Act') authorizes GNMA to guarantee the timely
payment of the principal of and the interest on GNMA 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.
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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
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
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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 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. Section1716 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.
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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 the Guarantor
Program, guarantee the timely payment of scheduled principal. Under FHLMC's Gold
PC Program, FHLMC guarantees the timely payment of principal based on the
difference between the pool factor published in the month preceding the month of
distribution and the pool factor published in such month of distribution.
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 reserves
the right to exercise its judgment with respect to the mortgage loans in 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.
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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.
Under FHLMC's Cash Program, 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. Under such program, FHLMC
purchases groups of whole mortgage loans from 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. The range of
interest rates on the mortgage loans and participations in a FHLMC Certificate
group under the Cash Program will vary since mortgage loans and participations
are purchased and assigned to a FHLMC Certificate group based upon their yield
to FHLMC rather than on the interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC Certificate is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guarantee income as agreed upon between the seller and FHLMC.
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.
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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. 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 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
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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 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 certificate rate or ranges thereof
for the Private Mortgage-Backed Securities; (iv) the weighted average
certificate rate of the Private Mortgage-Backed Securities; (v) the PMBS Issuer,
the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee for such
Private Mortgage-Backed Securities; (vi) 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; (vii) 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 (viii) the terms
on which Loans may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
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If information of the nature described above regarding 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 any 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'. Unless otherwise specified
in the Prospectus Supplement for the related Series, 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 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 or if
so specified in the related Prospectus Supplement, a second 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.
If specified in the applicable Prospectus Supplement, the Mortgage Loans
may be secured by mortgages, deeds of trust or other similar Security
Instruments creating a lien on borrowers' leasehold interests in real property
under circumstances that the Depositor determines are commonly acceptable to
institutional mortgage investors. A Mortgage Loan secured by a leasehold
interest in real property is secured not by a fee simple interest in the
Mortgaged Property but rather by a leasehold interest under which the mortgagor
has the right, for a specified term, to use the related real estate and the
residential dwelling or dwellings located thereon. Generally, a Mortgage Loan
will be secured by a leasehold interest only if the use of leasehold estates as
security for mortgage loans is customary in the area, the lease is not subject
to any prior lien that could result in termination of the lease and the term of
the lease ends at least five years beyond the maturity date of the related
Mortgage Loan.
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
five years greater than the term of the related Mortgage Loan unless otherwise
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specified in the related Prospectus Supplement. 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 to the Cooperative by such tenant-stockholder. See
'Certain Legal Aspects of Loans'.
The aggregate principal balance of Mortgage Loans with respect to Mortgaged
Properties 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 each Rating Agency that 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 first lien Mortgage Loan shall have had a Loan-to-Value Ratio
at origination in excess of 95%, and no second lien Mortgage Loan shall
have had a Loan-to-Value Ratio at origination in excess of 125%;
(b) no first lien 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 first lien Mortgage Loan must have an original term to
maturity of not less than 10 years and not more than 40 years and each
second lien Mortgage Loan must have an original term to maturity of not
less than 5 years and not more than 30 years;
(d) no Mortgage Loan may be included which, as of the Cut-off Date, is
more than 59 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'). In the case of a Mortgage Loan to finance the
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purchase of a Mortgaged Property, the fair market value of such Mortgaged
Property 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%, and the Buy-Down Period
will not exceed three years. The maximum amount of funds 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 (the '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 59 days within the 12-month period ending with the Cut-off Date,
(b) no more than two payments will have been 59 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 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 one or more Scheduled
Payments; thereafter, the Mortgage Rates will adjust periodically 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.
Adjustable mortgage rates can cause payment increases that some borrowers
may find difficult to make. However, each of the ARMs may provide that its
mortgage rate may not be adjusted to a rate above the applicable lifetime
mortgage rate cap (the 'Lifetime Mortgage Rate Cap'), if any, 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
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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.
The index applicable to any ARMs comprising the Primary Assets (the
'Index') will be the one-month LIBOR Index, 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 or such other index or indices as are specified or
described in the related Prospectus Supplement.
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, 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 not 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 any 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 30 years;
(c) no Manufactured Home Loan may be as of the Cut-off Date more than
59 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.
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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 any 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.
PRE-FUNDING ARRANGEMENTS
To the extent provided in the related Prospectus Supplement for a Series,
the related Trust Agreement will provide for a commitment by the Depositor to
subsequently convey to the applicable Trust Fund additional Primary Assets
('Subsequent Primary Assets') following the date on which the related
Certificates are issued (a 'Pre-Funding Arrangement'). With respect to a Series,
the Pre-Funding Arrangement will require that any Subsequent Primary Assets
included in the Trust Fund conform to the requirements and conditions provided
in the related Trust Agreement. If a Pre-Funding Arrangement is utilized in
connection with the issuance of the Series of Certificates, on the closing date
for the issuance of such Series the related Trustee will be required to deposit
in a segregated account (a 'Pre-Funding Account') all or a portion of the
proceeds received by such Trustee in connection with the sale of one or more
Classes of Certificates of such Series; and, subsequently, the Trust Fund will
acquire Subsequent Primary Assets in exchange for the release of money from the
Pre-Funding Account for such Series. In addition, the Pre-Funding Arrangement
will be limited to a specified period, not to exceed three months, during which
time any transfers of Subsequent Primary Assets must occur and to a maximum
deposit to the related Pre-Funding Account of no more than thirty-five percent
(35%) of the aggregate proceeds received from the sale of all Classes of
Certificates of such Series.
If all of the funds originally deposited in the such Pre-Funding Account
are not used by the end of such specified period, then any remaining amount of
such funds will be applied as a mandatory prepayment of a Class or Classes of
Certificates as specified in the related Prospectus Supplement. Although it is
intended that the principal amount of Subsequent Primary Assets to be included
in the Trust Fund after the closing date for the issuance of any particular
Series will require application of substantially all of the Pre-Funding Account,
and it is not anticipated that there will be any material amount of principal
distributions from amounts remaining on deposit in the Pre-Funding Account in
reduction of the principal balances of any Certificates, no assurance can be
given that such a distribution with respect to the Certificates will not occur
on the Distribution Date following the end of the Pre-Funding Arrangement.
Amounts on deposit in the Pre-Funding Account will be invested as provided
in the related Trust Agreement in investments permitted by each applicable
Rating Agency.
COLLECTION ACCOUNT AND CERTIFICATE ACCOUNT
A separate Collection Account for each Series will be established by the
Trustee, or 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. If 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 Trustee, the Master Servicer or a
Servicer as additional 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.'
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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 (or Servicer) and all required
withdrawals from any reserve funds for such Series will be deposited, pending
distribution to the Certificateholders. If 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 Trustee or the Master
Servicer as additional 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 generally in accordance with the underwriting
procedures and standards described herein, except as otherwise set forth in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, 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; 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, 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 the FHA and the VA,
respectively.
In general, 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 generally will have furnished information with
respect to its assets, liabilities, income, credit history, employment history
and personal information, and furnished 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. In general, an employment verification is
obtained from an independent source (typically the borrower's employer), which
reports the length of employment with that organization, the borrower's current
salary and whether it is expected that the borrower will continue such
employment in the future. If the borrower was self-employed, the borrower may
have been required to submit copies of recent signed 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 personally inspect the property and verify that it was in
good condition and that construction, if new, had been completed. If an
appraisal was required, such 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.
In general, 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
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and, if applicable, maintenance fees and other levies assessed by a Cooperative
or a condominium association) 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 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.
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
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 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' or 'no documentation' program. 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.
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.
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.
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; in fact, some
regions of the country have experienced significant depreciation in real estate
values in recent periods. Further, there is no assurance that appreciation of
real estate values generally, if such appreciation occurs, 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
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remained or will remain at the level existing on the date of origination of such
Loan. If the residential real estate market in one or more regions of the United
States should experience 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. 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 other
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) with respect to first lien Mortgage Loans,
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 of material 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 one or two payments
delinquent).
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
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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, unless otherwise specified in the
related Prospectus Supplement, the Depositor will represent and warrant based,
in part, upon representations and warranties of the originator of such
Cooperative Loan that (i) with respect to first lien Cooperative Loans, 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, in part, 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) with respect
to fist lien Manufactured Home Loans, 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 59 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.
SUBSTITUTION OF PRIMARY ASSETS
Substitution of Primary Assets will be permitted in the event of breaches
of representations and warranties with respect to any original Primary Asset or
in the event the documentation with respect to any Primary Asset is determined
by the Trustee to be incomplete. The period during which such substitution will
be permitted generally will be indicated in the related Prospectus
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Supplement. The related Prospectus Supplement will describe any other conditions
upon which Primary Assets may be substituted for Primary Assets initially
included in the Trust Fund.
SERVICING OF LOANS
GENERAL
Customary servicing functions with respect to Loans constituting the
Primary Assets in the Trust Fund will be provided, as specified in the related
Prospectus Supplement, either by the Master Servicer directly or through one or
more servicers (the 'Servicers') subject to supervision by the Master Servicer,
or by a single Servicer that is a party to the Trust Agreement for a Series and
services the Loans directly or through one or more subservicers (the
'Subservicers'). In general, descriptions herein of the rights and obligations
of a Master Servicer will also be applicable to a Servicer, and descriptions
herein of the rights and obligations of Servicers that service Loans under the
supervision of a Master Servicer will generally be applicable to Subservicers.
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 may or may not, as
specified in the related Prospectus Supplement, 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. If a single Servicer services the Loans through Subservicers, such
Servicer will be ultimately responsible for the performance of all servicing
activities.
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 either
a portion of the Servicing Fee or a separate 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 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.
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COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Master Servicer, acting directly or through Servicers, 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 and any 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 or the Servicers acting under its supervision, 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. However, 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 premiums, 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 property securing the
related Loan and to clear and terminate such Escrow Account. The Master Servicer
or the applicable Servicers 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 or the Trustee will establish a separate account (the
'Collection Account') in the name of the Trustee. The Collection Account will be
maintained in an account or accounts (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, (ii) 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 or (iii) with a depository
institution otherwise acceptable to each Rating Agency.
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.
Unless otherwise specified in the related Prospectus Supplement, 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;
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(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 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 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 the related Scheduled Payment, late
payment or such other recovery, to the extent permitted by such Trust
Agreement;
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(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 generally 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 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
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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 or 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 (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 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, the Subsidy Fund or the GPM Fund.
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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 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
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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. To the extent specified in the related
Prospectus Supplement, the Master Servicer will maintain a special hazard
insurance policy, 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
terminated 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
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insurance policy in the nature of insurance proceeds will be deposited in the
Collection Account (net of amounts to be used to 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
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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 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
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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 Manufactured Home Loan,
the value of the related Manufactured Home can be expected to be less on resale
than the value of 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.
CERTAIN RIGHTS RELATED TO FORECLOSURE
Certain rights in connection with foreclosure of defaulted Mortgage Loans
may be granted to the holders of the Class of Subordinate Certificates ranking
lowest in priority and, when such Certificates are no longer outstanding, to the
holders of the Class of Subordinate Certificates ranking next lowest in
priority. Such rights may 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 or 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. Such rights may also include
the right to recommend foreclosure or alternatives to foreclosure with respect
to a defaulted Mortgage Loan, and the right to purchase defaulted Mortgage Loan
from the Trust Fund.
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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 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 the 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
Unless otherwise specified in the related Prospectus Supplement, 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
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the servicing of mortgage 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)
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 and (v)
provided further that 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. 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 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
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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.
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
Interest 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
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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 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
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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 origination 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.
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
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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.
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.
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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 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
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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 marketable 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 marketable 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 marketable 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 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
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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.
Mortgage Loans designated in the related Prospectus Supplement as FHA Loans will
be insured under various FHA programs including the standard FHA 203(b) program
to finance the acquisition of one-to-four-family housing units and the FHA 245
graduated payment mortgage program. These programs generally limit the principal
amount and interest rates of the mortgage loans insured. Mortgage Loans insured
by the FHA generally require a minimum down payment of approximately 5% of the
original principal amount of the loan. No FHA-insured Mortgage Loans relating to
a Series may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time of origination of such loan.
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
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uncorrected failure to perform any obligation or make any payment due under the
Mortgage Loan and, upon assignment, from the date of assignment, to the date of
payment of the claim, in each case at the same mortgage rate as the applicable
HUD debenture interest rate as described above.
Mortgage Loans designated in the related Prospectus Supplement as VA Loans
will be partially guaranteed by the VA under the Servicemen's Readjustment Act
of 1944, as amended (a 'VA Guaranty'). The Serviceman's Readjustment Act of
1944, as amended, permits a veteran (or in certain instances the spouse of a
veteran) to obtain a mortgage loan guaranty by the VA covering mortgage
financing of the purchase of a one-to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guarantee of mortgage loans of
up to 30 years' duration. However, no Mortgage Loan guaranteed by the VA will
have an original principal amount greater than five times the partial VA
guaranty for such Mortgage Loan.
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 guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. As of
January 1, 1990, the maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $46,000. The liability on the
guarantee is reduced or increased pro rata with any reduction or increase in the
amount of indebtedness, but in no event will the amount payable on the guarantee
exceed the amount of the original guarantee. The VA may, at its option and
without regard to the guarantee, make full payment to a 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
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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 marketable 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 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
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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 (generally defined as the replacement cost at the time and
place of loss, 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 area where 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 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
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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 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.
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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.
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.
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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.
The Trustee, its agent, or a custodian will review the documents relating
to each Mortgage Loan within the time period specified in the related Trust
Agreement after receipt thereof, and the Trustee will hold such documents in
trust for the benefit of the Certificateholders. Unless otherwise specified in
the related Prospectus Supplement, if any such document is found to be missing
or defective in any material respect, the Trustee (or such custodian) will
notify the Master Servicer and the Depositor, and the Master Servicer will
notify the party (the 'Seller') from which the Depositor, or an affiliate
thereof, purchased such Mortgage Loan. If the Seller cannot cure the omission or
defect within the time period specified in the related Trust Agreement after
receipt of such notice, the Seller will be obligated to purchase the related
Mortgage Loan from the Trustee at the Purchase Price or, if specified in the
related Prospectus Supplement, replace such Mortgage Loan with another mortgage
loan that meets certain requirements set forth therein. There can be no
assurance that a Seller will fulfill this purchase obligation. Although the
Master Servicer may be obligated to enforce such obligation to the extent
described above under 'Mortgage Loan Program -- Representations by Sellers;
Repurchases,' neither the Master Servicer nor the Depositor will be obligated to
purchase such Mortgage Loan if the Seller defaults on its purchase obligation,
unless such breach also constitutes a breach of the representations or
warranties of the Master Servicer or the Depositor, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, this purchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for omission of, or a material defect in, any document.
Notwithstanding the foregoing provisions, with respect to a Trust Fund for
which a REMIC or a FASIT election is to be made, unless the related Prospectus
Supplement otherwise provides, no purchase of a Mortgage Loan will be made if
such purchase would result in a prohibited transaction under the Code.
The Trustee will be authorized to appoint a custodian to maintain
possession of and, if applicable, to review the documents relating to the
Mortgage Loans as agent of the Trustee.
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
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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 'Manufactured Home Loan Schedule')
appearing as an exhibit to the related Trust Agreement. Such Manufactured Home
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 agreement 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 agreements 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 Manufactured
Home Loans agreements 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 Manufactured
Home Loan Schedule provides an accurate listing of the Manufactured Home Loans
and that the information respecting such Manufactured Home Loans set forth in
such Manufactured Home 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
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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
such other time period as is specified in the Prospectus Supplement for the
related Series, (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
such other period as is specified in the related Prospectus Supplement, the
Depositor will, not later than 90 days, or such other period as is 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
Interest 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 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, such substitution must be made within two years of such date.
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.
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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;
(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);
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(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) 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
(xii) such other information as specified in the related Trust
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related Prospectus
Supplement, will furnish to each Certificateholder of record at any time during
such calendar year: (a) the aggregate of amounts reported pursuant to (i)
through (iv), (vi), (viii) and (xvi) above for such calendar year and (b) such
information specified in the Trust Agreement to enable Certificateholders to
prepare their tax returns including, without limitation, the amount of original
issue discount accrued on the Certificates, if applicable. Information in the
Distribution Date and annual reports provided to the Certificateholders will not
have been examined and reported upon by an independent public accountant.
However, the Master Servicer will provide to the Trustee a report by independent
public accountants with respect to the Master Servicer's servicing of the 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
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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 or Servicer to distribute or remit any required
payment which continues unremedied for five business days (or such shorter
period as is specified in the applicable agreement) after the giving of written
notice of such failure to the Master Servicer or Servicer by the Trustee for
such Series, or to the Master Servicer or 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 or 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 after the giving of written notice of
such failure to the Master Servicer or Servicer by the Trustee, or to the Master
Servicer or Servicer and the Trustee by the Holders of Certificates of such
Series evidencing not less than 25% of the aggregate outstanding principal
amount of the Certificates and (iii) certain events in insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings and
certain actions by the Master Servicer or Servicer indicating its insolvency,
reorganization or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Trust Agreement
for a Series, the Trustee for such Series or Holders of Certificates of such
Series evidencing not less than 25% of the aggregate outstanding principal
amount of the Certificates for such Series may terminate all of the rights 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.
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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.
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.
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 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.
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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. Unless otherwise 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 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
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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 Trust Agreement will specify the method of determining
allocation of Voting Rights with respect to a Series.
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 OR FASIT 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 or a FASIT 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 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
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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 or as a
FASIT 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 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.
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JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES
If specified in the applicable Prospectus Supplement, Mortgage Loans
included in the Mortgage Pool will be secured by junior mortgages or deeds of
trust which are subordinate to senior mortgages or deeds of trust held by other
lenders or institutional investors. The rights of the Trust Fund (and therefore
the Certificateholders) as beneficiary under a junior deed of trust or as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee or
beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive rents, hazard insurance
and condemnation proceeds and to cause the property securing the Mortgage Loan
to be sold upon default of the mortgagor or trustor, thereby extinguishing the
junior mortgagee's or junior beneficiary's lien unless the Special Servicer
asserts its subordinate interest in a property in foreclosure litigation or
satisfies the defaulted senior loan. As discussed more fully below, in many
states a junior mortgagee or beneficiary may satisfy a defaulted senior loan in
full, or may cure such default and bring the senior loan current, in either
event adding the amounts expended to the balance due on the junior loan. Absent
a provision in the senior mortgage, no notice of default is required to be given
to the junior mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply the
proceeds of hazard insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be allowed to use
the proceeds of hazard insurance to repair the damage unless the security of the
mortgagee or beneficiary has been impaired. Similarly, in certain states, the
mortgagee or beneficiary is entitled to the award for a partial condemnation of
the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a 'future advance' clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an 'obligatory' or 'optional' advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
'future advance' clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a 'credit limit'
amount stated in the recorded mortgage.
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Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given the right under
the mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary
for any sums expended by the mortgagee or beneficiary on behalf of the mortgagor
or trustor. All sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve a lease or
to refuse to grant a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
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.
Cooperative Loans are not secured by liens on real estate. The 'owner' of a
cooperative apartment does not own the real estate constituting the apartment,
but owns shares of stock in a corporation which holds title to the building in
which the apartment is located, and by virtue of owning such stock is entitled
to a proprietary lease or occupancy agreement to occupy the specific apartment.
A Cooperative Loan is a loan secured by a lien on the shares and an assignment
of the lease or occupancy agreement. If the borrower defaults on a Cooperative
Loan, the lender's remedies are similar to the remedies which apply to a
foreclosure of a leasehold mortgage or deed of trust, in that the lender can
foreclose the loan and assume ownership of the shares and of the borrower's
rights as lessee under the related proprietary lease or occupancy agreement.
Typically, the lender and the cooperative housing corporation enter into a
recognition agreement that establishes the rights and obligations of both
parties in the event of a default by the borrower on its obligations under the
lease or occupancy agreement.
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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 and 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 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.
There are certain risks that arise as a result of the cooperative form of
ownership which differentiate Cooperative Loans from other types of Mortgage
Loans. For example, the power of the board of directors of most cooperative
housing corporations to reject a proposed purchaser of a unit owner's shares
(and prevent the sale of an apartment) for any reason (other than reasons based
upon unlawful discrimination), or for no reason, significantly reduces the
universe of potential purchasers in the event of a foreclosure. Moreover, in
buildings where the 'sponsor' (i.e., the owner of the unsold shares in the
corporation) holds a significant number of unsold interests in
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apartments, cooperative apartment owners run a special risk that the sponsor may
go into default on its proprietary leases or occupancy agreements, and thereby
cause a default under the underlying mortgage loan to the cooperative housing
corporation which is secured by a mortgage on the building. In such event, the
unit owners may be forced to make up any shortfall in income to the cooperative
housing corporation resulting from the sponsor's default or risk losing their
apartments in a foreclosure proceeding brought by the holder of the mortgage on
the building. Not only would the value attributable to the right to occupy a
particular apartment be adversely affected by such an occurrence, but the
foreclosure of a mortgage on the building in which the apartment is located
could result in a total loss of the shareholder's equity in the building and
right to occupy the apartment (and a corresponding loss of the lender's security
for its Cooperative Loan).
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
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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 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 generally 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
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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.
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.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elect to remain in the building but who did not purchase shares in the
cooperative when the building was so converted.
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.
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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 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 rehabilitative plan under
the Bankruptcy Code 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.
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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
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
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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.
Unless otherwise specified in the related Prospectus Supplement, 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.
ENVIRONMENTAL RISKS
Under the laws of some states, and under the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ('CERCLA'), it is
conceivable that a secured lender (such as the Trust Fund) may be held liable as
an 'owner' or 'operator' for the costs of addressing releases or threatened
releases of hazardous substances at a Mortgage Property, even though the
environmental damage or threat was caused by a prior or current owner or
'responsible parties', including owners and operators. However, CERCLA excludes
from the definition of 'owner or operator' a secured creditor who holds indicia
of ownership primarily to protect its security interest, but does not
'participate in the management' of the Mortgaged Property (the 'secured creditor
exclusion'). Thus, if a lender's activities begin to encroach on the actual
management of a contaminated property, the lender may incur liability as an
'owner or operator' under CERCLA. Similarly, if a lender forecloses and takes
title to a contaminated property, the lender may incur CERCLA liability in
various circumstances, including, but not limited to, when it holds the property
as an investment (including leasing the property to a third party), or fails to
market the property in a timely fashion.
Recently enacted amendments to CERCLA have clarified the range of
activities in which a lender may engage without becoming subject to liability
under CERCLA. However, liability for
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costs associated with the investigation and cleanup of environmental
contamination may also be governed by state law, which may not provide any
specific protections to lenders, or, alternatively, may not impose liability on
lenders at all.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs associated with releases
of petroleum contamination. Federal regulation of underground petroleum storage
tanks (other than heating oil tanks) is governed by Subtitle I of the federal
Resource Conservation and Recovery Act ('RCRA'). The United States Environmental
Protection Agency ('EPA') has promulgated a lender liability rule for
underground storage tanks regulated by Subtitle I of RCRA. Under the EPA rule, a
holder of a security interest in an underground storage tank, is not considered
an operator of the underground storage tank as long as petroleum is not added
to, stored in or dispensed from the tank. Moreover, recent amendments to RCRA,
enacted currently with the CERCLA amendments discussed in the previous
paragraph, extend to the holders of security interests in petroleum underground
storage tanks the same protections accorded to secured creditors under CERCLA.
It should be noted, however, that liability for cleanup of petroleum
contamination may be governed by state law, which may not provide any specific
protection for lenders, or, alternatively, may not impose liability on lenders
at all.
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
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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 transfer of the related
Mortgaged Property to an uncreditworthy Person, which could increase the
likelihood of default or 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.
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
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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 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
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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 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
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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 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 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.
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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 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.
MATERIAL 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
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
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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 or
a FASIT 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 or as a FASIT 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, or as 'regular interests' or 'ownership
interests' in a FASIT, 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 or as regular interests or ownership
interests in a FASIT 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
Certificateholders of any such Series will be described in the applicable
Prospectus Supplement.
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
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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 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 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.
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 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 (ii) 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) or (ii) above, then
Certificates will qualify for the tax treatment described in (i) or (ii) 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.
The Small Business Job Protection Act of 1996, 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.
QUALIFICATION AS A FASIT
The Small Business and Job Protection Act of 1996 added Sections 860H
through 860L to the Code (the 'FASIT Provisions'), which provide for a new type
of entity for federal income tax purposes known as a 'financial asset
securitization investment trust' (a 'FASIT'). Although the FASIT provisions of
the Code became effective on September 1, 1997, no Treasury regulations or other
administrative guidance have been issued with respect to those provisions.
Accordingly, definitive guidance cannot be provided with respect to many aspects
of the tax treatment of FASITs.
A Trust Fund will qualify as a FASIT if (i) a FASIT election is in effect,
(ii) certain tests concerning (A) the composition of the FASIT's assets and (B)
the nature of the investors' interests in the FASIT are met on a continuing
basis, and (iii) the Trust Fund is not a regulated investment company as defined
in section 851(a) of the Code.
For a Trust Fund to be eligible for FASIT status, substantially all of the
Trust Fund Assets must consist of 'permitted assets' as of the close of the
third month beginning after the closing
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date and at all times thereafter (the 'FASIT Qualification Test'). Permitted
assets include (i) cash or cash equivalents, (ii) debt instruments with fixed
terms that would qualify as regular interests if issued by a REMIC (generally,
instruments that provide for interest at a fixed rate, a qualifying variable
rate, or a qualifying interest-only ('IO') type rate), (iii) foreclosure
property, (iv) certain hedging instruments (generally, interest and currency
rate swaps and credit enhancement contracts) that are reasonably required to
guarantee or hedge against the FASIT's risks associated with being the obligor
on FASIT interests, (v) contract rights to acquire qualifying debt instruments
or qualifying hedging instruments, (vi) FASIT regular interest, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments issued
by the holder of the FASIT's ownership interest or by any person related to such
holder.
In addition to the foregoing asset qualification requirements, the
interests in a FASIT also must meet certain requirements. All of the interests
in a FASIT must belong to either of the following: (i) one or more classes of
regular interests or (ii) a single class of ownership interest that is held by a
fully taxable domestic C Corporation. FASIT interests will be classified as
either FASIT regular interests, which generally will be treated as debt for
federal income tax purposes, or FASIT ownership interests, which generally are
not treated as debt for such purposes, but rather as representing rights and
responsibilities with respect to the taxable income or loss of the related
FASIT. The Prospectus Supplement for each Series of Securities will indicate
which Securities of such Series will be designated as regular interests, and
which, if any, will be designated as ownership interests.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater than
thirty years, (iii) it entitles its holder to a specified principal amount, (iv)
the issue price of the interest does not exceed 125% of its stated principal
amount, (v) the yield to maturity of the interest is less than the applicable
Treasury rate published by the IRS plus 5%, and (vi) if it pays interest, such
interest is payable at either (a) a fixed rate with respect to the principal
amount of the regular interest or (b) a permissible variable rate with respect
to such principal amount. Permissible variable rates for FASIT regular interests
are the same as those for REMIC regular interests (i.e., certain qualified
floating rates and weighted average rates). Interest will be considered to be
based on a permissible variable rate if generally, (i) such interest is
unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a 'qualified floating rate,' an 'objective rate,' a
combination of a single fixed rate and one or more 'qualified floating rate,'
one 'qualified inverse floating rate,' or a combination of 'qualified floating
rates' that do not operate in a manner that significantly accelerates or defers
interest payments on such FASIT regular interest.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a 'High-Yield Interest.' In addition, if
an interest in a FASIT fails to meet the requirement of clause (vi), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest. A High-Yield
Interest may be held only by domestic C corporations that are fully subject to
corporate income tax ('Eligible Corporations'), other FASITs, and dealers in
securities who acquire such interests as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from such interest. See 'Material Federal Income Tax
Consequences -- Taxation of Trust as a FASIT -- Treatment of High-Yield
Interests.'
If a Trust Fund fails to comply with one or more of ongoing requirements
for FASIT status during any taxable year, the Code provides that its FASIT
status may be lost for that year and thereafter. If FASIT status is lost, the
treatment of the former FASIT and interests therein for
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federal income tax purposes is uncertain. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the FASIT's income for the period of time in which
the requirements for FASIT status are 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. Certificates representing regular
interests in a FASIT are treated as debt instruments. Certificates designated as
regular interests in a REMIC or a FASIT will be referred to hereinafter
collectively as 'Regular Interest Certificates.' Stated interest on a Regular
Interest Certificate will be taxable as ordinary income using the accrual method
of accounting, regardless of the 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
'Contingent Regulations') governing the treatment of contingent payment
obligations have recently been finalized. 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
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 Contingent Regulations contain rules
applicable to instruments governed by Section 1272(a)(6). Although technically
not applicable to prepayable securities, the 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 Certificateholder each taxable
year (the 'Tax Administrator') intends to base its computations on Code Section
1272(a)(6), the OID Regulations and the 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 Certificate and its issue
price. A holder of a Regular Interest Certificate 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 Certificate 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 Certificate 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
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the Issuer as including, in addition, the amount paid by the Certificateholder
for accrued interest that relates to a period prior to the Closing Date of such
Regular Interest Certificate. 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
Certificate 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 Certificate issued with OID must include
in gross income, for all days during its taxable year on which it holds such
Regular Interest Certificate, 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 Certificate, 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 Certificate
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 Certificate, 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 Certificate is the sum of its issue price plus prior
accruals of OID, reduced by the total payments made with respect to such Regular
Interest Certificate in all prior periods, other than qualified stated interest
payments. The present value of the remaining payments is determined on the basis
of three factors: (i) the original yield to maturity of the Regular Interest
Certificate (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 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 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
Certificateholders based on the Prepayment Assumption, no representation is made
to 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 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
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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 or FASIT regular interests. Unless the
applicable Prospectus Supplement specifies otherwise, based on the OID
Regulations and solely for the purposes of computing OID, the Trustee intends to
calculate OID on such Regular Interest Certificates as if the separate regular
interests were a single debt instrument.
Certain Series of Certificates may represent regular interests ('Lower Tier
Interests') in other REMICs or FASITs. Unless otherwise provided in the
applicable Prospectus Supplement, based on the OID Regulations and solely for
the purposes of computing OID, the Trustee intends to calculate OID on such
certificates as if the separate regular interests were a single debt instrument.
A holder of a Regular Interest Certificate, which acquires the Regular
Interest Certificate 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 Certificate which acquires the Regular Interest
Certificate 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 Certificate for an amount that exceeds its
adjusted issue price will be entitled (as will an initial holder who pays more
than a Regular Interest Certificate'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 or a FASIT ('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 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 Contingent Regulations, if they were applicable
to Interest Weighted Certificates (which, as Section 1272(a)(6) instruments, are
specifically excluded from the scope of the 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.
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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. Under the OID Regulations, the amount
and accrual of OID 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 a
rate that varies directly with an objective index. 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.
Under the Contingent Regulations, 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
Certificate will be required to accrue interest and original issue discount on
such Certificate 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 Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a Regular Interest
Security eventually will recognize a loss or reduction in income attributable to
previously accrued and included income that, as a result of such loss,
ultimately will not be paid, the law is unclear with respect to the timing and
character of such losses or reduction in income. Accordingly, holders of Regular
Interest Certificates should consult their own tax advisors on this point.
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.
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MARKET DISCOUNT AND PREMIUM. A purchaser of a Regular Interest Certificate
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
Certificate, or upon sale or exchange of the Regular Interest Certificate. 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
Certificate 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 Certificate. 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 Certificate (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 Certificate at a premium, which it may elect to amortize as
an offset to interest income on such Certificate (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 and FASIT 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 Certificate will be calculated using the prepayment assumption used in
pricing such Regular Interest Certificate. If a holder makes an election to
amortize premium on a Certificate, 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.
The Regulations dealing with amortizable bond premium specifically do not
apply to prepayable debt instruments subject to Code Section 1272(a)(6) such as
the Certificates. Absent further guidance from the IRS, the Trustee intends to
account for amortizable bond premium in the manner described above. Prospective
purchasers of Certificates should consult their tax advisors regarding the
possible application of the Amortizable Bond Premium Regulations.
SALE OR EXCHANGE OF REGULAR INTEREST CERTIFICATES
A Regular Interest Certificateholder's tax basis in its Regular Interest
Certificates is the price such holder pays for a Certificate, 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 Certificate's basis as so adjusted, will
generally be capital gain or loss, assuming that the Regular Interest
Certificate 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 Certificate, any OID, including OID that did not previously accrue. If,
however, a 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 Certificate will be taxable as ordinary income or
loss. In addition, gain from the disposition of a Regular Interest Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent of the excess, if any, of (i) the amount that would have been includible
in the holder's income if the yield on such Regular Interest Certificate had
equaled 110% of the applicable federal rate as of the beginning of such holder's
holding
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period, over (ii) the amount of ordinary income actually recognized by the
holder with respect to such Regular Interest Certificate.
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 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' below.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Start Up
Day (generally, the day that the interests are issued). That aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The original issue discount provisions of the Code apply to loans of
individuals originated on or after March 2, 1984, and the market discount
provisions apply to all loans. Subject to possible application of the de minimis
rules, the method of accrual by the REMIC of original issue discount on such
loans will be equivalent to the method under which holders of Regular Interest
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
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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 Certificate representing a REMIC residual interest (a
'Residual Interest Certificate') 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.
The holder of a Residual Interest Certificate 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
Certificate 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.
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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 Certificate 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 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 Certificate (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 Certificate. If the amount of such payment exceeds a holder's adjusted
basis in the Residual Interest Certificate, however, the holder will recognize
gain (treated as gain from the sale of the Residual Interest Certificate) to the
extent of such excess.
MARK-TO-MARKET RULES. 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 Certificate will
recognize gain or loss on the sale or exchange of a Residual Certificate equal
to the difference, if any, between the amount realized and such
Certificateholder's adjusted basis in the Residual Interest Certificate 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
Certificate will be disallowed if the selling 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 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
Certificateholder's federal income tax return. Further, if the holder of a
Residual Interest Certificate is an organization subject to the tax on unrelated
business income imposed by Code Section 511, such Residual Certificateholder's
excess inclusion income will be treated as unrelated business taxable income of
such 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
Certificate, 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 Certificate 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 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 Certificate, 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
Certificate at the beginning of such quarterly period. The adjusted issue price
of a Residual Interest Certificate 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 Certificate), 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 Certificate 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.
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The Small Business Job Protection Act of 1996 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 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 Job Protection Act of 1996 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 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 REMIC 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 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
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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.
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 Certificateholder on that day. In the case of a holder of a
Regular Interest Certificate 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
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 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 Certificate 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.
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.
TAXATION OF HOLDERS OF FASIT HIGH-YIELD INTERESTS
FASIT High-Yield Interests are subject to special rules regarding the
eligibility of holders of such interest, and the ability of such holders to
offset income derived from those interests with losses. High-Yield Interests
only may be held by Eligible Corporations, other FASITs, and dealers in
securities who acquire such interests as inventory. If a securities dealer
(other than an Eligible Corporation) initially acquires a High-Yield Interest as
inventory, but later begins to hold it for investment, the dealer will be
subject to an excise tax equal to the income from the High-Yield Interest
multiplied by the highest corporate income tax rate. In addition, transfers of
High-Yield Interests to disqualified holders will be disregarded for federal
income tax purposes, and the transferor will continue to be treated as the
holder of the High-Yield Interest.
The Holder of a High-Yield Interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset any income derived from
the High-Yield Interest, for either regular federal income tax purposes or for
alternative minimum tax purposes. In addition, the FASIT provisions contain an
anti-abuse rule that imposes corporate income tax on income derived
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from a FASIT regular interest that is held by a pass-through entity (other than
another FASIT) that issues debt or equity securities backed by the FASIT regular
interest and that have the same features as High-Yield Interests.
TAXATION OF HOLDERS OF FASIT OWNERSHIP INTERESTS
A FASIT ownership interest represents the residual equity interest in a
FASIT. As such, the holder of a FASIT ownership interest determines its taxable
income by taking into account all assets, liabilities, and items of income,
gain, deduction, loss and credit of a FASIT. In general, the character of the
income to the holder of a FASIT ownership interest will be the same as the
character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT ownership interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
ownership interest must determine the amount of interest, original issue
discount, market discount, and premium recognized with respect to the FASIT's
assets and the FASIT regular interests issued by the FASIT according to a
constant yield methodology and under an accrual method of accounting. In
addition, holders of FASIT Ownership Securities are subject to the same
limitations on their ability to use losses to offset income from their FASIT
regular interests as are holders of High-Yield Interest.
Rules similar to the wash sale rules applicable to REMIC residual interests
also will apply to FASIT ownership interests. Accordingly, losses on
dispositions of a FASIT ownership interest generally will be disallowed where
within six months before or after the disposition, the seller of such interest
acquires any other FASIT ownership interest that is economically comparable to a
FASIT ownership interest. In addition, if any security that is sold or
contributed to a FASIT by the holders of the related FASIT ownership interest
was required to be marked-to-market under section 475 of the Code by such
holder, then section 475 of the Code will continue to apply to such securities,
except that the amount realized under the mark-to-market rules or the
securities' value after applying special valuation rules contained in the FASIT
provisions. Those special valuation rules generally require that the value of
debt instruments that are not traded on an established securities market be
determined by calculating the present value of the reasonably expected payments
under the instrument using a discount rate of 120% of the applicable Federal
rate, compounded semi-annually.
The holder of a FASIT ownership interest will be subject to a tax equal to
100% of the net income derived by the FASIT from any 'prohibited transactions.'
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT, and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation. Any Series of Securities for which a FASIT election is made
generally will be structured in order to avoid application of the prohibited
transaction tax.
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
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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 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
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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.
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
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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 IRS 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'), the Trustee intends, absent contrary
authority, to report income to Certificateholders as OID, in the manner
described above in '-- Interest Weighted Certificates'.
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.
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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 '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.
The Small Business Job Protection Act of 1996, 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.
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 Certificate (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 Certificateholders 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.
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TAX TREATMENT OF FOREIGN INVESTORS
Under the Code, unless interest (including OID) paid on a Security (other
than a Residual Interest Security) is considered to be 'effectively connected'
with a trade or business conducted in the United States by a nonresident alien
individual, foreign partnership or foreign corporation ('Nonresidents'), such
interest will normally qualify as portfolio interest (except where (i) the
recipient is a holder, directly or by attribution, of 10% or more of the capital
or profits interest in the Issuer or (ii) the recipient is a controlled foreign
corporation to which the Issuer is a related person) and will be exempt from
federal income tax. Upon receipt of appropriate ownership statements, the Issuer
normally will be relieved of the obligation to withhold federal income tax from
such interest payments. These provisions supersede the generally applicable
provisions of United States law that would otherwise require the Issuer to
withhold at a 30% rate (unless such rate were reduced or eliminated by an
applicable tax treaty) on, among other things, interest and other fixed or
determinable, annual or periodic income paid to Nonresidents.
Interest and original issue discount of Bondholders or Certificateholders
who are foreign persons are not subject to withholding if they are effectively
connected with a United States business conducted by the Bondholder or
Certificateholders. They will, however, generally be subject to the regular
United States income tax.
Payments to holders of Residual Interest 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 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 an the transferor continues to be treated as the owner
of the Residual Interest Security for purposes of the withholding tax provisions
of the Code. See 'Excess Inclusion Income.'
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in 'Material
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.
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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
Class Exemption ('PTCE') 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 95-60, regarding investments by insurance company
general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 83-1, regarding mortgage pool investment trusts; PTCE
84-14, regarding transactions effected by a 'qualified professional asset
manager;' or PTCE 96-23, regarding transactions effected by an 'in-house asset
manager.'
PTCE 83-1 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 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
Subordinate 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.
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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 a 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
acquisition, holding and the subsequent disposition by 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 Services, a
division of the McGraw-Hill Companies, Inc., Moody's Investors Service,
Inc., Fitch IBCA, 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 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,
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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.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Exemption which extends exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage loans
or other secured receivables (the 'Obligations') supporting payments to
certificateholders, and having a value equal to no more than twenty-five percent
of the total principal amount of the certificates being offered by the trust, to
be transferred to the trust within a 90-day or three-month period following the
closing date (the 'Pre-Funding Period') instead of requiring that all such
Obligations be either identified or transferred on or before the closing date.
The relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered (the
'Pre-Funding Limit') must not exceed twenty-five percent.
(2) All Obligations transferred after the closing date (the
'Additional Obligations') must meet the same terms and conditions for
eligibility as the original Obligations used to create the trust, which
terms and conditions have been approved by a Rating Agency.
(3) The transfer of such Additional Obligations to the trust during
the Pre-Funding Period must not result in the certificates to be covered by
the Exemption receiving a lower credit rating from a Rating Agency upon
termination of the Pre-funding Period than the rating that was obtained at
the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the 'Average Interest Rate') for all of
the Obligations in the trust at the end of the Pre-Funding Period must not
be more than 100 basis points lower than the average interest rate for the
Obligations which were transferred to the trust on the closing date.
(5) In order to ensure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which are
transferred to the trust,
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider which is
independent of the depositor; or
(ii) an independent accountant retained by the depositor must
provide the depositor with a letter (with copies provided to each Rating
Agency rating the certificates, the related underwriter and the related
trustee) stating whether or not the characteristics of the Additional
Obligations conform to the characteristics described in the related
prospectus or prospectus supplement and/or pooling and servicing
agreement. In preparing such letter, the independent accountant must use
the same type of procedures as were applicable to the Obligations which
were transferred to the trust as of the closing date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments.
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account
used in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
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(iii) the percentage and/or dollar amount of the Pre-Funding Limit
for the trust; and
(iv) that the amounts remaining in the pre-funding account at the
end of the Pre-Funding Period will be remitted to certificateholders as
repayments of principal.
(9) The related trust agreement must describe the permitted
investments for the pre-funding and/or capitalized interest account and, if
no disclosed in the related prospectus or prospectus supplement, the terms
and conditions for eligibility of Additional Obligations.
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 as amended 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 prudence 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 CONSIDERATIONS
The Prospectus Supplement for each Series of Certificates will specify
which, if any, of the classes of Certificates offered thereby will constitute
'mortgage related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ('SMMEA'). Classes of Certificates that
qualify as 'mortgage related securities' will be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, life insurance companies and
pension funds) 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
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any such entities. Under SMMEA, if a state
enacted 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 therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline.
SMMEA also amended the legal investment authority of federally-chartered
depository institution as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
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 Certificates for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ('NCUA') Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities, and the NCUA's regulation 'Investment and Deposit Activities' (12
C.F.R. Part 703), (whether or not the class of Certificates under consideration
for purchase constitutes a 'mortgage related security').
All depository institutions considering an investment in the Certificates
(whether or not the class of certificates under consideration for purchase
constitutes a 'mortgage related security' should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on Securities
Activities (to the extent adopted by their respective regulators) (the 'Policy
Statement'), setting forth, in relevant part, certain securities trading and
sales practices deemed unsuitable for an institution's investment portfolio, and
guidelines for (and restrictions on) investing in mortgage derivative products,
including 'mortgage related securities' that are 'high-risk mortgage securities'
as defined in the Policy Statement. According to the Policy Statement, such
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'high-risk mortgage securities' include securities such as Certificates not
entitled to distributions allocated to principal or interest, or Subordinated
Certificates. Under the Policy Statement, it is the responsibility of each
depository institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a 'high-risk
mortgage security,' and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but no limited
to, 'prudent investor' provisions, percentage-of-assets limits and provisions
that may restrict or prohibit investment in securities that are not 'interest
bearing' or 'income paying.'
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 the
investor's assets. 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 Brown & Wood LLP, Washington, D.C.
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.
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, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and New York Regional Office,
7 World Trade Center, Suite 1300, 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.
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The Commission also maintains a site on the World Wide Web at
'http://www.sec.gov' at which users can view and download copies of reports,
proxy and information statements and other information filed electronically
through the Electronic Data Gathering, Analysis and Retrieval ('EDGAR') system.
The Seller has filed the Registration Statement, including all exhibits thereto,
through the EDGAR system and therefore such materials should be available by
logging onto the Commission's Web site. The Commission maintains computer
terminals providing access to the EDGAR system at each of the offices referred
to above.
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 Inquiry department of FHLMC at 8200 Jones Branch
Drive, McLean, Virginia 22102 (outside Washington, D.C. metropolitan area,
telephone 800-336-3672; 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.
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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 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 that 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.
'Accretion Termination Date' means, with respect to a Class of Compound
Interest Certificates, such date 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/or 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 certain purposes.
'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.
'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.
'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.
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'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 Interest 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.
'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
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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 any
governmental agency.
'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.
'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.
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'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' or 'Freddie Mac' 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 Interest 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 Interest Rate applies to a Class of Floating Rate Certificates.
'FNMA' or 'Fannie Mae' 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
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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' or 'Ginnie Mae' 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 Certificates,
Loans, or Private Mortgage-Backed Securities.
'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.
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'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.
'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.
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'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.
'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 Pool' means with respect to a Trust Fund for a Series of
Certificates, a pool of Mortgage Loans.
'Mortgaged Property' means the real property securing a Mortgage Loan.
'Mortgage Rate' means, unless otherwise indicated herein or in the
Prospectus Supplement, the interest rates borne by each 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.
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'Person' means any individual, corporation, partnership, limited liability
company, 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.
'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 licensed in such states to transact the
applicable insurance business and to write the insurance provided.
'Rating Agency' means any nationally recognized statistical rating
organization (or organizations) that 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 'MATERIAL 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.
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'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 'MATERIAL 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 that 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.
'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.
'Servicing 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.
'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 are
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.
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'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.
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$581,483,000
(APPROXIMATE)
STRUCTURED ASSET
SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1999-SP1
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
MASTER SERVICER
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PROSPECTUS SUPPLEMENT
May 5, 1999
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LEHMAN BROTHERS
