PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 15, 1999)
$357,803,847 (APPROXIMATE)
STRUCTURED ASSET SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-ALS2
ALS LOGO
AURORA LOAN SERVICES INC.,
MASTER SERVICER
-------------------------
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-9 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-70 in 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 WILL ISSUE THE FOLLOWING CERTIFICATES:
CLASS
PRINCIPAL INTEREST CUSIP
CLASS AMOUNT(1) RATE NUMBER
- ------------------- ----------- -------- ---------
A1................. $59,060,000 6.75% 863572C27
A2................. 228,800,000 6.75% 863572C35
A3................. 23,000,000 6.65% 863572C43
A4................. 15,000,000 6.75% 863572C50
A5................. (2) 6.75% 863572D34
AP................. 245,747 (3) 863572C68
B1................. 20,404,000 6.75% 863572C76
B2................. 7,651,000 6.75% 863572C84
B3................. 3,643,000 6.75% 863572C92
R.................. 100 6.75% 863572D26
- -------------------------
(1) These balances are approximate, as described in this prospectus supplement.
(2) The Class A5 Certificates will be interest-only certificates and, as such,
will not be entitled to payments of principal. The Class A5 Certificates
will accrue interest on an aggregate notional amount calculated as described
in this prospectus supplement.
(3) The Class AP Certificates will be principal-only certificates and, as such,
will not be entitled to payments of interest.
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 Class A3 and the Class A4 Certificates will each have the benefit
of a certificate guaranty insurance policy, issued by MBIA Insurance
Corporation, which will guarantee the payment of certain amounts to the Class A3
and the Class A4 Certificateholders as described in this prospectus supplement.
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. The Class A3 and the Class A4 Certificates will also be offered by
Edward D. Jones & Co., L.P., as a dealer, from time to time in negotiated
transactions or otherwise at varying prices determined at the time of sale.
Proceeds to Structured Asset Securities Corporation from the sale of these
certificates will be approximately 98.7% of their initial total principal
amount, plus accrued interest, before deducting expenses.
On or about May 27, 1999, delivery of the certificates offered by this
prospectus supplement, except the Class R Certificate, will be made through the
book-entry facilities of The Depository Trust Company, and delivery of the Class
R Certificate will be made in physical form at the offices of Lehman Brothers
Inc., New York, New York.
LEHMAN BROTHERS EDWARD D. JONES & CO., L.P.
MAY 14, 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 hereby, this
prospectus and prospectus supplement may be used by Lehman Brothers Inc., an
affiliate of the depositor and of one of the servicers, in connection with
market making transactions in such 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.
------------------------
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
PAGE
-----
Summary of Terms.............................. S-5
Risk Factors.................................. S-9
Description of the Certificates............... S-14
General..................................... S-14
Book-Entry Registration..................... S-15
Priority of Distributions................... S-16
Distributions of Interest................... S-18
Distributions of Principal.................. S-20
Available Distribution Amount............... S-23
Distributions in Reduction of the Class A3
and Class A4 Certificates................ S-24
Example of Distributions.................... S-28
The Residual Certificate.................... S-28
Allocation of Realized Losses............... S-29
Final Scheduled Distribution Date........... S-31
Optional Termination of the Trust Fund...... S-31
The Certificate Insurance Policies.......... S-31
The Trustee................................. S-32
Description of the Mortgage Pool.............. S-32
General..................................... S-32
Group 1 Mortgage Loans...................... S-34
Group 2 Mortgage Loans...................... S-39
Underwriting Guidelines..................... S-43
Aurora Underwriting Guidelines........... S-43
Headlands Underwriting Guidelines........ S-44
Additional Information........................ S-45
The Master Servicer........................... S-45
Servicing of the Mortgage Loans............... S-47
General..................................... S-47
Servicing Compensation and Payment of
Expenses................................. S-47
Prepayment Interest Shortfalls.............. S-48
Advances.................................... S-48
Collection of Taxes, Assessments and Similar
Items.................................... S-49
Insurance Coverage.......................... S-49
PAGE
-----
Evidence as to Compliance................... S-49
Certain Rights Related to Foreclosure....... S-49
Trust Agreement............................... S-49
General..................................... S-49
Assignment of Mortgage Loans................ S-50
Voting Rights............................... S-51
Yield, Prepayment and Weighted Average Life... S-51
General..................................... S-51
Sensitivity of Certain Classes of
Certificates............................. S-53
Subordination of the Offered Subordinate
Certificates............................. S-55
Weighted Average Life....................... S-55
The Certificate Insurance Policies............ S-60
The Policies................................ S-60
The Certificate Insurer..................... S-62
Certificate Insurer Financial Information... S-63
Where You Can Obtain Additional Information
About the Certificate
Insurer.................................. S-63
Year 2000 Readiness Disclosure.............. S-63
Financial Strength Ratings of Certificate
Insurer.................................. S-64
Material Federal Income Tax
Considerations.............................. S-64
General..................................... S-64
Residual Certificates....................... S-65
Legal Investment Considerations............... S-67
Use of Proceeds............................... S-67
Underwriting.................................. S-67
ERISA Considerations.......................... S-68
Experts....................................... S-68
Legal Matters................................. S-68
Ratings....................................... S-68
Glossary...................................... S-70
S-3
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PROSPECTUS
PAGE
----
Summary of Terms............................... 5
Risk Factors................................... 9
Description of the Certificates................ 13
Yield, Prepayment and Maturity
Considerations............................... 17
The Trust Funds................................ 21
Loan Underwriting Procedures and Standards..... 37
Servicing of Loans............................. 41
Credit Support................................. 53
Description of Mortgage and Other Insurance.... 56
The Trust Agreements........................... 64
Certain Legal Aspects of Loans................. 74
PAGE
----
Material Federal Income Tax
Considerations............................... 89
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
S-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, 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, THAT PERCENTAGE HAS BEEN CALCULATED ON THE BASIS OF THE TOTAL
SCHEDULED PRINCIPAL BALANCE OF THOSE MORTGAGE LOANS AS OF MAY 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 TO THE TOTAL PRINCIPAL
BALANCE OF ANY MORTGAGE LOANS, WE MEAN THE TOTAL OF THEIR SCHEDULED PRINCIPAL
BALANCES, UNLESS WE SPECIFY OTHERWISE.
OFFERED CERTIFICATES
Structured Asset Securities Corporation's Mortgage Pass-Through
Certificates, Series 1999-ALS2 consist of the following classes: A1, A2, A3, A4,
A5, AP, B1, B2, B3, B4, B5, B6 and R. Only the Class A1, A2, A3, A4, A5, AP, B1,
B2, B3 and R Certificates are being offered by this prospectus supplement. These
certificates, except for the Class R Certificate, will be issued in book-entry
form. The Class R Certificate will be issued in physical, definitive 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 of a pool of mortgage loans, sometimes referred to herein as
the 'mortgage pool'. As described in greater detail in this prospectus
supplement, approximately 69.34% of the mortgage loans in the mortgage pool
contain prepayment penalties for early full or partial prepayment of the loan
and approximately 30.66% do not.
The certificates will have an approximate total initial principal amount of
$364,365,016. 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 June 1999. However, if the 25th day is not a
business day, payments will be made on the next business day after the 25th day
of the month. The first payment date will be June 25, 1999.
INTEREST PAYMENTS
Interest will accrue on each class of certificates, other than the Class AP
Certificates, at the annual rates specified on the cover of this prospectus
supplement.
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
A5 Certificates, will be determined by (1) formulas that allocate portions of
principal payments received on the mortgage loans among different classes and
(2) funds actually received on the mortgage loans that are
S-5
<PAGE>
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 key allocation concept for the Class A1, A2, A3, A4 and R Certificates
is the Senior Principal Distribution Amount, described on page S-20. The key
allocation concept for the Class AP Certificates is the AP Principal
Distribution Amount, described on page S-22. The key allocation concept for the
Class B Certificates is the Subordinate Principal Distribution Amount, described
on page S-22.
See '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 generally be the mortgage loans. The trust fund will
have no other source of cash and no other entity will be required or expected to
make any payments on the certificates, other than the Class A3 and Class A4
Certificates, each of which will have the benefit of a certificate guaranty
insurance policy issued by MBIA Insurance Corporation and a reserve fund to
cover certain prepayment interest shortfalls relating to such Certificates not
initially covered by such policies.
THE CERTIFICATE INSURANCE POLICIES
On or before the date of issuance of the certificates, Structured Asset
Securities Corporation will obtain separate certificate guaranty insurance
policies from MBIA Insurance Corporation for the benefit of holders of the Class
A3 Certificates and Class A4 Certificates, respectively. Each such policy will
guarantee the payment of certain principal and interest distributions to the
holders of the related Certificates under the circumstances described in this
prospectus supplement. However, neither such policy will cover certain interest
shortfalls. No other class of certificates will benefit from either certificate
guaranty insurance policy.
See 'The Certificate Insurance Policies' in this prospectus supplement.
ENHANCEMENT OF LIKELIHOOD OF PAYMENT ON THE CERTIFICATES
The payment structure includes subordination and loss allocation features
to enhance the likelihood that certificateholders of more senior classes will
receive regular payments of interest and principal. The Class A Certificates
will have a payment priority and will be less likely to experience losses than
the Class B Certificates, and each class of Class B Certificates with a lower
numerical class designation will have a payment priority and will be less likely
to experience losses than each class of Class B Certificates with a higher
numerical class designation.
See 'Risk Factors -- Potential Inadequacy of Credit Enhancement' and
'-- Allocation of Realized Losses' in this prospectus supplement for a detailed
description of subordination and loss allocation features.
Subordination of Payments
Certificates with an 'A' or 'R' in their class designation will have a
payment priority as a group over other certificates. The Class B1 Certificates
will have a payment priority over the Class B2 and Class B3 Certificates, and
the Class B2 Certificates will have a payment priority over the Class B3
Certificates. The Class B3 Certificates will have a payment priority over the
Class B4, B5 and B6 Certificates.
See 'Description of the Certificates -- Priority of Distributions' in this
prospectus supplement.
Allocation of Losses
If the mortgage loans experience losses (except as described in this
prospectus supplement), then the principal amount of the class of certificates
that is lowest in seniority and still outstanding will be reduced by the amount
of such losses until the total outstanding principal amount of that class equals
zero.
S-6
<PAGE>
o If a loss has been allocated to reduce the principal balance of your class,
you will receive no payment in respect of that reduction.
See 'Description of the Certificates -- Allocation of Realized Losses' in
this prospectus supplement.
THE MORTGAGE LOANS
On the closing date, which is expected to be on or about May 27, 1999, the
assets of the trust will primarily consist of the mortgage pool comprising
approximately 1,440 mortgage loans having a total principal balance of
approximately $364,365,016. The mortgage loans in the mortgage pool 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 will consist of fixed rate, conventional, first lien
residential mortgage loans, substantially all of which have original terms to
stated maturity of 20 to 30 years.
None of the mortgage loans will be insured or guaranteed by any government
agency.
See 'Description of the Mortgage Pool' 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 Aurora Loan Services Inc. The
master servicer will oversee the servicing of the mortgage loans by primary loan
servicers. Initially, the only primary loan servicer will be Aurora Loan
Services Inc.; however, Aurora's primary servicing rights may subsequently be
transferred to other servicers in accordance with the trust agreement, as
described in this prospectus supplement.
See 'The Master Servicer' and 'Servicing of the Mortgage Loans' in this
prospectus supplement.
OPTIONAL PURCHASE OF MORTGAGE LOANS
Structured Asset Securities Corporation may repurchase the mortgage loans
after the total principal balance of the mortgage loans declines to less than
10% of their initial total principal balance. If the mortgage loans are
repurchased, certificateholders will be paid accrued interest and principal
equal to the outstanding principal amount of the certificates.
See 'Description of the Certificates Optional Termination of the Trust
Fund' in this prospectus supplement for a description of the purchase price to
be paid for the mortgage loans.
TAX STATUS
The trustee will elect to treat all or a portion of the trust fund as one
or more REMICs for federal income tax purposes. Each of the certificates other
than the Class R Certificate will represent ownership of REMIC 'regular
interests' and the Class R Certificate will represent ownership of the sole
class of 'residual interest' in each REMIC.
The Class A5 and Class AP Certificates will be, and other classes of
certificates may be, issued with original issue discount for federal income tax
purposes.
There are restrictions on the ability of certain types of investors to
purchase the Class R Certificate.
See 'Material Federal Income Tax Consequences' in this prospectus
supplement and in the accompanying prospectus for additional information
concerning the application of federal income tax laws to the certificates.
ERISA CONSIDERATIONS
Generally, the Class A1, A2, A3, A4, A5 and AP Certificates may, but the
Class R, B1, B2 and B3 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. A fiduciary of an employee benefit plan or an individual retirement
account must
S-7
<PAGE>
determine that the purchase of a certificate is consistent with its fiduciary
duties under applicable law and does not result in a nonexempt prohibited
transaction under applicable law.
See 'ERISA Considerations' in this prospectus supplement and in the
prospectus for a more complete discussion of these issues.
LEGAL INVESTMENT CONSIDERATIONS
Only the Class A1, A2, A3, A4, A5, AP, B1 and R Certificates will
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 Matters' 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 Duff & Phelps Credit Rating Co. and Standard and
Poor's Rating Services, a division of The McGraw-Hill Companies, Inc.:
DUFF & PHELPS S&P
CLASS RATING RATING
- ------ -------------- ---------
A1 AAA AAA
A2 AAA AAA
A3 AAA AAA
A4 AAA AAA
A5 AAA AAAr
AP AAA AAAr
R AAA AAA
B1 AA N/A
B2 A N/A
B3 BBB N/A
o Duff & Phelps will rate all of the certificates offered by this prospectus
supplement; S&P will rate only the Class A1, A2, A3, A4, A5, AP and R
Certificates.
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.
S-8
<PAGE>
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.
<TABLE>
<S> <C>
POTENTIAL INADEQUACY OF
CREDIT ENHANCEMENT...................... Other than the Class A3 and Class A4 Certificates, the certificates
are not insured by any financial guaranty insurance policy. The
subordination and loss allocation 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.
The amount of any loss (other than a specified portion of any such
loss on a discount loan and certain 'excess' losses described herein)
experienced on a mortgage loan will be applied to reduce the
principal amount of the class of Class B Certificates with the
highest numerical class designation, until the principal amount of
that class has been reduced to zero. If subordination is insufficient
to absorb losses, then certificateholders will incur losses and may
never receive all of their principal payments. You should consider
the following:
o if you buy a Class B3 Certificate and losses on the loans have
exceeded the total principal amount of the Class B4, B5 and B6
Certificates, the principal amount of your certificates will be
reduced proportionately with the principal amount of the other
Class B3 Certificates by the amount of that excess;
o if you buy a Class B2 Certificate and losses on the loans have
exceeded the total principal amount of the Class B3, B4, B5 and B6
Certificates, the principal amount of your certificates will be
reduced proportionately with the principal amount of the other
Class B2 Certificates by the amount of that excess;
o if you buy a Class B1 Certificate and losses on the loans have
exceeded the total principal amount of the Class B2, B3, B4, B5 and
B6 Certificates, the principal amount of your certificates will be
reduced proportionately with the principal amount of the other
Class B1 Certificates by the amount of that excess;
o after the total principal amount of the Class B Certificates has
been reduced to zero, losses on the mortgage loans will reduce the
principal amount of the Class A1, A2, A3, A4 and AP Certificates
and the notional balance of the Class A5 Certificates (provided,
however, with respect to the Class A3 and Class A4 Certificates,
the certificate guaranty insurance policies will be available to
cover such losses); and
</TABLE>
S-9
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o after the total principal amount of the Class B Certificates has
been reduced to zero, the Class AP Certificates will no longer have
the benefit of the special loss mitigation feature described in
this prospectus supplement.
See 'Description of the Certificates -- Priority of Distributions'
and '-- Allocation of Realized Losses' in this prospectus supplement.
UNPREDICTABILITY EFFECT OF PREPAYMENTS.... Borrowers may prepay their mortgage loans in whole or in part at and
any time; however, approximately 69.34% of the mortgage loans in the
mortgage pool require the payment of a prepayment penalty in
connection with certain full or partial voluntary prepayments made
during a period ranging from three to five years after origination of
such loans. This may discourage borrowers from prepaying their
mortgage loans and, accordingly, may adversely affect the rate of
prepayment of the mortgage loans even in a rising interest rate
environment. Prepayments of principal may also be caused by
liquidations of, or insurance payments on, the mortgage loans. A
prepayment of a mortgage loan in a pool will usually result in a
prepayment on the related certificates. Such prepayment penalties
will be retained by the servicer as part of its servicing
compensation and will not be an asset of the trust available to pay
certificateholders.
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.
The prepayment experience of the mortgage loans may differ
significantly from that of other first lien residential mortgage
loans.
SPECIAL RISKS FOR CERTAIN
CLASSES OF CERTIFICATES................. The Class AP Certificates are principal-only certificates and the
Class A5 Certificates are interest-only certificates. These
certificates have yields to maturity (or early termination) -- the
yield you will receive if you hold a certificate until it has been
paid in full -- that are highly sensitive to the prepayment
experience of the mortgage pool.
</TABLE>
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<S> <C>
If you purchase a Class AP or a Class A5 Certificate, you should
consider the risk that you may receive a lower than expected yield
under the following circumstances:
o a faster than expected rate of prepayments on mortgage loans in the
case of the Class A5 Certificates; or
o a slower than expected rate of prepayments on mortgage loans, in
the case of the Class AP Certificates with net mortgage rates of
less than 6.75% (which are mortgage rates that are lower than those
of the other mortgage loans in the mortgage pool, and may therefore
be less likely to prepay).
Prepayments on the related mortgage loans could result in the failure
of investors in the Class A5 Certificates to fully recover their
initial investments.
See 'Yield, Prepayment, and Weighted Average Life' in this prospectus
supplement for a description of factors that may affect the
sensitivity of these certificates' yield to maturity.
MORTGAGE LOANS WITH
INTEREST-ONLY PAYMENTS.................. Approximately 10.39% of the mortgage loans provide for payment of
interest at the related mortgage rate, but no payment of principal,
for a period of ten years following the origination of the mortgage
loan. Following that ten year period, the monthly payment with
respect to each such mortgage loan will be increased to an amount
sufficient to amortize the principal balance of the mortgage loan
over the remaining term and to pay interest at the mortgage rate.
The presence of these mortgage loans in the trust fund will, absent
other considerations, result in longer weighted average lives of the
certificates than would have been the case had these loans not been
included in the trust fund. If you purchase a certificate at a
discount, you should consider that the extension of weighted average
lives could result in a lower yield than would be the case if these
mortgage loans provided for payment of principal and interest on
every payment date. In addition, a borrower may view the absence of
any obligation to make a payment of principal during the first ten
years of the term of a mortgage loan as a disincentive to prepayment.
If a recalculated monthly payment as described above is substantially
higher than a borrower's previous interest-only monthly payment, that
loan may be subject to an increased risk of delinquency and loss.
</TABLE>
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GEOGRAPHIC CONCENTRATION OF
MORTGAGE LOANS.......................... Approximately 51.26% of the mortgage loans expected to be in the
trust fund 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 affect regions of the United States from time to
time, which 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, see the applicable table under 'Description of
the Mortgage Pool' in this prospectus supplement.
LACK OF PRIMARY MORTGAGE INSURANCE........ Approximately 8.98% of the mortgage loans have original loan-to-value
ratios greater than 80%. Approximately 48.35% 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.
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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
DEFAULT RISK ON HIGH BALANCE MORTGAGE
LOANS................................... The principal balances of approximately 17 mortgage loans,
representing approximately 8.21% of the mortgage loans in the
mortgage pool, were in excess of $1 million on the closing date. You
should consider the risk that the loss and delinquency experience on
these high balance loans may have a disproportionate effect on the
mortgage pool as a whole.
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 trustee, the certificate insurer, 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.
</TABLE>
S-13
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1999-ALS2 Mortgage Pass-Through Certificates (the
'Certificates') will consist of the Class A1, Class A2, Class A3, Class A4,
Class A5, Class AP, Class B1, Class B2, Class B3, Class B4, Class B5, Class B6
and Class R Certificates. The Class A1, Class A2, Class A3, Class A4, Class A5,
Class AP and Class R Certificates are referred to herein as the 'Senior
Certificates;' the Class B1, Class B2 and Class B3 Certificates are referred to
herein as the 'Offered Subordinate Certificates;' and the Offered Subordinate
Certificates, together with the Class B4, Class B5 and Class B6 Certificates,
are referred to herein as the 'Subordinate Certificates.' Only the Senior
Certificates and the Offered Subordinate Certificates (the 'Offered
Certificates') are offered hereby. The Class A1, Class A2, Class A3, Class A4,
Class A5, and Class R Certificates are sometimes referred to herein as the
'Non-AP Senior Certificates;' and the Classes of Certificates that include the
letter 'A' in their class designation are sometimes referred to herein as the
'Class A Certificates.'
The Certificates represent beneficial ownership interests in a trust fund
(the 'Trust Fund'), the assets of which consist primarily of (i) a pool (the
'Mortgage Pool') of fixed rate, fully amortizing, conventional, first lien
mortgage loans (the 'Mortgage Loans'), (ii) such assets as from time to time are
identified as deposited in respect of the Mortgage Loans in the Certificate
Account, (iii) property acquired by foreclosure of such Mortgage Loans or deed
in lieu of foreclosure, (iv) a reserve fund established for the benefit of the
Class A3 and Class A4 Certificates, (v) any applicable insurance policies and
all proceeds thereof and (vi) solely with respect to the Class A3 and Class A4
Certificates, the Certificate Insurance Policies. As described at 'Description
of the Mortgage Pool--Retained Interest Rate', Structured Asset Securities
Corporation, as depositor (the 'Depositor') of the Mortgage Loans, will be
entitled to retain certain amounts on the Mortgage Loans payable from interest
payments (and other collections in respect thereof) on the Mortgage Loans.
Accordingly, such payments will not be included in the Trust for distribution to
Certificateholders regardless of the performance of the Mortgage Pool. See
'Description of the Mortgage Pool -- General.'
Each Class of Offered Certificates will be issued in the respective
approximate initial aggregate principal amount (a 'Class Principal Amount') set
forth on the cover page hereof or, in the case of the Class A5 Certificates, the
aggregate notional amount (a 'Class Notional Amount') described herein at
'-- Distributions of Interest'. The approximate initial Class Principal Amount
of each of the Class B4, Class B5 and Class B6 Certificates (which are not
offered hereby) is $2,186,000, $1,457,000 and $2,918,169, respectively, or, in
aggregate, 17.149% of the aggregate Class Principal Amount of all of the
Subordinate Certificates. The initial aggregate Certificate Principal Amount of
all the Certificates may be increased or decreased by up to five percent to the
extent that the aggregate Scheduled Principal Balance on the Cut-off Date (the
'Cut-off Date Balance') of the Mortgage Loans is increased or decreased as
described under 'Description of the Mortgage Pools' 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 on June 25, 1999 (each a 'Distribution Date'), to
Certificateholders of record on the applicable Record Date. The 'Record Date'
for each Distribution Date will be the last Business Day of the month
immediately preceding the month in which the Distribution Date occurs. A
'Business Day' is generally any day other than a Saturday or Sunday or a day on
which the Certificate Insurer or banks in New York or Colorado are closed.
Distributions on the 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 the entire
interest in the
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<PAGE>
Class AP or Class A5 Certificates or (y) any other 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 other than the Class R Certificate (collectively,
the 'Book-Entry Certificates') will be issued, maintained and transferred on the
book-entry records of The Depository Trust Company ('DTC') and its Participants
(as defined herein). The Book-Entry Certificates, other than the Class A5
Certificates, will be issued in the following minimum denominations (and
integral multiples of $1 in excess thereof): $100,000, in the case of the Class
A1 and Class A2 Certificates; $1,000 in the case of the Class A3 and Class A4
Certificates; $250,000, in the case of the Class B1, Class B2 and Class B3
Certificates. The Class AP Certificates will be issued as a single Certificate
in book-entry form representing the entire principal amount of such Class. The
Class A5 Certificates will be issued as a single certificate in book-entry form
representing the entire Notional Amount (as defined herein) of such Class. The
Class R Certificate (the 'Residual Certificate') will be issued as a single
certificate and maintained in definitive, fully registered form, representing
the entire principal amount in such Class.
Each Class of Book-Entry Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Depositor has
been informed by DTC that DTC's nominee will be Cede & Co. 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. Beneficial Owners that are not brokerage firms, banks, thrift
institutions or other financial intermediaries (each, a 'Financial
Intermediary') or participating firms that act as agent for a Financial
Intermediary (each, a 'Participant') but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, the related Book-Entry
Certificates may do so only through Participants and Financial Intermediaries.
In addition, Beneficial Owners will receive all distributions of principal and
interest on the related Book-Entry Certificates through DTC and its
Participants. Accordingly, Beneficial Owners may experience delays in their
receipt of payments. Unless and until Definitive Certificates are issued for the
related Book-Entry Certificates, it is anticipated that the only registered
Certificateholder of such Book-Entry Certificates will be Cede, as nominee of
DTC. Beneficial Owners will not be recognized by the Depositor or the Trustee as
Certificateholders, as such term is used in the Trust Agreement, and Beneficial
Owners will be permitted to receive information furnished to Certificateholders
and to exercise the rights of Certificateholders only indirectly through DTC,
its Participants and Financial Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the 'Rules'), DTC is required to make book-entry transfers of
Book-Entry Certificates among Participants and to receive and transmit
distributions of principal and interest on such Book-Entry Certificates.
Participants and Financial Intermediaries with which Beneficial Owners have
accounts with respect to such Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such distributions on behalf
of their respective Beneficial Owners.
S-15
<PAGE>
Accordingly, although Beneficial Owners will not possess physical certificates
evidencing their interests in the Book-Entry Certificates, the Rules provide a
mechanism by which Beneficial Owners, through their Participants and Financial
Intermediaries, will receive distributions and will be able to transfer their
interests in the Book-Entry Certificates.
Neither the Depositor nor the Trustee or any of their respective affiliates
will have any liability for any actions taken by DTC or its nominee including,
without limitation, actions with respect to any aspect of the records relating
to or payments made on account of beneficial ownership interests in the
Book-Entry Certificates held by Cede, as nominee for DTC, or with respect to
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
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.
For additional information regarding DTC and the Book-Entry Certificates,
see 'Description of the Certificates -- Book-Entry Registration' in the
Prospectus.
PRIORITY OF DISTRIBUTIONS
Distributions in respect of the Certificates will be made on each
Distribution Date from the related Available Distribution Amount (as defined
herein at '-- Available Distribution Amount'), in the following order of
priority:
On each Distribution Date, the Available Distribution Amount will be
allocated among the Classes of Senior Certificates, to the payment of the
premiums on the Certificate Insurance Policies and any reimbursements to the
Certificate Insurer, the Trustee Fee, and the Subordinate Certificates as
follows:
(1) to payment of the monthly premium for each Certificate Insurance
Policy;
(2) to payment of the Trustee Fee;
(3) to payment of Accrued Certificate Interest on the Senior
Certificates (other than the Class AP Certificates) (reduced by any Net
Prepayment Interest Shortfalls allocated to any
S-16
<PAGE>
such Class of Certificates on such Distribution Date, pro rata in
proportion to Accrued Interest (as so reduced) on each such Class);
(4) to payment of any outstanding Interest Shortfalls (as defined
herein) on the Senior Certificates (other than the Class AP Certificates)
from the Available Distribution Amount for such Distribution Date, pro rata
in proportion to any outstanding Interest Shortfalls; and
(5) to the Senior Certificates, other than the Class A5 Certificates,
to the extent of the remaining Available Distribution Amount, as follows:
(A) to the Non-AP Senior Certificates and the Class AP
Certificates, concurrently, as follows:
(i) to the Non-AP Senior Certificates, the Senior Principal
Distribution Amount, in the following order of priority:
(a) to the Class R Certificate, until the Class
Certificate Principal Amount thereof has been reduced to zero;
(b) commencing with the Distribution Date occurring in
June 2002, pro rata to the Class A3 and Class A4 Certificates,
an amount on each such Distribution Date up to approximately
$38,000, until the Class Certificate Principal Amount of each
such Class has been reduced to zero;
(c) an amount on each Distribution Date up to
approximately $850,000 to the Class A1 Certificates and Class
A2 Certificates, concurrently, as follows, until the Class
Certificate Principal Amount of either such Class has been
reduced to zero:
(I) approximately 99% to the Class A1 Certificates; and
(II) approximately 1% to the Class A2 Certificates;
(d) to the Class A2 Certificates, if not previously
retired pursuant to priority (5)(A)(i)(c) above, any remaining
Senior Principal Distribution Amount, until the Class
Certificate Principal Amount thereof has been reduced to zero;
(e) to the Class A1 Certificates, if not previously
retired pursuant to priority (5)(A)(i)(c) above, any remaining
Senior Principal Distribution Amount, until the Class
Certificate Principal Amount thereof has been reduced to zero;
and
(f) to the Class A3 Certificates and Class A4
Certificates, pro rata, if not previously retired pursuant to
priority 5(A)(i)(b), any remaining Senior Principal
Distribution Amount, until the Class Certificate Principal
Amounts thereof have been reduced to zero; and
(ii) to the Class AP Certificates, the AP Principal
Distribution Amount for such Distribution Date, until the Class
Certificate Principal Amount thereof has been reduced to zero; and
(6) to the Class AP Certificates, to the extent of the remaining
Available Distribution Amount, the Class AP Deferred Amount for such
Distribution Date, until the Class Principal Amount thereof has been
reduced to zero; provided, however, that distributions pursuant to this
priority shall not exceed the aggregate Subordinate Principal Distribution
Amount for such date, and such amount will not reduce the Class Principal
Amount of such Class; and
(7) to the Certificate Insurer, payment of any unreimbursed Insured
Payments (as defined herein), plus all amounts due to the Certificate
Insurer under the Insurance Agreement (as defined herein), together with
interest thereon at the rate specified in the Insurance Agreement; and
(8) to the extent of the remaining Available Distribution Amount for
such Distribution Date, to payment to the Class B1, Class B2, Class B3,
Class B4, Class B5 and Class B6
S-17
<PAGE>
Certificates, in that order, of the following amounts in the following
order of priority: (x) Accrued Certificate Interest thereon (as reduced by
any Net Prepayment Interest Shortfalls allocated to such Class on such
Distribution Date), (y) any outstanding Interest Shortfalls previously
allocated to such Class, and (z) such Class's Subordinate Class Percentage
(as defined herein) of the Subordinate Principal Distribution Amount for
such Distribution Date, except as provided below, in reduction of the Class
Principal Amount thereof.
With respect to each Class of Subordinate Certificates other than the Class
B6 Certificates, if on any Distribution Date the Credit Support Percentage for
such Class is less than the Original Credit Support Percentage for such Class,
then no distributions in respect of clauses (2) and (3) of the definition of
Subordinate Principal Distribution Amount will be made to any related Class of
lower priority (the 'Restricted Classes'), and the amount otherwise
distributable to the Restricted Classes in respect of such payments will be
allocated among the remaining Classes of Subordinate Certificates, pro rata,
based upon their respective Class Principal Amount. The 'Credit Support
Percentage' for a Class of Subordinate Certificates for any Distribution Date is
equal to the sum of the Class Percentages (as defined herein) of each Class of
lower priority (without giving effect to distributions on such date). The
'Original Credit Support Percentage' for a Class of Subordinate Certificates is
the Credit Support Percentage for such Class of Subordinate Certificates on May
27, 1999 (the 'Closing Date'). The 'Class Percentage' for each Class of
Subordinate Certificates for each Distribution Date will be equal to the
percentage obtained by dividing the Class Principal Amount of such Class
immediately prior to such Distribution Date by the aggregate Class Principal
Amount of all Classes of Certificates immediately prior to such date.
DISTRIBUTIONS OF INTEREST
The amount of interest distributable on each Distribution Date in respect
of each Class of Certificates (other than the Class AP Certificates) will equal
the Accrued Certificate Interest (as defined below) for such Class on such
Distribution Date, as reduced by any Net Prepayment Interest Shortfalls
allocable to such Class for such date, as described below. 'Accrued Certificate
Interest' for each Class of Certificates (other than the Class AP Certificates)
on any Distribution Date will equal the amount of interest accrued during the
related Accrual Period (as defined below) on the Class Principal Amount or Class
Notional Amount thereof immediately prior to such Distribution Date at the
applicable Interest Rate, as reduced by such Class's share of (1) the interest
portion of any Excess Losses for such Distribution Date, allocable as described
below, and (2) with respect to any Mortgage Loan as to which there has been a
reduction in the amount of interest collectible as a result of application of
the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the 'Relief
Act,' and any such reduction, a 'Relief Act Reduction'), the amount of any such
reduction, allocated as described below. See 'Certain Legal Aspects of
Loans -- Soldiers' and Sailors' Civil Relief Act of 1940' in the Prospectus.
As to any Distribution Date, the Class Notional Amount of the Class A5
Certificates will be an amount determined by the following formula:
Class Principal Amount Class Principal Amount
of the Class A3 Certificates X 0.07% - of the Class A4 Certificates X 0.03%
- -------------------------------------------------------------------------------
6.75%
Interest will accrue on the Certificates on the basis of a 360-day year
consisting of twelve 30-day months. Such interest distributable to the Senior
Certificates will be distributed from the Available Distribution Amount on each
Distribution Date. Accrued Certificate Interest not distributed on the
Distribution Date related to the Accrual Period in which it accrued, other than
any Net Prepayment Interest Shortfalls, will be an 'Interest Shortfall.'
Interest will not accrue on Interest Shortfalls.
The interest portion of any Excess Losses and any Relief Act Reduction will
be allocated among the Certificates, other than the Class AP Certificates, pro
rata on each Distribution Date.
S-18
<PAGE>
o The 'Interest Rate' for each Class of Offered Certificates will be the
applicable per annum rate set forth on the cover page hereof.
o The 'Certificate Principal Amount' of any Certificate, other than a Class
A5 Certificate, as of any Distribution Date will equal such Certificate
Principal Amount as of the Closing Date as reduced by all amounts
previously distributed on such Certificate in respect of principal and
the principal portion of any Realized Losses (as defined herein)
previously allocated to such Certificate.
o The 'Notional Amount' of each Class A5 Certificate as of any Distribution
Date will equal such Certificate's percentage interest of the Class
Notional Amount of such Class for such date.
o The 'Accrual Period' for each Class of Certificates will be the calendar
month immediately preceding the month in which the related Distribution
Date occurs.
o The 'Net Mortgage Rate' of any Mortgage Loan is the interest rate borne
thereby less the sum of the Trustee Fee Rate, the Master Servicing Fee
Rate, the Servicing Fee Rate and the Retained Interest Rate, if any,
(each as defined herein) therefor.
When a principal prepayment in full is made on a Mortgage Loan, the
borrower is charged interest only to the date of such prepayment, instead of for
a full month, with a resulting reduction in interest payable for the month
during which the prepayment is made. Full or partial prepayments (or proceeds of
other liquidations) received in the applicable Prepayment Period (as defined
herein) will be distributed to Certificateholders 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 one month's interest on the related Certificates (or in the
case of a prepayment in full made in the same month such prepayment is
distributed to Certificateholders, an excess of interest at the Net Mortgage
Rate, to the extent received, over one month's interest (such excess,
'Prepayment Interest Excess')) could result. The amount by which one month's
interest at the Net Mortgage 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, the Servicer (as defined herein) is obligated to
reduce the aggregate of its Servicing Fees (as defined herein) for the related
Distribution Date to fund any resulting Prepayment Interest Shortfalls, to the
extent not offset by Prepayment Interest Excess for such month. The Master
Servicer is obligated to reduce its Aggregate Master Servicing Compensation (as
defined herein) for the related Distribution Date to the extent necessary to
fund any Prepayment Interest Shortfalls required to be paid but not paid by the
Servicer. See 'Servicing of the Mortgage Loans -- Prepayment Interest Shortfall'
herein. Any Prepayment Interest Shortfalls not funded by the Servicer or the
Master Servicer ('Net Prepayment Interest Shortfalls') will be allocated among
the Classes of Certificates as described under '-- Priority of Distributions'
above.
In order to provide protection to holders of the Class A3 and Class A4
Certificates against Net Prepayment Interest Shortfalls relating to prepayments
in full allocated to such Classes, a reserve fund (the 'Reserve Fund') will be
established by the Depositor into which approximately $6,000 will be deposited
on the Closing Date. No additional amounts will be deposited into the Reserve
Fund. The Depositor will be treated as the owner of the Reserve Fund for tax
purposes, will direct the Trustee with respect to the investment of funds on
deposit in the Reserve Fund and will be entitled to all investment earnings and
bear all investment losses. The Reserve Fund will not be an asset of either
REMIC. The amount of any Net Prepayment Interest Shortfalls relating to
prepayments in full allocated to the Class A3 or Class A4 Certificates on any
Distribution Date will be withdrawn from the Reserve Fund for distribution to
holders of such Certificates. After the amount on deposit in the Reserve Fund
has been exhausted, any Net Prepayment Interest Shortfalls relating to
prepayments in full allocated to the such Certificates will be covered by the
related Certificate Insurance Policy for such Certificates. See 'The Certificate
Insurance Policies' herein.
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<PAGE>
The Class AP Certificates are principal-only Certificates; no interest will
accrue or be distributable thereon.
DISTRIBUTIONS OF PRINCIPAL
Distributions of principal on the Certificates (other than the Class A5
Certificates) will be made on each Distribution Date to the extent of amounts
available to make such payments in accordance with the priorities set forth
under '-- Priority of Distributions' above.
o The 'Senior Principal Distribution Amount' on each Distribution Date is
equal to the sum of:
(1) the product of (a) the Senior Percentage and (b) the principal
portion (multiplied by the applicable Non-AP Percentage) of each
Scheduled Payment (without giving effect to any Debt Service Reduction
occurring prior to the Bankruptcy Coverage Termination Date (each as
defined herein)) on each Mortgage Loan during the related Due Period (as
defined herein);
(2) the product of (a) the Senior Prepayment Percentage and (b)
each of the following amounts (multiplied by the applicable Non-AP
Percentage): (i) the principal portion of each full and partial
principal prepayment made by a borrower on a Mortgage Loan during the
related Prepayment Period, (ii) each other unscheduled collection,
including Insurance Proceeds and net Liquidation Proceeds (other than
with respect to any Mortgage Loan that was finally liquidated during the
related Prepayment Period), representing or allocable to recoveries of
principal of such related Mortgage Loans received during the related
Prepayment Period and (iii) the principal portion of all proceeds of the
purchase (or, in the case of a permitted substitution, amounts
representing a principal adjustment) of any Mortgage Loan actually
received by the Trustee with respect to the related Prepayment Period;
(3) with respect to unscheduled recoveries allocable to principal
of any Mortgage Loan that was finally liquidated during the related
Prepayment Period, the lesser of (a) the related net Liquidation
Proceeds allocable to principal (multiplied by the applicable Non-AP
Percentage) and (b) the product of the Senior Prepayment Percentage for
such date and the remaining Scheduled Principal Balance (multiplied by
the applicable Non-AP Percentage) of such related Mortgage Loan at the
time of liquidation; and
(4) any amounts described in clauses (1) through (3) for any
previous Distribution Date that remain unpaid.
o The 'Non-AP Percentage' with respect to any Mortgage Loan with a Net
Mortgage Rate less than 6.75% per annum (each such Mortgage Loan, a
'Discount Mortgage Loan') will be the percentage equivalent of the
fraction, the numerator of which is the applicable Net Mortgage Rate and
the denominator of which is 6.75%. The Non-AP Percentage with respect to
any Mortgage Loan with a Net Mortgage Rate equal to or greater than 6.75%
per annum (each such Mortgage Loan, a 'Non-Discount Mortgage Loan') will
be 100%.
o The 'AP Percentage' with respect to any Discount Mortgage Loan in any
Mortgage Pool will be the percentage equivalent of the fraction, the
numerator of which is 6.75% minus the applicable Net Mortgage Rate, and
the denominator of which is 6.75%. The AP Percentage with respect to any
Non-Discount Mortgage Loan will be zero.
o The 'Scheduled Principal Balance' of any Mortgage Loan as of any date of
determination is generally equal to the outstanding principal balance
thereof as of May 1, 1999 (the 'Cut-off Date'), after giving effect to
Scheduled Payments due on or before such date, reduced by (1) the
principal portion of all Scheduled Payments due on or before the due date
in the Due Period immediately preceding such date of determination,
whether or not received, and (2) all amounts allocable to unscheduled
principal payments received on or before the last day of the applicable
Prepayment Period preceding such date of determination.
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<PAGE>
o The 'Senior Percentage' for any Distribution Date is the percentage
equivalent of a fraction, the numerator of which is the sum of the Class
Principal Amounts of the Senior Certificates (other than the Class AP
Certificates) immediately prior to such date and the denominator of which
is the related Non-AP Pool Balance for such date.
o The 'Non-AP Pool Balance' for each Distribution Date is the sum of the
applicable Non-AP Percentage of the Scheduled Principal Balance of each
Mortgage Loan included in the Mortgage Pool for such Distribution Date.
o The 'Senior Prepayment Percentage' for any Distribution Date occurring
during the five years beginning on the first Distribution Date will equal
100%. Thereafter, the Senior Prepayment Percentage will, except as
described below, be subject to gradual reduction as described in the
following paragraph. This disproportionate allocation of certain
unscheduled payments in respect of principal will have the effect of
accelerating the amortization of the Senior Certificates (other than the
Class AP Certificates), while, in the absence of Realized Losses,
increasing the relative percentage interest in the Mortgage Loans
evidenced by the Subordinate Certificates. Increasing the proportionate
interest of the Subordinate Certificates relative to that of the Senior
Certificates is intended to preserve the limited protection provided to
the Senior Certificates by the subordination of the Subordinate
Certificates.
o The Senior Prepayment Percentage for any Distribution Date occurring on
or after the fifth anniversary of the first Distribution Date will be as
follows: for any Distribution Date in the first year thereafter, the
Senior Percentage plus 70% of the Subordinate Percentage for such
Distribution Date; for any Distribution Date in the second year
thereafter, the Senior Percentage plus 60% of the Subordinate Percentage
for such Distribution Date; for any Distribution Date in the third year
thereafter, the Senior Percentage plus 40% of the Subordinate Percentage
for such Distribution Date; for any Distribution Date in the fourth year
thereafter, the Senior Percentage plus 20% of the Subordinate Percentage
for such Distribution Date; and for any subsequent Distribution Date, the
Senior Percentage for such Distribution Date (unless on any of the
foregoing Distribution Dates the Senior Percentage exceeds the initial
Senior Percentage for such Mortgage Pool, in which case the Senior
Prepayment Percentage for such Distribution Date will once again equal
100%). Notwithstanding the foregoing, no decrease in the Senior
Prepayment Percentage for any Mortgage Pool below the level in effect for
the most recent prior period specified above will be effective if, as of
such Distribution Date as to which any such decrease applies, (1) the
average outstanding principal balance on such Distribution Date and for
the preceding five Distribution Dates of all Mortgage Loans that were
delinquent 60 days or more (including for this purpose any Mortgage Loans
in foreclosure and Mortgage Loans with respect to which the related
Mortgaged Property has been acquired by the Trust Fund) is greater than
or equal to 50% of the Subordinate Amount (as defined herein) immediately
prior to such Distribution Date or (2) cumulative Realized Losses with
respect to the Mortgage Loans exceed (a) with respect to the Distribution
Date on the fifth anniversary of the first Distribution Date, 30% of the
Subordinate Amount as of the Cut-off Date (the 'Original Subordinate
Amount' with respect to such Mortgage Pool), (b) with respect to the
Distribution Date on the sixth anniversary of the first Distribution
Date, 35% of the Original Subordinate Amount, (c) with respect to the
Distribution Date on the seventh anniversary of the first Distribution
Date, 40% of the Original Subordinate Amount, (d) with respect to the
Distribution Date on the eighth anniversary of the first Distribution
Date, 45% of the related Original Subordinate Amount and (e) with respect
to the Distribution Date on the ninth anniversary of the first
Distribution Date, 50% of the Original Subordinate Amount.
o The 'AP Principal Distribution Amount' for each Distribution Date is
equal to the sum of:
(1) the applicable AP Percentage of the principal portion of each
Scheduled Payment (without giving effect to any Debt Service Reduction
occurring prior to the Bankruptcy
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Coverage Termination Date) on each Mortgage Loan in the related Mortgage
Pool due during the related Due Period;
(2) the applicable AP Percentage of each of the following amounts:
(a) the principal portion of each full and partial principal prepayment
made by a borrower on a Mortgage Loan during the related Prepayment
Period, (b) each other unscheduled collection, including Insurance
Proceeds and net Liquidation Proceeds (other than with respect to any
Mortgage Loan that was finally liquidated during the related Prepayment
Period) representing or allocable to recoveries of principal of such
Mortgage Loan received during the related Prepayment Period and (c) the
principal portion of all proceeds of the purchase (or, in the case of a
permitted substitution, amounts representing a principal adjustment) of
any Mortgage Loan actually received by the Trustee with respect to the
related Prepayment Period;
(3) with respect to unscheduled recoveries allocable to principal
of any Mortgage Loan that was finally liquidated during the related
Prepayment Period, the applicable AP Percentage of the related net
Liquidation Proceeds allocable to principal; and
(4) any amounts described in clauses (1) through (3) for any
previous Distribution Date that remain unpaid.
o The 'Subordinate Principal Distribution Amount' for each Distribution
Date is equal to the sum of:
(1) the product of (a) the Subordinate Percentage and (b) the
principal portion (multiplied by the applicable Non-AP Percentage) of
each Scheduled Payment (without giving effect to any Debt Service
Reduction occurring prior to the Bankruptcy Coverage Termination Date)
on each Mortgage Loan due during the related Due Period;
(2) the product of (a) the Subordinate Prepayment Percentage and
(b) each of the following amounts (multiplied by the applicable Non-AP
Percentage): (i) the principal portion of each full and partial
principal prepayment made by a borrower on a Mortgage Loan during the
related Prepayment Period, (ii) each other unscheduled collection,
including Insurance Proceeds and net Liquidation Proceeds (other than
with respect to any Mortgage Loan that was finally liquidated during the
related Prepayment Period), representing or allocable to recoveries of
principal of such Mortgage Loans received during the related Prepayment
Period and (iii) the principal portion of all proceeds of the purchase
(or, in the case of a permitted substitution, amounts representing a
principal adjustment) of any Mortgage Loan actually received by the
Trustee with respect to the related Prepayment Period;
(3) with respect to unscheduled recoveries allocable to principal
of any Mortgage Loan that was finally liquidated during the related
Prepayment Period, the related net Liquidation Proceeds allocable to
principal (multiplied by the applicable Non-AP Percentage), to the
extent not distributed pursuant to subsection (3) of the definition of
Senior Principal Distribution Amount; and
(4) any amounts described in clauses (1) through (3) for any
previous Distribution Date that remain unpaid.
o The 'Subordinate Amount' for any Distribution Date is the excess of the
Non-AP Pool Balance over the sum of the Class Certificate Principal
Amount of the Class A1, Class A2, Class A3, Class A4 and Class R
Certificates.
o The 'Subordinate Class Percentage' for each Class of Subordinate
Certificates for each Distribution Date is equal to the percentage
obtained by dividing the Class Principal Amount of such Class immediately
prior to such Distribution Date by the aggregate Certificate Principal
Amount of all Subordinate Certificates immediately prior to such date.
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o The 'Subordinate Prepayment Percentage' for any Distribution Date is the
difference between 100% and the Senior Prepayment Percentage for such
date.
o The 'Subordinate Percentage' for any Distribution Date is the difference
between 100% and the Senior Percentage for such Mortgage Pool for such
date.
o The Class A5 Certificates are interest-only Certificates; no principal
will be distributable thereon.
AVAILABLE DISTRIBUTION AMOUNT
The due period (the 'Due Period') related to each Distribution Date starts
on the second day of the month preceding the month in which such Distribution
Date occurs and ends on the first day of the month in which such Distribution
Date occurs. For a prepayment in full, the 'Prepayment Period' related to each
Distribution Date starts on the seventeenth day of the month preceding the month
in which such Distribution Date occurs and ends on the sixteenth day of the
month in which such Distribution Date occurs. For any other, unscheduled,
partial prepayment of principal, the 'Prepayment Period' related to each
Distribution Date starts on the second day of the month preceding the month in
which such Distribution Date occurs and ends on the first day of the month in
which such Distribution Date occurs. The 'Servicer Remittance Date' is the 18th
day (or if such 18th day is not a Business Day, the next succeeding Business
Day) of the month in which the related Distribution Date occurs. The 'Deposit
Date' is the Business Day immediately preceding the related Distribution Date.
o The 'Available Distribution Amount' on each Distribution Date, as more
fully described in the Trust Agreement, will generally equal the sum of
the following amounts:
(1) the total amount of all cash received by the Master Servicer
from each Servicer on the Servicer Remittance Date immediately preceding
such Distribution Date and remitted to the Trustee on the related
Deposit Date, which includes (a) Scheduled Payments due on the Mortgage
Loans during the Due Period and collected prior to the related Servicer
Remittance Date or advanced by the Master Servicer or the Servicer (or
the Trustee), (b) payments allocable to principal on the Mortgage Loans
(other than Liquidation Proceeds and Insurance Proceeds) to the extent
received in advance of their scheduled due dates and applied to reduce
the principal balance of the Mortgage Loans ('Principal Prepayments'),
together with accrued interest thereon, if any, identified as having
been received on the Mortgage Loans during the applicable Prepayment
Period, plus any amounts paid by the Master Servicer or any Servicer in
respect of Prepayment Interest Shortfalls, in each case for such
Distribution Date, (c) the proceeds of any repurchase of a Mortgage Loan
required to be repurchased by the Seller (as defined herein), the
Depositor or any other party as a result of a breach of a representation
or warranty or document defect, and (d) recoveries through liquidation
of any REO Property with respect to the Mortgage Loans, including
Insurance Proceeds and Liquidation Proceeds, minus:
(a) all Scheduled Payments of principal and interest on the
Mortgage Loans collected but due on a date subsequent to the related
Due Period;
(b) all Principal Prepayments on the Mortgage Loans received or
identified after the applicable Prepayment Period (together with any
interest payments, if any, received with such prepayments to the
extent that they represent (in accordance with the Servicer's usual
application of funds) the payment of interest accrued on the
Mortgage Loans for the period subsequent to the Prepayment Period);
(c) Liquidation Proceeds and Insurance Proceeds received after
the applicable Prepayment Period with respect to the Mortgage Loans;
(d) all fees and other amounts due or reimbursable to the
Master Servicer pursuant to the Trust Agreement or to the Servicer
pursuant to the Servicing Agreement;
(e) any Retained Interest; and
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(f) any Prepayment Penalty Amounts (as defined herein);
(2) any other payments made by the Master Servicer, the Servicer or
the Depositor with respect to such Distribution Date.
o 'Insurance Proceeds' means all proceeds (net of unreimbursed payments of
property taxes, insurance premiums and similar items incurred, and
unreimbursed Advances or servicing advances made by the Servicer or the
Master Servicer (or the Trustee), if any) of applicable insurance
policies, to the extent such proceeds are not applied to the restoration
of the Mortgaged Property or released to the borrower.
o 'Liquidation Proceeds' means all amounts (net of unreimbursed expenses
incurred in connection with liquidation or foreclosure, unreimbursed
Advances or servicing advances, if any, and any Retained Interest)
received and retained in connection with the liquidation of defaulted
Mortgage Loans, by foreclosure or otherwise, together with any net
proceeds received on a monthly basis with respect to any properties
acquired on behalf of the Certificateholders by foreclosure or deed in
lieu of foreclosure.
DISTRIBUTIONS IN REDUCTION OF THE CLASS A3 AND CLASS A4 CERTIFICATES
GENERAL. As to distributions of principal on each of the Class A3 and
Class A4 Certificates (the 'Retail Certificates'), Deceased Holders (as defined
below) will be entitled to a first priority, and beneficial owners other than
Deceased Holders ('Living Holders') will be entitled to a second priority.
Beneficial owners of the Retail Certificates have the right to request that
distributions of principal be made with respect to their Class of Retail
Certificates on each Distribution Date on which distributions of principal are
made with respect to their Class of Certificates. All such requested
distributions are subject to the priorities described below under '-- Payments
to Requesting Beneficial Owners' and are further subject to the limitations that
they be made (i) only in lots equal to $1,000 of initial Certificate Principal
Amount (each, an 'Individual Class A3 Certificate' or 'Individual Class A4
Certificate') and (ii) only to the extent that the portion of the Senior
Principal Distribution Amount allocated to such Class of Retail Certificates on
the applicable Distribution Date (plus any amounts available from the applicable
Rounding Account) provides sufficient funds for such requested distributions. To
the extent that amounts available for distribution of principal on either Class
of Retail Certificates on any Distribution Date exceed the aggregate requests
for principal distributions applicable to such Distribution Date for such Class,
such excess amounts will be distributed to the beneficial owners of such Class
of Retail Certificates by random lot, as described under '-- Mandatory
Distributions of Principal on Class A3 and Class A4 Certificates' below.
On each Distribution Date on which amounts are available for distribution
of principal on a Class of Retail Certificates, the aggregate amount allocable
to such distribution will be rounded, as necessary, to an amount equal to an
integral multiple of $1,000, except as provided below, in accordance with the
priorities and limitations set forth herein. Such rounding will be accomplished
on the first Distribution Date on which distributions of principal on either
Class of Retail Certificates are made by withdrawing, from a separate
non-interest bearing account to be established for each such Class of Retail
Certificates on the Closing Date with a deposit of $999.99 by the Depositor
(each, a 'Rounding Account'), the amount of funds, if any, needed to round the
amount otherwise available for such distribution upward to the next higher
integral multiple of $1,000. On each succeeding Distribution Date on which
distributions of principal on a Class of Retail Certificates are to be made, the
aggregate amount allocable to either Class of Retail Certificates will be
applied first to repay any funds withdrawn from the Rounding Account for such
Class of Retail Certificates on the prior Distribution Date, and then the
remainder of such allocable amount, if any, will be similarly rounded upward
through another withdrawal from the Rounding Account and distributed as
principal on such Class. This process will continue on succeeding Distribution
Dates until the Class Certificate Principal Amount of such Class of Retail
Certificates has been reduced to zero. Thus, the aggregate distribution made in
reduction of the principal
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balance of a Class of Retail Certificates on each Distribution Date may be
slightly more or less than would be the case in the absence of such rounding
procedures, but such difference will be no more than $999.99 on any Distribution
Date. Under no circumstances will the sum of all distributions of principal on a
Class of Retail Certificates through any Distribution Date be less than the
amount that would have resulted in the absence of such rounding procedures.
There can be no assurance that a beneficial owner of a Retail Certificate
who has submitted a request for a distribution will receive such distribution at
any particular time after such distribution is requested, because there can be
no assurance that funds will be available to make such distributions on any
particular Distribution Date, or, even if funds are available to make such
distributions, that such distribution with respect to such Class of Retail
Certificates owned by any particular beneficial owner will be made. Also, due to
the procedure for mandatory distributions described below, there can be no
assurance that, on any Distribution Date on which the funds available for
distribution of principal on such Class of Retail Certificates exceed the
aggregate amount of distributions requested by beneficial owners of such Class
of Retail Certificates, any particular beneficial owner will receive a principal
distribution from such excess funds. THUS, THE TIMING OF DISTRIBUTIONS OF
PRINCIPAL WITH RESPECT TO ANY PARTICULAR RETAIL CERTIFICATE IS HIGHLY UNCERTAIN,
AND SUCH DISTRIBUTIONS MAY BE MADE EARLIER OR LATER THAN THE DATE THAT MAY BE
DESIRED BY A BENEFICIAL OWNER OF A RETAIL CERTIFICATE. ACCORDINGLY, THE
ALLOCATION OF PRINCIPAL DISTRIBUTIONS IN RESPECT OF RETAIL CERTIFICATES MAY
RESULT IN ACTUAL YIELDS TO INVESTORS AND WEIGHTED AVERAGE LIVES THAT VARY
SIGNIFICANTLY FROM THOSE ANTICIPATED, AND SUCH YIELDS AND WEIGHTED AVERAGE LIVES
WILL VARY AMONG THE HOLDERS OF SUCH CERTIFICATES.
Notwithstanding any provisions herein to the contrary, on each Distribution
Date on and after the Credit Support Depletion Date, distributions of principal
on a Class of Retail Certificates (including amounts paid, if any, under the
related Certificate Insurance Policy) will be made pro rata among the holders of
such Class and will not be made in integral multiples of $1,000 or pursuant to
requested distributions or mandatory distributions by random lot.
PROCEDURE FOR REQUESTED DISTRIBUTIONS. A beneficial owner may request that
distributions of principal on such beneficial owner's Retail Certificate be made
on a Distribution Date by delivering a written request therefor to the
Participant or Financial Intermediary that maintains such beneficial owner's
account in such Certificates so that the request for such distribution is
received by the Trustee on or before the Record Date for such Distribution Date.
In the case of a request on behalf of a Deceased Holder, a certified copy of the
death certificate and any additional appropriate evidence of death and any tax
waivers are required to be forwarded to the Trustee under separate cover.
Furthermore, such requests of Deceased Holders that are incomplete may not be
honored by the Trustee and, if not honored, will lose their priority and must be
re-requested. The Participant should in turn make the request of the Depository
(or, in the case of a Financial Intermediary, such firm must notify the related
Participant of such request, which Participant should make the request of the
Depository) on a form required by the Depository and provided to the
Participant. Upon receipt of such request, the Depository will date and time
stamp such request and forward such request to the Trustee. The Depository may
establish such procedures as it deems fair and equitable to establish the order
of receipt of requests for such distributions received by it on the same day.
Neither the Servicer nor the Trustee will be liable for any delay by the
Depository, any Participant or any Financial Intermediary in the delivery of
requests for distributions to the Trustee. Requests for distributions in
reduction of principal balance forwarded to the Trustee from the Depository
after the Record Date for such Distribution Date and requests for distributions
received in a timely manner but not accepted with respect to a particular
Distribution Date will be treated as requests for distributions on the next
succeeding Distribution Date and each succeeding Distribution Date thereafter
until each request is accepted or is withdrawn as described below. Each request
for distributions of principal on a Class of Retail Certificates submitted by a
beneficial owner of a such Certificate will be held by the Trustee until such
request has been accepted or has been withdrawn in writing. Each Individual
Class A3 Certificate or Individual Class A4 Certificate covered by such request
will continue to bear interest at the related Interest Rate through the Record
Date for such Distribution Date.
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<PAGE>
With respect to Class of Retail Certificates as to which beneficial owners
have requested distributions on a particular Distribution Date on which
distributions of principal on such Certificates are being made, the Trustee will
notify the Depository prior to such Distribution Date whether, and the extent to
which, such Certificates have been accepted for distributions. Participants and
Financial Intermediaries holding a Class of Retail Certificates should forward
such notices to the beneficial owners of such Certificates. Individual Class A3
Certificates or Individual Class A4 Certificates that have been accepted for a
distribution will be due and payable on the applicable Distribution Date and
will cease to bear interest after the Record Date for such Distribution Date.
Any beneficial owner of a Class of Retail Certificates that has requested a
distribution may withdraw such request by so notifying in writing the
Participant or Financial Intermediary that maintains such beneficial owner's
account. The Participant should forward the withdrawal, on a form required by
the Depository, to the Trustee. In the event that such account is maintained by
an Financial Intermediary, such Financial Intermediary must notify the related
Participant, which in turn must forward the withdrawal of such request on such
form to the Trustee. If such notice of withdrawal of a request for distribution
has not been received by the Trustee on or before the Record Date for such
Distribution Date, the previously made request for distribution will be
irrevocable with respect to the making of distributions of principal on such
Certificates on the applicable Distribution Date.
MANDATORY DISTRIBUTIONS OF PRINCIPAL ON CLASS A3 AND CLASS A4
CERTIFICATES. To the extent, if any, that amounts available for distribution in
respect of principal on a Class of Retail Certificates on a Distribution Date
exceed the dollar amount of requests for distributions that have been received
by the applicable date, additional Certificates in lots equal to Individual
Class A3 Certificates or Individual Class A4 Certificates, as the case may be,
will be selected to receive principal distributions in accordance with the
then-applicable established random lot procedures of the Depository, and with
the then-applicable established procedures of the Participants and Financial
Intermediaries, which may or may not be by random lot. Investors should ask such
Participants or Financial Intermediaries which allocation procedures they use.
Participants and Financial Intermediaries holding a Class of Retail Certificates
selected for mandatory distributions of principal should provide notice of such
mandatory distributions to the affected beneficial owners.
PAYMENTS TO REQUESTING BENEFICIAL OWNERS. On any Distribution Date on
which principal distributions are made on a Class of Retail Certificates,
priority of payment on such Certificates will be given to beneficial owners for
whom principal distribution requests are in effect. The Depository will honor
requests in the following order of priority:
First, the Depository will honor requests submitted on behalf of
Deceased Holders in the order of their receipt by the Depository, until
such requests have been honored in an amount up to $100,000 for each
requesting Deceased Holder; and
Second, the Depository will honor requests submitted on behalf of
Living Holders in the order of priority established by the Depository,
until such requests have been honored in an amount up to $10,000 for each
requesting Living Holder.
Thereafter, the Depository will honor requests submitted on behalf of each
Deceased Holder as provided in step First up to a second $100,000 and requests
submitted on behalf of each Living Holder as provided in step Second up to a
second $10,000. This sequence of priorities will be repeated until all principal
distribution requests with respect to such Class of Retail Certifcates have been
honored to the extent of amounts available in reduction of the Class Certificate
Principal Amount of such Certificates.
If the amount of principal available for distribution on a Class of Retail
Certificates on a particular Distribution Date is insufficient to honor all
requests, such requests will be honored on succeeding Distribution Dates as
principal becomes available. In the case of requests on behalf of
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Living Holders, the Depository will establish a new order of priority for each
Distribution Date. This order will apply both to previously unsatisfied payment
requests and to newly submitted requests. A principal payment request submitted
on behalf of a Living Holder who later dies will become entitled to the priority
of a newly submitted request on behalf of a Deceased Holder. Such priority will
be effective for each subsequent Distribution Date if the Depository has
received a certified copy of the death certificate for such Deceased Holder and
any additional appropriate evidence of death and any requested tax waivers by
the last Business Day of the preceding calendar month.
DEFINITION OF 'DECEASED HOLDER.' A 'Deceased Holder' is a beneficial owner
of a Class of Retail Certificates who was living at the time such interest was
acquired and whose executor or other authorized representative causes to be
furnished to the Trustee a certified copy of the death certificate for such
deceased holder and any additional evidence of death satisfactory to the Trustee
and any tax waivers requested by the Trustee. Retail Certificates beneficially
owned by tenants by the entirety, joint tenants or tenants in common will be
considered to be beneficially owned by a single owner. The death of a tenant by
the entirety, joint tenant or tenant in common will be deemed to be the death of
the beneficial owner, and the Retail Certificates so beneficially owned will be
eligible for priority with respect to distributions of principal, subject to the
limitations stated herein. Retail Certificates beneficially owned by a trust
will be considered to be beneficially owned by each beneficiary of the trust to
the extent of such beneficiary's beneficial interest therein, but in no event
will a trust's beneficiaries collectively be deemed to be beneficial owners of a
number of Individual Class A3 Certificates or Individual Class A4 Certificates
greater than the number of Individual Class A3 Certificates or Individual Class
A4 Certificates of which such trust is the owner. The death of a beneficiary of
a trust will be deemed to be the death of a beneficial owner of the Retail
Certificates beneficially owned by the trust to the extent of such beneficiary's
beneficial interest in such trust. The death of an individual who was a tenant
by the entirety, joint tenant or tenant in common in a tenancy that is the
beneficiary of a trust will be deemed to be the death of the beneficiary of the
trust. The death of a person who, during his or her lifetime, was entitled to
substantially all of the beneficial ownership interest in a Class of Retail
Certificates will be deemed to be the death of the beneficial owner of such
Certificates regardless of the registration of ownership, if such beneficial
ownership interest can be established to the satisfaction of the Trustee;
expenses incurred by the Trustee in an effort to determine the beneficial
ownership interest, including, without limitation, attorney's fees, shall be
paid by the beneficial owner. Such beneficial interest will be deemed to exist
in typical cases of street name or nominee ownership, ownership by a trustee,
ownership under the Uniform Gifts to Minors Act and community property or other
joint ownership arrangements between a husband and wife. Beneficial interest
shall include the power to sell, transfer or otherwise dispose of a Retail
Certificates and the right to receive the proceeds therefrom, as well as
interest and distributions in reduction of principal balance payable with
respect thereto. As used in this Prospectus Supplement, a request for a
distribution of principal with respect to a Class of Retail Certificates by a
Deceased Holder shall mean a request by the personal representative, surviving
tenant by the entirety, surviving joint tenant or surviving tenant in common of
such Deceased Holder.
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EXAMPLE OF DISTRIBUTIONS
The following sets forth an example of distributions on the Certificates:
<TABLE>
<S> <C> <C>
June 2 through
July 1................... Due Period. Payments due during the related Due Period (June 2 through
July 1) from borrowers will be deposited in the Servicer's
custodial account as received and will include scheduled
principal payments plus interest on June 1 principal
balances of the Mortgage Loans.
June 2 through
July 1................... Prepayment Period Partial principal prepayments received during the related
(partial prepayments). Prepayment Period (June 2 through July 1) will be deposited
into the Servicer's custodial account for the remittance to
the Master Servicer on July 19.
June 17 through
July 16.................. Prepayment Period Prepayments in full received during the related Prepayment
(prepayments in full). Period (June 17 through July 16) will be deposited into the
Servicer's custodial account for remittance to the Master
Servicer on July 19.
June 30.................... Record Date. Distributions will be made to Certificateholders of record
as of the close of business on the last Business Day of the
month immediately preceding the month in which the
Distribution Date occurs.
July 19.................... Servicer Remittance The Servicer will remit collections and recoveries in
Date. respect of the Mortgage Loans to the Master Servicer on the
18th day (or if such day is not a business day, the next
succeeding Business Day) of each month, as specified in the
Servicing Agreement.
July 23.................... Deposit Date. On the Business Day immediately preceding the Distribution
Date, the Master Servicer will remit to the Trustee the
amount of principal and interest to be distributed to
Certificateholders with respect to the related Mortgage
Loans on July 26, including any Advances required to be
made by the Servicer or the Master Servicer for such
Distribution Date.
July 26.................... Distribution Date. On the 25th day of each month (or if such day is not a
Business Day, the next succeeding Business Day), the
Trustee will make distributions to Certificateholders.
</TABLE>
Succeeding months follow the same pattern.
THE RESIDUAL CERTIFICATE
In addition to distributions of principal and interest, the holder of the
Residual Certificate will be entitled to receive, generally, (1) the amount, if
any, of any Available Distribution Amount remaining in each REMIC on any
Distribution Date after distributions of principal and interest are
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made on the regular interests and on such Residual Certificate on such date and
(2) the proceeds, if any, of the assets of the Trust Fund remaining in such
REMIC after the principal amounts of the regular interests and of the Residual
Certificate have been reduced to zero. It is generally not anticipated that any
material assets will be remaining for such distributions at any such time.
See 'Material Federal Income Tax Considerations' herein and in the
accompanying Prospectus.
ALLOCATION OF REALIZED LOSSES
If a Realized Loss occurs on the Mortgage Loans in any Mortgage Pool, then,
on each Distribution Date, the applicable Non-AP Percentage of the principal
portion of such Realized Loss other than an Excess Loss (as defined below) will
be allocated first, to reduce the Class Principal Amount of each Class of
Subordinate Certificates, in inverse order of priority, until the Class
Principal Amount thereof has been reduced to zero (i.e., such Realized Losses
will be allocated to the Class B6 Certificates while such Certificates are
outstanding, then to the Class B5 Certificates, and so forth) and second, to the
Senior Certificates (other than the Class AP Certificates), pro rata, on the
basis of their respective Certificate Principal Amounts.
The AP Percentage of the principal portion of any Realized Loss on a
Discount Mortgage Loan will be allocated to and reduce the Class Principal
Amount of the Class AP Certificates until the Class Principal Amount thereof has
been reduced to zero. With respect to any Distribution Date through the Credit
Support Depletion Date, the aggregate of all amounts so allocable to the Class
AP Certificates on such date in respect of Realized Losses (other than Excess
Losses) on the Mortgage Loans and all amounts previously allocated in respect of
such losses to the Class AP Certificates and not distributed on prior
Distribution Dates will be the 'Class AP Deferred Amount.' To the extent that
funds are available therefor on any Distribution Date through the Credit Support
Depletion Date, distributions in respect of the Class AP Deferred Amount will be
made on the Class AP Certificates in accordance with priority (6) under
'-- Priority of Distributions' herein. Any distribution in respect of the Class
AP Deferred Amount will not reduce the Class Principal Amount of the Class AP
Certificates. No interest will accrue on the Class AP Deferred Amount. No
distributions in respect of the Class AP Deferred Amount will be made after the
Distribution Date on which the Class Principal Amount of the Class AP
Certificates has been reduced to zero. On each Distribution Date through the
Credit Support Depletion Date, the Class Principal Amount of the lowest ranking
Subordinate Certificate will be reduced by the amount of any distributions in
respect of the Class AP Deferred Amount on such Distribution Date. Any such
reduction will be allocated in the same manner as a Realized Loss, as described
above. After the Credit Support Depletion Date, no distributions will be made in
respect of, and losses allocated to the Class AP Certificates will not be added
to, the Class AP Deferred Amount.
The applicable Non-AP Percentage of the principal portion of any Excess
Loss (other than a Debt Service Reduction) on a Mortgage Loan for any
Distribution Date will be allocated pro rata to the Non-AP Senior Certificates
and the Classes of Subordinate Certificates on the basis of their Class
Principal Amounts.
The Class Principal Amount of the lowest ranking Class of Subordinate
Certificates then outstanding will also be reduced by the amount, if any, by
which the aggregate Certificate Principal Amount of all the Certificates on any
Distribution Date (after giving effect to distributions of principal and
allocation of Realized Losses on such date) exceeds the aggregate Scheduled
Principal Balance of the Mortgage Loans for the related Distribution Date.
o In general, a 'Realized Loss' means (i) with respect to a Liquidated
Mortgage Loan, the amount by which the remaining unpaid principal balance
of such Mortgage Loan plus all accrued and unpaid interest thereon and
any related expenses exceeds the amount of Liquidation Proceeds applied
to the principal balance of such Mortgage Loan, or (ii) the
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amount by which, in the event of bankruptcy of a borrower, a bankruptcy
court reduces the secured debt to the value of the related Mortgaged
Property (a 'Deficient Valuation').
o 'Bankruptcy Losses' are losses that are incurred as a result of
Deficient Valuations and any reduction, in a bankruptcy proceeding,
of the amount of the Scheduled Payment on a Mortgage Loan other than
as a result of a Deficient Valuation (a 'Debt Service Reduction').
The principal portion of Debt Service Reductions will not be
allocated in reduction of the Class Certificate Principal Balances of
any Classes of Certificates.
o 'Special Hazard Losses' are, in general terms, Realized Losses
arising out of certain direct physical loss or damage to Mortgaged
Properties that are not covered by a standard hazard insurance
policy, but excluding, among other things, faulty design or
workmanship and normal wear and tear.
o 'Fraud Losses' are losses sustained on a Liquidated Mortgage Loan by
reason of a default arising from fraud, dishonesty or
misrepresentation. In determining whether a Realized Loss is a loss
of principal or of interest, Liquidation Proceeds and other
recoveries on a Mortgage Loan will be applied first to outstanding
expenses incurred with respect to such Mortgage Loan, then to
accrued, unpaid interest, and finally to principal.
o A 'Liquidated Mortgage Loan' generally is a defaulted Mortgage Loan as to
which such Mortgage Loan or related REO Property has been disposed of and
all amounts expected to be recovered in respect of such Mortgage Loan
have been received by the Master Servicer or the Servicer on behalf of
the Trust Fund.
The principal portion of Special Hazard Losses, Bankruptcy Losses (other
than Debt Service Reductions), and Fraud Losses on the Mortgage Loans that
exceed the 'Special Hazard Loss Limit,' 'Bankruptcy Loss Limit,' and 'Fraud Loss
Limit,' respectively ('Excess Losses'), will be allocated as described above.
The 'Special Hazard Loss Limit' will initially be approximately $10,459,911, the
'Bankruptcy Loss Limit' will initially be approximately $100,000, and the 'Fraud
Loss Limit' will initially be approximately $10,930,951.
The Special Hazard Loss Limit will be reduced, from time to time, to an
amount equal on any Distribution Date to the lesser of (a) the greatest of (1)
1% of the aggregate of the Scheduled Principal Balances of the Mortgage Loans,
(2) twice the Scheduled Principal Balance of the Mortgage Loan having the
highest Scheduled Principal Balance and (3) the aggregate Scheduled Principal
Balance of the Mortgage Loans secured by Mortgaged Properties located in the
single California postal zip code area having the highest aggregate Scheduled
Principal Balance of any such zip code area and (b) the Special Hazard Loss
Limit as of the Closing Date less the amount, if any, of Special Hazard Losses
incurred since the Closing Date.
The Bankruptcy Loss Limit will be reduced, from time to time, by the amount
of Bankruptcy Losses allocated to the Certificates. The date on which the
Bankruptcy Loss Limit has been reduced to zero is the 'Bankruptcy Coverage
Termination Date.'
The Fraud Loss Limit will be reduced, from time to time, by the amount of
Fraud Losses allocated to the Certificates. In addition, on each anniversary of
the Cut-off Date, the Fraud Loss Limit will be reduced as follows: (a) on the
first anniversary of the Cut-off Date, to an amount equal to 2% of the aggregate
Scheduled Principal Balance of all the Mortgage Loans (b) on the second through
fourth anniversaries of the Cut-off Date, to an amount equal to the lesser of
(1) the Fraud Loss Limit as of the most recent anniversary of the Cut-off Date
and (2) 1% of the aggregate Schedule Principal Balance of all the Mortgage Loans
as of the most recent anniversary of the Cut-off Date and (c) on the fifth
anniversary of the Cut-off Date, to zero.
S-30
<PAGE>
In the event that any amount is recovered in respect of principal of a
Liquidated Mortgage Loan after any related Realized Loss has been allocated as
described herein, such amount will be distributed to the Certificates still
outstanding, pro rata on the basis of any Realized Losses previously allocated
thereto. It is generally not anticipated that any such amounts will be
recovered.
The interest portion of Realized Losses (other than Excess Loses) occurring
prior to the Credit Support Depletion Date will not be allocated among the
Certificates, but will reduce the Available Distribution Amount for the
applicable Distribution Date. Such losses will be borne first by the Subordinate
Certificates in inverse order of priority, before being borne, pro rata, by the
Senior Certificates.
Any Realized Losses allocable to the Class A3 or Class A4 Certificates will
be covered by the related Certificate Insurance Policy. See 'The Certificate
Insurance Policies.'
FINAL SCHEDULED DISTRIBUTION DATE
Scheduled distributions on the Mortgage Loans in each Mortgage Pool,
assuming no defaults or losses that are not covered by the limited credit
support described elsewhere herein, will be sufficient to make timely
distributions of interest on the Offered Certificates and to reduce the
aggregate Certificate Principal Amount of the Offered Certificates to zero not
later than July 2029 (the 'Final Scheduled Distribution Date'). The actual final
Distribution Date for each Class of Offered Certificates may be earlier or
later, and could be substantially earlier, than the related Final Scheduled
Distribution Date.
The Final Scheduled Distribution Date for each Class of Offered
Certificates has been determined by adding two months to the month of scheduled
maturity of the latest maturing Mortgage Loan in the related Mortgage Pool.
OPTIONAL TERMINATION OF THE TRUST FUND
On any Distribution Date after the date on which the aggregate Scheduled
Principal Balance of the Mortgage Loans is less than 10% of the Cut-off Date
Balance, the Depositor (subject to the terms of the Trust Agreement) will have
the option to repurchase the Mortgage Loans, any REO Property and any other
property remaining in the Trust Fund and thereby effect the termination of the
Trust Fund and the retirement of the Certificates. The purchase price of the
Mortgage Loans must be equal to the sum of (a) 100% of the aggregate outstanding
principal balance of such Mortgage Loans, plus accrued interest thereon at the
applicable Mortgage Rate (b) the fair market value of all other property
remaining in the Trust Fund, (c) any unreimbursed Advances and (d) all amounts
due to the Certificate Insurer. Such repurchase will be treated as a prepayment
of the Mortgage Loans for purposes of distributions to Certificateholders. Upon
such payment in full to Certificateholders of such amounts, the Trust Fund will
be terminated.
THE CERTIFICATE INSURANCE POLICIES
On or before the issuance of the Certificates, the Depositor will obtain
separate Certificate Insurance Policies with respect to the Class A3 and Class
A4 Certificates, respectively, which will be issued by the Certificate Insurer
to the Trustee solely for the benefit of the holders of such Certificates and
will provide for payment of Insured Amounts (as defined herein) in accordance
with the terms of the related Certificate Insurance Policy solely for the
benefit of the holders of such Certificates. The Certificate Insurance Policies
are non-cancelable. On or before the Closing Date, the parties will also enter
into an insurance agreement (the 'Insurance Agreement'), dated as of May 1,
1999, by and among the Certificate Insurer, Lehman Capital, a Division of Lehman
Brothers Holdings Inc., the Depositor and the Trustee with respect to, among
other things, reimbursement of the Certificate Insurer. See 'The Certificate
Insurance Policies' herein.
S-31
<PAGE>
THE TRUSTEE
The Chase Manhattan Bank will be the Trustee under the Trust Agreement (in
such capacity, the 'Trustee'). The Trustee will be paid a monthly fee (the
'Trustee Fee') calculated as a fixed percentage equal to 0.007% per annum (the
'Trustee Fee Rate') on the aggregate Scheduled Principal Balance of the related
Mortgage Loans as of the first day of the related Due Period, calculated
separately by Mortgage Pool, and will also be entitled to retain, as additional
compensation, any interest or other income earned on funds on deposit in the
Certificate Account pending distribution to Certificateholders. The Trustee will
be entitled to reimbursement for certain expenses prior to distribution of any
amounts to Certificateholders. The Trustee's 'Corporate Trust Office' for
purposes of presentment and surrender of the Offered Certificates for the final
distribution thereon and for all other purposes is located at 450 West 33rd
Street, New York, New York 10001, Attention: Capital Markets Fiduciary Services,
or such address as the Trustee may designate from time to time by notice to the
Certificateholders, the Depositor, the Certificate Insurer and the Master
Servicer.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of approximately 1,440 conventional, fixed
rate, fully amortizing Mortgage Loans with original terms to maturity from the
first due date of the scheduled monthly payment (a 'Scheduled Payment') of not
more than 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 $364,365,016 (the 'Cut-off Date Balance').
As described herein, a fixed percentage of each interest payment on each
Mortgage Loan with a Mortgage Rate in excess of the Trust Rate (as defined
below) will not be conveyed to, or included in, the Trust Fund. The 'Retained
Interest Rate' for each Mortgage Loan will equal the excess, if any, of the
Mortgage Rate of such Mortgage Loan over the Trust Rate; the amount of interest
in respect of each Mortgage Loan retained by the Depositor at the Retained
Interest Rate is referred to herein as 'Retained Interest.' The 'Trust Rate' for
each Mortgage Loan will equal the sum of 6.75%, the Servicing Fee Rate, the
Master Servicing Fee Rate and the Trustee Fee Rate. There is no Retained
Interest for Mortgage Loans with a Mortgage Rate less than or equal to the Trust
Rate. Retained Interest will not be available for any distributions on the
Certificates, regardless of the performance of the Mortgage Loans.
The Mortgage Loans were acquired by Lehman Capital, A Division of Lehman
Brothers Holdings Inc. (the 'Seller' or 'Lehman Capital'), from various sources.
Approximately 83.11% and 16.89% of the Mortgage Loans were originated by the
Originators (as defined herein) in accordance with the Underwriting Guidelines
(as defined herein) established by each of Aurora and Headlands, respectively,
and described herein. Approximately 21.48% of the Mortgage Loans, were
originated under 'no documentation' programs, pursuant to which no information
was obtained regarding borrowers' income or employment and there was no
verification of the borrowers' assets. Certain documentation with respect to
some Mortgage Loans, including, in some cases, the related Mortgage Note,
Mortgage or title insurance policy, is unavailable. The Seller will make only
limited representations and warranties with respect to the Mortgage Loans. See
'Trust Agreement -- Assignment of Mortgage Loans' 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.
All of the Mortgage Loans are secured by first mortgages or deeds of trust
or other similar security instruments creating first liens on one-to four-family
residential properties (each, a
S-32
<PAGE>
'Mortgaged Property') consisting of one- to four-family dwelling units,
individual condominium units, individual units in planned unit developments or
shares issued by cooperative housing corporations and the related leasehold
interests. The Mortgage Loans to be included in the Mortgage Pool will be
acquired by the Depositor from the Seller, which acquired the Mortgage Loans
from the Originators. See 'Trust Agreement -- Assignment of Mortgage Loans'
herein.
Pursuant to its terms, each Mortgage Loan, other than a Cooperative Loan or
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 cooperative housing corporation or 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 10.39% of the Mortgage Loans provide for monthly payments of
interest at the Mortgage Rate but no payments of principal for the first ten
years after origination of such Mortgage Loan. Following such ten year period,
the monthly payment on each such Mortgage Loan will be increased to an amount
sufficient fully to amortize the outstanding principal balance of such Mortgage
Loan over its remaining term and pay interest at the related Mortgage Rate.
Approximately 8.98% of the Mortgage Loans have original Loan-to-Value
Ratios in excess of 80%; approximately 48.35% of such Mortgage Loans are covered
by primary mortgage guaranty insurance policies, which policies insure,
generally, any portion of the unpaid principal balance of such Mortgage Loan in
excess of 75% of the value of the related Mortgaged Property. No such primary
mortgage guaranty insurance policy will be required to be maintained with
respect to any such Mortgage Loan after the date on which the related
Loan-to-Value Ratio is 80% or less. The 'Loan-to-Value Ratio' of a Mortgage Loan
at any time is the ratio of the principal balance of such Mortgage Loan at the
date of determination to (a) in the case of a purchase, the lesser of the sale
price of the Mortgaged Property and its appraised value at the time of sale, or
(b) in the case of a refinance or modification, the appraised value of the
Mortgaged Property at the time of such refinance or modification.
As of the Cut-off Date, 13 of the Mortgage Loans, representing
approximately 0.75% of the Mortgage Pool, were one Scheduled Payment delinquent.
The Mortgage Loans are expected to have the following approximate aggregate
characteristics as of the Cut-off Date. Prior to the issuance of the
Certificates, 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 prior to the issuance of the Offered
Certificates.
Number of Mortgage Loans.................................... 1,440
Aggregate Scheduled Principal Balance....................... $364,365,016
Mortgage Rates:
Weighted Average.......................................... 7.845%
Range..................................................... 6.500% to 10.750%
Weighted Average Remaining Term to Maturity (in months)..... 355
The Scheduled Principal Balances of the Mortgage Loans range from
approximately $32,781 to approximately $3,357,688. The Mortgage Loans had an
average Scheduled Principal Balance of approximately $253,031.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans is approximately 71.06%, and no Mortgage Loan has a Loan-to-Value Ratio at
origination exceeding 95.00%.
S-33
<PAGE>
Approximately 83.11% and 16.89% of the Mortgage Loans were originated in
accordance with the Underwriting Guidelines of each Aurora and Headlands,
respectively.
No more than approximately 2.87% of the Mortgage Loans are secured by
Mortgaged Properties located in any one zip code area.
Approximately 69.34% of the Mortgage Loans provide for payment by the
borrower of a prepayment premium (each, a 'Prepayment Penalty Amount') during
the first three to five years after origination (the 'Penalty Period'). In any
twelve-month period during the Penalty Period, the borrower may generally prepay
up to 20% of the original principal balance of such Mortgage Loan without
penalty. The penalty for prepayments in excess of 20% of the original principal
balance will generally be equal to six months' interest on any amount prepaid in
excess of 20%. No Prepayment Penalty Amount is assessed for any prepayment made
after the applicable Penalty Period if such prepayment is concurrent with the
sale of the Mortgaged Property. Such Prepayment Penalty Amounts may have the
affect of reducing the amount or likelihood of prepayment on the Mortgage Loans
with Prepayment Penalty Amounts during the applicable Penalty Period and,
accordingly, may affect the yields to maturity on the Senior Certificates. See
'Yield, Prepayment and Weighted Average Life' herein.
In order to assist a prospective investor in analyzing the yield and
prepayment risks of an investment in the Offered Certificates, the Mortgage Pool
has been divided into two groupings, Group 1, consisting of all Mortgage Loans
with prepayment penalty provisions, and Group 2, consisting of all Mortgage
Loans without such provisions, solely for presentation of the following tabular
information of Mortgage Pool characteristics. The following tables set forth as
of the Cut-off Date the number, aggregate Scheduled Principal Balance and
percentage of the Mortgage Loans of each such Group 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.)
GROUP 1 (MORTGAGE LOANS WITH PREPAYMENT PENALTIES)
ORIGINAL LOAN-TO-VALUE RATIOS -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
RANGE OF ORIGINAL SCHEDULED BY AGGREGATE
LOAN-TO-VALUE NUMBER OF PRINCIPAL SCHEDULED
RATIO(%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
10.01 to 20.00.................................... 2 $ 139,921.75 0.06%
20.01 to 30.00.................................... 9 1,556,628.86 0.62
30.01 to 40.00.................................... 11 2,786,235.25 1.10
40.01 to 50.00.................................... 31 8,507,390.40 3.37
50.01 to 60.00.................................... 65 18,672,541.28 7.39
60.01 to 70.00.................................... 215 80,696,211.08 31.94
70.01 to 80.00.................................... 538 120,831,883.55 47.82
80.01 to 90.00.................................... 121 18,605,693.04 7.36
90.01 to 100.00................................... 4 865,519.19 0.34
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
The weighted average original loan-to-value ratio is approximately 71.70%.
S-34
<PAGE>
MORTGAGE RATES -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
MORTGAGE RATES(%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
6.501 to 7.000.................................... 15 $ 4,027,459.89 1.59%
7.001 to 7.500.................................... 225 66,600,586.59 26.36
7.501 to 8.000.................................... 383 105,380,041.54 41.71
8.001 to 8.500.................................... 272 55,798,859.59 22.08
8.501 to 9.000.................................... 74 16,735,033.02 6.62
9.001 to 9.500.................................... 13 2,259,995.42 0.89
9.501 to 10.000................................... 9 1,167,321.15 0.46
10.001 to 10.500.................................. 5 692,727.20 0.27
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
The weighted average Mortgage Rate is approximately 7.888% per annum.
ORIGINAL TERMS TO MATURITY -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
181 to 240........................................ 9 $ 2,220,243.01 0.88%
301 to 360........................................ 987 250,441,781.39 99.12
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
The weighted average original term to maturity is approximately 359 months.
S-35
<PAGE>
REMAINING TERMS TO MATURITY -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
181 to 240........................................ 9 $ 2,220,243.01 0.88%
301 to 360........................................ 987 250,441,781.39 99.12
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
The weighted average remaining term to maturity is approximately 357 months.
GEOGRAPHIC DISTRIBUTION -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
STATE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- ------
<S> <C> <C> <C>
California........................................ 501 $151,411,426.66 59.93%
Colorado.......................................... 103 31,605,960.15 12.51
Florida........................................... 182 29,277,569.66 11.59
Arizona........................................... 28 6,377,380.65 2.52
Virginia.......................................... 11 4,584,100.38 1.81
Washington........................................ 23 4,057,422.42 1.61
Oregon............................................ 23 3,923,043.88 1.55
Utah.............................................. 21 3,453,817.24 1.37
Maryland.......................................... 9 2,331,825.78 0.92
Georgia........................................... 21 2,170,532.94 0.86
Other............................................. 74 13,468,944.64 5.33
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
S-36
<PAGE>
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
SCHEDULED PRINCIPAL BALANCES ($) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
0.01 - 50,000.00.................................. 25 $ 1,075,194.19 0.43%
50,000.01 - 100,000.00............................ 218 16,914,999.10 6.69
100,000.01 - 150,000.00........................... 182 22,614,460.34 8.95
150,000.01 - 200,000.00........................... 110 19,360,503.00 7.66
200,000.01 - 250,000.00........................... 97 21,896,984.45 8.67
250,000.01 - 300,000.00........................... 104 28,765,765.55 11.39
300,000.01 - 350,000.00........................... 80 26,074,205.25 10.32
350,000.01 - 400,000.00........................... 42 15,913,738.42 6.30
400,000.01 - 450,000.00........................... 32 13,739,626.49 5.44
450,000.01 - 500,000.00........................... 22 10,523,803.73 4.17
500,000.01 - 550,000.00........................... 9 4,711,293.70 1.86
550,000.01 - 600,000.00........................... 9 5,260,282.92 2.08
600,000.01 - 650,000.00........................... 12 7,685,322.23 3.04
650,000.01 - 700,000.00........................... 6 4,132,296.98 1.64
700,000.01 - 750,000.00........................... 3 2,183,667.00 0.86
750,000.01 - 800,000.00........................... 7 5,505,879.05 2.18
800,000.01 - 850,000.00........................... 7 5,758,894.44 2.28
850,000.01 - 900,000.00........................... 3 2,657,722.26 1.05
900,000.01 - 950,000.00........................... 3 2,768,260.23 1.10
950,000.01 - 1,000,000.00......................... 12 11,823,250.40 4.68
1,000,000.01 - 1,050,000.00....................... 1 1,049,380.08 0.42
1,050,000.01 - 1,100,000.00....................... 1 1,086,108.29 0.43
1,200,000.01 - 1,250,000.00....................... 1 1,225,250.00 0.48
1,250,000.01 - 1,300,000.00....................... 1 1,297,558.98 0.51
1,300,000.01 - 1,350,000.00....................... 2 2,692,500.00 1.07
1,350,000.01 - 1,400,000.00....................... 1 1,398,017.42 0.55
1,750,000.01 - 1,800,000.00....................... 1 1,797,514.37 0.71
1,850,000.01 - 1,900,000.00....................... 1 1,885,000.00 0.75
1,950,000.01 - 2,000,000.00....................... 1 2,000,000.00 0.79
2,000,000.01 >=................................... 3 8,864,545.53 3.51
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
The average Cut-off Date Scheduled Principal Balance is approximately
$253,676.73.
S-37
<PAGE>
PROPERTY TYPE -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
PROPERTY TYPE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Single-Family..................................... 654 $167,592,461.99 66.33%
PUD............................................... 119 33,845,881.21 13.40
Two- to Four-Family............................... 126 30,287,724.72 11.99
Condominium....................................... 97 20,935,956.48 8.29
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
LOAN PURPOSE -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
LOAN PURPOSE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Cash Out Refinance................................ 449 $125,364,901.78 49.62%
Purchase.......................................... 375 83,242,627.80 32.95
Rate/Term Refinance............................... 172 44,054,494.82 17.44
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
LOAN DOCUMENTATION -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
LOAN DOCUMENTATION MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Full Documentation................................ 241 $ 66,251,263.03 26.22%
Limited Documentation............................. 221 63,925,133.81 25.30
No Documentation.................................. 203 45,424,524.74 17.98
No Ratio Documentation............................ 111 28,947,847.75 11.46
No Income......................................... 213 47,483,870.24 18.79
Unknown........................................... 7 629,384.83 0.25
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
OCCUPANCY STATUS -- GROUP 1
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
OCCUPANCY STATUS MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Primary Home...................................... 653 $181,058,291.89 71.66%
Investment........................................ 299 51,685,277.64 20.46
Second Home....................................... 44 19,918,454.87 7.88
----- --------------- --------
Total.................................. 996 $252,662,024.40 100.00%
===== =============== ========
</TABLE>
S-38
<PAGE>
GROUP 2 (MORTGAGE LOANS WITHOUT PREPAYMENT PENALTIES)
ORIGINAL LOAN-TO-VALUE RATIOS GROUP -- 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
RANGE OF ORIGINAL SCHEDULED BY AGGREGATE
LOAN-TO-VALUE NUMBER OF PRINCIPAL SCHEDULED
RATIOS (%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
10.01 to 20.00................................... 1 $ 64,942.60 0.06%
20.01 to 30.00................................... 6 1,140,269.40 1.02
30.01 to 40.00................................... 11 1,625,532.34 1.46
40.01 to 50.00................................... 29 6,761,128.20 6.05
50.01 to 60.00................................... 51 16,743,831.30 14.99
60.01 to 70.00................................... 116 31,092,699.30 27.84
70.01 to 80.00................................... 169 41,034,369.84 36.74
80.01 to 90.00................................... 58 12,141,088.26 10.87
90.01 to 100.00................................... 3 1,099,130.52 0.98
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
The weighted average original loan-to-value ratio is approximately 69.59%.
MORTGAGE RATES GROUP -- 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
6.001 to 6.500.................................. 1 $ 330,174.62 0.30%
6.501 to 7.000.................................. 33 7,923,678.49 7.09
7.001 to 7.500.................................. 133 36,614,937.71 32.78
7.501 to 8.000.................................. 154 40,742,175.15 36.47
8.001 to 8.500.................................. 98 21,087,265.52 18.88
8.501 to 9.000.................................. 9 2,436,213.26 2.18
9.001 to 9.500.................................. 4 843,770.90 0.76
9.501 to 10.000.................................. 9 1,369,991.08 1.23
10.001 to 10.500.................................. 2 269,415.54 0.24
10.501 to 11.000.................................. 1 85,369.49 0.08
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
The weighted average Mortgage Rate is approximately 7.747% per annum.
S-39
<PAGE>
ORIGINAL TERMS TO MATURITY -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
181 - 240......................................... 22 $ 5,035,691.46 4.51%
241 - 300......................................... 1 304,854.56 0.27
301 - 360......................................... 421 106,362,445.74 95.22
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
The weighted average original term to maturity is approximately 353 months.
REMAINING TERMS TO MATURITY -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
RANGE OF MATURITIES (MONTHS) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
181 - 240......................................... 22 $ 5,035,691.46 4.51%
241 - 300......................................... 6 1,640,091.72 1.47
301 - 360......................................... 416 105,027,208.58 94.02
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
The weighted average remaining term to maturity is approximately 350 months.
GEOGRAPHIC DISTRIBUTION -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
STATE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
California........................................ 124 $ 35,345,746.78 31.64%
New York.......................................... 58 13,639,734.80 12.21
Colorado.......................................... 35 7,634,104.24 6.83
Illinois.......................................... 18 6,796,038.99 6.08
Florida........................................... 27 6,363,508.64 5.70
Massachusetts..................................... 25 6,159,194.89 5.51
Maryland.......................................... 21 5,636,828.95 5.05
Virginia.......................................... 23 5,623,863.04 5.03
Utah.............................................. 9 2,938,593.67 2.63
Tennessee......................................... 7 2,271,481.77 2.03
Other............................................. 97 19,293,895.99 17.27
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
S-40
<PAGE>
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
RANGE OF NUMBER OF PRINCIPAL SCHEDULED
SCHEDULED PRINCIPAL BALANCES ($) MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
0.01 - 50,000.00.................................. 7 $ 321,159.15 0.29%
50,000.01 - 100,000.00............................ 101 7,532,445.58 6.74
100,000.01 - 150,000.00........................... 72 8,981,117.95 8.04
150,000.01 - 200,000.00........................... 54 9,846,883.52 8.82
200,000.01 - 250,000.00........................... 47 10,548,573.19 9.44
250,000.01 - 300,000.00........................... 52 14,553,381.22 13.03
300,000.01 - 350,000.00........................... 31 10,123,326.21 9.06
350,000.01 - 400,000.00........................... 20 7,543,873.96 6.75
400,000.01 - 450,000.00........................... 9 3,838,882.29 3.44
450,000.01 - 500,000.00........................... 10 4,785,223.77 4.28
500,000.01 - 550,000.00........................... 6 3,143,849.67 2.81
550,000.01 - 600,000.00........................... 4 2,267,501.13 2.03
600,000.01 - 650,000.00........................... 7 4,455,834.56 3.99
650,000.01 - 700,000.00........................... 2 1,340,153.91 1.20
700,000.01 - 750,000.00........................... 2 1,487,373.03 1.33
750,000.01 - 800,000.00........................... 3 2,315,281.61 2.07
800,000.01 - 850,000.00........................... 3 2,473,992.77 2.21
850,000.01 - 900,000.00........................... 1 860,000.00 0.77
900,000.01 - 950,000.00........................... 3 2,729,326.79 2.44
950,000.01 - 1,000,000.00......................... 6 5,935,785.57 5.31
1,350,000.01 - 1,400,000.00....................... 1 1,392,022.10 1.25
1,600,000.01 - 1,650,000.00....................... 1 1,622,972.89 1.45
1,700,000.01 - 1,750,000.00....................... 1 1,720,295.69 1.54
1,850,000.01 - 1,900,000.00....................... 1 1,883,735.20 1.69
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
The average Cut-off Date Scheduled Principal Balance is approximately
$251,583.31.
PROPERTY TYPE -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
PROPERTY TYPE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Single Family..................................... 290 $ 78,195,492.92 70.00%
Planned Unit Development.......................... 55 16,395,418.67 14.68
Two- to Four-Family............................... 67 12,179,768.42 10.90
Condominium....................................... 32 4,932,311.75 4.42
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
S-41
<PAGE>
LOAN PURPOSE -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
LOAN PURPOSE MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Cash Out Refinance................................ 192 $ 50,748,283.82 45.43%
Purchase.......................................... 154 35,280,670.40 31.58
Rate/Term Refinance............................... 98 25,674,037.54 22.98
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
LOAN DOCUMENTATION -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
LOAN DOCUMENTATION MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Full Documentation................................ 123 $ 32,223,794.77 28.85%
Limited Documentation............................. 132 35,991,368.73 32.22
No Documentation.................................. 127 31,220,525.64 27.95
No Ratio Documentation............................ 55 10,187,791.07 9.12
No Income/No Asset Documentation.................. 4 1,096,381.46 0.98
Unknown........................................... 3 983,130.09 0.88
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
OCCUPANCY STATUS -- GROUP 2
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE LOANS
SCHEDULED BY AGGREGATE
NUMBER OF PRINCIPAL SCHEDULED
OCCUPANCY STATUS MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
- -------------------------------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Primary Home...................................... 319 $ 91,023,569.54 81.49%
Investment........................................ 111 14,545,652.23 13.02
Second Home....................................... 14 6,133,769.99 5.49
----- --------------- --------
Total.................................. 444 $111,702,991.76 100.00%
===== =============== ========
</TABLE>
S-42
<PAGE>
UNDERWRITING GUIDELINES
The Mortgage Loans have been originated by various originators (the
'Originators') in accordance with the respective underwriting standards and
guidelines established by each of Aurora and Headlands (each, 'Underwriting
Guidelines'). The following are general summaries of the Underwriting Guidelines
of Aurora and Headlands believed by the Depositor to be applied with respect to
each respective Mortgage Loan. These summaries do not purport to be a complete
description of the Underwriting Guidelines established by either Aurora or
Headlands.
AURORA UNDERWRITING GUIDELINES. Aurora's Underwriting Guidelines are
intended to evaluate the value and adequacy of the mortgaged property as
collateral and to consider the borrower's credit standing and repayment ability.
On a case-by-case basis, Aurora may determine that, based upon compensating
factors, a prospective borrower not strictly qualifying under the applicable
underwriting guidelines warrants an underwriting exception. Compensating factors
may include, but are not limited to, low loan-to-value ratio, low debt-to-income
ratio, good credit history, stable employment, financial reserves, and time in
residence at the applicant's current address. A significant number of the
Mortgage Loans may represent such underwriting exceptions.
Aurora's Underwriting Guidelines are applied in accordance with a procedure
that generally requires (1) an appraisal of the mortgaged property (and
generally in the case of mortgaged property with a loan amount exceeding
$650,000, two appraisals), by qualified independent appraisers, that conform to
FNMA and FHLMC standards and (2) a review of such appraisal by Aurora and,
depending upon the original principal balance and loan-to-value ratio of the
mortgaged property, may include a field review of the original appraisal by
another independent appraiser. Each appraisal includes a market data analysis
based on recent sales of comparable homes in the area and a replacement cost
analysis based on the current cost of constructing a similar home. Aurora's
Underwriting Guidelines generally permit single-family loans with loan-to-value
ratios at origination of up to 90% (or, with respect to certain Mortgage Loans,
up to 95%) for the highest credit grading category, depending on the
creditworthiness of the borrower, the type and use of the property, the
debt-to-income ratio and the purpose of the loan application.
Each prospective borrower completes an application that includes
information with respect to the applicant's liabilities, income (except with
respect to certain 'no documentation' mortgage loans described below) and
employment history, as well as certain other personal information. Each
Originator requires a credit report on each applicant from a credit reporting
company. The report typically contains information relating to such matters as
credit history with local and national merchants and lenders, installment debt
payments and any record of defaults, bankruptcy, repossession, suits or
judgments.
In general, a substantial majority of the Mortgage Loans originated or
acquired by Aurora were originated consistent with and generally conform to
'full documentation,' 'limited documentation,' or 'no ratio documentation'
residential loan programs.
Verification of employment, income and assets in a Mortgage Loan file is
dependent on the documentation program. For 'full documentation' program loans,
documentation consistent with FNMA/FHLMC guidelines is required, which includes
verification of current employment, a two-year history of previous employment
(or for self-employed borrowers, two years of income tax returns), verification
through deposit verifications of sufficient liquid assets for down payments,
closing costs and reserves, and depository account statements or settlement
statements documenting the funds received from the sale of the previous home.
For 'limited documentation' program loans, current employment is verified, a
two-year history of previous employment is verified, qualifying income is based
on the stated amount provided by the prospective borrower, and deposit
verifications are made to ensure sufficient liquid assets. 'No ratio' program
loans require verification of current employment, a minimum of two years'
history of previous employment and verification of sufficient liquid assets.
Verification of the source of funds (if any) required to be
S-43
<PAGE>
deposited by the applicant into escrow in the case of a purchase money loan is
generally required under all program guidelines (except for no documentation
program guidelines).
Certain of the Mortgage Loans originated by Aurora were originated or
acquired under 'no documentation' program guidelines, pursuant to which no
information was obtained regarding the borrowers' income or employment and there
was no verification of the borrowers' assets. The no documentation program
guidelines require stronger credit profiles than the other loan programs, and
have substantially more restrictive requirements for loan amounts, loan-to-value
ratios and occupancy requirements.
For a description of Aurora, see 'The Master Servicer' herein.
HEADLANDS UNDERWRITING GUIDELINES. Headlands Mortgage Company
('Headlands') is a California corporation that was organized in 1981. Headlands
is engaged in the origination, acquisition, sale and servicing of residential
mortgage loans secured by one- to four-unit family residences, and the purchase
and sale of mortgage servicing rights.
Headlands' executive offices are located at 1100 Larkspur Landing Circle,
Suite 101, Larkspur, CA 94939, and it has production branches in California,
Washington, Oregon, New Mexico, Virginia, Pennsylvania, Idaho, Florida, New
Jersey and Arizona. Loans are originated primarily on a wholesale basis through
a network of independent mortgage loan brokers approved by Headlands.
Headlands originates and purchases 'conventional non-conforming mortgage
loans' (i.e., loans that are not insured by the FHA or partially guaranteed by
the VA or that do not qualify for sale to FNMA or FHLMC) secured by first liens
on one- to four-family residential properties. These loans typically differ from
those underwritten to the guidelines established by FNMA, FHLMC and GNMA
primarily with respect to original principal balances, loan-to-value ratios,
borrower income, required documentation, interest rates, borrower occupancy of
the mortgaged property and/or property types. To the extent that these programs
reflect underwriting standards different from those of FNMA, FHLMC and GNMA, the
performance of loans made thereunder may reflect higher delinquency rates and/or
credit losses.
All mortgage loans originated or acquired by Headlands are generally
underwritten by Headlands according to its Underwriting Guidelines. Such
Underwriting Guidelines are applied to evaluate the prospective borrower's
credit standing and repayment ability and the value and adequacy of the
mortgaged property as collateral. Exceptions to the Underwriting Standards are
permitted where compensating factors are present.
In determining whether a prospective borrower has sufficient monthly income
available (1) to meet the borrower's monthly obligation on the proposed mortgage
loan and (2) to meet monthly housing expenses and other financial obligations
including the borrower's monthly obligation on the proposed mortgage loan,
Headlands generally considers, when required by the applicable documentation
program, the ratio of such amounts to the proposed borrower's acceptable stable
monthly gross income. Such ratios vary depending on a number of underwriting
criteria, including loan-to-value ratios, and are determined on a loan-by-loan
basis.
One- to four-family residential properties are appraised by qualified
independent appraisers who are approved by Headlands. All appraisals are
required to conform to the Uniform Standards of Professional Appraisal Practice
adopted by the Appraisal Standards Board of the Appraisal Foundation and must be
on forms acceptable to FNMA and FHLMC. As part of Headlands' pre-funding quality
control procedures, either field or desk appraisal reviews are obtained on 10%
of all mortgage loans.
Headlands originates and acquires loans that have been underwritten under
one of five documentation programs: full documentation, alternative
documentation, limited documentation, no ratio loan documentation and no
income/no asset verification.
S-44
<PAGE>
Under full documentation, the prospective borrower's employment, income and
assets are verified through written and telephonic communications. Alternative
documentation provides for alternative methods of employment verification
generally using W-2 forms or pay stubs.
Under the limited documentation program, more emphasis is placed on the
value and adequacy of the mortgaged property as collateral, credit history and
other assets of the borrower, than on verified income of the borrower. Mortgage
loans underwritten under this program are limited to borrowers with credit
histories that demonstrate an established ability to repay indebtedness in a
timely fashion, and certain credit underwriting documentation concerning income
or income verification and/or employment verification is waived. Loans
originated and acquired with limited documentation include cash-out refinance
loans, super-jumbos and mortgage loans secured by investor-owned properties.
Permitted maximum loan-to-value ratios (including secondary financing) under the
limited documentation program, which range up to 80%, are more restrictive than
mortgage loans originated with full documentation or alternative documentation.
Under the no ratio loan documentation program, income ratios for the
prospective borrower are not calculated. Mortgage loans underwritten using the
no ratio documentation program have loan-to-value ratios less than or equal to
80% and meet the standards for the limited documentation program. Under the no
income/no asset verification program, emphasis is placed on the value and
adequacy of the mortgaged property as collateral and credit history rather than
on verified income and assets of the borrower. Mortgage loans underwritten under
this program are limited to borrowers with excellent credit histories. Under the
no income/no asset verification program, credit underwriting documentation
concerning income, employment verification and asset verification is waived and
income ratios are not calculated. The maximum permitted loan-to-value ratio
under this program is 75%.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool 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
and other transactional documents, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Offered Certificates. In
the event that Mortgage Loans are removed from or added to the Mortgage Pools as
set forth 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 Aurora Loan
Services Inc. ('Aurora' or the 'Master Servicer'), and none of the Depositor,
the Certificate Insurer or the Underwriter makes any representations or
warranties as to the accuracy or completeness of such information. Although
Aurora performs servicing duties for a large loan portfolio, it has limited
experience as a master servicer.
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 and centralized real estate master servicing
facility are located at 2530 South Parker Road, Suite 601, Aurora, Colorado
80014, and its centralized real estate loan
S-45
<PAGE>
servicing facility is located at 601 Fifth Avenue, Scottsbluff, Nebraska 69361.
Aurora has been approved to service mortgage loans for GNMA, FNMA, and FHLMC.
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 non VA/FHA-insured mortgage loans. The indicated
periods of delinquency are based on the number of days past due on a contractual
basis.
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1996 1997(3) 1998(4)
------ ------- -------
<S> <C> <C> <C>
Total balance of mortgage loans serviced........................................... $1,765 $ 1,203 $ 6,096
Percentage of mortgage loans delinquent by period of delinquency(1)(2)
30 to 59 days.................................................................... 1.92% 3.21% 3.21%
60 to 89 days.................................................................... 0.45 0.73 0.92
90 days or more.................................................................. 0.25 0.28 0.42
------ ------- -------
Total percentage of mortgage loans delinquent(1)(2)................................ 2.62% 4.22% 4.55%
In foreclosure (excluding Bankruptcies).......................................... 1.16 1.99 2.10
In bankruptcy.................................................................... 0.47 0.78 0.61
------ ------- -------
Total(2)........................................................................... 4.25% 6.99% 7.26%
</TABLE>
- ---------------
(1) Delinquency information is for non VA/FHA-insured loans 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, a loan is considered delinquent
if any payment is past due one or more days. In contrast, under the ABS
methodology, a loan is considered delinquent if any payment is past due
30 days or more. The period of delinquency is based upon the number of
days that payments are contractually past due (assuming 30-day months).
Consequently, under the ABS methodology, a loan due on the first day of
a month is not 30 days delinquent until the first day of the next
month.
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. 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 borrower'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
S-46
<PAGE>
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 the FHLMC and FNMA. However, Aurora's ability to perform
its servicing and master servicing duties is 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 and master servicing functions. The preceding statement
constitutes a 'Year 2000 Readiness Disclosure Statement' made by Aurora under
the Year 2000 Information and Readiness Disclosure Act.
Initially, Aurora, as servicer (the 'Servicer'), will directly service the
Mortgage Loans. If either Aurora or Lehman Capital assigns the primary servicing
responsibilities, as permitted under the Trust Agreement and the applicable
Servicing Agreement, to an approved servicer, such servicer or servicers will
perform their duties under the supervision of Aurora, as Master Servicer. The
Master Servicer will not, however, in such event be ultimately responsible for
the servicing of those Mortgage Loans except to the extent described under
'Servicing of the Mortgage Loans' below.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Mortgage Loans will be serviced by Aurora in accordance with the
provisions of the servicing agreement, dated as of May 1, 1999, between the
Seller and Aurora, as Servicer (the 'Servicing Agreement'). The Seller's rights
under the Servicing Agreement, other than the Seller's 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 a servicer other than Aurora, except as described under
'-- Prepayment Interest Shortfalls' and '-- Advances' below. If a successor
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.
The Seller will retain ownership of the servicing rights with respect to
the Mortgage Loans serviced by Aurora and may transfer such servicing to one or
more successor servicers at any time, subject to the conditions set forth in the
Trust Agreement and the applicable Servicing Agreement, including the
requirements that any such successor servicer be qualified to service mortgage
loans for FNMA or FHLMC and that each Rating Agency confirm in writing that such
transfer of servicing will not result in a qualification, withdrawal or
downgrade of the then-current ratings of any of the Certificates without regard
to the Certificate Insurance Policies.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be paid a monthly fee (the 'Master Servicing Fee')
with respect to each Mortgage Loan calculated as a fixed percentage equal to
0.02% per annum (the 'Master Servicing Fee Rate') of the outstanding principal
balance of each Mortgage Loan as of the first day of the related Due Period. The
Servicer will be paid a monthly fee (a 'Servicing Fee') with respect to each
Mortgage Loan serviced by it calculated as 0.25% per annum (the 'Servicing Fee
Rate') of the outstanding principal balance of each such Mortgage Loan as of the
first day of the related Due Period.
S-47
<PAGE>
The Servicer will also be entitled to receive, to the extent provided in
the Servicing Agreement, additional compensation in the form of (1) any interest
or other income earned on funds it has deposited in a custodial account pending
remittance to the Master Servicer; (2) certain customary fees and charges paid
by borrowers, including any Prepayment Penalty Amounts; and (3) any Prepayment
Interest Excess, to the extent not offset by Prepayment Interest Shortfalls. The
Master Servicer will be entitled to receive, as additional compensation, any
interest or other income earned on funds in the Collection Account prior to
deposit into the Certificate Account. The aggregate of the Master Servicing Fees
and such additional compensation is referred to herein as the Master Servicer's
'Aggregate Master Servicing Compensation.'
The Master Servicing Fee of the Master Servicer and the Servicing Fee of
the Servicer 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 Servicer. The Master Servicer and the
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, but not 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 on the Mortgage Loans serviced by it for the
applicable Distribution Date.
Any Prepayment Interest Shortfall required to be funded but not funded by a
successor servicer is required to be funded by the Master Servicer, to the
extent that such amount does not exceed the Aggregate Master Servicing
Compensation for the applicable Distribution Date, through a reduction in the
amount of such compensation. Prepayment Interest Shortfalls attributable to
prepayments in full which are allocable to the Class A3 or Class A4 Certificates
will be covered initially by the Reserve Fund and, upon depletion of such fund,
by the related Certificate Insurance Policy for each such Class of Certificates.
ADVANCES
The Servicer will generally be obligated to make Advances with respect to
delinquent payments of principal of and interest on the Mortgage Loans adjusted
to the related Mortgage Rate less the Retained Interest Rate and the Servicing
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 Servicer fails 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 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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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 Servicer 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 the 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
Certain rights in connection with foreclosure of defaulted Mortgage Loans
may be granted to the holders of the Class B6 Certificates; when the Class B6
Certificates are no longer outstanding, to the holders of the Class B5
Certificates; and when the Class B5 Certificates are no longer outstanding, to
the holders of the Class B4 Certificates. Such rights could include (1) the
right to delay foreclosure until a Mortgage Loan has been delinquent for six
months, provided that upon election to delay foreclosure such holder establishes
a reserve fund for the benefit of the Trust Fund in an amount equal to 125% of
the greater of the Scheduled Principal Balance of such Mortgage Loan and the
appraised value of the related Mortgaged Property, plus three months' accrued
interest on such Mortgage Loan, (2) the right to request that the Master
Servicer or the Servicer take certain actions with respect to defaulted Mortgage
Loans and (3) the right to purchase certain defaulted Mortgage Loans from the
Trust Fund. The exercise of such right to delay foreclosure could affect the
amount recovered upon liquidation of the related Mortgaged Property.
TRUST AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Trust Agreement (the 'Trust
Agreement') dated as of May 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
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Certificateholder, without charge, on written request, a copy (without exhibits)
of the Trust Agreement. Requests should be addressed to The Chase Manhattan
Bank, 450 West 33rd Street, New York, New York 10001, Attention: Capital Markets
Fiduciary 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 and any amounts
representing Retained Interest. 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) or, in the case of a
Cooperative Loan, 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) or, in the case of a Cooperative Loan, an
original assignment of security agreement and related documents, (4) the
policies of title insurance issued with respect to each Mortgage Loan (other
than a Cooperative 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 (other than a
Cooperative 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, each transferor of Mortgage
Loans (a 'Transferor') has made or assigned, as of the date of (or provided in)
the applicable agreement (each such date, a 'Sale Date'), to the Seller certain
representations and warranties concerning the related Mortgage Loans that
generally include representations and warranties similar to those summarized in
the Prospectus under the heading 'Loan Underwriting Procedures and
Standards -- Representations and Warranties.' The Seller's rights under each
Sale Agreement will be assigned to the Trustee for the benefit of holders of
Offered Certificates. Within the period of time specified in the applicable Sale
Agreement following its discovery of a breach of any representation or warranty
that materially or adversely affects the interests of holders of Offered
Certificates in a Mortgage Loan (determined without regard to either Certificate
Insurance Policy), or receipt of notice of such breach, the applicable
Transferor will be obligated 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).
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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 holders of Offered
Certificates) only certain limited representations and warranties intended to
address certain material conditions that may arise with respect to the Mortgage
Loans between the applicable Sale Date and the Closing Date. In the event of a
breach of any such representation or warranty that does not constitute a breach
of any representation or warranty made by the applicable Transferor as described
above, the Seller will be obligated in the same manner as the Transferor, as
described above.
To the extent that any such Mortgage Loan is not repurchased by the
applicable Transferor or 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.
VOTING RIGHTS
The Class A5 Certificates will be allocated 1% of all voting rights, and
the remaining Classes of Certificates will be allocated 99% of the voting rights
under the Trust Agreement. Voting rights will be allocated among the Classes of
Offered Certificates in proportion to their respective Class Principal Amounts,
and among Certificates of each Class in proportion to their Certificate
Principal Amounts or Notional Amounts. On and after the date, if any, on which
the Certificate Insurer has paid a claim under the Certificate Insurance Policy
relating to either the Class A3 Certificates or the Class A4 Certificates, the
Certificate Insurer will be entitled to exercise all consent, voting or related
rights of such Class.
YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE
GENERAL
The yields to maturity (or early termination) on the Senior Certificates
will be affected by the rate of principal payments (including prepayments, which
may include amounts received by virtue of repurchase, condemnation, insurance or
foreclosure) on the Mortgage Loans, and the yields on the Subordinate
Certificates will be affected by the rate of principal payments on the Mortgage
Loans. Such yields will also be affected by the amount and timing of borrower
delinquencies and defaults resulting in Realized Losses on the Mortgage Loans,
the purchase prices for such Certificates and other factors.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, social, tax, legal and other factors. In general, if
prevailing interest rates fall below the interest rates on the Mortgage Loans,
the Mortgage Loans are likely to be subject to higher prepayments than if
prevailing rates remain at or above the interest rates on such Mortgage Loans.
Conversely, if prevailing interest rates rise above the interest rates on such
Mortgage Loans, the rate of prepayment would be expected to decrease. Other
factors affecting prepayment of the Mortgage Loans include such factors as
changes in borrowers' housing needs, job transfers, unemployment, borrowers' net
equity in the mortgaged properties, changes in the value of the mortgaged
properties, mortgage market interest rates and servicing decisions.
Approximately 69.34% Mortgage Loans provide for payment by the borrower of
a prepayment premium (each, a 'Prepayment Penalty Amount') during the first
three to five years after origination (the 'Penalty Period'). In any
twelve-month period during the Penalty Period, the borrower may generally prepay
up to 20% of the original principal balance of such Mortgage Loan without
penalty. The penalty for prepayments in excess of 20% of the original principal
balance will generally be equal to six months' interest on any amount prepaid in
excess of 20%. No Prepayment Penalty Amount is assessed for any prepayment made
after the applicable Penalty Period or if such prepayment is concurrent with the
sale of the Mortgaged Property. Such Prepayment Penalty Amounts may have the
effect of reducing the amount or the likelihood of
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prepayment on the Mortgage Loans with Prepayment Penalty Amounts during the
applicable Penalty Period.
The rate of principal payments on the Mortgage Loans will also be affected
by the amortization schedules of the Mortgage Loans, the rate and timing of
prepayments thereon by the borrowers, liquidations of defaulted Mortgage Loans
and repurchases of Mortgage Loans due to certain breaches of representations and
warranties or defective documentation. The timing of changes in the rate of
prepayments, liquidations and repurchases of the related Mortgage Loans may, and
the timing of Realized Losses will, significantly affect the yield to an
investor, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. Because the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described more fully herein and in the Prospectus under
'Yield, Prepayment and Maturity Considerations'), no assurance can be given as
to such rate or the timing of principal payments on the Offered Certificates. In
general, the earlier a prepayment of principal of the related Mortgage Loans,
the greater the effect on an investor's yield. 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.
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
Agreement, the Transferors, as initial seller of the Mortgage Loans, have
represented and warranted that each Mortgaged Property was free of material
damage as of the date of sale of the related Mortgage Loans to the Seller, under
the Sale and Assignment Agreement, the Seller will make a similar representation
and warranty as of the Closing Date. In the event of an uncured breach of any
such representation and warranty that materially and adversely affects the
interests of the Certificateholders (determined without regard to either
Certificate Insurance Policy), the Transferors or the Seller, as applicable,
will be required to repurchase the affected Mortgage Loan or substitute another
mortgage loan therefor. If any damage caused by the flooding, storms, wildfires,
or landslides (or other cause) occurs after the Closing Date, neither the
Transferors nor the Seller will 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 Mortgage Properties. 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 such related Mortgage Loans in whole or in part. Any repurchase
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.
Prepayments, liquidations and repurchases of the Mortgage Loans will result
in distributions to holders of the related Certificates of principal amounts
that would otherwise be distributed over the remaining terms of such Mortgage
Loans. The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years.
As described herein, approximately 10.39% of the Mortgage Loans,
respectively, do not provide for monthly payments of principal for the first ten
years following origination. Instead, only monthly payments of interest are due
during such period. Other considerations aside, due to such characteristics,
borrowers may be disinclined to prepay such loans during such ten year period.
In addition, because no principal is due on such loans for their initial ten
year period, the Certificates will amortize at a slower rate during such period
than would otherwise be the case. Thereafter, when the monthly payments on such
loans are recalculated on the basis of a twenty year, level payment amortization
schedule as described herein, principal payments on the Certificates are
expected to increase correspondingly, and, in any case, at a faster rate than if
payments on the underlying loans were calculated on the basis of a thirty year
amortization schedule.
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Notwithstanding the foregoing, no assurance can be given as to any prepayment
rate on the Mortgage Loans.
As described under 'Description of the Certificates' herein, the applicable
Non-AP Percentage of the amount of principal prepayments on the Mortgage Loans
will be allocated to the Senior Certificates (other than the Class AP
Certificates), as a group, during the first five years following the Closing
Date (except as described herein).
If the purchaser of a Certificate offered at a discount from its initial
principal amount, particularly the Class AP Certificates, 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
Mortgage Loans, the actual yield may be lower than that so calculated. Investors
in the Class AP Certificates should carefully consider that a slower than
anticipated rate of prepayment on the Discount Mortgage Loans which have
Mortgage Rates that are lower than those of the other Mortgage Loans and may
therefore be less likely to prepay, could result in an actual yield that is
lower than the anticipated yield. Conversely, if the purchaser of a Certificate
offered at a premium, particularly a Class A5 Certificate, 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. Investors in the Class A5
Certificates should carefully consider that a faster than anticipated rate of
prepayments on the Mortgage Loans could result in an actual yield that is lower
than the anticipated yield, and could result in the failure of such investors to
fully recover their initial investments. See 'Risk Factors -- Special Risks for
Certain Classes of Certificates.'
The effective yield to holders of the Offered Certificates will be lower
than the yield otherwise produced by the applicable Interest Rate and the
related purchase price because monthly distributions will not be payable to such
holders until the 25th day of the month (or the immediately following Business
Day if such day is not a Business Day) following the month in which interest
accrues on the Mortgage Loans (without any additional distribution of interest
or earnings thereon in respect of such delay).
SENSITIVITY OF CERTAIN CLASSES OF CERTIFICATES
The yields of the Class AP Certificates will be sensitive, and the yields
to maturity of the Class A5 Certificates will be extremely sensitive, to the
rate and timing of principal prepayments on the Mortgage Loans. Investors in the
Class AP Certificates should consider the risk that a slower than anticipated
rate of prepayments (including liquidations, insurance payments and repurchases
due to breaches of representations and warranties) on the Discount Mortgage
Loans, which have Mortgage Rates that are lower than those of the other Mortgage
Loans and may therefore be less likely to prepay, could result in actual yields
that are lower than the anticipated yields. Investors in the Class AP
Certificates should also consider the effect on the rate of prepayments of the
Mortgage Loans that provide only for monthly payments of interest for the first
ten years following origination. See 'Risk Factors -- Mortgage Loans with
Interest-Only Payments.' Investors in the Class A5 Certificates should carefully
consider the risk that a faster than anticipated rate of prepayments on the
Mortgage Loans in the related Mortgage Pool could result in actual yields that
are lower than the anticipated yields, and could result in the failure of such
investors to fully recover their initial investments.
To illustrate the significance of prepayments on the yields on such
Certificates, the following tables indicate the pre-tax yields to maturity (on a
corporate bond equivalent basis) and weighted average lives under the specified
assumptions at the constant percentages of the prepayment assumption (the
'Prepayment Assumption,' as described below) shown. The yields shown were
calculated by determining the monthly discount rates that, when applied to the
assumed streams of cash flows to be paid on the applicable Class of
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the assumed aggregate purchase price of such Class and
converting such monthly rates to corporate bond equivalent rates. Such
calculations
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do not take into account variations that may occur in the interest rates at
which investors may be able to reinvest funds received by them as distributions
on such Certificates and consequently do not purport to reflect the return on
any investment in any such Class of Certificates when such reinvestment rates
are considered. The weighted average lives shown were determined by (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 applicable Class of
Certificates 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 clause (1) above. It is unlikely that the Mortgage Loans
will prepay at any of the assumed constant rates shown or at any other constant
rate until maturity. (Such weighted average lives are shown for illustrative
purposes only in the case of the Class A5 Certificates. Such Certificates are
not entitled to distributions of principal and therefore have no weighted
average lives.) The timing of changes in the rate of prepayments may
significantly affect the actual yields to maturity and weighted average lives,
even if the average rate of principal prepayments is consistent with an
investor's expectation.
Each of the following tables was prepared on the basis of the
characteristics of the Mortgage Loans expected to be included in the Modeling
Assumptions set forth under '-- Weighted Average Life' below and the additional
assumptions that (1) the applicable assumed purchase price, exclusive of accrued
interest in the case of the Class A5 Certificates (expressed as a percentage of
the applicable Class Principal Amount or Class Notional Amount) for each Class
of Certificates is as set forth below and (2) the initial Class Principal Amount
of the Class AP Certificates and the initial Class Notional Amount and Interest
Rate of the Class A5 Certificates are as set forth or described herein.
PRE-TAX YIELD* TO MATURITY OF THE CLASS AP CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE: 68.00%)
PERCENTAGE OF RAMP PREPAYMENT
ASSUMPTION
-----------------------------------
0% 50% 100% 125% 200%
---- --- ---- ---- ----
Yield*.................................. 2.4% 5.2% 8.9% 10.9% 17.5%
Weighted Average Life in Years.......... 17.0 8.5 5.2 4.3 2.7
- ---------------
* Corporate bond equivalent basis
PRE-TAX YIELD* TO MATURITY OF THE CLASS A5 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE: 25.5625%)
PERCENTAGE OF RAMP PREPAYMENT
ASSUMPTION
------------------------------------
0% 50% 100% 125% 200%
---- ---- ---- ---- ----
Yield*.................................. 26.7% 26.7% 25.9% 24.5% 12.2%
Weighted Average Life in Years.......... 25.2 22.0 14.5 11.2 5.2
- ---------------
* Corporate bond equivalent basis
The Mortgage Loans may not have the characteristics assumed for purposes of
the tables above, and there can be no assurance that the Mortgage Loans will
prepay at any of the constant rates assumed, that the actual pre-tax yields to
maturity and weighted average lives for the Class AP or Class A5 Certificates
will correspond to any of the calculated yields and weighted average lives shown
herein, or that the purchase prices of such Certificates will be as assumed.
Each investor should make its own determination as to the appropriate
assumptions to be used and factors to be considered in deciding whether to
purchase a Class AP or Class A5 Certificate.
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SUBORDINATION OF THE OFFERED SUBORDINATE CERTIFICATES
On each Distribution Date, the holders of Certificates having a relatively
higher priority of distribution will have a preferential right to receive
amounts of interest and principal due to them on such Distribution Date before
any distributions are made on any Class of Certificates subordinate to such
higher ranking Class. As a result, the yields to maturity and the aggregate
amount of distributions on the Class B1, Class B2 and Class B3 Certificates will
be more sensitive than the yields of higher ranking Certificates to the rate of
delinquencies and defaults on the Mortgage Loans.
As more fully described herein, the principal portion of Realized Losses
(other than Excess Losses) on the Mortgage Loans will be allocated first to the
lower ranking Class of Certificates, then to the higher ranking Class of
Subordinate Certificates, in inverse order of priority, until the Class
Principal Amount of each such Class has been reduced to zero, before any such
Realized Losses will be allocated to the Senior Certificates. The interest
portion of Realized Losses on the Mortgage Loans (other than Excess Losses) will
reduce the amount available for distribution on the related Distribution Date to
the lowest ranking related Class outstanding on such date.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of each dollar distributed in net reduction of principal of such
security (assuming no losses). The weighted average lives of the Offered
Certificates will be influenced by, among other things, the rate at which
principal of the related Mortgage Loans is paid, which may be in the form of
scheduled amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a constant
prepayment standard or model. One such model used in this Prospectus Supplement
for the Mortgage Loans is a prepayment assumption (the 'RAMP Prepayment
Assumption') that represents an assumed rate of prepayment each month relative
to the then outstanding principal balance of the Mortgage Loans for the life of
such Mortgage Loans. A 100% RAMP Prepayment Assumption assumes a constant
prepayment rate of 4% per annum of the outstanding principal balance of such
Mortgage Loans in the first month of the life of such Mortgage Loans and an
additional approximate 1.0909090909% (precisely 12/11 percent) per annum in each
month thereafter until the sixtieth month; beginning in the sixtieth month and
in each month thereafter during the life of such Mortgage Loans, a constant
prepayment rate of 16% per annum is assumed. As used in the tables below, a 0%
RAMP Prepayment Assumption assumes prepayment rates equal to 0% of the RAMP
Prepayment Assumption, i.e., no prepayments; a 50% RAMP Prepayment Assumption
assumes prepayment rates equal to 50% of the RAMP Prepayment Assumption, and so
forth. The RAMP Prepayment Assumption does not purport to be either a historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any mortgage loans,
including the Mortgage Loans to be included in the Trust Fund.
Another prepayment model used in this Prospectus Supplement for the
Mortgage Loans is The Bond Market Association, Standard Prepayment Assumption
Model ('PSA'). Under PSA, a prepayment assumption of 100% PSA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of a mortgage
loan in the first month of the life of such mortgage loan and an additional 0.2%
in each month thereafter (for example, at an annual rate of 0.4% in the second
month) until the thirteenth month. Beginning in the thirteenth month, and in
each month thereafter during the life of such mortgage loan, 100% PSA assumes
that the rate of prepayment remains consistent at 6% per annum.
The following tables were prepared based on the characteristics of the
Mortgage Loans expected to be included in each Mortgage Pool and the following
additional assumptions (collectively, the 'Modeling Assumptions'): (1) the
initial Class Principal Amounts and the
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Interest Rates are as set forth on the cover of this Prospectus Supplement; (2)
each Scheduled Payment of principal and interest is timely received on the first
day of each month commencing in June 1999; (3) principal prepayments are
received in full on the last day of each month commencing in May 1999 and there
are no Net Prepayment Interest Shortfalls; (4) there are no defaults or
delinquencies on the Mortgage Loans; (5) there are no repurchases or
substitutions of the Mortgage Loans; (6) there is no optional termination of the
Trust Fund, (7) the Certificates are issued on May 27, 1999; and (8)
Distribution Dates occur on the 25th day of each month commencing in June 1999.
The actual characteristics of the Mortgage Loans may, and the performance
of the Mortgage Loans will, differ from the assumptions used in constructing the
tables set forth below, which are hypothetical in nature and are provided only
to give a general sense of how the principal cash flows might behave under
varying prepayment scenarios. For example, it is not expected that the Mortgage
Loans will prepay at a constant rate until maturity, that all of the Mortgage
Loans will prepay at the same rate or that there will be no defaults or
delinquencies on the Mortgage Loans. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the tables at the various percentages of the
RAMP Prepayment Assumption or PSA 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 the RAMP Prepayment Assumption or PSA.
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 the RAMP Prepayment Assumption or PSA.
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.
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PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE OFFERED CERTIFICATES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A1 CERTIFICATES
RAMP PREPAYMENT ASSUMPTION
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 125% 200%
- ---------------------------------- ---- ---- ---- ---- ----
Initial Percentage................ 100% 100% 100% 100% 100%
May 2000.......................... 96 83 83 83 83
May 2001.......................... 91 66 66 66 66
May 2002.......................... 85 49 49 49 49
May 2003.......................... 81 32 32 32 16
May 2004.......................... 75 15 15 15 0
May 2005.......................... 69 * * * 0
May 2006.......................... 63 0 0 0 0
May 2007.......................... 56 0 0 0 0
May 2008.......................... 48 0 0 0 0
May 2009.......................... 40 0 0 0 0
May 2010.......................... 30 0 0 0 0
May 2011.......................... 19 0 0 0 0
May 2012.......................... 7 0 0 0 0
May 2013.......................... 0 0 0 0 0
May 2014.......................... 0 0 0 0 0
May 2015.......................... 0 0 0 0 0
May 2016.......................... 0 0 0 0 0
May 2017.......................... 0 0 0 0 0
May 2018.......................... 0 0 0 0 0
May 2019.......................... 0 0 0 0 0
May 2020.......................... 0 0 0 0 0
May 2021.......................... 0 0 0 0 0
May 2022.......................... 0 0 0 0 0
May 2023.......................... 0 0 0 0 0
May 2024.......................... 0 0 0 0 0
May 2025.......................... 0 0 0 0 0
May 2026.......................... 0 0 0 0 0
May 2027.......................... 0 0 0 0 0
May 2028.......................... 0 0 0 0 0
May 2029.......................... 0 0 0 0 0
---- ---- ---- ---- ----
Weighted Average Life in Years.... 8.1 3.0 3.0 3.0 2.7
CLASS A2 CERTIFICATES
RAMP PREPAYMENT ASSUMPTION
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 125% 200%
- ---------------------------------- ---- ---- ---- ---- ----
Initial Percentage................ 100% 100% 100% 100% 100%
May 2000.......................... 100 94 84 80 65
May 2001.......................... 100 85 66 56 31
May 2002.......................... 100 78 51 39 9
May 2003.......................... 100 72 39 26 0
May 2004.......................... 100 66 30 17 0
May 2005.......................... 100 61 24 11 0
May 2006.......................... 100 54 16 4 0
May 2007.......................... 100 47 10 0 0
May 2008.......................... 100 41 5 0 0
May 2009.......................... 100 36 2 0 0
May 2010.......................... 100 31 0 0 0
May 2011.......................... 100 26 0 0 0
May 2012.......................... 100 22 0 0 0
May 2013.......................... 98 18 0 0 0
May 2014.......................... 94 15 0 0 0
May 2015.......................... 90 12 0 0 0
May 2016.......................... 86 9 0 0 0
May 2017.......................... 81 6 0 0 0
May 2018.......................... 76 4 0 0 0
May 2019.......................... 71 2 0 0 0
May 2020.......................... 65 0 0 0 0
May 2021.......................... 59 0 0 0 0
May 2022.......................... 52 0 0 0 0
May 2023.......................... 45 0 0 0 0
May 2024.......................... 37 0 0 0 0
May 2025.......................... 28 0 0 0 0
May 2026.......................... 19 0 0 0 0
May 2027.......................... 9 0 0 0 0
May 2028.......................... 0 0 0 0 0
May 2029.......................... 0 0 0 0 0
---- ---- ---- ---- ----
Weighted Average Life in Years.... 22.6 8.3 3.8 2.9 1.6
- -------------------------
* Indicates a value between 0.0% and 0.5%.
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PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE OFFERED CERTIFICATES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A3 & A4 CERTIFICATES
RAMP PREPAYMENT ASSUMPTION PSA
---------------------------------------- ----
DISTRIBUTION DATE 0% 50% 100% 125% 200% 285%
- ---------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100% 100% 100% 100% 100% 100%
May 2000.......................... 100 100 100 100 100 100
May 2001.......................... 100 100 100 100 100 100
May 2002.......................... 100 100 100 100 100 100
May 2003.......................... 99 99 99 99 99 99
May 2004.......................... 98 98 98 98 52 98
May 2005.......................... 96 96 96 96 15 96
May 2006.......................... 95 95 95 95 0 95
May 2007.......................... 94 94 94 87 0 94
May 2008.......................... 93 93 93 66 0 93
May 2009.......................... 92 92 92 52 0 92
May 2010.......................... 90 90 84 40 0 88
May 2011.......................... 89 89 69 32 0 71
May 2012.......................... 88 88 56 25 0 57
May 2013.......................... 87 87 46 19 0 46
May 2014.......................... 86 86 37 15 0 37
May 2015.......................... 84 84 30 11 0 29
May 2016.......................... 83 83 24 9 0 23
May 2017.......................... 82 82 19 7 0 18
May 2018.......................... 81 81 15 5 0 14
May 2019.......................... 80 80 12 4 0 11
May 2020.......................... 78 76 9 3 0 9
May 2021.......................... 77 64 7 2 0 7
May 2022.......................... 76 53 5 1 0 5
May 2023.......................... 75 43 4 1 0 4
May 2024.......................... 74 34 3 1 0 3
May 2025.......................... 72 26 2 * 0 2
May 2026.......................... 71 18 1 * 0 1
May 2027.......................... 70 11 1 * 0 1
May 2028.......................... 58 5 * * 0 *
May 2029.......................... 0 0 0 0 0 0
---- ---- ---- ---- ---- ----
Weighted Average Life in Years.... 25.2 22.0 14.5 11.2 5.2 14.5
</TABLE>
CLASS B1, B2 & B3 CERTIFICATES
RAMP PREPAYMENT ASSUMPTION
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 125% 200%
- ---------------------------------- ---- ---- ---- ---- ----
Initial Percentage................ 100% 100% 100% 100% 100%
May 2000.......................... 99 99 99 99 99
May 2001.......................... 98 98 98 98 98
May 2002.......................... 97 97 97 97 97
May 2003.......................... 96 96 96 96 96
May 2004.......................... 95 95 95 95 95
May 2005.......................... 94 92 89 88 84
May 2006.......................... 93 87 82 79 66
May 2007.......................... 91 82 73 68 44
May 2008.......................... 90 75 62 56 30
May 2009.......................... 88 68 51 44 20
May 2010.......................... 86 61 42 35 13
May 2011.......................... 84 55 35 27 9
May 2012.......................... 82 49 28 21 6
May 2013.......................... 79 44 23 16 4
May 2014.......................... 76 39 19 13 2
May 2015.......................... 73 34 15 10 2
May 2016.......................... 70 30 12 7 1
May 2017.......................... 67 26 10 6 1
May 2018.......................... 63 23 8 4 *
May 2019.......................... 59 20 6 3 *
May 2020.......................... 55 17 5 2 *
May 2021.......................... 50 14 4 2 *
May 2022.......................... 45 12 3 1 *
May 2023.......................... 40 10 2 1 *
May 2024.......................... 34 8 1 1 *
May 2025.......................... 28 6 1 * *
May 2026.......................... 22 4 1 * *
May 2027.......................... 14 2 * * *
May 2028.......................... 7 1 * * *
May 2029.......................... 0 0 0 0 0
---- ---- ---- ---- ----
Weighted Average Life in Years.... 20.3 14.0 11.1 10.2 8.2
- -------------------------
* Indicates a value between 0.0% and 0.5%.
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PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE OFFERED CERTIFICATES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS AP CERTIFICATES
RAMP PREPAYMENT ASSUMPTION
----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 125% 200%
- ---------------------------------- ---- ---- ---- ---- ----
Initial Percentage................ 100% 100% 100% 100% 100%
May 2000.......................... 98 92 86 82 73
May 2001.......................... 97 83 71 65 49
May 2002.......................... 95 75 58 51 32
May 2003.......................... 93 68 48 40 22
May 2004.......................... 91 61 39 31 14
May 2005.......................... 89 55 32 24 10
May 2006.......................... 87 49 27 19 6
May 2007.......................... 84 44 22 15 4
May 2008.......................... 82 39 18 11 3
May 2009.......................... 79 35 14 9 2
May 2010.......................... 76 31 12 7 1
May 2011.......................... 73 27 9 5 1
May 2012.......................... 69 24 7 4 *
May 2013.......................... 65 21 6 3 *
May 2014.......................... 61 18 5 2 *
May 2015.......................... 57 15 4 2 *
May 2016.......................... 52 13 3 1 *
May 2017.......................... 47 11 2 1 *
May 2018.......................... 41 9 2 1 *
May 2019.......................... 36 7 1 * *
May 2020.......................... 34 6 1 * *
May 2021.......................... 31 5 1 * *
May 2022.......................... 27 4 1 * *
May 2023.......................... 24 3 * * *
May 2024.......................... 20 3 * * *
May 2025.......................... 17 2 * * *
May 2026.......................... 12 1 * * *
May 2027.......................... 8 1 * * *
May 2028.......................... 3 * * * *
May 2029.......................... 0 0 0 0 0
---- ---- ---- ---- ----
Weighted Average Life in Years.... 17.0 8.5 5.2 4.3 2.7
CLASS R CERTIFICATES
RAMP PREPAYMENT ASSUMPTION
---------------------------------------
DISTRIBUTION DATE 0% 50% 100% 125% 200%
- ---------------------------------- ---- --- ---- ---- ----
Initial Percentage................ 100% 100% 100 % 100 % 100 %
May 2000.......................... 0 0 0 0 0
May 2001.......................... 0 0 0 0 0
May 2002.......................... 0 0 0 0 0
May 2003.......................... 0 0 0 0 0
May 2004.......................... 0 0 0 0 0
May 2005.......................... 0 0 0 0 0
May 2006.......................... 0 0 0 0 0
May 2007.......................... 0 0 0 0 0
May 2008.......................... 0 0 0 0 0
May 2009.......................... 0 0 0 0 0
May 2010.......................... 0 0 0 0 0
May 2011.......................... 0 0 0 0 0
May 2012.......................... 0 0 0 0 0
May 2013.......................... 0 0 0 0 0
May 2014.......................... 0 0 0 0 0
May 2015.......................... 0 0 0 0 0
May 2016.......................... 0 0 0 0 0
May 2017.......................... 0 0 0 0 0
May 2018.......................... 0 0 0 0 0
May 2019.......................... 0 0 0 0 0
May 2020.......................... 0 0 0 0 0
May 2021.......................... 0 0 0 0 0
May 2022.......................... 0 0 0 0 0
May 2023.......................... 0 0 0 0 0
May 2024.......................... 0 0 0 0 0
May 2025.......................... 0 0 0 0 0
May 2026.......................... 0 0 0 0 0
May 2027.......................... 0 0 0 0 0
May 2028.......................... 0 0 0 0 0
May 2029.......................... 0 0 0 0 0
---- --- ---- ---- ----
Weighted Average Life in Years.... 0.1 0.1 0.1 0.1 0.1
- -------------------------
* Indicates a value between 0.0% and 0.5%.
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THE CERTIFICATE INSURANCE POLICIES
The following information has been supplied by MBIA Insurance Corporation
(the 'Certificate Insurer') for inclusion in this Prospectus Supplement. The
Certificate Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom other than with respect to the accuracy of
the information regarding the Certificate Insurance Policies and the Certificate
Insurer set forth under the heading 'The Certificate Insurance Policies'.
Additionally, the Certificate Insurer makes no representation regarding the
Class A3 Certificates or the Certificate Class A4 Certificates (each, an
'Insured Certificate' and, collectively, the 'Insured Certificates') or the
advisability of investing in the Insured Certificates. A copy of the Certificate
Insurance Policies may be obtained from the Trustee upon request.
THE POLICIES
The Certificate Insurer, in consideration of the payment of the premium and
subject to the terms of the applicable Certificate Guaranty Insurance Policy
(the 'Certificate Insurance Policy'), thereby unconditionally and irrevocably
guarantees to any Owner (as described below) that an amount equal to each full
and complete Insured Payment (as described below) will be received by the
Trustee, or its successor, as trustee for the Owners, on behalf of the Owners
from the Certificate Insurer, for distribution by the Trustee to each Owner of
each Owner's proportionate share of the Insured Payment. The Certificate
Insurer's obligations under each Certificate Insurance Policy with respect to a
particular Insured Payment shall be discharged to the extent funds equal to the
applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in the applicable Certificate Insurance Policy and no
accelerated Insured Payments shall be made regardless of any acceleration of the
related Insured Certificates, unless such acceleration is at the sole option of
the Certificate Insurer.
Notwithstanding the foregoing paragraph, neither Certificate Insurance
Policy covers shortfalls, if any, attributable to any liability of a REMIC, the
Trust Fund or the Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability). THE CERTIFICATE INSURANCE POLICIES
WILL NOT PROVIDE CREDIT ENHANCEMENT FOR ANY CLASS OF CERTIFICATES OTHER THAN THE
RELATED INSURED CERTIFICATES.
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount (as described below) on the Business Day (as described below) following
receipt on a Business Day by the Fiscal Agent (as described below) of:
o a certified copy of the order requiring the return of a preference
payment;
o an opinion of counsel satisfactory to the Certificate Insurer that
such order is final and not subject to appeal;
o an assignment in such form as is reasonably required by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer
all rights and claims of the Owner relating to or arising under the
related Insured Certificates against the debtor which made such
preference payment or otherwise with respect to such preference
payment; and
o appropriate instruments to effect the appointment of the Certificate
Insurer as agent for such Owner in any legal proceeding related to
such preference payment, such instruments being in a form satisfactory
to the Certificate Insurer;
provided that if such documents are received after 12:00 noon New York City time
on such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Owner and not to any Owner directly unless such Owner
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has returned principal or interest paid on the related Insured Certificates to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
applicable Certificate Insurance Policy no later than 12:00 noon New York City
time on the later of the Distribution Date on which the related Deficiency
Amount is due or the second Business Day following receipt in New York, New York
on a Business Day by State Street Bank and Trust Company, N.A., as Fiscal Agent
for the Certificate Insurer or any successor fiscal agent appointed by the
Certificate Insurer (the 'Fiscal Agent') of a Notice (as described below);
provided that if such Notice is received after 12:00 noon New York City time on
such Business Day, it will be deemed to be received on the following Business
Day. If any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making claim under the applicable
Certificate Insurance Policy it shall be deemed not to have been received by the
Fiscal Agent for purposes of this paragraph, and the Certificate Insurer or the
Fiscal Agent, as the case may be, shall promptly so advise the Trustee and the
Trustee may submit an amended Notice.
Insured Payments due under either Certificate Insurance Policy, unless
otherwise stated therein, will be disbursed by the Fiscal Agent to the Trustee
on behalf of the Owners by wire transfer of immediately available funds in the
amount of the Insured Payment less, in respect of Insured Payments related to
Preference Amounts, any amount held by the Trustee for the payment of such
Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the applicable
Certificate Insurance Policy.
As used in either Certificate Insurance Policy, the following terms shall
have the following meanings:
'Agreement' means the Trust Agreement, dated as of May 1, 1999, between
Structured Asset Securities Corporation, as Depositor, and The Chase Manhattan
Bank, as Trustee, without regard to any amendment or supplement thereto.
'Business Day' means any day other than a Saturday, a Sunday or a day on
which the Certificate Insurer or banking institutions in New York City or in the
city in which the corporate trust office of the Trustee under the Agreement is
located are authorized or obligated by law or executive order to close.
'Deficiency Amount' means with respect to any Distribution Date, the
excess, if any, of Guaranteed Distributions over the Available Distribution
Amount available to the holders of the related Insured Certificates.
'Guaranteed Distributions' means (a) for any Distribution Date, (i) the
Accrued Certificate Interest for the related Insured Certificates for such
Distribution Date including any Net Prepayment Interest Shortfalls relating to
prepayments in full allocable to such Class of Certificates on such Distribution
Date that are not covered by the Reserve Fund, and (ii) the amount of any
Realized Loss, including any Excess Loss, allocated to the related Insured
Certificates on such Distribution Date, and (b) for the Final Scheduled
Distribution Date, the Class Certificate Principal Amount of the related Insured
Certificates to the extent unpaid on the Final Scheduled Distribution Date.
'Insured Payment' means (i) as of any Distribution Date, any Deficiency
Amount and (ii) any Preference Amount.
'Notice' means the telephonic or telegraphic notice, promptly confirmed in
writing by facsimile substantially in the form of Exhibit A attached to the
applicable Certificate Insurance Policy, the original of which is subsequently
delivered by registered or certified mail, from the
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<PAGE>
Trustee specifying the Insured Payment which shall be due and owing on the
applicable Distribution Date.
'Owner' means each Class A3 Certificateholder or Class A4
Certificateholder, as the case may be, (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the related Insured
Certificates to payment thereunder.
'Preference Amount' means any amount previously distributed to an Owner on
the related Insured Certificates that is recoverable and sought to be recovered
as a voidable preference by a trustee in bankruptcy pursuant to the United
States Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance
with a final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Certificate Insurance Policies and not
otherwise defined therein shall have the respective meanings set forth in the
Agreement as of the date of execution of such Certificate Insurance Policies,
without giving effect to any subsequent amendment or modification to the
Agreement unless such amendment or modification has been approved in writing by
the Certificate Insurer.
Any notice under either Certificate Insurance Policy or service of process
on the Fiscal Agent may be made at the address listed below for the Fiscal Agent
or such other address as the Certificate Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
Each Certificate Insurance Policy is being issued under and pursuant to,
and shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
The insurance provided by the each Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in Article 76
of the New York Insurance Law.
Neither Certificate Insurance Policy is cancelable for any reason. The
premium on either Certificate Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to maturity of the
related Insured Certificates.
THE CERTIFICATE INSURER
The Certificate Insurer is the principal operating subsidiary of MBIA Inc.,
a New York Stock Exchange listed company ('MBIA Inc.'). MBIA Inc. is not
obligated to pay the debts of or claims against the Certificate Insurer. The
Certificate Insurer is domiciled in the State of New York and licensed to do
business in and is subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. The Certificate Insurer has two European branches, one in the
Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Certificate Insurer, changes in control
and transactions among affiliates. Additionally, the Certificate Insurer is
required to maintain contingency reserves on its liabilities in certain amounts
and for certain periods of time.
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<PAGE>
CERTIFICATE INSURER FINANCIAL INFORMATION
The consolidated financial statements of the Certificate Insurer, a wholly
owned subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1998 and
December 31, 1997 and for each of the three years in the period ended December
31, 1998, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1998 and the consolidated financial statements of the Certificate
Insurer and its subsidiaries as of March 31, 1999 and for the three month
periods ended March 31, 1999 and March 31, 1998 included in the Quarterly Report
on Form 10-Q of MBIA Inc. for the period ended March 31, 1999, are hereby
incorporated by reference into this Prospectus Supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated by
reference herein shall be modified or superseded for purposes of this Prospectus
Supplement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Prospectus Supplement and prior to the termination of the offering of
the Offered Certificates shall be deemed to be incorporated by reference into
this Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents,
The tables below present selected financial information of the Certificate
Insurer determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities ('SAP') and generally accepted
accounting principles ('GAAP'):
SAP
--------------------------------------
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
Admitted Assets................... $ 6,521 $ 6,742
Liabilities....................... 4,231 4,412
Capital and Surplus............... 2,290 2,330
GAAP
--------------------------------------
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
Assets............................ $ 7,488 $ 7,625
Liabilities....................... 3,211 3,370
Shareholder's Equity.............. 4,277 4,255
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION ABOUT THE CERTIFICATES INSURER
Copies of the financial statements of the Certificate Insurer incorporated
by reference herein and copies of the Certificate Insurer's 1998 year-end
audited financial statements prepared in accordance with statutory accounting
practices are available, without charge, from the Certificate Insurer. The
address of the Certificate Insurer is 113 King Street, Armonk, New York 10504.
The telephone number of the Certificate Insurer is (914) 273-4545.
YEAR 2000 READINESS DISCLOSURE
MBIA Inc. is actively managing a high-priority Year 2000 (Y2K) program.
MBIA Inc. has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the project.
MBIA Inc. has a budget of $1.13 million for its
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1998-2000 Y2K efforts. Expenditures are proceeding as anticipated, and MBIA Inc.
does not expect the project budget to materially exceed this amount. MBIA Inc.
has initiated a comprehensive Y2K plan that includes assessment, remediation,
testing and contingency planning. This plan covers 'mission-critical' internally
developed systems, vendor software, hardware and certain third-party entities
through which MBIA, Inc. conducts its business. Testing to date indicates that
functions critical to the financial guarantee business, both domestic and
international, were Y2K-ready as of December 31, 1998. Additional testing will
continue throughout 1999.
FINANCIAL STRENGTH RATINGS OF CERTIFICATE INSURER
Moody's Investors Service, Inc. rates the financial strength of the
Certificate Insurer 'Aaa.'
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the financial strength of the Certificate Insurer 'AAA.'
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the financial strength of the Certificate Insurer 'AAA.'
Each rating of the Certificate Insurer should be evaluated independently.
The ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Certificate Insurer and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency,
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
Certificates. The Certificate Insurer does not guaranty the market price of the
Certificates nor does it guaranty that the ratings on the Certificates will not
be revised or withdrawn.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The Trust Agreement provides that the Trust Fund will comprise a Lower-Tier
REMIC and an Upper-Tier REMIC in a tiered REMIC structure. In the opinion of
Brown & Wood LLP ('Tax Counsel'), assuming compliance with the Trust Agreement,
for federal income tax purposes the Lower-Tier REMIC and the Upper-Tier REMIC
will each qualify as a REMIC within the meaning of Section 860D of the Internal
Revenue Code of 1986, as amended (the 'Code'). In addition, in the opinion of
Tax Counsel, the Offered Certificates, other than the Class R Certificate, will
evidence ownership of REMIC regular interests within the meaning of Section
860G(a)(1) of the Code and the Class R Certificate will evidence ownership of
the sole class of residual interest, within the meaning of Section 860G(a)(2) of
the Code, in each of the Lower-Tier REMIC and the Upper-Tier REMIC. Although the
matter is not free from doubt, the Depositor intends to report stated interest
on the Offered Certificates, other than the Class A5 and Class R Certificates,
as qualified stated interest within the meaning of the Treasury Regulations
('OID Regulations') concerning original issue discount ('OID'). A holder of the
Offered Certificates must include qualified stated interest in income as it
accrues regardless of the holder's usual method of accounting.
The Class AP and Class A5 Certificates will be, and the other Classes of
Offered Certificates may be, issued with OID for federal income tax purposes.
See 'Material Federal Income Tax Considerations -- Taxation of Regular Interest
Certificates -- Interest and Acquisition Discount' in the Prospectus. The
prepayment assumption that will be used in determining the rate of accrual of
OID, market discount and premium, if any, for federal income tax purposes will
be a rate equal to 125% of the Prepayment Assumption. No representation is made
that the Mortgage Loans will
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prepay at these rates or at any other rates. OID must be included in income as
it accrues on a constant yield method, regardless of whether a holder receives
concurrently the cash attributable to such OID.
RESIDUAL CERTIFICATES
Special tax considerations apply to an investment in a Residual
Certificate. In certain circumstances, the method of taxation of a Residual
Certificate can produce a significantly less favorable after-tax return for a
beneficial owner of a Residual Certificate than would be the case, if (1) such
Residual Certificate was taxable as a debt instrument or (2) no portion of the
taxable income on such Residual Certificate in each period was treated as
'excess inclusion' income.
A Residual Certificateholder will be the holder of a residual interest in
the REMIC and will generally be required to include in gross income a pro rata
share of the net income of the REMIC. This may result in such Residual
Certificateholder being required to recognize 'phantom' income, i.e., income
recognized for tax purposes which exceeds economic income attributable to such
Residual Certificate. Acceleration of taxable income arising from timing
differences will result in an after-tax yield on a Residual Certificate that may
be lower than that on a corporate bond with similar cash flow characteristics
and pre-tax yield. The amount and timing of phantom income are dependent upon
the rate of prepayment of the Mortgage Loans, and, therefore, cannot be
predicted.
A Residual Certificate will not be treated as 'securities' for purposes of
the 'mark-to-market' provisions of the Code and consequently dealers in
securities may not account for such Residual Certificate by marking them to
market.
The Small Business Job Protection Act of 1996 (the 'Small Business Act')
has eliminated the special rule permitting Section 593 institutions ('thrift
institutions') to use net operating losses and other allowable deductions to
offset their excess inclusion income from REMIC residual certificates that have
'significant value' within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Act provides three rules for determining
the effect of excess inclusions on the alternative minimum taxable income of a
residual holder. First, alternative minimum taxable income for such residual
holder is determined without regard to the special rule that taxable income
cannot be less than excess inclusions. Second, a residual holder's alternative
minimum taxable income for a tax year cannot be less than the excess inclusions
for the year. Third, the amount of any alternative minimum tax net operating
loss deductions must be computed without regard to any excess inclusions. These
rules are effective for tax years beginning after December 31, 1986, unless a
residual holder elects to have such rules apply only to tax years beginning
after August 20, 1996.
Under applicable regulations (the 'REMIC Regulations'), if a Residual
Certificate is a 'noneconomic residual interest,' as described below, a transfer
of such Residual Certificate to a U.S. person will be disregarded for all
federal tax purposes unless no significant purpose of the transfer was to impede
the assessment or collection of tax. A residual interest is a 'noneconomic
residual interest' unless, at the time of the transfer (1) the present value of
the expected future distributions on such Residual Certificate at least equals
the product of the present value of the anticipated excess inclusions
(determined as of the date of the transfer) and the highest rate of tax for the
year in which the transfer occurs, and (2) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The present value is calculated based
on the Prepayment Assumption, using a discount rate equal to the 'applicable
federal rate' at the time of transfer. If a transfer of a Residual Certificate
is disregarded, the transferor would be liable for any federal income tax
imposed upon taxable income
S-65
<PAGE>
derived by the transferee from the REMIC. A significant purpose to impede the
assessment or collection of taxes exists if the transferor, at the time of
transfer, knew or should have known that the transferee would be unwilling or
unable to pay taxes on its share of the taxable income of the REMIC. A similar
type of limitation exists with respect to certain transfers of Residual
Certificates by a nonresident alien individual, foreign partnership or foreign
corporation ('Nonresidents') to United States persons.
Under the REMIC Regulations, if a Residual Certificate has tax avoidance
potential, a transfer of a Residual Certificate to a Nonresident will be
disregarded for all Federal tax purposes. A Residual Certificate has tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee residual
interest holder amounts that will equal at least 30% of each excess inclusion
and that such amounts will be distributed at or after the time at which the
excess inclusion accrues and not later than the calendar year following the
calendar year of accrual. If a transfer of a Residual Certificate to a
Nonresident is disregarded, the transferor would be liable for any federal
income tax imposed upon taxable income derived by the transferee from the REMIC.
If a Nonresident transfers a Residual Certificate to a United States person, and
if the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusion income (for example, if the transferor does not pay all
tax liability up to the date of the transfer), then the transfer is disregarded
and the transferor continues to be treated as the owner of the Residual
Certificate for purposes of Sections 871(a), 881, 1441 and 1442 of the Code. As
a result of the foregoing provisions, a Nonresident transferor or transferee
would be required to deliver to the Trustee certain certifications (and satisfy
certain other conditions) in connection with such a transfer of a Residual
Certificate.
The Small Business Act changed the definition of a 'foreign' trust. Under
prior law, the definition was based on whether a trust's foreign source income
would be subject to U.S. tax. The new definition contains two objective
requirements which, if satisfied, will cause a trust to be treated as a U.S.
trust. It looks first to whether the trust's administration is subject to a U.S.
court's 'primary supervision' and second to whether U.S. fiduciaries control all
substantial decisions of the trust. If both these requirements are met, the
trust is a U.S. trust. All other trusts are 'foreign' trusts. The Taxpayer
Relief Act of 1997 clarified the definition of U.S. trusts. It provided that a
trust is a U.S. person if a court in the U.S. has primary jurisdiction over the
trust's administration and one or more U.S. persons have control over
substantial trust decisions. Thus, the fact that a substantial decision is
controlled by a U.S. person who is not a fiduciary will not cause the trust to
be treated as a foreign trust. Moreover, the Taxpayer Relief Act of 1997
provided that to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as U.S. persons prior to such date,
may elect to continue to be U.S. persons.
It is expected that a Residual Certificate will be a 'noneconomic residual
interest' and will have 'tax avoidance potential' within the meaning of the
proposed regulations.
A Residual Certificate may not be transferred, sold, pledged or otherwise
assigned unless, prior to such transfer, the proposed transferee delivers to the
Trustee an affidavit certifying that such transferee is not a Disqualified
Organization and is not purchasing such Residual Certificate on behalf of a
Disqualified Organization and certifying as to such matters as may be necessary
to verify that no significant purpose of such transfer is to impede the
assessment or collection of tax, including the ability of such transferee to pay
applicable taxes. In addition, a Residual Certificate may not be held by a
nominee. Each proposed transferee must also sign a transferee letter which, in
the case of a transfer to or from a Nonresident, generally would require
furnishing evidence that such transfer would be respected for federal income tax
purposes.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see 'Material Federal Income Tax
Considerations' in the Prospectus.
S-66
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Senior Certificates and the Class B1 Certificates will constitute
'mortgage related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ('SMMEA') for so long as they are rated in one of the
two highest rating categories by one or more nationally recognized statistical
rating agencies, and, as such, are legal investments for certain entities to the
extent provided in SMMEA. Such investments, however, will be subject to general
regulatory considerations governing investment practices under state and federal
laws.
Moreover, institutions whose investment activities are subject to review by
certain regulatory authorities may be or may become subject to restrictions,
which may be retroactively imposed by such regulatory authorities, on the
investment by such institutions in certain mortgage related securities. In
addition, several states have adopted or may adopt regulations that prohibit
certain state-chartered institutions from purchasing or holding similar types of
securities.
Accordingly, investors should consult their own legal advisors to determine
whether and to what extent the Offered Certificates may be purchased by such
investors.
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates will be applied
by the Depositor, or an affiliate thereof, toward the purchase of the Mortgage
Loans. The Mortgage Loans will be acquired by the Depositor from the Seller in a
privately negotiated transaction.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
and in a terms agreement (collectively, the 'Underwriting Agreement') between
the Depositor and Lehman Brothers Inc. (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 $435,000.
Lehman Brothers Inc. has entered into an agreement with the Depositor to
purchase the Class B4, Class B5 and Class B6 Certificates simultaneously with
the purchase of the Offered Certificates, subject to certain conditions.
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, an affiliate of the Seller, the Depositor and Aurora, in connection
with market making transactions in the Offered Certificates. The
S-67
<PAGE>
Underwriter may act as principal or agent in such transactions. Such
transactions will be at prices related to prevailing market prices at the time
of sale.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), or the Code, should carefully review with its legal advisors whether
the purchase or holding of Certificates could give rise to a transaction
prohibited or not otherwise permissible under ERISA or the Code. See 'ERISA
CONSIDERATIONS' in the accompanying Prospectus.
EMPLOYEE BENEFIT PLANS ('PLANS') THAT ARE SUBJECT TO ERISA, AND ANY PERSON
UTILIZING THE ASSETS OF SUCH A PLAN, MAY NOT PURCHASE THE SUBORDINATE
CERTIFICATES, except that any insurance company may purchase such Certificates
with assets of its general account if the exemptive relief granted by the
Department of Labor for transactions involving insurance company general
accounts in Prohibited Transaction Exemption 95-60, 60 Fed. Reg. 35925 (July 12,
1995) is available with respect to such investment. The Trust Agreement will
include certain restrictions on the transfer of the Subordinate Certificates.
EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1998,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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 Senior Certificates, other than
the Class AP and Class A5 Certificates, that they be rated 'AAA' by each of Duff
& Phelps Credit Rating Co. ('DCR') and Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc. ('S&P,' and together with DCR, the
'Rating Agencies'). It is a condition to the issuance of the Class AP and Class
A5 Certificates that they be rated 'AAA' by DCR and 'AAAr' by S&P. It is a
condition to the issuance of the Class B1 Certificates that they be rated 'AA'
by DCR. It is a condition to the issuance of the Class B2 Certificates that they
be rated 'A' by DCR. It is a condition to the issuance of the Class B3
Certificates that they be rated 'BBB' by DCR.
The rating of 'AAA' is the highest rating that each of the Ratings Agencies
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
Offered Certificateholders of distributions in the amount of scheduled payments
on the Mortgage Loans. The rating takes into consideration the
S-68
<PAGE>
characteristics of the Mortgage Loans and the structural, legal and tax aspects
associated with the Offered Certificates. The ratings on the Class A3 and Class
4 Certificates are without regard to the related Certificate Insurance Policy.
The ratings of the Class A5 Certificates do not address whether investors
in such Certificates will fail to recoup their initial investment due to a
faster than anticipated rate of prepayments. The ratings of the Class AP
Certificates only address the return of the Class Principal Amount thereof. The
rating of the Class R Certificate does not assess the likelihood of return to
investors except to the extent of the Class Principal Amount and interest
thereon.
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-69
<PAGE>
GLOSSARY
DEFINED TERMS PAGE
- ---------------------------------------------- ----
Accrual Period................................ S-19
Accrued Certificate Interest.................. S-18
Act........................................... S-67
Aggregate Master Servicing Compensation....... S-48
Agreement..................................... S-61
AP Percentage................................. S-20
AP Principal Distribution Amount.............. S-21
Aurora........................................ S-45
Available Distribution Amount................. S-23
Bankruptcy Coverage Termination Date.......... S-30
Bankruptcy Loss Limit......................... S-30
Bankruptcy Losses............................. S-30
Beneficial Owner.............................. S-15
Book-Entry Certificates....................... S-15
Business Day.................................. S-14
Certificate Insurance Policy.................. S-60
Certificate Insurer........................... S-60
Certificate Principal Amount.................. S-19
Certificates.................................. S-14
Class A Certificates.......................... S-14
Class AP Deferred Amount...................... S-29
Class Notional Amount......................... S-14
Class Percentage.............................. S-18
Class Principal Amount........................ S-14
Closing Date.................................. S-18
Code.......................................... S-64
Corporate Trust Office........................ S-32
Credit Support Percentage..................... S-18
Cut-off Date.................................. S-20
Cut-off Date Balance.......................... S-14
DCR........................................... S-68
Debt Service Reduction........................ S-30
Deceased Holder............................... S-27
Deficiency Amount............................. S-61
Deficient Valuation........................... S-30
Definitive Certificate........................ S-15
Deposit Date.................................. S-23
Depositor..................................... S-14
Discount Mortgage Loan........................ S-20
Distribution Date............................. S-14
DTC........................................... S-15
DEFINED TERMS PAGE
- ---------------------------------------------- ----
Due Period.................................... S-23
ERISA......................................... S-68
Excess Losses................................. S-30
Final Scheduled Distribution Date............. S-31
Financial Intermediary........................ S-15
Fiscal Agent.................................. S-61
Fraud Loss Limit.............................. S-30
Fraud Losses.................................. S-30
GAAP.......................................... S-63
Guaranteed Distributions...................... S-61
Harbourton.................................... S-45
Headlands..................................... S-44
Individual Class A3 Certificate............... S-24
Individual Class A4 Certificate............... S-24
Insurance Agreement........................... S-31
Insurance Proceeds............................ S-24
Insured Payment............................... S-61
Interest Rate................................. S-19
Interest Shortfall............................ S-18
Lehman Capital................................ S-32
Liquidated Mortgage Loan...................... S-30
Liquidation Proceeds.......................... S-24
Living Holders................................ S-24
Loan-to-Value Ratio........................... S-33
Master Servicer............................... S-45
Master Servicing Fee.......................... S-47
Master Servicing Fee Rate..................... S-47
MBIA Inc...................................... S-62
Modeling Assumptions.......................... S-55
Mortgage Loans................................ S-14
Mortgage Pool................................. S-14
Mortgaged Property............................ S-33
Net Mortgage Rate............................. S-19
Net Prepayment Interest Shortfalls............ S-19
Non-AP Percentage............................. S-20
Non-AP Pool Balance........................... S-21
Non-AP Senior Certificates.................... S-14
Non-Discount Mortgage Loan.................... S-20
Nonresidents.................................. S-66
Notice........................................ S-61
Notional Amount............................... S-19
Offered Subordinate Certificates.............. S-14
S-70
<PAGE>
DEFINED TERMS PAGE
- ---------------------------------------------- ----
Offered Certificates.......................... S-14
OID........................................... S-64
OID Regulations............................... S-64
Original Credit Support Percentage............ S-18
Original Subordinate Amount................... S-21
Originators................................... S-43
Owner......................................... S-62
Participant................................... S-15
Penalty Period................................ S-34
Plans......................................... S-68
Preference Amount............................. S-62
Prepayment Interest Excess.................... S-19
Prepayment Interest Shortfall................. S-19
Prepayment Penalty Amount..................... S-34
Prepayment Period............................. S-23
Principal Prepayments......................... S-23
PSA........................................... S-55
RAMP Prepayment Assumption.................... S-55
Rating Agencies............................... S-68
Realized Loss................................. S-29
Record Date................................... S-14
Relief Act.................................... S-18
Relief Act Reduction.......................... S-18
REMIC Regulations............................. S-65
Reserve Fund.................................. S-19
Residual Certificate.......................... S-15
Restricted Classes............................ S-18
Retail Certificates........................... S-24
Retained Interest............................. S-32
Retained Interest Rate........................ S-32
Rounding Account.............................. S-24
Rules......................................... S-15
S&P........................................... S-68
Sale Agreement................................ S-50
Sale and Assignment Agreement................. S-51
Sale Date..................................... S-50
SAP........................................... S-63
DEFINED TERMS PAGE
- ---------------------------------------------- ----
Scheduled Payment............................. S-32
Scheduled Principal Balance................... S-20
Seller........................................ S-32
Senior Certificates........................... S-14
Senior Percentage............................. S-21
Senior Prepayment Percentage.................. S-21
Senior Principal Distribution Amount.......... S-20
Servicer...................................... S-47
Servicer Remittance Date...................... S-23
Servicing Agreement........................... S-47
Servicing Fee................................. S-47
Servicing Fee Rate............................ S-47
Small Business Act............................ S-65
SMMEA......................................... S-67
Special Hazard Loss Limit..................... S-30
Special Hazard Losses......................... S-30
Subordinate Amount............................ S-22
Subordinate Certificates...................... S-14
Subordinate Class Percentage.................. S-22
Subordinate Percentage........................ S-23
Subordinate Prepayment Percentage............. S-23
Subordinate Principal Distribution Amount..... S-22
Systems....................................... S-16
Tax Counsel................................... S-64
Transferor.................................... S-50
Trust Agreement............................... S-49
Trust Fund.................................... S-14
Trust Rate.................................... S-32
Trustee....................................... S-32
Trustee Fee................................... S-32
Trustee Fee Rate.............................. S-32
Underwriter................................... S-67
Underwriting Agreement........................ S-67
Underwriting Guidelines....................... S-43
Year 2000 Problems............................ S-16
S-71
<PAGE>
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<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.'
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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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$357,803,847
(APPROXIMATE)
STRUCTURED ASSET
SECURITIES CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-ALS2
ALS LOGO
AURORA LOAN SERVICES, INC.
MASTER SERVICER
---------------------------------------
PROSPECTUS SUPPLEMENT
May 14, 1999
---------------------------------------
LEHMAN BROTHERS
EDWARD D. JONES & CO., L.P.
