<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 19, 1997)
$102,200,847
OCWEN MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 1997-OFS2
MERRILL LYNCH MORTGAGE INVESTORS, INC.
DEPOSITOR
LMAC, INC.
[LOGO] MORTGAGE LOAN SELLER
OCWEN FEDERAL BANK FSB
MASTER SERVICER
The Series 1997-OFS2 Certificates will consist of three classes of
certificates (collectively, the 'Certificates'), designated as (i) the Class A
Certificates (the 'Class A Certificates'), (ii) the Class X Certificates (the
'Class X Certificates') and (iii) the Class R Certificates (the 'Residual
Certificates'). The rights of the holders of the Class X Certificates and the
Residual Certificates to receive distributions with respect to the Mortgage
Loans will be subordinate to the rights of the holders of the Class A
Certificates to the extent described herein and in the Prospectus. Only the
Class A Certificates are offered hereby.
Distributions on the Class A Certificates will be made on the 25th day of
each month or, if such day is not a business day, on the next succeeding
business day, beginning in October 1997 (each, a 'Distribution Date'). As
described more fully herein, interest payable with respect to each Distribution
Date will accrue on the Class A Certificates during the period commencing on the
immediately preceding Distribution Date (or, in the case of the first period,
commencing on the Closing Date) and ending on the day preceding the current
Distribution Date. Interest will be calculated, in the case of the Class A
Certificates, on the basis of a 360-day year and the actual number of days in
the applicable accrual period, and will be based on the then-outstanding
Certificate Principal Balance of the Class A Certificates and the
then-applicable Pass-Through Rate thereon, as reduced by certain interest
shortfalls.
On or before the date of issuance of the Certificates, the Depositor will
obtain from Financial Security Assurance Inc. (the 'Certificate Insurer') a
Financial Guaranty Insurance Policy relating to the Class A Certificates (the
'Policy') in favor of the Trustee. The Policy will provide coverage of the
ultimate principal amount of, and interest due on, the Class A Certificates
pursuant to the terms of the Policy.
(cover continued on next page)
[Logo]
PROCEEDS OF THE ASSETS IN THE TRUST FUND AND PROCEEDS FROM THE POLICY ARE THE
SOLE SOURCE OF PAYMENTS ON THE CLASS A CERTIFICATES. THE CERTIFICATES DO NOT
REPRESENT AN OBLIGATION OF OR INTEREST IN THE DEPOSITOR, THE
MORTGAGE LOAN SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF
THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE
UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER 'RISK
FACTORS' BEGINNING ON PAGE S-17 OF THIS PROSPECTUS SUPPLEMENT.
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE PASS-THROUGH PRICE TO UNDERWRITING PROCEEDS TO
CLASS PRINCIPAL BALANCE RATE PUBLIC DISCOUNT DEPOSITOR(1)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Per Class A Certificate............. $102,200,847 Variable 100% 0.29% 99.71%
=================================================================================================================================
</TABLE>
(1) Before deducting expenses payable by the Depositor estimated to be $300,000.
-------------------
The Class A Certificates are offered subject to prior sale, when, as and if
issued by the Trust Fund and accepted by the Underwriter and subject to its
right to reject orders in whole or in part. It is expected that delivery of the
Class A Certificates will be made in book-entry form only through the Same-Day
Funds Settlement System of The Depository Trust Company, CEDEL S.A. and the
Euroclear System against payment therefor in immediately available funds in New
York, New York on or about September 25, 1997.
------------------------
MERRILL LYNCH & CO.
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 11, 1997.
<PAGE>
<PAGE>
(cover continued)
The Pass-Through Rate on the Class A Certificates is adjustable and will be
calculated for each Distribution Date as described herein. The Pass-Through Rate
for the first Distribution Date will be determined on the second business day
preceding the Closing Date. Distributions in respect of principal of the Class A
Certificates will be made as described herein under 'Description of the
Certificates -- Principal Distributions on the Class A Certificates.'
It is a condition of the issuance of the Class A Certificates that they be
rated 'AAA' by Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies, Inc. ('Standard & Poor's'), and 'Aaa' by Moody's Investors Service,
Inc. ('Moody's').
The Certificates represent in the aggregate the entire beneficial ownership
interest in a Trust Fund (the 'Trust Fund') consisting primarily of a segregated
pool (the 'Mortgage Pool') of conventional, one- to four-family, first lien
mortgage loans having original terms to maturity ranging from 15 years to 30
years (the 'Mortgage Loans'). The Mortgage Loans were originated or acquired by
Ocwen Financial Services, Inc. (the 'Originator') in the ordinary course of its
business. LMAC, Inc. (the 'Mortgage Loan Seller'), a wholly-owned finance
subsidiary of Ocwen Financial Services, Inc., will acquire the Mortgage Loans
from Ocwen Financial Services, Inc. in a transaction contemporaneous with the
transfer of the Mortgage Loans by the Mortgage Loan Seller to the Depositor. The
Depositor will acquire the Mortgage Loans from the Mortgage Loan Seller pursuant
to a Mortgage Loan Purchase Agreement. The Trust Fund will be created pursuant
to a Pooling and Servicing Agreement, dated as of September 1, 1997 (the
'Agreement'), among the Depositor, Ocwen Federal Bank FSB, as Master Servicer,
and Texas Commerce Bank National Association, as Trustee. The Mortgage Pool
consists of fixed-rate Mortgage Loans ('Fixed Rate Mortgage Loans') having an
aggregate principal balance as of September 1, 1997 (the 'Cut-off Date'), after
application of scheduled payments due on or prior to the Cut-off Date whether or
not received, of approximately $13,751,068, and adjustable-rate Mortgage Loans
('Adjustable Rate Mortgage Loans') having an aggregate principal balance as of
the Cut-off Date, after application of scheduled payments due on or prior to the
Cut-off Date whether or not received, of approximately $88,449,778, in each case
subject to a permitted variance as described herein under 'The Mortgage Pool.'
Each Adjustable Rate Mortgage Loan provides for semiannual adjustment to the
Mortgage Rate thereon based on six-month London interbank offered rates for
United States dollar deposits (the 'Index') and for corresponding adjustments to
the monthly payment amount due thereon, in each case subject to the limitations
described herein; provided that in the case of 9.3% of the Adjustable Rate
Mortgage Loans, the first adjustment for such Mortgage Loan will occur after an
initial period of one year following origination, in the case of 73.2% of the
Adjustable Rate Mortgage Loans, two years following origination, in the case of
0.8% of the Adjustable Rate Mortgage Loans, three years following origination,
and in the case of 0.4% of the Adjustable Rate Mortgage Loans, five years
following origination, each by aggregate principal balance of the Adjustable
Rate Mortgage Loans as of the Cut-off Date. The Class A Certificates will
initially have an aggregate Certificate Principal Balance equal to the sum of
the aggregate principal balances as of the Cut-off Date of the Mortgage Loans.
The Class A Certificates initially will be represented by certificates
registered in the name of CEDE & Co., as nominee of The Depository Trust Company
('DTC'). The interests of beneficial owners of the Class A Certificates will be
represented by book entries on the records of participating members of DTC.
CEDEL and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in CEDEL's and Euroclear's name on the
books of their respective depositories which in turn will hold such positions in
customers' securities accounts in the depositories' names on the books of DTC.
Definitive Certificates will be available for the Class A Certificates only
under the limited circumstances described herein. See 'Description of the
Certificates -- Registration of the Class A Certificates' herein.
THE YIELD TO MATURITY ON THE CLASS A CERTIFICATES WILL BE SENSITIVE TO THE
RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
REPURCHASES) AND TO ADJUSTMENTS TO THE MORTGAGE RATES ON THE ADJUSTABLE RATE
MORTGAGE LOANS. THE MORTGAGE LOANS GENERALLY MAY BE PREPAID IN FULL OR IN PART
AT ANY TIME; HOWEVER, WITH RESPECT TO A MAJORITY OF THE MORTGAGE LOANS, A
PREPAYMENT MAY SUBJECT THE RELATED MORTGAGOR TO A PREPAYMENT CHARGE. SHORTFALLS
IN INTEREST COLLECTED ON THE MORTGAGE LOANS DUE TO PREPAYMENTS WILL BE OFFSET BY
THE MASTER SERVICER TO THE EXTENT DESCRIBED HEREIN. SEE 'SUMMARY OF PROSPECTUS
SUPPLEMENT -- SPECIAL PREPAYMENT CONSIDERATIONS' AND ' -- SPECIAL YIELD
CONSIDERATIONS' AND 'YIELD ON THE CERTIFICATES' HEREIN.
As described herein, the Trust Fund will include three segregated asset
pools, with respect to which elections will be made to treat each as a separate
'real estate mortgage investment conduit' (a 'REMIC') for federal income tax
purposes. The segregated pool comprised of the Mortgage Loans, all monies
received on the Mortgage Loans after the Cut-off Date and any amounts on deposit
in the Collection Account and Distribution Account from time to time shall be
designated as a REMIC (the 'First Tier REMIC'), the segregated pool of assets
consisting of the regular interests in the First Tier REMIC shall be designated
as a separate REMIC (the 'Second Tier REMIC') and the segregated pool of assets
consisting of the regular interests in the Second Tier REMIC shall be designated
as a separate REMIC (the 'Master REMIC'). The Class A Certificates and the Class
X Certificates will constitute 'regular interests' in the Master REMIC as
described herein. For a description of certain tax consequences of owning the
Class A Certificates, including, without limitation, original issue discount,
see 'Federal Income Tax Consequences' herein and the Prospectus.
Prior to their issuance, there has been no market for the Class A
Certificates. There is no assurance that a market for the Class A Certificates
will develop or, if it does develop, that it will provide the Certificateholders
with liquidity or will continue for the life of the Class A Certificates. The
Underwriter intends, but is not obligated, to make a market in the Class A
Certificates. See 'Risk Factors' herein.
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<PAGE>
As provided herein under "The Insurer,Incorporation of Certain Documents by
Reference", the Depositor will provide without charge to any person to whom this
Prospectus Supplement is delivered, upon oral or written request of such person,
a copy of any or all financial statements incorporated herein by reference.
Requests for such copies should be directed as provided under "The
Insurer, Incorporation of Certain Documents by Reference" herein.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A
Certificates. Such transactions may include stabilizing. For a description of
these activities, see "Method of Distribution."
THE CLASS A CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL
CONSTITUTE A PORTION OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE
DEPOSITOR AND ARE BEING OFFERED PURSUANT TO ITS PROSPECTUS DATED JUNE 19, 1997,
OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS
PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING
THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED
TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE
CLASS A CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED
BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Depositor or the
Underwriter will promptly deliver, or cause to be delivered, without charge, a
paper copy of the Prospectus Supplement and Prospectus.
-----------------------------
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in the
Prospectus Supplement and the accompanying Prospectus in connection with the
offer contained in the Prospectus Supplement and the accompanying Prospectus,
and, if given, such information or representations must not be relied upon as
having been authorized by the Issuer, the Depositor or the Underwriter. This
Prospectus Supplement and the accompanying Prospectus shall not constitute and
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. The delivery of the Prospectus
Supplement and the accompanying Prospectus at any time does not imply that the
information herein is correct as of any time subsequent to the date hereof.
S-3
<PAGE>
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Prospectus. An Index of Principal Definitions is included at the
end of the Prospectus.
Title of Series............. Ocwen Mortgage Loan Asset Backed Certificates,
Series 1997- OFS2 (the "Certificates").
The Certificates represent in the aggregate the
entire beneficial ownership interest in a Trust
Fund (the "Trust Fund") consisting primarily of a
segregated pool (the "Mortgage Pool") of
conventional one- to four-family, first lien
mortgage loans (the "Mortgage Loans"). The
Mortgage Pool consists of fixed-rate Mortgage
Loans (the "Fixed Rate Mortgage Loans") having an
aggregate principal balance as of September 1,
1997 (the "Cut-off Date"), after application of
scheduled payments due on or prior to the Cut-off
Date whether or not received, of approximately
$13,751,068, and adjustable-rate Mortgage Loans
(the "Adjustable Rate Mortgage Loans") having an
aggregate principal balance as of the Cut-off
Date, after application of scheduled payments due
on or prior to the Cut-off Date whether or not
received, of approximately $88,449,778, in each
case subject to a permitted variance as described
herein under "The Mortgage Pool." The Certificates
will consist of three classes of certificates,
designated as (i) the Class A Certificates (the
"Class A Certificates"), (ii) the Class X
Certificates (the "Class X Certificates") and
(iii) the Class R-1, Class R-2 and Class R-3
Certificates (together, the "Class R Certificates"
or the "Residual Certificates").
Only the Class A Certificates are offered hereby.
The Certificates will be issued pursuant to a
Pooling and Servicing Agreement, to be dated as of
September 1, 1997 (the "Agreement"), among the
Depositor, the Master Servicer and the Trustee.
Offered Certificates........ The Class A Certificates will have an approximate
aggregate initial Certificate Principal Balance of
approximately $102,200,847. The Pass-Through Rate
on the Class A Certificates is adjustable and is
calculated as described under " -- Pass-Through
Rate" herein. The Class A Certificates in the
aggregate initially evidence an interest of 100%
in the principal of the Trust Fund. The Class A
Certificates will initially have an aggregate
Certificate Principal Balance equal to the
aggregate principal balance of the Mortgage Loans.
Subordinated Certificates... The Class X Certificates and the Class R
Certificates (the Subordinated Certificates") are
not offered hereby. Such Certificates initially
will be held by the Mortgage Loan Seller.
Cut-off Date................ September 1, 1997.
Closing Date................ On or about September 25, 1997.
Final Maturity Date......... September 25, 2027.
S-4
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<PAGE>
Depositor of Mortgage Loans. Merrill Lynch Mortgage Investors, Inc., a Delaware
corporation and a wholly-owned, limited purpose
subsidiary of Merrill Lynch Mortgage Capital Inc.,
which is a wholly owned indirect subsidiary of
Merrill Lynch & Co., Inc. The Depositor is an
affiliate of the Underwriter. Neither Merrill
Lynch & Co., Inc. nor any of its affiliates,
including the Depositor and the Underwriter, has
insured or guaranteed the Certificates or the
Mortgage Loans or is otherwise obligated in
respect thereof. See "The Depositor" in the
Prospectus.
Mortgage Loan Seller........ LMAC, Inc, a wholly-owned, limited purpose finance
subsidiary of Ocwen Financial Services, Inc. Ocwen
Financial Services, Inc. is a subsidiary of Ocwen
Financial Corporation. See "The Mortgage
Pool -- Underwriting Standards; Representations"
and "Pooling and Servicing Agreement -- The Master
Servicer" herein.
Master Servicer............. Ocwen Federal Bank FSB, a federally chartered
savings bank. See "The Mortgage Pool
-- Underwriting Standards; Representations" and
"Pooling and Servicing Agreement -- The Master
Servicer" herein.
Trustee..................... Texas Commerce Bank National Association, a
national banking association. See "Pooling and
Servicing Agreement -- The Trustee" herein.
The Mortgage Pool
General.................. The Mortgage Pool will consist of approximately
910 conventional, one- to four-family, fixed-rate
and adjustable-rate Mortgage Loans secured by
first liens on residential real properties (the
"Mortgaged Properties"). The Mortgage Loans have
original terms to maturity ranging from 15 years
to 30 years. The Mortgage Pool consists of both
Fixed Rate Mortgage Loans and Adjustable Rate
Mortgage Loans.
Approximately 164 of the mortgage loans are Fixed
Rate Mortgage Loans having an aggregate principal
balance as of the Cut-off Date, after application
of scheduled payments due on or prior to the
Cutoff Date whether or not received, of
approximately $13,751,068, subject to a permitted
variance of plus or minus 5%. The Fixed Rate
Mortgage Loans have annualized rates at which such
Mortgage Loans bear interest ("Mortgage Rates")
that are fixed and range from 8.000% per annum to
14.000% per annum, with a weighted average
Mortgage Rate as of the Cut-off Date of
approximately 10.433% per annum. As of the Cut-off
Date, the Fixed Rate Mortgage Loans will have a
weighted average remaining term to maturity of
approximately 27 years and 3 months.
Approximately 746 of the Mortgage Loans are
Adjustable Rate Mortgage Loans having an aggregate
principal balance as of the Cut-off Date, after
application of scheduled payments due on or prior
to the Cut-off Date whether or not received, of
approximately $88,449,778, subject to a permitted
variance of plus or minus 5%.
S-5
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Each Adjustable Rate Mortgage Loan provides for
semi-annual adjustment to the Mortgage Rate
thereon and for corresponding adjustments to the
monthly payment amount due thereon, in each case
on each adjustment date applicable thereto (each
such date, an "Adjustment Date"); provided that in
the case of 9.3% of the Adjustable Rate Mortgage
Loans, the first adjustment for such Mortgage Loan
will occur after an initial period of one year
following origination, in the case of 73.2% of the
Mortgage Loans, two years following origination,
in the case of 0.8% of the Mortgage Loans, three
years following origination, and in the case of
0.4% of the Mortgage Loans, five years following
origination, each by aggregate principal balance
of the Adjustable Rate Mortgage Loans as of the
Cut-off Date (each such Mortgage Loan described in
the preceding proviso, a "Delayed First Adjustment
Mortgage Loan"). On each Adjustment Date for each
Adjustable Rate Mortgage Loan, the Mortgage Rate
thereon will be adjusted to equal the sum, rounded
to the nearest multiple of 0.125%, of the Index
(as described below) and a fixed percentage amount
(the "Gross Margin"), subject to periodic and
lifetime limitations as described herein. See "The
Mortgage Pool" herein. None of the Adjustable Rate
Mortgage Loans permits the related mortgagor to
convert the adjustable Mortgage Rate thereon to a
fixed Mortgage Rate.
As of the Cut-off Date, the Adjustable Rate
Mortgage Loans have Mortgage Rates ranging from
6.380% per annum to 14.990% per annum, a weighted
average Mortgage Rate of approximately 10.035% per
annum, a weighted average next Adjustment Date in
April 1999, Gross Margins ranging from 3.950% to
7.950% and a weighted average Gross Margin of
approximately 5.905%. As of the Cut-off Date, the
Adjustable Rate Mortgage Loans will have a
weighted average remaining term to maturity of
approximately 29 years and 11 months.
Seven of the Fixed Rate Mortgage Loans, comprising
approximately 0.69% of the Mortgage Loans by
aggregate principal balance as of the Cut-off
Date, are Balloon Mortgage Loans. See "The
Mortgage Pool" herein.
The Index................... As of any Adjustment Date, the Index applicable to
the determination of the Mortgage Rate on each
Adjustable Rate Mortgage Loan will be the average
of the interbank offered rates for six-month
United States dollar deposits in the London market
as published in The Wall Street Journal and as
most recently available either (i) as of the first
business day 45 days prior to such Adjustment Date
or (ii) as of the first business day of the month
preceding the month of such Adjustment Date, as
specified in the related Mortgage Note. See "The
Mortgage Pool - The Index" herein.
Registration of Offered
Certificates.............. Holders of the Class A Certificates may elect to
hold their Class A Certificate interests through
The Depository Trust Company ("DTC"), in the
United States, or CEDEL S.A. ("CEDEL") or the
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<PAGE>
Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as the
case may be, will be in accordance with the usual
rules and operating procedures of the relevant
system. Cross-market transfers between persons
holding directly or indirectly through DTC, on the
one hand, and counterparties holding directly or
indirectly through CEDEL or Euroclear, on the
other, will be effected in DTC through Citibank,
N.A. or The Chase Manhattan Bank, the relevant
depositaries (collectively, the "Depositaries") of
CEDEL or Euroclear, respectively, and each a
participating member of DTC. The Class A
Certificates will be initially registered in the
name of CEDE & Co., the nominee of DTC. The
interests of the Class A Certificateholders will
be represented by book-entries on the records of
DTC, its Participants and Indirect Participants
for the benefit of the Class A Certificate Owners.
Certificates representing the Class A Certificates
will be issued in definitive form only under the
limited circumstances described in the Prospectus.
In the case of the Class A Certificates, all
references herein to "Holders" or
"Certificateholders" shall reflect the rights of
Certificate Owners as they may indirectly exercise
such rights through DTC, CEDEL, Euroclear and
participating members thereof, except as otherwise
specified herein.
Pass-Through Rate........... The Pass-Through Rate on the Class A Certificates
on each Distribution Date after the first
Distribution Date will be a rate per annum equal
to the lesser of (i) One-Month LIBOR (as defined
herein) plus 0.21%, in the case of each
Distribution Date through and including the
Distribution Date on which the aggregate principal
balance of the Mortgage Loans is reduced to 10% or
less of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, or
One-Month LIBOR plus 0.42% per annum, in the case
of any Distribution Date thereafter and (ii) the
weighted average of the Mortgage Rates on the
Mortgage Loans as of the first day of the related
Collection Period, less the Aggregate Expense Rate
(the "Adjusted WAC Rate"). The "Aggregate Expense
Rate" equals the sum of (a) the Servicing Fee
Rate, (b) the Trustee Fee Rate, (c) the Insurance
Premium Rate and (d) commencing on the sixth
Distribution Date, 0.75% per annum. The sum of the
Servicing Fee Rate, the Trustee Fee Rate and the
Insurance Premium Rate will be approximately 0.71%
per annum. For the first Distribution Date, the
Pass-Through Rate on the Class A Certificates will
be set two business days prior to the Closing
Date.
As further described herein, with respect to any
Distribution Date, to the extent that (a) the
amount payable if clause (i) of the definition of
Pass-Through Rate above is used to calculate
interest exceeds (b) the Adjusted WAC Rate without
giving effect to clause (d) in the preceding
paragraph (the "Basis Risk Shortfall"), the
holders of the Class A Certificates will be
entitled to the amount of such Basis Risk
Shortfall with interest thereon at the
Pass-Through Rate for such Certificates applicable
from time to time after certain distributions to
the Insurer from a reserve fund (the "Basis Risk
Reserve Fund") established pursuant to an
agreement (the "Interest Rate Cap Agreement")
entered into by the Mortgage Loan Seller
S-7
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<PAGE>
which is secured by the Class X Certificates and
payments thereon. Notwithstanding the preceding
sentence, the amount of the Basis Risk Shortfall
for any Distribution Date may not exceed the
excess of (x) the amount payable at the Maximum
Class A Pass-Through Rate over (y) the amount
payable at the Adjusted WAC Rate. The "Unpaid
Basis Risk Shortfall" for the Class A Certificates
on any Distribution Date is equal to the aggregate
of all Basis Risk Shortfalls for any previous
Distribution Dates, together with interest thereon
at the Pass-Through Rate, less all payments made
to the holders of the Class A Certificates in
respect of such Basis Risk Shortfalls on or prior
to such Distribution Date.
The "Maximum Class A Pass-Through Rate" for any
Distribution Date is a per annum rate equal to (i)
the weighted average of the Mortgage Rates on the
Fixed Rate Mortgage Loans and the Maximum Mortgage
Rates (as defined herein) on the Adjustable Rate
Mortgage Loans less (ii) the Aggregate Expense
Rate.
Distributions, General...... The Collection Period with respect to any
Distribution Date is the calendar month
immediately preceding the month in which such
Distribution Date occurs. The Determination Date
with respect to any Distribution Date is on the
15th day of the month in which such Distribution
Date occurs or, if such day is not a business day,
then on the immediately preceding business day.
The Interest Accrual Period for any Distribution
Date and the Class A Certificates is the period
commencing on the preceding Distribution Date (or,
in the case of the first period, commencing on the
Closing Date) and ending on the day immediately
preceding the current Distribution Date, and all
distributions of interest on the Class A
Certificates will be based on a 360-day year and
the actual number of days in the applicable
Interest Accrual Period. See "Description of the
Certificates" herein.
Interest Distributions...... On each Distribution Date, holders of the Class A
Certificates will be entitled to receive interest
distributions (the "Interest Distribution Amount")
in an amount equal to interest accrued during the
related Interest Accrual Period on the Certificate
Principal Balance thereof at the then-applicable
Pass-Through Rate, subject to reduction only in
the event of shortfalls caused by the Relief Act
(as defined herein). Notwithstanding the
foregoing, if payments were not made as required
under the Policy, additional interest shortfalls
may be allocated to the Class A Certificates, as
described herein. See "Description of the
Certificates -- Interest Distributions" herein.
Principal Distributions Holders of the Class A
Certificates will be entitled to receive on each
Distribution Date an amount equal to the Principal
Distribution Amount (as defined herein). The
Principal Distribution Amount will include, to the
extent of available funds from the Mortgage Pool
and except as otherwise described herein, the
principal portion of all scheduled monthly
payments on the Mortgage Loans due during the
related Due Period to the extent received or
advanced by the Master Servicer, all unscheduled
amounts received in respect of the Mortgage Loans
during the related Prepayment Period that are
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allocable to principal (including proceeds of
repurchases, prepayments, liquidations and
insurance (excluding payments made under the
Policy) and shortfalls relating to substitution)
and certain other amounts described herein
allocable to Realized Losses on the Mortgage Loans
incurred during the related Collection Period, and
will be adjusted as a result of the related
required level of subordination, all as described
herein. The "Due Period" with respect to any
Disribution Date is the period commencing on the
second day of the month preceding the month in
which such Distribution Date occurs and ending on
the first day of the month in which such
Distribution Date occurs. The "Prepayment Period"
with respect to any Distribution Date is the
period commencing on the 16th day of the month
preceding the month in which such Distribution
Date occurs (or, in the case of the first
Distribution Date, the day following the Cut-off
Date) and ending on the 15th day of the month in
which such Distribution Date occurs.
In addition, on each Distribution Date, funds
received as a result of a claim under the Policy
in respect of the principal portion of Realized
Losses allocated to the Class A Certificates will
be distributed by or on behalf of the Trustee to
the holders of the Class A Certificates. See
"Description of the Certificates -- Financial
Guaranty Insurance Policy" herein.
The Certificate Principal Balance of a Class A
Certificate as of any date of determination is
equal to the initial Certificate Principal Balance
thereof, reduced by the aggregate of (a) all
amounts allocable to principal previously
distributed with respect to such Certificate and
(b) any reductions in the Certificate Principal
Balance thereof deemed to have occurred in
connection with the allocation of Realized Losses
in the manner described herein.
The subordination and cash flow provisions of the
Subordinated Certificates will, to the extent of
available funds, result in a limited acceleration
of the principal payments to the holders of the
Class A Certificates to the extent the amount of
overcollateralization provided by the Mortgage
Pool is less than the then current related
required amount. As of the Closing Date, the
aggregate Certificate Principal Balance of the
Class A Certificates will equal the aggregate
principal balance as of the Cut-off Date of the
Mortgage Loans, and therefore as of the Closing
Date, the amount of overcollateralization provided
by the Mortgage Pool will be zero, which is less
than the required levels. The subordination
provisions are more fully described under
" -- Credit Enhancement" below and "Description of
the Certificates -- Overcollateralization
Provisions" herein. Such subordination provisions
may have the effect of shortening the weighted
average life of the Class A Certificates by
increasing the rate at which principal is
distributed to the Class A Certificateholders.
Credit Enhancement.......... The Credit Enhancement provided for the benefit of
the Class A Certificateholders consists of the
overcollateralization and the Policy, each as
described below and herein.
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Overcollateralization: As described above, as of
the Closing Date, the aggregate Certificate
Principal Balance of the Class A Certificates will
equal the aggregate principal balance as of the
Cut-off Date of the Mortgage Loans, and therefore
as of the Closing Date, the amount of
overcollateralization provided by the Mortgage
Pool will be zero. However, the required level of
overcollateralization for the Mortgage Pool is a
level at which the principal balance of the
Mortgage Loans would exceed the aggregate
Certificate Principal Balance of the Class A
Certificates by an amount equal to approximately
3.0% of the aggregate principal balance of the
Mortgage Loans as of the Cutoff Date. Until the
actual level of overcollateralization for the
Mortgage Pool increases to the required level, to
the extent of available funds, a temporary period
of accelerated amortization of the Class A
Certificates will occur.
The Agreement provides that, subject to certain
trigger tests set forth therein, the required
level of overcollateralization for the Mortgage
Pool may increase or decrease over time. An
increase would result in a further temporary
period of accelerated amortization of the Class A
Certificates to increase the actual level of
overcollateralization to its increased required
level; a decrease would result in a temporary
period of decelerated amortization of the Class A
Certificates to achieve an actual level of
overcollateralization equal to its decreased
required level. See "Description of the
Certificates -- Overcollateralization Provisions"
herein.
The Financial Guaranty Insurance Policy: The Class
A Certificates will be entitled to the benefit of
a certificate guaranty insurance policy (the
"Policy") to be issued by Financial Security
Assurance Inc. (the "Insurer"), discussed more
fully under " -- Financial Guaranty Insurance
Policy" below. See also "Description of the
Certificates" herein.
Financial Guaranty Insurance
Policy.................... The Insurer will issue the Policy as a means of
providing additional credit enhancement to the
Class A Certificates. Under the Policy, the
Insurer will irrevocably and unconditionally
guarantee payment to the Trustee, for the benefit
of the holders of the Class A Certificates, on
each Distribution Date, as further described
herein, of an amount that will cover any interest
shortfalls (including Prepayment Interest
Shortfalls but excluding shortfalls in respect of
the Relief Act, Basis Risk Shortfalls and Unpaid
Basis Risk Shortfalls) allocated to the Class A
Certificates plus the principal portion of any
Realized Losses allocated to the Class A
Certificates. A payment by the Insurer under the
Policy is referred to herein as an "Insured
Payment." The Policy does not guarantee the
holders of the Class A Certificates any specified
rate of principal payments. See "Description of
the Certificates -- Financial Guaranty Insurance
Policy" herein.
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Allocation of Losses;
Subordination............. Except as otherwise described herein, Realized
Losses on the Mortgage Loans will be allocated
first to the Net Monthly Excess Cashflow (as
defined herein), second in reduction of
overcollateralization, if any, until the principal
balance of the Mortgage Loans equals the
Certificate Principal Balance, and third to the
Class A Certificates, in each case to the extent
described in "Description of the Certificates
-- Allocation of Losses; Subordination"
herein. Subject to the terms of the Policy, all
Realized Losses allocated to the Class A
Certificates will be covered by the Policy. See
"Description of the Certificates -- Financial
Guaranty Insurance Policy" herein.
Neither the Class A Certificates nor the Mortgage
Loans are insured or guaranteed by any
governmental agency or instrumentality or by the
Depositor, the Master Servicer, the Trustee or any
of their respective affiliates.
Monthly Advances;
Compensating Interest..... The Master Servicer will be obligated to make
Monthly Advances only to the extent that such
Monthly Advances, in the Master Servicer's
reasonable judgment, are recoverable from the
related Mortgage Loan. Monthly Advances are
recoverable from collections on the Mortgages
Loans with respect to the related Loan Group or
from Net Monthly Excess Cashflow. Monthly Advances
will equal, on any Distribution Date (A) scheduled
interest on the Mortgage Loans due and payable
during the related Due Period but uncollected as
of the related Determination Date (net of the
Servicing Fee) and (B) principal due and payable
on the Mortgage Loans during the related Due
Period but uncollected as of the related
Determination Date, other than a Balloon Payment.
See " Description of the Certificates -- Monthly
Advances" herein.
In addition, the Master Servicer will also be
required to pay Compensating Interest with respect
to any prepayment received on a Mortgage Loan
during the related Prepayment Period as described
herein under "Pooling and Servicing Agreement --
Servicing and Other Compensation and Payment of
Expenses." The Master Servicer will not be
required to pay Compensating Interest with respect
to any Distribution Date in an amount in excess of
one-half the Servicing Fee received by the Master
Servicer for such Distribution Date.
Record Date................. The Record Date for each Distribution Date will be
the close of business on the last business day of
the month preceding the month in which such
Distribution Date occurs. See "Description of the
Certificates -- General" herein.
Optional Termination........ At its option, the majority holder of the Residual
Certificates (or if such holder does not exercise
such option, the Master Servicer or the Insurer)
may purchase all of the Mortgage Loans, together
with any properties in respect thereof acquired by
the Trustee, and
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thereby effect termination and early retirement of
the Certificates, on any Distribution Date on
which the aggregate principal balance of the
Mortgage Loans and such properties remaining is
10% or less of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date. In the
event the majority holder of the Residual
Certificates or the Master Servicer or the Insurer
exercises such option, the purchase price payable
in connection therewith generally will be equal to
par plus accrued interest for each Mortgage Loan
at the related Mortgage Rate to but not including
the first day of the month in which such
repurchase price is distributed, together with any
amounts due to the Master Servicer for servicing
compensation at the related Servicing Fee Rate. In
the event the holder of the Residual Certificates
or the Master Servicer or the Insurer exercises
such option, the portion of the purchase price
allocable to the Class A Certificates will be, to
the extent of available funds (including funds
paid under the Policy), (i) 100% of the then
outstanding Certificate Principal Balance thereof,
plus (ii) one month's interest on the then
outstanding Certificate Principal Balance thereof
at the then applicable Pass-Through Rate, plus
(iii) any previously accrued but unpaid interest
thereon. See "Pooling and Servicing
Agreement -- Termination" herein and "Description
of the Certificates -- Termination" in the
Prospectus.
Special Prepayment
Considerations............ The rate and timing of distributions allocable to
principal on the Class A Certificates will depend,
in general, on the rate and timing of principal
payments (including prepayments and collections
upon defaults, liquidations and repurchases) on
the Mortgage Loans and the allocation thereof to
pay principal on the Class A Certificates as
provided herein. As is the case with mortgage
pass-through certificates generally, the Class A
Certificates are subject to substantial inherent
cash-flow uncertainties because the related
Mortgage Loans may be prepaid at any time;
however, with respect to a majority of the
Mortgage Loans, a prepayment may subject the
related mortgagor to a prepayment charge. See "The
Mortgage Pool" herein.
Generally, when prevailing interest rates are
increasing, prepayment rates on mortgage loans
tend to decrease; a decrease in the prepayment
rates on the Mortgage Loans will result in a
reduced rate of return of principal to investors
in the Class A Certificates at a time when
reinvestment at such higher prevailing rates would
be desirable. Conversely, when prevailing interest
rates are declining, prepayment rates on mortgage
loans tend to increase; an increase in the
prepayment rates on the Mortgage Loans will result
in a greater rate of return of principal to
investors in the Class A Certificates at a time
when reinvestment at comparable yields may not be
possible.
Special Yield Considerations. The yield to maturity on the Class A Certificates
will depend, in general, on (i) the Pass-Through
Rate, (ii) the purchase price and (iii) the rate
and timing of principal payments (including
payments by the Insurer, prepayments and
collections upon defaults,
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liquidations and repurchases) on the Mortgage
Loans and the application thereof to reduce the
Certificate Principal Balance of the Class A
Certificates, as well as other factors.
The yield to investors in the Class A Certificates
will be adversely affected by any allocation
thereto of any interest shortfalls not covered by
the Insurer.
In general, if the Class A Certificates are
purchased at a premium and principal distributions
thereon occur at a rate faster than anticipated at
the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the
time of purchase. Conversely, if the Class A
Certificates are purchased at a discount and
principal distributions thereon occur at a rate
slower than that assumed at the time of purchase,
the investor's actual yield to maturity will be
lower than that originally anticipated.
The proceeds to the Depositor from the sale of the
Class A Certificates were determined based on a
number of assumptions, including a prepayment
assumption of 100% of the Prepayment Vector (as
defined herein), in the case of the Fixed Rate
Mortgage Loans, or 25% CPR (as defined herein), in
the case of the Adjustable Rate Mortgage Loans,
and weighted average lives corresponding thereto.
No representation is made that the Mortgage Loans
will prepay at either such rate or at any other
rate, or that the Fixed Rate Mortgage Loans and
Adjustable Rate Mortgage Loans will prepay at the
same rate. The yield assumptions for the Class A
Certificates will vary as determined at the time
of sale.
Certain Federal Income Tax
Consequences.............. Elections will be made to treat the assets of the
Trust Fund, exclusive of the rights under the
Interest Rate Cap Agreement or payments received
thereunder, as three separate real estate mortgage
investment conduits ("REMICs") for federal income
tax purposes, which shall be identified as the
Master REMIC, the First Tier REMIC and the Second
Tier REMIC. The Class A Certificates and Class X
Certificates will represent the "regular
interests" in the Master REMIC (such regular
interests individually, the "Class A Regular
Interest" or the "Class X Regular Interest," as
applicable, and collectively, the "Master REMIC
Regular Interests"). The Class R-1 Certificates
will be designated as the sole class of "residual
interest" in the Master REMIC, the Class R-2
Certificates will be designated as the sole class
of "residual interest" in the First Tier REMIC,
the Class R-3 Certificates will be designated as
the sole class of "residual interest" in the
Second Tier REMIC, and the Class R-1, the Class
R-2 and Class R-3 Certificates will be Residual
Certificates of the Master REMIC, the First Tier
REMIC and the Second Tier REMIC respectively, as
described in the Prospectus. Upon the issuance of
the Certificates, Brown & Wood LLP, special tax
counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance
with all provisions of the Agreement, for federal
income tax purposes, the Master REMIC, the First
Tier REMIC and the Second Tier REMIC will each
qualify
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as a REMIC under Sections 860A through 860G of the
Internal Revenue Code of 1986 (the "Code").
The Class A Certificates will also represent the
beneficial interest in the right to receive
payments from the Basis Risk Reserve Fund. The
Class A Regular Interests and the Class A
Certificateholders' rights under the Interest Rate
Cap Agreement will constitute assets of the Trust
Fund, which will be treated as a grantor trust for
federal income tax purposes. The portion of the
Trust Fund consisting of the rights under the
Interest Rate Cap Agreement will be treated as an
"outside reserve fund" for purposes of the Code.
Beneficial owners of the Class A Certificates will
be treated for federal income tax purposes as
having purchased an undivided beneficial interest
in the Class A Regular Interest in the Master
REMIC and as having acquired rights under the
Interest Rate Cap Agreement, both to the extent of
the owner's proportionate interest in the Class A
Certificates. The Class A Regular Interests will
be treated as newly originated debt instruments
for federal income tax purposes. A Class A
Certificateholder generally will recognize
ordinary income equal to such Certificateholder's
proportionate share of interest and original issue
discount, if any, accrued on the Class A Regular
Interests and will take into account a
proportionate share of any payments received under
the Interest Rate Cap Agreement. A Class A
Certificateholder's income derived from the Class
A Regular Interest as well as any payments
received under the Interest Rate Cap Agreement
must be reported under the accrual method of
accounting. See "Certain Federal Income Tax
Consequences -- Taxation of Interest Rate Cap
Agreement" herein.
The Class A Regular Interests will be treated as
assets described in Section 7701(a)(19)(C) of the
Code and as "real estate assets, under Section
856(c)(5)(A) of the Code, generally in the same
proportion that the assets in the Trust Fund would
be so treated. In addition, interest on the Class
A Regular Interests will be treated as "interest
on obligations secured by mortgages on real
property" under Section 856(c)(3)(B) of the Code
generally to the extent that the Class A Regular
Interests are treated as "real estate assets"
under Section 856(c)(5)(A) of the Code. Investors
are cautioned that since the Class A Certificates
comprise rights in addition to the rights under
the Class A Regular Interests, the Class A
Certificates will not in their entirety constitute
assets described in section 7701(a)(19) of the
Code or real estate assets described in section
856(c)(5)(A) of the Code, and income earned on the
Class A Regular Certificates will qualify as
"interest on obligations secured by mortgages on
real property" under section 856(c)(3)(B) of the
Code only to the extent that the income reflects
the income so qualifying earned by the Class A
Regular Interests. The Class A Certificates will
not be treated as "qualified mortgages" under
Section 860G(a)(3) of the Code and are not
appropriate investments for other REMICs in their
entirety. See "Certain Federal Income Tax
Consequences--Characterization of Investments in
REMIC Certificates" in the Prospectus.
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If a Class A Certificate is sold, exchanged,
redeemed or retired, the selling Certificateholder
will be required to allocate the amount realized
on such transaction between the interest in the
Class A Regular Interest represented by such Class
A Certificate and the proportionate rights under
the Interest Rate Cap Agreement represented by
such Class A Certificate. The selling Class A
Certificateholder will be required to recognize
gain or loss equal to the difference between the
amount realized on the sale, exchange, redemption,
or retirement allocable to the Certificate's
proportionate interest in the Class A Regular
Interest and such seller's adjusted basis in such
Class A Regular Interest. Except as provided
below, any such gain will be and any such loss may
be capital gain or loss, provided that the Class A
Certificate is held as a "capital asset"
(generally, property held for investment) within
the meaning of Section 1221 of the Code. The
Taxpayer Relief Act of 1997 (the "1997 Act") has
changed the tax rates and holding periods
applicable to net capital gains of noncorporate
taxpayers. In general, under applicable provisions
of the 1997 Act, which are generally effective for
gains realized after July 28, 1997, the maximum
tax rate applicable to net capital gains of
noncorporate taxpayers realized upon the sale of
securities held for 18 months or more is 20
percent, and the maximum tax rate on net capital
gains of noncorporate taxpayers realized upon the
sale of securities for more than one year and for
not more than 18 months is 28 percent. The 1997
Act does not affect the taxation of a
corporation's capital gains. Because the tax rates
and applicable holding periods will vary depending
upon a Class A Certificateholder's individual
circumstances, investors should consult their own
tax advisors regarding the tax consequences to
them of purchasing, holding and selling the Class
A Certficates. Gain from the sale or other
disposition of an interest in a Class A Regular
Interest associated with a Class A Certificate
that might otherwise be a capital gain will be
treated as ordinary income to the extent that such
gain does not exceed the excess, if any, of (i)
the amount that would have been includible in such
holder's income with respect to the Class A
Regular Interest had income accrued thereon at a
rate equal to 110% of the applicable federal rate
as defined in Section 1274(d) of the Code
determined as of the date of purchase of the
related Class A Certificate, over (ii) the amount
actually includible in such holder's income.
Upon a disposition of a Class A Certificate, the
amount allocable to the Interest Rate Cap
Agreement, if any, would be treated as a
termination payment (as described below under
"Certain Federal Income Tax Consequences --
Taxation of Interest Rate Cap Agreement").
For further information regarding the federal
income tax consequences of investing in the Class
A Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
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Ratings..................... It is a condition to the issuance of the
Certificates that the Class A Certificates be
rated "AAA" by Standard & Poor's and "Aaa" by
Moody's. The ratings on the Class A Certificates
are based in part on the ratings of the
claims-paying ability of the Insurer by Standard &
Poor's and Moody's. Any change in the ratings of
the Insurer by Standard & Poor's and Moody's may
result in a change in the ratings on the Class A
Certificates. The Depositor has not requested that
any rating agency rate the Class A Certificates
other than as stated above. If another rating
agency were to rate the Class A Certificates, such
rating agency may assign a rating different from
the ratings described above. A security rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization. A security rating does not address
the frequency of prepayments on the Mortgage Loans
or the corresponding effect on yield to investors.
See "Yield on the Certificates" and "Ratings"
herein and "Yield Considerations" in the
Prospectus.
Legal Investment............ The appropriate characterization of the Class A
Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase the
Class A Certificates, may be subject to
significant interpretive uncertainties. The Class
A Certificates will be "mortgage related
securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in at least the second
highest rating category by a Rating Agency (as
defined in the Prospectus) and, as such, are legal
investments for certain entities to the extent
provided in SMMEA. Accordingly, investors should
consult their own legal advisors to determine
whether and to what extent the Class A
Certificates constitute legal investments for
them. See "Legal Investment" herein and in the
Prospectus.
ERISA Considerations........ A fiduciary of any employee benefit plan or other
retirement arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code should
review carefully with its legal advisors whether
the purchase or holding of Class A Certificates
could give rise to a transaction that is
prohibited or is not otherwise permitted either
under ERISA or Section 4975 of the Code or whether
there exists any statutory or administrative
exemption applicable to an investment therein. The
U.S. Department of Labor has issued an individual
exemption, Prohibited Transaction Exemption 90-29,
to the Underwriter that generally exempts from the
application of certain of the prohibited
transaction provisions of Section 406 of ERISA,
and the excise taxes imposed on such prohibited
transactions by Section 4975(a)and (b) of the Code
and Section 502(i) of ERISA, transactions relating
to the purchase, sale and holding of pass-through
certificates underwritten by the Underwriter such
as the Class A Certificates and the servicing and
operation of asset pools, provided that certain
conditions are satisfied. A fiduciary of any
employee benefit plan subject to ERISA or the Code
should consult with its legal advisors regarding
the requirements of ERISA and the Code. See "ERISA
Considerations" herein and in the Prospectus.
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RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following factors before deciding to invest in the Class A Certificates.
Underwriting Standards, Limited Operating History and Potential Delinquencies
The Originator's underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. The Originator provides loans
primarily to borrowers who do not qualify for loans conforming to FNMA and FHLMC
guidelines but who have equity in their property. While the Originator's primary
consideration in underwriting a mortgage loan is the value of the mortgaged
property, the Originator also considers, among other things, a mortgagor's
credit history, repayment ability and debt service-to-income ratio, as well as
the type and use of the mortgaged property.
As a result of the Originator's underwriting standards, the Mortgage
Loans are likely to experience rates of delinquency, foreclosure and bankruptcy
that are higher, and that may be substantially higher, than those experienced by
mortgage loans underwritten in a more traditional manner.
Furthermore, changes in the values of Mortgaged Properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the Mortgage Loans than on mortgage loans originated in a more traditional
manner. No assurance can be given that the values of the Mortgaged Properties
have remained or will remain at the levels in effect on the dates of origination
of the related Mortgage Loans. Approximately 53.0% of the Fixed Rate Mortgage
Loans and approximately 23.1% of the Adjustable Rate Mortgage Loans, each by
aggregate principal balance of the related Mortgage Loans as of the Cut-off
Date, are secured by Mortgaged Properties located in the State of California. If
the California residential real estate market should experience an overall
decline in property values after the dates of origination of the Mortgage Loans,
the rates of delinquencies, foreclosures, bankruptcies and losses on the
Mortgage Loans may be expected to increase, and may increase substantially. See
"The Mortgage Pool -- Underwriting Standards; Representations" herein.
As described below under "Pooling and Servicing Agreement -- The Master
Servicer", the Originator commenced operations in May 1997. Accordingly, the
Originator (whether as an originator or acquirer of mortgage loans) does not
have representative historical delinquency, bankruptcy, foreclosure or default
experience that may be referred to for purposes of estimating the future
delinquency and loss experience of the Mortgage Loans.
Additional Risks Associated with the Mortgage Loans
Approximately 17.4% of the Fixed Rate Mortgage Loans and approximately
21.7% of the Adjustable Rate Mortgage Loans, each by aggregate principal balance
of the related Mortgage Loans as of the Cut-off Date, had a Loan-to-Value Ratio
at origination in excess of 80% but will not be covered by a primary mortgage
insurance policy. Mortgage Loans with higher Loan-to-Value Ratios may present a
greater risk of loss. See "The Mortgage Pool -- General" herein.
Seven of the Fixed Rate Mortgage Loans, comprising approximately 0.69%
of the Mortgage Loans by aggregate principal balance as of the Cut-off Date, are
Balloon Mortgage Loans. The Balloon Mortgage Loans in the Trust Fund will not be
fully amortizing over their terms to maturity, and will require substantial
principal payments at their stated maturity. Balloon Mortgage Loans involve a
greater degree of risk than self-amortizing loans because the ability of a
mortgagor to make a Balloon Payment typically will depend upon its ability
either to fully refinance the Balloon Mortgage Loan or to sell the related
Mortgaged Property at a price sufficient to permit the mortgagor to make the
Balloon Payment. The ability of a mortgagor to accomplish either of these goals
will be affected by a number of factors. See "The Mortgage Pool -- General" and
"Yield on the Certificates -- Balloon Mortgage Loans" herein.
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Approximately 0.6% of the Fixed Rate Mortgage Loans and approximately
1.3% of the Adjustable Rate Mortgage Loans, each by aggregate principal balance
as of the Cut-off Date, have a first Due Date (as defined herein) on October 1,
1997.
Limited Liquidity
Prior to their issuance there has been no market for the Class A
Certificates nor can there be any assurance that one will develop or, if it does
develop, that it will provide Certificate Owners of the Class A Certificates
with liquidity or will continue for the life of the Class A Certificates. The
Underwriter intends, but is not obligated, to make a market in the Class A
Certificates.
Difficulty In Pledging
Since transactions in Class A Certificates can be effected only through
DTC, CEDEL or Euroclear, their Participants and Indirect Participants, the
ability of a Certificate Owner to pledge a Class A Certificate to persons or
entities that do not participate in the DTC, CEDEL or Euroclear systems, or
otherwise to take actions in respect of such Certificates, may be limited due to
lack of a physical certificate representing such Certificates. See "Description
of the Certificates--Book-Entry Registration and Definitive Certificates"
herein.
Potential Delays In Receipt Of Distributions
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Class A Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants which will thereafter credit
them to the accounts of Certificate Owners either directly or indirectly through
Indirect Participants. See "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" herein.
Limited Obligations
The Class A Certificates will not represent an interest in or obligation
of the Depositor, the Master Servicer, the Trustee or any of their respective
affiliates. The only obligations of the foregoing entities with respect to the
Certificates or any Mortgage Loan will be the obligations of the Depositor, the
Mortgage Loan Seller and of the Master Servicer pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans and of
the Master Servicer with respect to its servicing obligations under the
Agreement (including the limited obligation to make certain Monthly Advances).
Neither the Certificates nor the underlying Mortgage Loans will be guaranteed or
insured by any governmental agency or instrumentality, or by the Depositor, the
Mortgage Loan Seller, the Master Servicer, the Trustee or any of their
respective affiliates. The Class A Certificates are covered by the Policy, as
and to the extent described under the caption "Description of the Certificates
- -- Financial Guaranty Insurance Policy" herein. Proceeds of the assets
included in the Trust Fund (including the Mortgage Loans) and of the Policy will
be the sole source of payments on the Class A Certificates, and there will be no
recourse to the Depositor, the Mortgage Loan Seller, the Master Servicer, the
Trustee or any other entity in the event that such proceeds are insufficient or
otherwise unavailable to make all payments provided for under the Class A
Certificates.
Legal Considerations
State law generally regulates interest rates and other charges, requires
certain disclosures, and, unless an exemption is available, requires licensing
of originators of mortgage loans. In addition, other state laws, public
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policy and general principles of equity relating to the protection of consumers,
unfair and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Mortgage Loans.
The Mortgage Loans are also subject to federal laws, including: (i) the
federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the notes or
other documents or agreements evidencing the borrower's indebtedness in respect
of the Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination in the extension of credit
on the basis of age, race, color, sex, religion, marital status, national
origin, receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act; (iii) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to the borrower's credit
experience and (iv) the Fair Debt Collection Practices Act and Federal Trade
Commission Rule on Credit Practices, which regulates practices used to effect
collections on consumer loans. Certain of the Mortgage Loans may be subject to
the Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act"), which incorporates the Home Ownership and Equity Protection Act
of 1994. These provisions of the Riegle Act apply on a mandatory basis to all
mortgage loans originated on or after October 1, 1995. These provisions can
impose specific statutory liabilities upon creditors who fail to comply with
their provisions and may affect the enforceability of the related mortgage
loans. In addition, any assignee of the creditor would generally be subject to
all claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
The application of state and federal consumer protection laws to
particular circumstances is not always certain and in some cases courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of these laws. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws may limit
the ability of an assignee (including the Trust Fund) to collect all or part of
the principal of or interest on the Mortgage Loans, may entitle the mortgagor to
a refund of amounts previously paid and, in addition, could subject the assignee
to damages and administrative sanctions. In some instances, particularly in
actions involving fraud or deceptive practices, damage awards have been large.
If the Trust Fund were obligated to pay any such damages, its assets would be
reduced, resulting in a possible loss to Certificateholders.
The Originator and the Mortgage Loan Seller will represent and warrant
that each Mortgage Loan was originated in compliance with applicable law in all
material respects. See "Risk Factors--Legal Matters" in the Prospectus.
Risk Of Mortgage Loan Rates Reducing The Class A Certificates Pass-Through Rate
The calculation of the Class A Certificates Pass-Through Rate is based
upon (i) the value of One-Month LIBOR which is different from the value of the
Index applicable to the Adjustable Rate Mortgage Loans (either as a result of
the use of a different index, a different rate determination date or a different
rate adjustment date) and (ii) the weighted average of the Mortgage Rates of the
Mortgage Loans, which are either fixed, in the case of the Fixed Rate Mortgage
Loans, or subject to periodic adjustment caps, maximum rate caps and minimum
rate floors, in the case of the Adjustable Rate Mortgage Loans. In general, the
Adjustable Rate Mortgage Loans adjust based upon Six-Month LIBOR whereas the
Pass-Through Rate on the Class A Certificates adjusts monthly based upon One-
Month LIBOR, as described under "Description of the Certificates--Calculation of
One-Month LIBOR" herein, subject to the Adjusted WAC Rate. Consequently, the
interest which becomes due on the Adjustable Rate Mortgage Loans (net of the
Servicing Fee, the Insurance Premium Amount, the Trustee Fee and certain
reductions required by the Certificate Insurer) during any Due Period may not
equal the amount of interest that would accrue at One-Month LIBOR plus the
Adjustable Rate Margin on the Class A Certificates during the related Accrual
Period. In particular the Class A Certificate Pass-Through Rate adjusts monthly,
while the Mortgage Rates of the Adjustable Rate Mortgage Loans adjust less
frequently with the result that the Adjusted WAC Rate may limit increases in the
Class A Certificates Pass-Through Rate for extended periods in a rising interest
rate environment. The Mortgage Rate on 9.3%, 73.2%, 0.8 % and 0.4% of the
Adjustable Rate Mortgage Loans, in each case based upon the aggregate principal
balance of the Adjustable Rate Mortgage Loans as of the Cut-off Date, will not
adjust for one year, two years, three years or five years, respectively,
following origination. In addition, the Mortgage Rates on certain of the
Mortgage Loans may respond to different economic and market factors than the
Class A Certificates Pass-Through
S-19
<PAGE>
<PAGE>
Rate and there is not necessarily a correlation between them. Thus, it is
possible, for example, that the Mortgage Rates on certain of the Mortgage Loans
may fall during periods in which One-Month LIBOR is stable or is rising or that,
even if both the Mortgage Rates on the Mortgage Loans and One-Month LIBOR fall
during the same period, the Mortgage Rates on certain of the Mortgage Loans may
fall more rapidly than One-Month LIBOR. Furthermore, if the Adjusted WAC Rate is
used to determine the Class A Pass-Through Rate for a Distribution Date, the
value of the Class A Certificates may be temporarily reduced.
If, with respect to any Distribution Date, the amount of interest that
would accrue during the related Accrual Period on the Class A Certificates based
on the applicable level of One-Month LIBOR plus the Adjustable Rate Margin is
greater than the weighted average (calculated as described herein) of the
Mortgage Rates on the Mortgage Loans as of the first day of the related Due
Period, less the sum of (a) the Servicing Fee Rate, (b) the Trustee Fee Rate,
(c) the Insurance Premium Rate and (d) commencing on the sixth Distribution
Date, 0.75% per annum, and the Pass-Through Rate on the Class A Certificates is
therefore based on the Adjusted WAC Rate, Basis Risk Shortfall will, except as
provided below, occur. However, no assurance can be given that there will be
sufficient Net Monthly Excess Cashflow generated from the Mortgage Loans to pay
the Unpaid Basis Risk Shortfall on any given Distribution Date. The Policy will
not cover any Unpaid Basis Risk Shortfall. Moreover, to the extent that the
Adjusted WAC Rate for any Distribution Date equals the Maximum Class A
Pass-Through Rate, the Basis Risk Shortfall for such Distribution Date will
equal zero.
Yield Considerations with respect to the Adjustable Rate Mortgage Loans
The yield to maturity on the Class A Certificates may be affected by the
resetting of the Mortgage Rates on the Adjustable Rate Mortgage Loans on the
related Adjustment Dates. In addition, because the Mortgage Rate for each
Adjustable Rate Mortgage Loan is based on the Index plus the related Gross
Margin, such rate could be higher than prevailing market interest rates, and
this may result in an increase in the rate of prepayments on the Adjustable Rate
Mortgage Loans after such adjustment. Finally, because the Mortgage Rates on the
Adjustable Rate Mortgage Loans are based on the Index while the Pass-Through
Rate on the Class A Certificates is based in part on One-Month LIBOR, and a
substantial number of the Mortgage Loans are Delayed First Adjustment Mortgage
Loans, any resulting Basis Risk Shortfalls or Unpaid Basis Risk Shortfalls, to
the extent not covered by amounts otherwise payable to the Residual
Certificates, as described herein, will adversely affect the yield to maturity
on the Class A Certificates. The Policy will not cover Basis Risk Shortfalls or
Unpaid Basis Risk Shortfalls.
THE MORTGAGE POOL
General
The Mortgage Pool will consist of approximately 910 conventional, one-
to four-family, fixed-rate and adjustable-rate Mortgage Loans secured by first
liens on residential real properties (the "Mortgaged Properties"). The Mortgage
Loans have original terms to maturity ranging from 15 years to 30 years. The
Mortgage Pool consists of fixed-rate Mortgage Loans (the "Fixed Rate Mortgage
Loans"), which will consist of approximately 164 Mortgage Loans having an
aggregate principal balance as of September 1, 1997 (the "Cut-off Date") of
approximately $13,751,068, and adjustable-rate Mortgage Loans (the "Adjustable
Rate Mortgage Loans"), which will consist of approximately 746 Mortgage Loans
having an aggregate principal balance as of the Cut-off Date of approximately
$88,449,778, in each case after application of payments of principal due on or
before the Cut-off Date whether or not received, and in each case subject to a
permitted variance of plus or minus 5%. Each Adjustable Rate Mortgage Loan
provides for semi-annual adjustment to the mortgage rate thereon based on
six-month London interbank offered rates for United States dollar deposits (the
"Index") and for corresponding adjustments to the monthly payment amount due
thereon, in each case subject to the limitations described under " -- Adjustable
Rate Mortgage Loans" herein; provided that in the case of 9.3% of the Mortgage
Loans, the first adjustment for such Mortgage Loan will occur after an initial
period of one year, in the case of 73.2% of the Mortgage Loans, two years, in
the case of 0.8% of the Mortgage Loans, three years, and in the case of 0.4% of
the Mortgage Loans, five years, each by aggregate principal balance of the
S-20
<PAGE>
<PAGE>
Adjustable Rate Mortgage Loans (each such Mortgage Loan described in this
proviso, a "Delayed First Adjustment Mortgage Loan").
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 consisting of detached or semi-detached one-
to four-family dwelling units, individual condominium units and individual units
in planned unit developments. The Mortgage Loans to be included in the Mortgage
Pool will be acquired by the Depositor from the Mortgage Loan Seller. See
" -- Underwriting Standards; Representations" herein. Ocwen Federal Bank FSB
will act as the master servicer for the Mortgage Loans pursuant to the Agreement
(in such capacity, the "Master Servicer").
Approximately 17.4% of the Fixed Rate Mortgage Loans and approximately
21.7% of the Adjustable Rate Mortgage Loans had a Loan-to-Value Ratio at
origination in excess of 80% but will not be covered by a primary mortgage
insurance policy. No Mortgage Loan will have a Loan-to-Value Ratio at
origination exceeding 90.0%. There can be no assurance that the Loan-to-Value
Ratio of any Mortgage Loan determined at any time after origination is less than
or equal to its original Loan-to-Value Ratio.
Substantially all of the Mortgage Loans have scheduled monthly payments
due on the first day of the month (with respect to each Mortgage Loan, a "Due
Date"). Each Mortgage Loan will contain a customary "due-on-sale" clause.
Approximately 86.9% of the Fixed Rate Mortgage Loans and approximately
72.7% of the Adjustable Rate Mortgage Loans provide for payment by the mortgagor
of a prepayment charge in limited circumstances on certain prepayments.
Generally, each such Mortgage Loan provides for payment of a prepayment charge
on certain partial prepayments and all prepayments in full made within six
months, one year, two years, three years or five years from the date of
origination of such Mortgage Loan. The amount of the prepayment charge is as
provided in the related Mortgage Note but is generally equal to six months'
interest on any amounts prepaid in excess of 20% of the then outstanding
principal balance of the related Mortgage Loan in any 12 month period. The
Master Servicer will be entitled to all prepayment charges received on the
Mortgage Loans and such amounts will not be available for distribution on the
Certificates.
Seven Fixed Rate Mortgage Loans comprising approximately 0.69% of the
Mortgage Loans, are balloon payment mortgage loans (each, a "Balloon Mortgage
Loan"). Each Balloon Mortgage Loan generally amortizes over 360 months, but the
final payment (the "Balloon Payment") on each Balloon Mortgage Loan is due and
payable on the 180th month. The amount of the Balloon Payment on each Balloon
Payment Loan is substantially in excess of the amount of the scheduled monthly
payment on Mortgage Loan for the period prior to the Due Date of such Balloon
Payment.
The Mortgage Loans are expected to have the additional characteristics
described below under " -- Fixed Rate Mortgage Loans" or " -- Adjustable Rate
Mortgage Loans", as applicable.
Fixed Rate Mortgage Loans
Each Fixed Rate Mortgage Loan had a Mortgage Rate of not less than
8.000% per annum and not more than 14.000% per annum and as of the Cut-off Date
the weighted average Mortgage Rate was approximately 10.433% per annum.
The weighted average remaining term to maturity of the Fixed Rate
Mortgage Loans will be approximately 327 months as of the Cut-off Date. None of
the Fixed Rate Mortgage Loans will have a first Due Date prior to August 1995 or
after October 1997, or will have a remaining term to maturity of less than 12
years and 7 months or greater than 30 years as of the Cut-off Date. The latest
maturity date of any Fixed Rate Mortgage Loan is August 2027.
The average principal balance of the Fixed Rate Mortgage Loans at
origination was approximately $84,027. The average principal balance of the
Fixed Rate Mortgage Loans as of the Cut-off Date was approximately $83,848. No
S-21
<PAGE>
<PAGE>
Mortgage Loan had a principal balance as of the Cut-off Date of greater than
approximately $447,298 or less than approximately $15,983.
The Fixed Rate Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding):
PRINCIPAL BALANCES OF THE FIXED RATE MORTGAGE LOANS AT ORIGINATION
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Range ($) of Loans the Cut-off Date the Cut-off Date
- --------- -------- ----------------- -----------------
<S> <C> <C> <C>
0.01 - 25,000.00 .................. 10 217,577 1.58
25,000.01 - 50,000.00 .................. 46 1,780,209 12.95
50,000.01 - 75,000.00 .................. 36 2,229,021 16.21
75,000.01 - 100,000.00.................. 22 1,854,987 13.49
100,000.01 - 125,000.00.................. 18 2,011,988 14.63
125,000.01 - 150,000.00.................. 17 2,326,738 16.92
150,000.01 - 175,000.00.................. 5 790,639 5.75
175,000.01 - 200,000.00.................. 2 381,575 2.77
200,000.01 - 225,000.00.................. 4 849,016 6.17
250,000.01 - 275,000.00.................. 1 263,901 1.92
275,000.01 - 300,000.00.................. 2 598,120 4.35
350,000.01 or greater.................... 1 447,298 3.25
--- ----------- ------
Total................................. 164 $13,751,068 100.00%
</TABLE>
The average principal balance of the Fixed Rate Mortgage Loans at
origination was approximately $84,027. No Fixed Rate Mortgage Loan had a
principal balance at origination greater than $448,000 or less than $16,000.
PRINCIPAL BALANCES OF THE FIXED RATE MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Range ($) of Loans the Cut-off Date the Cut-off Date
- --------- -------- ----------------- -----------------
<S> <C> <C> <C>
0.01 - 25,000.00................. 10 217,577 1.58
25,000.01 - 50,000.00................. 46 1,780,209 12.95
50,000.01 - 75,000.00................. 36 2,229,021 16.21
75,000.01 - 100,000.0................. 23 1,952,958 14.20
100,000.01 - 125,000.0................. 17 1,914,017 13.92
125,000.01 - 150,000.0................. 17 2,326,738 16.92
150,000.01 - 175,000.0................. 5 790,639 5.75
175,000.01 - 200,000.0................. 2 381,575 2.77
200,000.01 - 225,000.0................. 4 849,016 6.17
250,000.01 - 275,000.0................. 1 263,901 1.92
275,000.01 - 300,000.0................. 2 598,120 4.35
350,000.01 or greater.................. 1 447,298 3.25
--- ----------- ------
Total............................... 164 $13,751,068 100.00%
</TABLE>
The average principal balance of the Fixed Rate Mortgage Loans as of the
Cut-off Date was approximately $83,848. No Fixed Rate Mortgage Loan had a
principal balance as of the Cut-off Date greater than $447,298 or less than
$15,983.
S-22
<PAGE>
<PAGE>
ORIGINAL TERM TO MATURITY OF THE FIXED RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Original Term (months) of Loans the Cut-off Date the Cut-off Date
- ---------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
180..................................... 36 2,330,503 16.95
240..................................... 1 120,303 0.87
360..................................... 127 11,300,263 82.18
--- ----------- -------
Total............................... 164 $13,751,068 100.00%
</TABLE>
PROPERTY TYPES OF THE FIXED RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Property Type of Loans the Cut-off Date the Cut-off Date
- ------------- -------- ----------------- -----------------
<S> <C> <C> <C>
Condo (Low Rise)........................ 7 234,228 1.70
Planned Unit Development................ 5 502,047 3.65
Single Family........................... 131 11,423,318 83.07
Two- to Four-Family..................... 21 1,591,476 11.57
--- ----------- ------
Total............................... 164 $13,751,068 100.00%
</TABLE>
OCCUPANCY STATUS OF THE FIXED RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Occupancy of Loans the Cut-off Date the Cut-off Date
- --------- -------- ----------------- -----------------
<S> <C> <C> <C>
Non Owner-Occupied...................... 41 2,268,962 16.50
Owner-Occupied.......................... 123 11,482,107 83.50
--- ----------- ------
Total............................... 164 $13,751,068 100.00%
</TABLE>
The occupancy status of a Mortgaged Property is as represented by the
mortgagor in its loan application.
S-23
<PAGE>
<PAGE>
MORTGAGE RATES OF THE FIXED RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Mortgage Rate(%) of Loans the Cut-off Date the Cut-off Date
- --------------- -------- ----------------- -----------------
<S> <C> <C> <C>
7.501 - 8.000 ....................... 1 108,354 0.79
8.001 - 8.500 ....................... 6 717,331 5.22
8.501 - 9.000 ....................... 5 768,750 5.59
9.001 - 9.500 ....................... 16 1,864,234 13.56
9.501 - 10.000 ....................... 21 1,878,791 13.66
10.001 - 10.500 ....................... 38 2,902,205 21.11
10.501 - 11.000 ....................... 24 2,128,935 15.48
11.001 - 11.500 ....................... 20 1,242,394 9.03
11.501 - 12.000 ....................... 14 784,302 5.70
12.001 - 12.500 ....................... 11 742,471 5.40
12.501 - 13.000 ....................... 4 271,201 1.97
13.001 - 13.500 ....................... 1 20,924 0.15
13.501 - 14.000 ....................... 3 321,177 2.34
--- ----------- -------
Total............................... 164 $13,751,068 100.00%
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Fixed
Rate Mortgage Loans was approximately 10.433% per annum.
ORIGINAL LOAN-TO-VALUE RATIOS OF THE FIXED RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Loan-to-Value Ratio(%) of Loans the Cut-off Date the Cut-off Date
- --------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
20.01 - 25.00 ......................... 2 65,996 0.48
25.01 - 30.00 ......................... 1 44,942 0.33
30.01 - 35.00 ......................... 1 43,943 0.32
35.01 - 40.00 ......................... 2 94,829 0.69
40.01 - 45.00 ......................... 6 255,751 1.86
45.01 - 50.00 ......................... 3 336,727 2.45
50.01 - 55.00 ......................... 6 409,559 2.98
55.01 - 60.00 ......................... 13 766,554 5.57
60.01 - 65.00 ......................... 9 807,809 5.87
65.01 - 70.00 ......................... 36 2,252,234 16.38
70.01 - 75.00 ......................... 23 2,049,695 14.91
75.01 - 80.00 ......................... 43 4,230,909 30.77
80.01 - 85.00 ......................... 11 1,436,713 10.45
85.01 - 90.00 ......................... 8 955,407 6.95
--- ----------- ------
Total............................... 164 $13,751,068 100.00%
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Fixed Rate
Mortgage Loans was approximately 73%. No Fixed Rate Mortgage Loan had a
Loan-to-Value Ratio at origination greater than 90.00% or less than 23.00%.
S-24
<PAGE>
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Location of Loans the Cut-off Date the Cut-off Date
- -------- -------- ----------------- -----------------
<S> <C> <C> <C>
Arizona................................. 1 59,441 0.43
California.............................. 66 7,284,110 52.97
Colorado................................ 10 724,204 5.27
Delaware................................ 1 103,972 0.76
Florida................................. 22 1,340,063 9.75
Georgia................................. 2 164,798 1.20
Idaho................................... 2 110,841 0.81
Illinois................................ 12 603,503 4.39
Indiana................................. 9 689,724 5.02
Iowa.................................... 1 34,293 0.25
Kentucky................................ 3 116,706 0.85
Maryland................................ 1 72,337 0.53
Massachusetts........................... 3 237,086 1.72
Michigan................................ 1 15,983 0.12
Missouri................................ 4 441,191 3.21
North Carolina.......................... 1 88,733 0.65
Nebraska................................ 1 75,750 0.55
New Jersey.............................. 1 58,216 0.42
New York................................ 4 613,542 4.46
Ohio.................................... 7 389,274 2.83
Oregon.................................. 2 113,731 0.83
Pennsylvania............................ 3 97,768 0.71
Virginia................................ 1 72,223 0.53
Wisconsin............................... 6 243,580 1.77
--- ----------- ------
Total............................... 164 $13,751,068 100.00%
</TABLE>
The greatest geographic concentration of Fixed Rate Mortgage Loans, by
aggregate principal balance as of the Cut-off Date, was approximately $447,298
in California in the 91356 zip code.
PURPOSE OF THE FIXED RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Loan Purpose of Loans the Cut-off Date the Cut-off Date
- ------------ -------- ----------------- -----------------
<S> <C> <C> <C>
Cash-out Refinance...................... 95 7,398,047 53.80
Purchase................................ 30 2,143,442 15.59
Refinance............................... 39 4,209,579 30.61
--- ----------- -------
Total............................... 164 $13,751,068 100.00%
</TABLE>
S-25
<PAGE>
<PAGE>
FIXED RATE MORTGAGE DOCUMENTATION LEVEL
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Documentation Level of Loans the Cut-off Date the Cut-off Date
- ------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
Stated Income Documentation............. 46 3,845,232 27.96
Full Documentation...................... 112 9,304,090 67.66
Lite Documentation...................... 6 601,746 4.38
--- ----------- ------
Total............................... 164 $13,751,068 100.00%
</TABLE>
FIXED RATE MORTGAGE LOAN RISK CATEGORIES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Rick Categories of Loans the Cut-off Date the Cut-off Date
- --------------- -------- ----------------- -----------------
<S> <C> <C> <C>
A....................................... 6 431,703 3.14
A-...................................... 99 8,780,915 63.86
B....................................... 36 3,017,074 21.94
C....................................... 17 1,067,031 7.76
D....................................... 5 325,368 2.37
D-...................................... 1 128,977 0.94
--- ----------- ------
Total............................... 164 $13,751,068 100.00%
</TABLE>
Adjustable Rate Mortgage Loans
Each Adjustable Rate Mortgage Loan provides for semi-annual adjustment
to the Mortgage Rate thereon and for corresponding adjustments to the monthly
payment amount due thereon, in each case on each adjustment date applicable
thereto (each such date, an "Adjustment Date"); provided that the first
adjustment for such Mortgage Loan will occur after an initial period of one
year, in the case of 9.3% of the Adjustable Rate Mortgage Loans, two years in
the case of 73.2% of the Adjustable Rate Mortgage Loans, three years in the case
of 0.8% of the Adjustable Rate Mortgage Loans, and five years in the case of
0.4% of the Adjustable Rate Mortgage Loans, each by aggregate principal balance
of the Adjustable Rate Mortgage Loans as of the Cut-off Date. On each Adjustment
Date for each Adjustable Rate Mortgage Loan, the Mortgage Rate thereon will be
adjusted to equal the sum, rounded to the nearest multiple of 0.125%, of the
Index (as described below) and a fixed percentage amount (the "Gross Margin");
provided, however, that the Mortgage Rate on each such Mortgage Loan generally
will not increase or decrease by more than 1% per annum on any related
Adjustment Date (the "Periodic Rate Cap") and will not exceed a specified
maximum Mortgage Rate over the life of such Mortgage Loan (the "Maximum Mortgage
Rate") or be less than a specified minimum Mortgage Rate over the life of such
Mortgage Loan (the "Minimum Mortgage Rate"). Notwithstanding the foregoing, the
Delayed First Adjustment Mortgage Loans have a weighted average Initial Periodic
Rate Cap of approximately 2.82% per annum. Effective with the first monthly
payment due on each Adjustable Rate Mortgage Loan after each related Adjustment
Date, the monthly payment amount will be adjusted to an amount that will
amortize fully the outstanding principal balance of the related Mortgage Loan
over its remaining term (or, in the case of a Balloon Mortgage Loan, over its
hypothetical remaining amortizing term), and pay interest at the Mortgage Rate
as so adjusted. Due to the application of the Periodic Rate Caps and the Maximum
Mortgage Rates, the Mortgage Rate on each such Mortgage Loan, as adjusted on any
related Adjustment Date, may be less than the sum of the Index and Gross Margin,
rounded as described herein. See " -- The Index" herein. None of the Adjustable
Rate Mortgage Loans permits the related mortgagor to convert the adjustable
Mortgage Rate thereon to a fixed Mortgage Rate.
The Adjustable Rate Mortgage Loans had Mortgage Rates as of the Cut-off
Date of not less than 6.380% per annum and not more than 14.990% per annum and
the weighted average Mortgage Rate was approximately 10.035% per annum. As of
the Cut-off Date, the Adjustable Rate Mortgage Loans had Gross Margins ranging
from 3.95% to
S-26
<PAGE>
<PAGE>
7.95%, Minimum Mortgage Rates ranging from 6.250% per annum to 14.990% per annum
and Maximum Mortgage Rates ranging from 12.875% per annum to 21.490% per annum.
As of the Cut-off Date, the weighted average Gross Margin was approximately
5.905%, the weighted average Minimum Mortgage Rate was approximately 10.033% per
annum and the weighted average Maximum Mortgage Rate was approximately 16.531%
per annum. The latest first Adjustment Date following the Cut-off Date on any
Adjustable Rate Mortgage Loan occurs in July 2002 and the weighted average next
Adjustment Date for all of the Adjustable Rate Mortgage Loans following the
Cut-off Date is April 1999.
The weighted average remaining term to maturity of the Adjustable Rate
Mortgage Loans was approximately 29 years and 11 months as of the Cut-off Date.
None of the Adjustable Rate Mortgage Loans will have a first Due Date prior to
December 1995 or after October 1997, or will have a remaining term to maturity
of less than 14 years and 10 months or greater than 30 years as of the Cut-off
Date. The latest maturity date of any Adjustable Rate Mortgage Loan is September
2027.
The average principal balance of the Adjustable Rate Mortgage Loans at
origination was approximately $118,698. No Adjustable Rate Mortgage Loan had a
principal balance at origination of greater than $1,280,000 or less than
$18,900. The average principal balance of the Adjustable Rate Mortgage Loans as
of the Cut-off Date was approximately $118,565. No Mortgage Loan had a principal
balance as of the Cut-off Date of greater than $1,279,370 or less than $18,888.
The Adjustable Rate Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding):
PRINCIPAL BALANCES OF THE ADJUSTABLE RATE MORTGAGE LOANS AT ORIGINATION
<TABLE>
<CAPTION>
% of
Number Aggregate Original Aggregate Original
Range ($) of Loans Principal Balance Principal Balance
- --------- -------- ------------------ ------------------
<S> <C> <C> <C>
0.01 - 25,000.00 ................ 17 $ 364,939 0.41
25,000.01 - 50.000.00 ................ 133 5,044,677 5.70
50,000.01 - 75,000.00 ................ 144 9,072,174 10.26
75,000.01 - 100,000.00 ................ 135 11,867,051 13.42
100,000.01 - 125,000.00 ................ 98 11,057,086 12.50
125,000.01 - 150,000.00 ................ 68 9,371,662 10.60
150,000.01 - 175,000.00 ................ 37 5,994,701 6.78
175,000.01 - 200,000.00 ................ 29 5,453,506 6.17
200,000.01 - 225,000.00 ................ 20 4,258,878 4.82
225,000.01 - 250,000.00 ................ 11 2,604,018 2.94
250,000.01 - 275,000.00 ................ 7 1,811,672 2.05
275,000.01 - 300,000.00 ................ 6 1,743,603 1.97
300,000.01 - 325,000.00 ................ 7 2,205,127 2.49
325,000.01 - 350,000.00 ................ 3 1,007,734 1.14
350,000.01 or greater................... 31 16,592,949 18.76
--- ----------- ------
Total............................. 746 $88,449,778 100.00%
</TABLE>
The average principal balance of the Adjustable Rate Mortgage Loans at
origination was approximately $118,698. No Adjustable Rate Mortgage Loan had a
principal balance at origination greater than $1,280,000 or less than $18,900.
S-27
<PAGE>
<PAGE>
PRINCIPAL BALANCES OF THE ADJUSTABLE RATE MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Range ($) of Loans the Cut-off Date the Cut-off Date
- --------- -------- ----------------- -----------------
<S> <C> <C> <C>
0.01 - 25,000.00 ................ 17 364,939 0.41
25,000.01 - 50,000.00 ................ 133 5,044,677 5.70
50,000.01 - 75,000.00................. 145 9,144,362 10.34
75,000.01 - 100,000.00................. 134 11,794,863 13.34
100,000.01 - 125,000.00................. 98 11,057,086 12.50
125,000.01 - 150,000.00................. 68 9,371,662 10.60
150,000.01 - 175,000.00................. 37 5,994,701 6.78
175,000.01 - 200,000.00................. 29 5,453,506 6.17
200,000.01 - 225,000.00................. 20 4,258,878 4.82
225,000.01 - 250,000.00................. 11 2,604,018 2.94
250,000.01 - 275,000.00................. 7 1,811,672 2.05
275,000.01 - 300,000.00................. 6 1,743,603 1.97
300,000.01 - 325,000.00................. 7 2,205,127 2.49
325,000.01 - 350,000.00................. 3 1,007,734 1.14
350,000.01 or greater................... 31 16,592,949 18.76
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
The average principal balance of the Adjustable Rate Mortgage Loans as
of the Cut-off Date was approximately $118,565. No Adjustable Rate Mortgage Loan
had a principal balance as of the Cut-off Date greater than $1,279,370 or less
than $18,888.
ADJUSTABLE RATE MORTGAGE LOAN PROPERTY TYPES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Property Type of Loans the Cut-off Date the Cut-off Date
- ------------- -------- ----------------- -----------------
<S> <C> <C> <C>
Condo (Low Rise)........................ 26 2,917,934 3.30
Planned Unit Development................ 21 2,791,726 3.16
Single Family........................... 632 76,180,643 86.13
Two- to Four-Family..................... 67 6,559,476 7.42
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
ADJUSTABLE RATE MORTGAGE LOAN OCCUPANCY STATUS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Occupancy of Loans the Cut-off Date the Cut-off Date
- --------- -------- ----------------- -----------------
<S> <C> <C> <C>
Non Owner-Occupied...................... 119 8,694,152 9.83
Owner-Occupied.......................... 627 79,755,626 90.17
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
The occupancy status of a Mortgaged Property is as represented by the
mortgagor in its loan application.
S-28
<PAGE>
<PAGE>
MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS AT ORIGINATION
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Mortgage Rate(%) of Loans the Cut-off Date the Cut-off Date
- --------------- -------- ----------------- -----------------
<S> <C> <C> <C>
6.001 - 6.500 ........................ 1 38,428 0.04
6.501 - 7.000 ........................ 1 164,571 0.19
7.001 - 7.500 ........................ 5 477,343 0.54
7.501 - 8.000 ........................ 11 1,777,396 2.01
8.001 - 8.500 ........................ 29 4,085,411 4.62
8.501 - 9.000 ........................ 79 12,222,943 13.82
9.001 - 9.500 ........................ 106 13,917,188 15.73
9.501 - 10.000......................... 151 17,756,586 20.08
10.001 - 10.500......................... 127 16,143,301 18.25
10.501 - 11.000......................... 81 7,928,972 8.96
11.001 - 11.500......................... 44 4,801,249 5.43
11.501 - 12.000......................... 46 4,171,374 4.72
12.001 - 12.500......................... 16 1,285,564 1.45
12.501 - 13.000......................... 9 744,615 0.84
13.001 - 13.500......................... 7 691,646 0.78
13.501 - 14.000......................... 8 542,020 0.61
14.001 - 14.500......................... 21 1,387,394 1.57
14.501 - 15.000......................... 4 313,777 0.35
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
At origination, the weighted average Mortgage Rate of the Mortgage Loans
in the Adjustable Rate Group was approximately 10.034% per annum.
MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Mortgage Rate(%) of Loans the Cut-off Date the Cut-off Date
- --------------- -------- ----------------- -----------------
<S> <C> <C> <C>
6.001 - 6.500 ........................ 1 38,428 0.04
6.501 - 7.000 ........................ 1 164,571 0.19
7.001 - 7.500 ........................ 5 477,343 0.54
7.501 - 8.000 ........................ 11 1,777,396 2.01
8.001 - 8.500 ........................ 29 4,085,411 4.62
8.501 - 9.000 ........................ 79 12,222,943 13.82
9.001 - 9.500 ........................ 106 13,917,188 15.73
9.501 - 10.000 ........................ 151 17,756,586 20.08
10.001 - 10.500 ........................ 127 16,143,301 18.25
10.501 - 11.000 ........................ 81 7,928,972 8.96
11.001 - 11.500 ........................ 44 4,801,249 5.43
11.501 - 12.000 ........................ 46 4,171,374 4.72
12.001 - 12.500 ........................ 16 1,285,564 1.45
12.501 - 13.000 ........................ 9 744,615 0.84
13.001 - 13.500 ........................ 7 691,646 0.78
13.501 - 14.000 ........................ 8 542,020 0.61
14.001 - 14.500 ........................ 21 1,387,394 1.57
14.501 - 15.000 ........................ 4 313,777 0.35
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the
Adjustable Rate Mortgage Loans was approximately 10.035% per annum.
S-29
<PAGE>
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Loan-to-Value Ratio(%) of Loans the Cut-off Date the Cut-off Date
- --------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
15.01 - 20.00........................... 1 47,404 0.05
20.01 - 25.00........................... 1 42,980 0.05
30.01 - 35.00........................... 3 284,715 0.32
35.01 - 40.00........................... 4 1,511,555 1.71
40.01 - 45.00........................... 7 451,382 0.51
45.01 - 50.00........................... 13 1,306,171 1.48
50.01 - 55.00........................... 11 665,675 0.75
55.01 - 60.00........................... 27 2,062,512 2.33
60.01 - 65.00........................... 82 9,669,491 10.93
65.01 - 70.00........................... 142 15,545,469 17.58
70.01 - 75.00........................... 130 14,948,150 16.90
75.01 - 80.00........................... 192 22,755,582 25.73
80.01 - 85.00........................... 82 12,044,529 13.62
85.01 - 90.00........................... 51 7,114,164 8.04
--- ------------ ------
Total............................... 746 $88,449,778 100.00%
The weighted average Loan-to-Value Ratio at origination of the
Adjustable Rate Mortgage Loans was approximately 74.4%. No Adjustable Rate
Mortgage Loan had a Loan-to-Value Ratio at origination greater than 90.00% or
less than 15.83%.
S-30
<PAGE>
<PAGE>
ADJUSTABLE RATE MORTGAGE LOAN GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
</TABLE>
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Location of Loans the Cut-off Date the Cut-off Date
- -------- -------- ----------------- -----------------
<S> <C> <C> <C>
Arizona................................. 7 691,511 0.78
California.............................. 128 20,475,951 23.15
Colorado................................ 7 721,187 0.82
Florida................................. 54 4,920,710 5.56
Georgia................................. 15 2,143,228 2.42
Iowa.................................... 7 365,340 0.41
Idaho................................... 2 148,523 0.17
Illinois................................ 84 9,550,652 10.80
Indiana................................. 32 1,780,402 2.01
Kansas.................................. 2 83,177 0.09
Kentucky................................ 6 199,701 0.23
Massachusetts........................... 39 5,726,714 6.47
Maryland................................ 4 526,057 0.59
Maine................................... 1 94,953 0.11
Michigan................................ 8 430,582 0.49
Minnesota............................... 8 791,866 0.90
Missouri................................ 21 1,657,931 1.87
North Carolina.......................... 19 2,103,774 2.38
Nebraska................................ 20 1,057,520 1.20
New Hampshire........................... 1 112,389 0.13
New Jersey.............................. 40 5,370,658 6.07
Nevada.................................. 3 395,739 0.45
New York................................ 15 3,311,519 3.74
Ohio.................................... 39 3,332,168 3.77
Oklahoma................................ 4 112,901 0.13
Oregon.................................. 39 4,784,488 5.41
Pennsylvania............................ 8 1,308,954 1.48
Rhode Island............................ 5 660,290 0.75
South Dakota............................ 2 137,994 0.16
Tennessee............................... 6 693,328 0.78
Texas................................... 1 53,952 0.06
Utah.................................... 58 7,673,343 8.68
Virginia................................ 10 2,157,670 2.44
Washington.............................. 16 2,463,702 2.79
Wisconsin............................... 34 2,319,158 2.62
West Virginia........................... 1 91,743 0.10
--- ------------ ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
The greatest geographic concentration of Adjustable Rate Mortgage Loans,
by aggregate principal balance as of the Cut-off Date, was approximately
$1,279,370 in California in the 90077 zip code.
PURPOSE OF THE ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Loan Purpose of Loans the Cut-off Date the Cut-off Date
- ------------ -------- ----------------- -----------------
<S> <C> <C> <C>
Cash-out Refinance...................... 374 47,347,869 53.53
Purchase................................ 246 26,803,526 30.30
Refinance............................... 126 14,298,382 16.17
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
S-31
<PAGE>
<PAGE>
ADJUSTABLE RATE MORTGAGE DOCUMENTATION LEVEL
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Documentation Level of Loans the Cut-off Date the Cut-off Date
- ------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
Stated Income Documentation............. 286 34,555,792 39.07
Full Documentation...................... 414 47,329,959 53.51
Lite Documentation...................... 46 6,564,027 7.42
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
ADJUSTABLE RATE MORTGAGE LOAN RISK CATEGORIES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Risk Categories of Loans the Cut-off Date the Cut-off Date
- --------------- -------- ----------------- -----------------
<S> <C> <C> <C>
A....................................... 24 2,160,075 2.44
A-...................................... 362 50,660,506 57.28
B....................................... 178 19,296,862 21.82
C....................................... 107 9,847,988 11.13
D....................................... 50 4,574,606 5.17
D-...................................... 25 1,909,741 2.16
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Maximum Number Outstanding as of Outstanding as of
Mortgage Rate(%) of Loans the Cut-off Date the Cut-off Date
- --------------- -------- ----------------- -----------------
<S> <C> <C> <C>
12.501-13.000........................... 1 38,428 0.04
13.001-13.500........................... 1 164,571 0.19
13.501-14.000........................... 5 477,343 0.54
14.001-14.500........................... 11 1,777,396 2.01
14.501-15.000........................... 30 4,409,230 4.99
15.001-15.500........................... 79 12,222,943 13.82
15.501-16.000........................... 106 13,705,710 15.50
16.001-16.500........................... 150 17,466,426 19.75
16.501-17.000........................... 127 16,321,120 18.45
17.001-17.500........................... 81 7,928,972 8.96
17.501-18.000........................... 44 4,801,249 5.43
18.001-18.500........................... 45 4,135,407 4.68
18.501-19.000........................... 17 1,321,531 1.49
19.001-19.500........................... 9 744,615 0.84
19.501-20.000........................... 7 691,646 0.78
20.001-20.500........................... 8 542,020 0.61
20.501-21.000........................... 21 1,387,394 1.57
21.001-21.500........................... 4 313,777 0.35
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
The weighted average Maximum Mortgage Rate of the Adjustable Rate
Mortgage Loans as of the Cut-off Date was approximately 16.531% per annum.
S-32
<PAGE>
<PAGE>
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Minimum Number Outstanding as of Outstanding as of
Mortgage Rate(%) of Loans the Cut-off Date the Cut-off Date
- --------------- -------- ----------------- -----------------
<S> <C> <C> <C>
6.001 - 6.500......................... 2 203,000 0.23
7.001 - 7.500......................... 5 477,343 0.54
7.501 - 8.000......................... 11 1,777,396 2.01
8.001 - 8.500......................... 29 4,085,411 4.62
8.501 - 9.000......................... 79 12,222,943 13.82
9.001 - 9.500......................... 106 13,917,188 15.73
9.501 - 10.000......................... 151 17,756,586 20.08
10.001 - 10.500......................... 127 16,143,301 18.25
10.501 - 11.000......................... 81 7,928,972 8.96
11.001 - 11.500......................... 44 4,801,249 5.43
11.501 - 12.000......................... 46 4,171,374 4.72
12.001 - 12.500......................... 16 1,285,564 1.45
12.501 - 13.000......................... 9 744,615 0.84
13.001 - 13.500......................... 7 691,646 0.78
13.501 - 14.000......................... 8 542,020 0.61
14.001 - 14.500......................... 21 1,387,394 1.57
14.501 - 15.000......................... 4 313,777 0.35
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
The weighted average Minimum Mortgage Rate of the Mortgage Loans as of
the Cut-off Date was approximately 10.033% per annum.
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Gross Margin(%) of Loans the Cut-off Date the Cut-off Date
- -------------- -------- ----------------- -----------------
<S> <C> <C> <C>
3.501-4.000............................. 3 170,764 0.19
4.001-4.500............................. 9 749,311 0.85
4.501-5.000............................. 33 4,494,015 5.08
5.001-5.500............................. 28 4,005,774 4.53
5.501-6.000............................. 437 56,266,037 63.61
6.001-6.500............................. 145 15,024,520 16.99
6.501-7.000............................. 84 7,229,547 8.17
7.001-7.500............................. 6 469,628 0.53
7.501-8.000............................. 1 40,182 0.05
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
The weighted average Gross Margin of the Adjustable Rate Mortgage Loans
as of the Cut-off Date was approximately 5.905%.
S-33
<PAGE>
<PAGE>
NEXT ADJUSTMENT DATES FOR THE ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Month of Next Adjustment Date of Loans the Cut-off Date the Cut-off Date
- ----------------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
11/01/1997.............................. 4 632,461 0.72
12/01/1997.............................. 31 5,358,244 6.06
01/01/1998.............................. 40 4,515,626 5.11
02/01/1998.............................. 29 3,627,574 4.10
03/01/1998.............................. 4 251,140 0.28
04/01/1998.............................. 1 76,804 0.09
06/01/1998.............................. 9 1,455,019 1.65
07/01/1998.............................. 26 3,779,798 4.27
08/01/1998.............................. 16 2,527,570 2.86
09/01/1998.............................. 3 658,089 0.74
10/01/1998.............................. 1 171,895 0.19
03/01/1999.............................. 2 170,463 0.19
04/01/1999.............................. 1 25,858 0.03
05/01/1999.............................. 18 1,721,907 1.95
06/01/1999.............................. 154 16,769,986 18.96
07/01/1999.............................. 213 25,424,292 28.74
08/01/1999.............................. 183 19,817,723 22.41
09/01/1999.............................. 3 428,500 0.48
06/01/2000.............................. 1 171,457 0.19
07/01/2000.............................. 5 417,790 0.47
08/01/2000.............................. 1 99,953 0.11
06/01/2002.............................. 1 347,629 0.39
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
As of the Cut-off Date, the weighted average next Adjustment Date of the
Adjustable Rate Mortgage Loans was April, 1999.
INITIAL FIXED RATE PERIODS AND ORIGINAL TERMS TO MATURITY OF
ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Initial Fixed Term/ Number Outstanding as of Outstanding as of
Original Term to Maturity of Loans the Cut-off Date the Cut-off Date
- ------------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
Two Years/Thirty Years.................. 574 64,701,444 73.15
Six Months/Various Years................ 108 14,377,202 16.25
One Year/Thirty Years................... 53 8,248,637 9.33
Three Years/Thirty Years................ 7 689,201 0.78
Five Years/Thirty Years................. 1 347,629 0.39
Two Years/Fifteen Years................. 3 85,665 0.10
--- ----------- ------
Total............................... 746 $88,449,778 100.00%
</TABLE>
S-34
<PAGE>
<PAGE>
PERIODIC RATE ADJUSTMENT CAPS OF ADJUSTABLE RATE MORTGAGES
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Periodic Rate Cap of Loans the Cut-off Date the Cut-off Date
- ----------------- -------- ----------------- -----------------
<S> <C> <C> <C>
1.00%................................... 745 88,413,811 99.96
1.50%................................... 1 35,967 0.04
--- ----------- -------
Total............................... 746 $88,449,778 100.00%
</TABLE>
The Index
As of any Adjustment Date, the Index applicable to the determination of
the Mortgage Rate on each Adjustable Rate Mortgage Loan will be the average of
the interbank offered rates for six-month United States dollar deposits in the
London market as published in The Wall Street Journal and as most recently
available either (i) as of the first business day 45 days prior to such
Adjustment Date or (ii) as of the first business day of the month preceding the
month of such Adjustment Date, as specified in the related Mortgage Note.
In the event that the Index becomes unavailable or otherwise
unpublished, the Master Servicer will select a comparable alternative index over
which it has no direct control and which is readily verifiable.
The table below sets forth historical average rates of six-month LIBOR
for the months indicated as made available from FNMA, which rates may differ
from the rates of the Index, which is six-month LIBOR as published in The Wall
Street Journal as described above. The table does not purport to be
representative of the subsequent rates of the Index which will be used to
determine the Mortgage Rate on each Adjustable Rate Mortgage Loan.
<TABLE>
<CAPTION>
Year
------------------------------------------------------
Month 1997 1996 1995 1994 1993 1992 1991 1990
- ----- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January................................. 5.71 5.34% 6.69% 3.39% 3.44% 4.25% 7.13% 8.44%
February................................ 5.68 5.29 6.44 4.00 3.33 4.38 6.89 8.44
March................................... 5.96 5.52 6.44 4.25 3.38 4.55 6.53 8.69
April................................... 6.08 5.42 6.31 4.63 3.31 4.27 6.31 9.00
May..................................... 6.01 5.64 6.06 5.00 3.44 4.25 6.19 8.50
June.................................... 5.94 5.84 5.88 5.25 3.56 4.13 6.56 8.44
July.................................... 5.83 5.92 5.88 5.33 3.56 3.63 6.31 8.05
August.................................. 5.86 5.74 5.94 5.33 3.44 3.63 5.88 8.19
September............................... 5.75 5.99 5.69 3.38 3.31 5.69 8.42
October................................. 5.58 5.95 6.00 3.50 3.64 5.36 8.06
November................................ 5.55 5.74 6.44 3.52 3.89 4.94 8.38
December................................ 5.62 5.56 7.00 3.50 3.64 4.25 7.56
</TABLE>
Underwriting Standards; Representations
The Mortgage Loans will be acquired by the Depositor from the Mortgage
Loan Seller on the Closing Date. All of the Mortgage Loans were originated or
acquired by Ocwen Financial Services, Inc. (the "Originator"), generally in
accordance with the underwriting criteria described herein. LMAC, Inc. will
acquire the Mortgage Loans contemporaneously with the transfer of the Mortgage
Loans by LMAC, Inc. to the Depositor.
The Originator's underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. All of the Mortgage Loans were
S-35
<PAGE>
<PAGE>
also underwritten with a view toward the resale thereof in the secondary
mortgage market. While the Originator's primary consideration in underwriting a
mortgage loan is the value of the mortgaged property, the Originator also
considers, among other things, a mortgagor's credit history, repayment ability
and debt service-to- income ratio ("Debt Ratio"), as well as the type and use of
the mortgaged property. Second lien financing of the mortgaged properties may be
provided by lenders at any time (including at origination), in which case the
combined loan-to-value ratios of such related mortgage loans may not exceed
100%. The Originator, however, will not itself provide second lien financing on
a mortgaged property. The Mortgage Loans generally bear higher rates of interest
than mortgage loans that are originated in accordance with FNMA and FHLMC
standards which is likely to result in rates of delinquencies and foreclosures
that are higher, and that may be substantially higher, than those experienced by
portfolios of mortgage loans underwritten in a more traditional manner. Unless
prohibited by state law or otherwise waived by the Originator upon payment by
the related mortgagor of higher origination fees and a higher Mortgage Rate, a
majority of the Mortgage Loans provide for the payment by the mortgagor of a
prepayment charge in limited circumstances on certain full or partial
prepayments made within one year, two years, three years or five years from the
date of origination of the related Mortgage Loan as described under "--General"
above. The amount of the prepayment charge is as provided in the related
Mortgage Note but is generally equal to six months' interest on any amounts
prepaid in excess of 20% of the then outstanding principal balance of the
related Mortgage Loan in any 12 month period.
As a result of the Originator's underwriting criteria, changes in the
values of Mortgaged Properties may have a greater effect on the Originator's
delinquency, foreclosure and loss experience than on those of lenders whose
mortgage loans are originated in a more traditional manner. No assurance can be
given that the values of the Mortgaged Properties have remained or will remain
at the levels in effect on the dates of origination of the related Mortgage
Loans. Approximately 53.0% and 9.7% of the Fixed Rate Mortgage Loans, each by
aggregate principal balance of the related Mortgage Loans as of the Cut-off
Date, are secured by Mortgaged Properties located in the State of California and
Florida. Approximately 23.1% and 10.8% of the Adjustable Rate Mortgage Loans,
each by aggregate principal balance of the Mortgage Loans as of the Cut-off
Date, are secured by Mortgaged Properties located in the States of California
and Illinois, respectively. If the California, Florida or Illinois residential
real estate markets should experience an overall decline in property values
after the dates of origination of the Mortgage Loans, the rates of
delinquencies, foreclosures and losses on the Mortgage Loans may increase over
historical levels of comparable type loans, and may increase substantially.
All originations by the Originator of one- to four-family residential
mortgage loans are based on loan application packages submitted through approved
correspondents and brokers. Such loan application packages, which generally
contain relevant credit, property and underwriting information on the loan
request, are compiled by the applicable correspondent or broker and submitted to
the Originator for approval and purchase. The correspondents and brokers receive
all or a portion of the loan origination fee charged to the borrower at the time
the loan is made. As part of their quality control procedures, the Originator
maintains a file with respect to each correspondent and broker including a copy
of such correspondent's or broker's license and reports of any complaints
received with respect to such correspondent or their brokers.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's liabilities, income, credit history,
employment history and personal information. The 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, bankruptcies, repossessions, or judgments. Properties that are to
secure single-family (otherwise referred to herein as one- to four-family)
mortgage loans are appraised or reviewed by qualified independent appraisers who
are approved by the Originator's internal appraisal department. Such appraisers
inspect the interior and/or exterior and appraise the subject property and
report the property condition. Following each inspection, the appraiser prepares
a report which includes a market value analysis based on recent sales of
comparable homes in the area and, when deemed appropriate, replacement cost
analysis based on the current cost of constructing a similar home. 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. Every independent
appraisal is reviewed by either the Originator or by another independent
appraiser approved by the Originator before the mortgage loan is made and to the
extent that such review appraisal determines a market
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value more than five percent less than the market value determined by the
initial appraisal, such review appraisal is used in place of the initial
appraisal.
The Mortgage Loans were underwritten by the Originator's regular lending
divisions pursuant to the Originator's "Full Documentation," "Lite
Documentation," and "Stated Income Documentation" residential loan programs.
Under each of the programs, the Originator's regular lending divisions review
the loan applicant's source of income, calculate the amount of income from
sources indicated on the loan application or similar documentation, review the
credit history of the applicant, calculate the Debt Ratio to determine the
applicant's ability to repay the loan, review the type and use of the property
being financed and review the property for compliance with the Originator's
standards. In determining the ability of the applicant to repay the loan, the
Originator uses the interest rate of the loan being applied for (the "Qualifying
Rate"). The Originator's underwriting standards are applied in a standardized
procedure which complies with applicable federal and state laws and regulations
and requires their underwriters and/or the in-house appraiser to be satisfied
that the value of the property being financed, as indicated by an appraisal and
a review appraisal, currently supports the outstanding loan balance.
In general, the maximum loan amount for mortgage loans originated under
the regular lending program is $750,000; however, mortgage loans on a case by
case basis may be originated for a higher loan amount. None of the Mortgage
Loans has a principal balance at origination higher than $1,280,000. The
Originator underwrites one- to four-family loans with Loan-to-Value Ratios at
origination of generally up to 90%, depending on, among other things, the
purpose of the mortgage loan, a mortgagor's credit history, repayment ability
and Debt Ratio, as well as the type and use of the property. Under each class of
underwriting criteria, the maximum combined loan-to-value ratio at origination,
including any then existing second deeds of trust subordinate to the
Originator's first deed of trust, is 100%. The Originator, however, will not
itself provide second lien financing on a mortgaged property. Generally, none of
the mortgage loans originated or acquired by the Originator will be covered by a
primary mortgage insurance policy.
The Originator verifies the income of each borrower and the source of
funds under their various programs as follows: under the Full Documentation
program, borrowers are generally required to submit verification of stable
income for a two year period. Under the Lite Documentation program, borrowers
are generally required to submit verification of stable employment for the past
six months. Under the Stated Income program, the borrowers may be qualified
based upon the monthly income stated on the mortgage application, without
verification. The income stated must be reasonable and customary for the
borrower's line of work and a copy of the business license is required or other
generally acceptable evidence of business conduct. Under all of the programs,
the correspondent, or an Originator if originated by an Originator, generally
performs a telephone verification of the borrower's employment. For
self-employed borrowers the business location and telephone number must be
confirmed through an independent source, such as directory assistance or a
published telephone directory.
The Originator uses the following categories and characteristics as
guidelines to grade the mortgage loans:
"A" RISK. Under the "A" risk category, account ratings cannot be greater than
30-days past due. A maximum of 0x30-day late payment in the last 12 months, and
1x30 day late payment in the last 24 months is acceptable (or 0x30 for mortgage
loans originated under the Lite Documentation and Stated Income Documentation
programs). No 60-day late payments within the last 24 months is acceptable on an
existing mortgage loan. For purposes of determining whether a prospective
mortgagor has been 30-days late, the Originator uses a "rolling 30-day period,"
i.e. the Originator generally will consider a continuous sequence of 30-day late
payments as a single 30-day late payment. All judgments, garnishments and liens
of record must be paid in full at funding. No bankruptcies may have occurred
during the preceding 24 months and no notice of default may have occurred in the
preceding 36 months. All bankruptcies must have been discharged or dismissed.
Two years re-established excellent credit since discharge or dismissal is
required. A maximum Loan-to-Value Ratio of 90% (or 85% for mortgage loans
originated under the Lite Documentation and Stated Income Documentation
programs) is permitted for a mortgage loan on a single family owner occupied
property. A maximum of 85% Loan-to-Value Ratio is permitted for a mortgage loan
on an owner occupied condominium or two- to four-family residential property
originated under the Full Documentation program. All nonowner occupied loans
have a maximum Loan-to-Value Ratio of
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80% (or 75% and 70% for mortgage loans originated under the Lite Documentation
or Stated Income Documentation programs, respectively). The required Debt Ratio
is 45% or less.
"A-" RISK. Under the "A-" risk category, account ratings cannot be greater than
30-days past due. A maximum of 2x30-day late payments in the last 12 months is
acceptable on a mortgage loan. No 60-day late payments within the last 24 months
is acceptable on an existing mortgage loan. For purposes of determining whether
a prospective mortgagor has been 30-days late, the Originator uses a "rolling
30-day period," i.e. the Originator generally will consider a continuous
sequence of 30-day late payments as a single 30-day late payment. An existing
mortgage loan is not required to be current at the time the application is
submitted. All judgments, garnishments and liens of record must be paid in full
at funding. When the Loan-to-Value Ratio is equal to 80% or less, judgments and
collections that do not appear in the public records need not be paid on
rate/term refinances (no cash to borrowers) and purchases only. No bankruptcies
may have occurred in the preceding 12 months. All bankruptcies must have been
discharged or dismissed. No notice of default may have occurred in the preceding
24 months. One year of reestablished credit since discharge or dismissal is
required. A maximum Loan-to-Value Ratio of 90% (or 85% for mortgage loans
originated under the Lite Documentation or Stated Income Documentation programs)
is permitted for a mortgage loan on a single family owner occupied property. A
maximum of 85% Loan-to-Value Ratio is permitted for a mortgage loan on an owner
occupied condominium or two- to four-family residential property under the Full
Documentation program only. Non-owner occupied loans have a maximum
Loan-to-Value Ratio of 80% under the Full Documentation program or 75% under the
Lite Documentation program (or 70% for mortgage loans originated under the
Stated Income program). The maximum Debt Ratio is 50%.
"B" RISK. Under the "B" risk category, account ratings cannot be greater than
60-days past due. A maximum of 4x30 or 2x30 and 1x60 day late payments in the
last 12 months is acceptable on a mortgage loan. For purposes of determining
whether a prospective mortgagor has been 30-days late, the Originator uses a
"rolling 30-day period, i.e. the Originator generally will consider a continuous
sequence of 30-day late payments as a single 30-day late payment. An existing
mortgage loan is not required to be current at the time the application is
submitted. All judgments, garnishments and liens of record must be paid in full
at funding. When the Loan-to-Value Ratio is equal to 80% or less, judgments and
collections that do not appear in the public records need not be paid on
rate/term refinances (no cash to borrowers) and purchases only. No bankruptcies
may have occurred in the preceding 12 months. All bankruptcies must have been
discharged or dismissed. One year's re-established credit since discharge of
dismissal is required. No notice of default may have occurred in the preceding
24 months. A maximum Loan-to-Value Ratio of 85% (or 80% for mortgage loans
originated under the Lite Documentation program or 80% under the Stated Income
Documentation program) is permitted for an owner occupied mortgage loan
regardless of the property type. Non-owner occupied loans have a maximum
Loan-to-Value Ratio of 75% under the Full Documentation, 70% under the Lite
Documentation and 65% under the Stated Income Documents programs. The maximum
Debt Ratio is 55%.
"C" RISK. Under the "C" risk category, account ratings cannot be greater than
90-days past due. The majority of the credit must not be currently delinquent. A
maximum of 6x30 or 3x30 and 1x60 or 2x30 and 1x90 day late payments in the last
12 months is acceptable. For purposes of determination whether a prospective
mortgagor has been 30-days late, the Originator uses a "rolling 30-day period,"
i.e. the Originator generally will consider a continuous sequence of 30-day late
payments as a single 30-day late payment. An existing mortgage loan is not
required to be current at the time the application is submitted. When the
Loan-to-Value Ratio is equal to 80% or less, judgments and collections that do
not appear in the public records need not be paid on rate/term refinances (no
cash to borrowers) and purchases only. A mortgagor may be in Chapter 11 or
Chapter 13 bankruptcy proceedings immediately prior to the mortgage loan by the
Originator or have been in bankruptcy proceedings within the preceding one year
if the mortgagor has remained current on existing mortgage loan payments for the
preceding twelve months, has emerged from such bankrtupcy proceedings prior to
or contemporaneously with the making of such mortgage loan by the Originator and
the Loan-to-Value Ratio of the mortgage loan extended by the Originator does not
exceed 70%. No notice of default may have occurred in the preceding 12 months. A
maximum Loan-to-Value Ratio of 75% is permitted for an owner occupied mortgage
loan regardless of the property type. Non-owner occupied loans have a maximum
Loan-to-Value Ratio of 70% under the Full
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Documentation, 65% under the Lite Documentation and 60% under the Stated Income
Documentation programs. The maximum Debt Ratio is 60%.
"D" RISK. Under the "D" risk category, account ratings cannot be greater than
180-days past due in the last 12 months. A maximum 120 days past due (or over
120 days with a Loan-to-Value ratio of 70% or less) in the last 12 months is
acceptable. No notice of sale can be filed on any notice of default. For
purposes of determining whether a prospective mortgagor has been 30-days late,
the Originator uses a "rolling 30-day period," i.e. the Originator generally
will consider a continuous sequence of 30-day late payments as a single 30-day
late payment. An existing mortgage loan is not required to be current at the
time the application is submitted. Judgments and collections that do not appear
in the public records need not be paid on rate/term refinances (no cash to
borrowers) and purchases only. The mortgagor cannot be currently in bankruptcy
on a purchase but a recent discharge or dismissal is allowed. On refinances the
mortgagor can be currently in a Chapter 11 or 13 bankruptcy. The proceeds can be
used to obtain the bankruptcy discharge. A maximum Loan-to-Value Ratio of 75% is
permitted for an owner occupied mortgage loan regardless of the property type.
Non-owner occupied loans have a maximum Loan-to-Value Ratio of 60% under the
Full Documentation, 55% under the Lite Documentation and 50% under the Stated
Income Documentation programs. The maximum Debt Ratio is 60%.
"D-" RISK. Under the "D-" risk category, account ratings are not taken into
consideration. Notice of sale can be filed on any notice of default. For
purposes of determining whether a prospective mortgagor has been 30-days late,
the Originator uses a "rolling 30-day period," i.e. the Originator generally
will consider a continuous sequence of 30-day late payments as a single 30-day
late payment. An existing mortgage loan is not required to be current at the
time the application is submitted. Judgments and collections that do not appear
in the public records need not be paid on rate/term refinances (no cash to
borrowers) and purchases only. The mortgagor can be currently in bankruptcy and
proceeds can be used to obtain the bankruptcy discharge. A maximum Loan-to-Value
Ratio of 70% is permitted for an owner occupied mortgage loan regardless of the
property type. Non-owner occupied loans are allowed at a maximum Loan-to- Value
Ratio of 60% regardless of the documentation program. The maximum Debt Ratio is
60%.
EXCEPTIONS. As described above the Originator uses the foregoing categories and
characteristics as guidelines only. On a case by case basis only, the Originator
may determine that the prospective mortgagor warrants a risk upgrade or an
exception from certain requirements of a particular risk category. A one level
credit upgrade in "B" and "C" risk grade loans only may be allowed if the
application reflects certain compensating factors, among others: low
Loan-to-Value Ratio, stable employment, ownership of current residence of 5 or
more years and condition of the property. An exception may also be granted if
the applicant has tendered a minimum down payment of 20% or more, the new loan
reduces the applicant's housing expense by more than 25% and if the mortgage
credit history is rated 0x30 or 1x30 in the last 12 months.
The Originator will make representations and warranties with respect to the
Mortgage Loans as of the Closing Date. The Originator will be obligated to
repurchase Mortgage Loans in respect of which a material breach of the
representations and warranties has occurred (other than those breaches which
have been cured).
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 the principal payments
received on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Certificates unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range of Mortgage Rates and maturities and
certain other characteristics of the Mortgage Loans may vary.
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YIELD ON THE CERTIFICATES
Certain Shortfalls in Collections of Interest
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of such prepayment, instead of for a
full month. When a partial principal prepayment is made on a Mortgage Loan, the
mortgagor is not charged interest on the amount of such prepayment for the month
in which such prepayment is made. In addition, the application of the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), to any
Mortgage Loan will adversely affect, for an indeterminate period of time, the
ability of the Master Servicer to collect full amounts of interest on such
Mortgage Loan. The Policy covers Prepayment Interest Shortfalls but does not
cover Relief Act Shortfalls. See "Certain Legal Aspects of the Mortgage
Loans -- Soldiers' and Sailors' Civil Relief Act of 1940" in the Prospectus.
Regarding those interest shortfalls attributable to full and partial prepayments
by the mortgagors on the Mortgage Loans ("Prepayment Interest Shortfalls"), the
Master Servicer is obligated to pay from its own funds such shortfalls, but only
to the extent of one-half of its servicing compensation for the related
Collection Period. See "Pooling and Servicing Agreement -- Servicing and Other
Compensation and Payment of Expenses" herein. The effect of any shortfalls
resulting from the application of the Relief Act, will be to reduce the
aggregate amount of interest collected that is available for distribution to
Certificateholders. Any such shortfalls will be allocated among the Certificates
as provided herein under "Description of the Certificates -- Interest
Distributions" and " -- Overcollateralization Provisions."
General Prepayment Considerations
The rate of principal payments on the Class A Certificates, the
aggregate amount of distributions on the Class A Certificates and the yield to
maturity of the Class A Certificates will be related to the rate and timing of
payments of principal on the related Mortgage Loans. The rate of principal
payments on the Mortgage Loans will in turn be affected by the amortization
schedules of such Mortgage Loans and by the rate of principal prepayments
thereon (including for this purpose payments resulting from refinancings,
liquidations of the Mortgage Loans due to defaults, casualties, condemnations
and repurchases, whether optional or required, by the Depositor or the Mortgage
Loan Seller, as the case may be). The Mortgage Loans generally may be prepaid by
the mortgagors at any time; however, as described under "The Mortgage Pool"
herein, with respect to a majority of the Mortgage Loans, a prepayment may
subject the related mortgagor to a prepayment charge.
Prepayments, liquidations and repurchases of the Mortgage Loans will
result in distributions in respect of principal to the holders of the Class A
Certificates then entitled to receive such distributions that otherwise would be
distributed over the remaining terms of the Mortgage Loans. See "Maturity and
Prepayment Considerations" in the Prospectus. Since the rates of payment of
principal on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the rate of principal prepayments. The extent to
which the yield to maturity of the Class A Certificates may vary from the
anticipated yield will depend upon the degree to which such Certificates are
purchased at a discount or premium and the degree to which the timing of
payments thereon is sensitive to prepayments on the related Mortgage Loans.
Further, in the case of Class A Certificates purchased at a discount, an
investor should consider the risk that a slower than anticipated rate of
principal payments on the related Mortgage Loans could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
Class A Certificates purchased at a premium, an investor should consider the
risk that a faster than anticipated rate of principal payments could result in
an actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a prepayment of principal on the Mortgage Loans, the
greater will be the effect on the yield to maturity of an investor in the Class
A Certificates. As a result, the effect on an investor's yield of principal
payments occurring on the related Mortgage Loans at a rate higher (or lower)
than the rate anticipated by the investor during the period immediately
following the issuance of the Class A Certificates would not be fully offset by
a subsequent like reduction (or increase) in the rate of principal payments.
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It is highly unlikely that the Mortgage Loans will prepay at any
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same rate, and the prepayment charges imposed in connection with prepayments
on certain of the Mortgage Loans will have an uncertain effect on the rate and
timing of prepayments on the Mortgage Loans. Moreover, the timing of prepayments
on the Mortgage Loans may significantly affect the actual yield to maturity on
the Class A Certificates, even if the average rate of principal payments
experienced over time is consistent with an investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if prevailing mortgage rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment on the Mortgage
Loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. There can be no certainty as to the rate of prepayments on the
Mortgage Loans during any period or over the life of the Certificates. See
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
Prospectus.
In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. In addition, default rates generally are
higher for mortgage loans used to refinance an existing mortgage loan. In the
event of a mortgagor's default on a Mortgage Loan, other than as provided by the
Policy as described herein, there can be no assurance that recourse will be
available beyond the specific Mortgaged Property pledged as security for
repayment. See "The Mortgage Pool -- Underwriting Standards; Representations"
herein.
Balloon Mortgage Loans
The Balloon Mortgage Loans in the Trust Fund will not be fully
amortizing over their terms to maturity, and will require substantial principal
payments at their stated maturity. Balloon Mortgage Loans involve a greater
degree of risk than self-amortizing loans because the ability of a mortgagor to
make a Balloon Payment typically will depend upon its ability either to fully
refinance the Balloon Mortgage Loan or to sell the related Mortgaged Property at
a price sufficient to permit the mortgagor to make the Balloon Payment. The
ability of a mortgagor to accomplish either of these goals will be affected by a
number of factors, including the value of the related Mortgaged Property, the
level of available mortgage rates at the time of sale or refinancing, the
mortgagor's equity in the related Mortgaged Property, tax laws, prevailing
general economic conditions and the availability of credit for loans secured by
residential property. Because the ability of a mortgagor to make a Balloon
Payment typically will depend upon its ability either to refinance the Balloon
Mortgage Loan or to sell the related Mortgaged Property, there is a risk that
the Balloon Mortgage Loans may default at maturity. Any defaulted Balloon
Payment that extends the maturity of a Balloon Mortgage Loan may delay
distributions of principal on the Class A Certificates and thereby extend the
weighted average life of the Class A Certificates and, if the Class A
Certificates were purchased at a discount, reduce the yield thereon.
Special Yield Considerations with respect to the Mortgage Loans
Because the Mortgage Rates on the Fixed Rate Mortgage Loans are fixed,
such rates will not change in response to changes in market interest rates.
Accordingly, if mortgage market interest rates or market yields for securities
similar to the Class A Certificates were to rise, the market value of the Class
A Certificates may decline in cases where the Pass-Through Rate did not increase
accordingly.
The Mortgage Rates on the Adjustable Rate Mortgage Loans adjust
semi-annually based upon the Index, whereas the Pass-Through Rate on the Class A
Certificates adjusts monthly based upon One-Month LIBOR as described under
"Description of the Certificates -- Calculation of One-Month LIBOR" herein,
subject to the Available Funds Pass-Through Rate and the Maximum Pass Through
Rate, with the result that increases in the Pass-Through Rate on the Class A
Certificates may be limited for extended periods in a rising interest rate
environment. In
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addition, because the Pass-Through Rate is determined, to some extent, by the
Mortgage Rates on the Fixed Rate Mortgage Loans, in certain instances, such
limitation may be a permanent one. Investors should note that approximately
83.7% of the Adjustable Rate Mortgage Loans are Delayed First Adjustment
Mortgage Loans. The interest due on the Adjustable Rate Mortgage Loans during
any Collection Period may not equal the amount of interest that would accrue at
One-Month LIBOR plus the applicable spread on the Class A Certificates during
the related Interest Accrual Period, however, any such shortfall will be payable
to the holders of the Class A Certificates as limited by the Maximum Pass-Though
Rate to the extent and in the priority provided herein. In addition, the Index
and One-Month LIBOR may respond differently to economic and market factors.
Thus, it is possible, for example, that if both One-Month LIBOR and the Index
rise during the same period, One-Month LIBOR may rise more rapidly than the
Index or may rise higher than the Index, potentially resulting in a Basis Risk
Shortfall to holders of the Class A Certificates. The Policy does not cover
Basis Risk Shortfalls or Unpaid Basis Risk Shortfalls.
Weighted Average Lives
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average lives of the Class
A Certificates will be influenced by the rate at which principal on the related
Mortgage Loans is paid, which may be in the form of scheduled payments or
prepayments (including prepayments of principal by the borrower as well as
amounts received by virtue of condemnation, insurance or foreclosure with
respect to the Mortgage Loans), and the timing thereof.
Distributions of principal to the holders of the Class A Certificates
will be made on a pro rata basis. The weighted average life of the Class A
Certificates will be affected by the rates of prepayment on the Mortgage Loans.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
"Prepayment Assumption") assumes a prepayment rate for the Fixed Rate Mortgage
Loans of 100% of the Prepayment Vector, and a prepayment rate for the Adjustable
Rate Mortgage Loans of 25% CPR. A 100% Prepayment Vector assumes that the
outstanding balance of a pool of mortgage loans prepays at a rate of 4% CPR in
the first month of the life of such pool, such rate increasing by an additional
approximate 1.636% CPR each month thereafter through the twelfth month of the
life of such pool, and such rate thereafter remaining at 22% CPR for the
remainder of the life of such pool. An 80% Prepayment Vector assumes, for
example, that the outstanding balance of a pool of mortgage loans prepays at a
rate of 3.2% CPR in the first month of the life of such pool, such rate
increasing by an additional approximate 1.309% CPR each month thereafter through
the twelfth month of the life of such pool, and such rate thereafter remaining
at 17.6% CPR for the remainder of the life of such pool. No representation is
made that the Fixed Rate Mortgage Loans will prepay at the above-described rates
or any other rate. The Constant Prepayment Rate model ("CPR"), assumes that the
outstanding principal balance of a pool of mortgage loans prepays at a specified
constant annual rate or CPR. In generating monthly cash flows, this rate is
converted to an equivalent constant monthly rate. To assume 25% CPR or any other
CPR percentage is to assume that the stated percentage of the outstanding
principal balance of the pool is prepaid over the course of a year. No
representation is made that the Adjustable Rate Mortgage Loans will prepay at
25% CPR or any other rate.
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Rate Mortgage Loans(1) 0% 50% 100% 150% 200%
Adjustable Rate Mortgage Loans(2) 0% 15% 25% 40% 50%
</TABLE>
- -------
(1) As a percentage of the Prepayment Vector.
(2) As a constant prepayment rate (CPR).
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The table following the next paragraph indicates the percentage of the
initial Certificate Principal Balance of the Class A Certificates that would be
outstanding after each of the dates shown at various percentages of the
Prepayment Assumption and the corresponding weighted average lives of the Class
A Certificates. The table is based on the following assumptions (the "Modeling
Assumptions"): (i) the Mortgage Pool consists of 26 Mortgage Loans with the
characteristics set forth in the table below, (ii) distributions on such
Certificates are received, in cash, on the 25th day of each month, commencing in
October 1997, (iii) the Mortgage Loans prepay at the percentages of the
Prepayment Assumption indicated, (iv) no defaults or delinquencies occur in the
payment by mortgagors of principal and interest on the Mortgage Loans and no
shortfalls due to the application of the Relief Act are incurred, (v) none of
the Depositor, the Mortgage Loan Seller, the majority holder of the Subordinated
Certificates, the Insurer, the Master Servicer or any other person purchases
from the Trust Fund any Mortgage Loan pursuant to any obligation or option under
the Agreement, except as indicated in footnote two in the tables, (vi) scheduled
monthly payments on the Mortgage Loans are received on the first day of each
month commencing in October 1997, and are computed prior to giving effect to any
prepayments received in the prior month, (vii) prepayments representing payment
in full of individual Mortgage Loans are received on the last day of each month
commencing in September 1997, and include 30 days' interest thereon, (viii) the
scheduled monthly payment for each Mortgage Loan is calculated based on its
principal balance, Mortgage Rate, original term to maturity and remaining term
to maturity such that the Mortgage Loan will amortize in amounts sufficient to
repay the remaining principal balance of such Mortgage Loan by its remaining
term to maturity, (ix) the Certificates are purchased on September 25, 1997, (x)
the Index remains constant at 5.84375% per annum and the Mortgage Rate on each
Adjustable Rate Mortgage Loan is adjusted on the next Adjustment Date (and on
subsequent Adjustment Dates if necessary) to equal the Index plus the applicable
Gross Margin, subject to the applicable Periodic Rate Cap, (xi) One-Month LIBOR
remains constant at 5.65625% per annum, (xii) the monthly payment on each
Adjustable Rate Mortgage Loan is adjusted on the Due Date immediately following
the next Adjustment Date (and on subsequent Adjustment Dates, if necessary) to
equal a fully amortizing monthly payment as described in clause (viii) above and
(xiii) the Aggregate Expense Rate is 0.71%.
Assumed Mortgage Loan Characteristics
<TABLE>
<CAPTION>
Original Remaining Months to
Principal Balance Term Term Next Maximum Initial Sugsequent
as of the Fixed Rate or Mortgage to Maturity to Maturity Adjustment Gross Mortgage Periodic Periodic Rate
Cut-off Date Adjustable Rate Rate(%) (Months) (Months) Date Margin(%) Rate(%) Rate Cap(%) Cap(%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 707,369.94 Fixed 10.880 360 358(1) N/A N/A N/A N/A N/A
1,623,132.63 Fixed 10.336 180 177 N/A N/A N/A N/A N/A
120,303.05 Fixed 9.750 240 238 N/A N/A N/A N/A N/A
11,300,262.87 Fixed 10.426 360 359 N/A N/A N/A N/A N/A
632,460.58 Adjustable 9.559 360 354 3 6.229 15.547 1.27 1.00
5,358,243.50 Adjustable 9.707 360 358 4 5.911 16.207 1.00 1.00
4,515,625.73 Adjustable 9.557 360 359 5 5.833 16.056 1.00 1.00
3,627,574.47 Adjustable 9.271 360 360 6 5.506 15.770 1.00 1.00
251,140.00 Adjustable 10.088 360 360 7 5.293 16.585 1.00 1.00
76,803.53 Adjustable 9.400 360 356 8 6.125 15.900 1.00 1.00
1,455,018.81 Adjustable 9.760 360 358 10 5.716 16.260 1.10 1.00
3,779,797.98 Adjustable 10.036 360 359 11 5.895 16.536 2.03 1.00
2,527,570.38 Adjustable 9.239 360 360 12 5.591 15.738 1.00 1.00
658,089.15 Adjustable 11.885 360 357 13 6.122 18.385 1.52 1.00
171,894.89 Adjustable 11.750 360 350 14 7.000 18.250 3.00 1.00
170,463.27 Adjustable 11.598 360 356 19 7.000 18.098 3.00 1.00
25,857.80 Adjustable 11.500 360 356 20 6.950 18.000 3.00 1.00
1,721,906.75 Adjustable 10.580 360 357 21 5.988 17.079 2.80 1.00
16,769,986.41 Adjustable 10.012 360 358 22 5.970 16.511 3.00 1.00
25,424,291.98 Adjustable 10.082 360 359 23 5.923 16.585 2.99 1.00
19,817,723.01 Adjustable 10.324 360 360 24 5.924 16.823 2.99 1.00
428,500.00 Adjustable 12.633 360 360 25 6.481 19.133 2.00 1.00
171,457.09 Adjustable 8.250 360 358 34 6.000 14.750 3.00 1.00
417,790.31 Adjustable 9.892 360 359 35 6.014 16.390 3.00 1.00
99,953.25 Adjustable 9.740 360 360 36 5.375 16.240 3.00 1.00
347,629.12 Adjustable 8.250 360 358 58 5.750 14.750 3.00 1.00
</TABLE>
- -------------------------------
(1) Remaining term to stated maturity is 178 months.
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<PAGE>
<PAGE>
There will be discrepancies between the characteristics of the actual
Mortgage Loans and the characteristics assumed in preparing the following table.
Any such discrepancy may have an effect upon the percentages of the initial
Certificate Principal Balance outstanding (and the weighted average life) of the
Class A Certificates set forth in the table. In addition, since the actual
Mortgage Loans will have characteristics that differ from those assumed in
preparing the table set forth below and, since it is not likely the level of the
Index will remain constant as assumed, the Class A Certificates may mature
earlier or later than indicated by the table. Based on the foregoing
assumptions, the table indicates the weighted average life of the Class A
Certificates and sets forth the percentages of the initial Certificate Principal
Balance that would be outstanding after each of the Distribution Dates shown, at
various percentages of the Prepayment Assumption. Neither the prepayment model
used herein nor any other prepayment model or assumption purports to be an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans included in the Mortgage Pool. Variations in the prepayment
experience and the balance of the related Mortgage Loans that prepay may
increase or decrease the percentages of initial Certificate Principal Balances
(and weighted average lives) shown in the following table. Such variations may
occur even if the average prepayment experience of all such Mortgage Loans
equals any of the specified percentages of the prepayment assumption.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OF THE CLASS A CERTIFICATES
OUTSTANDING AT THE SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
Date Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5
- ---- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Closing Date 100 100 100 100 100
September 25, 1998 96 83 73 59 50
September 25, 1999 96 70 54 35 24
September 25, 2000 95 59 40 20 10
September 25, 2001 95 50 30 13 6
September 25, 2002 94 42 23 8 3
September 25, 2003 93 36 17 5 1
September 25, 2004 92 30 13 3 0
September 25, 2005 91 26 9 1 0
September 25, 2006 90 22 7 1 0
September 25, 2007 89 18 5 0 0
September 25, 2008 88 16 4 0 0
September 25, 2009 86 13 3 0 0
September 25, 2010 84 11 2 0 0
September 25, 2011 82 9 1 0 0
September 25, 2012 80 8 1 0 0
September 25, 2013 77 6 0 0 0
September 25, 2014 75 5 0 0 0
September 25, 2015 72 4 0 0 0
September 25, 2016 69 3 0 0 0
September 25, 2017 65 3 0 0 0
September 25, 2018 62 2 0 0 0
September 25, 2019 57 2 0 0 0
September 25, 2020 52 1 0 0 0
September 25, 2021 47 1 0 0 0
September 25, 2022 41 0 0 0 0
September 25, 2023 34 0 0 0 0
September 25, 2024 27 0 0 0 0
September 25, 2025 19 0 0 0 0
September 25, 2026 9 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average Life in
years(1) .................... 21.13 5.71 3.32 1.95 1.44
Weighted Average Life in
years(2) .................... 21.09 5.31 3.06 1.79 1.32
</TABLE>
- -----------------
(1) The weighted average life of a Certificate is determined by (a) multiplying
the amount of each distribution of principal by the number of years from the
date of issuance of the Certificate to the related Distribution Date, (b) adding
the results and (c) dividing the sum by the initial Certificate Principal
Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the majority holder of the
Residual Certificates exercises its option to purchase the Mortgage Loans. See
"Pooling and Servicing Agreement -- Termination" herein.
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<PAGE>
<PAGE>
There is no assurance that prepayments of the Mortgage Loans will
conform to any of the levels of the Prepayment Assumption indicated in the table
above, or to any other level, or that the actual weighted average life of the
Class A Certificates of any class will conform to any of the weighted average
live set forth in the table above. Furthermore, the information contained in the
table with respect to the weighted average life of the Class A Certificates is
not necessarily indicative of the weighted average life that might be calculated
or projected under different or varying prepayment or Index level assumptions.
The characteristics of the Mortgage Loans will differ from those assumed
in preparing the table above. In addition, it is unlikely that any Mortgage Loan
will prepay at any constant percentage until maturity, that all of the Mortgage
Loans will prepay at the same rate or that, in the case of an Adjustable Rate
Mortgage Loan, the level of the Index will remain constant or at any level for
any period of time. The timing of changes in the rate of prepayments may
significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments and, in the case of Adjustable Rate
Mortgage Loans, the level of the Index is consistent with the expectations of
investors.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will consist of three classes of certificates,
designated as (i) the Class A Certificates (the "Class A Certificates"), (ii)
the Class X Certificates (the "Class X Certificates") and (iii) the Class R
Certificates (the "Residual Certificates"). Only the Class A Certificates are
offered hereby. The Class X Certificates and the Class R Certificates are
referred to herein collectively as the "Subordinated Certificates." The
Subordinated Certificates, which are not being offered hereby, will initially be
held by the Mortgage Loan Seller and may be sold at any time on or after the
Closing Date in accordance with the Agreement.
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund (the "Trust Fund") consisting primarily of a
pool (the "Mortgage Pool") of conventional, one- to four-family, first lien
mortgage loans having original terms to maturity ranging from 15 years to 30
years (the "Mortgage Loans"). The Mortgage Pool consists of fixed-rate Mortgage
Loans (the "Fixed Rate Mortgage Loans") having an aggregate principal balance as
of the Cut-off Date of approximately $13,751,068, and adjustable-rate Mortgage
Loans (the "Adjustable Rate Mortgage Loans") having an aggregate principal
balance as of the Cut-off Date of approximately $88,449,778, in each case
subject to a permitted variance as described under "The Mortgage Pool" herein.
The Class A Certificates in the aggregate will have an initial
Certificate Principal Balance of approximately $102,200,847. The Pass-Through
Rate on the Class A Certificates is adjustable and is calculated as described
under " -- Pass-Through Rate" herein. The Class A Certificates in the aggregate
initially evidence an interest of 100% in the principal of the Trust Fund. The
Class A Certificates will initially have an aggregate Certificate Principal
Balance equal to the aggregate principal balance as of the Cut-off Date of the
Mortgage Loans.
The Class A Certificates will initially be represented by one or more
global certificates registered in the name of the nominee of DTC (together with
any successor clearing agency selected by the Depositor, the "Clearing Agency"),
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be CEDE & Co. ("CEDE"). No Certificate Owner will be entitled to
receive a certificate representing such person's interest, except as set forth
below under " - Book-Entry Registration and Definitive Certificates." Unless and
until Definitive Certificates are issued under the limited circumstances
described herein, all references to actions by Certificateholders with respect
to the Class A Certificates shall refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references herein
to distributions, notices, reports and statements to Certificateholders with
respect to the Class A Certificates shall refer to distributions, notices,
reports and statements
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<PAGE>
<PAGE>
to DTC or CEDE, as the registered holder of the Class A Certificates, for
distribution to Certificate Owners in accordance with DTC procedures. See
"--Book Entry Registration and Definitive Certificates" herein.
All distributions to holders of the Class A Certificates, other than the
final distribution on the Class A Certificates, will be made by or on behalf of
the Trustee to the persons in whose names such Class A Certificates are
registered at the close of business on each Record Date, which will be the last
business day of the month preceding the month in which the related Distribution
Date occurs. Such distributions will be made either (i) by check mailed to the
address of each such Certificateholder as it appears in the Certificate Register
or (ii) upon written request to the Trustee at least five business days prior to
the relevant Record Date by any holder of Class A Certificates having an
aggregate initial Certificate Principal Balance that is in excess of $5,000,000
by wire transfer in immediately available funds to the account of such
Certificateholder specified in the request. The final distribution on the Class
A Certificates will be made in like manner, but only upon presentment and
surrender of such Class A Certificates at the corporate trust office of the
Trustee or such other location specified in the notice to Certificateholders of
such final distribution.
Book-Entry Registration and Definitive Certificates
The Class A Certificates will be issued, maintained and transferred on
the book-entry records of DTC and its Participants in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof. The Class A
Certificates will initially be represented by one or more global certificates
registered in the name of the nominee of DTC (together with any successor
clearing agency selected by the Depositor, the "Clearing Agency"), except as
provided below. The Depositor has been informed by DTC that DTC's nominee will
be CEDE & Co. ("CEDE"). No Certificate Owner will be entitled to receive a
certificate representing such person's interest, except as set forth below.
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions by Certificateholders
with respect to the Class A Certificates refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references herein
to distributions, notices, reports and statements to Certificateholders with
respect to the Class A Certificates refer to distributions, notices, reports and
statements to DTC or CEDE, as the registered holder of the Class A Certificates,
for distribution to Certificate Owners in accordance with DTC procedures.
Holders of Certificates may hold their Certificates through DTC (in the
United States) or CEDEL, S.A. ("CEDEL") or the Euroclear System ("Euroclear") in
Europe. Transfers within DTC, CEDEL or Euroclear, as the case may be, will be in
accordance with the usual rules and operating procedures of the relevant system
(in Europe) if they are participants of such systems, or indirectly through
organizations which are participants in such systems
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositaries which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC. Citibank, N.A. will act as depositary for CEDEL and The Chase
Manhattan Bank will act as depositary for Euroclear (in such capacities,
individually the "Depositary" and collectively the "Depositaries").
Transfers between Participants (as defined below) will occur in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants (each as defined below) will occur in accordance with their
respective rules and operating procedures.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. 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
S-46
<PAGE>
<PAGE>
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Beneficial owners of the Class A Certificates ("Certificate Owners") or
prospective owners, as the case may be, that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Class A Certificates may do so only through Participants
and Indirect Participants. In addition, such Certificate Owners will receive all
distributions of principal and interest on the Class A Certificates from the
Trustee or the applicable paying agent through DTC and its Participants. Under a
book-entry format, Certificateholders may receive payments after the related
Distribution Date because, while payments are required to be forwarded to CEDE &
Co., as nominee for DTC, on each such date, DTC will forward such payments to
its Participants which thereafter will be required to forward them to Indirect
Participants or Certificate Owners. The only "Certificateholder" (as such term
is used in the Agreement) will be CEDE & Co., as nominee of DTC, and the
Certificate Owners will not be recognized by the Trustee as Certificateholders
under the Agreement. Certificate Owners will be permitted to exercise the rights
of Certificate Owners under the Agreement only indirectly through DTC and its
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, 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 distributions of principal of and interest on
the Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain other entities, the ability of a
Certificate Owner to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or Euroclear Participant to a Participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a
S-47
<PAGE>
<PAGE>
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL Participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to CEDEL is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash with Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific clearance accounts. The
Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences." CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder under the Agreement on behalf of a CEDEL
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under the Agreement only at the direction of one
or more Participants to whose account with DTC the Certificates are credited.
Certificates initially issued as Book-Entry Certificates will be issued
as Definitive Certificates only if (i) DTC or the Depositor advises the Trustee
in writing that DTC is no longer willing or able to properly discharge its
responsibilities as nominee and depository with respect to the Certificates and
the Servicer is unable to locate a
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<PAGE>
<PAGE>
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC or (iii) after the occurrence of an Event of
Default, if holders of Class A Certificates evidencing not less than 51% of the
Voting Rights advise the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) to the exclusion of any
physical certificates being issued to Certificate Owners is no longer in the
best interests of Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificates. Upon
surrender by DTC of the certificate or certificates representing such
Certificates and instructions for reregistration, the Trustee will issue such
Certificates in the form of Definitive Certificates, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as Certificateholders
under the Agreement and such holders of Definitive Certificates will deal
directly with the Trustee with respect to transfers, notices and distributions.
In the event that Definitive Certificates are issued or DTC ceases to be the
clearing agency for the Certificates, the Agreement will provide that the
applicable Certificateholders will be notified of such event.
Pass-Through Rate
The Pass-Through Rate on the Class A Certificates on each Distribution
Date after the first Distribution Date will be a rate per annum equal to the
lesser of (i) One-Month LIBOR (as defined herein) plus 0.21%, in the case of
each Distribution Date through and including the Distribution Date on which the
Aggregate Principal Balance (as defined herein) of the Mortgage Loans is reduced
to 10% or less of the Aggregate Principal Balance of the Mortgage Loans as of
the Cut-off Date, or One-Month LIBOR plus 0.42% per annum, in the case of any
Distribution Date thereafter and (ii) the weighted average of the Mortgage Rates
on the Mortgage Loans as of the first day of the related Collection Period, less
the Aggregate Expense Rate (the "Adjusted WAC Rate"). The "Aggregate Expense
Rate" equals the sum of (a) the Servicing Fee Rate, (b) the Trustee Fee Rate,
(c) the Insurance Premium Rate and (d) commencing on the sixth Distribution
Date, 0.75% per annum. The sum of the Servicing Fee Rate, the Trustee Fee Rate
and the Insurance Premium Rate will be approximately 0.71% per annum. For the
first Distribution Date, the Pass-Through Rate on the Class A Certificates will
be set two business days prior to the Closing Date.
With respect to any Distribution Date, to the extent that (a) the amount
payable if clause (i) of the definition of Pass-Through Rate above is used to
calculate interest exceeds (b) the Adjusted WAC Rate (the "Basis Risk
Shortfall"), the holders of the Class A Certificates will be entitled to the
amount of such Basis Risk Shortfall with interest thereon at the Pass-Through
Rate for such Certificates applicable from time to time after certain
distributions to the Insurer but before the Subordinated Certificates are
entitled to any distributions. The Class A Certificateholders will be entitled
to receive the amount of such Basis Risk Shortfall from a reserve fund (the
"Basis Risk Reserve Fund") established pursuant to an agreement (the "Interest
Rate Cap Agreement") entered into by the Mortgage Loan Seller which is secured
by the Class X Certificates and payments thereon. Notwithstanding the foregoing,
the amount of the Basis Risk Shortfall for any Distribution Date may not exceed
the excess of (x) the amount payable at the Maximum Class A Pass-Through Rate
over (y) the amount payable at the Adjusted WAC Rate. The "Unpaid Basis Risk
Shortfall" for the Class A Certificates on any Distribution Date is equal to the
aggregate of all Basis Risk Shortfalls for any previous Distribution Dates,
together with interest thereon at the Pass-Through Rate, less all payments made
to the holders of the Class A Certificates in respect of such Basis Risk
Shortfalls on or prior to such Distribution Date. The Policy will not cover
Basis Risk Shortfalls or Unpaid Basis Risk Shortfalls. See "Description of the
Certificates -- Overcollateralization Provisions" and " -- Financial Guaranty
Insurance Policy" herein.
The "Maximum Class A Pass-Through Rate" for any Distribution Date is a
per annum rate equal to the weighted average of the Maximum Mortgage Rates (as
defined herein) less the Aggregate Expense Rate.
The Pass-Through Rate on the Class A Certificates for the current
Interest Accrual Period, to the extent it has been determined, and for the
immediately preceding Interest Accrual Period may be obtained by telephoning the
Trustee at (713) 216-4181.
S-49
<PAGE>
<PAGE>
Interest Distributions
Distributions in respect of interest on each Distribution Date will be
made to the holders of the Class A Certificates in an amount equal to the
Interest Distribution Amount.
The Interest Distribution Amount on any Distribution Date is equal to
interest accrued during the related Interest Accrual Period on the Certificate
Principal Balance thereof immediately prior to such Distribution Date at the
then applicable Pass-Through Rate, reduced (to not less than zero), by any
shortfalls resulting from the application of the Relief Act.
Distributions of the Interest Distribution Amount will be made on each
Distribution Date, commencing with the first Distribution Date. The Interest
Accrual Period for any Distribution Date is the period commencing on the
preceding Distribution Date (or, in the case of the first period, commencing on
the Closing Date) and ending on the day preceding the current Distribution Date,
and all distributions of interest will be based on a 360-day year and the actual
number of days in the applicable Interest Accrual Period.
Subject to the terms of the Policy, any interest losses allocable to the
Class A Certificates (other than shortfalls resulting from the application of
the Relief Act, Basis Risk Shortfalls and Unpaid Basis Risk Shortfalls) will be
covered under the Policy. Notwithstanding the foregoing, if payments are not
made as required under the Policy, any such interest losses may be allocated to
the Class A Certificates.
The Certificate Principal Balance of a Class A Certificate outstanding
at any time represents the then maximum amount that the holder thereof is
thereafter entitled to receive as distributions allocable to principal from the
cash flow on the Mortgage Loans and the other assets in the Trust Fund. The
Certificate Principal Balance of a Class A Certificate as of any date of
determination is equal to the initial Certificate Principal Balance thereof
reduced by the aggregate of (a) all amounts allocable to principal previously
distributed with respect to such Certificate and (b) any reductions in the
Certificate Principal Balance thereof deemed to have occurred in connection with
allocations of Realized Losses in the manner described herein.
Calculation of One-Month LIBOR
The Pass-Through Rate on the first Distribution Date will be determined
on the second business day preceeding the Closing Date. Thereafter, on the
second business day preceding each Distribution Date (each such date, an
"Interest Determination Date"), the Trustee will determine the London interbank
offered rate for one-month U.S. dollar deposits ("One-Month LIBOR") for the next
Interest Accrual Period on the basis of the offered rates of the Reference Banks
for one-month U.S. dollar deposits, as such rates appear on the Reuter Screen
LIBO Page, as of 11:00 a.m. (London time) on such Interest Determination Date.
As used in this section, "business day" means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; "Reuter
Screen LIBO Page" means the display designated as page "LIBO" on the Reuter
Monitor Money Rates Service (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks); and "Reference Banks" means leading banks selected by the Trustee
and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on the Reuter Screen LIBO Page on the Interest
Determination Date in question, (iii) which have been designated as such by the
Trustee and (iv) not controlling, controlled by, or under common control with,
the Depositor or the Mortgage Loan Seller.
On each Interest Determination Date, One-Month LIBOR for the related
Interest Accrual Period will be established by the Trustee as follows:
(a) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Interest Accrual Period shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple of
0.0625%).
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(b) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for the
related Interest Accrual Period shall be the higher of (x) One-Month LIBOR
as determined on the previous Interest Determination Date and (y) the
Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per
annum that the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of
the one-month U.S. dollar lending rates which New York City banks selected
by the Trustee are quoting on the relevant Interest Determination Date to
the principal London offices of leading banks in the London interbank
market or, in the event that the Trustee can determine no such arithmetic
mean, (ii) the lowest one-month U.S. dollar lending rate which New York
City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination Date
by the Trustee and the Trustee's calculation of the rate of interest applicable
to the Class A Certificates for the related Interest Accrual Period shall (in
the absence of manifest error) be final and binding.
Principal Distributions on the Class A Certificates
Holders of the Class A Certificates will be entitled to receive on each
Distribution Date the Principal Distribution Amount. The "Principal Distribution
Amount" for any Distribution Date will be the lesser of:
(a) the excess of the Available Distribution Amount over
the Interest Distribution Amount; and
(b) the sum of:
(i) the principal portion of all scheduled
monthly payments on the Mortgage Loans due during the
related Due Period to the extent received or advanced by
the Master Servicer;
(ii) the principal portion of all proceeds of
the repurchase of a related Mortgage Loan (or, in the
case of a substitution, certain amounts representing a
principal adjustment) as required by the Agreement
during the related Prepayment Period;
(iii) the principal portion of all other
unscheduled collections, including insurance proceeds,
liquidation proceeds and all full and partial principal
prepayments, received during the related Prepayment
Period, to the extent applied as recoveries of principal
on the related Mortgage Loans;
(iv) the principal portion of any Realized
Losses incurred (or deemed to have been incurred) on any
related Mortgage Loans in the calendar month preceding
such Distribution Date to the extent covered by Net
Monthly Excess Cashflow (as defined herein) for such
Distribution Date; and
(v) the amount of any Subordination Increase
Amount (as defined herein) for such Distribution Date;
minus
(vi) the amount of any Subordination Reduction
Amount (as defined herein) for such Distribution Date.
Notwithstanding the foregoing, as described under
"-Overcollateralization Provisions" herein, no amounts will be distributed to
the holders of the Class A Certificates pursuant to clause (v) above except to
the extent of any Net Monthly Excess Cashflow remaining after payment to the
holders of the Class A Certificates of all amounts in respect of Realized Losses
pursuant to clause (iv) above and payment to the Insurer of the full amount of
any
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Cumulative Insurance Payments. As of any Distribution Date, "Cumulative
Insurance Payments" refers to the aggregate of any payments (other than those
attributable to Excess Bankruptcy Losses, Excess Fraud Losses and Excess Special
Hazard Losses) made by the Insurer under the Policy to the extent not previously
reimbursed, plus interest thereon.
In no event will the Principal Distribution Amount with respect to any
Distribution Date be (x) less than zero or (y) greater than the then outstanding
aggregate Certificate Principal Balance of the Class A Certificates.
The "Available Distribution Amount" for the Class A Certificates for any
Distribution Date is equal to the sum, net of amounts reimbursable therefrom to
the Master Servicer, of (i) the aggregate amount of monthly payments on the
related Mortgage Loans due on the related Due Date and received by the Trustee
on or prior to the related Distribution Date, after deduction of the Servicing
Fee, the Trustee Fee and the premium payable with respect to the Policy, (ii)
certain unscheduled payments in respect of the related Mortgage Loans, including
prepayments, insurance proceeds, liquidation proceeds and proceeds from
repurchases of and substitutions for such Mortgage Loans occurring during the
preceding calendar month and (iii) all Monthly Advances with respect to the
related Mortgage Loans received by the Trustee for such Distribution Date.
In addition, on each Distribution Date, funds received as a result of a
claim under the Policy in respect of the principal portion of Realized Losses
allocated to the Class A Certificates will be distributed by or on behalf of the
Trustee to the holders of such Certificates. See " -- Financial Guaranty
Insurance Policy" herein.
The Stated Principal Balance of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
reduced by all amounts allocable to principal that have been distributed to
Certificateholders with respect to such Mortgage Loan on or before such date,
and as further reduced to the extent that any Realized Loss thereon has been
allocated to one or more classes of Certificates on or before the date of
determination.
Overcollateralization Provisions
The Agreement requires that, on each Distribution Date, the Net Monthly
Excess Cashflow, if any, be applied on such Distribution Date as an accelerated
payment of principal on the Class A Certificates, but only to the limited extent
hereafter described. The "Net Monthly Excess Cashflow" for any Distribution Date
is equal to the excess of (x) the Available Distribution Amount for such
Distribution Date over (y) the sum for such Distribution Date of (A) the
Interest Distribution Amount payable to the holders of the Class A Certificates
and (B) the amount described in clauses (b)(i)-(iii) of the definition of
Principal Distribution Amount.
With respect to any Distribution Date, any Net Monthly Excess Cashflow
shall be paid as follows:
first, to the holders of the Class A Certificates in an amount equal to
any interest shortfalls (other than Prepayment Interest Shortfalls to
the extent not covered by Compensating Interest paid by the Master
Servicer, shortfalls resulting from the application of the Relief Act,
Basis Risk Shortfalls or Unpaid Basis Risk Shortfalls) and the principal
portion of any Realized Losses incurred or deemed to have been incurred
on the Mortgage Loans;
second, to the Insurer, in an amount equal to any Cumulative Insurance
Payments;
third, to the holders of the Class A Certificates, in an amount equal to
the Subordination Increase Amount;
fourth, to the holders of the Class A Certificates, in an amount equal
to any Prepayment Interest Shortfalls on the Mortgage Loans to the
extent not covered by Compensating Interest paid by the Master Servicer
and any shortfalls resulting from the application of the Relief Act with
respect to the Mortgage Loans;
fifth, to the holders of the Class A Certificates in an amount equal to
any Basis Risk Shortfall;
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sixth, to the holders of the Class A Certificates, in an amount equal to
any Unpaid Basis Risk Shortfall;
seventh, to the Insurer, any amounts remaining due to the Insurer under
the terms of the Insurance Agreement (other than those attributable to
Excess Bankruptcy Losses, Excess Fraud Losses and Excess Special Hazard
Losses);
eighth, to the holders of the Class X Certificates; and
ninth, to the holders of the Residual Certificates.
With respect to any Distribution Date, the excess, if any, of (a) the
aggregate Stated Principal Balance of the Mortgage Loans immediately following
such Distribution Date over (b) the Certificate Principal Balance of the Class A
Certificates as of such date (after taking into account the payment of the
amounts described in clauses (b)(i) through (iv) of the definition of Principal
Distribution Amount, on such Distribution Date) is the "Subordinated Amount" as
of such Distribution Date. Any amount of Net Monthly Excess Cashflow actually
applied as an accelerated payment of principal to the extent the Required
Subordinated Amount exceeds the Subordinated Amount as of such Distribution Date
is a "Subordination Increase Amount." The required level of the Subordinated
Amount with respect to a Distribution Date is the "Required Subordinated Amount"
with respect to such Distribution Date. With respect to any Distribution Date,
the Required Subordinated Amount will be an amount equal to 3.00% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date,
subject to increase ("step up") or, after three years, decrease ("step down"),
upon the occurrence of certain loss and delinquency triggers with respect to the
Mortgage Pool set forth in the Agreement.
In the event that the Required Subordinated Amounts are required to step
up on any Distribution Date, the Agreement provides that all Net Monthly Excess
Cashflow remaining after the distributions described in clauses first through
third above will be distributed in respect of the Subordination Increase Amount
until the Subordinated Amount equals the Required Subordinated Amount.
In the event that the Required Subordinated Amount is permitted to step
down on any Distribution Date, the Agreement provides that a portion of the
principal which would otherwise be distributed to the holders of the Class A
Certificates on such Distribution Date shall be distributed to the holders of
the Subordinated Certificates on such Distribution Date. This has the effect of
decelerating the amortization of the Class A Certificates, relative to the
amortization of the Mortgage Loans, and of reducing the Subordinated Amount.
With respect to any Distribution Date, the excess, if any, of (a) the
Subordinated Amount over (b) the Required Subordinated Amount is the "Excess
Subordinated Amount." If, on any Distribution Date, the Excess Subordinated
Amount is, or, after taking into account all other distributions to be made on
such Distribution Date would be, greater than zero (i.e., the Subordinated
Amount is or would be greater than the Required Subordinated Amount), then any
amounts relating to principal which would otherwise be distributed to the
holders of the Class A Certificates on such Distribution Date shall instead be
distributed to the holders of the Subordinated Certificates in an amount equal
to the lesser of (x) the Excess Subordinated Amount and (y) the amount available
for distribution specified in clauses (b)(i)-(iii) of the definition of
Principal Distribution Amount, on such Distribution Date; such amount being the
"Subordination Reduction Amount" for such Distribution Date.
Financial Guaranty Insurance Policy
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy. A form of
the Policy may be obtained, upon request, from the Depositor.
Simultaneously with the issuance of the Class A Certificates, the
Insurer will deliver the Policy to the Trustee for the benefit of the holders of
the Class A Certificates. Under the Policy, the Insurer will irrevocably and
unconditionally guarantee payment on each Distribution Date to the Trustee for
the benefit of the holders of the
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Class A Certificates the full and complete payment of Insured Payments with
respect to the Class A Certificates, calculated in accordance with the original
terms of the Class A Certificates when issued and without regard to any
amendment or modification of the Class A Certificates or the Agreement except
amendments or modifications to which the Insurer has given its prior written
consent. "Insured Payments" shall mean with respect to the Class A Certificates
as of any Distribution Date (i) any shortfall in amounts available in the
Distribution Account (as defined in the Agreement) to pay the Interest
Distribution Amount for the related Interest Accrual Period, (ii) the principal
portion of any Realized Losses allocated to the Class A Certificates and,
without duplication, the excess, if any, of (a) the aggregate Certificate
Principal Balance of the Class A Certificates then outstanding over (b) the
aggregate principal balances of the Mortgage Loans then outstanding and (iii)
without duplication of the amount specified in clause (ii), the aggregate
Certificate Principal Balance of the Class A Certificates to the extent unpaid
on the final Distribution Date or earlier termination of the Trust Fund pursuant
to the terms of the Agreement. The Policy does not cover Relief Act Shortfalls,
Basis Risk Shortfalls or Unpaid Basis Risk Shortfalls.
If any Insured Payment is avoided as a preference payment under
applicable bankruptcy, insolvency, receivership or similar law, the Insurer will
pay such amount out of funds of the Insurer on the later of (a) the date when
due to be paid pursuant to the Order referred to below or (b) the first to occur
of (i) the fourth Business Day following Receipt by the Insurer from the Trustee
of (A) a certified copy of the order of the court or other governmental body
which exercised jurisdiction to the effect that a holder of Class A Certificates
is required to return principal or interest distributed with respect to a Class
A Certificate during the Term of the Policy because such distributions were
avoidable preferences under applicable bankruptcy law (the "Order"), (B) a
certificate of such holder of Class A Certificates that the Order has been
entered and is not subject to any stay, and (C) an assignment duly executed and
delivered by such holder of Class A Certificates, in such form as is reasonably
required by the Insurer and provided to such holder of Class A Certificates by
the Insurer, irrevocably assigning to the Insurer all rights and claims of such
holder of Class A Certificates against the debtor which made such preference
payment or otherwise with respect to such preference payment, or (ii) the date
of Receipt by the Insurer from the Trustee of the items referred to in clauses
(A), (B) and (C) above if, at least four Business Days prior to such date of
Receipt, the Insurer shall have Received written notice from the Trustee that
such items were to be delivered on such date and such date was specified in such
notice. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and not to the
Trustee or holder of Class A Certificates directly (unless a holder of Class A
Certificates has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order, in which case
such payment shall be disbursed to the Trustee for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to the
Insurer). In connection with the foregoing, the Insurer shall have the rights
provided pursuant to the Agreement.
Payment of claims under the Policy will be made by the Insurer following
Receipt by the Insurer of the appropriate notice for payment on the later to
occur of (a) 12:00 noon, New York City time, on the second Business Day
following Receipt of such notice for payment, and (b) 12:00 noon, New York City
time, on the relevant Distribution Date.
The terms "Receipt" and "Received," with respect to the Policy, mean
actual delivery to the Insurer and to its fiscal agent appointed by the Insurer
at its option, if any, prior to 12:00 p.m., New York City time, on a Business
Day; delivery either on a day that is not a Business Day or after 12:00 p.m.,
New York City time, shall be deemed to be Receipt on the next succeeding
Business Day. If any notice or certificate given under the Policy by the Trustee
is not in proper form or is not properly completed, executed or delivered, it
shall be deemed not to have been Received, and the Insurer or the fiscal agent
shall promptly so advise the Trustee and the Trustee may submit an amended
notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday
or Sunday or (ii) a day on which banking institutions in the City of New York,
New York, the State of New York or in the city in which the corporate trust
office of the Trustee is located, are authorized or obligated by law or
executive order to be closed. The Insurer's obligations under the Policy to make
Insured Payments shall be discharged to the extent funds are transferred to the
Trustee as provided in the Policy, whether or not such funds are properly
applied by the Trustee.
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"Term of the Policy" means the period from and including the date of
issuance of the Policy to and including the date on which the Certificate
Principal Balances of the Class A Certificates are zero, plus such additional
period, to the extent specified in the Policy, during which any payment on the
Class A Certificates could be avoided in whole or in part as a preference
payment.
The Insurer shall be subrogated to the rights of the holders of the
Class A Certificates to receive payments of principal and interest, as
applicable, with respect to distributions on the Class A Certificates to the
extent of any payment by the Insurer under the Policy. To the extent the Insurer
makes Insured Payments, either directly or indirectly (as by paying through the
Trustee), to the holders of the Class A Certificates, the Insurer will be
subrogated to the rights of the holders of the Class A Certificates, as
applicable, with respect to such Insured Payment and shall be deemed to the
extent of the payments so made to be a registered holder of Class A Certificates
for purposes of payment.
Claims under the Policy constitute direct unsecured and unsubordinated
obligations of the Insurer, and will rank equally with any other unsecured and
unsubordinated obligations of the Insurer except for certain obligations in
respect to tax and other payments to which preference is or may become afforded
by statute. The terms of the Policy cannot be modified, altered or affected by
any other agreement or instrument, or by the merger, consolidation or
dissolution of the Depositor. The Policy by its terms may not be canceled or
revoked prior to distribution in full of all Guaranteed Distributions (as
defined therein). The Policy is governed by the laws of the State of New York.
The Policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the Insurer agrees
under the Policy not to assert, and waives, for the benefit of each holder of
Class A Certificates, all its rights (whether by counterclaim, setoff or
otherwise) and defenses (including, without limitation, the defense of fraud),
whether acquired by subrogation, assignment or otherwise, to the extent that
such rights and defenses may be available to the Insurer to avoid payment of its
obligations under the Policy in accordance with the express provisions of the
Policy.
Pursuant to the terms of the Agreement, unless an Insurer Default
exists, the Insurer will be entitled to exercise certain rights of the holders
of the Class A Certificates, without the consent of such Certificateholders, and
the holders of the Class A Certificates may exercise such rights only with the
prior written consent of the Insurer. See "Pooling and Servicing Agreement
- -- Voting Rights" and " -- Certain Matters Regarding the Insurer" herein.
The Depositor, the Mortgage Loan Seller, the Master Servicer, the
Originator and the Insurer will enter into an Insurance and Indemnity Agreement
(the "Insurance Agreement") pursuant to which the Depositor, the Mortgage Loan
Seller and the Originator will agree to reimburse, with interest, the Insurer
for amounts paid pursuant to claims under the Policy. The Depositor, the
Mortgage Loan Seller and the Originator will further agree to pay the Insurer
all reasonable charges and expenses which the Insurer may pay or incur relative
to any amounts paid under the Policy or otherwise in connection with the
transaction and to indemnify the Insurer against certain liabilities. Except to
the extent provided therein, amounts owing under the Insurance Agreement will be
payable solely from the Trust Fund. An event of default by the Mortgage Loan
Seller or the Originator under the Insurance Agreement will constitute an Event
of Default by the Master Servicer under the Agreement and allow the Insurer,
among other things, to direct the Trustee to terminate the Master Servicer. An
"event of default" by the Mortgage Loan Seller or the Originator under the
Insurance Agreement includes (i) a failure by the Originator or the Mortgage
Loan Seller to pay when due any amount owed under the Insurance Agreement or
certain other documents, (ii) the untruth or incorrectness in any material
respect of any representation or warranty of the Originator or the Mortgage Loan
Seller in the Insurance Agreement or certain other documents or of the Master
Servicer in the Agreement, (iii) a failure by the Originator, the Mortgage Loan
Seller or the Master Servicer to perform or to observe any covenant or agreement
in the Insurance Agreement, the Agreement or certain other documents, (iv) a
failure by either the Originator or the Mortgage Loan Seller to pay its debts in
general or the occurrence of certain events of insolvency or bankruptcy with
respect to the Originator or the Mortgage Loan Seller, and (v) the occurrence of
an Event of
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Default by the Master Servicer under the Agreement or by the Originator or the
Mortgage Loan Seller under certain other documents.
Monthly Advances
Subject to the following limitations, the Master Servicer will be
obligated to advance or cause to be advanced on or before each Distribution Date
its own funds, or funds in the Certificate Account that are not included in the
Available Distribution Amount for such Distribution Date, in an amount equal to
the aggregate of all payments of principal and interest, net of the Servicing
Fee Rate, that were due during the related Due Period on the Mortgage Loans,
other than Balloon Payments, and that were delinquent on the related
Determination Date, plus certain amounts representing assumed payments not
covered by any current net income on the Mortgaged Properties acquired by
foreclosure or deed in lieu of foreclosure (any such advance, a "Monthly
Advance").
Monthly Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making such Monthly
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Master Servicer will not be
required to make any Monthly Advances with respect to reductions in the amount
of the monthly payments on the Mortgage Loans due to bankruptcy proceedings or
the application of the Relief Act.
All Monthly Advances will be reimbursable to the Master Servicer from
late collections, insurance proceeds and liquidation proceeds from the Mortgage
Loan as to which such unreimbursed Monthly Advance was made. In addition, any
Monthly Advances previously made in respect of any Mortgage Loan that are deemed
by the Master Servicer to be nonrecoverable from related late collections,
insurance proceeds or liquidation proceeds may be reimbursed to the Master
Servicer out of any funds in the Certificate Account prior to the distributions
on the Certificates. In the event the Master Servicer fails in its obligation to
make any such advance, the Trustee will be obligated to make any such advance,
to the extent required in the Agreement.
Allocation of Losses; Subordination
The Policy will cover all Realized Losses allocated to the Class A
Certificates. Notwithstanding the foregoing, if payments are not made as
required under the Policy, Realized Losses will be allocable to the Class A
Certificates.
With respect to any defaulted Mortgage Loan that is finally liquidated
through foreclosure sale, disposition of the related Mortgaged Property (if
acquired on behalf of the Certificateholders by deed-in-lieu of foreclosure) or
otherwise, the amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the Master
Servicer for Monthly Advances and expenses, including attorneys' fees) towards
interest and principal owing on the Mortgage Loan. Such amount of loss realized
and any Special Hazard Losses, Fraud Losses, Bankruptcy Losses and Extraordinary
Losses are referred to herein as "Realized Losses."
Any Realized Losses on the Mortgage Loans other than Excess Special
Hazard Losses, Excess Bankruptcy Losses and Excess Fraud Losses on the Mortgage
Loans will be allocated on any Distribution Date, (i) first to the Net Monthly
Excess Cashflow, (ii) second, in reduction of the overcollateralization, if any,
until the principal balance of the Mortgage Loans equals the Certificate
Principal Balance and (iii) third, to the Class A Certificates.
Excess Special Hazard Losses, Excess Bankruptcy Losses and Excess Fraud
Losses will be allocated on any Distribution Date among the Class A Certificates
and the overcollateralization on a pro rata basis.
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Any allocation of a Realized Loss to the Class A Certificates will be
made by reducing the Certificate Principal Balance thereof by the amount so
allocated as of the Distribution Date in the month following the calendar month
in which such Realized Loss was incurred.
The aggregate amount of Realized Losses which may be allocated to the
Subordinated Certificates in connection with Special Hazard Losses on the
Mortgage Loans (the "Special Hazard Amount") shall initially be equal to
approximately $2,558,740. As of any date of determination following the Cut-off
Date, the Special Hazard Amount shall equal the amount set forth in the
preceding sentence less the sum of (A) any amounts allocated solely to the
Subordinated Certificates in respect of related Special Hazard Losses and (B)
the related Adjustment Amount. The Adjustment Amounts will be as calculated
pursuant to the terms of the Agreement.
The aggregate amount of Realized Losses which may be allocated to the
Subordinated Certificates in connection with Fraud Losses on the Mortgage Loans
(the "Fraud Loss Amount") shall initially be equal to approximately $3,066,000.
As of any date of determination after the Cut-off Date, the Fraud Loss Amount
shall equal (X) prior to the first anniversary of the Cut-off Date an amount
equal to 3% of the aggregate principal balance of all of the related Mortgage
Loans as of the Cut-off Date minus the aggregate amounts allocated to the
Subordinated Certificates in respect of related Fraud Losses on such Mortgage
Loans up to such date of determination, (Y) from the first to the second
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
related Fraud Loss Amount as of the most recent anniversary of the Cut-off Date
and (b) 2% of the aggregate principal balance of all of the related Mortgage
Loans as of the most recent anniversary of the Cut-off Date minus (2) the
aggregate amounts allocated to the Subordinated Certificates in respect of Fraud
Losses on such Mortgage Loans since the most recent anniversary of the Cut-off
Date up to such date of determination and (Z) from the second to the fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
related Fraud Loss Amount as of the most recent anniversary of the Cut-off Date,
and (b) 1% of the aggregate principal balance of all of the related Mortgage
Loans as of the most recent anniversary of the Cut-off Date minus (2) the
aggregate amounts allocated to the Subordinated Certificates in respect of Fraud
Losses on such Mortgage Loans since the most recent anniversary of the Cut-off
Date up to such date of determination. On and after the fifth anniversary of the
Cut-off Date, the each Fraud Loss Amount shall be zero.
The aggregate amount of Realized Losses which may be allocated to the
Subordinated Certificates in connection with Bankruptcy Losses on the Mortgage
Loans (the "Bankruptcy Amount") will initially be equal to approximately
$100,000. As of any date of determination, the Bankruptcy Amount shall equal the
approximate amount set forth in the preceding sentence less the sum of any
amounts allocated to the Subordinated Certificates in respect of Bankruptcy
Losses on the Mortgage Loans up to such date of determination.
A "Special Hazard Loss" is a loss incurred in respect of any defaulted
Mortgage Loan as a result of direct physical loss or damage to the Mortgaged
Property (except as a result of the exclusions described below), which is not
insured against under the standard hazard insurance policy or blanket policy
insuring against hazard losses which the Master Servicer is required to cause to
be maintained on each Mortgage Loan. See "Description of Primary Insurance
Policies -- Primary Hazard Insurance Policies" in the Prospectus.
Special Hazard Losses will not include any loss (an "Extraordinary
Loss") resulting from:
(i) nuclear or chemical reaction or nuclear radiation or
radioactive or chemical contamination, all whether controlled or
uncontrolled and whether such loss be direct or indirect, proximate or
remote or be in whole or in part caused by, contributed to or aggravated
by a peril insured against;
(ii) hostile or warlike action in time of peace or war,
including action in hindering, combating or defending against an actual,
impending or expected attack by any government or sovereign power, de
jure or de facto, or by any authority maintaining or using military,
naval or air forces, or by military, naval or air forces, or by an agent
of any such government, power, authority or forces;
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(iii) any weapon of war employing atomic fission or
radioactive forces whether in time of peace or war;
(iv) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering, combating
or defending against such an occurrence, seizure or destruction under
quarantine or customs regulations, confiscation by order of any
government or public authority, or risks of contraband or illegal
transactions or trade;
(v) wear and tear, deterioration, rust or corrosion, mold, wet
or dry rot; inherent vice or latent defect; animals, birds, vermin,
insects;
(vi) smog, smoke, vapor, liquid or dust discharge from
agricultural or industrial operations; pollution; contamination;
(vii) settling, subsidence, cracking, shrinkage, bulging or
expansion of pavements, foundations, walls, floors, roofs or ceilings;
(viii) errors in design, faulty workmanship or faulty
materials, unless the collapse of the property or a part thereof ensues
and then only for the ensuing loss;
"Excess Special Hazard Losses" are Special Hazard Losses in excess of
the Special Hazard Amount.
A "Fraud Loss" is a loss incurred on a defaulted Mortgage Loan as to
which there was intentional fraud, dishonesty or misrepresentation in the
origination of such Mortgage Loan.
"Excess Fraud Losses" are Fraud Losses in excess of the Fraud Loss
Amount.
A "Bankruptcy Loss" is a Deficient Valuation or a Debt Service
Reduction. With respect to any Mortgage Loan, a "Deficient Valuation" is a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan,
which valuation results from a proceeding initiated under the United States
Bankruptcy Code. A "Debt Service Reduction" is any reduction in the amount which
a mortgagor is obligated to pay on a monthly basis with respect to a Mortgage
Loan as a result of any proceeding initiated under the United States Bankruptcy
Code, other than a reduction attributable to a Deficient Valuation.
"Excess Bankruptcy Losses" are Bankruptcy Losses in excess of the
Bankruptcy Amount.
POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Agreement, a form of
which is filed as an exhibit to the Registration Statement. A Current Report on
Form 8-K relating to the Certificates containing a copy of the Agreement as
executed will be filed by the Depositor with the Securities and Exchange
Commission within fifteen days of initial issuance of the Certificates. The
Trust Fund created under the Agreement will consist of (i) all of the
Depositor's right, title and interest in the Mortgage Loans, the related
Mortgage Notes, Mortgages and other related documents, (ii) all payments on or
collections in respect of the Mortgage Loans due after the Cut-off Date,
together with any proceeds thereof, (iii) any Mortgaged Properties acquired on
behalf of Certificateholders by foreclosure or by deed in lieu of foreclosure,
and any revenues received thereon, (iv) the rights of the Trustee under all
insurance policies required to be maintained pursuant to the Agreement and (v)
the rights of the Depositor under the Mortgage Loan Purchase Agreement between
the Depositor and the Mortgage Loan Seller. Reference is made to the
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<PAGE>
Prospectus for important information in addition to that set forth herein
regarding the Trust Fund, the terms and conditions of the Agreement and the
Class A Certificates. The Class A Certificates will be transferable and
exchangeable at the corporate trust offices of the Trustee. The Depositor will
provide to a prospective or actual Certificateholder without charge, on written
request, a copy (without exhibits) of the Agreement. Requests should be
addressed to the Secretary, Merrill Lynch Mortgage Investors, Inc., 250 Vesey
Street, World Financial Center, New York, New York 10281.
Assignment of the Mortgage Loans
The Depositor will deliver to the Trustee with respect to each Mortgage
Loan (i) the mortgage note endorsed without recourse to the Trustee to reflect
the transfer of the Mortgage Loan, or, if such original Note cannot be located,
a photocopy thereof together with a lost Note affidavit duly executed by an
authorized officer of the Mortgage Loan Seller, (ii) the original mortgage with
evidence of recording indicated thereon and (iii) an assignment of the mortgage
in recordable form to the Trustee, reflecting the transfer of the Mortgage Loan.
Such assignments of Mortgage Loans are required to be recorded by or on behalf
of the Depositor in the appropriate offices for real property records.
The Master Servicer
The information set forth in the following paragraphs has been provided
by the Master Servicer. None of the Depositor, the Trustee, the Underwriter, the
Certificate Insurer or any of their respective affiliates have made or will make
any representation as to the accuracy or completeness of such information.
Ocwen Federal Bank FSB, a federally-chartered savings bank, with its
home office in Fort Lee, New Jersey and its servicing operations and corporate
offices in West Palm Beach, Florida, will serve as the Master Servicer for the
Mortgage Loans pursuant to the Pooling and Servicing Agreement (in such
capacity, the "Master Servicer"). The Master Servicer is a wholly-owned
subsidiary of Ocwen Financial Corporation, a public financial services holding
company. At June 30, 1997, the Master Servicer had approximately $2.611 billion
in assets, approximately $2.359 billion in liabilities and approximately $253
million in equity. At June 30, 1997, the Master Servicer's tangible and
leveraged capital ratio was approximately 9.40% and its risk-based capital ratio
was approximately 13.81%. For the six months ended June 30, 1997, the Master
Servicer's income from continuing operations was approximately $41 million. For
the calendar quarter ended June 30, 1997, the Master Servicer's income from
continuing operations was approximately $22 million.
The major business of the Master Servicer has been the resolution of
nonperforming single-family, multi-family and commercial mortgage loan
portfolios acquired from the Resolution Trust Corporation, from private
investors, and most recently, from the United States Department of Housing and
Urban Development ("HUD") through HUD's auction of defaulted FHA Loans. The
Master Servicer is a market leader in the nonperforming mortgage loan
acquisition business, having acquired in excess of $4.2 billion of such mortgage
loans over the past six years.
The following table sets forth, for the non-conforming credit mortgage
loan ("BCD Mortgage Loan") servicing portfolio serviced by the Master Servicer
as of December 31, 1996, and as of June 30, 1997, certain information relating
to the delinquency experience (including loans in foreclosure included in the
Master Servicer's servicing portfolio (which portfolio does not include mortgage
loans that are subserved by others)) at the end of the indicated periods. The
indicated periods of delinquency are based on the number of days past due on a
contractual basis. No mortgage loan is considered delinquent for these purposes
until it is one month past due on a contractual basis. The information contained
in the monthly remittance reports which will be sent to investors will be
compiled using the same methodology as that used to compile the information
contained in the table below.
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<PAGE>
<PAGE>
Delinquencies and Foreclosures
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of As of
December 31, 1996 June 30, 1997
---------------------------------------- ---------------------------------------
Percent Percent Percent
Percent By By By No. By
By No. By Dollar By No. Dollar By No. Dollar of Dollar
of Loans Amount of Loans Amount of Loans Amount Loans Amount
--------- --------- -------- ------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio.............. 2834 $305,085 100.00% 100.00% 3.903 $424,370 100% 100%
Period of Delinquency:
30-59 Days............. 107 10,554 3.78% 3.46% 96 9,801 2.46% 2.31%
60-89 Days............. 38 4,321 1.34% 1.42% 47 5,204 1.20% 1.23%
90 days or more........ 138 17,969 4.87% 5.89% 191 24,538 4.89% 5.78%
Total Delinquent Loans....... 283 32,844 9.99% 10.77% 334 39,543 8.56% 9.32%
Loans in Foreclosure(1)...... 136 17,805 4.80% 5.84% 189 23,337 4.84% 5.50%
</TABLE>
- -------------------------
(1) Loans in foreclosure are also included under the heading "Total
Delinquent Loans."
------------------------------------
The following tables set forth, for the BCD Mortgage Loan
servicing portfolio derived from the Mortgage Loan Seller as of December 31,
1996, and as of June 30, 1997, certain information relating to the foreclosure
experience of BCD Mortgage Loans included in the Mortgage Loan Seller's
servicing portfolio (which portfolio does not include mortgage loans that are
subserviced by others) at the end of the indicated periods.
Real Estate Owned
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of As of
December 31, 1996 June 30, 1997
------------------------- ------------------------
By No. By By No. By
of Dollar of Dollar
Loans Amount Loans Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total Portfolio............ 2,834 $305,085 3,903 $424,370
Foreclosed Loans(1)........ 34 3,329 38 4,763
Foreclosed Ratio(2)........ 1.20% 1.09% 0.97% 1.12%
</TABLE>
- ------------------------
(1) For the purposes of these tables, Foreclosed Loans means the principal
balance of mortgage loans secured by mortgaged properties the title to which has
been acquired by the Mortgage Loan Seller.
(2) The Foreclosure Ratio is equal to the aggregate principal balance or number
of Foreclosed Loans divided by the aggregate principal balance, or number, as
applicable, of mortgage loans in the Total Portfolio at the end of the indicated
period.
Loan Gain/(Loss) Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of
As of December 31, 1995 As of December 31, 1996 June 30, 1997
----------------------- ----------------------- -------------
<S> <C> <C> <C> <C>
Total Portfolio(1).................... $194,717 $305,085 $424,370
Net Gains/(Losses)(2)................. -- 24 (440)
Net Gains/(Losses) as a Percentage of
Total Portfolio(3).................... 0.00% 0.01% -0.10%
</TABLE>
- ------------------------
(1) "Total Portfolio" on the date stated above is the principal balance of
the mortgage loans outstanding on the last day of the period.
(2) "Net Gains/(Losses)" are actual gains or losses incurred on liquidated
properties and shortfall payoffs for each respective period. Gains or losses on
liquidated properties are calculated as net sales proceeds less book value
(exclusive of loan purchase premium or discount). Shortfall payoffs are
calculated as the difference between principal payoff amount and unpaid
principal at the time of payoff.
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It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
the Mortgage Loan Seller's mortgage portfolio set forth in the foregoing tables.
The statistics shown above represent the delinquency experience for the Mortgage
Loan Seller's mortgage servicing portfolio only for the periods presented,
whereas the aggregate delinquency experience on the Mortgage Loans comprising
the Mortgage Pool will depend on the results obtained over the life of the
Mortgage Pool. The Mortgage Loan Seller commenced receiving applications for
mortgage loans under its BCD Mortgage Loan program in December 1994.
Accordingly, the Mortgage Loan Seller (whether as an originator or acquirer of
mortgage loans or as a servicer of such mortgage loans) does not have
significant historical delinquency, bankruptcy, foreclosure or default
experience that may be referred to for purposes of estimating the future
delinquency and loss experience of Mortgage Loans. There can be no assurance
that the Mortgage Loans comprising the Mortgage Pool will perform consistent
with the delinquency or foreclosure experience described herein. It should be
noted that if the residential real estate market should experience an overall
decline in property values, the actual rates of delinquencies and foreclosures
could be higher than those previously experienced by the Mortgage Loan Seller.
In addition, adverse economic conditions may affect the timely payment by
Mortgagors of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies and foreclosures with
respect to the Mortgage Pool.
The Trustee
Texas Commerce Bank National Association, a national banking association
organized and existing under the laws of the United States, will be named
Trustee pursuant to the Pooling and Servicing Agreement. The Trustee will
initially serve as custodian for the Files.
The principal compensation to be paid to the Trustee in respect of its
obligations under the Agreement will be equal to accrued interest at the Trustee
Fee Rate specified in the Agreement. The Agreement will provide that the Trustee
and any director, officer, employee or agent of the Trustee will be indemnified
by the Trust Fund and will be held harmless against any loss, liability or
expense (not including expenses, disbursements and advances incurred or made by
the Trustee, including the compensation and the expenses and disbursements of
its agents and counsel, in the ordinary course of the Trustee's performance in
accordance with the provisions of the Agreement) incurred by the Trustee arising
out of or in connection with the acceptance or administration of its obligations
and duties under the Agreement, other than any loss, liability or expense (i)
resulting from the Master Servicer's actions or omissions in connection with the
Agreement and the Mortgage Loans, (ii) that constitutes a specific liability of
Trustee under the Agreement or (iii) incurred by reason of willful misfeasance,
bad faith or negligence in the performance of the Trustee's duties under the
Agreement or as a result of a breach, or by reason of reckless disregard, of the
Trustee's obligations and duties under the Agreement.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect
of its servicing activities for the Certificates will be equal to accrued
interest at the Servicing Fee Rate of 0.50% per annum with respect to each
Mortgage Loan on the Scheduled Principal Balance of each Mortgage Loan. As
additional servicing compensation, the Master Servicer is entitled to retain all
assumption fees, prepayment penalties and late payment charges, to the extent
collected from mortgagors, together with any interest or other income earned on
funds held in the Certificate Account and any escrow accounts. The Master
Servicer is obligated to offset any Prepayment Interest Shortfall on any
Distribution Date (payments made by the Master Servicer in satisfaction of such
obligation, "Compensating Interest") to the extent of one-half of its aggregate
servicing compensation for such Distribution Date described in the preceding two
sentences. The Master Servicer is obligated to pay certain insurance premiums
and certain ongoing expenses associated with the Mortgage Pool and incurred by
the Master Servicer in connection with its responsibilities under the Agreement
and is entitled to reimbursement therefor as provided in the Agreement. See
"Description of the Certificates - Retained Interest; Servicing Compensation and
Payment of Expenses" in the
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Prospectus for information regarding expenses payable by the Master Servicer and
"Certain Federal Income Tax Consequences" herein regarding certain taxes payable
by the Master Servicer.
Voting Rights
With respect to any date of determination, the percentage of all the
Voting Rights allocated among holders of the Class A Certificates and of the
Subordinated Certificates shall be the fraction, expressed as a percentage, the
numerator of which is the aggregate Certificate Principal Balance of all the
Certificates of such class then outstanding and the denominator of which is the
aggregate Stated Principal Balance of the Mortgage Loans then outstanding. The
Voting Rights allocated to each class of Certificates shall be allocated among
all holders of each such class in proportion to the outstanding Certificate
Principal Balance of such Certificates. Unless an Insurer Default exists, the
Insurer will be entitled to exercise certain voting and other rights of the
holders of the Class A Certificates. See " -- Certain Matters Regarding the
Insurer" herein.
Certain Matters Regarding the Insurer
Under the Agreement, on each Distribution Date, the Trustee is required
to pay to the Insurer a premium with respect to the Policy (the "Insurance
Premium Rate").
Pursuant to the terms of the Agreement, unless there exists a
continuance of any failure by the Insurer to make a required payment under the
Policy or there exists a proceeding in bankruptcy by or against the Insurer
(either such condition, an "Insurer Default"), the Insurer will be entitled to
exercise, among others, the following rights of the holders of the Class A
Certificates, without the consent of such holders, and the holders of the Class
A Certificates may exercise such rights only with the prior written consent of
the Insurer: (i) the right to direct the Trustee to terminate the rights and
obligations of the Master Servicer under the Agreement in the event of a default
by the Master Servicer; (ii) the right to consent to or direct any waivers of
defaults by the Master Servicer; (iii) the right to remove the Trustee pursuant
to the Agreement; and (iv) the right to institute proceedings against the Master
Servicer in the event of default by the Master Servicer and refusal of the
Trustee to institute such proceedings. In addition, unless an Insurer Default
exists, the Insurer will have the right to direct all matters relating to any
proceeding seeking the avoidance as a preferential transfer under applicable
bankruptcy, insolvency, receivership or similar law of any distribution made
with respect to the Class A Certificates, and, unless an Insurer Default exists,
the Insurer's consent will be required prior to, among other things, (i) the
removal of the Trustee, (ii) the appointment of any successor Trustee or Master
Servicer or (iii) any amendment to the Agreement.
Termination
The circumstances under which the obligations created by the Agreement
will terminate in respect of the Certificates are described in "Description of
the Certificates,Termination" in the Prospectus. The majority holder of the
Residual Certificates (or if such holder does not exercise such option, the
Master Servicer or the Insurer) will have the right to purchase all remaining
Mortgage Loans and any properties acquired in respect thereof and thereby effect
early retirement of the Certificates on any Distribution Date following the
Collection Period during which the aggregate principal balance of the Mortgage
Loans and such properties at the time of purchase is 10% or less of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. In the
event the majority holder of the Residual Certificates or the Master Servicer or
the Insurer exercises such option, the purchase price payable in connection
therewith generally will be equal to par plus accrued interest for each Mortgage
Loan at the related Mortgage Rate to but not including the first day of the
month in which such repurchase price is distributed, together with any amounts
due to the Master Servicer for servicing compensation at the related Servicing
Fee Rate. In the event the holder of the Residual Certificates or the Master
Servicer or the Insurer exercises such option, the portion of the purchase price
allocable to the Class A Certificates will be, to the extent of available funds
(including funds paid under the Policy), (i) 100% of the then outstanding
Certificate Principal Balance thereof, plus (ii) one month's
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<PAGE>
interest on the then outstanding Certificate Principal Balance thereof at the
then applicable Pass-Through Rate, plus (iii) any previously accrued but unpaid
interest thereon. No such termination shall be permitted without the prior
written consent of the Insurer if it would result in a draw under the Policy. In
no event will the trust created by the Agreement continue beyond the expiration
of 21 years from the death of the survivor of the persons named in the
Agreement. See "Description of the Certificates,Termination" in the Prospectus.
THE INSURER
The following information has been supplied by Financial Security
Assurance Inc. (the "Insurer") for inclusion in this Prospectus Supplement. No
representation is made by the Depositor or the Underwriter as to the accuracy
and completeness of such information.
General
The Insurer is a monoline insurance company incorporated in 1984 under
the laws of the State of New York. The Insurer is licensed to engage in
financial guaranty insurance business in all 50 states, the District of Columbia
and Puerto Rico.
The Insurer and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. In general, financial guaranty insurance consists
of the issuance of a guaranty of scheduled payments of an issuer's
securities,thereby enhancing the credit rating of those securities,in
consideration for the payment of a premium to the insurer. The Insurer and its
subsidiaries principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by residential
mortgage loans, consumer or trade receivables, securities or other assets having
an ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments. The
Insurer insures both newly-issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy the Insurer's
underwriting criteria.
The Insurer is a wholly-owned subsidiary of Financial Security Assurance
Holdings Ltd. ("Holdings"), a New York Stock Exchange Listed company. Major
shareholders of Holdings include Fund American Enterprises Holdings, Inc., U S
West Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd. No
shareholder of Holdings is obligated to pay any debt of the Insurer or any claim
under any insurance policy issued by the Insurer or to make any additional
contribution to the capital of the Insurer.
The principal executive offices of the Insurer are located at 350 Park
Avenue, New York, New York 10022, and its telephone number at that location is
(212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the Insurer or any of its
domestic operating insurance company subsidiaries are reinsured among such
companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, the Insurer reinsures a portion of its liabilities
under certain of its financial guaranty insurance policies with other reinsurers
under various quota share treaties and on a transaction-by-transaction basis.
Such reinsurance is utilized by the Insurer as a risk management device and to
comply with certain statutory and rating agency requirements; it does not alter
or limit the Insurer's obligations under any financial guaranty insurance
policy.
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<PAGE>
Ratings of Claims-Paying Ability
The Insurer's claims-paying ability is rated "Aaa" by Moody's and "AAA"
by each of Standard & Poor's, Fitch Investors Service, L.P., Nippon Investors
Service, Inc. and Standard & Poor's (Australia) Pty. Ltd. Such ratings reflect
only the views of the respective rating agencies, are not recommendations to
buy, sell or hold securities and are subject to revision or withdrawal at any
time by such rating agencies. See "Ratings."
Capitalization
The following table sets forth the capitalization of the Insurer and its
wholly owned subsidiaries on the basis of generally accepted accounting
principles as of June 30, 1997 (in thousands):
<TABLE>
<CAPTION>
June 30,
1997
(unaudited)
------------
<S> <C>
Deferred Premium Revenue (net of prepaid
reinsurance premiums)..................... $401,251
----------
Shareholder's Equity:
Common Stock.............................. 15,000
Additional Paid-In Capital................ 650,370
Unrealized Gain on Investments (net of
deferred income taxes)....................
Accumulated Earnings...................... 183,963
----------
Total Shareholder's Equity..................... 861,209
Total Deferred Premium Revenue and
Shareholder's Equity........................... $1,262,460
==========
</TABLE>
For further information concerning the Insurer, see the Consolidated
Financial Statements of the Insurer and its subsidiaries, and the notes thereto,
incorporated by reference herein. Copies of the statutory quarterly and annual
financial statements filed with the State of New York Insurance Department by
the Insurer are available upon request to the State of New York Insurance
Department.
Incorporation of Certain Documents by Reference
In addition to the documents described under "Incorporation of Certain
Information by Reference" in the Prospectus, the consolidated financial
statements of the Insurer and subsidiaries included in or as exhibits to the
following documents which have been filed with the Securities and Exchange
Commission by Holdings, are hereby incorporated by reference in this Prospectus
Supplement, which together with the Prospectus, forms a part of the Depositor's
Registration Statement: (a) the Annual Report on Form 10-K for the year ended
December 31, 1996 and (b) the Quarterly Report on Form 10-Q for the period ended
June 30, 1997.
All financial statements of the Insurer and subsidiaries included in
documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Class
A 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.
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<PAGE>
The Depositor will provide without charge to any person to whom this
Prospectus Supplement is delivered, upon oral or written request of such person,
a copy of any or all of the foregoing financial statements incorporated by
reference. Requests for such copies should be directed to the Secretary, Merrill
Lynch Mortgage Investors, Inc., 250 Vesey Street, World Financial Center, New
York, New York 10281.
Insurance Regulation
The Insurer is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, the Insurer and its insurance subsidiaries are
subject to regulation by insurance laws of the various other jurisdictions in
which they are licensed to do business. As a financial guaranty insurance
corporation licensed to do business in the State of New York, the Insurer is
subject to Article 69 of the New York Insurance Law which, among other things,
limits the business of each such insurer to financial guaranty insurance and
related lines, requires that each such insurer maintain a minimum surplus to
policyholders, establishes contingency, loss and unearned premium reserve
requirements for each such insurer, and limits the size of individual
transactions ("single risks") and the volume of transactions ("aggregate risks")
that may be underwritten by each such insurer. Other provisions of the New York
Insurance Law, applicable to non-life insurance companies such as the Insurer,
regulate, among other things, permitted investments, payment of dividends,
transactions with affiliates, mergers, consolidations, acquisitions or sales of
assets and incurrence of liability for borrowings.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
Elections will be made to treat the assets of the Trust Fund, exclusive of
the rights under Interest Rate Cap Agreement and payments received thereunder,
as three separate real estate mortgage investment conduits ("REMICs") for
federal income tax purposes, which shall be identified as the Master REMIC, the
First Tier REMIC and the Second Tier REMIC. The Class A Certificates and Class X
Certificates will represent beneficial ownership interests in the Class A and
Class X "regular interests" in the Master REMIC (such regular interests
individually, the "Class A Regular Interest" or the "Class X Regular Interest,"
as applicable, and collectively, the "Master REMIC Regular Interests"), and the
Class A Certificates will, in addition, represent beneficial interests in the
right to receive payments under the Interest Rate Cap Agreement. The Class R-1
Certificates will be designated as the sole class of "residual interest" in the
Master REMIC, the Class R-2 Certificates will be designated as the sole class of
"residual interest" in the First Tier REMIC, and the Class R-3 Certificates will
be designated as the sole class of "residual interest" in the Second Tier REMIC,
and the Class R-1, Class R-2 and Class R-2 Certificates will be Residual
Certificates of the Master REMIC, the First Tier REMIC and the Second Tier
REMIC, respectively, as described in the Prospectus. Upon the issuance of the
Certificates, Brown & Wood LLP, special tax counsel to the Depositor, will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the Agreement, for federal income tax purposes, each of the Master
REMIC, the First Tier REMIC and the Second Tier REMIC will qualify as a REMIC
under Sections 860A through 860G of the Internal Revenue Code of 1986 (the
"Code"). In addition, in the opinion of Brown & Wood LLP, the Class A
Certificateholders will be treated as holding their interests in the Interest
Rate Cap Agreement through a grantor trust under Subpart E, Part 1 of Subchapter
J, Chapter 1 of the Code. The rights under the Interest Rate Cap Agreement will
be an "outside reserve fund" beneficially owned by the Depositor for federal
income tax purposes.
Taxation of Regular Interests
A Class A Certificateholder generally will be treated for federal income
tax purposes as having purchased an undivided interest in the corresponding
Class A Regular Interests for an amount equal to such Class A
Certificateholder's purchase price for the Certificate and as having acquired
proportionate rights under the Interest Rate Cap Agreement. For purposes of tax
information reporting, it is anticipated that the Trustee will assume that such
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purchase price is wholly allocable to such Class A Certificateholder's undivided
interest in the Class A Regular Interests. However, no assurance can be given
that the IRS will not take a contrary position, which, if sustained, may require
inclusion of income attributable to original issue discount by such Class A
Certificateholder and have other tax consequences. See "Taxation of Interest
Rate Cap Agreement" below.
Upon the sale, exchange, redemption or retirement of a Class A
Certificate by a Class A Certificateholder, the amount realized must be
allocated between the undivided interest in the Class A Regular Interests and
the proportionate rights under the Interest Rate Cap Agreement represented by
such Class A Certificate, based on the interests' relative fair market values at
the time of the disposition. The selling Class A Certificateholder will be
required to recognize gain or loss equal to the difference between the amount
realized on the sale, exchange, redemption, or retirement allocable to the
Certificate's proportionate interest in the Class A Regular Interests and such
selling Class A Certificateholder's adjusted basis therein. Except as provided
below, any such gain or loss will be capital gain or loss, provided that the
Class A Certificate is held as a "capital asset" (generally, property held for
investment) within the meaning of Section 1221 of the Code. The Taxpayer Relief
Act of 1997 (the "1997 Act") has changed the tax rates and holding periods
applicable to net capital gains of noncorporate taxpayers. In general, under
applicable provisions of the 1997 Act, which are generally effective for capital
gains realized after July 28, 1997, the maximum tax rate applicable to net
capital gains of noncorporate taxpayers realized upon the sale of securities
held for 18 months or more is 20 percent, and the maximum tax rate on net
capital gains of noncorporate taxpayers realized upon the sale of securities for
more than one year and for not more than 18 months is 28 percent. The 1997 Act
does not affect the taxation of a corporation's capital gains. Because the tax
rates and applicable holding periods will vary depending upon each
Certificateholder's own circumstances, investors should consult their own tax
advisors concerning the effect of these 1997 Act changes. Gain from the sale or
other disposition of an interest in a Class A Regular Interest associated with a
Class A Certificate that might otherwise be a capital gain will be treated as
ordinary income to the extent that such gain does not exceed the excess, if any,
of (i) the amount that would have been includible in such holder's income with
respect to the Class A Regular Interest had income accrued thereon at a rate
equal to 110% of the applicable federal rate as defined in Section 1274(d) of
the Code determined as of the date of purchase of the related Class A
Certificate, over (ii) the amount actually includible in such holder's income.
The portion of the amount realized on a sale, redemption or retirement of a
Class A Certificate that is allocable to such Certificate's proportionate rights
under the Interest Rate Cap Agreement, if any, will be treated as a termination
payment (as described below under " -- Taxation of Interest Rate Cap
Agreement").
The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount.
Purchasers of the Class A Certificates should be aware that the OID Regulations
do not adequately address certain issues relevant to, or are not applicable to,
securities such as the Class A Certificates. In addition, there is considerable
uncertainty concerning the application of the OID Regulations to REMIC Regular
Certificates that provide for payments based on an adjustable rate. Because of
the uncertainty concerning the application of Section 1272(a)(6) of the Code to
such Certificates and because the rules of the OID Regulations relating to debt
instruments having an adjustable rate of interest are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the IRS could assert that
the Class A Certificates should be treated as issued with original issue
discount or should be governed by the rules applicable to debt instruments
having contingent payments or by some other method not yet set forth in
regulations. Prospective purchasers of the Class A Certificates are advised to
consult their tax advisors concerning the tax treatment of such Certificates.
It appears that a reasonable method of reporting original issue discount
with respect to the Class A Certificates if such Certificates are required to be
treated as issued with original issue discount generally would be to report all
income with respect to such Certificates as original issue discount for each
period, computing such original issue discount (i) by assuming that the value of
the applicable Index will remain constant for purposes of determining the
original yield to maturity of, and projecting future distributions on such
Certificates, thereby treating such Certificates as fixed rate instruments to
which the original issue discount computation rules described in the Prospectus
can be applied, and (ii) by accounting for any positive or negative variation in
the actual value of the applicable Index in any period from its assumed value as
a current adjustment to original issue discount with respect
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to such period. See "Certain Federal Income Tax Consequences -- REMICs
- -- Taxation of Owners of REMIC Regular Certificates,Original Issue Discount"
in the Prospectus.
The Class A Certificates may be treated for federal income tax purposes
as having been issued at a premium. Whether any holder of a Class A Certificate
will be treated as holding a Certificate with amortizable bond premium will
depend on such Certificateholder's purchase price and the distributions
remaining to be made on such Certificate at the time of its acquisition by such
Certificateholder. Holders of the Class A Certificates should consult their own
tax advisors regarding the possibility of making an election to amortize such
premium. See "Certain Federal Income Tax Consequences,REMICs,Taxation of Owners
of REMIC Regular Certificates -- Premium" in the Prospectus.
Status of Class A Certificates
The Class A Regular Interests will be treated as assets described in
Section 7701(a)(19)(C) of the Code and as "real estate assets, under Section
856(c)(5)(A) of the Code, generally in the same proportion that the assets in
the Trust Fund would be so treated. In addition, interest on the Class A Regular
Interests will be treated as "interest on obligations secured by mortgages on
real property" under Section 856(c)(3)(B) of the Code generally to the extent
that the Class A Regular Interests are treated as "real estate assets" under
Section 856(c)(5)(A) of the Code. Investors are cautioned that since the Class A
Certificates comprise rights in addition to the rights under the Class A Regular
Interests, the Class A Certificates will not in their entirety constitute assets
described in section 7701(a)(19) of the Code or real estate assets described in
Section 856(c)(5)(A) of the Code, and income earned on the Class A Regular
Certificates will qualify as "interest on obligations secured by mortgages on
real property" under section 856(c)(3)(B) of the Code only to the extent that
the income reflects the income so qualifying earned by the Class A Regular
Interests. The Class A Certificates will not be treated as "qualified mortgages"
under Section 860G(a)(3) of the Code and are not appropriate investments for
other REMICs. See "Certain Federal Income Tax Consequences, Characterization of
Investments in REMIC Certificates" in the Prospectus.
Taxation of Interest Rate Cap Agreement
General. Class A Certificateholders will be treated for federal income
tax purposes as having entered into a notional principal contract pursuant to
its rights under the Interest Rate Cap Agreement on the date it purchases its
Certificate. The IRS has issued final regulations under Section 446 of the Code
relating to notional principal contracts (the "Swap Regulations").
Cap Premium. In general, the Class A Certificateholders must allocate
the price they pay for the Class A Certificates between their REMIC interests
and the Interest Rate Cap Agreement. For purposes of tax information reporting,
it is anticipated that the Trustee will assume that all of the purchase price
for the Class A Certificates will be wholly allocable to such Certificates'
proportionate interest in the corresponding Class A Regular Interests. However,
if rights under the Interest Rate Cap Agreement are determined to have a value
on the Start-Up Date that is greater than zero, a portion of such purchase price
will be allocable to such rights, and such portion will be treated as a cap
premium (the "Cap Premium"). In this event, a Class A Certificateholder will be
required to amortize the Cap Premium under a level payment method as if the Cap
Premium represented the present value of a series of equal payments made over
the life of the Interest Rate Cap Agreement (adjusted to take into account
decreases in notional principal amount), discounted at a rate equal to the rate
used to determine the amount of the Cap Premium (or some other reasonable rate).
Prospective purchasers of Class A Certificates should consult their own tax
advisors regarding the appropriate method of amortizing any Cap Premium. The
Swap Regulations treat a nonperiodic payment made under a cap contract as a loan
for federal income tax purposes if the payment is "significant." It is not known
whether any Cap Premium will be treated in part as a loan under the Swap
Regulations.
Periodic Payments. Under the Swap Regulations, (i) all taxpayers must
recognize periodic payments with respect to a notional principal contract under
the accrual method of accounting, and (ii) any periodic payments received under
the Interest Rate Cap Agreements must be netted against payments, if any, deemed
made as a result of the Cap Premiums over the recipient's taxable year, rather
than accounted for on a gross basis. Net income or deduction with
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respect to net payments under a notional principal contract for a taxable year
should constitute ordinary income or ordinary deduction. The IRS could contend
the amount is capital gain or loss, but such treatment is unlikely, at least in
the absence of further regulations. Any regulations requiring capital gain or
loss treatment presumably would apply only prospectively.
Termination Payments. Any amount of proceeds from the sale, redemption
or retirement of a Class A Certificate that is considered to be allocated to
rights under the Interest Rate Cap Agreement would be considered a "termination
payment" under the Swap Regulations. It is anticipated that the Trustee will
account for any termination payments for reporting purposes in accordance with
the Swap Regulations, as described below.
A Certificateholder will have gain or loss from termination of the
Interest Rate Cap Agreement based on the difference between any termination
payment it receives or is deemed to have received and the unamortized portion of
any Cap Premium paid (or deemed paid) by such Class A Certificateholder.
Gain or loss realized upon the termination of the Interest Rate Cap
Agreement will generally be treated as capital gain or loss. Moreover, in the
case of a bank or thrift institution, Code Section 582(c) would likely not apply
to treat such gain or loss as ordinary.
Prohibited Transactions
It is not anticipated that the Trust Fund will engage in any
transactions that would subject it to the prohibited transactions tax as defined
in Section 860F(a)(2) of the Code, the contributions tax as defined in Section
860G(d) of the Code or the tax on net income from foreclosure property as
defined in Section 860G(c) of the Code. However, in the event that any such tax
is imposed on the Trust Fund, such tax will be borne (i) by the Trustee, if the
Trustee has breached its obligations with respect to REMIC compliance under the
Agreement, (ii) the Master Servicer, if the Master Servicer has breached its
obligations with respect to REMIC compliance under the Agreement, and (iii)
otherwise by the Trust Fund, with a resulting reduction in amounts otherwise
distributable to holders of the Class A Certificates. See "Description of the
Certificates,General" and "Certain Federal Income Tax
Consequences,REMICs,Prohibited Transactions Tax and Other Taxes" in the
Prospectus.
Information Returns
The responsibility for filing annual federal information returns and
other reports will be borne by the Trustee or the Master Servicer. See "Certain
Federal Income Tax Consequences,REMICs,Reporting and Other Administrative
Matters" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Class A Certificates, see "Certain Federal Income Tax
Consequences,REMICs" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Class A Certificates
will be purchased from the Depositor by the Underwriter, an affiliate of the
Depositor, upon issuance. Distribution of the Class A Certificates will be made
by the Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Depositor
from the Certificates will be 99.71% of the initial aggregate principal balance
thereof as of the Cut-off Date, before deducting expenses payable by the
Depositor. In connection with the purchase and sale of the Class A Certificates,
the Underwriter may be deemed to have received compensation from the Depositor
in the form of underwriting discounts.
Until the distribution of the Class A Certificates is complete, rules of
the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Class A Certificates. As an
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exception to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of the Class A Certificates. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Class A Certificates.
Neither the Depositor nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Class A Certificates. In addition,
neither the Depositor nor the Underwriter makes any representation that the
Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
An affiliate of the Underwriter and the Depositor has significant
contractual relations with affiliates of the Mortgage Loan Seller and with the
Master Servicer providing for the periodic financing of mortgage loans and other
assets.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933.
SECONDARY MARKET
There can be no assurance that a secondary market for the Class A
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Class A
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates -- Reports to Certificateholders", which will
include information as to the outstanding principal balance of the Class A
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Class A
Certificates will be available through any other source. In addition, the
Depositor is not aware of any source through which price information about the
Class A Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Class A Certificates may
adversely affect the liquidity of the Class A Certificates, even if a secondary
market for the Class A Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Class A Certificates will be
passed upon for the Depositor by Morrison & Foerster LLP, New York, New York and
for the Underwriter by Brown & Wood LLP, New York, New York. Certain federal
income tax matters discussed under "Certain Federal Income Tax Consequences"
will be passed upon by Brown & Wood LLP, New York, New York, special tax counsel
to the Depositor.
EXPERTS
The consolidated balance sheets of Financial Security Assurance,
Inc. and Subsidiaries as of December 31, 1996 and 1995 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, 1996
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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<PAGE>
RATINGS
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated "AAA" by Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc. ("Standard & Poor's") and "Aaa" by Moody's
Investors Service, Inc. ("Moody's").
The ratings of Moody's and Standard & Poor's assigned to mortgage
pass-through certificates address the likelihood of the receipt by
Certificateholders of all distributions to which such Certificateholders are
entitled. The rating process addresses structural and legal aspects associated
with the Certificates, including the nature of the underlying mortgage loans.
The ratings assigned to mortgage pass-through certificates do not represent any
assessment of the likelihood that principal prepayments will be made by the
mortgagors or the degree to which such prepayments will differ from that
originally anticipated. The ratings assigned by Moody's and Standard & Poor's on
the Class A Certificates are based in part upon the Insurer's claims paying
ability. Any change in the ratings of the Insurer by Standard & Poor's and
Moody's may result in a change in the ratings on the Class A Certificates. The
ratings do not address the possibility that Certificateholders might suffer a
lower than anticipated yield.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to the Class A Certificates are subsequently lowered for any
reason, no person or entity is obligated to provide any additional credit
support or credit enhancement with respect to the Class A Certificates.
The Depositor has not requested that any rating agency rate the Class A
Certificates other than as stated above. However, there can be no assurance as
to whether any other rating agency will rate the Class A Certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the Class A Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Class A Certificates as stated above.
LEGAL INVESTMENT
The Class A Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are rated in at least the second highest rating
category by the Rating Agency, and, as such, are legal investments for certain
entities to the extent provided in SMMEA. SMMEA provided the states could
override its provisions on legal investment and restrict or condition investment
in mortgage related securities by taking statutory action on or prior to October
3, 1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
The Depositor makes no representations as to the proper characterization
of the Class A Certificates for legal investment or other purposes, or as to the
ability of particular investors to purchase the Class A Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Class A Certificates. Accordingly, all institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
should consult with their own legal advisors in determining whether and to what
extent the Class A Certificates constitute a legal investment under SMMEA or is
subject to investment, capital or other restrictions. See "Legal Investment" in
the Prospectus.
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ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to the Employee
Retirement arrangements are invested, that is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
should carefully review with its legal advisors whether the purchase or holding
of Class A Certificates could give rise to a transaction that is prohibited or
is not otherwise permitted either under ERISA or Section 4975 of the Code.
The U.S. Department of Labor issued an individual exemption, Prohibited
Transaction Exemption 90-29 (the "Exemption"), on May 24, 1990 to the
Underwriter, which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Sections 4975(a) and (b) of the Code
and Section 501(i) of ERISA, certain transactions, among others, relating to the
servicing and operation of mortgage pools and the purchase, sale and holding of
mortgage pass-through certificates underwritten by an Underwriter (as
hereinafter defined), provided that certain conditions set forth in the
Exemption are satisfied. For purposes of this Section "ERISA Considerations",
the term "Underwriter" shall include (a) Merrill Lynch, Pierce, Fenner & Smith
Incorporated, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with Merrill
Lynch, Pierce, Fenner & Smith Incorporated and (c) any member of the
underwriting syndicate or selling group of which a person described in (a) or
(b) is a manager or co-manager with respect to the Class A Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Class A
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class A Certificates by certain employee benefit plans
subject to Section 4975 of the Code (each, a "Plan"), must be on terms that are
at least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party. Second, the rights and interests evidenced
by the Class A Certificates must not be subordinate to the rights and interests
evidenced by the other certificates of the same trust. Third, the Class A
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by Standard & Poor's Corporation,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch
Investors Service, Inc. Fourth, the Trustee cannot be an affiliate of any member
of the "Restricted Group", which consists of any Underwriter, the Depositor, the
Master Servicer, each sub-servicer and any mortgagor with respect to the
Mortgage Loans constituting more than 5% of the aggregate unamortized principal
balance of the Mortgage Loans as of the date of initial issuance of the Class A
Certificates. Fifth, the sum of all payments made to and retained by the
Underwriter must represent not more than reasonable compensation for
underwriting the Class A Certificates; the sum of all payments made to and
retained by the Underwriter must represent not more than reasonable compensation
for underwriting the Class A Certificates; the sum of all payments made to and
retained by the Depositor pursuant to the assignment of the Mortgage Loans to
the Trust Fund must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer and any sub-servicer must represent not more than reasonable
compensation for such person's services under the Agreement and reimbursement of
such person's reasonable compensation for such person's services under the
Agreement and reimbursement of such person's reasonable expenses in connection
therewith. Sixth, the investing Plan must be an accredited investor as defined
in Rule 501 (a)(1) of Regulation D of the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
Because the Class A Certificates are not subordinate to any other class
of Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class A
Certificates that they be rated not lower than "AAA" by Standard & Poor's
Ratings Services ("Standard & Poor's") and "Aaa" by Moody's Investors Service,
Inc. ("Moody's"). A fiduciary of a Plan contemplating purchasing a Class A
Certificate in the secondary market must make its own determination that at the
time of such acquisition, the Class A Certificates continue to satisfy the third
general condition set forth above. The Depositor expects that the fourth general
condition set forth above will be satisfied with respect to the Class A
Certificates. A fiduciary of a
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Plan contemplating purchasing a Class A Certificate must make its own
determination that the first, third, fifth and sixth general conditions set
forth above will be satisfied with respect to such Class A Certificate.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm (a) that such Certificates constitute "certificates" for purposes
of the Exemption and (b) that the specific and general conditions of the
Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any prohibited transaction exemptions, in
particular, Prohibited Transaction Class Exemption 83-1. See "ERISA
Considerations" in the Prospectus.
Any Plan fiduciary considering whether to purchase a Class A Certificate
on behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment.
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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
1
1997 Act...................................................15, 66
A
Adjustable Rate Mortgage Loans.......................2, 4, 20, 45
Adjusted WAC Rate...........................................7, 49
Adjustment Date.............................................6, 26
Aggregate Expense Rate......................................7, 49
aggregate risks................................................65
Agreement....................................................2, 4
Available Distribution Amount..................................52
B
Balloon Mortgage Loan..........................................21
Balloon Payment................................................21
Bankruptcy Amount..............................................57
Bankruptcy Loss................................................58
Basis Risk Shortfall........................................7, 49
BCD Mortgage Loan..............................................59
business day...............................................50, 55
C
Cap Premium....................................................68
capital asset..............................................15, 66
CEDE...........................................................46
CEDEL.......................................................6, 46
CEDEL Participants.............................................48
Certificate Insurer.............................................1
Certificate Owners.............................................47
Certificateholder..............................................47
Certificates.................................................1, 4
Class A Certificates.....................................1, 4, 45
Class A Regular Interest...................................13, 65
Class R Certificates............................................4
Class X Certificates.....................................1, 4, 45
Class X Regular Interest...................................13, 65
Clearing Agency............................................46, 47
clearing corporation...........................................47
Code.......................................................14, 66
Collection Period...............................................8
Compensating Interest..........................................62
Cooperative....................................................48
CPR............................................................42
Cut-off Date.............................................2, 4, 20
D
Debt Ratio.....................................................36
Debt Service Reduction.........................................58
Deficient Valuation............................................58
Delayed First Adjustment Mortgage Loan......................6, 21
Depositaries................................................7, 46
Depositary.....................................................46
Distribution Date...............................................1
DTC..........................................................2, 6
Due Date.......................................................21
Due Period......................................................9
E
ERISA......................................................16, 71
Euroclear...................................................7, 46
Euroclear Operator.............................................48
Euroclear Participants.........................................48
event of default...............................................56
Excess Bankruptcy Losses.......................................58
Excess Fraud Losses............................................58
Excess Special Hazard Losses...................................58
Excess Subordinated Amount.....................................53
Exemption......................................................71
F
Fixed Rate Mortgage Loans......................................2
Fixed Rate Mortgage Loans...............................4, 20, 45
Fraud Loss.....................................................58
Fraud Loss Amount..............................................57
G
Gross Margin................................................6, 26
H
Holdings.......................................................63
HUD............................................................59
I
Index.......................................................2, 20
Indirect Participants..........................................47
Insurance Agreement............................................55
Insurance Premium Rate.........................................62
Insured Payment................................................10
Insured Payments...............................................54
Insurer....................................................10, 63
Insurer Default................................................62
Interest Determination Date....................................50
Interest Distribution Amount....................................8
interest on obligations secured by mortgages on real property..14
Interest Rate Cap Agreements...................................67
IRS............................................................66
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<PAGE>
L
LIBO...........................................................50
M
Master REMIC....................................................2
Master REMIC Regular Interests.............................13, 65
Master Servicer............................................21, 59
Maximum Class A Pass-Through Rate..........................8, 50
Maximum Mortgage Rate..........................................26
Minimum Mortgage Rate..........................................26
Modeling Assumptions...........................................43
Monthly Advance................................................56
Monthly Advances...............................................11
Moody's.................................................2, 70, 72
Mortgage Loan Seller............................................2
Mortgage Loans...........................................2, 4, 45
Mortgage Pool............................................2, 4, 45
Mortgage Rates..................................................5
mortgage related securities....................................71
Mortgaged Properties........................................5, 20
N
Net Monthly Excess Cashflow....................................52
O
OID Regulations................................................66
One-Month LIBOR................................................50
Order..........................................................54
Originator..................................................2, 35
outside reserve fund.......................................14, 66
P
Participants...................................................47
Periodic Rate Cap..............................................26
Plan...........................................................71
Policy......................................................1, 10
Prepayment Assumption..........................................42
Prepayment Interest Shortfalls.................................40
Prepayment Period...............................................9
Principal Distribution Amount..................................51
Q
qualified mortgages............................................14
Qualifying Rate................................................37
R
real estate assets.............................................14
Realized Losses................................................56
Receipt........................................................55
Received.......................................................55
Reference Banks................................................50
regular interests..........................................13, 65
Relief Act.....................................................40
REMIC...........................................................2
REMICs.....................................................13, 65
Required Subordinated Amount...................................53
Reserve Interest Rate..........................................51
Residual Certificates....................................1, 4, 45
residual interest..........................................65, 66
Restricted Group...............................................71
Reuter Screen LIBO Page........................................50
Riegle Act.....................................................19
rolling 30-day period..........................................37
S
single risks...................................................65
SMMEA......................................................16, 71
Special Hazard Amount..........................................57
Special Hazard Loss............................................57
Standard & Poor's.......................................2, 70, 72
step down......................................................53
step up........................................................53
Subordinated Amount............................................53
Subordinated Certificates......................................45
Subordination Increase Amount..................................53
Subordination Reduction Amount.................................54
Subsidiary REMIC................................................2
Swap Regulations...............................................67
T
Term of the Policy.............................................55
termination payment............................................68
Terms and Conditions...........................................48
Trust Fund...............................................2, 4, 45
U
Underwriter....................................................71
Unpaid Basis Risk Shortfall.................................8, 49
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<PAGE>
_____________________________________ _____________________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Summary of Prospectus Supplement........................................................................................ S-4
Risk Factors............................................................................................................ S-17
The Mortgage Pool....................................................................................................... S-20
Yield on the Certificates............................................................................................... S-40
Description of the Certificates......................................................................................... S-45
Pooling and Servicing Agreement......................................................................................... S-58
The Insurer............................................................................................................. S-63
Certain Federal Income Tax Consequences................................................................................. S-65
Method of Distribution.................................................................................................. S-68
Secondary Market........................................................................................................ S-69
Legal Opinions.......................................................................................................... S-69
Experts................................................................................................................. S-69
Ratings................................................................................................................. S-70
Legal Investment........................................................................................................ S-70
ERISA Considerations.................................................................................................... S-71
PROSPECTUS
Summary of Prospectus................................................................................................... 5
Special Considerations.................................................................................................. 13
Description of the Trust Funds.......................................................................................... 19
Use of Proceeds......................................................................................................... 25
Yield Considerations.................................................................................................... 25
The Depositor........................................................................................................... 29
Description of the Securities........................................................................................... 30
Description of the Agreements........................................................................................... 38
Description of Credit Support........................................................................................... 57
Certain Legal Aspects of Mortgage Loans................................................................................. 59
Certain Legal Aspects of the Contracts.................................................................................. 69
Certain Federal Income Tax Consequences................................................................................. 73
State Tax Considerations................................................................................................ 105
Erisa Considerations.................................................................................................... 105
Legal Investment........................................................................................................ 107
Plan of Distribution.................................................................................................... 109
Legal Matters........................................................................................................... 110
Financial Information................................................................................................... 110
Rating.................................................................................................................. 110
Index of Principal Definitions.......................................................................................... 111
</TABLE>
------------------------
UNTIL DECEMBER 10, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
$102,200,847
OCWEN MORTGAGE LOAN
ASSET BACKED CERTIFICATES,
SERIES 1997-OFS2
MERRILL LYNCH MORTGAGE
INVESTORS, INC.
DEPOSITOR
LMAC, INC.
MORTGAGE LOAN SELLER
OCWEN FEDERAL BANK FSB
MASTER SERVICER
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
DATED SEPTEMBER 11, 1997
_____________________________________ _____________________________________
