As filed with the Securities and Exchange Commission on May 23, 1997
Registration No. 333-24327
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------
MERRILL LYNCH MORTGAGE INVESTORS, INC.
(Exact name of registrant as specified in its governing instruments)
Delaware 13-3416059
(State of incorporation) (I.R.S. Employer Identification No.)
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281-1310
(Address of principal executive offices)
----------------
Jeffrey W. Kronthal
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281-1310
(Name and address of agent for service)
----------------
With a copy to:
Renwick D. Martin
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of the registration statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offer. / / _______________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
======================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to Be Registered Registered(1) Per Unit(2) Offering Price(2) Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities . . . . . . . $1,000,000,000 100% $1,000,000,000 $303,031(3)
=======================================================================================================
</TABLE>
(1) This Registration Statement relates to the initial offering from time to
time of $1,000,000,000 aggregate principal amount of Asset Backed
Securities and to any resales thereof in market making transactions by
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of the
Registrant, to the extent required.
(2) Estimated solely for purposes of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
(3) Of which $304 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PURSUANT TO RULE 429 OF THE SECURITIES AND EXCHANGE COMMISSION'S RULES
AND REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMEDNED, THE PROSPECTUS
AND PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE
TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-11 (REGISTRATION NO.
33-74332) AND ON FORM S-3 (REGISTRATION NO. 333-7569) AND THE UNSOLD
SECURITIES REGISTERED THEREUNDER AND THIS AMENDMENT TO THE REGISTRATION
STATEMENT CONSTITUTES A POST-EFFECTIVE AMENDMENT THERETO.
EXPLANATORY NOTE
This Registration Statement includes a basic prospectus and an
illustrative form of prospectus supplement for use in an offering of Asset
Backed Securities. The description in the form of prospectus supplement of
credit enhancement mechanisms or other features is intended merely as an
illustration of the principal features of a possible series of Asset Backed
Securities; the features applicable to any actual series of Asset Backed
Securities may include some, all or none of the features so illustrated, and
may include any features specified in the prospectus.
SUBJECT TO COMPLETION, DATED MAY 23, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated _______, 199_)
$______________
Merrill Lynch Mortgage Investors Inc.
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES _______
The Series 199_-_ Mortgage Pass-Through Certificates (the
"Certificates") will consist of ____ classes of Certificates, designated as
the Class ( ) Certificates, Class ( ) Certificates and Class ( ) Certificates
(the Class ( ) Certificates, collectively, the "Subordinate Certificates").
As further described herein, losses on the Mortgage Loans will be allocated
to the Subordinate Certificates prior to allocation to the Class ( )
Certificates. See "Description of the Certificates -- Distributions --
Priority" herein.
The Certificates will represent in the aggregate the entire beneficial
interest in a trust fund (the "Trust Fund") to be established by Merrill
Lynch Mortgage Investors Inc. (the "Depositor"). The Trust Fund will consist
primarily of (a pool (the "Mortgage Pool") of (conventional), (fixed rate)
(adjustable rate) mortgage loans, with terms to maturity of not more than ___
years (the "Mortgage Loans"), secured by first (and/or junior) liens on one-
to four-family residential properties,) (mortgage participations,) mortgage
pass-through certificates, mortgage-backed securities evidencing interests
therein or secured thereby (the "MBS"),) (and) (certain direct obligations of
the United States, agencies thereof or agencies created thereby (the
"Government Securities")). The Mortgage Loans were originated or acquired by
___________ (the "Mortgage Asset Seller") and will be sold to the Depositor
on or prior to the date of initial issuance of the Certificates.
The Class ( )(, Class ( ) and Class ( )) Certificates will evidence
approximately an initial ___% undivided interest in the Trust Fund and the
Subordinate Certificates, in the aggregate, will evidence approximately an
initial ___% undivided interest in the Trust Fund. Only the Class ( )
Certificates are being offered hereby.
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN _______ SET FORTH
UNDER THE CAPTION "SPECIAL CONSIDERATIONS" (HEREIN AND) IN THE PROSPECTUS.
(The MBS will (consist of) (include) the following series and classes of
securities: (identify title(s) and class(es) of MBS)(, including (title(s)
and class(es) of MBS).) (The (title(s) and class(es) of MBS) are
(subordinate) (interest-only) securities.) (See "Summary--The MBS."))
(The yield to investors in the (interest-only) Certificates will be
(extremely) sensitive to the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations) in the Mortgage Loans
which may fluctuate significantly over time. An (extremely) rapid rate of
principal payments on the Mortgage Loans could result in the failure of
investors in the interest-only Certificates to recover their initial
investments.)
--------------------
Merrill Lynch & Co.
The date of this Prospectus Supplement is _____________, 19__
The characteristics of the Mortgage Loans are more fully described herein
under "Description of the Mortgage Pool."
Distributions on the Class ( ) Certificates will be made, to the extent
of available funds, on the __th day of each (month) (__) or, if any such day
is not a business day, on the next succeeding business day, beginning in
__________ (each, a "Distribution Date"). (As more fully described herein,
distributions allocable to interest, if any, on the Class ( ) Certificates on
each Distribution Date will be based on the (applicable) (then-applicable
variable) pass-through rate (the "Pass-Through Rate") and the aggregate
(principal balance (the "Certificate Balance")) (notional balance (the
"Notional Balance")) of such class (or each component thereof) outstanding
immediately prior to such Distribution Date. (The Pass-Through Rate
applicable to the Class ( ) Certificates from time to time will equal the
(sum of __% and the Index (as defined herein) subject to certain limitations)
(weighted average of the Class ( ) Remittance Rates (as defined herein) on
the Mortgage Loans. The Pass-Through Rate for the Class ( ) Certificates on
the first Distribution Date will be _% per annum and is expected to change
thereafter (because the weighted average of the Class ( ) Remittance Rates is
expected to change for succeeding Distribution Dates.) Distributions in
respect of principal, if any, of the Class ( ) Certificates will be made as
described herein under "Description of the Certificates -- Distributions --
Priority" and "--Calculations of Principal".)
(_______________ will act as master servicer of the Mortgage Loans (the
"Master Servicer"). The obligations of the Master Servicer with respect to
the Certificates will be limited to its contractual servicing obligations and
the obligation under certain circumstances to make Advances to the
Certificateholders. See "Description of the Certificates -- Advances"
herein. (The only) obligation of the Depositor with respect to the
Certificates will be to obtain from the Mortgage Asset Seller certain
representations and warranties with respect to the Mortgage Loans and to
assign to the Trustee the obligation of the Mortgage Asset Seller to
repurchase or substitute for any Mortgage Loan as to which there exists an
uncured material breach of any such representation or warranty.)
------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE CLASS ( ) CERTIFICATES. THE CLASS ( ) CERTIFICATES DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE
OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CLASS ( ) 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 AFFILIATES.
--------------------
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.)
----------------------
An election will (not) be made to treat the Trust Fund as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes.
(The Class ( ) Certificates will constitute "regular interests" in the
REMIC.) See "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
There is currently no secondary market for the Class ( ) Certificates.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter")
currently expects to make a secondary market in the Class ( ) Certificates,
but has no obligation to do so. There can be no assurance that such a market
will develop or, if it does develop, that it will continue. See "Plan of
Distribution" herein.
The Class ( ) Certificates offered hereby will be purchased by the
Underwriter from the Depositor and will be offered by the Underwriter from
time to time to the public in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to the Depositor from
the sale of the Class ( ) Certificates will be $____________ plus accrued
interest from the Cut-off Date, before deducting expenses payable by the
Depositor estimated at $_____________.
The Class ( ) Certificates are offered subject to prior sale, when, as
and if accepted by the Underwriter, and subject to approval of certain legal
matters by counsel for the Underwriter and certain other conditions. It is
expected that delivery of the Class ( ) Certificates (in book-entry form) (in
registered form) will be made on or about ___________, 199_, (through the
facilities of The Depository Trust Company) (at the offices of the
Underwriter, New York, New York) against payment therefor in immediately
available funds.
-----------------------------
THE CLASS ( ) CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT
CONSTITUTE PART OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR
AND ARE BEING OFFERED PURSUANT TO ITS PROSPECTUS DATED _______________, 199_,
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 ( ) CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary S
Special Considerations S
Description of the Mortgage Pool S
Description of the Certificates S
Pooling and Servicing Agreement S
Use of Proceeds S
Certain Federal Income Tax Consequences S
ERISA Considerations S
Legal Investment S
Plan of Distribution S
Legal Matters S
Rating S
Prospectus
Prospectus Supplement
Available Information
Incorporation of Certain Information by Reference
Summary of Prospectus
Special Considerations
Description of the Trust Funds
Use of Proceeds
Yield Considerations
The Depositor
Description of the Certificates
Description of the Agreements
Description of Credit Support
Certain Legal Aspects of Mortgage Loans
Certain Federal Income Tax Consequences
State Tax Considerations
ERISA Considerations
Legal Investment
Plan of Distribution
Legal Matters
Financial Information
Rating
Index of Principal Definitions
-----------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS ( ) 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.
--------------------------------
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement and the accompanying Prospectus in connection with the
offer contained in this 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 an 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 this 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.
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary
are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Title of Certificates Mortgage Pass-Through Certificates,
Series 199_-_, (the "Certificates").
Depositor 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.
Master Servicer _______________, a ________________.
See "Pooling and Servicing Agreement --
The Master Servicer" herein.
(Sub-Servicers _______________, a ________________)
Trustee _____________, a ____________________.
Cut-off Date ____________ 1, 199_.
Closing Date ______________ 1, 199_.
Distribution Dates Distributions on the Certificates will
be made by the Trustee, to the extent
of available funds, on the __ day of
each (month) ( ) or, if any such __ day
is not a business day, then on the next
succeeding business day, beginning in
________ 19__ (each, a "Distribution
Date"), to the holders of record as of
the close of business on the (last
business day of the month preceding the
month) of each such distribution (each,
a "Record Date").
Denominations The Class ( ) Certificates will be
issuable (on the book-entry records of
DTC and its Participants) (in
registered, certified form) in
denominations of $_______ and integral
multiples of $_____________ in excess
thereof(, with one Certificate of such
class evidencing an additional amount
equal to the remainder of the
Certificate Balance thereof).
(The Mortgage Pool The Mortgage Pool will consist of
((conventional), (fixed rate)
(adjustable rate) Mortgage Loans
secured by (first) (and/or) (junior)
liens on one- to four-family
residential properties (the "Mortgaged
Properties") located in __ different
states,) (mortgage participations,)
mortgage pass-through certificates,
mortgage-backed securities evidencing
interests therein or secured thereby
(the "MBS"),) (and) (certain direct
obligations of the United States,
agencies thereof or agencies created
thereby (the "Government Securities")).
(The Mortgage Loans will have an
aggregate principal balance as of the
Cut-off Date of $_________ and
individual principal balances at
origination of at least $______________
but not more than $__________, with an
average principal balance at
origination of approximately
$_________. The Mortgage Loans will
have terms to maturity from the date of
origination or modification of not more
than ____ years, and a weighted average
remaining term to maturity of
approximately _____ months as of the
Cut-off Date. The Mortgage Loans will
bear interest at Mortgage Rates of at
least _____% per annum but not more
than _____% per annum, with a weighted
average Mortgage Rate of approximately
____% per annum as of the Cut-off Date.
The Mortgage Loans will be acquired by
the Depositor on or before the Closing
Date. In connection with its
acquisition of the Mortgage Loans, the
Depositor will be assigned (and will in
turn assign to the Trustee for the
benefit of the holders of the
Certificates) certain rights in respect
of representations and warranties
described herein that were made by the
Mortgage Asset Seller.)
(_____ of the Mortgage Loans,
representing _____% of the Mortgage
Loans by aggregate principal balance as
of the Cut-off Date, provide for
scheduled payments of principal and/or
interest ("Monthly Payments") to be due
on the _____ day of each month; the
remainder of the Mortgage Loans provide
for Monthly Payments to be due on
(identify day or days) of each month
(the date in any month on which a
Monthly Payment on a Mortgage Loan is
first due, the "Due Date"). (The rate
per annum at which interest accrues on
each Mortgage Loan is subject to
adjustment on specified Due Dates (each
such date, an "Interest Rate Adjustment
Date") by adding a fixed percentage
amount (a "Gross Margin") to the value
of the then-applicable Index (as
described below) subject, in the case
of substantially all of the Mortgage
Loans, to limitations on the periodic
adjustment of the related Mortgage
Rate, and to maximum and minimum
lifetime Mortgage Rates, as described
herein. ___ of the Mortgage Loans,
representing ___% of the Mortgage Loans
by aggregate principal balance as of
the Cut-off Date, provide for Interest
Rate Adjustment Dates to occur
(monthly); the remainder of the
Mortgage Loans provide for adjustments
to the Mortgage Rate to occur
quarterly, semi-annually or annually.
(Each of the Mortgage Loans provides
for an initial fixed interest rate
period;) of the Mortgage
Loans, representing _____% of the
Mortgage Loans by aggregate principal
balance as of the Cut-off Date, have
not yet experienced their first
Interest Rate Adjustment Date. The
latest initial Interest Rate Adjustment
Date for any Mortgage Loan is scheduled
to occur on ________.))
(The amount of the Monthly Payment on
each Mortgage Loan is also subject to
adjustment on specified Due Dates (each
such date, a "Payment Adjustment Date")
to an amount that would amortize the
outstanding principal balance of the
Mortgage Loan over its then remaining
amortization schedule and pay interest
at the applicable Mortgage Rate,
subject, in the case of (several)
Mortgage Loans, to payment caps, which
limit the amount by which the Monthly
Payment may adjust on any Payment
Adjustment Date as described herein.
_______ of the Mortgage Loans,
representing __% of the Mortgage Loans
by aggregate principal balance as of
the Cut-off Date, provide for Payment
Adjustment Dates to occur annually,
while the remainder of the Mortgage
Loans provide for adjustments of the
Monthly Payment to occur monthly,
quarterly or semi-annually.)
(Only in the case of Mortgage
Loans, representing ____% of the
Mortgage Loans by aggregate principal
balance as of the Cut-off Date, does a
Payment Adjustment Date immediately
follow each Interest Rate Adjustment
Date. As a result, and because the
application of payment caps may limit
the amount by which the Monthly
Payments may adjust in respect of
certain Mortgage Loans, the amount of a
Monthly Payment may be more or less
than the amount necessary to amortize
the remaining principal balance of the
Mortgage Loan over its then remaining
amortization schedule and pay interest
at the then-applicable Mortgage Rate.
Accordingly, Mortgage Loans may be
subject to slower amortization (if the
Monthly Payment due on a Due Date is
sufficient to pay interest accrued to
such Due Date at the then-applicable
Mortgage Rate but is not sufficient to
reduce principal in accordance with the
applicable amortization schedule), to
negative amortization (if interest
accrued to a Due Date at the applicable
Mortgage Rate is greater than the
entire Monthly Payment due on such Due
Date) or to accelerated amortization
(if the Monthly Payment due on a Due
Date is greater than the amount
necessary to pay interest accrued to
such Due Date at the then-applicable
Mortgage Rate and to reduce principal
in accordance with the applicable
amortization schedule).)
(__ Mortgage Loans, representing ____%
of the Mortgage Loans by aggregate
principal balance as of the Cut-off
Date, permit negative amortization.
Substantially all of the Mortgage Loans
that permit negative amortization
contain provisions that limit the
extent to which the amount of their
respective original principal balances
may be exceeded as a result thereof.)
(__ Mortgage Loans, representing ____%
of the Mortgage Loans by aggregate
principal balance as of the Cut-off
Date, provide for monthly payments of
principal based on amortization
schedules significantly longer than the
remaining term of such Mortgage Loans,
thereby leaving substantial outstanding
principal amounts due and payable (each
such payment, a "Balloon Payment") on
their respective maturity dates, unless
prepaid prior thereto.)
For a further description of the
Mortgage Loans, see "Description of the
Mortgage Pool" herein.)
(The MBS (Title and issuer of underlying
securities, amount deposited or
pledged, amount originally issued,
maturity date, interest rate,
(redemption provisions), description of
other material terms.)
(The Index As of any Interest Rate Adjustment
Date, the Index used to determine the
Mortgage Rate on each Mortgage Loan
will be the ____________. See
"Description of the Mortgage Pool --
The Index" herein.)
(Conversion of Mortgage Loans Approximately __% of the Mortgage Loans
(by aggregate principal balance as of
the Cut-off Date) (the "Convertible
Mortgage Loans") provide that, at the
option of the related Mortgagors, the
adjustable interest rate on such
Mortgage Loans may be converted to a
fixed interest rate, provided that
certain conditions have been satisfied.
Upon notification from a Mortgagor of
such Mortgagor's intent to convert from
an adjustable interest rate to a fixed
interest rate, and prior to the
conversion of any such Mortgage Loan,
the related Warrantying Party (as
defined herein) will be obligated to
purchase the Converting Mortgage Loan
(as defined herein) at the Conversion
Price (as defined herein). (In the
event of a failure by a Subservicer to
purchase a "Converting Mortgage Loan"),
the Master Servicer is required to use
its best efforts to purchase such
Converted Mortgage Loan (as defined
herein) from the Mortgage Pool at the
Conversion Price during the one-month
period following the date of
conversion.) In the event that neither
the related Warrantying Party nor the
Master Servicer purchases a Converting
or Converted Mortgage Loan, the
Mortgage Pool will thereafter include
both fixed-rate and adjustable-rate
Mortgage Loans. See "Certain Yield and
Prepayment Considerations" herein.)
Class ( ) Certificates The Class ( ), Class ( ) and Class ( )
Certificates (collectively, the
"Certificates") will be issued pursuant
to a Pooling and Servicing Agreement,
to be dated as of the Cut-off Date,
among the Depositor, the Master
Servicer and the Trustee (the "Pooling
and Servicing Agreement"). The Class (
) Certificates have an initial
Certificate Balance of $_______ (the
initial "Class ( ) Balance"),
representing an initial interest of
approximately ___% in a trust fund (the
"Trust Fund"), which will consist
primarily of the Mortgage Pool. The
Class ( ) Certificates will have an
initial Certificate Balance of
$________ (the initial "Class ( )
Balance"), representing an initial
interest of approximately ____% in the
Trust Fund. (The Class ( )
Certificates have an initial
Certificate Balance of $_______ (the
initial "Class ( ) Balance"),
representing an initial interest of
approximately ___% in the Trust Fund.)
(The Class ( ) Certificates will not
have a Certificate Balance.)
Distributions on the Certificates will
be made on each Distribution Date.
Distributions will be made by check or
wire transfer of immediately available
funds, as provided in the Pooling and
Servicing Agreement, to the
Certificateholders of record as of the
(last business day of the month
preceding the month) of such
Distribution Date (each, a "Record
Date"), except that the final
distribution on the Class ( )
Certificates will be made only upon
presentation and surrender of such
holders' Certificates at the office or
agency specified in the Pooling and
Servicing Agreement. (As more
specifically described herein, the
Class ( ) Balance will be adjusted from
time to time on each Distribution Date
to reflect any additions thereto
resulting from allocations of Mortgage
Loan negative amortization to the Class
( ) Certificates and any reductions
thereof resulting from distributions of
principal of the Class ( )
Certificates. As further described
herein, interest shall accrue on the
Class ( ) Balance at a Pass-Through
Rate thereon.
Pass-Through Rates on the
Class ( ), Class ( ) and
Class ( ) Certificates (The Pass-Through Rates on the Class (
), Class ( ) and Class ( ) Certificates
are fixed and are set forth on the
cover hereof.) (The Pass-Through Rate
on the Class ( ) Certificates will be
equal to the weighted average of the
Class ( ) Remittance Rates in effect
from time to time on the Mortgage
Assets. The Class ( ) Remittance Rate
in effect for any Mortgage Assets as of
any date of determination (is equal to
the excess of the Mortgage Rate thereon
over __% per annum) ((i) prior to its
first Interest Rate Adjustment Date is
equal to the related Mortgage Rate
then in effect minus __ basis points
(the "Net Mortgage Rate") and (ii) from
and after its first Interest Rate
Adjustment Date is equal to the related
Mortgage Rate then in effect minus the
excess of the related Gross Margin over
__ basis points.)) (The Class ( )
Certificates (or a component thereof)
will not be entitled to distributions
of interest and will not have a Pass-
Through Rate.) (Describe any other
method used to calculate the Pass-
Through Rate.) (Interest on the
Certificates will be calculated on the
basis of a 360-day year consisting of
twelve 30-day months. Interest will
accrue with respect to each
Distribution Date during the one-month
period beginning on the ___ day of the
month preceding the month of such
Distribution Date and ending on the ___
day of the month of such Distribution
Date (each, an "Interest Accrual
Period").)
Distributions on the
Certificates The Available Distribution Amount in
respect of a Distribution Date will be
distributed in the following amounts
and order of priority:
(describe the application of Available
Distribution Amount to make
distributions of interest and principal
among the Classes of Certificates)
(Interest on the Class ( ) Certificates
at the then-applicable Pass-Through
Rate will be reduced by the Class ( )
Certificates' allocable share
(calculated as described herein) of
((i) the aggregate amount of negative
amortization in respect of the Mortgage
Loans for their respective Due Dates
occurring during the related Due Period
and (ii)) the aggregate portion of
Prepayment Interest Shortfalls incurred
during the related Due Period that was
not covered by the application of the
Master Servicer's servicing
compensation for the related Due
Period. (The amount, if any, by which
the Class ( ) Interest Distribution
Amount for any Distribution Date is
reduced as a result of negative
amortization on the Mortgage Loans
shall constitute the "Class Negative
Amortization" for such Distribution
Date in respect of the Class ( )
Certificates and shall be added to the
Class ( ) Balance on such Distribution
Date.) (The Class ( ) Notional Amount
will equal the (sum of the) Class ( )
Balance. The Class ( ) Notional Amount
does not entitle the Class ( )
Certificates (or a component thereof)
to any distributions of principal.) If
the Available Distribution Amount for
any Distribution Date is less than the
Class ( ) Interest Distribution Amount
for such Distribution Date, the
shortfall will be part of the Class ( )
Interest Distribution Amount
distributable to holders of Class ( )
Certificates on subsequent Distribution
Dates, to the extent of available
funds.
The Available Distribution Amount for
any Distribution Date generally
includes: (i) scheduled payments on
the Mortgage Assets due during or prior
to the related Due Period and collected
as of the related Determination Date
(to the extent not distributed on
previous Distribution Dates) and
certain unscheduled payments and other
collections on the Mortgage Assets
collected during the related Due
Period, net of amounts payable or
reimbursable to the Master Servicer
therefrom; (ii) any Advances made by
the Master Servicer for the related
Distribution Date; and (iii) that
portion of the Master Servicer's
servicing compensation for the related
Due Period applied to cover Prepayment
Interest Shortfalls incurred during the
related Due Period. See " Description
of the Certificates -- Distributions --
Calculations of Interest" herein.
Advances The Master Servicer is required to make
advances ("Advances") in respect of
delinquent Monthly Payments on the
Mortgage Loans, subject to the
limitations described herein. (The
Trustee will be obligated to make any
such Advance if the Master Servicer
fails in its obligation to do so, to
the extent provided in the Pooling and
Servicing Agreement.) See "Description
of the Certificates -- Advances" herein
and "Description of the Certificates --
Advances in Respect of Delinquencies"
in the Prospectus.
Subordination The rights of holders of the
Subordinate Certificates to receive
distributions of amounts collected on
the Mortgage Loans will be subordinate,
to the extent described herein, to the
rights of holders of the Class ( )
Certificates. This subordination is
intended to enhance the likelihood of
receipt by the holders of the Class ( )
Certificates of the full amount of the
Class ( ) Interest Distribution Amount
and the (ultimate receipt of principal
equal to the initial Class ( )
Balance). The protection afforded
to the holders of the Class ( )
Certificates by means of the
subordination, to the extent provided
herein, will be accomplished by the
application of the Available
Distribution Amount to the Class ( )
Certificates prior to the application
thereof to the Subordinate Certificates
(and by reducing the Class ( ) Interest
Distribution Amount and the Class ( )
Balance by an amount equal to the
interest portion and the principal
portion, respectively, of Realized
Losses allocated to such class). See
"Description of the Certificates --
Subordination" herein.
(The Subordinate
Certificates The Class ( ) Certificates have an
initial Certificate Balance of
$____________ (the initial "Class ( )
Balance") and the Class ( )
Certificates have an initial
Certificate Balance of $________ (the
initial "Class ( ) Balance"),
representing ____% and _____%,
respectively, of the Mortgage Loans by
aggregate principal balance as of the
Cut-off Date. Interest shall accrue on
the Class ( ) Balance and Class ( )
Balance at a Pass-Through Rate equal to
(____% per annum) (the weighted average
of the Net Mortgage Rates in effect
from time to time on the Mortgage
Loans).
(The Class ( ) Certificates, which have
no Pass-Through Rate and initially have
a Certificate Balance of
$______________ (the initial "Class ( )
Balance"), represent the right to
receive on any Distribution Date the
balance, if any, of the Available
Distribution Amount remaining after the
payment of all interest and principal
due on the other Classes of
Certificates. Subsequent to the first
Distribution Date, the Class ( )
Balance will equal the excess, if any,
of the aggregate Stated Principal
Balance of the Mortgage Loans over the
sum of the Class ( ) Balance, Class ( )
Balance and Class ( ) Balance.)
(The Subordinate Certificates are not
offered hereby.))
(Special Prepayment
Considerations The rate of principal payments on the
Class ( ) Certificates collectively
will depend on the rate and timing of
principal payments (including
prepayments, defaults and liquidations)
on the Mortgage Loans. As is the case
with mortgage-backed securities
generally, the Class ( ) Certificates
are subject to substantial inherent
cash-flow uncertainties because the
Mortgage Loans may be prepaid at any
time. Generally, when prevailing
interest rates are increasing,
prepayment rates on mortgage loans tend
to decrease, resulting in a reduced
return of principal to investors 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,
resulting in a greater return of
principal to investors at a time when
reinvestment at comparable yields may
not be possible.
(The multiple class structure of the
Class ( ) Certificates results in the
allocation of prepayments among certain
classes as follows (to be included as
appropriate):
(SEQUENTIALLY PAYING CLASSES: (All)
classes of the Class ( ) Certificates
are subject to various priorities for
payment of principal as described
herein. Distributions on classes
having an earlier priority of payment
will be immediately affected by the
prepayment speed of the Mortgage Loans
early in the life of the Mortgage Pool.
Distributions on classes with a later
priority of payment will not be
directly affected by the prepayment
speed until such time as principal is
distributable on such classes; however,
the timing of commencement of principal
distributions and the weighted average
lives of such classes will be affected
by the prepayment speed experienced
both before and after the commencement
of principal distributions on such
classes.)
((SCHEDULED) CERTIFICATES: Principal
distributions on the (Scheduled)
Certificates will be payable in amounts
determined based on schedules as
described herein, provided that the
prepayment speed of the Mortgage Loans
each month remains (at a constant level
of) (between approximately ___%
(SPA)(CPR) (as defined herein) and)
___% (SPA)(CPR). (However, as
discussed herein, actual principal
distributions are likely to deviate
from the described amounts, because it
is highly unlikely that the actual
prepayment speed of the Mortgage Loans
each month will remain at or near ___%
(SPA)(CPR).) If the prepayment speed
of the Mortgage Loans is consistently
higher than ___% of (SPA)(CPR), then
the (Companion) Certificates will be
retired before all of the (Scheduled)
Certificates are retired, and the rate
of principal distributions and the
weighted average lives of the remaining
(Scheduled) Certificates will become
significantly more sensitive to changes
in the prepayment speed of the Mortgage
Loans and principal distributions
thereon will be more likely to deviate
from the described amounts.)
((COMPANION) CERTIFICATES: Because of
the application of amounts available
for principal distributions among the
Class ( ), Class ( ) and Class ( )
Certificates in any given month,
first to the (Scheduled) Certificates
up to the described amounts and then to
the (Companion) Certificates, the rate
of principal distributions and the
weighted average lives of the
(Companion) Certificates will be
extremely sensitive to changes in the
prepayment speed of the Mortgage Loans.
The weighted average lives of the
(Companion) Certificates will be
significantly more sensitive to changes
in the prepayment speed than that of
the (Scheduled) Certificates or a
fractional undivided interest in the
Mortgage Loans.))
(Special Yield
Considerations (The multiple class structure of the
Senior Certificates causes the yields
of certain classes to be particularly
sensitive to changes in the prepayment
speed of the Mortgage Loans and other
factors, as follows (to be included as
appropriate):)
(INTEREST STRIP AND INVERSE FLOATER
CLASSES: The yield to investors on the
(identify classes) will be extremely
sensitive to the rate and timing of
principal payments on the Mortgage
Loans (including prepayments, defaults
and liquidations), which may fluctuate
significantly over time. A rapid rate
of principal payments on the Mortgage
Loans could result in the failure of
investors in the (identify interest
strip and inverse floater strip
classes) to recover their initial
investments, and a slower than
anticipated rate of principal payments
on the Mortgage Loans could adversely
affect the yield to investors on the
(identify non-strip inverse floater
classes).)
((VARIABLE STRIP) CERTIFICATES. In
addition to the foregoing, the yield on
the (Variable Strip) Certificates will
be materially adversely affected to a
greater extent than the yields on the
other Class ( ) Certificates if the
Mortgage Loans with higher Mortgage
Rates prepay faster than the Mortgage
Loans with lower Mortgage Rates,
because holders of the (Variable Strip)
Certificates generally have rights to
relatively larger portions of interest
payments on the Mortgage Loans with
higher Mortgage Rates than on Mortgage
Loans with lower Mortgage Rates.)
(ADJUSTABLE RATE (INCLUDING INVERSE
FLOATER) CLASSES: The yield on the
(identify floating rate classes) will
be sensitive, and the yield on the
(identify inverse floater classes) will
be extremely sensitive, to fluctuations
in the level of (the index). THE PASS-
THROUGH RATE ON THE (IDENTIFY INVERSE
FLOATER CLASSES) WILL VARY INVERSELY
WITH, AND AT A MULTIPLE OF, (THE
INDEX).)
(INVERSE FLOATER COMPANION CLASSES: In
addition to the foregoing, in the event
of relatively low prevailing interest
rates (including (the index)) and
relatively high rates of principal
prepayments over an extended period,
while investors in the (identify
inverse floater companion classes) may
then be experiencing a high current
yield on such Certificates, such yield
may be realized only over a relatively
short period, and it is unlikely that
such investors would be able to
reinvest such principal prepayments on
such Certificates at a comparable
yield.)
(RESIDUAL CERTIFICATES: Holders of the
Residual Certificates are entitled to
receive distributions of principal and
interest as described herein; however,
holders of such Certificates may have
tax liabilities with respect to their
Certificates during the early years of
their term that substantially exceed
the principal and interest payable
thereon during such periods. (In
addition, such distributions will be
reduced to the extent that they are
subject to United States federal income
tax withholding.)))
Optional Termination At its option, the Master Servicer may
purchase all of the Mortgage Assets,
and thereby effect termination of the
Trust Fund and early retirement of the
then outstanding Certificates, on any
Distribution Date on which the
aggregate Stated Principal Balance of
the Mortgage Loans remaining in the
Trust Fund is less than __% of the
aggregate principal balance of such
Mortgage Loans as of the Cut-off Date.
(At its option, the Master Servicer may
also purchase any Class ( )
Certificates on any Distribution Date
on which the Class ( ) Balance is less
than ___% of the original balance
thereof.) See "Pooling and Servicing
Agreement -- Termination" herein and
"Description of the Certificates --
Termination" in the Prospectus.
Certain Federal Income Tax
Consequences (An election will be made to treat the
Trust Fund as a real estate mortgage
investment conduit ("REMIC") for
federal income tax purposes. Upon the
issuance of the Class ( ) Certificates,
Brown & Wood LLP, counsel to the
Depositor, will deliver its opinion
generally to the effect that assuming
compliance with all provisions of the
Pooling and Servicing Agreement, for
federal income tax purposes, the Trust
Fund will qualify as a REMIC under
Sections 860A through 860G of the
Internal Revenue Code of 1986 (the
"Code").
For federal income tax purposes, the
Class ( ) Certificates will be the sole
class of "residual interests" in the
REMIC and the Class ( ), Class ( ) and
Class ( ) Certificates will be the
"regular interests" in the REMIC and
will be treated as debt instruments of
the REMIC.
The Class ( ) Certificates
(may(will))(will not) be treated as
having been issued with original issue
discount for federal income tax
purposes. The prepayment assumption
that will be used for purposes of
computing the accrual of original issue
discount, market discount and premium,
if any, for federal income tax purposes
will be equal to a (constant prepayment
rate ("CPR")) (standard prepayment
assumption ("SPA")) of ____%. However,
no representation is made that the
Mortgage Loans will prepay at that rate
or at any other rate.)
For further information regarding the
federal income tax consequences of
investing in the Class ( )
Certificates, see "Certain Federal
Income Tax Consequences" 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 ( ) 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 (
) 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.
Rating It is a condition to the issuance of
the Class ( ) Certificates that they be
rated (not lower than) "___" by
. 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 (whether
voluntary or involuntary) of Mortgage
Loans, or the corresponding effect on
yield to investors. (The rating of the
Class ( ) Certificates does not address
the possibility that the holders of
such Certificates may fail to fully
recover their initial investments.)
See "Special Considerations" and
"Rating" herein and "Yield
Considerations" in the Prospectus.
Legal Investment The appropriate characterization of the
Class ( ) Certificates under various
legal investment restrictions, and thus
the ability of investors subject to
these restrictions to purchase the
Class ( ) Certificates, may be subject
to significant interpretative
uncertainties. The Class ( )
Certificates (will) (will not) be
"mortgage related securities" within
the meaning of the Secondary Mortgage
Market Enhancement Act of 1984 (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).
Accordingly, investors should consult
their own legal advisors to determine
whether and to what extent the Class (
) Certificates constitute legal
investments for them. See "Legal
Investment" herein and i n t h e
Prospectus.
(Registration of the Class
( ) Certificates The Class ( ) Certificates will be
represented by one or more global
certificates registered in the name of
Cede & Co., as nominee of The
Depository Trust Company ("DTC"). No
person acquiring an interest in the
Class ( ) Certificates (any such
person, a "Class ( ) Certificate
Owner") will be entitled to receive a
Certificate of such class in fully
registered, certificated form (a
"Definitive Class ( ) Certificate"),
except under the limited circumstances
described in the Prospectus under
"Description of the Certificates-Book-
entry Registration and Definitive
Certificates". See "Description of the
Certificates-General" herein and
"Description of the Certificates-Book-
Entry Registration and Definitive
Certificates" in the Prospectus.)
DESCRIPTION OF THE (MORTGAGE POOL) (MBS)
GENERAL
The Trust Fund will consist primarily of (___ (conventional), (fixed
interest) (adjustable interest) rate Mortgage Loans with an aggregate
principal balance as of the Cut-off Date, after deducting payments of
principal due on such date, of $____________,) (mortgage participations),
mortgage pass-through certificates, mortgage-backed securities evidencing
interests therein or secured thereby (the "MBS"),) (and) (certain direct
obligations of the United States, agencies thereof or agencies created
thereby (the "Government Securities")). Each Mortgage Loan is evidenced by a
promissory note (a "Mortgage Note") and secured by a mortgage, deed of trust
or other similar security instrument (a "Mortgage" creating a first (first or
junior) lien on a one- to four- family residential property (a "Mortgaged
Property"). The Mortgaged Properties consist of (description of one- to
four-family residential properties). (Because no evaluation of any
mortgagor's financial condition has been conducted, investors should consider
all of the Mortgage Loans to be non-recourse loans so that, in the event of
mortgagor default, recourse may be had only against the specific property and
such limited other assets as have been pledged to secure a Mortgage Loan, and
not against the mortgagor's other assets.) All percentages of the Mortgage
Loans described herein are approximate percentages (except as otherwise
indicated) by aggregate principal balance as of the Cut-off Date.)
(The Mortgage Loans to be included in the Trust Fund will have been
originated or acquired by ________________ (the "Mortgage Asset Seller") and
will have been required to comply with the underwriting criteria described
herein. The Depositor will purchase the Mortgage Loans to be included in the
Mortgage Pool on or before the Closing Date from the Mortgage Asset Seller
pursuant to a seller's agreement (the "Seller's Agreement"), to be dated as
of ____________, 199_ between the Mortgage Asset Seller and the Depositor.
The Depositor will cause the Mortgage Loans in the Mortgage Pool to be
assigned to _______________, as Trustee, pursuant to the Pooling and
Servicing Agreement. _____________, in its capacity as Master Servicer, will
service the Mortgage Loans pursuant to the Pooling and Servicing Agreement.
Under the Seller's Agreement, _______________, as seller of the Mortgage
Loans to the Depositor, will make certain representations, warranties and
covenants to the Depositor relating to, among other things, the due execution
and enforceability of the Seller's Agreement and certain characteristics of
the Mortgage Loans, and will be obligated to repurchase or substitute for any
Mortgage Loans as to which there exists deficient documentation or an uncured
material breach of any such representation, warranty or covenant. Under the
Pooling and Servicing Agreement the Depositor will assign all its right,
title and interest in such representations, warranties and covenants
(including ____________________'s repurchase or substitution obligation) to
the Trustee for the Trust Fund. The Depositor will make (no) representations
or warranties with respect to the Mortgage Loans and will have no obligation
to repurchase or substitute for Mortgage Loans with deficient documentation
(or which are otherwise defective). _____________, as seller of the Mortgage
Loans to the Depositor, is selling such Mortgage Loans without recourse and,
accordingly, in such capacity, will have no obligations with respect to the
Certificates other than pursuant to such representations, warranties,
covenants and repurchase obligations. See "Description of the Agreements --
Representations and Warranties; Repurchases" in the Prospectus.)
(THE MBS
(Title and issuer of underlying securities, amount deposited or pledged,
amount originally issued, maturity date, interest rate, (redemption
provisions), together with description of other material terms.)
(Description of principal and interest distributions on the MBS.)
(Description of advances by the servicer of the mortgage loans
underlying the MBS.)
(Description of effect on the MBS of allocation of losses on the
underlying mortgage loans.)
As to each series of MBS included in the Trust Fund, the various classes
of certificates from such series ((including classes not in the Trust Fund
but from the same series as classes that are in the Trust Fund) are listed,
together with the related pass-through rates and certain other information
applicable thereto, in Annex B hereto.)
(CONVERTIBLE MORTGAGE LOANS
____% of the Mortgage Loans ("Convertible Mortgage Loans") provide that,
at the option of the related Mortgagors, the adjustable interest rate on such
Mortgage Loans may be converted to a fixed interest rate. The first month in
which any of the Mortgage Loans may convert is ____________, and the last
month in which any of the Mortgage Loans may convert is _____________. Upon
conversion, the Mortgage Rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related Mortgage
Note which formula is intended to result in a Mortgage Rate which is not less
than the then current market interest rate (subject to applicable usury
laws). After such conversion, the monthly payments of principal and interest
will be adjusted to provide for full amortization over the remaining term to
scheduled maturity. Upon notification from a Mortgagor of such Mortgagor's
intent to convert from an adjustable interest rate to a fixed interest rate
and prior to the conversion of any such Mortgage Loan (a "Converting Mortgage
Loan"), the related Warrantying Party will be obligated to purchase the
Converting Mortgage Loan at a price equal to the outstanding principal
balance thereof plus accrued interest thereon net of any subservicing fees
(the "Conversion Price"). In the event of a failure by a Warrantying Party
to purchase a converting Mortgage Loan, the Master Servicer is required to
use its best efforts to purchase such Mortgage Loan following its conversion
(a "Converted Mortgage Loan") during the one-month period following the date
of conversion at the Conversion Price.
In the event that the related Warrantying Party fails to purchase a
Converting Mortgage Loan and the Master Servicer does not purchase a
Converted Mortgage Loan, neither the Depositor nor any of its affiliates nor
any other entity is obligated to purchase or arrange for the purchase of any
Converted Mortgage Loan. Any such Converted Mortgage Loan will remain in the
Mortgage Pool as a fixed-rate Mortgage Loan and will result in the Mortgage
Pool's having both fixed rate and adjustable rate Mortgage Loans. See
"Certain Yield and Prepayment Considerations" herein.
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the
Trustee of such Mortgage Loan and the purchaser will thereafter own such
Mortgage Loan free of any further obligation to the Trustee or the
Certificateholders with respect thereto.)
(THE INDEX
As of any Payment Adjustment Date, the Index applicable to the
determination of the related Mortgage Rate will be a per annum rate equal to
______________, as most recently available as of the date days prior to
the Payment Adjustment Date (the "Index"). Such average yields reflect the
----
yields for the week prior to that week in which the information is reported.
In the event that the Index is no longer available, an index reasonably
acceptable to the Trustee that is based on comparable information will be
selected by the Master Servicer. The Index is currently calculated based on
information reported in ___________.)
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
(Approximately ___% of the Mortgage Loans have Due Dates that occur on
the ___ day of each month; approximately ___% of the Mortgage Loans have Due
Dates that occur on the ___ day of each month; approximately _____% of the
Mortgage Loans have Due Dates that occur on the ___ day of each month; and
the remainder of the Mortgage Loans have Due Dates that occur on the
fifteenth day of each month.)
(As of the Cut-off Date, the Mortgage Loans had the following
characteristics: (i) Mortgage Rates ranging from _____% per annum to _______%
per annum; (ii) a weighted average Mortgage Rate of ______% per annum; (iii)
Gross Margins ranging from ____ basis points to ______ basis points; (iv) a
weighted average Gross Margin of ____ basis points; (v) principal balances
ranging from $_______ to $______; (vi) an average principal balance of
$_________; (vii) original terms to scheduled maturity ranging from _____
months to _________ months; (viii) a weighted average original term to
scheduled maturity of _____ months; (ix) remaining terms to scheduled
maturity ranging from ____ months to _____ months; (x) a weighted average
remaining term to scheduled maturity of ________ months; (xi) Cut-off Date
Loan-to-Value ("LTV") Ratios ranging from ______% to ________%; (xii) a
weighted average Cut-off Date LTV Ratio of _____%; (xiii) as to the _______%
of the Mortgage Loans to which such characteristic applies, (A) minimum
lifetime Mortgage Rates ranging from ____% per annum to ______ % per annum
and (B) a weighted average minimum lifetime Mortgage Rate of _______% per
annum; and (xiv) as to the__________% of Mortgage Loans to which such
characteristic applies and for which it may be currently calculated, (A)
maximum lifetime Mortgage Rate ranging from _______% per annum to ________%
per annum and (B) a weighted average maximum lifetime Mortgage Rate of
_________% per annum.)
(___% of the Mortgage Loans provide for Balloon Payments on their
respective maturity dates. Loans providing for Balloon Payments involve a
greater degree of risk than self-amortizing loans. See "Special
Considerations -- Balloon Payments" in the Prospectus.)
(The Mortgage Rate on each Mortgage Loan is subject to adjustment on
each Interest Rate Adjustment Date by adding the related Gross Margin to the
value of the Index (described below) as most recently announced a specified
number of days prior to such Interest Rate Adjustment Date, subject, in the
case of substantially all of the Mortgage Loans, to minimum and maximum
lifetime Mortgage Rates, with ranges specified below. The Mortgage Rates on
the Mortgage Loans generally are adjusted monthly; however, certain of the
Mortgage Loans provide for Interest Rate Adjustment Dates to occur quarterly
(___% of the Mortgage Loans), semi-annually ( % of the Mortgage Loans) or
annually (____% of the Mortgage Loans). Each of the Mortgage Loans provided
for an initial fixed interest rate period; Mortgage Loans,
representing ___% of the Mortgage Loans, have not experienced their first
Interest Rate Adjustment Dates. The latest initial Interest Rate Adjustment
Date for any Mortgage Loan is to occur in
_____________________________________.)
(Subject to the Payment Caps described below, the amount of the Monthly
Payment on each Mortgage Loan adjusts periodically on each Payment Adjustment
Date to an amount that would fully amortize the principal balance of the
Mortgage Loan over its then remaining amortization schedule and pay interest
at the Mortgage Rate in effect during the one month period preceding such
Payment Adjustment Date. Approximately __% of the Mortgage Loans provide
that an adjustment of the amount of the Monthly Payment on a Payment
Adjustment Date may not result in a Monthly Payment that increases by more
than ___% (nor, in some cases, decreases by more than ____%) of the amount of
the Monthly Payment in effect immediately prior to such Payment Adjustment
Date (each such provision, a "Payment Cap"); however, certain of those
Mortgage Loans also provide that the Payment Cap will not apply on certain
Payment Adjustment Dates or if the application thereof would result in the
principal balance of the Mortgage Loan exceeding (through negative
amortization) by a specified percentage the original principal balance
thereof. Generally, the related Mortgage Note provides that if, as a result
of negative amortization, the respective principal balance of the Mortgage
Loan reaches an amount specified therein (which as to most Mortgage Loans is
not greater than _% of the Mortgage Loan principal balance as of the
origination date thereof), the amount of the Monthly Payments due thereunder
will be increased as necessary to prevent further negative amortization.
(Only in the case of _____% of the Mortgage Loans does a Payment
Adjustment Date immediately follow each Interest Rate Adjustment Date. As a
result, and because application of Payment Caps may limit the amount by which
the Monthly Payments due on certain of the Mortgage Loans may adjust, the
amount of a Monthly Payment may be more or less than the amount necessary to
amortize the Mortgage Loan principal balance over the then remaining
amortization schedule at the applicable Mortgage Rate. Accordingly, Mortgage
Loans may be subject to slower amortization (if the Monthly Payment due on a
Due Date is sufficient to pay interest accrued to such Due Date at the
applicable Mortgage Rate but is not sufficient to reduce principal in
accordance with the applicable amortization schedule), to negative
amortization (if interest accrued to a Due Date at the applicable Mortgage
Rate is greater than the entire Monthly Payment due on such Due Date) or to
accelerated amortization (if the Monthly Payment due on a Due Date is greater
than the amount necessary to pay interest accrued to such Due Date at the
applicable Mortgage Rate and to reduce principal in accordance with the
applicable amortization schedule).)
(No Mortgage Loan currently prohibits principal prepayments; however,
certain of the Mortgage Loans impose fees or penalties ("Prepayment
Premiums") in connection with full or partial prepayments. Although
Prepayment Premiums are payable to the Master Servicer as additional
servicing compensation, the Master Servicer may waive the payment of any
Prepayment Premium only in connection with a principal prepayment that is
proposed to be made during the three month period prior to the scheduled
maturity of the related Mortgage Loan, or under certain other limited
circumstances.)
The following table sets forth the range of Mortgage Rates on the
Mortgage Loans as of the Cut-off Date:
<TABLE>
Mortgage Rates as of the Cut-off Date
-------------------------------------
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ---------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
========== ========== ========== =======
</TABLE>
Weighted Average
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
The following table sets forth the types of Mortgaged Properties
securing the Mortgage Loans:
<TABLE>
Property Type
------------
<CAPTION> Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Type Loans Number the Cut-off Date the Cut-off Date
- ------------- ---------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
========== ========== ========== =======
</TABLE>
Note: Percentage totals may not add due to rounding.
(The following table sets forth the range of Gross Margins for the
Mortgage Loans:)
<TABLE>
(Gross Margins)
------------
<CAPTION>
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- ---------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
========== ========== ========== =======
</TABLE>
Weighted Average
Gross Margin:
Note: Percentage totals may not add due to rounding.
(The following table sets forth the frequency of adjustments to the
Mortgage Rates on the Mortgage Loans as of the Cut-off Date:)
<TABLE>
(Frequency of Adjustments to Mortgage Rates)
------------------------------------------
<CAPTION> Percent by
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency (A) Loans Number the Cut-off Date the Cut-off Date
- ------------- ---------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
========== ========== ========== =======
</TABLE>
Weighted Average
Frequency of
Adjustments to
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) _______ or ___% of Mortgage Loans have not experienced their first
Interest Rate Adjustment Date.
(The following table sets forth the frequency of adjustments to the
Monthly Payments on the Mortgage Loans as of the Cut-off Date:)
<TABLE>
(Frequency of Adjustments to Monthly Payments)
--------------------------------------------
<CAPTION> Percent by
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency (A) Loans Number the Cut-off Date theCut-off Date
- ------------- ---------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
========== ========== ========== =======
</TABLE>
Weighted Average
Frequency of
Adjustments to
Monthly Payments:
Note: Percentage totals may not add due to rounding.
(The following table sets forth the range of maximum lifetime Mortgage
Rates for the Mortgage Loans:)
<TABLE>
(Maximum Lifetime Mortgage Rates)
-------------------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Maximum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
===== ======= ============ =======
</TABLE>
Weighted Average
Maximum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without a lifetime rate cap.
(B) The lifetime rate caps for these Mortgage Loans are based upon the Index
as determined at a future point in time plus a fixed percentage.
Therefore, the rate is not determinable as of the Cut-off Date.
(C) This calculation does not include the ____ Mortgage Loans without a
lifetime rate cap or the ______ Mortgage Loans with lifetime rate caps
which are currently not determinable.
---
(The following table sets forth the range of minimum lifetime Mortgage
Rates on the Mortgage Loans:)
<TABLE>
(Minimum Lifetime Mortgage Rates)
------------------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Minimum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
===== ======= ============ =======
</TABLE>
Weighted Average
Minimum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without interest rate floors.
(B) This calculation does not include the ___ Mortgage Loans without
interest rate floors.
The following table sets forth the range of principal balances of the
Mortgage Loans as of the Cut-off Date:
<TABLE>
Principal Balances as of the Cut-off Date
-----------------------------------------
<CAPTION> Percent by
Percent by
Principal Aggregate Aggregate
Balance Number of Percent Principal Principal
as of the Mortgage by Balance as of Balance as of
Cut-off Date Loans Number the Cut-off Date the Cut-off Date
- --------------- --------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======= ======= ========== ========
</TABLE>
Average Principal Balance
as of the
Cut-off Date:
Note: Percentage totals may not add due to rounding.
The following tables set forth the original and remaining terms to
maturity (in months) of the Mortgage Loans:
<TABLE>
Original Term to Maturity in Months
-----------------------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Number of Percent Principal Principal
Original Mortgage by Balance as of Balance as of
Term in Months Loans Number the Cut-off Date the Cut-off Date
- ----------------- --------- ----------- ------------------ ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======== ======= ======== =======
</TABLE>
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the purpose for which the Mortgage Loan
was originated, (the type of program under which it was originated and the
occupancy type).
<TABLE>
Mortgage Loan Purpose
---------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
---------- ---------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
====== ======== ========== ========
</TABLE>
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
<TABLE>
(Mortgage Loan Documentation Program)
-----------------------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
---------- ---------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
====== ======== ========== ========
</TABLE>
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
<TABLE>
Mortgage Loan Occupancy Type
----------------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
---------- ---------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
====== ======== ========== ========
</TABLE>
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
<TABLE>
Remaining Term to Maturity in Months
------------------------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
---------- ---------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
====== ======== ========== ========
</TABLE>
Weighted Average Remaining
Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the respective years in which the
Mortgage Loans were originated and are scheduled to mature:
<TABLE>
Mortgage Loan Year of Scheduled Maturity
----------------------------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
---- ---------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======= ======= ========== =======
</TABLE>
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Original LTV Ratios of the
Mortgage Loans. An "Original LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the principal balance of a Mortgage
Loan on the date of its origination, and the denominator of which is (in
general) the lesser of (i) the appraised value of the related Mortgaged
Property as determined by an appraisal thereof obtained in connection with
the origination of such Mortgage Loan and (ii) the sale price of such
Mortgaged Property at the time of such origination. There can be no
assurance that the value (determined through an appraisal or otherwise) of a
Mortgaged Property determined after origination of the related Mortgage Loan
will be equal to or greater than the value thereof (determined through an
appraisal or otherwise) obtained in connection with the origination. As a
result, there can be no assurance that the loan-to-value ratio for any
Mortgage Loan determined at any time following origination thereof will be
lower than the Original LTV Ratio, notwithstanding any positive amortization
of such Mortgage Loan.
<TABLE>
Original LTV Ratios
-------------------
<CAPTION> Percent
by
Aggregate Aggregate
Number of Percent Principal Principal
Original Mortgage by Balance as of Balance as of
LTV Ratio Loans Number the Cut-off Date the Cut-off Date
----------- --------- -------- ------------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======= ======== ========= =======
</TABLE>
Weighted Average Original
LTV Ratio:
Note: Percentage totals may not add due to rounding.
The Mortgage Loans are secured by Mortgaged Properties in
different states.
The table below sets forth the states in which the Mortgaged Properties are
located:
<TABLE>
Geographic Distribution
-----------------------
<CAPTION>
Percent
by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
State Loans Number the Cut-off Date the Cut-off Date
--------- --------- -------- ------------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
======= ======== ========= =======
</TABLE>
Note: Percentage totals may not add due to rounding.
(regional breakdown to be provided as appropriate)
No more than ___% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code.
UNDERWRITING STANDARDS
All of the Mortgage Loans were originated or acquired by _______,
generally in accordance with the underwriting criteria described herein.
(Description of underwriting standards.)
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on or before such date. Prior to the
issuance of the Class ( ) Certificates, a Mortgage Loan may be removed from
the Mortgage Pool as a result of incomplete documentation or otherwise, if
the Depositor deems such removal necessary or appropriate 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 Class ( ) 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 Class ( )
Certificates are issued, although the range of Mortgage Rates and maturities
and certain other characteristics of the Mortgage Loans in the Mortgage Pool
may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Class ( ) Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Class ( ) Certificates.
In the event Mortgage Loans are removed from or added to the Mortgage Pool as
set forth in the preceding paragraph, such removal or addition will be noted
in the Form 8-K.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of ____ classes to be designated as the Class ( )
Certificates, the Class ( ) Certificates, the Class ( ) Certificates and the
Class ( ) Certificates. The Class ( ), Class ( ) and Class ( ) Certificates
(the "Subordinate Certificates") will be subordinate to the Class ( )
Certificates, as described herein. The Certificates represent in the
aggregate the entire beneficial ownership interest in a Trust Fund consisting
of: (i) the Mortgage Loans and all payments under and proceeds of the
Mortgage Loans received after the Cut-off Date (exclusive of payments of
principal and interest due on or before the Cut-off Date); (ii) any Mortgaged
Property acquired on behalf of the Trust Fund through foreclosure or deed in
lieu of foreclosure (upon acquisition, an "REO Property"); (iii) such funds
or assets as from time to time are deposited in the Certificate Account and
any account established in connection with REO Properties (the "REO
Account"); and (iv) the rights of the mortgagee under all insurance policies
with respect to the Mortgage Loans. Only the Class ( ) (, Class ( ) and
Class ( )) Certificates are offered hereby.
The Class ( ) Certificates will have an initial (Certificate Balance)
(Notional Balance) of $__________. The Class ( ) Certificates represent ___%
of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date. The Class ( ) Certificates will have an initial Certificate Balance of
$__________, representing ___% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. The Class ( ) Certificates will have
an initial Certificate Balance of $__________, representing ___% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date.
The initial Certificate Balance of the Class ( ) Certificates will be (zero).
The Certificate Balance of any class of Certificates outstanding at any time
represents the maximum amount which the holders thereof are 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 respective
Certificate Balances of the Class ( ), Class ( ) and Class ( ) Certificates
(respectively, the "Class ( ) Balance", "Class ( ) Balance" and "Class ( )
Balance") will in each case be (i) reduced by amounts actually distributed on
such class of Certificates that are allocable to principal and ((ii)
increased by amounts allocated to such class of Certificates in respect of
negative amortization on the Mortgage Loans (Describe Notional Balance.))
(The Certificate Balance of the Class ( ) Certificates (the "Class ( )
Balance") will at any time equal the aggregate Stated Principal Balance of
the Mortgage Loans minus the sum of the Class ( ) Balance, Class ( ) Balance
and Class ( ) Balance.) The Stated Principal Balance of any Mortgage Loan at
any date of determination will equal (a) the Cut-off Date Balance of such
Mortgage Loan, plus ((b) any negative amortization added to the principal
balance of such Mortgage Loan on any Due Date after the Cut-off Date to and
including the Due Date in the Due Period for the most recently preceding
Distribution Date), minus (c) the sum of (i) the principal portion of each
Monthly Payment due on such Mortgage Loan after the Cut-off Date, to the
extent received from the mortgagor or advanced by the Master Servicer and
distributed to holders of the Certificates before such date of determination,
(ii) all principal prepayments and other unscheduled collections of principal
received with respect to such Mortgage Loan, to the extent distributed to
holders of the Certificates before such date of determination, and (iii) any
reduction in the outstanding principal balance of such Mortgage Loan
resulting out of a bankruptcy proceeding for the related mortgagor.
(None of the Class ( ) Certificates are offered hereby.)
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the ____ day of each month or, if such ____ day is not a business
day, then on the next succeeding business day, commencing in
____________________ 199_ (each, a " Distribution Date" ) . All
distributions (other than the final distribution on any Certificate) will be
made by the Master Servicer to the persons in whose names the 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 by wire transfer
in immediately available funds to the account specified by the
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder will have provided the Master Servicer
with wiring instructions no less than five business days prior to the related
Record Date and is the registered owner of Certificates the aggregate initial
principal amount of which is at least $ , or otherwise by check mailed to
such Certificateholder. The final distribution on any Certificate will be
made in like manner, but only upon presentment or surrender of such
Certificate at the location specified in the notice to the holder thereof of
such final distribution. All distributions made with respect to a class of
Certificates on each Distribution Date will be allocated pro rata among the
outstanding Certificates of such class based on their respective Percentage
Interests. The Percentage Interest evidenced by any Class ( ) Certificate is
equal to the initial denomination thereof as of the Closing Date, divided by
the initial Certificate Balance for such class. The aggregate distribution
to be made on the Certificates on any Distribution Date shall equal the
Available Distribution Amount.
The "Available Distribution Amount" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Certificate
Account as of the close of business on the related Determination Date, (ii)
the aggregate amount of any Advances made by the Master Servicer in respect
of such Distribution Date and (iii) the aggregate amount deposited by the
Master Servicer in the Certificate Account in respect of such Distribution
Date in connection with Prepayment Interest Shortfalls incurred during the
related Due Period, net of (b) the portion of the amount described in clause
(a)(i) hereof that represents (i) Monthly Payments due on a Due Date
subsequent to the end of the related Due Period, (ii) any voluntary principal
prepayments and other unscheduled recoveries on the Mortgage Loans received
after the end of the related Due Period or (iii) any amounts payable or
reimbursable therefrom to any person.
Calculations of Interest. The "Distributable Certificate Interest" in
respect of the Class ( ) Certificates for any Distribution Date represents
that portion of the Accrued Certificate Interest in respect of such class of
Certificates for such Distribution Date that is net of such class's allocable
share of (i) the aggregate portion of any Prepayment Interest Shortfalls
resulting from voluntary principal prepayments on the Mortgage Loans during
the related Due Period (that are not covered by the application of servicing
compensation of the Master Servicer for the related Due Period (such
uncovered aggregate portion, as to such Distribution Date,) the "Net
Aggregate Prepayment Interest Shortfall")(; and (ii) the aggregate of any
negative amortization in respect of the Mortgage Loans for their respective
Due Dates during the related Due Period (the aggregate of such negative
amortization, as to such Distribution Date, the "Aggregate Mortgage Loan
Negative Amortization").)
The "Accrued Certificate Interest" in respect of the Class ( )
Certificates for any Distribution Date is equal to thirty days' interest
accrued during the related Interest Accrual Period at the Pass-Through Rate
applicable to such class of Certificates for such Distribution Date accrued
on the related (Certificate Balance) (Classes ( ) Notional Amount)
outstanding immediately prior to such Distribution Date. The Pass-Through
Rate applicable to the Class ( ) Certificates for any Distribution Date (is
fixed and is set forth on the cover hereof) (will equal the weighted average
of the Class ( ) Remittance Rates in effect for the Mortgage Assets as of the
commencement of the related Due Period (as to such Distribution Date, the
"Weighted Average Class ( ) Remittance Rate"). The "Class ( ) Remittance
Rate" in effect for any Mortgage Loan as of any date of determination (a)
prior to its first Interest Rate Adjustment Date, is equal to the related
Mortgage Rate then in effect minus ______ basis points and (b) from and
after its first Interest Rate Adjustment Date, is equal to the related
Mortgage Rate then in effect minus the excess of the related Gross Margin
over _____ basis points (is equal to the excess of the Mortgage Rate thereon
over ____% per annum.) The "Interest Accrual Period" for the Certificates is
the calendar month preceding the month in which the Distribution Date
occurs.) (The Class ( ) Notional Amount will equal the (sum of the Class ( )
Balance. The Class ( ) Notional Amount does not entitle the Class ( )
Certificate (or a component thereof) to any distribution of principal.)
(Interest will be calculated on the basis of a 360-day year of twelve 30-day
months.)
(The portion of Net Aggregate Prepayment Interest Shortfall (and the
Aggregate Mortgage Loan Negative Amortization) for any Distribution Date that
will be allocated to the Class ( ) Certificates on such Distribution Date
will be equal to the then applicable Class ( ) Interest Allocation
Percentage. The "Class ( ) Interest Allocation Percentage" for any
Distribution Date will equal a fraction, expressed as a percentage, the
numerator of which is equal to the product of (a) the Class ( ) Balance ((net
of any Uncovered Portion thereof)) outstanding immediately prior to such
Distribution Date, multiplied by (b) the Pass-Through Rate for the Class ( )
Certificates for such Distribution Date, and the denominator of which is the
product of (x) the aggregate Stated Principal Balance of the Mortgage Loans
outstanding immediately prior to such Distribution Date, multiplied by (y)
the Weighted Average Net Mortgage Rate for such Distribution Date. The "Net
Mortgage Rate" in effect for any Mortgage Loan as of any date of
determination is equal to the related Mortgage Rate then in effect minus
_____ basis points. (The "Uncovered Portion" of the Class ( ) Balance, as of
any date of determination, is the portion thereof representing the excess, if
any, of (a) the Class ( ) Balance then outstanding, over (b) the aggregate
Stated Principal Balance of the Mortgage Loans then outstanding.))
(The Class ( ) Certificates (or a component thereof) will not be
entitled to distributions of interest and will not have a Pass-Through Rate.)
Calculations of Principal. (Holders of the Class ( ) Certificates will
be entitled to receive on each Distribution Date, to the extent of the
balance of the Available Distribution Amount remaining after the payment of
the Class ( ) Interest Distribution Amount for such Distribution Date an
amount equal to the Class ( ) Principal Distribution Amount. The "Class ( )
Principal Distribution Amount" for any Distribution Date will equal the sum
of (i) the product of the Scheduled Principal Distribution Amount and the
Class ( ) Scheduled Principal Distribution Percentage, (ii) the product of
the Senior Accelerated Percentage and all principal prepayments received
during the related Due Period, and (iii) to the extent not previously
advanced, (the lesser of the Class ( ) Scheduled Principal Distribution
Percentage of the Stated Principal Balance of the Mortgage Loans and the
Senior Accelerated Percentage of the Unscheduled Principal Distribution
Amount net of any prepayment amounts described in clause (ii) above. The
"Scheduled Principal Distribution Amount" for any Distribution Date is equal
to the aggregate of the principal portions of all Monthly Payments, including
Balloon Payments, due during or, if and to the extent not previously received
or advanced and distributed to Certificateholders on a preceding Distribution
Date, prior to the related Due Period, in each case to the extent paid by the
related mortgagor or advanced by the Master Servicer and included in the
Available Distribution Amount for such Distribution Date. The principal
portion of any Advances in respect of a Mortgage Loan delinquent as to its
Balloon Payment will constitute advances in respect of the principal portion
of such Balloon Payment.
(The portion of the Class ( ) Principal Distribution Amount payable on
any Distribution Date shall be allocated to the Class ( ) Certificates as
follows: (Describe distributions which may be concurrent or sequential and
among different classes and may be based on a schedule of payments sometimes
referred to as a Schedule of PAC, TAC or Scheduled Balances for some and not
other classes.))
(The Class ( ) Scheduled Principal Distribution Percentage for any
Distribution Date represents the portion of the Scheduled Principal
Distribution Amount for such Distribution Date payable (subject to the
payment priorities described herein) on the Class ( ) Certificates. The
"Class ( ) Scheduled Principal Distribution Percentage" for any Distribution
Date will equal the lesser of (a) 100% and (b) a fraction, expressed as a
percentage, the numerator of which is the Class ( ) Balance outstanding
immediately prior to such Distribution Date, and the denominator of which is
the lesser of (i) the sum of the Class ( ) Balance, the Class ( ) Balance and
the Class ( ) Balance and (ii) the aggregate Stated Principal Balance of the
Mortgage Loans, in either case outstanding immediately prior to such
Distribution Date.)
The "Unscheduled Principal Distribution Amount" for any Distribution
Date is equal to the sum of: (a) all voluntary principal prepayments
received on the Mortgage Loans during the related Due Period; and (b) the
excess, if any, of (i) all unscheduled recoveries received on the Mortgage
Loans during the related Due Period, whether in the form of liquidation
proceeds, condemnation proceeds, insurance proceeds or amounts paid in
connection with the purchase of a Mortgage Loan out of the Trust Fund,
exclusive in each case of any portion thereof payable or reimbursable to the
Master Servicer in connection with the related Mortgage Loan, over (ii) the
respective portions of the net amounts described in the immediately preceding
clause (i) needed to cover interest (at the applicable Net Mortgage Rate in
effect from time to time) on the related Mortgage Loan from the date to which
interest was previously paid or advanced through the Due Date for such
Mortgage Loan in the related Due Period ((exclusive of any portion of such
interest added to the principal balance of such Mortgage Loan as negative
amortization).)
(The "Class Negative Amortization" in respect of any class of
Certificates for any Distribution Date is equal to such class' allocable
share of the Aggregate Mortgage Loan Negative Amortization for such
Distribution Date.)
Distributions on Certificates. The Available Distribution Amount in
respect of a Distribution Date will be distributed in the following amounts
and order of priority:
(describe the application of Available Distribution Amount to make
distributions of interest and principal among the Classes of Certificates)
SUBORDINATION
In order to increase the likelihood of distribution in full of the
interest and principal due to be distributed to the Class ( )
Certificateholders on each Distribution Date, holders of the Class ( )
Certificates have a right to distributions of the Available Distribution
Amount that is prior to the rights of the holders of the Subordinate
Certificates, to the extent necessary to satisfy such amounts of interest and
principal.
(The entitlement to the Class ( ) Certificates of the (entire) (a larger
percentage under certain circumstances of) Unscheduled Principal Distribution
Amount will accelerate the amortization of the Class ( ) Certificates
relative to the actual amortization of the Mortgage Loans.)
(To the extent that the Class ( ) Certificates are amortized faster
than the Mortgage Loans, without taking into account losses on the Mortgage
Loans, the percentage interest evidenced by the Class ( ) Certificates in the
Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Subordinate Certificates), thereby
increasing, relative to their respective Certificate Balances, the
subordination afforded the Class ( ) Certificates by the Subordinate
Certificates.)
(The principal portion of any Realized Losses will be allocated first in
reduction of the Subordinate Certificates (in the order specified here) and
then to the Class ( ) Certificates (in the order specified here). Any loss
realized on a Mortgage Loan that is finally liquidated equal to the excess of
the Stated Principal Balance of such Mortgage Loan 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 received (net
of amounts reimbursable to the Master Servicer or any Sub-Servicer for
Advances and expenses, including attorneys' fees) towards interest and
principal owing on the Mortgage Loan is referred to herein as a "Realized
Loss.")
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances (each, an "Advance") out
of its own funds, or funds held in the Certificate Account that are not
required to be part of the Available Distribution Amount for such
Distribution Date, in an amount equal to the aggregate of ((i)) all Monthly
Payments (net of the Servicing Fee), (other than Balloon Payments,) which
were due on the Mortgage Loans during the related Due Period and delinquent
as of the related Determination Date (and (ii) in the case of each Mortgage
Loan delinquent in respect of its Balloon Payment as of the related
Determination Date, an amount sufficient to amortize fully the principal
portion of such Balloon Payment over the remaining amortization term of such
Mortgage Loan and to pay interest at the Net Mortgage Rate in effect for such
Mortgage Loan for the one month period preceding its Due Date in the related
Due Period (but only to the extent that the related mortgagor has not made a
payment sufficient to cover such amount under any forbearance arrangement
that has been included in the Available Distribution Amount for such
Distribution Date)). The Master Servicer's obligations to make Advances in
respect of any Mortgage Loan will continue through liquidation of such
Mortgage Loan and out of its own funds from any amounts collected in respect
of the Mortgage Loan as to which such Advance was made, whether in the form
of late payments, insurance proceeds, liquidation proceeds, condemnation
proceeds or amounts paid in connection with the purchase of such Mortgage
Loan. Notwithstanding the foregoing, the Master Servicer will be obligated
to make any Advance only to the extent that it determines in its reasonable
good faith judgment that, if made, would be recoverable out of general funds
on deposit in the Certificate Account. Any failure by the Master Servicer to
make an Advance as required under the Pooling and Servicing Agreement will
constitute an event of default thereunder(, in which case the Trustee will be
obligated to make any such Advance, in accordance with the terms of the
Pooling and Servicing Agreement).
CERTAIN YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yield to maturity on the Class ( ) Certificates will be affected by
the rate of principal payments on the Mortgage Loans including, for this
purpose, prepayments, which may include amounts received by virtue of
liquidation due to default, repurchase, condemnation or insurance. The yield
to maturity on the Class ( ) Certificates will also be affected by the level
of the Index. The rate of principal payments on the Class ( ) Certificates
will correspond to the rate of principal payments (including prepayments) on
the related Mortgage Loans.
(Description of factors affecting yield, prepayment and maturity of the
Mortgage Loans and Class ( ) Certificates depending upon characteristics of
the Mortgage Loans.)
WEIGHTED AVERAGE LIFE OF THE CLASS ( ) CERTIFICATES
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Class ( )
Certificates will be influenced by the rate at which principal payments
(including scheduled payments and principal prepayments) on the Mortgage
Loans are made. Principal payments on the Mortgage Loans may be in the form
of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments and liquidations due to a default or other
dispositions of the Mortgage Loans).
The table entitled "Percent of Initial Certificate Balance Outstanding
for the Class ( ) Certificates at the respective percentages of (CPR) (SPA)"
set forth below indicates the weighted average life of such Certificates and
sets forth the percentage of the initial principal amount of such
Certificates that would be outstanding after each of the dates shown at the
indicated percentages of (CPR)(SPA). The table has been prepared on the
basis of the following assumptions regarding the characteristics of the
Mortgage Loans: (i) an outstanding principal balance of $_________, a
remaining amortization term of ___ months and a term to balloon of ___
months: (ii) an interest rate equal to ____% per annum until the _____ Due
Date and thereafter an interest rate equal to ____ % per annum (at an assumed
Index of ____%) and Monthly Payments that would fully amortize the remaining
balance of the Mortgage Loan over its remaining amortization term; (iii) the
Mortgage Loans prepay at the indicated percentage of (CPR)(SPA); (iv) the
maturity date of each of the Balloon Mortgage Loans is not extended; (v)
distributions on the Class ( ) Certificates are received in cash, on the
( )th day of each month, commencing in_____________; (vi) no defaults or
delinquencies in, or modifications, waivers or amendments respecting, the
payment by the mortgagors of principal and interest on the Mortgage Loans
occur; (vii) the initial Certificate Balance of the Class ( ) Certificates is
$________; (viii) prepayments represent payment in full of individual
Mortgage Loans and are received on the respective Due Dates and include 30
days' interest thereon; (ix) there are no repurchases of Mortgage Loans due
to breaches of any representation and warranty or otherwise; (x) the Class (
) Certificates are purchased on ________; (xi) the Servicing Fee is ____% per
annum; and (xii) the Index on each Interest Rate Adjustment Date is ________%
per annum.
Based on the foregoing assumptions, the table indicates the weighted
average life of the Class ( ) Certificates and sets forth the percentages of
the initial Certificate Balance of the Class ( ) Certificates that would be
outstanding after the Distribution Date in ___________ of each of the years
indicated, at various percentages of (CPR)(SPA). Neither (CPR)(SPA) nor any
other prepayment model or assumption purports to be a historical description
of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans
included in the Mortgage Pool. Variations in the actual prepayment
experience and the balance of the Mortgage Loans that prepay may increase or
decrease the percentage of initial Certificate Balance (and weighted average
life) shown in the following table. Such variations may occur even if the
average prepayment experience of all such Mortgage Loans is the same as any
of the specified assumptions.
<TABLE>
Percent of Initial Class ( ) Certificate Balance Outstanding
at the Following Percentages of (CPR)(SPA)
<CAPTION>
Distribution Date
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percent . . . . . . . . . . . ___% __% __% __% __% __%
____________ 25, 1997 . . . . . . . .
____________ 25, 1998 . . . . . . . .
____________ 25, 1999 . . . . . . . .
____________ 25, 2000 . . . . . . . .
____________ 25, 2001 . . . . . . . .
____________ 25, 2002 . . . . . . . .
____________ 25, 2003 . . . . . . . .
____________ 25, 2004 . . . . . . . .
____________ 25, 2005 . . . . . . . .
____________ 25, 2006 . . . . . . . .
____________ 25, 2007 . . . . . . . .
</TABLE>
Weighted Average Life
(Years) (+) . . . . . . . . . . . .
+ The weighted average life of the Class ( ) Certificates is determined by
(i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the total
principal distributions on such class of Certificates.
(Class ( ) Yield Consideration)
(Will describe assumption for various scenarios showing sensitivity of
certain classes to prepayment and default risks and set forth resulting
yield.)
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ____________ 1, 199_ (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer and the Trustee.
Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Class ( ) Certificates. The
Depositor will provide to a prospective or actual Class ( ) Certificateholder
without charge, upon written request, a copy (without exhibits) of the
Pooling and Servicing Agreement.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, the Depositor will assign or cause to
be assigned the Mortgage Loans, without recourse, to the Trustee for the
benefit of the Certificateholders. Prior to the Closing Date, the Depositor
will, as to each Mortgage Loan, deliver to the Trustee (or the custodian
hereinafter referred to), among other things, the following documents
(collectively, as to such Mortgage Loan, the "Mortgage File"): (i) the
original or, if accompanied by a "lost note" affidavit, a copy of the
Mortgage Note, endorsed by ____________________ which transferred such
Mortgage Loan, without recourse, in blank or to the order of Trustee; (ii)
the original Mortgage or a certified copy thereof, and any intervening
assignments thereof, or certified copies of such intervening assignments, in
each case with evidence of recording thereon; (iii) an assignment of the
Mortgage, executed by the ____________________ which transferred such
Mortgage Loan, in blank or to the order of the Trustee, in recordable form;
(iv) assignments of any related assignment of leases, rents and profits and
any related security agreement (if, in either case, such item is a document
separate from the Mortgage), executed by ____________________ which
transferred such Mortgage Loan, in blank or to the order of the Trustee; (v)
originals or certified copies of all assumption, modification and
substitution agreements in those instances where the terms or provisions of
the Mortgage or Mortgage Note have been modified or the Mortgage or Mortgage
Note has been assumed; and (vi) the originals or certificates of a lender's
title insurance policy issued on the date of the origination of such Mortgage
Loan or, with respect to each Mortgage Loan not covered by a lender's title
insurance policy, an attorney's opinion of title given by an attorney
licensed to practice law in the jurisdiction where the Mortgaged Property is
located. (The Pooling and Servicing Agreement will require the Depositor
promptly (and in any event within _____ days of the Closing Date) to cause
each assignment of the Mortgage described in clause (iii) above to be
submitted for recording in the real property records of the jurisdiction in
which the related Mortgaged Property is located. Any such assignment
delivered in blank will be completed to the order of the Trustee prior to
recording. The Pooling and Servicing Agreement will also require the
Depositor to cause the endorsements on the Mortgage Notes delivered in blank
to be completed to the order of the Trustee.)
THE MASTER SERVICER
General. ____________________, a __________________ corporation, will
act as Master Servicer (in such capacity, the "Master Servicer") for the
Mortgage Loans pursuant to the Pooling and Servicing Agreement. The Master
Servicer(, a wholly-owned subsidiary of __________,) (is engaged in the
mortgage banking business and, as such, originates, purchases, sells and
services mortgage loans. _________________ primarily originates mortgage
loans through a branch system consisting of _______________________ offices
in __________ states, and through mortgage loan brokers.)
The executive offices of the Master Servicer are located at
_______________, telephone number (__)__________.
Delinquency and Foreclosure Experience. The following tables set forth
certain information concerning the delinquency experience (including pending
foreclosures) on one- to four- family residential mortgage loans included in
the Master Servicer's servicing portfolio (which includes mortgage loans that
are subserviced by others). 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 31 days past due on a
contractual basis.
<TABLE>
<CAPTION>
As of December 31, 19 As of December 31, 19 As of ,19
--------------------- --------------------- ----------
By Dollar By Dollar By Dollar
By No. of Amount By No. of Amount By No. of Amount
Loans of Loans Loans of Loans Loans of Loans
---------- --------- ---------- ---------- --------- ---------
(Dollar Amount in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio ________ ________ $______ ________ $________
$______
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more ________ ________ ________ ________ ________ ________
Total Delinquent Loans ________ $______ _________ $______ _________
$______
Percent of Portfolio % % % % %
%
Foreclosures pending (1)
Percent of Portfolio % % % % %
%
Foreclosures
Percent of Portfolio % % % % %
%
</TABLE>
____________________
(1) Includes bankruptcies which preclude foreclosure.
There can be no assurance that the delinquency and foreclosure
experience of the Mortgage Loans comprising the Mortgage Pool will correspond
to the delinquency and foreclosure experience of the Master Servicer's
mortgage portfolio set forth in the foregoing tables. The aggregate
delinquency and foreclosure experience on the Mortgage Loans comprising the
Mortgage Pool will depend on the results obtained over the life of the
Mortgage Pool.
CERTIFICATE ACCOUNT
The Master Servicer is required to deposit on a daily basis all amounts
received with respect to the Mortgage Loans of the Mortgage Pool, net of its
servicing compensation, into a separate Certificate Account maintained with
____________. Interest or other income earned on funds in the Certificate
Account will be paid to the Master Servicer as additional servicing
compensation. See "Description of the Trust Funds -- Mortgage Assets" and
"Description of the Agreements -- Certificate Account and Other Collection
Accounts" in the Prospectus.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
(Include description of Servicing Standard)
-----------------------------------------
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities will be the Servicing Fee. The Servicing
Fee will be payable monthly only from amounts received in respect of interest
on each Mortgage Loan, will accrue at the Servicing Fee Rate and will be
computed on the basis of the same principal amount and for the same period
respecting which any related interest payment on such Mortgage Loan is
computed. The Servicing Fee Rate (with respect to each Mortgage Loan equals
___ % per annum) (equals the weighted average of the excesses of the Mortgage
Rates over the respective Net Mortgage Rates).
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 Servicing Standard requires the Master Servicer to, among
other things, diligently service and administer the Mortgage Loans on behalf
of the Trustee and in the best interests of the Certificateholders, but
without regard to the Master Servicer's right to receive such additional
servicing compensation. The Master Servicer is obligated to pay certain
ongoing expenses associated with the Mortgage Pool and incurred by the Master
Servicer in connection with its responsibilities under the Agreement. See
"Description of the Agreements -- Retained Interest; Servicing Compensation
and Payment of Expenses" in the Prospectus for information regarding other
possible compensation payable to the Master Servicer and for information
regarding expenses payable by the Master Servicer (and "Certain Federal
Income Tax Consequences" herein regarding certain taxes payable by the Master
Servicer).
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the Master Servicer shall furnish to each
Certificateholder, to the Depositor, to the Trustee and to the Rating Agency
a statement setting forth certain information with respect to the Mortgage
Loans and the Certificates required pursuant to the Pooling and Servicing
Agreement. In addition, within a reasonable period of time after each
calendar year, the Master Servicer shall furnish to each person who at any
time during such calendar year was the holder of a Certificate a statement
containing certain information with respect to the Certificates required
pursuant to the Pooling and Servicing Agreement, aggregated for such calendar
year or portion thereof during which such person was a Certificateholder.
See "Description of the Certificates -- Reports to Certificateholders" in the
Prospectus.
VOTING RIGHTS
At all times during the term of this Agreement, the Voting Rights shall
be allocated among the Classes of Certificateholders in proportion to the
respective Certificate Balances of their Certificates ((net, in the case of
the Class ( ), Class ( ) and Class ( ) Certificates, of any Uncovered Portion
of the related Certificate Balance)). Voting Rights allocated to a class of
Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment or other
liquidation of the last Mortgage Loan or REO Property subject thereto, and
(ii) the purchase of all of the assets of the Trust Fund by the Master
Servicer. Written notice of termination of the Pooling and Servicing
Agreement will be given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the Certificates at the
office of the Certificate Registrar specified in such notice of termination.
Any such purchase by the Master Servicer of all the Mortgage Loans and
other assets in the Trust Fund is required to be made at a price equal to the
greater of (1) the aggregate fair market value of all the Mortgage Loans and
REO Properties then included in the Trust Fund, as mutually determined by the
Master Servicer and the Trustee, and (2) the excess of (a) the sum of (i) the
aggregate Purchase Price of all the Mortgage Loans then included in the Trust
Fund and (ii) the fair market value of all REO Properties then included in
the Trust Fund, as determined by an appraiser mutually agreed upon by the
Master Servicer and the Trustee, over (b) the aggregate of amounts payable or
reimbursable to the Master Servicer under the Pooling and Servicing
Agreement. Such purchase will effect early retirement of the then
outstanding Class ( ) Certificates, but the right of the Master Servicer to
effect such termination is subject to the requirement that the aggregate
Stated Principal Balance of the Mortgage Loans then in the Trust Fund is less
than __% of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date. (In addition, the Master Servicer may at its option purchase
any class or classes of Class ( ) Certificates with a Certificate Balance
less than __% of the original balance thereof at a price equal to such
Certificate Balance plus accrued interest through _________.)
USE OF PROCEEDS
The net proceeds from the sale of Class ( ) Certificates will be used by
the Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Class ( ) Certificates, _____________, counsel
to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes, the Trust Fund will qualify as a
REMIC under the Code.
For federal income tax purposes, the Class ( ) Certificates will be the
sole class of "residual interests" in the REMIC and the Class ( ), Class ( )
and Class ( ) Certificates will be the "regular interests" in the REMIC and
will be treated as debt instruments of the REMIC.
See "Certain Federal Income Tax Consequences -- REMICS" in the
Prospectus.
(The Class ( ) Certificates (may)(will)(will not) be treated as having
been issued with original issue discount for federal income tax reporting
purposes. The prepayment assumption that will be used in determining the
rate of accrual of original issue discount, market discount and premium, if
any, for federal income tax purposes will be based on the assumption that
subsequent to the date of any determination the Mortgage Loans will prepay at
a rate equal to ___% (CPR)(SPA). No representation is made that the Mortgage
Loans will prepay at that rate or at any other rate. See "Certain Federal
Income Tax Consequences -- REMICS -- Taxation of Owners of REMIC Regular
Certificates" and "--Original Issue Discount" in the Prospectus.)
The Class ( ) Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a
class of Certificates 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 such class of
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" and "-- Premium" in the Prospectus.
(The Class ( ) Certificates will be treated as assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code generally in the same proportion
that the assets of the REMIC underlying such Certificates would be so
treated.) (In addition, interest (including original issue discount) on the
Class ( ) Certificates will be interests described in Section 856(c)(3)(B) of
the Code to the extent that such Class ( ) Certificates are treated as "real
estate assets" under Section 856(c)(5)(A) of the Code.) (Moreover, the Class
( ) Certificates will be "obligation(s) . . . which . . .(are)
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(C) of the Code.) (The Class ( ) Certificates will not be
considered to represent an interest in "loans . . . secured by an interest
in real property" within the meaning of Section 7701 (a)(19)(C)(v) of the
Code.) See "Certain Federal Income Tax Consequences -- REMICS --
Characterization of Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Class ( ) Certificates, see "Certain Federal Income Tax
Consequences -- REMICS" in the Prospectus.
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 ( ) 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 ( ) Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Class ( )
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class ( ) 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 ( ) Certificates must not be subordinate to the rights
and interests evidenced by the other certificates of the same trust. Third,
the Class ( ) 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 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 ( ) 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 ( ) Certificates; the sum
of all payments made to and retained by the Underwriter must represent not
more than reasonable compensation for underwriting the Class ( )
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 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 ( ) 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 ( ) Certificates that they be rated (not lower than)
"____" by ___________________. A fiduciary of a Plan contemplating
purchasing a Class ( ) Certificate in the secondary market must make its own
determination that at the time of such acquisition, the Class ( )
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 ( ) Certificates. A fiduciary of a
Plan contemplating purchasing a Class ( ) 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 ( ) Certificate.
Before purchasing a Class ( ) 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 other 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 ( )
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.
LEGAL INVESTMENT
The Class ( ) Certificates (will) (will not) 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 that 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 ( ) Certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase the Class ( ) Certificates
under applicable legal investment restrictions. These uncertainties may
adversely affect the liquidity of the Class ( ) 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 ( ) Certificates constitute a legal
investment under SMMEA or is subject to investment, capital or other
restrictions.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Class ( )
Certificates will be purchased from the Depositor by the Underwriter, an
affiliate of the Depositor, upon issuance. Distribution of the Class ( )
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 __% of the
initial aggregate principal balance thereof as of the Cut-off Date, plus
accrued interest from the Cut-off Date at a rate of __% per annum, before
deducting expenses payable by the Depositor. In connection with the purchase
and sale of the Class ( ) Certificates, the Underwriter may be deemed to have
received compensation from the Depositor in the form of underwriting
discounts.
The Depositor also has been advised by the Underwriter that it, through
one or more of its affiliates currently expects to make a market in the Class
( ) Certificates offered hereby; however, it has no obligation to do so, any
market making may be discontinued at any time, and there can be no assurance
that an active public market for the Class ( ) Certificates will develop.
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.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Brown &
Wood LLP, New York, New York and for the Underwriter by Brown & Wood LLP.
RATING
It is a condition to issuance that the Class ( ) Certificates be rated
(not lower than) "______" by ________________. However, no person is
obligated to maintain the rating on the Class ( ) Certificates, and
_________ is not obligated to monitor its rating following the Closing Date.
________________'s ratings on mortgage pass-through certificates address
the likelihood of the receipt by holders thereof of payments to which they
are entitled. _____________'s ratings take into consideration the credit
quality of the mortgage pool, structural and legal aspects associated with
the certificates, and the extent to which the payment stream in the mortgage
pool is adequate to make payments required under the certificates.
_________________'s rating on the Class ( ) Certificates does not, however,
constitute a statement regarding frequency of prepayments on the Mortgage
Loans. (The rating of the Class ( ) Certificates does not address the
possibility that the holders of such Certificates may fail to fully recover
their initial investments.) See "Special Considerations" herein.
There can be no assurance as to whether any rating agency not requested
to rate the Class ( ) Certificates will nonetheless issue a rating and, if
so, what such rating would be. A rating assigned to the Class ( )
Certificates by a rating agency that has not been requested by the Depositor
to do so may be lower than the rating assigned by ________________'s pursuant
to the Depositor's request.
The rating of the Class ( ) Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
ANNEX A
(TITLE, SERIES OF MBS)
TERM SHEET
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CUT-OFF DATE: ( ) MORTGAGE POOL CUT-OFF DATE $( )
BALANCE:
DATE OF INITIAL ( ) REFERENCE DATE BALANCE: $( )
ISSUANCE:
RELATED TRUSTEE: ( ) PERCENT OF ORIGINAL MORTGAGE POOL ( )%
MATURITY DATE: ( ) REMAINING AS OF REFERENCE DATE:
</TABLE>
<TABLE>
<CAPTION>
Initial
Class Certificate
of Pass-Through Principal
Certificates Rate Balance Features
------------ ------------ ---------- ---------
<S> <C> <C> <C>
( ) ( )% $( ) ( )
</TABLE>
(First MBS Distribution Date on which the MBS may receive a portion of
prepayments: (date))
<TABLE>
<CAPTION>
MINIMUM SERVICING FEE RATE:* ( )% per annum AS OF DATE OF
MAXIMUM SERVICING FEE RATE:* ( )% per annum INITIAL ISSUANCE
----------------
<S> <C> <C> <C>
SPECIAL HAZARD AMOUNT: $( )
FRAUD LOSS AMOUNT: $( )
BANKRUPTCY AMOUNT: $( )
</TABLE>
<TABLE>
<CAPTION>
As of As of Date of
Delivery Date Initial Issuance
------------- ----------------
<S> <C> <C>
SENIOR PERCENTAGE ( )% ( )%
SUBORDINATE PERCENTAGE ( )% ( )%
</TABLE>
<TABLE>
<CAPTION>
Ratings: Rating Agency Class Voting Rights:
------------- ----- -------------
<S> <C> <C> <C>
( ) ( )
( )
( )
( )
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus supplement and the prospectus to which it
relates shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
PROSPECTUS
- --------
SUBJECT TO COMPLETION, DATED MAY 23, 1997
ASSET BACKED CERTIFICATES
ASSET BACKED NOTES
(Issuable in Series)
MERRILL LYNCH MORTGAGE INVESTORS, INC.
Depositor
________
The Asset Backed Certificates (the "Certificates") and Asset Backed
Notes (the "Notes" and, together with the Certificates, the "Securities")
offered hereby and by Supplements to this Prospectus (the "Offered
Securities") will be offered from time to time in one or more series. Each
series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any series, the "Trust
Fund") consisting of one or more segregated pools of various types of single
family and/or multifamily mortgage loans (or certain balances thereof)
(collectively, the "Mortgage Loans"), unsecured home improvement installment
sales contracts and installment loans ("Unsecured Home Improvement Loans"),
mortgage participations ("Mortgage Participations"), mortgage pass-through
certificates or mortgage-backed securities evidencing interests in Mortgage
Loans or secured thereby (the "MBS"), manufactured housing installment sale
contracts or installment loan agreements ("Contracts"), certain direct
obligations of the United States, agencies thereof or agencies created
thereby (the "Government Securities"), certain small business loans described
herein or a combination of Mortgage Loans, Unsecured Home Improvement Loans,
Mortgage Participations, MBS, Contracts, Government Securities and/or such
small business loans (with respect to any series, collectively, "Assets").
The Mortgage Loans, Mortgage Participations and MBS are collectively
referred to herein as the "Mortgage Assets." If a series of Securities
includes Notes, such Notes will be issued and secured pursuant to an
indenture and will represent indebtedness of the Trust Fund. If so
specified in the related Prospectus Supplement, the Trust Fund for a series
of Securities may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any series, collectively, "Credit Support"), and currency
or interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). See "Description of the Trust Funds," "Description of the
Securities" and "Description of Credit Support."
Each series of Securities will consist of one or more classes of
Securities that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Securities in respect of certain distributions on the
Securities; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be
entitled to interest distributions, with disproportionately low, nominal or
no principal distributions; (v) provide for distributions of accrued interest
thereon commencing only following the occurrence of certain events, such as
the retirement of one or more other classes of Securities of such series;
(vi) provide for distributions of principal as described in the related
Prospectus Supplement; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available
funds, in each case as described in the related Prospectus Supplement. Any
such classes may include classes of Offered Securities. See "Description of
the Securities."
Principal and interest with respect to Securities will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Securities of any series will be made only from the assets of the related
Trust Fund.
The Securities of each series will not represent an obligation of or
interest in the Depositor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, any Master Servicer, any Sub-Servicer or any of their
respective affiliates, except to the limited extent described herein and in
the related Prospectus Supplement. Neither the Securities nor any assets in
the related Trust Fund will be guaranteed or insured by any governmental
agency or instrumentality or by any other person, unless otherwise provided
in the related Prospectus Supplement. The assets in each Trust Fund will be
held in trust for the benefit of the holders of the related series of
Certificates pursuant to a Pooling and Servicing Agreement or a Trust
Agreement, as more fully described herein.
The yield on each class of Securities of a series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Assets in the related Trust Fund and the
timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein
and in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Special Considerations" herein and such information as may be set
forth under the caption "Special Considerations" in the related Prospectus
Supplement before purchasing any Offered Security.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" for federal income tax
purposes. See also "Certain Federal Income Tax Consequences" herein.
________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________
Prior to issuance there will have been no market for the Securities of
any series and there can be no assurance that a secondary market for any
Offered Securities will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Securities of any series unless accompanied by the Prospectus Supplement for
such series.
Offers of the Offered Securities may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
________
MERRILL LYNCH & CO.
The date of this Prospectus is ______, 199_.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Securities covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus and
Prospectus Supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Offered Securities of each series will, among other things,
set forth with respect to such Securities, as appropriate: (i) a description
of the class or classes of Securities, the payment provisions with respect to
each such class and the Pass-Through Rate or interest rate or method of
determining the Pass-Through Rate or interest rate with respect to each such
class; (ii) the aggregate principal amount and distribution dates relating to
such series and, if applicable, the initial and final scheduled distribution
dates for each class; (iii) information as to the assets comprising the Trust
Fund, including the general characteristics of the assets included therein,
including the Assets and any Credit Support and Cash Flow Agreements (with
respect to the Securities of any series, the "Trust Assets"); (iv) the
circumstances, if any, under which the Trust Fund may be subject to early
termination; (v) additional information with respect to the method of
distribution of such Certificates; (vi) whether one or more REMIC elections
will be made and designation of the regular interests and residual interests;
(vii) the aggregate original percentage ownership interest in the Trust Fund
to be evidenced by each class of Securities; (viii) information as to any
Master Servicer, any Sub-Servicer and the Trustee, as applicable;
(ix) information as to the nature and extent of subordination with respect to
any class of Securities that is subordinate in right of payment to any other
class; and (x) whether such Securities will be initially issued in definitive
or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the
Offered Securities. This Prospectus and the Prospectus Supplement relating
to each series of Securities contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661; and New
York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048. The Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Depositor, that file electronically with
the Commission.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Offered Securities or an offer of the Offered Securities to any person in any
state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus and any Prospectus Supplement hereto at any time
does not imply that information herein is correct as of any time subsequent
to its date.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Securities of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Securities are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Securities, pursuant to the applicable Agreement. Such reports may be
available to holders of interests in the Securities (the "Securityholders")
upon request to their respective DTC participants. See "Description of the
Securities-Reports to Securityholders" and "Description of the Agreements-
Evidence as to Compliance." The Depositor will file or cause to be filed with
the Commission such periodic reports with respect to each Trust Fund as are
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the rules and regulations of the Commission thereunder, as interpreted
by the staff of the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to
the termination of an offering of Offered Securities evidencing interests
therein. Upon request, the Depositor will provide or cause to be provided
without charge to each person to whom this Prospectus is delivered in
connection with the offering of one or more classes of Offered Securities, a
copy of any or all documents or reports incorporated herein by reference, in
each case to the extent such documents or reports relate to one or more of
such classes of such Offered Securities, other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests to the Depositor should be directed in writing to
Merrill Lynch Mortgage Investors, Inc., 250 Vesey Street, World Financial
Center - North Tower, 10th Floor, New York, New York 10281-1310, Attention:
Secretary, or by telephone at (212) 449-0357. The Depositor has determined
that its financial statements are not material to the offering of any Offered
Securities.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 3
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . 4
SUMMARY OF PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SPECIAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 16
DESCRIPTION OF THE TRUST FUNDS . . . . . . . . . . . . . . . . . . . . . 22
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
THE DEPOSITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
DESCRIPTION OF THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . 35
DESCRIPTION OF THE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 43
DESCRIPTION OF CREDIT SUPPORT . . . . . . . . . . . . . . . . . . . . . . 66
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS . . . . . . . . . . . . . . . . . 67
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . 82
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 115
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 119
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 112
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 114
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing
elsewhere in this Prospectus and by reference to the information with respect
to each series of Securities contained in the Prospectus Supplement to be
prepared and delivered in connection with the offering of such series. An
Index of Principal Definitions is included at the end of this Prospectus.
Title of Certificates . . . . . . . Asset-Backed Certificates (the
"Certificates") and Asset Backed
Notes (the "Notes" and, together
with the Certificates, the
"Securities"), issuable in series.
Depositor . . . . . . . . . . . . . Merrill Lynch Mortgage Investors,
Inc. (the "Depositor"), a wholly
owned 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
Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Neither
Merrill Lynch & Co., Inc. nor any
of its affiliates, including the
Depositor and Merrill Lynch,
Pierce, Fenner & Smith
Incorporated, will insure or
guarantee the Certificates or the
Mortgage Loans or be otherwise
obligated in respect thereof.
Master Servicer . . . . . . . . . . The master servicer or master
servicers (each, a "Master
Servicer"), if any, or a servicer
for substantially all the Mortgage
Loans for each series of
Securities, which servicer or
master servicer(s) may be
affiliates of the Depositor, will
be named in the related Prospectus
Supplement. See "Description of the
Agreements-General" and "-
Collection and Other Servicing
Procedures."
Trustee . . . . . . . . . . . . . . The trustee (the "Trustee") for
each series of Certificates will be
named in the related Prospectus
Supplement. See "Description of the
Agreements-The Trustee."
The Trust Assets . . . . . . . . . Each series of Certificates will
represent in the aggregate the
entire beneficial ownership
interest in a Trust Fund. If a
series of Securities includes
Notes, such Notes will represent
indebtedness of the Trust Fund and
will be secured by a security
interest in the Assets of the Trust
Fund. A Trust Fund will consist
primarily of any of the following
assets (the Mortgage Assets,
Unsecured Home Improvement Loans,
Contracts, Government Securities
and the small business loans
described herein may be referred to
collectively or individually as
"Assets"):
(a) Mortgage Assets . . . The Mortgage Assets with respect to
a series of Certificates will
consist of a pool of single family
and/or multifamily loans (or
certain balances thereof)
(collectively, the "Mortgage
Loans"), mortgage participations
("Mortgage Participations") or
mortgage pass-through certificates
or other mortgage-backed securities
evidencing interests in or secured
by Mortgage Loans (collectively,
the "MBS") or a combination of
Mortgage Loans, Mortgage
Participations and/or MBS. The
Mortgage Loans will not be
guaranteed or insured by the
Depositor or any of its affiliates
or, unless otherwise provided in
the Prospectus Supplement, by any
governmental agency or
instrumentality or other person.
The Mortgage Loans will be secured
by first and/or junior liens on (i)
one- to four-family residential
properties or security interests in
shares issued by cooperative
housing corporations ("Single
Family Properties") and/or (ii)
residential properties consisting
of five or more dwelling units,
including mixed residential and
commercial structures ("Multifamily
Properties"). The Mortgage Loans
may include (i) closed-end and/or
revolving home equity loans or
certain balances thereof ("Home
Equity Loans") and/or (ii) home
improvement installment sales
contracts and installment loan
agreements ("Home Improvement
Contracts"). The Mortgaged
Properties may be located in any
one of the fifty states, the
District of Columbia or the
Commonwealth of Puerto Rico. The
Prospectus Supplement will indicate
additional jurisdictions (which may
be outside the United States), if
any, in which the Mortgaged
Properties may be located. Unless
otherwise provided in the related
Prospectus Supplement, all Mortgage
Loans will have individual
principal balances at origination
of not less than $25,000 and
original terms to maturity of not
more than 40 years. All Mortgage
Loans will have been originated by
persons other than the Depositor,
and all Mortgage Assets will have
been purchased, either directly or
indirectly, by the Depositor on or
before the date of initial issuance
of the related series of
Certificates. The related
Prospectus Supplement will indicate
if any such persons are affiliates
of the Depositor.
Each Mortgage Loan may provide for
accrual of interest thereon at an
interest rate (a "Mortgage Rate")
that is fixed over its term or that
adjusts from time to time, or that
may be converted from an adjustable
to a fixed Mortgage Rate, or from a
fixed to an adjustable Mortgage
Rate, from time to time at the
mortgagor's election, in each case
as described in the related
Prospectus Supplement. Adjustable
Mortgage Rates on the Mortgage
Loans in a Trust Fund may be based
on one or more indices. Each
Mortgage Loan may provide for
scheduled payments to maturity,
payments that adjust from time to
time to accommodate changes in the
Mortgage Rate or to reflect the
occurrence of certain events, and
may provide for negative
amortization or accelerated
amortization, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may
be fully amortizing or require a
balloon payment due on its stated
maturity date, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may
contain prohibitions on prepayment
or require payment of a premium or
a yield maintenance penalty in
connection with a prepayment, in
each case as described in the
related Prospectus Supplement. The
Mortgage Loans may provide for
payments of principal, interest or
both, on due dates that occur
monthly, quarterly, semi-annually
or at such other interval as is
specified in the related Prospectus
Supplement. See "Description of the
Trust Funds-Assets."
(b) Unsecured Home The Assets with respect to a series
Improvement Loans . . of Securities may consist of or
include home improvement
installment sales contracts or
installment loans that are
unsecured ("Unsecured Home
Improvement Loans"). The Unsecured
Home Improvement Loans may have any
of the features described under
"(a) Mortgage Assets" above,
except that they will not be
secured by a lien on or other
security interest in any property.
Unless the context otherwise
requires, references in this
Prospectus to Mortgage Loans, Whole
Loans and related terms shall
include Unsecured Home Improvement
Loans and related terms to the
extent relevant (e.g., a reference
---
to a Mortgaged Property or hazard
insurance does not relate to an
Unsecured Home Improvement
Contract).
(c) Contracts . . . . . . The Contracts with respect to a
series of Securities will consist
of manufactured housing installment
sale contracts and installment loan
agreements secured by a security
interest in a new or used
manufactured home (each, a
"Manufactured Home"), and, to the
extent, if any, indicated in the
related Prospectus Supplement, by
real property. The Contracts will
not be insured or guaranteed by the
Depositor or any of its affiliates
or, unless otherwise specified in
the related Prospectus Supplement,
by any governmental agency or
instrumentality or any other
person. The Manufactured Homes may
be located in any of the fifty
states or any other jurisdiction
specified in the related Prospectus
Supplement. All Contracts will
have been originated by persons
other than the Depositor, and all
Contracts will have been purchased,
either directly or indirectly, by
the Depositor on or before the date
of initial issuance of the related
series of Certificates. The
related Prospectus Supplement will
indicate if any such persons are
affiliates of the Depositor. Each
Contract may provide for an annual
percentage rate thereon (a
"Contract Rate") that is fixed over
its term or that adjusts as
described in the related Prospectus
Supplement. The manner of
determining scheduled payments due
on the Contract will be described
in the Prospectus Supplement. The
Prospectus Supplement will describe
the minimum principal balance of
the Contracts at origination and
the maximum original term to
maturity of the Contracts.
(d) Government Securities If so provided in the related
Prospectus Supplement, the Trust
Fund may include, in addition to
Mortgage Assets and/or Contracts,
certain direct obligations of the
United States, agencies thereof or
agencies created thereby which
provide for payment of interest
and/or principal (collectively,
"Government Securities").
(e) SBA Loans and SBA If so provided in the related
504 Loans . . . . . . Prospectus Supplement, the Trust
Fund may include (i) the
unguaranteed portion of loans ("SBA
Loans") originated under the
general business loan program (the
"Section 7(a) Program") of the U.S.
Small Business Association (the
"SBA") created pursuant to Section
7(a) of the Small Business Act of
1953 (the "SBA Act") and/or (ii)
loans ("SBA 504 Loans") originated
under the SBA's 504 program (the
"SBA 504 Loan Program"). The loans
originated by the originators under
the SBA 504 Loan Program are not
guaranteed by the SBA. Unless the
context otherwise requires,
references in this Prospectus to
Mortgage Loans and related terms
shall include SBA Loans and SBA 504
Loans and related terms to the
extent relevant (e.g., a reference
---
to a Mortgaged Property or hazard
insurance does not relate to a SBA
Loan or a SBA 504 Loan).
(f) Collection Accounts . Each Trust Fund will include one or
more accounts established and
maintained on behalf of the
Securityholders into which the
person or persons designated in the
related Prospectus Supplement will,
to the extent described herein and
in such Prospectus Supplement,
deposit all payments and
collections received or advanced
with respect to the Assets and
other assets in the Trust Fund.
Such an account may be maintained
as an interest bearing or a
non-interest bearing account, and
funds held therein may be held as
cash or invested in certain
short-term, investment grade
obligations, in each case as
described in the related Prospectus
Supplement. See "Description of the
Agreements-Collection Account and
Related Accounts."
(g) Credit Support . . . . If so provided in the related
Prospectus Supplement, partial or
full protection against certain
defaults and losses on the Assets
in the related Trust Fund may be
provided to one or more classes of
Securities of the related series in
the form of subordination of one or
more other classes of Securities of
such series, which other classes
may include one or more classes of
Offered Securities, or by one or
more other types of credit support,
such as a letter of credit,
insurance policy, guarantee,
reserve fund or another type of
credit support, or a combination
thereof (any such coverage with
respect to the Securities of any
series, "Credit Support"). The
amount and types of coverage, the
identification of the entity
providing the coverage (if
applicable) and related information
with respect to each type of Credit
Support, if any, will be described
in the Prospectus Supplement for a
series of Securities. The
Prospectus Supplement for any
series of Securities evidencing an
interest in a Trust Fund that
includes MBS will describe any
similar forms of credit support
that are provided by or with
respect to, or are included as part
of the trust fund evidenced by or
providing security for, such MBS.
See "Special Considerations-Credit
Support Limitations" and
"Description of Credit Support."
(h) Cash Flow Agreements . If so provided in the related
Prospectus Supplement, the Trust
Fund may include guaranteed
investment contracts pursuant to
which moneys held in the funds and
accounts established for the
related series will be invested at
a specified rate. The Trust Fund
may also include certain other
agreements, such as interest rate
exchange agreements, interest rate
cap or floor agreements, currency
exchange agreements or similar
agreements provided to reduce the
effects of interest rate or
currency exchange rate fluctuations
on the Assets or on one or more
classes of Securities. (Currency
exchange agreements might be
included in the Trust Fund if some
or all of the Mortgage Assets (such
as Mortgage Loans secured by
Mortgaged Properties located
outside the United States) were
denominated in a non-United States
currency.) The principal terms of
any such guaranteed investment
contract or other agreement (any
such agreement, a "Cash Flow
Agreement"), including, without
limitation, provisions relating to
the timing, manner and amount of
payments thereunder and provisions
relating to the termination
thereof, will be described in the
Prospectus Supplement for the
related series. In addition, the
related Prospectus Supplement will
provide certain information with
respect to the obligor under any
such Cash Flow Agreement. The
Prospectus Supplement for any
series of Securities evidencing an
interest in a Trust Fund that
includes MBS will describe any cash
flow agreements that are included
as part of the trust fund evidenced
by or providing security for such
MBS. See "Description of the Trust
Funds-Cash Flow Agreements."
(i) Pre-Funding Account . To the extent provided in a
Prospectus Supplement, the
Depositor will be obligated
(subject only to the availability
thereof) to sell at a predetermined
price, and the Trust Fund for the
related series of Securities will
be obligated to purchase (subject
to the satisfaction of certain
conditions described in the
applicable Agreement), additional
Assets (the "Subsequent Assets")
from time to time (as frequently as
daily) within the number of months
specified in the Prospectus
Supplement after the issuance of
such series of Securities having an
aggregate principal balance
approximately equal to the amount
on deposit in the Pre-Funding
Account (the "Pre-Funded Amount")
for such series on date of such
issuance.
Description of Securities . . . . . Each series of Certificates will
evidence an interest in the related
Trust Fund and will be issued
pursuant to a pooling and servicing
agreement or a trust agreement.
Pooling and servicing agreements
and trust agreements are referred
to herein as the "Agreements." If
a series of Securities includes
Notes, such Notes will represent
indebtedness of the related Trust
Fund and will be secured by a
security interest in the Assets of
the Trust Fund (or a specified
group thereof) pursuant to an
indenture.
Each series of Securities will
include one or more classes. Each
class of Securities (other than
certain Stripped Interest
Securities, as defined below) will
have a stated principal amount (a
"Security Balance") and except for
certain Stripped Principal
Securities, as defined below, will
accrue interest thereon based on a
fixed, variable or adjustable
interest rate (in the case of
Certificates, a "Pass-Through
Rate"). The related Prospectus
Supplement will specify the
Security Balance, if any, and the
Pass-Through Rate or interest rate
for each class of Securities or, in
the case of a variable or
adjustable Pass-Through Rate or
interest rate, the method for
determining the Pass-Through Rate
or interest rate.
Distributions on Securities . . . . Each series of Securities will
consist of one or more classes of
Securities that may (i) provide for
the accrual of interest thereon
based on fixed, variable or
adjustable rates; (ii) be senior
(collectively, "Senior Securities")
or subordinate (collectively,
"Subordinate Securities") to one or
more other classes of Securities in
respect of certain distributions on
the Securities; (iii) be entitled
to principal distributions, with
disproportionately low, nominal or
no interest distributions
(collectively, "Stripped Principal
Securities"); (iv) be entitled to
interest distributions, with
disproportionately low, nominal or
no principal distributions
(collectively, "Stripped Interest
Securities"); (v) provide for
distributions of accrued interest
thereon commencing only following
the occurrence of certain events,
such as the retirement of one or
more other classes of Securities of
such series (collectively, "Accrual
Securities"); (vi) provide for
distributions of principal as
described in the related Prospectus
Supplement; and/or (vii) provide
for distributions based on a
combination of two or more
components thereof with one or more
of the characteristics described in
this paragraph, including a
Stripped Principal Security
component and a Stripped Interest
Security component, to the extent
of available funds, in each case as
described in the related Prospectus
Supplement. If so specified in the
related Prospectus Supplement,
distributions on one or more
classes of a series of Securities
may be limited to collections from
a designated portion of the
Mortgage Loans in the related
Mortgage Pool or Contracts in the
related Contract Pool (each such
portion of Mortgage Loans, a
"Mortgage Loan Group" and each such
portion of the Contracts, a
"Contract Group"). See
"Description of the Securities--
General." Any such classes may
include classes of Offered
Securities. With respect to
Securities with two or more
components, references herein to
Security Balance, notional amount
and Pass-Through Rate or interest
rate refer to the principal
balance, if any, notional amount,
if any, and the Pass-Through Rate
or interest rate, if any, for any
such component.
The Securities will not be
guaranteed or insured by the
Depositor or any of its affiliates,
by any governmental agency or
instrumentality or by any other
person, unless otherwise provided
in the related Prospectus
Supplement. See "Special
Considerations-Limited Assets" and
"Description of the Securities."
(a) Interest . . . . . . . . . Interest on each class of Offered
Securities (other than Stripped
Principal Securities and certain
classes of Stripped Interest
Securities) of each series will
accrue at the applicable
Pass-Through Rate or interest rate
on the outstanding Security Balance
thereof and will be distributed to
Securityholders as provided in the
related Prospectus Supplement. The
specified date on which
distributions are to be made is a
"Distribution Date." Distributions
with respect to interest on
Stripped Interest Securities may be
made on each Distribution Date on
the basis of a notional amount as
described in the related Prospectus
Supplement. Distributions of
interest with respect to one or
more classes of Securities may be
reduced to the extent of certain
delinquencies, losses, prepayment
interest shortfalls, and other
contingencies described herein and
in the related Prospectus
Supplement. See "Special
Considerations-Average Life of
Securities; Prepayments; Yields,"
"Yield Considerations" and
"Description of the Securities-
Distributions of Interest on the
Securities."
(b) Principal . . . . . . . . The Securities of each series
initially will have an aggregate
Security Balance no greater than
the outstanding principal balance
of the Assets as of, unless the
related Prospectus Supplement
provides otherwise, the close of
business on the first day of the
month of formation of the related
Trust Fund (the "Cut-off Date"),
after application of scheduled
payments due on or before such
date, whether or not received. The
Security Balance of a Security
outstanding from time to time
represents the maximum amount that
the holder thereof is then entitled
to receive in respect of principal
from future cash flow on the assets
in the related Trust Fund. Unless
otherwise provided in the related
Prospectus Supplement,
distributions of principal will be
made on each Distribution Date to
the class or classes of Securities
entitled thereto until the Security
Balances of such Securities have
been reduced to zero. Unless
otherwise specified in the related
Prospectus Supplement,
distributions of principal of any
class of Securities will be made on
a pro rata basis among all of the
Securities of such class or by
random selection, as described in
the related Prospectus Supplement
or otherwise established by the
related Trustee. Stripped Interest
Securities with no Security Balance
will not receive distributions in
respect of principal. See
"Description of the Securities-
Distributions of Principal of the
Securities."
Advances . . . . . . . . . . . . . Unless otherwise provided in the
related Prospectus Supplement, the
Master Servicer will be obligated
as part of its servicing
responsibilities to make certain
advances that in its good faith
judgment it deems recoverable with
respect to delinquent scheduled
payments on the Whole Loans or
Contracts in such Trust Fund.
Neither the Depositor nor any of
its affiliates will have any
responsibility to make such
advances. Advances made by a
Master Servicer are reimbursable
generally from subsequent
recoveries in respect of such Whole
Loans or Contracts and otherwise to
the extent described herein and in
the related Prospectus Supplement.
If and to the extent provided in
the Prospectus Supplement for any
series, the Master Servicer will be
entitled to receive interest on its
outstanding advances, payable from
amounts in the related Trust Fund.
The Prospectus Supplement for any
series of Securities evidencing an
interest in a Trust Fund that
includes MBS will describe any
corresponding advancing obligation
of any person in connection with
such MBS. See "Description of the
Securities-Advances in Respect of
Delinquencies."
Termination . . . . . . . . . . . . If so specified in the related
Prospectus Supplement, a series of
Securities may be subject to
optional early termination through
the repurchase of the Assets in the
related Trust Fund by the party
specified therein, under the
circumstances and in the manner set
forth therein. If so provided in
the related Prospectus Supplement,
upon the reduction of the Security
Balance of a specified class or
classes of Securities to a
specified percentage or amount or
on and after a date specified in
such Prospectus Supplement, the
party specified therein will
solicit bids for the purchase of
all of the Assets of the Trust
Fund, or of a sufficient portion of
such Assets to retire such class or
classes, or purchase such Assets at
a price set forth in the related
Prospectus Supplement. In
addition, if so provided in the
related Prospectus Supplement,
certain classes of Securities may
be purchased subject to similar
conditions. See "Description of the
Securities-Termination."
Registration of Securities . . . . If so provided in the related
Prospectus Supplement, one or more
classes of the Offered Securities
will initially be represented by
one or more certificates or notes,
as applicable, registered in the
name of Cede & Co., as the nominee
of DTC. No person acquiring an
interest in Offered Securities so
registered will be entitled to
receive a definitive certificate or
note, as applicable, representing
such person's interest except in
the event that definitive
certificates or notes, as
applicable, are issued under the
limited circumstances described
herein. See "Special
Considerations-Book-Entry
Registration" and "Description of
the Securities-Book-Entry
Registration and Definitive
Securities."
Tax Status of the Certificates . . The Certificates of each series
will constitute, as specified in
the related Prospectus Supplement,
either (i) "regular interests"
("REMIC Regular Certificates") and
"residual interests" ("REMIC
Residual Certificates") in a Trust
Fund treated as a real estate
mortgage investment conduit
("REMIC") under Sections 860A
through 860G of the Internal
Revenue Code of 1986, as amended
(the "Code"), (ii) interests
("Grantor Trust Certificates") in a
Trust Fund treated as a grantor
trust under applicable provisions
of the Code, (iii) an interest in
a Trust Fund treated as a
partnership for purposes of federal
and state income tax or (iv) indebt-
edness of the Trust Fund for federal
income tax purposes.
(a) REMIC . . . . . . . . . . REMIC Regular Certificates
generally will be treated as debt
obligations of the applicable REMIC
for federal income tax purposes.
Certain REMIC Regular Certificates
may be issued with original issue
discount for federal income tax
purposes. See "Certain Federal
Income Tax Consequences" herein and
in the related Prospectus
Supplement.
The Offered Certificates evidencing
an interest in a Trust Fund
containing Mortgage Loans (not
including Unsecured Home
Improvement Loans, SBA Loans and
SBA 504 Loans) will be treated as
(i) assets described in section
7701(a)(19)(C) of the Code and
(ii) "real estate assets" within
the meaning of section 856(c)(5)(A)
of the Code, in each case to the
extent described herein and in the
Prospectus. See "Certain Federal
Income Tax Consequences" herein and
in the related Prospectus
Supplement.
(b) Grantor Trust . . . . . . If the related Prospectus
Supplement specifies that the
related Trust Fund will be a
grantor trust, the Trust Fund will
be classified as a grantor trust
and not as an association taxable
as a corporation for federal income
tax purposes, and therefore holders
of Certificates will be treated as
the owners of undivided pro rata
interests in the Assets held by the
Trust Fund.
(c) Partnership . . . . . . . If so specified in a Prospectus
Supplement, the related Trust Fund
will be treated as a partnership
for purposes of federal and state
income tax, and each
Certificateholder, by the
acceptance of a Certificate of such
Trust Fund, will agree to treat the
Trust Fund as a partnership in
which such Certificateholder is a
partner for federal income and
state tax purposes. Alternative
characterizations of such Trust
Fund and such Certificates are
possible, but would not result in
materially adverse tax consequences
to Certificateholders.
Investors are advised to consult
their tax advisors and to review
"Certain Federal Income Tax
Consequences" herein and in the
related Prospectus Supplement.
(d) Indebtedness . . . . . . . If so specified in the related
Prospectus Supplement, the
Certificates of a series will be
treated as indebtedness for federal
income tax purposes and the
Certificateholder, in accepting the
Certificate, will agree to treat
such Certificate as indebtedness.
Tax Status of Notes . . . . . . . . Unless otherwise specified in the
related Prospectus Supplement,
Notes of a series will be treated
as indebtedness for federal and
state income tax purposes and the
Noteholder, in accepting the Note,
will agree to treat such Note as
indebtedness. See "Certain Federal
Income Tax Consequences" herein and
in such Prospectus Supplement.
Investors are advised to consult
their tax advisors and to review
"Certain Federal Income Tax
Consequences" herein and in the
related Prospectus Supplement.
ERISA Considerations . . . . . . . A fiduciary of an employee benefit
plan and certain other retirement
plans and arrangements, including
individual retirement accounts,
annuities, Keogh plans, and
collective investment funds and
separate accounts in which such
plans, accounts, annuities or
arrangements are invested, that is
subject to the Employee Retirement
Income Security Act of 1974, as
amended ("ERISA"), or Section 4975
of the Code should carefully review
with its legal advisors whether the
purchase or holding of Offered
Securities could give rise to a
transaction that is prohibited or
is not otherwise permissible either
under ERISA or Section 4975 of the
Code. See "ERISA Considerations"
herein and in the related
Prospectus Supplement. Certain
classes of Securities may not be
transferred unless the Trustee and
the Depositor are furnished with a
letter of representations or an
opinion of counsel to the effect
that such transfer will not result
in a violation of the prohibited
transaction provisions of ERISA and
the Code and will not subject the
Trustee, the Depositor or the
Master Servicer to additional
obligations. See "Description of
the Securities-General" and "ERISA
Considerations".
Legal Investment . . . . . . . . . Each Prospectus Supplement will
specify which class or classes of
Offered Securities, if any, will
constitute "mortgage-related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Institutions whose investment
activities are subject to legal
investment laws and regulations or
review by certain regulatory
authorities may be subject to
restrictions on investment in
certain classes of the Offered
Securities. See "Legal Investment"
herein and in the related
Prospectus Supplement.
Rating . . . . . . . . . . . . . . At the date of issuance, as to each
series, each class of Offered
Securities will be rated not lower
than investment grade by one or
more nationally recognized
statistical rating agencies (each,
a "Rating Agency"). See "Rating"
herein and in the related
Prospectus Supplement.
SPECIAL CONSIDERATIONS
Investors should consider, in connection with the purchase of Offered
Securities, among other things, the following factors.
LIMITED LIQUIDITY
At the time of issuance of a series of Securities, there will be no
secondary market for any of the Securities. Merrill Lynch, Pierce, Fenner &
Smith Incorporated currently expects to make a secondary market in the
Offered Securities, but has no obligation to do so. There can be no
assurance that a secondary market for the Securities of any series will
develop or, if it does develop, that it will provide holders with liquidity
of investment or will continue while Securities of such series remain
outstanding.
LIMITED ASSETS
The Securities will not represent an interest in or obligation of the
Depositor, the Master Servicer or any of their affiliates. The only
obligations with respect to the Securities or the Assets will be the
obligations (if any) of the Warranting Party (as defined herein) pursuant to
certain limited representations and warranties made with respect to the
Mortgage Loans or Contracts, the Master Servicer's and any Sub-Servicer's
servicing obligations under the related Agreement (including the limited
obligation to make certain advances in the event of delinquencies on the
Mortgage Loans or Contracts, but only to the extent deemed recoverable) and,
if and to the extent expressly described in the related Prospectus
Supplement, certain limited obligations of the Master Servicer in connection
with an agreement to purchase or act as remarketing agent with respect to a
convertible ARM Loan (as defined herein) upon conversion to a fixed rate or a
different index. Since certain representations and warranties with respect
to the Mortgage Assets or Contracts may have been made and/or assigned in
connection with transfers of such Mortgage Assets or Contracts prior to the
Closing Date, the rights of the Trustee and the Securityholders with respect
to such representations or warranties will be limited to their rights as an
assignee thereof. Unless otherwise specified in the related Prospectus
Supplement, none of the Depositor, the Master Servicer or any affiliate
thereof will have any obligation with respect to representations or
warranties made by any other entity. Unless otherwise specified in the
related Prospectus Supplement, neither the Securities nor the underlying
Assets will be guaranteed or insured by any governmental agency or
instrumentality, or by the Depositor, the Master Servicer, any Sub-Servicer
or any of their affiliates. Proceeds of the assets included in the related
Trust Fund for each series of Securities (including the Assets and any form
of credit enhancement) will be the sole source of payments on the Securities,
and there will be no recourse to the Depositor or any other entity in the
event that such proceeds are insufficient or otherwise unavailable to make
all payments provided for under the Securities.
Unless otherwise specified in the related Prospectus Supplement, a
series of Securities will not have any claim against or security interest in
the Trust Funds for any other series. If the related Trust Fund is
insufficient to make payments on such Securities, no other assets will be
available for payment of the deficiency. Additionally, certain amounts
remaining in certain funds or accounts, including the Collection Account and
any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event
of such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Securities. If so provided in the Prospectus
Supplement for a series of Securities consisting of one or more classes of
Subordinate Securities, on any Distribution Date in respect of which losses
or shortfalls in collections on the Assets have been incurred, the amount of
such losses or shortfalls will be borne first by one or more classes of the
Subordinate Securities, and, thereafter, by the remaining classes of
Securities in the priority and manner and subject to the limitations
specified in such Prospectus Supplement.
AVERAGE LIFE OF SECURITIES; PREPAYMENTS; YIELDS
Prepayments (including those caused by defaults) on the Assets in any
Trust Fund generally will result in a faster rate of principal payments on
one or more classes of the related Securities than if payments on such Assets
were made as scheduled. Thus, the prepayment experience on the Assets may
affect the average life of each class of related Securities. The rate of
principal payments on pools of mortgage loans or manufactured housing
contracts varies between pools and from time to time is influenced by a
variety of economic, demographic, geographic, social, tax, legal and other
factors. There can be no assurance as to the rate of prepayment on the Assets
in any Trust Fund or that the rate of payments will conform to any model
described herein or in any Prospectus Supplement. If prevailing interest
rates fall significantly below the applicable mortgage interest rates,
principal prepayments are likely to be higher than if prevailing rates remain
at or above the rates borne by the Mortgage Loans underlying or comprising
the Mortgage Assets in any Trust Fund. As a result, the actual maturity of
any class of Securities evidencing an interest in a Trust Fund containing
Mortgage Assets could occur significantly earlier than expected. The
relationship of prevailing interest rates and prepayment rates on Contracts
will be discussed in the related Prospectus Supplement. In addition, certain
prepayments may result in the collection of less interest than would
otherwise be the case in the month of prepayment.
A series of Securities may include one or more classes of Securities
with priorities of payment and, as a result, yields on other classes of
Securities, including classes of Offered Securities, of such series may be
more sensitive to prepayments on Assets. A series of Securities may include
one or more classes offered at a significant premium or discount. Yields on
such classes of Securities will be sensitive, and in some cases extremely
sensitive, to prepayments on Mortgage Assets and, where the amount of
interest payable with respect to a class is disproportionately high, as
compared to the amount of principal, as with certain classes of Stripped
Interest Securities, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A series of Securities may include one or
more classes of Securities, including classes of Offered Securities, that
provide for distribution of principal thereof from amounts attributable to
interest accrued but not currently distributable on one or more classes of
Accrual Securities and, as a result, yields on such Securities will be
sensitive to (a) the provisions of such Accrual Securities relating to the
timing of distributions of interest thereon and (b) if such Accrual
Securities accrue interest at a variable or adjustable Pass-Through Rate or
interest rate, changes in such rate. See "Yield Considerations" herein and,
if applicable, in the related Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Securities will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Securities of such class will receive payments to which such
Securityholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Securities. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an
investor purchasing a Security at a significant premium might fail to recoup
its initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Securities
of the related series are entitled that is not covered by the applicable
rating.
MORTGAGE LOANS AND MORTGAGED PROPERTIES IN GENERAL
An investment in securities such as the Securities which generally
represent interests in Mortgage Loans may be affected by, among other things,
a decline in real estate values and changes in the mortgagors' financial
condition. No assurance can be given that values of the Mortgaged Properties
have remained or will remain at their levels on the dates of origination of
the related Mortgage Loans. If the residential real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans, and any secondary financing on the Mortgaged
Properties, become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the mortgage lending
industry. In addition, in the case of Mortgage Loans that are subject to
negative amortization, due to the addition to principal balance of deferred
interest, the principal balances of such Mortgage Loans could be increased to
an amount equal to or in excess of the value of the underlying Mortgaged
Properties, thereby increasing the likelihood of default. To the extent that
such losses are not covered by the applicable Credit Support, if any, holders
of Securities of the series evidencing interests in the related Mortgage
Loans will bear all risk of loss resulting from default by mortgagors and
will have to look primarily to the value of the Mortgaged Properties for
recovery of the outstanding principal and unpaid interest on the defaulted
Mortgage Loans. Certain of the types of Mortgage Loans may involve additional
uncertainties not present in traditional types of loans. For example, certain
of the Mortgage Loans provide for escalating or variable payments by the
mortgagor under the Mortgage Loan, as to which the mortgagor is generally
qualified on the basis of the initial payment amount. In some instances the
Mortgagor's income may not be sufficient to enable them to continue to make
their loan payments as such payments increase and thus the likelihood of
default will increase. In addition to the foregoing, certain geographic
regions of the United States from time to time will experience weaker
regional economic conditions and housing markets, and, consequently, will
experience higher rates of loss and delinquency than will be experienced on
mortgage loans generally. The Mortgage Loans underlying certain series of
Certificates may be concentrated in these regions, and such concentration may
present risk considerations in addition to those generally present for
similar mortgage-backed securities without such concentration. Furthermore,
the rate of default on Mortgage Loans that are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Additionally,
a decline in the value of the Mortgaged Properties will increase the risk of
loss particularly with respect to any related junior Mortgage Loans. See "-
Junior Mortgage Loans."
Mortgage Loans secured by Multifamily Properties may entail risks of
delinquency and foreclosure, and risks of loss in the event thereof, that are
greater than similar risks associated with loans secured by Single Family
Properties. The ability of a borrower to repay a loan secured by an income-
producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent
income or assets of the borrower; thus, the value of an income-producing
property typically is directly related to the net operating income derived
from such property. If the net operating income of the property is reduced
(for example, if rental or occupancy rates decline or real estate tax rates
or other operating expenses increase), the borrower's ability to repay the
loan may be impaired. In addition, the concentration of default, foreclosure
and loss risk for a pool of Mortgage Loans secured by Multifamily Properties
may be greater than for a pool of Mortgage Loans secured by Single Family
Properties of comparable aggregate unpaid principal balance because the pool
of Mortgage Loans secured by Multifamily Properties is likely to consist of a
smaller number of higher balance loans.
If applicable, certain legal aspects of the Mortgage Loans for a series
of Certificates may be described in the related Prospectus Supplement. See
also "Certain Legal Aspects of Mortgage Loans" herein.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and,
thus, will require substantial principal payments (i.e., balloon payments) at
their stated maturity. Mortgage Loans with balloon payments involve a greater
degree of risk because the ability of a mortgagor to make a balloon payment
typically will depend upon its ability either to timely refinance the loan or
to timely sell the related Mortgaged Property. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage interest rates at the time of sale
or refinancing, the mortgagor's equity in the related Mortgaged Property, the
financial condition of the mortgagor, the value of the Mortgaged Property,
tax laws, prevailing general economic conditions and the availability of
credit for single family or multifamily real properties generally.
JUNIOR MORTGAGE LOANS
Certain of the Mortgage Loans may be secured by junior liens and the
related first and other senior liens, if any (collectively, the "senior
lien"), may not be included in the Mortgage Pool. The primary risk to
holders of Mortgage Loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related senior lien to satisfy fully both the senior lien and the Mortgage
Loan. In the event that a holder of the senior lien forecloses on a
Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any
other sums due and owing to the holder of the senior lien. The claims of the
holder of the senior lien will be satisfied in full out of proceeds of the
liquidation of the Mortgage Loan, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of
the Mortgage Loan. If the Master Servicer were to foreclose on any Mortgage
Loan, it would do so subject to any related senior lien. In order for the
debt related to the Mortgage Loan to be paid in full at such sale, a bidder
at the foreclosure sale of such Mortgage Loan would have to bid an amount
sufficient to pay off all sums due under the Mortgage Loan and the senior
lien or purchase the Mortgaged Property subject to the senior lien. In the
event that such proceeds from a foreclosure or similar sale of the related
Mortgaged Property were insufficient to satisfy both loans in the aggregate,
the Trust Fund, as the holder of the junior lien, and, accordingly, holders
of the Certificates, would bear the risk of delay in distributions while a
deficiency judgment against the borrower was being obtained and the risk of
loss if the deficiency judgment were not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions. In addition, a
junior mortgagee may not foreclose on the property securing a junior mortgage
unless it forecloses subject to the senior mortgage.
CONTRACTS AND MANUFACTURED HOMES IN GENERAL
An investment in Certificates evidencing an interest in a Trust Fund
containing Contracts may be affected by, among other things, a downturn in
national, regional or local economic conditions. The geographic location of
the Manufactured Homes in any Contract Pool at origination of the related
Contract will be set forth in the related Prospectus Supplement under "The
Contract Pool". Regional and local economic conditions are often volatile
and, historically, regional and local economic conditions, as well as
national economic conditions, have affected the delinquency, loan loss and
repossession experience of manufactured housing installment sales contracts
and/or installment loan contracts (hereinafter generally referred to as
"contracts" or "manufactured housing contracts"). Moreover, regardless of
its location, manufactured housing generally depreciates in value. Thus,
such Securityholders should expect that, as a general matter, the market
value of any Manufactured Home will be lower than the outstanding principal
balance of the related Contract. Sufficiently high delinquencies and
liquidation losses on the Contracts in an Contract Pool will have the effect
of reducing, and could eliminate, the protection against loss afforded by any
credit enhancement supporting any class of the related Securities. If such
protection is eliminated with respect to a class of Securities, the holders
of such Securities will bear all risk of loss on the related Contracts and
will have to rely on the value of the related Manufactured Homes for recovery
of the outstanding principal of and unpaid interest on any defaulted
Contracts in the related Contract Pool. See "Description of Credit Support."
SECURITY INTERESTS AND CERTAIN OTHER LEGAL ASPECTS OF THE CONTRACTS
The Asset Seller in respect of a Contract will represent that such
Contract is secured by a security interest in a Manufactured Home.
Perfection of security interests in the Manufactured Homes and enforcement of
rights to realize upon the value of the Manufactured Homes as collateral for
the Contracts are subject to a number of Federal and state laws, including
the Uniform Commercial Code as adopted in each state and each state's
certificate of title statutes. The steps necessary to perfect the security
interest in a Manufactured Home will vary from state to state. Because of
the expense and administrative inconvenience involved, the Master Servicer
will not amend any certificates of title to change the lienholder specified
therein from the Asset Seller to the Trustee and will not deliver any
certificate of title to the Trustee or note thereon the Trustee's interest.
Consequently, in some states, in the absence of such an amendment, the
assignment to the Trustee of the security interest in the Manufactured Home
may not be effective or such security interest may not be perfected and, in
the absence of such notation or delivery to the Trustee, the assignment of
the security interest in the Manufactured Home may not be effective against
creditors of the Asset Seller or a trustee in bankruptcy of the Asset Seller.
In addition, numerous Federal and state consumer protection laws impose
requirements on lending under installment sales contracts and installment
loan agreements such as the Contracts, and the failure by the lender or
seller of goods to comply with such requirements could give rise to
liabilities of assignees for amounts due under such agreements and claims by
such assignees may be subject to set-off as result of such lender's or
seller's noncompliance. These laws would apply to the Trustee as assignee of
the Contracts. The Asset Seller of the Contracts to the Depositor will
warrant that each Contracts complies with all requirements of law and will
make certain warranties relating to the validity, subsistence, perfection and
priority of the security interest in each Manufactured Home securing a
Contract. A breach of any such warranty that materially adversely affects
any Contract would create an obligation of the Asset Seller to repurchase
such Contract unless such breach is cured. If the Credit Support is
exhausted and recovery of amounts due on the Contracts is dependent on
repossession and resale of Manufactured Homes securing Contracts that are in
default, certain other factors may limit the ability of the
Certificateholders to realize upon the Manufactured Home or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of
the Contracts."
UNSECURED HOME IMPROVEMENT LOANS
The obligations of the borrower under any Unsecured Home Improvement
Loan included in a Trust Fund will not be secured by an interest in the
related real estate or any other property, and the Trust Fund will be a
general unsecured creditor as to such obligations. In the event of a default
under an Unsecured Home Improvement Loan, the related Trust Fund will have
recourse only against the borrower's assets generally, along with all other
general unsecured creditors of the borrower. In a bankruptcy or insolvency
proceeding relating to a borrower on an Unsecured Home Improvement Loan, the
obligations of the borrower under such Unsecured Home Improvement Loan may be
discharged in their entirety, notwithstanding the fact that the portion of
such borrower's assets made available to the related Trust Fund as a general
unsecured creditor to pay amounts due and owing thereunder are insufficient
to pay all such amounts. A borrower on an Unsecured Home Improvement Loan
may not demonstrate the same degree of concern over performance of the
borrower's obligations under such Home Improvement Loan as if such
obligations were secured by the real estate or other assets owned by such
borrower.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of
credit support, or combinations thereof. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all
potential losses or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan or contract originator or other
parties.
A series of Securities may include one or more classes of Subordinate
Securities (which may include Offered Securities), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce
the risk to holders of Senior Securities of delinquent distributions or
ultimate losses, the amount of subordination will be limited and may decline
under certain circumstances. In addition, if principal payments on one or
more classes of Securities of a series are made in a specified order of
priority, any limits with respect to the aggregate amount of claims under any
related Credit Support may be exhausted before the principal of the lower
priority classes of Securities of such series has been repaid. As a result,
the impact of significant losses and shortfalls on the Assets may fall
primarily upon those classes of Securities having a lower priority of
payment. Moreover, if a form of Credit Support covers more than one series of
Securities (each, a "Covered Trust"), holders of Securities evidencing an
interest in a Covered Trust will be subject to the risk that such Credit
Support will be exhausted by the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Securities, including the subordination of one or more
classes of Securities, will be determined on the basis of criteria
established by each Rating Agency rating such classes of Securities based on
an assumed level of defaults, delinquencies, other losses or other factors.
There can, however, be no assurance that the loss experience on the related
Assets will not exceed such assumed levels. See "-Limited Nature of Ratings,"
"Description of the Securities" and "Description of Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. The Master
Servicer will generally be permitted to reduce, terminate or substitute all
or a portion of the credit enhancement for any series of Securities, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. The rating of any series of Securities by any
applicable Rating Agency may be lowered following the initial issuance
thereof as a result of the downgrading of the obligations of any applicable
Credit Support provider, or as a result of losses on the related Assets
substantially in excess of the levels contemplated by such Rating Agency at
the time of its initial rating analysis. None of the Depositor, the Master
Servicer or any of their affiliates will have any obligation to replace or
supplement any Credit Support or to take any other action to maintain any
rating of any series of Securities.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of Subordinate Securityholders to receive distributions to
which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the
Master Servicer is paid its servicing fee, including any unpaid servicing
fees with respect to one or more prior Due Periods, and is reimbursed for
certain unreimbursed advances and unreimbursed liquidation expenses) and the
Senior Securityholders to the extent described in the related Prospectus
Supplement. As a result of the foregoing, investors must be prepared to bear
the risk that they may be subject to delays in payment and may not recover
their initial investments in the Subordinate Securities. See "Description of
the Securities-- General" and "--Allocation of Losses and Shortfalls."
The yields on the Subordinate Securities may be extremely sensitive to
the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate
and amount of such losses assumed by an investor, the yields to maturity on
the Subordinate Securities may be lower than anticipated.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on
their federal income tax returns as ordinary income their pro rata share of
the taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Certain Federal Income Tax
Consequences-REMICs." Accordingly, under certain circumstances, holders of
Offered Securities that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a
taxable year in excess of the cash received during such period. Individual
holders of REMIC Residual Certificates may be limited in their ability to
deduct servicing fees and other expenses of the REMIC. In addition, REMIC
Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC Residual Certificates, the
taxable income arising in a given year on a REMIC Residual Certificate will
not be equal to the taxable income associated with investment in a corporate
bond or stripped instrument having similar cash flow characteristics and
pre-tax yield. Therefore, the after-tax yield on the REMIC Residual
Certificate may be significantly less than that of a corporate bond or
stripped instrument having similar cash flow characteristics. Additionally,
prospective purchasers of a REMIC Residual Certificate should be aware that
recently issued temporary regulations provide restrictions on the ability to
mark-to-market certain "negative value" REMIC residual interests. See
"Certain Federal Income Tax Consequences-REMICs."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Securities will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be
registered in the names of the Securityholders or their nominees. Because of
this, unless and until Definitive Securities are issued, Securityholders will
not be recognized by the Trustee as "Securityholders" (as that term is to be
used in the related Agreement). Hence, until such time, Securityholders will
be able to exercise the rights of Securityholders only indirectly through DTC
and its participating organizations. See "Description of the Securities-
Book-Entry Registration and Definitive Securities.
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "Assets") will include
(i) single family and/or multifamily mortgage loans (or certain balances
thereof) (collectively, the "Mortgage Loans"), including without limitation,
Home Equity Loans and Home Improvement Contracts, (ii) unsecured home
improvement loans ("Unsecured Home Improvement Loans"), (iii) mortgage
participations ("Mortgage Participations"), (iv) pass-through certificates or
other mortgage-backed securities evidencing interests in or secured by one or
more Mortgage Loans or other similar participations, certificates or
securities ("MBS"), (v) manufactured housing installment sale contracts and
installment loan agreements (the "Contracts"), (vi) direct obligations of the
United States, agencies thereof or agencies created thereby which are not
subject to redemption prior to maturity at the option of the issuer and are
(a) interest-bearing securities, (b) non-interest-bearing securities, (c)
originally interest-bearing securities from which coupons representing the
right to payment of interest have been removed, or (d) interest-bearing
securities from which the right to payment of principal has been removed (the
"Government Securities"), (vii) certain small business loans defined below
("SBA Loans" and "SBA 504 Loans") or (viii) a combination of Mortgage Loans,
Unsecured Home Improvement Loans, Mortgage Participations, Contracts, MBS and
Government Securities. As used herein, "Mortgage Loans" refers to both whole
Mortgage Loans (or certain balances thereof) and Mortgage Loans underlying
Mortgage Participations or MBS. Mortgage Loans that secure, or interests in
which are evidenced by, MBS are herein sometimes referred to as "Underlying
Mortgage Loans." Mortgage Loans (or certain balances thereof) that are not
Underlying Mortgage Loans are sometimes referred to as "Whole Loans." Any
pass-through certificates or other asset-backed certificates in which an MBS
evidences an interest or which secure an MBS are sometimes referred to herein
also as MBS or as "Underlying MBS." Mortgage Loans, Mortgage Participations
and MBS are sometimes referred to herein as "Mortgage Assets." The Mortgage
Assets will not be guaranteed or insured by Merrill Lynch Mortgage Investors,
Inc. (the "Depositor") or any of its affiliates or, unless otherwise provided
in the Prospectus Supplement, by any governmental agency or instrumentality
or by any other person. Each Asset will be selected by the Depositor for
inclusion in a Trust Fund from among those purchased, either directly or
indirectly, from a prior holder thereof (an "Asset Seller"), which may be an
affiliate of the Depositor and, with respect to Assets, which prior holder
may or may not be the originator of such Mortgage Loan or Contract or the
issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Securities will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of
any other trust fund established by the Depositor. If specified in the
related Prospectus Supplement, the assets of a Trust Fund will consist of
certificates representing beneficial ownership interests in, or indebtedness
of, another trust fund that contains the Assets.
MORTGAGE LOANS
General
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan will be secured by (i) a lien on a Mortgaged Property
consisting of a one- to four-family residential property (a "Single Family
Property" and the related Mortgage Loan a "Single Family Mortgage Loan") or a
residential property consisting of five or more dwelling units in multi-story
structures (a "Multifamily Property" and the related Mortgage Loan a
"Multifamily Mortgage Loan") or (ii) a security interests in shares issued by
private cooperative housing corporations ("Cooperatives"). If so specified
in the related Prospectus Supplement, a Mortgaged Property may include some
commercial use. Mortgaged Properties will be located, unless otherwise
specified in the related Prospectus Supplement, in any one of the fifty
states, the District of Columbia or the Commonwealth of Puerto Rico. To the
extent specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by first and/or junior mortgages or deeds of trust or other
similar security instruments creating a first or junior lien on Mortgaged
Property. The Mortgaged Properties may include apartments owned by
Cooperatives. The Mortgaged Properties may include leasehold interests in
properties, the title to which is held by third party lessors. Unless
otherwise specified in the Prospectus Supplement, the term of any such
leasehold shall exceed the term of the related mortgage note by at least five
years. Each Mortgage Loan will have been originated by a person (the
"Originator") other than the Depositor. The related Prospectus Supplement
will indicate if any Originator is an affiliate of the Depositor. The
Mortgage Loans will be evidenced by promissory notes (the "Mortgage Notes")
secured by mortgages, deeds of trust or other security instruments (the
"Mortgages") creating a lien on the Mortgaged Properties.
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance
of the Mortgage Loan to the Value of the related Mortgaged Property. The
"Value" of a Mortgaged Property, other than with respect to Refinance Loans,
is generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales
price for such property. "Refinance Loans" are loans made to refinance
existing loans. Unless otherwise set forth in the related Prospectus
Supplement, the Value of the Mortgaged Property securing a Refinance Loan is
the appraised value thereof determined in an appraisal obtained at the time
of origination of the Refinance Loan. The Value of a Mortgaged Property as of
the date of initial issuance of the related series of Certificates may be
less than the value at origination and will fluctuate from time to time based
upon changes in economic conditions and the real estate market.
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the dates
specified in such Prospectus Supplement and to the extent then applicable and
specifically known to the Depositor, with respect to the Mortgage Loans,
including (i) the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the Mortgage Loans as
of the applicable Cut-off Date, (ii) the type of property securing the
Mortgage Loans, (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the range of the Loan-to-Value Ratios at origination of the Mortgage
Loans, (vi) the Mortgage Rates or range of Mortgage Rates and the weighted
average Mortgage Rate borne by the Mortgage Loans, (vii) the state or states
in which most of the Mortgaged Properties are located, (viii) information
with respect to the prepayment provisions, if any, of the Mortgage Loans,
(ix) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index, the frequency of the adjustment dates, the range of
margins added to the index, and the maximum Mortgage Rate or monthly payment
variation at the time of any adjustment thereof and over the life of the ARM
Loan and (x) information regarding the payment characteristics of the
Mortgage Loans, including without limitation balloon payment and other
amortization provisions. If specific information respecting the Mortgage
Loans is not known to the Depositor at the time Securities are initially
offered, more general information of the nature described above will be
provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Securities at or before the initial issuance thereof and will be filed as
part of a Current Report on Form 8-K with the Securities and Exchange
Commission within fifteen days after such initial issuance.
The related Prospectus Supplement may specify whether the Mortgage Loans
include (i) closed-end and/or revolving home equity loans or certain balances
thereof ("Home Equity Loans"), which may be secured by Mortgages that are
junior to other liens on the related Mortgaged Property and/or (ii) home
improvement installment sales contracts or installment loan agreements (the
"Home Improvement Contracts") originated by a home improvement contractor and
secured by a Mortgage on the related Mortgaged Property that is junior to
other liens on the Mortgaged Property. Except as otherwise described in the
related Prospectus Supplement, the home improvements purchased with the Home
Improvement Contracts will generally be replacement windows, house siding,
roofs, swimming pools, satellite dishes, kitchen and bathroom remodeling
goods and solar heating panels. The related Prospectus Supplement will
specify whether the Home Improvement Contracts are partially insured under
Title I of the National Housing Act and, if so, the limitations on such
insurance.
If specified in the related Prospectus Supplement, new draws by
borrowers under the revolving Home Equity Loans will, during a specified
period of time, automatically become part of the Trust Fund for a series. As
a result, the aggregate balance of the revolving Home Equity Loans will
fluctuate from day to day as new draws by borrowers are added to the Trust
Fund and principal payments are applied to such balances and such amounts
will usually differ each day, as more specifically described in the related
Prospectus Supplement. If specified in the related Prospectus Supplement,
principal collections received on the closed-end Home Equity Loans may be
applied to purchase additional closed-end Home Equity Loans which will become
part of the Trust Fund for a series.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination
of not less than $25,000, (ii) have original terms to maturity of not more
than 40 years and (iii) provide for payments of principal, interest or both,
on due dates that occur monthly, quarterly or semi-annually or at such other
interval as is specified in the related Prospectus Supplement. Each Mortgage
Loan may provide for no accrual of interest or for accrual of interest
thereon at an interest rate (a "Mortgage Rate") that is fixed over its term
or that adjusts from time to time, or that may be converted from an
adjustable to a fixed Mortgage Rate or a different adjustable Mortgage Rate,
or from a fixed to an adjustable Mortgage Rate, from time to time pursuant to
an election or as otherwise specified on the related Mortgage Note, in each
case as described in the related Prospectus Supplement. Each Mortgage Loan
may provide for scheduled payments to maturity or payments that adjust from
time to time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events or that adjust on the basis of other
methodologies, and may provide for negative amortization or accelerated
amortization, in each case as described in the related Prospectus Supplement.
Each Mortgage Loan may be fully amortizing or require a balloon payment due
on its stated maturity date, in each case as described in the related
Prospectus Supplement. Each Mortgage Loan may contain prohibitions on
prepayment (a "Lock-out Period" and, the date of expiration thereof, a
"Lock-out Date") or require payment of a premium or a yield maintenance
penalty (a "Prepayment Premium") in connection with a prepayment, in each
case as described in the related Prospectus Supplement. In the event that
holders of any class or classes of Offered Securities will be entitled to all
or a portion of any Prepayment Premiums collected in respect of Mortgage
Loans, the related Prospectus Supplement will specify the method or methods
by which any such amounts will be allocated.
Mortgage Participations
Mortgage Participations will evidence an undivided participation
interest in Underlying Mortgage Loans. To the extent available to the
Depositor, the related Prospectus Supplement will contain information in
respect of the Underlying Mortgage Loans substantially similar to the
information described above in respect of Mortgage Loans. Such Prospectus
Supplement will also specify the amount of the participation interest and
describe the servicing provisions of the participation and servicing
agreements.
UNSECURED HOME IMPROVEMENT LOANS
The Unsecured Home Improvement Loans may consist of conventional
unsecured home improvement loans and FHA insured unsecured home improvement
loans. Except as otherwise set forth in the related Prospectus Supplement,
the Unsecured Home Improvement Loans will be fully amortizing and will bear
interest at a fixed or variable annual percentage rate. Unless the context
otherwise requires, references in this Prospectus to Mortgage Loans, Whole
Loans and related terms shall include Unsecured Home Improvement Loans and
related terms to the extent relevant (e.g., a reference to a Mortgaged
Property or hazard insurance does not relate to an Unsecured Home Improvement
Loan).
MBS
Any MBS will have been issued pursuant to a pooling and servicing
agreement, a trust agreement, an indenture or similar agreement (an "MBS
Agreement"). A seller (the "MBS Issuer") and/or servicer (the "MBS Servicer")
of the underlying Mortgage Loans (or Underlying MBS) will have entered into
the MBS Agreement with a trustee or a custodian under the MBS Agreement (the
"MBS Trustee"), if any, or with the original purchaser of the interest in the
underlying Mortgage Loans or MBS evidenced by the MBS.
Distributions of any principal or interest, as applicable, will be made
on MBS on the dates specified in the related Prospectus Supplement. The MBS
may be issued in one or more classes with characteristics similar to the
classes of Securities described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Securities under
"Description of Credit Support" may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Underlying Mortgage Loans or
Underlying MBS evidenced by or securing such MBS and other factors and
generally will have been established for the MBS on the basis of requirements
of either any Rating Agency that may have assigned a rating to the MBS or the
initial purchasers of the MBS.
The Prospectus Supplement for a series of Securities evidencing
interests in Mortgage Assets that include MBS will specify, to the extent
available to the Depositor, (i) the aggregate approximate initial and
outstanding principal amount or notional amount, as applicable, and type of
the MBS to be included in the Trust Fund, (ii) the original and remaining
term to stated maturity of the MBS, if applicable, (iii) whether such MBS is
entitled only to interest payments, only to principal payments or to both,
(iv) the pass-through or bond rate of the MBS or formula for determining such
rates, if any, (v) the applicable payment provisions for the MBS, including,
but not limited to, any priorities, payment schedules and subordination
features, (vi) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable,
(vii) certain characteristics of the credit support, if any, such as
subordination, reserve funds, insurance policies, letters of credit or
guarantees relating to the related Underlying Mortgage Loans, the Underlying
MBS or directly to such MBS, (viii) the terms on which the related Underlying
Mortgage Loans or Underlying MBS for such MBS or the MBS may, or are required
to, be purchased prior to their maturity, (ix) the terms on which Mortgage
Loans or Underlying MBS may be substituted for those originally underlying
the MBS, (x) the servicing fees payable under the MBS Agreement, (xi) the
type of information in respect of the Underlying Mortgage Loans described
under "-Mortgage Loans-Mortgage Loan Information in Prospectus Supplements"
above, and the type of information in respect of the Underlying MBS described
in this paragraph, (xii) the characteristics of any cash flow agreements that
are included as part of the trust fund evidenced or secured by the MBS and
(xiii) whether the MBS is in certificated form or held through a depository
such as The Depository Trust Company or the Participants Trust Company.
CONTRACTS
General
Unless otherwise specified in the related Prospectus Supplement, each
Contract will be secured by a security interest in a new or used Manufactured
Home. Such Prospectus Supplement will specify the states or other
jurisdictions in which the Manufactured Homes are located as of the related
Cut-off Date. The method of computing the "Loan-to-Value Ratio" of a
Contract will be described in the related Prospectus Supplement.
Contract Information in Prospectus Supplements
Each Prospectus Supplement will contain certain information, as of the
dates specified in such Prospectus Supplement and to the extent then
applicable and specifically known to the Depositor, with respect to the
Contracts, including (i) the aggregate outstanding principal balance and the
largest, smallest and average outstanding principal balance of the Contracts
as of the applicable Cut-off Date, (ii) whether the Manufactured Homes were
new or used as of the origination of the related Contracts, (iii) the
weighted average (by principal balance) of the original and remaining terms
to maturity of the Contracts, (iv) the earliest and latest origination date
and maturity date of the Contracts, (v) the range of the Loan-to-Value Ratios
at origination of the Contracts, (vi) the Contract Rates or range of Contract
Rates and the weighted average Contract Rate borne by the Contracts, (vii)
the state or states in which most of the Manufactured Homes are located at
origination, (viii) information with respect to the prepayment provisions, if
any, of the Contracts, (ix) with respect to Contracts with adjustable
Contract Rates ("ARM Contracts"), the index, the frequency of the adjustment
dates, and the maximum Contract Rate or monthly payment variation at the time
of any adjustment thereof and over the life of the ARM Contract, and (x)
information regarding the payment characteristics of the Contracts. If
specific information respecting the Contracts is not known to the Depositor
at the time Securities are initially offered, more general information of the
nature described above will be provided in the Prospectus Supplement, and
specific information will be set forth in a report which will be available to
purchasers of the related Securities at or before the initial issuance
thereof and will be filed as part of a Current Report on Form 8-K with the
Securities and Exchange Commission within fifteen dates after such initial
issuance.
Payment Provisions of the Contracts
Unless otherwise specified in the related Prospectus Supplement, all of
the Contracts will (i) have individual principal balances at origination of
not less than $1,000, (ii) have original terms to maturity of not more than
40 years and (iii) provide for payments of principal, interest or both, on
due dates that occur monthly or at such other interval as is specified in the
related Prospectus Supplement. Each Contract may provide for no accrual of
interest or for accrual of interest thereon at an annual percentage rate (a
"Contract Rate") that is fixed over its term or that adjusts from time to
time, or as otherwise specified in the related Prospectus Supplement. Each
Contract may provide for scheduled payments to maturity or payments that
adjust from time to time to accommodate changes in the Contract Rate as
otherwise described in the related Prospectus Supplement.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Securities evidencing
interests in Assets of a Trust Fund that include Government Securities will
specify, to the extent available, (i) the aggregate approximate initial and
outstanding principal amounts or notional amounts, as applicable, and types
of the Government Securities to be included in the Trust Fund, (ii) the
original and remaining terms to stated maturity of the Government Securities,
(iii) whether such Government Securities are entitled only to interest
payments, only to principal payments or to both, (iv) the interest rates of
the Government Securities or the formula to determine such rates, if any, (v)
the applicable payment provisions for the Government Securities and (vi) to
what extent, if any, the obligation evidenced thereby is backed by the full
faith and credit of the United States.
SBA LOANS
The SBA Loans will consist of the Unguaranteed Interests (as defined
below) in loans originated under Section 7(a) (the "Section 7(a) Program") of
the Small Business Act of 1953 (the "SBA Act"), which Act created the Small
Business Administration (the "SBA"). The Section 7(a) Program was intended
to encourage lenders to provide loans to existing qualifying small
businesses. Loans made under the Section 7(a) Program can be used to
construct, purchase, expand or convert facilities or to purchase building
equipment, leaseholds or materials. Money lent under the Section 7(a)
Program also can be used for working capital.
The SBA Loans are partially guaranteed by the SBA pursuant to a Small
Business Administration Loan Guaranty Agreement between the originator and
the SBA and pursuant to pertinent SBA regulations found at 13 C.F.R. parts
120 and 122. As to any SBA Loan, the right to receive the guaranteed portion
of the principal balance thereof together with interest thereon at a per
annum rate in effect from time to time plus a fee paid to the SBA's fiscal
and transfer agent is referred to herein as the "Guaranteed Interest." The
Guaranteed Interest varies from SBA Loan to SBA Loan, will not be included in
the related Trust Fund and Securityholders will have no right or interest
therein. As to any SBA Loan, the "Unguaranteed Interest" will equal all
payments and other recoveries on such SBA Loan not constituting the
Guaranteed Interest therein.
The SBA administers three levels of lender participation in the Section
7(a) Program. Under the first level, known as the "Guaranteed Participant
Program," the lender gathers and processes data from applicants and forwards
it, along with a request for the SBA's guaranty, to a local SBA office. The
SBA then completes an independent analysis and decides whether to guaranty
the loan. SBA turnaround time on such applications varies greatly, depending
on its backlog of loan applications.
Under the second level of lender participation, known as the "Certified
Lender Program," the lender (the "Certified Lender") gathers and processes
data from applicants and makes a request to the SBA, as in the Guaranteed
Participant Program procedure. The SBA then performs an expedited review of
the lender's credit analysis, which generally is completed within three
working days. The SBA requires that lenders originate loans meeting certain
portfolio and volume criteria before authorizing them to participate in the
Certified Lender Program.
Under the third level of lender participation, known as the "Preferred
Lender Program", the lender (the "Preferred Lender") has the authority to
approve a loan and obligate the SBA to guarantee the loan without submitting
an application to the SBA for credit review. The lender is required to
notify the SBA of the approved loan and submit certain documents. The
standards established for participants in the Preferred Lender Program are
more stringent than those for participants in the Certified Lender Program
and involve meeting additional portfolio quality and volume requirements. In
addition, before being granted preferred lender status under the Preferred
Lender Program in a particular SBA district, the lender must have been a
Certified Lender under the Certified Lender Program in such SBA district for
at least 12 months.
Unless the context otherwise requires, references in this Prospectus to
Mortgage Loans, Whole Loans and related terms shall include SBA Loans and
related terms to the extent relevant (e.g., a reference to a Mortgaged
Property or hazard insurance does not relate to a SBA Loan).
SBA 504 LOANS
The SBA 504 Loans will consist of loans originated by the originators
under the SBA 504 Loan Program (the "SBA 504 Loan Program"). The SBA 504
Loan Program was established under the SBA Act to encourage lenders to
provide fixed asset financing to existing qualifying small businesses. SBA
504 Loans may be used for plant acquisition, construction, renovation,
expansion, land and site improvements, acquisition and installation of
machinery and equipment and the interest on interim financing. The
Originators provide at least 50% of project costs in a conventional loan
agreement with borrowers, with the SBA providing the remainder of the
financing. Each loan by the Originators must be approved by the SBA.
The funds used by the SBA to originate its portion of a project
generated pursuant to the SBA 504 Loan Program are generated by issuing SBA-
guaranteed debentures on behalf of a certified development company (a "CDC").
A CDC is a non-profit organization sponsored by private interests or by state
or local governments. The debentures are pooled monthly and sold through a
certificate mechanism to the public market. The loans originated by the
originators under the SBA 504 Loan Program are not guaranteed by the SBA.
Unless the context otherwise requires, references in this Prospectus to
Mortgage Loans, Whole Loans and related terms shall include SBA 504 Loans and
related terms to the extent relevant (e.g., a reference to a Mortgaged
Property or hazard insurance does not relate to a SBA 504 Loan).
PRE-FUNDING ACCOUNT
To the extent provided in a Prospectus Supplement, the Depositor will be
obligated (subject only to the availability thereof) to sell at a
predetermined price, and the Trust Fund for the related series of Securities
will be obligated to purchase (subject to the satisfaction of certain
conditions described in the applicable Agreement), additional Assets (the
"Subsequent Assets") from time to time (as frequently as daily) within the
number of months specified in the related Prospectus Supplement after the
issuance of such series of Securities having an aggregate principal balance
approximately equal to the amount on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") for such series on date of such issuance.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Securityholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreement-Collection Account and Related Accounts."
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Securities in the
related series in the form of subordination of one or more other classes of
Securities in such series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or
another type of credit support, or a combination thereof (any such coverage
with respect to the Securities of any series, "Credit Support"). The amount
and types of coverage, the identification of the entity providing the
coverage (if applicable) and related information with respect to each type of
Credit Support, if any, will be described in the Prospectus Supplement for a
series of Securities. See "Special Considerations-Credit Support Limitations"
and "Description of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements,
such as interest rate exchange agreements, interest rate cap or floor
agreements, currency exchange agreements or similar agreements provided to
reduce the effects of interest rate or currency exchange rate fluctuations on
the Assets or on one or more classes of Securities. (Currency exchange
agreements might be included in the Trust Fund if some or all of the Mortgage
Assets (such as Mortgage Loans secured by Mortgaged Properties located
outside the United States) were denominated in a non-United States currency.)
The principal terms of any such guaranteed investment contract or other
agreement (any such agreement, a "Cash Flow Agreement"), including, without
limitation, provisions relating to the timing, manner and amount of payments
thereunder and provisions relating to the termination thereof, will be
described in the Prospectus Supplement for the related series. In addition,
the related Prospectus Supplement will provide certain information with
respect to the obligor under any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will be
applied by the Depositor to the purchase of Assets, or the payment of the
financing incurred in such purchase, and to pay for certain expenses incurred
in connection with such purchase of Assets and sale of Securities. The
Depositor expects to sell the Securities from time to time, but the timing
and amount of offerings of Securities will depend on a number of factors,
including the volume of Assets acquired by the Depositor, prevailing interest
rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Security will depend on the price paid by the
Securityholder, the Pass-Through Rate of the Security, the receipt and timing
of receipt of distributions on the Security and the weighted average life of
the Assets in the related Trust Fund (which may be affected by prepayments,
defaults, liquidations or repurchases). See "Special Considerations."
PASS-THROUGH RATE AND INTEREST RATE
Securities of any class within a series may have fixed, variable or
adjustable Pass-Through Rates or interest rates, which may or may not be
based upon the interest rates borne by the Assets in the related Trust Fund.
The Prospectus Supplement with respect to any series of Securities will
specify the Pass-Through Rate or interest rate for each class of such
Securities or, in the case of a variable or adjustable Pass-Through Rate or
interest rate, the method of determining the Pass-Through Rate or interest
rate; the effect, if any, of the prepayment of any Asset on the Pass-Through
Rate or interest rate of one or more classes of Securities; and whether the
distributions of interest on the Securities of any class will be dependent,
in whole or in part, on the performance of any obligor under a Cash Flow
Agreement.
If so specified in the related Prospectus Supplement, the effective
yield to maturity to each holder of Securities entitled to payments of
interest will be below that otherwise produced by the applicable Pass-Through
Rate or interest rate and purchase price of such Security because, while
interest may accrue on each Asset during a certain period, the distribution
of such interest will be made on a day which may be several days, weeks or
months following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Securities (or addition to the Security
Balance of a class of Accrual Securities) on a Distribution Date will include
interest accrued during the Interest Accrual Period for such Distribution
Date. As indicated above under "-Pass-Through Rate and Interest Rate," if
the Interest Accrual Period ends on a date other than the day before a
Distribution Date for the related series, the yield realized by the holders
of such Securities may be lower than the yield that would result if the
Interest Accrual Period ended on such day before the Distribution Date.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Securities will be affected by the rate of
principal payments on the Assets (including principal prepayments on Mortgage
Loans and Contracts resulting from both voluntary prepayments by the
borrowers and involuntary liquidations). The rate at which principal
prepayments occur on the Mortgage Loans and Contracts will be affected by a
variety of factors, including, without limitation, the terms of the Mortgage
Loans and Contracts, the level of prevailing interest rates, the availability
of mortgage credit and economic, demographic, geographic, tax, legal and
other factors. In general, however, if prevailing interest rates fall
significantly below the Mortgage Rates on the Mortgage Loans comprising or
underlying the Assets in a particular Trust Fund, such Mortgage Loans are
likely to be the subject of higher principal prepayments than if prevailing
rates remain at or above the rates borne by such Mortgage Loans. In this
regard, it should be noted that certain Assets may consist of Mortgage Loans
with different Mortgage Rates and the stated pass-through or pay-through
interest rate of certain MBS may be a number of percentage points higher or
lower than certain of the Underlying Mortgage Loans. The rate of principal
payments on some or all of the classes of Securities of a series will
correspond to the rate of principal payments on the Assets in the related
Trust Fund and is likely to be affected by the existence of Lock-out Periods
and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Assets, and by the extent to which the servicer of any such
Mortgage Loan is able to enforce such provisions. Mortgage Loans with a
Lock-out Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal
prepayments than otherwise identical Mortgage Loans without such provisions,
with shorter Lock-out Periods or with lower Prepayment Premiums.
Because of the depreciating nature of manufactured housing, which limits
the possibilities for refinancing, and because the terms and principal
amounts of manufactured housing contracts are generally shorter and smaller
than the terms and principal amounts of mortgage loans secured by site-built
homes, changes in interest rates have a correspondingly smaller effect on the
amount of the monthly payments on manufactured housing contracts than on the
amount of the monthly payments on mortgage loans secured by site-built homes.
Consequently, changes in interest rates may play a smaller role in prepayment
behavior of manufactured housing contracts than they do in the prepayment
behavior of loans secured by mortgage on site-built homes. Conversely, local
economic conditions and certain of the other factors mentioned above may play
a larger role in the prepayment behavior of manufactured housing contracts
than they do in the prepayment behavior of loans secured by mortgages on
site-built homes.
If the purchaser of a Security offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Security offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. In either
case, if so provided in the Prospectus Supplement for a series of Securities,
the effect on yield on one or more classes of the Securities of such series
of prepayments of the Assets in the related Trust Fund may be mitigated or
exacerbated by any provisions for sequential or selective distribution of
principal to such classes.
Unless otherwise specified in the related Prospectus Supplement, when a
full prepayment is made on a Mortgage Loan or a Contract, the obligor is
charged interest on the principal amount of the Mortgage Loan or Contract so
prepaid for the number of days in the month actually elapsed up to the date
of the prepayment. Unless otherwise specified in the related Prospectus
Supplement, the effect of prepayments in full will be to reduce the amount of
interest paid in the following month to holders of Securities entitled to
payments of interest because interest on the principal amount of any Mortgage
Loan or Contract so prepaid will be paid only to the date of prepayment
rather than for a full month. Unless otherwise specified in the related
Prospectus Supplement, a partial prepayment of principal is applied so as to
reduce the outstanding principal balance of the related Mortgage Loan or
Contract as of the Due Date in the month in which such partial prepayment is
received.
The timing of changes in the rate of principal payments on the Assets
may significantly affect an investor's actual yield to maturity, even if the
average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Security, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by
the investor during a given period may not be offset by a subsequent like
decrease (or increase) in the rate of principal payments.
The Securityholder will bear the risk of being able to reinvest
principal received in respect of a Security at a yield at least equal to the
yield on such Security.
PREPAYMENTS-MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets
included in or comprising a Trust Fund and the rate at which payments are
made from any Credit Support or Cash Flow Agreement for the related series of
Securities may affect the ultimate maturity and the weighted average life of
each class of such series. Prepayments on the Mortgage Loans or Contracts
comprising or underlying the Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes
of the Securities of the related series.
If so provided in the Prospectus Supplement for a series of Securities,
one or more classes of Securities may have a final scheduled Distribution
Date, which is the date on or prior to which the Security Balance thereof is
scheduled to be reduced to zero, calculated on the basis of the assumptions
applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Securities of a series will be influenced by the rate at which
principal on the Mortgage Loans or Contracts comprising or underlying the
Assets is paid to such class, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, in whole or in part, and liquidations due to default).
In addition, the weighted average life of the Securities may be affected
by the varying maturities of the Mortgage Loans or Contracts comprising or
underlying the Assets in a Trust Fund. If any Mortgage Loans or Contracts
comprising or underlying the Assets in a particular Trust Fund have actual
terms to maturity less than those assumed in calculating final scheduled
Distribution Dates for the classes of Securities of the related series, one
or more classes of such Securities may be fully paid prior to their
respective final scheduled Distribution Dates, even in the absence of
prepayments. Accordingly, the prepayment experience of the Assets will, to
some extent, be a function of the mix of Mortgage Rates or Contract Rates and
maturities of the Mortgage Loans or Contracts comprising or underlying such
Assets. See "Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model or the Standard Prepayment Assumption ("SPA") prepayment model, each as
described below. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans
for the life of such loans. SPA represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans.
A prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of loans,
including the Mortgage Loans or Contracts underlying or comprising the
Assets.
The Prospectus Supplement with respect to each series of Securities may
contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Securities of such series and the percentage of
the initial Security Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such
Prospectus Supplement, including assumptions that prepayments on the Mortgage
Loans comprising or underlying the related Assets are made at rates
corresponding to various percentages of CPR, SPA or such other standard
specified in such Prospectus Supplement. Such tables and assumptions are
intended to illustrate the sensitivity of the weighted average life of the
Securities to various prepayment rates and will not be intended to predict or
to provide information that will enable investors to predict the actual
weighted average life of the Securities. It is unlikely that prepayment of
any Mortgage Loans or Contracts comprising or underlying the Assets for any
series will conform to any particular level of CPR, SPA or any other rate
specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset or Contract
If so specified in the related Prospectus Supplement, a number of
Mortgage Loans may have balloon payments due at maturity, and because the
ability of a mortgagor to make a balloon payment typically will depend upon
its ability either to refinance the loan or to sell the related Mortgaged
Property, there is a risk that a number of Mortgage Loans having balloon
payments may default at maturity. In the case of defaults, recovery of
proceeds may be delayed by, among other things, bankruptcy of the mortgagor
or adverse conditions in the market where the property is located. In order
to minimize losses on defaulted Mortgage Loans, the servicer may, to the
extent and under the circumstances set forth in the related Prospectus
Supplement, be permitted to modify Mortgage Loans that are in default or as
to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan will tend to extend
the weighted average life of the Securities, thereby lengthening the period
of time elapsed from the date of issuance of a Security until it is retired.
With respect to certain Mortgage Loans, including ARM Loans, the
Mortgage Rate at origination may be below the rate that would result if the
index and margin relating thereto were applied at origination. With respect
to certain Contracts, the Contract Rate may be "stepped up" during its term
or may otherwise vary or be adjusted. Under the applicable underwriting
standards, the mortgagor under each Mortgage Loan or Contract generally will
be qualified on the basis of the Mortgage Rate or Contract Rate in effect at
origination. The repayment of any such Mortgage Loan or Contract may thus be
dependent on the ability of the mortgagor or obligor to make larger level
monthly payments following the adjustment of the Mortgage Rate or Contract
Rate. In addition, certain Mortgage Loans may be subject to temporary buydown
plans ("Buydown Mortgage Loans") pursuant to which the monthly payments made
by the mortgagor during the early years of the Mortgage Loan will be less
than the scheduled monthly payments thereon (the "Buydown Period"). The
periodic increase in the amount paid by the mortgagor of a Buydown Mortgage
Loan during or at the end of the applicable Buydown Period may create a
greater financial burden for the mortgagor, who might not have otherwise
qualified for a mortgage, and may accordingly increase the risk of default
with respect to the related Mortgage Loan.
The Mortgage Rates on certain ARM Loans subject to negative amortization
generally adjust monthly and their amortization schedules adjust less
frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the applicable index at origination and the related margin over such index at
which interest accrues), the amount of interest accruing on the principal
balance of such Mortgage Loans may exceed the amount of the minimum scheduled
monthly payment thereon. As a result, a portion of the accrued interest on
negatively amortizing Mortgage Loans may be added to the principal balance
thereof and will bear interest at the applicable Mortgage Rate. The addition
of any such deferred interest to the principal balance of any related class
or classes of Securities will lengthen the weighted average life thereof and
may adversely affect yield to holders thereof, depending upon the price at
which such Securities were purchased. In addition, with respect to certain
ARM Loans subject to negative amortization, during a period of declining
interest rates, it might be expected that each minimum scheduled monthly
payment on such a Mortgage Loan would exceed the amount of scheduled
principal and accrued interest on the principal balance thereof, and since
such excess will be applied to reduce the principal balance of the related
class or classes of Securities, the weighted average life of such Securities
will be reduced and may adversely affect yield to holders thereof, depending
upon the price at which such Securities were purchased.
Defaults
The rate of defaults on the Mortgage Loans or Contracts will also affect
the rate, timing and amount of principal payments on the Assets and thus the
yield on the Securities. In general, defaults on mortgage loans or contracts
are expected to occur with greater frequency in their early years. The rate
of default on Mortgage Loans which are refinance or limited documentation
mortgage loans, and on Mortgage Loans with high Loan-to-Value Ratios, may be
higher than for other types of Mortgage Loans. Furthermore, the rate and
timing of prepayments, defaults and liquidations on the Mortgage Loans and
Contracts will be affected by the general economic condition of the region of
the country in which the related Mortgage Properties or Manufactured Homes
are located. The risk of delinquencies and loss is greater and prepayments
are less likely in regions where a weak or deteriorating economy exists, as
may be evidenced by, among other factors, increasing unemployment or falling
property values.
Foreclosures
The number of foreclosures or repossessions and the principal amount of
the Mortgage Loans or Contracts comprising or underlying the Assets that are
foreclosed or repossessed in relation to the number and principal amount of
Mortgage Loans or Contracts that are repaid in accordance with their terms
will affect the weighted average life of the Mortgage Loans or Contracts
comprising or underlying the Assets and that of the related series of
Securities.
Refinancing
At the request of a mortgagor, the Master Servicer or a Sub-Servicer may
allow the refinancing of a Mortgage Loan or Contract in any Trust Fund by
accepting prepayments thereon and permitting a new loan secured by a mortgage
on the same property. In the event of such a refinancing, the new loan would
not be included in the related Trust Fund and, therefore, such refinancing
would have the same effect as a prepayment in full of the related Mortgage
Loan or Contract. A Sub-Servicer or the Master Servicer may, from time to
time, implement programs designed to encourage refinancing. Such programs may
include, without limitation, modifications of existing loans, general or
targeted solicitations, the offering of pre-approved applications, reduced
origination fees or closing costs, or other financial incentives. In
addition, Sub-Servicers may encourage the refinancing of Mortgage Loans or
Contracts, including defaulted Mortgage Loans or Contracts, that would permit
creditworthy borrowers to assume the outstanding indebtedness of such
Mortgage Loans or Contracts.
Due-on-Sale Clauses
Acceleration of mortgage payments as a result of certain transfers of
underlying Mortgaged Property is another factor affecting prepayment rates
that may not be reflected in the prepayment standards or models used in the
relevant Prospectus Supplement. A number of the Mortgage Loans comprising or
underlying the Assets may include "due-on-sale" clauses that allow the holder
of the Mortgage Loans to demand payment in full of the remaining principal
balance of the Mortgage Loans upon sale, transfer or conveyance of the
related Mortgaged Property. With respect to any Whole Loans, unless otherwise
provided in the related Prospectus Supplement, the Master Servicer will
generally enforce any due-on-sale clause to the extent it has knowledge of
the conveyance or proposed conveyance of the underlying Mortgaged Property
and it is entitled to do so under applicable law; provided, however, that the
Master Servicer will not take any action in relation to the enforcement of
any due-on-sale provision which would adversely affect or jeopardize coverage
under any applicable insurance policy. See "Certain Legal Aspects of Mortgage
Loans--Due-on-Sale Clauses" and "Description of the Agreements--Due-on-Sale
Provisions." Unless otherwise specified in the related Prospectus
Supplement, the Contracts, in general, prohibit the sale or transfer of the
related Manufactured Homes without the consent of the Master Servicer and
permit the acceleration of the maturity of the Contracts by the Master
Servicer upon any such sale or transfer that is not consented to. Unless
otherwise specified in the related Prospectus Supplement, it is expected that
the Master Servicer will permit most transfers of Manufactured Homes and not
accelerate the maturity of the related Contracts. In certain cases, the
transfer may be made by a delinquent obligor in order to avoid a repossession
of the Manufactured Home. In the case of a transfer of a Manufactured Home
after which the Master Servicer desires to accelerate the maturity of the
related Contract, the Master Servicer's ability to do so will depend on the
enforceability under state law of the "due-on-sale" clause. See "Certain
Legal Aspects of the Contracts-Transfers of Manufactured Homes; Due-on-Sale
Clauses".
THE DEPOSITOR
Merrill Lynch Mortgage Investors, Inc., the Depositor, is a direct
wholly-owned subsidiary of Merrill Lynch Mortgage Capital Inc. and was
incorporated in the State of Delaware on June 13, 1986. The principal
executive offices of the Depositor are located at 250 Vesey Street, World
Financial Center, North Tower, 10th Floor, New York, New York 10218-1310.
Its telephone number is (212) 449-0357.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE SECURITIES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. If a series of
Securities includes Notes, such Notes will represent indebtedness of the
related Trust Fund and will be issued and secured pursuant to an indenture
(an "Indenture"). Each series of Securities will consist of one or more
classes of Securities that may (i) provide for the accrual of interest
thereon based on fixed, variable or adjustable rates; (ii) be senior
(collectively, "Senior Securities") or subordinate (collectively,
"Subordinate Securities") to one or more other classes of Securities in
respect of certain distributions on the Securities; (iii) be entitled to
principal distributions, with disproportionately low, nominal or no interest
distributions (collectively, "Stripped Principal Securities"); (iv) be
entitled to interest distributions, with disproportionately low, nominal or
no principal distributions (collectively, "Stripped Interest Securities");
(v) provide for distributions of accrued interest thereon commencing only
following the occurrence of certain events, such as the retirement of one or
more other classes of Securities of such series (collectively, "Accrual
Securities"); (vi) provide for payments of principal as described in the
related Prospectus Supplement, from all or only a portion of the Assets in
such Trust Fund, to the extent of available funds, in each case as described
in the related Prospectus Supplement; and/or (vii) provide for distributions
based on a combination of two or more components thereof with one or more of
the characteristics described in this paragraph including a Stripped
Principal Security component and a Stripped Interest Security component. If
so specified in the related Prospectus Supplement, a Trust Fund may include
(i) additional Mortgage Loans (or certain balances thereof) that will be
transferred to the Trust from time to time and/or (ii) in the case of
revolving home equity loans or certain balances thereof, any additional
balances advanced to the borrowers under the revolving home equity loans
during certain periods. If so specified in the related Prospectus Supplement,
distributions on one or more classes of a series of Securities may be limited
to collections from a designated portion of the Whole Loans in the related
Mortgage Pool (each such portion of Whole Loans, a "Mortgage Loan Group") or
a designated portion of Contracts in the related Contract Pool (each such
portion of Contracts, a "Contract Group"). Any such classes may include
classes of Offered Securities.
Each class of Offered Securities of a series will be issued in minimum
denominations corresponding to the Security Balances or, in case of Stripped
Interest Securities, notional amounts or percentage interests specified in
the related Prospectus Supplement. The transfer of any Offered Securities may
be registered and such Securities may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge.
One or more classes of Securities of a series may be issued in definitive
form ("Definitive Securities") or in book-entry form ("Book-Entry
Securities"), as provided in the related Prospectus Supplement. See "Special
Considerations--Book-Entry Registration" and "Description of the Securities-
Book-Entry Registration and Definitive Securities." Definitive Securities
will be exchangeable for other Securities of the same class and series of a
like aggregate Security Balance, notional amount or percentage interest but
of different authorized denominations. See "Special Considerations--Limited
Liquidity" and "--Limited Assets."
DISTRIBUTIONS
Distributions on the Securities of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Securities are registered at the
close of business on the last business day of the month preceding the month
in which the Distribution Date occurs (the "Record Date"), and the amount of
each distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date").
All distributions with respect to each class of Securities on each
Distribution Date will be allocated pro rata among the outstanding Securities
in such class or by random selection, as described in the related Prospectus
Supplement or otherwise established by the related Trustee. Payments will be
made either by wire transfer in immediately available funds to the account of
a Securityholder at a bank or other entity having appropriate facilities
therefor, if such Securityholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the
related Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, holds Securities in the requisite amount specified therein), or
by check mailed to the address of the person entitled thereto as it appears
on the Security Register; provided, however, that the final distribution in
retirement of the Securities (whether Definitive Securities or Book-Entry
Securities) will be made only upon presentation and surrender of the
Securities at the location specified in the notice to Securityholders of such
final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Securities of each series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement.
Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date equals the sum of
the following amounts:
(i) the total amount of all cash on deposit in the related Collection
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Period (unless the
related Prospectus Supplement provides otherwise, a "Due Period"
with respect to any Distribution Date will commence on the second
day of the month in which the immediately preceding Distribution
Date occurs, or the day after the Cut-off Date in the case of the
first Due Period, and will end on the first day of the month of the
related Distribution Date),
(b) unless the related Prospectus Supplement provides otherwise, all
prepayments, together with related payments of the interest thereon
and related Prepayment Premiums, Liquidation Proceeds, Insurance
Proceeds and other unscheduled recoveries received subsequent to the
related Due Period, and
(c) all amounts in the Collection Account that are due or
reimbursable to the Depositor, the Trustee, an Asset Seller, a
Sub-Servicer, the Master Servicer or any other entity as specified
in the related Prospectus Supplement or that are payable in respect
of certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Collection Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to interest
shortfalls resulting from prepayments during the related Prepayment
Period; and
(v) unless the related Prospectus Supplement provides otherwise, to the
extent not on deposit in the related Collection Account as of the
corresponding Determination Date, any amounts collected under, from or
in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Securities (including any Securities not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE SECURITIES
Each class of Securities (other than classes of Stripped Principal
Securities that have no Pass-Through Rate or interest rate) may have a
different Pass-Through Rate or interest rate, which will be a fixed, variable
or adjustable rate at which interest will accrue on such class or a component
thereof (the "Pass-Through Rate" in the case of Certificates). The related
Prospectus Supplement will specify the Pass-Through Rate or interest rate for
each class or component or, in the case of a variable or adjustable
Pass-Through Rate or interest rate, the method for determining the
Pass-Through Rate or interest rate. Unless otherwise specified in the related
Prospectus Supplement, interest on the Securities will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Securities of any class will
be made on each Distribution Date (other than any class of Accrual
Securities, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances,
specified in the related Prospectus Supplement, and any class of Stripped
Principal Securities that are not entitled to any distributions of interest)
based on the Accrued Security Interest for such class and such Distribution
Date, subject to the sufficiency of the portion of the Available Distribution
Amount allocable to such class on such Distribution Date. Prior to the time
interest is distributable on any class of Accrual Securities, the amount of
Accrued Security Interest otherwise distributable on such class will be added
to the Security Balance thereof on each Distribution Date. With respect to
each class of Securities and each Distribution Date (other than certain
classes of Stripped Interest Securities), "Accrued Security Interest" will be
equal to interest accrued for a specified period on the outstanding Security
Balance thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate or interest rate, reduced as described below. Unless
otherwise provided in the Prospectus Supplement, Accrued Security Interest on
Stripped Interest Securities will be equal to interest accrued for a
specified period on the outstanding notional amount thereof immediately prior
to each Distribution Date, at the applicable Pass-Through Rate or interest
rate, reduced as described below. The method of determining the notional
amount for any class of Stripped Interest Securities will be described in the
related Prospectus Supplement. Reference to notional amount is solely for
convenience in certain calculations and does not represent the right to
receive any distributions of principal. Unless otherwise provided in the
related Prospectus Supplement, the Accrued Security Interest on a series of
Securities will be reduced in the event of prepayment interest shortfalls,
which are shortfalls in collections of interest for a full accrual period
resulting from prepayments prior to the due date in such accrual period on
the Mortgage Loans or Contracts comprising or underlying the Assets in the
Trust Fund for such series. The particular manner in which such shortfalls
are to be allocated among some or all of the classes of Securities of that
series will be specified in the related Prospectus Supplement. The related
Prospectus Supplement will also describe the extent to which the amount of
Accrued Certificate Interest that is otherwise distributable on (or, in the
case of Accrual Securities, that may otherwise be added to the Security
Balance of) a class of Offered Securities may be reduced as a result of any
other contingencies, including delinquencies, losses and deferred interest on
or in respect of the Mortgage Loans or Contracts comprising or underlying the
Assets in the related Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Security
Interest otherwise distributable on a class of Securities by reason of the
allocation to such class of a portion of any deferred interest on the
Mortgage Loans or Contracts comprising or underlying the Assets in the
related Trust Fund will result in a corresponding increase in the Security
Balance of such class. See "Special Considerations--Average Life of
Securities; Prepayments; Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE SECURITIES
The Securities of each series, other than certain classes of Stripped
Interest Securities, will have a "Security Balance" which, at any time, will
equal the then maximum amount that the holder will be entitled to receive in
respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Security Balance
of a Security will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the
related Prospectus Supplement, by the amount of losses incurred in respect of
the related Assets, may be increased in respect of deferred interest on the
related Mortgage Loans to the extent provided in the related Prospectus
Supplement and, in the case of Accrual Securities prior to the Distribution
Date on which distributions of interest are required to commence, will be
increased by any related Accrued Security Interest. Unless otherwise provided
in the related Prospectus Supplement, the initial aggregate Security Balance
of all classes of Securities of a series will not be greater than the
outstanding aggregate principal balance of the related Assets as of the
applicable Cut-off Date. The initial aggregate Security Balance of a series
and each class thereof will be specified in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement,
distributions of principal will be made on each Distribution Date to the
class or classes of Securities entitled thereto in accordance with the
provisions described in such Prospectus Supplement until the Security Balance
of such class has been reduced to zero. Stripped Interest Securities with no
Security Balance are not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Securities may be based on a combination of two or
more different components as described under "--General" above. To such
extent, the descriptions set forth under "--Distributions of Interests on the
Securities" and "--Distributions of Principal of the Securities" above also
relate to components of such a class of Securities. In such case, reference
in such sections to Security Balance and Pass-Through Rate or interest rate
refer to the principal balance, if any, of any such component and the Pass-
Through Rate or interest rate, if any, on any such component, respectively.
DISTRIBUTIONS ON THE SECURITIES OF PREPAYMENT PREMIUMS
If so provided in the related Prospectus Supplement, Prepayment Premiums
that are collected on the Mortgage Assets in the related Trust Fund will be
distributed on each Distribution Date to the class or classes of Securities
entitled thereto in accordance with the provisions described in such
Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Securities
consisting of one or more classes of Subordinate Securities, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Assets have been incurred, the amount of such losses or shortfalls will
be borne first by a class of Subordinate Securities in the priority and
manner and subject to the limitations specified in such Prospectus
Supplement. See "Description of Credit Support" for a description of the
types of protection that may be included in a Trust Fund against losses and
shortfalls on Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Securities evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement,
the Master Servicer or another entity described therein will be required as
part of its servicing responsibilities to advance on or before each
Distribution Date its own funds or funds held in the Collection Account that
are not included in the Available Distribution Amount for such Distribution
Date, in an amount equal to the aggregate of payments of principal (other
than any balloon payments) and interest (net of related servicing fees and
Retained Interest) that were due on the Whole Loans or Contracts in such
Trust Fund during the related Due Period and were delinquent on the related
Determination Date, subject to the Master Servicer's (or another entity's)
good faith determination that such advances will be reimbursable from Related
Proceeds (as defined below). In the case of a series of Securities that
includes one or more classes of Subordinate Securities and if so provided in
the related Prospectus Supplement, the Master Servicer's (or another
entity's) advance obligation may be limited only to the portion of such
delinquencies necessary to make the required distributions on one or more
classes of Senior Securities and/or may be subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on
other Assets otherwise distributable on one or more classes of such
Subordinate Securities. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of the
Master Servicer's (or another entity's) funds will be reimbursable only out
of related recoveries on the Mortgage Loans or Contracts (including amounts
received under any form of Credit Support) respecting which such advances
were made (as to any Mortgage Loan or Contract, "Related Proceeds") and, if
so provided in the Prospectus Supplement, out of any amounts otherwise
distributable on one or more classes of Subordinate Securities of such
series; provided, however, that any such advance will be reimbursable from
any amounts in the Collection Account prior to any distributions being made
on the Securities to the extent that the Master Servicer (or such other
entity) shall determine in good faith that such advance (a "Nonrecoverable
Advance") is not ultimately recoverable from Related Proceeds or, if
applicable, from collections on other Assets otherwise distributable on such
Subordinate Securities. If advances have been made by the Master Servicer
from excess funds in the Collection Account, the Master Servicer is required
to replace such funds in the Collection Account on any future Distribution
Date to the extent that funds in the Collection Account on such Distribution
Date are less than payments required to be made to Securityholders on such
date. If so specified in the related Prospectus Supplement, the obligations
of the Master Servicer (or another entity) to make advances may be secured by
a cash advance reserve fund, a surety bond, a letter of credit or another
form of limited guaranty. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement,
the Master Servicer (or another entity) will be entitled to receive interest
at the rate specified therein on its outstanding advances and will be
entitled to pay itself such interest periodically from general collections on
the Assets prior to any payment to Securityholders or as otherwise provided
in the related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Securities evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Securities of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement,
will forward or cause to be forwarded to each such holder, to the Depositor
and to such other parties as may be specified in the related Agreement, a
statement setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Securities of such
class applied to reduce the Security Balance thereof;
(ii) the amount of such distribution to holders of Securities of such
class allocable to Accrued Security Interest;
(iii) the amount of such distribution allocable to Prepayment
Premiums;
(iv) the amount of related servicing compensation received by a
Master Servicer (and, if payable directly out of the related Trust Fund, by
any Sub-Servicer) and such other customary information as any such Master
Servicer or the Trustee deems necessary or desirable, or that a
Securityholder reasonably requests, to enable Securityholders to prepare
their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans or
Contracts in respect of which (a) one scheduled payment is delinquent,
(b) two scheduled payments are delinquent, (c) three or more scheduled
payments are delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to any Whole Loan or Contract liquidated during the
related Due Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect of such
Mortgage Loan and (b) the amount of any loss to Securityholders;
(ix) with respect to each REO Property relating to a Whole Loan or
Contract and included in the Trust Fund as of the end of the related Due
Period, (a) the loan number of the related Mortgage Loan or Contract and
(b) the date of acquisition;
(x) with respect to each REO Property relating to a Whole Loan or
Contract and included in the Trust Fund as of the end of the related Due
Period, (a) the book value, (b) the principal balance of the related Mortgage
Loan or Contract immediately following such Distribution Date (calculated as
if such Mortgage Loan or Contract were still outstanding taking into account
certain limited modifications to the terms thereof specified in the
Agreement), (c) the aggregate amount of unreimbursed servicing expenses and
unreimbursed advances in respect thereof and (d) if applicable, the aggregate
amount of interest accrued and payable on related servicing expenses and
related advances;
(xi) with respect to any such REO Property sold during the related
Due Period (a) the aggregate amount of sale proceeds, (b) the portion of such
sales proceeds payable or reimbursable to the Master Servicer in respect of
such REO Property or the related Mortgage Loan or Contract and (c) the amount
of any loss to Securityholders in respect of the related Mortgage Loan;
(xii) the aggregate Security Balance or notional amount, as the case
may be, of each class of Securities (including any class of Securities not
offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Security Balance due to the
allocation of any loss and increase in the Security Balance of a class of
Accrual Securities in the event that Accrued Security Interest has been added
to such balance;
(xiii) the aggregate amount of principal prepayments made during the
related Due Period;
(xiv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xv) the amount remaining in the reserve fund, if any, as of the
close of business on such Distribution Date;
(xvi) the aggregate unpaid Accrued Security Interest, if any, on each
class of Securities at the close of business on such Distribution Date;
(xvii) in the case of Securities with a variable Pass-Through Rate or
interest rate, the Pass-Through Rate or interest rate applicable to such
Distribution Date, and, if available, the immediately succeeding Distribution
Date, as calculated in accordance with the method specified in the related
Prospectus Supplement;
(xviii) in the case of Securities with an adjustable Pass-Through Rate
or interest rate, for statements to be distributed in any month in which an
adjustment date occurs, the adjustable Pass-Through Rate or interest rate
applicable to such Distribution Date, if available, and the immediately
succeeding Distribution Date as calculated in accordance with the method
specified in the related Prospectus Supplement;
(xix) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the obligors of (a) default
interest, (b) late charges and (c) assumption and modification fees collected
during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Securities or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xii), (xvi) and (xvii) above, such amounts shall also be provided with
respect to each component, if any, of a class of Securities. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder, to the Depositor and to
such other parties as may be specified in the Agreement, a copy of any
statements or reports received by the Master Servicer or the Trustee, as
applicable, with respect to any MBS. The Prospectus Supplement for each
series of Offered Securities will describe any additional information to be
included in reports to the holders of such Securities.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Security a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Securityholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall
be provided by the Master Servicer or the Trustee pursuant to any
requirements of the Code as are from time to time in force. See "Description
of the Securities--Registration and Definitive Securities."
TERMINATION
The obligations created by the related Agreement for each series of
Certificates will terminate upon the payment to Certificateholders of that
series of all amounts held in the Collection Account or by the Master
Servicer, if any, or the Trustee and required to be paid to them pursuant to
such Agreement following the earlier of (i) the final payment or other
liquidation of the last Asset subject thereto or the disposition of all
property acquired upon foreclosure of any Whole Loan or Contract subject
thereto and (ii) the purchase of all of the assets of the Trust Fund by the
party entitled to effect such termination, under the circumstances and in the
manner set forth in the related Prospectus Supplement. In no event, however,
will the trust created by the Agreement continue beyond the date specified in
the related Prospectus Supplement. Written notice of termination of the
Agreement will be given to each Securityholder, and the final distribution
will be made only upon presentation and surrender of the Securities at the
location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Securities may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Security Balance of a specified class or classes of Securities by a specified
percentage or amount, the party specified therein will solicit bids for the
purchase of all assets of the Trust Fund, or of a sufficient portion of such
assets to retire such class or classes or purchase such class or classes at a
price set forth in the related Prospectus Supplement, in each case, under the
circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE SECURITIES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Securities of any series will be issued as Book-Entry
Securities, and each such class will be represented by one or more single
Securities registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
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 Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. 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 Merrill Lynch, Pierce, Fenner & Smith Incorporated, securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system also
is available to 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").
Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Book-Entry Securities may do so only through Participants and Indirect
Participants. In addition, such investors ("Security Owners") will receive
all distributions on the Book-Entry Securities through DTC and its
Participants. Under a book-entry format, Security Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede & Co., as nominee for DTC ("Cede"), on each
such date, DTC will forward such payments to its Participants which
thereafter will be required to forward them to Indirect Participants or
Security Owners. Unless otherwise provided in the related Prospectus
Supplement, the only "Securityholder" (as such term is used in the Agreement)
will be Cede, as nominee of DTC, and the Security Owners will not be
recognized by the Trustee as Securityholders under the Agreement. Security
Owners will be permitted to exercise the rights of Securityholders under the
related Agreement, Trust Agreement or Indenture, as applicable, only
indirectly through the 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 Book-Entry
Securities and is required to receive and transmit distributions of principal
of and interest on the Book-Entry Securities. Participants and Indirect
Participants with which Security Owners have accounts with respect to the
Book-Entry Securities similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Security
Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Security
Owner to pledge its interest in the Book-Entry Securities to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in the Book-Entry Securities, may be limited due
to the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Securityholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Securities are credited.
Unless otherwise specified in the related Prospectus Supplement,
Securities initially issued in book-entry form will be issued in fully
registered, certificated form to Security Owners or their nominees
("Definitive Securities"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or
able to properly discharge its responsibilities as depository with respect to
the Securities and the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Securities for the Security Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Securities, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Security Owners identified
in such instructions the Definitive Securities to which they are entitled,
and thereafter the Trustee will recognize the holders of such Definitive
Securities as Securityholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
AGREEMENTS APPLICABLE TO A SERIES
REMIC Certificates, Grantor Trust Certificates. Certificates that are
REMIC Certificates, Grantor Trust Certificates or indebtedness for tax
purposes will be issued, and the related Trust Fund will be created,
pursuant to a pooling and servicing agreement (a "Pooling and Servicing
Agreement") among the Depositor, the Master Servicer and the Trustee. The
Assets of such Trust Fund will be transferred to the Trust Fund and
thereafter serviced in accordance with the terms of the Pooling and
Servicing Agreement. In the context of the conveyance and servicing of the
related Assets, the Pooling and Servicing Agreement may be referred to
herein as the "Agreement". Notwithstanding the foregoing, if the Assets of
the Trust Fund for such a series consists only of Government Securities or
MBS, such Assets will be conveyed to the Trust Fund and administered
pursuant to a trust agreement between the Depositor and the Trustee (a
"Trust Agreement"), which may also be referred to herein as the "Agreement".
Certificates That Are Partnership Interests for Tax Purposes and Notes.
Certificates that are partnership interests for tax purposes will be issued,
and the related Trust Fund will be created, pursuant to a Trust Agreement
between the Depositor and the Trustee. The Assets of the related Trust Fund
will be transferred to the Trust Fund and thereafter serviced in accordance
with a servicing agreement (a "Servicing Agreement") between the Depositor,
the Servicer and the Trustee. In the context of the conveyance and servicing
of the related Assets, a Servicing may be referred to herein as the
"Agreement".
A series of Notes issued by a Trust Fund will be issued pursuant to the
indenture (the "Indenture") between the related Trust Fund and an indenture
trustee (the "Indenture Trustee") named in the related Prospectus Supplement.
Notwithstanding the foregoing, if the Assets of a Trust Fund consist
only of MBS or Government Securities, such Assets will be conveyed to the
Trust Fund and administered in accordance with the terms of the Trust
Agreement, which in such context may be referred to herein as the Agreement.
General. Any Master Servicer and the Trustee with respect to any series
of Securities will be named in the related Prospectus Supplement. In any
series of Securities for which there are multiple Master Servicers, there may
also be multiple Mortgage Loan Groups or Contract Groups, each corresponding
to a particular Master Servicer; and, if the related Prospectus Supplement so
specifies, the servicing obligations of each such Master Servicer will be
limited to the Whole Loans in such corresponding Mortgage Loan Group or the
Contracts in the corresponding Contract Group. In lieu of appointing a
Master Servicer, a servicer may be appointed pursuant to the Agreement for
any Trust Fund. Such servicer will service all or a significant number of
Whole Loans or Contracts directly without a Sub-Servicer. Unless otherwise
specified in the related Prospectus Supplement, the obligations of any such
servicer shall be commensurate with those of the Master Servicer described
herein. References in this Prospectus to Master Servicer and its rights and
obligations, unless otherwise specified in the related Prospectus Supplement,
shall be deemed to also be references to any servicer servicing Whole Loans
or Contracts directly. A manager or administrator may be appointed pursuant
to the Trust Agreement for any Trust Fund to administer such Trust Fund. The
provisions of each Agreement will vary depending upon the nature of the
Securities to be issued thereunder and the nature of the related Trust Fund.
Forms of a Pooling and Servicing Agreement, a Sale and Servicing Agreement
and a Trust Agreement have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
The following summaries describe certain provisions that may appear in
each Agreement. The Prospectus Supplement for a series of Securities will
describe any provision of the Agreement relating to such series that
materially differs from the description thereof contained in this Prospectus.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Agreement for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. As used herein with respect to any series, the
term "Security" refers to all of the Securities of that series, whether or
not offered hereby and by the related Prospectus Supplement, unless the
context otherwise requires. The Depositor will provide a copy of the
Agreement (without exhibits) relating to any series of Securities without
charge upon written request of a holder of a Security of such series
addressed to Merrill Lynch Mortgage Investors, Inc., 250 Vesey Street, World
Financial Center, North Tower, 10th Floor, New York, New York 10281-1310.
Attention: Jack Ross.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of Securities, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest
to be received on or with respect to such Assets after the Cut-off Date,
other than principal and interest due on or before the Cut-off Date and other
than any Retained Interest. The Trustee will, concurrently with such
assignment, deliver the Certificates to the Depositor in exchange for the
Assets and the other assets comprising the Trust Fund for such series. Each
Asset will be identified in a schedule appearing as an exhibit to the related
Agreement. Unless otherwise provided in the related Prospectus Supplement,
such schedule will include detailed information (i) in respect of each Whole
Loan included in the related Trust Fund, including without limitation, the
address of the related Mortgaged Property and type of such property, the
Mortgage Rate and, if applicable, the applicable index, margin, adjustment
date and any rate cap information, the original and remaining term to
maturity, the original and outstanding principal balance and balloon payment,
if any, the Value and Loan-to-Value Ratio as of the date indicated and
payment and prepayment provisions, if applicable; (ii) in respect of each
Contract included in the related Trust Fund, including without limitation the
Contract number, the outstanding principal amount and the Contract Rate; and
(iii) in respect of each MBS included in the related Trust Fund, including
without limitation, the MBS Issuer, MBS Servicer and MBS Trustee, the
pass-through or bond rate or formula for determining such rate, the issue
date and original and remaining term to maturity, if applicable, the original
and outstanding principal amount and payment provisions, if applicable.
With respect to each Whole Loan, except as otherwise specified in the
related Prospectus Supplement, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed,
without recourse, in blank or to the order of the Trustee, the original
Mortgage (or a certified copy thereof) with evidence of recording indicated
thereon and an assignment of the Mortgage to the Trustee in recordable form.
Notwithstanding the foregoing, a Trust Fund may include Mortgage Loans where
the original Mortgage Note is not delivered to the Trustee if the Depositor
delivers to the Trustee or the custodian a copy or a duplicate original of
the Mortgage Note, together with an affidavit certifying that the original
thereof has been lost or destroyed. With respect to such Mortgage Loans, the
Trustee (or its nominee) may not be able to enforce the Mortgage Note against
the related borrower. Unless otherwise specified in the related Prospectus
Supplement, the Asset Seller will be required to agree to repurchase, or
substitute for, each such Mortgage Loan that is subsequently in default if
the enforcement thereof or of the related Mortgage is materially adversely
affected by the absence of the original Mortgage Note. Unless otherwise
provided in the related Prospectus Supplement, the related Agreement will
require the Depositor or another party specified therein to promptly cause
each such assignment of Mortgage to be recorded in the appropriate public
office for real property records, except in the State of California or in
other states where, in the opinion of counsel acceptable to the Trustee, such
recording is not required to protect the Trustee's interest in the related
Whole Loan against the claim of any subsequent transferee or any successor to
or creditor of the Depositor, the Master Servicer, the relevant Asset Seller
or any other prior holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or
a custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify
the Master Servicer and the Depositor, and the Master Servicer shall
immediately notify the relevant Asset Seller. If the Asset Seller cannot cure
the omission or defect within a specified number of days after receipt of
such notice, then unless otherwise specified in the related Prospectus
Supplement, the Asset Seller will be obligated, within a specified number of
days of receipt of such notice, to repurchase the related Whole Loan from the
Trustee at the Purchase Price or substitute for such Mortgage Loan. There can
be no assurance that an Asset Seller will fulfill this repurchase or
substitution obligation, and neither the Master Servicer nor the Depositor
will be obligated to repurchase or substitute for such Mortgage Loan if the
Asset Seller defaults on its obligation. Unless otherwise specified in the
related Prospectus Supplement, this repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the
Trustee for omission of, or a material defect in, a constituent document. To
the extent specified in the related Prospectus Supplement, in lieu of curing
any omission or defect in the Asset or repurchasing or substituting for such
Asset, the Asset Seller may agree to cover any losses suffered by the Trust
Fund as a result of such breach or defect.
Notwithstanding the preceding two paragraphs, unless otherwise specified
in the related Prospectus Supplement, the documents with respect to Home
Equity Loans, Home Improvement Contracts and Unsecured Home Improvement Loans
will not be delivered to the Trustee (or a custodian), but will be retained
by the Master Servicer, which may also be the Asset Seller. In addition,
assignments of the related Mortgages to the Trustee will not be recorded,
unless otherwise provided in the related Prospectus Supplement.
With respect to each Contract, unless otherwise specified in the related
Prospectus Supplement, the Master Servicer (which may also be the Asset
Seller) will maintain custody of the original Contract and copies of
documents and instruments related to each Contract and the security interest
in the Manufactured Home securing each Contract. In order to give notice of
the right, title and interest of the Trustee in the Contracts, the Depositor
will cause UCC-1 financing statements to be executed by the related Asset
Seller identifying the Depositor as secured party and by the Depositor
identifying the Trustee as the secured party and, in each case, identifying
all Contracts as collateral. Unless otherwise specified in the related
Prospectus Supplement, the Contracts will not be stamped or otherwise marked
to reflect their assignment from the Company to the Trust. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to
take physical possession of the Contracts without notice of such assignment,
the interest of the Trustee in the Contracts could be defeated. See "Certain
Legal Aspects of the Contracts."
While the Contract documents will not be reviewed by the Trustee or the
Master Servicer, if the Master Servicer finds that any such document is
missing or defective in any material respect, the Master Servicer shall
immediately notify the Depositor and the relevant Asset Seller. If the Asset
Seller cannot cure the omission or defect within a specified number of days
after receipt of such notice, then unless otherwise specified in the related
Prospectus Supplement, the Asset Seller will be obligated, within a specified
number of days of receipt of such notice, to repurchase the related Contract
from the Trustee at the Purchase Price or substitute for such Contract.
There can be no assurance that an Asset Seller will fulfill this repurchase
or substitution obligation, and neither the Master Servicer nor the Depositor
will be obligated to repurchase or substitute for such Contract if the asset
Seller defaults on its obligation. Unless otherwise specified in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for
omission of, or a material defect in, a constituent document. To the extent
specified in the related Prospectus Supplement, in lieu of curing any
omission or defect in the Asset or repurchasing or substituting for such
Asset, the Asset Seller may agree to cover any losses suffered by the Trust
Fund as a result of such breach or defect.
With respect to each Government Security or MBS in certificated form,
the Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of
the Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a "clearing corporation"
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the
Trustee for the benefit of the Certificateholders. Unless otherwise provided
in the related Prospectus Supplement, the related Agreement will require that
either the Depositor or the Trustee promptly cause any MBS and Government
Securities in certificated form not registered in the name of the Trustee to
be re-registered, with the applicable persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan or Contract, assign certain
representations and warranties, as of a specified date (the person making
such representations and warranties, the "Warranting Party") covering, by way
of example, the following types of matters: (i) the accuracy of the
information set forth for such Whole Loan or Contract on the schedule of
Assets appearing as an exhibit to the related Agreement; (ii) in the case of
a Whole Loan, the existence of title insurance insuring the lien priority of
the Whole Loan and, in the case of a Contract, that the Contract creates a
valid first security interest in or lien on the related Manufactured Home;
(iii) the authority of the Warranting Party to sell the Whole Loan or
Contract; (iv) the payment status of the Whole Loan or Contract; (v) in the
case of a Whole Loan, the existence of customary provisions in the related
Mortgage Note and Mortgage to permit realization against the Mortgaged
Property of the benefit of the security of the Mortgage; and (vi) the
existence of hazard and extended perils insurance coverage on the Mortgaged
Property or Manufactured Home.
Any Warranting Party shall be an Asset Seller or an affiliate thereof or
such other person acceptable to the Depositor and shall be identified in the
related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan or
Contract may have been made as of a date prior to the applicable Cut-off
Date. A substantial period of time may have elapsed between such date and the
date of initial issuance of the related series of Certificates evidencing an
interest in such Whole Loan or Contract. Unless otherwise specified in the
related Prospectus Supplement, in the event of a breach of any such
representation or warranty, the Warranting Party will be obligated to
reimburse the Trust Fund for losses caused by any such breach or either cure
such breach or repurchase or replace the affected Whole Loan or Contract as
described below. Since the representations and warranties may not address
events that may occur following the date as of which they were made, the
Warranting Party will have a reimbursement, cure, repurchase or substitution
obligation in connection with a breach of such a representation and warranty
only if the relevant event that causes such breach occurs prior to such date.
Such party would have no such obligations if the relevant event that causes
such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be
required to notify promptly the relevant Warranting Party of any breach of
any representation or warranty made by it in respect of a Whole Loan or
Contract that materially and adversely affects the value of such Whole Loan
or Contract or the interests therein of the Certificateholders. If such
Warranting Party cannot cure such breach within a specified period following
the date on which such party was notified of such breach, then such
Warranting Party will be obligated to repurchase such Whole Loan or Contract
from the Trustee within a specified period from the date on which the
Warranting Party was notified of such breach, at the Purchase Price therefor.
As to any Whole Loan or Contract, unless otherwise specified in the related
Prospectus Supplement, the "Purchase Price" is equal to the sum of the unpaid
principal balance thereof, plus unpaid accrued interest thereon at the
Mortgage Rate or Contract Rate from the date as to which interest was last
paid to the due date in the Due Period in which the relevant purchase is to
occur, plus certain servicing expenses that are reimbursable to the Master
Servicer. If so provided in the Prospectus Supplement for a series, a
Warranting Party, rather than repurchase a Whole Loan or Contract as to which
a breach has occurred, will have the option, within a specified period after
initial issuance of such series of Certificates, to cause the removal of such
Whole Loan or Contract from the Trust Fund and substitute in its place one or
more other Whole Loans or Contracts, as applicable, in accordance with the
standards described in the related Prospectus Supplement. If so provided in
the Prospectus Supplement for a series, a Warranting Party, rather than
repurchase or substitute a Whole Loan or Contract as to which a breach has
occurred, will have the option to reimburse the Trust Fund or the
Certificateholders for any losses caused by such breach. Unless otherwise
specified in the related Prospectus Supplement, this reimbursement,
repurchase or substitution obligation will constitute the sole remedy
available to holders of Certificates or the Trustee for a breach of
representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor the Master Servicer will be obligated to purchase or substitute
for a Whole Loan or Contract if a Warranting Party defaults on its obligation
to do so, and no assurance can be given that Warranting Parties will carry
out such obligations with respect to Whole Loans or Contracts.
Unless otherwise provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as
of a specified date, with respect to such Government Securities or MBS,
covering (i) the accuracy of the information set forth therefor on the
schedule of Assets appearing as an exhibit to the related Agreement and (ii)
the authority of the Warranting Party to sell such Assets. The related
Prospectus Supplement will describe the remedies for a breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation
of the Master Servicer which materially and adversely affects the interests
of the Certificateholders and which continues unremedied for the number of
days specified in the Agreement after the giving of written notice of such
breach to the Master Servicer by the Trustee or the Depositor, or to the
Master Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights (unless otherwise specified
in the related Prospectus Supplement), will constitute an Event of Default
under such Pooling and Servicing Agreement. See "Events of Default" and
"Rights Upon Event of Default."
COLLECTION ACCOUNT AND RELATED ACCOUNTS
General
The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
(collectively, the "Collection Account"), which must be either (i) an account
or accounts the deposits in which are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") (to the limits established by the FDIC) and the
uninsured deposits in which are otherwise secured such that the
Certificateholders have a claim with respect to the funds in the Collection
Account or a perfected first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the institution with which the Collection
Account is maintained or (ii) otherwise maintained with a bank or trust
company, and in a manner, satisfactory to the Rating Agency or Agencies
rating any class of Securities of such series. The collateral eligible to
secure amounts in the Collection Account is limited to United States
government securities and other investment grade obligations specified in the
Agreement ("Permitted Investments"). A Collection Account may be maintained
as an interest bearing or a non-interest bearing account and the funds held
therein may be invested pending each succeeding Distribution Date in certain
short-term Permitted Investments. Unless otherwise provided in the related
Prospectus Supplement, any interest or other income earned on funds in the
Collection Account will be paid to a Master Servicer or its designee as
additional servicing compensation. The Collection Account may be maintained
with an institution that is an affiliate of the Master Servicer, if
applicable, provided that such institution meets the standards imposed by the
Rating Agency or Agencies. If permitted by the Rating Agency or Agencies and
so specified in the related Prospectus Supplement, a Collection Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds respecting payments on mortgage
loans belonging to the Master Servicer or serviced or master serviced by it
on behalf of others.
Deposits
A Master Servicer or the Trustee will deposit or cause to be deposited
in the Collection Account for one or more Trust Funds on a daily basis,
unless otherwise provided in the related Agreement, the following payments
and collections received, or advances made, by the Master Servicer or the
Trustee or on its behalf subsequent to the Cut-off Date (other than payments
due on or before the Cut-off Date, and exclusive of any amounts representing
a Retained Interest):
(i) all payments on account of principal, including principal
prepayments, on the Assets;
(ii) all payments on account of interest on the Assets, including any
default interest collected, in each case net of any portion thereof retained
by a Master Servicer or a Sub-Servicer as its servicing compensation and net
of any Retained Interest;
(iii) all proceeds of the hazard insurance policies to be maintained
in respect of each Mortgaged Property securing a Whole Loan in the Trust Fund
(to the extent such proceeds are not applied to the restoration of the
property or released to the mortgagor in accordance with the normal servicing
procedures of a Master Servicer or the related Sub-Servicer, subject to the
terms and conditions of the related Mortgage and Mortgage Note)
(collectively, "Insurance Proceeds") and all other amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans in
the Trust Fund, by foreclosure or otherwise ("Liquidation Proceeds"),
together with the net proceeds on a monthly basis with respect to any
Mortgaged Properties acquired for the benefit of Securityholders by
foreclosure or by deed in lieu of foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund
that constitutes Credit Support for the related series of Securities as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the Securities-
- -Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described
under "Description of the Trust Funds--Cash Flow Agreements";
(vii) all proceeds of any Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person as described under "Assignment of
Assets; Repurchases" and "Representations and Warranties; Repurchases," all
proceeds of any defaulted Mortgage Loan purchased as described under
"Realization Upon Defaulted Whole Loans," and all proceeds of any Asset
purchased as described under "Description of the Securities--Termination"
(also, "Liquidation Proceeds");
(viii) any amounts paid by a Master Servicer to cover certain interest
shortfalls arising out of the prepayment of Whole Loans or Contracts in the
Trust Fund as described under "Description of the Agreements--Retained
Interest; Servicing Compensation and Payment of Expenses";
(ix) to the extent that any such item does not constitute additional
servicing compensation to a Master Servicer, any payments on account of
modification or assumption fees, late payment charges or Prepayment Premiums
on the Mortgage Assets;
(x) all payments required to be deposited in the Collection Account with
respect to any deductible clause in any blanket insurance policy described
under "Hazard Insurance Policies";
(xi) any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit of
the Master Servicer or the Trustee, as the case may be, of funds held in the
Collection Account; and
(xii) any other amounts required to be deposited in the Collection
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
Withdrawals
A Master Servicer or the Trustee may, from time to time, unless
otherwise specified in the related Prospectus Supplement or the related
Agreement, make withdrawals from the Collection Account for each Trust Fund
for any of the following purposes:
(i) to make distributions to the Securityholders on each Distribution
Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced
as described under "Description of the Securities--Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained Interest) on and
principal of the particular Whole Loans or Contracts with respect to which
the advances were made or out of amounts drawn under any form of Credit
Support with respect to such Whole Loans or Contracts;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole
Loans or Contracts and properties acquired in respect thereof, such
reimbursement to be made out of amounts that represent Liquidation Proceeds
and Insurance Proceeds collected on the particular Whole Loans or Contracts
and properties, and net income collected on the particular properties, with
respect to which such fees were earned or such expenses were incurred or out
of amounts drawn under any form of Credit Support with respect to such Whole
Loans or Contracts and properties;
(iv) to reimburse a Master Servicer for any advances described in
clause (ii) above and any servicing expenses described in clause (iii) above
which, in the Master Servicer's good faith judgment, will not be recoverable
from the amounts described in clauses (ii) and (iii), respectively, such
reimbursement to be made from amounts collected on other Assets or, if and to
the extent so provided by the related Agreement and described in the related
Prospectus Supplement, just from that portion of amounts collected on other
Assets that is otherwise distributable on one or more classes of Subordinate
Securities, if any, remain outstanding, and otherwise any outstanding class
of Securities, of the related series;
(v) if and to the extent described in the related Prospectus Supplement,
to pay a Master Servicer interest accrued on the advances described in clause
(ii) above and the servicing expenses described in clause (iii) above while
such remain outstanding and unreimbursed;
(vi) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "Certain Matters Regarding a Master Servicer and the
Depositor";
(vii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(viii) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "Certain
Matters Regarding the Trustee";
(ix) unless otherwise provided in the related Prospectus Supplement,
to pay a Master Servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Collection
Account;
(x) to pay the person entitled thereto any amounts deposited in the
Collection Account that were identified and applied by the Master Servicer as
recoveries of Retained Interest;
(xi) to pay for costs reasonably incurred in connection with the
proper management and maintenance of any Mortgaged Property acquired for the
benefit of Securityholders by foreclosure or by deed in lieu of foreclosure
or otherwise, such payments to be made out of income received on such
property;
(xii) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to the
extent described under "Certain Federal Income Tax Consequences--REMICS--
Prohibited Transactions Tax and Other Taxes";
(xiii) to pay for the cost of an independent appraiser or other expert
in real estate matters retained to determine a fair sale price for a
defaulted Whole Loan or a property acquired in respect thereof in connection
with the liquidation of such Whole Loan or property;
(xiv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Securityholders;
(xv) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Securityholders, provided that such payment shall not constitute a waiver
with respect to the obligation of the Warranting Party to remedy any breach
of representation or warranty under the Agreement;
(xvi) to pay the person entitled thereto any amounts deposited in the
Collection Account in error, including amounts received on any Asset after
its removal from the Trust Fund whether by reason of purchase or substitution
as contemplated by "Assignment of Assets; Repurchase" and "Representations
and Warranties; Repurchases" or otherwise;
(xvii) to make any other withdrawals permitted by the related
Agreement; and
(xviii) to clear and terminate the Collection Account at the termination
of the Trust Fund.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any series of Securities may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Sub-Servicer will deposit on a daily basis the
amounts described under "--Deposits" above for one or more series of
Securities. Any amounts on deposit in any such collection account will be
withdrawn therefrom and deposited into the appropriate Collection Account by
a time specified in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, any amounts which could be
withdrawn from the Collection Account as described under "--Withdrawals"
above, may also be withdrawn from any such collection account. The
Prospectus Supplement will set forth any restrictions with respect to any
such collection account, including investment restrictions and any
restrictions with respect to financial institutions with which any such
collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Sub-Servicers, is required to
make reasonable efforts to collect all scheduled payments under the Whole
Loans and will follow or cause to be followed such collection procedures as
it would follow with respect to mortgage loans that are comparable to the
Whole Loans or manufactured housing contracts comparable to the Contracts and
held for its own account, provided such procedures are consistent with
(i) the terms of the related Agreement and any related hazard insurance
policy or instrument of Credit Support, if any, included in the related Trust
Fund described herein or under "Description of Credit Support,"
(ii) applicable law and (iii) the general servicing standard specified in the
related Prospectus Supplement or, if no such standard is so specified, its
normal servicing practices (in either case, the "Servicing Standard"). In
connection therewith, the Master Servicer will be permitted in its discretion
to waive any late payment charge or penalty interest in respect of a late
payment on a Whole Loan or Contract.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining hazard
insurance policies as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to a Whole Loan;
processing assumptions or substitutions in those cases where the Master
Servicer has determined not to enforce any applicable due-on-sale clause;
attempting to cure delinquencies; supervising foreclosures or repossessions;
inspecting and managing Mortgaged Properties or Manufactured Homes under
certain circumstances; and maintaining accounting records relating to the
Whole Loans or Contracts. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Whole Loans or Contracts under any
applicable instrument of Credit Support. See "Description of Credit Support."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan or Contract in a manner consistent with the Servicing Standard so
long as the modification, waiver or amendment will not (i) affect the amount
or timing of any scheduled payments of principal or interest on the Whole
Loan or Contract or (ii) in its judgment, materially impair the security for
the Whole Loan or Contract or reduce the likelihood of timely payment of
amounts due thereon. The Master Servicer also may agree to any modification,
waiver or amendment that would so affect or impair the payments on, or the
security for, a Whole Loan or Contract if, unless otherwise provided in the
related Prospectus Supplement, (i) in its judgment, a material default on the
Whole Loan or Contract has occurred or a payment default is imminent and
(ii) in its judgment, such modification, waiver or amendment is reasonably
likely to produce a greater recovery with respect to the Whole Loan or
Contract on a present value basis than would liquidation. The Master Servicer
is required to notify the Trustee in the event of any modification, waiver or
amendment of any Whole Loan or Contract.
In the case of Multifamily Loans, a Mortgagor's failure to make required
Mortgage Loan payments may mean that operating income is insufficient to
service the Mortgage Loan debt, or may reflect the diversion of that income
from the servicing of the Mortgage Loan debt. In addition, a Mortgagor under
a Multifamily Loan that is unable to make Mortgage Loan payments may also be
unable to make timely payment of all required taxes and otherwise to maintain
and insure the related Mortgaged Property. In general, the Servicer will be
required to monitor any Multifamily Loan that is in default, evaluate whether
the causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property,
initiate corrective action in cooperation with the Mortgagor if cure is
likely, inspect the related Multifamily Property and take such other actions
as are consistent with the related Agreement. A significant period of time
may elapse before the Servicer is able to assess the success of any such
corrective action or the need for additional initiatives. The time within
which the Servicer can make the initial determination of appropriate action,
evaluate the success of corrective action, develop additional initiatives,
institute foreclosure proceedings and actually foreclose may vary
considerably depending on the particular Multifamily Loan, the Multifamily
Property, the Mortgagor, the presence of an acceptable to party to assume the
Multifamily Loan and the laws of the jurisdiction in which the Multifamily
Property is located.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Whole Loans or Contracts to third-party servicers (each, a
"Sub-Servicer"), but such Master Servicer will remain obligated under the
related Agreement. Each sub-servicing agreement between a Master Servicer and
a Sub-Servicer (a "Sub-Servicing Agreement") must be consistent with the
terms of the related Agreement and must provide that, if for any reason the
Master Servicer for the related series of Securities is no longer acting in
such capacity, the Trustee or any successor Master Servicer may assume the
Master Servicer's rights and obligations under such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to the related Agreement is sufficient to pay such fees. However, a
Sub- Servicer may be entitled to a Retained Interest in certain Whole Loans
or Contracts. Each Sub-Servicer will be reimbursed by the Master Servicer for
certain expenditures which it makes, generally to the same extent the Master
Servicer would be reimbursed under an Agreement. See "Retained Interest;
Servicing Compensation and Payment of Expenses."
REALIZATION UPON DEFAULTED WHOLE LOANS
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer is required to monitor any Whole Loan or Contract which is in
default, initiate corrective action in cooperation with the mortgagor or
obligor if cure is likely, inspect the Mortgaged Property or Manufactured
Home and take such other actions as are consistent with the Servicing
Standard. A significant period of time may elapse before the Master Servicer
is able to assess the success of such corrective action or the need for
additional initiatives.
Any Agreement relating to a Trust Fund that includes Whole Loans or
Contracts may grant to the Master Servicer and/or the holder or holders of
certain classes of Securities a right of first refusal to purchase from the
Trust Fund at a predetermined purchase price any such Whole Loan or Contract
as to which a specified number of scheduled payments thereunder are
delinquent. Any such right granted to the holder of an Offered Security will
be described in the related Prospectus Supplement. The related Prospectus
Supplement will also describe any such right granted to any person if the
predetermined purchase price is less than the Purchase Price described under
"Representations and Warranties; Repurchases."
If so specified in the related Prospectus Supplement, the Master
Servicer may offer to sell any defaulted Whole Loan or Contract described in
the preceding paragraph and not otherwise purchased by any person having a
right of first refusal with respect thereto, if and when the Master Servicer
determines, consistent with the Servicing Standard, that such a sale would
produce a greater recovery on a present value basis than would liquidation
through foreclosure, repossession or similar proceedings. The related
Agreement will provide that any such offering be made in a commercially
reasonable manner for a specified period and that the Master Servicer accept
the highest cash bid received from any person (including itself, an affiliate
of the Master Servicer or any Certificateholder) that constitutes a fair
price for such defaulted Whole Loan or Contract. In the absence of any bid
determined in accordance with the related Agreement to be fair, the Master
Servicer shall proceed with respect to such defaulted Mortgage Loan or
Contract as described below. Any bid in an amount at least equal to the
Purchase Price described under "Representations and Warranties; Repurchases"
will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to
a Mortgaged Property securing a Whole Loan by operation of law or otherwise
and may at any time repossess and realize upon any Manufactured Home, if such
action is consistent with the Servicing Standard and a default on such Whole
Loan or Contract has occurred or, in the Master Servicer's judgment, is
imminent.
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a
REMIC election has been made, the Master Servicer, on behalf of the Trust
Fund, will be required to sell the Mortgaged Property within two years of
acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the
Trust Fund subsequent to two years after its acquisition will not result in
the imposition of a tax on the Trust Fund or cause the Trust Fund to fail to
qualify as a REMIC under the Code at any time that any Certificate is
outstanding. Subject to the foregoing, the Master Servicer will be required
to (i) solicit bids for any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property and
(ii) accept the first (and, if multiple bids are contemporaneously received,
the highest) cash bid received from any person that constitutes a fair price.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the ownership and management of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of Mortgage Loans--Foreclosure."
If recovery on a defaulted Whole Loan or Contract under any related
instrument of Credit Support is not available, the Master Servicer
nevertheless will be obligated to follow or cause to be followed such normal
practices and procedures as it deems necessary or advisable to realize upon
the defaulted Whole Loan or Contract. If the proceeds of any liquidation of
the property securing the defaulted Whole Loan or Contract are less than the
outstanding principal balance of the defaulted Whole Loan or Contract plus
interest accrued thereon at the Mortgage Rate or Contract Rate, as
applicable, plus the aggregate amount of expenses incurred by the Master
Servicer in connection with such proceedings and which are reimbursable under
the Agreement, the Trust Fund will realize a loss in the amount of such
difference. The Master Servicer will be entitled to withdraw or cause to be
withdrawn from the Collection Account out of the Liquidation Proceeds
recovered on any defaulted Whole Loan or Contract, prior to the distribution
of such Liquidation Proceeds to Certificateholders, amounts representing its
normal servicing compensation on the Whole Loan or Contract, unreimbursed
servicing expenses incurred with respect to the Whole Loan or Contract and
any unreimbursed advances of delinquent payments made with respect to the
Whole Loan or Contract.
If any property securing a defaulted Whole Loan or Contract is damaged
the Master Servicer is not required to expend its own funds to restore the
damaged property unless it determines (i) that such restoration will increase
the proceeds to Certificateholders on liquidation of the Whole Loan or
Contract after reimbursement of the Master Servicer for its expenses and
(ii) that such expenses will be recoverable by it from related Insurance
Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans or Contracts, a Master Servicer, on
behalf of itself, the Trustee and the Securityholders, will present claims to
the obligor under each instrument of Credit Support, and will take such
reasonable steps as are necessary to receive payment or to permit recovery
thereunder with respect to defaulted Whole Loans or Contracts.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan or
Contract, the Master Servicer will be entitled to withdraw or cause to be
withdrawn from the Collection Account out of such proceeds, prior to
distribution thereof to Certificateholders, amounts representing its normal
servicing compensation on such Whole Loan or Contract, unreimbursed servicing
expenses incurred with respect to the Whole Loan or Contract and any
unreimbursed advances of delinquent payments made with respect to the Whole
Loan or Contract. See "Hazard Insurance Policies" and "Description of Credit
Support."
HAZARD INSURANCE POLICIES
Whole Loans
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund comprised of Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such
coverage will be in general in an amount equal to the lesser of the principal
balance owing on such Whole Loan and the amount necessary to fully compensate
for any damage or loss to the improvements on the Mortgaged Property on a
replacement cost basis, but in either case not less than the amount necessary
to avoid the application of any co-insurance clause contained in the hazard
insurance policy. The ability of the Master Servicer to assure that hazard
insurance proceeds are appropriately applied may be dependent upon its being
named as an additional insured under any hazard insurance policy and under
any other insurance policy referred to below, or upon the extent to which
information in this regard is furnished by mortgagors. All amounts collected
by the Master Servicer under any such policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property or released to
the mortgagor in accordance with the Master Servicer's normal servicing
procedures, subject to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the Collection Account. The Agreement
will provide that the Master Servicer may satisfy its obligation to cause
each mortgagor to maintain such a hazard insurance policy by the Master
Servicer's maintaining a blanket policy insuring against hazard losses on the
Whole Loans. If such blanket policy contains a deductible clause, the Master
Servicer will be required to deposit in the Collection Account all sums that
would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property
by fire, lightning, explosion, smoke, windstorm and hail, and riot, strike
and civil commotion, subject to the conditions and exclusions specified in
each policy. Although the policies relating to the Whole Loans will be
underwritten by different insurers under different state laws in accordance
with different applicable state forms, and therefore will not contain
identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not cover any
physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), wet or dry rot, vermin, domestic animals and
certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any
partial loss. If the insured's coverage falls below this specified
percentage, such clause generally provides that the insurer's liability in
the event of partial loss does not exceed the lesser of (i) the replacement
cost of the improvements less physical depreciation and (ii) such proportion
of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Each Agreement for a Trust Fund comprised of Whole Loans will require
the Master Servicer to cause the mortgagor on each Whole Loan to maintain all
such other insurance coverage with respect to the related Mortgaged Property
as is consistent with the terms of the related Mortgage and the Servicing
Standard, which insurance may typically include flood insurance (if the
related Mortgaged Property was located at the time of origination in a
federally designated flood area).
Any cost incurred by the Master Servicer in maintaining any such
insurance policy will be added to the amount owing under the Mortgage Loan
where the terms of the Mortgage Loan so permit; provided, however, that the
addition of such cost will not be taken into account for purposes of
calculating the distribution to be made to Certificateholders. Such costs may
be recovered by the Master Servicer or Sub-Servicer, as the case may be, from
the Collection Account, with interest thereon, as provided by the Agreement.
Under the terms of the Whole Loans, mortgagors will generally be
required to present claims to insurers under hazard insurance policies
maintained on the related Mortgaged Properties. The Master Servicer, on
behalf of the Trustee and Certificateholders, is obligated to present or
cause to be presented claims under any blanket insurance policy insuring
against hazard losses on Mortgaged Properties securing the Whole Loans.
However, the ability of the Master Servicer to present or cause to be
presented such claims is dependent upon the extent to which information in
this regard is furnished to the Master Servicer by mortgagors.
Contracts
Except as otherwise specified in the related Prospectus Supplement, the
terms of the Agreement for a Trust Fund comprised of Contracts will require
the Master Servicer to cause to be maintained with respect to each Contract
one or more hazard insurance policies which provide, at a minimum, the same
coverage as a standard form fire and extended coverage insurance policy that
is customary for manufactured housing, issued by a company authorized to
issue such policies in the state in which the Manufactured Home is located,
and in an amount which is not less than the maximum insurable value of such
Manufactured Home or the principal balance due from the obligor on the
related Contract, whichever is less; provided, however, that the amount of
coverage provided by each such hazard insurance policy shall be sufficient to
avoid the application of any co-insurance clause contained therein. When a
Manufactured Home's location was, at the time of origination of the related
Contract, within a federally designated special flood hazard area, the Master
Servicer shall cause such flood insurance to be maintained, which coverage
shall be at least equal to the minimum amount specified in the preceding
sentence or such lesser amount as may be available under the federal flood
insurance program. Each hazard insurance policy caused to be maintained by
the Master Servicer shall contain a standard loss payee clause in favor of
the Master Servicer and its successors and assigns. If any obligor is in
default in the payment of premiums on its hazard insurance policy or
policies, the Master Servicer shall pay such premiums out of its own funds,
and may add separately such premium to the Obligor's obligation as provided
by the Contract, but may not add such premium to the remaining principal
balance of the Contract.
The Master Servicer may maintain, in lieu of causing individual hazard
insurance policies to be maintained with respect to each Manufactured Home,
and shall maintain, to the extent that the related Contract does not require
the Obligor to maintain a hazard insurance policy with respect to the related
Manufactured Home, one or more blanket insurance policies covering losses on
the obligor's interest in the Contracts resulting from the absence or
insufficiency of individual hazard insurance policies. The Master Servicer
shall pay the premium for such blanket policy on the basis described therein
and shall pay any deductible amount with respect to claims under such policy
relating to the Contracts.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that the Master Servicer obtain and maintain in effect
a fidelity bond or similar form of insurance coverage (which may provide
blanket coverage) or any combination thereof insuring against loss occasioned
by fraud, theft or other intentional misconduct of the officers, employees
and agents of the Master Servicer. The related Agreement will allow the
Master Servicer to self-insure against loss occasioned by the errors and
omissions of the officers, employees and agents of the Master Servicer so
long as certain criteria set forth in the Agreement are met.
DUE-ON-SALE PROVISIONS
The Whole Loans may contain clauses requiring the consent of the
mortgagee to any sale or other transfer of the related Mortgaged Property, or
due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale, transfer or conveyance of the related Mortgaged
Property. Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will generally enforce any due-on-sale clause to the extent
it has knowledge of the conveyance or proposed conveyance of the underlying
Mortgaged Property and it is entitled to do so under applicable law;
provided, however, that the Master Servicer will not take any action in
relation to the enforcement of any due-on-sale provision which would
adversely affect or jeopardize coverage under any applicable insurance
policy. Unless otherwise specified in the related Prospectus Supplement, any
fee collected by or on behalf of the Master Servicer for entering into an
assumption agreement will be retained by or on behalf of the Master Servicer
as additional servicing compensation. See "Certain Legal Aspects of Mortgage
Loans--Due-on-Sale and Due-on-Encumbrance." The Contracts may also contain
such clauses. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will permit such transfer so long as the
transferee satisfies the Master Servicer's then applicable underwriting
standards. The purpose of such transfers is often to avoid a default by the
transferring obligor. See "Certain Legal Aspects of the Contracts--Transfers
of Manufactured Homes; Enforceability of Due-on-Sale Clauses".
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Assets, and, if so, the
initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "Retained Interest" in an Asset represents a specified portion
of the interest payable thereon. The Retained Interest will be deducted from
mortgagor payments as received and will not be part of the related Trust
Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer's and a Sub-Servicer's primary servicing compensation with
respect to a series of Certificates will come from the periodic payment to it
of a portion of the interest payment on each Asset. Since any Retained
Interest and a Master Servicer's primary compensation are percentages of the
principal balance of each Asset, such amounts will decrease in accordance
with the amortization of the Assets. The Prospectus Supplement with respect
to a series of Certificates evidencing interests in a Trust Fund that
includes Whole Loans or Contracts may provide that, as additional
compensation, the Master Servicer or the Sub-Servicers may retain all or a
portion of assumption fees, modification fees, late payment charges or
Prepayment Premiums collected from mortgagors and any interest or other
income which may be earned on funds held in the Collection Account or any
account established by a Sub-Servicer pursuant to the Agreement.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in
connection with distributions and reports to Certificateholders, and payment
of any other expenses described in the related Prospectus Supplement. Certain
other expenses, including certain expenses relating to defaults and
liquidations on the Whole Loans or Contracts and, to the extent so provided
in the related Prospectus Supplement, interest thereon at the rate specified
therein may be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any Due Period to certain
interest shortfalls resulting from the voluntary prepayment of any Whole
Loans or Contracts in the related Trust Fund during such period prior to
their respective due dates therein.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Assets which include Whole Loans or Contracts
will provide that on or before a specified date in each year, beginning with
the first such date at least six months after the related Cut-off Date, a
firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with either the Uniform Single
Attestation Program for Mortgage Bankers, the Audit Program for Mortgages
serviced for the Federal Home Loan Mortgage Corporation ("FHLMC") or such
other program used by the Master Servicer, the servicing by or on behalf of
the Master Servicer of mortgage loans under agreements substantially similar
to each other (including the related Agreement) was conducted in compliance
with the terms of such agreements or such program except for any significant
exceptions or errors in records that, in the opinion of the firm, either the
Audit Program for Mortgages serviced for FHLMC, or paragraph 4 of the Uniform
Single Attestation Program for Mortgage Bankers, or such other program,
requires it to report. In rendering its statement such firm may rely, as to
matters relating to the direct servicing of mortgage loans by Sub-Servicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers
or the Audit Program for Mortgages serviced for FHLMC or such other program
used by such Sub-Servicer (rendered within one year of such statement) of
firms of independent public accountants with respect to the related
Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding
calendar year or other specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies
of such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders without charge upon written request to the
Master Servicer at the address set forth in the related Prospectus
Supplement.
CERTAIN MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The Master Servicer, if any, or a servicer for substantially all the
Whole Loans or Contracts under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer (or as such
servicer) may be an affiliate of the Depositor and may have other normal
business relationships with the Depositor or the Depositor's affiliates.
Reference herein to the Master Servicer shall be deemed to be to the servicer
of substantially all of the Whole Loans or Contracts, if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities
carried on by it, the other activities of the Master Servicer so causing such
a conflict being of a type and nature carried on by the Master Servicer at
the date of the Agreement. No such resignation will become effective until
the Trustee or a successor servicer has assumed the Master Servicer's
obligations and duties under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the
Depositor nor any director, officer, employee, or agent of a Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Security holders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be
protected against any breach of a representation, warranty or covenant made
in such Agreement, or against any liability specifically imposed thereby, or
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of obligations
or duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. Unless otherwise specified in the related Prospectus
Supplement, each Agreement will further provide that any Master Servicer, the
Depositor and any director, officer, employee or agent of a Master Servicer
or the Depositor will be entitled to indemnification by the related Trust
Fund and will be held harmless against any loss, liability or expense
incurred in connection with any legal action relating to the Agreement or the
Securities; provided, however, that such indemnification will not extend to
any loss, liability or expense (i) specifically imposed by such Agreement or
otherwise incidental to the performance of obligations and duties thereunder,
including, in the case of a Master Servicer, the prosecution of an
enforcement action in respect of any specific Whole Loan or Whole Loans or
Contract or Contracts (except as any such loss, liability or expense shall be
otherwise reimbursable pursuant to such Agreement); (ii) incurred in
connection with any breach of a representation, warranty or covenant made in
such Agreement; (iii) incurred by reason of misfeasance, bad faith or gross
negligence in the performance of obligations or duties thereunder, or by
reason of reckless disregard of such obligations or duties; (iv) incurred in
connection with any violation of any state or federal securities law; or (v)
imposed by any taxing authority if such loss, liability or expense is not
specifically reimbursable pursuant to the terms of the related Agreement. In
addition, each Agreement will provide that neither any Master Servicer nor
the Depositor will be under any obligation to appear in, prosecute or defend
any legal action which is not incidental to its respective responsibilities
under the Agreement and which in its opinion may involve it in any expense or
liability. Any such Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties
thereto and the interests of the Securityholders thereunder. In such event,
the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Securityholders, and
the Master Servicer or the Depositor, as the case may be, will be entitled to
be reimbursed therefor and to charge the Collection Account.
Any person into which the Master Servicer or the Depositor may be merged
or consolidated, or any person resulting from any merger or consolidation to
which the Master Servicer or the Depositor is a party, or any person
succeeding to the business of the Master Servicer or the Depositor, will be
the successor of the Master Servicer or the Depositor, as the case may be,
under the related Agreement.
EVENTS OF DEFAULT UNDER THE AGREEMENT
Unless otherwise provided in the related Prospectus Supplement for a
Trust Fund that includes Whole Loans or Contracts, Events of Default under
the related Agreement will include (i) any failure by the Master Servicer to
distribute or cause to be distributed to Certificateholders, or to remit to
the Trustee or Indenture Trustee, as applicable, for distribution to
Securityholders, any required payment that continues after a grace period, if
any; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any of its other covenants or obligations under the
Agreement which continues unremedied for thirty days after written notice of
such failure has been given to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Securities evidencing not less than 25% of the Voting Rights;
(iii) any breach of a representation or warranty made by the Master Servicer
under the Agreement which materially and adversely affects the interests of
Securityholders and which continues unremedied for thirty days after written
notice of such breach has been given to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by
the holders of Securities evidencing not less than 25% of the Voting Rights;
and (iv) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by or on
behalf of the Master Servicer indicating its insolvency or inability to pay
its obligations. Material variations to the foregoing Events of Default
(other than to shorten cure periods or eliminate notice requirements) will be
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Trustee shall, not later than the
later of 60 days after the occurrence of any event which constitutes or, with
notice or lapse of time or both, would constitute an Event of Default and
five days after certain officers of the Trustee become aware of the
occurrence of such an event, transmit by mail to the Depositor and all
Securityholders of the applicable series notice of such occurrence, unless
such default shall have been cured or waived.
The manner of determining the "Voting Rights" of a Security or class or
classes of Securities will be specified in the related Prospectus Supplement.
RIGHTS UPON EVENT OF DEFAULT UNDER THE AGREEMENT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Securities evidencing not less than 51% (or such other percentage specified
in the related Prospectus Supplement) of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the Master Servicer
under the Agreement and in and to the Mortgage Loans (other than as a
Securityholder or as the owner of any Retained Interest), whereupon the
Trustee will succeed to all of the responsibilities, duties and liabilities
of the Master Servicer under the Agreement (except that if the Trustee is
prohibited by law from obligating itself to make advances regarding
delinquent Mortgage Loans or Contracts, or if the related Prospectus
Supplement so specifies, then the Trustee will not be obligated to make such
advances) and will be entitled to similar compensation arrangements. Unless
otherwise specified in the related Prospectus Supplement, in the event that
the Trustee is unwilling or unable so to act, it may or, at the written
request of the holders of Securities entitled to at least 51% (or such other
percentage specified in the related Prospectus Supplement) of the Voting
Rights, it shall appoint, or petition a court of competent jurisdiction for
the appointment of, a loan servicing institution acceptable to the Rating
Agency with a net worth at the time of such appointment of at least
$15,000,000 (or such other amount specified in the related Prospectus
Supplement) to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity.
The Trustee and any such successor may agree upon the servicing compensation
to be paid, which in no event may be greater than the compensation payable to
the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Securities representing at least 66 2/3% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights
allocated to the respective classes of Securities affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Securityholders described in clause (i) under "Events of Default" may be
waived only by all of the Securityholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Securityholders will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given
to the Trustee written notice of default and unless the holders of Securities
evidencing not less than 25% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights have made written request
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the
Trustee for sixty days (or such other number of days specified in the related
Prospectus Supplement) has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of
the trusts or powers vested in it by any Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the holders of Securities covered by such Agreement,
unless such Securityholders have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the parties thereto, without the
consent of any of the holders of Securities covered by the Agreement, (i) to
cure any ambiguity or mistake, (ii) to correct, modify or supplement any
provision therein which may be inconsistent with any other provision therein
or with the related Prospectus Supplement, (iii) to make any other provisions
with respect to matters or questions arising under the Agreement which are
not materially inconsistent with the provisions thereof, or (iv) to comply
with any requirements imposed by the Code; provided that, in the case of
clause (iii), such amendment will not (as evidenced by an opinion of counsel
to such effect) adversely affect in any material respect the interests of any
holder of Securities covered by the Agreement. Unless otherwise specified in
the related Prospectus Supplement, each Agreement may also be amended by the
Depositor, the Master Servicer, if any, and the Trustee, with the consent of
the holders of Securities affected thereby evidencing not less than 51% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights, for any purpose; provided, however, that unless otherwise
specified in the related Prospectus Supplement, no such amendment may
(i) reduce in any manner the amount of or delay the timing of, payments
received or advanced on Mortgage Loans or Contracts which are required to be
distributed on any Security without the consent of the holder of such
Security or (ii) reduce the consent percentages described in this paragraph
without the consent of the holders of all Securities covered by such
Agreement then outstanding. However, with respect to any series of
Certificates as to which a REMIC election is to be made, the Trustee will not
consent to any amendment of the Agreement unless it shall first have received
an opinion of counsel to the effect that such amendment will not result in
the imposition of a tax on the related Trust Fund or cause the related Trust
Fund to fail to qualify as a REMIC at any time that the related Certificates
are outstanding.
THE TRUSTEE
The Trustee under each Agreement or Trust Agreement will be named in the
related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company serving as Trustee may have
a banking relationship with the Depositor and its affiliates and with any
Master Servicer and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement or Trust Agreement, the Securities or any Asset
or related document and is not accountable for the use or application by or
on behalf of any Master Servicer of any funds paid to the Master Servicer or
its designee in respect of the Securities or the Assets, or deposited into or
withdrawn from the Collection Account or any other account by or on behalf of
the Master Servicer. If no Event of Default has occurred and is continuing,
the Trustee is required to perform only those duties specifically required
under the related Agreement or Trust Agreement, as applicable. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreement or Trust
Agreement, as applicable.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Collection Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in
settlement) incurred in connection with the Trustee's (i) enforcing its
rights and remedies and protecting the interests, of the Securityholders
during the continuance of an Event of Default, (ii) defending or prosecuting
any legal action in respect of the related Agreement or series of Securities
(iii) being the mortgagee of record with respect to the Mortgage Loans in a
Trust Fund and the owner of record with respect to any Mortgaged Property
acquired in respect thereof for the benefit of Securityholders, or
(iv) acting or refraining from acting in good faith at the direction of the
holders of the related series of Securities entitled to not less than 25% (or
such other percentage as is specified in the related Agreement with respect
to any particular matter) of the Voting Rights for such series; provided,
however, that such indemnification will not extend to any loss, liability or
expense that constitutes a specific liability of the Trustee pursuant to the
related Agreement, or to any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence on the part of the Trustee in
the performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a
breach of any representation, warranty or covenant of the Trustee made
therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Securityholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor
trustee acceptable to the Master Servicer, if any. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or if
a change in the financial condition of the Trustee has adversely affected or
will adversely affect the rating on any class of the Securities, then the
Depositor may remove the Trustee and appoint a successor trustee acceptable
to the Master Servicer, if any. Holders of the Securities of any series
entitled to at least 51% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such series may at any time
remove the Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
CERTAIN TERMS OF THE INDENTURE
Events of Default. Unless otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default for thirty (30) days (or such other number of days
specified in such Prospectus Supplement) or more in the payment of any
principal of or interest on any Note of such series; (ii) failure to perform
any other covenant of the Depositor or the Trust Fund in the Indenture which
continues for a period of sixty (60) days (or such other number of days
specified in such Prospectus Supplement) after notice thereof is given in
accordance with the procedures described in the related Prospectus
Supplement; (iii) any representation or warranty made by the Depositor or the
Trust Fund in the Indenture or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or affecting such
series having been incorrect in a material respect as of the time made, and
such breach is not cured within sixty (60) days (or such other number of days
specified in such Prospectus Supplement) after notice thereof is given in
accordance with the procedures described in the related Prospectus
Supplement; (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Depositor or the Trust Fund; or (v) any other Event of
Default provided with respect to Notes of that series.
If an Event of Default with respect to the Notes of any series at the
time outstanding occurs and is continuing, either the Indenture Trustee or
the holders of a majority of the then aggregate outstanding amount of the
Notes of such series may declare the principal amount (or, if the Notes of
that series are Accrual Securities, such portion of the principal amount as
may be specified in the terms of that series, as provided in the related
Prospectus Supplement) of all the Notes of such series to be due and payable
immediately. Such declaration may, under certain circumstances, be rescinded
and annulled by the holders of a majority in aggregate outstanding amount of
the Notes of such series.
If, following an Event of Default with respect to any series of Notes,
the Notes of such series have been declared to be due and payable, the
Indenture Trustee may, in its discretion, notwithstanding such acceleration,
elect to maintain possession of the collateral securing the Notes of such
series and to continue to apply distributions on such collateral as if there
had been no declaration of acceleration if such collateral continues to
provide sufficient funds for the payment of principal of and interest on the
Notes of such series as they would have become due if there had not been such
a declaration. In addition, the Indenture Trustee may not sell or otherwise
liquidate the collateral securing the Notes of a series following an Event of
Default, other than a default in the payment of any principal or interest on
any Note of such series for thirty (30) days or more, unless (a) the holders
of 100% (or such other percentage specified in the related Prospectus
Supplement) of the then aggregate outstanding amount of the Notes of such
series consent to such sale, (b) the proceeds of such sale or liquidation are
sufficient to pay in full the principal of and accrued interest, due and
unpaid, on the outstanding Notes of such series at the date of such sale or
(c) the Indenture Trustee determines that such collateral would not be
sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the holders of
662/3% (or such other percentage specified in the related Prospectus
Supplement) of the then aggregate outstanding amount of the Notes of such
series.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default involving a default for thirty (30) days
(or such other number of days specified in the related Prospectus Supplement)
or more in the payment of principal of or interest on the Notes of a series,
the Indenture provides that the Indenture Trustee will have a prior lien on
the proceeds of any such liquidation for unpaid fees and expenses. As a
result, upon the occurrence of such an Event of Default, the amount available
for distribution to the Noteholders would be less than would otherwise be the
case. However, the Indenture Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a series is declared due and payable, as
described above, the holders of any such Notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is
unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Event of Default shall occur and be continuing
with respect to a series of Notes, the Indenture Trustee shall be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the holders of Notes of such series, unless
such holders offered to the Indenture Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in complying with such request or direction. Subject to such
provisions for indemnification and certain limitations contained in the
Indenture, the holders of a majority of the then aggregate outstanding amount
of the Notes of such series shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Indenture Trustee or exercising any trust or power conferred on the Indenture
Trustee with respect to the Notes of such series, and the holders of a
majority of the then aggregate outstanding amount of the Notes of such series
may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal or interest or a default in respect of a
covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all the holders of the outstanding Notes of such series
affected thereby.
Discharge Indenture. The Indenture will be discharged with respect to a
series of Notes (except with respect to certain continuing rights specified
in the Indenture) upon the delivery to the Indenture Trustee for cancellation
of all the Notes of such series or, with certain limitations, upon deposit
with the Indenture Trustee of funds sufficient for the payment in full of all
of the Notes of such series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any series,
the related Trust Fund will be discharged from any and all obligations in
respect of the Notes of such series (except for certain obligations relating
to temporary Notes and exchange of Notes, to register the transfer of or
exchange Notes of such series, to replace stolen, lost or mutilated Notes of
such series, to maintain paying agencies and to hold monies for payment in
trust) upon the deposit with the Indenture Trustee, in trust, of money and/or
direct obligations of or obligations guaranteed by the United States of
America which through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of and each installment of interest on the
Notes of such series on the maturity date for such Notes and any installment
of interest on such Notes in accordance with the terms of the Indenture and
the Notes of such series. In the event of any such defeasance and discharge
of Notes of such series, holders of Notes of such series would be able to
look only to such money and/or direct obligations for payment of principal
and interest, if any, on their Notes until maturity.
Indenture Trustee's Annual Report. The Indenture Trustee for each
series of Notes will be required to mail each year to all related Noteholders
a brief report relating to its eligibility and qualification to continue as
Indenture Trustee under the related Indenture, any amounts advanced by it
under the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by such Trust to the applicable Indenture Trustee in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects such Notes
and that has not been previously reported.
The Indenture Trustee. The Indenture Trustee for a series of Notes will
be specified in the related Prospectus Supplement. The Indenture Trustee for
any series may resign at any time, in which event the Depositor will be
obligated to appoint a successor trustee for such series. The Depositor may
also remove any such Indenture Trustee if such Indenture Trustee ceases to be
eligible to continue as such under the related Indenture or if such Indenture
Trustee becomes insolvent. In such circumstances the Depositor will be
obligated to appoint a successor trustee for the applicable series of Notes.
Any resignation or removal of the Indenture Trustee and appointment of a
successor trustee for any series of Notes does not become effective until
acceptance of the appointment by the successor trustee for such series.
The bank or trust company serving as Indenture Trustee may have a
banking relationship with the Depositor or any of its affiliates or the
Master Servicer or any of its affiliates.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Securities Credit Support may be provided with respect
to one or more classes thereof or the related Assets. Credit Support may be
in the form of the subordination of one or more classes of Securities,
letters of credit, insurance policies, guarantees, the establishment of one
or more reserve funds or another method of Credit Support described in the
related Prospectus Supplement, or any combination of the foregoing. If so
provided in the related Prospectus Supplement, any form of Credit Support may
be structured so as to be drawn upon by more than one series to the extent
described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Securities the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Security
Balance of the Securities and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Securityholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one
series of Securities (each, a "Covered Trust"), holders of Securities
evidencing interests in any of such Covered Trusts will be subject to the
risk that such Credit Support will be exhausted by the claims of other
Covered Trusts prior to such Covered Trust receiving any of its intended
share of such coverage.
If Credit Support is provided with respect to one or more classes of
Securities of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of
coverage under such Credit Support, (b) any conditions to payment thereunder
not otherwise described herein, (c) the conditions (if any) under which the
amount of coverage under such Credit Support may be reduced and under which
such Credit Support may be terminated or replaced and (d) the material
provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. See "Special Considerations--Credit Support
Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Securities of a series may be Subordinate Securities. To the
extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Securities to receive distributions of principal and
interest from the Collection Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Securities. If so
provided in the related Prospectus Supplement, the subordination of a class
may apply only in the event of (or may be limited to) certain types of losses
or shortfalls. The related Prospectus Supplement will set forth information
concerning the amount of subordination of a class or classes of Subordinate
Securities in a series, the circumstances in which such subordination will be
applicable and the manner, if any, in which the amount of subordination will
be effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Securities of a series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Securities evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Securities
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such
provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of Securities,
the Whole Loans or Contracts in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to
honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified
in the related Prospectus Supplement of the aggregate principal balance of
the Assets on the related Cut-off Date or of the initial aggregate Security
Balance of one or more classes of Securities. If so specified in the related
Prospectus Supplement, the letter of credit may permit draws in the event of
only certain types of losses and shortfalls. The amount available under the
letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the L/C Bank under the
letter of credit for each series of Securities will expire at the earlier of
the date specified in the related Prospectus Supplement or the termination of
the Trust Fund.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Securities of the related
series, timely distributions of interest and/or full distributions of
principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the related Prospectus Supplement.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain
classes thereof will be covered by one or more reserve funds in which cash, a
letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely
distributions of principal of and interest on the Certificates. If so
specified in the related Prospectus Supplement, reserve funds may be
established to provide limited protection against only certain types of
losses and shortfalls. Following each Distribution Date amounts in a reserve
fund in excess of any amount required to be maintained therein may be
released from the reserve fund under the conditions and to the extent
specified in the related Prospectus Supplement and will not be available for
further application to the Securities.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited
to the related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make distributions to Securityholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Securities,
the MBS in the related Trust Fund and/or the Mortgage Loans underlying such
MBS may be covered by one or more of the types of Credit Support described
herein. The related Prospectus Supplement will specify as to each such form
of Credit Support the information indicated above with respect thereto, to
the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries, which are general in
nature, of certain legal aspects of loans secured by single-family or multi-
family residential properties. Because such legal aspects are governed
primarily by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the
security for the Mortgage Loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws
governing the Mortgage Loans. See "Description of the Trust Funds--Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which
may be mortgages, deeds of trust, security deeds or deeds to secure debt,
depending upon the prevailing practice and law in the state in which the
Mortgaged Property is located. Mortgages, deeds of trust and deeds to secure
debt are herein collectively referred to as "mortgages." Any of the foregoing
types of mortgages will create a lien upon, or grant a title interest in, the
subject property, the priority of which will depend on the terms of the
particular security instrument, as well as separate, recorded, contractual
arrangements with others holding interests in the mortgaged property, the
knowledge of the parties to such instrument as well as the order of
recordation of the instrument in the appropriate public recording office.
However, recording does not generally establish priority over governmental
claims for real estate taxes and assessments and other charges imposed under
governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties-a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of
a mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a security deed or a
deed to secure debt. Under a deed of trust, the mortgagor grants the
property, irrevocably until the debt is paid, in trust, generally with a
power of sale as security for the indebtedness evidenced by the related note.
A deed to secure debt typically has two parties. By executing a deed to
secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the
underlying debt is repaid, generally with a power of sale as security for the
indebtedness evidenced by the related mortgage note. In case the mortgagor
under a mortgage is a land trust, there would be an additional party because
legal title to the property is held by a land trustee under a land trust
agreement for the benefit of the mortgagor. At origination of a mortgage loan
involving a land trust, the mortgagor executes a separate undertaking to make
payments on the mortgage note. The mortgagee's authority under a mortgage,
the trustee's authority under a deed of trust and the grantee's authority
under a deed to secure debt are governed by the express provisions of the
mortgage, the law of the state in which the real property is located, certain
federal laws (including, without limitation, the Soldiers' and Sailors' Civil
Relief Act of 1940) and, in some cases, in deed of trust transactions, the
directions of the beneficiary.
The Mortgages that encumber Multifamily Properties may contain an
assignment of rents and leases, pursuant to which the Mortgagor assigns to
the lender the Mortgagor's right, title and interest as landlord under each
lease and the income derived therefrom, while retaining a revocable license
to collect the rents for so long as there is no default. If the Mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the rents.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property
such as a tenant's interest in a lease of land or improvements, or both, and
the leasehold estate created by such lease. An instrument covering an
interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage, deed
of trust, security deed or deed to secure debt, to protect the mortgagee
against termination of such interest before the mortgage, deed of trust,
security deed or deed to secure debt is paid. Unless otherwise specified in
the Prospectus Supplement, the Depositor or the Asset Seller will make
certain representations and warranties in the Agreement with respect to any
Mortgage Loans that are secured by an interest in a leasehold estate. Such
representation and warranties, if applicable, will be set forth in the
Prospectus Supplement.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a series of
Offered Securities, the Mortgage Loans may also consist of cooperative
apartment loans ("Cooperative Loans") secured by security interests in shares
issued by a cooperative housing corporation (a "Cooperative") and in the
related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific dwelling units in the cooperatives' buildings. The
security agreement will create a lien upon, or grant a title interest in, the
property which it covers, the priority of which will depend on the terms of
the particular security agreement as well as the order of recordation of the
agreement in the appropriate recording office. Such a lien or title interest
is not prior to the lien for real estate taxes and assessments and other
charges imposed under governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the
real property and owns in fee or leases the building and all separate
dwelling units therein. The cooperative is directly responsible for property
management and, in most cases, payment of real estate taxes, other
governmental impositions and hazard and liability insurance. If there is a
blanket mortgage or mortgages on the cooperative apartment building or
underlying land, as is generally the case, or an underlying lease of the
land, as is the case in some instances, the cooperative, as property
mortgagor, or lessee, as the case may be, is also responsible for meeting
these mortgage or rental obligations. A blanket mortgage is ordinarily
incurred by the cooperative in connection with either the construction or
purchase of the cooperative's apartment building or obtaining of capital by
the cooperative. The interest of the occupant under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable
to meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity.
The inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability
of the cooperative to extend its term or, in the alternative, to purchase the
land could lead to termination of the cooperatives's interest in the property
and termination of all proprietary leases and occupancy agreement. In either
event, a foreclosure by the holder of a blanket mortgage or the termination
of the underlying lease could eliminate or significantly diminish the value
of any collateral held by the lender that financed the purchase by an
individual tenant stockholder of cooperative shares or, in the case of the
Mortgage Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units.
Generally, a tenant-stockholder of a cooperative must make a monthly payment
to the cooperative representing such tenant-stockholder's pro rata share of
the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured
by an assignment of and a security interest in the occupancy agreement or
proprietary lease and a security interest in the related cooperative shares.
The lender generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue
for judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-
stockholder as an individual as provided in the security agreement covering
the assignment of the proprietary lease or occupancy agreement and the pledge
of cooperative shares. See "Foreclosure--Cooperatives" below.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated
by the service of legal pleadings upon all parties having an interest of
record in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the
lender's right to foreclose is contested, the legal proceedings can be
time-consuming. Upon successful completion of a judicial foreclosure
proceeding, the court generally issues a judgment of foreclosure and appoints
a referee or other officer to conduct a public sale of the mortgaged
property, the proceeds of which are used to satisfy the judgment. Such sales
are made in accordance with procedures that vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court
may alter the specific terms of a loan to the extent it considers necessary
to prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to
determine the cause of the mortgagor's default and the likelihood that the
mortgagor will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's and have required that lenders
reinstate loans or recast payment schedules in order to accommodate
mortgagors who are suffering from a temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the
default under the mortgage is not monetary, e.g., the mortgagor failed to
maintain the mortgaged property adequately or the mortgagor executed a junior
mortgage on the mortgaged property. The exercise by the court of its equity
powers will depend on the individual circumstances of each case presented to
it. Finally, some courts have been faced with the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a
public sale under a mortgage providing for a power of sale does not involve
sufficient state action to afford constitutional protections to the
mortgagor.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed
of trust. A power of sale is typically granted in a deed of trust. It may
also be contained in any other type of mortgage instrument. A power of sale
allows a non-judicial public sale to be conducted generally following a
request from the beneficiary/lender to the trustee to sell the property upon
any default by the mortgagor under the terms of the mortgage note or the
mortgage instrument and after notice of sale is given in accordance with the
terms of the mortgage instrument, as well as applicable state law. In some
states, prior to such sale, the trustee under a deed of trust must record a
notice of default and notice of sale and send a copy to the mortgagor and to
any other party who has recorded a request for a copy of a notice of default
and notice of sale. In addition, in some states the trustee must provide
notice to any other party having an interest of record in the real property,
including junior lienholders. A notice of sale must be posted in a public
place and, in most states, published for a specified period of time in one or
more newspapers. The mortgagor or junior lienholder may then have the right,
during a reinstatement period required in some states, to cure the default by
paying the entire actual amount in arrears (without acceleration) plus the
expenses incurred in enforcing the obligation. In other states, the mortgagor
or the junior lienholder is not provided a period to reinstate the loan, but
has only the right to pay off the entire debt to prevent the foreclosure
sale. Generally, the procedure for public sale, the parties entitled to
notice, the method of giving notice and the applicable time periods are
governed by state law and vary among the states. Foreclosure of a deed to
secure debt is also generally accomplished by a non-judicial sale similar to
that required by a deed of trust, except that the lender or its agent, rather
than a trustee, is typically empowered to perform the sale in accordance with
the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such
property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. For these reasons, it is common for the
lender to purchase the mortgaged property for an amount equal to or less than
the underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs
and expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property.
For example, the lender will become obligated to pay taxes, obtain casualty
insurance and to make such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in
connection with the sale of the property. Depending upon market conditions,
the ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Moreover, a lender commonly incurs substantial
legal fees and court costs in acquiring a mortgaged property through
contested foreclosure and/or bankruptcy proceedings. Generally, state law
controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required
to pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans, if any, that are junior
mortgage loans, if the lender purchases the property the lender's title will
be subject to all senior mortgages, prior liens and certain governmental
liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage under which the sale
was conducted. Any proceeds remaining after satisfaction of senior mortgage
debt are generally payable to the holders of junior mortgages and other liens
and claims in order of their priority, whether or not the mortgagor is in
default. Any additional proceeds are generally payable to the mortgagor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgage or a subsequent ancillary
proceeding or may require the institution of separate legal proceedings by
such holders.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have
an interest in the property which is subordinate to the mortgage being
foreclosed, from exercise of their "equity of redemption." The doctrine of
equity of redemption provides that, until the property covered by a mortgage
has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having an interest which is subordinate to that of
the foreclosing mortgagee have an equity of redemption and may redeem the
property by paying the entire debt with interest. In addition, in some
states, when a foreclosure action has been commenced, the redeeming party
must pay certain costs of such action. Those having an equity of redemption
must generally be made parties and joined in the foreclosure proceeding in
order for their equity of redemption to be cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale
price. In other states, redemption may be authorized if the former mortgagor
pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of any
purchaser from a foreclosure sale or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has expired. In some states, a post-sale statutory right of
redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. Unless
otherwise provided in the related Prospectus Supplement, with respect to a
series of Securities for which an election is made to qualify the Trust Fund
or a part thereof as a REMIC, the Agreement will permit foreclosed property
to be held for more than two years if the Internal Revenue Service grants an
extension of time within which to sell such property or independent counsel
renders an opinion to the effect that holding such property for such
additional period is permissible under the REMIC Provisions.
Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to
the lender are, in almost all cases, subject to restrictions on transfer as
set forth in the Cooperative's Certificate of Incorporation and By-laws, as
well as the proprietary lease or occupancy agreement, and may be cancelled by
the cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permit
the Cooperative to terminate such lease or agreement in the event an obligor
fails to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from the sale of the Cooperative
apartment, subject, however, to the Cooperative's right to sums due under
such proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the Cooperative Loan and accrued and
unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender
is not limited in any rights it may have to dispossess the tenant-
stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by
a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner
will depend on the facts in each case. In determining commercial
reasonableness, a court will look to the notice given the debtor and the
method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy
the indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the Cooperatives to receive sums due
under the proprietary lease or occupancy agreement. If there are proceeds
remaining, the lender must account to the tenant-stockholder for the surplus.
Conversely, if a portion of the indebtedness remains unpaid, the tenant-
stockholder is generally responsible for the deficiency.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction
plan, some states require that a purchaser at a foreclosure sale take the
property subject to rent control and rent stabilization laws which apply to
certain tenants who elected to remain in the building was so converted.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds
of trust, which are subordinate to first or other senior mortgages or deeds
of trust held by other lenders. The rights of the Trust Fund as the holder of
a junior deed of trust or a junior mortgage are subordinate in lien and in
payment to those of the holder of the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive
and apply hazard insurance and condemnation proceeds and, upon default of the
mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage or the sale
pursuant to the deed of trust, the junior mortgagee's or junior beneficiary's
lien will be extinguished unless the junior lienholder satisfies the
defaulted senior loan or asserts its subordinate interest in a property in
foreclosure proceedings. See "-Foreclosure" herein.
Furthermore, because the terms of the junior mortgage or deed of trust
are subordinate to the terms of the first mortgage or deed of trust, in the
event of a conflict between the terms of the first mortgage or deed of trust
and the junior mortgage or deed of trust, the terms of the first mortgage or
deed of trust will generally govern. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or
beneficiary, subject to the terms of the senior mortgage or deed of trust,
may have the right to perform the obligation itself. Generally, all sums so
expended by the mortgagee or beneficiary become part of the indebtedness
secured by the mortgage or deed of trust. To the extent a first mortgagee
expends such sums, such sums will generally have priority over all sums due
under the junior mortgage.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Statutes in some states limit the right of a beneficiary under a deed of
trust or a mortgagee under a mortgage to obtain a deficiency judgment
against the mortgagor following foreclosure or sale under a deed of trust. A
deficiency judgment would be a personal judgment against the former mortgagor
equal to the difference between the net amount realized upon the public sale
of the real property and the amount due to the lender. Some states require
the lender to exhaust the security afforded under a mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action
against the mortgagor. In certain other states, the lender has the option of
bringing a personal action against the mortgagor on the debt without first
exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally
to prevent a lender from obtaining a large deficiency judgment against the
former mortgagor as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere
with or affect the ability of the secured mortgage lender to realize upon
collateral or enforce a deficiency judgment. For example, with respect to
federal bankruptcy law, a court with federal bankruptcy jurisdiction may
permit a debtor through his or her Chapter 11 or Chapter 13 rehabilitative
plan to cure a monetary default in respect of a mortgage loan on a debtor's
residence by paying arrearages within a reasonable time period and
reinstating the original mortgage loan payment schedule even though the
lender accelerated the mortgage loan and final judgment of foreclosure had
been entered in state court (provided no sale of the residence had yet
occurred) prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, forgiving all or a portion of the debt and reducing the lender's
security interest to the value of the residence, thus leaving the lender a
general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan. Generally, however, the
terms of a mortgage loan secured only by a mortgage on real property that is
the debtor's principal residence may not be modified pursuant to a plan
confirmed pursuant to Chapter 11 or Chapter 13 except with respect to
mortgage payment arrearages, which may be cured within a reasonable time
period.
In the case of income-producing Multifamily Properties, federal
bankruptcy law may also have the effect of interfering with or affecting the
ability of the secured lender to enforce the borrower's assignment of rents
and leases related to the mortgaged property. Under Section 362 of the
Bankruptcy Code, the lender will be stayed from enforcing the assignment, and
the legal proceedings necessary to resolve the issue could be time-consuming,
with resulting delays in the lender's receipt of the rents.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes. These federal laws impose
specific statutory liabilities upon lenders who originate mortgage loans and
who fail to comply with the provisions of the law. In some cases this
liability may affect assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award
unless the creditor establishes that the sale of the collateral (which, in
the case of a Cooperative Loan, would be the shares of the Cooperative and
the related proprietary lease or occupancy agreement) was conducted in a
commercially reasonable manner.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such
a lien will generally have priority over all subsequent liens on the property
and, in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party that
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event
that title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund
was acquired by the Trust Fund and cleanup costs were incurred in respect of
the Mortgaged Property, the holders of the related series of Certificates
might realize a loss if such costs were required to be paid by the Trust
Fund.
DUE-ON-SALE CLAUSES
Unless the related Prospectus Supplement indicates otherwise, the
Mortgage Loans will contain due-on-sale clauses. These clauses generally
provide that the lender may accelerate the maturity of the loan if the
mortgagor sells, transfers or conveys the related Mortgaged Property. The
enforceability of due-on-sale clauses has been the subject of legislation or
litigation in many states and, in some cases, the enforceability of these
clauses was limited or denied. However, with respect to certain loans the
Garn-St Germain Depository Institutions Act of 1982 preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in
accordance with their terms, subject to certain limited exceptions. Due-on-
sale clauses contained in mortgage loans originated by federal savings and
loan associations of federal savings banks are fully enforceable pursuant to
regulations of the United States Federal Home Loan Bank Board, as succeeded
by the Office of Thrift Supervision, which preempt state law restrictions on
the enforcement of such clauses. Similarly, "due-on-sale" clauses in
mortgage loans made by national banks and federal credit unions are now fully
enforceable pursuant to preemptive regulations of the Comptroller of the
Currency and the National Credit Union Administration, respectively.
The Garn-St Germain Act also sets forth nine specific instances in which
a mortgage lender covered by the act (including federal savings and loan
associations and federal savings banks) may not exercise a "due-on-sale"
clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a
junior encumbrance. Regulations promulgated under the Garn-St Germain Act
also prohibit the imposition of a prepayment penalty upon the acceleration of
a loan pursuant to a due-on-sale clause. The inability to enforce a
"due-on-sale" clause may result in a mortgage that bears an interest rate
below the current market rate being assumed by a new home buyer rather than
being paid off, which may affect the average life of the Mortgage Loans and
the number of Mortgage Loans which may extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans secured by
liens encumbering owner-occupied residential properties, if such loans are
paid prior to maturity. With respect to Mortgaged Properties that are owner-
occupied, it is anticipated that prepayment charges may not be imposed with
respect to many of the Mortgage Loans. The absence of such a restraint on
prepayment, particularly with respect to fixed rate Mortgage Loans having
higher Mortgage Rates, may increase the likelihood of refinancing or other
early retirement of such loans.
SUBORDINATE FINANCING
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the
mortgagor may have difficulty servicing and repaying multiple loans. In
addition, if the junior loan permits recourse to the mortgagor (as junior
loans often do) and the senior loan does not, a mortgagor may be more likely
to repay sums due on the junior loan than those on the senior loan. Second,
acts of the senior lender that prejudice the junior lender or impair the
junior lender's security may create a superior equity in favor of the junior
lender. For example, if the mortgagor and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the
senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the mortgagor is additionally burdened.
Third, if the mortgagor defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of
a junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first
three months of 1980. The Office of Thrift Supervision is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized any state to reimpose
interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal
law. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or
other charges.
The Depositor believes that a court interpreting Title V would hold that
residential first mortgage loans that are originated on or after January 1,
1980 are subject to federal preemption. Therefore, in a state that has not
taken the requisite action to reject application of Title V or to adopt a
provision limiting discount points or other charges prior to origination of
such mortgage loans, any such limitation under such state's usury law would
not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
mortgage loan originated after the date of such state action will be eligible
for inclusion in a Trust Fund unless (i) such mortgage loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such mortgage loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this
statutory scheme, the mortgagor may cancel the recorded mortgage or deed of
trust upon paying its debt with lawful interest, and the lender may
foreclose, but only for the debt plus lawful interest. A second group of
statutes is more severe. A violation of this type of usury law results in
the invalidation of the transaction, thereby permitting the mortgagor to
cancel the recorded mortgage or deed of trust without any payment or
prohibiting the lender from foreclosing.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans and early ownership mortgage loans, originated by non-federally
chartered lenders have historically been subject to a variety of
restrictions. Such restrictions differed from state to state, resulting in
difficulties in determining whether a particular alternative mortgage
instrument originated by a state-chartered lender was in compliance with
applicable law. These difficulties were alleviated substantially as a result
of the enactment of Title VIII of the Garn-St Germain Act ("Title VIII").
Title VIII provides that, notwithstanding any state law to the contrary,
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency
with respect to origination of alternative mortgage instruments by national
banks; state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National Credit
Union Administration with respect to origination of alternative mortgage
instruments by federal credit unions; and all other non-federally chartered
housing creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and mortgage banking
companies, may originate alternative mortgage instruments in accordance with
the regulations promulgated by the Federal Home Loan Bank Board, predecessor
to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations.
Title VIII provides that any state may reject applicability of the provisions
of Title VIII by adopting, prior to October 15, 1985, a law or constitutional
provision expressly rejecting the applicability of such provisions. Certain
states have taken such action.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a mortgagor who enters military service after
the origination of such mortgagor's Mortgage Loan (including a mortgagor who
was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges)
above an annual rate of 6% during the period of such mortgagor's active duty
status, unless a court orders otherwise upon application of the lender. The
Relief Act applies to mortgagors who are members of the Army, Navy, Air
Force, Marines, National Guard, Reserves, Coast Guard and officers of the
U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to mortgagors who enter military service (including
reservists who are called to active duty) after origination of the related
Mortgage Loan, no information can be provided as to the number of loans that
may be affected by the Relief Act. Application of the Relief Act would
adversely affect, for an indeterminate period of time, the ability of any
servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application
of the Relief Act would result in a reduction of the amounts distributable to
the holders of the related series of Certificates, and would not be covered
by advances or, unless otherwise specified in the related Prospectus
Supplement, any form of Credit Support provided in connection with such
Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in
the event that such a Mortgage Loan goes into default, there may be delays
and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even before
conviction. The government must publish notice of the forfeiture proceeding
and may give notice to all parties "known to have an alleged interest in the
property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before
commission of the crime upon which the forfeiture is based, or (ii) the
lender was, at the time of execution of the mortgage, "reasonably without
cause to believe" that the property was used in, or purchased with the
proceeds of, illegal drug or RICO activities.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Contracts. Because such
legal aspects are governed primarily by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete nor to
reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Contracts is situated. The summaries
are qualified in their entirety by reference to the appropriate laws of the
states in which Contracts may be originated.
GENERAL
As a result of the assignment of the Contracts to the Trustee, the
Trustee will succeed collectively to all of the rights (including the right
to receive payment on the Contracts) of the obligee under the Contracts.
Each Contract evidences both (a) the obligation of the obligor to repay the
loan evidenced thereby, and (b) the grant of a security interest in the
Manufactured Home to secure repayment of such loan. Certain aspects of both
features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel
paper is treated in a manner similar to perfection of a security interest in
chattel paper. Under the Agreement, the Master Servicer will transfer
physical possession of the Contracts to the Trustee or its custodian or may
retain possession of the Contracts as custodian for the Trustee. In
addition, the Master Servicer will make an appropriate filing of a UCC-1
financing statement in the appropriate states to give notice of the Trustee's
ownership of the Contracts. Unless otherwise specified in the related
Prospectus Supplement, the Contracts will not be stamped or marked otherwise
to reflect their assignment from the Company to the Trustee. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to
take physical possession of the Contracts without notice of such assignment,
the Trustee's interest in Contracts could be defeated.
SECURITY INTERESTS IN THE MANUFACTURED HOMES
The Manufactured Homes securing the Contracts may be located in all 50
states. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by
delivery of the required documents and payment of a fee to the state motor
vehicle authority, depending on state law. In some nontitle states,
perfection pursuant to the provisions of the UCC is required. The Asset
Seller may effect such notation or delivery of the required documents and
fees, and obtain possession of the certificate of title, as appropriate under
the laws of the state in which any manufactured home securing a manufactured
housing conditional sales contract is registered. In the event the Asset
Seller fails, due to clerical error, to effect such notation or delivery, or
files the security interest under the wrong law (for example, under a motor
vehicle title statute rather than under the UCC, in a few states), the Asset
Seller may not have a first priority security interest in the Manufactured
Home securing a Contract. As manufactured homes have become larger and often
have been attached to their sites without any apparent intention to move
them, courts in many states have held that manufactured homes, under certain
circumstances, may become subject to real estate title and recording laws.
As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the
home under applicable state real estate law. In order to perfect a security
interest in a manufactured home under real estate laws, the holder of the
security interest must file either a "fixture filing" under the provisions of
the UCC or a real estate mortgage under the real estate laws of the state
where the home is located. These filings must be made in the real estate
records office of the county where the home is located. Substantially all of
the Contracts contain provisions prohibiting the borrower from permanently
attaching the Manufactured Home to its site. So long as the borrower does
not violate this agreement, a security interest in the Manufactured Home will
be governed by the certificate of title laws or the UCC, and the notation of
the security interest on the certificate of title or the filing of a UCC
financing statement will be effective to maintain the priority of the
security interest in the Manufactured Home. If, however, a Manufactured Home
is permanently attached to its site, other parties could obtain an interest
in the Manufactured Home which is prior to the security interest originally
retained by the Asset Seller and transferred to the Depositor. With respect
to a Series of Certificates and if so described in the related Prospectus
Supplement, the Master Servicer may be required to perfect a security
interest in the Manufactured Home under applicable real estate laws. The
Warranting Party will represent that as of the date of the sale to the
Depositor it has obtained a perfected first priority security interest by
proper notation or delivery of the required documents and fees with respect
to substantially all of the Manufactured Homes securing the Contracts.
The Depositor will cause the security interests in the Manufactured
Homes to be assigned to the Trustee on behalf of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, neither the
Depositor nor the Trustee will amend the certificates of title (or file UCC-3
statements) to identify the Trustee as the new secured party, and neither the
Depositor nor the Master Servicer will deliver the certificates of title to
the Trustee or note thereon the interest of the Trustee. Accordingly, the
Asset Seller (or other originator of the Contracts) will continue to be named
as the secured party on the certificates of title relating to the
Manufactured Homes. In some states, such assignment is an effective
conveyance of such security interest without amendment of any lien noted on
the related certificate of title and the new secured party succeeds to Master
Servicer's rights as the secured party. However, in some states, in the
absence of an amendment to the certificate of title (or the filing of a UCC-3
statement), such assignment of the security interest in the Manufactured Home
may not be held effective or such security interests may not be perfected and
in the absence of such notation or delivery to the Trustee, the assignment of
the security interest in the Manufactured Home may not be effective against
creditors of the Asset Seller (or such other originator of the Contracts) or
a trustee in bankruptcy of the Asset Seller (or such other originator).
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or
administrative error by state recording officials, the notation of the lien
of the Asset Seller (or other originator of the Contracts) on the certificate
of title or delivery of the required documents and fees will be sufficient to
protect the Certificateholders against the rights of subsequent purchasers of
a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the
security interest assigned to the Trustee is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for
value of Manufactured Homes and holders of perfected security interests.
There also exists a risk in not identifying the Trustee as the new secured
party on the certificate of title that, through fraud or negligence, the
security interest of the Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another
state and not re-register the Manufactured Home in such state, and if steps
are not taken to re-perfect the Trustee's security interest in such state,
the security interest in the Manufactured Home would cease to be perfected.
A majority of states generally require surrender of a certificate of title to
re-register a Manufactured Home; accordingly, the Master Servicer must
surrender possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes registered in states
which provide for notation of lien, the Asset Seller (or other originator)
would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
Trustee would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require
a certificate of title for registration of a manufactured home,
re-registration could defeat perfection. In the ordinary course of servicing
the manufactured housing contracts, the Master Servicer takes steps to effect
such re-perfection upon receipt of notice of re-registration or information
from the obligor as to relocation. Similarly, when an obligor under a
manufactured housing contract sells a manufactured home, the Master Servicer
must surrender possession of the certificate of title or, if it is noted as
lienholder on the certificate of title, will receive notice as a result of
its lien noted thereon and accordingly will have an opportunity to require
satisfaction of the related manufactured housing conditional sales contract
before release of the lien. Under the Agreement, the Master Servicer is
obligated to take such steps, at the Master Servicer's expense, as are
necessary to maintain perfection of security interests in the Manufactured
Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority even
over a perfected security interest. The Warranting Party will represent in
the Agreement that it has no knowledge of any such liens with respect to any
Manufactured Home securing payment on any Contract. However, such liens
could arise at any time during the term of a Contract. No notice will be
given to the Trustee or Certificateholders in the event such a lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
The Master Servicer on behalf of the Trustee, to the extent required by
the related Agreement, may take action to enforce the Trustee's security
interest with respect to Contracts in default by repossession and resale of
the Manufactured Homes securing such Defaulted Contracts. So long as the
Manufactured Home has not become subject to the real estate law, a creditor
can repossess a Manufactured Home securing a Contract by voluntary surrender,
by "self-help" repossession that is "peaceful" (i.e., without breach of the
peace) or, in the absence of voluntary surrender and the ability to repossess
without breach of the peace, by judicial process. The holder of a Contract
must give the debtor a number of days' notice, which varies from 10 to 30
days depending on the state, prior to commencement of any repossession. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states
also requires that the debtor be given notice of any sale prior to resale of
the unit so that the debtor may redeem at or before such resale. In the
event of such repossession and resale of a Manufactured Home, the Trustee
would be entitled to be paid out of the sale proceeds before such proceeds
could be applied to the payment of the claims of unsecured creditors or the
holders of subsequently perfected security interests or, thereafter, to the
debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing such debtor's loan. However,
some states impose prohibitions or limitations on deficiency judgments, and
in many cases the defaulting borrower would have no assets with which to pay
a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), an Obligor who enters military
service after the origination of such Obligor's Contract (including an
Obligor who is a member of the National Guard or is in reserve status at the
time of the origination of the Contract and is later called to active duty)
may not be charged interest above an annual rate of 6% during the period of
such Obligor's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Master
Servicer to collect full amounts of interest on certain of the Contracts.
Any shortfall in interest collections resulting from the application of the
Relief Act, to the extent not covered by the subordination of a Class of
Subordinated Certificates, could result in losses to the holders of a Series
of Certificates. In addition, the Relief Act imposes limitations which would
impair the ability of the Master Servicer to foreclose on an affected
Contract during the Obligor's period of active duty status. Thus, in the
event that such a Contract goes into default, there may be delays and losses
occasioned by the inability to realize upon the Manufactured Home in a timely
fashion.
CONSUMER PROTECTION LAWS
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of
this rule is to subject the assignee of such a contract to all claims and
defenses which the debtor could assert against the seller of goods.
Liability under this rule is limited to amounts paid under a Contract;
however, the obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trustee against such
obligor. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure
to comply with their provisions may affect the enforceability of the related
Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Master Servicer and permit the
acceleration of the maturity of the Contracts by the Master Servicer upon any
such sale or transfer that is not consented to. Unless otherwise specified
in the related Prospectus Supplement, the Master Servicer expects that it
will permit most transfers of Manufactured Homes and not accelerate the
maturity of the related Contracts. In certain cases, the transfer may be
made by a delinquent obligor in order to avoid a repossession proceeding with
respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Master
Servicer desires to accelerate the maturity of the related Contract, the
Master Servicer's ability to do so will depend on the enforceability under
state law of the "due-on-sale" clause. The Garn-St Germain Depositary
Institutions Act of 1982 preempts, subject to certain exceptions and
conditions, state laws prohibiting enforcement of "due-on-sale" clauses
applicable to the Manufactured Homes. Consequently, in some states the
Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral
fees and requiring a 30-day notice period prior to instituting any action
leading to repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. The related Asset Seller will represent that all of the
Contracts comply with applicable usury law.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered
Certificates is based on the advice of Brown & Wood llp, counsel to the
Depositor. This summary is based on laws, regulations, including the REMIC
regulations promulgated by the Treasury Department (the "REMIC Regulations"),
rulings and decisions now in effect or (with respect to regulations)
proposed, all of which are subject to change either prospectively or
retroactively. This summary does not address the federal income tax
consequences of an investment in Securities applicable to all categories of
investors, some of which (for example, banks and insurance companies) may be
subject to special rules. Prospective investors should consult their tax
advisors regarding the federal, state, local and any other tax consequences
to them of the purchase, ownership and disposition of Securities.
Unless otherwise stated or unless the context otherwise requires, in the
following discussion a reference to the term "Mortgage Loan" or "Mortgage
Asset" will also be deemed to include a reference to a "Contract".
GENERAL
The federal income tax consequences to Securityholders will vary
depending on whether an election is made to treat the Trust Fund relating to
a particular Series of Securities as a REMIC under the Code. The Prospectus
Supplement for each Series of Securities will specify whether a REMIC
election will be made.
GRANTOR TRUST FUNDS
If the related Prospectus Supplement indicates that the Trust Fund will
be treated as a grantor trust, then Brown & Wood llp will deliver its
opinion that the Trust Fund will not be classified as an association
taxable as a corporation and that each such Trust Fund will be classified
as a grantor trust under subpart E, Part I of subchapter J of the Code.
In this case, owners of Certificates will be treated for federal income
tax purposes as owners of a portion of the Trust Fund's assets as
described below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust
Certificateholder will be treated as the owner of a pro rata undivided
interest in the interest and principal portions of the Trust Fund represented
by the Grantor Trust Certificates and will be considered the equitable owner
of a pro rata undivided interest in each of the Mortgage Assets in the Pool.
Any amounts received by a Grantor Trust Certificateholder in lieu of amounts
due with respect to any Mortgage Asset because of a default or delinquency in
payment will be treated for federal income tax purposes as having the same
character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections
162 or 212 each Grantor Trust Certificateholder will be entitled to deduct
its pro rata share of servicing fees, prepayment fees, assumption fees, any
loss recognized upon an assumption and late payment charges retained by the
Master Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust Fund. Grantor Trust Certificateholders that
are individuals, estates or trusts will be entitled to deduct their share of
expenses as itemized deductions only to the extent such expenses plus all
other Code Section 212 expenses exceed two percent of its adjusted gross
income. In addition, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds
the applicable amount (which amount will be adjusted for inflation) will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over
the applicable amount and (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share
of income and deductions as and when collected by or paid to the Master
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions
as they become due or are paid to the Master Servicer, whichever is earlier.
If the servicing fees paid to the Master Servicer are deemed to exceed
reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Mortgage Assets.
The Mortgage Assets would then be subject to the "coupon stripping" rules of
the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement, as to
each Series of Certificates evidencing an interest in a Trust Fund comprised
of Mortgage Loans (not including Contracts, Unsecured Home Improvement Loans,
SBA Loans or SBA 504 Loans), Brown & Wood llp will have advised the Depositor
that:
(i) a Grantor Trust Certificate owned by a "domestic building and
loan association" within the meaning of Code Section 7701(a)(19)
representing principal and interest payments on Mortgage Assets will be
considered to represent "loans . . . secured by an interest in real
property which is . . . residential property" within the meaning of
Code Section 7701(a)(19)(C)(v), to the extent that the Mortgage Assets
represented by that Grantor Trust Certificate are of a type described in
such Code section;
(ii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest income on the Mortgage Assets will be
considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B), to the extent
that the Mortgage Assets represented by that Grantor Trust Certificate
are of a type described in such Code section; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation(s) ... which (are) principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3).
Under Code Section 7701(a)(19)(C)(v), "loans secured by an interest in
real property" include loans secured by mobile homes not used on a transient
basis. The Treasury regulations under Code Section 593 define "qualifying
real property loan" to include a loan secured by a mobile home unit
"permanently fixed to real property" except during a brief period in which
the unit is transported to its site. The Treasury regulations under Code
Section 856 state that the local law definitions are not controlling in
determining the meaning of the term "real property" for purposes of Code
Section 856, and the Internal Revenue Service ("IRS") has ruled that
obligations secured by permanently installed mobile home units qualify as
"real estate assets" under this provision. Entities affected by the
foregoing Code provisions that are considering the purchase of Certificates
evidencing interests in Trust Fund comprised of Contracts should consult
their tax advisors regarding such provisions.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of
Government Securities which constitute "stripped bonds" or "stripped coupons"
as those terms are defined in section 1286 of the Code, and, as a result,
such assets would be subject to the stripped bond provisions of the Code.
Under these rules, such Government Securities are treated as having original
issue discount based on the purchase price and the stated redemption price at
maturity of each Security. As such, Grantor Trust Certificateholders would
be required to include in income their pro rata share of the original issue
discount on each Government Security recognized in any given year on an
economic accrual basis even if the Grantor Trust Certificateholder is a cash
method taxpayer. Accordingly, the sum of the income includible to the
Grantor Trust Certificateholder in any taxable year may exceed amounts
actually received during such year.
Buydown Loans. The assets constituting certain Trust Funds may include
Buydown Loans. The characterization of any investment in Buydown Loans will
depend upon the precise terms of the related buydown agreement, but to the
extent that such Buydown Loans are secured in part by a bank account or other
personal property, they may not be treated in their entirety as assets
described in the foregoing sections of the Code. There are no directly
applicable precedents with respect to the federal income tax treatment or the
characterization of investments in Buydown Loans. Accordingly, Grantor Trust
Certificateholders should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Trust Fund that includes Buydown Loans.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Mortgage Asset
based on each Mortgage Asset's relative fair market value, so that such
holder's undivided interest in each Mortgage Asset will have its own tax
basis. A Grantor Trust Certificateholder that acquires an interest in
Mortgage Assets at a premium may elect to amortize such premium under a
constant interest method, provided that the underlying mortgage loans with
respect to such Mortgage Assets were originated after September 27, 1985.
Premium allocable to mortgage loans originated on or before September 27,
1985 should be allocated among the principal payments on such mortgage loans
and allowed as an ordinary deduction as principal payments are made.
Amortizable bond premium will be treated as an offset to interest income on
such Grantor Trust Certificate. The basis for such Grantor Trust Certificate
will be reduced to the extent that amortizable premium is applied to offset
interest payments. It is not clear whether a reasonable prepayment
assumption should be used in computing amortization of premium allowable
under Code Section 171. A Certificateholder that makes this election for a
Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during the year
of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at
a premium should recognize a loss if a Mortgage Loan (or an underlying
mortgage loan with respect to a Mortgage Asset) prepays in full, equal to the
difference between the portion of the prepaid principal amount of such
Mortgage Loan (or underlying mortgage loan) that is allocable to the
Certificate and the portion of the adjusted basis of the Certificate that is
allocable to such Mortgage Loan (or underlying mortgage loan). If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is
not clear whether any other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate of
prepayments.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to original issue discount ("OID") (currently Code Sections
1271 through 1273 and 1275) and Treasury regulations issued on January 27,
1994, under such Sections (the "OID Regulations"), will be applicable to a
Grantor Trust Certificateholder's interest in those Mortgage Assets meeting
the conditions necessary for these sections to apply. Rules regarding
periodic inclusion of OID income are applicable to mortgages of corporations
originated after May 27, 1969, mortgages of noncorporate mortgagors (other
than individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. Such OID could arise by the financing of
points or other charges by the originator of the mortgages in an amount
greater than a statutory de minimis exception to the extent that the points
are not currently deductible under applicable Code provisions or are not for
services provided by the lender. OID generally must be reported as ordinary
gross income as it accrues under a constant interest method. See "--Multiple
Classes of Grantor Trust Certificates--Accrual of Original Issue Discount"
below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest
in a Mortgage Asset is considered to have been purchased at a "market
discount." Generally, the amount of market discount is equal to the excess
of the portion of the principal amount of such Mortgage Asset allocable to
such holder's undivided interest over such holder's tax basis in such
interest. Market discount with respect to a Grantor Trust Certificate will
be considered to be zero if the amount allocable to the Grantor Trust
Certificate is less than 0.25% of the Grantor Trust Certificate's stated
redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and
the advisability of making any of the elections allowed under Code Sections
1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at
the time of such payment. The amount of accrued market discount for purposes
of determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount either
on the basis of a constant interest rate or according to one of the following
methods. If a Grantor Trust Certificate is issued with OID, the amount of
market discount that accrues during any accrual period would be equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the OID accruing during the period and the denominator
of which is the total remaining OID at the beginning of the accrual period.
For Grantor Trust Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (i) the
total remaining market discount and (ii) a fraction, the numerator of which
is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be
paid at the beginning of the accrual period. For purposes of calculating
market discount under any of the above methods in the case of instruments
(such as the Grantor Trust Certificates) that provide for payments that may
be accelerated by reason of prepayments of other obligations securing such
instruments, the same prepayment assumption applicable to calculating the
accrual of OID will apply. Because the regulations described above have not
been issued, it is impossible to predict what effect those regulations might
have on the tax treatment of a Grantor Trust Certificate purchased at a
discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred above applies.
Any such deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed as a deduction
not later than the year in which such market discount is includible in
income. If such holder elects to include market discount in income currently
as it accrues on all market discount instruments acquired by such holder in
that taxable year or thereafter, the interest deferral rule described above
will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after April
4, 1994. If such an election were to be made with respect to a Grantor Trust
Certificate with market discount, the Certificateholder would be deemed to
have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate
that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Certificateholder owns or acquires. See "-- Regular
Certificates--Premium" herein. The election to accrue interest, discount and
premium on a constant yield method with respect to a Certificate is
irrevocable.
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments
results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. For
purposes of Code Sections 1271 through 1288, Code Section 1286 treats a
stripped bond or a stripped coupon as an obligation issued on the date that
such stripped interest is created. If a Trust Fund is created with two
classes of Grantor Trust Certificates, one class of Grantor Trust
Certificates may represent the right to principal and interest, or principal
only, on all or a portion of the Mortgage Assets (the "Stripped Bond
Certificates"), while the second class of Grantor Trust Certificates may
represent the right to some or all of the interest on such portion (the
"Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the
Mortgage Asset principal balance) or the Certificates are initially sold with
a de minimis discount (assuming no prepayment assumption is required), any
non-de minimis discount arising from a subsequent transfer of the
Certificates should be treated as market discount. The IRS appears to
require that reasonable servicing fees be calculated on a Mortgage Asset by
Mortgage Asset basis, which could result in some Mortgage Assets being
treated as having more than 100 basis points of interest stripped off. See
"--Non-REMIC Certificates" and "Multiple Classes of Grantor Trust
Certificates--Stripped Bonds and Stripped Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an in interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if
the discount on a Mortgage Asset is larger than a de minimis amount (as
calculated for purposes of the OID rules) a purchaser of such a Certificate
will be required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust Certificates-
- -Original Issue Discount" herein. However, a purchaser of a Stripped Bond
Certificate will be required to account for any discount on the Mortgage
Assets as market discount rather than OID if either (i) the amount of OID
with respect to the Mortgage Assets is treated as zero under the OID de
minimis rule when the Certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing fees in excess of reasonable
servicing fees) is stripped off of the Trust Fund's Mortgage Assets.
Pursuant to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of
Stripped Bond Certificates using an inconsistent method of accounting must
change their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first
timely tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that
OID computations be made for each payment from each Mortgage Asset. However,
based on the recent IRS guidance, it appears that all payments from a
Mortgage Asset underlying a Stripped Coupon Certificate should be treated as
a single installment obligation subject to the OID rules of the Code, in
which case, all payments from such Mortgage Asset would be included in the
Mortgage Asset's stated redemption price at maturity for purposes of
calculating income on such certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account
in computing yield with respect to such Grantor Trust Certificate, it appears
that no loss will be available as a result of any particular prepayment
unless prepayments occur at a rate faster than the assumed prepayment rate.
However, if such Certificate is treated as an interest in discrete Mortgage
Assets, or if no prepayment assumption is used, then when a Mortgage Asset is
prepaid, the holder of such Certificate should be able to recognize a loss
equal to the portion of the adjusted issue price of such Certificate that is
allocable to such Mortgage Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper
treatment of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type
that make up the Trust Fund. With respect to these Code sections, no
specific legal authority exists regarding whether the character of the
Grantor Trust Certificates, for federal income tax purposes, will be the same
as that of the underlying Mortgage Assets. While Code Section 1286 treats a
stripped obligation as a separate obligation for purposes of the Code
provisions addressing OID, it is not clear whether such characterization
would apply with regard to these other Code sections. Although the issue is
not free from doubt, based on policy considerations, each class of Grantor
Trust Certificates, unless otherwise specified in the related Prospectus
Supplement, should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(5)(A) and "loans . . . secured by, an
interest in real property which is . . . residential real property" within
the meaning of Code Section 7701(a)(19)(C)(v), and interest income
attributable to Grantor Trust Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the
underlying Mortgage Assets and interest on such Mortgage Assets qualify for
such treatment. Prospective purchasers to which such characterization of an
investment in Certificates is material should consult their own tax advisors
regarding the characterization of the Grantor Trust Certificates and the
income therefrom. Grantor Trust Certificates will be "obligation(s) ...
which (are) principally secured, directly or indirectly, by an interest in
real property" within the meaning of Code Section 860G(a)(3).
2. Grantor Trust Certificates Representing Interests in Loans Other
Than ARM Loans
The original issue discount rules of Code Sections 1271 through 1275
will be applicable to a Certificateholder's interest in those Mortgage Assets
as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could arise by
the charging of points by the originator of the mortgage in an amount greater
than the statutory de minimis exception, including a payment of points that
is currently deductible by the borrower under applicable Code provisions, or
under certain circumstances, by the presence of "teaser" rates on the
Mortgage Assets. OID on each Grantor Trust Certificate must be included in
the owner's ordinary income for federal income tax purposes as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to
such income. The amount of OID required to be included in an owner's income
in any taxable year with respect to a Grantor Trust Certificate representing
an interest in Mortgage Assets other than Mortgage Assets with interest rates
that adjust periodically ("ARM Loans") likely will be computed as described
below under "--Accrual of Original Issue Discount." The following discussion
is based in part on the OID Regulations and in part on the provisions of the
Tax Reform Act of 1986 (the "1986 Act"). The OID Regulations generally are
effective for debt instruments issued on or after April 4, 1994, but may be
relied upon as authority with respect to debt instruments, such as the
Grantor Trust Certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to
April 4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may
be treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issued date of the Mortgage Assets should be used,
or, in the case of Stripped Bond Certificates or Stripped Coupon
Certificates, the date such Certificates are acquired. The holder of a
Certificate should be aware, however, that neither the proposed OID
Regulations nor the OID Regulations adequately address certain issues
relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of
a Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments
to be made on such Mortgage Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described
below under "--Accrual of Original Issue Discount," will, unless otherwise
specified in the related Prospectus Supplement, utilize the original yield to
maturity of the Grantor Trust Certificate calculated based on a reasonable
assumed prepayment rate for the mortgage loans underlying the Grantor Trust
Certificates (the "Prepayment Assumption"), and will take into account events
that occur during the calculation period. The Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. The legislative history of the 1986 Act (the "Legislative History")
provides, however, that the regulations will require that the Prepayment
Assumption be the prepayment assumption that is used in determining the
offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate.
The prepayment assumption contained in the Code literally only applies to
debt instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments,
such as the Certificates represent. However, no other legal authority
provides guidance with regard to the proper method for accruing OID on
obligations that are subject to prepayment, and, until further guidance is
issued, the Master Servicer intends to calculate and report OID under the
method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor
Trust Certificate must include in gross income the sum of the "daily
portions," as defined below, of the OID on such Grantor Trust Certificate for
each day on which it owns such Certificate, including the date of purchase
but excluding the date of disposition. In the case of an original owner, the
daily portions of OID with respect to each component generally will be
determined as set forth under the OID Regulations. A calculation will be
made by the Master Servicer or such other entity specified in the related
Prospectus Supplement of the portion of OID that accrues during each
successive monthly accrual period (or shorter period from the date of
original issue) that ends on the day in the calendar year corresponding to
each of the Distribution Dates on the Grantor Trust Certificates (or the day
prior to each such date). This will be done, in the case of each full month
accrual period, by (i) adding (a) the present value at the end of the accrual
period (determined by using as a discount factor the original yield to
maturity of the respective component under the Prepayment Assumption) of all
remaining payments to be received under the Prepayment Assumption on the
respective component and (b) any payments included in the state redemption
price at maturity received during such accrual period, and (ii) subtracting
from that total the "adjusted issue price" of the respective component at the
beginning of such accrual period. The adjusted issue price of a Grantor
Trust Certificate at the beginning of the first accrual period is its issue
price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other
than a payment of qualified stated interest made at the end of or during that
accrual period. The OID accruing during such accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of OID must be
determined according to an appropriate allocation under any reasonable
method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received.
However, the amount of original issue discount includible in the income of a
holder of an obligation is reduced when the obligation is acquired after its
initial issuance at a price greater than the sum of the original issue price
and the previously accrued original issue discount, less prior payments of
principal. Accordingly, if such Mortgage Assets acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Asset, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Asset (i.e. points) will be includible by such holder. Other
original issue discount on the Mortgage Assets (e.g., that arising from a
"teaser" rate) would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon
stripping rules with respect to such instruments. In the absence of any
authority, the Master Servicer will report OID on Grantor Trust Certificates
attributable to ARM Loans ("Stripped ARM Obligations") to holders in a manner
it believes is consistent with the rules described above under the heading "-
- -Grantor Trust Certificates Representing Interests in Loans Other Than ARM
Loans" and with the OID Regulations. In general, application of these rules
may require inclusion of income on a Stripped ARM Obligation in advance of
the receipt of cash attributable to such income. Further, the addition of
interest deferred by reason of negative amortization ("Deferred Interest") to
the principal balance of an ARM Loan may require the inclusion of such amount
in the income of the Grantor Trust Certificateholder when such amount
accrues. Furthermore, the addition of Deferred Interest to the Grantor Trust
Certificate's principal balance will result in additional income (including
possibly OID income) to the Grantor Trust Certificateholder over the
remaining life of such Grantor Trust Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will
be includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the
amount received and the owner's adjusted basis in the Grantor Trust
Certificate. Such adjusted basis generally will equal the seller's purchase
price for the Grantor Trust Certificate, increased by the OID included in the
seller's gross income with respect to the Grantor Trust Certificate, and
reduced by principal payments on the Grantor Trust Certificate previously
received by the seller. Such gain or loss will be capital gain or loss to an
owner for which a Grantor Trust Certificate is a "capital asset" within the
meaning of Code Section 1221, and will be long-term or short-term depending
on whether the Grantor Trust Certificate has been owned for the long-term
capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from
the sale of a Grantor Trust Certificate by a bank or a thrift institution to
which such section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July
18, 1984, interest or OID paid by the person required to withhold tax under
Code Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as
defined below) or (ii) a Grantor Trust Certificateholder holding on behalf of
an owner that is not a U.S. Person will be subject to federal income tax,
collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such
payments would not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Mortgage Assets issued after July
18, 1984, by natural persons if such Grantor Trust Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the Grantor Trust Certificateholder under penalties of perjury,
certifying that such Grantor Trust Certificateholder is not a U.S. Person and
providing the name and address of such Grantor Trust Certificateholder).
Additional restrictions apply to Mortgage Assets of where the mortgagor is
not a natural person in order to qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws
of the United States or any political subdivision thereof, an estate, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States, or a trust if a
court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States trustees have
authority to control all substantial decisions of the trust.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that
such person has not reported all interest and dividend income required to be
shown on its federal income tax return, 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
REMICS
THE DISCUSSION UNDER THIS HEADING "REMICS" DOES NOT APPLY TO ANY TRUST
FUND CONTAINING UNSECURED HOME IMPROVEMENT LOANS, SBA LOANS OR SBA 504 LOANS.
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance
with certain conditions. Although a REMIC is not generally subject to
federal income tax (see, however "--Taxation of Owners of REMIC Residual
Certificates" and "--Prohibited Transactions" below), if a Trust Fund with
respect to which a REMIC election is made fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable
year, including the implementation of restrictions on the purchase and
transfer of the residual interests in a REMIC as described below under
"Taxation of Owners of REMIC Residual Certificates," the Code provides that a
Trust Fund will not be treated as a REMIC for such year and thereafter. In
that event, such entity may be taxable as a separate corporation, and the
related Certificates (the "REMIC Certificates") may not be accorded the
status or given the tax treatment described below. While the Code authorizes
the Treasury Department to issue regulations providing relief in the event of
an inadvertent termination of the status of a trust fund as a REMIC, no such
regulations have been issued. Any such relief, moreover, may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion
of the REMIC's income for the period in which the requirements for such
status are not satisfied. With respect to each Trust Fund that elects REMIC
status, Brown & Wood llp will deliver its opinion generally to the effect
that, under then existing law and assuming compliance with all provisions of
the related Pooling and Servicing Agreement, such Trust Fund will qualify as
a REMIC, and the related Certificates will be considered to be regular
interests ("REMIC Regular Certificates") or a sole class of residual
interests ("REMIC Residual Certificates") in the REMIC. The related
Prospectus Supplement for each Series of Certificates will indicate whether
the Trust Fund will make a REMIC election and whether a class of Certificates
will be treated as a regular or residual interest in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) such Certificates held by a thrift institution
taxed as a "domestic building and loan association" will constitute assets
described in Code Section 7701(a)(19)(C); (ii) such Certificates held by a
real estate investment trust will constitute "real estate assets" within the
meaning of Code Section 856(c)(5)(A); and (iii) interest on such Certificates
held by a real estate investment trust will be considered "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B). Under Code Section 7701(a)(19)(C)(v), "loans secured
by an interest in real property" include loans secured by mobile homes not
used on a transient basis. The Treasury regulations under Code Section 856
state that the local law definitions are not controlling in determining the
meaning of the term "real property" for purposes of Section 856, and the IRS
has ruled that obligations secured by permanently installed mobile home units
qualify as "real estate assets" under this provision. Entities affected by
the foregoing Code provisions that are considering the purchase of
Certificates evidencing interests in a Trust Fund comprised of Contracts
should consult their tax advisors regarding such provisions. If less than
95% of the REMIC's assets are assets qualifying under any of the foregoing
Code sections, the Certificates will be qualifying assets only to the extent
that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Assets held pending distribution on the REMIC Certificates will be
considered to be real estate assets for purposes of Code Section 856(c). The
Small Business Job Protection Act of 1996, as part of the repeal of the bad
debt reserve method for thrift institutions, repealed the application of Code
Section 593(d) to any taxable year beginning after December 31, 1995.
In some instances the Mortgage Assets may not be treated entirely as
assets described in the foregoing sections. See, in this regard, the
discussion of Buydown Loans contained in "--Non-REMIC Certificates--Single
Class of Grantor Trust Certificates" above. REMIC Certificates held by a
real estate investment trust will not constitute "Government Securities"
within the meaning of Code Section 856(c)(5)(A), and REMIC Certificates held
by a regulated investment company will not constitute "Government Securities"
within the meaning of Code Section 851(b)(4)(A)(ii). REMIC Certificates held
by certain financial institutions will constitute "evidences of indebtedness"
within the meaning of Code Section 582(c)(1).
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally
secured by an interest in real property and that is transferred to the REMIC
within a prescribed time period in exchange for regular or residual interests
in the REMIC. The REMIC Regulations provide that manufactured housing or
mobile homes (not including recreational vehicles, campers or similar
vehicles) that are "single family residences" under Code Section 25(e)(10)
will qualify as real property without regard to state law classifications.
Under Code Section 25(e)(10), a single family residence includes any
manufactured home that has a minimum of 400 square feet of living space and a
minimum width in excess of 102 inches and that is of a kind customarily used
at a fixed location.
Tiered REMIC Structures. For certain Series of Certificates, two
separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master
REMIC") for federal income tax purposes. Upon the issuance of any such
Series of Certificates, Brown & Wood llp, counsel to the Depositor, will
deliver its opinion generally to the effect that, assuming compliance with
all provisions of the related Agreement, the Master REMIC as well as any
Subsidiary REMIC will each qualify as a REMIC, and the REMIC Certificates
issued by the Master REMIC and the Subsidiary REMIC, respectively, will be
considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in the related REMIC within the meaning of the REMIC
provisions.
Only REMIC Certificates, other than the residual interest in the
Subsidiary REMIC, issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely for
purposes of determining whether the REMIC Certificates will be (i) "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code; (ii)
"loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code; and (iii) whether the income on such Certificates is interest
described in Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC
or its assets. Moreover, holders of REMIC Regular Certificates that
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Certificates under an accrual
method.
Original Issue Discount and Premium. The REMIC Regular Certificates may
be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular
Certificate and its "issue price." Holders of any class of Certificates
issued with OID will be required to include such OID in gross income for
federal income tax purposes as it accrues, in accordance with a constant
interest method based on the compounding of interest as it accrues rather
than in accordance with receipt of the interest payments. The following
discussion is based in part on the OID Regulations and in part on the
provisions of the Tax Reform Act of 1986 (the "1986 Act"). Holders of REMIC
Regular Certificates (the "REMIC Regular Certificateholders") should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the REMIC Regular
Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated
reinvestment rate, if any, relating to the REMIC Regular Certificates and
prescribe a method for adjusting the amount and rate of accrual of such
discount where the actual prepayment rate differs from the Prepayment
Assumption. Under the Code, the Prepayment Assumption must be determined in
the manner prescribed by regulations, which regulations have not yet been
issued. The Legislative History provides, however, that Congress intended
the regulations to require that the Prepayment Assumption be the prepayment
assumption that is used in determining the initial offering price of such
REMIC Regular Certificates. The Prospectus Supplement for each Series of
REMIC Regular Certificates will specify the Prepayment Assumption to be used
for the purpose of determining the amount and rate of accrual of OID. No
representation is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of
its "stated redemption price at maturity" over its "issue price." The issue
price of a REMIC Regular Certificate is the first price at which a
substantial amount of REMIC Regular Certificates of that class are first sold
to the public (excluding bond houses, brokers, underwriters or wholesalers).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such class will be treated
as the fair market value of such class on the Closing Date. The issue price
of a REMIC Regular Certificate also includes the amount paid by an initial
Certificateholder for accrued interest that relates to a period prior to the
issue date of the REMIC Regular Certificate. The stated redemption price at
maturity of a REMIC Regular Certificate includes the original principal
amount of the REMIC Regular Certificate, but generally will not include
distributions of interest if such distributions constitute "qualified stated
interest." Qualified stated interest generally means interest payable at a
single fixed rate or qualified variable rate (as described below) provided
that such interest payments are unconditionally payable at intervals of one
year or less during the entire term of the REMIC Regular Certificate.
Interest is payable at a single fixed rate only if the rate appropriately
takes into account the length of the interval between payments.
Distributions of interest on REMIC Regular Certificates with respect to which
Deferred Interest will accrue will not constitute qualified stated interest
payments, and the stated redemption price at maturity of such REMIC Regular
Certificates includes all distributions of interest as well as principal
thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any original issue discount
(disregarding the rate in the first period) and any interest foregone during
the first period is treated as the amount by which the stated redemption
price at maturity of the Certificate exceeds its issue price for purposes of
the de minimis rule described below. The OID Regulations suggest that all
interest on a long first period REMIC Regular Certificate that is issued with
non-de minimis OID, as determined under the foregoing rule, will be treated
as OID. Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is shorter than the interval between
subsequent Distribution Dates, interest due on the first Distribution Date in
excess of the amount that accrued during the first period would be added to
the Certificates stated redemption price at maturity. REMIC Regular
Certificateholders should consult their own tax advisors to determine the
issue price and stated redemption price at maturity of a REMIC Regular
Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included
in the stated redemption price at maturity of the REMIC Regular Certificate
and the denominator of which is the stated redemption price at maturity of
the REMIC Regular Certificate. Although currently unclear, it appears that
the schedule of such distributions should be determined in accordance with
the Prepayment Assumption. The Prepayment Assumption with respect to a
Series of REMIC Regular Certificates will be set forth in the related
Prospectus Supplement. Holders generally must report de minimis OID pro rata
as principal payments are received, and such income will be capital gain if
the REMIC Regular Certificate is held as a capital asset. However, accrual
method holders may elect to accrue all de minimis OID as well as market
discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances
(the "Super-Premium Certificates"). The income tax treatment of such REMIC
Regular Certificates is not entirely certain. For information reporting
purposes, the Trust Fund intends to take the position that the stated
redemption price at maturity of such REMIC Regular Certificates is the sum of
all payments to be made on such REMIC Regular Certificates determined under
the Prepayment Assumption, with the result that such REMIC Regular
Certificates would be issued with OID. The calculation of income in this
manner could result in negative original issue discount (which delays future
accruals of OID rather than being immediately deductible) when prepayments on
the Mortgage Assets exceed those estimated under the Prepayment Assumption.
The IRS might contend, however, that certain proposed contingent payment
rules contained in regulations issued on December 15, 1994, with respect to
original issue discount, should apply to such Certificates. Although such
rules are not applicable to instruments governed by Code Section 1272(a)(6),
they represent the only guidance regarding the current views of the IRS with
respect to contingent payment instruments. In the alternative, the IRS could
assert that the stated redemption price at maturity of such REMIC Regular
Certificates should be limited to their principal amount (subject to the
discussion below under "--Accrued Interest Certificates"), so that such REMIC
Regular Certificates would be considered for federal income tax purposes to
be issued at a premium. If such a position were to prevail, the rules
described below under "--Taxation of Owners of REMIC Regular Certificates--
Premium" would apply. It is unclear when a loss may be claimed for any
unrecovered basis for a Super-Premium Certificate. It is possible that a
holder of a Super-Premium Certificate may only claim a loss when its
remaining basis exceeds the maximum amount of future payments, assuming no
further prepayments or when the final payment is received with respect to
such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular
Certificate generally should not be treated as a Super-Premium Certificate
and the rules described below under "--REMIC Regular Certificates--Premium"
should apply. However, it is possible that holders of REMIC Regular
Certificates issued at a premium, even if the premium is less than 25% of
such Certificate's actual principal balance, will be required to amortize the
premium under an original issue discount method or contingent interest method
even though no election under Code Section 171 is made to amortize such
premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on
a REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the
disposition date. In the case of an original holder of a REMIC Regular
Certificate, a calculation will be made of the portion of the OID that
accrues during each successive period ("an accrual period") that ends on the
day in the calendar year corresponding to a Distribution Date (or if
Distribution Dates are on the first day or first business day of the
immediately preceding month, interest may be treated as payable on the last
day of the immediately preceding month) and begins on the day after the end
of the immediately preceding accrual period (or on the issue date in the case
of the first accrual period). This will be done, in the case of each full
accrual period, by (i) adding (a) the present value at the end of the accrual
period (determined by using as a discount factor the original yield to
maturity of the REMIC Regular Certificates as calculated under the Prepayment
Assumption) of all remaining payments to be received on the REMIC Regular
Certificates under the Prepayment Assumption and (b) any payments included in
the stated redemption price at maturity received during such accrual period,
and (ii) subtracting from that total the adjusted issue price of the REMIC
Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first
accrual period is its issue price; the adjusted issue price of a REMIC
Regular Certificate at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment other than a payment of qualified stated interest
made at the end of or during that accrual period. The OID accrued during an
accrual period will then be divided by the number of days in the period to
determine the daily portion of OID for each day in the accrual period. The
calculation of OID under the method described above will cause the accrual of
OID to either increase or decrease (but never below zero) in a given accrual
period to reflect the fact that prepayments are occurring faster or slower
than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of OID may be
determined according to an appropriate allocation under any reasonable
method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular
Certificate. In computing the daily portions of OID for such a purchaser (as
well as an initial purchaser that purchases at a price higher than the
adjusted issue price but less than the stated redemption price at maturity),
however, the daily portion is reduced by the amount that would be the daily
portion for such day (computed in accordance with the rules set forth above)
multiplied by a fraction, the numerator of which is the amount, if any, by
which the price paid by such holder for that REMIC Regular Certificate
exceeds the following amount: (a) the sum of the issue price plus the
aggregate amount of OID that would have been includible in the gross income
of an original REMIC Regular Certificateholder (who purchased the REMIC
Regular Certificate at its issue price), less (b) any prior payments included
in the stated redemption price at maturity, and the denominator of which is
the sum of the daily portions for that REMIC Regular Certificate for all days
beginning on the date after the purchase date and ending on the maturity date
computed under the Prepayment Assumption. A holder who pays an acquisition
premium instead may elect to accrue OID by treating the purchase as a
purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates
may provide for interest based on a variable rate. Interest based on a
variable rate will constitute qualified stated interest and not contingent
interest if, generally, (i) such interest is unconditionally payable at least
annually, (ii) the issue price of the debt instrument does not exceed the
total noncontingent principal payments and (iii) interest is based on a
"qualified floating rate," an "objective rate," a combination of a single
fixed rate and one or more "qualified floating rates," one "qualified inverse
floating rate," or a combination of "qualified floating rates" that do not
operate in a manner that significantly accelerates or defers interest
payments on such REMIC Regular Certificate.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under "--
Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest
rates on Mortgage Loans as qualified stated interest. In such case, the
weighted average rate used to compute the initial pass-through rate on the
REMIC Regular Certificates will be deemed to be the index in effect through
the life of the REMIC Regular Certificates. It is possible, however, that
the IRS may treat some or all of the interest on REMIC Regular Certificates
with a weighted average rate as taxable under the rules relating to
obligations providing for contingent payments. Such treatment may effect the
timing of income accruals on such REMIC Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that such Certificateholder acquires during the year
of the election or thereafter. Similarly, a Certificateholder that makes
this election for a Certificate that is acquired at a premium will be deemed
to have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Certificateholder owns
or acquires. See "-- REMIC Regular Certificates--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Certificate is irrevocable.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal
amount or, in the case of a REMIC Regular Certificate with OID, the adjusted
issue price (determined for this purpose as if the purchaser had purchased
such REMIC Regular Certificate from an original holder) over (ii) the price
for such REMIC Regular Certificate paid by the purchaser. A
Certificateholder that purchases a REMIC Regular Certificate at a market
discount will recognize income upon receipt of each distribution representing
amounts included in such certificate's stated redemption price at maturity.
In particular, under Section 1276 of the Code such a holder generally will be
required to allocate each such distribution first to accrued market discount
not previously included in income, and to recognize ordinary income to that
extent. A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the
first day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular
Certificate is less than 0.25% of such REMIC Regular Certificate's stated
redemption price at maturity multiplied by such REMIC Regular Certificate's
weighted average maturity remaining after the date of purchase. If market
discount on a REMIC Regular Certificate is considered to be zero under this
rule, the actual amount of market discount must be allocated to the remaining
principal payments on the REMIC Regular Certificate, and gain equal to such
allocated amount will be recognized when the corresponding principal payment
is made. Treasury regulations implementing the market discount rules have
not yet been issued; therefore, investors should consult their own tax
advisors regarding the application of these rules and the advisability of
making any of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at
the time of such payment. The amount of accrued market discount for purposes
of determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis
of a constant interest method rate or according to one of the following
methods. For REMIC Regular Certificates issued with OID, the amount of
market discount that accrues during a period is equal to the product of (i)
the total remaining market discount and (ii) a fraction, the numerator of
which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the period. For REMIC Regular
Certificates issued without OID, the amount of market discount that accrues
during a period is equal to the product of (a) the total remaining market
discount and (b) a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the beginning of the
period. For purposes of calculating market discount under any of the above
methods in the case of instruments (such as the REMIC Regular Certificates)
that provide for payments that may be accelerated by reason of prepayments of
other obligations securing such instruments, the same Prepayment Assumption
applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during
such taxable year and is, in general, allowed as a deduction not later than
the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year
or thereafter, the interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium
and may elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that
such Certificateholder acquires during the year of the election or
thereafter. It is not clear whether the Prepayment Assumption would be taken
into account in determining the life of the REMIC Regular Certificate for
this purpose. However, the Legislative History states that the same rules
that apply to accrual of market discount (which rules require use of a
Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have OID)
will also apply in amortizing bond premium under Code Section 171. The Code
provides that amortizable bond premium will be allocated among the interest
payments on such REMIC Regular Certificates and will be applied as an offset
against such interest payment. On June 27, 1996, the IRS published in the
Federal Register proposed regulations on the amortization of bond premium.
The foregoing discussion is based in part on such proposed regulations. The
proposed regulations generally would be effective for Certificates acquired
on or after the date 60 days after the date they are published as final
regulations in the Federal Register. Certificateholders should consult their
tax advisors regarding the possibility of making an election to amortize any
such bond premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such
Certificates prior to the time distributions of cash with respect to such
Deferred Interest are made. It is unclear, under the OID Regulations,
whether any of the interest on such Certificates will constitute qualified
stated interest or whether all or a portion of the interest payable on such
Certificates must be included in the stated redemption price at maturity of
the Certificates and accounted for as OID (which could accelerate such
inclusion). Interest on REMIC Regular Certificates must in any event be
accounted for under an accrual method by the holders of such Certificates
and, therefore, applying the latter analysis may result only in a slight
difference in the timing of the inclusion in income of interest on such REMIC
Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates
may contain one or more classes of Subordinated Certificates, and in the
event there are defaults or delinquencies on the Mortgage Assets, amounts
that would otherwise be distributed on the Subordinated Certificates may
instead be distributed on the Senior Certificates. Subordinated
Certificateholders nevertheless will be required to report income with
respect to such Certificates under an accrual method without giving effect to
delays and reductions in distributions on such Subordinated Certificates
attributable to defaults and delinquencies on the Mortgage Assets, except to
the extent that it can be established that such amounts are uncollectible.
As a result, the amount of income reported by a Subordinated
Certificateholder in any period could significantly exceed the amount of cash
distributed to such holder in that period. The holder will eventually be
allowed a loss (or will be allowed to report a lesser amount of income) to
the extent that the aggregate amount of distributions on the Subordinated
Certificate is reduced as a result of defaults and delinquencies on the
Mortgage Assets. Timing and characterization of such losses is discussed in
"--REMIC Regular Certificates--Treatment of Realized Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale, exchange,
redemption, or retirement and the seller's adjusted basis in the REMIC
Regular Certificate. Such adjusted basis generally will equal the cost of
the REMIC Regular Certificate to the seller, increased by any OID and market
discount included in the seller's gross income with respect to the REMIC
Regular Certificate, and reduced (but not below zero) by payments included in
the stated redemption price at maturity previously received by the seller and
by any amortized premium. Similarly, a holder who receives a payment that is
part of the stated redemption price at maturity of a REMIC Regular
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over the holder's adjusted basis in the REMIC Regular
Certificate. A REMIC Regular Certificateholder who receives a final payment
that is less than the holder's adjusted basis in the REMIC Regular
Certificate will generally recognize a loss. Except as provided in the
following paragraph and as provided under "--Market Discount" above, any such
gain or loss will be capital gain or loss, provided that the REMIC Regular
Certificate is held as a "capital asset" (generally, property held for
investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be 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 REMIC Regular Certificate had income accrued thereon at a rate equal
to 110% of the AFR as defined in Code Section 1274(d) determined as of the
date of purchase of such REMIC Regular Certificate, over (ii) the amount
actually includible in such holder's income.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method
would require information relating to the holder's purchase price which the
REMIC may not have, it appears that the information reports will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
Accrued Interest Certificates. Certain of the REMIC Regular
Certificates ("Payment Lag Certificates") may provide for payments of
interest based on a period that corresponds to the interval between
Distribution Dates but that ends prior to each such Distribution Date. The
period between the Closing Date for Payment Lag Certificates and their first
Distribution Date may or may not exceed such interval. Purchasers of Payment
Lag Certificates for which the period between the Closing Date and the first
Distribution Date does not exceed such interval could pay upon purchase of
the REMIC Regular Certificates accrued interest in excess of the accrued
interest that would be paid if the interest paid on the Distribution Date
were interest accrued from Distribution Date to Distribution Date. If a
portion of the initial purchase price of a REMIC Regular Certificate is
allocable to interest that has accrued prior to the issue date ("pre-issuance
accrued interest") and the REMIC Regular Certificate provides for a payment
of stated interest on the first payment date (and the first payment date is
within one year of the issue date) that equals or exceeds the amount of the
pre-issuance accrued interest, then the REMIC Regular Certificates' issue
price may be computed by subtracting from the issue price the amount of pre-
issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the
case of a Payment Lag Certificate, the Trust Fund intends to include accrued
interest in the issue price and report interest payments made on the first
Distribution Date as interest to the extent such payments represent interest
for the number of days that the Certificateholder has held such Payment Lag
Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a
portion of the REMIC's servicing, administrative and other non-interest
expenses will be allocated as a separate item to those REMIC Regular
Certificateholders that are "pass-through interest holders."
Certificateholders that are pass-through interest holders should consult
their own tax advisors about the impact of these rules on an investment in
the REMIC Regular Certificates. See "Pass-Through of Non-Interest Expenses
of the REMIC" under "Taxation of Owners of REMIC Residual Certificates"
below.
Treatment of Realized Losses. Although not entirely clear, it appears
that holders of REMIC Regular Certificates that are corporations should in
general be allowed to deduct as an ordinary loss any loss sustained during
the taxable year on account of any such Certificates becoming wholly or
partially worthless, and that, in general, holders of Certificates that are
not corporations should be allowed to deduct as a short-term capital loss any
loss sustained during the taxable year on account of any such Certificates
becoming wholly worthless. Although the matter is not entirely clear, non-
corporate holders of Certificates may be allowed a bad debt deduction at such
time that the principal balance of any such Certificate is reduced to reflect
realized losses resulting from any liquidated Mortgage Assets. The Internal
Revenue Service, however, could take the position that non-corporate holders
will be allowed a bad debt deduction to reflect realized losses only after
all Mortgage Assets remaining in the related Trust Fund have been liquidated
or the Certificates of the related Series have been otherwise retired.
Potential investors and holders of the Certificates are urged to consult
their own tax advisors regarding the appropriate timing, amount and character
of any loss sustained with respect to such Certificates, including any loss
resulting from the failure to recover previously accrued interest or discount
income. Special loss rules are applicable to banks and thrift institutions,
including rules regarding reserves for bad debts. Such taxpayers are advised
to consult their tax advisors regarding the treatment of losses on
Certificates.
Non-U.S. Persons. Generally, payments of interest (including any
payment with respect to accrued OID) on the REMIC Regular Certificates to a
REMIC Regular Certificateholder who is not a U.S. Person and is not engaged
in a trade or business within the United States will not be subject to
federal withholding tax if (i) such REMIC Regular Certificateholder does not
actually or constructively own 10 percent or more of the combined voting
power of all classes of equity in the Issuer; (ii) such REMIC Regular
Certificateholder is not a controlled foreign corporation (within the meaning
of Code Section 957) related to the Issuer; and (iii) such REMIC Regular
Certificateholder complies with certain identification requirements
(including delivery of a statement, signed by the REMIC Regular
Certificateholder under penalties of perjury, certifying that such REMIC
Regular Certificateholder is a foreign person and providing the name and
address of such REMIC Regular Certificateholder). If a REMIC Regular
Certificateholder is not exempt from withholding, distributions of interest
to such holder, including distributions in respect of accrued OID, may be
subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual and will not be subject to United States
estate taxes. However, Certificateholders who are non-resident alien
individuals should consult their tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates,
and holders of REMIC Residual Certificates (the "REMIC Residual
Certificateholder") and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates without consulting their
tax advisors as to the possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at
any time during such year, such information as may be deemed necessary or
desirable to assist REMIC Regular Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
REMIC Regular Certificates on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that
such person has not reported all interest and dividend income required to be
shown on its federal income tax return, 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax except
with respect to income from prohibited transactions and certain other
transactions. See "--Prohibited Transactions and Other Taxes" below.
Instead, each original holder of a REMIC Residual Certificate will report on
its federal income tax return, as ordinary income, its share of the taxable
income of the REMIC for each day during the taxable year on which such holder
owns any REMIC Residual Certificates. The taxable income of the REMIC for
each day will be determined by allocating the taxable income of the REMIC for
each calendar quarter ratably to each day in the quarter. Such a holder's
share of the taxable income of the REMIC for each day will be based on the
portion of the outstanding REMIC Residual Certificates that such holder owns
on that day. The taxable income of the REMIC will be determined under an
accrual method and will be taxable to the holders of REMIC Residual
Certificates without regard to the timing or amounts of cash distributions by
the REMIC. Ordinary income derived from REMIC Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers subject to the
limitations on the deductibility of "passive losses." As residual interests,
the REMIC Residual Certificates will be subject to tax rules, described
below, that differ from those that would apply if the REMIC Residual
Certificates were treated for federal income tax purposes as direct ownership
interests in the Certificates or as debt instruments issued by the REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such
a mismatching of income and cash distributions (that is, "phantom income").
This mismatching may be caused by the use of certain required tax accounting
methods by the REMIC, variations in the prepayment rate of the underlying
Mortgage Assets and certain other factors. Depending upon the structure of a
particular transaction, the aforementioned factors may significantly reduce
the after-tax yield of a REMIC Residual Certificate to a REMIC Residual
Certificateholder. Investors should consult their own tax advisors
concerning the federal income tax treatment of a REMIC Residual Certificate
and the impact of such tax treatment on the after-tax yield of a REMIC
Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder
owns such REMIC Residual Certificate. Those daily amounts generally would
equal the amounts that would have been reported for the same days by an
original REMIC Residual Certificateholder, as described above. The
Legislative History indicates that certain adjustments may be appropriate to
reduce (or increase) the income of a subsequent holder of a REMIC Residual
Certificate that purchased such REMIC Residual Certificate at a price greater
than (or less than) the adjusted basis such REMIC Residual Certificate would
have in the hands of an original REMIC Residual Certificateholder. See
"--Sale or Exchange of REMIC Residual Certificates" below. It is not clear,
however, whether such adjustments will in fact be permitted or required and,
if so, how they would be made. The REMIC Regulations do not provide for any
such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed
to the REMIC for interest and OID on the REMIC Regular Certificates and,
except as described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable
income of an individual using the accrual method of accounting, except that
(i) the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will
be deductible as business bad debts, and (iii) the limitation on the
deductibility of interest and expenses related to tax-exempt income will
apply. The REMIC's gross income includes interest, original issue discount
income, and market discount income, if any, on the Mortgage Loans, reduced by
amortization of any premium on the Mortgage Loans, plus income on
reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the REMIC Regular
Certificates. Note that the timing of cancellation of indebtedness income
recognized by REMIC Residual Certificateholders resulting from defaults and
delinquencies on Mortgage Assets may differ from the time of the actual loss
on the Mortgage Asset. The REMIC's deductions include interest and original
issue discount expense on the REMIC Regular Certificates, servicing fees on
the Mortgage Loans, other administrative expenses of the REMIC and realized
losses on the Mortgage Loans. The requirement that REMIC Residual
Certificateholders report their pro rata share of taxable income or net loss
of the REMIC will continue until there are no Certificates of any class of
the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue
prices of the REMIC Regular Certificates and the REMIC Residual Certificates
(or, if a class of Certificates is not sold initially, its fair market
value). Such aggregate basis will be allocated among the Mortgage Assets and
other assets of the REMIC in proportion to their respective fair market
value. A Mortgage Asset will be deemed to have been acquired with discount
or premium to the extent that the REMIC's basis therein is less than or
greater than its principal balance, respectively. Any such discount (whether
market discount or OID) will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under
a method similar to the method described above for accruing OID on the REMIC
Regular Certificates. The REMIC expects to elect under Code Section 171 to
amortize any premium on the Mortgage Assets. Premium on any Mortgage Asset
to which such election applies would be amortized under a constant yield
method. It is not clear whether the yield of a Mortgage Asset would be
calculated for this purpose based on scheduled payments or taking account of
the Prepayment Assumption. Additionally, such an election would not apply to
the yield with respect to any underlying mortgage loan originated on or
before September 27, 1985. Instead, premium with respect to such a mortgage
loan would be allocated among the principal payments thereon and would be
deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with
respect to REMIC Regular Certificates except that the 0.25% per annum de
minimis rule and adjustments for subsequent holders described therein will
not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the
REMIC's taxable income. However, REMIC taxable income will not include cash
received by the REMIC that represents a recovery of the REMIC's basis in its
assets, and, as described above, the issue price of the REMIC Residual
Certificates will be added to the issue price of the REMIC Regular
Certificates in determining the REMIC's initial basis in its assets. See "--
Sale or Exchange of REMIC Residual Certificates" below. For a discussion of
possible adjustments to income of a subsequent holder of a REMIC Residual
Certificate to reflect any difference between the actual cost of such REMIC
Residual Certificate to such holder and the adjusted basis such REMIC
Residual Certificate would have in the hands of an original REMIC Residual
Certificateholder, see "--Allocation of the Income of the REMIC to the REMIC
Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. Such net
loss would be allocated among the REMIC Residual Certificateholders in the
same manner as the REMIC's taxable income. The net loss allocable to any
REMIC Residual Certificate will not be deductible by the holder to the extent
that such net loss exceeds such holder's adjusted basis in such REMIC
Residual Certificate. Any net loss that is not currently deductible by
reason of this limitation may only be used by such REMIC Residual
Certificateholder to offset its share of the REMIC's taxable income in future
periods (but not otherwise). The ability of REMIC Residual
Certificateholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS recently finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-
Market Regulations replaced the temporary regulations which allowed a
Residual Certificate to be marked to market provided that it was not a
"negative value" residual interest and did not have the same economic effect
as a "negative value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders
of the REMIC Residual Certificates. In the case of a single class REMIC,
however, the expenses and a matching amount of additional income will be
allocated, under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC
will be allocated to holders of the related REMIC Residual Certificates in
their entirety and not to holders of the related REMIC Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest
in a REMIC Regular Certificate or a REMIC Residual Certificate directly or
through a pass-through interest holder that is required to pass miscellaneous
itemized deductions through to its owners or beneficiaries (e.g. a
partnership, an S corporation or a grantor trust), such expenses will be
deductible under Code Section 67 only to the extent that such expenses, plus
other "miscellaneous itemized deductions" of the individual, exceed 2% of
such individual's adjusted gross income. In addition, Code Section 68
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a certain amount (the
"Applicable Amount") will be reduced by the lesser of (i) 3% of the excess of
the individual's adjusted gross income over the Applicable Amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for the taxable
year. The amount of additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Code Section
67 or Code Section 68 may be substantial. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. The REMIC is required to report to each pass-through
interest holder and to the IRS such holder's allocable share, if any, of the
REMIC's non-interest expenses. The term "pass-through interest holder"
generally refers to individuals, entities taxed as individuals and certain
pass-through entities, but does not include real estate investment trusts.
REMIC Residual Certificateholders that are pass-through interest holders
should consult their own tax advisors about the impact of these rules on an
investment in the REMIC Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any
calendar quarter will be subject to federal income tax in all events. Thus,
for example, an excess inclusion (i) may not, except as described below, be
offset by any unrelated losses, deductions or loss carryovers of a REMIC
Residual Certificateholder; (ii) will be treated as "unrelated business
taxable income" within the meaning of Code Section 512 if the REMIC Residual
Certificateholder is a pension fund or any other organization that is subject
to tax only on its unrelated business taxable income (see "--Tax-Exempt
Investors" below); and (iii) is not eligible for any reduction in the rate of
withholding tax in the case of a REMIC Residual Certificateholder that is a
foreign investor. See "--Non-U.S. Persons" below. The exception for thrift
institutions is available only to the institution holding the REMIC Residual
Certificate and not to any affiliate of the institution, unless the affiliate
is a subsidiary all the stock of which, and substantially all the
indebtedness of which, is held by the institution, and which is organized and
operated exclusively in connection with the organization and operation of one
or more REMICs.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar
quarter is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
all days during the calendar quarter on which the REMIC Residual
Certificateholder holds such REMIC Residual Certificate. For this purpose,
the daily accruals with respect to a REMIC Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable
portion of the product of the "adjusted issue price" (as defined below) of
the REMIC Residual Certificate at the beginning of the calendar quarter and
120 percent of the "Federal long-term rate" in effect at the time the REMIC
Residual Certificate is issued. For this purpose, the "adjusted issue price"
of a REMIC Residual Certificate at the beginning of any calendar quarter
equals the issue price of the REMIC Residual Certificate, increased by the
amount of daily accruals for all prior quarters, and decreased (but not below
zero) by the aggregate amount of payments made on the REMIC Residual
Certificate before the beginning of such quarter. The "federal long-term
rate" is an average of current yields on Treasury securities with a remaining
term of greater than nine years, computed and published monthly by the IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section
857(b)(2), excluding any net capital gain), will be allocated among the
shareholders of such trust in proportion to the dividends received by such
shareholders from such trust, and any amount so allocated will be treated as
an excess inclusion with respect to a REMIC Residual Certificate as if held
directly by such shareholder. Regulated investment companies, common trust
funds and certain cooperatives are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1,
1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the
alternative minimum taxable income of a residual holder. First, alternative
minimum taxable income for such residual holder is determined without regard
to the special rule that taxable income cannot be less than excess
inclusions. Second, the amount of any alternative minimum tax net operating
loss deductions must be computed without regard to any excess inclusions.
Third, a residual holder's alternative minimum taxable income for a tax year
cannot be less than excess inclusions for the year. The effect of this last
statutory amendment is to prevent the use of nonrefundable tax credits to
reduce a taxpayer's income tax below its tentative minimum tax computed only
on excess inclusions. These rules are effective for tax years beginning
after December 31, 1986, unless a residual holder elects to have such rules
apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual
Certificateholder's adjusted basis in such REMIC Residual Certificate. To
the extent a distribution exceeds such adjusted basis, it will be treated as
gain from the sale of the REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and its adjusted basis in the REMIC Residual Certificate (except
that the recognition of loss may be limited under the "wash sale" rules
described below). A holder's adjusted basis in a REMIC Residual Certificate
generally equals the cost of such REMIC Residual Certificate to such REMIC
Residual Certificateholder, increased by the taxable income of the REMIC that
was included in the income of such REMIC Residual Certificateholder with
respect to such REMIC Residual Certificate, and decreased (but not below
zero) by the net losses that have been allowed as deductions to such REMIC
Residual Certificateholder with respect to such REMIC Residual Certificate
and by the distributions received thereon by such REMIC Residual
Certificateholder. In general, any such gain or loss will be capital gain or
loss provided the REMIC Residual Certificate is held as a capital asset.
However, REMIC Residual Certificates will be "evidences of indebtedness"
within the meaning of Code Section 582(c)(1), so that gain or loss recognized
from sale of a REMIC Residual Certificate by a bank or thrift institution to
which such section applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool"
(as defined in Code Section 7701(i)) during the period beginning six months
before, and ending six months after, the date of such sale, such sale will be
subject to the "wash sale" rules of Code Section 1091. In that event, any
loss realized by the REMIC Residual Certificateholder on the sale will not be
deductible, but, instead, will increase such REMIC Residual
Certificateholder's adjusted basis in the newly acquired asset.
C. PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Asset, the receipt of income from a
source other than a Mortgage Asset or certain other permitted investments,
the receipt of compensation for services, or gain from the disposition of an
asset purchased with the payments on the Mortgage Assets for temporary
investment pending distribution on the Certificates. It is not anticipated
that the Trust Fund for any Series of Certificates will engage in any
prohibited transactions in which it would recognize a material amount of net
income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day
on which such Trust Fund issues all of its interests could result in the
imposition of a tax on the Trust Fund equal to 100% of the value of the
contributed property (the "Contributions Tax"). No Trust Fund for any Series
of Certificates will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined
by reference to the rules applicable to real estate investment trusts. "Net
income from foreclosure property" generally means income from foreclosure
property other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax
that may be imposed on a REMIC relating to any Series of Certificates arises
out of or results from (i) a breach of the related Master Servicer's,
Trustee's or Asset Seller's obligations, as the case may be, under the
related Agreement for such Series, such tax will be borne by such Master
Servicer, Trustee or Asset Seller, as the case may be, out of its own funds
or (ii) the Asset Seller's obligation to repurchase a Mortgage Loan, such tax
will be borne by the Asset Seller. In the event that such Master Servicer,
Trustee or Asset Seller, as the case may be, fails to pay or is not required
to pay any such tax as provided above, such tax will be payable out of the
Trust Fund for such Series and will result in a reduction in amounts
available to be distributed to the Certificateholders of such Series.
D. LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on such date, the REMIC will not be subject to any Prohibited
Transaction Tax, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than the amounts
retained to meet claims) to holders of Regular and REMIC Residual
Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis
in the REMIC Residual Certificate exceeds the amount of cash distributed to
such REMIC Residual Certificateholder in final liquidation of its interest,
then it would appear that the REMIC Residual Certificateholder would be
entitled to a loss equal to the amount of such excess. It is unclear whether
such a loss, if allowed, will be a capital loss or an ordinary loss.
E. ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will
be furnished quarterly to each REMIC Residual Certificateholder who held a
REMIC Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency
resulting from a failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC level. The REMIC does
not intend to register as a tax shelter pursuant to Code Section 6111 because
it is not anticipated that the REMIC will have a net loss for any of the
first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to
furnish the REMIC, in a manner to be provided in Treasury regulations, with
the name and address of such person and other information.
F. TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of Code Section 512 will be subject to
such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of
Owners of REMIC Residual Certificates--Excess Inclusions" above.
G. RESIDUAL CERTIFICATE PAYMENTS-NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S.
Persons" above) are treated as interest for purposes of the 30% (or lower
treaty rate) United States withholding tax. Amounts distributed to holders
of REMIC Residual Certificates should qualify as "portfolio interest,"
subject to the conditions described in "--Taxation of Owners of REMIC Regular
Certificates" above, but only to the extent that the underlying mortgage
loans were originated after July 18, 1984. Furthermore, the rate of
withholding on any income on a REMIC Residual Certificate that is excess
inclusion income will not be subject to reduction under any applicable tax
treaties. See "--Taxation of Owners of REMIC Residual Certificates--Excess
Inclusions" above. If the portfolio interest exemption is unavailable, such
amount will be subject to United States withholding tax when paid or
otherwise distributed (or when the REMIC Residual Certificate is disposed of)
under rules similar to those for withholding upon disposition of debt
instruments that have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance
of tax (for example, where the REMIC Residual Certificates do not have
significant value). See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC
Residual Certificateholders that are not U.S. Persons are effectively
connected with their conduct of a trade or business within the United States,
the 30% (or lower treaty rate) withholding will not apply. Instead, the
amounts paid to such non-U.S. Person will be subject to U.S. federal income
taxation at regular graduated rates. For special restrictions on the
transfer of REMIC Residual Certificates, see "--Tax-Related Restrictions on
Transfers of REMIC Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their
tax advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests
in such entity are not held by "disqualified organizations" (as defined
below). Further, a tax is imposed on the transfer of a residual interest in
a REMIC to a "disqualified organization." The amount of the tax equals the
product of (A) an amount (as determined under the REMIC Regulations) equal to
the present value of the total anticipated "excess inclusions" with respect
to such interest for periods after the transfer and (ii) the highest marginal
federal income tax rate applicable to corporations. The tax is imposed on
the transferor unless the transfer is through an agent (including a broker or
other middleman) for a disqualified organization, in which event the tax is
imposed on the agent. The person otherwise liable for the tax shall be
relieved of liability for the tax if the transferee furnished to such person
an affidavit that the transferee is not a disqualified organization and, at
the time of the transfer, such person does not have actual knowledge that the
affidavit is false. A "disqualified organization" means (A) the United
States, any State, possession or political subdivision thereof, any foreign
government, any international organization or any agency or instrumentality
of any of the foregoing (provided that such term does not include an
instrumentality if all its activities are subject to tax and, except for
FHLMC, a majority of its board of directors is not selected by any such
governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of
(A) the amount of excess inclusions for the taxable year allocable to the
interest held by the disqualified organization and (B) the highest marginal
federal income tax rate applicable to corporations. The pass-through entity
otherwise liable for the tax, for any period during which the disqualified
organization is the record holder of an interest in such entity, will be
relieved of liability for the tax if such record holder furnishes to such
entity an affidavit that such record holder is not a disqualified
organization and, for such period, the pass-through entity does not have
actual knowledge that the affidavit is false. For this purpose, a
"pass-through entity" means (i) a regulated investment company, real estate
investment trust or common trust fund, (ii) a partnership, trust or estate
and (iii) certain cooperatives. Except as may be provided in Treasury
regulations not yet issued, any person holding an interest in a pass-through
entity as a nominee for another will, with respect to such interest, be
treated as a pass-through entity. The tax on pass-through entities is
generally effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts, common
trust funds and publicly-traded partnerships the tax shall apply only to
taxable years of such entities beginning after December 31, 1988. Under
proposed legislation, large partnerships (generally with 250 or more
partners) will be taxable on excess inclusion income as if all partners were
disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may
be purchased, transferred or sold, directly or indirectly, without the
express written consent of the Master Servicer. The Master Servicer will
grant such consent to a proposed transfer only if it receives the following:
(i) an affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by
the proposed transferee to the effect that the proposed transferee agrees to
be bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic
REMIC Residual Certificate to a "U.S. Person," as defined above, unless no
significant purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A Noneconomic REMIC Residual Certificate is
any REMIC Residual Certificate (including a REMIC Residual Certificate with a
positive value at issuance) unless, at the time of transfer, taking into
account the Prepayment Assumption and any required or permitted clean up
calls or required liquidation provided for in the REMIC's organizational
documents, (i) the present value of the expected future distributions on the
REMIC Residual Certificate at least equals the product of the present value
of the anticipated excess inclusions and the highest corporate income tax
rate in effect for the year in which the transfer occurs and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. A
significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its
share of the taxable income of the REMIC. A transferor is presumed not to
have such knowledge if (i) the transferor conducted a reasonable
investigation of the transferee and (ii) the transferee acknowledges to the
transferor that the residual interest may generate tax liabilities in excess
of the cash flow and the transferee represents that it intends to pay such
taxes associated with the residual interest as they become due. If a
transfer of a Noneconomic REMIC Residual Certificate is disregarded, the
transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion
of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule
appears to apply to a transferee who is not a U.S. Person unless such
transferee's income in respect of the REMIC Residual Certificate is
effectively connected with the conduct of a United Sates trade or business.
A REMIC Residual Certificate is deemed to have a tax avoidance potential
unless, at the time of transfer, the transferor reasonably expect that the
REMIC will distribute to the transferee amounts that will equal at least 30
percent of each excess inclusion, and that such amounts will be distributed
at or after the time the excess inclusion accrues and not later than the end
of the calendar year following the year of accrual. If the non-U.S. Person
transfers the REMIC Residual Certificate to a U.S. Person, the transfer will
be disregarded, and the foreign transferor will continue to be treated as the
owner, if the transfer has the effect of allowing the transferor to avoid tax
on accrued excess inclusions. The provisions in the REMIC Regulations
regarding transfers of REMIC Residual Certificates that have tax avoidance
potential to foreign persons are effective for all transfers after June 30,
1992. The Agreement will provide that no record or beneficial ownership
interest in a REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless such person provides the Trustee with
a duly completed IRS Form 4224 and the Trustee consents to such transfer in
writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in
any purported transferee. Investors in REMIC Residual Certificates are
advised to consult their own tax advisors with respect to transfers of the
REMIC Residual Certificates and, in addition, pass-through entities are
advised to consult their own tax advisors with respect to any tax which may
be imposed on a pass-through entity.
TAX CHARACTERIZATION OF A TRUST FUND AS A PARTNERSHIP
Brown & Wood llp, special counsel to the Depositor, will deliver its
opinion that a Trust Fund for which a partnership election is made will not
be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion will be based on the
assumption that the terms of the Trust Agreement and related documents will
be complied with, and on counsel's conclusions that (1) the Trust Fund will
not have certain characteristics necessary for a business trust to be
classified as an association taxable as a corporation and (2) the nature of
the income of the Trust Fund will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations or the issuance of
the Certificates has been structured as a private placement under an IRS safe
harbor, so that the Trust Fund will not be characterized as a publicly traded
partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its
taxable income. The Trust Fund's taxable income would include all its
income, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments
on the Notes and distributions on the Certificates, and Certificateholders
could be liable for any such tax that is unpaid by the Trust Fund.
A. TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Special counsel to the Depositor will,
except as otherwise provided in the related Prospectus Supplement, advise the
Depositor that the Notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
OID, etc. The discussion below assumes that all payments on the Notes
are denominated in U.S. dollars. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for "qualified stated
interest" under the OID regulations, and that any OID on the Notes (i.e., any
excess of the principal amount of the Notes over their issue price) does not
exceed a de minimis amount (i.e., 1/4% of their principal amount multiplied
by the number of full years included in their term), all within the meaning
of the OID regulations. If these conditions are not satisfied with respect
to any given series of Notes, additional tax considerations with respect to
such Notes will be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder
of a Note issued with a de minimis amount of OID must include such OID in
income, on a pro rata basis, as principal payments are made on the Note. It
is believed that any prepayment premium paid as a result of a mandatory
redemption will be taxable as contingent interest when it becomes fixed and
unconditionally payable. A purchaser who buys a Note for more or less than
its principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain
cash method holders, including regulated investment companies, as set forth
in Section 1281 of the Code) generally would be required to report interest
income as interest accrues on a straight-line basis over the term of each
interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note). However, a
cash basis holder of a Short-Term Note reporting interest income as it is
paid may be required to defer a portion of any interest expense otherwise
deductible on indebtedness incurred to purchase or carry the Short-Term Note
until the taxable disposition of the Short-Term Note. A cash basis taxpayer
may elect under Section 1281 of the Code to accrue interest income on all
nongovernment debt obligations with a term of one year or less, in which case
the taxpayer would include interest on the Short-Term Note in income as it
accrues, but would not be subject to the interest expense deferral rule
referred to in the preceding sentence. Certain special rules apply if a
Short-Term Note is purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously
received by such Noteholder with respect to such Note. Any such gain or loss
will be capital gain or loss if the Note was held as a capital asset, except
for gain representing accrued interest and accrued market discount not
previously included in income. Capital losses generally may be used only to
offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio
interest", and generally will not be subject to United States federal income
tax and withholding tax, if the interest is not effectively connected with
the conduct of a trade or business within the United States by the foreign
person and the foreign person (i) is not actually or constructively a "10
percent shareholder" of the Trust or the Depositor (including a holder of 10%
of the outstanding Certificates) or a "controlled foreign corporation" with
respect to which the Trust Fund or the Asset Seller is a "related person"
within the meaning of the Code and (ii) provides the Owner Trustee or other
person who is otherwise required to withhold U.S. tax with respect to the
Notes with an appropriate statement (on Form W-8 or a similar form), signed
under penalties of perjury, certifying that the beneficial owner of the Note
is a foreign person and providing the foreign person's name and address. If
a Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however,
the signed statement must be accompanied by a Form W-8 or substitute form
provided by the foreign person that owns the Note. If such interest is not
portfolio interest, then it will be subject to United States federal income
and withholding tax at a rate of 30 percent, unless reduced or eliminated
pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days
or more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust Fund will be
required to withhold 31 percent of the amount otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of special counsel to the Depositor, the IRS successfully asserted
that one or more of the Notes did not represent debt for federal income tax
purposes, the Notes might be treated as equity interests in the Trust Fund.
If so treated, the Trust Fund would likely be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) would be "unrelated business taxable
income", income to foreign holders generally would be subject to U.S. tax and
U.S. tax return filing and withholding requirements, and individual holders
might be subject to certain limitations on their ability to deduct their
share of the Trust Fund's expenses.
B. TAX CONSEQUENCES TO HOLDER OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. The Depositor will agree,
and the Certificateholders will agree by their purchase of Certificates, to
treat the Trust Fund as a partnership for purposes of federal and state
income tax, franchise tax and any other tax measured in whole or in part by
income, with the assets of the partnership being the assets held by the Trust
Fund, the partners of the partnership being the Certificateholders, and the
Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust Fund, the Certificates, the Notes, the
Trust Fund and the Master Servicer is not clear because there is no authority
on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a Series
of Securities includes a single class of Certificates. If these conditions
are not satisfied with respect to any given Series of Certificates,
additional tax considerations with respect to such Certificates will be
disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be
subject to federal income tax. Rather, each Certificateholder will be
required to separately take into account such holder's allocated share of
income, gains, losses, deductions and credits of the Trust Fund. The Trust
Fund's income will consist primarily of interest and finance charges earned
on the Mortgage Loans (including appropriate adjustments for market discount,
OID and bond premium) and any gain upon collection or disposition of Mortgage
Loans. The Trust Fund's deductions will consist primarily of interest
accruing with respect to the Notes, servicing and other fees, and losses or
deductions upon collection or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust Fund for each month equal to the sum of (i) the interest
that accrues on the Certificates in accordance with their terms for such
month, including interest accruing at the Pass-Through Rate for such month
and interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust Fund income attributable to discount on the
Mortgage Loans that corresponds to any excess of the principal amount of the
Certificates over their initial issue price; (iii) prepayment premium payable
to the Certificateholders for such month; and (iv) any other amounts of
income payable to the Certificateholders for such month. Such allocation
will be reduced by any amortization by the Trust Fund of premium on Mortgage
Loans that corresponds to any excess of the issue price of Certificates over
their principal amount. All remaining taxable income of the Trust Fund will
be allocated to the Company. Based on the economic arrangement of the
parties, this approach for allocating Trust Fund income should be permissible
under applicable treasury regulations, although no assurance can be given
that the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through
Rate plus the other items described above even though the Trust Fund might
not have sufficient cash to make current cash distributions of such amount.
Thus, cash basis holders will in effect be required to report income from the
Certificates on the accrual basis and Certificateholders may become liable
for taxes on Trust Fund income even if they have not received cash from the
Trust Fund to pay such taxes. In addition, because tax allocations and tax
reporting will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to
them by the Trust Fund.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Master Servicer but not interest expense) would be miscellaneous
itemized deductions. Such deductions might be disallowed to the individual
in whole or in part and might result in such holder being taxed on an amount
of income that exceeds the amount of cash actually distributed to such holder
over the life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were
to require that such calculations be made separately for each Mortgage Loan,
the Trust Fund might be required to incur additional expense but it is
believed that there would not be a material adverse effect on
Certificateholders.
Discount and Premium. It is believed that the Loans were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust Fund for the Mortgage Loans may be greater
or less than the remaining principal balance of the Loans at the time of
purchase. If so, the Loan will have been acquired at a premium or discount,
as the case may be. (As indicated above, the Trust Fund will make this
calculation on an aggregate basis, but might be required to recompute it on a
Mortgage Loan by Mortgage Loan basis.)
If the Trust Fund acquires the Mortgage Loans at a market discount or
premium, the Trust Fund will elect to include any such discount in income
currently as it accrues over the life of the Mortgage Loans or to offset any
such premium against interest income on the Mortgage Loans. As indicated
above, a portion of such market discount income or premium deduction may be
allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust Fund
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust Fund are sold or exchanged
within a 12-month period. If such a termination occurs, the Trust Fund will
be considered to distribute its assets to the partners, who would then be
treated as recontributing those assets to the Trust Fund as a new
partnership. The Trust Fund will not comply with certain technical
requirements that might apply when such a constructive termination occurs.
As a result, the Trust Fund may be subject to certain tax penalties and may
incur additional expenses if it is required to comply with those
requirements. Furthermore, the Trust Fund might not be able to comply due to
lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's tax basis in a Certificate will generally equal
the holder's cost increased by the holder's share of Trust Fund income
(includible in income) and decreased by any distributions received with
respect to such Certificate. In addition, both the tax basis in the
Certificates and the amount realized on a sale of a Certificate would include
the holder's share of the Notes and other liabilities of the Trust Fund. A
holder acquiring Certificates at different prices may be required to maintain
a single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a portion of such
aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss
on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Mortgage Loans would generally
be treated as ordinary income to the holder and would give rise to special
tax reporting requirements. The Trust Fund does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust Fund will elect to
include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates
owned by them as of the close of the last day of such month. As a result, a
holder purchasing Certificates may be allocated tax items (which will affect
its tax liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust Fund might be reallocated among the Certificateholders.
The Trust Fund's method of allocation between transferors and transferees may
be revised to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust Fund's assets will not be adjusted to
reflect that higher (or lower) basis unless the Trust Fund were to file an
election under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records,
as well as potentially onerous information reporting requirements, the Trust
Fund will not make such election. As a result, Certificateholders might be
allocated a greater or lesser amount of Trust Fund income than would be
appropriate based on their own purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust Fund. Such books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal
year of the Trust will be the calendar year. The Trustee will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the Trust Fund and will report each Certificateholder's allocable
share of items of Trust Fund income and expense to holders and the IRS on
Schedule K-1. The Trust Fund will provide the Schedule K-1 information to
nominees that fail to provide the Trust Fund with the information statement
described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed
by the Trust Fund or be subject to penalties unless the holder notifies the
IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
Fund with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes
(i) the name, address and taxpayer identification number of the nominee and
(ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and
(z) certain information on Certificates that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are required
to furnish directly to the Trust Fund information as to themselves and their
ownership of Certificates. A clearing agency registered under Section 17A of
the Exchange Act is not required to furnish any such information statement to
the Trust Fund. The information referred to above for any calendar year must
be furnished to the Trust Fund on or before the following January 31.
Nominees, brokers and financial institutions that fail to provide the Trust
Fund with the information described above may be subject to penalties.
The Company will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust Fund. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the
income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust Fund would be considered to be engaged in a trade or business in
the United States for purposes of federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is
not expected that the Trust Fund would be engaged in a trade or business in
the United States for such purposes, the Trust Fund will withhold as if it
were so engaged in order to protect the Trust Fund from possible adverse
consequences of a failure to withhold. The Trust Fund expects to withhold on
the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income
were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust Fund to change
its withholding procedures. In determining a holder's withholding status,
the Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit
that number to the Trust Fund on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be
entitled to file with the IRS a claim for refund with respect to taxes
withheld by the Trust Fund taking the position that no taxes were due because
the Trust Fund was not engaged in a U.S. trade or business. However,
interest payments made (or accrued) to a Certificateholder who is a foreign
person generally will be considered guaranteed payments to the extent such
payments are determined without regard to the income of the Trust Fund. If
these interest payments are properly characterized as guaranteed payments,
then the interest will not be considered "portfolio interest." As a result,
Certificateholders will be subject to United States federal income tax and
withholding tax at a rate of 30 percent, unless reduced or eliminated
pursuant to an applicable treaty. In such case, a foreign holder would only
be enticed to claim a refund for that portion of the taxes in excess of the
taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
TAX TREATMENT OF CERTIFICATES AS DEBT FOR TAX PURPOSES
A. CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
If the related Prospectus Supplement indicates that the Certificates
will be treated as indebtedness for federal income tax purposes, then based
on the application of existing law to the facts as set forth in the
Trust Agreement and other relevant documents and assuming compliance with
the terms of the Trust Agreement as in effect on the date of issuance of the
Certificates, Brown & Wood LLP, special tax counsel to the Depositor ("TAX
COUNSEL"), will deliver its opinion that the Certificates will be treated as
debt instruments for federal income tax purposes as of such date.
The Depositor and the Certificateholders will express in the related
Trust Agreement their intent that, for applicable tax purposes,
the Certificates will be indebtedness secured by the related Assets.
The Depositor and the Certificateholders, by accepting the Certificates,
and each Certificate Owner by its acquisition of a beneficial interest
in a Certificate, have agreed to treat the Certificates as indebtedness
for U.S. federal income tax purposes. However, because different
criteria are used to determine the non-taxing accounting
characterization of the transaction, the Depositor may treat this
transaction as a sale of an interest in the related Assets
for financial accounting and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured
by property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several
factors to be taken into account in determining whether the substance of a
transaction is a sale of property or a secured loan, the primary factor in
making this determination is whether the transferee has assumed the risk of
loss or other economic burdens relating to the property and has obtained the
benefits of ownership thereof. Tax Counsel will analyze and rely on several
factors in reaching its opinion that the weight of the benefits and burdens
of ownership of the Mortgage Loans will be retained by the Depositor and not
transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel will advise that the
rationale of those cases will not apply to this transaction, because the form
of the transaction as reflected in the operative provisions of the documents
either accords with the characterization of the Certificates as debt or
otherwise makes the rationale of those cases inapplicable to this situation.
B. TAXATION OF INTEREST INCOME OF CERTIFICATE OWNERS
Assuming that the Certificate Owners are holders of debt obligations for
U.S. federal income tax purposes, the Certificates generally will be taxable
in the following manner. While it is not anticipated that the Certificates
will be issued at a greater than de minimis discount, under the OID
Regulations it is possible that the Certificates could nevertheless be deemed
to have been issued with OID if the interest were not treated as
"unconditionally payable" under the OID Regulations. If such regulations
were to apply, all of the taxable income to be recognized with respect to the
Certificates would be includible in income of Certificate Owners as OID, but
would not be includible again when the interest is actually received.
C. POSSIBLE CLASSIFICATION OF THE TRUST FUND AS A PARTNERSHIP OR
ASSOCIATION TAXABLE AS A CORPORATION
Based on application of existing laws to the facts as set forth in the
Trust Agreement and other relevant documents and assuming compliance with the
terms of the Trust Agreement, Tax Counsel will deliver its opinion that the
transaction will not be treated as a partnership or an association taxable as
a corporation. The opinion of Tax Counsel is not binding on the courts or
the IRS. It is possible that the IRS could assert that, for purposes of the
Code, the transaction contemplated by this Prospectus Supplement with respect
to the Certificates constitutes a sale of the Mortgage Loans (or an interest
therein) to the Certificate Owners and that the proper classification of the
legal relationship between the Depositor and the Certificate Owners resulting
from this transaction is that of a partnership (including a publicly traded
partnership treated as a corporation), or an association taxable as a
corporation. Since Tax Counsel will advise that the Certificates will be
treated as indebtedness in the hands of the Certificateholders for U.S.
federal income tax purposes and that the entity constituted by the Trust will
not be a publicly traded partnership treated as a corporation or an
association taxable as a corporation, the Depositor will not attempt to
comply with U.S. federal income tax reporting requirements applicable to
partnerships or corporations as such requirements would apply if the
Certificates were treated as indebtedness.
If it were determined that this transaction created an entity classified
as a corporation (including a publicly traded partnership taxable as a
corporation), the Trust Fund would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the Mortgage Loans,
which would reduce the amounts available for distribution to the Certificate
Owners. Cash distributions to the Certificate Owners generally would be
treated as dividends for tax purposes to the extent of such corporation's
earnings and profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the Transferor, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as a
publicly traded partnership taxable as a corporation); rather, the Depositor
and each Certificate Owner would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of the
Certificate Owner could differ if the Certificates were held to constitute
partnership interests rather than indebtedness.
D. POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable Mortgage Pool" will be
classified as a taxable corporation and will not be permitted to file a
consolidated U.S. federal income tax return with another corporation. Any
entity (or portion of any entity) will be a taxable mortgage pool if (i)
substantially all of its assets consist of debt instruments, more than 50% of
which are real estate mortgages, (ii) the entity is the obligor under debt
obligations with two or more maturities, and (iii) under the terms of the
entity's debt obligations (or an underlying arrangement), payments on such
debt obligations bear a relationship to the debt instruments held by the
entity.
In the case of a Trsut Fund containing Mortgage Assets, assuming that
all of the provisions of the Trust Agreement, as in effect on the date
of issuance, will be complied with, Tax Counsel will deliver its opinion
that the arrangement created by the Agreement will not be a taxable
mortgage pool under Section 7701(i) of the Code because only one class of
indebtedness secured by the Mortgage Loans will be issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If
the IRS were to contend successfully (or future regulations were to provide)
that the arrangement created by the Trust Agreement is a taxable mortgage
pool, such arrangement would be subject to U.S. federal corporate income tax
on its taxable income generated by ownership of the Mortgage Loans. Such a
tax might reduce amounts available for distributions to Certificate Owners.
The amount of such a tax would depend upon whether distributions to
Certificate Owners would be deductible as interest expense in computing the
taxable income of such an arrangement as a taxable mortgage pool.
E. FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including OID) paid
on a Certificate to a nonresident alien individual, foreign corporation or
other non-United States person is not subject to U.S. federal income tax,
provided that such interest is not effectively connected with a trade or
business of the recipient in the United States and the Certificate Owner
provides the required foreign person information certification.
If the interests of the Certificate Owners were deemed to be partnership
interests, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest rate of tax applicable to that foreign
partner. In addition, such foreign partner would be subject to branch
profits tax. Each non-foreign partner would be required to certify to the
partnership that it is not a foreign person. The tax withheld from each
foreign partner would be credited against such foreign partner's U.S. income
tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an
applicable tax treaty.
The Small Business Job Protection Act of 1996 changed the definition of
a "foreign" trust. Under prior law, the definition was based on whether a
trust's foreign source income would be subject to U.S. tax. The new
definition contains two objective requirements which, if satisfied, will
cause a trust to be treated as a U.S. trust. It looks first to whether the
trust's administration is subject to a U.S. court's "primary supervision" and
second to whether U.S. fiduciaries control all substantial decisions of the
trust. If both these requirements are met, the trust is a U.S. trust. All
other trusts are "foreign" trusts.
F. BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Certificates if the
Certificate Owners, upon issuance of the Certificates, fail to supply the
Trustee or the Certificate Owners' brokers with their respective taxpayer
identification numbers, furnish an incorrect taxpayer identification number,
fail to report interest, dividends, or other "reportable payments" (as
defined in the Code) properly, or, under certain circumstances, fail to
provide the Trustee or the Certificate Owners' brokers with certified
statements, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the Certificates (and the amount of interest withheld for U.S.
federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their
status as nonresidents). As long as the only "Certificateholder" of record
is Cede, as nominee for DTC, Certificate Owners and the IRS will receive tax
and other information including the amount of interest paid on the
Certificates owned from Participants and Indirect Participants rather than
from the Trustee. (The Trustee, however, will respond to requests for
necessary information to enable Participants, Indirect Participants and
certain other persons to complete their reports.) Each non-exempt
Certificate Owner will be required to provide, under penalty of perjury, a
certificate on IRS Form W-9 containing his or her name, address, correct
federal taxpayer identification number and a statement that he or she is not
subject to backup withholding. Should a non-exempt Certificate Owner fail to
provide the required certification, the Participants or Indirect Participants
(or the Paying Agent) will be required to withhold 31% of the Interest (and
principal) otherwise payable to the holder, and remit the withheld amount to
the IRS as a credit against the holder's federal income tax liability.
RECENT LEGISLATION
During 1996, President Clinton signed into law the "Small Business Job
Protection Act of 1996" (the "Act"). The Act creates a new type of entity
for federal income tax purposes called a "financial asset securitization
investment trust" or "FASIT." Beginning in September of 1997, the Act
generally enables certain arrangements similar to a Trust Fund that is
treated as a partnership to elect to be treated as a FASIT. Under the Act, a
FASIT generally would avoid federal income taxation and could issue
securities substantially similar to the Certificates and Notes, and those
securities would be treated as debt for federal income tax purposes. If so
provided in the related Prospectus Supplement, the Agreement, the Trust
Agreement and/or the Indenture will set forth certain conditions which, if
satisfied, will permit the Depositor to amend such Agreement, Trust Agreement
and/or Indenture in order to enable all or a portion of the Trust Fund to
qualify as a FASIT and to permit a FASIT election to be made with respect
thereto, and to make such modifications to such Agreement, Trust Agreement
and/or Indenture as may be permitted by reason of the making of such an
election. However, the Depositor may, but is not obligated to, cause a FASIT
election and there can be no assurance that the Depositor will or will not
cause any permissible FASIT election to be made with respect to a Trust Fund
or amend the related Agreement, Trust Agreement and/or the Indenture in
connection with any election. Furthermore, any such election will be made
only if an opinion of federal tax counsel or special federal tax counsel is
rendered that such election will not have material adverse federal income
consequences to any holder of a Note or Certificate.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Considerations," potential investors should consider the
state and local income tax consequences of the acquisition, ownership, and
disposition of the Offered Securities. State and local income tax law may
differ substantially from the corresponding federal law, and this discussion
does not purport to describe any aspect of the income tax laws of any state
or locality. Therefore, potential investors should consult their own tax
advisors with respect to the various state and local tax consequences of an
investment in the Offered Securities.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans subject to
ERISA ("Plans") and on persons who are parties in interest or disqualified
persons ("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election
has been made under Section 410(d) of the Code), are not subject to the
restrictions of ERISA, and assets of such plans may be invested in the
Securities without regard to the ERISA considerations described below,
subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under Section 401(a) of the
Code and exempt from taxation under Section 501(a) of the Code is subject to
the prohibited transaction rules set forth in Section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions involving a Plan and its assets
unless a statutory or administrative exemption applies to the transaction.
Section 4975 of the Code imposes certain excise taxes (or, in some cases, a
civil penalty may be assessed pursuant to Section 502(i) of ERISA) on parties
in interest which engage in non-exempt prohibited transactions.
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining
what constitutes the assets of a Plan. This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity investment" will be deemed for purposes of ERISA to be assets of the
Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust Fund may be deemed to hold
plan assets by reason of a Plan's investment in a Security; such plan assets
would include an undivided interest in the Mortgage Loans or Contracts and
any other assets held by the Trust Fund. In such an event, the Asset Seller,
the Master Servicer, the Trustee, any insurer of the Assets and other
persons, in providing services with respect to the assets of the Trust Fund,
may be parties in interest, subject to the fiduciary responsibility
provisions of Title I of ERISA, including the prohibited transaction
provisions of Section 406 of ERISA (and of Section 4975 of the Code), with
respect to transactions involving such assets unless such transactions are
subject to a statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own at least 25% of the value of any class of equity interest.
--------
"Benefit plan investors" are defined as Plans as well as employee benefit
plans not subject to ERISA (e.g., governmental plans). The 25% limitation
must be met with respect to each class of certificates, regardless of the
portion of total equity value represented by such class, on an ongoing basis.
One such exception applies if the interest described is treated as
indebtedness under applicable local law and which has no substantial equity
features. Generally, a profits interest in a partnership, an undivided
ownership interest in property and a beneficial ownership interest in a trust
are deemed to be "equity interest" under the final regulation. If Notes of a
particular Series were deemed to be indebtedness under applicable local law
without any substantial equity features, an investing Plan's assets would
include such Notes, but not, by reason of such purchase, the underlying
assets of the Trust Fund.
Availability of Underwriter's Exemption for Certificates
Labor has granted to Merrill Lynch, Pierce, Fenner & Smith Incorporated
Prohibited Transaction Exemption 90-29, Exemption Application No. D-8012, 55
Fed. Reg. 21459 (1990) (the "Exemption") which exempts from the application
of the prohibited transaction rules transactions relating to: (1) the
acquisition, sale and holding by Plans of certain certificates representing
an undivided interest in certain asset-backed pass-through trusts, with
respect to which Merrill Lynch, Pierce, Fenner & Smith Incorporated or any of
its affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and (2) the servicing, operation and management of
such asset-backed pass-through trusts, provided that the general conditions
and certain other conditions set forth in the Exemption are satisfied. The
Exemption does not apply to Certificates evidencing an interest in a Trust
Fund containing Unsecured Home Improvement Loans, SBA Loans or SBA 504 Loans.
With respect to a series of Notes, the related Prospectus Supplement will
discuss whether the Exemption may be applicable to such Notes.
General Conditions of the Exemption. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates
or a transaction in connection with the servicing, operation and management
of the Trust may be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as
favorable to the investing Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced
by other certificates of the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from any of Duff & Phelps Inc., Fitch Investors
Service, Inc., Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group.
(4) The Trustee is not an affiliate of the Underwriter, the Asset
Seller, the Master Servicer, any insurer of the Mortgage Assets, any
borrower whose obligations under one or more Assets constitute more than
5% of the aggregate unamortized principal balance of the assets in the
Trust Fund, or any of their respective affiliates (the "Restricted
Group");
(5) The sum of all payments made to and retained by the Underwriter
in connection with the distribution of the Certificates represents not
more than reasonable compensation for underwriting such Certificates;
the sum of all payments made to and retained by the Asset Seller
pursuant to the sale of the Assets to the Trust Fund represents not more
than the fair market value of such Assets; the sum of all payments made
to and retained by the Master Servicer represent not more than
reasonable compensation for the Master Servicer's services under the
Agreement and reimbursement of the Master Servicer's reasonable expenses
in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of
the Exemption and (b) that the specific and general conditions set forth in
the Exemption and the other requirements set forth in the Exemption would be
satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Securities 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. Among other things, before purchasing
any Securities, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to
the availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
particular, in connection with a contemplated purchase of Securities
representing a beneficial ownership interest in a pool of single family
residential first mortgage loans, such Plan fiduciary should consider the
availability of the Exemption or Prohibited Transaction Class Exemption 83-1
("PTCE 83-1") for certain transactions involving mortgage pool investment
trusts. The Prospectus Supplement with respect to a series of Securities may
contain additional information regarding the application of the Exemption,
PTCE 83-1, or any other exemption, with respect to the Securities offered
thereby. PTCE 83-1 is not applicable to manufactured housing contract pool
investment trusts or multifamily mortgage pool investment trusts.
Purchasers that are insurance companies should consult with their
counsel with respect to the recent United States Supreme Court case
interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual
Life Insurance Co. v. Harris Trust & Savings Bank (decided December 13,
1993). In John Hancock, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed to be "plan assets" for
ERISA purposes under certain circumstances. Prospective purchasers should
determine whether the decision affects their ability to make purchases of the
Securities. In particular, such an insurance company should consider the
exemptive relief granted by Labor for transactions involving insurance
company general accounts in Prohibited Transactions Exemption 95-60, 60 Fed.
Reg. 35925 (July 12, 1995).
LEGAL INVESTMENT
Each class of Offered Securities will be rated at the date of issuance
in one of the four highest rating categories by at least one Rating Agency.
The related Prospectus Supplement will specify which classes of the
Securities, if any, will constitute "mortgage related securities" ("SMMEA
Securities") for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). SMMEA Securities will constitute legal investments for
persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including, but not limited to, state chartered savings
banks, commercial banks, savings and loan associations and insurance
companies, as well as trustees and state government employee retirement
systems) created pursuant to or existing under the laws of the United States
or of any state (including the District of Columbia and Puerto Rico) whose
authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Alaska, Arkansas,
Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas,
Maryland, Michigan, Missouri, Nebraska, New Hampshire, New York, North
Carolina, Ohio, South Dakota, Utah, Virginia and West Virginia enacted
legislation before the October 4, 1991 cutoff established by SMMEA for such
enactments, limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in mortgage related securities, in
most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Investors affected by such legislation will be
authorized to invest in SMMEA Certificates only to the extent provided in
such legislation. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities," or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this
connection, federal credit unions should review the National Credit Union
Administration ("NCUA") Letter to Credit Unions No. 96, as modified by Letter
to Credit Unions No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related securities, and
the NCUA's regulation "Investment and Deposit Activities" (12 C.F.R. Part
703), which sets forth certain restrictions on investment by federal credit
unions in mortgage related securities.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be
subject to restrictions on investment in certain classes of Offered
Securities. Any financial institution which is subject to the jurisdiction
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation ("FDIC"), the
Office of Thrift Supervision ("OTS"), the NCUA or other federal or state
agencies with similar authority should review any applicable rules,
guidelines and regulations prior to purchasing any Offered Security. The
Federal Financial Institutions Examination Council, for example, has issued a
Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "Policy Statement") setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Comptroller of the Currency, the Federal
Reserve Board, the FDIC, the OTS and the NCUA (with certain modifications),
with respect to the depository institutions that they regulate. The Policy
Statement generally indicates that a mortgage derivative product will be
deemed to be high risk if it exhibits greater price volatility than a
standard fixed rate thirty-year mortgage security. According to the Policy
Statement, prior to purchase, a depository institution will be required to
determine whether a mortgage derivative product that it is considering
acquiring is high-risk, and if so that the proposed acquisition would reduce
the institution's overall interest rate risk. Reliance on analysis and
documentation obtained from a securities dealer or other outside party
without internal analysis by the institution would be unacceptable. There
can be no assurance that any classes of Offered Securities will not be
treated as high-risk under the Policy Statement.
The predecessor to the OTS issued a bulletin, entitled, "Mortgage
Derivative Products and Mortgage Swaps", which is applicable to thrift
institutions regulated by the OTS. The bulletin established guidelines for
the investment by savings institutions in certain "high-risk" mortgage
derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According
to the bulletin, such "high-risk" mortgage derivative securities include
securities having certain specified characteristics, which may include
certain classes of Securities. In accordance with Section 402 of the
Financial Institutions Reform, Recovery and Enhancement Act of 1989, the
foregoing bulletin will remain in effect unless and until modified,
terminated, set aside or superseded by the FDIC. Similar policy statements
have been issued by regulators having jurisdiction over the types of
depository institutions.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "Model Law") which sets forth
model investment guidelines for the insurance industry. Institutions subject
to insurance regulatory authorities may be subject to restrictions on
investment similar to those set forth in the Model Law and other
restrictions.
If specified in the related Prospectus Supplement, other classes of
Offered Securities offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization
of this Offered Security under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase such
Offered Securities, may be subject to significant interpretive uncertainties.
Except as to the status of SMMEA Securities identified in the Prospectus
Supplement for a series as "mortgage related securities" under SMMEA, the
Depositor will make no representations as to the proper characterization of
the Offered Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
any Offered Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the Offered Securities) may adversely affect the liquidity
of the Offered Securities.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits and
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Securities or
to purchase Offered Securities representing more than a specified percentage
of the investor's assets. Accordingly, all investors whose investment
activities are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult with
their own legal advisors in determining whether and to what extent the
Offered Securities of any class constitute legal investments or are subject
to investment, capital or other restrictions, and, if applicable, whether
SMMEA has been overridden in any jurisdiction relevant to such investor.
PLAN OF DISTRIBUTION
The Offered Securities offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Securities may
be effected from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. If so specified in the related Prospectus Supplement, the Offered
Securities will be distributed in a firm commitment underwriting, subject to
the terms and conditions of the underwriting agreement, by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") acting as underwriter
with other underwriters, if any, named therein. In such event, the Prospectus
Supplement may also specify that the underwriters will not be obligated to
pay for any Offered Securities agreed to be purchased by purchasers pursuant
to purchase agreements acceptable to the Depositor. In connection with the
sale of Offered Certificates, underwriters may receive compensation from the
Depositor or from purchasers of Offered Securities in the form of discounts,
concessions or commissions. The Prospectus Supplement will describe any such
compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Securities will be distributed by Merrill Lynch acting as agent or in some
cases as principal with respect to Offered Securities that it has previously
purchased or agreed to purchase. If Merrill Lynch acts as agent in the sale
of Offered Securities, Merrill Lynch will receive a selling commission with
respect to such Offered Securities, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of
such Offered Securities as of the Cut-off Date. The exact percentage for each
series of Securities will be disclosed in the related Prospectus Supplement.
To the extent that Merrill Lynch elects to purchase Offered Securities as
principal, Merrill Lynch may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Securities of such series.
The Depositor will indemnify Merrill Lynch and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Merrill Lynch and any underwriters may
be required to make in respect thereof.
In the ordinary course of business, Merrill Lynch and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's or Asset Seller's
Assets pending the sale of such Assets or interests therein, including the
Securities.
Offered Securities will often be sold primarily to institutional
investors. Purchasers of Offered Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Offered Securities. Securityholders should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
As to each series of Securities, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor or
Asset Seller, and may be sold by the Depositor or Asset Seller at any time in
private transactions.
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.
LEGAL MATTERS
Certain legal matters in connection with the Securities, including
certain federal income tax consequences, will be passed upon for the
Depositor by Brown & Wood llp, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Securities and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Securities. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Securities
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying assets and
the credit quality of the guarantor, if any. Ratings on mortgage pass-through
certificates and other asset backed securities do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally
anticipated. As a result, securityholders might suffer a lower than
anticipated yield, and, in addition, holders of stripped interest
certificates in extreme cases might fail to recoup their initial investments.
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.
INDEX OF PRINCIPAL DEFINITIONS
PAGE(S) ON WHICH
TERM IS DEFINED
TERMS IN THE PROSPECTUS
Accrual Securities . . . . . . . . . . . . . . . . . . . . . . . . . 11, 35
Accrued Security Interest . . . . . . . . . . . . . . . . . . . . . . . . 37
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 88
Asset Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 22
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . . . 36
Balloon Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . 18
Book-Entry Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Buydown Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . 33
Buydown Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Cash Flow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 10, 29
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contract Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 8, 22
Contributions Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Covered Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 65
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . 35, 43
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 22
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 115
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Government Securities . . . . . . . . . . . . . . . . . . . . . . . 1, 8, 22
Grantor Trust Certificates . . . . . . . . . . . . . . . . . . . . . . . 13
Home Equity Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 24
Home Improvement Contract . . . . . . . . . . . . . . . . . . . . . . . . 24
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
L/C Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Lock-out Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Lock-out Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
manufactured housing contracts . . . . . . . . . . . . . . . . . . . . . 20
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 22
MBS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
MBS Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
MBS Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
MBS Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Merrill Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Mortgage Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Mortgage Loan Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 22
Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Mortgage Participations . . . . . . . . . . . . . . . . . . . . . . 1, 6, 22
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 24
Multifamily Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . 23
Multifamily Property . . . . . . . . . . . . . . . . . . . . . . . . . 7, 23
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . . 39
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Offered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Originator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 37
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . 43
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 28
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . 10, 28
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Prepayment Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Refinance Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Related Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
REMIC Regular Certificates . . . . . . . . . . . . . . . . . . . . . 13, 91
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
REMIC Residual Certificates . . . . . . . . . . . . . . . . . . . . . 13, 91
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Retained Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 27
SBA Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 27
SBA 504 Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 22
SBA 504 Loan Program . . . . . . . . . . . . . . . . . . . . . . . 8, 22, 28
Section 7(a) Program . . . . . . . . . . . . . . . . . . . . . . . . . 8, 27
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Security Balance . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 38
Security Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 35
Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Servicing Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Single Family Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . 23
Single Family Property . . . . . . . . . . . . . . . . . . . . . . . . 7, 23
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 117
SMMEA Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Stripped ARM Obligations . . . . . . . . . . . . . . . . . . . . . . . . 89
Stripped Interest Certificates . . . . . . . . . . . . . . . . . . . 11, 35
Stripped Principal Securities . . . . . . . . . . . . . . . . . . . . 11, 35
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Sub-Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 53
Subordinate Securities . . . . . . . . . . . . . . . . . . . . . . . 11, 35
Subsequent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 28
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Underlying MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Underlying Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . 22
Unsecured Home Improvement Loans . . . . . . . . . . . . . . . . . 1, 7, 22
Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Warranting Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Whole Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering of the Securities being registered under this Registration
Statement, other than underwriting discounts and commissions:
SEC Registration Fee $303,031
Printing and Engraving $ 60,000
Legal Fees and Expenses $200,000
Trustee Fees and Expenses $ 20,000
Blue Sky Fees and Expenses $ 10,000
Rating Agency Fees $200,000
Miscellaneous $ 6,969
Total $800,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's By-Laws provide for indemnification of directors and
officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents
in connection with actions, suits or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees or agents, against
expenses incurred in any such action, suit or proceeding. The Delaware
General Corporation Law also provides that the Registrant may purchase
insurance on behalf of any such director, officer, employee or agent.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Merrill Lynch Mortgage Investors,
Inc., as amended.
*3.2 By-laws of Merrill Lynch Mortgage Investors, Inc. as currently in
effect.
*4.1 Form of Pooling and Servicing Agreement (including form of
Certificate as an exhibit thereto).
*4.2 Form of Pooling and Servicing Agreement (Contracts)
(including form of Certificate as an exhibit thereto).
*4.3 Form of Trust Agreement (including form of Certificate as an exhibit
thereto).
4.4 Form of Indenture (including form of Note as an exhibit thereto).
4.5 Form of Pooling and Servicing Agreement (revolving home equity
loans) (including form of Certificate as an exhibit thereto).
5.1 Opinion of Brown & Wood LLP as to legality of certain Certificates
and Notes (including consent of such firm).
5.2 Opinion of Richards, Layton & Finger as to the legality of certain
Certificates (including consent of such firm).
8.1 Opinion of Brown & Wood LLP as to certain tax matters (including
consent of such firm).
23.1 Consent of Brown & Wood LLP (included in exhibits 5.1 and 8.1
hereof).
23.2 Consent of Richards, Layton & Finger (included in exhibit 5.2).
24.1 Power of Attorney (included as page II-4 to original filing and page
II-4 of Amendment No. 1).
*99.1 Form of Sale and Servicing Agreement.
*99.2 Form of Mortgage Loan Purchase Agreement
99.3 Form of Mortgage Loan Purchase Agreement (revolving home equity
loans)
* Filed previously with the Commission on September 10, 1996 as an exhibit
to Amendment No. 1 to the Registration Statement on Form S-3 (No. 333-
07569).
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change of such information in the Registration
Statement.
Provided, however, That paragraphs (1)(i) and (1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertaking in respect of incorporation of reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person, in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes to file an application for the purpose
of determining the eligibility of the trustee to act under subsection (a) of
section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of that act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in New York, New York on the 23rd
day of May, 1997.
Merrill Lynch Mortgage Investors, Inc.
By: /s/ Michael M. McGovern
----------------------------
Name: Michael M. McGovern
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Michael M. McGovern, Jeffrey W.
Kronthal, Daniel G. Pace, Peter J. Cerwin and Bruce Ackerman, or any of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities indicated on May 23, 1997.
Signature Title
--------- -----
/s/ Jeffrey W. Kronthal President and Chairman of the Board of
________________________
Directors (Chief Executive Officer)
(Jeffrey W. Kronthal)
/s/ Daniel G. Pace Treasurer (Principal Financial Officer and
- ------------------------- Principal Accounting Officer)
(Daniel G. Pace)
_________________________ Director
(Donald J. Puglisi
/s/ Michael M. McGovern Director
- --------------------------
(Michael M. McGovern)
Registration No. 333-24327
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
MERRILL LYNCH MORTGAGE INVESTORS, INC.
(Exact name of registrant as specified in its governing instrument)
_____________________
EXHIBIT VOLUME
===============================================================================
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Merrill Lynch Mortgage Investors,
Inc., as amended.
*3.2 By-laws of Merrill Lynch Mortgage Investors, Inc. as currently in
effect.
*4.1 Form of Pooling and Servicing Agreement (including form of
Certificate as an exhibit thereto).
*4.2 Form of Pooling and Servicing Agreement (Contracts)
(including form of Certificate as an exhibit thereto).
*4.3 Form of Trust Agreement (including form of Certificate as an exhibit
thereto).
4.4 Form of Indenture (including form of Note as an exhibit thereto).
4.5 Form of Pooling and Servicing Agreement (revolving home equity
loans) (including form of Certificate as an exhibit thereto).
5.1 Opinion of Brown & Wood LLP as to legality of certain Certificates
and Notes (including consent of such firm).
5.2 Opinion of Richards, Layton & Finger as to the legality of certain
Certificates (including consent of such firm).
8.1 Opinion of Brown & Wood LLP as to certain tax matters (including
consent of such firm).
23.1 Consent of Brown & Wood LLP (included in exhibits 5.1 and 8.1
hereof).
23.2 Consent of Richards, Layton & Finger (included in exhibit 5.2).
24.1 Power of Attorney (included as page II-4 to original filing and page
II-4 of Amendment No. 1).
*99.1 Form of Sale and Servicing Agreement.
*99.2 Form of Mortgage Loan Purchase Agreement
99.3 Form of Mortgage Loan Purchase Agreement (revolving home equity
loans)
- ----------------
* Filed previously with the Commission on September 10, 1996 as an exhibit
to Amendment No. 1 to the Registration Statement on Form S-3 (No. 333-
07569).
Exhibit 1.1
MERRILL LYNCH MORTGAGE INVESTORS, INC., DEPOSITOR
Asset Backed Securities
Series 199_-_
UNDERWRITING AGREEMENT
----------------------
__________ __, 1996
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
World Financial Center
North Tower
New York, New York 10281
Ladies and Gentlemen:
Merrill Lynch Mortgage Investors, Inc. (the "Company"), a Delaware
corporation, with its principal place of business in New York, New York, is a
wholly-owned limited-purpose finance company of Merrill Lynch Mortgage
Capital Inc. ("MLMC"), a Delaware corporation, which is an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc., a Delaware corporation. The
Company has authorized the issuance and sale of Asset Backed Securities
having aggregate outstanding principal balances of up to ($____________) (the
"Securities"). The Securities may be issued in various series, and, within
each series, in one or more classes, and, within each class, in one or more
sub-classes, in one or more offerings on terms determined at the time of sale
(each such series, a "Series" and each such class, a "Class"). Each Series
of the Securities will be issued under a separate Pooling and Servicing
Agreement (each, a "Pooling and Servicing Agreement") with respect to such
Series among the Company, as depositor, a master servicer to be identified in
the prospectus supplement for each such Series (the "Master Servicer") and a
trustee to be identified in the prospectus supplement for each such Series
(the "Trustee") or a separate Trust Agreement (each a "Trust Agreement")
between the Company, an owner trustee (the "Owner Trustee") to be named in
the related prospectus supplement and another entity to be named in such
prospectus supplement or an Indenture (each an "Indenture") between the trust
created by the related Trust Agreement and an indenture trustee (the
"Indenture Trustee") named in the related prospectus supplement. The
Securities will be described in the related prospectus supplement. The
Securities of each Series will evidence specified interests in, or be
supported by, the assets (the "Assets") described in the related prospectus
supplement, and certain other property held in trust with respect to such
Series (each, a "Trust Fund").
The Securities are more fully described in a Prospectus and Prospectus
Supplement (hereinafter defined) which the Company has furnished to you.
Capitalized terms used but not defined herein shall have the meanings given
to them in the (Pooling and Servicing Agreement) (Trust Agreement)
(Indenture). The term "you" as used herein, unless the context otherwise
requires, shall mean you and such persons, if any, as are named as co-
managers in the applicable Terms Agreement (defined below).
Each offering of Securities pursuant to this Agreement will be made
through you or through an underwriting syndicate managed by you. Whenever
the Company determines to make an offering of Securities it will enter into
an agreement (the "Terms Agreement") providing for the sale of such
Securities to, and the purchase and offering thereof by, you and such other
underwriters, if any, selected by you as have authorized you to enter into
such Terms Agreement on their behalf (the "Underwriters," which term shall
include you whether acting alone in the sale of Securities or as a member of
an underwriting syndicate). The Terms Agreement relating to each offering of
Securities shall specify, among other things, the principal amount or amounts
of Securities to be issued, the price or prices at which the Securities are
to be purchased by the Underwriters from the Company and the initial public
offering price or prices or the method by which the price or prices at which
such Securities are to be sold will be determined. A Terms Agreement, which
shall be substantially in the form of Exhibit A hereto, may take the form of
an exchange of any standard form of written telecommunication between you and
the Company. Each offering of Securities will be governed by this Agreement,
as supplemented by the applicable Terms Agreement, and this Agreement and
such Terms Agreement shall inure to the benefit of and be binding upon the
Underwriters participating in the offering of such Securities.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File No. 333-7569)
relating to the Securities, and the offering thereof from time to time in
accordance with Rule 415 under the Securities Act of 1933, as amended (the
"1933 Act"), and has filed, and proposes to file, such amendments thereto as
may have been required to the date hereof and as shall be required prior to
the effective date thereof pursuant to the 1933 Act and the rules of the
Commission thereunder (the "Regulations"). Such registration statement, as
amended at the time when each becomes effective under the 1933 Act and at the
Representation Date defined below, is referred to herein as the "Registration
Statement". The base prospectus relating to the sale of a particular Series
of Securities by the Company is referred to herein as the "Basic Prospectus,"
and a supplement to the Prospectus contemplated by Section 3(a) hereof is
referred to herein as a "Prospectus Supplement". The Basic Prospectus and
the related Prospectus Supplement are collectively referred to as the
"Prospectus".
SECTION 1. Representations and Warranties. (a) The Company
------------------------------
represents and warrants to you as of the date hereof, and to the
Underwriters, if any, named in the applicable Terms Agreement, all as of the
date of such Terms Agreement (in each case, the "Representation Date"), as
follows:
(1) The Registration Statement, at the time the Registration
Statement became effective did, and the Registration Statement,
Prospectus and Prospectus Supplement as of the applicable Representation
Date will, comply in all material respects with the requirements of the
1933 Act and the Regulations. The Registration Statement, at the time
it became effective did not, and as of the applicable Representation
Date will not, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The Prospectus, as amended or
supplemented as of the applicable Representation Date, does not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
(i) any statements in, or omissions from, the Registration Statement or
the Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by the Underwriters expressly for
use in the Registration Statement or the Prospectus or (ii) information
in any "Computational Materials" or "Structural Term Sheets" (each as
hereinafter defined) provided by the Underwriter to the Company pursuant
to Section 4 except to the extent that the information set forth therein
is based on or constitutes "Pool Information". As used herein, Pool
Information means information with respect to the characteristics of the
Assets as provided by, or on behalf of, the Company or MLCC to the
Underwriter in final form and set forth in the Prospectus Supplement.
The conditions to the use by the Company of a registration statement on
Form S-3 under the 1933 Act, as set forth in the General Instructions to
Form S-3, have been satisfied with respect to the Registration Statement
and the Prospectus. There are no contracts or documents of the Company
which are required to be filed as exhibits to the Registration Statement
pursuant to the 1933 Act or the Regulations which have not been so
filed.
(2) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware
with corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus and
to enter into and perform its obligations under this Agreement, the
applicable Pooling and Servicing Agreement, and with respect to a Series
of Securities, the Securities and the applicable Terms Agreement; and
the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which the
ownership or lease of its properties or the conduct of its business
requires such qualification.
(3) The Company is not in violation of its certificate of
incorporation or by-laws or in default in the performance or observance
of any material obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which it is a party or by which it or its properties
may be bound, which default might result in any material adverse change
in the financial condition, earnings, affairs or business of the Company
or which might materially and adversely affect the properties or assets
thereof.
(4) The execution and delivery by the Company of this Agreement,
the applicable Terms Agreement and the applicable Pooling and Servicing
Agreement are within the corporate power of the Company and have been
duly authorized by all necessary corporate action on the part of the
Company; and with respect to a Series of Securities, neither the issu-
ance and sale of the Securities to the Underwriters, nor the execution
and delivery by the Company of this Agreement and the related Pooling
and Servicing Agreement, nor the consummation by the Company of the
transactions therein contemplated, nor compliance by the Company with
the provisions hereof or thereof, will materially conflict with or
result in a material breach of, or constitute a material default under,
any of the provisions of any law, governmental rule, regulation,
judgment, decree or order binding on the Company or its properties or
the restated certificate of incorporation or by-laws of the Company, or
any of the provisions of any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or
result in the creation or imposition of any lien, charge or encumbrance
upon any of its property pursuant to the terms of any such indenture,
mortgage, contract or other instrument.
(5) This Agreement has been, and each applicable Terms Agreement
when executed and delivered as contemplated hereby and thereby, will
have been duly authorized, executed and delivered by the Company, and
each constitutes, or will constitute when so executed and delivered, a
legal, valid and binding instrument enforceable against the Company in
accordance with its terms, subject (a) to applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
creditors' rights generally, (b) as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (c) as to enforceability with
respect to rights of indemnity thereunder, to limitations of public
policy under applicable securities laws.
(6) Each applicable (Pooling and Servicing Agreement) (Trust
Agreement) when executed and delivered as contemplated hereby and
thereby will have been duly authorized, executed and delivered by the
Company, and will constitute when so executed and delivered, a legal,
valid and binding instrument enforceable against the Company in
accordance with its terms, subject (a) to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and (b) as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(7) As of the Closing Time (as defined in Section 2 below) with
respect to a Series of Securities, the Securities will have been duly
and validly authorized by the Company, and, when executed and
authenticated as specified in the related (Pooling and Servicing
Agreement) (Trust Agreement) (Indenture), will be validly issued and
outstanding and will be entitled to the benefits of the related (Pooling
and Servicing Agreement) (Trust Agreement) (Indenture).
(8) There are no actions, proceedings or investigations now
pending against the Company or, to the knowledge of the Company,
threatened against the Company, before any court, administrative agency
or other tribunal (i) asserting the invalidity of this Agreement, the
applicable (Pooling and Servicing Agreement) (Trust Agreement)
(Indenture) or with respect to a Series of Securities, the Securities,
(ii) seeking to prevent the issuance of such Securities or the
consummation of any of the transactions contemplated by this Agreement
or such Pooling and Servicing Agreement, (iii) which might materially
and adversely affect the performance by the Company of its obligations
under, or the validity or enforceability of, this Agreement or such
Securities or (iv) seeking to adversely affect the federal income tax
attributes of such Securities described in the Prospectus and the
related Prospectus Supplement.
(9) Any taxes, fees and other governmental charges that are
assessed and due in connection with the execution, delivery and issuance
of this Agreement, the applicable (Pooling and Servicing Agreement)
(Trust Agreement) (Indenture) and with respect to a Series of
Securities, or the Securities shall have been paid at or prior to the
Closing Time with respect to such Series of Securities.
(10) No filing or registration with, notice to or consent,
approval, authorization or order of any court or governmental authority
or agency is required for the consummation by the Company of the
transactions contemplated by this Agreement, the applicable Pooling and
Servicing Agreement or the applicable Terms Agreement, except such as
may be required under the 1933 Act, the Regulations, or state securities
or Blue Sky laws.
(11) The Company possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business
now operated by it and as described in the Prospectus and the Company
has received no notice of proceedings relating to the revocation or
modification of any such license, certificate, authority or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the
conduct of the business, operations, financial condition or income of
the Company.
(12) As of the Closing Time, with respect to a Series of
Securities, each of the Assets will have the characteristics described
in the Prospectus Supplement.
(13) Neither the Company nor the Trust Fund created by the
applicable (Pooling and Servicing Agreement) (Trust Agreement) will be
subject to registration as an "investment company" under the Investment
Company Act of 1940, as amended (the "1940 Act").
(14) At the Closing Time, with respect to a Series of Securities,
the Securities, the applicable (Pooling and Servicing Agreement) (Trust
Agreement) (Indenture), the applicable Terms Agreement and any Credit
Enhancement, if any, will conform in all material respects to the
descriptions thereof contained in the Prospectus.
(15) At the Closing Time, with respect to a Series of Securities,
the Securities shall have received the certificate ratings specified in
the related Terms Agreement.
(b) The Underwriter represents and warrants to, and agrees with, the
Company as of the date hereof and as of the Representation Date that the
Underwriter has complied and will comply with all of its obligations arising
under Section 4 and, with respect to the Computational Materials and
Structural Term Sheets, if any, provided by the Underwriter to the Company
pursuant to Section 4, such Computational Materials and Structural Term
Sheets are accurate in all material respects (taking into account the
assumptions explicitly set forth in such Computational Materials and
Structural Term Sheets, except for any errors therein attributable to errors
or mistakes in the Pool Information). The Computational Materials and
Structural Term Sheets provided by the Underwriter to the Company constitute
a complete set of all Computational Materials and Structural Term Sheets
required to be filed with the Commission pursuant to the No-Action Letters.
Any certificate signed by an officer of the Company, the Guarantor, the
Master Servicer, the Insurer or a provider of Alternate Credit Enhancement
and delivered to you or counsel for the Underwriters in connection with an
offering of Securities shall be deemed, a representation and warranty as to
the matters covered thereby to each person to whom the representations and
warranties in this Section 1 are made.
SECTION 2. Purchase and Sale. The commitment of the Underwriters
-----------------
to purchase Securities pursuant to any Terms Agreement shall be deemed to
have been made on the basis of the representations and warranties herein
contained and shall be subject to the terms and conditions herein set forth.
Payment of the purchase price for, and delivery of, any Securities to be
purchased by the Underwriters shall be made at the office of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, World Financial Center, North Tower, New
York, New York 10281, or at such other place as shall be agreed upon by you
and the Company, at such time or date as shall be agreed upon by you and the
Company in the Terms Agreement (each such time and date being referred to as
a "Closing Time"). Unless otherwise specified in the applicable Terms
Agreement, payment shall be made to the Company, at the option of the
Company, either (a) by certified or official bank check or checks in New York
Clearing House or similar next day funds payable to the order of the Company,
or (b) in immediately available Federal funds wired to such bank as may be
designated by the Company; provided, however, that if payment is made in
immediately available Federal funds, the Company shall simultaneously
reimburse the Underwriters for the cost to the Underwriters of such funds,
based on the Underwriters' cost of borrowing such funds for one day at their
most favorable commercial paper rate at the Closing Time. Such Securities
shall be in such denominations and registered in such names as you may
request in writing at least two business days prior to the applicable Closing
Time. Such Securities, which may be in temporary form, will be made
available for examination and packaging by you no later than 12:00 noon on
the first business day prior to the applicable Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with
------------------------
each of you and the Underwriters participating in the applicable offering of
a Series of Securities, as follows with respect to such Series of Securities:
(a) Contemporaneously with the execution of each Terms Agreement,
the Company will prepare a Prospectus Supplement setting forth the
principal amount of Securities covered thereby, the price or prices at
which the Securities are to be purchased by the Underwriters from the
applicable Trust, either the initial public offering price or prices or
the method by which the price or prices by which the Securities are to
be sold will be determined, the selling concession(s) and
reallowance(s), if any, any delayed delivery arrangements, and such
other information as you and the Company deem appropriate in connection
with the offering of the Securities. The Company will promptly transmit
copies of the Prospectus Supplement to the Commission for filing
pursuant to Rule 424 under the 1933 Act and will furnish to the
Underwriters as many copies of the Prospectus and such Prospectus
Supplement as you shall reasonably request.
(b) If at any time when the Prospectus is required by the 1933 Act
to be delivered in connection with sales of the Securities by you or the
Underwriters, any event shall occur or condition exists as a result of
which it is necessary, in the opinion of your counsel, counsel for the
Company, or otherwise, to further amend or supplement the Prospectus in
order that the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of circumstances existing at the time
it is delivered to a purchaser, not misleading or if it shall be neces-
sary, in the opinion of any such counsel or otherwise, at any such time
to amend or supplement the Registration Statement or the Prospectus in
order to comply with the requirements of the 1933 Act or the Regulations
thereunder, the Company will promptly prepare and file with the
Commission such amendment or supplement as may be necessary to correct
such untrue statement or omission or to make the Registration Statement
comply with such requirements, and within two business days will furnish
to the Underwriters as many copies of the Prospectus, as so amended or
supplemented, as you shall reasonably request.
(c) The Company will give you reasonable notice of its intention
to file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus, whether pursuant to the 1933 Act or
otherwise, will furnish you with copies of any such amendment or
supplement or other documents proposed to be filed a reasonable time in
advance of filing, and will not file any such amendment or supplement or
other documents in a form to which you or your counsel shall object.
(d) The Company will notify you immediately, and confirm the
notice in writing, (i) of the effectiveness of any amendment to the
Registration Statement, (ii) of the mailing or the delivery to the
Commission for filing of any supplement to the Prospectus or any
document, other than quarterly and annual reports to be filed pursuant
to the Securities Exchange Act of 1934, as amended (the "1934 Act"),
(iii) of the receipt of any comments from the Commission with respect to
the Registration Statement, the Prospectus or any Prospectus Supplement,
(iv) of any request by the Commission for any amendment to the
Registration Statement of any amendment or supplement to the Prospectus
or for additional information, and (v) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose. The
Company will make every reasonable effort to prevent the issuance of any
stop order and, if any stop order is issued, to obtain the lifting
thereof at the earliest possible moment.
(e) The Company will deliver to you as many signed and as many
conformed copies of the Registration Statement (as originally filed) and
of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated by
reference in the Prospectus) as you may reasonably request.
(f) The Company will endeavor, in cooperation with you, to qualify
the Securities for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States as you
may designate, and will maintain or cause to be maintained such
qualifications in effect for as long as may be required for the
distribution of the Securities. The Company will file or cause the
filing of such statements and reports as may be required by the laws of
each jurisdiction in which the Securities have been qualified as above
provided.
(g) The Company will file the Computational Materials and
Structural Term Sheets provided to it by the Underwriter under Section 4
with the Commission pursuant to a Current Report on Form 8-K not later
than 10:00 a.m. on the day the Prospectus is delivered to the
Underwriter or, in the case of any Collateral Term Sheet required to be
filed pursuant to the No-Action Letters, not later than the second
business day following the first day on which the Collateral Term Sheet
has been sent to a prospective investor; provided, however, that as a
condition to the filing of the Computational Materials and Structural
Term Sheets by the Company, the Company must receive a letter from a
firm of independent certified public accountants, which letter shall be
satisfactory in form and substance to the Company and its counsel, to
the effect that such accountants have performed certain specified
procedures, all of which have been agreed to by the Company, as a result
of which they have determined the accuracy in all material respects of
the numerical and financial information included in the Computational
Materials and Structural Term Sheets provided by the Underwriter to the
Company for filing with the Commission.
SECTION 4. Computational Materials, Collateral Term Sheets and
---------------------------------------------------
Structural Terms Sheets. It is understood that you may prepare and provide
- -----------------------
to prospective investors certain Computational Materials, Collateral Term
Sheets and Structural Term Sheets in connection with your offering of the
Securities, subject to the following conditions:
(a) The Underwriter shall comply with all applicable laws and
regulations in connection with the use of Computational Materials,
including the No-Action letter of May 20, 1994 issued by the Commission
to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co.
Incorporated and Kidder Structured Asset Corporation as made applicable
to other issuers and underwriters by the Commission in response to the
request of the Public Securities Association dated May 24, 1994
(collectively, the "Kidder/PSA Letter"), as well as the PSA Letter
referred to below. The Underwriter shall comply with all applicable
laws and regulations in connection with the use of Collateral Terms
Sheets and Structural Term Sheets, including the No-Action Letter of
February 17, 1995 issued by the Commission to the Public Securities
Association (the "PSA Letter" and, together with the Kidder/PSA Letter,
the "No-Action Letters").
(b) As used herein, "Computational Materials" shall have the
meaning given such term in the No-Action Letters, but shall include only
those Computational Materials that have been prepared and delivered to
prospective investors by or at the direction of the Underwriter. As
used herein, "Structural Term Sheets" and "Collateral Term Sheets" shall
have the meanings given such terms in the PSA Letter, but shall include
(i) only those Structural Term Sheets that have been prepared and
delivered to prospective investors by or at the direction of the
Underwriter and (ii) only those Collateral Term Sheets that have been
prepared by the Company or the Underwriter and delivered to prospective
investors by or at the direction of the Underwriter.
(c) The Underwriter shall provide to the Company copies (in such
format as is required by the Company) of all Computational Materials and
Structural Term Sheets that are required to be filed with the Commission
pursuant to the No-Action Letters. The Underwriter may provide to the
Company copies of the foregoing in a consolidated or aggregated form,
including all information required to be filed. All Computational
Materials and Structural Term Sheets must be provided to the Company by
the Underwriter not later than 10:00 a.m. on the first business day
prior to the day on which the filing of such materials is to be made
with the Commission.
(d) (i) All Computational Materials and Structural Term Sheets
provided to prospective investors by the Underwriter that are required
to be filed pursuant to the No-Action Letters shall bear a legend on
each page in the following form:
"THE INFORMATION HEREIN HAS BEEN PROVIDED SOLELY BY
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
("MERRILL LYNCH"). NEITHER MERRILL LYNCH, THE ISSUER OF
SECURITIES NOR ANY OF ITS AFFILIATES MAKES ANY
REPRESENTATION AS TO THE ACCURACY OR COMPLETENESS OF THE
INFORMATION HEREIN. THE INFORMATION HEREIN IS
PRELIMINARY, AND WILL BE SUPERSEDED BY THE APPLICABLE
PROSPECTUS SUPPLEMENT AND BY ANY OTHER INFORMATION
SUBSEQUENTLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION."
(ii) In the case of Collateral Term Sheets, such legend shall
also include the following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED BY
THE DESCRIPTION OF THE COLLATERAL POOL CONTAINED IN THE
PROSPECTUS SUPPLEMENT RELATING TO THE SECURITIES AND
SUPERSEDES ALL INFORMATION CONTAINED IN ANY COLLATERAL
TERM SHEETS RELATING TO THE COLLATERAL POOL PREVIOUSLY
PROVIDED BY MERRILL LYNCH."
Notwithstanding the foregoing legends, this subsection (d) shall be
satisfied if all Computational Materials, Structural Term Sheets and
Collateral Term Sheets bear a legend in a form or forms previously
approved in writing by the Company.
(e) The Company shall not be obligated to file any Computational
Materials or Structural Term Sheets that have been determined to contain
any material errors or omissions; provided, however, that, at the
request of the Underwriter, the Company shall file Computational
Materials or Structural Term Sheets containing material errors or
omissions if clearly marked "superseded by materials dated ____________"
and accompanied by corrected Computational Materials or Structural Term
Sheets that are marked "these materials supersede and correct the
materials dated ____________."
SECTION 5. Conditions of Underwriters' Obligations. The
---------------------------------------
obligations of the Underwriters to purchase Securities pursuant to any Terms
Agreement are subject to the accuracy of the representations and warranties
on the part of the Company herein contained, to the accuracy of the
statements of the Company's officers made pursuant hereto, to the performance
by the Company of all of its obligations hereunder and to the following
further conditions:
(a) At the applicable Closing Time (i) no stop order suspending
the effectiveness of the Registration Statement shall have been issued
or proceedings therefor initiated or threatened by the Commission, (ii)
the Securities shall have received the rating or ratings specified in
the applicable Terms Agreement, and (iii) there shall not have come to
your attention any facts that would cause you to believe that the
Prospectus at the time it was required to be delivered to a purchaser of
the Securities, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances existing at such time,
not misleading.
(b) At the applicable Closing Time, you shall have received:
(1) The favorable opinion, dated as of the applicable Closing
Time, of Brown & Wood, special counsel to the Company, in form and
substance satisfactory to such of you as may be named in the
applicable Terms Agreement, to the effect that:
(i) The Company is validly existing as a corporation in
good standing under the laws of the State of Delaware.
(ii) The Company has the corporate power and corporate
authority to carry on its business as described in the
Prospectus and to own and operate its properties in connection
therewith.
(iii) This Agreement has been duly authorized, executed
and delivered by the Company.
(iv) The (Pooling and Servicing Agreement) (Trust
Agreement) has been duly authorized, executed and delivered by
the Company and is a valid and binding obligation of the
Company, enforceable against the Company in accordance with
its terms, except that (A) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors'
rights generally and (B) such enforcement may be limited by
general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(v) The execution and delivery by the Company of this
Agreement and the (Pooling and Servicing Agreement) (Trust
Agreement) and the signing of the Registration Statement by
the Company are within the corporate power of the Company and
have been duly authorized by all necessary corporate action on
the part of the Company; and neither the issue and sale of the
Securities, nor the consummation of the transactions
contemplated in this Agreement nor the fulfillment of the
terms of such Underwriting Agreements will result in any
violation of the provisions of the certificate of
incorporation or by-laws of the Company or, to the best of
such counsel's knowledge, any New York or federal law,
administrative regulation or administrative or court decree
applicable to the Company.
(vi) The Securities have been duly authorized by the
Company and, when executed and authenticated as specified in
the (Pooling and Servicing Agreement) (Trust Agreement)
(Indenture) and delivered and paid for pursuant to this
Agreement and the Sale Agreement, will be duly issued and
entitled to the benefits of the (Pooling and Servicing
Agreement) (Trust Agreement) (Indenture).
(vii) To the best of such counsel's knowledge, no filing
or registration with or notice to or consent, approval,
authorization or order of any New York or federal court or
governmental authority or agency is required for the
consummation by the Company of the transactions contemplated
by this Agreement, except such as may be required under the
1933 Act, the Regulations, state securities or Blue Sky laws.
(viii) The Registration Statement is effective under the
1933 Act and, to the best of such counsel's knowledge and
information, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by the
Commission.
(ix) The Pooling and Servicing Agreement is not required
to be qualified under the Trust Indenture Act of 1939, as
amended.
(x) To the best of such counsel's knowledge, there are
no contracts or documents of the Company which are required to
be filed as exhibits to the Registration Statement pursuant to
the 1933 Act or the Regulations thereunder which have not been
so filed.
(xi) The statements in the Prospectus under the heading
"Certain Federal Income Tax Consequences," to the extent that
they constitute matters of law or legal conclusions with
respect thereto, have been prepared or reviewed by such
counsel and are correct in all material respects.
(xii) The Trust Fund created by the Pooling and Servicing
Agreement is not required to register as an "investment
company" under the Investment Company Act of 1940, as amended.
(xiii) The statements in the Prospectus under the caption
"Description of the Securities," insofar as such statements
purport to summarize certain terms of the Securities and the
(Pooling and Servicing Agreement) (Trust Agreement)
(Indenture), constitute a fair summary of such documents in
all material respects.
(xiv) The Registration Statement, as of the date it
becomes effective, and the Prospectus, as of the date thereof
(other than, in each case, the financial statements and other
financial, statistical and numerical information included
therein, as to which no opinion is rendered), complied as to
form in all material respects with the requirements of the
1933 Act and the Regulations thereunder.
((xv) Based solely upon the representations of the Master
Servicer in the Pooling and Servicing Agreement, the Class A
Securities will be mortgage related securities, as defined in
Section 3(a)(41) of the Securities Exchange Act of 1934, as
amended, so long as such Securities are rated in one of the
two highest grades by at least one nationally recognized
statistical rating organization.)
((xvi) Based solely upon the representations and warranties
of the Master Servicer in the Pooling and Servicing Agreement
and assuming compliance with the pertinent provisions of the
Pooling and Servicing Agreement, as of the date of such
opinion, under existing law, the Trust Fund will qualify as a
real estate mortgage investment conduit (a "REMIC") under the
Internal Revenue Code of 1986, as amended, the Class A and the
Class B Securities will be treated as "regular interests" in
such REMIC and the Class R Securities will be treated as the
single class of "residual interests" in such REMIC.)
Such counsel shall deliver to you such additional opinions addressing
the transfer by the Company to the Trustee of its right, title and interest
in and to the Assets and other property included in the Trust Fund on the
Closing Time as may be required by each Rating Agency rating the Securities.
Such counsel shall state that it has participated in conferences with
officers and other representatives of the Company, your counsel,
representatives of the independent accountants for the Company and you at
which the contents of the Registration Statement and the Prospectus were
discussed and, although such counsel is not passing upon and does not assume
responsibility for, the factual accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (except
as stated in paragraphs (xii) and (xiv) above) and has made no independent
check or verification thereof for the purpose of rendering this opinion, on
the basis of the foregoing (relying as to materiality to a large extent upon
the certificates of officers and other representatives of the Company),
nothing has come to their attention that leads such counsel to believe that
either the Registration Statement, at the time it became effective, or the
Prospectus at the time the Prospectus was delivered to you contained or at
the closing time, contains an untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that such counsel need express no view with respect to the financial
statements, schedules and other financial and statistical data included in or
incorporated by reference into the Registration Statement or the Prospectus.
Said counsel may state that they are admitted to practice only in the
State of New York, that they are not admitted to the Bar in any other State
and are not experts in the law of any other State and to the extent that the
foregoing opinions concern the laws of any other State such counsel may rely
upon the opinion of counsel satisfactory to the Underwriters and admitted to
practice in such jurisdiction. Any opinions relied upon by such counsel as
aforesaid shall be addressed to the Underwriters and shall be delivered
together with the opinion of such counsel, which shall state that such
counsel believes that their reliance thereon is justified.
(2) The favorable opinion of counsel to the (Owner)
(Indenture) Trustee, dated as of the applicable Closing Time,
addressed to you and in form and scope satisfactory to your
counsel, to the effect that:
(i) The (Owner) (Indenture) Trustee is a
____________________ with trust powers, duly organized and
validly existing in good standing under the laws of
________________________, and has all requisite power and
authority to enter into the Agreement and perform the
obligations of Trustee.
(ii) The (Pooling and Servicing Agreement) (Trust
Agreement) (Indenture) has been duly authorized, executed, and
delivered by the (Owner) (Indenture) Trustee, and constitutes
the legal, valid, and binding obligation of the (Owner)
(Indenture) Trustee enforceable against the (Owner)
(Indenture) Trustee in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy and
insolvency laws and other similar laws affecting the
enforcement of creditors' rights generally and by general
equity principles.
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent deemed proper and stated therein, on certificates of
responsible officers of the (Owner) (Indenture) Trustee or public officials.
(3) The favorable opinion of counsel to the Master
Servicer, dated as of the applicable Closing Time, addressed to you
and in form and scope satisfactory to your counsel, to the effect
that:
(i) The Master Servicer has been duly organized and is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and is duly
qualified to do business, and is in good standing, as a
foreign corporation under the laws of each jurisdiction in
which the performance of its duties under the applicable
Pooling and Servicing Agreement would require such
qualification.
(ii) The execution and delivery by the Master Servicer of
the applicable Pooling and Servicing Agreement is within the
corporate power of the Master Servicer and has been duly
authorized by all necessary corporate action on the part of
the Master Servicer; and neither the execution and delivery of
such instrument, nor the consummation of the transactions
provided for therein, nor compliance with the provision
thereof, will conflict with or constitute a breach of, or
default under, any contract, indenture, mortgage, loan
agreement, note, lease, deed of trust, or other instrument to
which the Master Servicer is a party or by which it may be
bound, nor will such action result in any violation of the
provisions of the charter or by-laws of the Master Servicer or
any law, administrative regulation or administrative or court
decree.
(iii) The applicable Pooling and Servicing Agreement has
been duly executed and delivered by the Master Servicer and
constitute a valid and binding obligation of the Master
Servicer enforceable against the Master Servicer in accordance
with its terms, except that such enforceability thereof may be
subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
generally and subject as to enforceability, to general prin-
ciples of equity (regardless whether enforcement is sought in
a proceeding in equity or at law).
(iv) The execution, delivery and performance by the
Master Servicer of the applicable Pooling and Servicing
Agreement do not require the consent or approval of, the
giving of notice to, the registration with, or the taking of
any other action in respect of any federal, state or other
governmental agency or authority which has not previously
been effected.
(v) The description of the Master Servicer in the
Prospectus and the Prospectus Supplement is true and correct
in all material respects.
((4) The favorable opinion of counsel to each provider of
Credit Enhancement, if any, named in a Prospectus Supplement, dated
as of the applicable Closing Time, addressed to you and in form and
scope satisfactory to your counsel, to the effect that:
(i) Such provider of Credit Enhancement has been duly
organized and is validly existing as a corporation under the
laws of the jurisdiction of its incorporation, is duly quali-
fied to do business in all jurisdictions where the nature of
its operations as contemplated by the Credit Enhancement
legally requires such qualification, and has the power and
authority (corporate and other) to issue, and to take all
action required of it under, the Credit Enhancement.
(ii) The execution, delivery and performance by such
provider of Credit Enhancement of the Credit Enhancement have
been duly authorized by all necessary corporate action on the
part of the provider of Credit Enhancement, and under present
law do not and will not contravene any law or governmental
regulation or order presently binding on such provider of
Credit Enhancement or the charter of the by-laws of such
provider of Credit Enhancement or contravene any provision of
or constitute a default under any indenture, contract or other
instrument to which the provider of Credit Enhancement is a
party or by which such provider of Credit Enhancement is
bound.
(iii) The execution, delivery and performance by such
provider of Credit Enhancement of the Credit Enhancement do
not require the consent or approval of, the giving of notice
to, the registration with, or the taking of any other action
in respect of any federal, state or other governmental agency
or authority which has not previously been effected.
(iv) The Credit Enhancement has been duly issued by such
provider of Credit Enhancement and constitutes the valid and
binding agreement of such provider of Credit Enhancement,
enforceable against the provider of Credit Enhancement in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and subject as to
enforceability to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
(v) The Credit Enhancement conforms in all material
respects to the description thereof in the applicable
Prospectus Supplement under the caption "Credit Enhancement."
To the extent required by applicable legal requirements, the
Credit Enhancement form has been filed with, and approved by,
all governmental authorities having jurisdiction over the
provider of Credit Enhancement in connection with such Credit
Enhancement.)
(5) The favorable opinion or opinions, dated as of the
applicable Closing Time, of counsel for the Underwriters, with
respect to the issue and sale of the Securities, the Registration
Statement, this Agreement, the applicable Terms Agreement, the
Prospectus, the applicable Prospectus Supplement and other related
matters as the Underwriters may require.
(c) At the applicable Closing Time you shall have received a
certificate of an Assistant Vice President (or more senior officer) of
the Company, dated as of such Closing Time, to the effect that the
representations and warranties of the Company contained in Section 1 are
true and correct with the same force and effect as though such Closing
Time were a Representation Date.
(d) You shall have received from independent certified public
accountants acceptable to you, a letter, dated as of the date of the
applicable Terms Agreement and as of the applicable Closing Time,
delivered at such times, in the form heretofore agreed to.
(e) At the applicable Closing Time, with respect to a Series of
Securities, each of the representations and warranties of the Master
Servicer set forth in the related Pooling and Servicing Agreement will
be true and correct.
(f) At the applicable Closing Time, with respect to a Series of
Securities, the Securities shall have received the certificate rating or
ratings specified in the related Terms Agreement.
(g) At the applicable Closing Time, counsel for the Underwriters
shall have been furnished with such documents as they may reasonably
require for the purpose of enabling them to pass upon the issuance and
sale of the Securities as herein contemplated and related proceedings or
in order to evidence the accuracy and completeness of any of the
representations and warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to you and
counsel for the Underwriters.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, the applicable Terms Agreement may be
terminated by you by notice to the Company at any time at or prior to the
Applicable Closing Time, and such termination shall be without liability of
any party to any other party except as provided in Section 6.
SECTION 6. Payment of Expenses. The Company will pay all
-------------------
expenses incident to the performance of its obligations under this Agreement
and any Terms Agreement, including without limitation those related to (i)
the filing of the Registration Statement and all amendments thereto, (ii) the
printing and delivery to the Underwriters, in such quantities as you may
reasonably request, of copies of this Agreement, each Terms Agreement, any
agreements among Underwriters, the Memorandum and any selling agreements and
Underwriters' questionnaires and powers of attorney, (iii) the preparation,
issuance and delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel and accountants, (v) the
qualification of the Securities under Securities and Blue Sky laws and the
determination of the eligibility of the Securities for investment in
accordance with the provisions of Section 3(f), including filing fees, and
the fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of any Blue Sky Survey and
Legal Investment Survey, (vi) the printing and delivery to the Underwriters,
in such quantities as you may reasonably request, hereinabove stated, of
copies of the Registration Statement, and Prospectus and all amendments and
Supplements thereto, and of any Blue Sky Survey and Legal Investment Survey,
(vii) the printing and delivery to the Underwriter, in such quantities as you
may reasonably request, of copies of each Pooling and Servicing Agreement,
(viii) the fees charged by investment rating agencies for rating the
Securities, (ix) the fee and expenses, if any, incurred in connection with
the listing of the Securities on any national securities exchange, and (x)
the fees and expenses of the Trustee and its counsel. The cost of the
accountant's comfort letter referred to in Section 3(g) will be an expense of
the Underwriter.
If a Terms Agreement is terminated by you in accordance with the
provisions of Section 5 or Section 10(i), the Company shall reimburse you for
all reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
SECTION 7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters within
the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless (A) such untrue
statement or omission or alleged untrue statement or omission was made
in reliance upon and in conformity with written information furnished to
the Company by the Underwriters expressly for use in the Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment
or supplement thereto) or (B) such untrue statement or omission or
alleged untrue statement or omission relates to information in any
Computational Materials or Structural Term Sheets provided by the
Underwriter to the Company pursuant to Section 4 (except to the extent
that any untrue statements or errors contained therein are based on or
constitute Pool Information);
(ii) against any and all loss, liability, claim, damage
and expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency, or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, if such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever (including
the fees and disbursements of counsel chosen by you) reasonably incurred
in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above.
This indemnity agreement will be in addition to any liability which the
Company may otherwise have. Insofar as this indemnity may permit
indemnification for liabilities under the 1933 Act of any person who is a
partner of the Underwriter entitled to indemnity hereby or who controls the
Underwriters within the meaning of Section 15 of the 1933 Act and who, at the
date of this Agreement, is a director, officer or controlling person of the
Company, such indemnity agreement is subject to the undertaking of the
Company in the Registration Statement.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of the Company's directors, each of the Company's
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, but only with respect
to (i) untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or
any Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by the
Underwriters expressly for use in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto)
or (ii) information in any Computational Materials or Structural Term Sheets
provided by the Underwriter to the Company pursuant to Section 4 (except to
the extent that any untrue statements or errors contained therein are based
on or constitute Pool Information). This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it with respect to which
indemnity may be sought hereunder but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action. In no event
shall the indemnifying parties be liable for the fees and expenses of more
than one counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
SECTION 8. Contribution. In order to provide for just and
------------
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 7 is for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the
Company on the one hand, and the Underwriters, on the other, shall contribute
to the aggregate losses, liabilities, claims, damages and expenses of the
nature contemplated by said indemnity agreement incurred by the Company and
one or more of the Underwriters in such proportions that the Underwriters are
responsible for that portion represented by the underwriting compensation
earned by them bears to the initial public offering price or prices and the
Company shall be responsible for the balance; provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section, each person, if any, who controls the Underwriters within the
meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Underwriters and each director of the Company, such
officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as the Company.
SECTION 9. Representations, Warranties, and Agreements to
----------------------------------------------
Survive Delivery. All representations, warranties and agreements
- ----------------
contained in this Agreement, or contained in certificates of officers of the
Company submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any termination of this Agreement, or any
investigation made by or on behalf of the Underwriters or controlling person
thereof, or by or on behalf of the Company and shall survive delivery of any
Securities to the Underwriters.
SECTION 10. Termination of Agreement. This Agreement may be
------------------------
terminated for any reason at any time by either the Company or you upon the
giving of thirty days' notice of such termination to the other party hereto.
You, as Representative of the Underwriters named in any Terms Agreement, may
also terminate such Terms Agreement, immediately upon notice to the Company,
at any time at or prior to the applicable Closing Time (i) if there has been,
since the date of such Terms Agreement or since the respective dates as of
which information is given in the Registration Statement or Prospectus any
change, or any development involving a prospective change, in or affecting
the condition, financial or otherwise, earnings, affairs or business of the
Company, whether or not arising in the ordinary course of business, which in
your judgment would materially impair the market for, or the investment
quality of, the Securities to be purchased pursuant to such Terms Agreement,
or (ii) if there has occurred any outbreak of hostilities or other calamity
or crisis the Effect of which on the financial markets of the United States
is such as to make it, in your judgment, impracticable to market such
Securities or enforce contracts for the sale of such Securities, or (iii) if
trading generally on either the New York Stock Exchange or the American Stock
Exchange has been suspended, or minimum or maximum prices for trading have
been fixed, or maximum ranges for prices for securities have been required,
by either of said exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by
either Federal or New York authorities. In the event of any such
termination, (A) the covenants set forth in Section 3 with respect to any
offering of such Securities shall remain in effect so long as the
Underwriters own any such Securities purchased from the Company pursuant to
the applicable Terms Agreement and (B) the covenant set forth in Section
3(c), the provisions of Section 6, the indemnity agreement set forth in
Section 7, the contribution provisions set forth in Section 8, and the
provisions of Section 9 and 14 shall remain in effect.
SECTION 11. Default by One or More of the Underwriters. If one
------------------------------------------
or more of the Underwriters participating in an offering of Securities shall
fail at the applicable Closing Time to purchase the Securities which it or
they are obligated to purchase hereunder and under the applicable Terms
Agreement (the "Defaulted Securities"), then such of you as are named therein
shall have the right, within 24 hours thereafter, to make arrangements for
one or more of the non-defaulting Underwriters, or any other Underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth. If,
however, you have not completed such arrangements within such 24-hour period,
then:
(a) if the aggregate principal amount of Defaulted Securities
does not exceed 10% of the aggregate principal amount of the Securities
to be purchased pursuant to such Terms Agreement, the non-defaulting
Underwriters named in such Terms Agreement shall be obligated to
purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all such non-defaulting Underwriters, or
(b) if the aggregate principal amount of Defaulted Securities
exceeds 10% of the aggregate principal amount of the Securities to be
purchased pursuant to such Terms Agreement, the applicable Terms
Agreement shall terminate, without any liability on the part of any non-
defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriters from liability with respect to any default of such Underwriters
under this Agreement and the applicable Terms Agreement.
In the event of a default by any Underwriters as set forth in this
Section, either you or the Company shall have the right to postpone the
applicable Closing Time for a period of time not exceeding seven days in
order that any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements may be effected.
SECTION 12. Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to you at the address set forth on the
first page hereof, attention Syndicate Department. Notices to the Company
shall be directed to Merrill Lynch Mortgage Investors, Inc., 250 Vesey
Street, World Financial Center - North Tower, 10th Floor, New York, New York
10281-1310, attention of the Secretary, with a copy to the Treasurer.
SECTION 13. Parties. This Agreement shall inure to the benefit
-------
of and be binding upon you and the Company and any Terms Agreement shall
inure to the benefit of and be binding upon the Company and any Underwriters
who become a party to any Terms Agreement, and their respective successors.
Nothing expressed or mentioned in this Agreement or any Terms Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto or thereto and their respective successors and the
controlling person and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives any legal or equitable right,
remedy or claim under or with respect to this Agreement or any Terms
Agreement or any provision herein or therein contained. This Agreement and
any Terms Agreement and all conditions and provisions hereof or thereof are
intended to be for the sole and exclusive benefit of the parties and their
respective successors and their heirs and legal representative (to the extent
of their rights as specified herein and therein) and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriters shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. Governing Law and Time. This Agreement and each
----------------------
Terms Agreement shall be governed by the laws of the State of New York.
Specified times of day refer to New York City time.
SECTION 15. Counterparts. This Agreement and any Terms
------------
Agreement may be executed in counterparts, each of which shall constitute an
original of any party whose signature appears on it, and all of which shall
together constitute a single instrument.
* * *
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement
between you and the Company in accordance with its terms.
Very
truly yours,
MERRILL LYNCH MORTGAGE INVESTORS, INC.
By
-----------------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as of
the date first above written:
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By____________________________
Name:
Title:
MERRILL LYNCH MORTGAGE INVESTORS, INC.
ASSET BACKED SECURITIES, SERIES 199_____
TERMS AGREEMENT
---------------
Dated: _____________, 199_
To: Merrill Lynch Mortgage Investors, Inc., as Depositor (the
"Depositor") under the Pooling and Servicing Agreement to be dated
as of _____________, 199_ (the "Agreement").
Re: Underwriting Agreement dated ____________, 199_.
Series Designation: Merrill Lynch Mortgage Investors, Inc., Asset Backed
- ------------------
Securities, Series 199_-_.
<TABLE>
Terms of the Securities and Underwriting Compensation:
- -----------------------------------------------------
<CAPTION>
Class (1) Original Principal Pass-Through Price to
Amount Rate Public
$__________* ** ***
<S> <C> <C> <C>
</TABLE>
_________________________
(1) The Class __ Securities are the Offered Securities. The Class __
Security is subordinate to the Offered Securities.
* Approximate. Subject to permitted variance of plus or minus 5%.
** Subject to the more precise formulation described in the Prospectus (as
defined below).
*** The Class __ Securities are being offered by the Underwriter from time
to time in negotiated transactions or otherwise at varying prices to be
determined, in each case, at the time of sale.
Moody's Standard &
Security Investors Poor's Ratings
Rating Service Services
- ----------- --------- --------------
(REMIC Election:
--------------
The Depositor intends to cause the Trust Fund (exclusive of the security
interest in the Additional Collateral) to elect to be treated as a REMIC as
described in the Prospectus dated ___________, 199_ and the Prospectus
Supplement relating to the Class __ Securities, dated ____________, 199_
(together, the "Prospectus").)
Trust Fund:
- ----------
As described in the Prospectus.
(Credit Enhancement:
------------------
Payments on the Class __ Securities will be supported by (a limited
purpose surety bond), (a certificate insurance policy), (subordinate
class(es)) and (by overcollateralization), as described in the Prospectus.)
Cut-off Date:
- ------------
___________, 199_.
Distribution Date:
- -----------------
The __th day of each month or, if such day is not a Business Day, the
first Business Day thereafter, commencing in _____ 199.
Purchase Price:
- --------------
The purchase price payable by the Underwriter for the Class __
Securities is a percentage of the principal amount of such Class, as follows:
<TABLE>
<CAPTION> Aggregate Original Percentage
Principal of
Class Amount Principal
<S> <C> <C>
$ % *
</TABLE>
* The Class __ Securities are being offered by the Underwriter from time
to time in negotiated transactions or otherwise at varying prices to be
determined, in each case, at the time of sale.
(The undersigned represents and agrees that (i) it has not offered or
sold and, prior to the expiration of the period of six months from the
Closing Date referred to below, will not offer or sell any Class __
Securities to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances that have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulation 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Class __ Securities in,
from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any
documents received by it in connection with the issue of the Class __
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements)(Exemptions) Order
1995, or is a person to whom such document may otherwise lawfully be issued
or passed on.)
* * *
Closing Date and Location:
- -------------------------
_____________, 199_ at the offices of Brown & Wood, One World Trade Center,
New York, New York 10048.
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:_____________________________
Name:
Title:
ACCEPTED:
MERRILL LYNCH MORTGAGE INVESTORS, INC.
By:__________________________
Name:
Exhibit 3.1
OFFICERS CERTIFICATE RELATING TO
RESTATED CERTIFICATE OF INCORPORATION
OF
MERRILL LYNCH MORTGAGE INVESTORS, INC.
The undersigned, Bowers W. Espy, III, the President, and Steven B.
Theobald, the Secretary of Merrill Lynch Mortgage Investors, Inc., a Delaware
corporation (the "Corporation"), pursuant to Section 245 of the General
Corporation Law of the State of Delaware, do hereby certify and set forth as
follows:
1. The name of the Corporation is Merrill Lynch Mortgage
Investors, Inc.
2. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on June
13, 1986. The original Certificate of Incorporation was amended and
restated as filed with the Secretary of State of the State of Delaware
on April 27, 1987.
3. By unanimous written consent of the Board of Directors, a
resolution was duly adopted setting forth the following amendment and
restatement of the Certificate of Incorporation of the Corporation,
declaring such amendment and restatement to be advisable and directing
such statement to be submitted to the sole stockholder for approval and
said amendment and restatement was adopted by the sole stockholder by
its written consent in accordance with Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
4. The Certificate of Incorporation of the Corporation is
restated hereby to read in its entirety as follows:
RESTATED
CERTIFICATE OF INCORPORATION
OF
MERRILL LYNCH MORTGAGE INVESTORS, INC.
FIRST: The name of the Corporation is Merrill Lynch Mortgage Investors,
-----
Inc. (hereinafter referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its registered agent
at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is limited to: (a) issuing and
-----
selling one or more series of bonds secured primarily by mortgage collateral
and manufactured housing conditional sales contracts and loan agreements (the
"Contracts"), investing in certain mortgage collateral and Contracts to be
purchased with the proceeds of bonds secured by such mortgage collateral and
Contracts and taking certain other action with respect thereto, (b) selling
interests in mortgage loans, mortgage collateral and Contracts, evidencing
such interests with pass-through certificates, using the proceeds of the sale
of the pass-through certificates to acquire the mortgage loans, mortgage
collateral and Contracts, retaining an interest, including a subordinated
interest, in the mortgage loans, mortgage collateral or Contracts required
and sold and taking certain other action with respect thereto, and (c) acting
as settlor or depositor of trusts formed to issue series of bonds secured by
mortgage obligations, pass-through certificates in mortgage loans or other
mortgage collateral and Contracts and investing in or selling beneficial
interests in the same. The Corporation is not otherwise authorized to trade
or deal in securities or engage in any other activity other than issuing and
selling bonds or pass-through certificates under an indenture, trust
agreement, pooling and servicing agreement or other agreement, acting as
settlor or depositor of a trust formed to issue and sell bonds or
pass-through certificates and investing in or selling beneficial interests in
the same, acquiring, owning, holding and pledging or selling interests in
residential mortgage loans, mortgage collateral and Contracts, investing cash
balances on an interim basis in certain short-term investments and engaging
in activities incidental to and necessary to accomplish the foregoing.
FOURTH: The total number of shares of stock which the Corporation shall
------
have authority to issue is 1,000 shares of Common Stock, each having a par
value of one penny ($.01).
FIFTH:
-----
(1) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the By-Laws
of the Corporation.
(3) The number of directors of the Corporation shall be as from
time to time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless
the By-Laws so provide. At least one director and one executive officer
of the Corporation (who may be the same person) will not be a director,
officer or employee of any direct or ultimate parent of the Corporation.
(4) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to
the provisions of the General Corporation Law of the State of Delaware
(the "GCL"), this Certificate of Incorporation and any By-Laws adopted
by the stockholders; provided, however, that no By-Laws hereafter
adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been
adopted. The Corporation's board of directors will duly authorize all
of the Corporation's actions.
(5) The Corporation's assets will not be commingled with those of
any direct or ultimate parent of the Corporation.
(6) The Corporation will maintain separate corporate records and
books of account from those of any direct or ultimate parent of the
Corporation.
(7) The Corporation will maintain and conduct its business from an
office separate from that of any direct or ultimate parent, or
affiliate, of the Corporation.
SIXTH: Meetings of stockholders may be held within or without the State
-----
of Delaware, as the By-Laws may provide.
The books of the Corporation may be kept (subject to any provision contained
in the GCL) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the By-Laws of
the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
-------
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this
Corporation under the provisions of Section 291 of the GCL or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of the
GCL, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this Corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
EIGHTH: No director shall be personally liable to the Corporation or any
------
of its stockholders for monetary damages for breach o(Pound Sterling)
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the GCL or
(iv) for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article EIGHTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
NINTH: The Corporation reserves the right to amend, alter, change or
-----
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
made under the seal of the Corporation and has been signed by the undersigned
President of the Corporation, and attested by the undersigned Secretary
o(Pound Sterling) the Corporation, as of this 22nd day of July, 1987.
______________________________
Bowers W. Espy
President
ATTEST:
______________________________
Steven B. Theobald
Secretary
(Corporate Seal)
OFFICERS CERTIFICATE RELATING TO
RESTATED CERTIFICATE OF INCORPORATION
OF
MERRILL LYNCH MORTGAGE INVESTORS, INC.
The undersigned, Bowers W. Espy, III, the President, and Steven B.
Theobald, the Secretary of Merrill Lynch Mortgage Investors, Inc., a Delaware
corporation (the "Corporation"), pursuant to Section 245 of the General
Corporation Law of the State of Delaware, do hereby certify and set forth as
follows:
1. The name of the Corporation is Merrill Lynch Mortgage
Investors, Inc.
2. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on June
13, 1986. The original Certificate of Incorporation was amended and
restated as filed with the Secretary of State of the State of Delaware
on April 27, 1987.
3. By unanimous written consent of the Board of Directors, a
resolution was duly adopted setting forth the following amendment and
restatement of the Certificate of Incorporation of the Corporation,
declaring such amendment and restatement to be advisable and directing
such statement to be submitted to the sole stockholder for approval and
said amendment and restatement was adopted by the sole stockholder by
its written consent in accordance with Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
4. The Certificate of Incorporation of the Corporation is restated
hereby to read in its entirety as follows:
Exhibit A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MERRILL LYNCH MORTGAGE INVESTORS, INC.
* * * * * * * * * * * * * * *
Merrill Lynch Mortgage Investors, Inc., a corporation organized and
existing under the General Corporation law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation (the "Board")
has, in accordance with Section 141(f) of the General Corporation Law of the
State of Delaware, by unanimous written consent of all of the members of the
Board which has been filed with the minutes of the proceedings of the Board,
adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of Incorporation of the Corporation:
RESOLVED, that, pursuant to Section 241 of the Delaware General
Corporation Law, Article Third of the Certificate of Incorporation of the
Corporation be, and it hereby is, amended and restated in its entirety as
follows:
THIRD: The purpose of the Corporation is limited
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to: (a) issuing and selling one or more series of bonds secured
primarily by mortgage loans, mortgage collateral, manufactured
housing installment sales contracts and loan agreements (the
"Contracts") and/or other obligations and evidences of indebtedness,
and interests in or balances of any of the foregoing, investing
in mortgage loans, mortgage collateral, Contracts and/or other
obligations and evidences of indebtedness, and interests in or
balances of any of the foregoing, to be purchased with the proceeds of
bonds secured by such mortgage loans, mortgage collateral,
Contracts and/or other obligations and evidences of indebtedness,
and interests in or balances of any of the foregoing, and taking
certain other action with respect thereto, (b) selling interests in
mortgage loans, mortgage collateral, Contracts, and/or other
obligations and evidences of indebtedness, and interests in or
balances of any of the foregoing, evidencing such interests with
pass-through or other certificates, using the proceeds of the sale
of the pass-through or other certificates to acquire the mortgage
loans, mortgage collateral, Contracts and/or other obligations and
evidences of indebtedness, and interests in or balances of any of
the foregoing, retaining an interest, including a subordinated
interest, in the mortgage loans, mortgage collateral, Contracts
and/or other obligations and evidences of indebtedness, and
interests in or balances of any of the foregoing, acquired and sold
and taking certain other action with respect thereto, and (c)
acting as settlor or depositor of trusts formed to issue series of
bonds secured by, or pass-through or other certificates supported
by, mortgage loans, mortgage collateral, Contracts and/or other
obligations and evidences of indebtedness, and interests in or
balances of any of the foregoing, and investing in, selling or
otherwise dealing with the same. The Corporation is not otherwise
authorized to trade or deal in securities or engage in any other
activity other than issuing, selling or otherwise dealing with
bonds or pass-through or other certificates under an indenture,
trust agreement, pooling and servicing agreement or other
agreement, acting as settlor or depositor of a trust formed to
issue and sell bonds or pass-through or other certificates and
investing in, selling or otherwise dealing with the same,
acquiring, owning, holding and pledging or selling interests in
mortgage loans, mortgage collateral, Contracts and/or other
obligations and evidences of indebtedness, and interests in or
balances of any of the foregoing, investing cash balances on an
interim basis in certain short-term investments and engaging in
activities incidental to and necessary or appropriate to accomplish
the foregoing, including without limitation obtaining credit
support.
SECOND: That, in lieu of taking action at a meeting called and held in
accordance with Section 222 of the General Corporation Law of the State of
Delaware, the sole stockholder of the Corporation has, pursuant to Section 228
of the General Corporation Law of the State of Delaware, given unanimous
written consent to the adoption of such amendment.
THIRD: That, therefore, such amendment has been duly adopted in
accordance with the provision of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Merrill Lynch Investors, Inc. has caused this
certificate to be signed by Michael M. McGovern, its Secretary, and attested
by a duly authorized officer of the Corporation, this 26th day of September,
1996.
By____________________________
Michael G. McGovern
Secretary
ATTEST:
______________________
Exhibit 4.4
______________ LOAN TRUST 199_-__,
Issuer
AND
(_________________)
INDENTURE TRUSTEE
_________________________________________
INDENTURE
Dated as of _________, 199_
__________________________________________
ASSET BACKED NOTES
(ASSET BACKED VARIABLE FUNDING NOTES)
SERIES 199__-__
TABLE OF CONTENTS
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Section Page
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ARTICLE I
Definitions
1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.02. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 2
1.03. Rules of Construction. . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
Original Issuance of Notes
2.01. Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02. Execution, Authentication and Delivery . . . . . . . . . . . 4
ARTICLE III
Covenants
3.01. Collection of Payments on Mortgage Loan
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . 6
3.03. Money for Payments To Be Held in Trust;
Paying Agent; Certificate Paying Agent . . . . . . . . . . . 6
3.04. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.05. Payment of Principal and Interest;
Defaulted Interest . . . . . . . . . . . . . . . . . . . . . 8
3.06. Protection of Trust Estate . . . . . . . . . . . . . . . . . 10
3.07. Opinions as to Trust Estate . . . . . . . . . . . . . . . . . 11
3.08. Performance of Obligations; Servicing
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.09. Negative Covenants . . . . . . . . . . . . . . . . . . . . . 14
3.10. Annual Statement as to Compliance . . . . . . . . . . . . . . 14
3.11. Recording of Assignments . . . . . . . . . . . . . . . . . . 15
3.12. Representations and Warranties Concerning
the Mortgage Loans . . . . . . . . . . . . . . . . . . . . . 15
3.13. Indenture Trustee's Review of Related
Documents . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.14. Trust Estate; Related Documents . . . . . . . . . . . . . . . 16
3.15. Amendments to Servicing Agreement . . . . . . . . . . . . . . 18
3.16. Master Servicer as Agent and Bailee of
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . 18
3.17. Investment Company Act . . . . . . . . . . . . . . . . . . . 18
3.18. Issuer May Consolidate, etc., Only on
Certain Terms . . . . . . . . . . . . . . . . . . . . . . . 18
3.19. Successor or Transferee . . . . . . . . . . . . . . . . . . . 20
3.20. No Other Business . . . . . . . . . . . . . . . . . . . . . . 21
3.21. No Borrowing . . . . . . . . . . . . . . . . . . . . . . . . 21
3.22. Guarantees, Loans, Advances and Other
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 21
3.23. Capital Expenditures . . . . . . . . . . . . . . . . . . . . 21
3.24. Restricted Payments . . . . . . . . . . . . . . . . . . . . . 21
3.25. Notice of Events of Default . . . . . . . . . . . . . . . . . 22
3.26. Further Instruments and Acts . . . . . . . . . . . . . . . . 22
3.27. Statements to Noteholders . . . . . . . . . . . . . . . . . . 22
(3.28. Grant of the Additional Loans . . . . . . . . . . . . . . 22)
3.29. Determination of Note Rate. . . . . . . . . . . . . . . . . . 23
(3.30. Payments under the Credit Enhancement
Instrument . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.31. Replacement Credit Enhancement
Instrument . . . . . . . . . . . . . . . . . . . . . . . . 24)
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. The Notes(; Increase of Maximum Variable
Funding Balance; Additional Variable
Funding Notes) . . . . . . . . . . . . . . . . . . . . . . . 26
4.02. Registration of and Limitations on
Transfer and Exchange of Notes; Appointment
of Certificate Registrar . . . . . . . . . . . . . . . . . . 28
4.03. Mutilated, Destroyed, Lost or Stolen
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . 31
4.05. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . 31
4.06. Book-Entry Notes . . . . . . . . . . . . . . . . . . . . . . 32
4.07. Notices to Depository . . . . . . . . . . . . . . . . . . . . 32
4.08. Definitive Notes . . . . . . . . . . . . . . . . . . . . . . 33
4.09. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . 33
4.10. Satisfaction and Discharge of Indenture . . . . . . . . . . . 33
4.11. Application of Trust Money . . . . . . . . . . . . . . . . . 35
(4.12. Subrogation and Cooperation . . . . . . . . . . . . . . . . 35)
4.13. Repayment of Moneys Held by Paying
Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V
Remedies
5.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . 37
5.02. Acceleration of Maturity; Rescission and
Annulment . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.03. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee . . . . . . . . . . . . . . 38
5.04. Remedies; Priorities . . . . . . . . . . . . . . . . . . . . 40
5.05. Optional Preservation of the Trust
Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.06. Limitation of Suits . . . . . . . . . . . . . . . . . . . . . 43
5.07. Unconditional Rights of Noteholders To
Receive Principal and Interest . . . . . . . . . . . . . . . 44
5.08. Restoration of Rights and Remedies . . . . . . . . . . . . . 44
5.09. Rights and Remedies Cumulative . . . . . . . . . . . . . . . 44
5.10. Delay or Omission Not a Waiver . . . . . . . . . . . . . . . 44
5.11. Control by Noteholders . . . . . . . . . . . . . . . . . . . 44
5.12. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . 45
5.13. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . 46
5.14. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . 46
5.15. Sale of Trust Estate . . . . . . . . . . . . . . . . . . . . 46
5.16. Action on Notes . . . . . . . . . . . . . . . . . . . . . . . 48
5.17. Performance and Enforcement of
Certain Obligations . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VI
The Indenture Trustee
6.01. Duties of Indenture Trustee . . . . . . . . . . . . . . . . . 50
6.02. Rights of Indenture Trustee . . . . . . . . . . . . . . . . . 51
6.03. Individual Rights of Indenture Trustee . . . . . . . . . . . 52
6.04. Indenture Trustee's Disclaimer . . . . . . . . . . . . . . . 52
6.05. Notice of Event of Default . . . . . . . . . . . . . . . . . 52
6.06. Reports by Indenture Trustee to Holders . . . . . . . . . . . 52
6.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . 52
6.08. Replacement of Indenture Trustee . . . . . . . . . . . . . . 53
6.09. Successor Indenture Trustee by Merger . . . . . . . . . . . . 54
6.10. Appointment of Co-Indenture Trustee or
Separate Indenture Trustee . . . . . . . . . . . . . . . . . 55
6.11. Eligibility; Disqualification . . . . . . . . . . . . . . . . 56
6.12. Preferential Collection of Claims Against
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.13. Representation and Warranty . . . . . . . . . . . . . . . . . 57
6.14. Directions to Indenture Trustee . . . . . . . . . . . . . . . 57
ARTICLE VII
Noteholders' Lists and Reports
7.01. Issuer To Furnish Indenture Trustee Names
and Addresses of Noteholders . . . . . . . . . . . . . . . . 58
7.02. Preservation of Information;
Communications to Noteholders . . . . . . . . . . . . . . . 58
7.03. Reports by Issuer . . . . . . . . . . . . . . . . . . . . . . 58
7.04. Reports by Indenture Trustee . . . . . . . . . . . . . . . . 59
ARTICLE VIII
Accounts, Disbursements and Releases
8.01. Collection of Money . . . . . . . . . . . . . . . . . . . . . 60
8.02. Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . 60
8.03. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . 61
8.04. Release of Trust Estate . . . . . . . . . . . . . . . . . . . 62
8.05. Surrender of Notes Upon Final Payment . . . . . . . . . . . . 62
ARTICLE IX
Supplemental Indentures
9.01. Supplemental Indentures Without Consent
of Noteholders . . . . . . . . . . . . . . . . . . . . . . . 63
9.02. Supplemental Indentures With Consent of
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 64
9.03. Execution of Supplemental Indentures . . . . . . . . . . . . 66
9.04. Effect of Supplemental Indenture . . . . . . . . . . . . . . 66
9.05. Conformity with Trust Indenture Act . . . . . . . . . . . . . 67
9.06. Reference in Notes to Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE X
Redemption of Notes
10.01. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.02. Form of Redemption Notice . . . . . . . . . . . . . . . . . 68
10.03. Notes Payable on Redemption Date . . . . . . . . . . . . . . 69
ARTICLE XI
Miscellaneous
11.01. Compliance Certificates and Opinions,
etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
11.02. Form of Documents Delivered to Indenture
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.03. Acts of Noteholders . . . . . . . . . . . . . . . . . . . . 73
11.04. Notices, etc., to Indenture Trustee,
Issuer, Credit Enhancer and
Rating Agencies . . . . . . . . . . . . . . . . . . . . . 73
11.05. Notices to Noteholders; Waiver . . . . . . . . . . . . . . . 74
11.06. Alternate Payment and Notice
Provisions . . . . . . . . . . . . . . . . . . . . . . . . 75
11.07. Conflict with Trust Indenture Act . . . . . . . . . . . . . 75
11.08. Effect of Headings . . . . . . . . . . . . . . . . . . . . . 76
11.09. Successors and Assigns . . . . . . . . . . . . . . . . . . . 76
11.10. Separability . . . . . . . . . . . . . . . . . . . . . . . . 76
11.11. Benefits of Indenture . . . . . . . . . . . . . . . . . . . 76
11.12. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 76
11.13. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 76
11.14. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 76
11.15. Recording of Indenture . . . . . . . . . . . . . . . . . . . 76
11.16. Issuer Obligation . . . . . . . . . . . . . . . . . . . . . 77
11.17. No Petition . . . . . . . . . . . . . . . . . . . . . . . . 77
11.18. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.19. Authority of the Administrator . . . . . . . . . . . . . . . 78
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Mortgage Loan Schedule
APPENDIX
Appendix A - Definitions
This Indenture, dated as of ______, 199_, between ______________
LOAN TRUST 199_-_, a Delaware business trust, as Issuer (the "Issuer"), and
(________________), as Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Issuer's
Series 199__-__ Asset Backed Notes (and Asset Backed Variable Funding Notes)
((together) the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing
Date, as Indenture Trustee for the benefit of the Holders of the Notes, all
of the Issuer's right, title and interest in and to whether now existing or
hereafter created (a) the Mortgage Loans and all monies and proceeds due
thereon after the Cut-off Date, (b) the Servicing Agreement and the Mortgage
Loan Purchase Agreement, (c) all funds on deposit in the Funding Account,
including all income from the investment and reinvestment of funds therein,
(d) all funds on deposit from time to time in the Collection Account
allocable to the Mortgage Loans; (e) all funds on deposit from time to time
in the Payment Account and in all proceeds thereof; ((f) the Policy;) and (g)
all present and future claims, demands, causes and chooses in action in
respect of any or all of the foregoing and all payments on or under, and all
proceeds of every kind and nature whatsoever in respect of, any or all of the
foregoing and all payments on or under, and all proceeds of every kind and
nature whatsoever in the conversion thereof, voluntary or involuntary, into
cash or other liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and
receivables, instruments and other property which at any time constitute all
or part of or are included in the proceeds of any of the foregoing
(collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in
this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the
Holders of the Notes, acknowledges such Grant, accepts the trust under this
Indenture in accordance with the provisions hereof and agrees to perform its
duties as Indenture Trustee as required herein.
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Indenture, except
-----------
as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Definitions attached hereto as
Appendix A which is incorporated by reference herein. All other capitalized
terms used herein shall have the meanings specified herein.
Section 1.02. Incorporation by Reference of Trust Indenture Act.
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Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
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requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to
time amended, modified or supplemented and includes (in the case of
agreements or instruments) references to all attachments thereto and
instruments incorporated therein; references to a Person are also to its
permitted successors and assigns.
ARTICLE II
Original Issuance of Notes
Section 2.01. Form. The Notes (and the Variable Funding Notes, in each
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case) together with the Indenture Trustee's certificate of authentication,
shall be in substantially the forms set forth in Exhibit(s) A-1 (and A-2,
respectively,) with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by
the officers executing such Notes, as evidenced by their execution of the
Notes. Any portion of the text of any Note may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes,
as evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibits A-1(, A-2) and A-3 are part
of the terms of this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes shall
--------------------------------------
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and deliver
Notes for original issue in an aggregate initial principal amount of
$(______________) (and Variable Funding Notes for original issue in an
aggregate initial principal amount of $(_____________)). (The Security
Balance of the Variable Funding Notes in the aggregate may not exceed the
Maximum Variable Funding Balance.) The aggregate principal amount of Notes
outstanding at any time may not exceed (the sum of) $(_____________) (and the
Security Balance of Additional Variable Funding Notes issued pursuant to the
terms of Section 4.01 hereof), except as provided in Section 4.03.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $(________) and in integral multiples of
$(______) in excess thereof.
(Each Variable Funding Note shall be initially issued with a Security
Balance of $(______) or, if applicable, with a Security Balance in the amount
equal to the Additional Balance Differential for the Collection Period
related to the Payment Date following the date of issuance of such Variable
Funding Note pursuant to Section 4.01(c).)
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
ARTICLE III
Covenants
Section 3.01. Collection of Payments on Mortgage Loan Accounts. The
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Indenture Trustee shall establish and maintain with itself a trust account
(the "Payment Account") in which the Indenture Trustee shall, subject to the
terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with
respect to the Mortgage Loans. The Indenture Trustee shall make all payments
of principal of and interest on the Notes, subject to Section 3.03, as
provided in Section 3.05 herein from moneys on deposit in the Payment
Account.
Section 3.02. Maintenance of Office or Agency. The Issuer will
-------------------------------
maintain in the Borough of Manhattan, The City of New York, an office or
agency where, subject to satisfaction of conditions set forth herein, Notes
may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. If at any time the
Issuer shall fail to maintain any such office or agency or shall fail to
furnish the Indenture Trustee with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office, and
the Issuer hereby appoints the Indenture Trustee as its agent to receive all
such surrenders, notices and demands.
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent;
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Certificate Paying Agent. (a) As provided in Section 3.01, all payments of
- ------------------------
amounts due and payable with respect to any Notes that are to be made from
amounts withdrawn from the Payment Account pursuant to Section 3.01 shall be
made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent,
and no amounts so withdrawn from the Payment Account for payments of Notes
shall be paid over to the Issuer except as provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture Trustee
to execute and deliver to the Indenture Trustee an instrument in which such
Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions
of this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as
herein provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge in the making of any payment
required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Request direct any Paying Agent to pay to the Indenture Trustee all
sums held in trust by such Paying Agent, such sums to be held by the
Indenture Trustee upon the same trusts as those upon which the sums were held
by such Paying Agent; and upon such payment by any Paying Agent to the Inden-
ture Trustee, such Paying Agent shall be released from all further liability
with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such
trust and be paid to the Issuer on Issuer Request; and the Holder of such
Note shall thereafter, as an unsecured general creditor, look only to the
Issuer for payment thereof (but only to the extent of the amounts so paid to
the Issuer), and all liability of the Indenture Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; provided, however,
that the Indenture Trustee or such Paying Agent, before being required to
make any such repayment, shall at the expense and direction of the Issuer
cause to be published once, in an Authorized Newspaper published in the
English language, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Issuer. The Indenture Trustee shall also adopt and employ, at
the expense and direction of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice
of such repayment to Holders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Holder).
Section 3.04. Existence. The Issuer will keep in full effect its
---------
existence, rights and franchises as a business trust under the laws of the
State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other state or of the United States
of America, in which case the Issuer will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction) and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each
other instrument or agreement included in the Trust Estate.
Section 3.05. Payment of Principal and Interest; Defaulted Interest.
-----------------------------------------------------
(a) On each Payment Date from amounts on deposit in the Payment Account
(after making (x) any deposit to the Funding Account pursuant to Section
8.02(b) and (y) any deposits to the Payment Account pursuant to Section
8.02(c)(ii) and Section 8.02(c)(i)(2)), the Indenture Trustee, on behalf of
the Issuer shall pay to the Noteholders and the Indenture Trustee, in its
capacity as agent for the Issuer shall pay to other Persons, the amounts to
which they are entitled as set forth below:
(i) to the Noteholders the sum of (a) one month's interest at
the Note Rate on the Security Balances of Notes immediately prior to
such Payment Date and (b) any previously accrued and unpaid interest for
prior Payment Dates;
(ii) (if such Payment Date is after the Funding Period,) to the
Noteholders as principal on the Notes(and Variable Funding Notes,) the
applicable Security Percentage of the Principal Collection Distribution
Amount (and if such Payment Date is the first Payment Date following the
end of the Funding Period (if ending due to an Amortization Event) or
the Payment Date on which the Funding Period ends, to the Noteholders as
principal on the Notes (and Variable Funding Notes) the applicable
Security Percentage of the amount deposited from the Funding Account in
respect of Security Principal Collections);
(iii) to the Noteholders, as principal on the Notes (and Variable
Funding Notes), pro rata, based on the Security Balances from the amount
remaining on deposit in the Payment Account, up to the applicable
Security Percentage of Liquidation Loss Amounts for the related Col-
lection Period;
(iv) to the Noteholders, as principal on the Notes (and Variable
Funding Notes), pro rata, based on the Security Balances from the amount
remaining on deposit in the Payment Account, up to the applicable
Security Percentage of Carryover Loss Amounts;
(v) to the Credit Enhancer, in the amount of the premium for the
Credit Enhancement Instrument (and for any Additional Credit Enhancement
Instrument);
(vi) to the Credit Enhancer, to reimburse it for prior draws made
on the Credit Enhancement Instrument (and on any Additional Credit
Enhancement Instrument) (with interest thereon as provided in the
Insurance Agreement);
(vii) to the Noteholders, as principal on the Notes (and Variable
Funding Notes), pro rata, based on the Security Balances from Security
Interest Collections, up to the Accelerated Principal Distribution
Amount for such Payment Date (such amount, if any, paid pursuant to this
clause (vii) being referred to herein as the "Accelerated Principal
Payment Amount");
(viii) to the Credit Enhancer, any other amounts owed to the Credit
Enhancer pursuant to the Insurance Agreement;)
(ix) to reimburse the Administrator for expenditures made on
behalf of the Issuer with respect to the performance of its duties under
the Indenture; and
(x) any remaining amounts to the Owner Trustee for distribution
as described in Section 5.01 of the Trust Agreement;
provided, further, that on the Final Scheduled Payment Date or other final
Payment Date, the amount to be paid pursuant to clause (ii) above shall be
equal to the Security Balances of the Notes immediately prior to such Payment
Date.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of
the (actual number of days in such Interest Period and a year assumed to
consist of 360 days.)
Any installment of interest or principal, if any, payable on any Note or
Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall be paid to each Holder of record on the
preceding Record Date, by wire transfer to an account specified in writing by
such Holder reasonably satisfactory to the Indenture Trustee as of the
preceding Record Date or in all other cases or if no such instructions have
been delivered to the Indenture Trustee, by check to such Noteholder mailed
to such Holder's address as it appears in the Note Register the amount
required to be distributed to such Holder on such Payment Date pursuant to
such Holder's Securities; provided, however, that the Indenture Trustee shall
not pay to such Holders any amount required to be withheld from a payment to
such Holder by the Code.
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the related form of
Note set forth in Exhibits A-1 (and A-2). All principal payments on each
Class of Notes shall be made to the Noteholders of such Class entitled
thereto in accordance with the Percentage Interests represented by such
Notes. Upon notice to the Indenture Trustee by the Issuer, the Indenture
Trustee shall notify the Person in whose name a Note is registered at the
close of business on the Record Date preceding the Final Scheduled Payment
Date or other final Payment Date. Such notice shall be mailed no later than
____ Business Days prior to such Final Scheduled Payment Date or other final
Payment Date and shall specify that payment of the principal amount and any
interest due with respect to such Note at the Final Scheduled Payment Date or
other final Payment Date will be payable only upon presentation and surrender
of such Note and shall specify the place where such Note may be presented and
surrendered for such final payment.
Section 3.06. Protection of Trust Estate. (a) The Issuer will from
--------------------------
time to time execute and deliver all such supplements and amendments hereto
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the rights
of the Indenture Trustee and the Noteholders in such Trust Estate
against the claims of all persons and parties.
(b) Except as otherwise provided in the Servicing Agreement or this
Indenture, the Indenture Trustee shall not remove any portion of the Trust
Estate that consists of money or is evidenced by an instrument, certificate
or other writing from the jurisdiction in which it was held at the date of
the most recent Opinion of Counsel delivered pursuant to Section 3.07 (or
from the jurisdiction in which it was held as described in the Opinion of
Counsel delivered at the Closing Date pursuant to Section 3.07(a), if no
Opinion of Counsel has yet been delivered pursuant to Section 3.07(b) unless
the Trustee shall have first received an Opinion of Counsel to the effect
that the lien and security interest created by this Indenture with respect to
such property will continue to be maintained after giving effect to such
action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement
or other instrument required to be executed pursuant to this Section 3.06.
Section 3.07. Opinions as to Trust Estate. (a) On the Closing Date,
---------------------------
the Issuer shall furnish to the Indenture Trustee, the Owner Trustee and to
the Administrator an Opinion of Counsel either stating that, in the opinion
of such counsel, such action has been taken with respect to the delivery of
the Mortgage Notes, the recording of the Assignments of Mortgage, the record-
ing and filing of this Indenture, any indentures supplemental hereto, and any
other requisite documents, and with respect to the execution and filing of
any financing statements and continuation statements, as are necessary to
perfect and make effective the lien and security interest of this Indenture
and reciting the details of such action, or stating that, in the opinion of
such counsel, no such action is necessary to make such lien and security
interest effective.
(b) On or before _________ 31 in each calendar year, beginning in 199_,
the Issuer shall furnish to the Indenture Trustee and to the Administrator an
Opinion of Counsel at the expense of the Issuer either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording of the Assignments of Mortgage, the recording, filing, re-recording
and refiling of this Indenture, any indentures supplemental hereto and any
other requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain
the lien and security interest created by this Indenture and reciting the
details of such action or stating that in the opinion of such counsel no such
action is necessary to maintain such lien and security interest. Such Opinion
of Counsel shall also describe the recording, filing, re-recording and refil-
ing of this Indenture, any indentures supplemental hereto and any other
requisite documents and the execution and filing of any financing statements
and continuation statements that will, in the opinion of such counsel, be
required to maintain the lien and security interest of this Indenture until
________ 31 in the following calendar year.
Section 3.08. Performance of Obligations; Servicing Agreement. (a)
-----------------------------------------------
The Issuer will punctually perform and observe all of its obligations and
agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Trust Estate. Except as otherwise
expressly provided therein, the Issuer shall not waive, amend, modify,
supplement or terminate any Basic Document, including without limitation the
Servicing Agreement or any provision thereof without the consent of the
Indenture Trustee or the Holders of at least a majority of the Security
Balances of the Notes, the Master Servicer (and the Credit Enhancer).
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee in an Officer's
Certificate of the Issuer shall be deemed to be action taken by the Issuer.
Initially, the Issuer has contracted with the Administrator to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or
discharge of, or impair the validity or effectiveness of, any of the
documents relating to the Mortgage Loans or any such instrument, except such
actions as the Master Servicer is expressly permitted to take in the
Servicing Agreement or as expressly provided in this Indenture or such other
instrument or agreement.
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Servicing Termination, the Issuer shall promptly notify the Indenture Trustee
thereof, and shall specify in such notice the action, if any, the Issuer is
taking in respect of such Event of Servicing Termination. If such Event of
Servicing Termination arises from the failure of the Master Servicer to
perform any of its duties or obligations under the Servicing Agreement with
respect to the Mortgage Loans, the Issuer may remedy such failure, provided
that if such Event of Servicing Termination arises from the failure by the
Master Servicer to comply with requirements imposed upon it under Section
3.04 of the Servicing Agreement with respect to hazard insurance for the
Mortgaged Properties securing the Mortgage Loans, the Issuer shall promptly,
as the case may be, pay such premiums or obtain substitute insurance coverage
meeting the requirements of said Section 3.04. So long as any such Event of
Servicing Termination shall be continuing, the Indenture Trustee may exercise
its remedies set forth in Section 7.01 of the Servicing Agreement. (Unless
granted or permitted by the Credit Enhancer or the Holders of Securities to
the extent provided above, the Issuer may not waive any such Event of
Servicing Termination or terminate the rights and powers of the Master
Servicer under the Servicing Agreement.)
(e) Upon any termination of the Master Servicer's rights and powers
pursuant to Section 7.01 of the Servicing Agreement, the Issuer shall appoint
a successor servicer (the "Successor Master Servicer"), and such Successor
Master Servicer shall accept its appointment by a written assumption in a
form acceptable to the Indenture Trustee. In the event that a Successor
Master Servicer has not been appointed and accepted its appointment at the
time when the Servicer ceases to act as Servicer, the Indenture Trustee
without further action shall automatically be appointed the Successor Master
Servicer. The Indenture Trustee may resign as the Master Servicer by giving
written notice of such resignation to the Issuer and in such event will be
released from such duties and obligations, such release not to be effective
until the date a new servicer enters into a servicing agreement with the
Issuer as provided below. Upon delivery of any such notice to the Issuer,
the Issuer shall obtain a new servicer as the Successor Master Servicer under
the Servicing Agreement. Any Successor Master Servicer other than the
Indenture Trustee shall (i) be an established financial institution having a
net worth of not less than $_____________ and whose regular business
includes the servicing of mortgage loans and (ii) enter into a servicing
agreement with the Issuer having substantially the same provisions as the
provisions of the Servicing Agreement applicable to the Servicer. If, within
30 days after the delivery of the notice referred to above, the Issuer shall
not have obtained such new servicer, the Indenture Trustee may appoint, or
may petition a court of competent jurisdiction to appoint, a successor
servicer (acceptable to the Credit Enhancer) to service the Mortgage Loans.
In connection with any such appointment, the Indenture Trustee may make such
arrangements for the compensation of such successor as it and such successor
shall agree, and the Issuer shall enter into an agreement with such successor
for the servicing of the Mortgage Loans, such agreement to be substantially
similar to the Servicing Agreement (or otherwise acceptable to the Credit
Enhancer); provided that any such compensation of the successor servicer
unless otherwise agreed to by the Credit Enhancer, shall not be in excess of
the Servicing Fee payable to the Master Servicer under the Servicing
Agreement. If the Indenture Trustee shall succeed to the Master Servicer's
duties as servicer of the Mortgage Loans as provided herein, it shall do so
in its individual capacity and not in its capacity as Indenture Trustee.
(f) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be
deemed to be performance of such obligations by the Issuer.
Section 3.09. Negative Covenants. So long as any Notes are
------------------
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or the
Servicing Agreement, sell, transfer, exchange or otherwise dispose of
the Trust Estate, unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate; or
(iii) (A) permit the validity or effectiveness of this Indenture
to be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect to
the Notes under this Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this Indenture) to
be created on or extend to or otherwise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the proceeds
thereof or (C) permit the lien of this Indenture not to constitute a
valid first priority security interest in the Trust Estate.
Section 3.10. Annual Statement as to Compliance. The Issuer will
---------------------------------
deliver to the Indenture Trustee, within 120 days after the end of each
fiscal year of the Issuer (commencing with the fiscal year 199_), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year
and of its performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a
default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. Recording of Assignments. The Issuer shall exercise its
------------------------
right under the Mortgage Loan Purchase Agreement with respect to the
obligation of the Seller to submit or cause to be submitted for recording all
Assignments of Mortgages on or prior to _________, 199_ with respect to the
Initial Loans and within (__) days following the related Deposit Date with
respect to any Additional Loans.
Section 3.12. Representations and Warranties Concerning the Mortgage
------------------------------------------------------
Loans. The Issuer has pledged to the Indenture Trustee all of its right
- -----
under the Mortgage Loan Purchase Agreement and the Indenture Trustee has the
benefit of the representations and warranties made by the Seller in
Section (3.___) thereof and Section (4.__) thereof concerning the Mortgage
Loans and the right to enforce any remedy against the Seller provided in such
Section (3.___) or Section (4.___) to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
(Section 3.13. Indenture Trustee's Review of Related Documents. (a)
-----------------------------------------------
The Indenture Trustee agrees, for the benefit of the holders of the Notes, to
review, or the related Custodian shall review, unless the Indenture Trustee
or such Custodian made such review prior to the Closing Date, on or prior to
________, 199_ the Related Documents delivered to it on or prior to the
Closing Date and within 90 days of the related Deposit Date, the Related
Documents delivered to it in connection with any Additional Loan, in each
case in connection with the Grant of the Mortgage Loan listed on the Schedule
of Mortgage Loans as security for the Notes. Such review shall be limited to
a determination that all documents referred to in the definition of the term
Related Documents have been executed and are appropriately endorsed in the
manner called for in the Mortgage Loan Purchase Agreement and that the
Related Documents have been delivered with respect to each such Mortgage Loan
(other than the documents related to (i) any Mortgage Loan so listed which
has been subject to a Prepayment in full and termination of related Mortgage
Loan, the proceeds of which have been deposited in the Collection Account in
lieu of delivery of the applicable Related Documents, (ii) any Mortgage Loan
with respect to which the related Mortgaged Property was foreclosed,
repossessed or otherwise converted subsequent to the Cut-Off Date and prior
to the Closing Date or with respect to which foreclosure proceedings have
been commenced and for which the related Related Documents are required in
connection with the prosecution of such foreclosure proceedings and for which
the Issuer has delivered a trust receipt called for by Section 3.14(c) and
(iii) any Mortgage Loan as to which the original Assignment of Mortgage has
been submitted for recording), that all such documents have been executed,
and that all such documents relate to the Mortgage Loans listed on the
Schedule of Mortgage Loans. In performing such review, the Indenture Trustee
may rely upon the purported genuineness and due execution of any such
document and on the purported genuineness of any signature thereon.
(b) If any Related Document is defective in any material respect which
may materially and adversely affect the value of the related Mortgage Loan,
the interest of the Indenture Trustee or the Noteholders in such Mortgage
Loan, or if any document required to be delivered to the Indenture Trustee
has not been delivered, the Indenture Trustee or the related Custodian on
behalf of the Indenture Trustee shall notify the Issuer, the Seller, the
Credit Enhancer and the Master Servicer immediately after obtaining knowledge
thereof and the Indenture Trustee, as assignee of the Issuer's rights under
the Mortgage Loan Purchase Agreement, shall exercise its remedies in respect
of any such defect against the Seller as provided in the Mortgage Loan
Purchase Agreement.)
Section 3.14. Trust Estate; Related Documents. (a) When required by
-------------------------------
the provisions of this Indenture, the Indenture Trustee shall execute
instruments to release property from the lien of this Indenture, or convey
the Indenture Trustee's interest in the same, in a manner and under
circumstances which are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Indenture
Trustee as provided in this Article III shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(b) In order to facilitate the servicing of the Mortgage Loans, the
Master Servicer is hereby authorized in the name and on behalf of the
Indenture Trustee and the Issuer, to execute assumption agreements,
substitution agreements, and instruments of satisfaction or cancellation or
of partial or full release or discharge, or any other document contemplated
by the Servicing Agreement and other comparable instruments with respect to
the Mortgage Loans and with respect to the Mortgaged Properties subject to
the Mortgages (and the Indenture Trustee and the Owner Trustee shall promptly
execute any such documents on request of the Master Servicer), subject to the
obligations of the Master Servicer under the Servicing Agreement. If from
time to time the Master Servicer shall deliver to the Indenture Trustee or
the related Custodian copies of any written assurance, assumption agreement
or substitution agreement or other similar agreement pursuant to Section 3.05
of the Servicing Agreement, the Indenture Trustee or the related Custodian
shall check that each of such documents purports to be an original executed
copy (or a copy of the original executed document if the original executed
copy has been submitted for recording and has not yet been returned) and, if
so, shall file such documents, and upon receipt of the original executed copy
from the applicable recording office or receipt of a copy thereof certified
by the applicable recording office shall file such originals or certified
copies with the Related Documents. If any such documents submitted by the
Master Servicer do not meet the above qualifications, such documents shall
promptly be returned by the Indenture Trustee or the related Custodian to the
Master Servicer, with a direction to the Master Servicer to forward the
correct documentation.
(c) Upon Issuer Request accompanied by an Officers' Certificate of the
Master Servicer pursuant to Section 3.07 of the Servicing Agreement to the
effect that a Mortgage Loan has been the subject of a final payment or a
prepayment in full and the related Mortgage Loan has been terminated or that
substantially all Liquidation Proceeds which have been determined by the
Master Servicer in its reasonable judgment to be finally recoverable have
been recovered, and upon deposit to the Collection Account of such final
monthly payment, prepayment in full together with accrued and unpaid interest
to the date of such payment with respect to such Mortgage Loan or, if
applicable, Liquidation Proceeds, the Indenture Trustee and the Issuer shall
promptly release the Related Documents to the Master Servicer upon the order
of the Issuer, along with such documents as the Master Servicer or the
Mortgagor may request as contemplated by the Servicing Agreement to evidence
satisfaction and discharge of such Mortgage Loan. If from time to time and
as appropriate for the servicing or foreclosure of any Mortgage Loan, the
Master Servicer requests the Indenture Trustee or the related Custodian to
release the Related Documents and delivers to the Indenture Trustee or the
related Custodian a trust receipt reasonably satisfactory to the Indenture
Trustee or the related Custodian and signed by a Responsible Officer of the
Master Servicer, the Issuer and the Indenture Trustee or the related
Custodian shall release the Related Documents to the Master Servicer. If
such Mortgage Loans shall be liquidated and the Indenture Trustee or the
related Custodian receives a certificate from the Master Servicer as provided
above, then, upon request of the Issuer, the Indenture Trustee or the related
Custodian shall release the trust receipt to the Master Servicer upon the
order of the Issuer.
(d) The Indenture Trustee shall, at such time as there are no Notes
Outstanding (and no amounts due to the Credit Enhancer), release all of the
Trust Estate to the Issuer (other than any cash held for the payment of the
Notes pursuant to Section 3.03 or 4.11), subject, however, to the rights of
the Indenture Trustee under Section 6.07.
Section 3.15. Amendments to Servicing Agreement. The Indenture Trustee
---------------------------------
may enter into any amendment or supplement to the Servicing Agreement only in
accordance with Section 8.01 of the Servicing Agreement. The Indenture
Trustee may, in its discretion, decline to enter into or consent to any such
supplement or amendment if its own rights, duties or immunities shall be
adversely affected.
Section 3.16. Master Servicer as Agent and Bailee of Indenture Trustee.
--------------------------------------------------------
Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the
state in which such property is held by the Master Servicer, the Indenture
Trustee hereby acknowledges that the Master Servicer is acting as agent and
bailee of the Indenture Trustee in holding amounts on deposit in the
Collection Account pursuant to Section 3.02 of the Servicing Agreement, as
well as its agent and bailee in holding any Related Documents released to the
Master Servicer pursuant to Section 3.14(c), and any other items constituting
a part of the Trust Estate which from time to time come into the possession
of the Master Servicer. It is intended that, by the Master Servicer's
acceptance of such agency pursuant to Section 3.02 of the Servicing Agree-
ment, the Trustee, as a secured party, will be deemed to have possession of
such Related Documents, such moneys and such other items for purposes of
Section 9-305 of the Uniform Commercial Code of the state in which such
property is held by the Master Servicer.
Section 3.17. Investment Company Act. The Issuer shall not become an
----------------------
"investment company" or under the "control" of an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended (or
any successor or amendatory statute), and the rules and regulations
thereunder (taking into account not only the general definition of the term
"investment company" but also any available exceptions to such general
definition); provided, however, that the Issuer shall be in compliance with
this Section 3.17 if it shall have obtained an order exempting it from
regulation as an "investment company" so long as it is in compliance with the
conditions imposed in such order.
Section 3.18. Issuer May Consolidate, etc., Only on Certain Terms. (a)
---------------------------------------------------
The Issuer shall not consolidate or merge with or into any other Person,
unless:
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any state or the
District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee, in
form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such transaction, no
Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that such
transaction shall not cause the rating of the Notes to be reduced,
suspended or withdrawn or to be considered by either Rating Agency (to
be below investment grade without taking into account the Credit
Enhancement Instrument);
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse federal
income tax or _________ tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America or
any state, (B) expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form satisfactory to
the Indenture Trustee, the due and punctual payment of the principal of
and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly agrees by
means of such supplemental indenture that all right, title and interest
so conveyed or transferred shall be subject and subordinate to the
rights of Holders of the Notes, (D) unless otherwise provided in such
supplemental indenture, expressly agrees to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes and
(E) expressly agrees by means of such supplemental indenture that such
Person (or if a group of Persons, then one specified Person) shall make
all filings with the Commission (and any other appropriate Person)
required by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that such
transaction shall not cause the rating of the Notes or the Certificates
to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse federal
income tax or ___________ tax consequence to the Issuer or any
Noteholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.19. Successor or Transferee. (a) Upon any consolidation or
-----------------------
merger of the Issuer in accordance with Section 3.18(a), the Person formed by
or surviving such consolidation or merger (if other than the Issuer) shall
succeed to, and be substituted for, and may exercise every right and power
of, the Issuer under this Indenture with the same effect as if such Person
had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.18(b), the Issuer will be released from
every covenant and agreement of this Indenture to be observed or performed on
the part of the Issuer with respect to the Notes immediately upon the
delivery of written notice to the Indenture Trustee that the Issuer is to be
so released.
Section 3.20. No Other Business. The Issuer shall not engage in any
-----------------
business other than financing, purchasing, owning and selling and managing
the Mortgage Loans in the manner contemplated by this Indenture and the Basic
Documents and all activities incidental thereto.
Section 3.21. No Borrowing. The Issuer shall not issue, incur, assume,
------------
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.22. Guarantees, Loans, Advances and Other Liabilities.
-------------------------------------------------
Except as contemplated by the Servicing Agreement or this Indenture, the
Issuer shall not make any loan or advance or credit to, or guarantee
(directly or indirectly or by an instrument having the effect of assuring
another's payment or performance on any obligation or capability of so doing
or otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any
stock, obligations, assets or securities of, or any other interest in, or
make any capital contribution to, any other Person.
Section 3.23. Capital Expenditures. The Issuer shall not make any
--------------------
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.24. Restricted Payments. The Issuer shall not, directly or
-------------------
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or
security in or of the Issuer, (ii) redeem, purchase, retire or otherwise
acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made,
(w) distributions to the Owner Trustee and the Certificateholders as
contemplated by, and to the extent funds are available for such purpose under
the Trust Agreement, (x) payment to the Master Servicer or others pursuant to
the terms of the Servicing Agreement and (y) payments to the Indenture
Trustee pursuant to Section 1(a)(ii) of the Administration Agreement (and (z)
make distributions to the holders of the Residual Ownership Interest as
contemplated by the Trust Agreement). The Issuer will not, directly or
indirectly, make payments to or distributions from the Collection Account
except in accordance with this Indenture and the Basic Documents.
Section 3.25. Notice of Events of Default. The Issuer shall give the
---------------------------
Indenture Trustee(, the Credit Enhancer) and the Rating Agencies prompt
written notice of each Event of Default hereunder and under the Trust
Agreement.
Section 3.26. Further Instruments and Acts. Upon request of the
----------------------------
Indenture Trustee, the Issuer will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper
to carry out more effectively the purpose of this Indenture.
Section 3.27. Statements to Noteholders. The Indenture Trustee shall
-------------------------
forward by mail to each Noteholder the Statement delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
(Section 3.28. Grant of the Additional Loans. (a) In consideration
-----------------------------
of the delivery on each Deposit Date to or upon the order of the Issuer of
all or a portion of the amount in respect of Security Principal Collections
on deposit in the Funding Account, the Issuer shall, to the extent of the
availability thereof, on such Deposit Date during the Funding Period Grant to
the Indenture Trustee all of its right, title and interest in the Additional
Loans and simultaneously with the Grant of the Additional Loans the Issuer
will deliver the related Related Documents to the Indenture Trustee or the
related Custodian.
(b) The obligation of the Indenture Trustee to accept the Grant of the
Additional Loans and the other property and rights related thereto described
in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to each Deposit Date:
(i) the Indenture Trustee shall not have received written notice
from any Rating Agency (or the Credit Enhancer) to the effect that such
transfer of Additional Loans would adversely affect the then current
rating of the Notes or cause the rating assigned to the Securities to be
below investment grade (without taking into account the Credit
Enhancement Instrument);
(ii) the Indenture Trustee shall have received a revised Mortgage
Loan Schedule, listing the Additional Loans;
(iii) the Master Servicer shall confirm to the Indenture Trustee
that it has deposited in the Collection Account all Principal
Collections and Interest Collections in respect of such Additional Loans
on or after the related Deposit Date for the Additional Loans;
(iv) the Indenture Trustee shall have received a duly completed
and executed Transfer Certificate in the form of Exhibit 1 to the
Mortgage Loan Purchase Agreement;
(v) the Seller at its expense and the Issuer at its expense, as
appropriate, shall have provided the Rating Agencies (and the Credit
Enhancer) with an Opinion of Counsel relating to the sale of the
Additional Loans to the Issuer and the Grant of the Additional Loans to
the Indenture Trustee which opinion shall be in the form of Exhibit __
to the Mortgage Loan Purchase Agreement; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel confirming the
satisfaction of each condition precedent specified in this paragraph
(b).
(c) The obligation of the Indenture Trustee to accept the Grant of an
Additional Loan on the related Deposit Date is subject to each Additional
Loan and the Additional Loans in the aggregate, as the case may be,
satisfying the conditions set forth in the Mortgage Loan Purchase Agreement.)
(Section 3.29. Determination of Note Rate. On the second LIBOR
--------------------------
Business Day immediately preceding (i) the Closing Date in the case of the
first Interest Period and (ii) the first day of each succeeding Interest
Period, the Indenture Trustee shall determine LIBOR and the Note Rate for
such Interest Period and shall inform the Issuer, the Master Servicer and the
Depositor at their respective facsimile numbers given to the Indenture
Trustee in writing thereof.)
(Section 3.30. Payments under the Credit Enhancement Instrument. (a)
------------------------------------------------
On any Payment Date, other than a Dissolution Payment Date, the Indenture
Trustee on behalf of the Noteholders shall make a draw on the Credit
Enhancement Instrument in an amount if any equal to the sum of (x) the amount
by which the interest accrued at the Note Rate on the Security Balance of the
Notes exceeds the amount on deposit in the Payment Account available to be
distributed therefor on such Payment Date and (y) the Guaranteed Principal
Payment Amount (the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master
Servicer pursuant to Section 4.01 of the Servicing Agreement, the Notice for
Payment (as defined in the Credit Enhancement Instrument) in the amount of
the Credit Enhancement Draw Amount to the Credit Enhancer no later than 2:00
P.M., New York City time, on the second Business Day prior to the applicable
Payment Date. Upon receipt of such Credit Enhancement Draw Amount in
accordance with the terms of the Credit Enhancement Instrument, the Indenture
Trustee shall deposit such Credit Enhancement Draw Amount in the Payment
Account for distribution to Holders pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement Instrument
in respect of any Avoided Payment (as defined in and pursuant to the terms
and conditions of the Credit Enhancement Instrument) and the Indenture
Trustee shall submit a Notice for Payment with respect thereto together with
the other documents required to be delivered to the Credit Enhancer pursuant
to the Credit Enhancement Instrument in connection with a draw in respect of
any Avoided Payment.
Section 3.31. Replacement Credit Enhancement Instrument. In the event
-----------------------------------------
of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of
the then current rating of the Notes (in each case, a "Replacement Event"),
the Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may,
but shall not be required to, substitute a new surety bond or surety bonds
for the existing Credit Enhancement Instrument or may arrange for any other
form of credit enhancement; provided, however, that in each case the Notes
shall be rated no lower than the rating assigned by each Rating Agency to the
Notes immediately prior to such Replacement Event and the timing and
mechanism for drawing on such new credit enhancement shall be reasonably
acceptable to the Indenture Trustee and provided further that the premiums
under the proposed credit enhancement shall not exceed such premiums under
the existing Credit Enhancement Instrument. It shall be a condition to
substitution of any new credit enhancement that there be delivered to the
Indenture Trustee (i) an Opinion of Counsel, acceptable in form to the
Indenture Trustee, from counsel to the provider of such new credit
enhancement with respect to the enforceability thereof and such other matters
as the Indenture Trustee may require and (ii) an Opinion of Counsel to the
effect that such substitution would not (a) adversely affect in any material
respect the tax status of the Notes and the Certificates or (b) cause the
Issuer to be subject to a tax at the entity level or to be classified as a
taxable mortgage pool within the meaning of Section 7701(i) of the Code.
Upon receipt of the items referred to above and payment of all amounts owing
to the Credit Enhancer and the taking of physical possession of the new
credit enhancement, the Indenture Trustee shall, within five Business Days
following receipt of such items and such taking of physical possession,
deliver the replaced Credit Enhancement Instrument to the Credit Enhancer.
In the event of any such replacement the Issuer shall give written notice
thereof to the Rating Agencies.)
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. The Notes(; Increase of Maximum Variable Funding Balance;
---------------------------------------------------------
Additional Variable Funding Notes). (a) The Notes shall be registered in
- ----------------------------------
the name of a nominee designated by the Depository. Beneficial Owners will
hold interests in the Notes through the book-entry facilities of the Deposi-
tory in minimum initial Principal Balances of $(________) and integral multi-
ples of $(_________) in excess thereof. (The Capped Funding Notes will be
issuable in minimum initial Principal Balances of $(_______) and integral
multiples of $(________) in excess thereof, together with any additional
amount necessary to cover the aggregate initial Principal Balance of the
Capped Funding Notes surrendered at the time of the initial denominational
exchange thereof (with such initial Principal Balance in each case being
deemed to be the Principal Balance of the Capped Funding Notes at the time of
such initial denominational exchange thereof).)
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the
Notes as to which they are the Beneficial Owners. Requests and directions
from, and votes of, the Depository as Holder of the Notes shall not be deemed
inconsistent if they are made with respect to different Beneficial Owners.
The Indenture Trustee may establish a reasonable record date in connection
with solicitations of consents from or voting by Noteholders and give notice
to the Depository of such record date. Without the consent of the Issuer and
the Indenture Trustee, no Note may be transferred by the Depository except to
a successor Depository that agrees to hold such Note for the account of the
Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint
a successor Depository. If no successor Depository has been appointed within
30 days of the effective date of the Depository's resignation or removal,
each Beneficial Owner shall be entitled to certificates representing the
Notes it beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
((b) So long as no Amortization Event has occurred the Maximum Variable
Funding Balance on the Closing Date may be increased from time to time by an
aggregate amount not to exceed $(______________) and Additional Variable
Funding Notes may be issued upon satisfaction of the following conditions:
(i) the Indenture Trustee shall have received an Additional
Credit Enhancement Instrument pursuant to the terms and conditions of
the Insurance Agreement, including without limitation Section _____
thereof;
(ii) the Indenture Trustee shall have received an Opinion of
Counsel to the Credit Enhancer in the form attached hereto as Exhibit C;
(iii) the Indenture Trustee shall have received an Opinion of
Counsel in the form attached hereto as Exhibit D;
(iv) the Indenture Trustee shall have received the documents
specified in Section 11.01(a) (other than clause (iii) thereof).
The Security Balance of such Additional Variable Funding Notes in the
aggregate will reflect the sum of (i) the related Excess Additional Balance
Differential and (ii) the Additional Balance Differential for each Collection
Period from the Collection Period during which the Additional Variable
Funding Notes are issued until the new Maximum Variable Funding Balance is
reached. Notwithstanding the foregoing, the Security Balance of each
specific Additional Variable Funding Note will be limited to the Maximum
Individual Variable Funding Balance as provided in subsection (c) below.
The Additional Variable Funding Notes issued in connection with the
first increase in the Maximum Variable Funding Balance pursuant to this
subsection will bear the designation "A" (in addition to the numerical
designation pursuant to subsection (c) below) and any subsequent Additional
Variable Funding Notes issued in connection with any subsequent increases in
the Maximum Variable Funding Balance will bear alphabetical designations in
the order of their issuance.
Any Additional Variable Funding Notes shall be in the form of Exhibit A-
2 hereof and for all purposes shall be Notes issued pursuant to this
Indenture and all references to Variable Funding Notes herein shall include
Additional Variable Funding Notes issued pursuant to this Section 4.01(b).
Upon the issuance of any Additional Variable Funding Notes the Issuer
will deliver written notice thereof to the Rating Agencies.
(c) Subject to the Maximum Variable Funding Balance at such time as the
Security Balance of any Variable Funding Note reaches the Maximum Individual
Variable Funding Balance, no subsequent amounts in respect of the Additional
Balance Differential shall be added to the Security Balance of such Variable
Funding Note and instead a new Variable Funding Note shall be issued and
executed on behalf of the Issuer by the Owner Trustee, not in its individual
capacity but solely as Owner Trustee, authenticated by the Note Registrar and
delivered by the Indenture Trustee to or upon the order of the Issuer. All
subsequent amounts in respect of the Additional Balance Differential shall be
added to the Security Balance of such new Variable Funding Note (subject to
the Maximum Variable Funding Balance) until the Security Balance thereof
reaches the Maximum Individual Variable Funding Balance.
The Variable Funding Note issued on the Closing Date shall bear the
Designation "1" and each new Variable Funding Note will bear sequential
numerical designations in the order of their issuance. On each Payment Date
on or after the Accelerated Amortization Date a new Variable Funding Note
will be issued on each Payment Date in a principal amount equal to the lesser
of (a) the Maximum Individual Variable Funding Balance and (b) the Additional
Balance Differential for such Payment Date, but in no event will the
Principal Balance of the Variable Funding Notes exceed the Maximum Variable
Funding Balance without satisfying the conditions of Section 4.01 hereof.)
Section 4.02. Registration of and Limitations on Transfer and Exchange
--------------------------------------------------------
of Notes; Appointment of Certificate Registrar. The Note Registrar shall
- ----------------------------------------------
cause to be kept at its Corporate Trust Office a Note Register in which,
subject to such reasonable regulations as it may prescribe, the Note
Registrar shall provide for the registration of Notes and of transfers and
exchanges of Notes as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
(No Variable Funding Note, other than any Capped Funding Notes, may be
transferred. Subject to the provisions set forth below Capped Funding Notes
may be transferred, provided that with respect to the initial transfer
thereof by the Seller prior written notification of such transfer shall have
been given to the Rating Agencies and to the Credit Enhancer by the Seller
along with an Opinion of Counsel to the effect that such transfer will not
constitute a fraudulent conveyance under the laws of the relevant
jurisdiction.
No transfer of a Capped Funding Note shall be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933,
as amended, and any applicable state securities laws or is made in accordance
with said Act and laws. In the event of any such transfer, (i) unless such
transfer is made in reliance upon Rule 144A under the 1933 Act, the Indenture
Trustee or the Issuer may, require a written Opinion of Counsel (which may be
in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Indenture Trustee and the Issuer that such transfer may
be made pursuant to an exemption, describing the applicable exemption and the
basis therefor, from said Act and laws or is being made pursuant to said Act
and laws, which Opinion of Counsel shall not be an expense of the Indenture
Trustee or the Issuer and (ii) the Indenture Trustee shall require the
transferee to execute an investment letter acceptable to and in form and
substance reasonably satisfactory to the Issuer and the Indenture Trustee
certifying to the Issuer and the Indenture Trustee the facts surrounding such
transfer, which investment letter shall not be an expense of the Indenture
Trustee or the Issuer. The Holder of a Variable Funding Note desiring to
effect such transfer shall, and does hereby agree to, indemnify the Indenture
Trustee the Credit Enhancer and the Issuer against any liability that may
result if the transfer is not so exempt or is not made in accordance with
such federal and state laws. Notwithstanding the foregoing, the restriction
of transfer specified in this paragraph is not applicable to any Capped
Funding Notes that have been registered under the Securities Act of 1933.)
Subject to the foregoing, at the option of the Noteholders, Notes may be
exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of
the Note Registrar. (With respect to any surrender of Capped Funding Notes
for exchange the new Notes delivered in exchange therefor will bear the
designation "Capped" in addition to any other applicable designations.)
Whenever any Notes are so surrendered for exchange, the Indenture Trustee
shall execute and the Note Registrar shall authenticate and deliver the Notes
which the Noteholder making the exchange is entitled to receive. Each Note
presented or surrendered for registration of transfer or exchange shall (if
so required by the Note Registrar) be duly endorsed by, or be accompanied by
a written instrument of transfer in form reasonably satisfactory to the Note
Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing. Notes delivered upon any such transfer or exchange
will evidence the same obligations, and will be entitled to the same rights
and privileges, as the Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall be
cancelled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
------------------------------------------
mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (ii) there is delivered to the Indenture Trustee such
security or indemnity as may be required by it to hold the Issuer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, and provided that the requirements of Section 8-405 of
the UCC are met, the Issuer shall execute, and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Note, a replacement Note of the
same Class; provided, however, that if any such destroyed, lost or stolen
Note, but not a mutilated Note, shall have become or within seven days shall
be due and payable, instead of issuing a replacement Note, the Issuer may pay
such destroyed, lost or stolen Note when so due or payable without surrender
thereof. If, after the delivery of such replacement Note or payment of a
destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence, a bona fide purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the
Issuer and the Indenture Trustee shall be entitled to recover such replace-
ment Note (or such payment) from the Person to whom it was delivered or any
Person taking such replacement Note from such Person to whom such replacement
Note was delivered or any assignee of such Person, except a bona fide
purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred
by the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute
an original additional contractual obligation of the Issuer, whether or not
the mutilated, destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Notes duly
issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. Persons Deemed Owners. Prior to due presentment for
---------------------
registration of transfer of any Note, the Issuer, the Indenture Trustee and
any agent of the Issuer or the Indenture Trustee may treat the Person in
whose name any Note is registered (as of the day of determination) as the
owner of such Note for the purpose of receiving payments of principal of and
interest, if any, on such Note and for all other purposes whatsoever, whether
or not such Note be overdue, and neither the Issuer, the Indenture Trustee
nor any agent of the Issuer or the Indenture Trustee shall be affected by
notice to the contrary.
Section 4.05. Cancellation. All Notes surrendered for payment,
------------
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture
Trustee and shall be promptly cancelled by the Indenture Trustee. The Issuer
may at any time deliver to the Indenture Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be
promptly cancelled by the Indenture Trustee. No Notes shall be authenticated
in lieu of or in exchange for any Notes cancelled as provided in this Section
4.05, except as expressly permitted by this Indenture. All cancelled Notes
may be held or disposed of by the Indenture Trustee in accordance with its
standard retention or disposal policy as in effect at the time unless the
Issuer shall direct by an Issuer Request that they be destroyed or returned
to it; provided, that such Issuer Request is timely and the Notes have not
been previously disposed of by the Indenture Trustee.
Section 4.06. Book-Entry Notes. The Notes, upon original issuance,
----------------
will be issued in the form of typewritten Notes representing the Book-Entry
Notes, to be delivered to The Depository Trust Company, the initial
Depository, by, or on behalf of, the Issuer. Such Notes shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Depository, and no Beneficial Owner will receive a definitive Note
representing such Beneficial Owner's interest in such Note, except as
provided in Section 4.08. Unless and until definitive, fully registered
Notes (the "Definitive Notes") have been issued to Beneficial Owners pursuant
to Section 4.08:
(i) the provisions of this Section 4.06 shall be in full force
and effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Depository for all purposes of this Indenture
(including the payment of principal of and interest on the Notes and the
giving of instructions or directions hereunder) as the sole holder of
the Notes, and shall have no obligation to the Owners of Notes;
(iii) to the extent that the provisions of this Section 4.06
conflict with any other provisions of this Indenture, the provisions of
this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised only
through the Depository and shall be limited to those established by law
and agreements between such Owners of Notes and the Depository and/or
the Depository Participants pursuant to the Note Depository Agreement.
Unless and until Definitive Notes are issued pursuant to Section 4.08,
the initial Depository will make book-entry transfers among the
Depository Participants and receive and transmit payments of principal
of and interest on the Notes to such Depository Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the Notes,
the Depository shall be deemed to represent such percentage only to the
extent that it has received instructions to such effect from Beneficial
Owners and/or Depository Participants owning or representing,
respectively, such required percentage of the beneficial interest in the
Notes and has delivered such instructions to the Indenture Trustee.
Section 4.07. Notices to Depository. Whenever a notice or other
---------------------
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant
to Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. Definitive Notes. If (i) the Administrator advises the
----------------
Indenture Trustee in writing that the Depository is no longer willing or able
to properly discharge its responsibilities with respect to the Notes and the
Administrator is unable to locate a qualified successor, (ii) the
Administrator at its option advises the Indenture Trustee in writing that it
elects to terminate the book-entry system through the Depository or (iii)
after the occurrence of an Event of Default, Owners of Notes representing
beneficial interests aggregating at least a majority of the Security Balances
of the Notes advise the Depository in writing that the continuation of a
book-entry system through the Depository is no longer in the best interests
of the Beneficial Owners, then the Depository shall notify all Beneficial
Owners and the Indenture Trustee of the occurrence of any such event and of
the availability of Definitive Notes to Beneficial Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Notes
representing the Book-Entry Notes by the Depository, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Notes in accordance with the instructions
of the Depository. None of the Issuer, the Note Registrar or the Indenture
Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Notes, the Indenture Trustee
shall recognize the Holders of the Definitive Notes as Noteholders.
Section 4.09. Tax Treatment. The Issuer has entered into this
-------------
Indenture, and the Notes will be issued, with the intention that, for
federal, state and local income, single business and franchise tax purposes,
the Notes will qualify as indebtedness of the Issuer. The Issuer, by
entering into this Indenture, and each Noteholder, by its acceptance of its
Note (and each Beneficial Owner by its acceptance of an interest in the
applicable Book-Entry Note), agree to treat the Notes for federal, state and
local income, single business and franchise tax purposes as indebtedness of
the Issuer.
Section 4.10. Satisfaction and Discharge of Indenture. This Indenture
---------------------------------------
shall cease to be of further effect with respect to the Notes except as to
(i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon,
(iv) Sections 3.03, 3.04, 3.06, 3.09, 3.18, 3.20 and 3.21, (v) the rights,
obligations and immunities of the Indenture Trustee hereunder (including the
rights of the Indenture Trustee under Section 6.07 and the obligations of the
Indenture Trustee under Section 4.11) and (vi) the rights of Noteholders as
beneficiaries hereof with respect to the property so deposited with the
Indenture Trustee payable to all or any of them, and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than
(i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 4.03 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust, as provided in Section 3.03) have been
delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee
for cancellation
a. have become due and payable, or
b. will become due and payable at the Final Scheduled
Payment Date within one year, or
c. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving
of notice of redemption by the Indenture Trustee in the name, and
at the expense, of the Issuer,
and the Issuer, in the case of a., or b. or c. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount sufficient
to pay and discharge the entire indebtedness on such Notes then out-
standing not theretofore delivered to the Indenture Trustee for
cancellation when due on the Final Scheduled Payment Date or the
Redemption Date, as applicable;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder (and under the Insurance Agreement) by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA or the Indenture Trustee) an Independent Certificate
from a firm of certified public accountants, each meeting the applicable
requirements of Section 11.01 and, subject to Section 11.02, each
stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture have been complied
with.
Section 4.11. Application of Trust Money. All moneys deposited with
--------------------------
the Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as
the Indenture Trustee may determine, to the Holders of those particular Notes
for the payment or redemption of which such moneys have been deposited with
the Indenture Trustee, of all sums due and to become due thereon for
principal and interest; but such moneys need not be segregated from other
funds except to the extent required herein or required by law.
(Section 4.12. Subrogation and Cooperation. (a) The Issuer and the
---------------------------
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer
makes payments under the Credit Enhancement Instrument on account of
principal of or interest on the Notes or the Certificates, the Credit
Enhancer will be fully subrogated to the rights of such Holders to receive
such principal and interest from the Issuer, and (ii) the Credit Enhancer
shall be paid such principal and interest but only from the sources and in
the manner provided herein and in the Insurance Agreement for the payment of
such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce
the Credit Enhancer's rights or interest under this Indenture or the
Insurance Agreement without limiting the rights of the Noteholders as
otherwise set forth in the Indenture, including, without limitation, upon the
occurrence and continuance of a default under the Insurance Agreement, a
request to take any one or more of the following actions:
(i) institute Proceedings for the collection of all amounts then
payable on the Notes, or under this Indenture in respect to Notes and
all amounts payable under the Insurance Agreement enforce any judgment
obtained and collect from the Issuer moneys adjudged due;
(ii) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private Sales called and
conducted in any manner permitted by law;
(iii) file or record all Assignments that have not previously been
recorded;
(iv) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Credit Enhancer hereunder.)
Section 4.13. Repayment of Moneys Held by Paying Agent. In connection
----------------------------------------
with the satisfaction and discharge of this Indenture with respect to the
Notes, all moneys then held by any Administrator other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes
shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held
and applied according to Section 3.05 and thereupon such Paying Agent shall
be released from all further liability with respect to such moneys.
ARTICLE V
Remedies
--------
Section 5.01. Events of Default. "Event of Default," wherever used
-----------------
herein, shall have the meaning provided in Appendix A(; provided, however,
that no Event of Default will occur under clause (i) or clause (ii) of the
definition of "Event of Default" if the Issuer fails to make payments of
principal of and interest on the Notes so long as the Credit Enhancer makes
payments sufficient therefore under the Credit Enhancement Instrument).
The Issuer shall deliver to the Indenture Trustee (and the Credit
Enhancer), within five days after the occurrence thereof, written notice in
the form of an Officer's Certificate of any event which with the giving of
notice and the lapse of time would become an Event of Default under clause
(iii) of the definition of "Event of Default", its status and what action the
Issuer is taking or proposes to take with respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If
---------------------------------------------------
an Event of Default should occur and be continuing, then and in every such
case the Indenture Trustee or the Holders of Notes representing not less than
a majority of the Security Balances of all Notes may declare the Notes to be
immediately due and payable, by a notice in writing to the Issuer (and to the
Indenture Trustee if given by Noteholders), and upon any such declaration the
unpaid principal amount of such Class of Notes, together with accrued and
unpaid interest thereon through the date of acceleration, shall become
immediately due and payable. (Unless the prior written consent of the Credit
Enhancer shall have been obtained by the Indenture Trustee, the Payment Date
upon which such accelerated payment is due and payable shall not be a Payment
Date under the Credit Enhancement Instrument and the Indenture Trustee shall
not be authorized under Section 3.32 to make a draw therefor.)
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided,
the Holders of Notes representing a majority of the Security Balances of all
Notes, by written notice to the Issuer and the Indenture Trustee, may rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee
a sum sufficient to pay:
(A) all payments of principal of and interest on the Notes
and all other amounts that would then be due hereunder or upon the
Notes if the Event of Default giving rise to such acceleration had
not occurred; and
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements
and advances of the Indenture Trustee and its agents and counsel;
and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in
- -----------------
the payment of any interest on any Note when the same becomes due and
payable, and such default continues for a period of five days, or
(ii) default is made in the payment of the principal of or any installment of
the principal of any Note when the same becomes due and payable, the Issuer
will, upon demand of the Indenture Trustee, pay to it, for the benefit of the
Holders of Notes and of the Credit Enhancer, the whole amount then due and
payable on the Notes for principal and interest, with interest upon the
overdue principal, and in addition thereto such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an
express trust, subject to the provisions of Section 11.17 hereof, may
institute a Proceeding for the collection of the sums so due and unpaid, and
may prosecute such Proceeding to judgment or final decree, and may enforce
the same against the Issuer or other obligor upon the Notes and collect in
the manner provided by law out of the property of the Issuer or other obligor
the Notes, wherever situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee, subject to the provisions of Section 11.17 hereof, may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect
and enforce its rights and the rights of the Noteholders (and the Credit
Enhancer), by such appropriate Proceedings as the Indenture Trustee shall
deem most effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy or legal or equitable right vested in the Indenture Trustee by this
Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest
in the Trust Estate, Proceedings under Title 11 of the United States Code or
any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorgani-
zation, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors
or property of the Issuer or such other obligor, the Indenture Trustee,
irrespective of whether the principal of any Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective
of whether the Indenture Trustee shall have made any demand pursuant to the
provisions of this Section, shall be entitled and empowered, by intervention
in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Indenture Trustee (including any claim
for reasonable compensation to the Indenture Trustee and each
predecessor Indenture Trustee, and their respective agents, attorneys
and counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence or bad
faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceedings;
(iii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute all amounts received
with respect to the claims of the Noteholders and of the Indenture
Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the
Indenture Trustee or the Holders of Notes allowed in any judicial
proceedings relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture
Trustee shall consent to the making of payments directly to such Noteholders,
to pay to the Indenture Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Indenture Trustee, each predecessor Indenture
Trustee and their respective agents, attorneys and counsel, and all other
expenses and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee except as a result of
negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf
of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Note-
holder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without
the possession of any of the Notes or the production thereof in any trial or
other Proceedings relative thereto, and any such action or proceedings
instituted by the Indenture Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Indenture
Trustee, each predecessor Indenture Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Holders of the Notes (or
the Variable Funding Notes, as applicable).
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall
be held to represent all the Holders of the Notes, and it shall not be
necessary to make any Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities. (a) If an Event of Default shall
--------------------
have occurred and be continuing, the Indenture Trustee subject to the
provisions of Section 11.17 hereof may do one or more of the following
(subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, and all amounts payable under the Insurance
Agreement, enforce any judgment obtained, and collect from the Issuer
and any other obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and
take any other appropriate action to protect and enforce the rights and
remedies of the Indenture Trustee, the Holders of the Notes (and the
Credit Enhancer); and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law; provided, however, that the
Indenture Trustee may not sell or otherwise liquidate the Trust Estate
following an Event of Default, unless (A) the Holders of 100% of the
Security Balances of the Securities (and the Credit Enhancer) consent
thereto, (which consent will not be unreasonably withheld) (B) the
proceeds of such sale or liquidation distributable to Holders are
sufficient to discharge in full all amounts then due and unpaid upon the
Securities for principal and interest (and to reimburse the Credit
Enhancer for any amounts drawn under the Credit Enhancement Instrument
and any other amounts due the Credit Enhancer under the Insurance
Agreement) or (C) the Indenture Trustee determines that the Mortgage
Loans will not continue to provide sufficient funds for the payment of
principal of and interest on either the Notes, as they would have
become due if the Notes had not been declared due and payable, and the
Indenture Trustee obtains the consent (of the Credit Enhancer, which
consent will not be unreasonably withheld, and) of the Holders of not
less than 66-2/3% of the Security Balances of the Notes. In determining
such sufficiency or insufficiency with respect to clause (B) and (C),
the Indenture Trustee may, but need not, obtain and rely upon an opinion
of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose. (Notwithstanding the
foregoing, so long as an Event of Servicer Termination has not occurred,
any Sale of the Trust Estate shall be made subject to the continued
Servicing of the Mortgage Loans by the Master Servicer as provided in
the Servicing Agreement.)
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following
order:
FIRST: to the Indenture Trustee for amounts due under
Section 6.07;
SECOND: to each Class of Noteholders for amounts due and unpaid
on the related Class of Notes for interest and to each Noteholder
of such Class, in each case ratably, without preference or priority
of any kind, according to the amounts due and payable on such Class
of Notes for interest from amounts available in the Trust Estate
for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and
unpaid on the related Class of Notes for principal, from amounts
available in the Trust Estate for such Noteholders, and to each
Noteholder of such Class, in each case ratably, without preference
or priority of any kind, according to the amounts due and payable
on such Class of Notes for principal, until the Security Balances
of each Class of Notes is reduced to zero;
FOURTH: to the Issuer for amounts required to be distributed to
the Certificateholders pursuant to the Trust Agreement;
FIFTH: (To the payment of all amounts due and owing to the Credit
Enhancer under the Insurance Agreement);
SIXTH: to the Issuer for amounts due under Article VIII of the
Trust Agreement; and
SEVENTH: to the payment of the remainder, if any to the Issuer or
any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days
before such record date, the Issuer shall mail to each Noteholder and the
Indenture Trustee a notice that states the record date, the payment date and
the amount to be paid.
Section 5.05. Optional Preservation of the Trust Estate. If the Notes
-----------------------------------------
have been declared to be due and payable under Section 5.02 following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Trust Estate. It is the desire of the parties
hereto and the Noteholders that there be at all times sufficient funds for
the payment of principal of and interest on the Notes and other obligations
of the Issuer (including payment to the Credit Enhancer), and the Indenture
Trustee shall take such desire into account when determining whether or not
to maintain possession of the Trust Estate. In determining whether to
maintain possession of the Trust Estate, the Indenture Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such purpose.
Section 5.06. Limitation of Suits. No Holder of any Note shall have
-------------------
any right to institute any Proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless and subject to the provisions of Section 11.17
hereof:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security Balances of
the Notes have made written request to the Indenture Trustee to
institute such Proceeding in respect of such Event of Default in its own
name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Holders
of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Notes, each representing less than a majority of the Security Balances of the
Notes, the Indenture Trustee in its sole discretion may determine what
action, if any, shall be taken, notwithstanding any other provisions of this
Indenture.
Section 5.07. Unconditional Rights of Noteholders To Receive Principal
--------------------------------------------------------
and Interest. Notwithstanding any other provisions in this Indenture, the
- ------------
Holder of any Note shall have the right, which is absolute and unconditional,
to receive payment of the principal of and interest, if any, on such Note on
or after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
----------------------------------
Trustee or any Noteholder has instituted any Proceeding to enforce any right
or remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had
been instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy
------------------------------
herein conferred upon or reserved to the Indenture Trustee or to the
Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission of
------------------------------
the Indenture Trustee or any Holder of any Note to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the
Indenture Trustee or to the Noteholders may be exercised from time to time,
and as often as may be deemed expedient, by the Indenture Trustee or by the
Noteholders, as the case may be.
Section 5.11. Control by Noteholders. The Holders of a majority of the
----------------------
Security Balances of Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any rule of law
or with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction
to the Indenture Trustee to sell or liquidate the Trust Estate shall be
by Holders of Notes representing not less than 100% of the Security
Balances of Notes;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee by
Holders of Notes representing less than 100% of the Security Balances of
Notes to sell or liquidate the Trust Estate shall be of no force and
effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject
to Section 6.01, the Indenture Trustee need not take any action that it
determines might involve it in liability or might materially adversely affect
the rights of any Noteholders not consenting to such action.
Section 5.12. Waiver of Past Defaults. Prior to the declaration of
------------------------
the acceleration of the maturity of the Notes as provided in Section 5.02,
the Holders of Notes of not less than a majority of the Security Balances of
the Notes may waive any past Event of Default and its consequences except an
Event of Default (a) with respect to payment of principal of or interest on
any of the Notes or (b) in respect of a covenant or provision hereof which
cannot be modified or amended without the consent of the Holder of each Note
(or (c) the waiver of which would materially and adversely affect the
interests of the Credit Enhancer or modify its obligation under the Credit
Enhancement Instrument.) In the case of any such waiver, the Issuer, the
Indenture Trustee and the Holders of the Notes shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other Event of Default or impair any right conse-
quent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event
of Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
----------------------
agree, and each Holder of any Note by such Holder's acceptance thereof shall
be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture, or
in any suit against the Indenture Trustee for any action taken, suffered or
omitted by it as Indenture Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 5.13 shall not apply to (a) any suit
instituted by the Indenture Trustee, (b) any suit instituted by any
Noteholder, or group of Noteholders, in each case holding in the aggregate
more than 10% of the Security Balances of the Notes or (c) any suit
instituted by any Noteholder for the enforcement of the payment of principal
of or interest on any Note on or after the respective due dates expressed in
such Note and in this Indenture.
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
--------------------------------
(to the extent that it may lawfully do so) that it will not at any time
insist upon, or plead or in any manner whatsoever, claim or take the benefit
or advantage of, any stay or extension law wherever enacted, now or at any
time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Issuer (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.15. Sale of Trust Estate. (a) The power to effect any sale
--------------------
or other disposition (a "Sale") of any portion of the Trust Estate pursuant
to Section 5.04 is expressly subject to the provisions of Section 5.05 and
this Section 5.15. The power to effect any such Sale shall not be exhausted
by any one or more Sales as to any portion of the Trust Estate remaining
unsold, but shall continue unimpaired until the entire Trust Estate shall
have been sold or all amounts payable on the Notes and under this Indenture
(and under the Insurance Agreement) shall have been paid. The Indenture
Trustee may from time to time postpone any public Sale by public announcement
made at the time and place of such Sale. The Indenture Trustee hereby
expressly waives its right to any amount fixed by law as compensation for any
Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the Holders of all Securities (and the Credit Enhancer)
consent to or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the entire
amount which would be payable to the Noteholders under the Notes (and the
Credit Enhancer in respect of amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the Insurance
Agreement,) in full payment thereof in accordance with Section 5.02, on the
Payment Date next succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion, that
the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee
may rely upon an opinion of an Independent investment banking firm obtained
and delivered as provided in Section 5.05, (and the Credit Enhancer consents
to such Sale, which consent will not be unreasonably withheld) and the
Holders representing at least 66-2/3% of the Security Balances of the
Securities consent to such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust
Estate at a private Sale shall not be deemed a Sale or other disposition
thereof for purposes of this Section 5.15(b).
(c) Unless the Holders of Notes (and the Credit Enhancer) have other-
wise consented or directed the Indenture Trustee, at any public Sale of all
or any portion of the Trust Estate at which a minimum bid equal to or greater
than the amount described in paragraph (2) of subsection (b) of this Section
5.15 has not been established by the Indenture Trustee and no Person bids an
amount equal to or greater than such amount, the Indenture Trustee shall bid
an amount at least $1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust Estate
(1) any Holder or Holders of Notes may bid for and (with the
consent of the Credit Enhancer) purchase the property offered for sale, and
upon compliance with the terms of sale may hold, retain and possess and
dispose of such property, without further accountability, and may, in paying
the purchase money therefor, deliver any Notes or claims for interest thereon
in lieu of cash up to the amount which shall, upon distribution of the net
proceeds of such sale, be payable thereon, and such Notes, in case the
amounts so payable thereon shall be less than the amount due thereon, shall
be returned to the Holders thereof after being appropriately stamped to show
such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the
purchase price by crediting the gross Sale price against the sum of (A) the
amount which would be distributable to the Holders of the Notes (and amounts
owing to the Credit Enhancer) as a result of such Sale in accordance with
Section 5.04(b) on the Payment Date next succeeding the date of such Sale and
(B) the expenses of the Sale and of any Proceedings in connection therewith
which are reimbursable to it, without being required to produce the Notes in
order to complete any such Sale or in order for the net Sale price to be
credited against such Notes, and any property so acquired by the Indenture
Trustee shall be held and dealt with by it in accordance with the provisions
of this Indenture;
(3) the Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest
in any portion of the Trust Estate in connection with a Sale thereof, and to
take all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.
Section 5.16. Action on Notes. The Indenture Trustee's right to seek
---------------
and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under
or with respect to this Indenture. Neither the lien of this Indenture nor
any rights or remedies of the Indenture Trustee or the Noteholders shall be
impaired by the recovery of any judgment by the Indenture Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion
of the Trust Estate or upon any of the assets of the Issuer. Any money or
property collected by the Indenture Trustee shall be applied in accordance
with Section 5.04(b).
Section 5.17. Performance and Enforcement of Certain Obligations.
---------------------------------------------------
(a) Promptly following a request from the Indenture Trustee to do so and at
the Administrator's expense, the Issuer shall take all such lawful action as
the Indenture Trustee may request to compel or secure the performance and
observance by the Seller and the Master Servicer, as applicable, of each of
their obligations to the Issuer under or in connection with the Mortgage Loan
Purchase Agreement and the Servicing Agreement, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer
under or in connection with the Mortgage Loan Purchase Agreement and the
Servicing Agreement to the extent and in the manner directed by the Indenture
Trustee, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee (subject to the rights of the Credit Enhancer under the
Servicing Agreement) may, and at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the
Holders of 66-2/3% of the Security Balances of the Notes shall, exercise all
rights, remedies, powers, privileges and claims of the Issuer against the
Seller or the Master Servicer under or in connection with the Mortgage Loan
Purchase Agreement and the Servicing Agreement, including the right or power
to take any action to compel or secure performance or observance by the
Seller or the Master Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Mortgage Loan
Purchase Agreement and the Servicing Agreement, as the case may be, and any
right of the Issuer to take such action shall not be suspended.
ARTICLE VI
The Indenture Trustee
---------------------
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default
---------------------------
has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it (A) pursuant to Section 5.11 (or (B) from the
Credit Enhancer, which it is entitled to give under any of the Basic
Documents).
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section 6.01.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(f) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of
the TIA.
Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee
---------------------------
may rely on any document believed by it to be genuine and to have been signed
or presented by the proper person. The Indenture Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee
shall not be responsible for any misconduct or negligence on the part of, or
for the supervision of, any such agent, attorney, custodian or nominee
appointed with due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within
its rights or powers; provided, however, that the Indenture Trustee's conduct
does not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
--------------------------------------
Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Issuer or its Affiliates
with the same rights it would have if it were not Indenture Trustee. Any
Administrator, Note Registrar, co-registrar or co-paying agent may do the
same with like rights. However, the Indenture Trustee must comply with
Sections 6.11 and 6.12.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
------------------------------
shall not be responsible for and makes no representation as to the validity
or adequacy of this Indenture or the Notes, it shall not be accountable for
the Issuer's use of the proceeds from the Notes, and it shall not be
responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes
other than the Indenture Trustee's certificate of authentication.
Section 6.05. Notice of Event of Default. If an Event of Default
--------------------------
occurs and is continuing and if it is known to a Responsible Officer of the
Indenture Trustee, the Indenture Trustee shall give notice thereof to each
Noteholder (and the Credit Enhancer). The Trustee shall mail to each
Noteholder such notice of the Event of Default within 90 days after it
occurs. Except in the case of an Event of Default in payment of principal of
or interest on any Note, the Indenture Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
---------------------------------------
Trustee shall deliver to each Noteholder such information as may be required
to enable such holder to prepare its federal and state income tax returns.
In addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. Compensation and Indemnity. The Issuer shall or shall
--------------------------
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's
compensation shall not be limited by any law on compensation of a trustee of
an express trust. The Issuer shall or shall cause the Administrator to
reimburse the Indenture Trustee for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Indenture
Trustee's agents, counsel, accountants and experts. The Issuer shall or
shall cause the Administrator to indemnify the Indenture Trustee against any
and all loss, liability or expense (including attorneys' fees) incurred by it
in connection with the administration of this trust and the performance of
its duties hereunder. The Indenture Trustee shall notify the Issuer and the
Administrator promptly of any claim for which it may seek indemnity. Failure
by the Indenture Trustee to so notify the Issuer and the Administrator shall
not relieve the Issuer or the Administrator of its obligations hereunder.
The Issuer shall or shall cause the Administrator to defend any such claim,
and the Indenture Trustee may have separate counsel and the Issuer shall or
shall cause the Administrator to pay the fees and expenses of such counsel.
Neither the Issuer nor the Administrator need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
--------------------------------
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture
Trustee may resign at any time by so notifying the Issuer and the Credit
Enhancer. The Holders of a majority of Security Balances of the Notes may
remove the Indenture Trustee by so notifying the Indenture Trustee and the
Credit Enhancer and may appoint a successor Indenture Trustee. The Issuer
shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists in
the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The succes-
sor Indenture Trustee shall mail a notice of its succession to Noteholders.
The retiring Indenture Trustee shall promptly transfer all property held by
it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security
Balances of the Notes may petition any court of competent jurisdiction for
the appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal
of the Indenture Trustee and the appointment of a successor Indenture
Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under
Section 6.07 shall continue for the benefit of the retiring Indenture
Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
-------------------------------------
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided, that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11. The Indenture Trustee shall
provide the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not
have been authenticated, any successor to the Indenture Trustee may authen-
ticate such Notes either in the name of any predecessor hereunder or in the
name of the successor to the Indenture Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Indenture Trustee
shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
---------------------------------------------------------
Trustee. (a) Notwithstanding any other provisions of this Indenture, at any
- -------
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or
separate trustee or separate trustees, of all or any part of the Trust, and
to vest in such Person or Persons, in such capacity and for the benefit of
the Noteholders, such title to the Trust Estate, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties, obli-
gations, rights and trusts as the Indenture Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and
no notice to Noteholders of the appointment of any co-trustee or separate
trustee shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions
and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed the Indenture Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust Estate or
any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article VI. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Indenture Trustee or separately, as may be provided therein, subject to
all the provisions of this Indenture, specifically including every provision
of this Indenture relating to the conduct of, affecting the liability of, or
affording protection to, the Indenture Trustee. Every such instrument shall
be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Indenture Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
-----------------------------
shall at all times satisfy the requirements of TIA Section 310(a). The
Indenture Trustee shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition and it or its parent shall have a long-term debt rating of (____)
or better by (______). The Indenture Trustee shall comply with TIA
Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities of the Issuer are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Issuer. The
------------------------------------------------
Indenture Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). An Indenture Trustee who
has resigned or been removed shall be subject to TIA Section 311(a) to the
extent indicated.
Section 6.13. Representation and Warranty. The Indenture Trustee
---------------------------
represents and warrants to the Issuer, for the benefit of the Noteholders,
that this Indenture has been executed and delivered by one of its Responsible
Officers who is duly authorized to execute and deliver such document in such
capacity on its behalf.
Section 6.14. Directions to Indenture Trustee. The Indenture Trustee
-------------------------------
is hereby directed:
(a) to accept assignment of the Mortgage Loans and hold the assets of
the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
ARTICLE VII
Noteholders' Lists and Reports
------------------------------
Section 7.01. Issuer To Furnish Indenture Trustee Names and Addresses
-------------------------------------------------------
of Noteholders. The Issuer will furnish or cause to be furnished to the
- --------------
Indenture Trustee (a) not more than five days after each Record Date, a list,
in such form as the Indenture Trustee may reasonably require, of the names
and addresses of the Holders of Notes as of such Record Date, (b) at such
other times as the Indenture Trustee and the Credit Enhancer may request in
writing, within 30 days after receipt by the Issuer of any such request, a
list of similar form and content as of a date not more than 10 days prior to
the time such list is furnished; provided, however, that so long as the
Indenture Trustee is the Note Registrar, no such list shall be required to be
furnished.
Section 7.02. Preservation of Information; Communications to
----------------------------------------------
Noteholders. (a) The Indenture Trustee shall preserve, in as current a form
- -----------
as is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as
provided in Section 7.01 and the names and addresses of Holders of Notes
received by the Indenture Trustee in its capacity as Note Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under
the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
-----------------
(i) file with the Indenture Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) that the Issuer
may be required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of
this Indenture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA
Section 313(c)) such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to clauses (i) and (ii) of
this Section 7.03(a) and by rules and regulations prescribed from time
to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA
----------------------------
Section 313(a), within 60 days after each January 1 beginning with
___________, 199_, the Indenture Trustee shall mail to each Noteholder as
required by TIA Section 313(c) (and to the Credit Enhancer) a brief report
dated as of such date that complies with TIA Section 313(a). The Indenture
Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall be
filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
------------------------------------
Section 8.01. Collection of Money. Except as otherwise expressly
-------------------
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable
to or receivable by the Indenture Trustee pursuant to this Indenture. The
Indenture Trustee shall apply all such money received by it as provided in
this Indenture. Except as otherwise expressly provided in this Indenture, if
any default occurs in the making of any payment or performance under any
agreement or instrument that is part of the Trust Estate, the Indenture
Trustee may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to
claim a Default or Event of Default under this Indenture and any right to
proceed thereafter as provided in Article V.
Section 8.02. Trust Accounts. (a) On or prior to the Closing Date,
--------------
the Issuer shall cause the Indenture Trustee to establish and maintain, in
the name of the Indenture Trustee, for the benefit of the Noteholders and the
Certificateholders (and the Credit Enhancer), the Payment Account as provided
in Section 3.01 of this Indenture.
(b) All moneys deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture, including any investments made with such moneys, are for the
benefit of the Noteholders and the Certificateholders (and all income or
other gain from such investments are for the benefit of the Master Servicer
as provided by the Servicing Agreement).
(On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.)
On each Payment Date, the Indenture Trustee shall distribute all amounts
on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the
Notes in the order of priority set forth in Section 3.05 (except as otherwise
provided in Section 5.04(b)).
The Master Servicer may direct the Indenture Trustee to invest any funds
in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. (Unless otherwise instructed by the Master Servicer,
the Indenture Trustee shall invest all funds in the Payment Account in its
(__________) Short Term Investment Fund so long as it is an Eligible
Investment).
((c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture Trustee to invest any funds in the
Funding Account in Eligible Investments maturing no later than the Business
Day preceding each Payment Date and shall not be sold or disposed of prior to
the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in its
Corporate Trust Short Term Investment Fund so long as it is an Eligible
Investment. During the Funding Period, any amounts received by the Indenture
Trustee in respect of Net Principal Collections for deposit in the Funding
Account, together with any Eligible Investments in which such moneys are or
will be invested or reinvested during the term of the Notes, shall be held by
the Indenture Trustee in the Funding Account as part of the Trust Estate,
subject to disbursement and withdrawal as herein provided.
(i) Amounts on deposit in the Funding Account in respect of Net
Principal Collections may be withdrawn on each Deposit Date and (1) paid
to the Issuer in payment for Additional Loans by the deposit of such
amount to the Collection Account and (2) at the end of the Funding
Period any amounts remaining in the Funding Account after the withdrawal
called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the
last day of the Funding Period.
(ii) Amounts on deposit in the Funding Account in respect of
investment earnings shall be withdrawn on each Payment Date and
deposited in the Payment Account and included in the amounts paid to
Noteholders and Certificateholders.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount
payable on such investment on such Payment Date, pending receipt thereof to
the extent necessary to make distributions on the Notes and the Certificates)
and shall not be sold or disposed of prior to maturity.)
Section 8.03. Opinion of Counsel. The Indenture Trustee shall receive
------------------
at least seven days notice when requested by the Issuer to take any action
pursuant to Section 8.04(a), accompanied by copies of any instruments to be
executed, and the Indenture Trustee shall also require, as a condition to
such action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such
action will not materially and adversely impair the security for the Notes or
the rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be
required to express an opinion as to the fair value of the Trust Estate.
Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Indenture Trustee in connection with any such
action.
Section 8.04. Release of Trust Estate. (a) Subject to the payment of
-----------------------
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property
from the lien of this Indenture, or convey the Indenture Trustee's interest
in the same, in a manner and under circumstances that are not inconsistent
with the provisions of this Indenture. No party relying upon an instrument
executed by the Indenture Trustee as provided in Article IV hereunder shall
be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent, or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this
Indenture have been paid, (and (iii) all sums due the Credit Enhancer) have
been paid, release any remaining portion of the Trust Estate that secured the
Notes from the lien of this Indenture. The Indenture Trustee shall release
property from the lien of this Indenture pursuant to this Section 8.04 only
upon receipt of an request from the Issuer accompanied by an Officers'
Certificate, an Opinion of Counsel, and (if required by the TIA) Independent
Certificates in accordance with TIA Section 314(c) and 314(d)(1) meeting the
applicable requirements as described herein, (and a letter from the President
or any Vice President or any Secretary of the Credit Enhancer, if any,
stating that the Credit Enhancer has no objection to such request from the
Issuer).
Section 8.05. Surrender of Notes Upon Final Payment. By acceptance of
-------------------------------------
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
ARTICLE IX
Supplemental Indentures
-----------------------
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with (the consent of
the Credit Enhancer and) prior notice to the Rating Agencies (and the Credit
Enhancer), the Issuer and the Indenture Trustee, when authorized by an Issuer
Request, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as in force at the date of the execution thereof), in
form satisfactory to the Indenture Trustee, for any of the following
purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey
and confirm unto the Indenture Trustee any property subject or required
to be subjected to the lien of this Indenture, or to subject to the lien
of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property
to or with the Indenture Trustee;
(v) (A) to cure any ambiguity, to correct any error or to
correct or supplement any provision herein or in any supplemental
indenture that may be defective or inconsistent with any other provision
herein or in any supplemental indenture or with the related Prospectus
or Prospectus Supplement or (B) to make any other provisions with
respect to matters or questions arising under this Indenture or in any
supplemental indenture; provided, that in the case of clause (B), such
action shall not adversely affect the interests of the Holders of the
Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as shall
be necessary to facilitate the administration of the trusts hereunder by
more than one trustee, pursuant to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse
federal income tax or _________
tax consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with (the consent of the Credit Enhancer and) prior notice to the Rating
Agencies (and the Credit Enhancer), enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing
in any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, (i) adversely affect in any material respect the
interests of any Noteholder (or (ii) cause the Issuer to be subject to an
entity level tax or be classified as a taxable mortgage pool within the
meaning of Section 7701(i) of the Code).
Section 9.02. Supplemental Indentures With Consent of Noteholders. The
---------------------------------------------------
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies (and, with the written consent
of the Credit Enhancer) and with the consent of the Holders of not less than
a majority of the Security Balances of each Class of Notes, by Act of such
Holders delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Note affected
thereby:
(i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount thereof or
the interest rate thereon, change the provisions of this Indenture
relating to the application of collections on, or the proceeds of the
sale of, the Trust Estate to payment of principal of or interest on the
Notes, or change any place of payment where, or the coin or currency in
which, any Note or the interest thereon is payable, or impair the right
to institute suit for the enforcement of the provisions of this
Indenture requiring the application of funds available therefor, as
provided in Article V, to the payment of any such amount due on the
Notes on or after the respective due dates thereof;
(ii) reduce the percentage of the Security Balances of the Notes,
the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception in
the definition of the term "Holder";
(iv) reduce the percentage of the Security Balances of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each Note affected
thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including the
calculation of any of the individual components of such calculation); or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time subject
hereto or deprive the Holder of any Note of the security provided by the
lien of this Indenture; (and provided, further, that such action shall
not, as evidenced by an Opinion of Counsel, cause the Issuer to be
subject to an entity level tax or be classified as a taxable mortgage
pool within the meaning of Section 7701(i) of the Code).
The Indenture Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The
Indenture Trustee shall not be liable for any such determination made in good
faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture
Trustee shall mail to the Holders of the Notes to which such amendment or
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture
Trustee to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing, or
------------------------------------
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts
created by this Indenture, the Indenture Trustee shall be entitled to
receive, and subject to Sections 6.01 and 6.02, shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The
Indenture Trustee may, but shall not be obligated to, enter into any such
supplemental indenture that affects the Indenture Trustee's own rights,
duties, liabilities or immunities under this Indenture or otherwise.
Section 9.04. Effect of Supplemental Indenture. Upon the execution of
--------------------------------
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance
therewith with respect to the Notes affected thereby, and the respective
rights, limitations of rights, obligations, duties, liabilities and
immunities under this Indenture of the Indenture Trustee, the Issuer and the
Holders of the Notes shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and
all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any
and all purposes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment of
-----------------------------------
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as
then in effect so long as this Indenture shall then be qualified under the
Trust Indenture Act.
Section 9.06. Reference in Notes to Supplemental Indentures. Notes
---------------------------------------------
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee
shall, bear a notation in form approved by the Indenture Trustee as to any
matter provided for in such supplemental indenture. If the Issuer or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
-------------------
Section 10.01. Redemption. (a) The Notes are subject to redemption
----------
in whole, but not in part, at the direction of the Servicer pursuant to
Section _____ of the Servicing Agreement, on any Payment Date on which the
Servicer exercises its option to purchase the Trust Estate pursuant to said
Section ____, for purchase price equal to the Redemption Price; provided,
that the Issuer has available funds sufficient to pay the Redemption Price.
The Servicer or the Issuer shall furnish the Rating Agencies notice of such
redemption. If the Notes are to be redeemed pursuant to this Section
10.01(a), the Servicer or the Issuer shall furnish notice of such election to
the Indenture Trustee not later than 20 days prior to the Redemption Date and
the Issuer shall deposit by 10:00 A.M. New York City time on the Redemption
date with the Indenture Trustee in the Note Distribution Account the
Redemption Price of the Notes to be redeemed, whereupon all Notes shall be
due and payable on the Redemption Date upon the furnishing of a notice
complying with Section 10.02 to each Holder of the Notes.
(b) In the event that the assets of the Trust are sold pursuant to
Section 9.02 of the Trust Agreement, all amounts on deposit in the Payment
Account shall be paid to the Noteholders up to the Security Balance of the
Notes and all accrued and unpaid interest thereon. If amounts are to be paid
to Noteholders pursuant to this Section 10.01(b), the Servicer or the Issuer
shall, to the extent practicable, furnish notice of such event to the amounts
shall be payable on the Redemption Date.
Section 10.02. Form of Redemption Notice. (a) Notice of redemption
-------------------------
under Section 10.01(a) shall be given by the Indenture Trustee by first-class
mail, postage prepaid, or by facsimile mailed or transmitted not later than
10 days prior to the applicable Redemption Date to each Holder of Notes, as
of the close of business on the Record Date preceding the applicable
Redemption Date, at such Holder's address or facsimile number appearing in
the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for payment
of the Redemption Price (which shall be the office or agency of the Issuer to
be maintained as provided in Section 3.02). Notice of redemption of the Notes
shall be given by the Indenture Trustee in the name and at the expense of the
Issuer. Failure to give notice of redemption, or any defect therein, to any
Holder of any Note shall not impair or affect the validity of the redemption
of any other Note.
(b) Prior notice of redemption under Section 10,01(b) is not required
to be given to Noteholders.
Section 10.03. Notes Payable on Redemption Date. The Notes shall,
--------------------------------
following notice of redemption as required by Section 10.02 (in the case of
redemption pursuant to Section 10.01(a)), on the Redemption Date become due
and payable at the Redemption Price and (unless the Issuer shall default in
the payment of the Redemption Price) no interest shall accrue on the
Redemption Price for any period after the date to which the accrued interest
is calculated for purposes of calculating the Redemption Price.
ARTICLE XI
Miscellaneous
-------------
Section 11.01. Compliance Certificates and Opinions, etc. (a) Upon
------------------------------------------
any application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Indenture Trustee and to the Credit Enhancer (i) an Officer's Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the TIA)
an Independent Certificate from a firm of certified public accountants
meeting the applicable requirements of this Section 11.01, except that, in
the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required to be
Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture,
the Issuer shall, in addition to any obligation imposed in Section 11.01(a)
or elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the
Issuer of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any
signer thereof as to the matters described in clause (i) above, the Issuer
shall also deliver to the Indenture Trustee an Independent Certificate as to
the same matters, if the fair value to the Issuer of the securities to be so
deposited and of all other such securities made the basis of any such with-
drawal or release since the commencement of the then-current fiscal year of
the Issuer, as set forth in the certificates delivered pursuant to clause (i)
above and this clause (ii), is 10% or more of the Security Balances of the
Notes, but such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set forth
in the related Officer's Certificate is less than $25,000 or less than one
percent of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be released from
the lien of this Indenture, the Issuer shall also furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any
signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to
the same matters if the fair value of the property or securities and of all
other property, other than property as contemplated by clause (v) below or
securities released from the lien of this Indenture since the commencement of
the then-current calendar year, as set forth in the certificates required by
clause (iii) above and this clause (iv), equals 10% or more of the Security
Balances of the Notes, but such certificate need not be furnished in the case
of any release of property or securities if the fair value thereof as set
forth in the related Officer's Certificate is less than $25,000 or less than
one percent of the then Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the Issuer
may, without compliance with the requirements of the other provisions of this
Section 11.01, (A) collect, sell or otherwise dispose of Mortgage Loans and
Mortgaged Properties as and to the extent permitted or required by the Basic
Documents or (B) make cash payments out of the Payment Account as and to the
extent permitted or required by the Basic Documents, so long as the Issuer
shall deliver to the Indenture Trustee every six months, commencing
__________, 199_, an Officer's Certificate of the Issuer stating that all the
dispositions of Collateral described in clauses (A) or (B) above that
occurred during the preceding six calendar months were in the ordinary course
of the Issuer's business and that the proceeds thereof were applied in
accordance with the Basic Documents.
Section 11.02. Form of Documents Delivered to Indenture Trustee. In
------------------------------------------------
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such
matters be certified by, or covered by the opinion of, only one such Person,
or that they be so certified or covered by only one document, but one such
Person may certify or give an opinion with respect to some matters and one or
more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized
Officer or Opinion of Counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer
or officers of the Seller, the Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of the
Seller, the Issuer or the Administrator, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the
Issuer shall deliver any document as a condition of the granting of such
application, or as evidence of the Issuer's compliance with any term hereof,
it is intended that the truth and accuracy, at the time of the granting of
such application or at the effective date of such certificate or report (as
the case may be), of the facts and opinions stated in such document shall in
such case be conditions precedent to the right of the Issuer to have such
application granted or to the sufficiency of such certificate or report. The
foregoing shall not, however, be construed to affect the Indenture Trustee's
right to rely upon the truth and accuracy of any statement or opinion
contained in any such document as provided in Article VI.
Section 11.03. Acts of Noteholders. (a) Any request, demand,
-------------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except
as herein otherwise expressly provided such action shall become effective
when such instrument or instruments are delivered to the Indenture Trustee,
and, where it is hereby expressly required, to the Issuer. Such instrument
or instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Noteholders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.01) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 11.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of
every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by
the Indenture Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
Section 11.04. Notices, etc., to Indenture Trustee, Issuer, Credit
---------------------------------------------------
Enhancer and Rating Agencies. Any request, demand, authorization, direction,
- -----------------------------
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to
be made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office, or
(ii) the Issuer by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and mailed
first-class, postage prepaid to the Issuer addressed to: ______________
Loan Trust 199_-__ in care of (_____________), (______________)
Attention of (_________) with a copy to the Administrator at
(______________), Attention: (_____________), or at any other address
previously furnished in writing to the Indenture Trustee by the Issuer
or the Administrator. The Issuer shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee, or
((iii) the Credit Enhancer by the Issuer, the Indenture Trustee or
by any Noteholders shall be sufficient for every purpose hereunder to in
writing and mailed, first-class postage pre-paid, or personally
delivered or telecopied to: (_______________), Attention:
(______________), Telephone: (_____________), Telecopier:
(___________)).
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to ((i) in
the case of Duff & Phelps, at the following address: (________________);)
(and) ((ii) in the case of Fitch Investors Service, L.P., at the following
address: (______________);) (and) ((iii) in the case of Moody's, at the
following address: Moody's Investors Service, ABS Monitoring Department, 99
Church Street, New York, New York 10007); (and) ((iv) in the case of Standard
& Poor's, at the following address: Standard & Poor's Corporation, 26
Broadway (15th Floor), New York, New York 10004, Attention of Asset Backed
Surveillance Department;) or as to each of the foregoing, at such other
address as shall be designated by written notice to the other parties.
Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
------------------------------
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by
mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Noteholder shall affect the sufficiency of such
notice with respect to other Noteholders, and any notice that is mailed in
the manner herein provided shall conclusively be presumed to have been duly
given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or similar activity, it shall be impractical to
mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed
to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure
to give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 11.06. Alternate Payment and Notice Provisions.
---------------------------------------
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Indenture Trustee or any
Administrator to such Holder, that is different from the methods provided for
in this Indenture for such payments or notices. The Issuer will furnish to
the Indenture Trustee a copy of each such agreement and the Indenture Trustee
will cause payments to be made and notices to be given in accordance with
such agreements.
Section 11.07. Conflict with Trust Indenture Act. If any provision
---------------------------------
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the
Trust Indenture Act, such required provision shall control.
The provisions of TIA SectionSection 310 through 317 that impose duties
on any person (including the provisions automatically deemed included herein
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
Section 11.08. Effect of Headings. The Article and Section headings
------------------
herein are for convenience only and shall not affect the construction hereof.
Section 11.09. Successors and Assigns. All covenants and agreements
----------------------
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture
Trustee in this Indenture shall bind its successors, co-trustees and agents.
Section 11.10. Separability. In case any provision in this Indenture
------------
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 11.11. Benefits of Indenture. (The Credit Enhancer and its
---------------------
successors and assigns shall be a third-party beneficiary to the provisions
of this Indenture.) Nothing in this Indenture or in the Notes, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, and the Noteholders, and any other party secured
hereunder, and any other Person with an ownership interest in any part of the
Trust Estate, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 11.12. Legal Holidays. In any case where the date on which any
--------------
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no interest
shall accrue for the period from and after any such nominal date.
Section 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.14. Counterparts. This Indenture may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.15. Recording of Indenture. If this Indenture is subject
----------------------
to recording in any appropriate public recording offices, such recording is
to be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Noteholders or any
other Person secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.
Section 11.16. Issuer Obligation. No recourse may be taken, directly
-----------------
or indirectly, with respect to the obligations of the Issuer, the Owner
Trustee or the Indenture Trustee on the Notes or under this Indenture or any
certificate or other writing delivered in connection herewith or therewith,
against (i) the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or
the Owner Trustee in its individual capacity, except as any such Person may
have expressly agreed (it being understood that the Indenture Trustee and the
Owner Trustee have no such obligations in their individual capacity) and
except that any such partner, owner or beneficiary shall be fully liable, to
the extent provided by applicable law, for any unpaid consideration for
stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance
of any duties or obligations of the Issuer hereunder, the Owner Trustee shall
be subject to, and entitled to the benefits of, the terms and provisions of
Article VI, VII and VIII of the Trust Agreement.
Section 11.17. No Petition. The Indenture Trustee, by entering into
-----------
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Indenture or any of the Basic Documents.
Section 11.18. Inspection. The Issuer agrees that, on reasonable prior
----------
notice, it will permit any representative of the Indenture Trustee, during
the Issuer's normal business hours, to examine all the books of account,
records, reports and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with
the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives
to hold in confidence all such information except to the extent disclosure
may be required by law (and all reasonable applications for confidential
treatment are unavailing) and except to the extent that the Indenture Trustee
may reasonably determine that such disclosure is consistent with its
obligations hereunder.
Section 11.19. Authority of the Administrator. Each of the parties to
------------------------------
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the
Issuer or the Owner Trustee, copies of all notices, requests, demands and
other documents to be delivered to the Issuer or the Owner Trustee pursuant
to the terms hereof shall be delivered to the Administrator. Unless
otherwise instructed by the Issuer or the Owner Trustee, all notices,
requests, demands and other documents to be executed or delivered, and any
action to be taken, by the Issuer or the Owner Trustee pursuant to the terms
hereof may be executed, delivered and/or taken by the Administrator pursuant
to the Administration Agreement.
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
______________ LOAN TRUST 199_-__
as Issuer
By: (______________________),
not in its individual capacity
but solely as Owner Trustee
By:___________________________________
Name:
Title:
(________________________________),
as Indenture Trustee
By:____________________________________
Name:
Title:
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared _________-
_____, to me known, who being by me duly sworn, did depose and say, that he
resides at _________________, __________________ _____, that he is the
__________ of the Owner Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corpora-
tion; that the seal affixed to said instrument is such corporate seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he signed his name thereto by like order.
___________________________
Notary Public
(NOTARIAL SEAL)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
--------
_______________, to me known, who being by me duly sworn, did depose and say,
that he resides at ___________________________________________________, that
he is the ______________ of ________________, as Indenture Trustee, one of
the corporations described in and which executed the above instrument; that
he knows the seal of said corporation; that the seal affixed to said instru-
ment is such corporate seal; that it was so affixed by order of the Board of
Directors of said corporation; and that he signed his name thereto by like
order.
___________________________
Notary Public
(NOTARIAL SEAL)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared _________
_______, to me known, who being by me duly sworn, did depose and say,
that he resides at ____________________________________________________, that
he is an ________________ of _______________, as Indenture Trustee, one of
the corporations described in and which executed the above instrument; that
he knows the seal of said corporation; that the seal affixed to said instru-
ment is such corporate seal; that it was so affixed by order of the Board of
Directors of said corporation; and that he signed his name thereto by like
order.
___________________________
Notary Public
(NOTARIAL SEAL)
EXHIBIT A
(FORM OF NOTE)
(UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO, OR TO SUCH OTHER ENTITY AS IS REQUIRESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.)
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
REGISTERED $______________
No. R-__ CUSIP NO. ______________
____________ LOAN TRUST 199_-__
_______% ASSET BACKED NOTES
____________ Loan Trust 199_-___, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to (Cede & Co.), or
registered assigns, the principal sum of ___________________________________
DOLLARS payable on each Payment Date in an amount equal to the result
obtained by multiplying (i) a fraction the numerator of which is $__________-
__ and the denominator of which is $___________ by (ii) the aggregate amount,
if any, payable from the Payment Account in respect of principal on the
Notes pursuant to Section 3.05 of the Indenture dated as of ______ 1, 199_
(the "Indenture"), between the Issuer and _____________, a ________ banking
corporation, as Indenture Trustee (the "Indenture Trustee"); provided,
however, that the entire unpaid principal amount of this Note shall be due
and payable on the earlier of the _________ 199_ Distribution Date (the
"Final Scheduled Payment Date") and the Redemption Date, if any, pursuant to
Section 10.01(a) of the Indenture.
The Issuer will pay interest on this Note at a rate per annum shown
above on each Payment Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on
the preceding Payment Date (after giving effect to all payments of principal
made on the preceding Payment Date), subject to certain limitations contained
in Section 3.05 of the Indenture. Interest on this Note will accrue for each
Payment Date from the Closing Date (in the case of the first Payment Date) or
from the most recent Payment Date on which interest has been paid to but
excluding such Payment Date. Interest will be computed on the basis of (a
360-day year of twelve 30-day months). Such principal of and interest on
this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of
this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set
forth on the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date: ___________________ LOAN TRUST 199_-__,
by: _____________________________, not in its indi-
vidual capacity but solely as Owner Trustee
under the Trust Agreement,
by:
------------------------------
Authorized Signatory
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-
mentioned Indenture.
Date: ____________________, not in its individual
capacity but solely as Indenture Trustee,
by:
-----------------------------------
Authorized Signatory
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its __________% Asset Backed Notes (herein called the "Notes"),
all issued under the Indenture, to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respec-
tive rights and obligations thereunder of the Issuer, the Indenture Trustee
and the Holders of the Notes. The Notes are subject to all terms of the
Indenture.
The Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an amount
described on the face hereof. "Payment Date" means the _____ day of each
month, or, if any such date is not a Business Day, the next succeeding
Business Day, commencing _________ _, 199).
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Payment Distribution
Date and the Redemption Date, if any, pursuant to Section 10.01(a) of the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount
of the Notes shall be due and payable on the date on which an Event of
Default shall have occurred and be continuing and the Indenture Trustee or
the Holders of Notes representing not less than a majority of the Securities
Balance of the Notes have declared the Notes to be immediately due and
payable in the manner provided in Section 5.02 of the Indenture. All
principal payments on the Notes shall be made pro rata to the Noteholders
entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name
of the nominee of the Clearing Agency (initially, such nominee to be (Cede &
Co.)), payments will be made by wire transfer in immediately available funds
to the account designated by such nominee. Such checks shall be mailed to
the Person entitled thereto at the address of such Person as it appears on
the Note Register as of the applicable Record Date without requiring that
this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note (or any one or more Predecessor Notes) effected
by any payments made on any Payment Date shall be binding upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof, whether or not noted hereon.
If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Note on
a Payment Date, then the Indenture Trustee, in the name of and on behalf of
the Issuer, will notify the Person who was the Registered Holder hereof as of
the Record Date preceding such Payment Date by notice mailed or transmitted
by facsimile prior to such Payment Date, and the amount then due and payable
shall be payable only upon presentation and surrender of this Note at the
Indenture Trustee's principal Corporate Trust Office or at the office of the
Indenture Trustee's agent appointed for such purposes located in The City of
New York.
The Issuer shall pay interest on overdue installments of interest at the
Interest Rate to the extent lawful.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note
Register upon surrender of this Note for registration of transfer at the
office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Holder hereof or
such Holder's attorney duly authorized in writing, with such signature
guaranteed by an "eligible guarantor institution" meeting the requirements of
the Note Registrar, which requirements include membership or participation in
the Securities Transfer Agent's Medallion Program ("STAMP") or such other
"signature guarantee program" as may be determined by the Note Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended, and thereupon one or more new
Notes of authorized denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Noteholder or Note Owner
will not at any time institute against the Seller, (the Company) or the
Issuer, or join in any institution against the Seller, (the Company) or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States federal or state bankruptcy
or similar law in connection with any obligations relating to the Notes, the
indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with the
intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and
each Note Owner by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Inden-
ture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture)
is registered as the owner hereof for all purposes, whether or not this Note
be overdue, and none of the Issuer, the Indenture Trustee or any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Securities Balance of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes represent-
ing specified percentages of the Securities Balance of the Notes, on behalf
of the Holders of all the Notes, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder
of this Note (or any one or more Predecessor Notes) shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note. The Indenture also permits the Indenture Trustee to amend or
waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and
the Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note
at the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of _______________ in its individual
capacity, _____________ in its individual capacity, any owner of a beneficial
interest in the Issuer, or any of their respective partners, beneficiaries,
agents, officers, directors, employees or successors or assigns shall be
personally liable for, nor shall recourse be had to any of them for, the
payment of principal of or interest on this Note or performance of, or
omission to perform, any of the covenants, obligations or indemnifications
contained in the Indenture. The Holder of this Note by its acceptance hereof
agrees that, except as expressly provided in the Basic Documents, in the case
of an Event of Default under the Indenture, the Holder shall have no claim
against any of the foregoing for any deficiency, loss or claim therefrom;
provided, however, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and
all liabilities, obligations and undertakings contained in the Indenture or
in this Note.
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
- --------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
- --------------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably consti-
tutes and appoints
- ---------------------------------------------------------------------------
, attorney, to transfer said Note on
- --------------------------------------
the books kept for registration thereof, with full power of substitution in
the premises.
Dated:
------------------------------
*/
Signature Guaranteed:
---------------------------------------------
*/
- ------
________________________
*/ NOTICE: The signature to this assignment must correspond with the name
-
of the registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Note Registrar, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may
be determined by the Note Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
EXHIBIT B
MORTGAGE LOAN SCHEDULE
Exhibit 4.5
______________________________,
as Servicer
MERRILL LYNCH MORTGAGE INVESTORS, INC.,
as Transferor
and
______________________________,
as Trustee
_______________________
POOLING AND SERVICING AGREEMENT
Dated as of (DATE)
______________________
_________________ Home Equity Loan Asset Backed Certificates
Series 199__-__
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
Definitions
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Interest Calculations . . . . . . . . . . . . . . . . . . 26
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Certificates
Section 2.01. Conveyance of Mortgage Loans . . . . . . . . . . . . . . . 27
Section 2.02. Acceptance by Trustee; Retransfer
of Mortgage Loans; Substitution of
Eligible Substitute Mortgage Loans. . . . . . . . . . . . 32
Section 2.03. Representations and Warranties
Regarding the Servicer . . . . . . . . . . . . . . . . . . 35
Section 2.04. Representations and Warranties of the Servicer Regarding the
Mortgage Loans; Repurchase and Substitution Obligations . 37
Section 2.05. Execution and Authentication
of Certificates . . . . . . . . . . . . . . . . . . . . . 41
Section 2.06. Retransfers of Mortgage Loans
at Election of the Transferor . . . . . . . . . . . . . . 41
Section 2.07. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . 43
Section 2.08. Covenants of the Transferor . . . . . . . . . . . . . . . 44
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. ____________ to Act as Servicer . . . . . . . . . . . . . 45
Section 3.02. Collection of Certain Mortgage Loan
Payments; Mortgage Loan Payment Record . . . . . . . . . . 47
Section 3.03. Permitted Debits to the Mortgage Loan
Payment Record . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.04. Hazard Insurance Policies; Property
Protection Expenses . . . . . . . . . . . . . . . . . . . 50
Section 3.05. Mortgagor Transfers of
Mortgaged Properties . . . . . . . . . . . . . . . . . . . 52
Section 3.06. Realization Upon Defaulted
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . 53
Section 3.07. Trustee to Cooperate . . . . . . . . . . . . . . . . . . . 54
Section 3.08. Servicing Compensation; Payment
of Certain Expenses by Servicer . . . . . . . . . . . . . 55
Section 3.09. Annual Statement as to Compliance . . . . . . . . . . . . 56
Section 3.10. Annual Independent Public
Accountants' Servicing Report . . . . . . . . . . . . . . 56
Section 3.11. Access to Certain Documentation
and Information Regarding the
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . 57
Section 3.12. Maintenance of Certain Servicing Policies . . . . . . . . 57
Section 3.13. Reports to the Securities and Exchange
Commission . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.14. Information Required by the Internal Revenue Service Generally
and Reports of
Foreclosures and Abandonments of
Mortgaged Property . . . . . . . . . . . . . . . . . . . . 58
Section 3.15. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.16. Further Assurances . . . . . . . . . . . . . . . . . . . . 59
ARTICLE IV
Servicing Certificate; Certificate Account Deposit
Section 4.01. Servicing Certificate . . . . . . . . . . . . . . . . . . 60
Section 4.02. Certificate Account . . . . . . . . . . . . . . . . . . . 63
Section 4.03. Payments Under Support Agreement . . . . . . . . . . . . . 64
(Section 4.04. The Certificate Insurance Policy . . . . . . . . . . . 64)
ARTICLE V
Payments and Statements to
Certificateholders
Section 5.01. Distributions . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.02. Certain Calculations by the Trustee . . . . . . . . . . . 70
Section 5.03. Statements to Certificateholders . . . . . . . . . . . . . 70
Section 5.04. Rights of Certificateholders . . . . . . . . . . . . . . . 72
ARTICLE VI
The Certificates
Section 6.01. The Certificates . . . . . . . . . . . . . . . . . . . . . 73
Section 6.02. Registration of Transfer and
Exchange of Certificates; Registrar . . . . . . . . . . . 74
Section 6.03. Mutilated, Destroyed, Lost
or Stolen Certificates . . . . . . . . . . . . . . . . . . 76
Section 6.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . . 77
Section 6.05. Restrictions on Transfer
of Transferor Certificates . . . . . . . . . . . . . . . . 77
Section 6.06. Actions of Certificateholders . . . . . . . . . . . . . . 79
ARTICLE VII
The Servicer and the Transferor
Section 7.01. Liability of the Servicer . . . . . . . . . . . . . . . . 80
Section 7.02. Merger or Consolidation of,
or Assumption of the Obligations
of, the Servicer or Transferor . . . . . . . . . . . . . . 80
Section 7.03. Limitation on Liability of
the Servicer and Others . . . . . . . . . . . . . . . . . 81
Section 7.04. Servicer Not to Resign . . . . . . . . . . . . . . . . . . 81
Section 7.05. Limitation on Liability of Certain Persons . . . . . . . . 82
Section 7.06. Liability of Transferor . . . . . . . . . . . . . . . . . 83
Section 7.07. Transferor May Own Certificates . . . . . . . . . . . . . 83
ARTICLE VIII
Default
Section 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . 85
Section 8.02. Trustee to Act; Appointment of Successor . . . . . . . . . 87
Section 8.03. Notification to Certificateholders . . . . . . . . . . . . 88
Section 8.04. Waiver of Past Events of Default . . . . . . . . . . . . . 88
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . 90
Section 9.02. Certain Matters Affecting the Trustee . . . . . . . . . . 91
Section 9.03. Trustee Not Liable for Certificates
or Mortgage Loans . . . . . . . . . . . . . . . . . . . . 93
Section 9.04. Trustee May Own Certificates . . . . . . . . . . . . . . . 93
Section 9.05. Servicer to Pay Trustee's Fees and Expenses . . . . . . . 93
Section 9.06. Eligibility Requirements for Trustee . . . . . . . . . . . 94
Section 9.07. Resignation or Removal of Trustee . . . . . . . . . . . . 94
Section 9.08. Successor Trustee . . . . . . . . . . . . . . . . . . . . 96
Section 9.09. Merger or Consolidation of Trustee . . . . . . . . . . . . 96
Section 9.10. Appointment of Co-Trustee or
Separate Trustee . . . . . . . . . . . . . . . . . . . . . 96
Section 9.11. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 98
Section 9.12. Streit Act . . . . . . . . . . . . . . . . . . . . . . . . 98
ARTICLE X
Termination
Section 10.01. Termination . . . . . . . . . . . . . . . . . . . . . . . 100
Section 10.02. Termination by Certificate Insurer . . . . . . . . . . . 102
ARTICLE XI
Rapid Amortization Events
Section 11.01. Rapid Amortization Events . . . . . . . . . . . . . . . . 103
Section 11.02. Additional Rights Upon an Insolvency Event . . . . . . . 105
ARTICLE XII
Miscellaneous Provisions
Section 12.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 12.02. Recordation of Agreement . . . . . . . . . . . . . . . . 108
Section 12.03. Limitation on Rights of Certificateholders . . . . . . . 108
Section 12.04. (Reserved) . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.05. The Certificate Insurer. . . . . . . . . . . . . . . . . 109
Section 12.06. Governing Law . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.07. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.08. Severability of Provisions . . . . . . . . . . . . . . . 110
Section 12.09. Assignment . . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.10. Certificates Nonassessable and Fully Paid . . . . . . . . 111
Section 12.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.12. Effect of Headings and Table of Contents . . . . . . . . 111
Section 12.13. Third Party Beneficiary . . . . . . . . . . . . . . . . . 111
Section 12.14. Merger and Integration . . . . . . . . . . . . . . . . . 112
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
EXHIBIT A - Form of Face of Investor Certificate . . . . . . . A-1
EXHIBIT B - Form of Face of Transferor Certificate . . . . . . S-1
EXHIBIT C - Form of Reverse of Investor Certificate . . . . . . C-1
EXHIBIT D - Form of Reverse of Transferor Certificate . . . . . D-1
EXHIBIT E - Form of Notice for Certificate
Insurance Policy . . . . . . . . . . . . . . . . E-1
EXHIBIT F - Mortgage Loan Schedule . . . . . . . . . . . . . . F-1
THIS POOLING AND SERVICING AGREEMENT, dated as of (Date) between
________________________, a corporation organized and existing under the laws
of the State of ________________, MERRILL LYNCH MORTGAGE INVESTORS, INC., a
corporation organized and existing under the laws of the State of
________________, and ______________________________________, as Trustee,
W I T N E S S E T H T H A T:
----------------------------
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions.
-----------
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article.
Accelerated Principal Distribution Amount: As to any Distribution
-----------------------------------------
Date, the amount, if any, required to reduce the Certificate Principal
Balance (after giving effect to the distribution of all other amounts
actually distributed on the Investor Certificates on such Distribution Date)
until the Invested Amount (immediately following such Distribution Date)
exceeds the Certificate Principal Balance (as so reduced) by the amount, if
any, equal to (x) the Required Amount minus (y) the Transferor Subordinated
Amount.
Accrual Period: As to any Distribution Date other than the first
--------------
Distribution Date, the period beginning on the preceding Distribution Date
and ending on the day preceding such Distribution Date, and, in the case of
the first Distribution Date, the period beginning on (date) and ending on the
day preceding the first Distribution Date.
Additional Balance: As to any Mortgage Loan and day, the unpaid
------------------
balance of any principal advanced to the related Mortgagor after the date as
of which the related Cut-off Date Trust Balance is calculated.
Aggregate Investor Loss Amount: With respect to any Distribution
------------------------------
Date, the total of the Investor Loss Amounts for prior Distribution Dates
(other than Investor Loss Amounts that were reallocated on prior Distribution
Dates to the Transferor pursuant to Section 5.01(c)(ii)).
Agreement: This Pooling and Servicing Agreement and all amendments
---------
hereof and supplements hereto.
Alternate Certificate Rate: As to any Accrual Period, the weighted
--------------------------
average of the Net Loan Rates applicable to the Mortgage Loans included in
the Trust Fund during the Collection Period preceding the related
Distribution Date, weighted on the basis of the monthly average Trust
Balances of such Mortgage Loans during such Collection Period as determined
by the Servicer in accordance with its normal servicing procedures, less the
Premium Percentage for the related Distribution Date.
Alternative Principal Payment: As to any Distribution Date, the
-----------------------------
amount (but not less than zero) equal to the aggregate amount of Trust
Principal Collections received during the related Collection Period minus the
total Additional Balances created during such Collection Period.
Appraised Value: As to any Mortgaged Property and time referred to
---------------
herein, the appraised value of the Mortgaged Property based upon the
appraisal made by or on behalf of the Transferor at such time.
Available Distribution Amount: As to any Distribution Date, the
-----------------------------
aggregate of the amounts on deposit in the Certificate Account on such
Distribution Date described in clauses (i) - (vi), inclusive, of Section
4.01.
BIF: The Bank Insurance Fund, as from time to time constituted,
---
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Certificate: Any Investor Certificate registered in the
----------------------
name of the Depository or its nominee ownership of which is reflected on the
books of the Depository or on the books of a Person maintaining an account
with such Depository (directly or as an indirect participant in accordance
with the rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii)
------------
a day on which national banks in the States of New York, _______ or _________
are required or authorized by law to be closed.
Certificate: Any Investor Certificate or a Transferor Certificate.
-----------
Certificate Account: The trust account or accounts created and
-------------------
maintained with the Trustee pursuant to Section 4.02 and which shall be an
Eligible Account and shall be entitled " ________________________________, in
trust for the benefit of the registered holders of the _________________ Home
Equity Loan Asset Backed Certificates, Series 199__-__".
Certificateholder or Holder: The Person in whose name a Certificate
---------------------------
is registered in the Certificate Register, except that, solely for the
purpose of giving any consent pursuant to this Agreement, any Investor
Certificate registered in the name of the Transferor or the Servicer or any
affiliate of either shall be deemed not to be outstanding and the Percentage
Interest evidenced thereby shall not be taken into account in determining
whether the requisite amount of Percentage Interests necessary to effect any
such consent has been obtained.
Certificate Formula Interest: As to any Distribution Date, interest
----------------------------
at the Certificate Rate for the related Accrual Period on the Certificate
Principal Balance on the first day of such Accrual Period (after giving
effect to any distribution of principal made on the first day of such Accrual
Period).
(Certificate Insurance Policy: The certificate insurance policy
----------------------------
number ____________ dated as of the Closing Date, issued by the Certificate
Insurer to the Trustee for the benefit of the Holders of the Investor
Certificates.)
Certificate Insurer: __________________________, or its successor in
-------------------
interest.
Certificate Interest Collections: As to any Distribution Date, an
--------------------------------
amount equal to the Floating Allocation Percentage of the aggregate amount of
Trust Interest Collections for the related Collection Period.
Certificate Owner: With respect to an Investor Certificate, the
-----------------
person who is the beneficial owner of a Book-Entry Certificate.
Certificate Principal Balance: As of any Distribution Date, (i) the
-----------------------------
Original Certificate Principal Balance minus (ii) the aggregate amount
actually distributed as principal on the Investor Certificates on previous
Distribution Dates.
Certificate Register and Certificate Registrar: The register
----------------------------------------------
maintained and the registrar appointed pursuant to Section 6.02.
Certificate Rate: As to the initial Distribution Date, LIBOR
----------------
determined as of (DATE) plus _____%. As to any subsequent Distribution Date,
LIBOR plus ______%; provided, however, that in the event the Alternate Certi-
ficate Rate is less than LIBOR for such Distribution Date plus the applicable
percentage specified above, the Certificate Rate for such Distribution Date
shall be the Alternate Certificate Rate.
Closing Date: (DATE).
------------
Code: The Internal Revenue Code of 1986, as the same may be amended
----
from time to time (or any successor statute thereto).
Collection Period: As to any Distribution Date and collections other
-----------------
than scheduled payments of Interest Collections and scheduled and unscheduled
payments of Principal Collections by Mortgagors, the calendar month preceding
the month in which such Distribution Date occurs. As to such Interest
Collections and Principal Collections and any Distribution Date, the period
from and including the ___th day of the month preceding the month in which
such Distribution Date occurs to and including the ___th day of the month in
which such Distribution Date occurs.
Combined Loan-to-Value Ratio: As of any date and Mortgage Loan, the
----------------------------
fraction, expressed as a percentage, the numerator of which is the sum of (i)
the Credit Limit and (ii) the unpaid principal balance of any related senior
mortgage loan or loans as of such date and the denominator of which is
generally the lesser of the Appraised Value or the sales price of the
Mortgaged Property, as applicable, as of the date of the appraisal and/or
purchase contract for the Mortgaged Property, as applicable, used by or on
behalf of ____________ to underwrite such Mortgage Loan.
Corporate Trust Office: The principal office of the Trustee in
----------------------
__________________, at which at any particular time its trust shall
administer this Agreement, which office at the date of the execution of this
Agreement is located at (address ______________________), Attention:
_________________ Home Equity Loan Asset Backed Certificates, Series
199__-__; Facsimile: (___) __________.
Credit Limit: As to any Mortgage Loan, the maximum Loan Balance
------------
permitted under the terms of the related Loan Agreement.
Cut-off Date: With respect to each Initial Mortgage Loan, (DATE)
------------
and, with respect to any Eligible Substitute Mortgage Loan, the day on which
each such Mortgage Loan is transferred to the Trust.
Cut-off Date Pool Balance: The aggregate of the Cut-off Date Trust
-------------------------
Balances of the Initial Mortgage Loans.
Cut-off Date Trust Balance: As to any Mortgage Loan, the unpaid
--------------------------
principal balance thereof (which may be $0) transferred and assigned to the
Trust as of the applicable Cut-off Date.
Defective Mortgage Loan: Any Mortgage Loan which is required to be
-----------------------
repurchased or replaced by the Servicer pursuant to Sections 2.02, 2.04 or
3.01.
Depository: The initial Depository shall be The Depository Trust
----------
Company, the nominee of which is Cede & Co., as the registered Holder of one
or more Certificates evidencing the Certificate Principal Balance. The
Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the Uniform Commercial Code of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
----------------------
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: The __th day (or, if such __th day is not a
------------------
Business Day, the Business Day immediately preceding such __th day) of the
month in which the related Distribution Date occurs.
Dissolution Distribution Date: The date on which the proceeds from
-----------------------------
the sale, disposition or liquidation of the Trust Balance of the Mortgage
Loans are received and distributed to Certificateholders pursuant to Article
XI hereof.
Distribution Date: The __th day of each month beginning in the month
-----------------
following the month of the initial issuance of the Certificates (or, if such
__th day is not a Business Day, the Business Day immediately following).
Eligible Account: One or more accounts:
----------------
(i) that are maintained with a depository institution or trust company
whose long-term and short-term unsecured debt obligations (or, in
the case of a depository institution or trust company that is the
principal subsidiary of a bank holding company, the debt
obligations of such holding company) at the time of deposit therein
have been rated by each Rating Agency in its highest rating catego-
ries;
(ii) that are maintained with a depository institution or trust company
the long-term unsecured debt obligations of which have been rated
Baa3 or higher by Moody's, and the deposits in which are fully
insured by the Federal Deposit Insurance Corporation acting through
either the BIF or the SAIF;
(iii) that are segregated trust accounts maintained with the corporate
trust department of a depository institution or trust company,
acting in its fiduciary capacity, which has a short-term deposit
rating of P-1 by Moody's and A-1+ by Standard & Poor's; or
(iv) such other accounts that are acceptable to each Rating Agency and
the Certificate Insurer, as evidenced by a letter from each Rating
Agency and the Certificate Insurer to the Trustee, without
reduction or withdrawal of the rating of the Investor Certificates.
The depository institution or trust company with which the Eligible Account
is maintained shall be organized under the laws of the United States or any
state thereof, have a net worth in excess of $100,000,000 and deposits
insured to the full extent permitted by law by the Federal Deposit Insurance
Corporation and be subject to supervision and examination by federal or state
banking authorities. An Eligible Account may bear interest, and may include,
if otherwise qualified by this definition, an account maintained with the
Trustee.
Eligible Substitute Mortgage Loan: A Mortgage Loan to be substituted
---------------------------------
by the Servicer for a Defective Mortgage Loan pursuant to Section 2.02, 2.04
or 3.01, which on the date of such substitution shall:
(i) have a Trust Balance not substantially greater than and not less
than the Trust Balance of the Defective Mortgage Loan;
(ii) have a Loan Rate of not less than the Loan Rate of the Defective
Mortgage Loan and not more than ___ basis points in excess thereof;
(iii) have a Loan Rate based on the same index as that of the Defective
Mortgage Loan;
(iv) have a Margin that is not less than the Margin for the Defective
Mortgage Loan, or more than ___ basis points higher than the Margin
for the Defective Mortgage Loan;
(v) have a maximum Loan Rate and a minimum Loan Rate, if any, that are
not lower than the maximum Loan Rate and minimum Loan Rate,
respectively, of the Defective Mortgage Loan;
(vi) have a remaining term to maturity not more than ____ months earlier
and not more than ___ months later than the remaining term to
maturity of the Defective Mortgage Loan, and in no case later than
(DATE);
(vii) comply with the representations and warranties set forth in Section
2.04 (which representations and warranties shall be deemed to be
made as of the date of substitution);
(viii) have a Combined Loan-to-Value Ratio that is not greater than the
Combined Loan-to-Value Ratio of the Defective Mortgage Loan as of
the date of origination of the Defective Mortgage Loan;
(ix) have a Mortgage in a lien position at least equal to the lien
position of the Mortgage securing the Defective Mortgage Loan; and
(x) be secured by a Mortgaged Property that is subject to the same use
(owner-occupied, second home or rental property) and that has the
same structural characteristics (attached or detached) as the
Mortgaged Property securing the Defective Mortgage Loan,
provided, however, that in the case of clause (x), an owner-occupied,
detached Mortgaged Property will satisfy the requirements of clause (x) in
all cases.
Event of Default: As defined in Section 8.01.
----------------
(Fixed Allocation Percentage: With respect to any date, the greater
---------------------------
of (i) ___% and (ii) the percentage equivalent (but not in excess of 100%) of
a fraction, the numerator of which is the Invested Amount and the denominator
of which is the Pool Balance as of the end of such day.)
Floating Allocation Percentage: As to any Distribution Date, the
------------------------------
percentage equivalent of a fraction, the numerator of which is the Invested
Amount at the close of business on the preceding Distribution Date (or at the
Closing Date in the case of the first Distribution Date) and the denominator
of which is the Pool Balance, calculated as of the first day of the month
preceding the month in which such Distribution Date occurs.
Indirect Parent: Merrill Lynch & Co., Inc., a ________________
---------------
corporation, or its successor in interest.
Initial Mortgage Loans: The mortgage loans (including the rights to
----------------------
receive payments thereunder) transferred and assigned to the Trustee on the
Closing Date pursuant to Section 2.01, together with the related Loan
Agreements and other Mortgage File documents and the rights thereunder
conveyed to the Trustee on the Closing Date pursuant to Section 2.01.
(Insurance Agreement: The Insurance and Indemnity Agreement dated as
-------------------
of the Closing Date, among the Servicer, the Transferor, the Trustee and the
Certificate Insurer, including any amendments and supplements thereto.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
------------------
insurance policy covering a Mortgage Loan or the related Mortgaged Property
net of any component thereof covering any expenses incurred by or on behalf
of the Transferor or the Servicer in connection with obtaining such Insurance
Proceeds.
Insured Amount: As defined in the Certificate Insurance Policy.
--------------
Insured Payment: With respect to any Distribution Date, the Insured
---------------
Amount for such Distribution Date paid to the Trustee by the Certificate
Insurer.)
Interest Collections: As to any payment on a Mortgage Loan made by
--------------------
or on behalf of the related Mortgagor for the related Collection Period, the
portion thereof allocable to accrued interest for the related Interest Period
in accordance with the terms of the related Loan Agreement (net of interest
at the Servicing Fee Rate on the Loan Balance for each day during such
Interest Period), including Net Liquidation Proceeds allocable to interest on
such Mortgage Loan.
Interest Period: As to any payment of interest on a Mortgage Loan,
---------------
the period during which the interest covered by such payment accrued and
which, for any Distribution Date, is the month preceding the month in which
such Distribution Date occurs.
Invested Amount: With respect to any date, an amount equal to the
---------------
Original Invested Amount minus the sum of (i) the total of Trust Principal
Collections previously distributed to Investor Certificateholders pursuant to
Section 5.01(b) and (ii) the Aggregate Investor Loss Amount.
Investor Certificate: Any one of the Certificates signed and
--------------------
countersigned by the Trustee substantially in the form set forth in Exhibits
A and C hereto.
Investor Certificate Distribution Amount: As to any Distribution
----------------------------------------
Date, the sum of all amounts to be distributed to the Investor
Certificateholders pursuant to Article V and Article XI hereof.
Investor Certificateholder: The Holder of an Investor Certificate.
--------------------------
Investor Loss Amount: With respect to any Distribution Date, the
--------------------
amount equal to the product of (i) the Floating Allocation Percentage and
(ii) the aggregate of the Liquidation Loss Amounts for such Distribution
Date.
Investor Loss Reduction Amount: With respect to any Distribution
------------------------------
Date, the portion, if any, of the Investor Loss Amount for such Distribution
Date and all prior Distribution Dates that has not been (i) paid to Investor
Certificateholders from Certificate Interest Collections pursuant to Section
5.01(a), (ii) paid to Investor Certificateholders from Trust Interest
Collections and Trust Principal Collections allocable to the Transferor
pursuant to Section 5.01(c)(i), (iii) reallocated to the Transferor pursuant
to Section 5.01(c)(ii), or (iv) paid to Investor Certificateholders from
Insured Payments pursuant to Section 5.01(d).
Late Payment Rate: For any Distribution Date, the rate of interest,
-----------------
as it is publicly announced by _____________________, at its principal office
in New York, New York as its prime rate (any change in such prime rate of
interest to be effective on the date such change is announced by
_________________ ) plus ___%. The Late Payment Rate shall be computed on
the basis of a year of 365 days calculating the actual number of days
elapsed. In no event shall the Late Payment Rate exceed the maximum rate
permissible under any applicable law limiting interest rates.
LIBOR: As to any Distribution Date as follows:
-----
(i) the arithmetic mean (rounded, if necessary, to the nearest one
sixteenth of a percent, with one thirty-second of a percent rounded
upwards) of the offered rates for United States dollar deposits for one
month which appear on the Reuters Screen LIBO Page (as defined below) as
of 11:00 A.M., London time, on the second LIBOR Business Day prior to
the immediately preceding Distribution Date (as of (DATE) in the case of
the initial Distribution Date); provided that at least two such offered
rates appear on the Reuters Screen LIBO Page on such date. If fewer
than two offered rates appear, LIBOR will be determined on such date as
described in clause (ii) below. "Reuters 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 inter-bank offered rates of major
banks).
(ii) If on such date fewer than two offered rates appear on the
Reuters Screen LIBO Page as described in clause (i) above, the Trustee
will request the principal London office of each of four reference banks
(which shall be _____________________, _____________________,
________________________________, ____________________, so long as each
such bank is engaged in transactions in the London inter-bank market)
("Reference Banks") to provide the Trustee with its offered quotation
for United States dollar deposits for one month to prime banks in the
London inter-bank market as of 11:00 A.M., London time, on such date.
If at least two Reference Banks provide the Trustee with such offered
quotations, then LIBOR on such date will be the arithmetic mean
(rounded, if necessary, to the nearest one sixteenth of a percent, with
one thirty-second of a percent rounded upwards) of all such quotations.
If on such date fewer than two of the Reference Banks provide the
Trustee with such an offered quotation, LIBOR on such date will be the
arithmetic mean (rounded, if necessary, to the nearest one sixteenth of
a percent, with one thirty-second of a percent rounded upwards) of the
offered per annum rates which one or more leading banks in The City of
New York selected by the Trustee (after consultation with the Servicer)
are quoting as of 11:00 A.M., New York City time, on such date to
leading European banks for United States dollar deposits for one month,
provided, however, that if such banks are not quoting as described
above, LIBOR will be the LIBOR applicable to the immediately preceding
Distribution Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
------------------
(ii) a day on which banking institutions in the States of New York or
__________________ or in the City of London, England are required or
authorized by law to be closed.
Liquidated Mortgage Loan: As to any Distribution Date, any
------------------------
Mortgage Loan which was not previously a Liquidated Mortgage Loan, was in
default during the related Collection Period and with respect to which the
Servicer has determined that all Liquidation Proceeds which the Servicer
expects to recover from or on account of such Mortgage Loan have been
recovered.
Liquidation Expenses: Expenses which are incurred by the Servicer in
--------------------
connection with the liquidation of any defaulted Mortgage Loan and not
recovered under any insurance policy or from the related Mortgagor,
including, without limitation, legal fees and expenses, real estate brokerage
commissions, any unreimbursed amount expended by the Servicer pursuant to
Section 3.06 with respect to such Mortgage Loan (including, without
limitation, amounts advanced to correct defaults on any mortgage loan which
is prior to such defaulted Mortgage Loan) and any related and previously
unreimbursed Property Protection Expenses.
Liquidation Loss Amount: With respect to any Distribution Date and
-----------------------
any Mortgage Loan that becomes a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered Trust Balance thereof at the end of such
Collection Period, after giving effect to the Net Trust Liquidation Proceeds
applied in reduction of such Trust Balance in accordance with the related
Loan Agreement and this Agreement.
Liquidation Proceeds: Cash or funds (including Insurance Proceeds)
--------------------
received in connection with the liquidation of any defaulted Mortgage Loan,
whether through trustee's sale, foreclosure sale or otherwise.
Loan Agreement: As to any Mortgage Loan, the Credit Agreement, Note
--------------
or other instrument pursuant to which the Servicer agrees to make revolving
credit loans to a Mortgagor or a Mortgagor agrees to repay such loans on the
terms and conditions provided in such instrument.
Loan Balance: As to any Mortgage Loan and day, the principal balance
------------
of such Mortgage Loan upon which interest accrued for such day was
calculated.
Loan Rate: As to any Mortgage Loan and day, the rate of interest
---------
applicable to the calculation of interest for such day on the Loan Balance.
Managed Amortization Period: The period from the first Distribution
---------------------------
Date to and including the earlier of (i) the Distribution Date in (DATE) and
(ii) the day as of which a Rapid Amortization Event occurs.
Margin: As to any Mortgage Loan, the spread over the applicable
------
index, as specified in the related Loan Agreement.
Maximum Principal Payment: As to any Distribution Date, an amount
-------------------------
equal to the Fixed Allocation Percentage of the aggregate amount of Trust
Principal Collections received during the related Collection Period.
Minimum Monthly Payment: As to any Mortgage Loan and any month, the
-----------------------
minimum amount required to be paid by the related Mortgagor pursuant to the
related Loan Agreement.
Minimum Transferor Interest: As to any date, an amount equal to the
---------------------------
lesser of (i) ___% of the Pool Balance on such date and (ii) the Original
Transferor Certificate Principal Balance.
Monthly Advance: As to any Distribution Date, the aggregate of the
---------------
advances made by the Servicer on such Distribution Date pursuant to Section
4.02, the amount of any such Monthly Advance being equal to the excess of:
(i) the total amount of accrued interest (adjusted to interest at the
related Net Loan Rate) and principal due (including principal due
by reason of default or acceleration) on the Trust Balances of the
Mortgage Loans for the related Interest Period, over
(ii) the total amount of interest (adjusted to interest at the related
Net Loan Rate) and principal collected on the Trust Balances of the
Mortgage Loans for the related Collection Period as of the
Determination Date,
minus any amounts with respect to installments of interest and principal on
the Trust Balances of the Mortgage Loans which (x) were delinquent as of the
end of the related Collection Period, (y) were not the subject of a previous
Monthly Advance and (z) are determined by the Servicer to be Nonrecoverable
Advances.
Monthly Advance Reimbursement Amount: As to any Distribution Date,
------------------------------------
the aggregate of the Monthly Advances which have not been reimbursed (or
deemed to have been reimbursed) to the Servicer through either (i)
withdrawals from the Certificate Account on or before such Distribution Date
pursuant to the second paragraph of Section 4.02 or (ii) debits to the
Mortgage Loan Payment Record pursuant to clause (ii) of Section 3.03.
Moody's: Moody's Investors Service, Inc. or its successor in
-------
interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first, second or more junior lien on an estate in fee simple interest in real
property securing a Mortgage Loan or creating a first, second or more junior
lien on a leasehold interest insofar as such leasehold interest exceeds the
term of the related mortgage by five years.
Mortgage File: The mortgage documents listed in Section 2.01
-------------
pertaining to a particular Mortgage Loan and any additional documents
required to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loan Payment Record: With respect to the Trust, the record
----------------------------
maintained by the Servicer pursuant to Section 3.02(b).
Mortgage Loan Schedule: As of any date, the schedule of Mortgage
----------------------
Loans included in the Trust Fund on such date. The initial schedule of
Mortgage Loans as of the Cut-off Date is attached hereto as Exhibit F and
sets forth as to each Initial Mortgage Loan (i) the Cut-off Date Trust
Balance, (ii) the Credit Limit, (iii) the stated maturity upon which any out-
standing Loan Balance is due and payable, (iv) the identification number, and
(v) the state and zip code of the related Mortgaged Property. The Mortgage
Loan Schedule will be amended from time to time to reflect the removal of any
Mortgage Loans from the Trust and/or the conveyance of any Eligible
Substitute Mortgage Loans to the Trust, and when so amended shall include the
information set forth above with respect to each Eligible Substitute Mortgage
Loan as of its related Cut-off Date.
Mortgage Loan Seller: ___________________________, a
--------------------
________________ corporation, or its successor in interest, as assignor of
the Trust Balances of the Mortgage Loans to the Transferor.
(Mortgage Loan With Title Insurance: Each of the following Mortgage
----------------------------------
Loans:
(i) Mortgage Loans originated before (date);
(ii) Mortgage Loans originated after (date) in which (a) the Credit
Limit was over $1,000,000, or (b) the Mortgage Loan was being used
for a purchase money first mortgage transaction; and
(iii) Any other Mortgage Loan for which the Mortgage Loan Transferor
required title insurance to be obtained.)
Mortgage Loans: Such of the mortgage loans for which balances are
--------------
transferred and assigned to the Trustee pursuant to Section 2.01 as from time
to time are held as a part of the Trust Fund, the Mortgage Loans so held
being identified in the Mortgage Loan Schedule. Any reference in this
Agreement (including, without limitation, any reference in subsection
2.01(a)) to a Mortgage Loan sold and assigned to, or repurchased or purchased
from, the Trust Fund or as constituting part of the Trust Fund shall mean
such Mortgage Loan to the extent of the related balance owned by the Trust
Fund. Any defaulted Mortgage Loan in respect of which the Servicer has not
yet received all Liquidation Proceeds that it expects to receive shall
continue to be a part of the Trust Fund. All proceeds of any such defaulted
Mortgage Loan shall be credited to the Mortgage Loan Payment Record to the
same extent as proceeds of Mortgage Loans which are not defaulted.
Mortgaged Property: The underlying property securing a Mortgage
------------------
Loan.
Mortgagor: The obligor under a Loan Agreement.
---------
Net Liquidation Proceeds: As to any Liquidated Mortgage Loan,
------------------------
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: As to any Mortgage Loan and day, the Loan Rate less
-------------
the Servicing Fee Rate.
Net Trust Liquidation Proceeds: As to any Liquidated Mortgage Loan,
------------------------------
(i) the lesser of (x) Net Liquidation Proceeds and (y) the Trust Balance of
such Mortgage Loan at the time of liquidation, together with accrued and
unpaid interest thereon at the Net Loan Rate from the last day on which
interest was paid in full on such Mortgage Loan to the end of the Collection
Period in which such Mortgage Loan became a Liquidated Mortgage Loan, minus
(ii) any amount which may be retained by the Servicer on account of any
unreimbursed Monthly Advances under clause (iii) of Section 3.03.
Nonrecoverable Advance: Any portion of a Monthly Advance previously
----------------------
made or proposed to be made in respect of a Mortgage Loan which has not been
previously reimbursed to the Servicer and which, in the good faith judgment
of the Servicer, will not or, in the case of a proposed Monthly Advance,
would not be ultimately recoverable from Net Trust Liquidation Proceeds or
other recoveries in respect of the related Mortgage Loan. The determination
by the Servicer that it has made a Nonrecoverable Advance or that any pro-
posed advance, if made, would constitute a Nonrecoverable Advance, shall be
evidenced by a certificate of a Servicing Officer delivered to the Trustee
and detailing the reasons for such determination.
Officer's Certificate: A certificate signed by the Chairman of the
---------------------
Board, the President, a Senior Vice President, a Vice President or an
Assistant Vice President of the Transferor or the Servicer, as the case may
be, and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel acceptable to the
------------------
Trustee and the Certificate Insurer, who may be internal counsel for the
Transferor or the Servicer.
Original Certificate Principal Balance: $_______________.
--------------------------------------
Original Invested Amount: $_________________.
------------------------
Original Transferor Certificate Principal Balance:
-------------------------------------------------
$____________________.
Overcollateralization Amount: As of any date of determination, the
----------------------------
amount, if any, by which the Invested Amount exceeds the Certificate
Principal Balance.
Ownership Interest: With respect to any Certificate, any ownership
------------------
or security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether
direct or indirect, legal or beneficial, as owner or as pledgee.
Percentage Interest: As to any Investor Certificate, the percentage
-------------------
interest evidenced thereby in distributions required to be made thereon, such
percentage interest being equal to the percentage obtained by dividing the
initial principal denomination of such Investor Certificate by the Original
Certificate Principal Balance.
Permitted Investments: One or more of the following (excluding any
---------------------
callable investments purchased at a premium):
(i) obligations of, or guaranteed as to timely principal and interest
by, the United States or any agency or instrumentality thereof when
such obligations are backed by the full faith and credit of the
United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than one month from the date of acquisition
thereof, provided that the short-term unsecured obligations of the
party agreeing to repurchase such obligations are at the time rated
by each Rating Agency in one of its two highest short-term rating
categories and the short-term debt obligations of the party agree-
ing to repurchase shall be rated Prime-1 or better by Moody's and
A-1+ by Standard & Poor's;
(iii) certificates of deposit, demand and time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have
an original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity
of more than 365 days) of any U.S. depository institution or trust
company incorporated under the laws of the United States or any
state; provided that the short-term debt obligations of such
depository institution or trust company (or, if the only Rating
Agency is Standard & Poor's, in the case of the principal
depository institution in a depository institution holding company,
debt obligations of the depository institution holding company) at
the date of acquisition thereof have been rated by each Rating
Agency in its highest short-term rating category; provided that if
Moody's is a Rating Agency, the short-term obligations of such
depository institution or trust company shall be rated Prime-1 or
better;
(iv) commercial paper (having original maturities of not more than 270
days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has
been rated by each Rating Agency in its highest short-term rating
category;
(v) investments in money market mutual funds registered under the
Investment Company Act of 1940 that are rated by each Rating Agency
in its highest rating category; provided that if Standard & Poor's
is a Rating Agency, the rating of such money market funds shall be
AAAm or AAAm-G; and
(vi) other obligations or securities that are acceptable to each Rating
Agency as a Permitted Investment hereunder and will not result in a
reduction in the then current rating or ratings of the Investor
Certificates without taking into account the Certificate Insurance
Policy, as evidenced by a letter to such effect from such Rating
Agency.
Person: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool Balance: As to any date, the aggregate of the Trust Balances of
------------
all Mortgage Loans as of such date.
Pool Factor: As to any Distribution Date, the percentage, carried to
-----------
six places, obtained by dividing the Certificate Principal Balance for such
Distribution Date (before taking into account any distributions of principal
to be made on such Distribution Date) by the Original Certificate Principal
Balance.
(Preference Amount: As defined in the Certificate Insurance Policy.
-----------------
Premium Amount: As to any Distribution Date other than the first
--------------
Distribution Date, the product of (x) the Premium Percentage and (y) the
Certificate Principal Balance for such Distribution Date (before taking into
account any distributions of principal to be made on such Distribution Date).
As to the first Distribution Date, the amount determined in accordance with
the preceding sentence minus $_________.
Premium Percentage: As defined in the Certificate Insurance Policy.)
------------------
Principal Collections: As to any Mortgage Loan and Collection
---------------------
Period, all amounts (other than Insurance Proceeds and Liquidation Proceeds)
received from or on behalf of the related Mortgagor during such Collection
Period which, at the time of receipt, were applied in reduction of the Loan
Balance in accordance with the terms of the related Loan Agreement.
Property Protection Expenses: Expenses paid or incurred by or for
----------------------------
the account of the Servicer in connection with the preservation or protection
of a Mortgaged Property or the security of a Mortgaged Property including (i)
hazard insurance policy premiums, (ii) real estate taxes and property repair,
replacement, protection and preservation expenses, (iii) amounts expended to
cure or prevent any default with respect to any mortgage loan senior to a
Mortgage Loan, and (iv) similar expenses reasonably paid or incurred to
preserve or protect the value of such security.
Rapid Amortization Commencement Date: The earlier of (i) the
------------------------------------
Distribution Date in (date) and (ii) the Distribution Date next following the
Collection Period in which a Rapid Amortization Event is deemed to occur
pursuant to Section 11.01.
Rapid Amortization Event: As defined in Section 11.01.
------------------------
Rapid Amortization Period: The period following the Managed
-------------------------
Amortization Period until the termination of the Trust pursuant to Section
10.01.
Rating Agency: Any statistical credit rating agency, or its
-------------
successor, that rated the Investor Certificates at the request of the
Transferor at the time of the initial issuance of the Investor Certificates.
If such agency or a successor is no longer in existence, "Rating Agency"
shall be such statistical credit rating agency, or other comparable Person,
designated by the Servicer, notice of which designation shall be given to the
Trustee. References herein to the highest rating categories of a Rating
Agency shall mean AAA (long-term), AAAm or AAAm-G (money market funds) and A-
1+ (short-term) in the case of Standard & Poor's and Aaa (long-term) and P-1
(short-term) in the case of Moody's and in the case of any other Rating
Agency shall mean such equivalent ratings.
Record Date: As to any Distribution Date, the last day of the month
-----------
(or if such last day is not a Business Day, the Business Day immediately
preceding such last day) preceding the month of such Distribution Date.
(Reimbursement Amount: As to any Distribution Date, the sum of
--------------------
(x)(i) all Insured Payments paid by the Certificate Insurer, but for which
the Certificate Insurer has not been reimbursed prior to such Distribution
Date pursuant to Section 5.01(a) plus (ii) interest accrued thereon,
calculated at the Late Payment Rate from the date the Trustee received the
related Insured Payments and (y)(i) any amounts then due and owing to the
Certificate Insurer under the Insurance Agreement or the Certificate
Insurance Policy plus (ii) interest on such amounts at the Late Payment Rate.
The Certificate Insurer shall notify the Trustee and the Servicer of the
amount of any Reimbursement Amount.)
Required Amount: For each Distribution Date occurring on or prior to
---------------
the ___th Distribution Date, __% of the Cut-off Date Pool Balance. For each
Distribution Date thereafter, the lesser of (i) __% of the Cut-off Date Pool
Balance and (ii) __% of the Pool Balance as of such Distribution Date;
provided that in no event will the Required Amount be less than a floor
amount equal to the greater of (x) __% of the Cut-off Date Pool Balance and
(y) ___% of the aggregate Trust Balances of all Mortgage Loans delinquent 91
days or more (including for this purpose any Mortgage Loans in foreclosure
and any Mortgage Loans with respect to which the related Mortgaged Properties
have been acquired by the Trust Fund) as of the end of the related Collection
Period. Notwithstanding the foregoing, for each Distribution Date, if the
cumulative principal losses on the Trust Balances of the Mortgage Loans
specified in item (xxxvi) of the Servicing Certificate prepared pursuant to
Section 4.01 exceed ___% of the Cut-off Date Pool Balance, then the Required
Amount shall be ______% of the Cut-off Date Pool Balance.
Responsible Officer: When used with respect to the Trustee, the
-------------------
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman
or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Trustees, the President, the Chairman of the Committee on Trust
Matters, any Vice President, any Assistant Vice President, the Secretary,
any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier,
any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the
Controller and any Assistant Controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also, with respect to a particular matter, to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
Retransfer Date: As defined in Section 2.06.
---------------
Retransfer Notice Date: As defined in Section 2.06.
----------------------
SAIF: The Savings Association Insurance Fund, as from time to time
----
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and
performing duties now assigned to it, the body performing such duties on such
date.
Scheduled Principal Collections Payment: With respect to any
---------------------------------------
Distribution Date during the Managed Amortization Period, an amount equal to
the lesser of (i) the Maximum Principal Payment and (ii) the Alternative
Principal Payment. With respect to any Distribution Date on or after the
Rapid Amortization Commencement Date, an amount equal to the Maximum
Principal Payment.
Seriously Delinquent Mortgage Loan: As to any Distribution Date, any
----------------------------------
Mortgage Loan which (i) had not reached its stated maturity and was
delinquent in payment of interest for more than 90 days at the end of the
related Collection Period, (ii) had reached its stated maturity and was more
than 60 days delinquent at the end of the related Collection Period, or (iii)
was in default under the terms and provisions of the Loan Agreement (other
than a default related to a delinquency) as of the end of the related
Collection Period and as to which the Servicer had notified the Mortgagor of
such default, terminated the Loan Agreement and demanded the immediate
repayment of the outstanding Loan Balance.
Servicer or ____________: _____________________________, a ________
------------------------
corporation, or its successor in interest or any successor servicer appointed
as herein provided.
Servicing Certificate: A certificate completed by and executed on
---------------------
behalf of the Servicer in accordance with Section 4.01.
Servicing Fee Rate: 0.____% per annum.
------------------
Servicing Officer: Any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished
to the Trustee by the Servicer, as such list may from time to time be
amended.
Standard & Poor's: Standard & Poor's Corporation or its successor in
-----------------
interest.
Stated Maturity Date: The Distribution Date in (date).
--------------------
Support Agreement: The letter agreement between the Servicer and its
-----------------
Indirect Parent dated as of (date), pursuant to which the Indirect Parent
ensures performance by the Servicer of the obligations to repurchase certain
Mortgage Loans pursuant to Section 2.02 and to deposit certain amounts in the
Certificate Account pursuant to Section 4.02.
Transfer: Any direct or indirect transfer, sale, pledge,
--------
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
Transfer Date: With respect to the Initial Mortgage Loans, the
-------------
Closing Date and with respect to any Eligible Substitute Mortgage Loan, the
date on which such Eligible Substitute Mortgage Loan is conveyed to the Trust
under the terms hereof.
Transfer Deposit Amount: As defined in Section 2.02(b).
-----------------------
Transferee: Any Person who is acquiring by Transfer any Ownership
----------
Interest in a Certificate.
Transferor: Merrill Lynch Mortgage Investors, Inc., a
----------
________________ corporation, or its successor in interest.
Transferor Certificate: The Certificates signed and countersigned by
----------------------
the Trustee substantially in the form set forth in Exhibits B and D hereto.
Transferor Certificate Principal Balance: As of any date of
----------------------------------------
determination, the amount equal to (i) the Pool Balance as of the end of the
day next preceding such date of determination minus (ii) the Invested Amount
as of the end of such day.
Transferor Certificateholders: The Holders of the Transferor
-----------------------------
Certificates.
Transferor Interest Collections: As to any Distribution Date, Trust
-------------------------------
Interest Collections for the related Collection Period that are not
Certificate Interest Collections.
Transferor Principal Collections: As to any Distribution Date,
--------------------------------
Trust Principal Collections for the related Collection Period minus the
amount of such Trust Principal Collections required to be distributed to
Investor Certificateholders pursuant to Section 5.01(b).
Transferor Subordinated Amount: As to any Distribution Date, the
------------------------------
least of
(i) ___% of the Cut-off Date Pool Balance minus the sum of (a) the
aggregate amount of Trust Principal Collections allocable to the
Transferor that have previously been distributed to Investor
Certificateholders pursuant to Section 5.01(c)(i) and (b) the
aggregate amount of Investor Loss Amounts that have previously been
reallocated to the Transferor pursuant to Section 5.01(c)(ii); or
(ii) the Transferor Subordinated Amount on the previous Distribution
Date; or
(iii) the Required Amount.
Trust: The trust created by this Agreement and designated
-----
"_________________ Home Equity Loan Trust 199__-__".
Trust Balance: As to any Mortgage Loan, other than a Liquidated
-------------
Mortgage Loan, and day, the related Cut-off Date Trust Balance, plus any
Additional Balances in respect of such Mortgage Loan arising during the
Managed Amortization Period, minus the sum of (i) all Principal Collections
credited against the Loan Balance in accordance with the related Loan
Agreement prior to such day, and (ii) any Trust Insurance Proceeds received
prior to such day in respect of such Mortgage Loan. For purposes of this
definition, a Liquidated Mortgage Loan shall be deemed to have a Trust
Balance equal to the Trust Balance of the related Mortgage Loan immediately
prior to the final recovery of related Liquidation Proceeds and a Trust
Balance of zero thereafter.
Trust Fund: The corpus of the _________________ Home Equity Loan
----------
Trust 199__-__, consisting of, to the extent described herein, the following:
(i) the Trust Balance of each Mortgage Loan (including any Additional
Balance arising during the Managed Amortization Period under such
Mortgage Loan subsequent to the related Cut-off Date), all payments
of interest and of principal thereon, from whatever source derived,
received on or with respect to such Mortgage Loan on and after the
applicable Cut-off Date and allocable to such Trust Balance (but
not including all accrued interest and principal due on or with
respect to such Mortgage Loan for Interest Periods prior to the
related Cut-off Date);
(ii) such assets as shall from time to time be identified as deposited
in the Certificate Account in accordance with this Agreement;
(iii) the interest of the Certificateholders to the extent of the Trust
Balances of the Mortgage Loans and interest accrued thereon in (x)
property which secured a Mortgage Loan and which has been acquired
by foreclosure or deed in lieu of foreclosure, (y) any insurance
policies related to the Mortgage Loans, including hazard insurance
policies, and (z) the related Mortgage, Loan Agreement and other
Mortgage File documents for each Mortgage Loan;
(iv) the benefit of the Support Agreement and the Certificate Insurance
Policy; and
(v) the proceeds of each of the foregoing.
Trust Insurance Proceeds: As to any Mortgage Loan and Collection
------------------------
Period, an amount equal to the lesser of (i) Insurance Proceeds paid to the
Servicer during such Collection Period (reduced by any related expenses of
the Servicer in collecting such proceeds), which (x) are not Liquidation
Proceeds, (y) are not applied to the restoration or repair of the related
Mortgaged Property or released to the related Mortgagor in accordance with
the normal servicing procedures of the Servicer and (z) will be applied by
the Servicer in reduction of the Loan Balance of such Mortgage Loan and (ii)
the Trust Balance of such Mortgage Loan at the end of such Collection Period,
together with accrued and unpaid interest thereon at the Net Loan Rate from
the last day on which interest was paid in full on such Mortgage Loan to the
end of such Collection Period.
Trust Interest Collections: As to any payment on a Mortgage Loan
--------------------------
made by or on behalf of the related Mortgagor for the related Collection
Period, the lesser of (i) the portion thereof allocable to accrued interest
for the related Interest Period in accordance with the terms of the related
Loan Agreement (net of interest at the Servicing Fee Rate on the Loan Balance
for each day during such Interest Period) and (ii) accrued interest at the
Net Loan Rate on the Trust Balance for each day during such Interest Period.
Trust Principal Collections: As to any Mortgage Loan and Collection
---------------------------
Period, the sum of (i) all amounts (other than Insurance Proceeds and
Liquidation Proceeds) received from or on behalf of the related Mortgagor
during such Collection Period which, at the time of receipt, were applied in
reduction of the Loan Balance in accordance with the terms of the related
Loan Agreement, (ii) the principal portion of any Net Trust Liquidation
Proceeds and Trust Insurance Proceeds and (iii) the principal portion of any
Transfer Deposit Amount.
Trustee: The institution executing this Agreement as Trustee, or its
-------
successor in interest, or any successor trustee that has been appointed in
accordance with the terms of this Agreement.
Unpaid Certificate Interest Shortfall: As to any Distribution Date,
-------------------------------------
the aggregate amount, if any, of Certificate Formula Interest that was
accrued in respect of one or more prior Distribution Dates and has not
previously been distributed to Investor Certificateholders.
Section 1.02. Interest Calculations.
---------------------
All calculations of interest hereunder that are made in respect of the
Loan Balance, Trust Balance or Additional Balance of a Mortgage Loan,
including calculations of interest at the Servicing Fee Rate, shall be made
on a daily basis using a 365 day year. All calculations of interest on the
Investor Certificates shall be made on the basis of the actual number of days
in an Accrual Period and a year assumed to consist of 360 days.
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Certificates
Section 2.01. Conveyance of Mortgage Loans.
----------------------------
(a) In consideration of the Trustee's delivery to or upon the order of
the Transferor of the Certificates in an aggregate amount equal to the
Cut-off Date Pool Balance, the Transferor does hereby transfer, assign, set
over and otherwise convey to the Trustee without recourse (except as provided
herein) all the right, title and interest of the Transferor in and to (i)(A)
the Cut-off Date Trust Balance of each Mortgage Loan, including any
Additional Balance arising during the Managed Amortization Period under each
Mortgage Loan subsequent to the related Cut-off Date and assigned and
transferred to the Trustee hereunder, all payments of interest and principal
thereon, from whatever source derived, which are received on or with respect
to each Mortgage Loan on or after the Cut-off Date and are allocable to the
Trust Balance (but not including all accrued interest and principal due on or
with respect to the Mortgage Loans for Interest Periods prior to the Cut-off
Date), (B) the Certificate Account, and (C) the Certificate Insurance Policy,
(ii) to the extent of the Trust Balances of the Mortgage Loans and interest
accrued thereon, as provided in this Agreement, (A) any Mortgaged Properties
converted to ownership through foreclosure or deed in lieu or otherwise, (B)
any insurance policies related to the Mortgage Loans, and (C) the related
Mortgages, Loan Agreements and other Mortgage File documents for the Mortgage
Loans; and (iii) the proceeds of each of the foregoing.
Notwithstanding the characterization of the Investor Certificates as
debt for federal, state and local income and franchise tax purposes, the
parties hereto intend to treat the transfer of the Mortgage Loans as provided
herein as a sale for non-tax purposes from the Mortgage Loan Seller to the
Transferor and from the Transferor to the Trust of all of their right, title
and interest in and to the Mortgage Loans and other property described above.
In the event the transaction set forth herein is deemed not to be a sale for
the purposes described in the preceding sentence, the Mortgage Loan Seller
and the Transferor hereby grant to the Trustee a first priority security
interest in all of the Mortgage Loan Seller's and the Transferor's right,
title and interest in and to the (i) Mortgage Loans identified on the
Mortgage Loan Schedule on the Cut-off Date, (ii) Mortgage Loans added to the
Mortgage Loan Schedule from time to time, (iii) all property included in the
Trust Fund, (iv) and all proceeds of any of the foregoing; and this Agreement
shall constitute a security agreement under applicable law.
In connection with such assignment, transfer and conveyance of the Trust
Fund, as promptly as practicable but in no event later than 10 days following
the Closing Date, (i) the Mortgage Loan Seller will file in the appropriate
office in the State in which the principal place of business of the Mortgage
Loan Seller is located a UCC-1 financing statement executed by the Mortgage
Loan Seller as debtor, naming the Transferor as secured party and listing as
collateral the Mortgage Loans identified on the Mortgage Loan Schedule and
all property constituting the Trust Fund, and (ii) the Transferor will file
in the appropriate office in the State in which the principal place of
business of the Transferor is located a UCC-1 financing statement executed by
the Transferor as debtor, naming the Trustee as secured party and listing as
collateral the Mortgage Loans identified on the Mortgage Loan Schedule and
all property constituting the Trust Fund. In connection with such filings,
the Mortgage Loan Seller and the Transferor agree that they shall each cause
to be filed all necessary continuation statements thereof and to take or
cause to be taken such actions and execute such documents as are necessary to
perfect and protect the Certificateholders' interests in the Mortgage Loans
and the proceeds thereof allocable thereto.
(b) In connection with the foregoing assignment, transfer and
conveyance by the Transferor, the Servicer acknowledges that it is holding as
custodian for the Trustee the following documents or instruments with respect
to each Mortgage Loan so assigned and transferred (other than Mortgage Loans
which have been prepaid in full on or after the Cut-off Date and prior to the
date of the execution of this Agreement):
(i) The original Loan Agreement;
(ii) The related Mortgage with evidence of recording indicated
thereon; and
(iii) As to each Mortgage Loan With Title Insurance, evidence of
such insurance (to the extent such evidence is included in the
related Mortgage File).
Except as hereinafter provided, the Servicer shall be entitled to
maintain possession of all of the foregoing documents and instruments and
shall not be required to deliver any of them to the Trustee. In the event,
however, that possession of any of such documents or instruments is required
by any person (including the Trustee) acting as successor servicer pursuant
to Section 7.04 in order to carry out the duties of Servicer hereunder, then
such successor shall be entitled to request delivery of such documents or
instruments by the Servicer and to retain such documents or instruments for
as long as necessary for servicing purposes. Any such documents or
instruments shall be returned to the Servicer (unless returned to the related
Mortgagor in connection with the payment in full of the related Mortgage
Loan) when possession thereof is no longer required.
(c) The Servicer further confirms to the Trustee that it has caused the
portions of its records relating to the Mortgage Loans to be clearly and
unambiguously marked to indicate that the Trust Balances of such Mortgage
Loans (to the extent provided herein) have been assigned and transferred to
the Trustee and constitute part of the Trust Fund in accordance with the
terms of the trust created hereunder.
(d) The Servicer's right to maintain possession of the documents
enumerated above shall continue so long as the long term unsecured debt of
the Indirect Parent is assigned ratings of at least A- by Standard and Poor's
and A3 by Moody's. At such time as the long term unsecured debt of the
Indirect Parent does not satisfy the above referenced criteria, as promptly
as practicable but in no event more than 90 days following the happening of
such event (or 120 days upon the receipt by the Trustee from the Servicer of
a letter from each Rating Agency that such longer period (without taking into
account the Certificate Insurance Policy) will not result in a reduction in
or withdrawal of any rating of the Investor Certificates), the Servicer shall
at the expense of the Servicer (i) prepare assignments in recordable form to
the Trustee of each Mortgage Loan (which may be a blanket assignment) and
(ii) deliver the related Mortgage Files to the Trustee to be held by the
Trustee in trust, upon the terms herein set forth, for the use and benefit of
all present and future Certificateholders and the Trustee shall retain
possession thereof except to the extent the Servicer requires any Mortgage
Files for normal servicing as contemplated by Section 3.07. In the event the
Servicer fails to deliver the Mortgage Files to the Trustee within such 90
day period or, if applicable, 120 day period, the Trustee shall give written
notice pursuant to the Support Agreement to the Indirect Parent of the
Servicer's failure to deliver the Mortgage Files.
Within 60 days following delivery of the Mortgage Files to the Trustee,
it will review or cause to be reviewed each Mortgage File to ascertain that
all required documents set forth in this Section 2.01 have been executed and
received, and that such documents relate to the Mortgage Loans identified on
the Mortgage Loan Schedule and in so doing the Trustee may rely on the
purported due execution and genuineness of any signature thereon. If within
such 60 day period the Trustee finds any document constituting a part of a
Mortgage File not to have been executed or received or to be unrelated to the
Mortgage Loans identified in the Mortgage Loan Schedule, the Trustee shall
promptly notify the Servicer, which shall have a period of 30 days after such
notice within which to correct or cure any such defect. Upon the completion
of the review by the Trustee of each Mortgage File within such 60 day period
and, if necessary, the correction or cure of any defect by the Servicer
within such 30 day period, the Servicer will submit such assignments of the
Mortgage Loans for recording in the appropriate public offices for real
property records within seven (7) days of the completion of such review and
necessary correction and instruct the recording offices to return the
original recorded assignments to the Trustee. Within 30 days following
receipt by the Trustee of the recorded assignment the Trustee shall review or
cause to be reviewed such assignment to confirm the information specified
above with respect to the other documents. The Trustee shall notify the
Servicer of any defect in such assignment based on such review. The Servicer
shall have a period of 30 days following such notice to correct or cure such
defect.
If the Servicer fails to record an assignment of a Mortgage Loan as
herein provided, the Trustee shall prepare and file or cause to be prepared
and filed, at the expense of the Servicer, such assignments in the
appropriate real property or other records and the Servicer hereby appoints
the Trustee as its attorney-in-fact with full power and authority acting in
its stead for the purpose of such preparation and filing.
(e) On the Closing Date the Transferor shall deliver the Certificate
Insurance Policy to the Trustee.
Section 2.02. Acceptance by Trustee; Retransfer
---------------------------------
of Mortgage Loans; Substitution of
----------------------------------
Eligible Substitute Mortgage Loans.
----------------------------------
(a) The Trustee acknowledges the assignment and transfer of the Loan
Agreements and the Mortgages pursuant to Section 2.01, and declares that it
will hold the Trust Fund in trust, upon the terms herein set forth, for the
use and benefit of all present and future Certificateholders and the
Certificate Insurer.
(b) If the time to correct or cure any defect of which the Trustee has
notified the Servicer following any review by the Trustee of the Mortgage
Files pursuant to Section 2.01 has expired without any correction or cure or
if any loss that materially and adversely affects the interests of the
Certificateholders is incurred in respect of any Mortgage Loan as a result of
(i) a defect in any document constituting a part of a Mortgage File or (ii)
the Servicer's retention of such Mortgage File, then on the Business Day next
preceding the Distribution Date in the month following the Collection Period
in which the time to correct or cure such defect expired or such loss
occurred, deposit in the Certificate Account the Transfer Deposit Amount, if
any, and upon satisfaction of the applicable conditions described herein, all
right, title and interest of the Trust in and to such Mortgage Loan shall be
deemed to be retransferred, reassigned and otherwise reconveyed, without
recourse, representation or warranty, to the Transferor on such Business Day
and the Trust Balance of such Mortgage Loan shall be deducted from the Pool
Balance; provided, however, that interest accrued on the Trust Balance of
such Mortgage Loan to the end of the related Interest Period shall be the
property of the Trust. The Servicer shall determine if the removal of such
Trust Balance from the Pool Balance in accordance with the preceding sentence
would cause the Transferor Certificate Principal Balance to be less than the
Minimum Transferor Interest ("Transfer Deficiency"), in which event the
Servicer shall deliver written notice of such deficiency to the Trustee and
the Transferor, and within five Business Days after the Business Day of such
retransfer the Servicer shall either (i) substitute an Eligible Substitute
Mortgage Loan or (ii) deposit into the Certificate Account an amount (the
"Transfer Deposit Amount") in immediately available funds equal to the
Transfer Deficiency or a combination of both (i) and (ii) above. Such
reduction or substitution and the actual payment of any Transfer Deposit
Amount, if any, shall be deemed to be payment in full for such Mortgage Loan.
Upon receipt of any Eligible Substitute Mortgage Loan or of written
notification signed by a Servicing Officer to the effect that the Transfer
Deposit Amount in respect of a Defective Mortgage Loan has been deposited
into the Certificate Account or, if the Transferor Certificate Principal
Balance is not reduced below the Minimum Transferor Interest as a result of
the deemed retransfer of a Defective Mortgage Loan, then as promptly as
practicable following such deemed transfer, the Trustee shall execute and
deliver such instrument of transfer or assignment presented to it by the
Servicer, in each case without recourse, as shall be necessary to vest in the
Servicer or the Transferor, as the case may be, legal and beneficial
ownership of such repurchased or removed Mortgage Loan (including any
property acquired in respect thereof and any insurance policy or Insurance
Proceeds with respect thereto). It is understood and agreed that the obli-
gation of the Transferor and the Servicer to accept a transfer of a Defective
Mortgage Loan and to either convey an Eligible Substitute Mortgage Loan or to
make a deposit of any related Transfer Deposit Amount into the Certificate
Account shall constitute the sole remedy respecting such defect available to
Certificateholders, the Trustee or the Certificate Insurer, and such obliga-
tion on the part of the Servicer shall survive any resignation or termination
of the Servicer pursuant to Section 7.04 or 8.01.
Notwithstanding any other provision of this Section 2.02(b), a re-
transfer of a Defective Mortgage Loan to the Servicer pursuant to this
Section that would cause the Transferor Certificate Principal Balance to be
less than the Minimum Transferor Interest shall not occur if either the
Transferor fails to convey an Eligible Substitute Mortgage Loan or to deposit
into the Certificate Account any related Transfer Deposit Amount required by
this Section 2.02(b) with respect to the transfer of such Defective Mortgage
Loan.
(c) For any Collection Period during which the Servicer substitutes
one or more Eligible Substitute Mortgage Loans, the Servicer shall determine
the Transfer Deposit Amount which shall be deposited into the Certificate
Account on the Business Day next preceding the Distribution Date occurring in
the month following such Collection Period. All amounts received in respect
of the Eligible Substitute Mortgage Loan or Loans during the Collection
Period in which the circumstances giving rise to the relevant substitution
occur shall not be a part of the Trust Fund and shall not be deposited by the
Servicer into the Certificate Account. All amounts received by the Servicer
in respect of any Mortgage Loan so removed from the Trust Fund during the
Collection Period in which the circumstances giving rise to such substitution
occur shall be deposited by the Servicer into the Certificate Account. Upon
the substitution of an Eligible Substitute Mortgage Loan or Loans, such
Mortgage Loans shall be subject to the terms of this Agreement in all
respects, and the Servicer shall be deemed to have entered into or made with
respect to such Eligible Substitute Mortgage Loan or Loans, as of the date of
substitution, the covenants, representations and warranties set forth in
Section 2.04. The procedures applied by the Servicer in selecting each
Eligible Substitute Mortgage Loan shall not be adverse to the interests of
the Trustee, the Certificate Insurer and the Investor Certificateholders and
shall be comparable to the selection procedures applicable to the Mortgage
Loans conveyed hereunder as of the date of this Agreement.
The provisions of this Section 2.02(c) shall apply to (i) any removal or
retransfer of Defective Mortgage Loan or Loans, (ii) the substitution of
Eligible Substitute Mortgage Loan or Loans by the Servicer pursuant to
Section 2.04(b) and 3.01(c) or (iii) the repurchase of any Mortgage Loan or
Loans by the Servicer pursuant to Section 3.06.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section.
Section 2.03. Representations and Warranties
------------------------------
Regarding the Servicer.
----------------------
The Servicer represents and warrants to the Trustee, the Certificate
Insurer and the Investor Certificateholders that:
(i) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of the State of ________________
and has the corporate power to own its assets and to transact the
business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the
business transacted by it or properties owned or leased by it
requires such qualification and in which the failure so to qualify
would have a material adverse effect on the business, properties,
assets, or condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make, execute, deliver
and perform this Agreement and all of the transactions contemplated
under the Agreement, and has taken all necessary corporation action
to authorize the execution, delivery and performance of this
Agreement. When executed and delivered, this Agreement will
constitute the legal, valid and binding obligation of the Servicer
enforceable in accordance with its terms, except as enforcement of
such terms may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent of any other
party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority,
bureau or agency which consent the Servicer has not already
obtained in connection with the execution, delivery, performance,
validity or enforceability of this Agreement;
(iv) The execution, delivery and performance of this Agreement by the
Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court or the Articles of
Incorporation or Bylaws of the Servicer, or constitute a material
breach of any mortgage, indenture, contract or other agreement to
which the Servicer is a party or by which the Servicer may be
bound;
(v) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the
knowledge of the Servicer threatened, against the Servicer or any
of its properties or with respect to this Agreement or the
Certificates which, if adversely determined, would in the opinion
of the Servicer have a material adverse effect on the transactions
contemplated by this Agreement;
(vi) On the Closing Date, the Servicer will assign and transfer all of
its right, title and interest in the Trust Balance of each Mortgage
Loan to the Transferor;
(vii) The Servicer will take all necessary actions to enforce payment of
the Mortgage Loans by the obligors thereon, including commencing or
joining as a party to proceedings; and
(viii) (a) Immediately prior to the assignment and transfer referenced in
(vi) above, the Servicer had good title to the Mortgage Loans, is
authorized to assign and transfer the Trust Balance of each
Mortgage Loan to the Transferor and (b) the Servicer and its
assignees, including the Transferor and the Trustee, have the right
to enforce payment of the Mortgage Loans against the obligors on
such Mortgage Loans.
Upon discovery by the Transferor, the Servicer or the Trustee of a breach of
any of the foregoing representations and warranties in this Section 2.03
which materially and adversely affects the interests of the Investor
Certificateholders, the party discovering such breach shall give prompt
written notice to the other parties. Within ____ (__) days of its discovery
or receipt of notice of any such breach, the Servicer shall use all
reasonable efforts to cure such breach in all material respects.
Section 2.04. Representations and Warranties of the Servicer
-------------------------------------
Regarding the Mortgage Loans; Repurchase and Substitution Obligations.
- ---------------------------------------------------------------------
As indicated in Section 2.03(vi), on the Closing Date the Trust Balances
of the Mortgage Loans are being assigned and transferred by the Servicer to
the Transferor. In connection with such assignment and transfer the Servicer
is making the representations and warranties in this Section 2.04 to the
Transferor. As a condition of the purchase by the Transferor, the Transferor
has required that the Servicer make such representations and warranties
directly to the Trustee, the Certificate Insurer and the Investor
Certificateholders so that the Trustee may recover directly against the
Servicer on such representations and warranties rather than indirectly
through claims by the Transferor against the Servicer. Consequently, the
Servicer represents and warrants to the Trustee, the Certificate Insurer and
the Investor Certificateholders as of the Closing Date (unless otherwise
specified) and as to each Mortgage Loan that:
(i) The information set forth in the Mortgage Loan Schedule was true
and correct in all material respects at the date or dates
respecting which such information is furnished;
(ii) As of the Closing Date, each Mortgage is a valid lien on the
property securing the amount owed by the Mortgagor under the Loan
Agreement subject only to (a) the lien of current real property
taxes and assessments, (b) any related first, second or third
mortgage loan, which first, second or third mortgage loan does not
contain an obligatory future advance provision (except for certain
Mortgage Loans that are subordinate to mortgage loans held by
____________, in which case the senior lien amount is defined as
the total credit limit of the senior liens), (c) covenants,
conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mort-
gage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the
property subject to the Mortgage is located or specifically
reflected in the appraisal obtained in connection with the
origination of the related Mortgage Loan obtained by the Transferor
and (d) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security
intended to be provided by such Mortgage;
(iii) Immediately prior to the transfer and assignment by the Servicer to
the Transferor referred to in Section 2.03(vi) hereof and the
transfer and assignment by the Transferor to the Trust Fund
referred to in Section 2.01, the Servicer and the Transferor each
had good title to each Mortgage Loan and was authorized to transfer
the Trust Balance of each Mortgage Loan to the Transferor and to
the Trust Fund, respectively;
(iv) As of the Cut-off Date, no payment of interest on or in respect of
any Mortgage Loan is more than one month past due;
(v) As of the Closing Date, to the best knowledge of the Servicer,
there is no mechanics' lien or claim for work, labor or material
affecting the premises subject to any Mortgage which is or may be a
lien prior to, or equal or coordinate with, the lien of such
Mortgage except those which are insured against by the title
insurance policy referred to in (x) below;
(vi) As of the Closing Date, to the best knowledge of the Servicer,
there is no delinquent tax or assessment lien against any Mortgaged
Property;
(vii) As of the Closing Date, to the best knowledge of the Servicer,
there is no valid offset, defense or counterclaim to any Loan
Agreement or Mortgage;
(viii) As of the Closing Date, to the best knowledge of the Servicer,
without independent investigation, the physical property subject to
each Mortgage is free of material damage, including damage by
water, flood or similar casualty, and is in good repair (excluding
any damage to the Mortgaged Property from the presence of hazardous
wastes or hazardous substances, as to which no representation or
warranty is made);
(ix) As of the origination of each Mortgage Loan and as of the Closing
Date, all requirements of federal, state or local laws, including,
without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity
and disclosure laws and the regulations promulgated thereunder
which are applicable to the origination and servicing of the
Mortgage Loans, have been complied with in all material respects
and the consummation of the transactions herein contemplated,
including, without limitation, the receipt of interest by Certifi-
cateholders, will not violate of such laws in any material respect;
(x) As to each Mortgage Loan With Title Insurance, a lender's title
insurance policy or binder, or other assurance of title customary
in the relevant jurisdiction therefor, was issued on or as of the
date of the recording of each such Mortgage, and each such policy
or binder is valid and remains in full force and effect;
(xi) As of the Closing Date, the Servicer has not received a notice of
default of any first mortgage loan related to a Mortgaged Property
which has not been cured by a party other than the Servicer;
(xii) As to most of the Mortgage Loans, the definition of "Prime Rate"
for each day set forth in the Loan Agreements is the prime rate
published for that day in The Wall Street Journal; if a prime rate
range is published, the Loan Agreements provide either that the
highest rate of that range is to be used or that the midpoint of
any prime rate range published in The Wall Street Journal is to be
used; and for the other Mortgage Loans, the Loan Agreements provide
that the "Prime Rate" for any day is the highest prime rate (or
equivalent rate) quoted for that day by three specified banks;
(xiii) As of the Closing Date, no more than ____% of the Mortgage Loans by
principal balance have as Mortgagors employees or independent
contractors entitled to the reduced Loan Rates specified in the
schedules referred to in clause (xii) above;
(xiv) At the date of the execution of the related Loan Agreement, the
Combined Loan-to-Value Ratio for each of the Mortgage Loans was not
in excess of ___%, except with respect to approximately ____% of
the Mortgage Loans by principal balance;
(xv) Except with respect to approximately ____% of the Mortgage Loans by
principal balance, no Mortgage Loan was originated in a program
conducted by the Servicer in which the amount of documentation in
the underwriting process was limited in comparison to the
Servicer's normal documentation requirements;
(xvi) Approximately _____% of the Mortgage Loans by principal balance
were, as of their origination, the primary residences of the
related Mortgagors;
(xvii) Not more than ____% of the Mortgage Loans by principal balance are
secured by Mortgaged Properties located in the same zip code area;
(xviii) Not more than ____% of the Mortgage Loans by principal balance will
be secured by condominiums;
(xix) Not more than _____% of the Mortgage Loans by principal balance
will be secured by manufactured homes within the meaning of 42
United States Code, Section 5402(6);
(xx) With respect to each Mortgage Loan originated by the Servicer, the
Servicer performed a full appraisal of the related Mortgaged
Property at the origination of such Mortgage Loan;
(xxi) No selection procedure believed by the Servicer to be adverse to
the interests of the Certificateholders was used in selecting the
Mortgage Loans for inclusion in the Trust Fund; and
(xxii) Each Mortgagor is required to maintain for the corresponding
Mortgaged Property a hazard insurance policy conforming to the
requirements of Section 3.04 and, to the best knowledge of the
Servicer, each such individual hazard insurance policy is in effect
and has not lapsed.
The representations and warranties set forth in this Section 2.04 shall
survive the transfer and assignment of the Mortgage Loans to the Trustee.
Upon discovery by the Transferor, the Servicer or the Trustee of a breach of
any of the foregoing representations and warranties, without regard to any
limitation set forth in such representation or warranty concerning the
knowledge of the Servicer as to the facts stated therein, which materially
and adversely affects the interests of the Investor Certificateholders or the
Certificate Insurer in the related Mortgage Loan, the party discovering such
breach shall give prompt written notice to the other parties. Any breach of a
representation and warranty contained in clauses (ii)(b) and (v) - (viii),
inclusive, shall not be deemed to materially and adversely affect the inter-
ests of Investor Certificateholders or the Certificate Insurer in the related
Mortgage Loan to the extent that such Mortgage Loan is not a delinquent or
defaulted Mortgage Loan. Within __ days of its discovery or receipt of
notice of any such breach, the Servicer shall use all reasonable efforts to
cure such breach in all material respects. Unless at the expiration of such
__-day period, such breach has been cured in all material respects or
otherwise does not exist or continue to exist, the Servicer shall, not later
than the Business Day next preceding the Distribution Date in the month
following the related Collection Period in which any such cure period ex-
pired, either (i) repurchase such Defective Mortgage Loan (including any
property acquired in respect thereof and any insurance policy or Insurance
Proceeds with respect thereto) or (ii) remove such Mortgage Loan from the
Trust Fund and substitute in its place an Eligible Substitute Mortgage Loan
or Loans, in either case in the same manner and subject to the same
conditions as set forth in Section 2.02. Upon making any such repurchase or
removal, the Servicer shall be entitled to receive an instrument of assign-
ment of the repurchased or removed Mortgage Loan from the Trustee to the
extent set forth in Section 2.02. The obligation of the Servicer to
repurchase or remove any such Defective Mortgage Loan (or property acquired
in respect thereof) shall constitute the sole remedy against the Servicer
with respect to such breach of the foregoing representations or warranties
available to Investor Certificateholders, the Trustee on behalf of Certifi-
cateholders, or the Certificate Insurer, and such obligation on the part of
the Servicer shall survive any resignation or termination of the Servicer
pursuant to Section 7.04 or 8.01.
Section 2.05. Execution and Authentication of Certificates.
--------------------------------------------
The Trustee has caused to be executed, countersigned and delivered to or
upon the order of the Transferor (except that the Transferor Certificates
shall be in the name of the Transferor), in exchange for the Initial Mortgage
Loans, concurrently with the transfer and assignment to the Trustee of the
Initial Mortgage Loans, Investor Certificates in authorized denominations and
the Transferor Certificates, together evidencing the entire ownership of the
Trust Fund.
Section 2.06. Retransfers of Mortgage Loans at Election of the
-------------------------------------------------
Transferor.
----------
Subject to the conditions set forth below, the Transferor may, but shall
not be obligated to, require the retransfer of Mortgage Loans from the Trust
to the Transferor as of the end of a Collection Period (the "Retransfer
Date") during the Managed Amortization Period. On the _____ (_th) Business
Day (the "Retransfer Notice Date") prior to the Retransfer Date designated in
such notice, the Transferor shall give the Trustee a notice of the proposed
retransfer that contains a list of the Mortgage Loans to be retransferred.
Such retransfers of Mortgage Loans shall be permitted upon satisfaction of
the following conditions:
(i) No Rapid Amortization Event has occurred;
(ii) On the Retransfer Notice Date the Transferor Certificate Principal
Balance (after giving effect to the removal from the Trust of the
Mortgage Loans) is at least equal to the Minimum Transferor
Interest;
(iii) The retransfer of any Mortgage Loans on any Retransfer Date during
the Managed Amortization Period shall not, in the reasonable belief
of the Servicer, cause a Rapid Amortization Event to occur or an
event which with notice or lapse of time or both would constitute a
Rapid Amortization Event:
(iv) On or before the Retransfer Date, the Servicer shall have delivered
to the Trustee a revised Mortgage Loan Schedule, reflecting the
proposed retransfer and on the Retransfer Date the Servicer shall
have caused the portions of its records relating to the Mortgage
Loans to be clearly and unambiguously marked to show that the
Mortgage Loans retransferred to the Transferor are no longer owned
by the Trust;
(v) The Transferor shall represent and warrant that no selection
procedures reasonably believed by the Transferor to be adverse to
the interests of the Investor Certificateholders or the
Certificate Insurer were utilized in selecting the Mortgage Loans
to be removed from the Trust;
(vi) In connection with the first retransfer of Mortgage Loans pursuant
to this Section 2.06, each Rating Agency shall have received on or
prior to the Retransfer Notice Date notice of such proposed
retransfer of Mortgage Loans and, prior to the first Retransfer
Date, shall have notified the Transferor in writing that such
retransfer of Mortgage Loans would not result in a reduction or
withdrawal of its then current rating of the Investor Certificates
without taking into account the Certificate Insurance Policy;
(vii) The percentage of the Trust Balances of the Mortgage Loans
remaining in the Trust Fund (after giving effect to the proposed
retransfer) that are delinquent more than __ days shall not exceed
by more than ____% the percentage (based on the average for the
_____ immediately preceding months) of the Trust Balances of the
Mortgage Loans in the Trust Fund (prior to giving effect to the
proposed retransfer) that are delinquent more than __ days; and
(viii) The Transferor shall have delivered to the Trustee and the
Certificate Insurer an Officer's Certificate certifying that the
items set forth in subparagraphs (i) through (vii), inclusive, have
been performed or are true and correct, an the case may be. The
Trustee may conclusively rely on such Officer's Certificate, shall
have no duty to make inquiries with regard to the matters set forth
therein and shall incur no liability in so relying.
Upon receiving the requisite information from the Transferor or the Servicer,
the Servicer shall perform in a timely manner those acts required of it as
specified above. Upon satisfaction of the above conditions, on the
Retransfer Date the Trustee shall execute and deliver to the Servicer such
instruments of assignment and other documents prepared by the Servicer as
shall be reasonably necessary to retransfer such Mortgage Loan or Loans to
the Transferor. Any such retransfer of the Trust's right, title and interest
in and to Mortgage Loans shall be without recourse, representation or
warranty by the Trust to the Transferor.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section
2.06.
Section 2.07. Tax Treatment.
-------------
It is the intention of the Transferor, the Servicer and the Investor
Certificateholders (and Certificate Owners) that the Investor Certificates
will be indebtedness for federal, state and local income and franchise tax
purposes and for purposes of any other tax imposed on or measured by income.
The Transferor, the Servicer, the Trustee and each Investor Certificateholder
(and Certificate Owner) by acceptance of its Investor Certificate (or, in the
case of a Certificate Owner, by virtue of such Certificate Owner's
acquisition of a beneficial interest therein) agree to treat the Investor
Certificates (or beneficial interest therein), for purposes of federal, state
and local income and franchise tax, as indebtedness secured by the Mortgage
Loans and to report the transactions contemplated by this Agreement on all
applicable tax returns in a manner consistent with such treatment. Each
Certificateholder agrees that it will cause any Certificate Owner acquiring
an interest in a Investor Certificate through it to comply with this
Agreement as to treatment as indebtedness for federal, state and local income
and franchise tax purposes and for purposes of any other tax imposed on or
measured by income. Furthermore, the Trustee shall treat the Trust as a
security device only, and shall not file tax returns or obtain an employer
identification number on behalf of the Trust.
Section 2.08. Covenants of the Transferor.
---------------------------
The Transferor shall not, without the prior written consent of the
Certificate Insurer and the Trustee (which consent of the Trustee shall be
given only upon the delivery to the Trustee by the Transferor of a letter
from each Rating Agency to the effect that any of the following will not
result in a downgrading or withdrawal of its rating of the Investor
Certificates), do any of the following:
(a) dissolve or liquidate, in whole or in part, or file a petition to
take advantage of any applicable insolvency, bankruptcy or reorganization
statute;
(b) merge or consolidate with any other corporation other than a
corporation wholly-owned, directly or indirectly, by the Indirect Parent,
having a certificate of incorporation containing provisions identical to the
covenants of this Section 2.08 and executing an agreement of assumption to
perform every obligation of the Transferor hereunder; or
(c) incur any indebtedness except in connection with, or relating to,
the issuance of obligations that are rated in the highest rating category of
each Rating Agency.
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. ____________ to Act as Servicer.
-------------------------------
(a) The Servicer shall service and administer the Mortgage Loans in
accordance with its customary servicing procedures consistent with general
industry practice. The Servicer shall have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting the
generality of the foregoing, the Servicer shall continue, and is hereby
authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans and with respect to the Mortgaged Properties. The Trustee shall
execute, at the Servicer's direction, any special or limited powers of
attorney and other documents necessary or appropriate to enable the Servicer
to carry out its servicing and administrative duties hereunder.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
(b) In connection with its servicing and administration of the Mortgage
Loans, the Servicer may consent to the placing or refinancing of a lien
senior to that of the Mortgage on the related Mortgaged Property. Any such
consent shall be consistent with the Servicer's then current practice
respecting comparable mortgage loans held in its own portfolio and may be
given only in the following situations:
(i) the Combined Loan-to-Value Ratio of the related Mortgage Loan
following such placing or refinancing of a senior lien does not
exceed the Combined Loan-to-Value Ratio at origination of such
Mortgage Loan; or
(ii) such placement or refinancing of an existing senior lien is in
connection with a new senior lien for which the principal balance
is limited to the sum of the unpaid principal balance of the
existing senior lien, closing costs (including all prepaid items),
points and other funds for the Mortgagor's use (which other funds
do not exceed __% of the principal balance of the new senior lien).
(c) In connection with its servicing and administration of the Mortgage
Loans and during a Rapid Amortization Period that did not commence upon the
occurrence of a Rapid Amortization Event, the Servicer may increase the
Credit Limit specified in the related Loan Agreement by modifying the Loan
Agreement to provide for an additional amount. The Combined Loan-to-Value
Ratio of such Mortgage Loan immediately following such modification shall not
exceed ___%.
(d) In connection with its servicing and administration of the Mortgage
Loans and at the request of a Mortgagor or at its own initiative, the
Servicer may agree to modify the Loan Agreement relating to the Mortgage Loan
of such Mortgagor or waive compliance by the Mortgagor with any provision of
such Loan Agreement. Any such modification or waiver shall be consistent with
the Servicer's then current practice respecting comparable mortgage loans
held in its own portfolio and shall not:
(i) extend the scheduled maturity date of, modify the interest rate
payable under (except as required by law or as contemplated by the
Loan Agreement), or constitute a cancellation or discharge of the
outstanding Loan Balance under, such Mortgage Loan; or
(ii) materially and adversely affect the security afforded by the Mort-
gaged Property.
Any modification, waiver or change of the nature described in Section 3.02(a)
shall be deemed not to violate either Section 3.01(d)(i) or (ii).
(e) In the event that:
(i) the Servicer consents to (A) the placing or refinancing of a senior
lien that does not satisfy the requirements of Section 3.01(b), (B)
the modification of a Loan Agreement to provide for an increased
Credit Limit resulting in a Combined Loan-to-Value Ratio exceeding
the limitation specified in Section 3.01(c), or (C) the
modification or waiver of a Loan Agreement that does not satisfy
the requirements of Section 3.01(d), or
(ii) any loss is suffered by the Trust Fund in respect of any Mortgage
Loan as a result of a failure to file on or within __ days
subsequent to the Closing Date of the UCC-1 financing statements
referred to in Section 2.01, then the Servicer shall, not later
than the Business Day preceding the Distribution Date in the month
following the Collection Period during which such modification,
change, loss or consent occurred, either repurchase the applicable
Mortgage Loan or Loans or substitute one or more Eligible
Substitute Mortgage Loans for the applicable Mortgage Loan or
Loans.
Each repurchase or substitution shall be accomplished in the same manner
and subject to the same conditions as set forth in Section 2.02. Upon
completing any such repurchase or substitution, the Servicer shall be
entitled to receive an instrument of assignment or transfer from the Trustee
to the same extent as set forth in Section 2.02.
The Mortgage Loan Schedule shall be amended to reflect all deletions,
substitutions or additions of Mortgage Loans provided for in this Section
3.01.
(f) Notwithstanding anything to the contrary in Section 3.01(e), if the
short-term credit rating of the Indirect Parent is downgraded below A-1/P-1,
any repurchase or substitution of a Mortgage Loan pursuant to Section
3.01(e) shall occur on the second Business Day following the date on which
the applicable modification, waiver or changes agreed to by the Servicer are
made by it.
Section 3.02. Collection of Certain Mortgage Loan
-----------------------------------
Payments; Mortgage Loan Payment Record.
--------------------------------------
(a) The Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow such collection procedures as it follows with respect to mortgage
loans in its servicing portfolio comparable to the Mortgage Loans.
Consistent with, and without limiting the generality of, the foregoing, the
Servicer may, in its discretion, do the following:
(i) waive any late payment charge or any assumption fees or other fees
which may be collected in the ordinary course of servicing such
Mortgage Loan,
(ii) if the Mortgagor is in default or about to be in default because of
the Mortgagor's financial condition, arrange with a Mortgagor a
schedule for the payment of interest due and unpaid for a period of
not more than ___ days after the date of the initial uncured
delinquency thereon, and
(iii) waive compliance with or modify the terms of such Mortgage Loan as
appropriate to permit the Mortgagor to bring such Mortgage Loan
current and/or remedy any deviations from compliance with the
documentation for such Mortgage Loan.
provided, however, that as to clause (ii) above, the Servicer may in its
discretion arrange with a Mortgagor a schedule for the payment of interest
due and unpaid for a period that exceeds 180 days if such arrangement is
determined by the Servicer to be reasonable and consistent with its then
current practice respecting comparable mortgage loans held in its own port-
folio, including but not limited to its practices regarding mortgage loans
secured by mortgage properties located in federally designated disaster
areas.
Any waiver or modification of the sort described in this Section 3.02(a)
shall not (x) be considered in any determination pursuant to clause (i) of
the definition of Seriously Delinquent Mortgage Loan or (y) affect the amount
or timing of the Servicer's obligation to make Monthly Advances with respect
to any Mortgage Loan which Monthly Advances shall be made without regard to
any such waiver or modification.
(b) The Servicer shall establish and maintain for the Trust Fund a
Mortgage Loan Payment Record in which the following payments on and
collections in respect of the Mortgage Loans shall as promptly as practicable
be credited by the Servicer for the account of the Holders of the
Certificates:
(i) All Interest Collections and Principal Collections;
(ii) The Transfer Deposit Amount in respect of any Mortgage Loans
transferred, substituted or repurchased pursuant to Sections 2.02, 2.04,
3.01 and 3.06;
(iii) All Net Trust Liquidation Proceeds; and
(iv) All Trust Insurance Proceeds (including, for this purpose,
any amounts required to be credited by the Servicer pursuant to the last
sentence of Section 3.04(c)).
The foregoing requirements respecting credits to the Mortgage Loan Payment
Record are exclusive. Without limiting the generality of the preceding
sentence, the Servicer need not enter in the Mortgage Loan Payment Record
amounts representing fees (including annual fees) or late charge penalties
payable by Mortgagors, or amounts received by the Servicer for the account of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments and similar items. If any such amounts are credited to the
Mortgage Loan Payment Record, they shall be thereafter debited to the
Mortgage Loan Payment Record by the Servicer in accordance with its normal
servicing procedures.
(c) Until the Business Day prior to each Distribution Date on which
amounts are required to be deposited in the Certificate Account pursuant to
Section 4.02, the Servicer may, so long as the Indirect Parent has a
short-term credit rating of A-1/P-1 or higher and a long-term unsecured debt
rating of at least A3 by Moody's, retain and commingle such amounts with its
own funds and shall be entitled to retain for its own account any investment
income thereon, and any such investment income shall not be subject to any
claim of the Trustee or Certificateholders. In the event that the Servicer
is not permitted to retain and commingle such amounts with its own funds, it
shall, all provisions in this Agreement to the contrary notwithstanding,
deposit such amounts in the Certificate Account created and maintained
pursuant to Section 4.02 not later than the second Business Day following
receipt, subject to withdrawal to the same extent as debits to the Mortgage
Loan Payment Record are permitted pursuant to Section 3.03.
(d) The Mortgage Loan Payment Record shall be made available for
inspection during normal business hours of the Servicer upon request of the
Trustee or the firm of independent accountants acting pursuant to Section
3.10.
Section 3.03. Permitted Debits to the Mortgage Loan
-------------------------------------
Payment Record.
--------------
The Servicer may, from time to time, make debits to the Mortgage Loan
Payment Record for the following purposes:
(i) to make deposits into the Certificate Account pursuant to Section
4.02;
(ii) to reimburse or indemnify the Servicer to the extent required or
permitted by Section 7.03;
(iii) to reimburse the Servicer for unreimbursed Monthly Advances
theretofore made in respect of any Mortgage Loan to the extent of
receipts by the Servicer of late payments of Trust Interest
Collections and Net Trust Liquidation Proceeds in respect of such
Mortgage Loan;
(iv) to reimburse the Servicer for any Nonrecoverable Advance;
(v) to pay the Servicer amounts received in respect of Defective
Mortgage Loans during the Collection Period in which such Defective
Mortgage Loans were replaced, substituted for or repurchased or
which were otherwise reflected in the calculation of the related
Transfer Deposit Amount;
(vi) to pay the Servicer out of related collections the servicing fee
pursuant to Section 3.08; and
(vii) to pay the Servicer the servicing fee pursuant to Section 3.08 with
respect to any Liquidated Mortgage Loan to the extent that Net
Liquidation Proceeds for such Mortgage Loan exceed the related Loan
Balance together with interest accrued thereon at the Net Loan Rate
from the last date to which such interest was distributed to
Certificateholders to the end of the related Collection Period pre-
ceding the Distribution Date for which the related Net Trust
Liquidation Proceeds are distributed to Certificateholders.
In addition, if the Servicer credits to the Mortgage Loan Payment Record
any amount not required to be credited thereto or any amount in respect of
payments by Mortgagors made by checks subsequently returned for insufficient
funds or other reason for non-payment it may at any time debit such amount in
the Mortgage Loan Payment Record, any provision herein to the contrary not-
withstanding. All amounts credited by the Servicer to the Mortgage Loan
Payment Record shall be held by the Servicer in trust for the
Certificateholders until such amounts are disbursed in accordance with
Section 4.02 or debited in accordance with this Section 3.03.
Section 3.04. Hazard Insurance Policies; Property
-----------------------------------
Protection Expenses.
-------------------
(a) Under the terms of each of the Mortgage Loans, the Mortgagor is
required to maintain for the corresponding Mortgaged Property a hazard
insurance policy which contains a standard mortgagee's clause with an
appropriate endorsement in favor of the Servicer or the Trustee and which
insures against loss by fire and by hazards included within the term
"extended coverage" and by such other hazards for which the Servicer requires
coverage. The hazard insurance coverage for the Mortgage Loans shall be in
the amounts and for the periods of time required by the Servicer. In
general, such hazard coverage for each Mortgage Loan will be in an amount
approximately equal to the lesser of (a) the maximum insurable value of the
Mortgaged Property or (b) the Credit Limit of such Mortgage Loan plus the
outstanding balance of any mortgage loan senior to such Mortgage Loan, but in
no event will such amount be less than is necessary to prevent the Mortgagor
from becoming a coinsurer thereunder. If the Mortgaged Property is in an
area identified at the time of origination in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards (and such
flood insurance has been made available) the Servicer will cause to be
maintained a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier, in an amount representing coverage not less
than the least of (i) the Credit Limit of such Mortgage Loan plus the
outstanding balance of any mortgage loan senior to such Mortgage Loan, (ii)
the full insurable value or (iii) the maximum amount of insurance which is
available under the Flood Disaster Protection Act of 1973. The Servicer shall
also maintain on property acquired upon foreclosure, or by deed in lieu of
foreclosure, hazard insurance with extended coverage in a similar amount. In
general, such hazard coverage for each such foreclosed Mortgage Loan will be
in an amount which is at least approximately equal to the lesser of (a) the
maximum insurable value from time to time of the improvements which are a
part of such property or (b) the Credit Limit of such Mortgage Loan plus the
outstanding balance of any mortgage loan senior to such Mortgage Loan at the
time of such foreclosure plus accrued interest and the good-faith estimate of
the Servicer of related Liquidation Expenses to be incurred in connection
therewith. Amounts collected by the Servicer under any such policies shall
be credited to the Mortgage Loan Payment Record and deposited in the
Certificate Account to the extent that they constitute Net Trust Liquidation
Proceeds or Trust Insurance Proceeds.
(b) If the Servicer, or an affiliate thereof, shall obtain and maintain
a "mortgagee interest policy" issued by an insurer acceptable to the Rating
Agencies insuring against hazard losses on all of the Mortgaged Properties in
an amount equal to the aggregate Loan Balances outstanding from time to time
under the Mortgage Loans, it shall conclusively be deemed to have satisfied
its obligations as set forth in the second and third sentences of Section
3.04(a). Such mortgagee policy may contain a deductible clause, in which case
the Servicer shall, in the event that there shall not have been maintained on
the related Mortgaged Property a policy complying with the second and third
sentences of Section 3.04(a), and there shall have been a loss which would
have been covered by such policy, credit to the Mortgage Loan Payment Record
and deposit into the Certificate Account, no later than __ days after such
loss occurs, the amount not otherwise payable under the blanket policy
because of such deductible clause.
(c) The Servicer shall incur, or refrain from incurring, Liquidation
Expenses and Property Protection Expenses with respect to Mortgage Loans in a
manner consistent with this Agreement and the Servicer's then current
practice respecting comparable mortgage loans in its own portfolio. Anything
contained herein to the contrary notwithstanding, the Servicer shall have the
right to assign, transfer, abandon or surrender any Mortgaged Property, if,
in the good faith judgment of the Servicer, there is a reasonable possibility
that continued retention of such interest in such Mortgaged Property could
result in Liquidation Expenses and Property Protection Expenses with respect
to such Mortgage Loan exceeding Liquidation Proceeds. The Servicer shall be
reimbursed for amounts expended for Property Protection Expenses and Liquida-
tion Expenses with respect to Mortgage Loans in accordance with the terms of
this Agreement.
Section 3.05. Mortgagor Transfers of Mortgaged Properties.
-------------------------------------------
In any case in which the Servicer becomes aware that a Mortgaged
Property has been conveyed by a Mortgagor (except to, or for the benefit of,
the Mortgagor, a co-Mortgagor or relative of the Mortgagor), the Servicer
will take reasonable steps to freeze such Mortgagor's Credit Limit at the
level of the current outstanding Loan Balance. Notwithstanding the
Servicer's efforts to freeze a Mortgagor's Credit Limit at the current
outstanding Loan Balance under such circumstances, the Loan Balance of such a
Mortgage Loan may include any charges which may accrue subsequent to the date
of such freeze.
The Servicer shall exercise or refrain from exercising its right to
undertake to collect the full amount due under the related Loan Agreement
consistent with the then current practice of the Servicer and without regard
to the inclusion of such Mortgage Loan in the Trust Fund and not in the
Servicer's portfolio. If it elects not to enforce its right to accelerate
and collect the full amount of such Mortgage Loan or if it is prevented from
doing so by applicable law, the Servicer is authorized to take or enter into
an assumption and modification agreement from or with the Person to whom such
Mortgaged Property has been or is about to be conveyed, pursuant to which
such Person becomes liable under the Loan Agreement. If deemed appropriate
by the Servicer after the Person to whom such Mortgaged Property has been or
is about to be conveyed enters into an assumption and modification agreement,
the original Mortgagor may be released from liability. The Servicer shall
notify the Trustee that any assumption and modification agreement has been
completed by delivering to the Trustee an Officer's Certificate certifying
that such agreement is in compliance with this Section 3.05 and by retaining
the original copy of such assumption and modification agreement. Any such
assumption and modification agreement shall, for all purposes, be considered
a part of the related Mortgage File to the same extent as all other documents
and instruments constituting a part thereof. No change in the terms of the
related Loan Agreement may be made by the Servicer in connection with any
such assumption to the extent that such change would not be permitted to be
made in respect of the original Loan Agreement pursuant to Section 3.01(d).
Any fee collected by the Servicer for entering into any such assumption will
be retained by the Servicer as additional servicing compensation.
Notwithstanding any provision of this Agreement to the contrary, the
Servicer shall not be deemed to be in default, breach or otherwise in
violation of its obligations hereunder by reason of any transfer of a
Mortgaged Property which occurs by operation of law or which the Servicer is
restricted by law from preventing.
Section 3.06. Realization Upon Defaulted Mortgage Loans.
-----------------------------------------
The Servicer shall foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come
into and continue in delinquency or default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.02. In connection with such foreclosure or other conversion, the
Servicer shall follow such practices (including, in the case of any
delinquency or default on a related prior mortgage loan, the advancing of
funds to correct such delinquency or default) and procedures as it shall deem
necessary or advisable and as shall be normal and usual in the general first
and second mortgage loan servicing activities of the Servicer. The Servicer
shall be reimbursed for Property Protection Expenses incurred by it out of
the related Liquidation Proceeds. Notwithstanding the foregoing, the
Servicer shall not be required (i) to expend its own funds in connection with
any foreclosure or towards the correction of any delinquency or default on a
related prior mortgage loan or restoration of any property unless, in the
reasonable judgment of the Servicer, such foreclosure, correction or resto-
ration will increase Net Trust Liquidation Proceeds, or (ii) to foreclose
upon or otherwise convert to ownership any Mortgaged Property which the
Servicer has determined may be materially contaminated with hazardous wastes
or hazardous substances.
In lieu of foreclosing on any delinquent or defaulted Mortgage Loan, the
Servicer, may, in its sole discretion, repurchase from the Trust Fund any
Mortgage Loan which is a Seriously Delinquent Mortgage Loan. Each repurchase
shall be subject to the same conditions as set forth in Section 2.02. The
repurchase price for any Seriously Delinquent Mortgage Loan shall be equal to
the sum of (i) the Trust Balance thereof as of the end of the Collection
Period next preceding the Distribution Date upon which the proceeds of such
repurchase are to be distributed and (ii) accrued and unpaid interest to the
end of such Collection Period computed on a daily basis at the Net Loan Rate
on the Trust Balance thereof. The purchase price shall be included as part of
the Transfer Deposit Amount deposited into the Certificate Account on the
Business Day next preceding the Distribution Date upon which the proceeds of
such repurchase are to be distributed. Upon making any such purchase the
Servicer shall be entitled to receive an instrument of assignment or transfer
from the Trustee to the same extent as set forth in Section 2.02.
In the event that title to any Mortgaged Property securing a Mortgage
Loan is acquired in foreclosure or by deed in lieu of foreclosure, the deed
or certificate of sale shall be issued to the Servicer on behalf of the Trust
Fund, to the Trustee on behalf of Certificateholders, or to the Trustee's
nominee on behalf of Certificateholders.
Section 3.07. Trustee to Cooperate.
--------------------
Upon the payment in full of the Trust Balance of any Mortgage Loan
during the Rapid Amortization Period or the distribution of all Net Trust
Liquidation Proceeds with respect to any Mortgage Loan, the Servicer will
notify the Trustee by a certification (which certification shall include a
statement to the effect that all amounts received in connection with such
payment which are required to be credited to the Mortgage Loan Payment Record
pursuant to Section 3.02 have been so credited) of a Servicing Officer. Such
notification shall be made each month at the time that the Servicer delivers
the Servicing Certificate to the Trustee pursuant to Section 4.01. Upon any
such payment or distribution, the Servicer is authorized to execute, pursuant
to the authorization contained in Section 3.01, if the Loan Balance of such
Mortgage Loan equals zero, an instrument of satisfaction regarding the
related Mortgage, which instrument of satisfaction shall be recorded by the
Servicer if required by applicable law and be delivered to the Person
entitled thereto. No expenses incurred in connection with such instrument of
satisfaction shall be reimbursed from amounts at the time credited to the
Mortgage Loan Payment Record.
If the Trustee is holding the Mortgage Files, from time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan, the
Trustee shall, upon request of the Servicer and delivery to the Trustee of a
receipt signed by a Servicing Officer, release the related Mortgage File to
the Servicer and shall execute at the Servicer's direction such documents as
shall be necessary to the prosecution of any such proceedings. Such trust
receipt shall obligate the Servicer to return the Mortgage File to the
Trustee when the need therefor by the Servicer no longer exists unless the
Mortgage Loan shall be liquidated, in which case, upon receipt of a
certificate of a Servicing Officer similar to that hereinabove specified, the
receipt shall be released by the Trustee to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
delinquent or defaulted Mortgage Loan following any recordation of the
assignments of Mortgage in accordance with the provisions of this Agreement,
the Trustee shall, if so requested, assign such delinquent or defaulted
Mortgage Loan for the purpose of collection to the Servicer or to another
assignee for collection designated by the Servicer (any such assignment shall
unambiguously indicate that the assignment is for the purpose of collection
only), and, upon such assignment, such assignee for collection will thereupon
bring all required actions in its own name and otherwise enforce the terms of
the Mortgage Loan and the Servicer will deposit or credit any Net Trust
Liquidation Proceeds received with respect thereto in the Certificate Account
or the Mortgage Loan Payment Record, as the case may be. In the event that
all delinquent payments due under any such Mortgage Loan are paid by the
Mortgagor and any other defaults are cured then the Servicer shall cause the
assignee for collection to promptly reassign such Mortgage Loan to the
Trustee and return it to the place where the related Mortgage File was being
maintained.
Section 3.08. Servicing Compensation; Payment
-------------------------------
of Certain Expenses by Servicer.
-------------------------------
(a) The Servicer shall be entitled to withhold and pay to itself as
servicing compensation out of each payment received by it on account of
interest on a Mortgage Loan an amount equal to daily interest at the
Servicing Fee Rate on the Loan Balance from time to time outstanding during
the related Interest Period. Additional servicing compensation in the form
of assumption fees, annual fees, late payment charges or otherwise shall be
retained by the Servicer.
(b) The Servicer shall be required to pay all expenses incurred by it
in connection with its activities hereunder (including payment of Trustee
fees, and all other fees and expenses not expressly stated hereunder to be
for the account of the Certificateholders) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
Section 3.09. Annual Statement as to Compliance.
---------------------------------
The Servicer will deliver to the Company and the Trustee on or before
(date) of each year, beginning with the first (date) that occurs at least ___
months after the Cut-off Date, an Officers' Certificate stating, as to each
signer thereof, that (a) a review of the activities of the Servicer during
the preceding calendar year and of performance under this Agreement has been
made under such officer's supervision and (b) to the best of such officer's
knowledge, based on such review the Servicer has fulfilled all of its
obligations under this Agreement in all material respects throughout such
year, or, if there has been a default in the fulfillment of any such
obligation in any material respect, specifying each such default known to
such officer and the nature and status thereof. Copies of such statement
shall be provided to each Rating Agency and the Certificate Insurer. Copies
of such statement shall also be provided by the Servicer to any
Certificateholder upon request. If the Servicer shall fail to provide such
copies and the Trustee is aware that the Servicer has not so provided copies,
the Trustee shall provide such copies at the Servicer's expense if the
Trustee has received such statement.
Section 3.10. Annual Independent Public
-------------------------
Accountants' Servicing Report.
-----------------------------
On or before (date) of each year, beginning with the first (date) that
occurs at least ___ months after the Cut-off Date, the Servicer at its
expense shall cause a nationally recognized firm of independent public
accountants which is a member of the American Institute of Certified Public
Accountants to furnish a report to the Company and the Trustee to the effect
that all Mortgage Loans serviced by the Servicer under this Agreement were
included in the total population that was subject to selection for testing in
such firm's examination of certain documents and records and that such
examination, which has been conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers (or such other audit
or review program applicable to the Servicer), has disclosed no items of
material noncompliance with the provisions of the Uniform Single Attestation
Program for Mortgage Bankers (or such other program), except for such items
of noncompliance as shall be set forth in such report. Copies of such report
shall be provided to the Rating Agencies, the Certificate Insurer, and, upon
request, to the Certificateholders, by the Servicer, or by the Trustee at the
Servicer's expense if the Trustee has received such report and the Servicer
shall fail to provide such copies and the Trustee is aware that the Servicer
has not so provided copies.
Section 3.11. Access to Certain Documentation
-------------------------------
and Information Regarding the
-----------------------------
Mortgage Loans.
--------------
(a) The Servicer shall provide to the Trustee, the Certificate Insurer,
Investor Certificateholders which are federally insured savings and loan
associations, the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation and the supervisory agents and examiners of such office and such
corporation, access to the documentation regarding the Mortgage Loans
required by applicable regulations of the Office of Thrift Supervision, such
access being afforded without charge but only upon reasonable request and
during normal business hours at the offices of the Servicer. Nothing in this
Section 3.11 shall derogate from the obligation of the Servicer to observe
any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Servicer to provide access as provided in
this Section 3.11 as a result of such obligation shall not constitute a
breach of this Section 3.11.
(b) The Servicer shall supply information, in such form as the Trustee
shall reasonably request, to the Trustee on or before the start of the third
Business Day preceding each Distribution Date, as is required in the
Trustee's reasonable judgment to enable the Trustee to make required
distributions and to furnish the required reports to Certificateholders and
to make any draws under the Certificate Insurance Policy.
Section 3.12. Maintenance of Certain Servicing Policies.
-----------------------------------------
The Servicer shall during the term of its service as servicer maintain
in force (i) a policy or policies of insurance covering errors and omissions
in the performance of its obligations as servicer hereunder and (ii) a
fidelity bond in respect of its officers, employees or agents. Each such
policy or policies and bond shall, together, comply with the requirements
from time to time of the Federal National Mortgage Association for persons
performing servicing for mortgage loans purchased by such association;
provided, however, that if the cost of the premiums for such policy or
policies and bond in any year is greater than an amount equal to the sum of
(i) the premiums paid by the Servicer for such policy or policies and bond in
the year during which this Agreement was executed and (ii) the product of (x)
the number of full years from the date of this Agreement to such future date,
(y) 0.15 and (z) the premium amount described in clause (i) above, the policy
or policies and bond maintained by the Servicer may provide for coverage
which does not satisfy the requirements of the Federal National Mortgage
Association so long as the premiums paid by the Servicer therefor approximate
such sum.
Section 3.13. Reports to the Securities and Exchange Commission.
-------------------------------------- ----------
The Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission
thereunder.
Section 3.14. Information Required by the Internal Revenue Service
--------------------------------------------
Generally and Reports of
------------------------
Foreclosures and Abandonments of
--------------------------------
Mortgaged Property.
------------------
In addition to the requirements set forth in Section 3.01, the Servicer
shall prepare and deliver, or cause to be prepared and delivered, to the
Trustee for the Trustee's signature, and shall file or cause to be filed, all
federal and state information reports when and as required by all applicable
state and federal income tax laws, including, without limitation, reports
required by Section 6050J of the Code.
Section 3.15. Tax Returns.
-----------
In accordance with Section 2.07 hereof, the Trustee shall not file any
federal, state or local income tax return for the Trust or apply for a
taxpayer identification number on behalf of the Trust. The Transferor shall
treat the Mortgage Loans as its property for all federal, state and local
income and franchise tax purposes and shall report all income earned thereon
(including amounts payable as fees to the Servicer) as its income for federal
income tax purposes. In the event the Trust shall be required pursuant to an
audit or administrative proceeding or change in applicable regulations to
file federal, state, local income or franchise tax returns, the Servicer
shall prepare and deliver, or cause to be prepared and delivered, to the
Trustee for filing any tax returns required to filed by the Trust; the
Servicer, as agent on behalf of the Trust, shall promptly sign such returns
and such returns shall be filed by the Servicer. The Servicer shall also
prepare or shall cause to be prepared all tax information required by and to
be distributed to Certificateholders. In no event shall the Trustee or the
Servicer be liable for any liabilities, costs or expenses of the Trust, the
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation federal, state or local income, franchise or
excise taxes or any other tax imposed on or measured by income (or any
interest or penalty with respect thereto or arising from a failure to comply
therewith).
Section 3.16. Further Assurances.
------------------
The Servicer shall provide any certifications and other information
reasonably requested by the Trustee.
ARTICLE IV
Servicing Certificate; Certificate Account Deposit
Section 4.01. Servicing Certificate.
---------------------
With respect to each Distribution Date, not later than the second
Business Day prior to each Distribution Date, the Servicer shall deliver to
the Trustee, the Certificate Insurer and to the Rating Agencies a Servicing
Certificate stating the related Collection Period, Distribution Date, the
series number of the Certificates, the date of this Agreement, and including,
but not limited to, the following information:
(i) the aggregate amount of Trust Interest Collections for such
Collection Period (net of any amount included therein which has
been retained by the Servicer prior to such Distribution Date in
reimbursement for any portion of a Monthly Advance made in respect
of the related Mortgage Loan as permitted by clause (iii) of
Section 3.03);
(ii) the aggregate amount of Trust Principal Collections for such
Collection Period;
(iii) the aggregate of any Trust Insurance Proceeds received during the
related Collection Period (including, for this purpose, any amounts
required to be credited by the Servicer pursuant to the last
sentence of Section 3.04(b));
(iv) the aggregate of any Net Trust Liquidation Proceeds received during
the related Collection Period;
(v) the amount of any Transfer Deposit Amount paid by the Transferor or
Servicer pursuant to Section 2.02, 2.04, 3.01 or 3.06;
(vi) the Monthly Advance for such Distribution Date;
(vii) the Available Distribution Amount for such Distribution Date;
(viii) any Monthly Advance Reimbursement Amount for such Distribution
Date;
(ix) the Floating Allocation Percentage and the Fixed Allocation
Percentage for such Distribution Date;
(x) the Certificate Interest Collections for such Distribution
Date;
(xi) the Certificate Formula Interest for the related Accrual
Period, together with a specification as to the Certificate
Rate applicable to such Distribution Date and whether it is
derived from LIBOR or the Alternate Certificate Rate;
(xii) the Unpaid Certificate Interest Shortfall, if any;
(xiii) the portion of the Unpaid Certificate Interest Shortfall, if
any, to be distributed on such Distribution Date;
(xiv) the amount of Unpaid Certificate Interest Shortfall, if any,
to remain after the distribution on such Distribution Date;
(xv) the Transferor Interest Collections and Transferor Principal
Collections for such Distribution Date;
(xvi) the Accelerated Principal Distribution Amount for such
Distribution Date;
(xvii) the Scheduled Principal Collections Payment, separately
stating the components thereof;
(xviii) the aggregate of the Liquidation Loss Amounts and the Investor
Loss Amount for such Distribution Date;
(xix) the aggregate amount, if any, of Investor Loss Reduction
Amounts for previous Distribution Dates that have not been
previously reimbursed to Investor Certificateholders pursuant
to Section 5.01(a)(iv);
(xx) the Pool Balance of the Mortgage Loans, as of the end of the
preceding Collection Period;
(xxi) the Invested Amount as of the end of the preceding Collection
Period;
(xxii) the Required Amount for such Distribution Date;
(xxiii) the Transferor Subordinated Amount for such Distribution Date;
(xxiv) the Overcollateralization Amount, if any, after giving effect
to the distribution to be made on such Distribution Date;
(xxv) the Certificate Principal Balance and Pool Factor after giving
effect to the distribution on such Distribution Date;
(xxvi) the Transferor Certificate Principal Balance after giving
effect to the distribution on such Distribution Date;
(xxvii) the aggregate amount of Additional Balances created during the
previous Collection Period;
(xxviii) whether a Rapid Amortization Event has occurred since the
prior Distribution Date, specifying each such Rapid
Amortization Event if one has occurred;
(xxix) the Insured Amount, if any, for such Distribution Date;
(xxx) the Reimbursement Amount, if any, for such Distribution Date;
(xxxi) the amount to be distributed to the Transferor pursuant to
Section 5.01(a)(vii);
(xxxii) the number and aggregate Trust Balances of Mortgage Loans
delinquent (a) 31 to 60 days, (b) 61 to 90 days and (c) 91 days
or more, respectively, as of the end of the related Collection
Period;
(xxxiii) the number and aggregate Trust Balances of all Mortgage Loans
in foreclosure as of the end of the related Collection Period;
(xxxiv) the book value (within the meaning of 12 C.F.R. Section571.13
or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxxv) the aggregate of the Trust Balances as of the end of the
related Collection Period of the Mortgage Loans which became
Liquidated Mortgage Loans during such Collection Period;
(xxxvi) the cumulative amount of Liquidation Loss Amounts for such
Distribution Date and all prior Distribution Dates; and
(xxxvii) the number and aggregate Trust Balances of Mortgage Loans to
be retransferred from the Trust Fund on the related Retransfer
Date and the cumulative number and aggregate Trust Balance of
all Mortgage Loans that have been retransferred on all prior
Retransfer Dates.
Section 4.02. Certificate Account.
-------------------
The Servicer shall establish and maintain with the Trustee the
Certificate Account as a single, separate account for the benefit of the
Holders of Certificates. The Servicer shall remit to the Trustee by wire
transfer of immediately available funds for deposit into the Certificate
Account, not later than 1:00 p.m. New York City time on the Business Day
prior to each Distribution Date, an amount equal to the aggregate of the
amounts specified in clauses (i) - (v), inclusive, of the Servicing
Certificate furnished to the Trustee pursuant to Section 4.01. The Servicer
shall include with such deposit any Monthly Advance for such Distribution
Date as specified in the Servicing Certificate.
On each Distribution Date upon which there is a Monthly Advance
Reimbursement Amount, upon the request of the Servicer, the Trustee shall
withdraw from the Certificate Account for the account of the Servicer an
amount equal to the Monthly Advance Reimbursement Amount, but not in excess
of (i) the Available Distribution Amount (without taking into account any
portion thereof representing payments of Trust Interest Collections and Trust
Principal Collections allocable to the Transferor and payments of any Insured
Amounts) minus (ii) the sum of the Investor Certificate Distribution Amount,
the Premium Amount and the Reimbursement Amount.
At the direction of the Servicer signed by a Servicing Officer, the
Trustee shall invest any funds in the Certificate Account in Permitted
Investments specified in such direction (including (but not limited to)
obligations of the Trustee or any of its affiliates, if such obligations
otherwise qualify as Permitted Investments). Such direction shall be in
writing, shall designate specific investments and shall certify that the
specified investments constitute Permitted Investments. Each investment
shall mature not later than the Business Day next preceding the Distribution
Date following the date of such investment (unless the obligor in respect of
such investment is the Trustee, in which case such investment may mature on
such Distribution Date) and shall not be sold or disposed of prior to its
maturity. All income and gain realized from any such investment shall be for
the benefit of the Servicer. The Trustee shall remit all such income and
gain to the Servicer on each Distribution Date. The amount of any losses
incurred in respect of any such investments shall be deposited in the
Certificate Account by the Servicer out of its own funds immediately as
realized. The Trustee shall not be liable for any loss incurred in connection
with any such investment except with respect to any investment where the
Trustee is the obligor thereon.
[Section 4.03. Payments Under Support Agreement.
--------------------------------
In the event that the Servicer does not, on or before ____ P.M. New York
City time on the Business Day preceding a Distribution Date, remit to the
Trustee for deposit in the Certificate Account the respective amounts
required to be remitted by it pursuant to Section 4.02, the Trustee, no later
than _____ P.M. on such day, shall make a written demand pursuant to the
Support Agreement upon the Indirect Parent for any and all amounts required
to be deposited in the Certificate Account by it pursuant thereto.
To the extent of any payment by the Indirect Parent under the Support
Agreement, the Indirect Parent shall have all rights of the Servicer under
this Agreement to be reimbursed for such payment made by the Indirect Parent,
including, without limitation, rights in and to any Mortgage Loan or payment
with respect to any Mortgage Loan or the proceeds thereof. In addition, the
Indirect Parent shall be subrogated to the rights of Investor
Certificateholders to the extent of payments under the Support Agreement.
Each of the Transferor, the Servicer and the Trustee agrees to such
subrogation and, further, agrees to execute such instruments and to take such
actions as, in the sole judgment of the Indirect Parent, as evidenced in
writing to the Transferor, the Servicer and the Trustee, are necessary to
evidence such subrogation.
(Section 4.04. The Certificate Insurance Policy.
--------------------------------
(a) If, on any Determination Date, the statement delivered to the
Trustee pursuant to Section 4.01 indicates that there will be the payment of
an Insured Amount for the related Distribution Date, the Trustee shall
complete the Notice for Payment (as defined and included in the form
specified by the Certificate Insurance Policy). The Trustee shall submit
such notice to the Certificate Insurer no later than 12:00 noon New York City
time on the Business Day preceding such Distribution Date as a claim for an
Insured Payment.
(b) Upon receipt of Insured Payments from the Certificate Insurer on
behalf of Investor Certificateholders, the Trustee shall deposit such Insured
Payments in the Certificate Account and shall distribute such Insured
Payments, or the proceeds thereof, in accordance with Section 5.01(a);
provided that Insured Payments shall be applied and distributed solely to
Holders of the Investor Certificates and any Preference Amount shall be
distributed solely to the Holders of the Investor Certificates.
(c) The Trustee shall (i) receive as attorney-in-fact of each Holder of
Investor Certificates receiving any Insured Payment from the Certificate
Insurer and (ii) disburse the same to the Holders of such Certificates as set
forth in Section 5.01(a). Insured Payments disbursed by the Trustee from
proceeds of a Certificate Insurance Policy shall not be considered payment by
the Trust Fund with respect to such Certificates, and the Certificate Insurer
shall be entitled to receive the related Reimbursement Amount pursuant to
Section 5.01(a)(v). The Trustee hereby agrees on behalf of each Investor
Certificateholder and the Trust Fund for the benefit of the Certificate
Insurer that it recognizes that to the extent the Certificate Insurer makes
Insured Payments, either directly or indirectly (as by paying through the
Trustee), to the Holders of such Certificates, the Certificate Insurer will
be entitled to receive the related Reimbursement Amount pursuant to Section
5.01(a)(v).
(d) Subject only to the priority of payment provisions of this
Agreement, each of the Transferor, the Servicer and the Trustee acknowledges
that, to the extent of any payment made by the Certificate Insurer pursuant
to the Certificate Insurance Policy, the Certificate Insurer is to be fully
subrogated to the extent of such payment and any additional interest due on
any late payment, to the rights of the Holders of the Investor Certificates
to any moneys paid or payable in respect of the Investor Certificates under
this Agreement or otherwise. Each of the Transferor, the Servicer and the
Trustee agrees to such subrogation and, further, agrees to execute such
instruments and to take such actions as, in the sole judgment of the
Certificate Insurer, as evidenced in writing to the Transferor, the Servicer
and the Trustee, are necessary to evidence such subrogation and, subject to
the priority of payment provisions of this Agreement, to perfect the rights
of the Certificate Insurer to receive any moneys paid or payable in respect
of the Investor Certificates under this Agreement or otherwise.)]
ARTICLE V
Payments and Statements to
Certificateholders
Section 5.01. Distributions.
-------------
(a) Distribution of Certificate Interest Collections. On each
------------------------------------------------
Distribution Date, the Trustee shall, based upon information set forth in the
Servicing Certificate, distribute out of the Certificate Account to the
extent of Certificate Interest Collections collected during the related
Collection Period and any Monthly Advance for such Distribution Date
(including any amount paid by the Indirect Parent under the Support Agreement
pursuant to Section 4.03), in the following amounts and order of priority to
the following Persons:
(i) to the Certificate Insurer, the Premium Amount;
(ii) to the Investor Certificateholders as interest, the
Certificate Formula Interest and then any Unpaid Certificate
Interest Shortfall;
(iii) to the Investor Certificateholders as principal in reduction
of the Certificate Principal Balance, any Investor Loss Amount
for such Distribution Date;
(iv) to the Investor Certificateholders as principal in reduction
of the Certificate Principal Balance, the aggregate amount of
any Investor Loss Reduction Amounts for previous Distribution
Dates that have not been previously reimbursed to Investor
Certificateholders pursuant to this clause (iv);
(v) to the Certificate Insurer, any Reimbursement Amount;
(vi) to the Investor Certificateholders as principal in reduction
of the Certificate Principal Balance, any Accelerated
Principal Distribution Amount; and
(vii) to the Transferor, any remaining amount.
provided, however, that, notwithstanding the above prioritization of the
distribution of the Certificate Interest Collections on deposit in the
Certificate Account, on each Distribution Date any Insured Payment received
by the Trustee and deposited in the Certificate Account shall be applied by
the Trustee solely for the benefit of the Investor Certificateholders.
(b) Distribution of Trust Principal Collections. Subject to Section
-------------------------------------------
11.02(b) and except on the Stated Maturity Date, on each Distribution Date,
the Trustee shall distribute out of the Certificate Account to Investor
Certificateholders the Trust Principal Collections up to the Scheduled
Principal Collections Payment (but not in excess of the Certificate Principal
Balance). On the Stated Maturity Date, the Trustee shall distribute Trust
Principal Collections to the Investor Certificateholders up to the
Certificate Principal Balance.
(c) Application of Transferor Subordinated Amount. (i) If, after
---------------------------------------------
applying Certificate Interest Collections as provided in Section 5.01(a)
above, any amounts payable pursuant to clauses (i) through (iv), inclusive,
of Section 5.01(a) remain unpaid, the Trustee shall, based on information set
forth in the Servicing Certificate, apply Transferor Interest Collections and
Transferor Principal Collections (but only up to the Transferor Subordinated
Amount prior to such application) to make such payments and the Transferor
Subordinated Amount shall be reduced in accordance with clause (i)(a) of the
definition thereof to the extent of such application of funds.
(ii) If Transferor Interest Collections and Transferor Principal
Collections as so applied in the preceding paragraph are insufficient to
cover the amounts payable pursuant to clauses (iii) and (iv) of Section
5.01(a) on such Distribution Date, then the remaining Investor Loss Amount
(but only to the extent of the remaining Transferor Subordinated Amount on
such Distribution Date) shall be reallocated to the Transferor (i.e., in
accordance with the definition of Aggregate Investor Loss Amount) and the
Transferor Subordinated Amount shall be reduced in accordance with clause
(i)(b) of the definition thereof to the extent of such reallocation to the
Transferor.
(d) Distribution of the Insured Payment. With respect to any
-----------------------------------
Distribution Date, to the extent that:
(i) the amount on deposit in the Certificate Account on such
Distribution Date and available to be distributed pursuant to
Section 5.01(a), together with the amount of Transferor Interest
Collections and Transferor Principal Collections to be applied
pursuant to Section 5.01(c), are less than the amount payable
pursuant to Section 5.01(a)(ii) on such Distribution Date, plus
(ii) after the Transferor Subordinated Amount has been reduced to zero,
the amount, if any, by which the Certificate Principal Balance as
of such Distribution Date (after giving effect to all other amounts
distributable and allocable to principal on the Investor
Certificates on such Distribution Date) exceeds the Invested Amount
as of such Distribution Date (after giving effect to all other
amounts distributable and allocable to principal on the Investor
Certificates on such Distribution Date), plus
(iii) any portion of the Certificate Principal Balance remains
outstanding on the Stated Maturity Date (after giving effect to all
other amounts distributable and allocable to principal on the
Investor Certificates on such Distribution Date),
the Trustee will make such payments (the "Deficiency Amount") to Investor
Certificateholders from the Insured Payment pursuant to Section 4.04.
Notwithstanding the foregoing, the Certificate Insurance Policy (i)
shall not cover any such Deficiency Amount on any Dissolution Distribution
Date and (ii) shall not be available to cover any insufficiency in the
distributions required to be made to Investor Certificateholders pursuant to
Section 11.02(b).
The aggregate amount of principal distributed to Investor
Certificateholders under Article V of this Agreement shall not exceed the
Original Certificate Principal Balance.
(e) Method of Distribution. On each Distribution Date, the Trustee
----------------------
shall distribute to each Investor Certificateholder of record on the related
Record Date (other than as provided in Section 10.01 respecting the final
distribution) by check mailed to such Certificateholder at the address
appearing in the Certificate Register, or upon written request of a Holder of
a Investor Certificate received by the Trustee at least five Business Days
prior to the related Record Date, by wire transfer (but only if such Certifi-
cateholder is the Depository or such Certificateholder owns of record one or
more Investor Certificates which have principal denominations aggregating at
least $5,000,000), or by such other means of payment as such Certifi-
cateholder and the Trustee shall agree. Distributions among Investor
Certificateholders shall be made in proportion to the Percentage Interests
evidenced by the Investor Certificates held by such Investor
Certificateholders.
(f) Final Distribution. Except as otherwise provided in Section
------------------
10.01 and Section 11.02, when the Trustee expects that the final distribution
with respect to the Investor Certificates will be made on the next
Distribution Date, the Trustee shall, no later than three (3) days after the
related Determination Date, mail to each Holder on such date of the Investor
Certificates a notice to the effect that: (i) the Trustee expects that the
final distribution with respect to the Investor Certificates will be made on
such Distribution Date but only upon presentation and surrender of such
Certificates at the office of the Trustee or as otherwise specified therein,
and (ii) no interest shall accrue on the Investor Certificates from and after
the end of the related Interest Accrual Period. In the event that
Certificateholders do not surrender their Certificates for final
cancellation, the Trustee shall follow procedures comparable to the
arrangements set forth in Section 10.01(e).
(g) Distributions on Book-Entry Certificates. Each distribution
----------------------------------------
with respect to a Book-Entry Certificate shall be paid to the Depository,
which shall credit the amount of such distribution to the accounts of its
Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution
to the Certificate Owners that it represents and to each indirect
participating brokerage firm (a "brokerage firm" or "indirect participating
firm") for which it acts as agent. Each brokerage firm shall be responsible
for disbursing funds to the Certificate Owners that it represents. All such
credits and disbursements with respect to a Book-Entry Certificate are to be
made by the Depository and the Depository Participants in accordance with the
provisions of the Investor Certificates. None of the Trustee, the Transferor
nor the Servicer shall have any responsibility therefore except as otherwise
provided by applicable law.
(h) Distributions to Holders of Transferor Certificates. On each
---------------------------------------------------
Distribution Date, the Trustee shall, based upon the information set forth in
the Servicing Certificate for such Distribution Date, distribute to the
Transferor the Transferor Interest Collections and Transferor Principal
Collections that are not required to be distributed to the Investor
Certificateholders pursuant to Section 5.01(c) on such Distribution Date;
provided that collections allocable to the Transferor Certificates will be
distributed to the Transferor only to the extent that such distribution will
not reduce the amount of the Transferor Certificate Principal Balance as of
such Distribution Date below the Minimum Transferor Interest. Amounts not
distributed to the Transferor because of such limitations will be retained in
the Certificate Account until the Transferor Certificate Principal Balance
exceeds the Minimum Transferor Interest, at which time such excess shall be
released to the Transferor. If any such amounts are still retained in the
Certificate Account upon the commencement of the Rapid Amortization Period,
such amounts will be paid to the Investor Certificateholders as a reduction
of the Investor Certificate Principal Balance.
Section 5.02. Certain Calculations by the Trustee.
-----------------------------------
On the LIBOR Business Day next preceding each Distribution Date the
Trustee shall determine LIBOR for the next Accrual Period. The Trustee shall
promptly advise the Servicer of such determination by tested telex or telefax
to the address provided herein.
The determination of LIBOR by the Trustee for each Accrual Period
(excluding the first Accrual Period) shall (in the absence of manifest error)
be final, conclusive and binding upon the Certificateholders, the Servicer
and any of their respective partners, beneficiaries, agents, officers,
directors, employees or successors or assigns.
Section 5.03. Statements to Certificateholders.
--------------------------------
Not later than the second Business Day prior to each Distribution Date,
the Servicer shall deliver to the Trustee for mailing to each Holder of a
Investor Certificate and the Certificate Insurer a statement with respect to
such Distribution Date setting forth:
(i) the Investor Certificate Distribution Amount;
(ii) the amount of interest included in such distribution and the
related Certificate Rate;
(iii) the amount, if any, of any Unpaid Certificate Interest
Shortfall in such distribution;
(iv) the amount, if any, of the remaining Unpaid Certificate
Interest Shortfall after giving effect to such distribution;
(v) the amount, if any, of principal in such distribution,
separately stating the components thereof;
(vi) the amount, if any, of the reimbursement of previous
Investor Loss Reduction Amounts in such distribution;
(vii) the amount, if any, of the aggregate of unreimbursed
Investor Loss Reduction Amounts after giving effect to such
distribution;
(viii) the Investor Floating Allocation Percentage for such
Distribution Date;
(ix) the Invested Amount, the Certificate Principal Balance and
the Pool Factor, each after giving effect to such distribution;
(x) the Required Amount for such Distribution Date,
(xi) the Transferor Subordinated Amount after giving effect to
such distribution,
(xii) the Pool Balance of the Mortgage Loans as of the end of the
preceding Collection Period;
(xiii) the Overcollateralization Amount, if any;
(xiv) the Servicing Fee for such Distribution Date;
(xv) the amount of any Monthly Advance by the Servicer;
(xvi) the number and aggregate Trust Balances of Mortgage Loans
delinquent (a) 31 to 60 days, (b) 61 to 90 days and (c) 91 days or more,
respectively, as of the end of the preceding Collection Period;
(xvii) the number and aggregate Trust Balances of the Mortgage
Loans in foreclosure as of the end of the preceding Collection Period;
(xviii) the book value (within the meaning of 12 C.F.R.
Section 571.13 or comparable provision) of any real estate acquired
through foreclosure or grant of a deed in lieu of foreclosure; and
(xix) the amount of any Insured Payments by the Certificate
Insurer;
(xx) the number and aggregate Trust Balance of Mortgage Loans to
be retransferred from the Trust Fund on the related Retransfer Date, and
the cumulative number and aggregate Trust Balance of all Mortgage Loans
that have been retransferred on all prior Retransfer Dates.
In the case of information furnished pursuant to clauses (ii)
through (vii) above, the amounts shall be expressed as a dollar amount per
Investor Certificate with a $1,000 denomination.
Within __ days after the end of each calendar year, the Servicer shall
deliver to the Trustee for mailing to each Person who at any time during the
calendar year was the Holder of a Investor Certificate and to the Certificate
Insurer a statement containing the information set forth in clauses (ii) and
(v) above aggregated for such calendar year or, in the case of each Person
who was a Certificateholder for a portion of such calendar year, setting
forth such information for each month thereof. Such obligation of the
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Servicer
pursuant to any requirements of the Code.
The Trustee shall prepare or cause to be prepared (based on information
provided to it by the Servicer and in a manner consistent with the treatment
of the Investor Certificates as indebtedness) Internal Revenue Service Form
1099 (or any successor form) and any other tax forms required to be filed or
furnished to Certificateholders in respect of distributions by the Trustee on
the Investor Certificates (e.g., Internal Revenue Service Form 1099-OID) and
shall file and distribute such forms as required by law.
Section 5.04. Rights of Certificateholders.
----------------------------
The Investor Certificates shall represent fractional undivided interests
in the Trust Fund, including the benefits of the Certificate Account and the
right to receive Certificate Interest Collections, Principal Collections and
other amounts at the times and in the amounts specified in this Agreement;
the Transferor Certificates shall represent the remaining interest in the
Trust Fund.
ARTICLE VI
The Certificates
Section 6.01. The Certificates. The Investor Certificates shall be
----------------
substantially in the forms set forth in Exhibits A and C, and the Transferor
Certificates shall be substantially in the forms set forth in Exhibits B and
D, and shall, on original issue, be executed, countersigned and delivered by
the Trustee to or upon the order of the Transferor concurrently with the
transfer and assignment to the Trustee of the Trust Fund. The Investor
Certificates shall be initially evidenced by one or more certificates
representing the entire Original Certificate Principal Balance. Beneficial
ownership of the Investor Certificates that are Book-Entry Certificates may
be held in minimum dollar denominations of $25,000 and integral multiples of
$1,000 in excess thereof (except as provided in the following paragraph).
The sum of the denominations of all outstanding Investor Certificates shall
equal the Original Certificate Principal Balance. The Transferor
Certificates shall be issuable as one or more certificates representing the
entire interest in the assets of the trust other than that represented by the
Investor Certificates and shall initially be issued to the Transferor.
Beneficial ownership of the Investor Certificates that are Book-Entry
Certificates may be held in minimum dollar denominations of less than $25,000
and integral multiples of $1,000 in excess thereof in the case of Persons who
(i) are sophisticated, institutional investors having knowledge and
experience in financial and business matters, (ii) are purchasing on behalf
of, and serving as investment advisor or manager for, one or more Persons who
are sophisticated, institutional investors having knowledge and experience in
financial and business matters, (iii) are purchasing Certificates which have,
in the aggregate, an Original Certificate Principal Balance in excess of
$25,000, and (iv) have requested that Investor Certificates be issued in such
lower minimum denominations and registered in the name of Persons meeting the
criteria in clause (ii).
The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer under its seal imprinted
thereon. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures were affixed,
authorized to sign on behalf of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to be so
authorized prior to the authentication and delivery of such Certificates or
did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless such Certificate shall have been manually countersigned by
the Trustee substantially in the form provided for herein, and such
countersignature upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
countersignature. Subject to Section 6.02(c), the Investor Certificates shall
be Book-Entry Certificates. The Transferor Certificates shall not be
Book-Entry Certificates.
Section 6.02. Registration of Transfer and
----------------------------
Exchange of Certificates; Registrar.
-----------------------------------
(a) The Certificate Registrar shall cause to be kept at the Corporate
Trust Office a Certificate Register in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for
the registration of Certificates and of Transfers and exchanges of Certifi-
cates as herein provided. The Trustee shall initially serve as Certificate
Registrar for the purpose of registering Investor Certificates and transfers
and exchanges of Investor Certificates as herein provided.
Upon surrender for registration of Transfer of any Investor Certificate
at any office or agency of the Trustee maintained for such purpose pursuant
to the foregoing paragraph, the Trustee shall execute, countersign and de-
liver, in the name of the designated Transferee or Transferees, one or more
new Investor Certificates of the same aggregate Percentage Interest.
At the option of the Investor Certificateholders, Investor Certificates
may be exchanged for other Investor Certificates of authorized denominations
of the same aggregate Percentage Interest, upon surrender of the Investor
Certificates to be exchanged at any such office or agency. Whenever any
Investor Certificates are so surrendered for exchange the Trustee shall
execute, countersign and deliver the Investor Certificates which the Cer-
tificateholder making the exchange is entitled to receive. Every Investor
Certificate presented or surrendered for Transfer or exchange shall (if so
required by the Trustee) be duly endorsed by, or be accompanied by a written
instrument of Transfer in form satisfactory to the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any Transfer or exchange of Investor
Certificates, but the Trustee may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with
any Transfer or exchange of Investor Certificates.
All Certificates surrendered for Transfer and exchange shall be
cancelled by the Trustee.
(b) Except as provided in Section 6.02(d), the Book-Entry Certificates
shall at all times remain registered in the name of the Depository or its
nominee and at all times: (i) registration of the Investor Certificates may
not be transferred by the Trustee except to another Depository; (ii) the
Depository shall maintain book-entry records with respect to the Certificate
Owners and with respect to ownership and transfers of such Investor
Certificates; (iii) ownership and transfers of registration of the Investor
Certificates on the books of the Depository shall be governed by applicable
rules established by the Depository; (iv) the Depository may collect its
usual and customary fees, charges and expenses from its Depository
Participants; (v) the Trustee shall deal with the Depository, Depository
Participants and indirect participating firms as representatives of the
Certificate Owners of the Investor Certificates for purposes of exercising
the rights of Holders under this Agreement, and requests and directions for
and votes of such representatives shall not be deemed to be inconsistent if
they are made with respect to different Certificate Owners; and (vi) the
Trustee may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its Depository Participants and
furnished by the Depository Participants with respect to indirect
participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owner. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
Whenever notice or other communication to the Investor
Certificateholders is required under this Agreement, unless and until
Definitive Certificates shall have been issued to Certificate Owners pursuant
to Section 6.02(d), the Trustee shall give to the Depository all such notices
and communications specified herein to be given to Certificateholders.
(c) If (x)(i) the Servicer advises the Trustee and the Certificate
Insurer in writing that the Depository is no longer willing or able to
properly discharge its responsibilities as Depository, and (ii) the Servicer
is unable to locate a qualified successor, (y) the Servicer at its option may
advise the Trustee in writing that it elects to terminate the book-entry
system through the Depository or (z) after the occurrence of an Event of
Default, Certificate Owners representing Percentage Interests aggregating not
less than ___% of the aggregate Percentage Interests of the Investor
Certificates together advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry
system through the Depository is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through
the Depository, of the occurrence of any such event and of the availability
of definitive, fully registered Investor Certificates (the "Definitive
Certificates") to Certificate Owners requesting the same. Upon surrender to
the Trustee of the Investor Certificates by the Depository, accompanied by
registration instructions from the Depository for registration, the Trustee
shall, at the expense of the Servicer, issue the Definitive Certificates.
The Definitive Certificates shall be issued in minimum denominations of
$25,000 and integral multiples of $1,000 in excess thereof, except that any
Investor Certificate that was represented by a Book-Entry Certificate in an
amount less than $25,000 immediately prior to the issuance of a Definitive
Certificate pursuant to the second paragraph of Section 6.01 shall be issued
in minimum denomination equal to the amount represented by such Book-Entry
Certificate and shall be subject to the same restrictions on transfer set
forth in the second paragraph of Section 6.01. Neither the Servicer nor the
Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Certificates all references
herein to obligations imposed upon or to be performed by the Depository shall
be deemed to be imposed upon and performed by the Trustee, to the extent
applicable with respect to such Definitive Certificates and the Trustee shall
recognize the Holders of the Definitive Certificates as Certificateholders
hereunder.
Section 6.03. Mutilated, Destroyed, Lost
--------------------------
or Stolen Certificates.
----------------------
If (i) any mutilated Certificate is surrendered to the Trustee or the
Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate, and (ii) there is delivered to the Trustee, the
Servicer and the Transferor such security or indemnity as may be required by
them to save each of them harmless, then, in the absence of notice to the
Trustee that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall execute, countersign and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like tenor, Class and Percentage Interest. Upon the issuance of any new
Certificate under this Section, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses
of the Trustee) connected therewith. Any new Certificate issued pursuant to
this Section shall constitute complete and indefeasible evidence of ownership
in the Trust Fund, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.
Section 6.04. Persons Deemed Owners.
---------------------
The Servicer, the Transferor, the Certificate Insurer, the Trustee and
any agent of the Servicer, the Transferor or the Trustee may treat the Person
in whose name any Certificate is registered as the owner of such Certificate
for the purpose of receiving distributions pursuant to Section 5.01 and for
all other purposes whatsoever, and neither the Servicer, the Transferor, the
Certificate Insurer, the Trustee nor any agent of the Servicer, the
Transferor, the Certificate Insurer or the Trustee shall be affected by
notice to the contrary.
Section 6.05. Restrictions on Transfer
------------------------
of Transferor Certificates.
--------------------------
(a) The Transferor Certificates shall be assigned, transferred,
exchanged, pledged, financed, hypothecated or otherwise conveyed
(collectively, for purposes of this Section 6.05 and any other Section
referring to the Transferor Certificates, "transferred" or a "transfer") only
in accordance with this Section 6.05.
(b) No transfer of a Transferor Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act
of 1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. The Trustee and the Servicer shall
require a written Opinion of Counsel acceptable to and in form and substance
satisfactory to the Trustee and the Servicer that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from which Act and laws or is being made pursuant to said Act and
laws, which Opinion of Counsel shall not be an expense of the Trustee or the
Servicer, and the Trustee and the Servicer shall require the transferee to
execute an investment letter acceptable to and in form and substance
satisfactory to the Trustee and the Servicer certifying to the Trustee and
the Servicer the facts surrounding such transfer, which Investment letter
shall not be an expense of the Trustee or the Servicer; provided that such
Opinion of Counsel shall not be required in the case of transfers by or to
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an affiliate thereof.
The Holder of a Transferor Certificate desiring to effect such transfer
shall, and does hereby agree to, indemnify the Trustee, the Servicer and the
Certificate Insurer against any liability that may result if the transfer is
not so exempt or if not made in accordance with such federal and state laws.
(c) The Transferor Certificates and any interest therein shall not be
transferred except upon satisfaction of the following conditions precedent:
(i) the Person that acquires a Transferor Certificate shall (A) be organized
and existing under the laws of the United States of America or any state or
the district of Columbia thereof (B) expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, the performance
of every covenant and obligation of the Transferor hereunder with respect to
the assets evidenced by the Transferor Certificates, and (C) as part of its
acquisition of a Transferor Certificate, acquire all rights of the related
Transferor or any transferee under this Section 6.05(c) to amounts payable to
such Transferor or such transferee under Sections 5.01(a)(vii) and 5.01(g),
(ii) the Transferor shall deliver to the Trustee an Officer's Certificate
stating that such transfer and such supplemental agreement comply with this
Section 6.05(c) and that all conditions precedent provided by this Section
6.05(c) have been complied with and an Opinion of Counsel stating that all
conditions precedent provided by this Section 6.05(c) have been complied
with, and the Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters set forth
therein and shall incur no liability in so relying; (iii) the Transferor
shall deliver to the Trustee a letter from each Rating Agency confirming that
its rating of the Investor Certificates, after giving effect to such transfer
without taking into account the Certificate Insurance Policy, will not be
reduced or withdrawn; (iv) the Transferor shall deliver to the Trustee an
Opinion of Counsel to the effect that (a) such transfer will not adversely
affect the treatment of the Investor Certificates after such transfer as debt
for federal and applicable state income tax purposes, (b) such transfer will
not result in the Trust being subject to tax at the entity level for federal
or applicable state tax purposes, (c) such transfer will not have any
material adverse impact on the federal or applicable state income taxation of
an Investor Certificateholder or any Certificate Owner and (d) such transfer
will not result in the arrangement created by this agreement or any "portion"
of the assets being treated as a taxable mortgage pool as defined in Section
7701(i) of the Code; (v) all filings and other actions necessary to continue
the perfection of the interest of the Trust in the assets and the other
property conveyed hereunder shall have been taken or made and (vi) the
transferee shall have assumed the obligations of the Transferor pursuant to
Section 7.06 hereof. Notwithstanding the foregoing, the requirement set
forth in subclause (i)(A) of this Section 6.05(c) shall not apply in the
event the Trustee shall have received a letter from each Rating Agency
confirming that its rating of the Investor Certificates, after giving effect
to a proposed transfer to a Person that does not meet the requirement set
forth in subclause (i)(A) without taking into account the Certificate
Insurance Policy, shall not be reduced or withdrawn.
Section 6.06. Actions of Certificateholders.
-----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Certificateholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Certificateholders
in person or by its agent duly appointed in writing; and except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where required,
to the Transferor, the Certificate Insurer or the Servicer. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Agreement and conclusive in favor
of the Trustee, the Transferor, the Certificate Insurer and the Servicer, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Certificateholder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by a Certificateholder shall bind every Holder of
every Certificate issued upon the registration of Transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, or omitted
to be done, by the Trustee, the Transferor or the Servicer in reliance
thereon, whether or not notation of such action is made upon such
Certificate.
(d) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
(e) The ownership of Certificates shall be proved by the Certificate
Register.
ARTICLE VII
The Servicer and the Transferor
Section 7.01. Liability of the Servicer.
-------------------------
The Servicer shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by the Servicer
herein.
Section 7.02. Merger or Consolidation of,
---------------------------
or Assumption of the Obligations
--------------------------------
of, the Servicer or Transferor.
------------------------------
Any corporation into which the Servicer or Transferor may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer or Transferor shall be a party, or any
corporation succeeding to the business of the Servicer or Transferor, or any
corporation, more than ___% of the voting stock of which is, directly or
indirectly, owned by the Indirect Parent, which executes an agreement of
assumption to perform every obligation of the Servicer or Transferor
hereunder, shall be the successor of the Servicer or Transferor hereunder,
without the execution or filing of any paper or any further act on the part
of any of the parties hereto, anything herein to the contrary
notwithstanding.
Notwithstanding anything to the contrary contained in this Section 7.02
or in Section 7.04, the Servicer may assign its rights and delegate its
duties and obligations under this Agreement; provided that (i) the purchaser
or transferee accepting such assignment or delegation shall be a Person
reasonably satisfactory to the Trustee and which shall be qualified to
service mortgage loans for the Federal National Mortgage Association, and
shall execute and deliver to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
Person of the due and punctual performance and observance of each covenant
and condition to be performed or observed by the Servicer under this
Agreement from and after the date of such agreement; and (ii) each Rating
Agency's rating of the Investor Certificates in effect immediately prior to
such assignment, sale or transfer will not be qualified, downgraded or
withdrawn as a result of such assignment, sale or transfer, as evidenced by a
letter to such effect from each Rating Agency. In the case of any such
assignment and delegation, the Servicer shall remain liable for all
liabilities and obligations incurred by it as Servicer hereunder prior to the
satisfaction of the conditions to such assignment and delegation set forth in
clauses (i) and (ii) of the preceding sentence.
Section 7.03. Limitation on Liability of
--------------------------
the Servicer and Others.
-----------------------
Neither the Servicer nor any of the directors or officers or employees
or agents of the Servicer shall be under any liability to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking
of any action by the Servicer pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the
Servicer or any such person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in
the performance of duties of the Servicer or by reason of reckless disregard
of obligations and duties of the Servicer hereunder. The Servicer and any
director or officer or employee or agent of the Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted
----- -----
by any Person respecting any matters arising hereunder. The Servicer shall
not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to duties to service the Mortgage Loans in
accordance with this Agreement, and which in its opinion may involve it in
any expense or liability; provided, however, that the Servicer may in its sole
discretion undertake any such action which it may deem necessary or desirable
in respect of this Agreement, and the rights and duties of the parties hereto
and the interests of the Certificateholders hereunder. In the event of any
such loss, liability or expense, the legal expenses and costs of such action
nd any liability resulting therefrom shall be expenses, costs and liabilities
for which the Servicer shall be entitled to reimbursement therefor only from
amounts otherwise distributable to the Holders of the Transferor Certificates
on any subsequent Distribution Date. The Servicer's right to reimbursement
pursuant to this Section 7.03 shall survive any resignation or termination of
the Servicer pursuant to Section 7.04 or 8.01 with respect to any such
losses, liabilities or expenses arising prior to such resignation or termi-
nation (or arising from events that occurred prior to such resignation or
termination). Any claims under this Section 7.03 by or on behalf of the
Certificateholders or the Trust Fund shall be made only against the Servicer,
who shall be liable hereunder with respect to its own acts and omissions as
well as the acts and omissions of its directors, officers, employees and
agents.
Section 7.04. Servicer Not to Resign.
----------------------
Subject to the provisions of Section 7.02, the Servicer shall not resign
from the obligations and duties hereby imposed on it except upon determina-
tion that the performance of its duties hereunder is no longer permissible
under applicable law or is in material conflict by reason of applicable law
with any other activities carried on by it or its subsidiaries or other
affiliates, the other activities of the Servicer so causing such a conflict
being of a type and nature carried on by the Servicer or such subsidiaries or
other affiliates at the date of this Agreement.
Any resignation under this Section 7.04 shall not relieve the Servicer
of responsibility for any of the obligations specified in Sections 8.01 and
8.02 as obligations that survive the resignation or termination of the
Servicer; provided, however, that no resignation by the Servicer shall become
effective until the Trustee or a successor servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with Section
8.02. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Certificateholder for any amounts paid by the
Servicer pursuant to any provision of this Agreement. Any determination
permitting the resignation of the Servicer shall be evidenced by an Opinion
of Counsel to such effect delivered to the Trustee and the Certificate
Insurer.
Section 7.05. Limitation on Liability of Certain Persons.
------------------------------------------
No recourse under or upon any obligation or covenant of this Agreement,
or of any Certificate, or for any claim based thereon or otherwise in respect
thereof, shall be had against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Transferor or of any
successor corporation, either directly or through the Transferor, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise. This Agreement and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by the
incorporators, shareholders, officers or directors as such, of the
Transferor, or any of them, because of the issuance of the Certificates, or
under or by reason of the obligations, covenants or agreements contained in
this Agreement or in any of the Certificates or implied therefrom; and that
any and all such personal liability, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, shareholder, officer or director, as such, because
of the issuance of the Certificates, or under or by reason of the
obligations, covenants or agreements contained in this Agreement or in any of
the Certificates or implied therefrom, are hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Agreement and the issuance of the Certificates. The Transferor and any
director, officer, employee or agent of the Transferor may rely in good faith
on any document of any kind prima facie properly executed and
----- -----
submitted by any Person respecting any matters arising hereunder.
Section 7.06. Liability of Transferor.
-----------------------
Notwithstanding Section 7.05 or any other provisions of this Agreement,
the Transferor by entering into this Agreement, by its acceptance thereof,
agrees to be liable, directly to the injured party, for the entire amount of
any losses, claims, damages or liabilities (other than those that would be
incurred by a Certificateholder if the Certificates were notes secured by the
Trust assets, for example, as a result of the performance of the Trust
assets, market fluctuations, a shortfall or failure to make payment under the
Certificate Insurance Policy or other similar market or investment risks
associated with ownership of the Certificates) arising out of or based on the
arrangement created by this Agreement or the actions of the Servicer taken
pursuant hereto (to the extent that, if the Trust assets at the time the
claim is made were used to pay in full all outstanding Certificates, the
Trust assets that would remain after the Certificateholders and Certificate
Insurer were paid in full would be insufficient to pay any such losses,
claims, damages or liabilities) as though this Agreement created a
partnership under the ________________ Revised Uniform Partnership Act in
which the Transferor was a general partner. The rights created by this
Section 7.06 shall run directly to and be enforceable by the injured party
subject to the limitations hereof.
Section 7.07. Transferor May Own Certificates.
-------------------------------
The Transferor and any Person controlling, controlled by or under common
control with the Transferor may in its individual or any other capacity
become the owner or pledgee of Investor Certificates with the same rights as
it would have if it were not the Transferor or such an affiliate thereof,
except as otherwise provided in the definition of the term
"Certificateholder" specified in Section 1.01. Certificates so owned by or
pledged to the Transferor or such controlling or commonly controlled Person
shall have an equal and proportionate benefit under the provisions of this
Agreement, without preference, priority or distinction as among all of the
Investor Certificates, except as otherwise provided in the definition of the
term "Certificateholder" specified in Section 1.01.
ARTICLE VIII
Default
Section 8.01. Events of Default.
-----------------
If any one of the following events ("Events of Default") shall occur and
be continuing:
(i) Any failure by the Servicer to remit to the Trustee any
payment required to be made under the terms of such Certificates and
this Agreement which continues unremedied for a period of five (5)
Business Days after the date upon which written notice of such failure
shall have been given to the Servicer by the Trustee or to the Servicer
and the Trustee by Holders of Investor Certificates evidencing not less
than ____% of the aggregate Percentage Interests of the Investor
Certificates or by the Certificate Insurer; or
(ii) Failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the
Servicer set forth in the Certificates or in this Agreement, which
covenants and agreements (A) materially affect the rights of
Certificateholders and (B) continue unremedied for a period of _____
(__) days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer
by the Trustee, or to the Servicer and the Trustee by the Holders of
Investor Certificates evidencing not less than ____% of the aggregate
Percentage Interests of the Investor Certificates or by the Certificate
Insurer; or
(iii) The entry against the Servicer of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises
for the appointment of a conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding up or Liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) consecutive days; or
(iv) The consent by the Servicer to the appointment of a con-
servator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Servicer or of or relating to substantially all of its
property; or the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
then, and in each and every such case, so long as an Event of Default shall
not have been remedied by the Servicer, either the Trustee (with the consent
of the Certificate Insurer, which consent shall not be unreasonably
withheld), or the Holders of Investor Certificates evidencing not less than
____% of the aggregate Percentage Interests of the Investor Certificates
(with the consent of the Certificate Insurer) or the Certificate Insurer, by
notice then given in writing to the Servicer (and to the Trustee if given by
Certificateholders or the Certificate Insurer) may terminate all of the
rights and obligations of the Servicer as servicer under this Agreement.
Any written notice provided to the Servicer shall be simultaneously
provided to the Indirect Parent, the Certificate Insurer and the Rating
Agencies. On or after the receipt by the Servicer of such written notice,
all authority and power of the Servicer under this Agreement, whether with
respect to the Certificates or the Mortgage Loans or otherwise, shall pass to
and be vested in the Trustee pursuant to and under this Section 8.01; and,
without limitation, the Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice
of termination, whether to complete the transfer and endorsement of the
Mortgage Loans and related documents, or otherwise. The Servicer agrees to
cooperate with the Trustee in effecting the termination of the responsibili-
ties and rights of the Servicer hereunder, including, without limitation, the
transfer to the Trustee for the administration by it of all cash amounts that
shall at the time be held by the Servicer and credited by it to the Mortgage
Loan Payment Record, or that have been deposited by the Servicer in the
Certificate Account or thereafter received by the Servicer with respect to
the Mortgage Loans. In addition to any other amounts which are then, or,
notwithstanding the termination of its activities as servicer, may become,
payable to the Servicer under this Agreement, the Servicer shall be entitled
to receive out of any delinquent payment on account of interest on a Mortgage
Loan, due during the period prior to the notice pursuant to this Section 8.01
which terminates the obligation and rights of the Servicer hereunder and re-
ceived after such notice, that portion of such payment which it would have
been entitled to retain pursuant to Section 3.03(ii) if such notice had not
been given.
Section 8.02. Trustee to Act; Appointment of Successor.
----------------------------------------
(a) On and after the time the Servicer receives a notice of termination
pursuant to Section 8.01 or the Servicer's resignation in accordance with the
terms of Section 7.04, the Trustee shall be the successor in all respects to
the Servicer in its capacity as servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof; provided, however, that the
responsibilities and duties of the Servicer pursuant to Section 2.02 and
Section 2.04, the obligations of the Servicer to make repurchases or
replacements of Mortgage Loans pursuant to Section 3.01 and Section 3.06 and
the obligations of the Servicer to make Monthly Advances pursuant to Section
4.02 shall not be the responsibilities, duties or obligations of the Trustee.
As compensation therefor, the Trustee shall, except as provided in Section
8.01, be entitled to such compensation as the Servicer would have been
entitled to hereunder if no such notice of termination had been given. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that
no such compensation shall be in excess of that permitted the Servicer here-
under. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
(b) Any successor, including the Trustee, to the Servicer as servicer
shall during the term of its service as servicer maintain in force (i) a
policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder, and (ii) a fidelity
bond in respect of its officers, employees and agents to the same extent as
the Servicer is so required pursuant to Section 3.12. No successor servicer
(other than the Trustee as successor to the Servicer) shall have the right
(i) to maintain possession of the Mortgage Files as set forth in Section
2.01(d) or (ii) to retain and commingle payments on, and collections in
respect of, the Mortgage Loans with its own funds pursuant to Section
3.02(c).
Section 8.03. Notification to Certificateholders.
----------------------------------
Upon any termination or appointment of a successor to the Servicer
pursuant to this Article VIII, the Trustee shall give prompt written notice
thereof (i) to Certificateholders at their respective addresses appearing in
the Certificate Register, (ii) to each Rating Agency at their respective
addresses set forth in Section 11.06, and (iii) to the Certificate Insurer at
its address set forth in Section 11.06.
Section 8.04. Waiver of Past Events of Default.
--------------------------------
The Holders of Investor Certificates evidencing not less than ___% of
the aggregate Percentage Interests of the Investor Certificates together,
with the consent of the Certificate Insurer, may, on behalf of all Holders of
Certificates, waive any Event of Default by the Servicer in the performance
of its obligations hereunder and its consequences, except a default in making
any required deposits to the Certificate Account in accordance with this
Agreement. Upon any such waiver of a past Event of Default, such Event of
Default shall cease to exist and shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee.
-----------------
The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in
this Agreement. If an Event of Default has occurred (which has not been
cured), the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act
or its own misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the
duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and obligations as
are specifically set forth in this Agreement, no implied covenants
or obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of judgment
made in good faith by a Responsible Officer of the Trustee, unless
it shall be proved that the Trustee was negligent in performing its
duties in accordance with the terms of this Agreement;
(iii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith
in accordance with the direction of the Holders of Investor
Certificates evidencing not less than ____% of the aggregate
Percentage Interests of the Investor Certificates with the consent
of the Certificate Insurer relating to the time, method and place
of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement; and
(iv) The Trustee shall not be charged with knowledge of any failure by
the Servicer to comply with the obligations of the Servicer
referred to in clauses (i) and (ii) of Section 8.01 unless a
Responsible Officer of the Trustee at the Corporate Trust Office
obtains actual knowledge of such failure or the Trustee receives
written notice of such failure from the Servicer, the Holders of
Certificates evidencing not less than ___% of the Trust Fund (based
on the outstanding principal balances of the Certificates) or the
Certificate Insurer.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of,
any of the obligations of the Servicer under this Agreement, except during
such time, if any, as the Trustee shall be the successor to, and be vested
with the rights, duties, powers and privileges of, the Servicer in accordance
with the terms of this Agreement.
Section 9.02. Certain Matters Affecting the Trustee.
-------------------------------------
Except as otherwise provided in Section 9.01:
(i) The Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate, certificate
of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond
or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(ii) The Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good
faith and in accordance with such Opinion of Counsel;
(iii) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation hereunder or in relation hereto,
at the request, order or direction of any of the
Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligations, upon the occurrence of an Event of Default (which has
not been cured), to exercise such of the rights and powers vested
in it by this Agreement, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;
(iv) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred
upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default and after the curing
of all Events of Default which may have occurred, the Trustee shall
not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or documents, unless requested in writing to do so by
Holders of Investor Certificates evidencing not less than ____% of
the aggregate Percentage Interests of the Investor Certificates or
the Certificate Insurer; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms
of this Agreement, the Trustee may require reasonable indemnity
against such cost, expense or liability as a condition to such pro-
ceeding. The reasonable expense of every such examination shall be
paid by the Servicer or, if paid by the Trustee, shall be reim-
bursed by the Servicer upon demand. Nothing in this clause (v)
shall derogate from the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the
Mortgagors; and
(vi) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through
agents or attorneys or a custodian.
Section 9.03. Trustee Not Liable for Certificates
-----------------------------------
or Mortgage Loans.
-----------------
The recitals contained herein and in the Certificates (other than the
signature and countersignature of the Trustee on the Certificates) shall be
taken as the statements of the Servicer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the signature and countersignature of the Trustee on
the Certificates) or of any Mortgage Loan or related document. The Trustee
shall not be accountable for the use or application by the Servicer of any of
the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Servicer in respect of the Mortgage
Loans or deposited in or withdrawn from the Certificate Account by the
Servicer.
Section 9.04. Trustee May Own Certificates.
----------------------------
The Trustee in its individual or any other capacity may become the owner
or pledgee of Certificates with the same rights as it would have if it were
not Trustee.
Section 9.05. Servicer to Pay Trustee's Fees and Expenses.
-------------------------------------------
The Servicer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of
a trustee of an express trust) for all services rendered by it in the
execution of the trusts hereby created and in the exercise and performance of
any of the powers and duties hereunder of the Trustee, and the Servicer will
pay or reimburse the Trustee upon its request for all reasonable expenses
(including any expenses arising under Section 4.04(d)), disbursements and
advances incurred or made by the Trustee in accordance with any of the
provisions of this Agreement (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith or which is the responsibility of Certi-
ficateholders hereunder. In addition, the Servicer covenants and agrees to
indemnify the Trustee from, and hold it harmless against, any and all losses,
liabilities, damages, claims, legal actions, including any pending or
threatened claims or legal actions, or expenses other than those resulting
from the negligence or bad faith of the Trustee.
Section 9.06. Eligibility Requirements for Trustee.
------------------------------------
The Trustee hereunder shall at all times (i) be a Person having its
principal office in the state of New York or in the same state as that in
which the initial Trustee under this Agreement has its principal office and
organized and doing business under the laws of such State or the United
States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authority and (ii)
have at all times a long term unsecured debt rating (or the direct or
indirect corporate parent of the Trustee have a long term unsecured debt
rating if the Trustee does not have such a rating) that will not result in
the downgrading or withdrawal of the rating or ratings then assigned to the
Certificates by each Rating Agency. If such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 9.06, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report
of condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.06, the Trustee
shall resign immediately in the manner and with the effect specified in
Section 9.07.
Section 9.07. Resignation or Removal of Trustee.
---------------------------------
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Transferor. Upon
receiving such notice of resignation, the Servicer shall promptly appoint a
successor Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor Trustee; provided, however, that, (i) such appointment does not
result in a reduction or withdrawal of the then current rating of the
Investor Certificates, and (ii) so long as such consent is not unreasonably
withheld, the Certificate Insurer consents to such appointment. The Servicer
shall make a good faith effort to appoint a successor within __ days of its
receipt of such notice. If the Servicer does not appoint a successor Trustee
within such __ day period and it is not making a good faith effort to appoint
a successor Trustee, then the Certificate Insurer may appoint a successor
Trustee. The Servicer shall indemnify the Trustee for any loss, liability,
or expense incurred as a result of the Servicer's failure to make a good
faith effort to appoint a successor Trustee. If no successor Trustee shall
have been so appointed and having accepted appointment within __ days after
the giving of such notice of resignation, the resigning Trustee may petition
any court of competent jurisdiction for the appointment of a successor
Trustee.
If at any time (i) the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Transferor, (ii) the Transferor has delivered to the
Trustee a letter from any Rating Agency to the effect that the rating of the
Investor Certificates has been or is about to be reduced or withdrawn on
account of a reduction in the long-term credit rating of the Trustee or the
parent of the Trustee (if (a) the Trustee proposes to the Transferor and the
Servicer to enter into an agreement with the Trustee and the Transferor and
the Servicer, each in its sole discretion, elect to enter into such agreement
and (b) such agreement is consented to by the Certificate Insurer and is
satisfactory to the Rating Agencies without resulting in a reduction in or
withdrawal of any rating of the Investor Certificates, then upon the
execution and delivery of such agreement the Transferor shall not request
such resignation pursuant to this clause (ii)) and the Trustee shall fail to
resign after written request therefor by the Transferor, or (iii) the Trustee
shall become incapable of acting, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of rehabilitation, conservation
or liquidation, then the Transferor or, in the case of clause (ii) above, the
Servicer may remove the Trustee and appoint a successor trustee, subject to
the following paragraph and to the consent of the Certificate Insurer to such
appointment (which consent shall not be unreasonably withheld), by written
instrument, in duplicate, one copy of which instrument shall be delivered to
the Trustee so removed and one copy to the successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 9.07 shall not
become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.
Section 9.08. Successor Trustee.
-----------------
Any successor Trustee appointed as provided in Section 9.07 shall
execute, acknowledge and deliver to the Servicer and to its predecessor
Trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of
its predecessor hereunder, with like effect as if originally named as
Trustee. The Transferor, the Servicer and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may reason-
ably be required for fully and certainly vesting and confirming in the
successor Trustee all such rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.08 unless at the time of such acceptance such successor Trustee
shall be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor Trustee as provided in
this Section 9.08, the Servicer shall mail notice of the succession of such
Trustee hereunder to all holders of Certificates at their addresses as shown
in the Certificate Register. If the Servicer fails to mail such notice
within 10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Servicer.
Section 9.09. Merger or Consolidation of Trustee.
----------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to the business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be
eligible under the provisions of Section 9.06, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
Section 9.10. Appointment of Co-Trustee or
----------------------------
Separate Trustee.
----------------
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Fund or any Mortgaged Property may at the time be
located, the Servicer and the Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons ap-
proved by the Trustee to act as co-trustee or co-trustees, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for
the benefit of the Certificateholders, such title to the Trust Fund, or any
part thereof, and, subject to the other provisions of this Section 9.10, such
powers, duties, obligations, rights and trusts as the Servicer and the
Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within __ days after the receipt by it of a
request so to do, or in the case an Event of Default shall have occurred and
be continuing, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee hereunder shall be required
to meet the terms of eligibility as a successor trustee under Section 9.06
and no notice to Certificateholders of the appointment of any co-trustee or
separate trustee shall be required under Section 9.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee
jointly (provided, however, that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be per-
formed (whether as Trustee hereunder or as successor to the
Servicer hereunder), the Trustee shall be incompetent or unquali-
fied to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to
the Trust Fund or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) The Servicer and the Trustee acting jointly may at any time accept
the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article IX. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed
with the Trustee and a copy thereof given to the Transferor.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 9.11. Tax Returns.
-----------
The Trustee, upon request, will furnish the Servicer with all such
information as may be reasonably required and within the Trustee's reasonable
control or knowledge in connection with the Servicer's preparation of all tax
returns of the Trust Fund, and shall, upon request, execute such returns.
Section 9.12. Streit Act.
----------
Any provisions required to be contained in this Agreement by Section 126
of Article 4-A of the New York Real Property Law are hereby incorporated, and
such provisions shall be in addition to those conferred or imposed by this
Agreement; provided, however, that to the extent that such Section 126 shall
not apply to this Agreement, such Section 126 shall not have any effect, and
if such Section 126 should at any time be repealed or cease to apply to this
Agreement, or be construed by judicial decision to be inapplicable, such
Section 126 shall cease to have any further effect upon the provisions of
this Agreement. In case of a conflict between the provisions of this
Agreement and any mandatory provision of Article 4-A of the New York Real
Property Law, such mandatory provisions of such Article 4-A shall prevail,
provided, however, that if such Article 4-A shall not apply to this
Agreement, or be construed by judicial decision to be inapplicable, such
mandatory provisions of such Article 4-A shall cease to have any further
effect upon the provisions of this Agreement.
ARTICLE X
Termination
Section 10.01. Termination.
-----------
(a) The respective obligations and responsibilities of the Servicer,
the Transferor and the Trustee created hereby (other than the obligation of
the Trustee to make certain payments to Certificateholders after the final
Distribution Date and the obligation of the Servicer to send certain notices
as hereinafter set forth) shall terminate upon the last action required to be
taken by the Trustee on the final Distribution Date pursuant to this Article
X following the later of (A) payment in full of all amounts owing to the
Certificate Insurer and (B) the earliest of:
(i) the retransfer, under the conditions specified in Section 10.01(b),
to the Servicer of the Investor Certificateholders' interest in
each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to
the sum of (A) the Certificate Principal Balance, (B) accrued and
unpaid Certificate Formula Interest through the day preceding the
final Distribution Date, (C) any Unpaid Certificate Interest
Shortfall, and (D) any accrued and unpaid Investor Loss Reduction
Amounts through the day preceding such final Distribution Date;
(ii) the day following the Distribution Date on which the distribution
made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero;
(iii) the final payment or other liquidation (or any Monthly Advance with
respect thereto) of the Trust Balance of the last Mortgage Loan
remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans pursuant to Section 10.02) or the
disposition of all property acquired upon foreclosure or deed in
lieu of foreclosure of any Mortgage Loan; and
(iv) the Distribution Date in (date).
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
(b) The Servicer shall have the right to exercise the option to
retransfer to itself each Mortgage Loan pursuant to Section 10.01(a)(i) on
any Distribution Date on or after the Distribution Date immediately prior to
which the Certificate Principal Balance is less than ten percent (___%) of
the Original Certificate Principal Balance and all amounts due and owing to
the Certificate Insurer for unpaid premiums and unreimbursed draws on the
Certificate Insurance Policy, together with interest thereon as provided
under the Insurance Agreement, have been paid. If such right is exercised
and the Trustee is holding the Mortgage Files, the Servicer shall provide to
the Trustee the certification required by Section 3.07 and the Trustee shall,
promptly following payment of the retransfer price, release to the Servicer
the Mortgage Files pertaining to the Mortgage Loans being retransferred.
(c) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Investor Certificateholders may surrender their Investor Certificates to the
Trustee for payment of the final distribution and cancellation, shall be
given promptly by the Trustee (upon receipt of written directions from the
Servicer to the Trustee no later than the __th day of the month preceding the
month of such final distribution, if the Servicer is exercising its right to
repurchase the assets of the Trust Fund) by letter to Investor Certificate-
holders and the Certificate Insurer mailed not earlier than the first day and
not later than the tenth day of the month of such final distribution
specifying (A) the Distribution Date upon which final distribution of the
Investor Certificates will be made upon presentation and surrender of
Investor Certificates at the office or agency of the Trustee therein desig-
nated, (B) the amount of any such final distribution and (C) that the Record
Date otherwise applicable to such Distribution Date is not applicable,
distributions being made only upon presentation and surrender of the Investor
Certificates at the office or agency of the Trustee therein specified. In
the event written directions are delivered by the Servicer to the Trustee as
described in the preceding sentence, the Servicer shall deposit in the
Certificate Account before the Distribution Date for such final distribution
in immediately available funds an amount equal to the repurchase price for
the assets of the Trust Fund computed as above provided. Such deposit shall
be in lieu of the deposit otherwise required to be made in respect of such
Distribution Date.
(d) Upon presentation and surrender of the Investor Certificates, the
Trustee shall cause to be distributed to the holders of Investor Certificates
on the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Investor Certificates, an amount
equal to (i) if such final distribution is not being made pursuant to the
retransfer to the Servicer pursuant to Section 10.01(a)(i), the amount
required to be distributed to Investor Certificateholders pursuant to Section
5.01 for such Distribution Date and (ii) if such final distribution is being
made pursuant to such retransfer, the amount specified in
Section 10.01(a)(i). The distribution on such final Distribution Date
pursuant to a retransfer pursuant to Section 10.01(a)(i) shall be in lieu of
the distribution otherwise required to be made on such Distribution Date in
respect of the Certificates. On the final Distribution Date prior to having
made the distributions called for above, the Trustee will withdraw from the
Certificate Account and remit to the Certificate Insurer the lesser of (x)
the amount available for distribution on such final Distribution Date, net of
any portion thereof necessary to pay the amounts described in clauses (d)(i)
and (ii) above and (y) the unpaid amounts due and owing to the Certificate
Insurer for unpaid premiums and unreimbursed draws on the Certificate
Insurance Policy, together with interest thereon as provided under the
Insurance Agreement.
(e) In the event that all of the Investor Certificateholders shall not
surrender their Investor Certificates for final payment and cancellation on
or before such final Distribution Date, the Trustee shall on such date cause
all funds in the Certificate Account not distributed in final distribution to
the Certificate Insurer or Investor Certificateholders to be withdrawn
therefrom and credited to the remaining Investor Certificateholders by
depositing such funds in a separate escrow account for the benefit of such
Investor Certificateholders and the Servicer (if the Servicer has exercised
its right to retransfer the Mortgage Loans) or the Trustee (in any other
case) shall give a second written notice to the remaining Investor
Certificateholders to surrender their Investor Certificates for cancellation
and receive the final distribution with respect thereto. If within one year
after the second notice all the Investor Certificates shall not have been
surrendered for cancellation, any funds deposited in such escrow account and
remaining unclaimed shall be paid by the Trustee to the Servicer and
thereafter Investor Certificateholders shall look only to the Servicer with
respect to any claims in respect of such funds.
Section 10.02. Termination by Certificate Insurer.
----------------------------------
In the event the Servicer does not exercise its option to terminate the
Trust Fund pursuant to this Article X, the Certificate Insurer may do so on
the same terms.
ARTICLE XI
Rapid Amortization Events
Section 11.01. Rapid Amortization Events
-------------------------
If any one of the following events shall occur during the Managed
Amortization Period:
(a) failure on the part of the Servicer (i) to make any payment or
deposit required by the terms of this Agreement, on or before the date
occurring _____ (__) Business Days after the date such payment or deposit is
required to be made herein, or (ii) duly to observe or perform in any
material respect the covenants set forth in Section 2.04 or (iii) duly to
observe or perform in any material respect any other covenants or agreements
of the Servicer set forth in this Agreement, which failure, in each case,
materially and adversely affects the interests of the Certificateholders or
the Certificate Insurer and which, in the case of clause (iii), continues
unremedied and continues to affect materially and adversely the interests of
the Certificateholders for a period of _____ (__) days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trustee, or to the Servicer and
the Trustee by the Certificate Insurer or the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than ____%;
(b) any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect in any material respect when
made, as a result of which the interests of the Investor Certificateholders
or the Certificate Insurer are materially and adversely affected and which
continues to be incorrect in any material respect and continues to affect
materially and adversely the interests of the Investor Certificateholders or
the Certificate Insurer for a period of sixty (60) days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trustee, or to the Servicer and
the Trustee by either the Certificate Insurer or the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than ___%;
provided, however, that a Rapid Amortization Event pursuant to this
subparagraph (b) shall not be deemed to have occurred hereunder if the
Servicer has accepted retransfer of the related Mortgage Loan or Mortgage
Loans during such period (or such longer period (not to exceed an additional
__ days) as the Trustee, with the consent of the Certificate Insurer, may
specify) in accordance with the provisions hereof;
(c) the Transferor or the Servicer shall go into liquidation, consent
to the appointment of a conservator or receiver or liquidator or similar
person in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Transferor or the
Servicer or of or relating to all or substantially all of its property, or a
decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator, receiver,
liquidator or similar person in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered against the
Transferor or the Servicer and such decree or order shall have remained in
force undischarged or unstayed for a period of thirty (__) days; or the
Transferor or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations;
(d) the Trust shall become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended;
(e) any Event of Default shall occur;
(f) the aggregate of Insured Payments under the Certificate Insurance
Policy exceeds ___% of the Pool Balance as of the Cut-off Date; or
(g) the Transferor or the Servicer becomes subject to a tax lien and
not released within sixty (60) days of its attachment;
then, in the case of any event described in subparagraph (a), (b) or (e)
after the applicable grace period, if any, set forth in such subparagraphs,
either the Certificate Insurer, the Trustee or the Holders of Investor
Certificates evidencing Percentage Interests aggregating more than ___%, with
the consent of the Certificate Insurer, by notice given in writing to the
Transferor and the Servicer (and to the Trustee if given by either the
Certificate Insurer or the Investor Certificateholders) may declare that an
early amortization event (a "Rapid Amortization Event") has occurred as of
the date of such notice, and in the case of any event described in
subparagraphs (c), (d), (f) or (g), a Rapid Amortization Event shall occur
without any notice or other action on the part of the Trustee, the
Certificate Insurer or the Investor Certificateholders, immediately upon the
occurrence of such event.
Section 11.02. Additional Rights Upon an Insolvency Event.
------------------------------------------
(a) If the Transferor goes into liquidation or consents to the
appointment of a conservator or receiver or liquidator or similar person in
any insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings of or relating to the Transferor or of or relating to
all or substantially all its property, or a decree or order of a court or
agency or supervisory authority having jurisdiction in the premises for the
appointment of a conservator or receiver or liquidator or similar person in
any insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Transferor and such decree shall have
remained in force undischarged or unstayed for a period of 30 days; or the
Transferor shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors or voluntarily suspend payment of its obligations (such
voluntary liquidation, appointment, entering of such decree, admission,
filing, making, suspension or violation or other event described above, an
"Insolvency Event"), (i) the Transferor shall on the day of such appointment,
voluntary liquidation, entering of such decree, admission, filing, making,
suspension or inability, as the case may be (the "Appointment Day"), promptly
give notice to the Trustee and the Certificate Insurer of such Insolvency
Event, and (ii) the arrangement among the Certificateholders and the
Transferor shall dissolve and the Trust shall be liquidated in accordance
with the following procedures. The Transferor shall on the Appointment Day
immediately cease to transfer Additional Balances to the Trust.
Notwithstanding any cessation of the transfer to the Trust of Additional
Balances, Additional Balances transferred to the Trust prior to the
occurrence of such Insolvency Event or violation, and Principal Collections
and Interest Collections, whenever created, accrued in respect of such
Mortgage Loans shall continue to be a part of the Trust, and shall continue
to be allocated and paid in accordance with Article IV. Within _______ (__)
days of the Appointment Day, the Trustee shall (i) publish a notice in an
authorized newspaper that an Insolvency Event has occurred and that the
Trustee intends to sell, dispose of or otherwise liquidate the Trust assets
on commercially reasonable terms and in a commercially reasonable manner and
(ii) send written notice to the Certificateholders describing the provisions
of this Section 11.02 and requesting instructions from such Holders. Unless
within ___________ (__) days from the day notice pursuant to clause (i) above
is first published the Trustee shall have received written instructions from
Holders of Investor Certificates evidencing more than ____% of the aggregate
Percentage Interests to the effect that such Certificateholders disapprove of
the liquidation of the Trust assets, the Trustee shall sell, dispose of or
otherwise liquidate the Trust assets in a commercially reasonable manner and
on commercially reasonable terms, which shall include the solicitation of
competitive bids. The Trustee may obtain a prior determination from any such
conservator, receiver or liquidator that the terms and manner of any proposed
sale, disposition or liquidation are commercially reasonable. The provisions
of Sections 11.01 and 11.02 shall not be deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of the Trust
assets pursuant to subsection (a) above shall be treated as collections on
the Mortgage Loans received during the Rapid Amortization Period; provided,
however, that such proceeds will, based on amounts specified in writing to
the Servicer to the Trustee, first be paid to the Certificate Insurer to
reimburse the Certificate Insurer for previously unreimbursed Insured
Payments and other amounts owing under the Insurance Agreement and second be
paid to the Trustee in reimbursement of expenses incurred in connection with
the sale, disposition or liquidation of the Trust assets pursuant to Section
11.02(a); and provided, further, that the Fixed Allocation Percentage of such
remaining proceeds shall be paid to Investor Certificateholders in the
following amounts and order of priority:
(i) all accrued and unpaid interest on the Certificate Principal
Balance through the Accrual Period immediately preceding the
Distribution Date on which such proceeds are distributed to the Investor
Certificateholders; and
(ii) an amount of principal up to the Certificate Principal
Balance.
The Certificate Insurance Policy will not cover any shortfall in the event
such proceeds are insufficient to make a full distribution to Investor
Certificateholders pursuant to Section 11.02(b). On the day following the
final Distribution Date on which such proceeds are distributed to the
Investor Certificateholders, the Trust shall terminate.
(c) The Trustee may appoint an agent or agents to assist with its
responsibilities pursuant to this Article XI with respect to competitive bids
or any other of its duties.
ARTICLE XII
Miscellaneous Provisions
Section 12.01. Amendment.
---------
This Agreement may be amended from time to time by the Servicer, the
Transferor and the Trustee, with the consent of the Certificate Insurer so
long as such consent is not unreasonably withheld and without the consent of
any of the Certificateholders, (i) to cure any ambiguity or mistake, (ii) to
correct or supplement any provisions herein or therein which may be
inconsistent with any other provisions herein or therein, as the case may be,
or (iii) to add or delete any other provisions not inconsistent herewith with
respect to matters or questions arising under this Agreement, including
provisions relating to the issuance of definitive Certificates to Certificate
Owners in the event that book-entry registration of Investor Certificates is
no longer permitted; provided, however, that in each case such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any Certificateholder.
This Agreement may also be amended from time to time by the Servicer,
the Transferor and the Trustee, with the consent of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than ___%
and the consent of the Certificate Insurer, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or the Certificate Insurance Policy, or of modifying in any
manner the rights of the Holders of Certificates; provided, however, that no
such amendment shall (a) reduce in any manner the amount of, or delay the
timing of, collections of payments on Mortgage Loans or distributions which
are required to be made on any Certificate without the consent of the Holder
of such Certificate or (b) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of the Holders of all
Investor Certificates then outstanding.
Notwithstanding the foregoing, the Agreement may not be amended unless,
in connection with such amendment, an Opinion of Counsel is furnished to the
Trustee that such amendment will not (i) adversely affect the status of the
Investor Certificates as debt; (ii) result in the Trust being taxed at the
entity level; or (iii) result in the Trust being taxed as a taxable mortgage
pool (as defined in Section 7701(i) of the Code).
Not later than the time of obtaining any such consent the Trustee shall
furnish written notification of the substance of such amendment to each
Rating Agency. Promptly after the execution of any such amendment or con-
sent, the Trustee shall furnish written notification of the substance of such
amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under
this Section 12.01 to approve the particular form of any proposed amendment
or consent, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
In connection with any amendment pursuant to this Section 12.01, the
Trustee shall be entitled to receive an Opinion of Counsel to the effect that
such amendment is authorized or permitted by this Agreement. In no event
shall any Opinion of Counsel provided pursuant to this Section 12.01 be an
expense of the Trustee.
Section 12.02. Recordation of Agreement.
------------------------
This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages
are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer and at its expense
on direction by the Trustee, but only upon direction of the Trustee
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts
shall be deemed to be an original, and such counterparts shall constitute but
one and the same instrument.
Section 12.03. Limitation on Rights of Certificateholders.
------------------------------------------
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or
to take any action or commence any proceeding in any court for a partition or
winding up of the Trust Fund, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or such party.
No Certificateholder shall have any right to vote (except as provided in
Section 12.01) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision
hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Trustee a
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of Investor Certificates evidencing
Percentage Interests aggregating not less than ___% shall have made written
request upon the Trustee to institute such action, suit or proceeding in its
own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for __ days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. Each
Certificateholder expressly covenants with every other Certificateholder and
the Trustee that no one or more Holders of Certificates shall have any right
in any manner whatever by virtue or by availing itself or themselves of any
provisions of this Agreement to affect, disturb or prejudice the rights of
the Holders of any other of the Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 12.03, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
Section 12.04. (Reserved).
(Section 12.05. The Certificate Insurer.
-----------------------
The Certificate Insurer is a third-party beneficiary of this Agreement.
Any right conferred to the Certificate Insurer shall be suspended during any
period in which the Certificate Insurer is in default in its payment
obligations under the Certificate Insurance Policy. During any period of
suspension the Certificate Insurer's rights hereunder shall vest in the
Holders of the Investor Certificates and shall be exercisable by the Holders
of at least a majority in Percentage Interest of the outstanding Investor
Certificates. At such time as the Investor Certificates are no longer
outstanding hereunder and the Certificate Insurer has been reimbursed for all
Insured Payments to which it is entitled hereunder and has been paid all
Premium Amounts due and owing under the Insurance Agreement, the Certificate
Insurer's rights hereunder shall terminate.)
Section 12.06. Governing Law.
-------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES AND THE
APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION), AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 12.07. Notices.
-------
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given when delivered at or mailed by
certified mail, return receipt requested, to (a) in the case of the Servicer,
_______________________________________, Attention: General Counsel, (b) in
the case of the Transferor, Merrill Lynch Mortgage Investors, Inc.,
Attention: President, (c) in the case of the Trustee, at the Corporate Trust
Office, (d) ______________________________________, or, as to each party, at
such other address as shall be designated by such party in a written notice
to each other party. Any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed to a Certificateholder within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
Section 12.08. Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions
of this Agreement or of the Certificates or the rights of the Holders
thereof.
Section 12.09. Assignment.
----------
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 7.02 and 7.04, this Agreement may not be assigned by the
Transferor or the Servicer without the prior written consent of Holders of
Investor Certificates evidencing Percentage Interests aggregating not less
than ___%.
Section 12.10. Certificates Nonassessable and Fully Paid.
-----------------------------------------
The parties agree that the Certificateholders shall not be personally
liable for obligations of the Trust Fund, that the beneficial ownership
interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust Fund or for any reason whatsoever, and that
Certificates upon execution, countersignature and delivery thereof by the
Trustee pursuant to Section 6.01 are and shall be deemed fully paid.
Section 12.11. Counterparts.
------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 12.12. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 12.13. Third Party Beneficiary.
-----------------------
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and, in addition, shall inure to the benefit of
Certificateholders and, to the extent provided herein, the Certificate
Insurer and their respective successors and permitted assigns. Except as
otherwise provided in this Agreement, no other Person shall have any right or
obligation hereunder.
Section 12.14. Merger and Integration.
----------------------
Except as specifically stated otherwise herein, this Agreement sets
forth the entire understanding of the parties relating to the subject matter
hereof, and all prior understandings, written or oral, and all
contemporaneous oral understandings, are superseded by this Agreement. This
Agreement may not be modified, amended, waived or supplemented except as
provided herein.
* * *
IN WITNESS WHEREOF, the Servicer, the Transferor and the Trustee have
caused this Agreement to be duly executed by their respective officers all as
of the day and year first above written.
_____________________________
By
----------------------------
Name:
Title:
MERRILL LYNCH MORTGAGE INVESTORS, INC.
By
------------------------------
Name:
Title:
__________________________
as Trustee
By
--------------------------
Name:
Title:
State of )
) ss.:
County of )
On the __th day of ________, 199_ before me, a notary public in and
for the State of __________, personally appeared ______________, known to me
who, being by me duly sworn, did depose and say that s/he is located at
_______________________; that s/he is a _______________________________ of
________________, a corporation formed under the laws of the State of
_________, one of the parties that executed the foregoing instrument; and
that he signed his name thereto by order of the Board of Directors of said
corporation.
--------------------------------
Notary Public
(Notarial Seal)
State of )
) ss.:
County of )
On the ___th day of ____, 199__ before me, a notary public in and
for the State of ________, personally appeared (name), known to me who, being
by me duly sworn, did depose and say that she is located at
________________________,
_____________________; that s/he is an (title) of Merrill Lynch Mortgage
Investors, Inc., a corporation formed under the laws of the State of
________________, one of the parties that executed the foregoing instrument;
and that s/he signed her name thereto by order of the Board of Directors of
said corporation.
--------------------------------
Notary Public
(Notarial Seal)
State of )
) ss.:
County of )
On the _____th day of (month), 199____ before me, a notary public
in and for the State of ____________, personally appeared
(name_________________) known to me who, being by me duly sworn, did depose
and say that s/he is located at (address _______________; that s/he is an
(title _______________ ) of ___________________________, one of the parties
that executed the foregoing instrument; and that s/he signed her name thereto
under authority granted by the Board of Directors of said Bank.
- -------------------------------------------------------------------
Notary Public
(Notarial Seal)
EXHIBIT A
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
Initial Certificate Principal
Balance of this Investor
Certificate : $
Certificate Rate : Variable
Original Certificate Principal
Balance of all Investor
Certificates : $
CUSIP No. :
Date of Pooling and
Servicing Agreement :
Certificate No. : 1
Cut-Off Date :
First Distribution
Date: :
Stated Maturity Date :
_________________ HOME EQUITY LOAN ASSET BACKED CERTIFICATES,
SERIES 199_-_
INVESTOR CERTIFICATE
evidencing a percentage interest in the distributions
allocable to the Investor Certificates evidencing an
undivided interest in a Trust consisting primarily of a
pool of adjustable rate home equity revolving credit line
loans serviced by
__________________________
This Certificate does not represent an obligation of or interest in
Merrill Lynch Mortgage Investors, Inc. (the "Transferor"),
____________________________ or the Trustee referred to below or any of their
affiliates. Neither this Certificate nor the Mortgage Loans are guaranteed
or insured by any governmental agency or instrumentality.
This certifies that CEDE & CO. is the registered owner of the Percentage
Interest evidenced by this Certificate (obtained by dividing the Initial
Certificate Principal Balance of this Certificate by the Original Certificate
Principal Balance of all Investor Certificates) in certain monthly
distributions with respect to a Trust consisting primarily of a pool of home
equity revolving credit line loans (the "Mortgage Loans"), transferred by the
Transferor to the Trustee and serviced by ___________________________ (in
such capacity, the "Servicer", including any successor Servicer under the
Agreement referred to below). The Trust was created pursuant to a Pooling
and Servicing Agreement dated as specified above (the "Agreement") among the
Transferor, the Servicer, and _____________________, as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereafter. To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
This Certificate is one of the Investor Certificates from a duly
authorized issue of Certificates designated as _________________ Home Equity
Loan Asset Backed Certificates, Series 199_-_, representing, to the extent
specified in the Agreement, an undivided interest in: (i) the Mortgage Loans,
to the extent of their Trust Balances, and the proceeds thereof, (ii)
collections in respect of the Trust's interest in the Mortgage Loans received
on or after the Cut-off Date, (iii) an irrevocable and unconditional limited
financial guarantee insurance policy (the "Policy"), (iii) property that
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure or otherwise, (iv) the interest of the Trust in certain
hazard insurance policies covering the Mortgaged Properties, and (v) certain
other property relating to the Mortgage Loans (collectively, the "Trust
Assets").
On each Distribution Date, the Trustee shall distribute to each Investor
Certificateholder of record on the related Record Date (other than the final
distribution) by check mailed to such Certificateholder at the address
appearing in the Certificate Register, or upon written request of a Holder of
an Investor Certificate received by the Trustee at least five Business Days
prior to the related Record Date, by wire transfer (but only if such Certifi-
cateholder is the Depository or such Certificateholder owns of record one or
more Investor Certificates which have principal denominations aggregating at
least $5,000,000), or by such other means of payment as such Certifi-
cateholder and the Trustee shall agree. Distributions among Investor
Certificateholders shall be made in proportion to the Percentage Interests
evidenced by the Investor Certificates held by such Investor
Certificateholders. Notwithstanding the above, the final distribution on
this Certificate will be made after due notice by the Trustee, of the
pendency of such distribution, and only upon presentation and surrender of
this Certificate at the office or agency appointed by the Trustee for that
purpose.
Pursuant to the terms of the Agreement, a distribution will be made
on the __th day of each month or if such day is not a Business Day, then on
the next succeeding Business Day (the "Distribution Date"), commencing on the
first Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last day preceding
the month of such Distribution Date (the "Record Date"), in an amount equal
to the product of the Percentage Interest evidenced by this Certificate and
the amount required to be distributed to Holders of Investor Certificates on
such Distribution Date under the terms of the Agreement.
The Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Agreement. The Certificateholder, by its
acceptance of this Certificate, agrees that it will look solely to the funds
on deposit in the Certificate Account for payment hereunder, and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
As provided in the Agreement, withdrawals from the Certificate
Account may be made from time to time for purposes other than distributions
to the Investor Certificateholders and, subject to certain conditions in the
Agreement, Mortgage Loans may, at the election of the Transferor, be removed
from the Trust and transferred to the Transferor (as defined in the
Agreement).
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
It is the intention of the Transferor and the Investor
Certificateholders that the Investor Certificates will be indebtedness for
federal, state and local income and franchise tax purposes and for purposes
of any other tax imposed on or measured by income. The Transferor, the
Trustee and the Holder of this Certificate (or Certificate Owner) by
acceptance of this Certificate (or, in the case of a Certificate Owner, by
virtue of such Certificate Owner's acquisition of a beneficial interest
herein) agrees to treat the Investor Certificates (or beneficial interest
therein), for purposes of federal, state and local income or franchise taxes
and any other tax imposed on or measured by income, as indebtedness secured
by the Trust Assets and to report the transactions contemplated by the
Agreement on all applicable tax returns in a manner consistent with such
treatment. Each Holder of this Certificate agrees that it will cause any
Certificate Owner acquiring an interest in this Certificate through it to
comply with the Agreement as to treatment as indebtedness for federal, state
and local income and franchise tax purposes and for purposes of any other tax
imposed on or measured by income.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Transferor, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Transferor, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than ___%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Certificate Registrar upon surrender of this Certificate for
registration of transfer at the office or agency maintained by the
Certificate Registrar for such purpose, accompanied by a written instrument
of transfer in form satisfactory to the Trustee, if so required by the
Trustee, be duly executed by the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of
authorized denominations, if applicable, and evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates
are exchangeable for new Certificates of a like tenor in authorized
denominations (in the case of the Investor Certificates) and evidencing the
same aggregate Percentage Interest, as requested by the Holder surrendering
the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee or the Certificate Registrar may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
The Trustee, the Transferor, the Servicer, the Certificate Insurer and
the Certificate Registrar and any agent of the foregoing may treat the Person
in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Trustee, the Transferor, the Servicer, the
Certificate Insurer, the Certificate Registrar nor any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Stated Maturity Date.
The Servicer, or in the event the Servicer does not exercise its option
to terminate the Trust Fund, the Certificate Insurer, may effect an early
retirement of the Certificates by paying the retransfer price and accepting
retransfer of the Trust Assets pursuant to the terms of the Agreement on any
Distribution Date after the Certificate Principal Balance is less than or
equal to ___% of the Original Investor Certificate Principal Balance and all
amounts due and owing to the Certificate Insurer have been paid; provided,
however, that in no event shall the Trust continue beyond the expiration of
21 years from the death of certain person named in the Agreement. Upon
retirement of the Certificates in accordance with Section 10.01 of the
Agreement, the Trustee shall execute such documents and instruments of
transfer presented by the Servicer or Certificate Insurer and take such other
actions as the Servicer or Certificate Insurer may reasonably request to
effect the retransfer of the Mortgage Loans to the Servicer or Certificate
Insurer.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized officer of the Trustee.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth.
Dated:
_____________________,
not in its individual capacity but solely
as Trustee
------------------------------
Authorized Officer
Countersigned:
_______________________,
By:
--------------------------------
Authorized Officer of
_________________________________,
not in its individual capacity
but solely as Trustee
EXHIBIT B
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE INVESTOR
CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS
OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION
UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 6.05 OF THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE
EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, THAT IF SUCH
TRANSFEREE IS AN INSURANCE COMPANY THAT THE TRANSFEREE IS AN INSURANCE
COMPANY WHICH IS PURCHASING THIS CERTIFICATE WITH FUNDS CONTAINED IN AN
"INSURANCE COMPANY GENERAL ACCOUNT" (AS SUCH TERM IS DEFINED IN SECTION V(e)
OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ("PTCE 95-60")) AND THAT THE
PURCHASE AND HOLDING OF THIS CERTIFICATE ARE COVERED UNDER PTCE 95-60 OR A
PLAN SUBJECT TO SECTION 4975 OF THE CODE, OR AN OPINION OF COUNSEL IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 6.05(c) OF THE AGREEMENT REFERRED
TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY HEREIN, ANY
PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF OF AN EMPLOYEE BENEFIT
PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE OPINION OF COUNSEL
SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.
Date of Pooling and Servicing
Agreement: :
Cut-off Date :
Percentage Interest : 100%
Certificate No. : 1
First Distribution Date :
Stated Maturity Date :
_________________ HOME MORTGAGE LOAN ASSET BACKED CERTIFICATES,
SERIES 199_-_
TRANSFEROR CERTIFICATE
evidencing a percentage interest in the distributions
allocable to the Transferor Certificates evidencing an
undivided interest in a Trust consisting primarily of a
pool of adjustable rate home equity loan revolving credit
line loans serviced by
_____________________________
This Certificate does not represent an obligation of or interest in
Merrill Lynch Mortgage Investors, Inc. (the "Transferor"),
___________________________ or the Trustee referred to below or any of their
affiliates. Neither this Certificate nor the underlying Trust Assets are
guaranteed or insured by any governmental agency or instrumentality.
This certifies that ___________________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in the entire
interest not allocated to the Investor Certificates in certain monthly
distributions with respect to a Trust consisting primarily of a pool of
mortgage loans (the "Mortgage Loans"), sold by the Transferor and serviced by
__________________ (the "Servicer", including any successor Servicer under
the Agreement referred to below). The Trust was created pursuant to a
Pooling and Servicing Agreement dated as specified above (the "Agreement")
among the Transferor, the Servicer, and ___________________________________,
as trustee (the "Trustee"), a summary of certain of the pertinent provisions
of which is set forth hereafter. To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this
Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
This Certificate evidences a Transferor Certificate from a duly
authorized issue of Certificates designated as _________________ Home Equity
Loan Asset Backed Certificates, Series 199_-_, and representing, to the
extent specified in the Agreement, an undivided ownership interest in: (i)
the Mortgage Loans, to the extent of their Trust Balances, and the proceeds
thereof, (ii) collections in respect of the Trust's interest in the Mortgage
Loans received on or after the Cut-off Date, (iii) property that secured a
Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure or otherwise, (iv) the interest of the Trust in certain hazard
insurance policies covering the Mortgaged Properties, and (v) certain other
property relating to the Mortgage Loans (collectively, the "Trust Assets").
The certificates are limited in right of payment to certain payments on
and collections in respect of the Trust Assets, all as more specifically set
forth in the Agreement. The Certificateholder, by its acceptance of this
Certificate, agrees that it will look solely to the funds available in
accordance with the terms of the Agreement for payment hereunder and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Transferor, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Transferor, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
No transfer of a Transferor Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act
of 1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. There shall be delivered to the Trustee
and the Servicer a written Opinion of Counsel acceptable to and in form and
substance satisfactory to the Trustee and the Servicer that such transfer may
be made pursuant to an exemption, describing the applicable exemption and the
basis therefor, from which Act and laws or is being made pursuant to said Act
and laws, which Opinion of Counsel shall not be an expense of the Trustee or
the Servicer, and the Trustee and the Servicer shall require the transferee
to execute an investment letter acceptable to and in form and substance
satisfactory to the Trustee and the Servicer certifying to the Trustee and
the Servicer the facts surrounding such transfer, which Investment letter
shall not be an expense of the Trustee or the Servicer; provided that such
Opinion of Counsel shall not be required in the case of transfers by or to
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an affiliate thereof.
The Holder of a Transferor Certificate desiring to effect such transfer
shall, and does hereby agree to, indemnify the Trustee, the Servicer and the
Certificate Insurer against any liability that may result if the transfer is
not so exempt or if not made in accordance with such federal and state laws.
As provided in the Agreement and subject to certain limitations set
forth therein, and subject to the restrictions set forth on the first page
hereof, neither this Certificate nor any legal or beneficial interest herein
may be, directly or indirectly, purchased, transferred, sold, pledged,
assigned or otherwise disposed of, and any proposed transferee hereof shall
not become the registered Holder hereof, without the satisfaction of the
conditions set forth in Section 6.05 of the Agreement.
No service charge will be made for any such registration of Transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Trustee, the Servicer, the Certificate Insurer and the Certificate
Registrar and any agent of the foregoing may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee, the Servicer, the Certificate Insurer, the Certificate
Registrar nor any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Stated Maturity Date.
The Servicer, or in the event the Servicer does not exercise its option
to terminate the Trust Fund, the Certificate Insurer, may effect an early
retirement of the Certificates by paying the retransfer price and accepting
retransfer of the Trust Assets pursuant to the terms of the Agreement on any
Distribution Date after the Investor Certificate Principal Balance is less
than or equal to ____% of the Original Investor Certificate Principal Balance
and all amounts due and owing to the Certificate Insurer have been paid;
provided, however, that in no event shall the Trust continue beyond the
expiration of 21 years from the death of certain person named in the
Agreement. Upon retirement of the Certificates in accordance with Section
10.01 of the Agreement, the Trustee shall execute such documents and
instruments of transfer presented by the Servicer or Certificate Insurer and
take such other actions as the Servicer or Certificate Insurer may reasonably
request to effect the retransfer of the Mortgage Loans to the Servicer or
Certificate Insurer.
Any purported Transfer of a Transferor Certificate in violation of the
restriction on Transfer will be null and void and vest no rights to the
purported Transferee.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized officer of the Trustee.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth.
Dated:
______________________
not in its individual capacity but solely
as Trustee
------------------------------
Authorized Officer
Countersigned:
__________________________
By:
--------------------------------
Authorized Officer of
___________________________________,
not in its individual capacity
but solely as Trustee
EXHIBIT C
REVERSE OF INVESTOR CERTIFICATE
This Certificate is one of a duly authorized issue of Certificates
designated as _________________ Home Equity Loan Asset Backed Certificates,
Series 199_-_ (herein called the "Certificates"), and representing, to the
extent specified in the Agreement, an undivided interest in: (i) the Trust
Balances of the Mortgage Loans and the proceeds thereof, (ii) collections in
respect of the Trust's interest in the Mortgage Loans received on or after
the Cut-off Date, (iii) an irrevocable and unconditional limited financial
guarantee insurance policy (the "Policy"), (iii) property that secured a
Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure or otherwise, (iv) the interest of the Trust in certain hazard
insurance policies covering the Mortgaged Properties, and (v) certain other
property relating to the Mortgage Loans.
The Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Agreement. The Certificateholder, by its
acceptance of this Certificate, agrees that it will look solely to the funds
on deposit in the Certificate Account for payment hereunder and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of
the Transferor, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Transferor, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register of the Certificate Registrar upon surrender of this
Certificate for registration of transfer at the office or agency maintained
by the Certificate Registrar for such purpose, accompanied by a written
instrument of transfer in form satisfactory to the Trustee, if so required by
the Trustee, be duly executed by the Holder hereof or such Holder's attorney
duly authorized in writing, and thereupon one or more new Certificates of
authorized denominations, if applicable, and evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered Certificates
without coupons in denominations specified in the Agreement. As provided in
the Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of a like tenor in
authorized denominations (in the case of the Investor Certificates) and
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The Trustee, the Transferor, the Servicer, the Certificate Insurer
and the Certificate Registrar and any agent of the foregoing may treat the
Person in whose name this Certificate is registered as the owner hereof for
all purposes, and neither the Trustee, the Transferor, the Servicer, the
Certificate Insurer, the Certificate Registrar nor any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement and
the Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Stated Maturity Date.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE)
___________________
___________________
- ---------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
- ---------------------------------------------------------------
the within Certificate, and all rights thereunder, and hereby
does irrevocably constitute and appoint
Attorney
- -------------------------------------------------------
to transfer the within Certificate on the books kept for the
registration thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty)
----------------------------
NOTICE: The signature to this assignment
- ------------------------------
must correspond with the name as it appears upon the face of the within
Certificate in every particular, without alteration or enlargement or any
change whatever.
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
EXHIBIT D
REVERSE OF TRANSFEROR CERTIFICATE
This Certificate is one of a duly authorized issue of Certificates
designated as _________________ Home Equity Loan Asset Backed Certificates,
Series 199_-_ (herein called the "Certificates"), and representing, to the
extent specified in the Agreement, an undivided interest in: (i) the Trust
Balances of the Mortgage Loans and the proceeds thereof, (ii) collections in
respect of the Trust's interest in the Mortgage Loans received on or after
the Cut-off Date, (iii) an irrevocable and unconditional limited financial
guarantee insurance policy (the "Policy"), (iii) property that secured a
Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure or otherwise, (iv) the interest of the Trust in certain hazard
insurance policies covering the Mortgaged Properties, and (v) certain other
property relating to the Mortgage Loans.
The Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Agreement. The Certificateholder, by its
acceptance of this Certificate, agrees that it will look solely to the funds
on deposit in the Certificate Account for payment hereunder and that the
Trustee in its individual capacity is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of
the Transferor, the Servicer and the Trustee, and the rights of the
Certificateholders under the Agreement, at any time by the Transferor, the
Servicer and the Trustee with the consent (i) of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 66%
and (ii) of the Certificate Insurer. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Investor Certificates.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register of the Certificate Registrar upon surrender of this
Certificate for registration of transfer at the office or agency maintained
by the Certificate Registrar for such purpose, accompanied by a written
instrument of transfer in form satisfactory to the Trustee, if so required by
the Trustee, be duly executed by the Holder hereof or such Holder's attorney
duly authorized in writing, and thereupon one or more new Certificates of
authorized denominations, if applicable, and evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered Certificates
without coupons in denominations specified in the Agreement. As provided in
the Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of a like tenor in
authorized denominations (in the case of the Investor Certificates) and
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The Trustee, the Transferor, the Servicer, the Certificate Insurer
and the Certificate Registrar and any agent of the foregoing may treat the
Person in whose name this Certificate is registered as the owner hereof for
all purposes, and neither the Trustee, the Transferor, the Servicer, the
Certificate Insurer, the Certificate Registrar nor any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement and
the Trust created thereby shall terminate upon distribution to the
Certificateholders, or provision therefor, of the amount required to be so
distributed in accordance with the Agreement upon the later of (A) payment in
full of all amounts owing to the Certificate Insurer and (B) the earliest of:
(i) the retransfer to the Servicer of the Investor Certificateholders'
interest in each Mortgage Loan and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund for an amount equal to the sum of
(a) the Certificate Principal Balance, (b) accrued and unpaid Certificate
Formula Interest through the day preceding the final Distribution Date, (c)
any Unpaid Certificate Interest Shortfall, and (d) any accrued and unpaid
Investor Loss Reduction Amounts through the day preceding such final
Distribution Date; (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Certificate
Principal Balance to zero; (iii) the final payment or other liquidation (or
any Monthly Advance with respect thereto) of the Trust Balance of the last
Mortgage Loan remaining in the Trust Fund (including without limitation the
disposition of the Mortgage Loans) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage
Loan; and (iv) the Stated Maturity Date.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE)
___________________
___________________
- ---------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
- ---------------------------------------------------------------
the within Certificate, and all rights thereunder, and hereby
does irrevocably constitute and appoint
Attorney
- -------------------------------------------------------
to transfer the within Certificate on the books kept for the
registration thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty)
----------------------------
NOTICE: The signature to this assignment
- ------------------------------
must correspond with the name as it appears upon the face of the within
Certificate in every particular, without alteration or enlargement or any
change whatever.
(*This information, which is voluntary, is being requested to ensure that the
assignee will not be subject to backup withholding under Section 3406 of the
Code.)
EXHIBIT E
(FORM OF NOTICE FOR CERTIFICATE
INSURANCE POLICY)
EXHIBIT F
---------
MORTGAGE LOAN SCHEDULE
Exhibit 5.1
May 23, 1997
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281
Re: Merrill Lynch Mortgage Investors, Inc.
Registration Statement on Form S-3
(File No. 333-24327)
---------------------------------------
Ladies and Gentlemen:
We have acted as counsel for you in connection with the Registration
Statement on Form S-3 (File No. 333-24327) (the "Registration Statement"),
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), for the registration under the Act of up to
$1,000,000,000 aggregate principal amount of Asset Backed Securities (the
"Securities"). Each series of such Securities will be issued pursuant to (i)
a separate pooling and servicing agreement (the "Pooling and Servicing
Agreement"), among Merrill Lynch Mortgage Investors, Inc. (the "Registrant"),
a trustee to be identified in the prospectus supplement for such series of
Securities and a master servicer to be identified in the prospectus
supplement for such series of Securities (the "Master Servicer"), (ii) a
trust agreement (the "Trust Agreement") among a trustee named in the related
prospectus supplement, the Registrant and another entity named in such
prospectus supplement and/or (iii) an indenture (the "Indenture") between the
trust formed pursuant to the Trust Agreement and the indenture trustee named
in the related prospectus supplement.
We have made such investigation of law as we deemed appropriate and have
examined the proceedings heretofore taken and are familiar with the
procedures proposed to be taken by the Registrant in connection with the
authorization, issuance and sale of the Securities.
Based on the foregoing, we are of the opinion that:
(i) When each Pooling and Servicing Agreement and/or Indenture in
respect of which we have participated as your counsel has been duly
authorized by all necessary corporate action and has been duly executed and
delivered, it will constitute a valid and binding obligation of the
Registrant enforceable in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law); and
(ii) When the issuance, execution and delivery of the Securities issued
pursuant to a Pooling and Servicing Agreement or an Indenture in respect of
which we have participated as your counsel have been duly authorized by all
necessary corporate action, and when such Securities have been duly executed
and delivered and sold as described in the Registration Statement, such
Securities will be legally and validly issued and the holders of such
Securities will be entitled to the benefits provided by the Pooling and
Servicing Agreement or the Indenture, as applicable, pursuant to which such
Securities were issued.
In rendering the foregoing opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all
certifications, documents and other proceedings examined by us that have been
executed or certified by officials of the Registrant acting within the scope
of their official capacities and have not verified the accuracy or
truthfulness thereof. We have also assumed the genuineness of the signatures
appearing upon such public records, certifications, documents and
proceedings. In addition, we have assumed that each such Pooling and
Servicing Agreement and Indenture and the related Certificates and Notes, as
applicable, will be executed and delivered in substantially the form filed as
exhibits to the Registration Statement with such changes acceptable to us,
and that such Securities will be sold as described in the Registration
Statement. We express no opinion as to the laws of any jurisdiction other
than the laws of the State of New York and the federal laws of the United
States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration
Statement, without implying or admitting that we are "experts" within the
meaning of the Act or the rules and regulations of the Securities and
Exchange Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
Brown & Wood LLP
Exhibit 5.2
May 23, 1997
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281
Re: Merrill Lynch Mortgage Investors, Inc.
Registration Statement on Form S-3 (File No. 333-24327)
-------------------------------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Merrill Lynch Mortgage
Investors, Inc. (the "Registrant") in connection with the Registration
Statement on Form S-3 (File No. 333-24327) (the "Registration Statement"),
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), for the registration under the Act of up to
$1,000,000,000 aggregate principal amount of Asset Backed Securities
(the "Securities"). Each series of such Securities may be issued pursuant to
a trust agreement (the "Trust Agreement") among a trustee named in the
related prospectus supplement, the Registrant and another entity named in
such prospectus supplement. This opinion is being delivered to you at your
request.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The form of Trust Agreement (including the form of Certificate of
Trust (the "Certificate") attached as Exhibit B thereto); and
(b) The Registration Statement.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed above, and we have assumed that there exists no
provision in any document that we have not reviewed that bears upon or is
inconsistent with the opinions stated herein. We have conducted no
independent factual investigation of our own but rather have relied solely
upon the foregoing documents, the statements and information set forth
therein and the additional matters recited or assumed herein, all of which we
have assumed to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii)
the conformity with the originals of all documents submitted to us as copies
or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement will constitute the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the
creation, operation and termination of the Trust, (ii) the due creation or
due organization or due formation, as the case may be, and valid existence in
good standing of each party to the documents examined by us under the laws of
the jurisdiction governing its creation, organization or formation, (iii) the
legal capacity of natural persons who are parties to the documents examined
by us, and (iv) that each of the parties to the documents examined by us has
the power and authority to execute and deliver, and to perform its
obligations under, such documents. We have not participated in the
preparation of the Registration Statement and assume no responsibility for
its contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered
only with respect to Delaware laws and rules, regulations and orders
thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. When each Trust Agreement in respect of which we have participated
as your counsel has been duly authorized by all necessary corporate action
and has been duly executed and delivered, it will constitute a valid and
binding obligation of the Registrant enforceable in accordance with its
terms; and
2. When the issuance, execution and delivery of the Securities in
respect of which we have participated as your counsel have been duly
authorized by all necessary corporate action, and when such Securities have
been duly executed and delivered and sold as described in the Registration
Statement such Securities will be legally and validly issued and the holders
of such Securities will be entitled to the benefits provided by the Trust
Agreement pursuant to which such Securities were issued.
The foregoing opinions regarding enforceability are subject to (i)
applicable bankruptcy, insolvency, moratorium, reorganization, receivership,
fraudulent conveyance and similar laws relating to or affecting the rights
and remedies of creditors generally, (ii) principles of equity (regardless of
whether considered and applied in a proceeding in equity or at law) and (iii)
the effect of applicable public policy on the enforceability of provisions
relating to indemnification or contribution.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving the foregoing consents, we do not thereby admit that we
come within the category of Persons whose consent is required under Section 7
of the Act, or the rules and regulations of the Securities and Exchange
Commission thereunder with respect to any part of the Registration Statement,
including this exhibit. Except as stated above, this opinion may not be
furnished or quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
Richards, Layton & Finger
Exhibit 8.1
May 12, 1997
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281
Re: Merrill Lynch Mortgage Investors, Inc.
Registration Statement on Form S-3
(File No. 333-24327)
---------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Merrill Lynch Mortgage Investors, Inc., a
Delaware corporation (the "Registrant"), in connection with the issuance and
sale of its Asset Backed Securities (the "Securities") that evidence
interests in, or securities backed by, certain pools of loans. Each series
of Securities will be issued pursuant to (i) a Pooling and Servicing
Agreement among the Registrant, a trustee and a master servicer, each to be
specified in the prospectus supplement for such series of Certificates, (ii)
a trust agreement (the "Trust Agreement") among a trustee named in the
related prospectus supplement, the Registrant and another entity named in
such prospectus supplement and/or (iii) an indenture (the "Indenture")
between the trust formed pursuant to the Trust Agreement and the indenture
trustee named in the related prospectus supplement. We have advised the
Registrant with respect to certain federal income tax consequences of the
proposed issuance of the Securities. This advice is summarized under the
headings "Summary of Prospectus -- Tax Status of the Certificates" and "--
Tax Status of the Notes" and "Certain Federal Income Tax Consequences" in the
Prospectus, all as part of the Registration Statement on Form S-3 (File No.
333-24327) (the "Registration Statement"), filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
as amended on the date hereof for the registration of such Securities under
the Act. Such description does not purport to discuss all possible federal
income tax ramifications of the proposed issuance, but with respect to those
tax consequences which are discussed, in our opinion, the description is
accurate in all material respects.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as counsel to the
Registrant) under the heading "Certain Federal Income Tax Consequences" in
the Prospectus forming a part of the Registration Statement, without implying
or admitting that we are "experts" within the meaning of the Act or the rules
and regulations of the Commission issued thereunder, with respect to any part
of the Registration Statement, including this exhibit.
Very truly yours,
Brown & Wood LLP
Exhibit 99.3
- -----------------------------------------------------------------------------
MERRILL LYNCH MORTGAGE INVESTORS, INC.,
as Purchaser,
and
______________________________
as Seller,
MORTGAGE LOAN PURCHASE AGREEMENT
Dated as of ___________, 199_
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II SALE OF MORTGAGE LOANS; PAYMENT OF
PURCHASE PRICE . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Sale of the Mortgage Loans . . . . . . . . . . . . . 1
Section 2.2 Obligations of Seller Upon Sale . . . . . . . . . . . 2
Section 2.3 Payment of Purchase Price for the Mortgage Loans . . 4
ARTICLE III REPRESENTATIONS AND WARRANTIES;
REMEDIES FOR BREACH . . . . . . . . . . . . . . . . . 4
Section 3.1 Seller Representations and Warranties . . . . . . . . 4
Section 3.2 Seller Representations and Warranties
Relating to the Mortgage Loans . . . . . . . . . . . 6
ARTICLE IV SELLER'S COVENANTS . . . . . . . . . . . . . . . . . 12
Section 4.1 Covenants of the Seller . . . . . . . . . . . . . . . 12
ARTICLE V SERVICING . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.1 Servicing . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI INDEMNIFICATION BY THE SELLER
WITH RESPECT TO THE MORTGAGE LOANS . . . . . . . . . 13
Section 6.1 Indemnification . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII TERMINATION . . . . . . . . . . . . . . . . . . . . . 17
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . 17
Section 8.1 Amendment . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.2 Governing Law . . . . . . . . . . . . . . . . . . . . 17
Section 8.3 Notices . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.4 Severability of Provisions . . . . . . . . . . . . . 18
Section 8.5 Counterparts . . . . . . . . . . . . . . . . . . . . 18
Section 8.6 Further Agreements . . . . . . . . . . . . . . . . . 18
Section 8.7 Successors and Assigns: Assignment of the
Mortgage Loan Purchase Agreement . . . . . . . . . 18
Section 8.8 Survival . . . . . . . . . . . . . . . . . . . . . . 19
MORTGAGE LOAN PURCHASE AGREEMENT, dated as of _____________, 199_ (this
"Agreement"), between ________________________ (the "Seller") and Merrill
Lynch Mortgage Investors, Inc. (the "Purchaser").
W I T N E S S E T H
-------------------
WHEREAS, the Seller is the owner of the notes or other evidence of
indebtedness (the "Mortgage Notes") so indicated on Schedule I hereto, and
Related Documentation (as defined below) (collectively, the "Mortgage
Loans"); and
WHEREAS, the Seller owns the mortgages (the "Mortgages") on the
properties (the "Mortgaged Properties") securing such Mortgage Loans,
including rights to (a) any property acquired by foreclosure or deed in lieu
of foreclosure or otherwise and (b) the proceeds of any hazard insurance
policies in respect of the Mortgage Loans; and
WHEREAS, the parties hereto desire that the Seller sell the Mortgage
Loans to the Purchaser pursuant to the terms of this Agreement; and
WHEREAS, pursuant to the terms of a Pooling and Servicing Agreement
dated as of ________________, 199_ (the "Pooling and Servicing Agreement")
among the Purchaser, as depositor, the Seller, as seller and servicer, and
____________________, as trustee (the "Trustee"), the Purchaser will convey
the Mortgage Loans to the Trust.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used but not defined
herein shall have the meanings assigned thereto in the Pooling and Servicing
Agreement.
ARTICLE II
SALE OF MORTGAGE LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of the Mortgage Loans. The Seller, concurrently
--------------------------
with the execution and delivery of this Agreement, does hereby sell, assign,
set over, and otherwise convey to the Purchaser, without recourse, all of its
right, title and interest in, to and under the following, whether now
existing or hereafter created: (i) each Mortgage Loan, including its Asset
Balance (including all Additional Balances) and all collections in respect
thereof received on or after the Cut-off Date (excluding payments in respect
of accrued interest due prior to the Cut-off Date or due in the month of
______________); (ii) property that secured a Mortgage Loan that is acquired
by foreclosure or deed in lieu of foreclosure; (iii) the interest of the
Seller in any hazard insurance policies in respect of the Mortgage Loans;
(iv) all rights under any guaranty executed in connection with a Mortgage
Loan; and (v) all proceeds of the foregoing.
Section 2.2 Obligations of Seller Upon Sale. In connection with
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any transfer pursuant to Section 2.1 hereof, the Seller further agrees, at
its own expense, on or prior to the Closing Date, (a) to indicate in its
books and records that the Mortgage Loans have been sold to the Trustee, as
assignee of the Purchaser, pursuant to this Agreement and (b) to deliver to
the Purchaser a Mortgage Loan Schedule containing a true and complete list of
all such Mortgage Loans specifying for each such Mortgage Loan, among other
things, as of the Cut-off Date (i) its account number and (ii) the related
Cut-off Date Asset Balance. Such Mortgage Loan Schedule forms a part of
Exhibit __ to the Pooling and Servicing Agreement and shall also be marked as
Schedule I to this Agreement and is hereby incorporated into and made a part
of this Agreement.
The Seller agrees to prepare, execute and file a UCC-1 financing
statement with the Secretary of State in the State of ___________ (which
shall have been filed on or before the Closing Date with respect to the
Mortgage Loans) describing the applicable Mortgage Loans and naming the
Seller as debtor and the Purchaser (and indicating that such loans have been
assigned to the Trustee) as secured party and all necessary continuation
statements and any amendments to the UCC-1 financing statements required to
reflect a change in the name or corporate structure of the Seller or the
filing of any additional UCC-1 financing statements due to the change in the
principal offices of the Seller, as are necessary to perfect and protect the
Trustee's interest in each Mortgage Loan and the proceeds thereof.
In connection with any conveyance by the Seller, the Seller will deliver
to the Servicer, as custodian and bailee for the Trustee, the following
documents or instruments with respect to each Mortgage Loan (the "Related
Documentation"):
(i) the original Mortgage Note endorsed in blank;
(ii) an original Assignment of Mortgage in blank in recordable
form;
(iii) the original recorded Mortgage or, if, in connection with any
Mortgage Loan, the original recorded Mortgage with evidence of recording
thereon is not deliverable on or prior to the Closing Date because of a
delay caused by the public recording office where such original Mortgage
has been delivered for recordation or because such original Mortgage has
been lost, the Seller, at the direction of the Purchaser, shall deliver
or cause to be delivered to the Custodian, as agent for the Trustee, a
true and correct copy of such Mortgage, together with (i) in the case of
a delay caused by the public recording office, an Officer's Certificate
of the Purchaser stating that such original Mortgage has been dispatched
to the appropriate public recording official or (ii) in the case of an
original Mortgage that has been lost, a certificate by the appropriate
county recording office where such Mortgage is recorded;
(iv) if applicable, the original intervening assignments, if any
("Intervening Assignments"), with evidence of recording thereon, showing
a complete chain of title to the Mortgage from the originator to the
Purchaser or, if any such original Intervening Assignment has not been
returned from the applicable recording office or has been lost, a true
and correct copy thereof, together with (i) in the case of a delay
caused by the public recording office, an Officer's Certificate of the
Seller stating that such original Intervening Assignment has been
dispatched to the appropriate public recording official for recordation
or (ii) in the case of an original Intervening Assignment that has been
lost, a certificate by the appropriate county recording office where
such Mortgage is recorded;
(v) either (1) for each Mortgage Loan with a Credit Limit in
excess of $________, a title policy or (2) for all other Mortgage Loans,
either a title policy, a title search or guaranty of title with respect
to the related Mortgaged Property;
(vi) the original of any guaranty executed in connection with the
Mortgage Note;
(vii) the original of each assumption, modification, consolidation
or substitution agreement, if any, relating to the Mortgage Loan; and
(viii) any security agreement, chattel mortgage or equivalent
instrument executed in connection with the Mortgage.
The Seller further hereby confirms to the Purchaser that, as of the
Closing Date, it has caused the portions of the Electronic Ledger relating to
the Mortgage Loans maintained by the Seller to be clearly and unambiguously
marked to indicate that the Mortgage Loans have been sold to the Trustee, as
assignee of the Purchaser.
The Purchaser hereby acknowledges its acceptance of all right, title and
interest to the Mortgage Loans and other property, now existing and hereafter
created, conveyed to it pursuant to this Section 2.2.
The parties hereto intend that the transaction set forth herein be a
sale by the Seller to the Purchaser of all the Seller's right, title and
interest in and to the Mortgage Loans and other property described above. In
the event the transaction set forth herein is deemed not to be a sale, the
Seller hereby grants to the Purchaser a security interest in all of the
Seller's right, title and interest in, to and under the Mortgage Loans and
other property described above, whether now existing or hereafter created, to
secure all of the Seller's obligations hereunder; and this Agreement shall
constitute a security agreement under applicable law.
The Servicer shall be entitled to maintain possession of all of the
foregoing documents and instruments to the extent such possession is
permitted under the Pooling and Servicing Agreement and at such time as such
possession is no longer permitted, the Seller shall or shall cause the
Servicer to deliver such documents and instruments and or opinion of counsel
referred to in the Pooling and Servicing Agreement and in accordance with the
provisions of the Pooling and Servicing Agreement.
Section 2.3 Payment of Purchase Price for the Mortgage Loans. In
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consideration of the sale of the Mortgage Loans from the Seller to the
Purchaser on the Closing Date, the Purchaser agrees to pay to the Seller on
the Closing Date by transfer of immediately available funds, an amount equal
to $___________ (the "Purchase Price"), net of an expense reimbursement
amount of $__________ and to transfer to the Seller on the Closing Date the
Transferor Certificates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES;
REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties. The Seller
-------------------------------------
represents and warrants to the Purchaser as of the Closing Date:
(i) The Seller is a ___________ corporation, validly existing and
in good standing under the laws of the State of ____________, and has
the corporate power to own its assets and to transact the business in
which it is currently engaged. The Seller is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the character of the business transacted by it or
any properties owned or leased by it requires such qualification and in
which the failure so to qualify would have a material adverse effect on
the business, properties, assets, or condition (financial or other) of
the Seller;
(ii) The Seller has the power and authority to make, execute,
deliver and perform this Agreement and all of the transactions
contemplated under the Agreement, and has taken all necessary corporate
action to authorize the execution, delivery and performance of this
Agreement. When executed and delivered, this Agreement will constitute
the legal, valid and binding obligation of the Seller enforceable in
accordance with its terms, except as enforcement of such terms may be
limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies;
(iii) The Seller is not required to obtain the consent of any other
party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity
or enforceability of this Agreement, except for such consent, license,
approval or authorization, or registration or declaration, as shall have
been obtained or filed, as the case may be, prior to the Closing Date;
(iv) The execution, delivery and performance of this Agreement by
the Seller will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the Seller
or any provision of the Certificate of Incorporation or Bylaws of the
Seller, or constitute a material breach of any mortgage, indenture,
contract or other agreement to which the Seller is a party or by which
the Seller may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the
knowledge of the Seller threatened, against the Seller or any of its
properties or with respect to this Agreement or the Certificates which
in the opinion of the Seller has a reasonable likelihood of resulting in
a material adverse effect on the transactions contemplated by this
Agreement.
It is understood and agreed that the representations and warranties set
forth in this Section 3.1 shall survive the sale and assignment of the
Mortgage Loans to the Purchaser. The Seller shall cure a breach of any
representations and warranties in accordance with the Pooling and Servicing
Agreement. It is understood and agreed that the remedy specified in the
Pooling and Servicing Agreement shall constitute the sole remedy against the
Seller respecting such breach.
Section 3.2 Seller Representations and Warranties Relating to the
-----------------------------------------------------
Mortgage Loans. The Seller represents and warrants to the Purchaser as of
- --------------
the Cut-off Date, unless otherwise specifically set forth herein:
(i) As of the Closing Date, this Agreement constitutes a legal,
valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms, except as enforcement of such terms
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the enforcement
of creditors' rights generally and by the availability of equitable
remedies;
(ii) As of the Closing Date with respect to the Mortgage Loans and
as of the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, either (A) this Agreement constitutes a valid
transfer and assignment to the Purchaser of all right, title and
interest of the Seller in and to the Cut-off Date Asset Balances with
respect to the applicable Mortgage Loans, all monies due or to become
due with respect thereto (excluding payments in respect of accrued
interest due prior to the Cut-off Date or due in the month of ________),
and all proceeds of such Cut-off Date Asset Balances with respect to the
Mortgage Loans and such funds as are from time to time deposited in the
Collection Account (excluding any investment earnings thereon) and all
other property specified in the definition of "Asset" in the Pooling and
Servicing Agreement as being part of the corpus of the Trust conveyed to
the Trust by the Purchaser, and upon payment for the Additional
Balances, will constitute a valid transfer and assignment to the
Purchaser of all right, title and interest of the Seller in and to the
Additional Balances, all monies due or to become due with respect
thereto, and all proceeds of such Additional Balances and all other
property specified in the definition of "Asset" relating to the
Additional Balances or (B) this Agreement constitutes a grant of a
security interest (as defined in the UCC as in effect in ____________)
in such property to the Purchaser. If this Agreement constitutes the
grant of a security interest to the Purchaser in such property, and if
the Purchaser obtains and maintains possession of the Mortgage File for
each Mortgage Loan, the Purchaser shall have a first priority perfected
security interest in such property, subject to the effect of Section
______ of the UCC with respect to collections on the Mortgage Loans that
are deposited in the Collection Account in accordance with the next to
last paragraph of Section ______ of the Pooling and Servicing Agreement;
provided, however, that nothing in this clause (ii) shall be construed
to obligate the Seller to deliver any Mortgage Files other than as set
forth in Section 2.2 hereof;
(iii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan and as of the date any Additional Balance is created, the
information set forth in the Mortgage Loan Schedule for such Mortgage
Loans is true and correct in all material respects;
(iv) The applicable Cut-off Date Asset Balance has not been
assigned or pledged, and the Seller is the sole owner and holder of such
Cut-off Date Asset Balance free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or
security interests of any nature, and has full right and authority,
under all governmental and regulatory bodies having jurisdiction over
the ownership of the applicable Mortgage Loan, to sell, assign or
transfer the same pursuant to this Agreement;
(v) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, the related Mortgage Note and the Mortgage with respect to each
Mortgage Loan have not been assigned or pledged, and the Seller is the
sole owner and holder of the Mortgage Loan free and clear of any and all
liens, claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having juris-
diction over the ownership of the applicable Mortgage Loans, to sell and
assign the same pursuant to this Agreement;
(vi) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, the related Mortgage is a valid and subsisting first or second
lien, as set forth on the Mortgage Loan Schedule with respect to each
related Mortgage Loan, on the property therein described, and as of the
applicable Cut-off Date the related Mortgaged Property is free and clear
of all encumbrances and liens having priority over the first or second
lien, as applicable, of such Mortgage except for liens for (i) real
estate taxes and special assessments not yet delinquent; (ii) any first
mortgage loan secured by such Mortgaged Property and specified on the
Mortgage Loan Schedule; (iii) covenants, conditions and restrictions,
rights of way, easements and other matters of public record as of the
date of recording that are acceptable to mortgage lending institutions
generally; and (iv) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage;
(vii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, there is no valid offset, defense or counterclaim of any obligor
under any Credit Line Agreement or Mortgage;
(viii) To the best knowledge of the Seller, as of the Closing Date
with respect to the Mortgage Loans and the applicable Transfer Date with
respect to any substitute Mortgage Loan, there is no delinquent
recording or other tax or fee or assessment lien against any related
Mortgaged Property;
(ix) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, there is no proceeding pending or, to the best knowledge of the
Seller, threatened for the total or partial condemnation of the related
Mortgaged Property, and such property is free of material damage;
(x) To the best knowledge of the Seller, as of the Closing Date
with respect to the Mortgage Loans and the applicable Transfer Date with
respect to any substitute Mortgage Loan, there are no mechanics' or
similar liens or claims which have been filed for work, labor or
material affecting the related Mortgaged Property which are, or may be,
liens prior or equal to the lien of the related Mortgage, except liens
which are fully insured against by the title insurance policy referred
to in clause (xiv);
(xi) No Monthly Payment is more than 89 days delinquent (measured
on a contractual basis); and with respect to the Mortgage Loans no more
than ____% (by Cut-off Date Pool Balance) were 30-59 days delinquent
(measured on a contractual basis) and no more than _____% (by Cut-off
Date Pool Balance) were 60-89 days delinquent (measured on a contractual
basis);
(xii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, for each Mortgage Loan, the related Mortgage File contains each of
the documents and instruments specified to be included therein;
(xiii) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and
federal laws, including, without limitation, usury, truth-in-lending,
real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan;
(xiv) Either a lender's title insurance policy or binder was issued
on the date of origination of the Mortgage Loan and each such policy is
valid and remains in full force and effect, or a title search or
guaranty of title customary in the relevant jurisdiction was obtained
with respect to a Mortgage Loan as to which no title insurance policy or
binder was issued;
(xv) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, none of the Mortgaged Properties is a mobile home or a
manufactured housing unit that is not considered or classified as part
of the real estate under the laws of the jurisdiction in which it is
located;
(xvi) As of the Cut-off Date for the Mortgage Loans no more than
____% of such Mortgage Loans, by aggregate principal balance, are
secured by Mortgaged Properties located in one United States postal zip
code;
(xvii) The Combined Loan-to-Value Ratio for each Mortgage Loan was
not in excess of ___%;
(xviii) No selection procedure reasonably believed by the Seller to
be adverse to the interests of the Certificateholders or the Credit
Enhancer was utilized in selecting the Mortgage Loans;
(xix) The Seller has not transferred the Mortgage Loans to the
Purchaser with any intent to hinder, delay or defraud any of its
creditors;
(xx) Within 90 days of the Closing Date with respect to the
Mortgage Loans and, to the extent not already included in such filing
with respect to the Mortgage Loans, the applicable Transfer Date with
respect to any substitute Mortgage Loan, the Seller will have filed
UCC-1 financing statements with respect to the Mortgage Loans;
(xxi) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, each Credit Line Agreement and each Mortgage Loan is an
enforceable obligation of the related Mortgagor, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect affecting the enforcement of creditors' rights generally and by
the availability of equitable remedies;
(xxii) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, the Seller has not received a notice of default of any senior
mortgage loan related to a Mortgaged Property that has not been cured by
a party other than the Servicer;
(xxiii) The definition of Prime Rate in each Credit Line
Agreement relating to a Mortgage Loan does not differ materially from
the definition in the form of Credit Line Agreement in Exhibit __ of the
Pooling and Servicing Agreement;
(xxiv) The weighted average remaining term to maturity of the
Mortgage Loans on a contractual basis as of the Cut-off Date for the
Mortgage Loans is approximately ___ months. On each date that the Loan
Rates have been adjusted, interest rate adjustments on the Mortgage
Loans were made in compliance with the related Mortgage and Mortgage
Note and applicable law. Over the term of each Mortgage Loan, the Loan
Rate may not exceed the related Loan Rate Cap, if any. The Loan Rate
Caps range between ____% and _____%. The Margins range between ____%
and _____% and the weighted average Margin is approximately _____% as of
the Cut-off Date for the Mortgage Loans. The Loan Rates on such
Mortgage Loans range between _____% and _____% and the weighted average
Loan Rate is approximately _____%.
(xxv) As of the Closing Date with respect to the Mortgage Loans and
the applicable Transfer Date with respect to any substitute Mortgage
Loan, each Mortgaged Property consists of a single parcel of real
property with a one-to-four unit single family residence erected
thereon, or an individual condominium unit, planned unit development
unit or townhouse;
(xxvi) No more than ____% (by Cut-off Date Pool Balance) of the
Mortgage Loans are secured by real property improved by individual
condominium units, planned development units, townhouses or two-to-four
family residences erected thereon, and at least _____% (by Cut-off Date
Pool Balance) of the Mortgage Loans are secured by real property with a
detached one-family residence erected thereon;
(xxvii) The Credit Limits on the Mortgage Loans range between
approximately $_________ and $_________ with an average of
$____________. As of the Cut-off Date for the Mortgage Loans, no
Mortgage Loan had a principal balance in excess of approximately
$___________ and the average principal balance of the Mortgage Loans is
equal to approximately $____________; and
(xxviii) Approximately ____% and _____% of the Mortgage Loans,
by aggregate principal balance as of the Cut-off Date for the Mortgage
Loans, are first and second liens, respectively.
In the event of a breach of representation or warranty under the Pooling
and Servicing Agreement, and with respect to the representations and
warranties set forth in this Section 3.2 that are made to the best of the
Seller's knowledge or as to which the Seller has no knowledge, if it is
discovered by the Purchaser, the Seller, the Servicer or a Responsible
Officer of the Trustee that the substance of such representation and warranty
is inaccurate and such inaccuracy materially and adversely affects the
interest of the Purchaser or its assignee in the related Mortgage Loan then
notwithstanding the Seller's lack of knowledge with respect to the substance
of such representation and warranty being inaccurate at the time the
representation or warranty was made, such inaccuracy shall be deemed a breach
of the applicable representation or warranty and with respect to any breach
of such representation or warranty or of any other representation or warranty
that materially and adversely affects the interest of the Purchaser or its
assignee in the related Mortgage Loan, the Seller shall cure, repurchase or
substitute in accordance with the Pooling and Servicing Agreement.
It is understood and agreed that the representations and warranties set
forth in this Section 3.2 shall survive the transfer and assignment of the
Mortgage Loans to the Purchaser. It is understood and agreed that the
obligation of the Seller to accept a transfer of a Mortgage Loan as to which
a breach has occurred and is continuing and has not been cured and to make
any required deposit in the Collection Account or to substitute an substitute
Mortgage Loan, as the case may be, under Section ______ of the Pooling and
Servicing Agreement, shall constitute the sole remedy against the Seller
respecting such breach available to the Purchaser, the Certificateholders,
the Trustee on behalf of the Certificateholders and the Credit Enhancer.
The Purchaser acknowledges that the Seller, as Servicer, in its sole
discretion, shall have the right to purchase for its own account from the
Trust any Mortgage Loan which is 91 days or more delinquent at a price equal
to the purchase price described below. The price for any Mortgage Loan
purchased hereunder (which shall be calculated in the same manner set forth
in Section _____ of the Pooling and Servicing Agreement) shall be deposited
in the Collection Account and the Trustee, upon receipt of a certificate from
the Servicer in the form of Exhibit __ of the Pooling and Servicing
Agreement, shall release or cause to be released to the purchaser of such
Mortgage Loan the related Mortgage File and shall execute and deliver such
instruments of transfer or assignment prepared by the purchaser of such
Mortgage Loan, in each case without recourse, as shall be necessary to vest
in the purchaser of such Mortgage Loan any Mortgage Loan released pursuant
hereto and the purchaser of such Mortgage Loan shall succeed to all the
Trustee's right, title and interest in and to such Mortgage Loan and all
security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Mortgage
Loan shall thereupon own such Mortgage Loan, and all security and documents,
free of any further obligation to the Trustee, the Credit Enhancer or the
Certificateholders with respect thereto.
ARTICLE IV
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller. The Seller hereby covenants
-----------------------
that except for the transfer hereunder, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any Lien on any Mortgage Loan, or any interest therein; the
Seller will notify the Trustee, as assignee of the Purchaser, of the
existence of any Lien on any Mortgage Loan immediately upon discovery
thereof; and the Seller will defend the right, title and interest of the
Trustee, as assignee of the Purchaser, in, to and under the Mortgage Loans,
against all claims of third parties claiming through or under the Seller;
provided, however, that nothing in this Section 4.1 shall prevent or be
deemed to prohibit the Seller from suffering to exist upon any of the
Mortgage Loans any Liens for municipal or other local taxes and other
governmental charges if such taxes or governmental charges shall not at the
time be due and payable or if the Seller shall currently be contesting the
validity thereof in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves with respect thereto.
ARTICLE V
SERVICING
Section 5.1 Servicing. The Seller will be the Servicer of the
---------
Mortgage Loans pursuant to the terms and conditions of the Pooling and
Servicing Agreement.
ARTICLE VI
INDEMNIFICATION BY THE SELLER
WITH RESPECT TO THE MORTGAGE LOANS
Section 6.1 Indemnification. (a) The Seller agrees to indemnify
---------------
and hold harmless the Purchaser, each of its directors, each of its officers
who have signed the Registration Statement, and each of its directors and
each person or entity who controls the Purchaser or any such person, within
the meaning of Section 15 of the Securities Act, against any and all losses,
claims, damages or liabilities, joint and several, to which the Purchaser, or
any such person or entity may become subject, under the Securities Act or
otherwise, and will reimburse the Purchaser and each such controlling person
for any legal or other expenses incurred by the Purchaser or such controlling
person in connection with investigating or defending any such loss, claims,
damages or liabilities insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Prospectus Supplement or any amendment or supplement to the Prospectus
Supplement approved in writing by the Seller or the omission or the alleged
omission to state therein a material fact necessary in order to make the
statements in the Prospectus Supplement or any amendment or supplement to the
Prospectus Supplement approved in writing by the Seller, in the light of the
circumstances under which they were made, not misleading, but only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission relates to the information contained in the Prospectus
Supplement in the third paragraph of the caption "Maturity and Prepayment
Considerations" and under the captions "Summary--The Mortgage Loans", "The
Servicer", "The Seller's Home Equity Loan Program" and "Description of the
Mortgage Loans" (such information, the "Seller Information"). This indemnity
agreement will be in addition to any liability which the Seller may otherwise
have.
(b) The Purchaser agrees to indemnify and hold harmless the Seller
against any and all losses, claims, damages or liabilities, joint and
several, to which the Seller, or any such person or entity may become
subject, under the Securities Act or otherwise, and will reimburse the Seller
for any legal or other expenses incurred by the Seller or such controlling
person in connection with investigating or defending any such losses, claims,
damages or liabilities insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Prospectus Supplement or any amendment or supplement to the Prospectus
Supplement or the omission or the alleged omission to state therein a
material fact necessary in order to make the statements in the Prospectus
Supplement or any amendment or supplement to the Prospectus Supplement, in
the light of the circumstances under which they were made, not misleading,
but only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission relates to the information contained in the
Prospectus Supplement other than the Seller Information. This indemnity
agreement will be in addition to any liability which the Purchaser may
otherwise have.
(c) The Seller agrees to indemnify and to hold the Purchaser harmless
against any and all claims, losses, penalties, fines, forfeitures, legal fees
and related costs, judgments, awards and any other costs, fees and expenses
that the Purchaser or its assignee may sustain arising out of or based on
this Agreement by reason of any acts, omissions, or alleged acts or omissions
arising out of activities of the Seller in violation or alleged violation of
any Federal, state or local law applicable to the origination or servicing of
the Mortgage Loans. The Seller shall immediately notify the Purchaser if a
claim is made by a third party with respect to this Agreement, the Seller
shall assume the defense of any such claim and pay all expenses in connection
therewith, including reasonable counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Purchaser or
its assignee in respect of such claim. Pursuant to the Pooling and Servicing
Agreement, the Trustee shall reimburse the Seller in accordance with Section
______ of the Pooling and Servicing Agreement for all amounts advanced by the
Seller pursuant to the preceding sentence.
(d) Promptly after receipt by any indemnified party under this Article
VI of notice of any claim or the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Article VI, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however,
that the failure to notify an indemnifying party shall not relieve it from
any liability which it may have under this Article VI except to the extent it
has been materially prejudiced by such failure and, provided further, that
the failure to notify any indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under
this Article VI.
If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemni-
fied party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Article VI for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
Any indemnified party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
the indemnifying party and in the reasonable judgment of such counsel it is
advisable for such indemnified party to employ separate counsel; or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if
such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to local counsel) at any time for all such indemnified
parties, which firm shall be designated in writing by the Purchaser, if the
indemnified parties under this Article VI consist of the Purchaser, or by the
Seller, if the indemnified parties under this Article VI consist of the
Seller.
Each indemnified party, as a condition of the indemnity agreements
contained in Section 6.1(a), (b) and (c), shall use its best efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there
be a final judgment for the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Article
VI is for any reason held to be unenforceable although applicable in
accordance with its terms, the Seller, on the one hand, and the Purchaser, on
the other, shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Seller and the Purchaser in such proportions as shall be
appropriate to reflect the relative benefits received by the Seller on the
one hand and the Purchaser on the other from the sale of the Mortgage Loans
such that the Purchaser is responsible for that portion represented by the
percentage that the underwriting discount appearing on the cover page of the
Prospectus Supplement with respect to the Class __ Certificates (the
"Underwriting Discount") bears to the sum of the Purchase Price and the
Underwriting Discount and the Seller shall be responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls the Purchaser within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Purchaser and each director of
the Seller, each officer of the Seller, and each person, if any, who controls
the Seller within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as the Seller.
ARTICLE VII
TERMINATION
Section 7.1 Termination. The respective obligations and
-----------
responsibilities of the Seller and the Purchaser created hereby shall
terminate, except for the Seller's and Purchaser's indemnity obligations as
provided herein, upon the termination of the Trust as provided in Article X
of the Pooling and Servicing Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Amendment. This Agreement may be amended from time to
---------
time by the Seller and the Purchaser, with the consent of the Credit
Enhancer, by written agreement signed by the Seller and the Purchaser.
Section 8.2 Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New York and the
obligations, rights and remedies of the parties hereunder shall be determined
in accordance with such laws.
Section 8.3 Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by registered mail, postage prepaid,
addressed as follows:
(i) if to the Seller:
_______________________
Attention: ____________
or, such other address as may hereafter be furnished to the Purchaser in
writing by the Seller.
(ii) if to the Purchaser:
Merrill Lynch Mortgage Investors, Inc.
World Financial Center
New York, NY 10281-1310
Attention: _______________
or such other address as may hereafter be furnished to the Seller in writing
by the Purchaser.
Section 8.4 Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions of terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity of enforceability of the other provisions of this Agreement.
Section 8.5 Counterparts. This Agreement may be executed in one
------------
or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original and such counterparts, together, shall constitute one and the same
agreement.
Section 8.6 Further Agreements. The Purchaser and the Seller each
------------------
agree to execute and deliver to the other such additional documents,
instruments or agreements as may be necessary or reasonable and appropriate
to effectuate the purposes of this Agreement or in connection with the
issuance of any series of Certificates representing interests in the Mortgage
Loans.
Section 8.7 Successors and Assigns: Assignment of Mortgage Loan
---------------------------------------------------
Purchase Agreement. This Agreement shall bind and inure to the benefit of
- ------------------
and be enforceable by the Seller, the Purchaser, the Trustee and the Credit
Enhancer. The obligations of the Seller under this Agreement cannot be
assigned or delegated to a third party without the consent of the Purchaser,
except that the Purchaser acknowledges and agrees that the Seller may assign
its obligations hereunder to any Person into which the Seller is merged or
any corporation resulting from any merger, conversion or consolidation to
which the Seller is a party or any Person succeeding to the business of the
Seller. The parties hereto acknowledge that the Purchaser is acquiring the
Mortgage Loans for the purpose of contributing them to a trust that will
issue a series of Certificates representing undivided interests in such
Mortgage Loans. As an inducement to the Purchaser to purchase the Mortgage
Loans, the Seller acknowledges and consents to the assignment by the
Purchaser to the Trustee of all of the Purchaser's rights against the Seller
pursuant to this Agreement insofar as such rights relate to Mortgage Loans
transferred to such Trustee and to the enforcement or exercise of any right
or remedy against the Seller pursuant to this Agreement by the Trustee or the
Credit Enhancer under the Pooling and Servicing Agreement. Such enforcement
of a right or remedy by the Trustee or the Credit Enhancer shall have the
same force and effect as if the right or remedy had been enforced or
exercised by the Purchaser directly.
Section 8.8 Survival. The representations and warranties set
--------
forth in Article III and the provisions of Article VI shall survive the
purchase of the Mortgage Loans hereunder.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names
to be signed to this Agreement by their respective officers thereunto duly
authorized as of the day and year first above written.
MERRILL LYNCH MORTGAGE INVESTORS, INC.
as Purchaser
By:____________________________________
Name:
Title:
____________________________________
as Seller
By:____________________________________
Name:
Title:
Schedule I
SCHEDULE OF
MORTGAGE LOANS
--------------
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the ____________ day of ______________ before me, a Notary
Public in and for said State, personally appeared __________________, known
to me to be a _______________________ of MERRILL LYNCH MORTGAGE INVESTORS,
INC., the corporation that executed the within instrument, and also known to
me to be the person who executed it on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
_________________________________
Notary Public
STATE OF )
)ss.:
COUNTY OF )
On the ____ day of __________________ before me, ________________ of
_________________________, personally appeared, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on
the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
_________________________________
Notary Public
