AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
REGISTRATION NO. 333-39127
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 3
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..................... $4,000,000,000 100% $4,000,000,000 $1,180,000(3)
====================================================================================================================================
</TABLE>
(1) This Registration Statement relates to the initial offering from time
to time of $1,000,000 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 this amount, $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 AMENDED, THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO
THE REGISTRANT'S REGISTRATION STATEMENTS ON FORM S-11 (REGISTRATION NO.
33-74332) (IN RESPECT OF WHICH THERE REMAINS $491,699,885 OF UNSOLD SECURITIES
AND $169,552 OF UNUSED REGISTRATION FEE), AND ON FORM S-3 (REGISTRATION NO.
333-24327)(IN RESPECT OF WHICH THERE REMAIN $199,000,000 OF UNSOLD SECURITIES
AND $60,192 OF UNUSED REGISTRATION FEE) AND THE UNSOLD SECURITIES REGISTERED
THEREUNDER AND THIS REGISTRATION STATEMENT CONSTITUTES A POST-EFFECTIVE
AMENDMENT THERETO.
EXPLANATORY NOTE
This Registration Statement includes two base prospectuses and one
illustrative form of prospectus supplement for use in an offering of Asset
Backed Securities. The descriptions in the forms of prospectus supplements of
the Asset Backed Securities, credit enhancement mechanisms or other features are
intended merely as illustrations of possible series of Asset Backed Securities.
The form of prospectus supplement is a form that may be used, among others, by
the registrant to offer Asset Backed Securities under this Registration
Statement. A prospectus supplement may offer any type of Asset Backed Security
contemplated in the base prospectuses. The features applicable to any actual
series of Asset Backed Securities may include some, all or none of the features
so illustrated in the form of prospectus supplement, and may include any
features specified in the prospectuses.
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.
SUBJECT TO COMPLETION, DATED MAY 28, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus ______________________1998)
$_________________
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 in Mortgage Loans,] 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 FACTORS SET FORTH
UNDER THE CAPTION "RISK FACTORS" [HEREIN ON PAGE ___ AND] IN THE PROSPECTUS ON
PAGE ___.
[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 _____________, 199_
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
"Material 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.
[This Prospectus Supplement may be used by the Underwriter, an affiliate of
the Asset Seller and the Master Servicer, in connection with offers and sales
related to market making transactions in the Certificates.]
______________
THE CLASS [ ] CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES AND ARE BEING OFFERED PURSUANT TO THE
DEPOSITOR'S 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.
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.
Issuer ............................ The trust fund (the "Trust Fund") to be
formed pursuant to the Pooling and
Servicing Agreement.
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].
Risk Factors....................... There are material risks to be
considered in investing the
Certificates. See "Risk Factors" [herein
and] in the Prospectus.
[The Mortgage Pool................. The Mortgage Pool will consist of [[con-
ventional], [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 MBS, 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.
Material 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, as
amended (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.
For further information regarding the
federal income tax consequences of
investing in the Class [ ] Certificates,
see "Material 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
("ERlSA"), 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 uncertain-
ties. The Class [ ] Certificates [will]
[will not] be "mortgage related
securities" within the meaning of the
Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") [so long as they
are rated in at least the second highest
rating category by 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 in the
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 and 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"). 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
Mortgage Asset Seller'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 in respect of the Mortgage Loans. 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:
Mortgage Rates as of the Cut-off Date
-------------------------------------
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
- ------------- ------- -------- ---------------- ----------------
Total 100.00% $ 100.00%
======= ======= =========== =======
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:
Property Type
-------------
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
- ---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
Note: Percentage totals may not add due to rounding.
[The following table sets forth the range of Gross Margins for the Mortgage
Loans:]
[Gross Margins]
-------------
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
- ------------- ------- -------- ---------------- ----------------
Total 100.00% $ 100.00%
======= ======== =========== =======
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:]
[Frequency of Adjustments to Mortgage Rates]
------------------------------------------
Percent by
Aggregate Aggregate
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
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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:]
[Frequency of Adjustments to Monthly Payments]
--------------------------------------------
Percent by
Aggregate Aggregate
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
- ------------- --------- -------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======== =========== =======
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:]
[Maximum Lifetime Mortgage Rates]
-------------------------------
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
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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:]
[Minimum Lifetime Mortgage Rates]
-------------------------------
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
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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:
Principal Balances as of the Cut-off Date
-----------------------------------------
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
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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:
Original Term to Maturity in Months
-----------------------------------
Percent by
Aggregate Aggregate
Original 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
- -------- --------- -------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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].
Mortgage Loan Purpose
---------------------
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
- --------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
Weighted Average
Original Term to
Maturity:
Note: Percentage totals may not add due to rounding.
[Mortgage Loan Documentation Program]
-----------------------------------
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
- --------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
Weighted Average
Original Term to
Maturity:
Note: Percentage totals may not add due to rounding.
Mortgage Loan Occupancy Type
----------------------------
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
- --------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
Weighted Average
Original Term to
Maturity:
Note: Percentage totals may not add due to rounding.
Remaining Term to Maturity in Months
------------------------------------
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
- --------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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:
Mortgage Loan Year of Scheduled Maturity
----------------------------------------
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
---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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.
Original LTV Ratios
-------------------
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
--------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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:
Geographic Distribution
-----------------------
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
----- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
====== ======= =========== =======
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.
[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
- -----------------
Initial Percent........................ ___% __% __% __% __% __%
<S> <C> <C> <C> <C> <C> <C>
____________ __, 1998..................
____________ __, 1999..................
____________ __, 2000..................
____________ __, 2001..................
____________ __, 2002..................
____________ __, 2003..................
____________ __, 2004..................
____________ __, 2005..................
____________ __, 2006..................
____________ __, 2007..................
Weighted Average Life
(Years) (+) . . . . . . . . . . . .
</TABLE>
+ 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 (__)__________.
[Include description of Servicing Standard.]
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 of By No. of Amount of By No. of Amount of
Loans Loans Loans Loans Loans 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
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 "Material 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
See "Material Federal Income Tax Consequences" in the Prospectus for a
discussion of material federal income tax consequences in respect of the
Certificates in addition to those discussed below.
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.
[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 "Material 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 "Material 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)(4)(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 "Material 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 "Material 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 are 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 $_____________, 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 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.
INDEX OF PRINCIPAL DEFINITIONS
TERMS PAGES
Accrued Certificate Interest................................................S-31
Advance ....................................................................S-33
Advances ....................................................................S-8
Aggregate Mortgage Loan Negative Amortization...............................S-30
Available Distribution Amount...............................................S-30
Balloon Payment..............................................................S-5
Certificate Balance..........................................................S-2
Certificates .....................................................S-1, S-6, S-41
Class Negative Amortization............................................S-8, S-32
Class [ ] Balance...........................................S-6, S-9, S-10, S-29
Class [ ] Certificate Owner.................................................S-15
Class [ ] Interest Allocation Percentage....................................S-31
Class [ ] Principal Distribution Amount.....................................S-31
Class [ ] Remittance Rate...................................................S-31
Class [ ] Scheduled Principal Distribution Percentage.......................S-32
Code .......................................................................S-14
Conversion Price............................................................S-18
Converted Mortgage Loan.....................................................S-18
Convertible Mortgage Loans.............................................S-5, S-18
Converting Mortgage Loan...............................................S-5, S-18
Definitive Class [ ] Certificate............................................S-15
Depositor ...................................................................S-1
Distributable Certificate Interest..........................................S-30
Distribution Date.................................................S-1, S-2, S-30
DTC ........................................................................S-15
Due Date ....................................................................S-3
ERISA ................................................................S-14, S-40
Exemption ..................................................................S-40
Form 8-K ...................................................................S-29
Government Securities.............................................S-1, S-2, S-17
Gross Margin ................................................................S-3
Index ......................................................................S-18
Interest Accrual Period................................................S-7, S-31
Interest Rate Adjustment Date................................................S-3
LTV ........................................................................S-19
Master Servicer........................................................S-2, S-36
MBS ..............................................................S-1, S-2, S-17
Monthly Payments.............................................................S-3
Mortgage ...................................................................S-17
Mortgage Asset Seller..................................................S-1, S-17
Mortgage File ..............................................................S-36
Mortgage Loans ..............................................................S-1
Mortgage Note ..............................................................S-17
Mortgage Pool ...............................................................S-1
Mortgaged Properties.........................................................S-2
Mortgaged Property..........................................................S-17
mortgage related securities.................................................S-41
Net Aggregate Prepayment Interest Shortfall.................................S-30
Net Mortgage Rate......................................................S-7, S-31
Notional Balance.............................................................S-2
Original LTV Ratio..........................................................S-27
Pass-Through Rate............................................................S-2
Payment Adjustment Date......................................................S-3
Payment Cap ................................................................S-19
Plan .......................................................................S-40
Pooling and Servicing Agreement........................................S-6, S-36
Prepayment .................................................................S-34
Prepayment Premiums.........................................................S-20
Realized Loss ..............................................................S-33
Record Date ............................................................S-2, S-6
regular interests................................................S-2, S-14, S-39
REMIC .................................................................S-2, S-13
REO Account ................................................................S-29
REO Property ...............................................................S-29
Residual interests....................................................S-14, S-39
Restricted Group............................................................S-41
Scheduled Principal Distribution Amount.....................................S-31
Seller's Agreement..........................................................S-17
SMMEA ......................................................................S-41
Subordinate Certificates...............................................S-1, S-29
Trust Fund .............................................................S-1, S-6
Uncovered Portion...........................................................S-31
Underwriter ...........................................................S-3, S-40
Unscheduled Principal Distribution Amount...................................S-32
Weighted Average Class [ ] Remittance Rate..................................S-31
ANNEX A
<TABLE>
[TITLE, SERIES OF MBS]
TERM SHEET
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
CUT-OFF DATE: [ ] MORTGAGE POOL CUT-OFF DATE BALANCE: $[ ]
DATE OF INITIAL ISSUANCE: [ ] REFERENCE DATE BALANCE: $[ ]
RELATED TRUSTEE: [ ] PERCENT OF ORIGINAL MORTGAGE POOL [ ]%
REMAINING AS OF REFERENCE DATE:
MATURITY DATE: [ ]
</TABLE>
<TABLE>
<CAPTION>
INITIAL
CLASS CERTIFICATE
OF PASS-THROUGH PRINCIPAL
CERTIFICATES RATE BALANCE FEATURES
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
[ ] [ ]% $[ ] [ ]
[First MBS Distribution Date on which the MBS may receive a portion of prepayments: [date]]
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MINIMUM SERVICING FEE RATE:* [ ]% per annum AS OF DATE OF
MAXIMUM SERVICING FEE RATE:* [ ]% per annum INITIAL ISSUANCE
----------------
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>
______________
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.
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
Material 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.................................
Material Federal Income Tax Consequences................................
State Tax Considerations................................................
ERISA Considerations....................................................
Legal Investment........................................................
Plan of Distribution....................................................
Legal Matters...........................................................
Financial Information...................................................
Rating..................................................................
Index of Principal Definitions..........................................
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally Offered Securities
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Offered Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior debt issues. Investors' securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payments in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear,
as applicable, will instruct its Depositary to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. Payment will then be made by such Depositary to the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the applicable clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The Global
Securities credit will appear the next day (European time) and the cash debit
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the CEDEL or Euroclear cash debit will be valued instead as of
the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing systems, through
their respective Depositaries, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases, CEDEL
or Euroclear will instruct their respective Depositaries, as appropriate, to
deliver the bonds to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. The payment will then
be reflected in the account of the CEDEL Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the CEDEL Participant's
or Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
CEDEL Participant or Euroclear Participant have a line of credit with its
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase Global Securities from DTC Participants for delivery
to CEDEL Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day
(until the purchase side of the day trade is reflected in their CEDEL or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides
of the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to the
CEDEL Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial
owners of Offered Securities that are non-U.S. Persons generally can obtain
a complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Person with effectively connected
income (Form 4224). A non-U.S. Person, including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of
a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in
treaty countries (Form 1001). Non U.S. Persons that are beneficial owners of
Offered Securities residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of Offered Securities or
such owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can
obtain a complete exemption from the withholding tax by filing Form W-9
(Payer's Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The
beneficial owner of a Global Security or, in the case of a Form 1001 or a
Form 4224 filer, such owner's agent, files by submitting the appropriate
form to the person through whom it holds the security (the clearing agency,
in the case of persons holding directly on the books of the clearing
agency). Form W-8 and Form 1001 are effective for three calendar years and
Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includable in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a court within the United States is
able to exercise primary supervision of the administration of the trust and one
or more United States fiduciaries have the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
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 28, 1998
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 one- to
five-family mortgage loans (or certain balances thereof) (collectively, the
"Mortgage Loans"), mortgage pass-through certificates or mortgage-backed
securities evidencing interests in Mortgage Loans or secured thereby ("MBS") or
certain direct obligations of the United States, agencies thereof or agencies
created thereby (the "Government Securities") (with respect to any series,
collectively, "Assets"). The Mortgage Loans 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 derivative instruments, 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 "Risk Factors" herein and such information as may be set forth under the
caption "Risk Factors" 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 "Material 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 (the "Securities Act"), 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
PROSPECTUS SUPPLEMENT................................................... 3
AVAILABLE INFORMATION................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE....................... 4
SUMMARY OF PROSPECTUS................................................... 6
DESCRIPTION OF THE TRUST FUNDS.......................................... 19
USE OF PROCEEDS......................................................... 23
YIELD CONSIDERATIONS.................................................... 23
THE DEPOSITOR........................................................... 28
DESCRIPTION OF THE SECURITIES........................................... 28
DESCRIPTION OF THE AGREEMENTS........................................... 38
DESCRIPTION OF CREDIT SUPPORT........................................... 56
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS................................. 58
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................ 68
STATE TAX CONSIDERATIONS................................................106
ERISA CONSIDERATIONS....................................................107
LEGAL INVESTMENT........................................................109
PLAN OF DISTRIBUTION....................................................111
LEGAL MATTERS...........................................................112
FINANCIAL INFORMATION...................................................112
RATING ...............................................................112
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 Securities...............Asset-Backed Certificates (the "Certificates")
and Asset Backed Notes (the "Notes" and,
together with the Certificates, the
"Securities"), issuable in series.
Issuer............................With respect to each series, the trust fund
(the "Trust Fund") formed to issue the
Securities of that 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 Securities 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 of any of the following assets (the
Mortgage Assets and Government Securities 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 loans (or certain balances
thereof) (collectively, the "Mortgage Loans"),
mortgage pass-through certificates or other
mortgage-backed securities (such as debt
obligations and participation interests or
certificates) evidencing interests in or
secured by Mortgage Loans (collectively, the
"MBS") or a combination of Mortgage Loans
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 one-
to five-family residential properties or
security interests in shares issued by
cooperative housing corporations ("Single
Family Properties"), including mixed
residential and commercial structures. 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, the
Commonwealth of Puerto Rico or any other U.S.
jurisdiction specified in the Prospectus
Supplement. The Prospectus Supplement will
indicate additional jurisdictions, 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) Government Securities...If so provided in the related Prospectus
Supplement, the Trust Fund may include, in
addition to Mortgage Assets, 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").
(c) 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."
(d) 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, and/or by
one or more of the following types of credit
support that has the effect of covering losses
on Assets: a letter of credit, insurance
policy, guarantee, reserve fund or other type
of credit support consistent with the
foregoing (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
"Risk Factors--Credit Support Limitations" and
"Description of Credit Support."
(e) 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 one or more of the following
agreements: interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements, other swaps and
derivative instruments or other agreements
consistent with the foregoing. The principal
terms of any such 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."
(f) 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
(each such portion of Mortgage Loans, a
"Mortgage Loan 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 "Risk Factors--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 "Risk Factors--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."
Risk Factors......................There are material risks to be considered in
investing in the Securities. See "Risk
Factors" herein and, if applicable, in the
related Prospectus Supplement.
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 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 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
"Risk Factors--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)
indebtedness 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 "Material Federal Income Tax
Consequences" herein and in the related
Prospectus Supplement.
The Offered Certificates evidencing an
interest in a Trust Fund containing Mortgage
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 "Material 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.
(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.
Investors are advised to consult their tax
advisors and to review "Material Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
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 "Material
Federal Income Tax Consequences" herein and in
such Prospectus Supplement.
Investors are advised to consult their tax
advisors and to review "Material 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.
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Securities, among other things, the following factors and additional risk
factors, if any, listed under "Risk Factors" in the related Prospectus
Supplement.
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 AND RISK THAT SUCH ASSETS
WILL NOT BE SUFFICIENT TO PAY SECURITIES IN FULL
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, 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, 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 may have been made and/or assigned in connection
with transfers of such Mortgage Assets 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.
See "Description of the Trust Funds".
RISK THAT PREPAYMENTS WILL ADVERSELY
AFFECT AVERAGE LIFE AND YIELDS OF SECURITIES
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 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.
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.
MORTGAGE LOANS AND MORTGAGED PROPERTIES IN GENERAL -- RISK
THAT DEFAULTS BY OBLIGORS OR DECLINES IN THE
VALUES OF MORTGAGED PROPERTIES WILL RESULT IN LOSSES TO INVESTORS
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 relevant residential real estate market should
experience an overall decline in property values such that the outstanding
balances of the related 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
that market. 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 Securities 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."
In addition, a Prospectus Supplement may specify that the Loan-to-Value
Ratios for the Mortgage Loans in the related Trust will be in excess of 100%.
The related Mortgaged Properties, therefore, will be highly unlikely to provide
adequate security for such Mortgage Loans. To the extent specified in such
Prospectus Supplement, the assessment of the credit history of a borrower and
such borrower's capacity to make payments on the related Mortgage Loan will have
been the primary considerations in underwriting the Mortgage Loans included in
such Trust. The evaluation of the adequacy of the Loan-to-Value Ratio, if so
specified in the related Prospectus Supplement, will have been given less
consideration, and in certain cases no consideration, in underwriting such
Mortgage Loans.
JUNIOR MORTGAGE LOANS -- RISK THAT THERE WILL BE REDUCED OR NO PROCEEDS
AVAILABLE TO HOLDERS OF JUNIOR LIEN 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. See "Certain Legal Aspects of the Mortgage Loans
- - Junior Mortgages".
CREDIT SUPPORT LIMITATIONS --
RISK THAT CREDIT SUPPORT WILL NOT COVER ALL LOSSES
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 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.
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.
See "--Limited Nature of Ratings," "Description of the Securities" and
"Description of Credit Support."
SUBORDINATION OF THE SUBORDINATE SECURITIES;
EFFECT OF LOSSES ON THE SUBORDINATE SECURITIES
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.
BALLOON PAYMENTS -- RISK THAT OBLIGOR WILL NOT BE ABLE TO MAKE BALLOON PAYMENT
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.
OPTIONAL TERMINATION OF A TRUST FUND - POSSIBILITY, IF PROSPECTUS SUPPLEMENT
SO PROVIDES, THAT AMOUNT RECEIVED MAY BE LESS THAN OUTSTANDING PRINCIPAL AMOUNT
PLUS ACCRUED INTEREST
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,
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.
In either such case, if the related Prospectus Supplement so provides,
the proceeds available for distribution to Securityholders may be less than the
outstanding principal balance of their Securities plus accrued interest thereon,
in which event such Securityholders could incur a loss on their investment.
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 "Material 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
"Material Federal Income Tax Consequences-REMICs."
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. See "Rating".
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)
one- to five-family mortgage loans (or certain balances thereof) (collectively,
the "Mortgage Loans"), including without limitation, Home Equity Loans and Home
Improvement Contracts, (ii) pass-through certificates or other mortgage-backed
securities (such as debt obligations or participation interests or certificates)
evidencing interests in or secured by one or more Mortgage Loans or other
similar participations, certificates or securities ("MBS") or (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which 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"). As used herein, "Mortgage Loans" refers to both whole
Mortgage Loans (or certain balances thereof) and Mortgage Loans underlying 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 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 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 five-family residential property (a "Single Family Property" and
the related Mortgage Loan a "Single Family 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, the Commonwealth of Puerto
Rico or any U.S. possession. 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 and 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. No
more than 20% of the Mortgage Loans (by principal balance) in a Trust Fund will
be, as of the related Cut-off Date, 30 days or more past their most recent
contractually scheduled payment date.
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 plus the principal balance of any senior 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
collections are applied to purchase such balances. 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 Mortgage Loans may be applied to purchase additional
Mortgage Loans which will become part of the Trust Fund for a series. Such
additions may be made to the extent that such additions could be made in
connection with a Trust Fund with respect to which a REMIC election has been
made. The related Prospectus Supplement will set forth the characteristics that
such additional Mortgage Loans will be required to meet. Such characteristics
will be specified in terms of the categories described in the second preceding
paragraph.
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
notc 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.
MBS
Any MBS will have been issued pursuant to a pooling and servicing
agreement, a participation 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.
Each MBS will be either (i) a security exempted from the registration
requirements of the Securities Act, (ii) a security that has been previously
registered under the Securities Act or (iii) a security that is eligible for
sale under Rule 144(k) under the Securities Act. In the case of clauses (ii) and
(iii), such security will be acquired in a secondary market transaction not from
the issuer thereof or an affiliate of such issuer.
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.
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 and/or by one or more other types of credit support, such as a
letter of credit, insurance policy, guarantee, reserve fund or other type of
credit support consistent with the foregoing, 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 "Risk Factors--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 one or more of the following
agreements: interest rate exchange agreements, interest rate cap or floor
agreements, currency exchange agreements, other swaps and derivative instruments
or other agreements consistent with the foregoing. The principal terms of any
such 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 or interest 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 "Risk Factors."
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 resulting from both voluntary prepayments by the borrowers and involuntary
liquidations). The rate at which principal prepayments occur on the Mortgage
Loans will be affected by a variety of factors, including, without limitation,
the terms of the Mortgage Loans, 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. Mortgage Loans with 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 or with lower Prepayment
Premiums.
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, the obligor is charged interest on
the principal amount of the Mortgage Loan 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 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 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 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 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 comprising or
underlying the Assets in a Trust Fund. If any Mortgage Loans 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 and maturities of the Mortgage Loans 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 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 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
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. Under the
applicable underwriting standards, the mortgagor under each Mortgage Loan
generally will be qualified on the basis of the Mortgage Rate in effect at
origination. The repayment of any such Mortgage Loan 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. 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 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 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 will be affected by the general economic
condition of the region of the country in which the related Mortgage Properties
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 comprising or underlying the Assets that are foreclosed or
repossessed in relation to the number and principal amount of Mortgage Loans
that are repaid in accordance with their terms will affect the weighted average
life of the Mortgage Loans 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 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. 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, including defaulted Mortgage Loans, that would
permit creditworthy borrowers to assume the outstanding indebtedness of such
Mortgage Loans.
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."
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's principal business is to acquire, hold and/or sell or
otherwise dispose of cash flow assets, usually in connection with the
securitization of that asset. 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"). 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 "Risk Factors--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 "Risk Factors--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 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 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 comprising or underlying the Assets in the related Trust Fund
will result in a corresponding increase in the Security Balance of such class.
See "Risk Factors--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.
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 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 (including amounts received under any form of
Credit Support) respecting which such advances were made (as to any Mortgage
Loan, "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 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 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 and
included in the Trust Fund as of the end of the related Due Period, (a) the loan
number of the related Mortgage Loan and (b) the date of acquisition;
(x) with respect to each REO Property relating to a Whole Loan 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 immediately
following such Distribution Date (calculated as if such Mortgage Loan 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 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 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.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. CEDEL interfaces with domestic
markets in several countries. As a professional depository, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the Underwriters. Indirect
access to CEDEL is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in Euroclear
in any of 32 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
the Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Securities held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "Material Federal Income Tax Consequences" in this Prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex I
to the related Prospectus Supplement. CEDEL or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Security
under the Indenture, Trust Agreement or Pooling and Servicing Agreement, as
applicable, on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Cede, as nominee for DTC, will hold the Securities. CEDEL and Euroclear
will hold omnibus positions in the Securities on behalf of the CEDEL
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries"), which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
Transfers between DTC's participating organizations (the
"Participants") will occur in accordance with DTC rules. Transfers between CEDEL
Participants and Euroclear Participants will occur in the ordinary way in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants of
DTC, CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Administrator would seek an alternative depository (if available)
or cause the issuance of Definitive Securities to the owners thereof or their
nominees in the manner described in the Prospectus under "Description of the
Securities - Book Entry Registration and Definitive Securities".
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, 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. 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 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 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 Securities 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; and (ii) 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 and Home Improvement Contracts 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 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 one or more securities intermediaries in the name of
the Trustee for the benefit of the Securityholders. 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, 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 on the schedule of Assets appearing as an exhibit to the related
Agreement; (ii) the existence of title insurance insuring the lien priority of
the Whole Loan; (iii) the authority of the Warranting Party to sell the Whole
Loan; (iv) the payment status of the Whole Loan; (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.
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 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. 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 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 that materially
and adversely affects the value of such Whole Loan or the interests therein of
the Securityholders. 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 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, 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 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
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 from the Trust Fund and substitute in its place one
or more other Whole Loans 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 as
to which a breach has occurred, will have the option to reimburse the Trust Fund
or the Securityholders 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 Securities 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 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.
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 Federal Deposit Insurance
Corporation ("FDIC") (to the limits established by the FDIC) and, if so
specified in the related Prospectus Supplement, the uninsured deposits in which
are otherwise secured such that the Trustee 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 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 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;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole Loans
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 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 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 "Material 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 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.
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 under certain circumstances; and maintaining accounting records
relating to the Whole Loans. 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 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 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 (ii) in its
judgment, materially impair the security for the Whole Loan 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 if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan 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 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.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Whole Loans 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.
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 which is in default,
initiate corrective action in cooperation with the mortgagor or obligor if cure
is likely, inspect the Mortgaged Property 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 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 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 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
Securityholder) that constitutes a fair price for such defaulted Whole Loan. 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 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, if
such action is consistent with the Servicing Standard and a default on such
Whole Loan 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 three 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 three
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 Security 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 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. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage 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, prior to the
distribution of such Liquidation Proceeds to Securityholders, amounts
representing its normal servicing compensation on the Whole Loan, unreimbursed
servicing expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
If any property securing a defaulted Whole Loan 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
Securityholders on liquidation of the Whole Loan 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, 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.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, 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, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "Hazard Insurance Policies" and "Description of
Credit Support."
HAZARD INSURANCE POLICIES
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.
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.
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 Securities 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 Securities
evidencing interests in a Trust Fund that includes Whole Loans 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 Securityholders, 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 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 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 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 audit or attestation
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 audit or attestation 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 audit or
attestation 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 Securityholders 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 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.
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 (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, Events
of Default under the related Agreement will include (i) any failure by the
Master Servicer to distribute or cause to be distributed to Securityholders, 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 (or such other period specified in
the related Prospectus Supplement) 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 (or such longer period specified in the related
Prospectus Supplement) 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 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 correct any 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 or
a letter from the applicable Rating Agency that such amendment will not result
in a reduction or withdrawal of its rating of the related Security) 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 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 Securities 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 Securities 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 of the 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 "Risk Factors--Credit Support Limitations--Risk That
Credit Support Will Not Cover All Losses."
SUBORDINATE SECURITIES
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 Assets prior to
distributions on Subordinate Securities evidencing interests in a different
group of 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
If so provided in the Prospectus Supplement for a series of Securities,
the Whole Loans 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 state law legal aspects of loans secured by single-family or
multi-family residential properties. Because such legal aspects are governed
primarily by the applicable laws of the state in which the related Mortgaged
Property is located (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.
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
tenantstockholder, 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 three 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 three 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 tenantstockholder 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.
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 Securities 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.
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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
represents the opinion of Brown & Wood LLP, counsel to the Depositor, as of the
date of this Prospectus. 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.
The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof (other
than a partnership that is not treated as a United States person under any
applicable Treasury regulations), or an estate whose income is subject to U.S.
federal income tax regardless of its source of income, or a trust if a court
within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in regulations, certain trusts in
existence on August 20, 1996 and treated as United States persons prior to such
date that elect to continue to be treated as United states persons shall be
considered U.S. persons as well.
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, 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)(4)(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).
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.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable
Bond Premium Regulations") dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject to
Code Section 1272(a)(6) such as the Securities. Absent further guidance from the
IRS, the Trustee intends to account for amortizable bond premium in the manner
described above. Prospective purchasers of the Securities should consult their
tax advisors regarding the possible application of the amortizable Bond Premium
Regulations.
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, as
amended on June 11, 1996, 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)(4)(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
(generally more than one year).
The Taxpayer Relief Act of 1997 (the "Act") reduces the maximum rates
on long-term capital gains recognized on capital assets held by individual
taxpayers for more than eighteen months as of the date of disposition (and would
further reduce the maximum rates on such gains in the year 2001 and thereafter
for certain individual taxpayers who meed specified conditions). The capital
gains rate for capital assets held by individual taxpayers for more than twelve
months but less than eighteen months was not changed by the Act ("mid-term
rate"). The Act does not change the capital gain rates for corporations.
Prospective investors should consult their own tax advisors concerning these tax
law changes.
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.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
REMICS
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)(4)(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). 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)(4)(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)(4)(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.
Such gain or loss generally will be long-term capital gain or loss if
the Note were held for more than one year. The Taxpayer Relief Act of 1997 (the
"Act") reduces the maximum rates on long-term capital gains recognized on
capital assets held by individual taxpayers for more than eighteen months as of
the date of disposition (and would further reduce the maximum rates on such
gains in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). The capital gains rate for capital assets held by
individual taxpayers for more than twelve months but less than eighteen months
was not changed by the Act ("mid-term rate"). The Act does not change the
capital gain rates for corporations. Prospective investors should consult their
own tax advisors concerning these tax law changes.
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.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New regulations will generally
be effective for payments made after December 31, 1998, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
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 nature of the income of the Trust Fund
will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations or (2) 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.
Such gain or loss generally will be long-term capital gain or loss if
the Note were held for more than one year. The Taxpayer Relief Act of 1997 (the
"Act") reduces the maximum rates on long-term capital gains recognized on
capital assets held by individual taxpayers for more than eighteen months as of
the date of disposition (and would further reduce the maximum rates on such
gains in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). The capital gains rate for capital assets held by
individual taxpayers for more than twelve months but less than eighteen months
was not changed by the Act ("mid-term rate"). The Act does not change the
capital gain rates for corporations. Prospective investors should consult their
own tax advisors concerning these tax law changes.
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. Pursuant to formal Treasury regulations issued May 8, 1997
under section 708 of the Code, if such a termination occurs, the Trust Fund (the
"old partnership") would be deemed to contribute its assets to a new partnership
(the "new partnership") in exchange for interests in the new partnership. Such
interests would be deemed distributed to the partners of the old partnership in
liquidation thereof, which would not constitute a sale or exchange.
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.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New regulations will generally
be effective for payments made after December 31, 1998, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
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-tax 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 take 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 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 minimus 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 form
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 form 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 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 Trust 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 exception, 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 sates and the Certificate Owner provides the required
foreign person information certification.
If the interest of the Certificate Owners were deemed to be partnership
interest, 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.
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 of 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 to 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.
G. NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
FASIT SECURITIES
General. The FASIT provisions of the Code were enacted by the Small
Business Job Protection Act of 1996 and create a new elective statutory vehicle
for the issuance of mortgage-backed and asset-backed securities. Although the
FASIT provisions of the Code became effective on September 1, 1997, no Treasury
regulations or other administrative guidance has been issued with respect to
those provisions. Accordingly, definitive guidance cannot be provided with
respect to many aspects of the tax treatment of FASIT Securityholders. Investors
also should note that the FASIT discussions contained herein constitutes only a
summary of the federal income tax consequences to holders of FASIT Securities.
With respect to each Series of FASIT Securities, the related Prospectus
Supplement will provide a detailed discussion regarding the federal income tax
consequences associated with the particular transaction.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for federal income tax purposes, or
FASIT Ownership Securities, which generally are not treated as debt for such
purposes, but rather as representing rights and responsibilities with respect to
the taxable income or loss of the related Series. The Prospectus Supplement for
each Series of Securities will indicate whether one or more FASIT elections will
be made for that Series and which Securities of such Series will be designated
as Regular Securities, and which, if any, will be designated as Ownership
Securities.
Qualification as a FASIT. The Trust Fund underlying a Series (or one or
more designated pools of assets held in the Trust Fund) will qualify under the
Code as a FASIT in which the FASIT Regular Securities and the FASIT Ownership
Securities will constitute the "regular interests" and the "ownership
interests," respectively, if (i) a FASIT election is in effect, (ii) certain
tests concerning (A) the composition of the FASIT's assets and (B) the nature of
the Securityholders' interest in the FASIT are met on a continuing basis, and
(iii) the Trust Fund is not a regulated investment company as defined in Section
851(a) of the Code.
Asset Composition. In order for a Trust Fund (or one or more designated
pools of assets held by a Trust Fund) to be eligible for FASIT status,
substantially all of the assets of the Trust Fund (or the designated pool) must
consist of "permitted assets" as of the close of the third month beginning after
the closing date and at all times thereafter (the "FASIT Qualification Test").
Permitted assets include (i) cash or cash equivalents, (ii) debt instruments
with fixed terms that would qualify as REMIC regular interests if issued by a
REMIC (generally, instruments that provide for interest at a fixed rate, a
qualifying variable rate, or a qualifying interest-only ("IO") type rate, (iii)
foreclosure property, (iv) certain hedging instruments (generally, interest and
currency rate swaps and credit enhancement contracts) that are reasonably
required to guarantee or hedge against the FASIT's risks associated with being
the obligor on FASIT interests, (v) contract rights to acquire qualifying debt
instruments or qualifying hedging instruments, (vi) FASIT regular interests, and
(vii) REMIC regular interests. Permitted assets do not include any debt
instruments issued by the holder of the FASIT's ownership interest or by any
person related to such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the following: (i) one or
more classes of regular interests or (ii) a single class of ownership interest
that is held by a fully taxable domestic corporation. In the case of Series that
include FASIT Ownership Securities, the ownership interest will be represented
by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater than
thirty years, (iii) it entitles its holder to a specified principal amount, (iv)
the issue price of the interest does not exceed 125% of its stated principal
amount, (v) the yield to maturity of the interest is less than the applicable
Treasury rate published by the IRS plus 5%, and (vi) if it pays interest, such
interest is payable at either (a) a fixed rate with respect to the principal
amount of the regular interest or (b) a permissible variable rate with respect
to such principal amount. Permissible variable rates for FASIT regular interests
are the same as those for REMIC regular interest (i.e., certain qualified
floating rates and weighted average rates). See "Material Federal Income Tax
Consequences--REMICs - Taxation of Owners of REMIC Regular Certificates -
Variable Rate REMIC Regulation Certificate.
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv) or (v) above, but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest." In addition, if a FASIT Security fails to meet the
requirements of clause (vi), but the interest payable on the Security consists
of a specified portion of the interest payments on permitted assets and that
portion does not vary over the life of the Security, the Security also will
qualify as a High-Yield Interest. A High-Yield Interest may be held only by
domestic corporations that are fully subject to corporate income tax ("Eligible
Corporations"), other FASITs and dealers in securities who acquire such
interests as inventory, rather than for investment. In addition, holders of
High-Yield Interests are subject to limitations on offset of income derived from
such interest. See "Material Federal Income Tax Consequences--FASIT
Securities--Tax Treatment of FASIT Regular Securities-Treatment of High-Yield
Interests."
Consequences of Disqualification. If a Series of FASIT Securities fails
to comply with one or more of the Code's ongoing requirements for FASIT status
during any taxable year, the Code provides that its FASIT status may be lost for
that year and thereafter. If FASIT status is lost, the treatment of the former
FASIT and the interests therein for federal income tax purposes is uncertain.
The former FASIT might be treated as a grantor trust, as a separate association
taxed as a corporation, or as a partnership. The FASIT Regular Securities could
be treated as debt instruments for federal income tax purposes or as equity
interests. Although the Code authorizes the Treasury to issue regulations that
address situations where a failure to meet the requirements for FASIT status
occurs inadvertently and in good faith, such regulations have not yet been
issued. It is possible that disqualification relief might be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
FASIT's income for a period of time in which the requirements for FASIT status
are not satisfied.
Tax Treatment of FASIT Regular Securities. Payments received by holders
of FASIT Regular Securities generally should be accorded the same tax treatment
under the Code as payments received on other taxable corporate debt instruments
and on REMIC Regular Securities. As in the case of holders of REMIC Regular
Securities, holders of FASIT Regular Securities must report income from such
Securities under an accrual method of accounting, even if they otherwise would
have used the case receipts and disbursements method. Except in the case of
FASIT Regular Securities issued with original issue discount or acquired with
market discount or premium, interest paid or accrued on a FASIT Regular Security
generally will be treated as ordinary income to the Securityholder and a
principal payment on such Security will be treated as a return of capital to the
extent that the Securityholder's basis is allocable to that payment. FASIT
Regular Securities issued with original issue discount or acquired with market
discount or premium generally will treat interest and principal payments on such
Securities in the same manner described for REMIC Regular Securities. See
"Material Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates" "--Original Issue Discount and Premium" and "--Market
Discount" and "--Premium" above. High-Yield Securities may be held only by fully
taxable domestic corporations, other FASITs, and certain securities dealers.
Holders of High-Yield Securities are subject to limitations on their ability to
use current losses or net operating loss carryforwards or carrybacks to offset
any income derived from those Securities.
If a FASIT Regular Security is sold or exchanged, the Securityholder
generally will recognize gain or loss upon the sale in the manner described
above for REMIC Regular Securities. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Sale,
Exchange or Redemption." In addition, if a FASIT Regular Security becomes wholly
or partially worthless as a result of Default and Delinquencies of the
underlying Assets, the holder of such Security should be allowed to deduct the
loss sustained (or alternatively be able to report a lesser amount of income).
See "Material Federal Income Tax Consequences-- REMICs--Taxation of Owners of
REMIC Regular Certificates", "--Effects of Default and Delinquencies" and
"-Treatment of Realized Losses."
FASIT Regular Securities held by a REIT will qualify as "real estate
assets" within the meaning of section 856(c)(4)(A) of the Code, and interest on
such Securities will be considered Qualifying REIT Interest to the same extent
that REMIC Securities would be so considered. FASIT Regular Securities held by a
Thrift Institution taxed as a "domestic building and loan association" will
represent qualifying assets for purposes of the qualification requirements set
forth in Code Section 7701(a)(19) to the same extent that REMIC Securities would
be so considered. See "Material Federal Income Tax Consequences--REMICs." In
addition, FASIT Regular Securities held by a financial institution to which
Section 585 of the Code applies will be treated as evidences of indebtedness for
purposes of Section 582(c)(1) of the Code. FASIT Securities will not qualify as
"Government Securities" for either REIT or RIC qualification purposes.
Treatment of High-Yield Interests. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security with
losses. High-Yield Interests may be held only by Eligible Corporations other
FASITs, and dealers in securities who acquire such interests as inventory. If a
securities dealer (other than an Eligible Corporation) initially acquires a
High-Yield Interest as inventory, but later begins to hold it for investment,
the dealer will be subject to an excise tax equal to the income from the
High-Yield Interest multiplied by the highest corporate income tax rate. In
addition, transfers of High-Yield Interests to disqualified holders will be
disregarded for federal income tax purposes, and the transferor still will be
treated as the holder of the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular Federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities backed
by the FASIT Regular Security and that have the same features as High-Yield
Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership Security
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT Ownership Security determines its taxable income by taking into account
all assets, liabilities and items of income, gain, deduction, loss and credit of
a FASIT. In general, the character of the income to the holder of a FASIT
Ownership Interest will be the same as the character of such income of the
FASIT, except that any tax-exempt interest income taken into account by the
holder of a FASIT Ownership Interest is treated as ordinary income. In
determining that taxable income, the holder of a FASIT Ownership Security must
determine the amount of interest, original issue discount, market discount and
premium recognized with respect to the FASIT's assets and the FASIT Regular
Securities issued by the FASIT according to a constant yield methodology and
under an accrual method of accounting. In addition, holders of FASIT Ownership
Securities are subject to the same limitations on their ability to use losses to
offset income from their FASIT Security as are the holders of High-Yield
Interests. See "Material Federal Income Tax Consequences--Treatment of
High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to FASIT Ownership Securities. Accordingly, losses on
dispositions of a FASIT Ownership Security generally will be disallowed where,
within six months before or after the disposition, the seller of such Security
acquires any other FASIT Ownership Security or, in the case of a FASIT holding
mortgage assets, any interest in a Taxable Mortgage Pool that is economically
comparable to a FASIT Ownership Security. In addition, if any security that is
sold or contributed to a FASIT by the holder of the related FASIT Ownership
Security was required to be marked-to-market under Code section 475 by such
holder, then section 475 will continue to apply to such securities, except that
the amount realized under the mark-to-market rules will be a greater of the
securities' value under present law or the securities' value after applying
special valuation rules contained in the FASIT provisions. Those special
valuation rules generally require that the value of debt instruments that are
not traded on an established securities market be determined by calculating the
present value of the reasonably expected payments under the instrument using a
discount rate of 120% of the applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income derived
from assets that are not permitted assets, (ii) certain dispositions of
permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a FASIT
election is made generally will be structured in order to avoid application of
the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration. Holders of FASIT
Securities will be subject to backup withholding to the same extent holders of
REMIC Securities would be subject. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Information Reporting and Backup Withholding." For purposes of
reporting and tax administration, holders of record of FASIT Securities
generally will be treated in the same manner as holders of REMIC Securities.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material 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 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. 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 whose 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.
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.
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. Merrill Lynch is an affiliate of the
Depositor. 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 and/or any other person or
persons named therein 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 or such persons act as agents in the sale of Offered Securities,
they will receive a selling commission with respect to such Offered Securities,
depending on market conditions, expressed as a percentage of the aggregate
principal 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
or such persons elect to purchase Offered Securities as principal, they 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.
This Prospectus may be used, to the extent required, by Merrill Lynch
or any other Underwriter in connection with offers and sales related to market
making transactions.
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 its affiliates
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.
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.
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. Certain matters with respect to
Delaware law will be passed upon for the Depositor by Richards, Layton & Finger,
P.A., Wilmington, Delaware.
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 asset backed securities address the likelihood of receipt by
securityholders of all distributions on the underlying assets. 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 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
TERMS IN THE PROSPECTUS
1986 Act........................................................73, 78
Accrual Securities...............................................9, 28
Accrued Security Interest...........................................30
Act ......................................................75, 83, 95
adjusted issue price............................................74, 88
Agreement...........................................................38
Agreements...........................................................9
Amortizable Bond Premium Regulations................................70
an accrual period...................................................79
Applicable Amount...................................................88
ARM Loans.......................................................20, 73
Asset Seller........................................................19
Assets........................................................1, 6, 19
Available Distribution Amount.......................................29
Balloon Mortgage Loans..............................................17
benefit plan investors.............................................107
Book-Entry Securities...............................................28
Buydown Mortgage Loans..............................................26
Buydown Period......................................................26
capital asset...................................................75, 83
Cash Flow Agreement..............................................8, 23
Cash Flow Agreements.................................................1
Cede ...........................................................4, 35
Certificateholder..................................................102
Certificates......................................................1, 6
clearing agency.................................................34, 99
clearing corporation............................................34, 40
Closing Date........................................................78
Code ..............................................................11
Collection Account..................................................41
Commission...........................................................3
Contributions Tax...................................................90
Cooperative.........................................................59
Cooperative Loans...................................................59
Cooperatives........................................................19
Covered Trust...................................................16, 56
CPR ..............................................................25
Credit Support................................................1, 8, 23
Crime Control Act...................................................67
Cut-off Date........................................................10
daily accruals......................................................88
Daily portions......................................................74
Deferred Interest...................................................75
Definitive Securities...........................................28, 37
Depositor........................................................6, 19
Determination Date..................................................29
disqualified organization...........................................92
disqualified organizations..........................................92
Distribution Date...................................................10
DTC ...........................................................4, 34
Due Period..........................................................29
Eligible Corporations..............................................104
equity of redemption................................................62
ERISA .........................................................12, 107
Events of Default...................................................52
Evidences of indebtedness...........................................83
excess inclusion....................................................88
excess servicing....................................................72
Exchange Act.........................................................4
Exemption..........................................................108
FASIT Qualification Test...........................................103
FDIC .........................................................41, 110
Federal long-term rate..............................................88
FHLMC ..............................................................49
foreign person..................................................93, 95
Government Securities................................1, 7, 19, 77, 105
Grantor Trust Certificates..........................................11
High-Yield Interest................................................104
Home Equity Loans................................................7, 20
Home Improvement Contracts.......................................7, 20
Indenture.......................................................28, 38
Indenture Trustee...................................................38
Indirect Participants...............................................35
Insurance Proceeds..................................................42
L/C Bank............................................................57
Legislative History.................................................74
Liquidation Proceeds................................................42
Loan-to-Value Ratio.................................................20
Mark-to-Market Regulations..........................................87
Master REMIC........................................................77
Master Servicer......................................................6
MBS ........................................................1, 6, 19
MBS Agreement.......................................................21
MBS Issuer..........................................................21
MBS Servicer........................................................21
MBS Trustee.........................................................21
Merrill Lynch......................................................111
Mid-term rate...............................................75, 83, 95
Model Law..........................................................111
Mortgage Assets..................................................1, 19
Mortgage Loan Group..............................................9, 28
Mortgage Loans................................................1, 6, 19
Mortgage Notes......................................................19
Mortgage Rate....................................................7, 21
Mortgage related securities....................................109-111
Mortgages.......................................................19, 58
mortgagor...........................................................58
NCUA .............................................................110
new partnership.....................................................97
New Regulations.......................................76, 85, 100, 103
Nonrecoverable Advance..............................................32
Notes ............................................................1, 6
Offered Securities...................................................1
OID ..........................................................68, 70
OID Regulations.....................................................70
Old partnership.....................................................97
Originator..........................................................19
OTS .............................................................110
Ownership interests................................................103
Participants........................................................34
Parties in interest................................................107
pass-through entity.................................................92
pass-through interest holder........................................88
pass-through interest holders.......................................84
Pass-Through Rate................................................9, 30
passive losses......................................................85
Payment Lag Certificates............................................83
Permitted Investments...............................................41
phantom income......................................................86
plan assets........................................................109
Plans .............................................................107
Policy Statement...................................................110
Pooling and Servicing Agreement.....................................38
portfolio income....................................................85
portfolio interest..........................................91, 95, 99
Pre-Funded Amount................................................8, 22
pre-issuance accrued interest.......................................83
prepayment..........................................................25
Prepayment Assumption...............................................74
Prohibited Transactions.............................................76
Prohibited Transactions Tax.........................................90
PTCE 83-1..........................................................109
Purchase Price......................................................41
qualified mortgage..................................................77
qualified stated interest...........................................78
Rating Agency.......................................................13
real estate assets..........................................73, 76, 77
Record Date.........................................................29
Refinance Loans.....................................................20
Regular interests..................................................103
Related Proceeds....................................................32
Relief Act..........................................................67
REMIC ..............................................................11
REMIC Certificates..................................................76
REMIC Regular Certificateholders....................................78
REMIC Regular Certificates......................................11, 76
REMIC Regulations...................................................68
REMIC Residual Certificateholder....................................85
REMIC Residual Certificates.....................................11, 76
Restricted Group...................................................108
Retained Interest...................................................49
RICO ..............................................................67
Securities........................................................1, 6
Securities Act.......................................................3
Security............................................................38
Security Balance.................................................9, 31
Security Owners.....................................................35
Securityholder......................................................35
Securityholders..................................................4, 18
senior lien.........................................................16
Senior Securities................................................9, 28
Servicing Agreement.................................................38
Servicing Standard..................................................45
Short-Term Note.....................................................94
Single Family Mortgage Loan.........................................19
Single Family Properties.............................................7
Single Family Property..............................................19
single family residences............................................77
single-class REMIC..................................................84
SMMEA .........................................................13, 109
SMMEA Securities...................................................109
SPA ..............................................................25
Stripped ARM Obligations............................................74
Stripped Bond Certificates..........................................72
stripped bonds..................................................69, 72
Stripped Coupon Certificates........................................72
stripped coupons................................................69, 72
Stripped Interest Securities.....................................9, 28
Stripped Principal Securities....................................9, 28
Sub-Servicer........................................................45
Sub-Servicing Agreement.............................................45
Subordinate Securities...........................................9, 28
Subsequent Assets................................................8, 22
Subsidiary REMIC....................................................77
Super-Premium Certificates..........................................79
tax avoidance potential.............................................93
Tax Counsel........................................................100
taxable mortgage pool..........................................89, 101
thrift institutions.................................................89
Title V.............................................................66
Title VIII..........................................................67
Trust Agreement.....................................................38
Trust Assets.........................................................3
Trust Fund........................................................1, 6
Trustee..............................................................6
U.S. Person.................................................68, 75, 92
UCC ..............................................................34
Underlying MBS......................................................19
Underlying Mortgage Loans...........................................19
United States Department of Labor..................................107
Value ..............................................................20
Voting Rights.......................................................51
Warranting Party....................................................40
Whole Loans.........................................................19
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.
(MOBs)
PROSPECTUS
- ----------
SUBJECT TO COMPLETION, DATED MAY 28, 1998
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
manufactured housing installment sale contracts or installment loan
agreements ("Contracts"), asset-backed securities supported by Contracts
("ABS") or certain direct obligations of the United States, agencies thereof
or agencies created thereby (the "Government Securities") (with respect to
any series, collectively, "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 derivative instruments, 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 "Risk Factors" herein and such information as may be set forth under
the caption "Risk Factors" 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 "Material 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 (the "Securities Act"),
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
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DESCRIPTION OF THE TRUST FUNDS . . . . . . . . . . . . . . . . . . . . . 17
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
THE DEPOSITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DESCRIPTION OF THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . 25
DESCRIPTION OF THE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 34
DESCRIPTION OF CREDIT SUPPORT . . . . . . . . . . . . . . . . . . . . . . 50
CERTAIN LEGAL ASPECTS OF THE CONTRACTS . . . . . . . . . . . . . . . . . 53
MATERIAL FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . 61
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 98
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 98
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 102
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 103
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 105
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 Securities . . . . . . . . Asset-Backed Certificates (the
"Certificates") and Asset Backed
Notes (the "Notes" and, together
with the Certificates, the
"Securities"), issuable in series.
Issuer . . . . . . . . . . . . . . With respect to each series, the
trust fund (the "Trust Fund")
formed to issue the Securities of
that 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 Securities or the
Contracts 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 Contracts
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 of
any of the following assets (the
Contracts, ABS and Government
Securities may be referred to
collectively or individually as
"Assets"):
(a) Contracts and ABS . . 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 Securities. 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. Each
Contract may provide for scheduled
payments to maturity, payments that
adjust from time to time to
accommodate changes in the Contract
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
Contract 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. A Contract
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." A Trust Fund may also
consist of asset-backed securities
(such as pass-through certificates
and debt obligations) supported by
Contracts ("ABS") or any
combination of Contracts and ABS.
(b) Government Securities If so provided in the related
Prospectus Supplement, the Trust
Fund may include, in addition to
Contracts and ABS, 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").
(c) 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."
(d) 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, and or by one
or more of the following types of
credit support: a letter of credit,
insurance policy, guarantee,
reserve fund or other type of
credit support consistent with the
foregoing (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 ABS 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 ABS.
See "Risk Factors--Credit Support
Limitations" and "Description of
Credit Support."
(e) 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 one or more of the
following agreements: interest
rate exchange agreements, interest
rate cap or floor agreements,
currency exchange agreements, other
swaps and derivative instruments or
other agreements consistent with
the foregoing. The principal terms
of any such 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 ABS will describe any cash
flow agreements that are included
as part of the trust fund evidenced
by or providing security for such
ABS. See "Description of the Trust
Funds-Cash Flow Agreements."
(f) 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
Contracts in the related Contract
Pool (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 "Risk Factors--
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 "Risk Factors--
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."
Risk Factors . . . . . . . . . . . There are risk factors to be
considered in investing in the
Securities. See "Risk Factors"
herein and, if applicable, in the
related Prospectus Supplement.
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 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
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 ABS will describe any
corresponding advancing obligation
of any person in connection with
such ABS. 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 "Risk Factors--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) indebtedness 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 "Material 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.
(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.
Investors are advised to consult
their tax advisors and to review
"Material Federal Income Tax
Consequences" herein and in the
related Prospectus Supplement.
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 "Material
Federal Income Tax Consequences"
herein and in such Prospectus
Supplement.
Investors are advised to consult
their tax advisors and to review
"Material 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.
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Securities, among other things, the following factors and additional risk
factors, if any, listed under "Risk Factors" in the related Prospectus
Supplement.
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 AND RISK THAT SUCH ASSETS WILL NOT BE SUFFICIENT TO PAY
SECURITIES IN FULL
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
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 Contracts, but only to the
extent deemed recoverable) upon conversion to a fixed rate or a different
index. Since certain representations and warranties with respect to the
Contracts may have been made and/or assigned in connection with transfers of
such 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.
See "Description of the Trust Funds".
RISK THAT PREPAYMENTS WILL ADVERSELY AFFECT AVERAGE LIFE AND YIELDS OF
SECURITIES
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 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 Contract Rates, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by the
Contracts underlying or comprising the Assets in any Trust Fund. As a
result, the actual maturity of any class of Securities could occur
significantly earlier than expected. However, because the monthly payments
due on manufactured housing contracts are generally lower than monthly
payments on mortgage loans secured by site-built houses, the effect of a
change in interest rates on manufactured housing contracts may be smaller.
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 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.
CONTRACTS AND MANUFACTURED HOMES IN GENERAL -- RISK THAT DEPRECIATION IN
VALUE OF MANUFACTURED HOME WILL RESULT IN LOSSES
An investment in Securities 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 -- RISK
THAT SECURITY INTEREST IN FAVOR OF TRUSTEE WILL NOT BE EFFECTIVE; EFFECT OF
VIOLATING CONSUMER PROTECTION LAWS
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".
CREDIT SUPPORT LIMITATIONS -- RISK THAT CREDIT SUPPORT WILL NOT COVER ALL
LOSSES
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 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.
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.
See "--Limited Nature of Ratings," "Description of the Securities" and
"Description of Credit Support."
SUBORDINATION OF THE SUBORDINATE SECURITIES; EFFECT OF LOSSES ON THE
SUBORDINATE SECURITIES
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.
OPTIONAL TERMINATION OF A TRUST FUND - POSSIBILITY, IF PROSPECTUS SUPPLEMENT
SO PROVIDES, THAT AMOUNT RECEIVED MAY BE LESS THAN OUTSTANDING PRINCIPAL
AMOUNT PLUS ACCRUED INTEREST
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, 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.
In either such case, if the related Prospectus Supplement so provides,
the proceeds available for distribution to Securityholders may be less than
the outstanding principal balance of their Securities plus accrued interest
thereon, in which event such Securityholders could incur a loss on their
investment.
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 "Material 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
"Material Federal Income Tax Consequences-REMICs."
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 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. See "Rating".
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) manufactured housing installment sale contracts and installment loan
agreements (the "Contracts"), (ii) asset-backed securities (such as pass-
through certificates or debt obligations or participation interests or
certificates) supported by Contracts ("ABS") or (iii) direct obligations of
the United States, agencies thereof or agencies created thereby which 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"). Any pass-through certificates or other asset-
backed securities in which an ABS evidences an interest or which secure an
ABS are sometimes referred to herein also as ABS or as "Underlying ABS." The
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 Contract or the issuer of such ABS.
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.
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. No more than 20% of the Contract Loans (by principal balance)
in a Trust Fund will be, as of the related Cut-off Date, 30 days or more past
their most recent contractually scheduled payment 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 after such initial issuance.
If specified in the related Prospectus Supplement, principal collections
received on Contract Loans may, to the extent permissible in respect of a
REMIC, be applied to purchase additional Contract Loans which will become
part of the Trust Fund for a series. Such additions may be made in
connection with a Trust Fund that is taxed as a partnership or with respect
to which a REMIC or FASIT election has been made. The related Prospectus
Supplement will set forth the characteristics that such additional Contract
Loans will be required to meet. Such characteristics will be in terms of the
categories described in the second preceding paragraph.
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. A Contract may
provide for scheduled payments to maturity or payments that adjust from time
to time to accommodate changes in the Contract 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.
A Contract 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. A contract may provide for scheduled payments to maturity or
payment that adjust from time to time to accommodate changes in the Contract
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. A Contract 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.
ABS
Any ABS will have been issued pursuant to a pooling and servicing
agreement, a trust agreement, an indenture or similar agreement (an "ABS
Agreement"). A seller (the "ABS Issuer") and/or servicer (the "ABS Servicer")
of the underlying Contracts (or Underlying ABS) will have entered into the
ABS Agreement with a trustee or a custodian under the ABS Agreement (the "ABS
Trustee"), if any, or with the original purchaser of the interest in the
underlying Contracts or ABS evidenced by the ABS.
Distributions of any principal or interest, as applicable, will be made
on ABS on the dates specified in the related Prospectus Supplement. The ABS
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 ABS by the ABS Trustee or the ABS Servicer.
The ABS Issuer or the ABS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the ABS 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 ABS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Underlying Contracts or Underlying
ABS evidenced by or securing such ABS and other factors and generally will
have been established for the ABS on the basis of requirements of either any
Rating Agency that may have assigned a rating to the ABS or the initial
purchasers of the ABS.
The Prospectus Supplement for a series of Securities evidencing
interests in Assets that include ABS 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 ABS to be
included in the Trust Fund, (ii) the original and remaining term to stated
maturity of the ABS, if applicable, (iii) whether such ABS is entitled only
to interest payments, only to principal payments or to both, (iv) the
pass-through or bond rate of the ABS or formula for determining such rates,
if any, (v) the applicable payment provisions for the ABS, including, but not
limited to, any priorities, payment schedules and subordination features,
(vi) the ABS Issuer, ABS Servicer and ABS 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 Contracts, the Underlying ABS
or directly to such ABS, (viii) the terms on which the related Underlying
Contracts or Underlying ABS for such ABS or the ABS may, or are required to,
be purchased prior to their maturity, (ix) the terms on which Contracts or
Underlying ABS may be substituted for those originally underlying the ABS,
(x) the servicing fees payable under the ABS Agreement, (xi) the
characteristics of any cash flow agreements that are included as part of the
trust fund evidenced or secured by the ABS and (xii) whether the ABS is in
certificated form or held through a depository such as The Depository Trust
Company or the Participants Trust Company.
Each ABS will be either (i) security exempted from the registration
requirements of the Securities Act, (ii) a security that has been previously
registered under the Securities Act or (iii) a security that is eligible for
sale under Rule 144(k) under the Securities Act. In the case of clauses (ii)
and (iii), such security will be acquired in a secondary market transaction
not from the issuer thereof or an affiliate of such issuer.
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.
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 and/or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee, reserve
fund or other type of credit support consistent with the foregoing, 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
"Risk Factors--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 one or more of the following
other agreements: interest rate exchange agreements, interest rate cap or
floor agreements, currency exchange agreements, other swaps and derivative
instruments or other agreements consistent with the foregoing. The principal
terms of any such 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 or interest 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 "Risk
Factors."
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
Contracts resulting from both voluntary prepayments by the borrowers and
involuntary liquidations). The rate at which principal prepayments occur on
the Contracts will be affected by a variety of factors, including, without
limitation, the terms of the Contracts, the level of prevailing interest
rates, the availability of housing credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Contract Rates on the Contracts
comprising or underlying the Assets in a particular Trust Fund, such
Contracts are likely to be the subject of higher principal prepayments than
if prevailing rates remain at or above the rates borne by such Contracts. In
this regard, it should be noted that certain Assets may consist of Contracts
with different Contract Rates and the stated pass-through or pay-through
interest rate of certain ABS may be a number of percentage points higher or
lower than certain of the Underlying Contracts. 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 prepayment
premium provisions of the Contracts underlying or comprising such Assets, and
by the extent to which the servicer of any such Contract is able to enforce
such provisions. Contracts with a prepayment premium provision, to the
extent enforceable, generally would be expected to experience a lower rate of
principal prepayments than otherwise identical Contracts without such
provisions, 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 Contract, the obligor is charged interest on the
principal amount of the 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 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
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
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 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 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 Contracts comprising or underlying the
Assets in a Trust Fund. If any 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 Contract Rates
and maturities of the 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.
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 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
Contracts 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 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 Contract
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 obligor under each Contract generally will be
qualified on the basis of the Contract Rate in effect at origination. The
repayment of any such Contract may thus be dependent on the ability of the
mortgagor or obligor to make larger level monthly payments following the
adjustment of the Contract Rate.
Defaults
The rate of defaults on the 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 contracts are expected to occur with
greater frequency in their early years. Furthermore, the rate and timing of
prepayments, defaults and liquidations on the Contracts will be affected by
the general economic condition of the region of the country in which the
related 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.
Repossessions
The number of repossessions and the principal amount of the Contracts
comprising or underlying the Assets that are repossessed in relation to the
number and principal amount of Contracts that are repaid in accordance with
their terms will affect the weighted average life of the 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 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 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 Contracts, including defaulted
Contracts, that would permit creditworthy borrowers to assume the outstanding
indebtedness of such Contracts.
Due-on-Sale Clauses
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's principal business is to acquire, hold and/or sell or
otherwise dispose of cash flow assets, usually in connection with the
securitization of that asset. 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 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 "Risk
Factors--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 "Risk Factors--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 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 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 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 "Risk
Factors--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 Contracts 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.
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 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 Contracts (including amounts received under any
form of Credit Support) respecting which such advances were made (as to any
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 ABS will describe any corresponding
advancing obligation of any person in connection with such ABS.
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 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 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 Contract and
(b) the amount of any loss to Securityholders;
(ix) with respect to each REO Property relating to a Contract and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Contract and (b) the date of acquisition;
(x) with respect to each REO Property relating to a 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 Contract immediately
following such Distribution Date (calculated as if such 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 Contract and (c) the amount of any loss to
Securityholders in respect of the related Contract;
(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 ABS. 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 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.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the
clearance and settlement of securities transactions between CEDEL
Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As
a professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL Participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the Underwriters. Indirect access to CEDEL is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant, either
directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in
Euroclear in any of 32 currencies, including United States dollars. The
Euroclear System includes various other services, including securities
lending and borrowing, and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers
with DTC. The Euroclear System is operated by Morgan Guaranty Trust Company
of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear
System, withdrawal of securities and cash from the Euroclear System, and
receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
Distributions with respect to Securities held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures,
to the extent received by its Depositary. Such distributions will be subject
to tax reporting in accordance with relevant United States tax laws and
regulations. See "Material Federal Income Tax Consequences" in this
Prospectus and "Global Clearance, Settlement and Tax Documentation
Procedures" in Annex I to the related Prospectus Supplement. CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a Security under the Indenture, Trust Agreement or Pooling and
Servicing Agreement, as applicable, on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and
procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Cede, as nominee for DTC, will hold the Securities. CEDEL and Euroclear
will hold omnibus positions in the Securities on behalf of the CEDEL
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries"), which in turn
will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC.
Transfers between DTC's participating organizations (the "Participants")
will occur in accordance with DTC rules. Transfers between CEDEL
Participants and Euroclear Participants will occur in the ordinary way in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time).
The relevant European international clearing system will, if the transaction
meets its settlement requirements, deliver instructions to its Depositary to
take action to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant CEDEL Participant or Euroclear Participant on such business day.
Cash received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or a Euroclear Participant to a Participant will
be received with value on the DTC settlement date but will be available in
the relevant CEDEL or Euroclear cash account only as of the business day
following settlement in DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued
at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Administrator would seek an alternative depository (if
available) or cause the issuance of Definitive Securities to the owners
thereof or their nominees in the manner described in the Prospectus under
"Description of the Securities - Book Entry Registration and Definitive
Securities".
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 ABS, 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 ABS 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 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
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
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 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 Securities 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
Contract included in the related Trust Fund, the Contract number, the
outstanding principal amount and the Contract Rate; and (ii) in respect of
each ABS included in the related Trust Fund, including without limitation,
the ABS Issuer, ABS Servicer and ABS 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 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 ABS 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 ABS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or ABS, as applicable, to the Trustee for the benefit of
the Certificateholders. With respect to each Government Security or ABS 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 ABS to be registered directly or on the books of such
clearing corporation or of one or more securities intermediaries in the name
of the Trustee for the benefit of the Securityholders. Unless otherwise
provided in the related Prospectus Supplement, the related Agreement will
require that either the Depositor or the Trustee promptly cause any ABS 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 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 Contract on the schedule of Assets appearing as an exhibit
to the related Agreement; (ii) 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
Contract; (iv) the payment status of the Contract; and (v) the existence of
hazard and extended perils insurance coverage on the 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 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
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
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 Contract that
materially and adversely affects the value of such Contract or the interests
therein of the Securityholders. 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 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 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 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 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 Contract from the Trust
Fund and substitute in its place one or more other 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 Contract as to which
a breach has occurred, will have the option to reimburse the Trust Fund or
the Securityholders 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 Securities 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 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 Contracts.
Unless otherwise provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes Government
Securities or ABS, make or assign certain representations or warranties, as
of a specified date, with respect to such Government Securities or ABS,
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; if so specified in the
related Prospectus Supplement, 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 Trustee 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 pass-through certificates and may contain other funds respecting
payments on contracts or 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 Manufactured Home securing a Contract in the Trust Fund
(to the extent such proceeds are not applied to the restoration of the
property or released to the obligor 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 obligor) (collectively, "Insurance
Proceeds") and all other amounts received and retained in connection with the
liquidation of defaulted Contracts in the Trust Fund, by foreclosure or
otherwise ("Liquidation Proceeds"), together with the net proceeds on a
monthly basis with respect to any Manufactured Home repossessed for the
benefit of Securityholders;
(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 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 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 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 Contracts with respect to which the advances were
made or out of amounts drawn under any form of Credit Support with respect to
such Contracts;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to
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 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 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) 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 "Material Federal Income Tax Consequences--REMICS--
Prohibited Transactions Tax and Other Taxes";
(xii) 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 a property acquired in respect thereof in connection with the
liquidation of such property;
(xiii) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Securityholders;
(xiv) 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;
(xv) 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;
(xvi) to make any other withdrawals permitted by the related
Agreement; and
(xvii) 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 Contracts
and will follow or cause to be followed such collection procedures as it
would follow with respect to loans that are comparable to the 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 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 Contract; 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 Manufactured Homes under certain circumstances; and maintaining
accounting records relating to the Contracts. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will be responsible
for filing and settling claims in respect of particular 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
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 Contract or (ii) in
its judgment, materially impair the security for the 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 Contract if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a
material default on the 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 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 Contract.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the 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 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 CONTRACTS
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer is required to monitor any Contract which is in default,
initiate corrective action in cooperation with the obligor if cure is likely,
inspect the 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 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 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 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 Securityholder) that constitutes a fair price for such
defaulted 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 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 repossess
and realize upon any Manufactured Home, if such action is consistent with the
Servicing Standard and a default on such Contract has occurred or, in the
Master Servicer's judgment, is imminent.
Unless otherwise provided in the related Prospectus Supplement, if title
to a Manufactured Home 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 Manufactured Home within three 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 three 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 Security is
outstanding. Subject to the foregoing, the Master Servicer will be required
to (i) solicit bids for any Manufactured Home 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 Manufactured Home
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered.
If recovery on a defaulted 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
Contract. If the proceeds of any liquidation of the property securing the
defaulted Contract are less than the outstanding principal balance of the
defaulted Contract plus interest accrued thereon at the 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 Contract, prior to the distribution of such
Liquidation Proceeds to Securityholders, amounts representing its normal
servicing compensation on the Contract, unreimbursed servicing expenses
incurred with respect to the Contract and any unreimbursed advances of
delinquent payments made with respect to the Contract.
If any property securing a defaulted 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 Securityholders on liquidation of the 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 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 Contracts.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted 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 Contract, unreimbursed servicing expenses incurred with respect to the
Contract and any unreimbursed advances of delinquent payments made with
respect to the Contract. See "Hazard Insurance Policies" and "Description of
Credit Support."
HAZARD INSURANCE POLICIES
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 Contracts may contain clauses requiring the consent of the obligee
to any sale or other transfer of the related Manufactured Home, or
due-on-sale clauses entitling the obligee to accelerate payment of the
Contract upon any sale, transfer or conveyance of the related Manufactured
Home. 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". 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.
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
obligor 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 Securities 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 Securities evidencing interests in a Trust Fund that includes
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
obligors 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 Securityholders, 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 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 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 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 the audit or attestation program used by the
Master Servicer, the servicing by or on behalf of the Master Servicer of
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, such program requires it to report.
In rendering its statement such firm may rely, as to matters relating to the
direct servicing of loans by Sub-Servicers, upon comparable statements for
examinations conducted substantially in compliance with the audit or
attestation 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 Securityholders 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
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 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 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 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 Securityholders, 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 (or such other period specified in the
related Prospectus Supplement) 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 (or such longer period specified
in the related Prospectus Supplement) 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 Contracts (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 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 correct any 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 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
Securities 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 Securities
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,
or (iii) 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 of the 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 "Risk Factors--Credit Support Limitations--
Risk That Credit Support Will Not Cover All Losses."
SUBORDINATE SECURITIES
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 Assets prior to distributions on Subordinate Securities evidencing
interests in a different group of 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
If so provided in the Prospectus Supplement for a series of Securities,
the 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 ABS
If so provided in the Prospectus Supplement for a series of Securities,
the ABS in the related Trust Fund and/or the Contracts underlying such ABS
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 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.
LAND-AND-HOME CONTRACTS
If so specified in the related Prospectus Supplement, certain Contracts
("Land-and-Home Contracts") may be secured by a lien on the real property on
which the related Manufactured Home is located.
General Security instruments granting a security interest in real
property on which a Manufactured Home is located 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 real 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.
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 Contracts that are secured by an interest in a leasehold
estate. Such representation and warranties, if applicable, will be set forth
in the Prospectus Supplement.
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.
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 three 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 three 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.
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.
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.
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 real property securing
a Contract 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 Securities might realize a loss if such costs were required
to be paid by the Trust Fund.
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.
Usury 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 obligor may cancel the indebtedness and security
interest 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 obligor to cancel
the recorded mortgage or deed of trust without any payment or prohibiting the
lender from foreclosing.
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 security interest 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 security interest, "reasonably
without cause to believe" that the property was used in, or purchased with
the proceeds of, illegal drug or RICO activities.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered
Certificates represents the opinion of Brown & Wood LLP, counsel to the
Depositor, as of the date of this Prospectus. 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.
The term "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under
the laws of the United States or any political subdivision thereof (other
than a partnership that is not treated as a United States person under any
applicable Treasury regulations), or an estate whose income is subject to
U.S. federal income tax regardless of its source of income, or a trust if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States person have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in regulations, certain trusts
in existence on August 20, 1996 and treated as United States person prior to
such date that elect to continue to be treated as United States person shall
be considered U.S. persons as well.
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 Assets in the Pool. Any
amounts received by a Grantor Trust Certificateholder in lieu of amounts due
with respect to any 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 Assets. The
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 Contracts, 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 Contracts that satisfy
the applicable sentence in the following paragraph 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 Assets represented by that
Grantor Trust Certificate are of a type described in such Code section;
and
(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)(4)(A), and interest income on the Contracts that satisfy the
applicable sentence in the following paragraph 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 Assets
represented by that Grantor Trust Certificate are of a type described in
such Code section.
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 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.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Asset based on
each Asset's relative fair market value, so that such holder's undivided
interest in each Asset will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in 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 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 Contract (or an underlying Contract
with respect to an ABS) prepays in full, equal to the difference between the
portion of the prepaid principal amount of such Contract (or underlying
contract) that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to such Contract (or
underlying Contract). 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.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable
Bond Premium Regulations") dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject
to Code Section 1272(a)(6) such as the Securities. Absent further guidance
from the IRS, the Trustee intends to account for amortizable bond premium in
the manner described above. Prospective purchasers of the Securities should
consult their tax advisors regarding the possible application of the
Amortizable Bond Premium Regulations.
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, as
amended on June 11, 1996, under such Sections (the "OID Regulations"), will be
applicable to a Grantor Trust Certificateholder's interest in those 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 Assets may be subject to the market discount rules of
Code Sections 1276 through 1278 to the extent an undivided interest in an
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 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 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 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 an Asset by Asset basis, which could result
in some 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 Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if
the discount on an 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 Assets as
market discount rather than OID if either (i) the amount of OID with respect
to the 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 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 Asset. However, based on
the recent IRS guidance, it appears that all payments from an 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 Asset would be included in the 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 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 Assets, or
if no prepayment assumption is used, then when an 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 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 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 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)(4)(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 Assets and interest
on such 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.
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 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 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
Assets other than 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 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 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 Asset's stated redemption price at
maturity over its issue price. The issue price of an 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 an
Asset is the sum of all payments to be made on such 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 Assets acquired by a Certificateholder are
purchased at a price equal to the then unpaid principal amount of such Asset,
no original issue discount attributable to the difference between the issue
price and the original principal amount of such Asset (i.e., points) will be
includible by such holder. Other original issue discount on the 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 (generally more than one year).
The Taxpayer Relief Act of 1997 (the "Act") reduces the maximum rates on
long-term capital gains recognized on capital assets held by individual
taxpayers for more than eighteen months as of the date of disposition (and
would further reduce the maximum rates on such gains in the year 2001 and
thereafter for certain individual taxpayers who meet specified conditions).
The capital gains rate for capital assets held by individual taxpayers for
more than twelve months but less than eighteen months was not changed by the
Act ("mid-term rate"). The Act does not change the capital gain rates for
corporations. Prospective investors should consult their own tax advisors
concerning these tax law changes.
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 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 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.
F. NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding,
backup withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
REMICS
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) to the extent the underlying
Contracts constitute such assets; (ii) such Certificates held by a real
estate investment trust will constitute "real estate assets" within the
meaning of Code Section 856(c)(4)(A) to the extent the underlying Contracts
constitute such assets; 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) to the extent the underlying Contracts constitute such assets.
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 Assets may not be treated entirely as assets
described in the foregoing sections. REMIC Certificates held by a real
estate investment trust will not constitute "Government Securities" within
the meaning of Code Section 856(c)(4)(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)(4)(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 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 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 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.
Such gain or loss generally will be long-term capital gain or loss if
the Note were held for more than one year. The Taxpayer Relief Act of 1997
(the "Act") reduces the maximum rates on long-term capital gains recognized
on capital assets held by individual taxpayers for more than eighteen months
as of the date of disposition (and would further reduce the maximum rates on
such gains in the year 2001 and thereafter for certain individual taxpayers
who meet specified conditions). The capital gains rate for capital assets
held by individual taxpayers for more than twelve months but less than
eighteen months was not changed by the Act ("mid-term rate"). The Act does
not change the capital gain rates for corporations. Prospective investors
should consult their own tax advisors concerning these tax law changes.
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 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 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.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged
to consult their own tax advisors regarding the New Regulations.
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
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 Contracts, reduced by amortization of any
premium on the Contracts, 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 Assets may
differ from the time of the actual loss on the Asset. The REMIC's deductions
include interest and original issue discount expense on the REMIC Regular
Certificates, servicing fees on the Contracts, other administrative expenses
of the REMIC and realized losses on the Contracts. 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 Assets and other
assets of the REMIC in proportion to their respective fair market value. An
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 Assets. Premium on any Asset to which such election
applies would be amortized under a constant yield method. It is not clear
whether the yield of an 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 loan originated on or before September 27, 1985. Instead,
premium with respect to such a 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 an Asset, the receipt of income from a source other
than an 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 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 Contract, 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 nature of the
income of the Trust Fund will exempt it from the rule that certain publicly
traded partnerships are taxable as corporations or (2) 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.
Such gain or loss generally will be long-term capital gain or loss if
the Note were held for more than one year. The Taxpayer Relief Act of 1997
(the "Act") reduces the maximum rates on long-term capital gains recognized
on capital assets held by individual taxpayers for more than eighteen months
as of the date of disposition (and would further reduce the maximum rates on
such gains in the year 2001 and thereafter for certain individual taxpayers
who meet specified conditions). The capital gains rate for capital assets
held by individual taxpayers for more than twelve months but less than
eighteen months was not changed by the Act ("mid-term rate"). The Act does
not change the capital gain rates for corporations. Prospective investors
should consult their own tax advisors concerning these tax law changes.
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 Contracts (including appropriate adjustments for market discount, OID
and bond premium) and any gain upon collection or disposition of Contracts.
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 Contracts.
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
Contracts 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 Contracts
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 Contract, 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 Contracts 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 Contract basis.)
If the Trust Fund acquires the Contracts 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 Contracts or to offset any such
premium against interest income on the Contracts. 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. Pursuant to final Treasury regulations issued May
8, 1997 under Section 708 of the Code, if such a termination occurs, the
Trust Fund (the "old partnership") would be deemed to contribute its assets
to a new partnership (the "new partnership") in exchange for interests in the
new partnership. Such interests would be deemed distributed to the Partners
of the old partnership in liquidation thereof, which would not constitute a
sale or exchange.
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 Contracts 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.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged
to consult their own tax advisors regarding the New Regulations.
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-tax 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 take 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 Contracts 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 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 minimus 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 Contracts (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
form 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 Contracts, 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 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 Trust Fund containing 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
Contracts 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 Contracts. 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 exception, 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 sates and the Certificate Owner
provides the required foreign person information certification.
If the interest of the Certificate Owners were deemed to be partnership
interest, 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.
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 of 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
to 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.
G. NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding,
backup withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
FASIT SECURITIES
General. The FASIT provisions of the Code were enacted by the Small
Business Job Protection Act of 1996 and create a new elective statutory
vehicle for the issuance of mortgage-backed and asset-backed securities.
Although the FASIT provisions of the Code became effective on September 1,
1997, no Treasury regulations or other administrative guidance has been
issued with respect to those provisions. Accordingly, definitive guidance
cannot be provided with respect to many aspects of the tax treatment of FASIT
Securityholders. Investors also should note that the FASIT discussions
contained herein constitutes only a summary of the federal income tax
consequences to holders of FASIT Securities. With respect to each Series of
FASIT Securities, the related Prospectus Supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for federal income tax purposes, or
FASIT Ownership Securities, which generally are not treated as debt for such
purposes, but rather as representing rights and responsibilities with respect
to the taxable income or loss of the related Series. The Prospectus
Supplement for each Series of Securities will indicate whether one or more
FASIT elections will be made for that Series and which Securities of such
Series will be designated as Regular Securities, and which, if any, will be
designated as Ownership Securities.
Qualification as a FASIT. The Trust Fund underlying a Series (or one or
more designated pools of assets held in the Trust Fund) will qualify under
the Code as a FASIT in which the FASIT Regular Securities and the FASIT
Ownership Securities will constitute the "regular interests" and the
"ownership interests," respectively, if (i) a FASIT election is in effect,
(ii) certain tests concerning (A) the composition of the FASIT's assets and
(B) the nature of the Securityholders' interest in the FASIT are met on a
continuing basis, and (iii) the Trust Fund is not a regulated investment
company as defined in Section 851(a) of the Code.
Asset Composition. In order for a Trust Fund (or one or more designated
pools of assets held by a Trust Fund) to be eligible for FASIT status,
substantially all of the assets of the Trust Fund (or the designated pool)
must consist of "permitted assets" as of the close of the third month
beginning after the closing date and at all times thereafter (the "FASIT
Qualification Test"). Permitted assets include (i) cash or cash equivalents,
(ii) debt instruments with fixed terms that would qualify as REMIC regular
interests if issued by a REMIC (generally, instruments that provide for
interest at a fixed rate, a qualifying variable rate, or a qualifying
interest-only ("IO") type rate, (iii) foreclosure property, (iv) certain
hedging instruments (generally, interest and currency rate swaps and credit
enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments
issued by the holder of the FASIT's ownership interest or by any person
related to such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements.
All of the interests in a FASIT must belong to either of the following: (i)
one or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic corporation. In the case
of Series that include FASIT Ownership Securities, the ownership interest
will be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the IRS plus 5%, and (vi) if
it pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interest (i.e., certain qualified floating rates and weighted average rates).
See "Material Federal Income Tax Consequences--REMICS--Taxation of Owners of
REMIC Regular Certificates--Variable Rate REMIC Regular Certificates."
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv) or (v) above, but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest." In addition, if a FASIT Security fails to meet the
requirements of clause (vi), but the interest payable on the Security
consists of a specified portion of the interest payments on permitted assets
and that portion does not vary over the life of the Security, the Security
also will qualify as a High-Yield Interest. A High-Yield Interest may be
held only by domestic corporations that are fully subject to corporate income
tax ("Eligible Corporations"), other FASITs and dealers in securities who
acquire such interests as inventory, rather than for investment. In
addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from such interest. See "Material Federal Income
Tax Consequences--FASIT Securities--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
Consequences of Disqualification. If a Series of FASIT Securities fails
to comply with one or more of the Code's ongoing requirements for FASIT
status during any taxable year, the Code provides that its FASIT status may
be lost for that year and thereafter. If FASIT status is lost, the treatment
of the former FASIT and the interests therein for federal income tax purposes
is uncertain. The former FASIT might be treated as a grantor trust, as a
separate association taxed as a corporation, or as a partnership. The FASIT
Regular Securities could be treated as debt instruments for federal income
tax purposes or as equity interests. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith,
such regulations have not yet been issued. It is possible that
disqualification relief might be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the FASIT's income for a
period of time in which the requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Regular Securities. Payments received by holders
of FASIT Regular Securities generally should be accorded the same tax
treatment under the Code as payments received on other taxable corporate debt
instruments and on REMIC Regular Securities. As in the case of holders of
REMIC Regular Securities, holders of FASIT Regular Securities must report
income from such Securities under an accrual method of accounting, even if
they otherwise would have used the case receipts and disbursements method.
Except in the case of FASIT Regular Securities issued with original issue
discount or acquired with market discount or premium, interest paid or
accrued on a FASIT Regular Security generally will be treated as ordinary
income to the Securityholder and a principal payment on such Security will be
treated as a return of capital to the extent that the Securityholder's basis
is allocable to that payment. FASIT Regular Securities issued with original
issue discount or acquired with market discount or premium generally will
treat interest and principal payments on such Securities in the same manner
described for REMIC Regular Securities. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" "--
Original Issue Discount and Premium" and "--Market Discounts" and "--Premium"
above. High-Yield Securities may be held only by fully taxable domestic
corporations, other FASITs, and certain securities dealers. Holders of High-
Yield Securities are subject to limitations on their ability to use current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from those Securities.
If a FASIT Regular Security is sold or exchanged, the Securityholder
generally will recognize gain or loss upon the sale in the manner described
above for REMIC Regular Securities. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Sale,
Exchange or Redemption". In addition, if a FASIT Regular Security becomes
wholly or partially worthless as a result of Default and Delinquencies of the
underlying Assets, the holder of such Security should be allowed to deduct
the loss sustained (or alternatively be able to report a lesser amount of
income). See "Material Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates", "--Effects of Default and
Delinquencies" and "--Treatment of Realized Losses."
FASIT Regular Securities held by a REIT will qualify as "real estate
assets" within the meaning of section 856(c)(4)(A) of the Code, and interest
on such Securities will be considered Qualifying REIT Interest to the same
extent that REMIC Securities would be so considered. FASIT Regular
Securities held by a Thrift Institution taxed as a "domestic building and
loan association" will represent qualifying assets for purposes of the
qualification requirements set forth in Code Section 7701(a)(19) to the same
extent that REMIC Securities would be so considered. See "Material Federal
Income Tax Consequences--REMICs." In addition, FASIT Regular Securities held
by a financial institution to which Section 585 of the Code applies will be
treated as evidences of indebtedness for purposes of Section 582(c)(1) of the
Code. FASIT Securities will not qualify as "Government Securities" for
either REIT or RIC qualification purposes.
Treatment of High-Yield Interests. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security
with losses. High-Yield Interests may be held only by Eligible Corporations
other FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal to
the income from the High-Yield Interest multiplied by the highest corporate
income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor still will be treated as the holder of the High-Yield
Interest.
The holder of a High-Yield Interest may not use non-FASIT current losses
or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular Federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities
backed by the FASIT Regular Security and that have the same features as High-
Yield Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership Security
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT Ownership Security determines its taxable income by taking into account
all assets, liabilities and items of income, gain, deduction, loss and credit
of a FASIT. In general, the character of the income to the holder of a FASIT
Ownership Interest will be the same as the character of such income of the
FASIT, except that any tax-exempt interest income taken into account by the
holder of a FASIT Ownership Interest is treated as ordinary income. In
determining that taxable income, the holder of a FASIT Ownership Security
must determine the amount of interest, original issue discount, market
discount and premium recognized with respect to the FASIT's assets and the
FASIT Regular Securities issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders
of FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "Material Federal Income Tax
Consequences-- Treatment of High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to FASIT Ownership Securities. Accordingly,
losses on dispositions of a FASIT Ownership Security generally will be
disallowed where, within six months before or after the disposition, the
seller of such Security acquires any other FASIT Ownership Security or, in
the case of a FASIT holding mortgage assets, any interest in a Taxable
Mortgage Pool that is economically comparable to a FASIT Ownership Security.
In addition, if any security that is sold or contributed to a FASIT by the
holder of the related FASIT Ownership Security was required to be marked-to-
market under Code section 475 by such holder, then section 475 will continue
to apply to such securities, except that the amount realized under the mark-
to-market rules will be a greater of the securities' value under present law
or the securities' value after applying special valuation rules contained in
the FASIT provisions. Those special valuation rules generally require that
the value of debt instruments that are not traded on an established
securities market be determined by calculating the present value of the
reasonably expected payments under the instrument using a discount rate of
120% of the applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration. Holders of FASIT
Securities will be subject to backup withholding to the same extent holders
of REMIC Securities would be subject. See "Material Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Regular Certificates--
Information Reporting and Backup Withholding." For purposes of reporting and
tax administration, holders of record of FASIT Securities generally will be
treated in the same manner as holders of REMIC Securities.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material 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 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. 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 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.
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 whose 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.
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. Merrill Lynch is an affiliate
of the Depositor. 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 and/or any other person or
persons named therein 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 or such persons act as agents in the sale of
Offered Securities, they will receive a selling commission with respect to
such Offered Securities, depending on market conditions, expressed as a
percentage of the aggregate principal 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 or such persons elect to purchase Offered
Securities as principal, they 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.
This Prospectus may be used, to the extent required, by Merrill Lynch or
any other Underwriter in connection with offers and sales related to market
making transactions.
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.
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.
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. Certain matters with
respect to Delaware law will be passed upon for the Depositor by Richards,
Layton & Finger, P.A., Wilmington, Delaware.
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 asset backed securities address the likelihood of receipt by
securityholders of all distributions on the underlying assets. 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 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
1986 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67, 71
ABS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 17
ABS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ABS Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ABS Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ABS Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Accrual Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 25
Accrued Security Interest . . . . . . . . . . . . . . . . . . . . . . . . 27
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68, 76, 87
adjusted issue price . . . . . . . . . . . . . . . . . . . . . . . . 67, 81
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Amortizable Bond Premium Regulations . . . . . . . . . . . . . . . . . . 64
an accrual period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Applicable Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
ARM Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Asset Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 17
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . . . 26
benefit plan investors . . . . . . . . . . . . . . . . . . . . . . . . . 99
Book-Entry Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 25
capital asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68, 76
Cash Flow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 20
Cash Flow Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 31
Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
clearing agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
clearing corporation . . . . . . . . . . . . . . . . . . . . . . . . 31, 36
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contract Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 25
Contract Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 18
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 14, 17
Contributions Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
coupon stripping . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Covered Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 51
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 20
Crime Control Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
daily accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
daily portions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Deferred Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . 25, 34
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 17
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
disqualified organization . . . . . . . . . . . . . . . . . . . . . . . . 84
disqualified organizations . . . . . . . . . . . . . . . . . . . . . . . 84
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 31
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Eligible Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . 96
equity of redemption . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 98
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
excess inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 81, 84
excess servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
FASIT Qualification Test . . . . . . . . . . . . . . . . . . . . . . . . 95
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 101
Federal long-term rate . . . . . . . . . . . . . . . . . . . . . . . . . 81
foreign person . . . . . . . . . . . . . . . . . . . . . . . . . . . 85, 87
Government Securities . . . . . . . . . . . . . . . . . . . 1, 7, 17, 70, 97
Grantor Trust Certificates . . . . . . . . . . . . . . . . . . . . . . . 11
High-Yield Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Holder-in-Due-Course . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 34
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
IO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
L/C Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Land-and-Home Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 56
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Manufactured Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
manufactured housing contracts . . . . . . . . . . . . . . . . . . . . . 14
Mark-to-Market Regulations . . . . . . . . . . . . . . . . . . . . . . . 80
Master REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Merrill Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
mid-term rate . . . . . . . . . . . . . . . . . . . . . . . . . . 68, 76, 87
Model Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
mortgage-related securities . . . . . . . . . . . . . . . . . . . 12, 100-102
mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
NCUA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
new partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
New Regulations . . . . . . . . . . . . . . . . . . . . . . . 69, 78, 92, 94
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . . 28
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Offered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62, 64
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
old partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
parties in interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
pass-through entity . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
pass-through interest holder . . . . . . . . . . . . . . . . . . . . . . 81
pass-through interest holders . . . . . . . . . . . . . . . . . . . . . . 77
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 27
passive losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Payment Lag Certificates . . . . . . . . . . . . . . . . . . . . . . . . 77
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 38
phantom income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . 34
portfolio income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
portfolio interest . . . . . . . . . . . . . . . . . . . . . . . 84, 87, 91
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 20
pre-issuance accrued interest . . . . . . . . . . . . . . . . . . . . . . 77
prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . 67
prohibited transactions . . . . . . . . . . . . . . . . . . . . . . . 82, 97
Prohibited Transactions Tax . . . . . . . . . . . . . . . . . . . . . . . 82
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
qualified mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
qualified stated interest . . . . . . . . . . . . . . . . . . . . . . 72, 86
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
real estate assets . . . . . . . . . . . . . . . . . 62, 63, 66, 70, 71, 96
real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 70
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
regular interests . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 95
Related Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
REMIC Regular Certificateholders . . . . . . . . . . . . . . . . . . . . 71
REMIC Regular Certificates . . . . . . . . . . . . . . . . . . . . . 11, 70
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
REMIC Residual Certificateholder . . . . . . . . . . . . . . . . . . . . 78
REMIC Residual Certificates . . . . . . . . . . . . . . . . . . . . . 11, 70
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Retained Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
RICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Security Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 27
Security Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Securityholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 17
Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 25
Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Servicing Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Short-Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
single family residences . . . . . . . . . . . . . . . . . . . . . . . . 70
single-class REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 100
SMMEA Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
SPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Stripped ARM Obligations . . . . . . . . . . . . . . . . . . . . . . . . 68
Stripped Bond Certificates . . . . . . . . . . . . . . . . . . . . . . . 65
stripped bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 65
Stripped Coupon Certificates . . . . . . . . . . . . . . . . . . . . . . 65
stripped coupons . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 65
Stripped Interest Securities . . . . . . . . . . . . . . . . . . . . . 9, 25
Stripped Principal Securities . . . . . . . . . . . . . . . . . . . . . 9, 25
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Sub-Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 41
Subordinate Securities . . . . . . . . . . . . . . . . . . . . . . . . 9, 25
Subsequent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 20
Subsidiary REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Super-Premium Certificates . . . . . . . . . . . . . . . . . . . . . . . 72
tax avoidance potential . . . . . . . . . . . . . . . . . . . . . . . . . 85
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
taxable mortgage pool . . . . . . . . . . . . . . . . . . . . . . . . 82, 93
thrift institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . 61, 69, 85
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 53
Underlying ABS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Underlying Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 19
United States Department of Labor . . . . . . . . . . . . . . . . . . . . 98
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Warranting Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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 . . . . . . . . . . . . . . . . . . . . . . . $295,000
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. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000
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 (filed as exhibit 1.1 to Registration
Statement on Form S-3 (file no. 333-24327) and incorporated herein
by reference).
3.1 Certificate of Incorporation of Merrill Lynch Mortgage Investors,
Inc., as amended (filed as exhibit 3.1 to Registration Statement on
Form S-3 (file no. 333-24327) and incorporated herein by reference).
3.2 By-laws of Merrill Lynch Mortgage Investors, Inc. as currently in
effect (filed as exhibit 3.2 to Registration Statement on Form S-3
(No. 333-07569) and incorporated herein by reference).
4.1 Form of Pooling and Servicing Agreement (including form of
Certificate as an exhibit thereto) (filed as exhibit 4.1 to
Registration Statement on Form S-3 (No. 333-07569) and incorporated
herein by reference).
4.2 Form of Pooling and Servicing Agreement (Contracts) (including form
of Certificate as an exhibit thereto) (filed as exhibit 4.2 to
Registration Statement on Form S-3 (No. 333-07569) and incorporated
herein by reference).
4.3 Form of Trust Agreement (including form of Certificate as an exhibit
thereto)(filed as exhibit 4.3 to Registration Statement on Form S-3
(No. 333-07569) and incorporated herein by reference)..
4.4 Form of Indenture (including form of Note as an exhibit thereto).
4.5 Form of Indenture (including forms of Notes).
4.6 Form of Pooling and Servicing Agreement (revolving home equity loans)
(including form of Certificate as an exhibit thereto) (filed as
exhibit 4.5 to Registration Statement on Form S-3 (No. 333-24327) and
incorporated herein by reference).
*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 LP as to 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 LP (included in exhibit 5.2)
*24.1 Power of Attorney (included as page II-4 to original filing).
99.1 Form of Servicing Agreement(filed as exhibit 99.1 to
Registration Statement on Form S-3 (No. 333-07569) and incorporated
herein by reference).
99.2 Form of Mortgage Loan Purchase Agreement (filed as an exhibit 99.2
to the Registration Statement on Form S-3 (No. 333-07569) and
incorporated herein by reference).
99.3 Form of Mortgage Loan Purchase Agreement (revolving home equity
loans)(filed as an exhibit 99.3 to the Registration Statement on
Form S-3 (No. 333-24327) and incorporated herein by reference).
____________
* Previously filed.
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 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on the 28th day
of May, 1998.
Merrill Lynch Mortgage Investors, Inc.
By:/s/ Michael M. McGovern
------------------------------------
Name: Michael M. McGovern
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on May 28, 1998.
<TABLE>
<CAPTION> Signature Title
<S> <C>
President and Chairman of the Board of
* Directors (Chief Executive Officer)
----------------------------------
(Jeffrey W. Kronthal)
Treasurer (Principal Financial Officer and
* Principal Accounting Officer) and Director
----------------------------------
(Michael J. Normile)
Director
----------------------------------
(Donald J. Puglisi)
Director
/s/ Michael M. McGovern
----------------------------------
(Michael M. McGovern)
*By/s/ Michael M. McGovern
------------------------------
(Michael M. McGovern,
Attorney-in-fact)
</TABLE>
Registration No. 333-39127
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
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 (filed as exhibit 1.1 to Registration
Statement on Form S-3 (file no. 333-24327) and incorporated herein by
reference).
3.1 Certificate of Incorporation of Merrill Lynch Mortgage Investors,
Inc., as amended (filed as exhibit 3.1 to Registration Statement on
Form S-3 (file no. 333-24327) and incorporated herein by reference).
3.2 By-laws of Merrill Lynch Mortgage Investors, Inc. as currently in
effect (filed as exhibit 4.1 to Registration Statement on Form S-3
(No. 333-07569) and incorporated herein by reference).
4.1 Form of Pooling and Servicing Agreement (including form of
Certificate as an exhibit thereto)(filed as exhibit 4.2 to
Registration Statement on Form S-3 (No. 333-07569) and incorporated
herein by reference).
4.2 Form of Pooling and Servicing Agreement (Contracts) (including form
of Certificate as an exhibit thereto) (filed as exhibit 4.3 to
Registration Statement on Form S-3 (No. 333-07569) and incorporated
herein by reference).
4.3 Form of Trust Agreement (including form of Certificate as an exhibit
thereto)(filed as exhibit 3.2 to Registration Statement on Form S-3
(No. 333-07569) and incorporated herein by reference).
*4.4 Form of Indenture (including form of Note as an exhibit thereto).
4.5 Form of Indenture (including form of Note).
4.6 Form of Pooling and Servicing Agreement (revolving home equity loans)
(including form of Certificate as an exhibit thereto) (filed as
exhibit 4.5 to Registration Statement on Form s-3 (No. 333-24327)
and incorporated by reference).
*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 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).
99.1 Form of Servicing Agreement(filed as exhibit 99.1 to
Registration Statement on Form S-3 (No. 333-07569) and incorporated
herein by reference).
99.2 Form of Mortgage Loan Purchase Agreement (filed as an exhibit 99.2
to the Registration Statement on Form S-3 (No. 333-07569) (and
incorporated herein by reference).
99.3 Form of Mortgage Loan Purchase Agreement (revolving home equity
loans)(filed as an exhibit 99.3 to the Registration Statement on
Form S-3 (No. 333-24327) and incorporated herein by reference).
- ---------------
* Previously filed.
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
-----------------
Section Page
- ------- ----
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.
-------------------------------------------------
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
---------------------
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 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 issued in the following Classes: _______________)
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 (and A-2) 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
$(_______________) (for the Class ___ Notes) ($________ for the Class ___
Notes) (and $________ for the Class ___ Notes) (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
------------------------------------------------
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;
-----------------------------------------------------
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 (specify priority of Classes of Notes);
(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 follows: (specify priority of
payments among Classes). 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 recording 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 Agreement, 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
each Class of Notes) 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 Depository in minimum initial Principal Balances of $(________) and inte-
gral multiples 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 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 pre-
scribe, 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 replacement 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 (or specify which Class of
Notes may declare an acceleration) 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 fore-
going, 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 Agree-
ment.)
(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 (specify any priority among
Classes of Notes) 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 (specify any
priority among Classes of Notes), 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, obligations, 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) (x) to cure any ambiguity or to correct any error herein
or in any supplemental indenture or (y) 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 in any material respect;
(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 amend-
ments, 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, to the extent required by the TIA, 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 withdrawal 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, to the extent required by the TIA, 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 IBCA, Inc., 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 corporation; 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 REQUESTED BY AN AUTHORIZED REPRESEN-
TATIVE 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(, Class ___) (Variable Funding 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"); provid-
ed, 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
individual 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(, Class ___, Class ___ and
Class ___) (Variable Funding 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 respective 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).
( This Variable Funding Note is subject to optional ( and mandatory )
prepayment as provided in the Indenture. )
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
APPENDIX A
DEFINITIONS
Accelerated Amortization Date: _______________.
-----------------------------
(Accelerated Principal Distribution Amount: With respect to any Payment
-----------------------------------------
Date, the lesser of (x) the amount remaining in the Payment Account after the
application of funds on deposit therein in accordance with clauses (i)
through (vi) of Section 3.05 of the Indenture and (y) the amount required to
reach the Required Overcollateralization Amount.)
(Additional Balance: With respect to any Mortgage Loan, any future Draw
------------------
made by the related Mortgagor pursuant to the related Loan Agreement after
the Cut-Off Date in the case of an Initial Loan, or after the Deposit Date in
the case of an Additional Loan; provided, however, that if an Amortization
-------- -------
Event occurs, then any Draw after such Amortization Event shall not be
acquired by the Issuer and shall not be an Additional Balance.
Additional Balance Differential: With respect to any Payment Date, (x)
-------------------------------
prior to the Accelerated Amortization Date the amount by which Draws under
the Mortgage Loans during the related Collection Period exceed Principal
Collections during such Collection Period and (y) on and after the Accelerat-
ed Amortization Date the aggregate amount of Additional Balances conveyed to
the Issuer during the related Collection Period.
Additional Credit Enhancement Instrument: The credit enhancement
----------------------------------------
instrument which may be issued by the Credit Enhancer to the Indenture
Trustee to guaranty the Additional Variable Funding Notes for the benefit of
holders of the Additional Variable Funding Notes.
Additional Loans: All home equity line of credit loans sold by the
----------------
Seller to the Issuer after the Closing Date pursuant to Section ___ of the
Mortgage Loan Purchase Agreement.
Additional Variable Funding Notes: The Additional Variable Funding
---------------------------------
Notes issued pursuant to Section 4.01(b) of the Indenture, which shall be in
addition to those Variable Funding Notes that are insured by the Credit
Enhancement Instrument.
Additional Variable Funding Note Issuance Date: The date on which any
----------------------------------------------
Additional Variable Funding Note is issued.)
Administration Agreement: The Administration Agreement dated as of
------------------------
_______________ among the Issuer, the Indenture Trustee and ________________-
_______________, as Administrator, as it may be amended from time to time.
Administrator: _______________________________, as administrator under
-------------
the Administration Agreement or any successor Administrator appointed
pursuant to the terms of the Administration Agreement.
Affiliate: With respect to any Person, any other Person controlling,
---------
controlled by or under common control with such Person. For purposes of
this definition, "control" means the power to direct the management and
policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "con-
trolled" shall have meanings correlative to the foregoing.
Aggregate Additional Balance Differential: With respect to any Payment
-----------------------------------------
Date, the sum of Additional Balance Differentials that have been added to the
Principal Balance of the Variable Funding Notes prior to such Payment Date.
(Aggregate Credit Enhancement Instrument Amounts: The sum of (i) with
-----------------------------------------------
respect to the Credit Enhancement Instrument the lesser of the Maximum Credit
Enhancement Instrument Amount and the aggregate of the Security Principal
Balances of the Securities other than any Additional Variable Funding Notes
and (ii) with respect to any Additional Credit Enhancement Instrument the
lesser of the Maximum Additional Credit Enhancement Instrument Amount and the
Security Balance of the Additional Variable Funding Notes.
Aggregate Increased Maximum Credit Enhancement Instrument Amount: The
----------------------------------------------------------------
Aggregate Credit Enhancement Instrument Amounts of the Credit Enhancement
Instrument and of any Additional Credit Enhancement Instruments issued under
the Insurance Agreement not to exceed the Maximum Credit Enhancement Instru-
ment Amount, plus the Maximum Additional Credit Enhancement Instrument
Amount.)
Aggregate Security Balance: With respect to any Payment Date, the
--------------------------
aggregate of the Principal Balances of all Securities as of such date.
(Amortization Event: Any one of the following events:
------------------
(a) the failure on the part of the Seller (i) to make any payment
or deposit required to be made under the Mortgage Loan Purchase Agree-
ment within four Business Days after the date such payment or deposit is
required to be made; or (ii) to observe or perform in any material
respect any other covenants or agreements of the Seller set forth in the
Mortgage Loan Purchase Agreement, which failure continues unremedied for
a period of 60 days after written notice and such failure materially and
adversely affects the interests of the Securityholders or the Credit
Enhancer;
(b) if any representation or warranty made by the Seller in the
Mortgage Loan Purchase Agreement proves to have been incorrect in any
material respect when made and which continues to be incorrect in any
material respect for a period of 45 days with respect to any representa-
tion or warranty of the Seller made in Section 3 of the Mortgage Loan
Purchase Agreement or 90 days with respect to any representation or
warranty made in Section 4 of the Mortgage Loan Purchase Agreement after
written notice and as a result of which the interests of the Securityho-
lders or the Credit Enhancer are materially and adversely affected;
provided, however, that an Amortization Event shall not be deemed to
-------- -------
occur if the Seller has repurchased or substituted for the related
Mortgage Loans or all Mortgage Loans, if applicable, during such period
(or within an additional 60 days with the consent of the Indenture
Trustee and the Credit Enhancer) in accordance with the provisions of
the Indenture;
(c) The entry against the Seller of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises
for the appointment of a trustee, conservator, receiver or liquidator in
any insolvency, conservatorship, receivership, 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 60 consec-
utive days;
(d) The Seller shall voluntarily go into liquidation, consent to
the appointment of a conservator, receiver, liquidator or similar person
in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Seller or of or
relating to all or substantially all of its property, or a decree or
order of a court, 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
Seller and such decree or order shall have remained in force undis-
charged, unbonded or unstayed for a period of 60 days; or the Seller
shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable insol-
vency or reorganization statute, make an assignment for the benefit of
its creditors or voluntarily suspend payment of its obligations;
(e) the Issuer becomes subject to regulation by the Commission as
an investment company within the meaning of the Investment Company Act
of 1940, as amended;
(f) an Event of Servicing Termination relating to the Master
Servicer occurs under the Servicing Agreement and the Master Servicer is
the Seller;
(g) the aggregate of all draws under the Credit Enhancement
Instrument exceed 1% of the sum of (i) the Cut-Off Date Asset Balance
and (ii) the amount by which the Pool Balance as of the latest date that
the Additional Loans have been transferred to the Issuer exceeds the
Cut-Off Date Asset Balance; or
(h) the failure to satisfy the conditions pursuant to Section
4.01(b) of the Indenture and Section 2.02(B) of the Insurance Agreement
to increasing the Maximum Variable Funding Balance at the time that the
then current Maximum Variable Funding Balance has been reached.
In the case of any event described in (a), (b) or (f), an Amortization
Event will be deemed to have occurred only if, after any applicable grace
period described in such clauses, either the Indenture Trustee, the Credit
Enhancer or, with the consent of the Credit Enhancer, Securityholders
evidencing not less than 51% of the Security Balance of each of the Term
Notes and the Certificates by written notice to the Seller, the Master
Servicer, the Depositor and the Owner Trustee (and to the Indenture Trustee,
if given by the Credit Enhancer or the Securityholders) may declare that an
Amortization Event has occurred as of the date of such notice. In the case
of any event described in clauses (c), (d), (e), (g) or (h), an Amortization
Event will be deemed to have occurred without any notice or other action on
the part of the Indenture Trustee, the Securityholders or the Credit Enhancer
immediately upon the occurrence of such event; provided, that any
--------
Amortization Event described in clauses (g) or (h) may be waived and deemed
of no effect with the written consent of the Credit Enhancer and each Rating
Agency, subject to the satisfaction of any conditions to such waiver.)
Appraised Value: With respect to any Mortgaged Property, either (x) the
---------------
value set forth in an appraisal of such Mortgaged Property made to establish
compliance with the underwriting criteria then in effect in connection with
the later of the application for the Mortgage Loan secured by such Mortgaged
Property or any subsequent increase or decrease in the related Credit Limit
or to reduce or eliminate the amount of any primary insurance, or (y) if the
sales price of the Mortgaged Property is considered in accordance with the
underwriting criteria applicable to the Mortgage Loan, the lesser of (i) the
appraised value referred to in (x) above and (ii) the sales price of such
Mortgaged Property.
(Asset Balance: With respect to any Mortgage Loan, other than a
-------------
Liquidated Mortgage Loan, and as of any day, the related Cut-Off Date Asset
Balance or Deposit Date Asset Balance, plus (i) any Additional Balances in
----
respect of such Mortgage Loan conveyed to the Issuer, minus (ii) all
-----
collections credited as principal in respect of any such Mortgage Loan in
accordance with the related Loan Agreement (except for any such collections
that are allocable to the Excluded Amount) and applied in reduction of the
Asset Balance thereof. For purposes of this definition, a Liquidated
Mortgage Loan shall be deemed to have an Asset Balance equal to the Asset
Balance of the related Mortgage Loan immediately prior to the final recovery
of all related Liquidation Proceeds and an Asset Balance of zero thereafter.)
Assignment of Mortgage: With respect to any Mortgage, an assignment,
----------------------
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the conveyance of the Mortgage, which assignment, notice
of transfer or equivalent instrument may be in the form of one or more
blanket assignments covering the Mortgage Loans secured by Mortgaged Proper-
ties located in the same jurisdiction.
Authorized Newspaper: A newspaper of general circulation in the Borough
--------------------
of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
Authorized Officer: With respect to the Issuer, any officer of the
------------------
Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized
Officers delivered by the Owner Trustee to the Indenture Trustee on the
Closing Date (as such list may be modified or supplemented from time to time
thereafter) and, so long as the Administration Agreement is in effect, any
Responsible Officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Issuer and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified
on the list of Authorized Officers delivered by the Administrator to the
Indenture Trustee on the Closing Date (as such list may be modified or
supplemented from time to time thereafter).
Basic Documents: The Trust Agreement, the Certificate of Trust, the
---------------
Indenture, the Mortgage Loan Purchase Agreement, (the Insurance Agreement,)
the Administration Agreement, the Servicing Agreement, the Custodial
Agreement and the other documents and certificates delivered in connection
with any of the above.
Beneficial Owner: With respect to any Note, the Person who is the
----------------
beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant,
in accordance with the rules of such Depository).
(Billing Cycle: With respect to any Mortgage Loan and Due Date, the
-------------
calendar month preceding such Due Date.
Billing Date: With respect to any Due Date and Mortgage Loan, the first
------------
day of the month preceding such Due Date on which date the bill is generated
for the amount due and payable on the related Mortgage Loan on such Due
Date.)
Book-Entry Notes: Beneficial interests in the Notes, ownership and
----------------
transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
------------
day on which banking institutions in the State of New York, ________ or
_________ are required or authorized by law to be closed.
Business Trust Statute: Chapter 38 of Title 12 of the Delaware Code,
----------------------
12 Del. Code SectionSection3801 et seq., as the same may be amended from time
--- -- ----
to time.
(Capped Funding Note: Any Variable Funding Note that has reached its
-------------------
Maximum Individual Variable Funding Balance.)
(Carryover Loss Amount: With respect to any Payment Date, the aggregate
---------------------
of Loss Amounts (other than Loss Amounts arising during the related Collec-
tion Period) with respect to which either (i) payments of principal have not
been previously made on the Notes and the Certificates or (ii) were not
reflected in a reduction (not below zero) of the Overcollateralization
Amount.)
Certificate Distribution Amount: With respect to any Payment Date, the
-------------------------------
sum of (x) the amount accrued during the related Interest Period on the
Principal Balance of the Certificates at the Certificate Rate for such
Interest Period and (y) any Unpaid Certificate Distribution Amount Shortfall.
The amount available for distribution on any Payment Date shall be allocated
first to the amount in clause (x) above, and second to the amount in clause
(y) above.
Certificate Paying Agent: The meaning specified in Section 3.03 of the
------------------------
Indenture.
Certificate Percentage: With respect to any Payment Date, the ratio,
----------------------
expressed as a percentage, of the aggregate of the Principal Balance of the
Certificates immediately prior to such Payment Date to the sum of the
aggregate of the Principal Balance of the Securities immediately prior to
such date.
Certificate Rate: With respect to any Interest Period, the per annum
----------------
rate determined by the Master Servicer equal to the sum of (i) (LIBOR) and
(ii) ___% provided, however, that in no event shall the Certificate Rate with
-------- -------
respect to any Interest Period exceed the Maximum Rate.
Certificate Register: The register maintained by the Certificate
--------------------
Registrar in which the Certificate Registrar shall provide for the registra-
tion of Certificates and of transfers and exchanges of Certificates.
Certificate Registrar: Initially, The First National Bank of Chicago,
---------------------
in its capacity as Certificate Registrar, or any successor to the Indenture
Trustee in such capacity.
Certificate of Trust: The Certificate of Trust filed for the Trust
--------------------
pursuant to Section 3810(a) of the Business Trust Statute.
Certificates: The ________________ Asset-Backed Certificates, Series
------------
1995-1, each evidencing undivided beneficial interests in the Issuer and
executed by the Owner Trustee in substantially the form set forth in Exhibit
A to the Trust Agreement.
Certificateholder: The Person in whose name a Certificate is registered
-----------------
in the Certificate Register except that, any Certificate registered in the
name of the Issuer, the Owner Trustee or the Indenture Trustee or any
Affiliate of any of them shall be deemed not to be outstanding and the
registered holder will not be considered a Certificateholder or a holder for
purposes of giving any request, demand, authorization, direction, notice,
consent or waiver under the Indenture or the Trust Agreement provided that,
in determining whether the Indenture Trustee or the Owner Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Certificates that the Indenture Trustee or
the Owner Trustee knows to be so owned shall be so disregarded. Owners of
Certificates that have been pledged in good faith may be regarded as Holders
if the pledgee establishes to the satisfaction of the Indenture Trustee or
the Owner Trustee, as the case may be, the pledgee's right so to act with
respect to such Certificates and that the pledgee is not the Issuer, any
other obligor upon the Certificates or any Affiliate of any of the foregoing
Persons.
Class: The (Class ___ Notes, Class ___ Notes, Class ___) Notes (and the
-----
Variable Funding Notes, as the case may be).
Class Percentage: With respect to each Class of Notes and Payment Date,
----------------
the ratio, expressed as a percentage, of the aggregate Principal Balance of
such Class of Notes to the aggregate Principal Balance of the Notes, in each
case immediately prior to such Payment Date.
Closing Date: ________________.
------------
Code: The Internal Revenue Code of 1986, as amended, and the rules and
----
regulations promulgated thereunder.
Collateral: The meaning specified in the Granting Clause of the
----------
Indenture.
Collection Account: The account or accounts created and maintained
------------------
pursuant to Section 3.02(b) of the Servicing Agreement. The Collection
Account shall be an Eligible Account.
Collection Period: With respect to any Mortgage Loan and Payment Date
-----------------
other than the first Payment Date, the calendar month preceding any such
Payment Date.
(Combined Loan-to-Value Ratio: With respect to any Mortgage Loan and
----------------------------
any date, the percentage equivalent of a fraction, the numerator of which is
the sum of (i) the greater of (x) the Credit Limit and (y) the Cut-Off Date
Asset Balance of such Mortgage Loan and (ii) the outstanding principal
balance as of the date of the origination of such Mortgage Loan (or any
subsequent date as of which such outstanding principal balance may be deter-
mined in connection with an increase or decrease in the Credit Limit or to
reduce the amount of primary insurance for such Mortgage Loan) of any
mortgage loan or mortgage loans that are secured by liens on the Mortgaged
Property that are senior or subordinate to the Mortgage and the denominator
of which is the Appraised Value of the related Mortgaged Property.)
Corporate Trust Office: With respect to the Indenture Trustee,
----------------------
Certificate Registrar, Certificate Paying Agent and Paying Agent, the
principal corporate trust office of the Indenture Trustee and Note Registrar
at which at any particular time its corporate trust business shall be admin-
istered, which office at the date of the execution of this instrument is
located at ________________________________________, except that for purposes
of Section 4.02 of the Indenture and Section 3.09 of the Trust Agreement,
such term shall include the Indenture Trustee's office or agency at _________
_______________________________. With respect to the Owner Trustee, the
principal corporate trust office of the Owner Trustee at which at any
particular time its corporate trust business shall be administered, which
office at the date of the execution of this Trust Agreement is located at ___
_____________________________________, Attention: Corporate Trust Adminis-
tration.
(Credit Enhancement Draw Amount: As defined in Section 3.30 of the
------------------------------
Indenture.
Credit Enhancement Instrument: The ________________, dated as of the
-----------------------------
Closing Date, issued by the Credit Enhancer to the Indenture Trustee for the
benefit of the Noteholders.
Credit Enhancer: __________________________________, any successor
---------------
thereto or any replacement credit enhancer substituted pursuant to Section
3.31 of the Indenture.
Credit Enhancer Default: If the Credit Enhancer fails to make a payment
-----------------------
required under the Credit Enhancement Instrument in accordance with its
terms.
Credit Limit: With respect to any Mortgage Loan, the maximum Asset
------------
Balance permitted under the terms of the related Loan Agreement.)
Custodial Agreement: Any Custodial Agreement between the Custodian, the
-------------------
Indenture Trustee, the Issuer and the Master Servicer relating to the custody
of the Mortgage Loans and the Related Documents.
Custodian: _____________________________ and its successors and
---------
assigns.
Cut-Off Date: With respect to the Initial Loans, __________, 199_.
------------
Cut-Off Date Asset Balance: With respect to any Initial Loan, the
--------------------------
unpaid principal balance thereof as of the opening of business on the last
day of the related Billing Cycle immediately prior to the Cut-Off Date.
Default: Any occurrence which is or with notice or the lapse of time
-------
or both would become an Event of Default.
Definitive Notes: The meaning specified in Section 4.06 of the
----------------
Indenture.
Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with
---------------------
an Eligible Substitute Mortgage Loan.
(Deposit Date: The applicable date as of which any Additional Loan is
------------
sold to the Issuer pursuant to the Mortgage Loan Purchase Agreement.
Deposit Date Asset Balance: With respect to any Additional Loan, the
--------------------------
Asset Balance thereof as of the Deposit Date.)
Depositor: ____________________________________ its successor in
---------
interest.
Depository or Depository Agency: The Depository Trust Company or a
-------------------------------
successor appointed by the Indenture Trustee with the approval of the
Depositor. Any successor to the Depository shall be an organization regis-
tered as a "clearing agency" pursuant to Section 17A of the Exchange Act and
the regulations of the Securities and Exchange Commission thereunder.
Depository Participant: A Person for whom, from time to time, the
----------------------
Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
Determination Date: With respect to any Payment Date, the later of (i)
------------------
the ____ day of the month in which such Payment Date occurs or if such day is
not a Business Day, the next succeeding Business Day and (ii) the _____
Business Day prior to such Payment Date.
Dissolution Payment Date: Following an Event of Default under the
------------------------
Indenture and an acceleration of the Maturity Date of the Notes, a date on
which the proceeds of the sale of the Trust Estate are paid to Security-
holders.
(Draw: With respect to any Mortgage Loan, a borrowing by the Mortgagor
----
under the related Loan Agreement.)
Due Date: The _____ day of the month.
--------
Eligible Account: An account that is any of the following: (i)
----------------
maintained with a depository institution the debt obligations of which have
been rated by each Rating Agency in its highest rating available, or (ii) an
account or accounts in a depository institution in which such accounts are
fully insured to the limits established by the FDIC, provided that any
--------
deposits not so insured shall, to the extent acceptable to each Rating
Agency, as evidenced in writing, be maintained such that (as evidenced by an
Opinion of Counsel delivered to the Indenture Trustee and each Rating Agency)
the Indenture Trustee have a claim with respect to the funds in such account
or a perfected first security interest against any collateral (which shall be
limited to Eligible Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository institution
with which such account is maintained, or (iii) in the case of the Collection
Account, either (A) a trust account or accounts maintained at the Corporate
Trust Department of the Indenture Trustee or (B) an account or accounts
maintained at the Corporate Trust Department of the Indenture Trustee, as
long as its short term debt obligations are rated P-1 by Moody's and A-1 by
Standard & Poor's or the equivalent) or better by each Rating Agency and its
long term debt obligations are rated A2 by Moody's and A by Standard & Poor's
or the equivalent) or better, by each Rating Agency, or (iv) in the case of
the Collection Account and the Payment Account, a trust account or accounts
maintained in the corporate trust division of the Indenture Trustee, or (v)
an account or accounts of a depository institution acceptable to each Rating
Agency as evidenced in writing by each Rating Agency that use of any such
account as the Collection Account or the Payment Account will not reduce the
rating assigned to any of the Securities by such Rating Agency below invest-
ment grade without taking into account the Credit Enhancement Instrument.
Eligible Investments: One or more of the following:
--------------------
(i) obligations of or guaranteed as to 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 unsecured obligations of the party agreeing to
--------
repurchase such obligations are at the time rated by each Rating Agency
in the highest short-term rating available;
(iii) federal funds, certificates of deposit, demand deposits, time
deposits and bankers' acceptances (which shall each have an original
maturity of not more than 90 days and, in the case of bankers' acceptan-
ces, shall in no event have an original maturity of more than 365 days
or a remaining maturity of more than 30 days) denominated in United
States dollars of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state thereof or
of any domestic branch of a foreign depository institution or trust
company; provided that the 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 available; and provided further that, if the only Rating Agency is
-------- -------
Standard & Poor's and if the depository or trust company is a principal
subsidiary of a bank holding company and the debt obligations of such
subsidiary are not separately rated, the applicable rating shall be that
of the bank holding company; and, provided further that, if the original
-------- -------
maturity of such short-term obligations of a domestic branch of a
foreign depository institution or trust company shall exceed 30 days,
the short-term rating of such institution shall be A-1+ in the case of
Standard & Poor's if Standard & Poor's is the Rating Agency;
(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 their highest short-term rating avail-
able; provided that such commercial paper shall have a remaining
--------
maturity of not more than 30 days;
(v) interests in any money market fund or qualified investment
fund which at the date of acquisition of the interests in such fund and
throughout the time the interest is held in such fund has a rating of P-
1 or Aaa by Moody's and either AAAm or AAAm-G by Standard & Poor's or
such lower rating as will not result in the qualification, downgrading
or withdrawal of the then-current rating assigned to the Certificates by
each Rating Agency;
(vi) other obligations or securities that are acceptable to each
Rating Agency as an Eligible Investment hereunder and will not reduce
the rating assigned to any Class of Certificates by such Rating Agency
below the lower of the rating then assigned thereto or the rating
assigned at the Closing Date, and which are acceptable to the Credit
Enhancer, as evidenced in writing, provided that if the Master Servicer
--------
or any other Person controlled by the Master Servicer is the issuer
or the obligor of any obligation or security described in this clause
(vi) such obligation or security must have an interest rate or yield
that is fixed or is variable based on an objective index that is not
affected by the rate or amount of losses on the Mortgage Loans;
provided, however, that each such instrument shall be acquired in an arm's
- -------- -------
length transaction and no such instrument shall be a Permitted Investment if
it represents, the right to receive only interest payments with respect to
the underlying debt instrument.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
---------------------------------
Seller for a Deleted Mortgage Loan which must, on the date of such substitu-
tion, as confirmed in an Officers' Certificate delivered to the Indenture
Trustee, (i) have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of substitution (or
in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in
the Collection Account in the month of substitution); (ii) comply with each
representation and warranty set forth in clauses (ii) through (xxxiv) of
Section 4 of the Mortgage Loan Purchase Agreement other than clauses ______-
______; (iii) have a (Loan Rate, Net Loan Rate and Gross Margin) no lower
than and not more than 1% per annum higher than the Loan Rate, Net Loan Rate
and Gross Margin, respectively, of the Deleted Mortgage Loan as of the date
of substitution; (iv) have a (Combined) Loan-to-Value Ratio at the time of
substitution no higher than that of the Deleted Mortgage Loan at the time of
substitution; (v) have a remaining term to stated maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan and
(vi) not be __ days or more delinquent.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
-----
Event of Default: With respect to the Indenture, any one of the
----------------
following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in the payment of any interest on any Note when the
same becomes due and payable, and such default shall continue for a
period of ____ days; or
(ii) a default in the payment of the principal of or any install-
ment of the principal of any Note when the same becomes due and payable;
or
(iii) (a Credit Enhancer Default shall have occurred and be
continuing and) there occurs a default in the observance or performance
of any covenant or agreement of the Issuer made in the Indenture, or any
representation or warranty of the Issuer made in the Indenture or in any
certificate or other writing delivered pursuant hereto or in connection
herewith proving to have been incorrect in any material respect as of
the time when the same shall have been made (which has a material
adverse effect on Securityholders), and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of __ days after there shall have been
given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Holders of at
least 25% of the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of
default hereunder; or
((iv) a Credit Enhancer Default shall have occurred and be
continuing and there occurs the filing of a decree or order for relief
by a court having jurisdiction in the premises in respect of the Issuer
or any substantial part of the Trust Estate in an involuntary case under
any applicable federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Trust Estate, or ordering the
winding-up or liquidation of the Issuer's affairs, and such decree or
order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(v) a Credit Enhancer Default shall have occurred and be continu-
ing and there occurs the commencement by the Issuer of a voluntary case
under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the Issuer to
the entry of an order for relief in an involuntary case under any such
law, or the consent by the Issuer to the appointment or taking posses-
sion by a receiver, liquidator, assignee, custodian, trustee, sequestra-
tor or similar official of the Issuer or for any substantial part of the
assets of the Trust Estate, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer
generally to pay its debts as such debts become due, or the taking of
any action by the Issuer in furtherance of any of the foregoing.)
Event of Servicer Termination: With respect to the Servicing Agreement,
-----------------------------
an Event of Default as defined in Section 7.01 of the Servicing Agreement.
(Excess Additional Balance Differential: With respect to any Additional
--------------------------------------
Variable Funding Notes, the amount by which the Additional Balance Differen-
tial for the Collection Period immediately preceding the month in which the
related Additional Variable Funding Notes are issued, would have caused the
Security Balance of the Variable Funding Notes to exceed the Maximum Variable
Funding Balance immediately prior to the issuance of such Additional Variable
Funding Notes.)
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations promulgated thereunder.
(Excluded Amount: For any Payment Date on or after the occurrence of
---------------
an Amortization Event, with respect to all collections whether interest or
principal (other than any amounts received in respect of a Repurchase Price
and pursuant to Section 3.05(c) of the Servicing Agreement) ("Total Collec-
tions") on all Initial Loans and Additional Loans in each case including all
Draws whether or not transferred to the Issuer (collectively, "Total Balances
of Obligors"), an amount equal to the product of (A) Total Collections during
the related Collection Period and (B) a fraction equal to one (1) minus a
-----
fraction the numerator of which is (x) the aggregate Asset Balances of the
end of the last Collection Period and the denominator of which is (y)
the Total Balances of Obligors.)
Expenses: The meaning specified in Section 8.02 of the Trust Agreement.
--------
FDIC: The Federal Deposit Insurance Corporation or any successor
----
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
-----
thereto.
Final Scheduled Payment Date: To the extent not previously paid, the
----------------------------
principal balance of each Class of Notes will be due on the Payment Date in
____________.
FNMA: The Federal National Mortgage Association, or any successor
----
thereto.
Foreclosure Profit: With respect to a Liquidated Mortgage Loan, the
------------------
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Asset Balance (plus accrued and unpaid interest
thereon at the applicable Loan Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
Funding Account: The trust account created and maintained with the
---------------
Indenture Trustee pursuant to Section 8.02 of the Indenture and referred to
therein as the Funding Account. Funds deposited in the Funding Account shall
be held in trust for the uses and purposes set forth in Article VIII of the
Indenture.
Funding Period: The period commencing on the Cut-Off Date and ending
--------------
on the earlier of (x) the Payment Date in ______________ and (y) the occur-
rence of an Amortization Event.
Grant: Mortgage, pledge, bargain, sell, warrant, alienate, remise,
-----
release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and
confirm pursuant to the Indenture. A Grant of the Collateral or of any other
agreement or instrument shall include all rights, powers and options (but
none of the obligations) of the granting party thereunder, including the
immediate and continuing right to claim for, collect, receive and give
receipt for principal and interest payments in respect of such collateral or
other agreement or instrument and all other moneys payable thereunder, to
give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring proceedings in the
name of the granting party or otherwise, and generally to do and receive
anything that the granting party is or may be entitled to do or receive
thereunder or with respect thereto.
(Gross Margin: With respect to any Mortgage Loan, the percentage set
------------
forth as the "Gross Margin" for such Mortgage Loan on the Mortgage Loan
Schedule.)
(Guaranteed Principal Payment Amount: With respect to any Payment Date,
-----------------------------------
other than the Dissolution Payment Date, the amount, if any, by which the
Aggregate Security Balance (after giving effect to all amounts allocable and
distributable to principal on the Securities on such Payment Date) exceeds
the sum of (A) the Pool Balance plus (B) all amounts on deposit in the
----
Funding Account on such date (after giving effect to all withdrawals there-
from and deposits thereto pursuant to Sections 8.02(b) and 8.02(c) of the
Indenture on such Payment Date). With respect to the Payment Date in
____________, if such Payment Date is not a Dissolution Payment Date, the
amount, if any, by which the aggregate of the Security Balances (after giving
effect to all amounts allocable and distributable to principal on the
Securities) exceeds the amount on deposit in the Payment Account available to
be paid as principal on the Securities (after giving effect to all amounts
allocable and distributable as principal on the Securities on such date).)
Holder: Any of the Noteholders or Certificateholders.
------
Indemnified Party: The meaning specified in Section 8.02 of the Trust
-----------------
Agreement.
Indenture: The indenture dated as of _____________ between the Issuer,
---------
as debtor, and the Indenture Trustee, as Indenture Trustee.
Indenture Trustee: _______________________, and its successors and
-----------------
assigns or any successor indenture trustee appointed pursuant to the terms of
the Indenture.
Independent: When used with respect to any specified Person, the Person
-----------
(i) is in fact independent of the Issuer, any other obligor on the Notes, the
Seller, the Depositor and any Affiliate of any of the foregoing Persons, (ii)
does not have any direct financial interest or any material indirect finan-
cial interest in the Issuer, any such other obligor, the Seller, the Deposi-
tor or any Affiliate of any of the foregoing Persons and (iii) is not
connected with the Issuer, any such other obligor, the Seller, the Depositor
or any Affiliate of any of the foregoing Persons as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing
similar functions.
Independent Certificate: A certificate or opinion to be delivered to
-----------------------
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01 of the Inden-
ture, made by an Independent appraiser or other expert appointed by an Issuer
Order and approved by the Indenture Trustee in the exercise of reasonable
care, and such opinion or certificate shall state that the signer has read
the definition of "Independent" in this Indenture and that the signer is
Independent within the meaning thereof.
(Index: With respect to any Mortgage Loan, the _________ from time to
-----
time for the adjustment of the Loan Rate set forth as such on the related
Mortgage Note.)
Initial Loans: All home equity lines of credit sold by the Seller to
-------------
the Purchaser on ______________ pursuant to the terms of the Mortgage Loan
Purchase Agreement, as specified in the Mortgage Loan Schedule.
Initial Principal Balance: With respect to the Certificates, $________
-------------------------
_; the Term Notes, $___________; (and the Variable Funding Notes, zero).
Initial Subservicer: _________________________.
-------------------
Insolvency Event: With respect to a specified Person, (a) the filing
----------------
of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such
Person or for any substantial part of its property, or ordering the winding-
up or liquidation of such Person's affairs, and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or (b) the
commencement by such Person of a voluntary case under any applicable bank-
ruptcy, insolvency or other similar law now or hereafter in effect, or the
consent by such Person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such Person to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for such Person or for any substantial part
of its property, or the making by such Person of any general assignment for
the benefit of creditors, or the failure by such Person generally to pay its
debts as such debts become due or the admission by such Person in writing (as
to which the Indenture Trustee shall have notice) of its inability to pay its
debts generally, or the adoption by the Board of Directors or managing member
of such Person of a resolution which authorizes action by such Person in
furtherance of any of the foregoing.
(Insurance Agreement: The insurance and reimbursement agreement dated
-------------------
as of _____________ among the Master Servicer, the Seller, the Depositor, the
Issuer and the Credit Enhancer, including any amendments and supplements
thereto.)
Insurance Proceeds: Proceeds paid by any insurer (other than the Credit
------------------
Enhancer) pursuant to any insurance policy covering a Mortgage Loan which are
required to be remitted to the Master Servicer, or amounts required to be
paid by the Master Servicer pursuant to the last sentence of Section 3.04 of
the Servicing Agreement, net of any component thereof (i) covering any
expenses incurred by or on behalf of the Master Servicer in connection with
obtaining such proceeds, (ii) that is applied to the restoration or repair of
the related Mortgaged Property, (iii) released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures or (iv) required to be
paid to any holder of a mortgage senior to such Mortgage Loan.
Interest Collections: With respect to any Payment Date, the sum of all
--------------------
payments by or on behalf of Mortgagors and any other amounts constituting
interest (including without limitation such portion of Insurance Proceeds,
Net Liquidation Proceeds and Repurchase Prices as is allocable to interest on
the applicable Mortgage Loan) as is paid by the Seller or the Master Servicer
or is collected by the Servicer under the Mortgage Loans, reduced by the
Servicing Fees for the related Collection Period and by any fees (including
annual fees) or late charges or similar administrative fees paid by Mortgag-
ors during the related Collection Period. The terms of the related Loan
Agreement shall determine the portion of each payment in respect of such
Mortgage Loan that constitutes principal or interest.
Interest Period: With respect to any Payment Date other than the first
---------------
Payment Date, the period beginning on the preceding Payment Date and ending
on the day preceding such Payment Date, and in the case of the first Payment
Date, the period beginning on the Closing Date and ending on the day preced-
ing the first Payment Date.
(Interest Rate Adjustment Date: With respect to each Mortgage Loan, the
-----------------------------
date or dates on which the Loan Rate is adjusted in accordance with the
related Mortgage Note.)
Issuer: ______________________ Loan Trust 199_-_, a Delaware business
------
trust, or its successor in interest.
Issuer Request: A written order or request signed in the name of the
--------------
Issuer by any one of its Authorized Officers and delivered to the Indenture
Trustee.
(LIBOR: For any Interest Period other than the first Interest Period,
-----
the rate for United States dollar deposits for one month which appears on the
Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
Business Day prior to the first day of such Interest Period. With respect to
the first Interest Period, the rate for United States dollar deposits for one
month which appears on the Telerate Screen Page 3750 as of 11:00 A.M.,
Chicago, Illinois time, two LIBOR Business Days prior to the Closing Date.
If such rate does not appear on such page (or such other page as may replace
that page on that service, or if such service is no longer offered, such
other service for displaying LIBOR or comparable rates as may be reasonably
selected by the Indenture Trustee after consultation with the Master Ser-
vicer), the rate will be the Reference Bank Rate. If no such quotations can
be obtained and no Reference Bank Rate is available, LIBOR will be LIBOR
applicable to the preceding Payment Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
------------------
(ii) a day on which banking institutions in the State of New York, Illinois
or Minnesota, or in the city of London, England are required or authorized by
law to be closed.)
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
----
assignment, participation, deposit arrangement, encumbrance, lien (statutory
or other), preference, priority right or interest or other security agreement
or preferential arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the UCC (other
than any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing;
provided, however, that any assignment pursuant to Section 6.02 of the
- -------- -------
Servicing Agreement shall not be deemed to constitute a Lien.
(Lifetime Rate Cap: With respect to each Mortgage Loan with respect to
-----------------
which the related Mortgage Note provides for a lifetime rate cap, the maximum
Loan Rate permitted over the life of such Mortgage Loan under the terms of
such Mortgage Note, as set forth on the Mortgage Loan Schedule and initially
as set forth on Exhibit A to the Servicing Agreement.)
Liquidated Mortgage Loan: With respect to any Payment Date, any Mort
------------------------
gage Loan in respect of which the Master Servicer has determined, in accor-
dance with the servicing procedures specified in the Servicing Agreement, as
of the end of the related Collection Period that substantially all Liquida-
tion Proceeds which it reasonably expects to recover with respect to the
disposition of the related REO have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
--------------------
which are incurred by or on behalf of the Master Servicer in connection with
the liquidation of any Mortgage Loan and not recovered under any insurance
policy, such expenses including, without limitation, legal fees and expenses,
any unreimbursed amount expended (including, without limitation, amounts
advanced to correct defaults on any mortgage loan which is senior to such
Mortgage Loan and amounts advanced to keep current or pay off a mortgage loan
that is senior to such Mortgage Loan) respecting the related Mortgage Loan
and any related and unreimbursed expenditures for real estate property taxes
or for property restoration, preservation or insurance against casualty loss
or damage.
Liquidation Loss Amounts: With respect to any Payment Date and any
------------------------
Mortgage Loan that became a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered portion of the related Asset Balance
thereof at the end of such Collection Period, after giving effect to the Net
Liquidation Proceeds applied in reduction of the Asset Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds but not
--------------------
including amounts drawn under the Credit Enhancement Instrument) received in
connection with the liquidation of any Mortgage Loan or related REO, whether
through trustee's sale, foreclosure sale or otherwise.
(Loan Agreement: With respect to any Mortgage Loan, the credit line
--------------
account agreement executed by the related Mortgagor and any amendment or
modification thereof.)
Loan Rate: With respect to any Mortgage Loan and any day, the per annum
---------
rate of interest applicable under the related Loan Agreement.
(Loan Rate Cap: With respect to each Mortgage Loan, the lesser of (i)
-------------
the Lifetime Rate Cap, if any, or (ii) the applicable state usury ceiling, if
any.)
(Loan Year: With respect to any Mortgage Loan, the one year period
---------
commencing on the day succeeding the origination of such Mortgage Loan and
ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.)
Lost Note Affidavit: With respect to any Mortgage Loan as to which the
-------------------
original Mortgage Note has been permanently lost or destroyed and has not
been replaced, an affidavit from the Seller or the related Underlying Seller
certifying that the original Mortgage Note has been lost, misplaced or
destroyed (together with a copy of the related Mortgage Note).
Master Servicer: ________________________________, and its successors
---------------
and assigns.
Master Servicing Fee: With respect to any Collection Period, the
--------------------
product of (i) the Master Servicing Fee Rate divided by 12 and (ii) the
aggregate Asset Balance of the Mortgage Loans, as of the first day of such
Collection Period.
Master Servicing Fee Rate: With respect to any Mortgage Loan, ____% per
-------------------------
annum.
(Maximum Additional Credit Enhancement Instrument Amount: An amount not
-------------------------------------------------------
to exceed $__________.
Maximum Credit Enhancement Instrument Amount: $___________, comprised
--------------------------------------------
of the Initial Principal Balance of the Term Notes ($___________) (plus the
Maximum Variable Funding Balance as of the Closing Date ($__________), plus
the Initial Principal Balance of the Certificates ($_________)).
(Maximum Individual Variable Funding Balance: As to any Variable
-------------------------------------------
Funding Note and date of determination $_________ reduced by the aggregate
amount of principal previously paid on such Variable Funding Note.)
Maximum Pool Balance: As to any Payment Date the highest Pool Balance
--------------------
at the end of any Collection Period from the Closing Date up to and including
the related Collection Period.
(Maximum Rate: With respect to any Interest Period, the Weighted
------------
Average Net Loan Rate related to the Due Date in the month preceding the
month in which such Interest Period ends (adjusted to an effective rate
reflecting accrued interest calculated on the basis of the actual number of
days in the Collection Period commencing in the month in which such Interest
Period commences and a year assumed to consist of 360 days).)
(Maximum Variable Funding Balance: The maximum Principal Balance of the
--------------------------------
Variable Funding Notes which is as of any day of determination $___________
reduced by the aggregate amount of principal previously paid on the Variable
Funding Notes; provided that the Maximum Variable Funding Balance may be
--------
increased pursuant to Section 4.01 of the Indenture.)
(Minimum Monthly Payment: With respect to any Mortgage Loan and any
-----------------------
month, the minimum amount required to be paid by the related Mortgagor in
that month.)
Moody's: Moody's Investors Service, Inc. or its successor in interest.
-------
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The file containing the Related Documents pertaining to
-------------
a particular Mortgage Loan and any additional documents required to be added
to the Mortgage File pursuant to the Mortgage Loan Purchase Agreement or the
Servicing Agreement.
(Mortgage Insurance Component: With respect to the Mortgage Loans
----------------------------
listed on Schedule 1 to the Servicing Agreement, the percentage specified
therefor in such Schedule.
Mortgage Loan Group: Any of the Mortgage Loans, ________ Loans or the
-------------------
______ Loans.)
Mortgage Loan Purchase Agreement: The Mortgage Loan Purchase Agreement,
--------------------------------
dated as of the Cut-Off Date, between the Seller, as seller, and the Deposi-
tor, as purchaser, with respect to the Mortgage Loans.
Mortgage Loan Schedule: With respect to any date, the schedule of
----------------------
Mortgage Loans included in the Trust Estate on such date. The initial
schedule of Mortgage Loans as of the Cut-Off Date is the schedule set forth
in Exhibit A of the Servicing Agreement, which schedule sets forth as to each
Mortgage Loan (i) the Cut-Off Date Trust Balance, ((ii) the Credit Limit,
(iii) the Gross Margin,) (iv) the name of the Mortgagor, ((v) the Lifetime
Rate Cap,) if any, (vi) the loan number, (vii) an indication as to the appli-
cable Mortgage Loan Group, and (viii) the lien position of the related Mort-
gage. (The Mortgage Loan Schedule will be amended from time to time by annex
to reflect Additional Loans.)
Mortgage Loans: At any time, collectively, all Initial Loans and
--------------
Additional Loans(, in each case including Additional Balances,) if any, that
have been sold to the Depositor under the Mortgage Loan Purchase Agreement,
in each case together with the Related Documents, and that remain subject to
the terms thereof.
Mortgage Note: With respect to a Mortgage Loan, (the Loan Agreement)
-------------
(note or other evidence of indebtedness) pursuant to which the related
mortgagor agrees to pay the indebtedness evidenced thereby and secured by the
related Mortgage as modified or amended.
Mortgaged Property: The underlying property, including real property
------------------
and improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Mortgage Note.
---------
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
------------------------
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any Mortgage Loan and any day, the
-------------
related Loan Rate less the Servicing Fee Rate.
Net Principal Collections: With respect to any Distribution Date, the
-------------------------
excess, if any, of Security Principal Collections for the related Collection
Period over the amount of Additional Balances created during the related
Collection Period.
Note Owner: The Beneficial Owner of a Note.
----------
(Note Percentage: With respect to any Payment Date, the ratio expressed
---------------
as a percentage of the aggregate of the Principal Balances of all Notes
immediately prior to such Payment Date to the sum of the Pool Balance on the
first day of the related Collection Period and the amount on deposit in the
Funding Account from Net Principal Collections immediately prior to such
Payment Date.)
Note Rate: With respect to any Interest Period, a per annum rate
---------
determined by the Master Servicer equal to (LIBOR as of the second LIBOR
Business Day prior to the first day of such Interest Period and ____%;
provided however, that in no event shall the Note Rate with respect to any
- -------- -------
Interest Period exceed the Maximum Rate for such Interest Period) (specify
rate for each Class).
Note Register: The register maintained by the Note Registrar in which
-------------
the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes.
Note Registrar: The Indenture Trustee, in its capacity as Note
--------------
Registrar.
Noteholder: The Person in whose name a Note is registered in the Note
----------
Register, except that, any Note registered in the name of the Depositor, the
Issuer or the Indenture Trustee or any Affiliate of any of them shall be
deemed not to be outstanding and the registered holder will not be considered
a Noteholder or holder for purposes of giving any request, demand, authoriza-
tion, direction, notice, consent or waiver under the Indenture or the Trust
Agreement provided that, in determining whether the Indenture Trustee shall
be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee
or the Owner Trustee knows to be so owned shall be so disregarded. Owners of
Notes that have been pledged in good faith may be regarded as Holders if the
pledgee establishes to the satisfaction of the Indenture Trustee or the Owner
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obligor upon the Notes or any Affiliate
of any of the foregoing Persons.
Notes: Collectively, the (Term) Notes (and the Variable Funding Notes).
-----
Officer's Certificate: With respect to the Master Servicer, a
---------------------
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President, of the Master Servicer and deliv-
ered to the Indenture Trustee. With respect to the Issuer, a certificate
signed by any Authorized Officer of the Issuer, under the circumstances
described in, and otherwise complying with, the applicable requirements of
Section (11.01) of the Indenture, and delivered to the Indenture Trustee.
Unless otherwise specified, any reference in the Indenture to an Officer's
Certificate shall be to an Officer's Certificate of any Authorized Officer of
the Issuer.
Opinion of Counsel: A written opinion of counsel who may be in-house
------------------
counsel for the Master Servicer if acceptable to the Indenture Trustee, the
Credit Enhancer and the Rating Agencies or counsel for the Depositor, as the
case may be.
Outstanding: With respect to the Notes, as of the date of determina
-----------
tion, all Notes theretofore executed, authenticated and delivered under this
Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or delivered
to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other Notes have
been executed, authenticated and delivered pursuant to the Indenture
unless proof satisfactory to the Indenture Trustee is presented that any
such Notes are held by a holder in due course;
(provided, however, that for purposes of effectuating the Credit Enhancer's
-------- -------
right of subrogation as set forth in Section 4.12 of the Indenture only, all
Notes that have been paid with funds provided under the Credit Enhancement
Instrument shall be deemed to be Outstanding until the Credit Enhancer has
been reimbursed with respect thereto.)
(Overcollateralization Amount: With respect to any Payment Date, the
----------------------------
amount by which the sum of (x) the Pool Balance as of the last day of the
related Collection Period and (y) the amount on deposit in the Funding
Account in respect of Net Principal Collections, on such Payment Date exceeds
-------
the Aggregate Security Balance on such Payment Date (after giving effect to
all amounts distributed and allocable to principal on the Securities and
deposits to and withdrawals from the Funding Account that are applied to
reduce the Security Balances on such Payment Date).)
Owner Trust Estate: The corpus of the Issuer created by the Trust
------------------
Agreement which consists of the Mortgage Loans, such assets as shall from
time to time be deposited in the Collection Account and/or the Payment
Account allocable to the Mortgage Loans in accordance with the Trust Agree-
ment, property that secured a Mortgage Loan and that has become REO, certain
hazard insurance policies maintained by the Mortgagors or by or on behalf of
the Master Servicer in respect of the Mortgage Loans, the Credit Enhancement
Instrument, an assignment of the Depositor's rights under the Mortgage Loan -
Purchase Agreement and the obligation of the Depositor to purchase Additional
Balances under the Mortgage Loan Purchase Agreement and all proceeds of each
of the foregoing.
Owner Trustee: ____________________, and its successors and assigns or
-------------
any successor owner trustee appointed pursuant to the terms of the Trust
Agreement.
Paying Agent: Any paying agent or co-paying agent appointed pursuant
------------
to Section 3.03 of the Indenture, which initially shall be _________________-
__________.
Payment Account: The account established by the Indenture Trustee
---------------
pursuant to Section 8.02 of the Indenture and Section 5.01 of the Servicing
Agreement. The Payment Account shall be an Eligible Account.
Payment Date: The __th day of each month, or if such day is not a
------------
Business Day, then the next Business Day.
Percentage Interest: With respect to any Note, the percentage obtained
-------------------
by dividing the original Security Balance of such Note by the aggregate of
the original Security Balances of all Notes of the same Class. With respect
to any Certificate, the percentage obtained by dividing the denomination
specified on such Certificate by the Initial Principal Balance of the
Certificates.
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: With respect to any date, the aggregate of the Asset
------------
Balances of all Mortgage Loans as of such date.
Predecessor Note: With respect to any particular Note, every previous
----------------
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenti-
cated and delivered under Section 4.03 of the Indenture in lieu of a mutilat-
ed, lost, destroyed or stolen Note shall be deemed to evidence the same debt
as the mutilated, lost, destroyed or stolen Note.
(Primary Insurance Policy: Each primary policy of mortgage guaranty
------------------------
insurance issued by a Qualified Insurer or any replacement policy therefor.
Prime Rate: The prime rate for corporate loans at U.S. commercial
----------
banks, as published in The Wall Street Journal.)
-----------------------
Principal Balance: With respect to any Payment Date and each Security
-----------------
(other than the Variable Funding Notes), the Initial Principal Balance
thereof, reduced by all distributions of principal thereon prior to such
Payment Date (and, in the case of the Variable Funding Notes, (i) increased
by the Aggregate Additional Balance Differential immediately prior to such
Payment Date and (ii) reduced by all distributions of principal thereon prior
to such Payment Date).
Principal Collection Distribution Amount: For any Payment Date, ((i)
----------------------------------------
so long as an Amortization Event has not occurred and so long as the Acceler-
ated Amortization Date has not occurred, Net Principal Collections and (ii)
following an Amortization Event or on and after the Accelerated
Amortization Date,) Security Principal Collections(; provided, however, on
-------- -------
any Payment Date with respect to which the Overcollateralization Amount that
would result if determined without regard to this proviso exceeds
the Required Overcollateralization Amount the Principal Collection
Distribution Amount will be reduced by the amount of such excess until the
Overcollateralization Amount equals the Required Overcollateralization Amount.)
Principal Collections: With respect to any Payment Date and any
---------------------
Mortgage Loan, the aggregate of the following amounts:
(i) the total amount of payments made by or on behalf of the
Mortgagor, received and applied as payments of principal on the Mortgage
Loan during the related Collection Period, as reported by the related
Subservicer;
(ii) any Net Liquidation Proceeds, allocable as a recovery of
principal, received in connection with the Mortgage Loan during the
related Collection Period;
(iii) if the Mortgage Loan was purchased by the Master Servicer
pursuant to Section 3.14 of the Servicing Agreement, or was repurchased
by the Seller pursuant to the Mortgage Loan Purchase Agreement, during
the related Collection Period, 100% of the Asset Balance of the Mortgage
Loan as of the date of such purchase or repurchase; and
(iv) any other amounts received as payments on or proceeds of the
Mortgage Loan during the Collection Period to the extent applied in
reduction of the principal amount thereof;
(provided that Principal Collections shall not include any Foreclosure
--------
Profits, and shall be reduced by any amounts withdrawn from the Collection
Account pursuant to clauses (iii), (iv), (vii) and (viii) of Section 3.03 of
the Servicing Agreement other than any portion of such amounts that are
attributable to the Excluded Amount in respect of any Mortgage Loan that are
allocable to principal of such Mortgage Loan and not otherwise excluded from
the amounts specified in (i) - (iv) above.)
Proceeding: Any suit in equity, action at law or other judicial or
----------
administrative proceeding.
Program Group: With respect to any ______ Loan, the ______Loans taken
-------------
together.
Program Guide: Together, the Seller's Seller Guide and Servicing Guide,
-------------
as in effect from time to time.
Program Seller: With respect to any Mortgage Loan, the Person that sold
--------------
such Mortgage Loan to the Seller.
Purchase Price: The meaning specified in Section 2.2 of the Mortgage
--------------
Loan Purchase Agreement.
(Purchase Price Holdback: The aggregate of (1) all amounts to be paid
-----------------------
to the Seller, its designee or its permitted assigns, as holder of a ____%
interest in the Residual Ownership Interest over the term of the Trust
Agreement, and (2) all amounts to be paid to the Seller, its designee or its
permitted assigns, by the Purchaser pursuant to Section 2.3(d) over the term
of the Mortgage Loan Purchase Agreement, as adjusted to reflect all payments
pursuant to Section 2.7(d) and (e) over the term of the Mortgage Loan
Purchase Agreement. All of the foregoing amounts, when paid to the Seller,
its designee or its permitted assigns, shall be deemed to have been caused to
be paid by the Purchaser to the Seller as part of the total consideration for
the sale of the Mortgage Loans under the Mortgage Loan Purchase Agreement
(including any Additional Balances) representing the portion of the Purchase
Price not included in the amounts paid as described in clause (b) of Section
2.2 of the Mortgage Loan Purchase Agreement.)
Purchaser: _____________________ and its successors and assigns.
---------
(Qualified Insurer: A mortgage guaranty insurance company duly
-----------------
qualified as such under the laws of the state of its principal place of
business and each state having jurisdiction over such insurer in connection
with the insurance policy issued by such insurer, duly authorized and
licensed in such states to transact a mortgage guaranty insurance business in
such states and to write the insurance provided by the insurance policy
issued by it, approved as an insurer by the Master Servicer and as a FNMA-
approved mortgage insurer.)
Rating Agency: Any nationally recognized statistical rating organiza
-------------
tion, or its successor, that rated the Securities at the request of the
Depositor at the time of the initial issuance of the Securities. Initially,
(Moody's or Standard & Poor's). If such organization or a successor is no
longer in existence, "Rating Agency" shall be such nationally recognized
statistical rating organization, or other comparable Person, designated by
the Depositor, notice of which designation shall be given to the Indenture
Trustee. References herein to the highest short term unsecured rating
category of a Rating Agency shall mean A-1 or better in the case of Standard
& Poor's and P-1 or better in the case of Moody's and in the case of any
other Rating Agency shall mean such equivalent ratings. References herein to
the highest long-term rating category of a Rating Agency shall mean "AAA" in
the case of Standard & Poor's and "Aaa" in the case of Moody's and in the
case of any other Rating Agency, such equivalent rating.
Record Date: With respect to the Term Notes and any Payment Date, the
-----------
Business Day next preceding such Payment Date (and with respect to the
Certificates or the Variable Funding Notes and any Payment Date, the last
Business Day of the month preceding the month of such Payment Date).
(Reference Bank Rate: With respect to any Interest Period, as follows:
-------------------
the arithmetic mean (rounded upwards, if necessary, to the nearest one
sixteenth of a percent) of the offered rates for United States dollar
deposits for one month which are offered by the Reference Banks as of 11:00
A.M., ________ time, on the second LIBOR Business Day prior to the first day
of such Interest Period to prime banks in the London interbank market for a
period of one month in amounts approximately equal to the sum of the Out-
standing Amount of Notes and the Certificate Principal Balance; provided that
--------
at least two such Reference Banks provide such rate. If fewer than two
offered rates appear, the Reference Bank Rate will be the arithmetic mean of
the rates quoted by one or more major banks in New York City, selected by the
Depositor after consultation with the Indenture Trustee, as of 11:00 a.m.,
________ time, on such date for loans in U.S. Dollars to leading European
Banks for a period of one month in amounts approximately equal to the
Aggregate Security Balance. If no such quotations can be obtained, the
Reference Bank Rate shall be the Reference Bank Rate applicable to the
preceding Interest Period.
Reference Banks: ________________________.
---------------
Registered Holder: The Person in whose name a Note is registered in the
-----------------
Note Register on the applicable Record Date.
Related Documents: With respect to each Mortgage Loan, the documents
-----------------
specified in Section 2.1(c) of the Mortgage Loan Purchase Agreement and any
documents required to be added to such documents pursuant to the Mortgage
Loan Purchase Agreement, the Trust Agreement or the Servicing Agreement.
REO: A Mortgaged Property that is acquired by the Issuer in foreclosure
---
or by deed in lieu of foreclosure.
Repurchase Event: With respect to any Mortgage Loan, either (i) a
----------------
discovery that, as of ______________, 199_ with respect to an Initial Loan,
or as of the related Deposit Date with respect to an Additional Loan, as
applicable, the related Mortgage was not a valid lien on the related Mort-
gaged Property subject only to (A) the lien of any prior mortgage indicated
on the Mortgage Loan Schedule, (B) the lien of real property taxes and
assessments not yet due and payable, (C) covenants, conditions, and restric-
tions, rights of way, easements and other matters of public record as of the
date of recording of such Mortgage and such other permissible title excep-
tions as are listed in the Program Guide and (D) other matters to which like
properties are commonly subject which do not materially adversely affect the
value, use, enjoyment or marketability of the related Mortgaged Property or
(ii) with respect to any Mortgage Loan as to which the Seller delivers an
affidavit certifying that the original Mortgage Note has been lost or
destroyed, a subsequent default on such Mortgage Loan if the enforcement
thereof or of the related Mortgage is materially and adversely affected by
the absence of such original Mortgage Note.
Repurchase Price: With respect to any Mortgage Loan required to be
----------------
repurchased on any date pursuant to the Mortgage Loan Purchase Agreement or
purchased by the Master Servicer pursuant to the Servicing Agreement, an
amount equal to the sum of (i) 100% of the Asset Balance thereof (without
reduction for any amounts charged off) and (ii) unpaid accrued interest at
the Loan Rate on the outstanding principal balance thereof from the Due Date
to which interest was last paid by the Mortgagor to the first day of the
month following the month of purchase. No portion of any Repurchase Price
shall be included in the Excluded Amount for any Payment Date.
Required Overcollateralization Percentage: ___%.
-----------------------------------------
Required Overcollateralization Amount: As to any Payment Date, the
-------------------------------------
Required Overcollateralization Percentage of the Pool Balance.
Residual Ownership Interest: Collectively, the beneficial ownership
---------------------------
interests in the Issuer established under the Trust Agreement that are
entitled to receive all amounts to be paid to the Issuer or its designee
pursuant to Section 3.05 of the Indenture, over the term thereof.
Responsible Officer: With respect to the Indenture Trustee, any officer
-------------------
of the Indenture Trustee with direct responsibility for the administration of
the Trust Agreement and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge
of and familiarity with the particular subject.
(Revolving Period: With respect to each Mortgage Loan, the period
----------------
consisting of either the first five, ten or fifteen years after the date of
origination of such Mortgage Loan, during which the related Mortgage Note
provides for monthly payments of interest only with no payments of principal
(except with respect to certain Mortgage Loans that require non-amortizing
minimum payments of principal) and during which the Mortgagor is permitted to
make Draws.
Schedule Annex: With respect to any Additional Loans, the schedule
--------------
provided by the Seller to the Depositor or its assignee pursuant to
the Mortgage Loan Purchase Agreement, which shall include all items of
information of the type shown on, and shall be deemed to be incorporated
in, the Mortgage Loan Schedule.)
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations promulgated thereunder.
Security: Any of the Certificates or Notes.
--------
Security Balance: The Principal Balance of the Term Notes(, the
----------------
Variable Funding Notes) or the Certificates, as the case may be.
Security Collections: With respect to any Payment Date, the sum of the
--------------------
following amounts:
(i) the aggregate of all Security Interest Collections received
during the related Collection Period;
(ii) so long as an Amortization Event and the Accelerated Amortiza-
tion Date has not occurred, Net Principal Collections for such Payment
Date or if such an event or date has occurred, the aggregate of all
Security Principal Collections with respect to such Payment Date; and
(iii) all Substitution Adjustment Amounts to be deposited to the
Payment Account for such Payment Date.
Securityholder or Holder: Any Noteholder or a Certificateholder.
-------------- ------
Security Interest Collections: With respect to any Payment Date,
-----------------------------
Interest Collections during the related Collection Period (excluding the
portion thereof allocable to the Excluded Amount).
Security Percentage: With respect to any Payment Date and Security, the
-------------------
percentage equivalent of a fraction the numerator of which is the Security
Balance of such Security immediately prior to such Payment Date and the
denominator of which is the aggregate of the Security Balances of all
Securities as of such date.
Security Principal Collections: With respect to any Payment Date,
------------------------------
Principal Collections during the related Collection Period (excluding the
portion thereof allocable to the Excluded Amount).
Seller: ______________________ and its successors and assigns.
------
Seller's Agreement: With respect to each Mortgage Loan, the agreement
------------------
between the Seller, as purchaser, and the related Program Seller, as seller.
Servicing Agreement: The Servicing Agreement dated as of _____________
-------------------
___ between ________________________, as Indenture Trustee, and the Master
Servicer, as master servicer.
Servicing Certificate: A certificate completed and executed by a
---------------------
Servicing Officer on behalf of the Master Servicer in accordance with Section
4.01 of the Servicing Agreement.
Servicing Fee: With respect to any Mortgage Loan, the sum of the
-------------
related Master Servicing Fee and the related Subservicing Fee.
Servicing Fee Rate: With respect to any Mortgage Loan, the sum of the
------------------
related Master Servicing Fee Rate and the related Subservicing Fee Rate.
Servicing Officer: Any officer of the Master Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished
to the Indenture Trustee ((with a copy to the Credit Enhancer)) by the Master
Servicer, as such list may be amended from time to time.
Servicing Standards: The quality of the Master Servicer's (or, in the
-------------------
event that a Subservicer performs servicing operations on behalf of the
Master Servicer, such Subservicer's) performance with respect to compliance
with the terms and conditions of the Servicing Agreement.
Single Certificate: A Certificate in the denomination of $1,000.
------------------
Single Note: A Note in the amount of $1,000.
-----------
Standard & Poor's: Standard & Poor's Ratings Group or its successor in
-----------------
interest.
Subservicer: Any Person with whom the Master Servicer has entered into
-----------
a Subservicing Agreement as a Subservicer by the Master Servicer, including
the Initial Subservicers.
Subservicing Account: An Eligible Account established or maintained by
--------------------
a Subservicer as provided for in Section 3.02(c) of the Servicing Agreement.
Subservicing Agreement: The written contract between the Master
----------------------
Servicer and any Subservicer relating to servicing and administration of
certain Mortgage Loans as provided in Section 3.01 of the Servicing Agree-
ment.
Subservicing Fee: With respect to any Mortgage Loan and any Collection
----------------
Period, the fee retained monthly by the Subservicer (or, in the case of a
nonsubserviced Mortgage Loan, by the Master Servicer) equal to the product of
(i) the Subservicing Fee Rate divided by 12 and (ii) the aggregate Asset
Balance of the Mortgage Loans serviced by such Subservicer as of the first
day of such Collection Period.
Subservicing Fee Rate: With respect to any Mortgage Loan, ____% per
---------------------
annum.
(Telerate Screen Page 3750: The display designated as page 3750 on the
-------------------------
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks).
If such rate does not appear on such page (or such other page as may replace
that page on that service, or if such service is no longer offered, such
other service for displaying LIBOR or comparable rates as may be selected by
the Issuer after consultation with the Indenture Trustee), the rate will be
the Reference Bank Rate.)
(Term Notes: The Class ___, Class ___ and Class ___.)
----------
Treasury Regulations: Regulations, including proposed or temporary
--------------------
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury Regula-
tions.
Trust Agreement: The Amended and Restated Trust Agreement dated as of
---------------
______________ between the Owner Trustee, ______________ and the Depositor.
Trust Estate: The meaning specified in the Granting Clause of the
------------
Indenture.
Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as amended
--------------------------
from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to time, as in
---
effect in any specified jurisdiction.
(Underlying Seller: ________________).
-----------------
Unpaid Certificate Distribution Amount Shortfall: With respect to any
------------------------------------------------
Payment Date, the aggregate amount, if any, of Certificate Distribution
Amount that was accrued in respect of a prior Payment Date and has not been
distributed to Certificateholders.
(Variable Funding Notes: The Notes designated as the "Variable Funding
----------------------
Notes" in the Indenture including any Capped Funding Notes and Additional
Variable Funding Notes.)
Weighted Average Net Loan Rate: With respect to the Mortgage Loans in
------------------------------
the aggregate, and any Due Date, the average of the Net Loan Rate for each
Mortgage Loan as of the last day of the related Billing Cycle weighted on the
basis of the related Asset Balances outstanding as of the last day of the
related Billing Cycle for each Mortgage Loan as determined by the Master
Servicer in accordance with the Master Servicer's normal servicing
procedures.
EXHIBIT 4.5
- -------------------------------------------------------------------------------
------------------------,
Issuer
and
----------------------------,
Trustee
INDENTURE
Dated as of ________ __, 199_
Relating to
------------------------
________________________ NOTES
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
PARTIES
PRELIMINARY STATEMENT
GRANTING CLAUSE
DEFINITIONS
SECTION 1.01. General Definitions.........................................I-1
ARTICLE II
THE NOTES
SECTION 2.01. Forms Generally............................................II-1
SECTION 2.02. Forms of Notes and Certificate of Authentication...........II-1
SECTION 2.03. Notes Issuable in Classes; Provisions with Respect to
Principal and Interest Payments............................II-2
SECTION 2.04. Denominations..............................................II-3
SECTION 2.05. Execution, Authentication, Delivery and Dating.............II-4
SECTION 2.06. Temporary Notes............................................II-4
SECTION 2.07. Registration, Registration of Transfer and Exchange........II-5
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Note..................II-6
SECTION 2.09. Payments of Principal and Interest; Principal and Interest
Rights Reserved............................................II-7
SECTION 2.10. Persons Deemed Owners......................................II-8
SECTION 2.11. Cancellation...............................................II-9
SECTION 2.12. Authentication and Delivery of Notes.......................II-9
SECTION 2.13. Matters Relating to Book Entry Notes......................II-13
SECTION 2.14. Termination of Book Entry System..........................II-14
SECTION 2.15. Tax Treatment.............................................II-15
ARTICLE III
COVENANTS
SECTION 3.01. Payment of Notes..........................................III-1
SECTION 3.02. Maintenance of Office or Agency...........................III-1
SECTION 3.03. Money for Note Payments to Be Held in Trust...............III-1
SECTION 3.04. Corporate Existence of Owner Trustee......................III-4
SECTION 3.05. Protection of Trust Estate................................III-4
SECTION 3.06. Opinions as to Trust Estate...............................III-5
SECTION 3.07. Performance of Obligations; Master Servicing Agreement....III-5
SECTION 3.08. Investment Company Act....................................III-7
SECTION 3.09. Negative Covenants........................................III-7
SECTION 3.10. Annual Statement as to Compliance.........................III-8
SECTION 3.11. Recording of Assignments..................................III-8
SECTION 3.12. Limitation of Liability of ...............................III-8
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture.....................IV-1
SECTION 4.02. Application of Trust Money..................................IV-2
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01. Event of Default.............................................V-1
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment...........V-2
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee......................................................V-4
SECTION 5.04. Remedies.....................................................V-4
SECTION 5.05. [Reserved]...................................................V-5
SECTION 5.06. Trustee May File Proofs of Claim.............................V-5
SECTION 5.07. Trustee May Enforce Claims without Possession of Notes.......V-6
SECTION 5.08. Application of Money Collected...............................V-6
SECTION 5.09. Limitation on Suits..........................................V-7
SECTION 5.10. Unconditional Rights of Noteholders to Receive Principal
and Interest.................................................V-8
SECTION 5.11. Restoration of Rights and Remedies...........................V-8
SECTION 5.12. Rights and Remedies Cumulative...............................V-8
SECTION 5.13. Delay or Omission Not Waiver.................................V-8
SECTION 5.14. Control by Noteholders.......................................V-9
SECTION 5.15. Waiver of Past Defaults......................................V-9
SECTION 5.16. Undertaking for Costs.......................................V-10
SECTION 5.17. Waiver of Stay or Extension Laws............................V-10
SECTION 5.18. Sale of Trust Estate........................................V-10
SECTION 5.19. Action on Notes.............................................V-12
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Duties of Trustee...........................................VI-1
SECTION 6.02. Notice of Default...........................................VI-2
SECTION 6.03. Rights of Trustee...........................................VI-3
SECTION 6.04. Not Responsible for Recitals or Issuance of Notes...........VI-4
SECTION 6.05. May Hold Notes..............................................VI-5
SECTION 6.06. Money Held in Trust.........................................VI-5
SECTION 6.07. Compensation and Reimbursement..............................VI-6
SECTION 6.08. Eligibility; Disqualification...............................VI-7
SECTION 6.09. Trustee's Capital and Surplus...............................VI-7
SECTION 6.10. Resignation and Removal; Appointment of Successor...........VI-7
SECTION 6.11. Acceptance of Appointment by Successor......................VI-8
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee.........................................VI-9
SECTION 6.13. Preferential Collection of Claim Against Issuer.............VI-9
SECTION 6.14. Co-trustees and Separate Trustees...........................VI-9
SECTION 6.15. Authenticating Agents......................................VI-11
SECTION 6.16. Payment of Certain Insurance Premiums......................VI-12
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. Issuer to Furnish Trustee Names and Addresses of
Noteholders................................................VII-1
SECTION 7.02. Preservation of Information; Communications to
Noteholders................................................VII-1
SECTION 7.03. Reports by Trustee.........................................VII-1
SECTION 7.04. Reports by Issuer..........................................VII-2
SECTION 7.05. Notice to the Rating Agencies[, to the Insurer and to the
Swap Provider].............................................VII-2
ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01. Collection of Moneys......................................VIII-1
SECTION 8.02. Distribution Account......................................VIII-1
SECTION 8.03. General Provisions Regarding Pledged Accounts.............VIII-2
SECTION 8.04. Purchases of Defective Pledged Mortgages..................VIII-3
SECTION 8.05. Grant of Replacement Pledged Mortgage.....................VIII-4
SECTION 8.06. Reports by Trustee to Noteholders.........................VIII-4
SECTION 8.07. Reports by Trustee........................................VIII-4
SECTION 8.08. Trust Estate; Release and Delivery of Mortgage
Documents.................................................VIII-5
SECTION 8.09. [Reserved]................................................VIII-5
SECTION 8.10. Master Servicer as Agent and Bailees of Trustee...........VIII-5
SECTION 8.11. Opinion of Counsel........................................VIII-6
SECTION 8.12. Release of Pledged Mortgages..............................VIII-6
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders.....IX-1
SECTION 9.02. Supplemental Indentures With Consent of Noteholders........IX-2
SECTION 9.03. Execution of Supplemental Indentures.......................IX-4
SECTION 9.04. Effect of Supplemental Indentures..........................IX-4
SECTION 9.05. Conformity with Trust Indenture Act........................IX-5
SECTION 9.06. Reference in Notes to Supplemental Indentures..............IX-5
SECTION 9.07. Amendments to Deposit Trust Agreement or
Administration Agreement...................................IX-5
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Redemption...................................................X-1
SECTION 10.02. Form of Redemption Notice....................................X-1
SECTION 10.03. Notes Payable on Redemption Date.............................X-2
SECTION 10.04. Retention of Notes by Issuer.................................X-2
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Compliance Certificates and Opinions........................XI-1
SECTION 11.02. Form of Documents Delivered to Trustee......................XI-1
SECTION 11.03. Acts of Noteholders.........................................XI-2
SECTION 11.04. Notices, etc. to Trustee and Issuer.........................XI-3
SECTION 11.05. Notices and Reports to Noteholders; Waiver of Notices.......XI-4
SECTION 11.06. Rules by Trustee and Agents.................................XI-5
SECTION 11.07. Conflict with Trust Indenture Act...........................XI-5
SECTION 11.08. Effect of Headings and Table of Contents....................XI-5
SECTION 11.09. Successors and Assigns......................................XI-5
SECTION 11.10. Separability................................................XI-5
SECTION 11.11. Benefits of Indenture.......................................XI-5
SECTION 11.12. Legal Holidays..............................................XI-6
SECTION 11.13. Governing Law...............................................XI-6
SECTION 11.14. Counterparts................................................XI-6
SECTION 11.15. Recording of Indenture......................................XI-6
SECTION 11.16. Issuer Obligation...........................................XI-6
SECTION 11.17. Inspection..................................................XI-7
SECTION 11.18. Usury.......................................................XI-7
SECTION 11.19. No Petition.................................................XI-7
[ARTICLE XII
THE NOTE INSURER
SECTION 12.01. Certain Matters Regarding the Insurer and The Insurer's
Policy....................................................XII-1]
TESTIMONIUM..............................................................S-1
SIGNATURES AND SEALS.....................................................S-1
ACKNOWLEDGMENTS..........................................................S-3
SCHEDULE A - Schedule of Pledged Mortgages..............................A-1
EXHIBIT I - Letter Agreement with the Depository
EXHIBIT II - Form of Class A-1 Note
EXHIBIT III - Form of Class A-2 Note
[EXHIBIT IV - Form of Note Insurance Policy]
PARTIES
INDENTURE, dated as of ________ __, 199_ (as amended or supplemented from
time to time as permitted hereby, the "Indenture"), between
_______________________ (herein, together with its permitted successors and
assigns, called the "Issuer"), a
________________________________________________, and
____________________________, a ______________________________________________,
as trustee (together with its permitted successors in the trusts hereunder, the
"Trustee").
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this Indenture
to provide for its ____________________________ Notes (the "Notes"), issuable as
provided in this Indenture. All covenants and agreements made by the Issuer
herein are for the benefit and security of the Holders of the Notes[, the
Insurer and the Swap Provider]. The Issuer is entering into this Indenture, and
the Trustee is accepting the trusts created hereby, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged.
All things necessary to make this Indenture a valid agreement of the Issuer
in accordance with its terms have been done.
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee, for the exclusive benefit of the
Holders of the Notes [and the Insurer,] all of the Issuer's right, title and
interest in and to (a) the Pledged Mortgages identified in Schedule A to this
Indenture, including the related Mortgage Documents, which the Issuer has caused
to be delivered to the Custodian herewith, and all interest and principal
received or receivable by the Issuer on or with respect to the Pledged Mortgages
after the Cut-Off Date and all interest and principal payments on the Pledged
Mortgages received prior to the Cut-off Date in respect of installments of
interest and principal due thereafter, but not including payments of interest
and principal due and payable on the Pledged Mortgages on or before the Cut-off
Date, and all other proceeds received in respect of such Pledged Mortgages, (b)
the Issuer's rights under the Mortgage Loan Purchase Agreement, the Management
Agreement, the Administration Agreement, the Swap Agreement, the Master
Servicing Agreement, the Assignment and Assumption Agreement and the Master
Mortgage Loan Purchase Agreement [(c) the Insurance Policies,] (d) all cash,
instruments or other property held or required to be deposited in the Note
Account or the Distribution Account (exclusive of any earnings on investments
made with funds deposited in the Distribution Account or the Note Account), (e)
property that secured a Pledged Mortgage that has become an REO property, and
(f) all proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquid assets, including, without limitation, all
Insurance Proceeds, Liquidation Proceeds and condemnation awards. Such Grants
are made, however, in trust, to secure the Notes equally and ratably without
prejudice, priority or distinction between any Note and any other Note by reason
of difference in time of issuance or otherwise, [and for the benefit of the
Insurer and the Swap Provider,] and to secure (i) the payment of all amounts due
on the Notes in accordance with their terms, (ii) the payment of all other sums
payable under this Indenture with respect to the Notes, (iii) compliance with
the provisions of this Indenture, all as provided in this Indenture, (iv) the
payment of all amounts due by the Issuer to the [Insurer, including the
obligations of the Issuer to the Insurer under this Indenture, the
Administration Agreement and the Insurance Agreement, and (v) the payment of all
amounts due by the Issuer to the Swap Provider, including the obligations of the
Issuer to the Swap Provider under the Swap Agreement.] All terms used in the
foregoing granting clauses that are defined in Section 1.01 are used with the
meanings given in said Section.
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions of this Indenture and agrees to perform the
duties herein required to the best of its ability to the end that the interests
of the Holders of the Notes [and the Insurer] may be adequately and effectively
protected.
[The Trustee agrees that it will hold the Insurer's Policy in trust and
that it will hold any proceeds of any claim made upon the Insurer's Policy,
solely for the use and benefit of the Noteholders in accordance with the terms
hereof and of the Insurer's Policy.]
ARTICLE I
DEFINITIONS
SECTION 1.01. GENERAL DEFINITIONS.
Except as otherwise specified or as the context may otherwise
require, the following terms have the respective meanings set forth below for
all purposes of this Indenture, and the definitions of such terms are applicable
to the singular as well as to the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms. Whenever
reference is made herein to an Event of Default or a Default known to the
Trustee or of which the Trustee has notice or knowledge, such reference shall be
construed to refer only to an Event of Default or Default of which the Trustee
is deemed to have notice or knowledge pursuant to Section 6.01(d). Capitalized
terms that are used but not defined in this Indenture and which are defined in
the Administration Agreement have the meanings assigned to them therein. All
other terms used herein which are defined in the Trust Indenture Act (as
hereinafter defined), either directly or by reference therein, have the meanings
assigned to them therein.
"ACCOUNTANT": A Person engaged in the practice of accounting who (except
when this Indenture provides that an Accountant must be Independent) may be
employed by or affiliated with the Issuer or an Affiliate of the Issuer.
"ACT": With respect to any Noteholder, as defined in Section 11.03.
"ADMINISTRATION AGREEMENT": The Administration Agreement dated as of
________________ ____, 199____ among the Issuer, ________________, the
Administrator and the Trustee.
"ADMINISTRATOR": ____________________________, in its capacity as
administrator under the Administration Agreement.
"ADVANCE": The payment of any principal or interest required to be made by
the Master Servicer with respect to any Payment Date pursuant to the Master
Servicing Agreement.
"AFFILIATE": With respect to any Person, any other Person controlling or
controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"AGENT": Any Note Registrar, Paying Agent or Authenticating Agent.
"APPRAISED VALUE": With respect to any Pledged Mortgage, the Appraised
Value of the related Mortgaged Property shall be: (i) with respect to a Pledged
Mortgage other than a Refinancing Pledged Mortgage, the lesser of (a) the value
of the Mortgaged Property based upon the appraisal made at the time of the
origination of such Pledged Mortgage and (b) the sales price of the Mortgaged
Property at the time of the origination of such Pledged Mortgage; (ii) with
respect to a Refinancing Pledged Mortgage, the value of the Mortgaged Property
based upon the appraisal made at the time of the origination of such Refinancing
Pledged Mortgage.
"ASSIGNMENT AND ASSUMPTION AGREEMENT": The Assignment,
Assumption and Recognition Agreement, dated as of ________________ ____,
199____, among the Master Servicer, ________________ and the Depositor pursuant
to which ________________'s rights under the Master Servicing Agreement are
assigned to the Depositor.
"ASSIGNMENTS": Collectively (i) the original instrument of assignment of a
Mortgage, including any interim assignments from the originator or any other
holder of any Pledged Mortgage, and (ii) the original instrument of assignment
of such Mortgage, made by the Issuer to the Trustee (which in either case may,
to the extent permitted by the laws of the state in which the related Mortgaged
Property is located, be a blanket instrument of assignment covering other
Mortgages as well and which may also, to the extent permitted by the laws of the
state in which the related Mortgaged Property is located, be an instrument of
assignment running directly from the mortgagee of record under the related
Mortgage to the Trustee).
"AUTHENTICATING AGENT": The Person, if any, appointed as Authenticating
Agent by the Trustee at the request of the Issuer pursuant to Section 6.15,
until any successor Authenticating Agent for the Notes is named, and thereafter
"Authenticating Agent" shall mean such successor.
"AUTHORIZED OFFICER": Any officer of the Owner Trustee who is authorized to
act for the Owner Trustee in respect of the Issuer and whose name appears on a
list of such authorized officers furnished by the Owner Trustee to the Trustee,
as such list may be amended or supplemented from time to time, and any officer
of the Issuer who is authorized to act pursuant to the Deposit Trust Agreement
and whose name appears on a list furnished by the Depositor to the Owner Trustee
and the Trustee, as such list may be amended or supplemented from time to time.
"BANK": ________________________________, a
________________________________, in its individual capacity and not as Owner
Trustee.
"BANKRUPTCY CODE": The United States Bankruptcy Reform Act of 1978, as
amended.
"BENEFICIAL OWNER": With respect to a Book Entry Note, the Person who is
the beneficial owner of such Book Entry Note.
"BOOK ENTRY NOTES": The Notes shall be 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).
"BOOK ENTRY TERMINATION": As defined in Section 2.14.
"BUSINESS DAY": Any day other than (i) a Saturday or a Sunday, or (ii) a
day on which banking institutions in the City of New York, New York, the State
of Maryland, or the city in which the Corporate Trust Office of the Trustee is
located are authorized or obligated by law or executive order to be closed.
"CLASS": Collectively, all of the Notes bearing the same class designation.
The Notes are divided into Classes as provided in Section 2.03.
"CLOSING DATE": November 6, 1997.
"CODE": The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
"COMMISSION": Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, or if at any
time such Commission is not existing and performing the duties now assigned to
it under the Trust Indenture Act, then the body performing such duties at such
time under the Trust Indenture Act or similar legislation replacing the Trust
Indenture Act.
"CONVERTED MORTGAGE LOAN": A Convertible Mortgage that has converted to a
fixed rate mortgage.
"CONVERTIBLE MORTGAGE": A Pledged Mortgage that provides the Mortgagor with
an option to convert the Mortgage Rate to a fixed rate.
"CORPORATE TRUST OFFICE": The principal corporate trust office of the
Trustee located at ________________________, _____________________,
_____________________, or at such other address as the Trustee may designate
from time to time by notice to the Noteholders, [the Insurer, the Issuer and the
Swap Provider,] or the principal corporate trust office of any successor
Trustee.
"CUT-OFF DATE": With respect to the Pledged Mortgages, ________________
____, 199____.
"DEBT SERVICE REDUCTION": With respect to any Pledged Mortgage, a reduction
by a court of competent jurisdiction in a proceeding under the Bankruptcy Code
in the Scheduled Payment for such Pledged Mortgage which became final and
non-appealable, except such a reduction resulting from a Deficient Valuation or
any reduction that results in a permanent forgiveness of principal.
"DEFAULT": Any occurrence which is, or with notice or the lapse of time or
both would become, an Event of Default.
"DEFAULTED PLEDGED MORTGAGE": The meaning specified in Section 8.04(e).
"DEFICIENT VALUATION": With respect to any Pledged Mortgage, a valuation by
a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then outstanding indebtedness under the Pledged Mortgage, or any
reduction in the amount of principal to be paid in connection with any Scheduled
Payment that results in a permanent forgiveness of principal, which valuation or
reduction results from an order of such court which is final and non-appealable
in a proceeding under the Bankruptcy Code.
"DEFINITIVE NOTES": Notes other than Book Entry Notes.
"DELETED PLEDGED MORTGAGE": As defined in Section 2 of the Administration
Agreement.
"DENOMINATION": With respect to each Note, the amount set forth on the face
thereof as the "Initial Principal Amount of this Note".
"DEPOSITOR": ________________________________ , a
- -------------------------.
"DEPOSITORY": The initial Depository with respect to each Class of Book
Entry Notes shall be The Depository Trust Company of New York, the nominee for
which is Cede & Co. 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 PARTICIPANTS": 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.
"DEPOSIT TRUST AGREEMENT": The Deposit Trust Agreement, dated as of
________________ ____, 199____, between ________________________, as Owner
Trustee, and the Depositor, creating the Issuer, as amended or supplemented from
time to time.
"DISTRIBUTION ACCOUNT": The separate Eligible Account created and
maintained by the Trustee pursuant to Section 8.02 in the name of the Trustee
for the benefit of the Noteholders [and the Insurer] and designated
"____________________________ in trust for registered holders of
____________________________, ____________________________ Notes." Funds in the
Distribution Account shall be held in trust for the Noteholders [and the
Insurer] for the uses and purposes set forth in this Indenture.
"ESCROW ACCOUNT": The Eligible Account or Accounts established and
maintained pursuant to the Master Servicing Agreement.
"EVENT OF DEFAULT": The meaning specified in Section 5.01.
"EXPENSE FEE RATE": As to each Pledged Mortgage, and any calendar month,
equals the sum of the Servicing Fee Rate and any premium payable by
________________________ to a correspondent lender with respect to such Pledged
Mortgage and the per annum rate that represents such Pledged Mortgage's pro rata
share, for such month, of the sum of the Management Fee[, the Insurer Premium]
and the fees payable to the Owner Trustee and the Custodian.
"FDIC": The Federal Deposit Insurance Corporation, or any successor
thereto.
"FHLMC": Freddie Mac, a corporate instrumentality of the United States
created and existing under Title III of the Emergency Home Finance Act of 1970,
as amended, or any successor thereto.
"FIRREA": The Financial Institutions Reform, Recovery and Enforcement Act
of 1989.
"FNMA": Fannie Mae, a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, or any successor thereto.
"GRANT": To grant, bargain, sell, warrant, alienate, remise, release,
convey, assign, transfer, mortgage, pledge, create and grant a security interest
in, deposit, set-over and confirm. A Grant of a Pledged Mortgage and related
Mortgage Documents, a Permitted Investment, the Administration Agreement, the
Swap Agreement, the Mortgage Loan Purchase Agreement, the Management Agreement,
the Master Servicing Agreement, the Assignment and Assumption Agreement, the
Master Mortgage Loan Purchase Agreement, [an Insurance Policy], or any other
instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including, without limitation,
the immediate and continuing right to claim for, collect, receive and give
receipts for principal and interest payments thereunder, Insurance Proceeds,
condemnation awards, purchase prices and all other moneys payable thereunder and
all proceeds thereof, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise, and generally to do
and receive anything which the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"HIGHEST LAWFUL RATE": The meaning specified in Section 11.18.
"HOLDER": The holder of Notes issued pursuant to this Indenture.
"INDENTURE" or "THIS INDENTURE": This instrument as originally executed
and, if from time to time supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
as so supplemented or amended. All references in this instrument to designated
"Articles", "Sections", "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of this
instrument as originally executed. The words "herein", "hereof" and "hereunder"
and other words of similar import refer to this Indenture as a whole and not to
any particular Article, Section, Subsection or other subdivision.
"INDEPENDENT": When used with respect to any specified Person means such a
Person who (i) is in fact independent of the Issuer and any other obligor upon
the Notes, (ii) does not have any direct financial interest or any material
indirect financial interest in the Issuer or in any such other obligor or in an
Affiliate of the Issuer or such other obligor and (iii) is not connected with
the Issuer or any such other obligor as an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions.
Whenever it is herein provided that any Independent Person's opinion or
certificate shall be furnished to the Trustee, such Person shall be appointed by
an Issuer Order and with the approval of the Trustee, which approval shall not
be unreasonably withheld, and such opinion or certificate shall state that the
signer has read this definition and that the signer is Independent within the
meaning hereof.
"INDEX": As to each Pledged Mortgage, the index from time to time in effect
for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
"INDIRECT PARTICIPANT": A broker, dealer, bank or other financial
institution or other Person that clears through or maintains a custodial
relationship with a Depository Participant.
"INDIVIDUAL NOTE": A Note of an original principal amount of $1,000; a Note
of an original principal amount in excess of $1,000 shall be deemed to be a
number of Individual Notes equal to the quotient obtained by dividing such
original principal amount by $1,000.
["INSURANCE AGREEMENT": The Insurance and Indemnity Agreement dated as of
__________________ ____, 199__, by and among the Insurer,
________________________, the Depositor, the Issuer, the Administrator and the
Trustee.
"INSURANCE POLICY": With respect to any Pledged Mortgage, any primary
mortgage guaranty insurance policy or other insurance policy with respect to the
Pledged Mortgages, including all riders and endorsements thereto in effect,
including any replacement policy or policies for any Insurance Policy (but shall
not include the Insurer's Policy or the Limited Purpose Surety Note).
"INSURER": ____________________________, a
____________________________ and any successor thereto.
"INSURER DEFAULT": The existence and continuance of any of the following:
(a) an Insurer Payment Default; or
(b) the filing of any petition or commencement of any case or proceeding by
the Insurer under any state or federal law relating to insolvency or bankruptcy
or the consent of Insurer to the entry of any decree or order for relief in an
involuntary case or proceeding under any state or federal bankruptcy or
insolvency law or the making of a general assignment of the Insurer for the
benefit of its creditors or the admission of the Insurer in writing in its
inability to pay its debts as they become due; or
(c) a court of competent jurisdiction or other competent regulatory agency
enters a final and nonappealable order, judgment or decree which is unstayed and
in effect for a period of 60 consecutive days under any state or federal
bankruptcy or insolvency law to appoint a custodian, trustee, agent or receiver
for the Insurer or for all or any material portion of the Insurer's property or
authorizing the taking of possession by a custodian, trustee, agent or receiver
of the Insurer or the taking of possession of all or any material portion of the
Insurer's property.
"INSURER'S POLICY": The financial guaranty insurance policy issued by the
Insurer covering the Notes issued pursuant to the Insurance Agreement.
"INSURER PAYMENT DEFAULT": Failure and continued failure by the Insurer to
make an Insured Payment required under the Insurer's Policy in accordance with
its terms.]
"INVESTOR CERTIFICATE": As defined in Section 1.01 of the Deposit Trust
Agreement.
"ISSUER": ________________________ formed pursuant to the Deposit Trust
Agreement.
"ISSUER ORDER" and "ISSUER REQUEST": A written order or request that is
dated and signed in the name of the Issuer by an Authorized Officer and
delivered to the Trustee.
"LETTER AGREEMENT": With respect to the Book Entry Notes, the letter
agreement among the Issuer, the Trustee and the Depository governing book entry
transfers of, and certain other matters with respect to, such Book Entry Notes
and attached as Exhibit I hereto.
"MANAGEMENT AGREEMENT": The Management Agreement, dated as of
________________ ____, 199____, between ________________ and the Issuer, under
which ________________ provides certain management services to the Issuer, as
such agreement may be amended or supplemented from time to time.
"MARGIN": As to each Pledged Mortgage, the percentage amount set forth on
the related Mortgage Note which is to be added to the Index in calculating the
Mortgage Rate thereon.
"MASTER MORTGAGE LOAN PURCHASE AGREEMENT": The Master Mortgage Loan
Purchase Agreement dated as of ________________ ____, 199____, as amended,
between ________________ and ________________, but only to the extent that such
agreement relates to the Pledged Mortgages.
"MASTER SERVICER": ________________, and any Person succeeding
________________ as master servicer under the Master Servicing Agreement.
"MASTER SERVICER DEFAULT": Any event of default under the Master Servicing
Agreement that subjects the Master Servicer to termination pursuant to the terms
thereof.
"MASTER SERVICING ACCOUNT": The account or accounts created and maintained
pursuant to the Master Servicing Agreement.
"MASTER SERVICING AGREEMENT": Collectively, the Master Servicing Agreement
dated as of ________________ ____, 199____, as amended, between ________________
____ and ________________ and the Pledged Asset Mortgage Servicing Agreement
dated as of ________________ ____, 199____ between ________________ and
________________, but only to the extent that such agreements relate to the
master servicing of the Pledged Mortgages, including those Pledged Mortgages
that are Mortgage 100SM Loans or ParentPower(R) Mortgage Loans.
"MATURITY": With respect to any Note, the date on which the entire unpaid
principal amount of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity of the final installment of such
principal or by declaration of acceleration, call for redemption or otherwise.
"MOODY'S": Moody's Investors Service, Inc., or any successor thereto. For
purposes of Section 11.04 the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Surveillance Mortgage Group or such other address as Moody's may
hereafter furnish to the Issuer, the Trustee and the Master Servicer.
"MORTGAGE": The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple or leasehold interest in real property
securing a Mortgage Note.
"MORTGAGE NOTE": The original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Pledged
Mortgage.
"MORTGAGE RATE": The annual rate of interest borne by a Mortgage Note from
time to time.
"MORTGAGED PROPERTY": The underlying property securing a Pledged Mortgage.
"MORTGAGOR": The obligor(s) on a Mortgage Note.
"NET MORTGAGE RATE": As to any Pledged Mortgage and Payment Date, the
related Mortgage Rate as of the Due Date in the month preceding the month of
such Payment Date reduced by the related Expense Fee Rate.
"NOTE ACCOUNT": The separate Eligible Account or Accounts created and
maintained by the Administrator pursuant to the Administration Agreement with a
depository institution in the name and for the benefit of the Trustee on behalf
of Noteholders[, the Insurer and the Swap Provider,] and designated "Note
Account in trust for the registered holders of ________________________
________________________ Notes."
"NOTE DISTRIBUTION AMOUNT": As to any Payment Date, the sum of (i) the
Interest Payment Amount and (ii) the Principal Payment Amount.
"NOTEHOLDER" OR "HOLDER": The Person in whose name a Note is registered in
the Note Register.
"NOTE INTEREST RATE": The Class A-1 Interest Rate or the Class A-2 Interest
Rate, as applicable.
"NOTE REGISTER" AND "NOTE REGISTRAR": As defined in Section 2.07.
"NOTES": Any notes authorized by, and authenticated and delivered under,
this Indenture.
"OFFICERS' CERTIFICATE": A certificate signed by two Authorized Officers.
"OPERATIVE AGREEMENTS": The meaning ascribed thereto in the Deposit Trust
Agreement.
"OPINION OF COUNSEL": A written opinion of counsel who may, except as
otherwise expressly provided in this Indenture, be counsel for the Issuer, and
who shall be reasonably satisfactory to the Trustee [and the Insurer].
"ORIGINAL CLASS A-1 PRINCIPAL BALANCE": $__________________
"ORIGINAL CLASS A-2 PRINCIPAL BALANCE": $__________________
"ORIGINAL PLEDGED MORTGAGE": The Pledged Mortgage refinanced in connection
with the origination of a Refinancing Pledged Mortgage.
"ORIGINAL POOL PRINCIPAL BALANCE": The Pool Principal Balance as of the
Cut-off Date.
"OTS": The Office of Thrift Supervision.
"OUTSTANDING": As of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes or portions thereof for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Issuer) in trust for the Holders of such
Notes; provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor, satisfactory to the Trustee, has been made;
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee [and the Insurer] is presented that any such
Notes are held by a bona fide purchaser (as defined by the Uniform
Commercial Code of the applicable jurisdiction); and
(iv) Notes alleged to have been destroyed, lost or stolen for which
replacement Notes have been issued as provided for in Section 2.08;
provided, however, that in determining whether the Holders of the requisite
percentage of the aggregate Principal Amount of the Outstanding Notes have
given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Issuer, any other obligor upon the
Notes or any Affiliate of the Issuer or such other obligor shall be
disregarded and deemed not to be Outstanding (unless any Affiliate of the
Issuer or such other obligor holds 100% of the aggregate Principal Amount
of the Outstanding Notes), except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to
be so owned shall be so disregarded. Notes so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right so to act with respect
to such Notes and that the pledgee is not the Issuer, any other obligor
upon the Notes or any Affiliate of the Issuer or such other obligor;
provided further, however, that Notes that have been paid with proceeds of
the [Insurer's Policy] shall be deemed to remain Outstanding for purposes
of this Indenture until [the Insurer] has been paid as subrogee under this
Indenture, such payment to be evidenced by a written notice from [the
Insurer] to the Trustee, [and the Insurer] shall be deemed to be the Holder
thereof to the extent of any payments thereon made by [the Insurer];
provided further that [the Insurer] shall not be entitled to receive more
than the [Insurer Reimbursement Amount], in accordance with Section 2.03(b)
of this Indenture.
"OUTSTANDING PLEDGED MORTGAGE": As of any Due Date, a Pledged Mortgage with
a Stated Principal Balance greater than zero which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Pledged Mortgage prior to such Due Date.
"OWNER TRUSTEE": ________________________________, a
________________________________, not in its individual capacity but solely as
Owner Trustee under the Deposit Trust Agreement, until a successor Person shall
have become the Owner Trustee pursuant to the applicable provisions of the
Deposit Trust Agreement, and thereafter "Owner Trustee" shall mean such
successor Person.
"PARTICIPANT": A participating organization that utilizes the services of
the Depository Trust Company.
"PAYING AGENT": The Trustee or any other depository institution or trust
company that is authorized by the Issuer pursuant to Section 3.03 to pay the
principal of, or interest on, any Notes on behalf of the Issuer.
"PAYMENT DATE": With respect to the Notes and the Investor Certificate, the
25th day of each calendar month after the initial issuance of the Notes and the
Investor Certificate or, if such 25th day is not a Business Day, the next
succeeding Business Day, commencing in November 1997.
"PAYMENT DATE STATEMENT": The meaning specified in Section 3(e) of the
Administration Agreement.
"PERMITTED ENCUMBRANCE": Any lien, charge, security interest, mortgage or
other encumbrance Granted by the Issuer in the Trust Estate, provided that:
(i) such lien, charge, security interest, mortgage or encumbrance
extends only to a portion of the Trust Estate which is limited to cash
deliverable or payable to the Issuer pursuant to Section 8.01 or Section
8.02(d);
(ii) such lien, charge, security interest, mortgage or other
encumbrance secures indebtedness which the Issuer is permitted to incur
under the terms of this Indenture; and
(iii) the beneficiary of such lien, charge, security interest,
mortgage or other encumbrance has agreed that in connection with the
enforcement thereof it will not bring any Proceeding seeking, or which
would result in, the sale of any portion of the Trust Estate and will not
file any petition for the commencement of insolvency proceedings with
respect to the Issuer under the federal bankruptcy laws, as now or
hereafter in effect, or any other present or future federal or state
bankruptcy, insolvency or similar law, or for the appointment of any
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or of any of its property, or seeking an
order for the winding up or liquidation of the affairs of the Issuer.
"PERSON": Any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"PLEDGED ACCOUNTS": The Note Account and the Distribution Account
(exclusive of any earnings on investments made with funds deposited in the
Distribution Account or the Note Account).
"PLEDGED MORTGAGES": Such of the mortgage loans Granted to the Trustee
pursuant to the provisions hereof as from time to time are held as a part of the
Trust Estate (including any REO Property), the mortgage loans so held being
identified in the Schedule of Pledged Mortgages attached as Schedule A to this
Indenture, notwithstanding foreclosure or other acquisition of title of the
related Mortgaged Property.
"PREDECESSOR NOTES": With respect to any particular Note of a Class, every
previous Note of that Class evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.08 in lieu of a lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the lost, destroyed
or stolen Note.
"PREFERENCE CLAIM": Any amount previously distributed to a Noteholder that
is recoverable and sought to be recovered as a voidable preference by a trustee
in bankruptcy pursuant to the Bankruptcy Code as amended from time, in
accordance with a final nonappealable order of a court having competent
jurisdiction.
"PRINCIPAL AMOUNT": As of any Payment Date, in the case of the Class A-1
Notes, the Original Class A-1 Principal Balance reduced by all amounts
previously distributed to holders of the Class A-1 Notes as payments of
principal or, in the case of the Class A-2 Notes, the Original Class A-2
Principal Balance reduced by all amounts previously distributed to holders of
the Class A-2 Notes as payments of principal and, or, if the context so
provides, the aggregate of such balances for both Classes of Notes.
"PRINCIPAL PREPAYMENT": Any payment of principal by a Mortgagor on a
Pledged Mortgage that is received in advance of its scheduled Due Date and is
not accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment.
"PRINCIPAL PREPAYMENT IN FULL": Any Principal Prepayment made by a
Mortgagor of the entire principal balance of a Pledged Mortgage.
"PROCEEDING": Any suit in equity, action at law or other judicial or
administrative proceeding.
"PROSPECTUS SUPPLEMENT": The Prospectus Supplement dated _________________
____, 199__ relating to the Notes.
"RATING AGENCY": Each of S&P and Moody's. If either such organization or a
successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical rating organization, or other comparable Person, as is
designated by the Issuer, notice of which designation shall be given to the
Trustee. References herein to a given rating or rating category of a Rating
Agency shall mean such rating category without giving effect to any modifiers.
"RECORD DATE": With respect to any Payment Date, the date on which the
Persons entitled to receive any payment of principal of, or interest on, any
Notes (or notice of a payment in full of principal) due and payable on such
Payment Date are determined; such date shall be the last day of the month
preceding the month of such Payment Date.
"REDEMPTION DATE": Any Payment Date on which Notes are to be redeemed.
"REDEMPTION PRICE": With respect to the Notes to be redeemed, an amount
equal to ____% of the Principal Amount of the Class A-1 Notes and ____% of the
Principal Amount of the Class A-2 Notes, together with all unpaid Interest
Payment Amounts.
"REFINANCING PLEDGED MORTGAGE": Any Pledged Mortgage originated in
connection with the refinancing of an existing mortgage loan.
"RESPONSIBLE OFFICER": With respect to the Trustee, any officer in the
corporate trust department or similar group of the Trustee and also, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his or her knowledge of and familiarity with the
particular subject.
"S&P": Standard & Poor's Ratings Group, a division of McGraw-Hill Inc. For
purposes of Section 11.04 the address for notices to S&P shall be Standard &
Poor's Ratings Group, 26 Broadway, 15th Floor, New York, New York 10004,
Attention: Mortgage Surveillance Monitoring, or such other address as S&P may
hereafter furnish to the Issuer, the Trustee and the Master Servicer.
"SAIF": The Savings Association Insurance Fund, or any successor thereto.
"SALE": The meaning specified in Section 5.18(a).
"SECURITIES ACT": The Securities Act of 1933, as amended.
"STATED MATURITY": With respect to any and all Notes, _________________
____, 20__.
"STATED PRINCIPAL BALANCE": As to any Pledged Mortgage and Due Date, the
unpaid principal balance of such Pledged Mortgage as of such Due Date as
specified in the amortization schedule at the time relating thereto (before any
adjustment to such amortization schedule by reason of any moratorium or similar
waiver or grace period) after giving effect to any previous partial Principal
Prepayments and Liquidation Proceeds allocable to principal (other than with
respect to any Liquidated Pledged Mortgage) and to the payment of principal due
on such Due Date and irrespective of any delinquency in payment by the related
Mortgagor.
["SWAP AGREEMENT": The ISDA Master Agreement with an attached Schedule and
Confirmation, dated as of ________________ ____, 199____, between the Issuer and
the Swap Provider.
"SWAP PROVIDER": ________________________________ and its successors.]
"TRUST ESTATE": All money, instruments and other property subject or
intended to be subject to the lien of this Indenture for the benefit of the
Noteholders [and the Insurer] as of any particular time (including, without
limitation, all property and interests Granted to the Trustee), including all
proceeds thereof.
"TRUST INDENTURE ACT" OR "TIA": The Trust Indenture Act of 1939, as
amended, as in force at the Closing Date, unless otherwise specifically
provided.
"TRUSTEE": ____________________________, a ____________________________,
and any Person succeeding as Trustee hereunder pursuant to Section 6.12 or any
other applicable provision hereof.
"VOTING RIGHTS": With respect to all of the provisions of this Indenture
requiring the consent, vote, resolution or similar action of the Noteholders,
the voting rights represented by each Note as against the other Noteholders,
which voting rights shall be in the proportion borne by the Principal Amount of
such Note to the aggregate Principal Amounts of the Notes.
ARTICLE II
THE NOTES
SECTION 2.01. FORMS GENERALLY.
The Notes and the Trustee's certificate of authentication shall be in
substantially the form required by this Article II, 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 be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution thereof. Any portion of
the text of any Note may be set forth on the reverse thereof with an appropriate
reference on the face of the Note.
The Definitive Notes may be produced in any manner determined by the
officers executing such Notes, as evidenced by their execution thereof;
provided, however, that in the event the Notes are listed on any securities
exchange, the Notes shall be produced in accordance with the rules of any
securities exchange on which the Notes may be listed.
SECTION 2.02. FORMS OF NOTES AND CERTIFICATE OF AUTHENTICATION.
(a) The form of Note which is a Class A-1 Note is attached
hereto as Exhibit II.
(b) The form of Note which is a Class A-2 Note is attached hereto as
Exhibit III.
(c) The form of the Trustee's certificate of authentication is as follows:
"This is one of the Notes referred to in the within mentioned Indenture.
___________________________________
as Trustee
By: ________________________________
Authorized Signatory"
(d) The form of assignment is as follows:
"FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________________________
______________________________________
(Please insert Social Security or other
Identifying Number of Assignee)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Please print or type name and address of Assignee)
the within Note of ________________________, and does hereby irrevocably
constitute and appoint ______________ Attorney to transfer such Note on the
books of the within named trust, with full power of substitution in the
premises.
Dated: _______________________________ _______________________________________
Notice: The signature to this
assignment must correspond with the
name as written upon the face of this
Note in every particular without
alteration or enlargement or any
change whatever. The signature must be
guaranteed by a member of a signature
guaranty medallion program. Notarized
or witnessed signatures are not
acceptable."
SECTION 2.03. NOTES ISSUABLE IN CLASSES; PROVISIONS WITH RESPECT TO
PRINCIPAL AND INTEREST PAYMENTS.
(a) General.
The Notes shall be designated generally as the "________________________,
"________________________ Notes" of the Issuer. Each Note shall bear upon the
face thereof the designation so selected for the Class to which it belongs.
Notes of each Class shall constitute Book Entry Notes as set forth in
Section 2.13 hereof. The Notes shall be issued in two Classes, the Class A-1
Notes and the Class A-2 Notes. The aggregate principal amount of Notes that may
be authenticated and delivered under this Indenture is limited to
$________________ with respect to the Class A-1 Notes and $________________ with
respect to the Class A-2 Notes, except for Notes
authenticated and delivered upon registration of, transfer of or in exchange
for, or in lieu of Notes pursuant to Sections 2.06, 2.07 and 2.08 hereof.
All of the Notes shall be issued in the appropriate forms attached as
Exhibits hereto with such additions and completions as are appropriate for each
such Class.
The final installments of principal of the Classes of Notes shall be
payable at the Stated Maturity. The principal of each Note shall be payable in
installments ending no later than the Stated Maturity of the final installment
of the principal thereof unless the unpaid principal of such Note becomes due
and payable at an earlier date by declaration of acceleration or call for
redemption or otherwise. For each Payment Date prior to the Stated Maturity, the
aggregate amount of each installment of principal due and payable on each Class
of Notes shall be as provided in Section 2.03(b). All payments made with respect
to any Note shall be applied first to the interest then due and payable on such
Note, then, if applicable, to any Noteholders' Interest Carryover then to the
principal thereof.
(b) Payments of Principal of and Interest on the Notes.
On each Payment Date, the Trustee shall withdraw Net Available Funds [(and
any amounts on deposit pursuant to claims under the Insurer's Policy)] from the
Distribution Account and distribute such funds to the Noteholders [and the
Insurer, as applicable,] in the following amounts and order of priority:
________________________________.
Each Class of Notes shall accrue interest at the related Note Interest
Rate, and such interest shall be payable on each Payment Date as provided in
Section 2.09(a). All principal payments on each Class of Notes shall be made pro
rata to the Holders of each Class of Notes entitled thereto in the proportion
that the Principal Amount of each such Class bears to the other Class.
SECTION 2.04. DENOMINATIONS.
Each Class of Book Entry Notes shall be evidenced initially by one or more
Notes representing the entire aggregate Principal Amount of such Class of Notes
as of the Closing Date, beneficial ownership of which may be held in
denominations representing Principal Amounts of $1,000 and in multiples of
$1,000 in excess thereof. All of the Book Entry Notes shall be initially
registered on the Note Register in the name of Cede & Co., the nominee of the
Depository, and no Beneficial Owner will receive a Definitive Note representing
such Beneficial Owner's interest in the Book Entry Notes, except in the event of
Book Entry Termination.
SECTION 2.05. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed by an Authorized Officer in the name and on
behalf of the Issuer. The signature of such officer on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signature of an individual who was at
any time an Authorized Officer shall bind the Issuer, notwithstanding that such
individual has ceased to hold such office prior to the authentication and
delivery of such Notes or did not hold such office at the date of such Notes.
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Notes executed on behalf of the Issuer to the
Trustee for authentication; and the Trustee shall authenticate and deliver such
Notes as in this Indenture provided and not otherwise.
Each Note authenticated on the Closing Date shall be dated the Closing
Date. All other Notes which are authenticated after the Closing Date for any
other purpose hereunder shall be dated the date of their authentication.
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
Trustee or by any Authenticating Agent by the manual signature of one of its
authorized officers or employees, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
SECTION 2.06. TEMPORARY NOTES.
So long as the Book Entry Notes are held by the Depository for the
Participants in book-entry form, they may be typewritten or in any other form
acceptable to the Issuer, the Trustee and the Depository. At any time during
which the Book Entry Notes are not held by the Depository for the Participants
in book-entry form, the Definitive Notes shall be lithographed or printed with
steel engraved borders.
Pending the preparation of Definitive Notes, the Issuer may execute, and
upon Issuer Order the Trustee shall authenticate and deliver, temporary Notes
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they may be so issued and with such variations
as the officers executing such Notes may determine, as evidenced by their
execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes to be
prepared without unreasonable delay. After the preparation of definitive Notes,
the temporary Notes shall be exchangeable for definitive Notes upon surrender of
the temporary Notes at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder. Upon surrender or
cancellation of any one or more temporary Notes, the Issuer shall execute and
the Trustee shall authenticate and deliver and exchange therefor a like
principal amount of definitive Notes of the same Class and of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as Definitive Notes of the
same Class.
SECTION 2.07. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Notes and the registration of transfers of
Notes. The Trustee is hereby initially appointed "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar appointed by the Issuer, the Issuer shall
promptly appoint a successor or, in the absence of such appointment, shall
assume the duties of Note Registrar.
At any time the Trustee is not also the Note Registrar, the Trustee shall
be a co-Note Registrar. The Issuer shall cause each co-Note Registrar to furnish
the Note Registrar, promptly after each authentication of a Note by it,
appropriate information with respect thereto for entry by the Note Registrar
into the Note Register. If the Trustee shall at any time not be authorized to
keep and maintain the Note Register, the Trustee shall have the right to inspect
such Note Register at all reasonable times and to rely conclusively upon a
certificate of the Person in charge of the Note Register as to the names and
addresses of the Holders of the Notes and the principal amounts and numbers of
such Notes so held.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.02, the Issuer
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denominations and of a like aggregate principal amount and Class.
At the option of the Holder, Notes may be exchanged for other Notes of any
authorized denominations, and of a like aggregate initial principal amount and
Class, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Trustee shall authenticate and deliver, the Notes which the Noteholder
making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed, 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 registration of transfer or
exchange of Notes, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge as may be imposed in connection with
any registration of transfer or exchange of Notes, other than exchanges pursuant
to Section 2.08 not involving any transfer.
SECTION 2.08. MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
If (1) any mutilated Note is surrendered to the Trustee or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note and (2) there is delivered to the Trustee such security or indemnity as may
be required by the Trustee [and the Insurer] to save the Issuer [and the
Insurer] and the Trustee harmless, then, in the absence of notice to the Issuer
or the Trustee that such Note has been acquired by a bona fide purchaser, the
Issuer shall execute and upon its request the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Note, a new Note or Notes of the same tenor, aggregate initial principal
amount and Class bearing a number not contemporaneously outstanding. If, after
the delivery of such new Note, a bona fide purchaser of the original Note in
lieu of which such new Note was issued presents for payment such original Note,
the Issuer and the Trustee shall be entitled to recover such new Note from the
person to whom it was delivered or any person taking therefrom, 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 expenses incurred
by the Issuer or the Trustee in connection therewith. If any such mutilated,
destroyed, lost or stolen Note shall have become or shall be about to become due
and payable, or shall have become subject to redemption in full, instead of
issuing a new Note, the Issuer may pay such Note without surrender thereof,
except that any mutilated Note shall be surrendered.
Upon the issuance of any new Note under this Section, the Issuer 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 reasonable expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an original additional contractual
obligation of the Issuer, whether or not the 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 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 2.09. PAYMENTS OF PRINCIPAL AND INTEREST; PRINCIPAL AND INTEREST
RIGHTS RESERVED.
(a) The Notes of each Class shall bear interest for each Interest Accrual
Period at the Note Interest Rate for the Notes of such Class, which interest
shall be due and payable on each Payment Date on the unpaid principal amount of
the Notes of such Class commencing on the Closing Date and continuing on each
Payment Date thereafter until the entire unpaid principal amount of the Notes of
such Class is paid, whether by acceleration or otherwise, and (to the extent
lawful and enforceable) shall bear interest on overdue interest at the Note
Interest Rate for the Notes of such Class all as specified herein, in the forms
of the Notes and in the Administration Agreement. In addition, in the
circumstances specified in the Administration Agreement, Noteholders' Interest
Carryover may accrue with respect to the Notes which shall be payable as
specified herein, in the forms of the Notes and in the Administration Agreement.
The principal of the Notes shall be payable as specified herein, in the
forms of the Notes and in the Administration Agreement until the entire unpaid
principal balance of the Notes of such Series is paid.
(b) Each payment of principal of and interest on, and any Noteholders'
Interest Carryover with respect to, a Book Entry Note shall be paid to the
Depository, which shall credit the amount of such payments to the accounts of
its Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such payments to the
Beneficial Owners of the Book Entry Notes 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 Beneficial Owners of the Book Entry
Notes that it represents. All such credits and disbursements are to be made by
the Depository and the Depository Participants in accordance with the provisions
of the Notes. Neither the Trustee, the Note Registrar[, the Insurer] nor the
Issuer shall have any responsibility for such credits and disbursements.
Each payment of principal of and interest on, and any Noteholders' Interest
Carryover with respect to, a Definitive Note shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Record Date, for the applicable Payment Date by check
mailed to such Person's address as it appears in the Note Register on such
Record Date, except for the final installment of principal payable with respect
to such Note, which shall be payable as provided in Section 2.09(c).
All payments of principal of and interest on, and any Noteholders' Interest
Carryover with respect to, the Notes shall be made only from the Trust Estate
and any other assets of the Issuer, and each Holder of the Notes, by its
acceptance of the Notes, agrees that it will have recourse solely against such
Trust Estate and such other assets of the Issuer and that neither the Owner
Trustee in its individual capacity, the Owner nor any of their respective
partners, beneficiaries, agents, officers, directors, employees or successors or
assigns shall be personally liable for any amounts payable, or performance due,
under the Notes or this Indenture.
(c) All reductions in the principal amount of a Note (or one or more
Predecessor Notes) effected by payments of installments of principal made on any
Payment Date shall be binding upon all Holders of such Note and any Note issued
upon transfer thereof or in exchange therefor or in lieu thereof. The final
installment of principal of each Note (including the Redemption Price of any
Note called for redemption), shall be payable only upon presentation and
surrender thereof on or after the Payment Date therefor at the office or agency
of the Issuer maintained by it for such purpose in the Borough of Manhattan, the
City of New York, State of New York, pursuant to Section 3.02. Whenever the
Trustee expects that the entire remaining unpaid principal amount of any Note
will become due and payable on the next Payment Date, it shall, no later than
five days prior to such Payment Date, mail or cause to be mailed to the Holder
of each Note as of the close of the business on such otherwise applicable Record
Date a notice to the effect that:
(i) the Trustee expects that funds sufficient to pay such final
installment will be available in the Distribution Account on such Payment
Date; and
(ii) if such funds are available, such final installment will be
payable on such Payment Date, but only upon presentation and surrender of
such Note at the office or agency of the Issuer maintained for such purpose
pursuant to Section 3.02 (the address of which shall be set forth in such
notice).
Notices in connection with redemptions of Notes shall be mailed to Holders
in accordance with Section 10.02.
SECTION 2.10. PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any Note, the
Issuer, [the Insurer,] the Trustee, any Agent and any other agent of the Issuer,
[the Insurer,] or the Trustee shall treat the Person in whose name any Note is
registered as the owner of such Note (a) on the applicable Record Date for the
purpose of receiving payments of the principal of, and interest on, such Note
and (b) on any other date for all other purposes whatsoever, whether or not such
Note is overdue, and neither the Issuer, [the Insurer,] the Trustee, any Agent
nor any other agent of the Issuer or the Trustee shall be affected by notice to
the contrary.
SECTION 2.11. CANCELLATION.
All Notes surrendered for payment, registration of transfer, exchange or
redemption (unless the Issuer elects not to retire redeemed Notes) shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Issuer may at any time deliver to the
Trustee for cancellation any Note 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 Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be held by the Trustee in accordance with its
standard retention policy, unless the Issuer shall direct by an Issuer Order
that they be destroyed or returned to it.
SECTION 2.12. AUTHENTICATION AND DELIVERY OF NOTES.
The Notes may be executed by the Issuer and delivered to the Trustee for
authentication, and thereupon the same shall be authenticated and delivered by
the Trustee, provided, that such execution and authentication may be made in
counterpart, upon Issuer Request and upon receipt by the Trustee of the
following:
(a) an Issuer Order authorizing the execution, authentication and delivery
of the Notes and specifying the Classes, the Stated Maturity of the final
installment of principal, the principal amount and the Note Interest Rate, of
each Class of such Notes to be authenticated and delivered;
(b) an Issuer Order authorizing the execution and delivery of this
Indenture;
SECTION 2.13. MATTERS RELATING TO BOOK ENTRY NOTES.
(a) If the Notes are listed on any stock exchange at any time after the
Closing Date, the Issuer shall, if required as a condition to such listing,
prepare and deliver to the Trustee Notes in substantially the same form as the
Notes issued on the Closing Date, but with such other additional features and
such modifications, if any, as shall be necessary or appropriate in order to
comply with the requirements of such stock exchange for the listing of the Notes
on such exchange. Notes in the form issued on the Closing Date shall thereafter
be exchangeable for Notes in such revised form to the same extent as temporary
Notes are exchangeable for Definitive Notes pursuant to Section 2.06.
(b) Each Class of Book Entry Notes will be issued in the form of a single
typewritten note certificate (each, a "DTC Certificate") to be delivered to the
Depository by the Issuer substantially in the respective forms for each such
Class attached as Exhibits hereto. The DTC Certificate for each such Class of
Book Entry Notes shall be initially registered on the Note Register in the name
of the nominee of such Depository and no Beneficial Owner will receive a
certificate representing its interests in any Class of Book Entry Notes except
in the event that the Trustee issues Definitive Notes, as provided in Section
2.14. Pursuant to the Letter Agreement, while each Class of the Book Entry Notes
remains outstanding and such Depository remains the Holder, it will agree to
make book-entry transfers among the Depository Participants and receive and
transmit payments of principal and interest on the Book Entry Notes until and
unless the Trustee authenticates and delivers Definitive Notes to the Beneficial
Owners of the Book Entry Notes or their nominees, as described in Section 2.14.
(c) Prior to Book Entry Termination, each Class of Book Entry Notes will
remain registered in the name of the Depository or its nominee and at all times:
(i) registration of the Book Entry Notes may not be transferred by the Trustee
or the Note Registrar except to another Depository; (ii) the Depository shall
maintain book-entry records with respect to the Beneficial Owners and with
respect to ownership and transfers of such Book Entry Notes; (iii) ownership and
transfers of registration of the Book Entry Notes 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 interest participating firms as representatives of
the Beneficial Owners of the Book Entry Notes for purposes of exercising the
rights of holders under the Indenture, 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 Beneficial Owners; and (vi) the Trustee [and the
Insurer] 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 Beneficial Owners.
All transfers by Beneficial Owners of Book Entry Notes shall be made in
accordance with the procedures established by the Depository Participant or
brokerage firm representing such Beneficial Owner. Each Depository Participant
shall only transfer Book Entry Notes of Beneficial Owners it represents or of
brokerage firms for which it acts as agent in accordance with the Depository's
normal procedures.
SECTION 2.14. TERMINATION OF BOOK ENTRY SYSTEM.
(a) The book entry system through the Depository with respect to any Class
of Book Entry Notes may be terminated (a "Book Entry Termination") upon the
happening of any of the following:
(i) The Depository or the Issuer advises the Trustee in writing that
the Depository is no longer willing or able to properly discharge its
responsibilities as Depository and the Issuer is unable to locate a
qualified successor clearing agency satisfactory to the Trustee and the
Issuer;
(ii) The Issuer at its option advises the 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 (at which time the
Trustee shall use all reasonable efforts to promptly notify each Beneficial
Owner through the Depository of such Event of Default when such notice
shall be given pursuant to Section 6.02), the Beneficial Owners of a
majority in aggregate Principal Amount of the Book Entry Notes 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 Beneficial Owners.
(b) Upon the occurrence of any event described in subsection (a) above, the
Trustee shall notify all Beneficial Owners, through the Depository, of the
occurrence of any such event and of the availability of Definitive Note
certificates to Beneficial Owners requesting the same, in an aggregate Principal
Amount representing the interest of each, making such adjustments and allowances
as it may find necessary or appropriate as to accrued interest, if any, and
previous calls for redemption. Definitive Note certificates shall be issued only
upon surrender to the Trustee of the Book Entry Note by the Depository,
accompanied by registration instructions for the Definitive Note certificates.
Neither the Issuer 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 issuance of the Definitive Note
certificates, all references herein to obligations imposed upon or to be
performed by the Depository shall cease to be applicable and the provisions
relating to Definitive Notes shall be applicable.
SECTION 2.15. 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. 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.
ARTICLE III
COVENANTS
SECTION 3.01. PAYMENT OF NOTES.
The Issuer will pay or cause to be duly and punctually paid the principal
of, and interest on, the Notes (and, to the extent applicable, Noteholders'
Interest Carryover accrued thereon) in accordance with the terms of the Notes
and this Indenture.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer will maintain in the Borough of Manhattan, the City of New York,
the State of New York an office or agency where Notes may be presented or
surrendered for payment or 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 will give prompt written
notice to the Trustee [and the Insurer] of the location and any change in the
location, of such office or agency. Until written notice of any change in the
location of such office or agency is delivered to the Trustee or if at any time
the Issuer shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee [and the Insurer] with the address thereof, Notes
may be so presented and surrendered, and such notices and demands may be made or
served, at the Corporate Trust Office, and the Issuer hereby appoints the
Trustee as its agent to receive all such surrenders, notices and demands.
The Issuer may also from time to time designate one or more other offices
or agencies (in or outside the City of New York) where the Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that (i) no such designation or
rescission shall in any manner relieve the Issuer of its obligation to maintain
an office or agency in the Borough of Manhattan, the City of New York, the State
of New York, for the purposes set forth in the preceding paragraph, (ii)
presentations or surrenders of Notes for payment may be made only in the City of
New York, the State of New York or at the Corporate Trust Office of the Trustee
and (iii) any designation of an office or agency for payment of Notes shall be
subject to Section 3.03. The Issuer will give prompt written notice to the
Trustee [and the Insurer] of any such designation or rescission and of any
change in the location of any such other office or agency.
SECTION 3.03. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
All payments of amounts due and payable with respect to any Notes which are
to be made from amounts withdrawn from the Distribution Account pursuant to
Section 8.02(c) or Section 5.08 shall be made on behalf of the Issuer by the
Trustee or by a Paying Agent, and no amounts so withdrawn from the Distribution
Account for payments of Notes shall be paid over to the Issuer under any
circumstances except as provided in this Section 3.03 or in Section 5.08.
If the Issuer shall have a Paying Agent that is not also the Note
Registrar, it shall furnish, or cause the Note Registrar to furnish, no later
than the fifth calendar day after each Record Date or the first Business Day
after a Record Date applicable to a Payment Date on which the Notes will be
redeemed in full, a list, in such form as such Paying Agent may reasonably
require, of the names and addresses of the Holders of Notes and of the number of
Individual Notes of each Class held by each such Holder.
Whenever the Issuer shall have a Paying Agent other than the Trustee, it
will, on or before the Business Day next preceding each Payment Date, direct the
Trustee to deposit with such Paying Agent an aggregate sum sufficient to pay the
amounts then becoming due (to the extent funds are then available for such
purpose in the Distribution Account), such sum to be held in trust for the
benefit of the Persons entitled thereto. Any moneys deposited with a Paying
Agent in excess of an amount sufficient to pay the amounts then becoming due on
the Notes with respect to which such deposit was made shall, upon Issuer Order,
be paid over by such Paying Agent to the Trustee for application in accordance
with Article VIII.
Any Paying Agent other than the Trustee shall be appointed by Issuer
Order[, subject to the Insurer's written consent, provided, that, no Insurer
Default shall have occurred and be continuing]. The Trustee is hereby appointed
as the initial Paying Agent. The Issuer shall not appoint any Paying Agent which
is not, at the time of such appointment, a depository institution or trust
company whose obligations would be Permitted Investments pursuant to clause (iv)
of the definition of the term "Permitted Investments". The Issuer will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee (and if
the Trustee acts as Paying Agent, it hereby so agrees), subject to the
provisions of this Section, that such Paying Agent will:
(1) allocate all sums received for payment to the Holders of Notes on
each Payment Date among such Holders in the proportion specified in the
applicable Payment Date Statement, as the case may be, in each case to the
extent permitted by applicable law;
(2) 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;
(3) if such Paying Agent is not the Trustee, immediately resign as a
Paying Agent and forthwith pay to the Trustee all sums held by it in trust
for the payment of the Notes if at any time it ceases to meet the standards
set forth above required to be met by a Paying Agent at the time of its
appointment;
(4) if such Paying Agent is not the Trustee, give the Trustee notice
of any Default by the Issuer (or any other obligor upon the Notes) in the
making of any payment required to be made with respect to any Notes for
which it is acting as Paying Agent;
(5) if such Paying Agent is not the Trustee, at any time during the
continuance of any such Default, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by such Paying
Agent; and
(6) comply with all requirements of the Code, and all regulations
thereunder, 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;
provided, however, that with respect to withholding and reporting
requirements applicable to original issue discount (if any) on any Class of
Notes, the Issuer has provided the calculations pertaining thereto to the
Trustee.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or any other purpose, by Issuer Order direct any
Paying Agent, if other than the Trustee, to pay to the Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by such Paying Agent; and upon
such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to applicable escheat laws, any money held by the Trustee or any
Paying Agent in trust for the payment of any amount due with respect to any Note
and remaining unclaimed for six years after such amount has become due and
payable to the Holder of such Note shall be discharged from such trust and, upon
its written request, paid to the Issuer; 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 Trustee or such Paying Agent with respect to such trust
money shall thereupon cease. The Trustee may, but shall not be required to,
adopt and employ, at the expense of the Issuer, any 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 Trustee or any
Agent, at the last address of record for each such Holder).
SECTION 3.04. CORPORATE EXISTENCE OF OWNER TRUSTEE.
(a) Any corporation or association into which the Owner Trustee may be
merged or with which it may be consolidated, or any corporation or association
resulting from any merger or consolidation to which the Owner Trustee shall be a
party, shall be the successor Owner Trustee under this Indenture without the
execution or filing of any paper, instrument or further act to be done on the
part of the parties hereto, anything herein, or in any agreement relating to
such merger or consolidation, by which any such Owner Trustee may seek to retain
certain powers, rights and privileges therefore obtaining for any period of time
following such merger or consolidation, to the contrary notwithstanding.
(b) Any successor to the Owner Trustee appointed pursuant to Section 10.01
of the Deposit Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the Owner
Trustee in accordance with this Section 3.04, the Person formed by or surviving
such consolidation or merger (if other than the Issuer) or the Person succeeding
to the Owner Trustee under the Deposit Trust Agreement may exercise every right
and power of the Owner Trustee, on behalf of the Issuer, under this Indenture
with the same effect as if such Person had been named as the Owner Trustee
herein.
SECTION 3.05. 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 as may be necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien of this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any of the Mortgage Documents; or
(v) preserve and defend title to the Trust Estate and the rights of
the Trustee, and of the Noteholders [and the Insurer], in the Pledged
Mortgages and the other property held as part of the Trust Estate against
the claims of all Persons and parties.
The Issuer hereby designates the Trustee its agent and attorney-in-fact to
execute any financing statement, continuation statement or other instrument
required pursuant to this Section 3.05; provided, however, that such designation
shall not be deemed to create a duty in the Trustee to monitor the compliance of
the Issuer with the foregoing covenants; and provided further, however, that the
duty of the Trustee to execute any instrument required pursuant to this Section
3.05 shall arise only if the Trustee has knowledge pursuant to Section 6.01(d)
of the occurrence of a failure of the Issuer to comply with provisions of this
Section 3.05.
(b) Except as permitted by Section 8.08, the 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 3.06 (or from the jurisdiction in which it was held, or to which it is
intended to be removed, as described in the Opinion of Counsel delivered at the
Closing Date pursuant to Section 2.12(c), if no Opinion of Counsel has yet been
delivered pursuant to Section 3.06) or cause or permit ownership or the pledge
of any portion of the Trust Estate that consists of book-entry securities to be
recorded on the books of a Person located in a different jurisdiction from the
jurisdiction in which such ownership or pledge was recorded at such time unless
the Trustee [and the Insurer] 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.
SECTION 3.06. OPINIONS AS TO TRUST ESTATE.
On or before May 15 in each calendar year, beginning with the first
calendar year commencing more than three months after the Closing Date, the
Issuer shall furnish to the Trustee [and the Insurer] an Opinion of Counsel
reasonably satisfactory in form and substance to the Trustee [and the Insurer]
either stating that, in the opinion of such counsel, such action has been taken
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 all such actions, if any,
that will, in the opinion of such counsel, be required to be taken to maintain
the lien and security interest of this Indenture with respect to the Trust
Estate until May 15 in the following calendar year.
SECTION 3.07. PERFORMANCE OF OBLIGATIONS; MASTER SERVICING AGREEMENT.
(a) The Issuer shall punctually perform and observe all of its obligations
and agreements contained in the Deposit Trust Agreement and the Swap Agreement.
The Issuer and the Trustee shall punctually perform and observe all of their
respective obligations and agreements contained in the Administration Agreement.
(b) The Issuer shall not take any action and will use its reasonable good
faith efforts not to permit any action to be taken by others that would release
any Person from any of such Person's covenants or obligations under any of the
Mortgage Documents or under any instrument included in the Trust Estate, or that
would result in the amendment, hypothecation, subordination, termination or
discharge of, or impair the validity or effectiveness of, any of the Mortgage
Documents, except as expressly provided or permitted in this Indenture, the
Master Servicing Agreement, the Administration Agreement or such Mortgage
Document or other instrument, or unless such action will not adversely affect
the interests of the Holders of the Notes[, the Swap Provider and the Insurer
(unless an Insurer Default has occurred and is continuing), and the Insurer
(unless an Insurer Default has occurred and is continuing) shall have consented
in writing thereto].
(c) The Issuer shall monitor the performance of the Master Servicer under
the Master Servicing Agreement, and shall use its reasonable good faith efforts
to cause the Master Servicer duly and punctually to perform all of its duties
and obligations thereunder. Upon the occurrence of a Master Servicer Default of
which an Authorized Officer of the Issuer has actual knowledge under the Master
Servicing Agreement, the Issuer shall promptly notify the Trustee [and the
Insurer], and shall, [subject to the prior written consent of the Insurer so
long as no Insurer Default has occurred and is continuing,] specify in such
notice the action, if any, the Issuer is taking in respect of such Master
Servicer Default. So long as any such Master Servicer Default shall be
continuing [and subject to the prior written consent of the Insurer so long as
no Insurer Default has occurred and is continuing,] the Trustee may (i)
terminate all of the rights and powers of the Master Servicer pursuant to the
applicable provisions of the Master Servicing Agreement; (ii) exercise any
rights it may have to enforce the Master Servicing Agreement against the Master
Servicer; and/or (iii) waive any such Master Servicer Default under the Master
Servicing Agreement or take any other action with respect to such Master
Servicer Default as is permitted thereunder.
(d) Upon any termination by the Trustee of the Master Servicer's rights and
powers pursuant to the Master Servicing Agreement, the Trustee may appoint
itself as the successor Master Servicer and the rights and powers of the Master
Servicer with respect to the Pledged Mortgages shall vest in the Trustee. Under
such circumstances, the Trustee shall be the successor in all respects to the
Master Servicer with respect to the Pledged Mortgages under the Master Servicing
Agreement until the Trustee shall have appointed, with the consent of the
Issuer, such consent not to be unreasonably withheld, and the Rating Agencies
[and the Insurer, provided, however, with respect to the Insurer such consent
shall not be required if an Insurer Default shall have occurred and be
continuing,] and in accordance with the applicable provisions of the Master
Servicing Agreement, a new Person to serve as successor Master Servicer. The
Trustee, at its option, may elect to continue to serve as successor Master
Servicer under the Master Servicing Agreement.
(e) Upon any termination of the Master Servicer's rights and powers
pursuant to the Master Servicing Agreement, the Trustee shall promptly notify
the Issuer[, the Insurer] and the Rating Agencies, specifying in such notice
that the Trustee or any successor Master Servicer, as the case may be, has
succeeded the Master Servicer under the Master Servicing Agreement, which notice
shall also specify the name and address of any such successor Master Servicer.
SECTION 3.08. INVESTMENT COMPANY ACT.
The Issuer shall at all times conduct its operations so as not to be
subject to the Investment Company Act of 1940, as amended (or any successor
statute), and the rules and regulations thereunder.
SECTION 3.09. NEGATIVE COVENANTS.
The Issuer shall not:
(a) sell, transfer, exchange or otherwise dispose of any portion of the
Trust Estate, or merge or consolidate with another entity, except as expressly
permitted by this Indenture or the Administration Agreement, unless the Issuer
[and the Insurer] have received an Opinion of Counsel (and have delivered a copy
thereof to the Trustee) to the effect that such transaction will not (A) result
in a "substantial modification" of the Notes under Treasury Regulation Section
1.1001-3, or adversely affect the status of the Notes as indebtedness for
federal income tax purposes, or (B) if 100% of the Investor Certificates are not
owned by the Depositor, cause the Trust Estate to be subject to an entity level
tax for federal income tax purposes;
(b) claim any credit on, or make any deduction from, the principal of, or
interest on, any of the Notes by reason of the payment of any taxes levied or
assessed upon any portion of the Trust Estate;
(c) engage in any business or activity other than in connection with, or
relating to, the issuance of the Notes and the Investor Certificate pursuant to
this Indenture and the Deposit Trust Agreement, respectively[, or the obligation
to pay certain amounts to the Swap Provider pursuant to the Swap Agreement, or
amend Section 2.03 or Section 10.01 of the Deposit Trust Agreement as in effect
on the Closing Date without, in each case, the consent of the Insurer (unless an
Insurer Default has occurred and is continuing)] and the consent of the Holders
of 662/3% of the aggregate Principal Amount of the Notes then Outstanding;
(d) incur any indebtedness or assume or guaranty any indebtedness of any
Person, except for such indebtedness as may be incurred by the Issuer in
connection with the issuance of the Notes pursuant to this Indenture;
(e) dissolve or liquidate in whole or in part; or
(f) (i) permit the validity or effectiveness of this Indenture or any Grant
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 under this Indenture, except as may
be expressly permitted hereby, (ii) permit any lien, charge, security interest,
mortgage or other encumbrance (other than the lien of this Indenture, the lien
created by Section 8.04 of the Deposit Trust Agreement, as in effect on the
Closing Date, or any Permitted Encumbrance) to be created on or extended to or
otherwise arise upon or burden the Trust Estate or any part thereof or any
interest therein or the proceeds thereof or (iii) permit the lien of this
Indenture not to constitute a valid perfected first priority security interest
in the Trust Estate.
SECTION 3.10. ANNUAL STATEMENT AS TO COMPLIANCE.
On or before 120 days after the end of the first fiscal year of the Issuer
which ends more than three months after the Closing Date, and each fiscal year
thereafter, the Issuer shall deliver to the Trustee [and the Insurer, unless an
Insurer Default has occurred and is continuing,] a written statement, signed by
an Authorized Officer, stating that:
(1) a review of the fulfillment by the Issuer during such year of its
obligations under this Indenture has been made under such officer's
supervision; and
(2) to the best of such officer's knowledge, based on such review, the
Issuer has fulfilled all of its obligations under this Indenture throughout
such year, or, if there has been a Default in the fulfillment of any such
obligation, specifying each such Default known to such officer and the
nature and status thereof.
SECTION 3.11. RECORDING OF ASSIGNMENTS.
The Issuer shall cause the Assignments of the Pledged Mortgages securing
the Notes to be duly recorded in the manner specified in Section 2(a)(i) of the
Administration Agreement. If the Issuer fails to cause the Assignments to be
recorded within the time limit provided thereunder, the Issuer shall purchase
such corresponding Pledged Mortgages pursuant to Section 8.04 and the applicable
provisions of the Administration Agreement.
SECTION 3.12. LIMITATION OF LIABILITY OF________________________ .
It is expressly understood and agreed by the parties hereto that (a) this
Indenture is executed and delivered by ________________________, not
individually or personally but solely as owner trustee of
________________________ under the Deposit Trust Agreement, in the exercise of
the powers and authority conferred and vested in it as Owner Trustee, (b) each
of the representations, undertakings and agreements herein made on the part of
the Issuer is made and intended not as personal representations, undertakings
and agreements by ________________________, but is made and intended for the
purpose for binding only the Issuer, (c) nothing herein contained shall be
construed as creating any liability on ________________________, individually or
personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any being expressly waived by the Trustee, [the
Insurer,] and the Noteholders and by any Person claiming by, through or under
the Trustee, [the Insurer,] and the Noteholders and (d) under no circumstances
shall ________________________ be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Indenture or the other Operative Agreements.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE.
Whenever the following conditions shall have been satisfied:
(1) either
(A) all Notes theretofore authenticated and delivered (other than (i)
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.08, and (ii) Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid
to the Issuer, as provided in Section 3.03) have been delivered to the
Trustee for cancellation; or
(B) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at the Stated Maturity of the
final installment of the principal thereof within one year, or
(iii) are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense,
of the Issuer,
and the Issuer, in the case of clause (B)(i), (B)(ii) or (B)(iii)
above, has deposited or caused to be deposited with the Trustee, in trust
for such purpose, an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal and interest to the Stated Maturity of their
entire unpaid principal amount or to the applicable Redemption Date, as the
case may be, and in the case of Notes which were not paid at the Stated
Maturity of their entire unpaid principal amount, for all overdue principal
and all interest payable on such Notes to the next succeeding Payment Date
therefor;
(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(3) the Issuer has delivered to the Trustee [and the Insurer (unless
an Insurer Default has occurred and is continuing),] an Officers'
Certificate and an Opinion of Counsel reasonably satisfactory in form and
substance to the Trustee each stating that all conditions precedent herein
providing for the satisfaction and discharge of this Indenture have been
complied with;
then, upon Issuer Request, this Indenture and the lien, rights and interests
created hereby shall cease to be of further effect, and the Trustee and each
co-trustee and separate trustee, if any, then acting as such hereunder shall, at
the expense of the Issuer, execute and deliver all such instruments as may be
necessary to acknowledge the satisfaction and discharge of this Indenture and
shall pay, or assign or transfer and deliver, to the Issuer or upon Issuer Order
all Pledged Mortgages, cash, securities and other property held by it as part of
the Trust Estate remaining after satisfaction of the conditions set forth in
clauses (1) and (2) above.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 6.07, the obligations of
the Trustee to the Issuer and the Holders of Notes under Section 3.03, the
obligations of the Trustee to the Holders of Notes under Section 4.02 and the
provisions of Article II with respect to lost, stolen, destroyed or mutilated
Notes, registration of transfers of Notes and rights to receive payments of
principal of, and interest on, the Notes shall survive.
SECTION 4.02. APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to Sections 3.03 and 4.01
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 Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money has been deposited with
the Trustee.
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01. EVENT OF DEFAULT.
"Event of Default", wherever used herein, means, with respect to Notes
issued hereunder, any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) if the Issuer shall
(A) default in the payment when and as due of any installment of
principal of or interest on any Note and such default shall continue
for ______ days, or
(B) default in the payment of the Redemption Price of any Note
which has been called for redemption pursuant to Article X;
(2) if the Issuer shall breach, or default in the due observance, of
any one or more of the covenants set forth in clauses (a) through (e) of
Section 3.09;
(3) if the Issuer shall breach, or default in any material respect in
the due observance or performance of, any other of its covenants in this
Indenture and such Default shall continue for a period of 30 days (such 30
day period to be automatically extended for 30 days upon delivery by the
Issuer of an Officers' Certificate setting forth the steps being taken and
stating the default is curable, to the Trustee [and, provided no Insurer
Default has occurred and is continuing, to the Insurer]) after there shall
have been given, by registered or certified mail, to the Issuer [and the
Insurer by the Trustee, or to the Issuer and the Trustee by the Insurer,
or, during the existence of an Insurer Default] by the Holders of Notes
representing more than 50% of the aggregate Principal Amount of the Notes,
a written notice specifying such Default and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder;
(4) if any representation or warranty of the Issuer made in this
Indenture, or any certificate or other writing delivered pursuant hereto or
in connection herewith shall prove to be incorrect in any material respect
as of the time when the same shall have been made and, within 30 days (such
30 day period to be automatically extended for 30 days upon delivery by the
Issuer of an Officers' Certificate setting forth the steps being taken and
stating the default is curable, to the Trustee and[, provided no Insurer
Default has occurred and is continuing, to the Insurer)] after there shall
have been given, by registered or certified mail, written notice thereof to
the Issuer [and the Insurer by the Trustee, or to the Issuer and the
Trustee by the Insurer, or, during the existence of an Insurer Default,] by
the Holders of Notes representing more than 50% of the aggregate Principal
Amount of the Notes, the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured;
(5) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Issuer in an involuntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other
present or future federal or state bankruptcy, insolvency or similar law,
or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or of any substantial
part of its property, or ordering the winding up or liquidation of the
affairs of the Issuer and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(6) the commencement by the Issuer of a voluntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other
present or future federal or state bankruptcy, insolvency or similar law,
or the consent by the Issuer to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or of any substantial part of its property
or the making by the Issuer of an assignment for the benefit of creditors
or the failure by the Issuer generally to pay its debts as such debts
become due or the taking of corporate action by the Issuer in furtherance
of any of the foregoing.
(a) [Reserved]
[(b) Notwithstanding the foregoing, the failure of the Issuer to pay
when and as due any installment of principal of (regardless of the lapse of
any grace period) any Note shall not constitute an Event of Default
hereunder unless the Principal Amount of the Notes after application of all
available amounts on deposit in the Distribution Account on a Payment Date
exceeds the Pool Principal Balance with respect to such Payment Date or the
aggregate Principal Amount of the Notes is not paid in full on the Stated
Maturity. Subject to the foregoing, Section 5.01 of the Indenture shall
otherwise apply in all respects to the Notes.]
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
Subject to Section 12.01(a)(vi) hereof, if an Event of Default occurs and
is continuing with respect to the Notes, then and in every such case the Trustee
or the Holders of Notes representing more than 50% of the aggregate Principal
Amount of the Notes may declare all the Notes to be immediately due and payable,
provided, however, that if an [Insurer Default] shall have occurred and is
continuing, such declaration may not have occurred prior to the 45th day after
the occurrence of the applicable Event of Default, by a notice in writing to the
Issuer (and to the Trustee if given by Noteholders), and upon any such
declaration such Notes shall become immediately due and payable in an amount
equal to:
(i) the aggregate Principal Amount of all Classes of Notes,
(ii) accrued and unpaid interest at the Class A-1 Interest Rate or
Class A-2 Interest Rate, as applicable, on the aggregate Principal Amounts
through the date of acceleration, and
(iii) interest (but only to the extent payment thereof shall be
legally enforceable) on any overdue installments of interest on the Notes
from the due date of any such installments to the date of the acceleration
at the Note Interest Rate at which such interest accrued or such lower rate
at which payment of such interest shall be legally enforceable.
At any time after such a declaration of acceleration of maturity of the
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided, [the
Insurer or, in the case of an Insurer Default,] the Holders of Notes
representing more than 50% of the aggregate Principal Amount of the Notes, by
written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if:
(1) the Issuer has paid or deposited with the Trustee a sum sufficient
to pay:
(A) all payments of principal of, and interest on, all Notes and
all other amounts which would then be due hereunder or upon such Notes
if the Event of Default giving rise to such acceleration had not
occurred; and
(B) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal
of Notes which have become due solely by such acceleration, have been cured
or waived as provided in Section 5.15.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Issuer covenants that if an Event of Default shall occur and be
continuing in respect to the Notes and the Notes have been declared due and
payable and such declaration and its consequences have not been rescinded and
annulled, the Issuer will, upon demand of the Trustee, pay to the Trustee, for
the benefit of the Holders of the Notes:
(i) the amounts specified in the first paragraph of Section 5.02, and
(ii) 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 Trustee, its
agents and counsel.
If the Issuer fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, [and at the
direction of the Insurer (unless an Insurer Default shall have occurred and be
continuing),] 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 any other obligor upon the Notes and
collect, out of the Trust Estate (as defined in the Deposit Trust Agreement),
wherever situated, of the Issuer, the moneys adjudged or decreed to be payable
in the manner provided by law; provided, however, that neither the Bank nor any
of its agents, officers, directors, employees, successors or assigns shall be
personally liable for any amounts due under the Notes or this Indenture.
If an Event of Default occurs and is continuing, [the Trustee shall, with
the prior written consent of the Insurer, or, in the case of an Insurer
Default,] the Trustee may proceed to protect and enforce its rights and the
rights of the Noteholders by any Proceedings the Trustee deems appropriate 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 enforce any other proper remedy, including, without
limitation, instituting a Proceeding prior to any declaration of acceleration of
the Stated Maturity of the Notes for the collection of all amounts then due and
unpaid on such Notes, prosecuting such Proceeding to final judgment or decree,
enforcing the same against the Issuer and collecting out of the property,
wherever situated, of the Issuer the moneys adjudged or decreed to be payable in
the manner provided by law.
SECTION 5.04. REMEDIES.
Subject to the rights of the [Insurer] under Article XII hereof, if an
Event of Default shall have occurred and be continuing and the Notes have been
declared due and payable and such declaration and its consequences have not been
rescinded and annulled, the Trustee (subject to Section 5.18, to the extent
applicable) may do one or more of the following:
(a) institute Proceedings for the collection of all amounts then payable on
the Notes, or under this Indenture, whether by declaration or otherwise, enforce
any judgment obtained, and collect from the Issuer moneys adjudged due;
(b) in accordance with Section 5.18, sell the Trust Estate, other than the
Issuer's rights to receive net amounts payable under the Swap Agreement, or any
portion of the Trust Estate or rights or interest in the Trust Estate, at one or
more public or private Sales called and conducted in any manner permitted by
law;
(c) institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the Trust Estate; and
(d) 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 Trustee or the Holders of the Notes hereunder,
provided, however, subject to the rights of the [Insurer] under Article XII
hereof, that prior to exercising the foregoing, the Trustee shall have consulted
with the Issuer concerning alternative pay down scenarios but in no event shall
such consultation in any way restrict the rights of the [Insurer] to exercise
the remedies set forth in this Section 5.04.
SECTION 5.05. [RESERVED].
SECTION 5.06. TRUSTEE MAY FILE PROOFS OF CLAIM.
Subject to Article XII hereof, [including the rights of the
Insurer thereunder,] and in case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement, composition or
other judicial Proceeding relative to the Issuer or any other obligor upon any
of the Notes or the property of the Issuer or of such other obligor or their
creditors, the Trustee (irrespective of whether the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Issuer for the payment of
any overdue principal or interest) shall be entitled and empowered, by
intervention in such Proceeding or otherwise to:
(i) file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes and file such other
papers or documents and take such other actions as it deems necessary or
advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Noteholders allowed in such
Proceeding; and
(ii) collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any
receiver, assignee, trustee, liquidator or sequestrator (or other similar
official) in any such Proceeding is hereby authorized by each Noteholder to
make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay
to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting any of the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Noteholder in any such Proceeding.
SECTION 5.07. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or any of the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any Proceeding relating thereto, and any
such Proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered. Any surplus shall be available, in accordance with Section
5.08, for the payment of the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 5.08. APPLICATION OF MONEY COLLECTED.
If the Notes have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any money collected by the Trustee with respect to the Notes pursuant
to this Article or otherwise and any monies that may then be held or thereafter
received by the Trustee with respect to the Notes shall be applied, after
payment to the Trustee of such amounts as may be payable to it under Section
6.07, in the order, at the date or dates fixed by the Trustee and, in case of
the distribution of the entire amount due on account of principal of, and
interest on, such Notes, upon presentation and surrender thereof:
First: To the payment of amounts then due and unpaid to the Master
Servicer in respect of Nonrecoverable Advances made by the Master Servicer
pursuant to the Master Servicing Agreement;
Second: To the payment of any amounts then due and owing to the Swap
Provider pursuant to the Swap Agreement;
Third: To the payment of amounts of interest and principal then due
and unpaid upon the Outstanding Notes in accordance with the priorities set
forth in Section 2.03(b) [or otherwise due and owing to the Insurer]; and
Fourth: To the payment of the remainder, if any, to the Issuer or any
other Person legally entitled thereto.
SECTION 5.09. LIMITATION ON SUITS.
No Holder of a Note shall have any right to institute any Proceedings,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee
[and the Insurer (unless an Insurer Default has occurred and is
continuing)] of a continuing Event of Default;
(2) the Holders of Notes representing more than 50% of the aggregate
Principal Amount of the Notes[, with the prior written consent of the
Insurer (unless an Insurer Default has occurred and is continuing),] shall
have made written request to the Trustee to institute Proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity in
full against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such Proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by [the Insurer or] the Holders of
Notes representing more than 50% of the aggregate Principal Amount of the
Notes [in the case of an Insurer Default];
it being 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 themselves 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 and for the equal and ratable benefit of all the
Holders of Notes.
SECTION 5.10. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST.
Notwithstanding any other provision in this Indenture, other than the
provisions hereof limiting the right to recover amounts due on a Note to
recovery from the property of the Issuer, the Holder of any Note shall have the
right, to the extent permitted by applicable law, which right is absolute and
unconditional, to receive payment of each installment of interest on such Note
on the respective Stated Maturities of such installments of interest, to receive
payment of each installment of principal of such Note when due (or, in the case
of any Note called for redemption, on the date fixed for such redemption) 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 5.11. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee[, the Insurer] 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 Trustee[, the Insurer] or to such Noteholder, then
and in every such case the Issuer, the Trustee[, the Insurer (unless an Insurer
Default has occurred and is continuing)] 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
Trustee[, the Insurer] and the Noteholders shall continue as though no such
Proceeding had been instituted.
SECTION 5.12. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee[, the
Insurer] 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 5.13. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of 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 or by law to
the Trustee[, the Insurer] or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Noteholders, as the case may be.
SECTION 5.14. CONTROL BY NOTEHOLDERS.
[Subject to the rights of the Insurer under Article XII hereof,] the
Holders of Notes representing more than 50% of the aggregate Principal Amount of
the Notes shall have the right to direct the time, method and place of
conducting any Proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, however, that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture;
(2) any direction to the Trustee to undertake a Sale of the Trust
Estate shall be by the Holders of Notes representing the percentage of the
aggregate Principal Amount of the Notes specified in Section 5.18(b)(1),
unless Section 5.18(b)(2) is applicable; and
(3) [Reserved];
(4) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; provided, however, that,
subject to Section 6.01, the Trustee need not take any action which it
determines might involve it in liability or be unjustly prejudicial to the
Noteholders not consenting.
SECTION 5.15. WAIVER OF PAST DEFAULTS.
[Subject to the rights of the Insurer under Article XII hereof,] the
Holders of Notes representing more than 50% of the aggregate Principal Amount of
the Notes may waive any past Default hereunder and its consequences, except a
Default:
(1) in the payment of any installment of principal of, or interest on,
any Note; or
(2) in respect of a covenant or provision hereof which under Section
9.02 cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 5.16. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by his or
her 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 Trustee for any action taken,
suffered or omitted by it as 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 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate Notes representing more than 10% of the aggregate
Principal Amount of the Notes, or to any suit instituted by any Noteholder for
the enforcement of the payment of any installment of interest on any Note on or
after the Stated Maturity thereof expressed in such Note or for the enforcement
of the payment of any installment of principal of any Note when due (or, in the
case of any Note called for redemption, on or after the applicable redemption
date).
SECTION 5.17. 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 of law wherever enacted,
now or at any time hereafter in force, which may affect the covenants in, 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 Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.18. SALE OF TRUST ESTATE.
(a) The power to effect any sale (a "Sale") of any portion of the Trust
Estate pursuant to Section 5.04 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 with respect thereto shall have
been paid. The Trustee may from time to time postpone any public Sale by public
announcement made at the time and place of such Sale. The Trustee hereby
expressly waives its right to any amount fixed by law as compensation for any
Sale.
(b) To the extent permitted by law, the Trustee shall not in any private
Sale sell or otherwise dispose of the Trust Estate, or any portion thereof,
unless:
(1) the Holders of all Notes consent to, or direct the Trustee to
make, such Sale; or
(2) the proceeds of such Sale would be not less than the entire amount
which would be distributable to the Holders of the Notes, in full payment
thereof in accordance with Section 5.08, on the Payment Date next
succeeding the date of such Sale.
(3) [Reserved]
The purchase by the Trustee of all or any portion of the Trust
Estate at a private Sale shall not be deemed a Sale or disposition thereof for
purposes of this Section 5.18(b).
(c) Unless the Holders of all Notes have otherwise consented or directed
the 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 5.18 has not been established by the
Trustee and no Person bids an amount equal to or greater than such amount, the
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 or _______________________, as
manager under the Management Agreement[, or the Insurer] may bid for and
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 amount 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 Trustee may bid for and acquire the property offered for Sale
in connection with any public Sale thereof, 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 as a result of such Sale in accordance with
Section 5.08 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 Trustee
shall be held and dealt with by it in accordance with the provisions of
this Indenture;
(3) the 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 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 Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
SECTION 5.19. ACTION ON NOTES.
The Trustee's right to seek and recover judgment 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 Trustee[, the Insurer] or the Holders of Notes
shall be impaired by the recovery of any judgment by the Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Trust Estate.
ARTICLE VI
THE TRUSTEE
SECTION 6.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of 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 his or her own
affairs. [If an Insurer Default has occurred and is continuing the Trustee shall
use reasonable efforts to locate an additional insurer; provided that no
additional insurance policy to the Insurer's Policy shall be accepted unless the
Rating Agencies shall have provided written confirmation that, upon such policy
being in force, the ratings on the Notes would be in the highest rating category
of each such agency and the Issuer has consented to such additional insurer.]
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others and no implied covenants or
obligations shall be read into this Indenture; and
(2) In the absence of bad faith on its part, the 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 Trustee and conforming to the requirements of this Indenture. The
Trustee shall, however, examine such certificates and opinions to determine
whether they conform to the requirements of this Indenture.
(c) The 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:
(1) This paragraph does not limit the effect of subsection (b) of this
Section;
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts;
(3) The 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 pursuant to Section 5.14 or Section 5.18;
(4) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith at the direction of Noteholders [or
the Insurer].
(d) Except with respect to duties of the Trustee prescribed by the TIA, as
to which this Section 6.01(d) shall not apply, for all purposes under this
Indenture, the Trustee shall not be deemed to have notice or knowledge of any
Event of Default described in Section 5.01(2), 5.01(5) or 5.01(6) or any Default
described in Section 5.01(3) or 5.01(4) or any Master Servicer Default or unless
a Responsible Officer assigned to and working in the Trustee's corporate trust
department has actual knowledge thereof or unless written notice of any event
which is in fact such an Event of Default, Master Servicer Default or default is
received by the Trustee at the Corporate Trust Office, and such notice
references the Notes generally, the Issuer, the Trust Estate or this Indenture.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any 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 for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. In determining that such repayment or indemnity is not reasonably
assured to it, the Trustee must consider not only the likelihood of repayment or
indemnity by or on behalf of the Issuer but also the likelihood of repayment or
indemnity from amounts payable to it from the Trust Estate pursuant to Sections
6.07 and 8.02(d); provided, however, that, except as provided in the first
sentence of this Section 6.01(e), the Trustee shall not refuse or fail to
perform any of its duties hereunder solely as a result of nonpayment of its
reasonable fees and expenses; and provided further, however, that nothing in
this Section 6.01(e) shall be construed to limit the exercise by the Trustee of
any right or remedy permitted under this Indenture or otherwise in the event of
the Issuer's failure to pay the amounts due the Trustee pursuant to Section
6.07.
(f) Every provision of this Indenture that in any way relates to the
Trustee is subject to the provisions of this Section.
(g) Notwithstanding any extinguishment of all right, title and interest of
the Issuer in and to the Trust Estate following an Event of Default and a
consequent declaration of acceleration of the Stated Maturity of the Notes,
whether such extinguishment occurs through a Sale of the Trust Estate to another
Person, the acquisition of the Trust Estate by the Trustee or otherwise, the
rights, powers and duties of the Trustee with respect to the Trust Estate (or
the proceeds thereof) and the Noteholders [and the Insurer] and the rights of
Noteholders [and the Insurer] shall continue to be governed by the terms of this
Indenture.
SECTION 6.02. NOTICE OF DEFAULT.
Upon the Trustee obtaining knowledge of the occurrence of any Default, the
Trustee shall furnish the Issuer [and the Insurer] with notice of each such
Default, and one Business Day thereafter shall transmit by mail to all Holders
of Notes notice of each such default; provided, however, that except in the case
of a Default of the type described in Section 5.01(1), the Trustee shall be
protected in withholding such notice to all Holders of Notes if and so long as
the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the Holders of the
Notes; [and provided, further, that the Trustee shall not withhold such notice
from the Insurer; and provided, further, that in the case of any Default of the
character specified in Section 5.01(3) or 5.01(4) no such notice to the Insurer
and Holders of the Notes shall be given until at least 30 days after the
occurrence thereof.] Concurrently with the mailing of any such notice to [the
Insurer and the] Holders of the Notes, the Trustee shall transmit by mail a copy
of such notice to the Rating Agencies.
SECTION 6.03. RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 6.01 hereof:
(a) the Trustee may request and rely upon and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
note or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order, and any resolution
of the board of directors may be sufficiently evidenced by a written resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate or the Officer's Certificate of the Master Servicer;
(d) the Trustee may consult with counsel, and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture or to institute, conduct or defend any
litigation hereunder or in relation hereto at the request or direction of any of
the Noteholders [or the Insurer] pursuant to this Indenture, unless such
Noteholders [or the Insurer] shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) 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, direction, consent, order, bond, note or other
paper or document, but the Trustee, in its discretion may make such further
inquiry or investigation into such facts or matters as it may see fit, and if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled, on reasonable prior notice to the Issuer, to examine the
books, records and premises of the Issuer, personally or by agent or attorney,
during the Issuer's normal business hours; provided that the Trustee shall and
shall cause its agents to hold in confidence all such information except to the
extent disclosure may be required by law and except to the extent that the
Trustee, in its sole judgment, may determine that such disclosure is consistent
with its obligations hereunder;
(g) 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, provided, however, that the Trustee shall remain liable for the
execution and performance of any powers and duties by the Trustee directly or by
or through agents or attorneys appointed and supervised by the Trustee
hereunder;
(h) the 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;
(i) prior to the time that one of its Responsible Officers obtains actual
knowledge of a Master Servicer Default or a failure by the Master Servicer
thereunder which with notice and the passage of time will become a Master
Servicer Default, the Trustee shall not be responsible for taking action with
respect thereto;
(j) the Trustee shall not be responsible for supervising, monitoring or
reviewing the Master Servicer's performance of its duties under the Master
Servicing Agreement except to the extent of determining (i) that the periodic
reports, certificates and opinions required to be delivered by the Master
Servicer to it thereunder are delivered in timely fashion and conform to the
requirements of the Master Servicing Agreement and (ii) that the amounts
received by it from the Master Servicer for deposit in the Distribution Account
during any month are as shown in the Master Servicer's report for such month;
and
(k) the provisions of this Section, other than clauses (e), (i) and (j),
and of Sections 6.01(b) and (c) shall apply to the Trustee as it may be
successor Master Servicer under the Master Servicing Agreement.
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes, except the certificates of
authentication on the Notes, shall be taken as the statements of the Issuer, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations with respect to the Trust Estate or as to the validity or
sufficiency of this Indenture or of the Notes. The Trustee shall not be
accountable for the use or application by the Issuer of the Notes or the
proceeds thereof or any money paid to the Issuer or upon Issuer Order pursuant
to the provisions hereof.
The Trustee shall at no time have any responsibility or liability for or
with respect to the legality, validity and enforceability of any Pledged
Mortgage, any Mortgage, any item of Additional Collateral and Insurance Policy,
or any other item of collateral under this Indenture or the perfection and
priority of any item of the Trust Estate or the maintenance of any such
perfection and priority or for or with respect to the sufficiency of the Trust
Estate or its ability to generate the payment to be distributed to Noteholders
under this Indenture, including, without limitation: the existence, condition
and ownership of any Mortgaged Property; the existence and enforceability of any
hazard insurance thereon; the validity of the assignment of any Pledged Mortgage
to the Trustee or of any intervening assignment; the completeness of any Pledged
Mortgage; the performance or enforcement of any Pledged Mortgage, the compliance
by the Issuer or the Master Servicer with any warranty or representation made
under this Indenture, the Administrator Agreement, the Master Servicing
Agreement or any other agreement or in any related document or the accuracy of
any such warranty or representation; any investment of monies by or at the
direction of the Issuer or the Master Servicer or any loss resulting therefrom;
the acts or omissions of any of the Issuer, the Master Servicer, or any
Mortgagor; any action of the Master Servicer taken in the name of the Trustee;
the failure of the Master Servicer to act or perform any duties required of it
as agent of the Trustee hereunder; or any action by the Trustee taken in good
faith at the instruction of the Issuer, the Master Servicer [or the Insurer].
The Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or otherwise to perfect
or maintain the perfection of any security interest or lien granted to it
hereunder.
SECTION 6.05. MAY HOLD NOTES.
The Trustee, any Agent, or any other agent of the Issuer, in its individual
or any other capacity, may become the owner or pledgee of Notes and, subject to
Sections 6.08 and 6.13, may otherwise deal with the Issuer or any Affiliate of
the Issuer with the same rights it would have if it were not the Trustee, Agent
or such other agent.
SECTION 6.06. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by this Indenture or by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Issuer and except to the extent of
income or other gain on investments which are obligations of the Trustee, in its
commercial capacity, and income or other gain actually received by the Trustee
on investments, which are obligations of others.
SECTION 6.07. COMPENSATION AND REIMBURSEMENT.
The Issuer agrees to indemnify the Trustee and each of its directors,
officers, employee and agents for, and to hold them harmless against, any loss,
liability or expense incurred without negligence or bad faith on their part,
arising out of, or in connection with, the acceptance or administration of this
trust, including the costs and expenses of defending themselves against any
claim in connection with the exercise or performance of any of their powers or
duties hereunder[, provided, however that unless an Insurer Default exists, the
Trustee shall notify the Insurer of such legal action (provided that the failure
to notify the Insurer shall not waive the rights of the Trustee to
indemnification) and such indemnification by the Trustee out of the Note Account
shall be preconditioned on the Trustee's duty (i) to allow the Insurer to
control the defense or settlement of any such action and (ii) to allow the
Insurer to direct the Trustee with respect thereto; provided, further, that (a)
if the Insurer does not assume control of the defense of any such action within
a reasonable period of time after the filing of such action, the Trustee shall
have the right to act on its own in defending the action until such time as the
Insurer assumes control of the defense, (b) the Trustee along with the Insurer
shall have the right to consent to any counsel hired to defend the Trustee
(which consent of the Trustee shall not be unreasonably withheld) and (c) the
Trustee along with the Insurer shall have the right to consent to any settlement
if the amount of such settlement is less than full indemnification or the
Trustee would not be fully released from liability with respect to such action
as a result of such settlement. Any amounts payable to the Trustee and its
directors, officers, employees or agents, in respect of indemnification provided
by this paragraph, or pursuant to any other right of reimbursement from the Note
Account that the Trustee and its agents, may have hereunder in its capacity as
such, including but not limited to the following paragraph of this Section 6.07,
may be withdrawn by the Master Servicer or the Trustee from the Note Account and
paid to the Trustee, or its agents, at any time subject to a maximum amount of
$ in any calendar year pursuant to Section 3(c)(iii)(D) of the
Administration Agreement. Any such amounts due to the Trustee, or its agents, in
excess of $100,000 in such calendar year shall be reimbursable to the Trustee
pursuant to Section 3(c)(vii)(G) of the Administration Agreement].
As security for the performance of the obligations of the Issuer under this
Section, the Trustee shall have a lien ranking junior to the lien of the Notes
with respect to which any claim of the Trustee under this Section arose upon all
property and funds held or collected as part of the Trust Estate by the Trustee
in its capacity as such payable pursuant to Section 3(c)(vii)(G) of the
Administration Agreement. The Trustee shall not institute any Proceeding seeking
the enforcement of such lien against the Trust Estate unless such Proceeding is
in connection with a Proceeding in accordance with Article V for enforcement of
the lien of this Indenture after the occurrence of an Event of Default (other
than an Event of Default arising solely from the Issuer's failure to pay amounts
due the Trustee under this Section 6.07) and a resulting declaration of
acceleration of Stated Maturity of the Notes which has not been rescinded and
annulled.
SECTION 6.08. ELIGIBILITY; DISQUALIFICATION.
Irrespective of whether this Indenture is qualified under the TIA, this
Indenture shall always have a Trustee who satisfies the requirements of TIA
Sections 310(a)(1) and 310(a)(5). The Trustee shall always have a combined
capital and surplus as stated in Section 6.09. The Trustee shall be subject to
TIA Section 310(b).
SECTION 6.09. TRUSTEE'S CAPITAL AND SURPLUS.
The Trustee shall at all times have a combined capital and surplus of at
least $50,000,000 or shall be a member of a bank holding company system, the
aggregate combined capital and surplus of which is at least $50,000,000;
provided, however, that the Trustee's separate capital and surplus shall at all
times be at least the amount required by TIA Section 310(a)(2) if this Indenture
is qualified under the TIA. If the Trustee publishes annual reports of condition
of the type described in TIA Section 310(a)(2), its combined capital and surplus
for purposes of this Section 6.09 shall be as set forth in the latest such
report.
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Issuer [and the Insurer]. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee 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.
(c) The Trustee may be removed at any time by (1) [the Insurer or (2) by]
Act of the Holders representing more than 662/3% of the aggregate Principal
Amount of the Notes[, with the prior written consent of the Insurer; provided,
however, the Insurer shall have no such right if an Insurer Default exists and
is continuing, delivered to the Trustee and to the Issuer].
(d) If at any time:
(1) the Trustee shall have a conflicting interest prohibited by
Section 6.08 and shall fail to resign or eliminate such conflicting
interest in accordance with Section 6.08 after written request therefor by
the Issuer[, the Insurer] or by any Noteholder; provided, however, that
this Section 6.10(d)(1) shall not be operative as part of this Indenture
unless and until this Indenture is qualified under the TIA, and until such
qualification this Indenture shall be construed as if this Section
6.10(d)(1) were not contained herein; or
(2) the Trustee shall cease to be eligible under Section 6.09 or 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, in any such case, (i) the Issuer by an Issuer Order may remove the Trustee
or (ii) subject to Section 5.16, [the Insurer or] any Noteholder who has been a
bona fide Holder of a Note for at least six months may, on behalf of itself and
all others similarly situated[, and with the prior written consent of the
Insurer unless an Insurer Default exists and is continuing,] petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee, unless this Indenture is qualified under the TIA and the
Trustee's duty to resign is stayed as provided in Section 310(b) of the TIA.
[(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee for any cause, the
Issuer, by an Issuer Order and with the prior written consent of the Insurer
unless an Insurer Default exists and is continuing, shall promptly appoint a
successor Trustee. If within one year after such resignation, removal or
incapability or the occurrence of such vacancy a successor Trustee shall be
appointed by the Insurer or by Act of the Holders of Notes representing more
than 662/3% of the aggregate Principal Amount of the Notes and with the prior
written consent of the Insurer unless an Insurer Default exists and is
continuing, delivered to the Issuer and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee appointed by
the Issuer. If no successor Trustee shall have been so appointed by the Issuer,
the Insurer or Noteholders and shall have accepted appointment in the manner
hereinafter provided, the Insurer or any Noteholder who has been a bona fide
Holder of a Note for at least six months may, on behalf of itself and all others
similarly situated and with the prior written consent of the Insurer unless an
Insurer Default exists and is continuing, petition any court of competent
jurisdiction for the appointment of a successor Trustee.]
(f) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to [the Insurer and] the
Holders of Notes. Each notice shall include the name of the successor Trustee
and the address of its Corporate Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Issuer[, the Insurer] and the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee. Notwithstanding the
foregoing, on request of the Issuer or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee, and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder subject
nevertheless to its lien, if any, provided for in Section 6.07. Upon request of
any such successor Trustee, the Issuer shall execute and deliver any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS 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 all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder[,
provided such corporation shall be otherwise qualified and eligible under this
Article and be acceptable to the Insurer, unless an Insurer Default has occurred
and is continuing, without the execution or filing of any paper or any further
act on the part of any of the parties hereto]. In case any Notes have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had authenticated such Notes.
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIM AGAINST ISSUER.
If this Indenture is qualified under the TIA, the Trustee shall be subject
to TIA Section 311(a), excluding any creditor relationship listed in TIA Section
311(b), and a Trustee who has resigned or been removed shall be subject to TIA
Section 311(a) to the extent indicated.
SECTION 6.14. CO-TRUSTEES AND SEPARATE TRUSTEES.
[Subject to the rights of the Insurer under Article XII hereof,] at any
time or times, for the purpose of meeting the legal requirements of the TIA or
of any jurisdiction in which any of the Trust Estate may at the time be located,
the Issuer and the Trustee shall have power to appoint, and, upon the written
request of the Trustee or of the Holders of Notes representing more than 50% of
the aggregate Principal Amount of the Notes with respect to which a co-trustee
or separate trustee is being appointed, the Issuer shall for such purpose join
with the Trustee in the execution, delivery and performance of all instruments
and agreements necessary or proper to appoint, one or more Persons approved by
the Trustee either to act as co-trustee, jointly with the Trustee, of all or any
part of the Trust Estate, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such Person or Persons in the capacity aforesaid,
any property, title, right or power deemed necessary or desirable, subject to
the other provisions of this Section. If the Issuer does not join in such
appointment within 15 days after the receipt by it of a request to do so, or in
case an Event of Default has occurred and is continuing, the Trustee alone shall
have power to make such appointment.
Should any written instrument from the Issuer be required by any co-trustee
or separate trustee so appointed for more fully confirming to such co-trustee or
separate trustee such property, title, right or power, any and all such
instruments shall, on request, be executed, acknowledged and delivered by the
Issuer. Each notice shall include the name and address of any such co-trustee or
successor trustee.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms:
(1) The Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised solely
by the Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed
by the Trustee or by the Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee
or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Trustee
shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Issuer evidenced by an Issuer Order, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section, and, in case of an Event of Default has
occurred and is continuing, the Trustee shall have power to accept the
resignation of, or remove, any such co-trustee or separate trustee without
the concurrence of the Issuer. Upon the written request of the Trustee, the
Issuer shall join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee or
separate trustee which has resigned or has been removed may be appointed in
the manner provided in this Section.
(4) No co-trustee or separate trustee shall be required to satisfy the
eligibility requirements under Sections 6.08 and 6.09. No Trustee,
co-trustee or separate trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder.
(5) Any Act of Noteholders delivered to the Trustee
shall be deemed to have been delivered to each such co-trustee and
separate trustee.
(6) The Issuer and the Trustee may each at any time accept the
resignation of or remove any co-trustee or separate trustee, except that
following an Event of Default, the Trustee acting alone may accept the
resignation of or remove any co-trustee or separate trustee.
SECTION 6.15. AUTHENTICATING AGENTS.
The Trustee may appoint an Authenticating Agent with power to act on its
behalf and subject to its direction in the authentication and delivery of the
Notes and in connection with transfers and exchanges under Sections 2.06 and
2.07, if any, as fully to all intents and purposes as though the Authenticating
Agent had been expressly authorized by those Sections to authenticate and
deliver Notes. For all purposes of this Indenture (other than in connection with
the authentication and delivery of Notes pursuant to Sections 2.05 and 2.12 in
connection with their initial issuance and for purposes of Section 2.08), the
authentication and delivery of Notes by the Authenticating Agent pursuant to
this Section shall be deemed to be the authentication and delivery of Notes "by
the Trustee".
Any Authenticating Agent may also serve as Note Registrar or co-Note
Registrar, as provided in Section 2.07. Any Authenticating Agent appointed by
the Trustee pursuant to the terms of this Section 6.15 or pursuant to the terms
of any supplemental indenture shall deliver to the Trustee as a condition
precedent to the effectiveness of such appointment an instrument accepting the
trusts, duties and responsibilities of Authenticating Agent (and, if applicable,
of Note Registrar or co-Note Registrar) and indemnifying the Trustee for and
holding the Trustee harmless against, any loss, liability or expense (including
reasonable attorneys' fees) incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance, administration of the
trust or exercise of authority by such Authenticating Agent, Note Registrar or
co-Note Registrar.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent, shall be the successor of the Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any further act on the part of the
parties hereto or the Authenticating Agent or such successor corporation.
Any Authenticating Agent may at any time resign by giving written notice of
resignation to the Trustee and the Issuer. The Trustee may at any time terminate
the agency of any Authenticating Agent by giving written notice of termination
to such Authenticating Agent and the Issuer.
Any Authenticating Agent shall be entitled to reasonable compensation for
its services, and the Trustee shall be entitled to be reimbursed for such
payments, subject to Section 6.07. The provisions of Sections 2.10, 6.04 and
6.05 shall be applicable to any Authenticating Agent.
SECTION 6.16. PAYMENT OF CERTAIN INSURANCE PREMIUMS.
Notwithstanding anything to the contrary contained in this Indenture, the
Trustee agrees, for the benefit of the Holders of the Notes [and the Insurer,]
that, should it fail to receive notice from the Master Servicer, or the
applicable insurers, within the time period required pursuant to the Master
Servicing Agreement, to the effect that any premiums due with respect to any
Insurance Policies the premiums for which are required to be paid by the Master
Servicer from amounts on deposit in any related escrow account, or required to
be advanced by the Master Servicer, the Trustee shall proceed with diligence to
make inquiries of the Master Servicer, the Issuer and the applicable insurers as
to whether such premiums have been paid at the times set forth in the Master
Servicing Agreement. In the event such premiums have not been paid and the
coverage provided under the related Insurance Policy may be interrupted or
adversely affected, the Trustee agrees promptly to pay such premiums from
amounts on deposit in the Distribution Account in accordance with its
obligations under the applicable provisions of the Administration Agreement.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS.
(a) The Issuer shall furnish or cause to be furnished to the Trustee (i)
semi-annually, not less than 45 days nor more than 60 days after the Interest
Payment Date occurring closest to six months after the Closing Date and each
Interest Payment Date occurring at six-month intervals thereafter, a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the Holders of Notes and (ii) at such other times, as the Trustee 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 Trustee is the
Note Registrar, no such list shall be required to be furnished to the Trustee.
(b) In addition to furnishing to the Trustee the Noteholder lists, if any,
required under subsection (a), the Issuer shall also furnish all Noteholder
lists, if any, required under Section 3.03 at the times required by Section
3.03.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS.
(a) The 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, if any, furnished to the Trustee as provided
in Section 7.01 and the names and addresses of the Holders of Notes received by
the Trustee in its capacity as Note Registrar. The Trustee may destroy any list
furnished to it as provided in Section 7.01 upon receipt of a new list so
furnished.
(b) If this Indenture is qualified under the TIA, 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) If this Indenture is qualified under the TIA, the Issuer, the Trustee
and the Note Registrar shall have the protection of TIA Section 312(c).
SECTION 7.03. REPORTS BY TRUSTEE.
(a) If this Indenture is qualified under the TIA, then within 30 days after
May 15 of each year (the "reporting date"), commencing with the year after the
issuance of the Notes, (i) in the circumstance required by TIA Section 313(a),
the Trustee shall mail to all Holders [and the Insurer] a brief report dated as
of such reporting date that complies with TIA Section 313(a), (ii) the Trustee
shall also mail to Holders of Notes [and the Insurer] with respect to which it
has made advances any reports with respect to such advances that are required by
TIA Section 313(b)(2) and (iii) the Trustee shall also mail to Holders of Notes
[and the Insurer] any reports required by TIA Section 313(b)(1). For purposes of
the information required to be included in any such reports pursuant to TIA
Sections 313(a)(3), 313(b)(1) (if applicable) or 313(b)(2), the principal amount
of indenture securities outstanding on the date as of which such information is
provided shall be the aggregate Principal Amount of the then Notes covered by
the report. The Trustee shall comply with TIA Section 313(c) with respect to any
reports required by this Section 7.03(a).
(b) If this Indenture is qualified under the TIA, a copy of each report
required under this Section 7.03 shall, at the time of such transmission to
Holders of Notes [and the Insurer] be filed by the Trustee with the Commission
and with each securities exchange upon which the Notes are listed. The Issuer
will notify the Trustee when the Notes are listed on any securities exchange.
SECTION 7.04. REPORTS BY ISSUER.
If this Indenture is qualified under the TIA, the Issuer (a) shall file
with the Trustee, within 15 days after it files them 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 by rules
and regulations prescribe) which the Issuer is required to file with the
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 and (b) shall also comply with the other provisions of TIA Section 314(a).
SECTION 7.05. NOTICE TO THE RATING AGENCIES[, TO THE INSURER AND TO THE SWAP
PROVIDER].
The Issuer shall use its best efforts promptly to provide notice to the
Rating Agencies[, the Insurer and the Swap Provider] of any of the following
events of which it has actual knowledge:
(a) any material change to or amendment of this Indenture;
(b) the occurrence of any Default or Event of Default that has not been
cured;
(c) the resignation or termination of the Trustee;
(d) the substitution of Pledged Mortgages;
(e) the final payment of Noteholders;
[(f) any payment or claim made under the Insurer's Policy,] and
(g) any Event of Default or Termination Event by, or with respect to, the
Swap Provider or any notice received by the Issuer pursuant to the Swap
Agreement that the Swap Provider reasonably believes that it may not be able to
make a payment required to be made under the Swap Agreement.
ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01. COLLECTION OF MONEYS.
Except as otherwise expressly provided herein, the 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 Trustee pursuant to this
Indenture. The Trustee shall hold all such money and property received by it as
part of the Trust Estate and shall apply it as provided in this Indenture.
Except as otherwise expressly provided herein, if any default occurred in the
making of any payment or performance under any agreement or instrument that is
part of the Trust Estate, the 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 hereunder and any
right to proceed thereafter as provided in Article V.
SECTION 8.02. DISTRIBUTION ACCOUNT.
(a) [Reserved.]
(b) [Reserved.]
(c) The Trustee shall establish and maintain, on behalf of the Noteholders
[and the Insurer], the Distribution Account. The Trustee shall, promptly upon
receipt, deposit in the Distribution Account and retain therein the following:
(i) the aggregate amount remitted to the Trustee pursuant to Section
3(c)(iv) of the Administration Agreement; and
(ii) any other amounts deposited hereunder which are required to be
deposited in the Distribution Account.
In the event that the Administrator shall remit any amount not required to
be remitted, it may withdraw such amount from the Distribution Account, any
provision herein to the contrary notwithstanding; provided that the
Administrator shall submit an explanation of such withdrawal to the Issuer. All
funds deposited in the Distribution Account shall be held by the Trustee in
trust for the Noteholders[, the Insurer and the Swap Provider] until disbursed
in accordance with this Indenture or withdrawn in accordance with Section
2.03(b). In no event shall the Trustee incur liability, other than any liability
arising out of its recklessness, bad faith or willful misconduct, for
withdrawals from the Distribution Account at the direction of the Administrator.
(d) Subject to Sections 5.02, 5.08 and 6.16, on each Payment Date and
Redemption Date, the Trustee shall distribute all amounts on deposit in the
Distribution Account to Noteholders in respect of the Notes to the extent of
amounts due and unpaid on the Notes for principal and interest in the amounts
and in accordance with Section 2.03(b).
SECTION 8.03. GENERAL PROVISIONS REGARDING PLEDGED ACCOUNTS.
(a) Each Pledged Account shall relate solely to the Notes, the Investor
Certificate, the Swap Agreement and to the Pledged Mortgages, Permitted
Investments and other property securing the Notes. Funds and other property in
each Pledged Account shall not be commingled with any other moneys or property
of the Issuer or any Affiliate thereof. Notwithstanding the foregoing, the
Trustee may hold any funds or other property received or held by it as part of a
Pledged Account, other than the Distribution Account, in collective accounts
maintained by it in the normal course of its business and containing funds or
property held by it for other Persons (which may include the Issuer or an
Affiliate), provided that such accounts are under the sole control of the
Trustee and the Trustee maintains adequate records indicating the ownership of
all such funds or property and the portions thereof held for credit to each
Pledged Account.
(b) All or a portion of the funds in the Pledged Accounts shall be invested
in Permitted Investments and reinvested by the Trustee subject to the provisions
of Section 3(c)(viii) of the Administration Agreement and, in the case of the
Note Account, upon written direction of _______________________, so long as no
Default or Event of Default shall have occurred and be continuing. The income
and gain (net of any losses) realized from any such investment of funds on
deposit in the Pledged Accounts shall be for the benefit of
_______________________ or the Trustee as provided in Section 3(c)(viii) of the
Administration Agreement and shall be remitted monthly to
_______________________ or the Trustee, as applicable, as provided in the
Administration Agreement. The amount of any realized losses in the Pledged
Accounts incurred in respect of any such investments shall promptly be deposited
by _______________________ or the Trustee, as applicable, in the applicable
Pledged Account.
(c) Subject to Sections 6.01(c) and 8.03(b), the Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Pledged Accounts
resulting from any loss on any Permitted Investment included therein except for
losses attributable to the Trustee's failure to make payments on such Permitted
Investments issued by the Trustee, in its commercial capacity as principal
obligor and not as trustee, in accordance with their terms.
(d) If a Default or Event of Default shall have occurred and be continuing
with respect to the Notes but the Notes shall not have been declared due and
payable pursuant to Section 5.02 or if such Notes shall have been declared due
and payable following an Event of Default, amounts collected or receivable from
the Trust Estate are being applied in accordance with Section 5.05 as if there
had not been such a declaration, then the Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Note Account in one or more
Permitted Investments.
(e) The Trustee shall, at all times while any Notes are
outstanding, maintain in its possession, or in the possession of an agent whose
actions with respect to such items are under the sole control of the Trustee,
all certificates or other instruments, if any, evidencing any investment of
funds in a Pledged Account. The Trustee shall relinquish possession of such
items, or direct its agent to do so, only for purposes of collecting the final
payment receivable on such investment or certificate or, in connection with the
sale of any investment held in a Pledged Account, against delivery of the amount
receivable in connection with any sale.
SECTION 8.04. PURCHASES OF DEFECTIVE PLEDGED MORTGAGES.
(a) If at any time the Issuer[, the Insurer] or the Trustee discovers or is
notified (i) that there has been a breach of any of _______________________'s
representations and warranties with respect to Pledged Mortgages contained in
the Administration Agreement that materially and adversely affects the interests
of the Noteholders[, the Insurer or the Swap Provider] in any Pledged Mortgage,
or (ii) that any of the Mortgage Documents for a Pledged Mortgage has not been
properly executed by the Mortgagor or contains a material defect, then the party
discovering such defect or omission or receiving notice thereof shall promptly
notify the other parties.
(b) If any defect, misrepresentation or omission described in subsection
(a) of this Section 8.04 materially and adversely affects the interests of the
Noteholders[, the Insurer or the Swap Provider,] then _______________________,
on behalf of the Issuer shall, pursuant to the applicable provisions of the
Administration Agreement, either (i) cure any such defect, misrepresentation or
omission, (ii) remove such Pledged Mortgage and substitute in its place a
Replacement Pledged Mortgage or (iii) purchase the affected Pledged Mortgage, in
each case at the times and in the manner set forth in the Administration
Agreement.
(c) Upon any such purchase or substitution, the Issuer shall be entitled to
request a release of the defective Pledged Mortgage from the lien of this
Indenture pursuant to Section 8.08(c) and Section 8.12.
(d) If the Issuer or _______________________ shall either (i) purchase any
Pledged Mortgage it is required to purchase pursuant to the Administration
Agreement and deposit the Purchase Price therefor in the Note Account or (ii)
(a) remove such Pledged Mortgage from the Trust Estate and substitute in its
place a Replacement Pledged Mortgage and (b) deposit in the Note Account any
related Substitution Adjustment Amount, in each case in the manner set forth in
the Administration Agreement, then the Issuer shall be deemed to have complied
with all requirements imposed upon it by this Section 8.04 with respect to such
Pledged Mortgage.
(e) _______________________ shall, pursuant to the Management Agreement, in
its sole discretion, have the right to purchase for its own account from the
Trust Estate any Delinquent Pledged Mortgage at the Purchase Price therefor and
in the same manner as that specified for the purchase of Defective Pledged
Mortgages pursuant to Section 2(c)(iii) of the Administration Agreement;
provided, however, that, prior to any such purchase by _______________________,
_______________________ shall notify [the Insurer] of any such purchase proposed
to be made by _______________________ and [the Insurer] shall have five Business
Days to disapprove any such purchase. Upon purchase of such Pledged Mortgage by
_______________________, the Administrator and the Issuer shall have the right
to treat such Pledged Mortgage (a "Defaulted Pledged Mortgage") as having been
the subject of a Principal Prepayment in Full and request the release thereof
from the lien of this Indenture pursuant to Section 8.12.
(f) With respect to any Converted Mortgage Loan for which the Master
Servicing Agreement requires the Master Servicer to purchase the Converted
Mortgage Loan, neither _______________________ or the Issuer shall have any
obligation to purchase such a Converted Mortgage Loan should the Master Servicer
fail to do so. Any purchase of a Converted Mortgage Loan by the Master Servicer
or any other Person shall be at the price specified in the Master Servicing
Agreement, but in no event less than Purchase Price therefor. Upon any such
purchase of a Converted Mortgage Loan, the Administrator and the Issuer shall
have the right to treat such Pledged Mortgage as having been the subject of a
Principal Prepayment in Full and shall request the release thereof from the lien
of this Indenture pursuant to Sections 8.08(c) and 8.12.
SECTION 8.05. GRANT OF REPLACEMENT PLEDGED MORTGAGE.
The Issuer shall be permitted to substitute any Pledged
Mortgage for any Original Pledged Mortgage initially Granted to the Trustee on
the Closing Date pursuant to this Indenture as set forth in Sections 2(a)(ii)
and 2(c)(iii) of the Administration Agreement.
SECTION 8.06. REPORTS BY TRUSTEE TO NOTEHOLDERS.
On each Payment Date, upon receipt from the Master Servicer, the Trustee
shall deliver a Payment Date Statement to each Holder of Notes.
SECTION 8.07. REPORTS BY TRUSTEE.
In addition to any statements required to be delivered or prepared by the
Trustee pursuant to Section 2.09, 8.02 or 10.01, the Trustee shall deliver to
the Issuer [and the Insurer], within two Business Days after the request of the
Issuer [or the Insurer], a written report setting forth the amount of each
Pledged Account established hereunder and the identity of the investments
included therein. Without limiting the generality of the foregoing, the Trustee
shall, upon the request of the Issuer [or the Insurer], promptly transmit to the
Issuer [and the Insurer] copies of all accountings of, and information with
respect to, collections furnished to it by the Administrator and shall promptly
notify the Issuer [and the Insurer] if on the Payment Date, the related Note
Distribution Amount or any portion thereof has not been received by the Trustee.
SECTION 8.08. TRUST ESTATE; RELEASE AND DELIVERY OF MORTGAGE DOCUMENTS.
(a) The Trustee may, and when required by the provisions of this Indenture
shall, execute instruments in form supplied to it to release property from the
lien of this Indenture, or convey the Trustee's interest in the same, in a
manner and under circumstances which are not inconsistent with the provisions of
this Indenture and the TIA. No party relying upon an instrument executed by the
Trustee as provided in this Article VIII shall be bound to ascertain the
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
(b) In connection with a redemption of the Notes as to which the Trustee
receives a notice from the Issuer pursuant to Section 10.01(b) that the
Redemption Amount will be deposited into the Distribution Account not later than
10:00 a.m., New York City time, on the Redemption Date, the Trustee is hereby
authorized, if so directed by the Issuer in writing not less than five (5)
Business Days prior to the Redemption Date, to release property from the lien of
this Indenture on such Redemption Date against receipt by the Trustee of
immediately available funds in an amount not less than the Redemption Amount.
(c) Upon request by the Master Servicer accompanied by a Request for
Release of Documents in the form of Exhibit Two to the Custodial Agreement to
the effect that a Pledged Mortgage has been the subject of a Prepayment in Full
or has otherwise been paid in full, together with any other items required under
Section 8.12, the Trustee shall promptly request that the Custodian release the
related Mortgage Documents and execute such other documents as the Master
Servicer may request to evidence satisfaction and discharge of such Pledged
Mortgage.
(d) The Trustee shall, at such time as there are no Notes Outstanding,
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 Section 4.02), subject,
however, to Section 4.01 and the rights of the Trustee under Section 6.07.
SECTION 8.09. [RESERVED]
SECTION 8.10. MASTER SERVICER AS AGENT AND BAILEES OF TRUSTEE.
In order to facilitate the servicing of the Pledged Mortgages by the Master
Servicer, the Master Servicer shall deposit in a Master Servicing Account
proceeds of the Pledged Mortgages in accordance with the provisions of the
Master Servicing Agreement and this Indenture, prior to the time they are
deposited into the Note Account. In addition, the Master Servicer will be
required to remit to the Administrator for deposit in the Note Account all funds
held in the related Master Servicing Account that are required to be remitted to
the Administrator in accordance with the terms of the Master Servicing Agreement
and the Administration Agreement. Solely for purposes of perfection under
Section 9-305 of the Uniform Commercial Code or similar provision of law in the
state in which such property is held by the Master Servicer, the Trustee hereby
designates the Master Servicer as its agent and bailee to hold such funds with
respect to the Pledged Mortgages until they are deposited into the Note Account
as well as its agent and bailee in holding any Mortgage Documents or other
documents contained released to it by the Custodian pursuant to the Custodial
Agreement and any other items constituting a part of the Trust Estate which from
time to time come into possession of the Master Servicer. It is intended that,
by the Master Servicer's acceptance of such agency pursuant to the Master
Servicing Agreement, the Trustee, as secured party, will be deemed to have
possession of such Mortgage Documents, such moneys and such other items for
purposes of Section 9-305 of the Uniform Commercial Code or similar provision of
law of the states in which such property is held by such Master Servicer.
SECTION 8.11. OPINION OF COUNSEL.
The Trustee shall be entitled to receive at least five
Business Days' notice of any action to be taken pursuant to Section 8.08(a)
(other than in connection with releases of Pledged Mortgages which were the
subject of a Principal Prepayment in Full) accompanied by copies of any
instruments involved, and the Trustee shall be entitled to request an Opinion of
Counsel, in form and substance reasonably satisfactory to the 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. Counsel rendering any such opinion may rely,
without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Trustee in connection with any
such action.
SECTION 8.12. RELEASE OF PLEDGED MORTGAGES.
(a) The Issuer shall be entitled to request a release from the lien of this
Indenture of any Pledged Mortgage at any time after such Pledged Mortgage has
been the subject of a Principal Prepayment in Full or in accordance with the
requirements of Section 8.04 or 8.08 if:
(i) the Master Servicer has complied with all requirements imposed on
it by Section 8.04 or 8.08 in connection with such Pledged Mortgage (or is
deemed to have complied with such requirements by reason of the provisions
of Section 8.04(e));
(ii) at the time such release is requested, no Default or Event of
Default has occurred and is continuing; provided, however, that if a
Pledged Mortgage has been the subject of a Principal Prepayment in Full,
then the Trustee shall release such Pledged Mortgage from the lien of this
Indenture upon compliance with all other conditions of this subsection (a),
notwithstanding the existence of a Default or Event of Default;
(iii) the Master Servicer, the Issuer or _______________________
delivers to the Trustee an Officers' Certificate (A) identifying the
Pledged Mortgage to be released, (B) requesting the release thereof, (C)
setting forth the amount deposited in the Note Account with respect
thereto, if any, and (D) certifying that the conditions set forth in
clauses (i) and (ii) above have been satisfied; and
(iv) the Issuer delivers to the Trustee a certificate of fair value if
required by Section 314(d)(1) or Section 314(d)(3) of the TIA.
(b) Upon satisfaction of the conditions specified in subsection (a) of this
Section 8.12, the Trustee shall release from the lien of this Indenture and
deliver to or upon the order of the Issuer the Pledged Mortgage to be released
(including all related Mortgage Documents) described in the Request for Release.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
Subject to the rights of [the Insurer] under Article XII hereof and without
the consent of the Holders of any Notes, the Issuer and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) 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 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;
(2) to add to the conditions, limitations and restrictions on the
authorized amount, terms and purposes of the issuance, authentication and
delivery of any Notes, as herein set forth, additional conditions,
limitations and restrictions thereafter to be observed;
(3) to evidence the succession 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;
(4) to add to the covenants of the Issuer, for the benefit of the
Holders of all Notes or to surrender any right or power herein conferred
upon the Issuer;
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, which shall not be inconsistent
with the provisions of this Indenture, provided that such action shall not
adversely affect the interests of the Holders of the Notes [and the
Insurer, unless an Insurer Default has occurred and is continuing] (any
such action shall be deemed not to adversely affect the interests of the
Noteholders [and the Insurer] if the Issuer delivers to the Trustee letters
from each Rating Agency to the effect that such action will not result in a
downgrading of the Notes without taking into account the [Insurer's
Policy]);
(6) 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; or
(7) to modify, eliminate or add to any provision of the Indenture as
shall be necessary in order to procure another note insurance policy [in
the event of an Insurer Default].
The 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, but the Trustee shall not be
obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise except to the extent required by law.
The Trustee may in its discretion determine whether or not the rights of
the Holder of Notes would be adversely 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. In
making such determination, a supplemental indenture shall be conclusively deemed
by the Trustee not to adversely affect the Notes if (i) the Trustee receives a
letter or other writing from each Rating Agency rating the Notes to the effect
that execution of the supplemental indenture will not result in any change in
the current rating assigned by that Rating Agency to the Notes [without taking
into account the Insurer's Policy (or in the case of clause (7) above]; that
will not result in the Notes not being assigned by each agency the highest
credit rating of each agency) and (ii) the supplemental indenture effects no
change in principal priority schedules, interest rates, Redemption Prices,
substitution of Mortgage Collateral, Payment Dates, Record Dates, terms or
redemption, the application of surplus to the payment of the Notes or other
payment terms. The Trustee shall not be liable for any such determination made
in good faith.
Prior to joining in the execution of any such supplemental indenture, the
Trustee may in its discretion obtain an Opinion of Counsel to the effect that
such transaction will not result in a "substantial modification" of the Notes
under Treasury Regulation Section 1.1001-3, or adversely affect the status of
the Notes as indebtedness for federal income tax purposes.
[The Trustee shall provide the Insurer, if any, with a copy of any
supplemental indenture executed pursuant to this Section, by first class mail
mailed to the Insurer within five Business Days after the execution of such
supplemental indenture. Notwithstanding the foregoing, no supplemental indenture
may be entered into without the prior written consent of the Insurer (except (i)
in the case of clause (7) above or (ii) if an Insurer Default has occurred and
is continuing).]
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
Subject to the rights of [the Insurer] under Article XII hereof and with
the consent of the Holders of Notes representing not less than two-thirds of the
aggregate Principal Amount of the Notes by Act of said Holders delivered to the
Issuer and the Trustee [and the Insurer], the Issuer and the Trustee may 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
Outstanding Note affected thereby:
(1) change the Stated Maturity of the final installment of the
principal of, or any installment of interest on, any Note or reduce the
principal amount thereof, the Note Interest Rate thereon or the Redemption
Price with respect thereto, change the earliest date on which any Note may
be redeemed at the option of the Issuer, change any place of payment where,
or the coin or currency in which, any Note or any interest thereon is
payable, or impair the right to institute suit for the enforcement of the
payment of any installment of interest due on any Note on or after the
Stated Maturity thereof or for the enforcement of the payment of the entire
remaining unpaid principal amount of any Note on or after the Stated
Maturity of the final installment of the principal thereof (or, in the case
of redemption, on or after the applicable Redemption Date);
(2) reduce the percentage of the aggregate Principal Amount 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 provisions of this Indenture or Defaults
hereunder and their consequences provided for in this Indenture;
(3) modify any of the provisions of this Section, Section 5.14 or
Section 5.18(b) except to increase any percentage specified therein or to
provide that certain other provisions of this Indenture cannot be modified
or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(4) modify or alter the provisions of the proviso to the definition of
the term "Outstanding";
(5) 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 (except for Permitted Encumbrances) or terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Holder
of any Note of the security afforded by the lien of this Indenture; or
(6) modify any of the provisions of this Indenture in such manner as
to materially and adversely affect rights of the Holders of the Notes to
the benefits of any provisions for the mandatory redemption of Notes
contained herein.
The Trustee may in its discretion determine whether or not the rights of
the Holder of any Notes would be materially and adversely affected by any
supplemental indenture and any such determination shall be conclusive upon the
Holders of all Notes authenticated and delivered hereunder[, provided, however,
that unless an Insurer Default has occurred and is continuing, written consent
of the Insurer shall be required unless such action shall not, as evidenced by
an Opinion of Counsel delivered to the Trustee and the Insurer adversely affect
in any material respect the interests of the Insurer]. The 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 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 Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to the
Holders of the Notes to which such supplemental indenture relates a notice
setting forth in general terms the substance of such supplemental indenture. The
Trustee shall mail to [the Insurer] a copy of any supplemental indenture
executed pursuant to this Section, by first class mail, mailed to [the Insurer]
within five Business Days after the execution of such supplemental indenture.
Any failure of the 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, consenting to or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee [and the Insurer,
unless an Insurer default has occurred and is continuing,] shall be entitled to
receive, and (subject to Section 6.01) 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 Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Executed copies of any supplemental indenture permitted by this Article shall be
provided by the Trustee to the Rating Agencies.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes to which such supplemental indenture relates which have theretofore
been or thereafter are authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the TIA as then in effect so long as this
Indenture shall then be qualified under the TIA.
SECTION 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and if required by the Trustee shall,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Issuer shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Issuer, to any
such supplemental indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for Notes.
SECTION 9.07. AMENDMENTS TO DEPOSIT TRUST AGREEMENT OR ADMINISTRATION
AGREEMENT.
Subject to the rights of [the Insurer] under Article XII hereof, the
Trustee shall, upon Issuer Request, consent to any proposed amendment to the
Deposit Trust Agreement or Administration Agreement, or an amendment to or
waiver of any provision of any other document relating to the Deposit Trust
Agreement or Administration Agreement, such consent to be given without the
necessity of obtaining the consent of the Holders of any Notes upon receipt by
the Trustee of:
(i) an Opinion of Counsel to the effect that such amendment or waiver
will not materially and adversely affect the interests of the Holders of
the Notes and that all conditions precedent to such consent specified in
this Section 9.07 have been satisfied; provided, however, that no such
Opinion of Counsel shall be required if the Person requesting the amendment
obtains a letter from each Rating Agency stating that the amendment would
not result in the downgrading or withdrawal of the respective ratings then
assigned to the Notes without taking into account the [Insurer's Policy];
it being understood and agreed that any such letter in and of itself will
not represent a determination as to the materiality of any such amendment
and will represent a determination only as to the credit issues affecting
any such rating;
(ii) an Officers' Certificate, to which such proposed amendment or
waiver shall be attached, stating that such attached copy is the true copy
of the proposed amendment or waiver and that all conditions precedent to
such consent specified in this Section 9.07 have been satisfied;
(iii) written confirmation from the Rating Agencies that the
implementation of the proposed amendment or waiver will not adversely
affect their rating of the Notes; and
(iv) any other document required pursuant to Section 11.01;
provided, however, amendments to the definitions of Specified
Overcollateralization Amount, Base Specified Overcollateralization Amount and
Target Percentage (each of which is contained in the Administration Agreement),
may be made solely upon (i) the written consent of the Issuer and[, if no
Insurer Default shall have occurred and be continuing, the Insurer] and with the
advise of tax counsel to the Issuer, or (ii) the written consent of the Issuer
and the Trustee and with the advice of tax counsel to the Issuer [and without
the consent of the Insurer if an Insurer Default shall have occurred and be
continuing].
Notwithstanding the foregoing, the Trustee may decline to consent to a
proposed waiver or amendment that adversely affects its own rights, duties or
immunities under this Indenture or otherwise.
Nothing in this Section 9.07 shall be construed to require that any Person
obtain the consent of the Trustee to any amendment or waiver or any provision of
any document where the making of such amendment or the giving of such waiver
without obtaining the consent of the Trustee is not prohibited by this Indenture
or by the terms of the document that is the subject of the proposed amendment or
waiver.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. REDEMPTION.
(a) The Notes shall not be subject to special redemption.
(b) The Notes shall be subject to redemption by the Issuer, in whole but
not in part, at the option of the Issuer, on any Payment Date on or after the
earlier of (i) ten years after the Closing Date and (ii) the Payment Date after
which the Pool Principal Balance with respect to such Payment Date, is ____% or
less than the Initial Pool Principal Balance, on the terms and conditions
specified in this subsection (b) at the Redemption Price [plus all amounts due
to the Insurer pursuant to the Insurance Agreement]. If the Issuer elects to so
redeem the Notes, it shall, no later than 30 days prior to the Payment Date
selected for such redemption, deliver notice of such election to the Trustee
[and the Insurer] and either (a) deposit in the Distribution Account the
Redemption Price therefor [plus all amounts due to the Insurer pursuant to the
Insurance Agreement] and any amounts then due and owing to the Swap Provider
(collectively, the "Redemption Amount") or (b) state in such notice that the
Redemption Amount will be deposited in the Distribution Account not later than
10:00 a.m., New York City time, on the applicable Redemption Date.
(c) [Reserved]
(d) In effecting any redemption pursuant to subsection (b), concurrent with
the notice provided for therein, the Issuer shall deliver an Issuer Order
directing the Trustee to effect such redemption, any certification and opinion
required pursuant to Section 11.01 and a form of redemption notice. All Notes so
redeemed shall be due and payable on such Redemption Date upon the giving of the
notice thereof required by Section 10.02.
(e) If the Issuer or any Affiliate of the Issuer elects to retain the Notes
following any redemption pursuant to subsection (b) of this Section 10.01, the
Issuer shall, as a condition precedent to such redemption without retirement,
consult with tax counsel to determine that such redemption without retirement
will not adversely affect [the Insurer]. Prior to a resale of the Notes
following any such redemption without retirement, the Issuer shall obtain an
opinion of tax counsel confirming the status of the Notes as indebtedness for
federal income tax purposes.
SECTION 10.02. FORM OF REDEMPTION NOTICE.
Notice of redemption shall be given by the Trustee in the name of and at
the expense of the Issuer by first class mail, postage prepaid, mailed not less
than thirty days prior to the applicable Redemption Date (but in no event prior
to the date on which the Redemption Amount with respect to the Notes to be
redeemed pursuant to Section 10.01 has been deposited in the Distribution
Account or the date on which the notice of such deposit referred to in Section
10.01 has been received by the Trustee) to [the Insurer] and each Holder of
Notes to be redeemed, such Holders being determined as of the Record Date with
respect to the Payment Date on which such redemption is to occur.
All notices of redemption shall state:
(1) the Redemption Date; and
(2) the fact of such payment in full and 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). Failure to give notice of redemption, or any defect therein, to any
Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.
SECTION 10.03. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as provided in Section 10.02, the
Notes or portions thereof so to be redeemed shall, on the applicable Redemption
Date, become due and payable at the Redemption Price and (unless the Issuer
shall default in the payment of the Redemption Price or elect not to retire the
Notes so redeemed, as provided in Section 10.04) no interest shall accrue on
such Redemption Price for any period after the last day preceding the day on
which such Redemption Date occurs.
SECTION 10.04. RETENTION OF NOTES BY ISSUER.
In the event that the Issuer effects a redemption of the Notes in
accordance with the provisions of Section 10.01(b), it may elect to cause the
Notes to remain Outstanding and not release the lien of the Indenture with
respect to the Trust Estate securing such Notes or terminate such Notes. If the
Issuer so elects, the Notes shall not merge with the security therefor, but
shall remain validly Outstanding, subject to the following paragraph.
The Trustee, if so directed by the Issuer in writing not less
than (5) Business Days prior to the Redemption Date, shall authenticate and
prepare for delivery on the Redemption Date new Notes evidencing Book Entry
Notes or Definitive Notes (as directed by the Issuer) on the order of the Issuer
against receipt by the Trustee of immediately available funds in an amount not
less than the Redemption Amount.
Notwithstanding the foregoing, no redemption of any Note shall be permitted
without retiring it and no sale of previously redeemed Notes may be made by the
Issuer unless the Issuer shall have delivered to the Trustee [and the Insurer,
provided an Insurer Default has not occurred and is continuing], an Opinion of
Counsel that such redemption without retirement or sale, as the case may be,
does not violate any provision of the TIA or other applicable law.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Issuer to the Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Trustee [and the Insurer] an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, 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 relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate, opinion or letter with respect to compliance with a
condition or covenant provided for in this Indenture (including one furnished
pursuant to specific requirements of this Indenture relating to a particular
application or request) shall include:
(1) a statement that each individual signing such certificate, opinion
or letter has 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, opinion or letter are based;
(3) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
such individual 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
individual, such condition or covenant has been complied with.
SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO 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 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 other certificate or opinion is based
are erroneous. Any such Issuer certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an Authorized Officer or Officers of the Owner Trustee or a
certificate of the officers of the Depositor or the manager of the Issuer,
stating that the information with respect to such factual matters is in the
possession of the Owner Trustee, or the Depositor or the manager of the Issuer,
unless such officer or 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. Any Opinion of Counsel may be based on the written
opinion of other counsel, in which event such Opinion of Counsel shall be
accompanied by a copy of such other counsel's opinion and shall include a
statement to the effect that such counsel believes that such counsel and the
Trustee may reasonably rely upon the opinion of such other counsel.
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.
Wherever in this Indenture, in connection with any application or
certificate or report to the 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 Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Section
6.01(b)(2).
Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Issuer, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Issuer's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default as provided in Section 6.01(d).
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 any evidence by one or more instruments of substantially
similar tenor signed by such Noteholders in person or by an 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 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 Trustee and the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgements of deeds, certifying that the individual signing such
instrument or writing acknowledged to him or her the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his or her authority.
(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 of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not any notation of such
action is made upon such Notes.
SECTION 11.04. NOTICES, ETC. TO TRUSTEE AND ISSUER.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Noteholders or other documents provided or permitted
by this Indenture to be made upon, given or furnished to, or filed with:
(1) the 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 and received by the Trustee at its Corporate Trust Office with a
copy to:
____________________________, ____________________________,
_____________________, ____________________________, Attention:
____________________________ (____________________________);
(2) the Issuer by the Trustee or by any Noteholder shall be sufficient
for every purpose hereunder (except as provided in Sections 5.01(3) and
(4)) if in writing and mailed, first-class, postage prepaid, to the Issuer
addressed to it
_____________________________, ___________________________,
_____________________, ____________________________, Attention:
____________________________, or at any other address previously furnished
in writing to the Trustee by the Issuer;
(3) any Rating Agency by the Trustee or the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with and received by such Rating Agency at the address specified
therefor in the definition corresponding to the name of such Rating Agency;
[(4) [the Insurer by the Trustee,] the Issuer or any Noteholder shall
be sufficient for every purpose hereunder if in writing and mailed,
first-class, postage prepaid to [the Insurer] at
____________________________, _________________________, _________________,
____________________________, Attention: ____________________________
(________________________/____________________________ Notes, Class A-1 and
Class A-2; or
(5) the Swap Provider by the Trustee or the Issuer shall be sufficient
for every purpose hereunder if in writing and mailed, first-class, postage
prepaid to the Swap Provider at ___________________________,
____________________________, _____________________,
____________________________, Attention: Swap Group (___________________).]
SECTION 11.05. NOTICES AND REPORTS TO NOTEHOLDERS; WAIVER OF NOTICES.
Where this Indenture provides for notice to Noteholders of any event or the
mailing of any report to Noteholders, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class, postage prepaid, to each Noteholder affected by such event or to
whom such report is required to be mailed, at the address of such Noteholder 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 or the mailing
of such report. In any case where a notice or report to Noteholders is mailed in
the manner provided above, neither the failure to mail such notice or report,
nor any defect in any notice or report so mailed, to any particular Noteholder
shall affect the sufficiency of such notice or report with respect to other
Noteholders, and any notice or report which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided.
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.
Waiver of notice by any Noteholder shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such 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 Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to Noteholders of any event, such
notice shall also be sent to S&P, so long as S&P is a Rating Agency and to
Moody's so long as Moody's is a Rating Agency.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for any meeting of
Noteholders. Any Agent may make reasonable rules and set reasonable requirements
for its functions.
SECTION 11.07. CONFLICT WITH TRUST INDENTURE ACT.
If this Indenture is qualified under the TIA and any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in this Indenture by any of the provisions of the TIA, such
required provision shall control.
SECTION 11.08. 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 11.09. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Issuer shall bind its
successors and assigns, whether so expressed or not.
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.
Except as provided in Section 12.01(i) hereof, nothing in this Indenture or
in the Notes, expressed or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, any separate trustee or
co-trustee appointed under Section 6.14 and the Noteholders, 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 of any Payment Date, Redemption Date or any
other date on which principal of, or interest on, any Note is proposed to be
paid 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 nominal date of any such Payment Date, Redemption Date or other date
for the payment of principal of, or interest on, any Note, as the case may be,
and no interest shall accrue for the period from and after any such nominal
date, provided such payment is made in full on such next succeeding Business
Day.
SECTION 11.13. GOVERNING LAW.
This Indenture and each Note shall be construed in accordance with and
governed by the substantive laws of the State of New York applicable to
agreements made and to be performed in the State of New York and the
obligations, rights and remedies of the parties hereto and the Noteholders shall
be determined in accordance with such laws.
SECTION 11.14. COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, and all such counterparts
shall together constitute but one and the same instrument.
SECTION 11.15. RECORDING OF INDENTURE.
This Indenture is subject to recording in any appropriate public recording
office, such recording to be effected by the Issuer and at its expense in
compliance with any Opinion of Counsel delivered pursuant to Section 2.12(c) or
Section 3.06.
SECTION 11.16. ISSUER OBLIGATION.
No recourse may be taken, directly or indirectly, against (i) the Bank,
(ii) any incorporator, subscriber to the capital stock, stockholder, officer or
director of the Bank or of any predecessor or successor of the Bank, (iii) any
holder of a beneficial interest in the Issuer (solely in its capacity as such),
(iv) any incorporator, subscriber to the capital stock, stockholder, partner,
beneficiary, agent, officer, director, employee, or successor or assign of a
holder of a beneficial interest in the Issuer, (v) the Depositor or any
Affiliate thereof (other than the Issuer) or (vi) any incorporator, subscriber
to the capital stock, stockholder, officer, director or employee of the Trustee
or any predecessor or successor of the Trustee with respect to the Issuer's
obligation with respect to the Notes or the obligation of the Issuer or the
Trustee under this Indenture or any certificate or other writing delivered in
connection herewith or therewith.
SECTION 11.17. INSPECTION.
The Issuer agrees that, on reasonable prior notice, it will permit any
representative of the Trustee [or the Insurer], during the Issuer's normal
business hours, to examine all 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 Accountants selected by the Trustee [or the
Insurer], as the case may be, and to discuss its affairs, finances and accounts
with its officers, employees and Independent Accountants (and by this provision
the Issuer hereby authorizes its Accountants to discuss with such
representatives such affairs, finances and accounts), all at such reasonable
times and as often as may be reasonably requested. Any reasonable expense
incident to the exercise by the Trustee [or the Insurer] of any rights under
this Section 11.17, but not in excess of $5,000 per year, shall be borne by the
Issuer.
SECTION 11.18. USURY.
The amount of interest payable or paid on any Note under the terms of this
Indenture shall be limited to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the United States
or the State of New York (whichever shall permit the higher rate), which could
lawfully be contracted for, charged or received (the "Highest Lawful Rate"). In
the event any payment of interest on any Note exceeds the Highest Lawful Rate,
the Issuer stipulates that such excess amount will be deemed to have been paid
as a result of an error on the part of both the Trustee, acting on behalf of the
Holder of such Note, and the Issuer, and the Holder receiving such excess
payment shall promptly, upon discovery of such error or upon notice thereof from
the Issuer or the Trustee, refund the amount of such excess or, at the option of
the Trustee, apply the excess to the payment of principal of such Note, if any,
remaining unpaid.
SECTION 11.19. NO PETITION.
The 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 Operative
Agreements.
[ARTICLE XII
THE NOTE INSURER
SECTION 12.01. CERTAIN MATTERS REGARDING THE INSURER AND THE INSURER'S POLICY.
(a) Rights of the Insurer to Exercise Certain Rights of Noteholders. By
accepting its Note, each noteholder agrees that unless an Insurer Default
exists, the Insurer shall have the right to exercise the Voting Rights of the
Noteholders with respect to all matters, including without limitation the
following matters without any further consent of the Noteholders, to the extent
such rights are provided for herein:
(i) the right to direct the Trustee to terminate the rights and
obligations of the Master Servicer under the Master Servicing Agreement in
the event of a Master Servicer Default;
(ii) the right to consent to or direct any waivers of defaults by the
Master Servicer;
(iii) the right to remove the Trustee pursuant to this Indenture;
(iv) the right to institute proceedings against the Master Servicer
and the right to direct Proceedings pursuant to Section 5.14 of this
Indenture;
(v) the right to require the Issuer, the Company or
_____________________ to repurchase or substitute Pledged Mortgage Loans
pursuant to this Indenture;
(vi) the right to accelerate maturity of the Notes or rescind a
declaration of acceleration pursuant to Section 5.02 of this Indenture;
(vii) the right to direct the exercise of all remedies pursuant to
Section 5.04 of this Indenture;
(viii) the right to request that the Trustee take possession of and
retain the Trust Estate pursuant to Section 5.05 of this Indenture or to
rescind such election by the Trustee pursuant to the same section; and
(ix) the right to waive any past Default pursuant to Section 5.15 of
this Indenture.
In addition, unless an Insurer Default exists, the Insurer's consent will
be required prior to, among other things, (i) the appointment of any successor
Trustee or Master Servicer or (ii) any amendment to the Indenture; provided,
however, that the Insurer shall not unreasonably withhold, condition or delay
its consent. Each Noteholder agrees that, unless an Insurer Default exists, the
rights specifically set forth above may be exercised by the Noteholders only
with the prior written consent of the Insurer.
(b) Issuer to Act Solely with Consent of the Insurer. Unless an Insurer
Default exists and is continuing, the Issuer shall not exercise the right to
appoint a co-trustee pursuant to Section 6.14 of this Indenture or successor
trustee pursuant to Section 6.10 of this Indenture without the prior written
consent of the Insurer.
Unless an Insurer Default exists and is continuing, the Issuer and the
Trustee shall not undertake any litigation with respect to the Trust Estate
without the prior consent and at the direction of the Insurer.
(c) Trustee to Act Solely with Consent of the Insurer. Unless an Insurer
Default exists and is continuing, the Trustee shall not exercise the right to:
(i) agree to any amendment of this Indenture, Deposit Trust Agreement
or Administration Agreement pursuant to Article IX of this Indenture;
(ii) undertake any litigation pursuant to the Indenture or incur any
expenses reimbursable pursuant to Section 6.03 of this Indenture;
(iii) exercise any of the remedies set forth in Section 5.04 or 5.06
of this Indenture;
(iv) appoint co-trustees or separate trustees pursuant to Section 6.14
of this Indenture; or
(v) agree to any amendment to, or grant any waiver of rights under,
the Master Servicing Agreements;
without the prior written consent of the Insurer, which shall not be
unreasonably withheld; provided, however, during the existence and continuation
of an Insurer Default the Trustee shall not require the prior written consent of
the Insurer to exercise any of the rights enumerated above.
(d) Trust Estate and Accounts Held for Benefit of the Insurer and the
Noteholders. The Trustee shall hold the Trust Estate (subject to the obligations
of each Custodian) for the benefit of the Noteholders and, unless an Insurer
Default exists and is continuing, the Insurer, and all references in this
Indenture and in the Notes to the benefit of Holders of the Notes shall, unless
an Insurer Default exists and is continuing, be deemed to include the Insurer.
The Trustee shall, unless an Insurer Default exists and is continuing, cooperate
in all reasonable respects with any reasonable request by the Insurer for action
to preserve or enforce the Insurer's rights or interests under this Indenture
and the Notes.
(e) Claims Upon the Insurer's Policy.
(i) The Trustee shall (A) receive as attorney-in-fact of each
Noteholder any Insured Payment from the Insurer or on behalf of the Insurer
and (B) disburse such Insured Payment to such Noteholders in accordance
with Section 2.03(b) hereof for the benefit of the related Noteholders. Any
Insured Payment received by the Trustee shall be held by the Trustee
uninvested. Insured Payments disbursed by the Trustee from proceeds of the
Insurer's Policy shall not be considered payment by the Issuer with respect
to the Notes, nor shall such payments discharge the obligation of the
Issuer with respect to such Notes, and the Insurer shall become the owner
of such unpaid amounts due from the Issuer in respect of such Insured
Payments as the deemed assignee and subrogee of such Noteholders and shall
be entitled to receive the Insurer Reimbursement Amount in respect thereof.
The Trustee hereby agrees on behalf of each Noteholder for the benefit of
the Insurer that it recognizes that to the extent the Insurer makes Insured
Payments for the benefit of the Noteholders, the Insurer will be entitled
to receive the related Insurer Reimbursement Amount in accordance with the
priority of distributions referenced in Section 2.03(b) hereof.
(ii) The Trustee shall promptly notify the Insurer of any proceeding
or the institution of any action, of which an Officer of the Trustee has
actual knowledge, constituting a Preference Claim in respect of any payment
made on the Notes. Each Noteholder that pays any amount pursuant to a
Preference Claim theretofore received by such Noteholder on account of a
Note will be entitled to receive reimbursement for such amounts from the
Insurer in accordance with the terms of the Insurer's Policy. Each
Noteholder, by its purchase of Notes, and the Trustee hereby agree that,
the Insurer (so long as no Insurer Payment Default exists) may at any time
during the continuation of any proceeding relating to a Preference Claim
direct all matters relating to such Preference Claim, including, without
limitation, (i) the direction of any appeal of any order relating to such
Preference Claim and (ii) the posting of any surety, supersedeas or
performance bond pending any such appeal. In addition and without
limitation of the foregoing, the Insurer shall be subrogated to the rights
of the Trustee and each Noteholder in the conduct of any such Preference
Claim, including, without limitation, all rights of any party to any
adversary proceeding action with respect to any court order issued in
connection with any such Preference Claim.
(iii) Each Noteholder, by its purchase of Notes, and the Trustee
hereby agree that, unless an Insurer Default exists and is continuing, the
Insurer shall have the right to direct all matters relating to the Notes in
any proceeding in a bankruptcy of the Issuer, including without limitation
any proceeding relating to a Preference Claim, any appeal of any order
relating to a Preference Claim and the posting of any surety or bond
pending any such appeal.
(f) Trustee to Cooperate. Unless an Insurer Default exists and is
continuing, the Trustee shall cooperate in all respects with any reasonable
request by the Insurer for action to preserve or enforce the Insurer's rights or
interests hereunder without limiting the rights or affecting the interests of
the Noteholders as otherwise set forth herein.
(g) Surrender and Cancellation. The Trustee shall surrender the Insurer's
Policy to the Insurer for cancellation upon the expiration of the term of the
Insurer's Policy as provided in the Insurer's Policy.
(h) Reports to the Insurer. All notices, statements, reports, certificates
or opinions required by this Indenture to be sent to any other party hereto or
to any of the Noteholders shall also be sent to the Insurer. The Issuer and the
Trustee shall make available to the Insurer their books and records for the
purpose of copying and inspection of any information about the Notes or the
Noteholders.
(i) Third-Party Beneficiary. The Insurer shall be a third-party beneficiary
of this Indenture, entitled to enforce the provisions thereof as if a party
thereto.
(j) Costs and Expenses. The Insurer shall not be responsible for any costs
or expenses relating to the Trust Estate or the Pledged Mortgages except for the
payment of amounts pursuant to the Insurer's Policy.
(k) Survival of the Insurer's Right to be Reimbursed.
Notwithstanding Section 4.01 of this Indenture, this Indenture shall not be
discharged or satisfied until satisfaction of the conditions set forth therein
and payment of the Insurer Reimbursement Amount. The Insurer's right to receive
the Insurer Reimbursement Amount shall survive the satisfaction and discharge of
this Indenture.
(l) Opinions of Counsel. While the Insurer's Policy is in effect, each
Opinion of Counsel rendered pursuant to the Indenture, the Administration
Agreement, the Deposit Trust Agreement, the Custodial Agreement, the Master
Servicing Agreement, the Master Mortgage Loan Purchase Agreement or the
Management Agreement also shall be addressed to the Insurer.]
IN WITNESS WHEREOF, each party has caused this Indenture to be executed by
its duly authorized officer or officers as of the day and year first above
written.
____________________________________________
as Issuer
By: _______________________________________,
By: ________________________________________
Name:
Title:
___________________________________________
as Trustee
By: _______________________________________
Authorized Officer
By: _______________________________________
Name:
Title:
STATE OF _________________ )
) ss.:
COUNTY OF _________________ )
On the day of _________________, 19__ before me personally came
_________________, to me known, who being by me duly sworn did depose and say
that she/he resides in _________________, that she/he is the _________________
of _________________, the corporation described in and which executed the above
instrument and that she/he signed her/his name thereto by authority of the Board
of Directors of said corporation.
[NOTARIAL SEAL]
_____________________________________
Notary Public
STATE OF _________________ )
) ss.:
COUNTY OF ________________ )
On the day of , 19__, before me, a notary public in and for said State,
personally appeared _________________, known to me (or proved to me on the basis
of satisfactory evidence) to be a _________________ of _________________, the
corporation that executed the within instrument, and also known to me (or proved
to me on the basis of satisfactory evidence) to be the persons 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.
[NOTARIAL SEAL]
_________________________________________
Notary Public
EXHIBIT I
LETTER AGREEMENT WITH THE DEPOSITORY
EXHIBIT II
FORM OF CLASS A-1 NOTE
PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE
AMOUNT SHOWN ON THE FACE HEREOF. THE PRINCIPAL AMOUNT OF THIS NOTE MAY BE
ASCERTAINED ONLY BY OBTAINING A CONFIRMATION THEREOF FROM THE TRUSTEE UNDER THE
INDENTURE REFERRED TO BELOW.
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 SO 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 REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR 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.
________________________
a ________________________ Statutory Business Trust
________________________ Notes
CLASS A-1
STATED MATURITY: ___________ __, 20__
ISSUE DATE: ___________ _, 199_
Initial Principal
Amount of this Note:
$___________ CUSIP NO. _________
CERTIFICATE NUMBER 1
________________________ (the "Issuer"), a statutory business trust formed
under a deposit trust agreement dated as of ________ __, 199_ and having
________________________, a ________________________, as Owner Trustee, for
value received, hereby promises to pay to _____________________ or registered
assigns, the principal sum of
___________________________________________________________ DOLLARS
($___________) in monthly installments on the twenty-fifth day of each month,
commencing on ________ __, 199_ (each, a "Payment Date"), and ending on or
before ________ __, 20_, (the "Stated Maturity" of such final installment of
principal), and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the Principal Amount (as defined in the Indenture
hereinafter referred to) of this Note on each Payment Date for the related
period, commencing on the immediately preceding Payment Date (or, in the case of
the first Interest Accrual Period, commencing on ________ __, 199_) and ending
on the date immediately preceding such Payment Date, as set forth herein and in
the Indenture and the Administration Agreement referred to below. If any Payment
Date shall not be a "Business Day" (as defined in the Indenture), payment of the
amount due will be made on the next succeeding Business Day.
Installments of principal of this Note are due and payable as described in
the Indenture dated as of ________ __, 199_ (the "Indenture"), among the Issuer
and the Trustee, as such indenture may be amended or supplemented from time to
time as permitted thereby.
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 as set forth in the Indenture. Any
installment of principal or interest which is not paid when and as due shall
bear interest as described herein and in the Indenture.
Unless the certificate of authentication hereon has been
executed by the Trustee 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, ________________________ has caused this
instrument to be duly executed by its duly authorized officer.
Dated:___________________ ____, 199___ __________________________________
By:__________________________________
By: _________________________________
Title: ______________________________
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
_________________________,
as Trustee
By: _____________________________,
Authorized Signatory
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its ____________________________ Notes (herein called the
"Notes"). The Notes are issuable in one or more classes; the Notes of particular
Classes being herein called the Class A-1 and Class A-2 Notes, all issued and to
be issued under the Issuer's Indenture dated as of ________ __, 199_ between the
Issuer and ____________________________ (the "Trustee", which term includes any
successor Trustee under the Indenture), which authorized the Notes, and
reference is hereby made thereto for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Notes of each
particular Class thereof and the terms upon which the Notes of each Class are,
and are to be, authenticated and delivered. The Note is one of the Class A-1
Notes.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture or, if not defined therein, in
the Administration Agreement.
The interest rate for the Class A-1 Notes (the "Class A-1 Interest Rate")
on each Payment Date shall be ____________________________.
As provided in the Indenture, the Notes are issuable in Classes which may
vary as is provided or permitted in the Indenture. Notes of each Class are
equally and ratably secured by the collateral pledged as security therefor to
the extent provided by the Indenture.
For each Payment Date, the aggregate amount of each installment of interest
due and payable on the Class A-1 Notes will be equal to the Class A-1 Interest
Payment Amount and any Class A-1 Noteholders' Interest Carryover for such
Payment Date.
The "Class A-1 Interest Payment Amount" means, as of any Payment Date, the
sum of (i) one month's interest at the Class A-1 Interest Rate on the then
outstanding Principal Amount of the Class A-1 Notes immediately prior to such
Payment Date and (ii) the sum of the amounts, if any, by which the amount
described in clause (i) above on each prior Payment Date exceeded the amount
actually distributed as interest on such Notes on such prior Payment Dates and
was not subsequently distributed, together with, to the extent permitted by
applicable law, interest on the amount described in clause (ii) at the Class A-1
Interest Rate[; provided, that, solely in the case where an Insurer Default
shall have occurred and is continuing, the rate at which the amount in clause
(i) above is calculated shall be the lesser of the Class A-1 Interest Rate and
the Weighted Average Net Mortgage Rate for the related Payment Date (unless such
Payment Date would be the seventh consecutive Payment Date on which at least one
of the Note Interest Rates would be equal to the Weighted Average Net Mortgage
Rate, in which case, this proviso shall be disregarded for such Payment Date
regardless of any continuation of such Insurer Default)].
For any Payment Date on which interest accrues on the Class A-1 Notes based
on the Weighted Average Net Mortgage Rate, Class A-1 Noteholders' Interest
Carryover will accrue and be payable as provided in the Administration Agreement
and the Indenture.
For each Payment Date, the aggregate amount of each installment of
principal due and payable on the Class A-1 Notes will be equal to the amount
determined pursuant to the Indenture. The entire unpaid principal amount of
this Note shall be due and payable, if not then previously paid, on the Stated
Maturity set forth on the face hereof.
All payments of principal of, and interest on, the Notes shall be made only
from the Trust Estate Granted as security for the Notes[, the Policy referred to
below] and any other assets of the Issuer that have not been Granted as security
for any other notes or obligations of the Issuer, and each Holder hereof, by its
acceptance of this Note, agrees that it will have recourse solely against such
Trust Estate and such other assets of the Issuer and that neither
_________________________ in its individual capacity, any holder of a beneficial
interest in the Issuer nor any of their respective shareholders, partners,
beneficiaries, agents, officers, directors, employees, successors or assigns
shall be personally liable for any amounts payable, or performance due, under
this Note or the Indenture.
Payment of the then remaining unpaid principal amount of this Note on the
Stated Maturity of its final installment of principal or on such earlier date as
the Issuer shall be required to pay the then remaining unpaid principal amount
of this Note or payment of the Redemption Price payable on any date as of which
this Note has been called for redemption in full, shall be made upon
presentation of this Note to the office or agency of the Issuer maintained for
such purpose. Payments of interest on this Note due and payable on each Payment
Date or on any Redemption Date, to the extent this Note is not being paid in
full, together with any installment of principal of this Note due and payable on
each Payment Date or the Redemption Date, 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 last day of the month preceding the month in which such
Payment Date occurs (each a "Record Date").
Checks for amounts which include installments of principal due on this Note
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 and checks
returned undelivered will be held for payment to the Person entitled thereto,
subject to the terms of the Indenture, at the office or agency in the United
States of America designated by the Issuer for such purpose pursuant to the
Indenture. 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 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 or Redemption Date which is prior to the Stated Maturity of the
final installment of principal hereof, then the Trustee, on behalf of the
Issuer, will notify the Person who was the registered Holder hereof on the last
day of the month prior to the month in which such Payment Date or Redemption
Date occurs, and the amount then due and payable shall, if sufficient funds
therefor are available, be payable only upon presentation of this Note to the
office or agency of the Issuer maintained for such purpose.
[The failure of the Issuer to pay when and as due any installment of
principal of (regardless of the lapse of any grace period) any Note shall not
constitute an Event of Default under the Indenture unless the aggregate
Principal Amount of the Notes exceeds the Pool Principal Balance with respect to
a Payment Date of the Pledged Mortgages after application of all available
amounts on deposit in the Distribution Account on a Payment Date or unless the
Notes are not paid in full at their Stated Maturity.]
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the Stated Maturity of the final
installment of principal of this Note, the amount payable to the Holder of this
Note will be equal to the Principal Amount of this Note on the date this Note
becomes so due and payable, together with accrued interest. Following the
acceleration of the maturity of the Notes, all amounts collected as proceeds of
the collateral securing the Notes or otherwise shall be applied as described in
the Indenture. Following such acceleration, interest on any overdue installments
of interest on all Notes shall be payable at the rate set forth in the
Indenture.
The Notes are not prepayable or redeemable at the option or direction of
the Issuer except that the Notes are subject to redemption in whole, but not in
part, at the option of the Issuer on any Payment Date after the earlier of (a)
ten years after the initial issuance of the Notes and (b) the Payment Date after
which the Pool Principal Balance with respect to such Payment Date, is ____% or
less of the Original Pool Principal Balance, at a redemption price equal to 101%
of the unpaid Principal Balance for the Class A-1 Notes, plus accrued and unpaid
interest thereon at the Class A-1 Interest Rate.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Note Register of the
Issuer, 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
Trustee duly executed by the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes of the same Class, of authorized
denominations and in the same aggregate initial principal amount, will be issued
to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Trustee, and any agent of the Issuer shall treat the
Person in whose name this Note is registered (i) on any Record Date, for
purposes of making payments, and (ii) on any other date for any other purposes,
as the owner hereof, whether or not this Note be overdue, and neither the
Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits[, subject to the rights of the Insurer and 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 two-thirds of the Principal Amount
of the Notes. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the aggregate Principal Amount of
the Notes on behalf of the Holders of all the Notes[, subject to the rights of
the Insurer,] 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, at the time of the giving thereof, 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 herefor or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this Note.
The Indenture also permits the Trustee[, subject to the rights of the Insurer,]
to amend or waive certain terms and conditions set forth in the Indenture
without the consent of the Holders of the Notes of any Series issued thereunder
and also permits certain amendments without the consent of Noteholders.
[As provided in the Indenture, the Insurer shall have the right to control
the exercise of certain remedies set forth therein and to exercise certain of
the voting rights of the Holders of the Notes and certain other rights may only
be exercised with the consent of the Insurer.]
The Notes are "Book Entry Notes" which will be available to investors only
through the book entry facilities of The Depository Trust Company, and note
certificates for all Classes of Notes will be available only under certain
limited circumstances as described in the Indenture.
AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
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 the extent permitted by applicable law, to pay the
principal of, and interest on, this Note at the times, place and rate, and in
the coin or currency herein prescribed.
EXHIBIT III
FORM OF CLASS A-2 NOTE
PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE
AMOUNT SHOWN ON THE FACE HEREOF. THE PRINCIPAL AMOUNT OF THIS NOTE MAY BE
ASCERTAINED ONLY BY OBTAINING A CONFIRMATION THEREOF FROM THE TRUSTEE UNDER THE
INDENTURE REFERRED TO BELOW.
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 SO 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 REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR 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.
_________________________
a ________________________ Statutory Business Trust
________________________ Notes
CLASS A-2
STATED MATURITY: ___________________ __, 20__
ISSUE DATE: ___________________ _, 199___
Initial Principal
Amount of this Note:
$___________ CUSIP NO. _________
CERTIFICATE NUMBER 1
________________________ (the "Issuer"), a statutory business trust formed
under a deposit trust agreement dated as of ________ __, 199_ and having
________________________, a ________________________, as Owner Trustee, for
value received, hereby promises to pay to ________________________ or registered
assigns, the principal sum of
___________________________________________________ DOLLARS ($___________) in
monthly installments on the twenty-fifth day of each month, commencing on
________ __, 199_ (each, a "Payment Date"), and ending on or before ________ __,
20_, (the "Stated Maturity" of such final installment of principal), and to pay
interest (computed on the basis of a 360-day year of twelve 30-day months) on
the Principal Amount (as defined in the Indenture hereinafter referred to) of
this Note on each Payment Date for the related period, commencing on the
immediately preceding Payment Date (or, in the case of the first Interest
Accrual Period, commencing on ________ __, 199_) and ending on the date
immediately preceding such Payment Date, as set forth herein and in the
Indenture and the Master Servicing Agreement referred to below. If any Payment
Date shall not be a "Business Day" (as defined in the Indenture), payment of the
amount due will be made on the next succeeding Business Day.
Installments of principal of this Note are due and payable as described in
the Indenture dated as of ________ __, 199_, among the Issuer and the Trustee
and ____________________ as such indenture may be amended or supplemented from
time to time as permitted thereby.
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 as set forth in the Indenture. Any
installment of principal or interest which is not paid when and as due shall
bear interest as described herein and in the Indenture.
Unless the certificate of authentication hereon has been executed by the
Trustee 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, ________________________ has caused this instrument to
be duly executed by its duly authorized officer.
Dated: ____________________ _, 199___ __________________________________
By: ______________________________,
By:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
____________________________,
as Trustee
By:_________________________,
Authorized Signatory
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its ____________________________ Notes (herein called the
"Notes"). The Notes are issuable in one or more classes; the Notes of particular
Classes being herein called the Class A-1 and Class A-2 Notes, all issued and to
be issued under the Issuer's Indenture dated as of ________ __, 199_ between the
Issuer and ____________________________ (the "Trustee", which term includes any
successor Trustee under the Indenture, which authorized the Notes, and reference
is hereby made thereto for a statement of the respective rights thereunder of
the Issuer, the Trustee and the Holders of the Notes of each particular Class
thereof and the terms upon which the Notes of each Class are, and are to be,
authenticated and delivered. The Note is one of the Class A-2 Notes.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture or, if not defined therein, in
the Administration Agreement.
The interest rate for the Class A-2 Notes (the "Class A-2 Interest Rate")
on each Payment Date shall be ____________________________.
As provided in the Indenture, the Notes are issuable in Classes which may
vary as is provided or permitted in the Indenture. Notes of each Class are
equally and ratably secured by the collateral pledged as security therefor to
the extent provided by the Indenture.
For each Payment Date, the aggregate amount of each installment of interest
due and payable on the Class A-2 Notes will be equal to the Class A-2 Interest
Payment Amount and any Class A-2 Noteholders' Interest Carryover for such
Payment Date.
The "Class A-2 Interest Payment Amount" means, as of any Payment Date, the
sum of (i) one month's interest at the Class A-2 Interest Rate on the then
outstanding Principal Amount of the Class A-2 Notes immediately prior to such
Payment Date and (ii) the sum of the amounts, if any, by which the amount
described in clause (i) above on each prior Payment Date exceeded the amount
actually distributed as interest on such Notes on such prior Payment Dates and
was not subsequently distributed, together with, to the extent permitted by
applicable law, interest on the amount described in clause (ii) at the Class A-2
Interest Rate[; provided, that, solely in the case where an Insurer Default
shall have occurred and is continuing, the rate at which the amount in clause
(i) above is calculated shall be the lesser of the Class A-2 Interest Rate and
the Weighted Average Net Mortgage Rate for the related Payment Date (unless such
Payment Date would be the seventh consecutive Payment Date on which at least one
of the Note Interest Rates would be equal to the Weighted Average Net Mortgage
Rate, in which case, this proviso shall be disregarded for such Payment Date
regardless of any continuation of such Insurer Default)].
For any Payment Date on which interest accrues on the Class A-2 Notes based
on the Weighted Average Net Mortgage Rate, Class A-2 Noteholders' Interest
Carryover will accrue and be payable as provided in the Administration Agreement
and the Indenture.
For each Payment Date, the aggregate amount of each installment of
principal due and payable on the Class A-2 Notes will be equal to the amount
determined pursuant to the Indenture. The entire unpaid principal amount of
this Note shall be due and payable, if not then previously paid, on the Stated
Maturity set forth on the face hereof.
All payments of principal of, and interest on, the Notes shall be made only
from the Trust Estate Granted as security for the Notes[, the Policy referred to
below] and any other assets of the Issuer that have not been Granted as security
for any other notes or obligations of the Issuer, and each Holder hereof, by its
acceptance of this Note, agrees that it will have recourse solely against such
Trust Estate and such other assets of the Issuer and that neither
___________________________ in its individual capacity, any holder of a
beneficial interest in the Issuer nor any of their respective shareholders,
partners, beneficiaries, agents, officers, directors, employees, successors or
assigns shall be personally liable for any amounts payable, or performance due,
under this Note or the Indenture.
Payment of the then remaining unpaid principal amount of this Note on the
Stated Maturity of its final installment of principal or on such earlier date as
the Issuer shall be required to pay the then remaining unpaid principal amount
of this Note or payment of the Redemption Price payable on any date as of which
this Note has been called for redemption in full, shall be made upon
presentation of this Note to the office or agency of the Issuer maintained for
such purpose. Payments of interest on this Note due and payable on each Payment
Date or on any Redemption Date, to the extent this Note is not being paid in
full, together with any installment of principal of this Note due and payable on
each Payment Date or the Redemption Date, 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 last day of the month preceding the month in which such
Payment Date occurs (each a "Record Date").
Checks for amounts which include installments of principal due on this Note
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 and checks
returned undelivered will be held for payment to the Person entitled thereto,
subject to the terms of the Indenture, at the office or agency in the United
States of America designated by the Issuer for such purpose pursuant to the
Indenture. 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 Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor 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 or Redemption Date which is prior to the Stated Maturity of the
final installment of principal hereof, then the Trustee, on behalf of the
Issuer, will notify the Person who was the registered Holder hereof on the last
day of the month prior to the month in which such Payment Date or Redemption
Date occurs, and the amount then due and payable shall, if sufficient funds
therefor are available, be payable only upon presentation of this Note to the
office or agency of the Issuer maintained for such purpose.
[The failure of the Issuer to pay when and as due any installment of
principal of (regardless of the lapse of any grace period) any Note shall not
constitute an Event of Default under the Indenture unless the aggregate
Principal Amount of the Notes exceeds the Pool Principal Balance with respect to
a Payment Date of the Pledged Mortgages after application of all available
amounts on deposit in the Distribution Account on such Payment Date or unless
the Notes are not paid in full at their Stated Maturity.]
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the Stated Maturity of the final
installment of principal of this Note, the amount payable to the Holder of this
Note will be equal to the Principal Amount of this Note on the date this Note
becomes so due and payable, together with accrued interest. Following the
acceleration of the maturity of the Notes, all amounts collected as proceeds of
the collateral securing the Notes or otherwise shall be applied as described in
the Indenture. Following such acceleration, interest on any overdue installments
of interest on all Notes shall be payable at the rate set forth in the
Indenture.
The Notes are not prepayable or redeemable at the option or direction of
the Issuer except that the Notes are subject to redemption in whole, but not in
part, at the option of the Issuer on any Payment Date after the earlier of (a)
ten years after the initial issuance of the Notes and (b) the Payment Date after
which the Pool Principal Balance with respect to such Payment Date is ____% or
less of the Original Pool Principal Balance, at a redemption price equal to 100%
of the unpaid Principal Amount for the Class A-2 Notes, plus accrued and unpaid
interest thereon at the Class A-2 Interest Rate.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Note Register of the
Issuer, 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
Trustee duly executed by the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes of the same Class, of authorized
denominations and in the same aggregate initial principal amount, will be issued
to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee, and any agent of the Issuer shall treat the Person in whose
name this Note is registered (i) on any Record Date, for purposes of making
payments, and (ii) on any other date for any other purposes, as the owner
hereof, whether or not this Note be overdue, and neither the Issuer, the Trustee
nor any such agent shall be affected by notice to the contrary.
The Indenture permits[, subject to the rights of the Insurer and 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 two-thirds of the Principal Amount
of the Notes. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the aggregate Principal Amount of
the Notes on behalf of the Holders of all the Notes[, subject to the rights of
the Insurer,] 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, at the time of the giving thereof, 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 herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this Note.
The Indenture also permits the Trustee[, subject to the rights of the Insurer,]
to amend or waive certain terms and conditions set forth in the Indenture
without the consent of the Holders of the Notes of any Series issued thereunder
and also permits certain amendments without the consent of Noteholders.
[As provided in the Indenture, the Insurer shall have the right to control
the exercise of certain remedies set forth therein and to exercise certain of
the voting rights of the Holders of the Notes and certain other rights may only
be exercised with the consent of the Insurer.]
The Notes are "Book Entry Notes" which will be available to investors only
through the book entry facilities of The Depository Trust Company, and note
certificates for all Classes of Notes will be available only under certain
limited circumstances as described in the Indenture.
AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
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 the extent permitted by applicable law, to pay the
principal of, and interest on, this Note at the times, place and rate, and in
the coin or currency herein prescribed.
[EXHIBIT IV
FORM OF NOTE INSURANCE POLICY]
