PROSPECTUS SUPPLEMENT DATED JUNE 17, 1999
(TO PROSPECTUS DATED MARCH 23, 1999)
$109,248,500 (Approximate)
Mortgage Loan Asset Backed Certificates,
Series 1999-H2
Merrill Lynch Mortgage Investors, Inc.
Depositor
Merrill Lynch Mortgage Investors, Inc. is offering to sell the following
Certificates:
Class Initial Principal Balance(1) Pass-Through Rate(2)
- ----- ---------------------------- --------------------
Class A Certificates $109,248,500 Variable
(1) Plus or minus 5%.
(2) Subject to a cap on the interest rate.
The Certificates
o Represent ownership interests in a trust consisting primarily of
conventional, adjustable-rate, one- to four-family, first lien
mortgage loans having original terms to maturity of 30 years.
o Will accrue interest at a rate equal to one-month LIBOR plus a fixed
margin, subject to certain limitations described in this prospectus
supplement.
Credit Enhancement
o The portion of interest paid by the borrowers in excess of what is
necessary to pay interest earned on the Certificates;
o Overcollateralization consisting of the excess of the balance of the
mortgage loans over the balance of the Certificates; and
o An irrevocable and unconditional certificate insurance policy issued
by MBIA Insurance Corporation.
[MBIA Logo]
________________
You will receive payments on the Class A Certificates ONLY from
payments received on the mortgage loans and the certificate insurance policy.
Except as described herein, no entity has any obligation to make payments on the
Class A Certificates from its own funds. Neither the Class A Certificates nor
the mortgage loans are insured or guaranteed by any governmental agency or
instrumentality.
________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________
BEFORE BUYING THESE CERTIFICATES, YOU SHOULD CONSIDER THE FACTORS SET FORTH
UNDER "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS SUPPLEMENT.
The Underwriter will buy the Class A Certificates from the Depositor at
a price equal to 100% of their face value. The Depositor incurred expenses of
approximately $350,000 in connection with issuing the Class A Certificates. The
Underwriter will sell the Class A Certificates from time to time in negotiated
transactions, at varying prices to be determined at the time of sale. Delivery
of the Class A Certificates will be made in book-entry form through the
facilities of The Depository Trust Company, Cedelbank and the Euroclear System
on or about June 23, 1999.
________________________________
MERRILL LYNCH & CO.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
We tell you about the certificates in two separate documents that
progressively provide more detail; (a) the accompanying prospectus, which
provides general information, some of which may not apply to a particular series
of securities, including your series; and (b) this prospectus supplement, which
describes the specific terms of your series of securities.
If the terms of your series of certificates vary between this prospectus
supplement and the prospectus, you should rely on the information in this
prospectus supplement.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the Table of
Contents included in the accompanying prospectus provide the pages on which
these captions can be found.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Principal
Definitions" beginning on page S-59 in this prospectus supplement and under the
caption "Index of Principal Definitions" beginning on page 103 in the
accompanying prospectus.
_____________________
TABLE OF CONTENTS
SUMMARY ...................................................................S-3
RISK FACTORS................................................................S-9
THE MORTGAGE POOL..........................................................S-11
THE MORTGAGE LOAN ORIGINATOR...............................................S-25
YIELD ON THE CLASS A CERTIFICATES..........................................S-31
DESCRIPTION OF THE CERTIFICATES ...........................................S-37
POOLING AND SERVICING AGREEMENT............................................S-46
THE CERTIFICATE INSURER AND THE POLICY.....................................S-50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................S-55
USE OF PROCEEDS............................................................S-56
UNDERWRITING...............................................................S-56
LEGAL MATTERS..............................................................S-57
EXPERTS ..................................................................S-57
RATINGS ..................................................................S-57
LEGAL INVESTMENT...........................................................S-58
ERISA CONSIDERATIONS.......................................................S-58
INDEX OF PRINCIPAL DEFINITIONS.............................................S-60
S-2
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that may
be important to you. You should read the entire prospectus and prospectus
supplement carefully before you decide to purchase a Certificate. If capitalized
terms are not defined in this summary, they are defined in the prospectus
supplement or in the prospectus.
Title of Series.................... Merrill Lynch Mortgage Investors, Inc.
Mortgage Loan Asset Backed Certificates,
Series 1999-H2.
The Certificates................... The Class A and Class R Certificates
represent the entire ownership interest in
a trust fund which is composed primarily of
first lien, adjustable rate mortgage loans.
The trust will issue the Certificates
pursuant to a Pooling and Servicing
Agreement dated as of June 1, 1999, among
Merrill Lynch Mortgage Investors, Inc., as
depositor, Litton Loan Servicing LP, as
master servicer and The Chase Manhattan
Bank, as trustee. Only the Class A
Certificates are offered pursuant to this
prospectus supplement. The Class A
Certificates are being offered as
book-entry securities clearing through DTC
(in the United States) or Cedelbank or
Euroclear (in Europe). See "Description of
the Certificates -- Book-Entry Registration
and Definitive Certificates" in the
prospectus supplement.
Depositor of Mortgage Loans........ Merrill Lynch Mortgage Investors, Inc. will
deposit the mortgage loans in the trust
fund. The depositor is 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.
Mortgage Loan Originator........... PacificAmerica Money Center, Inc., a
Delaware corporation, originated or
acquired the mortgage loans generally in
accordance with the underwriting standards
described in "The Mortgage Pool--
Underwriting Standards" in this prospectus
supplement.
Master Servicer.................... Litton Loan Servicing LP, will service the
mortgage loans for an annual servicing fee,
payable monthly, of 0.50% of the total
principal balance of the mortgage loans.
The master servicer must advance delinquent
payments of principal and interest on the
mortgage loans, subject to certain
limitations. See "Description of the
Certificates-- Monthly Advances" in this
prospectus supplement and "Description of
the Certificates-- Advances in Respect of
Delinquencies" in the prospectus.
Trustee............................ The Chase Manhattan Bank, a New York
banking corporation.
Custodian.......................... Bankers Trust Company.
Certificate Insurer................ MBIA Insurance Corporation, a New York
stock insurance company. See "The
Certificate Insurer" in this prospectus
supplement.
Cut-off Date....................... The close of business on June 1, 1999.
Closing Date....................... On or about June 23, 1999.
Final Scheduled Distribution Date.. The final scheduled distribution date for
the Class A Certificates is January 25,
2029. The Final Scheduled Distribution Date
has been calculated as described under
"Yield Considerations--Final Scheduled
Distribution Date" in this Prospectus
Supplement.
S-3
<PAGE>
The Mortgage Pool................. The following table shows the characteristics
of the mortgage loans (percentages are based
on the aggregate principal balance as of June
1, 1999)
<TABLE>
<CAPTION>
<S> <C>
Loan Count 1,018
Aggregate Current Principal Balances $111,649,009.11
Average Current Principal Balances $109,674.86
Range of Current Principal Balances $18,092.23 - $407,742.61
Average Original Principal Balances $112,219.73
Range of Original Principal Balances $18,600.00 -$ 416,750.00
Prepay Penalties 71.45%
</TABLE>
<TABLE>
<CAPTION>
Weighted Average
Mortgage Interest Weighted Average
% of Pool Rate Gross-Margin
Product ----------- ------------------ ------------------
<S> <C> <C> <C>
2/28/LIBOR 72.04% 10.344% 7.285%
3/27/LIBOR 18.04% 9.838% 7.301%
Six Month LIBOR 5.78% 11.416% 6.918%
5/25/LIBOR 3.34% 9.295% 6.538%
2/08/LIBOR 0.06% 9.679% 5.972%
2/13/LIBOR 0.50% 10.419% 6.911%
2/18/LIBOR 0.21% 10.010% 6.413%
3/17/LIBOR 0.04% 7.990% 4.400%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Current Weighted Average Mortgage Interest Rate 10.278%
Range of Current Mortgage Interest Rates 7.240% - 16.840%
Weighted Average Gross Margin 7.236%
Range of Gross Margin 3.900% - 11.500%
Weighted Average Maximum Lifetime Mortgage
Interest Rate 16.701%
Range of Maximum Lifetime Mortgage Interest Rates 13.550% - 23.34%
Weighted Average Lifetime Minimum Mortgage
Interest Rate 10.201%
Range of Minimum Lifetime Mortgage Interest Rates 7.050% - 16.840%
Weighted Average Loan-to-Value Ratio 81.10%
Weighted Average Original Amortization Term 359 months
Weighted Average Remaining Amortization Term 349 months
Weighted Average Initial Periodic Cap 2.912%
Range of Initial Periodic Cap 1.500% - 3.000%
Weighted Average Periodic Cap 1.500%
Max Zip Code Concentration (%) 0.71%
Max Zip Code Concentration (zip) 93065
Geographic Concentration (above 5% of pool) CA 26.74%
NJ 12.83%
NY 8.79%
FL 5.32%
MI 5.02%
</TABLE>
S-4
<PAGE>
The interest rate and monthly payment on
each mortgage loan adjusts every six
months, except that the first adjustment
date for approximately 72.80% of the
Mortgage Loans will be two years from the
origination date of such loan, the first
adjustment date for approximately 18.08% of
the mortgage loans will be three years from
the origination of such loan and the first
adjustment date for approximately 3.34% of
the Mortgage Loans will be five years from
the origination of such loan. The new
interest rate is the sum of six-month LIBOR
and a fixed margin. None of the Mortgage
Loans will negatively amortize or convert
from an adjustable rate to a fixed rate.
See "The Mortgage Pool" in this prospectus
supplement for more information about the
mortgage loans.
Distributions...................... General. The distribution date will be the
25th day of each month or, if such day is
not a business day, the next business day,
beginning in July 1999. Distributions will
be made by the trustee primarily from
payments made on the mortgage loans during
the related collection period. The
collection period for a distribution date
will be from the 16th day of each month to
the 15th day of each month. The collection
period for the first distribution date will
be from June 2nd to July 15th.
Interest Distributions. On each
distribution date, you will be entitled to
receive an interest payment equal to
interest earned on your Certificate at the
pass-through rate since the previous
distribution date and any interest which
you earned previously but which you did not
receive. There are certain circumstances
which could reduce the amount of interest
paid to you. See "Description of the
Certificates -- Interest Distributions" in
this prospectus supplement.
Pass-Through Rate. The pass-through rate on
your Certificate on each distribution date
will be a per annum rate equal to the lower
of the following two options:
o the sum of one-month LIBOR, which is a
floating interest rate, plus 0.35% per
annum.
o the percentage obtained by dividing (A)
the total amount of interest which should
have been received on the mortgage loans
at the weighted average mortgage rate
minus the sum of the trustee and master
servicer fee rate, the insurer premium
rate, the PMI premium rate and 0.50% by
(B) the product of (1) the total
principal balance of all the
certificates, and (2) the number of days
since the last distribution date divided
by 360.
If on any distribution date, the
pass-through rate is limited by the second
option listed above, you will be entitled
to receive the excess of (i) the interest
distributable had the pass-through rate
been based on the first option listed above
(but not more than the weighted average of
maximum mortgage rates on the mortgage
loans minus the sum of the trustee fee, the
master servicer fee, the primary mortgage
insurance premium and the
S-5
<PAGE>
certificate insurer premium) over (ii) the
interest actually distributed on such
distribution date based on the second
option listed above. This additional amount
of interest is called the LIBOR shortfall.
The certificate insurance policy does not
insure LIBOR shortfall amounts.
Principal Distributions. On each
distribution date, you will receive a
distribution of principal from the cash
available on such distribution date. The
amount of such principal payment will be
made as described under "Description of the
Certificates -- Principal Distributions" in
this prospectus supplement.
Certificate Insurance Policy. In addition,
if necessary and to the extent further
described in "The Certificate Insurer and
the Policy -- the Policy" in this
prospectus supplement, payments to the
Class A Certificateholders will be made on
each distribution date from draws on the
certificate insurance policy described
below.
Credit Enhancement................. Credit enhancements reduce the harm caused
holders of Certificates by shortfalls in
payments received on the mortgage loans.
They can reduce the effect of shortfalls on
all classes, or they can allocate
shortfalls so they affect some classes
before others. This transaction employs the
following three forms of credit
enhancement. See "Description of the
Certificates - Credit Enhancement" in this
prospectus supplement.
Monthly Excess Interest. On each
distribution date, the amount of interest
due on the mortgage loans will generally be
greater than the amount needed to pay the
interest earned on the certificates and to
pay certain fees for such month. This
excess will be used to cover interest
shortfalls and some of the excess interest
will be used to cover certain losses. Any
remaining excess interest will be used to
make an additional payment of principal in
order to reach or maintain the required
level of overcollateralization on such
distribution date.
Overcollateralization. Although the total
principal balance of the mortgage loans as
of the cut-off date is $111,649,009, the
trust is issuing only $109,248,500 total
principal amount of certificates. The
remaining 2.15% of the total principal
balance of the mortgage loans will absorb
losses on the mortgage loans and protect
the Class A Certificateholders against
shortfalls in required payments on the
certificates. On the closing date, the
certificate insurer will specify the
required overcollateralization amount
(which will vary throughout the life of the
Class A Certificates). If the level of
overcollateralization falls below what is
required, the excess interest described
above will be paid to the Class A
Certificates as principal. This will have
the effect of reducing the principal
balance of the Class A Certificates faster
than the principal balance of the mortgage
loans so that the required level of
overcollateralization is reached or
maintained. Any loss amounts not covered by
overcollateralization will be covered by
the certificate insurance policy described
below.
Certificate Insurance Policy. On the
closing date, the credit enhancer will
issue the certificate insurance policy in
favor of the trustee. Subject to certain
limitations described in this prospectus
supplement, the policy will
S-6
<PAGE>
unconditionally and irrevocably guarantee
the monthly payment of interest due on the
Class A Certificates and the ultimate
payment of the certificate principal
balance on Class A Certificates. The
certificate insurance policy will not
guaranty receipt of the LIBOR Shortfall.
See "The Certificate Insurer and the Policy
-- the Policy" in this prospectus
supplement.
Optional Termination............... The owner of the Class R Certificate has
the option (or if the owner of the Class R
Certificate does not exercise such option,
the Master Servicer has the option and if
the Master Servicer does not exercise such
option, the Certificate Insurer shall be
entitled to do so) to purchase all the
mortgage loans and any properties that the
trustee acquired in satisfaction of any of
the mortgage loans. This option can be
exercised (i) by the holder of the Class R
Certificates only if the Class R
Certificate is not held by the Depositor or
any affiliate, and (ii) only when the total
principal balance of the mortgage loans,
including the mortgage loans related to the
properties which the trustee has acquired,
is 10% or less than the total principal
balance of the mortgage loans on the
cut-off date. If the option is exercised,
your certificate will be retired early and
you will be entitled to the following
amounts:
o the outstanding principal balance of your
certificate;
o one month's interest on such balance at
the pass-through rate for such date;
o any interest previously earned but not
paid; and
o any LIBOR Shortfall from all previous
distribution dates.
You will receive the last two items only to
the extent that there is enough cash to
make such payments. See "Pooling and
Servicing Agreement -- Termination" in this
prospectus supplement.
Certain Federal Income Tax
Consequences....................... The trustee will elect to treat the assets
of the trust fund as comprising one real
estate mortgage investment conduit, or
REMIC, for federal income tax purposes.
For federal income tax reporting purposes,
the Class A Certificates will not be
treated as having been issued with original
issue discount.
For further information regarding the
federal income tax consequences of
investing in the Class A Certificates, see
"Certain Federal Income Tax Consequences"
in this prospectus supplement and in the
prospectus.
Ratings............................ The trust will not issue the Class A
Certificates unless they receive a rating
of AAA from Standard & Poor's Rating
Services, a division of The McGraw-Hill
Companies, Inc. and Aaa from Moody's
Investors Service, Inc.
The rating on the Class A Certificates
indicates the likelihood that you will
receive all funds to which you are entitled
by the terms of the certificate. The rating
agency that issues the rating reviews the
nature and credit quality of the mortgage
loans and the soundness of the structure
which the Depositor has created to allow
the payments on the mortgage loans to flow
S-7
<PAGE>
to the holders of the Class A Certificates.
A rating is not a recommendation to buy,
sell or hold securities and the rating
agency can revise or withdraw it at any
time. A rating does not address the
frequency of prepayments on the mortgage
loans or the effect of such prepayments on
your yield. The ratings also do not address
the likelihood of the payment of any LIBOR
Shortfall. See "Yield on the Certificates"
and "Ratings" in this prospectus supplement
and "Yield Considerations" in the
prospectus.
Legal Investment................... You should consult with your lawyer to see
if you are permitted to buy the Class A
Certificates since the legal investment
rules vary depending on what kind of entity
you are and who regulates you. The Class A
Certificates will be "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 so
long as they are rated in one of the two
highest rating categories by at least one
rating agency. See "Legal Investment" in
this prospectus supplement and in the
prospectus.
ERISA Considerations............... If you are a fiduciary of any employee
benefit plan or other retirement
arrangement subject to the Employee
Retirement Income Security Act of 1974, as
amended, or Section 4975 of the Internal
Revenue Code you should review carefully
with your lawyer whether you can buy or
hold a Class A Certificate. See "ERISA
Considerations" in this prospectus
supplement and in the prospectus.
S-8
<PAGE>
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, you should carefully consider the following risk
factors before deciding to purchase a Class A Certificate.
UNDERWRITING STANDARDS AND LIMITED OPERATING HISTORY OF THE MORTGAGE LOAN
ORIGINATOR
The mortgage loan originator originated and acquired mortgage loans that
are ineligible for purchase by Fannie Mae or Freddie Mac due to characteristics
that do not meet Fannie Mae or Freddie Mac underwriting guidelines. These loans
include a loan made to a borrower whose creditworthiness and repayment ability
do not satisfy such Fannie Mae and Freddie Mac underwriting guidelines or a
borrower who may have a record of major derogatory credit items such as default
on a prior mortgage loan, credit write-offs, outstanding judgments or prior
bankruptcies. As a result of this approach to underwriting, the mortgage loans
in the trust fund may experience higher rates of delinquencies, defaults and
foreclosures than mortgage loans underwritten in a more traditional manner. In
addition, changes in the values of the mortgaged properties may have a greater
effect on the delinquency, foreclosure, bankruptcy and loss experience of the
mortgage loans than on mortgage loans originated to conform to Fannie Mae or
Freddie Mac guidelines.
The mortgage loan originator does not have sufficient historical
delinquency, bankruptcy, foreclosure or default experience that may be referred
to for purposes of estimating the future delinquency and loss experience of
mortgage loans similar to the mortgage loans included in the trust fund.
GEOGRAPHIC CONCENTRATION
Mortgaged properties located in the State of California secure
approximately 26.74% of the mortgage loans by aggregate principal balance as of
the cut-off date. This geographic concentration might magnify the effect on the
mortgage pool of adverse economic conditions in California and might increase
the rate of delinquencies, defaults and losses on the mortgage loans more than
would be the case if the mortgaged properties were more geographically
diversified. See "The Mortgage Pool--Underwriting Standards; Representations" in
this prospectus supplement.
DELINQUENCIES
Approximately 1.99% of the mortgage loans by aggregate principal balance as
of June 16, 1999 were thirty days or more but less than sixty days delinquent in
their monthly payments as of such date. Approximately 0.50% of the mortgage
loans by aggregate principal balance as of June 16, 1999 were sixty days but
less than eighty-nine days delinquent in their monthly payments as of such date.
THE MORTGAGE LOANS ARE HIGHLY REGULATED, AND THOSE REGULATIONS MAY IMPEDE
COLLECTIONS
Many state and federal laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the mortgage loans. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws, policies
and principles may limit the ability of the trust to collect all or part of the
principal of or interest on the mortgage loans, thus limiting the amount
available for distribution to you.
THERE IS A RISK THAT INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE INSUFFICIENT
TO PAY INTEREST ON YOUR CERTIFICATES.
When a mortgage loan is prepaid in full, the borrower is charged interest
only up to the date on which payment is made, rather than for an entire month.
This may result in a shortfall in interest collections available for payment on
the next distribution date. The master servicer is required to cover a portion
of the shortfall in interest collections that are attributable to prepayments in
full, but only up to its servicing fee for the related accrual period. The
certificate insurance policy does not cover such prepayment interest shortfalls.
S-9
<PAGE>
In addition, certain shortfalls in interest collections arising from the
application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended,
will not be covered by the master servicer. Neither the master servicer nor the
certificate insurer will pay for any interest shortfalls created by the
Soldiers' and Sailors' Civil Relief Act of 1940.
LIMITED MARKET IN WHICH TO RESELL CLASS A CERTIFICATES
The underwriter may assist in resales of the Class A Certificates, but it
is under no obligation to do so. A secondary market for the Class A Certificates
may not develop. If a secondary market does develop, it might not continue or it
might not be sufficiently liquid to allow you to resell your Certificate.
LIMITED ABILITY TO RESELL BOOK-ENTRY REGISTRATION CERTIFICATES
Since the Class A Certificates are being offered as book-entry securities,
you may have difficulty selling, pledging or otherwise taking action with your
Certificate since some potential buyers may not want to buy a security for which
they cannot receive a physical Certificate and some potential buyers may not
participate in the DTC, Cedelbank or Euroclear systems. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
prospectus supplement.
RECEIPT OF DISTRIBUTIONS MAY BE DELAYED BECAUSE OF BOOK-ENTRY REGISTRATION
You may experience some delay in your receipt of distributions of interest
and principal on Certificates since such distributions will be forwarded by the
Trustee to DTC and DTC will credit such distributions to the accounts of its
participants which will thereafter credit them to your account. See "Description
of the Certificates--Book-Entry Registration and Definitive Certificates" in the
prospectus supplement.
LIMITED OBLIGATIONS
The Class A Certificates will not represent an interest in or obligation of
any entity except for certain obligations of the depositor, an affiliate of the
depositor, and of the mortgage loan originator pursuant to certain limited
representations and warranties made with respect to the mortgage loans, the
master servicer with respect to its servicing obligations under the pooling and
servicing agreement (including the limited obligation to make certain monthly
advances) and of the certificate insurer with respect to the certificate
insurance policy. Neither the Class A Certificates nor the underlying mortgage
loans will be guaranteed or insured by any governmental agency or
instrumentality. Proceeds of the assets included in the trust fund (including
the mortgage loans), together with the certificate insurance policy, will be the
sole source of payments on the Class A Certificates. You will not be able to
receive money from any entity in the event that such proceeds are not enough to
make all payments provided for under the Class A Certificates.
YIELD CONSIDERATIONS
Because the interest rates on the mortgage loans are based on six-month
LIBOR index while the pass-through rate on the Class A Certificates are based in
part on one-month LIBOR and because the first adjustment date of many of the
loans is more than six months after origination, the pass-through rate may be
limited by the available fund pass-through rate. Although you are entitled to
receive, to the extent funds are available, any related LIBOR Shortfall, such
funds might not be available or, if available, might not be sufficient. LIBOR
Shortfalls are not covered by the certificate insurance policy. In addition, the
ratings of the Class A Certificates do not address the likelihood of the payment
of any LIBOR Shortfall.
Also, because the interest rates on the mortgage loans are based on the
addition of a fixed number of basis points to the six-month LIBOR index, the
resulting rates could be higher than market interest rates. If they are higher,
prepayments may increase as borrowers refinance their mortgage loans at the
lower rate.
S-10
<PAGE>
THERE ARE RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
The master servicer is faced with the task of completing its goals for
compliance in connection with the year 2000 issue. The year 2000 issue is the
result of prior computer programs being written using two digits to define the
applicable year. Any computer program that has time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Any such
occurrence could result in miscalculations or in a major computer system
failure. Although the master servicer believes its computer systems are year
2000 compliant, it is presently engaged in various procedures to determine if
the computer systems and software of its suppliers, customers, brokers and
agents will be year 2000 compliant. In the event that the master servicer, any
subservicer or any of their suppliers, customers, brokers or agents do not
successfully and timely achieve year 2000 compliance, the master servicer's
performance of its obligations could be adversely affected.
The year 2000 is also an issue for almost all entities which use computers.
To the extent any entity related to this transaction (including the master
servicer, any depository and the trustee) is unable to achieve year 2000
compliance, there could be delays in processing payments on the mortgage loans
and consequently delays in distributions to you.
POTENTIAL INADEQUACY OF CREDIT ENHANCEMENT
The monthly excess interest and overcollateralization features described
above are intended to protect you against shortfalls in required payments of
interest and principal to you. If excess interest on the mortgage loans is
insufficient to protect against such shortfalls, the certificate insurer,
subject to certain limitations described in this prospectus supplement, will be
required to make a payment to you. If the certificate insurer is unable to meet
its obligations under the certificate insurance policy, you could experience a
loss on your investment. For financial and other information concerning the
certificate insurer, see "The Certificate Insurer and the Policy" in this
prospectus supplement.
LIMITED NATURE OF RATINGS
It is a condition to the issuance of the Class A Certificates that they be
rated "AAA" by Standard & Poor's and Aaa by Moody's. A security rating is not a
recommendation to buy, sell or hold securities and is subject to revision or
withdrawal at any time. There can be no assurance to you that the rating
assigned to the Class A Certificates will not be lowered or withdrawn by a
rating agency at any time after the initial issuance. If any rating is revised
or withdrawn, the liquidity of your certificates may be adversely affected. In
addition, the rating of the Class A Certificates will depend primarily on the
creditworthiness of the certificate insurer. Any reduction in the rating
assigned to the financial strength of the certificate insurer below the rating
initially given to the Class A Certificates would likely result in a reduction
in the rating of the Class A Certificates. See "Ratings" in this prospectus
supplement.
THE MORTGAGE POOL
GENERAL
The Class A Certificates will represent a senior undivided interest in a
trust fund (the "Trust Fund") consisting of among other things a pool of
mortgage loans (the "Mortgage Pool"). The Mortgage Pool will consist of
conventional, one- to four-family, adjustable-rate mortgage loans (the "Mortgage
Loans") secured by first liens on residential real properties (the "Mortgaged
Properties"). The Mortgage Loans have original terms to maturity of 30 years.
The Mortgage Loans will consist of approximately 1,018 Mortgage Loans having an
aggregate principal balance as of the close of business on June 1, 1999 (the
"Cut-off Date") of approximately $111,649,009 (the "Cut-off Date Pool Principal
Balance"), after application of payments of principal due on or before the
Cut-off Date (whether or not received).
The Mortgage Loans are secured by mortgages or deeds of trust or other
similar security instruments creating first liens on one- to four-family
residential properties consisting of detached or semi-detached one- to
four-family dwelling units, townhouses, individual condominium units and
individual units in planned unit developments and manufactured housing. The
Mortgage Loans to be included in the Mortgage Pool will be acquired by Merrill
Lynch
S-11
<PAGE>
Mortgage Investors, Inc. (the "Depositor") from Merrill Lynch Mortgage Capital
Inc. ("MLMC"), an affiliate of the Depositor on the Closing Date pursuant to an
Assignment and Assumption Agreement (the "Assignment and Assumption Agreement").
MLMC acquired the Mortgage Loans from the Mortgage Loan Originator. All of the
Mortgage Loans were originated or acquired by the Mortgage Loan Originator
generally in accordance with the underwriting criteria described herein. See
"The Mortgage Loan Originator" herein. All of the Mortgage Loans will be
serviced by Litton Loan Servicing LP (the "Master Servicer") as further
described herein.
All of the Mortgage Loans have scheduled monthly payments due on the first
day of the month (with respect to each Mortgage Loan, a "Due Date").
Approximately 71.45% of the Mortgage Loans provide for payment by the
mortgagor of a prepayment charge in limited circumstances on certain
prepayments. Generally, each such Mortgage Loan provides for payment of a
prepayment charge on certain partial prepayments and all prepayments in full
made within one year, two years, three years or four years from the date of
origination of such Mortgage Loan. The amount of the prepayment charge is as
provided in the related Mortgage Note and generally equals six months' interest
on the amount of the prepayment in excess of 20% of the original principal
amount of the loan. Any prepayment charges received on the Mortgage Loans will
be deposited into the Collection Account.
With respect to 30.42% of the Mortgage Loans, the related mortgagors have
obtained secondary financing from Pacific on the related Mortgaged Property,
which second lien is not included in the Mortgage Pool. The weighted average
Combined Loan-to-Value Ratio of such Mortgage Loans included in the Mortgage
Pool and such second liens at origination is 82.82%. There can be no assurance,
however, that the mortgagors have not obtained or will not obtain secondary
financing from sources other than the Mortgage Loan Originator and its
affiliates. With respect to each Mortgage Loan secured by a second lien on the
related Mortgaged Property, the "Combined Loan-to-Value Ratio" at any given time
generally will be the ratio, expressed as a percentage, the numerator of which
is the sum of (i) the original principal balance of the Mortgage Loan plus (ii)
the original principal balance of any second lien on the related Mortgaged
Property as of such date, and the denominator of which is the lesser of (i) the
appraised value of the related Mortgaged Property as of the date of the
appraisal used by or on behalf of Pacific to underwrite such Mortgage Loan or
(ii) the sale price of the related Mortgaged Property if such a sale occurred at
origination of the Mortgage Loan.
MORTGAGE RATE ADJUSTMENT
Each Mortgage Loan provides for semiannual adjustment to the interest rate
(the "Mortgage Rate") thereon and for corresponding adjustments to the monthly
payment amount due thereon, in each case on each adjustment date applicable
thereto (each such date, an "Adjustment Date"); provided, however, that in the
case of approximately 72.80% of the Mortgage Loans (each a "two year Delayed
First Adjustment Date Mortgage Loan"), the first Adjustment Date for each such
Mortgage Loan will occur after an initial period of two years from the
origination thereof; in the case of approximately 18.08% of the Mortgage Loans
(each a "three year Delayed First Adjustment Date Mortgage Loan"), the first
Adjustment Date for each such Mortgage Loan will occur after an initial period
of three years from the origination thereof; and in the case of approximately
3.34% of the Mortgage Loans (each a "five year Delayed First Adjustment Date
Mortgage Loan"), the first Adjustment Date for each such Mortgage Loan will
occur after an initial period of five years from the origination thereof. On
each Adjustment Date for each Mortgage Loan, the Mortgage Rate thereon will be
adjusted to equal the sum, rounded to the nearest multiple of 0.125%, of the
Index (as described below) and a fixed percentage amount (the "Gross Margin");
provided, however, that the Mortgage Rate on each such Mortgage Loan generally
will not increase or decrease by more than 100 basis points on any related
Adjustment Date other than on the first Adjustment Date (the "Periodic Rate
Cap") and will not exceed a specified maximum Mortgage Rate over the life of
such Mortgage Loan (the "Maximum Mortgage Rate") or be less than a specified
minimum Mortgage Rate over the life of such Mortgage Loan (the "Minimum Mortgage
Rate"). Except with respect to one two year Delayed First Adjustment Date
Mortgage Loan, the two year, three year and five year Delayed First Adjustment
Date Mortgage Loans have a Periodic Rate Cap of 300 basis points for their first
Adjustment Date, while each have subsequent Periodic Rate Caps of 150 basis
points for each Adjustment Date thereafter and except for one two year Delayed
Adjustment Date Mortgage Loan have a Minimum Mortgage Rate equal to the related
initial Mortgage Rate. Effective with the first monthly payment due on each
Adjustable Rate Mortgage Loan after each related Adjustment Date, the monthly
payment
S-12
<PAGE>
amount will be adjusted to an amount that will amortize fully the outstanding
principal balance of the related Mortgage Loan over its remaining term, and pay
interest at the Mortgage Rate as so adjusted. None of the Mortgage Loans permits
the related mortgagor to convert the adjustable Mortgage Rate thereon to a fixed
Mortgage Rate.
STATISTICAL INFORMATION
Set forth below is certain summary statistical information regarding the
Mortgage Loans expected to be included in the Trust Fund as of the Closing Date.
All such information is approximate and is given as of the Cut-off Date. Prior
to the Closing Date, Mortgage Loans may be removed from the Trust Fund and other
Mortgage Loans may be substituted therefor. In addition, Mortgage Loans may be
prepaid at any time. As a result, certain characteristics of the Mortgage Loans
in the Trust Fund may vary from the characteristics set forth below as of the
Cut-off Date.
Principal Balance at Origination
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Range of Origination Date Principal Number of Balance Outstanding as Balance Outstanding as
Balances Loans of the Cut off Date of the Cut off Date
- ----------------------------------- ----------- ------------------------ ------------------------
<S> <C> <C> <C>
0.01 - 25,000.00 18 $ 398,029 0.36%
25,000.01 - 50,000.00 136 5,159,292 4.62
50,000.01 - 75,000.00 202 12,396,903 11.10
75,000.01 - 100,000.00 181 15,341,555 13.74
100,000.01 - 125,000.00 138 15,179,718 13.60
125,000.01 - 150,000.00 114 15,262,348 13.67
150,000.01 - 175,000.00 70 11,040,045 9.89
175,000.01 - 200,000.00 51 9,333,057 8.36
200,000.01 - 225,000.00 31 6,354,936 5.69
225,000.01 - 250,000.00 23 5,366,253 4.81
250,000.01 - 275,000.00 19 4,814,647 4.31
275,000.01 - 300,000.00 16 4,560,833 4.08
300,000.01 - 325,000.00 6 1,865,975 1.67
325,000.01 - 350,000.00 7 2,303,058 2.06
350,000.01 - 400,000.00 5 1,864,619 1.67
400,000.01 - 450,000.00 1 407,743 0.37
----- ------------ -------
Total............ 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
The average principal balance of the Mortgage Loans at origination was
approximately $112,219.73. No Mortgage Loan had a principal balance at
origination greater than $416,750 or less than $18,600.
S-13
<PAGE>
Principal Balance as of the Cut-off Date
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Range of Cut-off Date Principal Number of Balance Outstanding as Balance Outstanding as
Balances Loans of the Cut off Date of the Cut off Date
- ------------------------------- ----------- ------------------------ ------------------------
<S> <C> <C> <C>
0.01 - 25,000.00 20 $ 447,200 0.40%
25,000.01 - 50,000.00 141 5,454,334 4.89
50,000.01 - 75,000.00 213 13,388,226 11.99
75,000.01 - 100,000.00 173 14,995,238 13.43
100,000.01 - 125,000.00 143 16,038,603 14.37
125,000.01 - 150,000.00 113 15,486,848 13.87
150,000.01 - 175,000.00 67 10,873,681 9.74
175,000.01 - 200,000.00 50 9,407,926 8.43
200,000.01 - 225,000.00 26 5,488,658 4.92
225,000.01 - 250,000.00 26 6,211,877 5.56
250,000.01 - 275,000.00 15 3,949,976 3.54
275,000.01 - 300,000.00 12 3,465,048 3.10
300,000.01 - 325,000.00 8 2,509,941 2.25
325,000.01 - 350,000.00 5 1,659,092 1.49
350,000.01 - 400,000.00 5 1,864,619 1.67
400,000.01 - 450,000.00 1 407,743 0.37
----- ------------ ------
Total.............. 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
The average principal balance of the Mortgage Loans as of the Cut-off Date was
approximately $109,674.86. No Mortgage Loan had a principal balance as of the
Cut-off Date greater than $407,743 or less than $18,092.
Mortgage Loan Type
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Loan Type Number of Loans of the Cut off Date of the Cut off Date
- ---------------------- --------------- ----------------------- ------------------------
<S> <C> <C> <C>
2/08 Six Month LIBOR 2 $65,435 0.06%
2/13 Six Month LIBOR 14 553,401 0.50
2/18 Six Month LIBOR 3 234,082 0.21
2/28 Six Month LIBOR 754 80,431,297 72.04
3/17 Six Month LIBOR 1 43,706 0.04
3/27 Six Month LIBOR 166 20,138,803 18.04
5/25 Six Month LIBOR 27 3,728,459 3.34
Six Month LIBOR 51 6,453,826 5.78
---- ------------ ----
Total.............. 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
S-14
<PAGE>
Property Type
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Property Type Number of Loans of the Cut off Date of the Cut off Date
- --------------------- --------------- ----------------------- ------------------------
<S> <C> <C> <C>
2-4 Family 28 $2,638,051 2.36%
Condo 62 5,864,738 5.25
Mobile Home 2 122,679 0.11
PUD 56 6,311,534 5.65
Single Family 850 95,205,611 85.27
Townhome 20 1,506,396 1.35
----- ------------ -----
Total.......... 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
Occupancy Status
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Occupancy Balance Outstanding as Balance Outstanding as
(as indicated by Borrower) Number of Loans of the Cut off Date of the Cut off Date
- -------------------------- --------------- ----------------------- ------------------------
<S> <C> <C> <C>
Investor Property 53 $4,299,907 3.85%
Primary 960 106,954,118 95.79%
Secondary 5 394,985 0.35%
--- ------------ ------
Total.................. 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
The occupancy status of a Mortgaged Property is as represented by the Mortgagor
in its loan application.
S-15
<PAGE>
Mortgage Rate as of the Cut-off Date
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Range of Mortgage Rates Number of Loans of the Cut off Date of the Cut off Date
- ------------------------ --------------- ----------------------- ------------------------
<S> <C> <C> <C>
7.01 - 7.50 4 $ 755,319 0.68%
7.51 - 8.00 23 3,119,188 2.79
8.01 - 8.50 45 7,142,299 6.40
8.51 - 9.00 104 14,447,994 12.94
9.01 - 9.50 106 13,204,579 11.83
9.51 - 10.00 156 16,822,413 15.07
10.01 - 10.50 128 14,162,513 12.68
10.51 - 11.00 132 12,904,472 11.56
11.01 - 11.50 72 6,595,647 5.91
11.51 - 12.00 86 8,849,028 7.93
12.01 - 12.50 52 5,070,824 4.54
12.51 - 13.00 43 3,682,960 3.30
13.01 - 13.50 22 1,689,629 1.51
13.51 - 14.00 12 1,083,059 0.97
14.01 - 14.50 13 770,871 0.69
14.51 - 15.00 7 438,380 0.39
15.01 - 15.50 6 702,183 0.63
15.51 - 16.00 4 122,076 0.11
16.01 - 16.50 1 31,225 0.03
16.51 - 17.00 2 54,351 0.05
----- ----------- ------
Total.............. 1,018 $111,649,009 100.00%
====== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage Loans
was approximately 10.278% per annum and ranged from 7.240% to 16.840%.
S-16
<PAGE>
Original Loan-to-Value Ratios
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Range of Original Loan-to-Value Balance Outstanding as Balance Outstanding as
Ratio Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------- --------------- ----------------------- ------------------------
<S> <C> <C> <C>
0.01 - 20.00 1 $ 58,726 0.05%
20.01 - 25.00 1 48,840 0.04
25.01 - 30.00 1 45,014 0.04
30.01 - 35.00 1 67,517 0.06
35.01 - 40.00 5 167,601 0.15
40.01 - 45.00 4 344,789 0.31
45.01 - 50.00 5 356,290 0.32
50.01 - 55.00 11 1,260,699 1.13
55.01 - 60.00 18 1,590,898 1.42
60.01 - 65.00 69 6,352,871 5.69
65.01 - 70.00 66 5,631,321 5.04
70.01 - 75.00 78 8,750,996 7.84
75.01 - 80.00 250 26,359,656 23.61
80.01 - 85.00 231 28,184,105 25.24
85.01 - 90.00 270 31,371,820 28.10
90.01 - 95.00 5 737,354 0.66
95.01 - 97.00 2 320,513 0.29
----- ------------ ------
Total....................... 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage Loans
was approximately 81.10%. No Mortgage Loan had a Loan-to-Value Ratio at
origination greater than 96.72% or less than 18.18%.
S-17
<PAGE>
Geographic Distribution of the Mortgaged Properties
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
State Number of Loans of the Cut off Date of the Cut off Date
- ------------- --------------- --------------------- ------------------------
AZ 22 $ 1,726,349 1.55%
CA 171 29,857,484 26.74
CO 23 2,684,556 2.40
CT 35 3,147,160 2.82
DC 4 300,707 0.27
DE 5 376,591 0.34
FL 63 5,934,553 5.32
GA 14 1,713,782 1.53
HI 1 82,051 0.07
IA 5 319,918 0.29
ID 9 691,322 0.62
IL 12 1,005,542 0.90
IN 4 157,319 0.14
KS 10 754,571 0.68
KY 4 204,445 0.18
LA 8 627,087 0.56
MA 39 4,410,954 3.95
MD 19 1,555,588 1.39
ME 1 101,394 0.09
MI 56 5,608,522 5.02
MN 11 982,678 0.88
MO 14 746,545 0.67
MS 2 169,625 0.15
MT 1 85,609 0.08
NC 9 1,107,465 0.99
NE 9 702,273 0.63
NH 13 837,421 0.75
NJ 115 14,319,098 12.83
NM 1 92,504 0.08
NV 15 1,626,181 1.46
NY 83 9,809,689 8.79
OH 25 1,688,065 1.51
OK 16 1,134,141 1.02
OR 10 1,215,610 1.09
PA 41 3,124,533 2.80
RI 8 540,765 0.48
SC 1 147,114 0.13
TX 63 4,940,863 4.43
UT 32 3,306,805 2.96
VA 8 657,603 0.59
WA 17 1,695,636 1.52
WI 17 1,246,661 1.12
WV 1 31,008 0.03
WY 1 181,223 0.16
----- ------------ ------
Total.......... 1,018 $111,649,009 100.00%
===== ============ ======
S-18
<PAGE>
Purpose of the Mortgage Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Loan Purpose Number of Loans of the Cut off Date of the Cut off Date
- ----------------------- --------------- ---------------------- ------------------------
<S> <C> <C> <C>
Refinance-Cashout 380 $39,541,833 35.42%
Purchase 500 56,805,215 50.88
Rate and Term Refinance 138 15,301,961 13.71
----- ------------ -----
Total............... 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
Mortgage Loan Program
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Documentation Number of Loans of the Cut off Date of the Cut off Date
- ----------------------- --------------- ---------------------- ------------------------
<S> <C> <C> <C>
Alternate Documentation 56 $6,682,137 5.98%
Full Documentation 699 73,310,652 65.66
Stated Income 263 31,656,220 28.35
----- ------------ -----
Total................ 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
Mortgage Loan Risk Categories
% of Aggregate
Aggregate Principal Principal-Balance
Balance Outstanding as Outstanding as of
Risk Categories Number of Loans of the Cut-off Date the-Cut-off-Date
- ------------------- --------------- ---------------------- -----------------
A 224 $ 28,303,786 25.35%
A- 342 39,398,105 35.29
B 210 23,269,843 20.84
C 154 13,925,922 12.47
C- 21 1,674,415 1.50
D 59 4,763,904 4.27
E 8 313,034 0.28
----- ------------ ------
Total...... 1,018 $111,649,009 100.00%
===== ============ ======
S-19
<PAGE>
Gross Margin
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Range of Gross Margins Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
3.51 - 4.00 1 $ 29,101 0.03%
4.01 - 4.50 6 660,395 0.59
4.51 - 5.00 9 1,480,777 1.33
5.01 - 5.50 31 3,690,094 3.31
5.51 - 6.00 78 8,626,701 7.73
6.01 - 6.50 143 17,783,474 15.93
6.51 - 7.00 162 18,936,782 16.96
7.01 - 7.50 184 22,030,558 19.73
7.51 - 8.00 128 13,130,383 11.76
8.01 - 8.50 97 9,309,184 8.34
8.51 - 9.00 84 8,057,475 7.22
9.01 - 9.50 49 4,441,195 3.98
9.51 - 10.00 26 2,066,404 1.85
10.01 - 10.50 14 1,001,368 0.90
10.51 - 11.00 4 348,887 0.31
11.01 - 11.50 2 56,231 0.05
---------- ---------- ----------
Total........................... 1,018 $111,649,009 100.00%
========== ============ ==========
</TABLE>
The weighted average Gross Margin of the Mortgage Loans as of the Cut-off Date
was approximately 7.236% per annum and ranged from 3.900% to 11.500%.
S-20
<PAGE>
Maximum Mortgage Rates as of the Cut-off Date
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Range of Balance Outstanding as Balance Outstanding as
Maximum Mortgage Rates Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
13.51 - 14.00 6 $ 885,105 0.79%
14.01 - 14.50 25 3,447,047 3.09
14.51 - 15.00 46 7,272,895 6.51
15.01 - 15.50 113 15,610,092 13.98
15.51 - 16.00 109 13,391,421 11.99
16.01 - 16.50 155 16,782,997 15.03
16.51 - 17.00 130 14,623,438 13.10
17.01 - 17.50 134 13,228,143 11.85
17.51 - 18.00 72 6,715,100 6.01
18.01 - 18.50 77 7,598,917 6.81
18.51 - 19.00 45 4,216,860 3.78
19.01 - 19.50 40 3,127,429 2.80
19.51 - 20.00 21 1,547,422 1.39
20.01 - 20.50 12 1,083,059 0.97
20.51 - 21.00 13 770,871 0.69
21.01 - 21.50 7 438,380 0.39
21.51 - 22.00 6 702,183 0.63
22.01 - 22.50 4 122,076 0.11
22.51 - 23.00 1 31,225 0.03
23.01 - 23.50 2 54,351 0.05
---------- ---------- ----------
Total........................... 1,018 $111,649,009 100.00%
========== ============ ==========
</TABLE>
The weighted average Maximum Mortgage Rate of the Mortgage Loans as of the
Cut-off Date was approximately 16.701% per annum and ranged from 13.550% to
23.340%.
S-21
<PAGE>
Next Rate Adjustment Dates
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Month of Next Adjustment Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C>
July 1999 2 $ 127,724 0.11%
August 1999 34 4,376,796 3.92
September 1999 15 1,949,305 1.75
November 1999 1 97,889 0.09
February 2000 1 131,813 0.12
April 2000 1 67,517 0.06
May 2000 2 316,027 0.28
June 2000 4 363,662 0.33
July 2000 146 16,312,558 14.61
August 2000 352 36,111,387 32.34
September 2000 266 27,953,314 25.04
October 2000 1 93,133 0.08
July 2001 38 4,874,459 4.37
August 2001 76 8,740,807 7.83
September 2001 52 6,404,158 5.74
July 2003 8 985,363 0.88
August 2003 14 1,881,082 1.68
September 2003 5 862,014 0.77
---------- ---------- ----------
Total.............................. 1,018 $111,649,009 100.00%
========== ============ ==========
</TABLE>
As of the Cut-off Date, the weighted average next Rate Adjustment Date of the
Mortgage Loans was 17 months.
S-22
<PAGE>
Minimum Mortgage Rates as of the Cut-off Date
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Range of Balance Outstanding as Balance Outstanding as
Minimum Mortgage Rates Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C>
7.01 -- 7.50 6 $ 885,105 0.79%
7.51 -- 8.00 25 3,447,047 3.09
8.01 -- 8.50 46 7,272,895 6.51
8.51 -- 9.00 113 15,610,092 13.98
9.01 -- 9.50 109 13,391,421 11.99
9.51 -- 10.00 155 16,782,997 15.03
10.01 -- 10.50 130 14,623,438 13.10
10.51 -- 11.00 134 13,228,143 11.85
11.01 -- 11.50 72 6,715,100 6.01
11.51 -- 12.00 77 7,598,917 6.81
12.01 -- 12.50 45 4,216,860 3.78
12.51 -- 13.00 40 3,127,429 2.80
13.01 -- 13.50 21 1,547,422 1.39
13.51 -- 14.00 12 1,083,059 0.97
14.01 -- 14.50 13 770,871 0.69
14.51 -- 15.00 7 438,380 0.39
15.01 -- 15.50 6 702,183 0.63
15.51 -- 16.00 4 122,076 0.11
16.01 -- 16.50 1 31,225 0.03
16.51 -- 17.00 2 54,351 0.05
----- ------------ ------
Total 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
The weighted average Minimum Mortgage Rate of the Mortgage Loans as of the
Cut-off Date was approximately 10.201% per annum and ranged from 7.050% to
16.840%.
Original Term to Maturity
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Original Term (months) Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C>
180 14 $ 553,401 0.50
240 4 277,788 0.25
360 997 110,694,837 99.15
----- ------------------ ------
Total....................... 1,018 $ 111,649,009 100.00%
===== ================== ======
</TABLE>
S-23
<PAGE>
Remaining Term To Maturity
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Range of Balance Outstanding as Balance Outstanding as
Remaining Terms (months) Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C>
61 - 120 3 $ 122,983 0.11%
121 - 180 14 553,401 0.50
181 - 240 4 277,788 0.25
301 - 360 997 110,694,837 99.15
----- ------------- ------
Total........................... 1,018 $ 111,649,009 100.00%
===== ============= ======
</TABLE>
Initial Rate Cap for Mortgage Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Initial Rate Cap (%) Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C>
1.50 52 $ 6,551,715 5.87%
3.00 966 105,097,295 94.13
----- ------------- ------
Total...................... 1,018 $ 111,649,009 100.00%
===== ============= ======
</TABLE>
Periodic Rate Cap for Mortgage Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Periodic Rate Cap (%) Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C>
1.50 1,018 $111,649,009 100.00%
----- ------------ ------
Total..................... 1,018 $111,649,009 100.00%
===== ============ ======
</TABLE>
Number of Days Delinquent (as of June 16, 1999)
<TABLE>
<CAPTION>
Aggregate Principal % of Aggregate Principal
Balance Outstanding as Balance Outstanding as
Number of Days Delinquent Number of Loans of the Cut off Date of the Cut off Date
- ------------------------------------ --------------- ---------------------- ------------------------
<S> <C> <C> <C>
0 - 29 987 $108,864,611 97.51%
30 - 59 22 2,225,466 1.99
60 - 89 9 558,932 0.50
----- ------------- ------
Total.................... 1,018 $ 111,649,009 100.00%
===== ============ ======
</TABLE>
S-24
<PAGE>
The Index
As of any Adjustment Date, the "Index" applicable to the determination
of the Mortgage Rate on each Mortgage Loan will be the average of the interbank
offered rates for six-month United States dollar deposits in the London market
("Six-Month LIBOR") based on quotations of major banks as published in The Wall
Street Journal and as most recently available as of the date specified in the
related Mortgage Note.
In the event that the Index becomes unavailable or otherwise
unpublished, the Master Servicer will select a comparable alternative index over
which it has no direct control and which is readily verifiable.
The table below sets forth historical average rates of Six-Month LIBOR
for the months indicated as made available from FNMA, which rates may differ
from the rates of the Index, which is six-month LIBOR as published in The Wall
Street Journal as described above. The table does not purport to be
representative of the subsequent rates of the Index which will be used to
determine the Mortgage Rate on each Mortgage Loan.
YEAR
-------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993
MONTH ---- ---- ---- ---- ---- ---- ----
January 5.04% 5.75% 5.71% 5.34% 6.69% 3.39% 3.44%
February 5.17 5.78 5.68 5.29 6.44 4.00 3.33
March 5.08 5.80 5.96 5.52 6.44 4.25 3.38
April 5.08 5.87 6.08 5.42 6.31 4.63 3.31
May 5.19 5.81 6.01 5.64 6.06 5.00 3.44
June 5.87 5.94 5.84 5.88 5.25 3.56
July 5.82 5.83 5.92 5.88 5.33 3.56
August 5.69 5.86 5.74 5.94 5.33 3.44
September 5.36 5.85 5.75 5.99 5.69 3.38
October 5.13 5.80 5.58 5.95 6.00 3.50
November 5.28 6.04 5.55 5.74 6.44 3.52
December 5.17 6.01 5.62 5.56 7.00 3.50
THE MORTGAGE LOAN ORIGINATOR
Pacific America Money Center, Inc., a Delaware corporation, became a
publicly traded company in June 1996 ("Pacific America" or the "Mortgage Loan
Originator"). The common stock of Mortgage Loan Originator is registered under
the Securities Exchange Act of 1934. Mortgage Loan Originator is currently
subject to the reporting requirements of the Securities and Exchange Act of
1934, and in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such materials
may be obtained at prescribed rates at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Mortgage Loan Originator's primary business is the origination and sale
of non-conventional mortgage loans secured by single family residences. Mortgage
Loans included in the Mortgage Pool were originated on a wholesale and retail
basis. The company targets subprime borrowers whose credit histories and/or
other factors limit their ability to qualify for financing from conventional
sources. The mortgagors generally will have obtained the related Mortgage Loans
to either purchase the related mortgaged property, refinance an existing
mortgage loan on more favorable terms, consolidate debt, or obtain cash proceeds
by borrowing against the mortgagor's equity in the related mortgaged property.
S-25
<PAGE>
The majority of the Mortgage Loans were originated through the Mortgage
Loan Originator's wholesale division, which at the time of origination consisted
of a nationwide network of more than 3,000 independent mortgage brokers in
approximately 40 states. In the third quarter of 1998, events occurred which
caused significant and sudden changes in the subprime lending industry, and
significantly and adversely affected the Mortgage Loan Originator's business for
the third and fourth quarters of 1998. As a result of these significant adverse
changes in the subprime lending industry, the Mortgage Loan Originator found it
necessary to substantially reduce its loan origination volume and its loan
origination costs, which it did by discontinuing its wholesale loan division
effective as of October 28, 1998. Since October 27, 1998, the Mortgage Loan
Originator has continued originating loans exclusively through its retail loan
division and the Mortgage Loan Originator as of March 1999 has approximately 40
retail offices operating in 21 states and the District of Columbia.
The Mortgage Loan Originator sells substantially all of its loans on a
servicing released basis. However, the Mortgage Loan Originator is named as
master servicer on three securitization pools which the Mortgage Loan Originator
securitized in 1997 and 1998, but the actual servicing with respect to such
pools is performed by a subservicer.
The Mortgage Loan Originator's principal operating subsidiary is
Pacific Thrift and Loan Company, a California corporation ("Pacific Thrift") and
a California licensed thrift and loan formed in 1988. Pacific Thrift originates
loans for sale and services the Mortgage Loan Originator's loans held for sale
and investment. In the fourth quarter of 1998, the Federal Deposit Insurance
Corporation issued regulatory orders requiring Pacific Thrift to limit its
lending volume to an amount which could readily be sold, to cease securitization
of loans and to raise additional capital, among other things.
The Mortgage Loan Originator's executive offices are located at 21031
Ventura Boulevard, Woodland Hills, California, and its telephone number is (818)
992-8999.
UNDERWRITING STANDARDS FOR THE MORTGAGE LOANS
The Depositor acquired the Mortgage Loans from MLMC, an affiliate,
which acquired the Mortgage Loans from the Mortgage Loan Originator pursuant to
a Master Mortgage Loan Purchase, Warranty and Interim Servicing Agreement (the
"Mortgage Loan Purchase Agreement"), dated as of September 1, 1998. All of the
Mortgage Loans were originated or acquired by the Mortgage Loan Originator,
generally in accordance with the underwriting criteria described herein. Such
underwriting criteria was in effect at the time the Mortgage Loans were
originated and may have subsequently been revised. The information set forth in
the following paragraphs has been provided by the Mortgage Loan Originator and
neither the Depositor nor any other party makes any representation as to the
accuracy or completeness of such information.
All of the Mortgage Loans purchased by MLMC from PacificAmerica were
purchased by PacificAmerica from its wholly-owned subsidiary, Pacific. Pacific
originated such Mortgage Loans in the ordinary course of business on a loan by
loan basis. The Mortgage Loans purchased from mortgage brokers were underwritten
in accordance with Pacific's underwriting guidelines summarized below.
The Home Equity Loan program consists of the origination by Pacific of
mortgage loans relating to non-conforming credits (also commonly referred to as
"subprime" mortgage loans). For purposes hereof, "non-conforming credit" means a
mortgage loan which, based upon standard underwriting guidelines, is ineligible
for purchase by FNMA or FHLMC due to characteristics that do not meet FNMA or
FHLMC guidelines, respectively.
The mortgagors generally will have obtained the related Mortgage Loans
to either purchase the related mortgaged property, refinance an existing
mortgage loan on more favorable terms, consolidate debt, or obtain cash proceeds
by borrowing against the mortgagor's equity in the related mortgaged property.
Pacific categorizes loan purpose into three categories: 1) Purchase; 2) Rate and
Term Refinance; and 3) Refinance Cash Out. Refinance Cash Out is any loan
transaction with incidental "cash out" exceeding $1,000. Cash out is defined as
any amount paid out of settlement proceeds that is not applied to valid liens
secured by the subject property, acceptable closing costs and controlled payoff
of credit obligations.
S-26
<PAGE>
Pacific views its underwriting process as one that begins with the
marketing of its products and includes each function involved in the lending
activity through the ultimate loan funding. As an integral part of this process,
Pacific trains its telemarketing representatives, account executives, account
managers, loan processors, and underwriters to evaluate each loan request
relative to Pacific's underwriting guidelines and overall lending philosophy.
Such philosophy is to evaluate the merits of a loan application on a
case-by-case basis in accordance with its underwriting guidelines. On occasion,
such an evaluation leads Pacific to approve a loan application that does not
completely meet the guidelines. Conversely, Pacific occasionally rejects a loan
application that meets the guidelines.
Pacific believes that its underwriting guidelines (which are revised
from time to time) are consistent with those generally used by lenders in the
business of making subprime mortgage loans. The underwriting process is intended
to assess both the prospective borrower's ability to repay and the adequacy of
the real property as collateral for
the loan.
In general, Pacific's guidelines require an analysis of the value of and equity
in the collateral, the property type, the payment history of the borrower, and
the borrower's ability to repay debt.
S-27
<PAGE>
As presented in the following table, Pacific's guidelines permit the origination
of home equity loans with multi-tiered credit characteristics tailored to
individual credit profiles.
<TABLE>
<CAPTION>
Credit Classification A A- B C
- --------------------- --------------------- -------------------------- ----------------------- -------------------------
<S> <C> <C> <C> <C> <C>
*Maximum LTV O/O N/O/O O/O N/O/O O/O N/O/O O/O N/O/O
Full Doc
- --------
SFR 90% 80% 90% 80% 85% 75 80 70
Condo/PUD 90% 80% 90% 80 85% 75 80 70
2/3-4 Unit 90% 80% 85% 80%(1) 85%(1)/80% 75%(1) 75 70
Alt Doc 85% 75% 85% 75% 80% 70 75-77%(5) 70
- -------
SFR 85% 75% 85% 75% 80% 70 75 70
Condo/PUD 85% 75% 85% 75% 80% 70 75 70
2/3-4 Unit
No Doc
- ------
(1003 Stated Income) 80% 70% 80% 70% 80% 70 75-77%(5) 65%(4)
- --------------------
O/O=Owner Occupied
N/O/O=Non-Owner Occupied
Maximum(2)
Debt Ratio 42% 45% 50% 55%
- ----------
2x30 1x60 0x90 or
12 Month 4x30 0x60 0x90 or
Mortgage Rating 0x30 0x60 0x90 2x30 0x60 0x90 3x30 1x60(3) 0x90 2x60 or 1x90
- ---------------
Consumer Credit
General 24 mos. excellent 24 mos. satisfactory 24 mos. fair credit.
- -------
24 mos. excellent credit. credit. No Consumer Credit
credit. Minimum of 3 12 mo. "B" or better (Less than 3
Minimum of 3 accounts open/active Rental or Mtg. Rating open/active accounts).
accounts open/active for 6 months. but no consumer credit
for 6 months. (less than 3 open/active
accounts).
</TABLE>
Credit Classification C- D
- --------------------- ------------------------ -----------------------
*Maximum LTV O/O N/O/O O/O N/O/O
Full Doc
- --------
SFR 70% 65% 65% 60%
Condo/PUD 70% 65% 65% 60%
2/3-4 Unit 70% 65% 65% 60%
Alt Doc 70% 65% 65% 60%
- -------
SFR 70% 65% 65% 60%
Condo/PUD 70% 65% 65% 60%
2/3-4 Unit
No Doc
- ------
(1003 Stated Income) 65%(4) 60%(4) 65%(4) 60%(4)
- --------------------
O/O=Owner Occupied
N/O/O=Non-Owner Occupied
Maximum(2)
Debt Ratio 55% 60%
- ----------
12 Month
Mortgage Rating 1x120 1x150 or more
- ---------------
Consumer Credit
General 24 mos. poor credit 24 mos. poor credit.
- -------
with The majority of the
some currently credit is derogatory.
delinquent accounts.
S-28
<PAGE>
<TABLE>
<CAPTION>
CREDIT CLASSIFICATION A A- B C
- -------------------- ----------------------- ----------------------- ---------------------- --------------------
Credit Items
- ------------
<S> <C> <C> <C> <C>
(Accounts with no 25%+ of Credit items 35%+ of Credit items 40%+ of Credit items 50%+ of Credit items
activity in the last 24 derogatory. No 60 day derogatory. No 90 day derogatory. derogatory.
months are not to be derogatory credit. derogatory credit.
considered.)
Bankruptcy - Chapter 2 yrs. since discharge/ 2 yrs. since discharge/ 1 yr. since discharge/ BK filed at least 12
- ---------- dismissal with a dismissal with a dismissal with 3 "B" re- mos. ago & discharged
7(6) minimum of 3 "A" re- minimum of 3 "A-" re- established accounts prior to applying for
established accounts established accounts (open/active for at least loan. Open BK 13 if
(open/active for at (open/active for at least 6 mos.) or 18 mos. filed at least 24 mos.
least 6 months). 6 months). since discharge/ ago & evidence
dismissal with no re- provided that plan &
established credit. mtg. paid as agreed.
BK must be paid off
thru loan.
Bankruptcy - Chapter 24 months since filing 24 months since filing 18 months since filing 12 months since filing.
- ---------- with BK plan paid as with BK plan paid as with BK plan paid as If open, BK plan must
13(6) agreed. Discharged agreed. Discharged agreed. Discharged be as agreed and paid
prior to application. prior to application. prior to application. through loan.
</TABLE>
CREDIT CLASSIFICATION C- D
- -------------------- ----------------------- ---------------- ----
Credit Items
- ------------
(Accounts with no 60%+ of Credit items % of Credit items
activity in the last 24derogatory. derogatory not a factor.
months are not to be
considered.)
Bankruptcy - Chapter BK filed within last 12 Currently in BK. Must
- ---------- months but discharged/ be paid through the
7(6) dismissed prior to loan.
application for loan.
Bankruptcy - Chapter 12 months since filing. Current BK plan must
- ---------- If open BK plan must be paid through loan.
13(6) be paid through loan.
Charge-offs, Collections, Charge-offs and Judgments under $500 are
Collections not to be considered. All judgments that appear as a
and Judgments lien of record against the subject property must be paid
through the loan. The date of the original occurrence
of the collection is to be used in all credit.
- -----------------
(1) Loan cannot be upgraded to receive maximum LTV.
(2) Will allow 5% increase in D/R (not to exceed 60%) for a corresponding 5%
reduction in LTV.
(3) Max LTV is 80%.
(4) No DOC not available for salaried or other "fixed" income borrowers.
(5) Over 75% available for SFR only.
(6) Blending not allowed when BK within 24 months.* For 2nd homes & vacation
properties reduce maximum LTV by 5%. Maximum CLTV for second mortgages may not
exceed 85%.
S-29
<PAGE>
The final grade for a loan is determined by blending the mortgage
credit grade and the consumer credit grade using a credit blending table. In
addition, a final grade of B or C (as determined by the credit blending table)
is eligible for a one credit class upgrade through Pacific's upgrade matrix. The
upgrade matrix takes into account such compensating factors as property
condition, length of employment and length of property ownership.
Pacific's guidelines permit the origination of fixed or adjustable rate
loans that either fully amortize over a period not to exceed 30 years or, in the
case of a balloon mortgage loan, are amortized based on a 30-year or less
amortization schedule with a maturity date and a balloon payment due prior to
the end of the amortization. Loan amounts generally range from a minimum of
$20,000 to a maximum of $350,000, but higher balances are approved on a case by
case basis.
The collateral securing the loans may be either owner occupied
one-to-four family dwellings (which includes condominiums, townhouses,
manufactured housing, and occasionally second and vacation homes) or non-owner
occupied properties. Substantially all of the loans secured by first mortgages
are limited to a maximum loan-to-value ratio of 90% , and substantially all of
the loans secured by second mortgages are limited to a maximum loan-to-value
ratio of 85%.
In order to determine the loan-to-value ratio, all Loans require at
least one recent written appraisal on a current FNMA or FHLMC form with certain
supporting information (e.g., location maps, legal descriptions, sale and
listing histories, floor plans, and photographs) from a state licensed
appraiser. Properties with higher appraised values ($650,000 in California and
Hawaii, $500,000 elsewhere) generally require a second appraisal. All appraisals
are required to contain at least three recently closed sales of comparable
properties located near the subject property. Pacific's appraisal review
department reviews each appraisal for reasonableness, completeness, conformity
with Pacific's guidelines and acceptable property condition. A review appraisal
is generally performed prior to loan funding whenever the loan-to-value ratio is
greater than 70% and the borrower(s) does not meet minimum credit score
requirements and/or the contents of the original appraisal or specific mortgage
property characteristics dictate that it would be prudent to do so. Pacific's
underwriting guidelines require that any major deferred maintenance on any
property securing a loan be cured either by the applicant prior to loan closing
or, the amount to cure will be withheld from the proceeds of the loan until such
deferred maintenance is completed.
A credit report combining information from two separate independent
credit reporting agencies is required reflecting the applicant's complete credit
history. If the report is obtained more than 60 days prior to the loan closing,
Pacific obtains an updated credit report to determine whether or not the
reported information has changed in a materially negative way, in which case
such loan will be reunderwritten.
Pacific's underwriting guidelines provide for the origination of loans
under three general income documentation programs: (i) full documentation, (ii)
alternate documentation, and (iii) stated income. Under the full documentation
program Pacific obtains one of the following: (i) Verification of Employment
signed by the employer and the most recent paycheck stub showing year-to-date
income; (ii) IRS Form W-2 for the most recent two-year period and the most
recent paycheck stub showing year-to-date income; (iii) tax returns for the most
recent 2 years and the most recent paycheck stub showing year-to-date income; or
(iv) personal bank statements for the most recent 24 month period and the most
recent paycheck stub stating year-to-date income. For each of the above, Pacific
obtains telephone verification of employment. If the applicant is self-employed,
the two most recent years' applicable tax returns (Form 1040, 1120, 1120S or
1065) are required. Under the alternative documentation program, applicants are
required to submit six months of personal bank statements and a recent paycheck
stub showing year-to-date income, and Pacific obtains telephone verification of
employment. For self-employed borrowers, proof that the business has been in
existence for at least one year is required along with six months personal bank
statements and telephone verification of the business. Under the stated income
program, income is taken from the application as stated by the applicant and
employment or business is verified telephonically.
EXCEPTIONS. As described above Pacific used the foregoing categories
and characteristics as guidelines only. On a case by case basis only, Pacific
may have determined that the prospective mortgagor warranted a risk upgrade or
an exception from certain requirements of a particular risk category.
S-30
<PAGE>
Pacific's guidelines require title insurance coverage issued by an
approved title insurance company on each Loan. Pacific and its assignees are
named as the insured. Title insurance policies guarantee the lien position of
the loan and protect the insured against loss if the title or lien position is
not as indicated.
PRIMARY MORTGAGE INSURANCE POLICIES
Approximately 55.59% of the Mortgage Loans (by the Cut-off Date Pool
Principal Balance) are covered by a primary mortgage insurance policy (a "PMI
Policy"). Each PMI Policy insures losses on the principal balance of each such
Mortgage Loan in an amount generally equal to, at the option of the PMI Insurer,
either (a) the sum of (i) the outstanding principal balance of the Mortgage
Loan, (ii) unpaid accumulated interest due on the Mortgage Loan at the Mortgage
Rate (for a maximum period of two years) and (iii) the amount of certain
advances (such as hazard insurance, taxes, maintenance expense and foreclosure
costs) made by the Master Servicer, reduced by certain mitigating amounts
collected with respect thereto (collectively, the "Loss Amount"), in which case
the PMI Insurer would take title to the Mortgaged Property, or (b) an amount
equal to the product of (i) the Loss Amount and (ii) the percentage of coverage
(the "Coverage Percentage") specified in the PMI Policy, in which case the Trust
Fund would retain title to (and the proceeds obtained in a foreclosure and sale
of) the Mortgaged Property. The Coverage Percentage specified in each PMI Policy
will be different depending upon the original Loan-to-Value Ratio of the related
Mortgage Loan (Mortgage Loans with higher Loan-to-Value Ratios will generally
have a higher Coverage Percentage and Mortgage Loans with lower Loan-to-Value
Ratios will generally have a lower Coverage Percentage). If a PMI Insurer
Insolvency Event has occurred or is continuing, the Trustee shall, at the
direction of the Certificate Insurer, and may in the case of a Certificate
Insurer Default, terminate the PMI Policy on any Mortgage Loan that is not then
past due. The insurer that has underwritten the PMI Policies (the "PMI Insurer")
with respect to such Mortgage Loans currently meets FNMA's or FHLMC's standards
and is acceptable to the Rating Agencies.
Claim payments, if any, under a PMI Policy will be made to the Master
Servicer, deposited in the Collection Account within two Business Days of
receipt and treated in the same manner as a prepayment of the related Mortgage
Loan. Premiums payable on the PMI Policies (the "PMI Premiums") will be paid
monthly by the Master Servicer with funds withdrawn from the Collection Account
with respect to the related Mortgage Loans. The "PMI Premium" is equal to 1/12
of the per annum rate specified in the PMI Insurance Agreement times the
aggregate Principal Balance of each Mortgage Loan covered by a PMI Policy
remaining in the Mortgage Pool.
ADDITIONAL INFORMATION
The description in this prospectus supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the schedule principal
payments due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Certificates unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be representative of the
characteristics at the time the Certificates are issued, although the range of
the Mortgage of Mortgage Rates and materials and certain other characteristics
of the Mortgage Loans may vary.
YIELD ON THE CLASS A CERTIFICATES
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of such prepayment, instead of for a
full month. When a partial principal prepayment is made on a Mortgage Loan, the
mortgagor is charged interest on the amount of such prepayment up to the date of
such prepayment and not for the balance of the month in which such prepayment is
made. Principal prepayments in full received, and partial principal prepayments
applied, during a Collection Period will be distributed on the immediately
following Distribution Date thereby eliminating any shortfall
S-31
<PAGE>
to Certificateholders. Principal prepayments in full received and partial
principal prepayments applied during the month in which a Distribution Date
occurs will be distributed on the Distribution Date in the following month.
Regarding the interest shortfalls attributable to the latter full and partial
prepayments by the mortgagors on the Mortgage Loans ("Prepayment Interest
Shortfalls"), the Master Servicer will be obligated to pay from its own funds
such shortfalls, but only to the extent of 50% of its Servicing Fee for the
related Collection Period. In addition, the application of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), to any
Mortgage Loan will adversely affect, for an indeterminate period of time, the
ability of the Master Servicer to collect full amounts of interest on such
Mortgage Loan. The effect of any shortfalls resulting from the application of
the Relief Act (the "Relief Act Shortfalls"), will be to reduce the aggregate
amount of interest collected that is available for distribution to
Certificateholders. The Certificate Insurance Policy does not cover and Insured
Payments do not include any Prepayment Interest Shortfalls or Relief Act
Shortfalls. See "Pooling and Servicing Agreement--Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement and "Certain
Legal Aspects of the Mortgage Loans--Soldiers' and Sailors' Civil Relief Act of
1940" in the prospectus.
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Class A Certificates, the
aggregate amount of distributions on the Class A Certificates and the yield to
maturity of the Class A Certificates will be related to the rate and timing of
payments of principal on the Mortgage Loans. The rate of principal payments on
the Mortgage Loans will in turn be affected by the amortization schedules of
such Mortgage Loans as the same change to accommodate changes in the Mortgage
Rates and by the rate of principal prepayments thereon (including for this
purpose payments resulting from refinancings, liquidations of the Mortgage Loans
due to defaults, casualties, condemnations and repurchases, whether optional or
required, by the Depositor or the Mortgage Loan Originator, as the case may be).
The Mortgage Loans generally may be prepaid by the mortgagors at any time;
however, as described under "The Mortgage Pool" herein, with respect to a
majority of the Mortgage Loans, a prepayment may subject the related mortgagor
to a prepayment charge.
Prepayments, liquidations and repurchases of the Mortgage Loans will
result in distributions in respect of principal to the Holders of the Class A
Certificates then entitled to receive such distributions that otherwise would be
distributed over the remaining terms of the Mortgage Loans. See "Maturity and
Prepayment Considerations" in the Prospectus. Since the rate of payment of
principal on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully herein and in the Prospectus under "Yield
Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments. The extent to which the yield to maturity of the Class A
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and the degree to
which the timing of payments thereon is sensitive to prepayments on the Mortgage
Loans. Further, in the case of Certificates purchased at a discount, an investor
should consider the risk that a slower than anticipated rate of principal
payments on the Mortgage Loans could result in an actual yield to such investor
that is lower than the anticipated yield and, in the case of Class A
Certificates purchased at a premium, an investor should consider the risk that a
faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield. In general, the
earlier a prepayment of principal on the Mortgage Loans, the greater will be the
effect on the yield to maturity of an investor in the Class A Certificates. As a
result, the effect on an investor's yield of principal payments occurring on the
Mortgage Loans at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the Class A
Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
It is highly unlikely that the Mortgage Loans will prepay at any
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same rate, and the prepayment charges imposed in connection with prepayments
on 71.45% of the Mortgage Loans will have an uncertain effect on the rate and
timing of prepayments on the Mortgage Loans. Moreover, the timing of prepayments
on the Mortgage Loans may significantly affect the actual yield to maturity on
the Class A Certificates, even if the average rate of principal payments
experienced over time is consistent with an investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment (and refinancing) would be expected to
increase. Conversely, if
S-32
<PAGE>
prevailing mortgage rates rise significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease. Other factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. The existence of
the Periodic Rate Cap, Maximum Mortgage Rates and Minimum Mortgage Rates also
may affect the prepayment experience on the Mortgage Loans. In addition, the
prepayment experience on the Delayed First Adjustment Date Mortgage Loans may
differ from that on the other Mortgage Loans, especially as they approach their
first Adjustment Date. At such time, the prepayment experience on the Delayed
First Adjustment Date Mortgage Loans may be more sensitive to relatively small
changes in market interest rates. There can be no certainty as to the rate of
prepayments on the Mortgage Loans during any period or over the life of the
Certificates. See "Yield Considerations" in the prospectus.
In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. In addition, default rates generally are
higher for mortgage loans used to refinance an existing mortgage loan than on
mortgage loans used to purchase a home. In the event of a mortgagor's default on
a Mortgage Loan, other than as provided by the overcollateralization provisions
of the Trust Fund, there can be no assurance that recourse will be available
beyond the specific Mortgaged Property pledged as security for repayment.
In addition, the Class R Certificateholder may, at its option (or if
the owner of the Class R Certificate does not exercise such option, the Master
Servicer has the option and if such option is not exercised by the Master
Servicer, the Certificate Insurer shall have the option) with written notice to
the Certificateholders, the Certificate Insurer and the Trustee purchase from
the Trust Fund all of the outstanding Mortgage Loans and related properties, and
thus effect the early retirement of the Class A Certificates, on any
Distribution Date on which the outstanding aggregate principal balance of the
Mortgage Loans is less than or equal to 10% of the Cut-off Date Pool Principal
Balance. This option can be exercised by the holder of the Class R Certificates
only if the Class R Certificate is not held by the Depositor or any affiliate.
SPECIAL YIELD CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
The Mortgage Rates on the Mortgage Loans adjust semiannually (in the
case of the Delayed First Adjustment Date Mortgage Loans, after an initial
period of two or three or five years) based upon the Index, whereas the Pass-
Through Rate on the Class A Certificates adjust monthly based upon One-Month
LIBOR as described under "Description of the Certificates--Calculation of
One-Month LIBOR" herein, subject to the Available Funds Pass- Through Rate. As a
result, increases in the Pass-Through Rate on the Class A Certificates may be
limited for extended periods in a rising interest rate environment. In addition,
because the Pass-Through Rate is determined, to some extent, by the Mortgage
Rates on the Mortgage Loans, disproportionate prepayments of Mortgage Loans with
Mortgage Rates above the then current weighted average Mortgage Rate may
adversely affect the Pass-Through Rate on the Class A Certificates by lowering
the Available Funds Pass-Through Rate. Investors should note that approximately
72.80% of the Mortgage Loans are two year Delayed First Adjustment Date Mortgage
Loans, approximately 18.08% of the Mortgage Loans are three year Delayed First
Adjustment Date Mortgage Loans and approximately 3.34% of the Mortgage Loans are
five year Delayed First Adjustment Date Mortgage Loans. The interest due on the
Mortgage Loans during any Collection Period may not equal the amount of interest
that would accrue at the Pass-Through Rate during the related Interest Accrual
Period in which case the Pass-Through Rate will be limited to the Available
Funds Pass- Through Rate. Although holders of the Class A Certificates are
entitled to receive from and to the limited extent of funds available therefor
as described herein, any related LIBOR Carryover Amount, there can be no
assurance that such funds will be available or, if available, sufficient for
such purposes. The ratings of the Class A Certificates do not address the
likelihood of the payment of any LIBOR Carryover Amount. In addition, the Index
and One-Month LIBOR may respond differently to economic and market factors.
Thus, it is possible, that if both One-Month LIBOR and the Index rise during the
same period, One-Month LIBOR may rise more rapidly than the Index or may rise
higher than the Index. In addition, the Index and/or One-Month LIBOR may not
move at the same time or in the same direction as market interest rates
generally. It is possible that market interest rates may fall at the same time
that One-Month LIBOR and/or the Index is rising.
S-33
<PAGE>
WEIGHTED AVERAGE LIVES
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Class A Certificates will be influenced by the rate at which principal on the
Mortgage Loans is paid, which may be in the form of scheduled payments or
prepayments (including prepayments of principal by the borrower as well as
amounts received by virtue of condemnation, insurance or foreclosure with
respect to the Mortgage Loans), and the timing thereof.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement
assumes a prepayment rate of 25% CPR. The Constant Prepayment Rate model ("CPR")
assumes that the outstanding principal balance of a pool of mortgage loans
prepays at a specified constant annual rate or CPR. In generating monthly cash
flows, this rate is converted to an equivalent constant monthly rate. To assume
25% CPR or any other CPR percentage is to assume that the stated percentage of
the outstanding principal balance of the pool is prepaid over the course of a
year. No representation is made that the Mortgage Loans will prepay at 25% CPR
or at any other rate. Neither the prepayment model used herein nor any other
prepayment model or assumption purports to be an historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans included in the
Mortgage Pool.
The table following the next paragraph indicates the percentage of the
initial Class A Certificate Balance that would be outstanding after each of the
dates shown at various CPR percentages and the corresponding weighted average
lives. The table is based on the following assumptions (the "Modeling
Assumptions"): (i) the Mortgage Pool consists of Mortgage Loans with the
characteristics set forth in the table below, (ii) distributions on the Class A
Certificates are received, in cash, on the 25th day of each month, commencing in
July 1999, (iii) the Mortgage Loans prepay at the CPR percentages indicated,
(iv) no defaults or delinquencies occur in the payment by mortgagors of
principal and interest on the Mortgage Loans and no shortfalls due to the
application of the Relief Act are incurred, (v) none of the Depositor, the
Mortgage Loan Originator, the holder of the Class R Certificates, the Master
Servicer or any other person purchases from the Trust Fund any Mortgage Loan
pursuant to any obligation or option under the Agreement (as defined herein),
except as indicated in footnote two in the table, (vi) scheduled monthly
payments on the Mortgage Loans are received on the first day of each month
commencing in July 1999, and are computed prior to giving effect to any
prepayments received in the prior month, (vii) prepayments representing payment
in full of individual Mortgage Loans are received on the last day of each month
commencing in June 1999, and include 30 days' interest thereon, (viii) the
scheduled monthly payment for each Mortgage Loan is calculated based on its
principal balance, Mortgage Rate, original term to maturity and remaining term
to maturity such that the Mortgage Loan will amortize in amounts sufficient to
repay the remaining principal balance of such Mortgage Loan by its remaining
term to maturity, (ix) the Certificates are purchased on June 23, 1999, (x) the
Index remains constant at 5.2863% per annum and the Mortgage Rate on each
Mortgage Loan is adjusted on the next Adjustment Date (and on subsequent
Adjustment Dates if necessary) to equal the Index plus the applicable Gross
Margin, subject to the applicable Periodic Rate Cap, (xi) One-Month LIBOR
remains constant at 4.9525% per annum, (xii) the monthly payment on each
Mortgage Loan is adjusted on the Due Date immediately following the next
Adjustment Date (and on subsequent Adjustment Dates, if necessary) to equal a
fully amortizing monthly payment as described in clause (viii) above, (xiii) the
PMI Premiums are equal to 0.46% per annum and (xiv) the owner of the Class R
Certificate exercises its option to purchase the Mortgage Loans as described
herein under "The Pooling and Servicing Agreement--Termination."
S-34
<PAGE>
HYPOTHETICAL MORTGAGE LOANS (6 MONTH LIBOR):
<TABLE>
<CAPTION>
Original Remaining
Term to Term to Mortgage Months
Principal Maturity Maturity Interest Gross to Rate Life Periodic Initial
Balance (in months) (in months) Rate Margin Change Life Cap Floor Cap Cap
- ------- ----------- ----------- ---- ------ ------ -------- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,453,825.50 358 348 11.416% 6.918% 2 16.625% 10.125% 1.50% 1.50%
976,907.77 360 346 10.080% 6.772% 10 16.353% 9.853% 1.50% 2.85%
16,312,557.77 360 349 10.449% 7.480% 13 16.949% 10.449% 1.50% 3.00%
35,948,302.60 358 348 10.281% 7.233% 14 16.781% 10.281% 1.50% 3.00%
28,046,447.03 357 348 10.368% 7.239% 15 16.868% 10.368% 1.50% 3.00%
20,182,509.38 360 350 9.834% 7.295% 26 16.334% 9.834% 1.50% 3.00%
3,728,459.06 360 350 9.295% 6.538% 50 15.795% 9.295% 1.50% 3.00%
</TABLE>
There will be discrepancies between the characteristics of the actual
Mortgage Loans and the characteristics assumed in preparing the tables. Any such
discrepancy may have an effect upon the percentages of the initial Class A
Certificate Balance outstanding (and the weighted average life) of the Class A
Certificates set forth in the table. In addition, since the actual Mortgage
Loans will have characteristics that differ from those assumed in preparing the
table set forth below and, since it is not likely the level of the Index will
remain constant as assumed, the Class A Certificates may mature earlier or later
than indicated by the tables. Variations in the prepayment experience and the
balance of the Mortgage Loans that prepay may increase or decrease the
percentages of initial Class A Certificate Balance (and weighted average lives)
shown in the following table. Such variations may occur even if the average
prepayment experience of all such Mortgage Loans equals any of the specified CPR
percentages.
S-35
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING
CLASS A CERTIFICATES
- -------------------------------------------------------------------------------------------------------------------
Distribution Date: 0%CPR 10%CPR 20%CPR 25%CPR 30%CPR 40%CPR 50%CPR
- ------------------ ----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100 100
June 25, 2000 95 85 75 70 65 56 46
June 25, 2001 94 75 58 50 42 29 18
June 25, 2002 93 66 44 37 30 19 11
June 25, 2003 93 59 35 27 21 11 0
June 25, 2004 92 52 28 20 14 0 0
June 25, 2005 92 45 22 15 10 0 0
June 25, 2006 91 40 18 11 0 0 0
June 25, 2007 90 36 14 0 0 0 0
June 25, 2008 89 32 11 0 0 0 0
June 25, 2009 88 28 0 0 0 0 0
June 25, 2010 87 25 0 0 0 0 0
June 25, 2011 85 22 0 0 0 0 0
June 25, 2012 83 20 0 0 0 0 0
June 25, 2013 81 17 0 0 0 0 0
June 25, 2014 79 15 0 0 0 0 0
June 25, 2015 77 13 0 0 0 0 0
June 25, 2016 74 12 0 0 0 0 0
June 25, 2017 71 10 0 0 0 0 0
June 25, 2018 68 0 0 0 0 0 0
June 25, 2019 64 0 0 0 0 0 0
June 25, 2020 59 0 0 0 0 0 0
June 25, 2021 54 0 0 0 0 0 0
June 25, 2022 48 0 0 0 0 0 0
June 25, 2023 42 0 0 0 0 0 0
June 25, 2024 36 0 0 0 0 0 0
June 25, 2025 28 0 0 0 0 0 0
June 25, 2026 20 0 0 0 0 0 0
June 25, 2027 11 0 0 0 0 0 0
June 25, 2028 0 0 0 0 0 0 0
Weighted Avg. Life in
Years (1) (2) 20.37 7.12 3.63 2.85 2.33 1.64 1.20
Weighted Avg. Life in 20.41 7.47 3.93 3.10 2.52 1.78 1.30
Years (1) (3)
- ----------------------
</TABLE>
(1) The weighted average life of a Certificate is determined by (a)
multiplying the amount of each distribution of principal by the number
of years from the date of issuance of the Certificate to the related
Distribution Date, (b) adding the results and (c) dividing the sum by
the initial Class A Certificate Balance.
(2) Assumes the majority holder of the Class R Certificates exercises its
option to purchase the Mortgage Loans when the aggregate principal
balance of the Mortgage Loans and REO Properties remaining is 10% of
Cut-off Date Pool Principal Balance. See "Pooling and Servicing
Agreement--Termination" herein.
(3) Assumes that the Certificates remain outstanding to their maturity
date.
S-36
<PAGE>
There is no assurance that prepayments of the Mortgage Loans will
conform to any of the levels of the Prepayment Assumption indicated in the table
above, or to any other level, or that the actual weighted average life of the
Class A Certificates will conform to any of the weighted average lives set forth
in the table above. Furthermore, the information contained in the table with
respect to the weighted average lives is not necessarily indicative of the
weighted average lives that might be calculated or projected under different or
varying prepayment or Index level assumptions. The characteristics of the
Mortgage Loans will differ from those assumed in preparing the table above. In
addition, it is unlikely that any Mortgage Loan will prepay at any constant
percentage until maturity, that all of the Mortgage Loans will prepay at the
same rate or that the level of the Index will remain constant or any level for
any period of time. The timing of changes in the rate of prepayments may
significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments and the level of the Index is consistent
with the expectations of investors.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date of the Class A Certificates is
January 25, 2029. The Final Scheduled Distribution Date for the Class A
Certificates has been set to equal the Distribution Date in the third month
after the month of maturity of the latest maturing Mortgage Loan. Since the rate
of distributions in reduction of the Class Certificate Balance of the Class A
Certificates will depend on the rate of payment (including prepayments) of the
Mortgage Loans, the Class Certificate Balance of any such Class could be reduced
to zero significantly earlier or later than the Final Scheduled Distribution
Date. The rate of payments on the Mortgage Loans will depend on their particular
characteristics, as well as on prevailing interest rates from time to time and
other economic factors, and no assurance can be given as to the actual payment
experience of the Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1999-H2 Certificates will consist of (i) the Class A
Certificates (the "Class A Certificates"), and (ii) the Class R Certificates
(the "Residual Certificates"). Only the Class A Certificates are offered hereby.
The Trust Fund will include (i) the Mortgage Loans and the Mortgage
Loan Files; (ii) such assets as from time to time are identified as deposited in
respect of the Mortgage Loans in the Collection Account and belonging to the
Trust Fund; (iii) property acquired by foreclosure of such Mortgage Loans or
deed in lieu of foreclosure; (iv) any applicable insurance policies, including
the PMI Policies; (v) such amounts as may be held by the Trustee in the
Distribution Account and the Policy Payments Account; (vi) the Certificate
Insurance Policy; (vii) the rights of the Depositor in and to the Mortgage Loan
Purchase Agreement and the Assignment and Assumption Agreement and (viii) all
proceeds of the foregoing.
The "Class A Certificate Balance" of the Certificates as of any
Distribution Date is the initial Class A Certificate Balance thereof reduced by
all amounts previously distributed to holders of Class A Certificates as
payments of principal. The Class A Certificates will have an initial Class A
Certificate Balance of $109,248,500. The Class R
Certificates will have no certificate principal balance.
Distributions will be made on the 25th day of each month, or if such
day is not a business day, the next business day (each such date, a
"Distribution Date"), beginning in July, 1999. All distributions to holders of
the Class A Certificates, other than the final distribution on the Class A
Certificates, will be made on each Distribution Date by or on behalf of the
Trustee to the persons in whose names such Class A Certificates are registered
at the close of business on each Record Date. Such distributions will be made
either (i) by check mailed to the address of each such Certificateholder as it
appears in the Certificate Register or (ii) upon written request to the Trustee
at least five business days prior to the relevant Record Date by any holder of
Class A Certificates having an aggregate initial Class A Certificate Balance
that is in excess of $5,000,000 by wire transfer in immediately available funds
to the account of such Certificateholder specified in the request. The final
distribution on any Class A Certificates will be made in like manner,
S-37
<PAGE>
but only upon presentment and surrender of such Certificates at the corporate
trust office of the Trustee or such other location specified in the notice to
Certificateholders of such final distribution.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
The Class A Certificates will be issued, maintained and transferred on
the book-entry records of DTC and its Participants in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof. The Class A
Certificates will initially be represented by one or more global certificates
registered in the name of the nominee of DTC (together with any successor
clearing agency selected by the Depositor, the "Clearing Agency"), except as
provided below. The Depositor has been informed by DTC that DTC's nominee will
be CEDE & Co. ("CEDE"). No Certificate Owner will be entitled to receive a
certificate representing such person's interest, except as set forth below.
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions by Certificateholders
with respect to the Class A Certificates refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references herein
to distributions, notices, reports and statements to Certificateholders with
respect to the Class A Certificates refer to distributions, notices, reports and
statements to DTC or CEDE, as the registered holder of the Class A Certificates,
for distribution to Certificate Owners in accordance with DTC procedures.
Holders of Class A Certificates may hold their Certificates through DTC
(in the United States) or Cedelbank or the Euroclear System ("Euroclear") in
Europe. Transfers within DTC, Cedelbank or Euroclear, as the case may be, will
be in accordance with the usual rules and operating procedures of the relevant
system (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems.
Cedelbank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Cedelbank's and
Euroclear's names on the books of their respective depositories which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A. will act as depositary for Cedelbank
and The Chase Manhattan Bank will act as depositary for Euroclear (in such
capacities, individually the "Depositary" and collectively the "Depositaries").
Transfers between Participants (as defined below) will occur in accordance with
DTC rules. Transfers between Cedelbank Participants and Euroclear Participants
(each as defined below) will occur in accordance with their respective rules and
operating procedures.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants").
Beneficial owners of the Class A Certificates ("Certificate Owners") or
prospective owners, as the case may be, that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in the Class A Certificates may do so only through Participants
and Indirect Participants. In addition, such Certificate Owners will receive all
distributions of principal and interest on the Class A Certificates from the
Trustee or the applicable paying agent through DTC and its Participants. Under a
book-entry format, Certificateholders may receive payments after the related
Distribution Date because, while payments are required to be forwarded to CEDE &
Co., as nominee for DTC on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or Certificate Owners. The only "Certificateholder" (as such term
is used in the Agreement) will be CEDE & Co., as nominee of DTC, and the
Certificate Owners will not be recognized by the Trustee as Certificateholders
under the Agreement. Certificate Owners will be permitted to exercise the rights
of Certificate Owners under the Agreement only indirectly through DTC and its
Participants who in turn will exercise their rights though DTC.
S-38
<PAGE>
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain other entities, the ability of a
Certificate Owner to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
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. Cedelbank Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedelbank Participants on such business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank Participant or Euroclear Participant to a Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedelbank or Euroclear cash account only as of the business day following
settlement in DTC.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations ("Cedelbank Participants") and facilitates the clearance and
settlement of securities transactions between Cedelbank Participants through
electronic book-entry changes in accounts of Cedelbank Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedelbank in any of 28 currencies, including United States dollars.
Cedelbank provides to its Cedelbank Participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedelbank interfaces
with domestic markets in several countries. As a professional depository,
Cedelbank is subject to regulation by the Luxembourg Monetary Institute.
Cedelbank Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to
Cedelbank is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Cedelbank Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services including lending and
borrowing and interfaces with domestic markets in several countries generally
similar to the arrangements for cross-market transfers with DTC described above.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, and not the Cooperative. The Cooperative establishes policy
for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including
S-39
<PAGE>
central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly. The Euroclear Operator is the
Belgian branch of a New York banking corporation which is a member bank of the
Federal Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear system and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash with Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific clearance accounts. The
Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Certificates held through Cedelbank or
Euroclear will be credited to the cash accounts of Cedelbank Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences." Cedelbank or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder under the Agreement on behalf of a Cedelbank
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under the Agreement only at the direction of one
or more Participants to whose account with DTC the Certificates are credited.
Certificates initially issued as Book-Entry Certificates will be issued
as Definitive Certificates only if (i) DTC or the Depositor advises the Trustee
in writing that DTC is no longer willing or able to properly discharge its
responsibilities as nominee and depository with respect to the Certificates and
the Master Servicer is unable to locate a qualified successor or (ii) the
Depositor, at its option, elects to terminate the book-entry system through DTC
or (iii) if holders of Class A Certificates evidencing not less than 51% of the
Voting Rights advise the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) to the exclusion of any
physical certificates being issued to Certificate Owners is no longer in the
best interests of Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificates. Upon
surrender by DTC of the certificate or certificates representing such
Certificates and instructions for registration, the Trustee will issue such
Certificates in the form of Definitive Certificates as Certificateholders under
the Agreement and such holders of Definitive Certificates will deal directly
with the Trustee with respect to transfers, notices and distributions. In the
event that Definitive Certificates are issued or DTC ceases to be the clearing
agency for the Certificates, the Agreement will provide that the applicable
Certificateholders will be notified of such event.
AVAILABLE DISTRIBUTION AMOUNT
The Trustee will establish and maintain an account (the "Distribution
Account") and deposit therein (i) any payments made by the Certificate Insurer
under the Certificate Insurance Policy, (ii) the proceeds of any liquidation of
the assets of the Trust Fund, and (iii) all remittances made to the Trustee by
or on behalf of the Master Servicer. The Master Servicer will be required on the
Business Day prior to each Distribution Date (each such date, the "Master
Servicer Remittance Date") to remit to the Trustee the Available Remittance
Amount for such Distribution Date. On each Distribution Date, the Trustee will
make distributions to Class A Certificateholders to the extent of the Available
Distribution Amount.
S-40
<PAGE>
The "Available Remittance Amount" means, as of any Distribution Date,
the sum, without duplication, of:
(i) all payments of principal and interest received in respect of the
Mortgage Loans during the related Collection Period (not including late
payment charges and less the Servicing Fee, certain amounts available
for reimbursement of Monthly Advances and Servicing Advances as
described below under "-Advances", certain other reimbursable expenses
pursuant to the Agreement and any PMI Premiums paid to the PMI
Insurer);
(ii) all Monthly Advances, Servicing Advances and Compensating
Interest for such Distribution Date; and
(iii) all full and partial principal prepayments, including prepayment
penalties and premiums, repurchase amounts and substitution shortfall
amounts, Liquidation Proceeds, Insurance Proceeds (excluding proceeds
paid in respect of the Certificate Insurance Policy) and proceeds from
any PMI Policy ("PMI Insurance Proceeds") on a Mortgage Loan received
by the Master Servicer during the related Collection Period.
The "Available Distribution Amount" means, as of any Distribution Date,
the sum of (i) the Available Remittance Amount received by the Trustee on the
immediately preceding Master Servicer Remittance Date and (ii) any Insured
Payment for such Distribution Date.
"Collection Period" with respect to any Distribution Date means the
period beginning on the 16th day of the calendar month preceding the calendar
month in which such Distribution Date occurs and ending on the close of
business on the 15th day of the month in which such Distribution Date occurs.
"Business Day" means any day other than (i) a Saturday or Sunday or
(ii) a day on which banking institutions in the City of New York 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.
INTEREST DISTRIBUTIONS
On each Distribution Date, holders of the Class A Certificates will be
entitled to receive the Class A Interest Distribution Amount for such
Distribution Date to the extent of the Available Distribution Amount remaining
after payment to the Trustee of the Trustee Fee and, provided that payment
default under the Certificate Insurance Policy has not occurred (a "Certificate
Insurer Payment Default"), the payment to the Certificate Insurer of the Premium
Amount for such Distribution Date.
The "Class A Interest Distribution Amount" with respect to any
Distribution Date means the sum of (i) the Accrued Certificate Interest for such
Distribution Date and (ii) the Interest Carryforward Amount for such
Distribution Date for such Distribution Date reduced by the sum of (a) any
Relief Act Shortfalls and (b) any Prepayment Interest Shortfalls not actually
paid by the Master Servicer on the immediately preceding Master Servicer
Remittance Date.
"Accrued Certificate Interest" means, as of any Distribution Date, the
interest accrued during the related Interest Accrual Period on the Class A
Certificate Balance immediately prior to such Distribution Date at the
then-applicable Pass-Through Rate.
"Interest Carry Forward Amount" means, as of any Distribution Date, the
sum of (a) the excess, if any, of the Accrued Certificate Interest and any
Interest Carry Forward Amount for the prior Distribution Date, over the amount
in respect of interest actually distributed to the Class A Certificateholders on
such prior Distribution Date and (b) interest on such excess at the applicable
Pass-Through Rate for the actual number of days elapsed since the prior
Distribution Date.
The "Interest Accrual Period" for any Distribution Date is the period
from the Distribution Date in the month immediately preceding the month in which
such Distribution Date occurs (or, in the case of the first Distribution Date,
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from the Closing Date) through the day before such Distribution Date. All
distributions of interest will be based on a 360-day year and the actual number
of days in the applicable Interest Accrual Period.
PASS-THROUGH RATE
The "Pass-Through Rate" on the Class A Certificates on each
Distribution Date will be a rate per annum equal to the lesser of (i) One-Month
LIBOR plus 0.35% per annum (the "LIBOR Rate"), and (ii) the Available Funds
Pass- Through Rate (as defined below) for such Distribution Date; provided,
however, that for each Interest Accrual Period beginning after the Distribution
Date on which the aggregate Stated Principal Balance (as defined herein) of the
Mortgage Loans is 10% or less of the aggregate Stated Principal Balance of the
Mortgage Loans as of the Cut-off Date (the "Cut-off Date Pool Principal
Balance") the LIBOR Rate provided in clause (i) will be One-Month LIBOR plus
0.70% per annum.
"Available Funds Pass-Through Rate" means, with respect to any
Distribution Date, the per annum rate equal to the percentage obtained by
dividing (x) the amount of interest that accrued on the Mortgage Loans in
respect of the related Collection Period at the weighted average of the related
Mortgage Rates applicable to monthly payments due on such Mortgage Loans during
such Collection Period, reduced by the sum of the Expense Fee Rate and 0.50%, by
(y) the product of (i) the Class A Certificate Balance and (ii) the actual
number of days elapsed during such Interest Accrual Period divided by 360.
If, on any Distribution Date, the Pass-Through Rate for the Class A
Certificates is limited by the Available Funds Pass-Through Rate, the product of
(x) the excess of (i) the LIBOR Rate (but not more than the weighted average of
the Expense Adjusted Maximum Mortgage Rates) over (ii) the Available Funds
Pass-Through Rate is the "LIBOR Shortfall Amount" for such Distribution Date and
(y) the Class A Certificate Principal Balance immediately prior to such
Distribution Date. On such Distribution Date, holders of the Class A
Certificates will be entitled to receive, to the extent of funds available, an
amount equal to the sum of (i) the LIBOR Shortfall Amount for such Distribution
Date and (ii) the LIBOR Carryover Amount (as defined below) for such
Distribution Date from the Available Distribution Amount remaining on such
Distribution Date after payment of the Trustee Fee, the Premium Amount (provided
that no Certificate Insurer Payment Default has occurred) the Class A Interest
Distribution Amount, the Class A Principal Distribution Amount, the Extra
Principal Distribution Amount and reimbursements to the Certificate Insurer for
such Distribution Date.
The "Expense Adjusted Maximum Mortgage Rate" on any Mortgage Loan is
equal to the applicable Maximum Mortgage Rate thereon minus the sum of (i) the
Trustee Fee Rate, (ii) the Premium Rate (as defined herein), (iii) the Servicing
Fee Rate, and (iv) the per annum rate of the PMI Premiums (collectively, the
"Expense Fee Rate"). For any Distribution Date, the Trustee Fee Rate is 0.0125%
per annum, and the Servicing Fee Rate is 0.50% per annum.
"LIBOR Carryover Amount" means, for any Distribution Date, the amount
equal to the sum of (i) the excess, if any, of the LIBOR Shortfall Amount on all
preceding Distribution Dates over the amount, if any, actually distributed in
respect thereof on such preceding Distribution Dates and (ii) interest on such
excess for the actual number of days elapsed since the prior Distribution Date
at the applicable LIBOR Rate (limited by the Expense Adjusted Maximum Mortgage
Rate). The ratings of the Class A Certificates do not address the likelihood of
the payment of any LIBOR Shortfall Amount or LIBOR Carryover Amount.
The Pass-Through Rate on the Class A Certificates for the current
Interest Accrual Period, to the extent it has been determined, and for the
immediately preceding Interest Accrual Period may be obtained by telephoning the
Trustee at (212) 946-3200.
CALCULATION OF ONE-MONTH LIBOR
The Pass-Through Rate for the first Distribution Date will be
determined on the second business day preceding the Closing Date and for each
subsequent Distribution Date will be determined on the second business day prior
to the immediately preceding Distribution Date (each such date, an "Interest
Determination Date"). The Trustee will determine the London interbank offered
rate for one-month U.S. dollar deposits ("One-Month LIBOR") for the next
Interest
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Accrual Period on the basis of the offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such rates appear on the Telerate Page 3750,
as of 11:00 a.m. (London time) on such Interest Determination Date. As used in
this section: "business day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; "Telerate Page 3750"
means the display page currently so designated on the Dow Jones Telerate Service
(or such other page as may replace the Telerate Page 3750 page on that service
for the purpose of displaying London interbank offered rates of major banks);
and "Reference Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London, (ii) whose quotations appear on
the Telerate Page 3750 on the Interest Determination Date in question, (iii)
which have been designated as such by the Trustee and (iv) which are not
controlling, controlled by, or under common control with, the Depositor or the
Mortgage Loan Originator.
On each Interest Determination Date, One-Month LIBOR for the related
Interest Accrual Period will be established by the Trustee as follows:
(a) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, One-Month LIBOR for the
related Interest Accrual Period shall be the arithmetic mean
of such offered quotations (rounded upwards if necessary to
the nearest whole multiple of 0.001%).
(b) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, One-Month
LIBOR for the related Interest Accrual Period shall be the
higher of (x) One- Month LIBOR as determined on the previous
Interest Determination Date and (y) the Reserve Interest
Rate. The "Reserve Interest Rate" shall be the rate per
annum that the Trustee determines to be either (i) the
arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 0.001%) of the one-month U.S. dollar
lending rates which New York City banks selected by the
Trustee are quoting on the relevant Interest Determination
Date to the principal London offices of leading banks in the
London interbank market or, in the event that the Trustee
can determine no such arithmetic mean or (ii) the lowest
one-month U.S. dollar lending rate which New York City banks
selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination
Date by the Trustee and the Trustee's calculation of the rate of interest
applicable to the Class A Certificates for the related Interest Accrual Period
shall (in the absence of manifest error) be final and binding.
PRINCIPAL DISTRIBUTIONS
On each Distribution Date, holders of the Class A Certificates will be
entitled to receive an amount in respect of principal equal to the sum of the
Class A Principal Distribution Amount and the Extra Principal Distribution
Amount, if any, for such Distribution Date, to the extent of the Available
Distribution Amount remaining after payment of the Trustee Fee, the Premium
Amount (provided that no Certificate Insurer Payment Default has occurred) and
the Class A Interest Distribution Amount for such Distribution Date.
"Class A Principal Distribution Amount" means, as of any Distribution
Date, the least of (a) the Class A Certificate Balance as of the day immediately
preceding such Distribution Date and (b) the sum of
(i) the principal amount of all scheduled monthly payments due on
the Mortgage Loans received or advanced during the related
Collection Period;
(ii) the principal portion of all other unscheduled collections
received during the related Collection Period (including,
without limitation, full and partial principal prepayments
made by the respective Mortgagors, Liquidation Proceeds,
Insurance Proceeds (excluding proceeds paid in respect of the
Certificate Insurance Policy) and PMI Insurance Proceeds), to
the extent not distributed on the preceding Distribution Date;
and
(iii) the Undercollateralization Amount; minus
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(iv) the amount of any Overcollateralization Release Amount
"Extra Principal Distribution Amount" means, as of any Distribution
Date, the least of (a) the Class A Certificate Balance after taking into account
the distribution of the Class A Principal Distribution Amount for such
Distribution Date (b) any remaining Available Remittance Amount after
distribution of the Class A Principal Distribution Amount for such Distribution
Date, and (c) the Overcollateralization Deficiency for such Distribution Date.
"Overcollateralization Amount" means as of any Distribution Date the
excess, if any, of (x) the Pool Principal Balance as of the last day of the
immediately preceding Collection Period over (y) the aggregate Class Certificate
Balance of all the Class A Certificates (after taking into account all
distributions of principal on such Distribution Date).
"Overcollateralization Deficiency" means, as of any Distribution Date,
the excess, if any, of (x) the Required Overcollateralization Amount for such
Distribution Date over (y) the Overcollateralization Amount for such
Distribution Date, calculated for this purpose after taking into account the
reduction on such Distribution Date of the Class A Certificate Balance resulting
from the distribution of the Class A Principal Distribution Amount on such
Distribution Date.
"Pool Principal Balance" means, as of any date of determination, the
sum of the Stated Principal Balances of all of the outstanding Mortgage Loans.
"Required Overcollateralization Amount", as of any Distribution Date,
is the overcollateralization amount required by the Certificate Insurer at any
time and set forth in the Insurance Agreement.
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the Cut-off balance thereof reduced by all amounts
allocable to principal that have been distributed to Certificateholders with
respect to such Mortgage Loan and as further reduced to the extent of any
Realized Loss incurred with respect to such Mortgage Loan on or before the last
day of the most recently ended Collection Period.
"Undercollateralization Amount" means, as of any Distribution Date, the
amount by which (x) the Class A Certificate Balance, after taking into account
the reduction thereof to be made on such Distribution Date resulting from the
distribution from the Available Remittance Amount of amounts in respect of
clauses (i) and (ii) of the definition of Class A Principal Distribution Amount,
exceeds (y) the Pool Principal Balance at the end of the related Collection
Period.
CREDIT ENHANCEMENT
Overcollateralization.
----------------------
The Available Funds Pass-Through Rate for the Mortgage Loans is
generally expected to be higher than the Pass-Through Rate on the Class A
Certificates, thus generating certain excess interest collections which, in the
absence of losses, will not be necessary to fund interest distributions on the
Class A Certificates. This excess interest for a Collection Period, together
with interest collected on the Overcollateralization Amount itself, is the
"Monthly Excess Interest Amount" which will be available to pay the Extra
Principal Distribution Amount until the Overcollateralization Amount has
increased to the level equal to the Required Overcollateralization Amount.
The required level of overcollateralization for any Distribution Date
is the Required Overcollateralization Amount. The Required Overcollateralization
Amount initially (i.e., prior to the Stepdown Date) is expected to be
$7,759,606.
If Realized Losses (as defined below) result in an
Overcollateralization Deficiency, the cashflow priorities of the Trust Fund
require that, in this situation, an Extra Principal Distribution Amount be paid
(subject to the availability of the Available Distribution Amount) for the
purpose of re-establishing the Overcollateralization Amount at the then-
Required Overcollateralization Amount.
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On and after the Stepdown Date, the Required Overcollateralization
Amount may be permitted to decrease or "step-down." If the Required
Overcollateralization Amount is permitted to "step-down" on a Distribution Date,
the Agreement permits a portion of the Available Distribution Amount for such
Distribution Date not to be passed through as a distribution of principal on
such Distribution Date. This has the effect of decelerating the amortization of
the Class A Certificates relative to the Pool Principal Balance, thereby
reducing the actual level of the Overcollateralization Amount to the new, lower
Required Overcollateralization Amount. This portion of the Available
Distribution Amount not distributed as principal on the Class A Certificates
therefore releases overcollateralization from the Trust Fund. The amount of such
releases are the "Overcollateralization Release Amounts." An
Overcollateralization Release Amount may also result even prior to the
occurrence of any decrease or stepdown in the Required Overcollateralization
Amount if the amount required to reach the Required Overcollateralization Amount
on a Distribution Date is less than 100% of the principal collected for such
Distribution Date. The provision of such Overcollateralization Release Amount is
intended to prevent the Overcollateralization Amount from exceeding the Required
Overcollateralization Amount.
"Realized Losses" means, with respect to any defaulted Mortgage Loan
that is finally liquidated, through foreclosure, sale, disposition of the
related Mortgaged Property if acquired on behalf of the Certificateholders by
deed in lieu of foreclosure, or otherwise, that amount equal to the portion 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 recovered (net of
amounts reimbursable to the Master Servicer for Servicer Advances) towards
interest and principal owing on the Mortgage Loan.
"Stepdown Date" means the later to occur of (i) January 25, 2002 and
(ii) the Distribution Date on which the Class A Certificate Balance has been
reduced to one-half of the initial Class A Certificate Balance.
THE CERTIFICATE INSURANCE POLICY
Concurrently with the issuance of the Class A Certificates, the
Certificate Issuer will issue a certificate insurance policy (the "Certificate
Insurance Policy" or the "Policy") to the Trustee for the benefit of the Class A
Certificateholders. Under the Certificate Insurance Policy, the Certificate
Insurer will unconditionally and irrevocably guarantee (A) as of any
Distribution Date the sum of (i) the excess, if any, of (a) the Class A Interest
Distribution Amount for such Distribution Date over (b) the Available
Distribution Amount for such Distribution Date, net of the Premium Amount and
the Trustee Fee for such Distribution Date and (ii) the Undercollateralized
Amount, if any, for such Distribution Date (after giving effect to all
distributions of principal made on the Class A Certificates), (B) on the Stated
Maturity Date, the outstanding Class A Certificate Balance (after giving effect
to all principal distributions made on the Class A Certificates) and (C) the
full and complete payment of any interest or principal amounts that are paid to
Class A Certificateholders and subsequently recovered from any such holder
pursuant to a final, nonappealable order of a court of competent jurisdiction
under applicable bankruptcy or insolvency laws in accordance with the terms of
the Certificate Insurance Policy as further described herein under the heading
"The Certificate Insurer and the Policy".
The "Premium Amount" and "Premium Rate" as of each Distribution Date
will be as set forth in the Agreement.
"Certificate Insurer Default" is defined under the Agreement as the
occurrence and continuance of (x) the failure by the Certificate Insurer to make
a required payment under the Policy, which failure continues unremedied for five
Business Days or (y) certain events of bankruptcy or insolvency of the
Certificate Insurer.
The Trustee shall (i) receive as attorney-in-fact of each
Certificateholder of Class A Certificates an Insured Payment from the
Certificate Insurer and deposit such amounts into the Distribution Account and
(ii) disburse the same to each Class A Certificateholder in accordance with the
Agreement. The Agreement will provide that to the extent the Certificate Insurer
makes Insured Payments, either directly or indirectly (as by paying through the
Trustee) to the Class A Certificateholders, the Certificate Insurer will be
subrogated to the rights of the Class A Certificateholders with respect to such
Insured Payments, and shall receive reimbursement for such Insured Payment as
provided in the Agreement, but only from the sources and in the manner provided
in the Agreement, such subrogation and reimbursement to have no effect on the
Certificate Insurer's obligations under the Certificate Insurance Policy.
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ADVANCES
Subject to the following limitations, the Master Servicer will be
obligated to advance or cause to be advanced before each Distribution Date its
own funds in an amount equal to the aggregate of all payments of principal and
interest, net of the Servicing Fee, that were due during the related Collection
Period on the Mortgage Loans and that were delinquent on the related Remittance
Date, plus certain amounts representing assumed payments not covered by any
current net income on the Mortgaged Properties acquired by foreclosure or deed
in lieu of foreclosure (any such advance, a "Monthly Advance").
Monthly Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making such Monthly
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Master Servicer will not be
required to make any Monthly Advances with respect to reductions in the amount
of the monthly payments on the Mortgage Loans due to bankruptcy proceedings or
the application of the Relief Act.
All Monthly Advances will be reimbursable to the Master Servicer from
late collections, insurance proceeds and liquidation proceeds from the Mortgage
Loan as to which such unreimbursed Monthly Advances were made. In addition, any
Monthly Advances or servicing advances previously made in respect of any
Mortgage Loan that are deemed by the Master Servicer (in good faith) to be
nonrecoverable from related late collections, insurance proceeds or liquidation
proceeds may be reimbursed to the Master Servicer out of any funds in the
Collection Account prior to the distributions on the Certificates. In the event
the Master Servicer fails in its obligations to make any such advance, the
Trustee will be obligated to make any such advance, to the extent required in
the Agreement.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of June 1, 1999 (the "Agreement") among the Depositor, the
Master Servicer and the Trustee, a form of which is filed as an exhibit to the
Registration Statement. The Trust Fund created under the Agreement will include
all of the Depositor's right, title and interest in the Mortgage Loans, the
related Mortgage Notes, Mortgages and other related documents contained in the
Mortgage Loan Files, (ii) all payments on or collections in respect of the
Mortgage Loans received after the Cut-off Date (other than payments due on or
before the Cut-off Date), together with any proceeds thereof, (iii) any
Mortgaged Properties acquired on behalf of Certificateholders by foreclosure or
by deed in lieu of foreclosure, and any revenues received thereon, (iv) the
rights of the Trustee under all insurance policies and PMI Policies required to
be maintained pursuant to the Agreement, (v) the rights of the Depositor under
the Mortgage Loan Purchase Agreement and the Assignment and Assumption
Agreement; (vi) all amounts on deposit in the Collection Account, the Policy
Payment Account, and the Distribution Account and (vii) the rights of the
Trustee under the Certificate Insurance Policy and all proceeds of the
foregoing. Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the Trust Fund, the terms and
conditions of the Agreement and the Class A Certificates. The Class A
Certificates will be transferable and exchangeable at the corporate trust
offices of the Trustee, located in New York, New York. The Depositor will
provide to a prospective or actual Certificateholder without charge, on written
request, a copy (without exhibits) of the Agreement. Requests should be
addressed to the Secretary, Merrill Lynch Mortgage Investors, Inc. at 250 Vesey
Street, World Financial Center, North Tower, New York, New York 10281.
ASSIGNMENT OF THE MORTGAGE LOANS
The Depositor will deliver to the Trustee or a custodian as agent for
the Trustee with respect to each Mortgage Loan (i) the original Mortgage Note
endorsed without recourse to the Trustee to reflect the transfer of the Mortgage
Loan, (ii) the original Mortgage with evidence of recording indicated thereon
and (iii) an original assignment of the Mortgage in recordable form to the
Trustee, reflecting the transfer of the Mortgage Loan. Such assignments of
Mortgage Loans are required to be recorded by or on behalf of the Depositor in
the appropriate offices for real property
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records. The Trustee, concurrently with the Depositor's assignment, will deliver
the Certificates to the Depositor in exchange for the Mortgage Loans.
THE MASTER SERVICER
The Mortgage Loans will be serviced on behalf of the Trust Fund by
Litton Loan Servicing LP, a Delaware limited partnership ("Litton" or the
"Master Servicer"). The information set forth in the following paragraphs has
been provided by Litton and neither the Depositor nor any other party makes any
representation as to the accuracy or completeness of such information.
Litton, a Delaware limited partnership, will act as the servicer of the
Mortgage Loans pursuant to the Agreement. Litton Loan Servicing LP was formed in
December 1996, with all of the general and limited partnership interests owned
by Enhance Financial Services Group, Inc. ("EFSG"), Mortgage Guaranty Insurance
Corporation ("MGIC") and C-BASS Holding LLC. On October 1, 1998 Litton Loan
Servicing, Inc., a wholly-owned subsidiary of EFSG, transferred its business to
Litton. From and after October 1, 1998 all activities formerly conducted by
Litton Loan Servicing, Inc. are being conducted by Litton. Litton currently
employs approximately 170 individuals. The main office of Litton is located at
5373 W. Alabama, Houston, Texas 77056. Litton is currently a Fannie Mae and
Freddie Mac approved servicer and an approved FHA and VA lender with a servicing
portfolio in excess of $3.270 billion. Litton specializes in servicing
sub-performing mortgage loans and entering into workouts with the related
mortgagors. Other transactions for which Litton acts a servicer include Housing
Securities, Inc. 1995-RP1, C-BASS ABS, LLC 1997-1, C-BASS ABS, LLC 1997-3,
C-BASS ABS, LLC 1998-1, C-BASS ABS, LLC 1998-3, Merrill Lynch Mortgage
Investors, Inc. Series 1998-FF2, Series 1998-FF3, Series 1998-GN3, Series
1999-H1, Series 1999-3, Series 1999-CB1 and Series 1999-CB2 and The Prudential
Home Mortgage Securities Company, Inc., Series 1990-09, Series 1990-14, Series
1991-05, Series 1991-10, Series 1991-14, Series 1991-20, Series 1992-06, Series
1992-12, Series 1992-16, Series 1992-23, Series 1992-31, Series 1992-36, Series
1992-44, and Series 1993-5.
DELINQUENCY AND FORECLOSURE EXPERIENCE. The following table sets forth
the delinquency and foreclosure experience of the mortgage loans serviced by
Litton (doing business as Litton Loan Servicing, Inc.) as of the date indicated.
The Servicer's portfolio of mortgage loans may differ significantly from the
Mortgage Loans in terms of interest rates, principal balances, geographic
distribution, types of properties and other possibly relevant characteristics.
There can be no assurance, and no representation is made, that the delinquency
and foreclosure experience with respect to the Mortgage Loans will be similar to
that reflected in the table below, nor is any representation made as to the rate
at which losses may be experienced on liquidation of defaulted Mortgage Loans.
The actual delinquency experience on the Mortgage Loans will depend, among other
things, upon the value of the real estate securing such Mortgage Loans and the
ability of the related mortgagor to make required payments. It should be noted
that the Servicer's business emphasizes to a certain degree the acquisition of
servicing rights with respect to non-performing and subperforming mortgage loans
and the Servicer has been an active participant in the market for such servicing
rights over the past several months. The acquisition of such servicing rights
may have affected the delinquency and foreclosure experience of the Servicer in
the period ending on March 31, 1999 as compared with the annual periods ending
on December 31, 1998 and December 31, 1997.
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<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY AND FORECLOSURE EXPERIENCE1
AS OF MARCH 31, 1999 AS OF DECEMBER 31, 1998
-------------------------------------------- -------------------------------------------
% BY % BY
NO. OF PRINCIPAL NO. OF PRINCIPAL
LOANS PRINCIPAL BALANCE(1) BALANCE LOANS PRINCIPAL BALANCE(1) BALANCE
----- -------------------- ------- ----- -------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Current Loans 38,189 $ 2,422,259,028.89 74.86% 39,063 $2,489,678,137.64 78.01%
Period of Delinquency(3)
30-59 Days 3,757 $ 249,030,022.74 7.70% 3,689 $ 233,734,152.03 7.32%
60-89 Days 1,527 100,814,503.93 3.12% 1,497 814,503.93 2.76%
90 Days or more 2,773 $ 158,862,515.05 4.91% 2,578 $ 121,504,523.26 3.81%
Total Delinquencies 8,057 $ 508,707,041.72 15.72% 7,764 $ 443,183,186.63 13.89%
Foreclosure/Bankruptcies4 3,472 $ 243,164,515.37 7.51% 2,780 $ 197,668,255.15 6.19%
Real Estate Owned 1,072 $ 61,709,490.76 1.91% 1,009 $ 60,867,154.24 1.91%
------- ------------------- ------ ------ ----------------- ------
Total Portfolio 50,790 $ 3,235,840,076.74 100.00% 50,616 $3,191,396,733.66 100.00%
------- ------------------- ------ ------ ----------------- ------
</TABLE>
AS OF DECEMBER 31, 1997
----------------------------------------------------
% BY
NO. OF PRINCIPAL
LOANS PRINCIPAL BALANCE(1) BALANCE
----- -------------------- -------
Current Loans 28,982 $ 1,360,468,859.99 80.48%
Period of Delinquency(3)
30-59 Days 2,534 111,026,183.71 6.57%
60-89 Days 728 29,739,191.62 1.76%
90 Days or more 1,348 50,772,586.46 3.00%
Total Delinquencies 4,610 191,537,962.00 11.33%
Foreclosure/Bankruptcies4 1,344 98,380,747.30 5.82%
Real Estate Owned 427 39,978,357.34 2.37%
------ ------------------ ------
Total Portfolio 35,363 $ 1,690,365,926.42 100.00%
------ ------------------ ------
- ----------------------------
(1) The table shows mortgage loans which were delinquent or for which
foreclosure proceedings had been instituted as of the date indicated.
(2) For the Real Estate Owned properties, the principal balance is at the time
of foreclosure.
(3) No mortgage loan is included in this section of the table as delinquent
until it is 30 days past due.
(4) Exclusive of the number of loans and principal balance shown in Period of
Delinquency.
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It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
the Master Servicer's mortgage portfolio set forth in the foregoing tables. The
statistics shown above represent the delinquency experience for the Master
Servicer's mortgage servicing portfolio (which may differ substantially from the
Mortgage Pool with respect to credit underwriting standards and other factors)
only for the periods presented, whereas the aggregate delinquency experience on
the Mortgage Loans comprising the Mortgage Pool will depend on the results
obtained over the life of the Mortgage Pool. The Master Servicer does not have
significant historical delinquency, bankruptcy, foreclosure or default
experience that may be referred to for purposes of estimating the future
delinquency and loss experience of the Mortgage Loans. There can be no assurance
that the Mortgage Loans comprising the Mortgage Pool will perform in a manner
consistent with the delinquency or foreclosure experience described herein. It
should be noted that if the residential real estate market should experience an
overall decline in property values, the actual rates of delinquencies and
foreclosures could be higher than those previously experienced by the Master
Servicer. In addition, adverse economic conditions may affect the timely payment
by Mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies and foreclosures with
respect to the Mortgage Pool.
THE TRUSTEE
The Chase Manhattan Bank, a New York banking corporation, will act as
trustee (the "Trustee") for the Certificates pursuant to the Agreement. The
Trustee's offices for notices under the Agreement are located at 450 West 33rd
Street, New York, New York 10001, Attention: Capital Markets Fiduciary Services
and its telephone number is (212) 946-3200. The principal compensation to be
paid to the Trustee in respect of its obligations under the Agreement will be
equal to accrued interest at the Trustee Fee Rate of 0.0125% per annum on the
Stated Principal Balance of each Mortgage Loan. As additional compensation, the
Trustee is entitled to retain any and all interest or other income earned on
Funds held in the Distribution Account. The Agreement will provide that the
Trustee and any director, officer, employee or agent of the Trustee will be
indemnified by the Trust Fund and will be held harmless against any loss,
liability or expense (not including expenses, disbursements and advances
incurred or made by the Trustee, including the compensation and the expenses and
disbursements of its agents and counsel, in the ordinary course of the Trustee's
performance in accordance with the provisions of the Agreement) incurred by the
Trustee arising out of or in connection with the acceptance or administration of
its obligations and duties under the Agreement, other than any loss, liability
or expense (i) that constitutes a specific liability of the Trustee under the
Agreement or (ii) incurred by reason of willful misfeasance, bad faith or
negligence in the performance of the Trustee's duties under the Agreement or as
a result of a breach, or by reason of reckless disregard, of the Trustee's
obligations and duties under the Agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of it servicing activities for the Certificates will be equal to accrued
interest at the Servicing Fee Rate of 0.50% per annum, in each case with respect
to each Mortgage Loan on the Stated Principal Balance of each Mortgage Loan. As
additional servicing compensation, the Master Servicer is entitled to retain all
assumption fees, late payment charges and other fees and charges (other than
prepayment penalties) to the extent collected from mortgagors, together with any
interest or other income earned on funds held in the Collection Account and any
escrow accounts. The Master Servicer will be obligated to offset any Prepayment
Interest Shortfall on any Distribution Date (payments made by the Master
Servicer in satisfaction of such obligation, "Compensating Interest") to the
extent of 50% of its Servicing Fee for such Distribution Date. The Master
Servicer is obligated to pay certain insurance premiums and certain ongoing
expenses associated with the Mortgage Pool and incurred by the Master Servicer
in connection with its responsibilities with respect to the Mortgage Loans and
is entitled to reimbursement therefor as provided in the Agreement. The servicer
will also be entitled to a special servicing fee (the "Special Servicing Fee")
with respect to the Mortgage Loans which are delinquent for more than 90 days.
The Special Servicing Fee will be paid after payments due the Class A
Certificateholders and all amounts owed to the Certificate Insurer. For each
such Mortgage Loan the Special Servicing Fee will be equal to $125 for each
month such Mortgage Loan is delinquent, to a maximum of 18 consecutive months.
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PLEDGE AND ASSIGNMENT OF MASTER SERVICER'S RIGHTS
On the Closing Date, the Master Servicer will pledge and assign all of
its right, title and interest in, to and under the Agreement to First Union
National Bank ("First Union"), as the representative of certain lenders. In the
event that a Servicing Termination Event (as defined in the Agreement) occurs,
the Trustee, the Certificate Insurer and the Depositor have agreed to the
appointment of First Union National Bank or its designee as the successor master
servicer, provided that at the time of such appointment First Union or such
designee meets the requirements of a successor master servicer described in the
Agreement (including being acceptable to the Certificate Insurer) and that First
Union or such designee agrees to be subject to the terms of the Agreement.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of Certificates evidencing a specified percentage of all undivided
interests in the Trust Fund may be taken by holders of Certificates entitled in
the aggregate to such percentage of Voting Rights. The percentage of the Voting
Rights allocated among holders of the Class A Certificates will be 99%; and the
percentage of the Voting Rights allocated among holders of the Class R
Certificates will be 1%. The Voting Rights allocated to the Class A Certificates
will be allocated among all holders of each such Class A Certificates in
proportion to the outstanding Certificate Principal Balance of such
Certificates. So long as no Certificate Insurer Default is then in effect, the
Certificate Insurer shall be entitled to exercise all rights of the Class A
Certificateholders, and the Class A Certificateholders cannot exercise such
rights without the prior written consent of the Certificate Insurer.
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of the Certificates are described in "Description of
the Certificates--Termination" in the Prospectus. The owner of the Class R
Certificate has the option (or if the owner of the Class R Certificate does not
exercise such option, the Master Servicer has the option and if neither
exercises such option, the Certificate Insurer shall be entitled to exercise
such option) to purchase all the mortgage loans and any properties that the
trustee acquired in satisfaction of any of the mortgage loans. This option can
be exercised (i) by the holder of the Class R Certificate only if the Class R
Certificate is not held by the Depositor or any affiliate, and (ii) only when
the total principal balance of the mortgage loans, including the mortgage loans
related to the properties which the trustee has acquired, is 10% or less than
the total principal balance of the mortgage loans on the Cut-Off Date. In the
event such option is exercised, the purchase price payable in connection
therewith generally will be equal to par plus accrued interest for each Mortgage
Loan at the related Mortgage Rate to but not including the first day of the
month in which such repurchase price is distributed, plus any amounts then due
and owing to the Certificate Insurer. In the event such option is exercised, the
portion of the purchase price allocable to the Class A Certificates will be, to
the extent of available funds (i) 100% of the then outstanding Class Certificate
Balance thereof, plus (ii) one month's interest on the then outstanding Class
Certificate Balance thereof at the then applicable Pass-Through Rate, plus (iii)
any previously accrued but unpaid interest thereon, plus (iv) to the extent of
funds available therefor, or any related LIBOR Carryover Amount. In no event
will the trust created by the Agreement continue beyond the expiration of 21
years from the death of the survivor of the persons named in the Agreement. See
"Description of the Certificates--Termination" in the Prospectus.
THE CERTIFICATE INSURER AND THE POLICY
The following information has been supplied by the Certificate Insurer
for inclusion in this Prospectus Supplement. No representation is made by the
Depositor, the Seller or the Underwriter as to the accuracy and completeness of
such information.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Policy and Certificate Insurer set
forth under the heading "The Certificate
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Insurer and the Policy". Additionally, the Certificate Insurer makes no
representation regarding the Certificates or the advisability of investing in
the Certificates.
THE CERTIFICATE INSURER
The Certificate Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company ("MBIA Inc."). MBIA Inc. is not
obligated to pay the debts of or claims against the Certificate Insurer. The
Certificate Insurer is domiciled in the State of New York and licensed to do
business in and is subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. The Certificate Insurer has two European branches, one in the
Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Certificate Insurer, changes in control
and transactions among affiliates. Additionally, the Certificate Insurer is
required to maintain contingency reserves on its liabilities in certain amounts
and for certain periods of time.
CERTIFICATE INSURER FINANCIAL INFORMATION
The consolidated financial statements of the Certificate Insurer, a
wholly owned subsidiary of MBIA Inc., and its subsidiaries as of December 31,
1998 and December 31, 1997 and for each of the three years in the period ended
December 31, 1998, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of MBIA Inc. for the year
ended December 31, 1998 and the consolidated financial statements of the
Certificate Insurer and its subsidiaries as of March 31, 1999 and for the
three-month periods ended March 31, 1999 and March 31, 1998 included in the
Quarterly Report on Form 10-Q of MBIA Inc. for the period ended March 31, 1999
are hereby incorporated by reference into this Prospectus Supplement and shall
be deemed to be a part hereof. Any statement contained in a document
incorporated by reference herein shall be modified or superseded for purposes of
this Prospectus Supplement to the extent that a statement contained herein or in
any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its
subsidiaries included in documents filed by MBIA Inc. pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Class A Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
SAP
--------------------------------------------
DECEMBER 31, 1998 MARCH 31, 1999
(AUDITED) (UNAUDITED)
--------------------- ----------------------
(IN MILLIONS)
-------------
Admitted Assets .......... $6,521 $6,742
Liabilities .............. 4,231 4,412
Capital and Surplus ...... 2,290 2,330
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GAAP
--------------------------------------------
DECEMBER 31, 1998 MARCH 31, 1999
(AUDITED) (UNAUDITED)
--------------------- ----------------------
(IN MILLIONS)
-------------
Assets ................ $7,488 $7,625
Liabilities ........... 3,211 3,370
Shareholder's Equity .. 4,277 4,255
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION ABOUT THE CERTIFICATE INSURER
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's 1998
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the Certificate
Insurer. The address of the Certificate Insurer is 113 King Street, Armonk, New
York 10504. The telephone number of the Certificate Insurer is (914) 273-4545.
YEAR 2000 READINESS DISCLOSURE
MBIA Inc. is actively managing a high-priority Year 2000 (Y2K) program.
MBIA Inc. has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the project.
MBIA Inc. has a budget of $1.13 million for its 1998-2000 Y2K efforts.
Expenditures are proceeding as anticipated, and MBIA Inc. does not expect the
project budget to materially exceed this amount. MBIA Inc. has initiated a
comprehensive Y2K plan that includes assessment, remediation, testing and
contingency planning. This plan covers "mission-critical" internally developed
systems, vendor software, hardware and certain third-party entities through
which MBIA Inc. conducts its business. Testing to date indicates that functions
critical to the financial guarantee business, both domestic and international,
were Y2K-ready as of December 31, 1998. Additional testing will continue
throughout 1999.
FINANCIAL STRENGTH RATINGS OF THE CERTIFICATE INSURER
Moody's Investors Service, Inc. rates the financial strength of the
Certificate Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the financial strength of the Certificate Insurer "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the financial strength of the Certificate Insurer "AAA."
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its ability to
pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
Certificates. The Certificate Insurer does not guaranty the market price of the
Certificates nor does it guaranty that the ratings on the Certificates will not
be revised or withdrawn.
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THE POLICY
The Certificate Insurer, in consideration of the payment of the premium
and subject to the terms of the Policy, thereby unconditionally and irrevocably
guarantees to any Owner (as described below) that an amount equal to each full
and complete Insured Payment (as described below) will be received from the
Certificate Insurer by the Trustee or its successor on behalf of the Owners for
distribution by the Trustee to each Owner of each Owner's proportionate share of
the Insured Payment. The Certificate Insurer's obligations under the Policy with
respect to a particular Insured Payment shall be discharged to the extent funds
equal to the applicable Insured Payment are received by the Trustee, whether or
not such funds are properly applied by the Trustee. Insured Payments shall be
made only at the time set forth in the Policy and no accelerated Insured
Payments shall be made regardless of any acceleration of the Class A
Certificates, unless such acceleration is at the sole option of the Certificate
Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, the REMIC or the
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability). The Policy does not cover, and Insured Payments
shall not include, any Civil Relief Interest Shortfalls, any Prepayment Interest
Shortfalls, any LIBOR Shortfall or any LIBOR Carryover Amount.
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount (as described below) on the Business Day (as described below)
following receipt on a Business Day by the Fiscal Agent (as described below)
of:
o a certified copy of the order requiring the return of a
preference payment,
o an opinion of counsel satisfactory to the Certificate Insurer
that such order is final and not subject to appeal,
o an assignment in such form as is reasonably required by the
Certificate Insurer, irrevocably assigning to the Certificate
Insurer all rights and claims of the Certificateholder
relating to or arising under the Certificates against the
debtor which made such preference payment or otherwise with
respect to such preference payment, and
o appropriate instruments to effect the appointment of the
Certificate Insurer as agent for such Certificateholder in any
legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Certificate
Insurer,
provided that if such documents are received after 12:00 noon, New York
City time, on such Business Day, they will be deemed to be received on the
following Business Day. Such payments shall be disbursed to the receiver or
trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Owner and not to any Owner directly unless such
Owner has returned principal or interest paid on the Class A Certificates to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
Policy no later than 12:00 noon, New York City time, on the later of the
Distribution Date on which the related Deficiency Amount is due or the second
Business Day following receipt in New York, New York on a Business Day by State
Street Bank and Trust Company, N.A., as Fiscal Agent for the Certificate
Insurer, or any successor fiscal agent appointed by the Certificate Insurer (the
"Fiscal Agent") of a Notice (as described below); provided that if such Notice
is received after 12:00 noon, New York City time, on such Business Day, it will
be deemed to be received on the following Business Day. If any such Notice
received by the Fiscal Agent is not in proper form or is otherwise insufficient
for the purpose of making claim under a Policy, it shall be deemed not to have
been received by the Fiscal Agent for purposes of this paragraph, and the
Certificate Insurer or the Fiscal Agent, as the case may be, shall promptly so
advise the Trustee and the Trustee may submit an amended Notice.
Insured Payments due under the Policy unless otherwise stated therein
will be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by
wire transfer of immediately available funds in the amount of the Insured
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Payment less, in respect of Insured Payments related to Preference Amounts, any
amount held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit, or cause to be
deposited, sufficient funds to make payments due under the related Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of June
1, 1999 among Merrill Lynch Mortgage Investors, Inc., as Depositor, Litton Loan
Servicing LP, as Master Servicer and The Chase Manhattan Bank, as trustee,
without regard to any amendment or supplement thereto unless such amendment or
supplement is approved in writing by the Certificate Insurer.
"Business Day" means any day other than (a) a Saturday or a Sunday, (b)
a day on which the Certificate Insurer is closed or (c) a day on which banking
institutions in New York, New York, California, 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.
"Deficiency Amount" means, (A) as of any Distribution Date the sum of
(i) the excess, if any, of (a) the Class A Interest Distribution Amount for such
Distribution Date over (b) the Available Distribution Amount for such
Distribution Date, net of the Premium Amount and the Trustee Fee for such
Distribution Date and (ii) the Undercollateralized Amount, if any, for such
Distribution Date (after giving effect to all distributions of principal made on
the Class A Certificates) and (B) on the Stated Maturity Date, the outstanding
Class A Certificate Balance (after giving effect to all principal distributions
made on the Class A Certificates).
"Insured Payment" means (a) as of any Distribution Date, any Deficiency
Amount and (b) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by facsimile substantially in the form of Exhibit A attached to the
related Policy, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable
Distribution Date.
"Owner" means each Class A Certificateholder who, on the applicable
Distribution Date, is entitled under the terms of the applicable Class A
Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to a Class
A Certificateholder on a Certificate that is recoverable and sought to be
recovered as a voidable preference by a trustee in bankruptcy pursuant to the
United Stated Bankruptcy Code (11 U.S.C.), as amended from time to time in
accordance with a final nonappealable order of a court having competent
jurisdiction.
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policy, without giving effect to any subsequent
amendment to or modification of the Agreement unless such amendment or
modification has been approved in writing by the
Certificate Insurer.
Any notice under the Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
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THE POLICY IS BEING ISSUED UNDER AND PURSUANT TO, AND SHALL BE
CONSTRUED UNDER, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy
is not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Class A Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
A real estate mortgage investment conduit ("REMIC") election will be
made in connection with the Trust Fund for federal income tax purposes (the
"Trust Fund REMIC"). Upon the issuance of the Class A Certificates, Thacher
Proffitt & Wood, counsel to the Depositor, will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the Pooling
Agreement, for federal income tax purposes, the Trust Fund REMIC will qualify as
a REMIC within the meaning of the Code.
For federal income tax purposes, the Class R Certificates will be the
sole Class of "residual interests" and the Class A Certificates will be the
"regular interests" in the Trust Fund REMIC and will generally be treated as
debt instruments of the Trust Fund REMIC. See "Material Federal Income Tax
Consequences" in the Prospectus.
For federal income tax information reporting purposes, the Class A
Certificates will not be treated as having been issued with original issue
discount. The prepayment assumptions that will be used in determining the rate
of accrual of market discount and premium, if any, for federal income tax
purposes for the REMIC will be based on the assumption that subsequent to the
date of any determination, the Mortgage Loans will prepay at a rate of 25% CPR.
No representation is made that the Mortgage Loans will prepay at these rates or
at any other rate. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount", "--Market Discount" and "--Premium" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount.
Purchasers of the Class A Certificates should be aware that the OID Regulations
do not adequately address certain issues relevant to, or are not applicable to
prepayable securities, such as the Class A Certificates. In addition, there is
considerable uncertainty concerning the application of Section 1272(a)(6) of the
Code and the OID Regulations to REMIC Regular Certificates that provide for
payments based on an adjustable rate, such as the Class A Certificates. Because
of the uncertainties concerning the application of Section 1272(a)(6) of the
Code to the Class A Certificates and because the rules of the OID Regulations
relating to debt instruments having an adjustable rate of interest are limited
in their application in ways that could preclude their application to the Class
A Certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Class A Certificates should be treated as having been
issued with original issue discount or should be governed by some other method
not yet set forth in regulations. Prospective purchasers of the Class A
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
If the Class A Certificates are required to be treated as having been
issued with original issue discount, it appears that a reasonable method of
reporting original issue discount with respect to the Class A Certificates
generally would be to report all income with respect to such Certificates as
original issue discount for each period, computing such original issue discount
(i) by assuming that the value of the applicable index will remain constant for
purposes of determining the original yield to maturity of, and projecting future
distributions on, such Certificates, thereby treating such Certificates as fixed
rate instruments to which the original issue discount computation rules
described in the Prospectus can be applied, and (ii) by accounting for any
positive or negative variation in the actual value of the
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applicable index in any period from its assumed value as a current adjustment to
original issue discount with respect to such period. See "Material Federal
Income Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" in the Prospectus.
In general the Class A Certificates will be treated as assets described
in Section 7701(a)(19)(C) of the Code and as "real estate assets" under Section
856(c)(4)(A) of the Code generally in the same proportion that the assets of the
Trust Fund REMIC would be so treated. Moreover, if 95% or more of such assets
qualify for any of the foregoing treatments at all times during a calendar year,
the Class A Certificates will qualify for the corresponding status in their
entirety for that calendar year. In addition, the Class A Certificates will be
"qualified mortgages" within the meaning of Section 860G(a)(3) of the Code.
Furthermore, interest on the Class A Certificates will be treated as "interest
on obligations secured by mortgages on real property" under Section 856(c)(3)(B)
of the Code generally to the extent that such Class A Certificates are treated
as "real estate assets" under Section 856(c)(4)(A) of the Code. In addition, to
the extent that the Mortgage Loans represent loans secured by mixed residential
and commercial structures, such loans will be treated as assets described in
Section 7701(a)(19)(C) of the Code only if the residential use of the property
securing such loans exceeds 80% of the property's entire use. See "Material
Federal Income Tax Consequences--REMICs--Characterization of Investment in REMIC
Certificates" in the Prospectus.
To the extent permitted by then applicable law, 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 the
Trust Fund REMIC will be borne by the Master Servicer or Trustee in either case
out of its own funds, provided that the Master Servicer or the Trustee, as the
case may be, has sufficient assets to do so, and provided further that such tax
arises out of a breach of the Master Servicer's or the Trustee's obligations, as
the case may be, under the Pooling Agreement and in respect of compliance with
then applicable law. Any such tax not borne by the Master Servicer or the
Trustee will be payable out of the Trust Fund REMIC which may reduce the amounts
otherwise payable to Holders of Class A Certificates. See "Material Federal
Income Tax Consequences--Taxation of Owners of REMIC Residual
Certificates--Prohibited Transactions and Other Possible REMIC Taxes" in the
Prospectus.
A Certificateholder that is not a "U. S. person" (as defined in the
Prospectus) and is not subject to federal income tax as a result of any direct
or indirect connection to the United States in addition to its ownership of a
Certificate will not be subject to United States federal income or withholding
tax in respect of a distribution on a Certificate, provided that the holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the Certificateholder under
penalties of perjury, certifying that such Certificateholder is not a U.S.
person and providing the name and address of such Certificateholder). If the
holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty. The "New Regulations" (as defined in the Prospectus) will now generally
be effective for payments made after December 31, 2000.
The Master Servicer will be designated as the "tax matters person" (as
defined in Treasury regulation Section 301.6231(a)(7)-(1)(a) with respect to the
Trust Fund REMIC, and in connection therewith will be required to hold not
less than 0.01% of the Percentage Interests of the Class R Certificates.
For further information regarding the federal income tax consequences
of investing in the Class A Certificates, see "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" in the
Prospectus.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Class A Certificates will be applied by the Depositor to the purchase price
of the Mortgage Loans and expenses connected with pooling the Mortgage Loans
and issuing the Certificates.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Class A Certificates (the "Underwriting Agreement"),
the Depositor has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter") and the Underwriter has agreed to purchase the
Class A Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all of the Class A
Certificates offered hereby, if any are purchased.
The distribution of the Class A Certificates by the Underwriter will be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined, in each case, at the time of sale. The
Underwriter may effect such transactions by selling the Class A Certificates to
or through dealers, and such dealers may receive from the Underwriter, for whom
they act as agent, compensation in the form of underwriting discounts,
concessions or commissions. The Underwriter and any dealers that participate
with the Underwriter in the distribution of the Class A Certificates may be
deemed to be underwriters, and any discounts, concessions or commissions
received by them, and any profit on the resale of the Class A Certificates
positioned by them, may be deemed to be underwriting discounts and commissions
under the Act.
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, as amended.
All of the Mortgage Loans evidenced by the Certificates have been
acquired by the Depositor from Merrill Lynch Mortgage Capital Inc., an
affiliate, which acquired them in a privately negotiated transaction with the
Mortgage Loan Originator.
The Depositor is an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
LEGAL MATTERS
Certain legal matters relating to the Class A Certificates will be
passed upon for the Depositor and the Underwriter by Thacher Proffitt & Wood,
New York, New York.
EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1998,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
RATINGS
It is a condition to the issuance of the Class A Certificates that they
receive the respective ratings set forth below from Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's," and together with Standard &
Poor's, the "Rating Agencies"):
Class Standard & Poor's Moody's
A AAA Aaa
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The ratings of the Rating Agencies assigned to mortgage pass-through
certificates address the likelihood of the receipt by Certificateholders of all
distributions to which such Certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the Certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which such prepayments will differ from that originally anticipated.
The ratings do not address the likelihood of the payment of any Prepayment
Interest Shortfall, Relief Act Shortfall, LIBOR Shortfall or any LIBOR Carryover
Amount.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to the Class A Certificates are subsequently lowered for any
reason, no person or entity is obligated to provide any additional credit
support or credit enhancement with respect to the Class A Certificates.
The Depositor has not requested that any rating agency rate the Class A
Certificates other than as stated above. However, there can be no assurance as
to whether any other rating agency will rate the Class A Certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the Class A Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Class A Certificates as stated above.
LEGAL INVESTMENT
The Class A Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization, and, as such,
are legal investments for certain entities to the extent provided in SMMEA.
SMMEA provided the states could override its provisions on legal investment and
restrict or condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991. Certain states have enacted
legislation which overrides the preemption provisions of SMMEA.
The Depositor makes no representation as to the proper characterization
of the Class A Certificates for legal investment or other purposes, or as to the
ability of particular investors to purchase the Class A Certificates under
applicable legal investment restrictions. The uncertainties may adversely affect
the liquidity of the Class A Certificates. Accordingly, all institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and the extent to
which the Class A Certificates constitute a legal investment under SMMEA or are
subject to investment, capital or other restrictions. See "Legal Investment" in
the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plans or
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 Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Code should carefully review with its legal advisors whether the purchase or
holding of Class A Certificates could give rise to a transaction that is
prohibited or is not otherwise permitted either under ERISA or Section 4975 of
the Code.
The U.S. Department of Labor issued an individual exemption, Prohibited
Transaction Exemption 90-29 (the "Exemption"), on May 24, 1990 to the
Underwriter which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Sections 4975(a) and (b) of the Code
and Section 502(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 discussion, the term "Underwriter"
shall include (a) Merrill Lynch, Pierce, Fenner &
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Smith Incorporated, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with Merrill
Lynch, Pierce, Fenner & Smith Incorporated and (c) any member of the
underwriting syndicate or selling group of which a person described in (a) or
(b) is a manager or co-manager with respect to the Class A Certificates.
The Exemption sets forth seven general conditions which must be
satisfied for a transaction involving the purchase, sale and holding of the
Class A Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class A Certificates by certain employee benefit plans
subject to Section 4975 of the Code (each, a "Plan"), must be on terms that are
at least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party. Second, the rights and interests evidenced
by the Class A Certificates must not be subordinate to the rights and interests
evidenced by the other certificates of the same trust. Third, the Class A
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Company or Fitch IBCA, Inc. ("National Credit
Ratings Agencies"). Fourth, the Trustee cannot be an affiliate of any member of
the "Restricted Group," which consists of any Underwriter, the Depositor, the
Master Servicer, each sub-servicer and any mortgagor with respect to the
Mortgage Loans constituting more than 5% of the aggregate unamortized principal
balance of the Mortgage Loans as of the date of initial issuance of the Class A
Certificates. Fifth, the sum of all payments made to and retained by the
Underwriter must represent not more than reasonable compensation for
underwriting the Class A Certificates; the sum of all payments made to and
retained by the 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; the sum of all payments made to and retained by the Master Servicer
and any sub-servicer must represent not more than reasonable compensation for
such person's services under the Agreement and reimbursement of such person's
reasonable compensation for such person's services under the Agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the investing Plan must be an accredited investor as defined in Rule
501(a)(1) of Regulation D of the Securities and Exchange Commission under the
Securities Act of 1933, as amended. Seventh, (i) the investment pool consists
only of assets of the type enumerated in the Exemption and which have been
included in other investment pools; (ii) certificates evidencing interests in
such other investment pools have been rated in one of the three highest generic
rating categories by one of the National Credit Rating Agencies for at least one
year prior to a Plan's acquisition of certificates; and (iii) certificates
evidencing interests in such other investment pools have been purchased by
investors other than Plans for at least one year prior to a Plan's acquisition
of certificates. See "ERISA Considerations" in the Prospectus.
In addition, the Exemption will not apply to a Plan's investment in
Class A Certificates if the plan fiduciary responsible for the decision to
invest in Class A Certificates is a mortgagor or obligor with respect to more
than 5% of the fair market value of the obligations constituting the Mortgage
Loans or an affiliate of such person, unless: (1) in the case of an acquisition
in connection with the initial issuance of any Certificates, at least 50% of
each Class of Certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least 50% of the aggregate interest
in the Trust is acquired by persons independent of the Restricted Group; (2) the
Plan's investment in any Class of Certificates does not exceed 25% of the
outstanding Certificates of that Class at the time of acquisition; (3)
immediately after such acquisition, no more than 25% of the Plan assets with
respect to which the investing fiduciary has discretionary authority or renders
investment advice are invested in Certificates evidencing interest in trusts
sponsored or containing assets sold or serviced by the same entity; and (4) the
Plan is not sponsored by any member of the Restricted Group.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm (a) that such Certificates constitute "certificates" for purposes
of the Exemption and (b) that the specific and general conditions of the
Exemption and the other requirements set forth in the Exemption would be
satisfied.
Any Plan fiduciary considering whether to purchase an Class A
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
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The sale of the Class A Certificates to a Plan is in no respect a
representation by the Issuer or the Underwriters that such an investment meets
all relevant legal requirements with respect to investments by Plans generally
or any particular Plan, or that such an investment is appropriate for Plans
generally or any particular Plan.
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INDEX OF PRINCIPAL DEFINITIONS
Page
Accrued Certificate Interest................................................S-41
Adjustment Date ..........................................................S-12
Agreement ..........................................................S-46
Available Funds Pass-Through Rate...........................................S-42
CEDE ..........................................................S-38
Cedelbank Participants......................................................S-39
Certificate Owners..........................................................S-38
Certificateholder ..........................................................S-38
Class A Certificates........................................................S-37
Class A Principal Distribution Amount.......................................S-43
Class Certificate Balance...................................................S-37
Clearing Agency ..........................................................S-38
clearing corporation........................................................S-38
Commission ..........................................................S-25
Compensating Interest.......................................................S-49
Cooperative ..........................................................S-39
CPR ..........................................................S-34
Cut-off Date Pool Principal Balance.........................................S-42
Depositaries ..........................................................S-38
Depositary ..........................................................S-38
Due Date ..........................................................S-12
ERISA ..........................................................S-58
Euroclear ..........................................................S-38
Euroclear Operator..........................................................S-39
Euroclear Participants......................................................S-39
Exemption ..........................................................S-58
Expense Adjusted Maximum Mortgage Rate......................................S-42
Expense Fee Rate ..........................................................S-42
Extra Principal Distribution Amount.........................................S-44
First Union ..........................................................S-50
five year Delayed First Adjustment Date Mortgage Loan.......................S-12
Gross Margin ..........................................................S-12
Indirect Participants.......................................................S-38
Interest Accrual Period.....................................................S-41
Interest Carry Forward Amount...............................................S-41
Interest Determination Date.................................................S-42
LIBOR Carryover Amount......................................................S-42
LIBOR Rate ..........................................................S-42
LIBOR Shortfall Amount......................................................S-42
Litton ..........................................................S-47
master servicer ...........................................................S-3
Maximum Mortgage Rate.......................................................S-12
Minimum Mortgage Rate.......................................................S-12
Modeling Assumptions........................................................S-34
Monthly Advance ..........................................................S-46
Monthly Excess Interest Amount..............................................S-44
Mortgage Loan Originator....................................................S-25
Mortgaged Properties........................................................S-11
National Credit Ratings Agencies............................................S-58
non-conforming credit.......................................................S-26
OID Regulations ..........................................................S-55
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One-Month LIBOR ..........................................................S-42
Overcollateralization Amount................................................S-44
Overcollateralization Deficiency............................................S-44
Overcollateralization Release Amounts.......................................S-45
PacificAmerica ..........................................................S-25
Participants ..........................................................S-38
Periodic Rate Cap ..........................................................S-12
Plan ..........................................................S-58
Prepayment Interest Shortfalls..............................................S-32
Rating Agencies ..........................................................S-57
Relief Act ..........................................................S-32
REMIC ..........................................................S-55
Required Overcollateralization Amount.......................................S-44
Reserve Interest Rate.......................................................S-43
Residual Certificates.......................................................S-37
Six-Month LIBOR ..........................................................S-25
SMMEA ..........................................................S-58
Standard & Poor's ..........................................................S-57
step-down ..........................................................S-44
Stepdown Date ..........................................................S-45
Telerate Page 3750..........................................................S-42
Terms and Conditions........................................................S-40
three year Delayed First Adjustment Date Mortgage Loan......................S-12
Trustee ..........................................................S-49
two year Delayed First Adjustment Date Mortgage Loan........................S-12
Underwriter ..........................................................S-58
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$109,248,500
MORTGAGE LOAN ASSET BACKED CERTIFICATES,
SERIES 1999-H2
MERRILL LYNCH MORTGAGE INVESTORS, INC.
DEPOSITOR
-----------------------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------------------
MERRILL LYNCH & CO.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Certificates in any state where the offer is
not permitted.
Until the expiration of 90 days the date of this Prospectus Supplement,
all dealers selling the Class A Certificates, whether or not participating in
this distribution, will 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.
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