FINANCIAL ASSET SECURITIZATION INC, 424B2, 1997-11-26

FINANCIAL ASSET SECURITIZATION INC
424B2, 1997-11-26
FINANCE SERVICES

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FILED PURSUANT TO RULE 424(B)(2)
FILE NO. 33-78368

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 28, 1997)

$55,196,194

FINANCIAL ASSET SECURITIZATION, INC.
SELLER

MORTGAGE PARTICIPATION SECURITIES, SERIES 1997-2

The Mortgage Participation Securities, Series 1997-2 Class A-1 (the
"Securities"), will represent, in the aggregate, the entire beneficial ownership
interest in a trust (the "Trust") consisting primarily of a portion of (i) two
classes of Guaranteed REMIC Pass-Through Certificates ("FNMA REMIC
Certificates") issued by the Federal National Mortgage Association ("FNMA")
representing beneficial ownership interests in separate trusts established by
FNMA (the "Pooled FNMA Certificates") and (ii) six classes of Multiclass
Mortgage Securities or Multiclass Mortgage Participation Certificates issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") as part of separate series
of such securities or certificates (the "Pooled FHLMC Certificates," and
together with the Pooled FNMA Certificates, the "Pooled Certificates"). The
designations used herein for each Pooled Certificate are set forth under
"Description of the Pooled Certificates--General" and the characteristics of the
Pooled Certificates are described herein under "Description of the Pooled
Certificates" and in Annex 1 and Annex 2 attached hereto. Capitalized terms used
herein and not otherwise defined herein are defined in the Glossary in the
Prospectus.

(COVER CONTINUED ON NEXT PAGE)

------------------------------

THESE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES.
DISTRIBUTIONS ON THE SECURITIES WILL BE MADE SOLELY FROM ASSETS
TRANSFERRED OR PLEDGED TO THE TRUST FOR THE BENEFIT OF
SECURITYHOLDERS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------------

PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FACTORS SET
FORTH ON PAGE (III) HEREIN, THOSE UNDER "RISK FACTORS," COMMENCING AT PAGE 9 OF
THE PROSPECTUS AND AT PAGE S-11 OF THIS PROSPECTUS SUPPLEMENT, AND THE
DISCUSSION UNDER "YIELD AND PREPAYMENT CONSIDERATIONS" COMMENCING AT PAGE S-22
HEREIN.

INITIAL PRINCIPAL AMOUNT PASS-THROUGH RATE
------------------------- ------------------
Class A-1 $55,196,194 (1)

- ---------------

(1) The effective per annum interest rate borne by the Securities during each
Interest Accrual Period (as defined herein) with respect to a Distribution
Date (as defined herein) will equal a fraction, expressed as a percentage
truncated at the fourth decimal place, the numerator of which is equal to
the aggregate amount in respect of interest paid to the Securityholders for
the related Interest Accrual Period multiplied by 12, and the denominator of
which is the principal amount of the Securities immediately prior to such
Distribution Date. Under certain circumstances, the principal amount of the
Securities could be paid in full while interest would remain payable, in
which case, the calculation of the effective per annum interest rate borne
by the Securities would not be meaningful. The effective per annum interest
rate borne by the Securities during the first Interest Accrual Period is
projected to be approximately 6.1413%.

It is a condition to the issuance of the Securities that they be assigned a
rating of "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by
Fitch Investors Service, Inc. ("Fitch," and together with Moody's, the "Rating
Agencies"). See "Ratings" herein.

The Securities will be purchased by Bear, Stearns & Co. Inc. (the
"Underwriter") from Financial Asset Securitization, Inc. (the "Seller") and will
be offered by the Underwriter from time to time in negotiated transactions at
varying prices to be determined at the time of sale. Proceeds to the Seller from
the sale of the Securities are expected to be approximately 99.5% of the
aggregate principal balance of the Securities, plus accrued interest thereon
from November 1, 1997 to but not including the Closing Date, but before
deducting expenses payable by the Seller, estimated to be $250,000.

The Securities are offered by the Underwriter when, as and if issued,
delivered to and accepted by the Underwriter and subject to certain other
conditions. Delivery of the Securities is expected to be made in book entry form
only, through the same day funds settlement system of The Depository Trust
Company on or about November 28, 1997.

BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 25, 1997

<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)

The Pooled FNMA Certificates are guaranteed as to timely distribution of
principal and interest by FNMA. FHLMC guarantees to the record holder of the
Pooled FHLMC Certificates the timely payment of interest and the payment of the
principal amount of the Pooled FHLMC Certificates as described in the FHLMC
Offering Circular Term Sheets.

The Pooled FNMA Certificates are each one class of two separate series of
FNMA REMIC Certificates (each, an "Underlying FNMA Series") which represent
beneficial ownership interests in separate trusts established by FNMA (the
"Underlying FNMA Trusts"). The assets of the Underlying FNMA Trusts consist of
direct or indirect beneficial ownership interests in (i) certain FNMA guaranteed
mortgage pass-through certificates ("FNMA MBS") and/or (ii) certain "fully
modified pass-through" mortgage backed securities ("GNMA Certificates")
guaranteed as to timely payment of principal and interest by the Government
National Mortgage Association ("GNMA"). Each FNMA MBS represents a beneficial
ownership interest in a pool of first lien, single-family, fixed rate
residential mortgage loans. Each GNMA Certificate is based on and backed by a
pool of mortgage loans (together with the mortgage loans underlying the FNMA
MBS, the "FNMA Mortgages") which are either insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Department of Veterans
Affairs ("VA").

The Pooled FHLMC Certificates are each one class of six separate series of
FHLMC Multiclass Mortgage Securities or Multiclass Mortgage Participation
Certificates (each, an "Underlying FHLMC Series" and together with the
Underlying FNMA Series, each an "Underlying Series") which receive payments from
the cash flows provided by separate groups of FHLMC Gold Mortgage Participation
Certificates ("Gold PCs"), FHLMC Gold Giant Mortgage Participation Certificates
("Gold Giant PCs"), FHLMC Multiclass Mortgage Participation Certificates
("Multiclass PCs"), GNMA-Related Securities (GNMA Certificates and Giant
Securities), and/or FHLMC Stripped Giant Mortgage Participation Certificates
("Stripped Giant PCs"). The assets underlying each Underlying FHLMC Series are
pools of fixed-rate, first lien, residential mortgage loans and/or
participations in mortgage loans ("FHLMC Mortgages").

Four classes of the Pooled Certificates are entitled to receive
distributions of interest on the principal balance or notional principal balance
thereof based on separate formulae that vary inversely with the London interbank
offered quotations for one-month Eurodollar deposits ("LIBOR"), subject to
minimum and maximum rates ("Pooled Inverse Floating Rate Certificates"). One
class of the Pooled FHLMC Certificates is entitled to receive distributions of
interest on the principal balance thereof at a fixed interest rate ("Pooled
Fixed Rate Certificates"). Three of the classes of the Pooled Certificates are
accrual classes ("Pooled Accrual Certificates") with fixed interest rates. In
addition, two of the classes of Pooled Inverse Floating Rate Certificates are
"interest only" certificates and do not have principal balances, and as such,
are not entitled to receive distributions of principal ("Pooled IO
Certificates").

In addition to the Pooled Certificates, the Trust shall include a Reserve
Fund. The Reserve Fund includes seven United States Treasury Securities (the
"Treasury Securities") that will provide funds equal to $5,360,000. On the first
two Distribution Dates, distributions from the Reserve Fund shall be applied to
interest on the Securities. On the third Distribution Date, distributions from
the Reserve Fund shall be applied to principal and interest on the Securities.
On the fourth Distribution Date and thereafter, distributions from the Reserve
Fund shall be applied to principal on the Securities. See "The Trusts--Reserve
Fund or Accounts" in the Prospectus and "The Reserve Fund" herein.

Distributions of principal and interest on the Securities with respect to a
month will be made on the 25th day of such month (each, a "Distribution Date")
or, if such day is not a Business Day (as defined herein), then on the next
succeeding Business Day. On each Distribution Date, holders of Securities will
be entitled to receive interest from funds received as interest on the Pooled
Certificates and principal from funds received as principal on the Pooled
Certificates, as more fully described herein under "Description of the
Securities" herein.

THE SECURITIES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE THE SECURITIES UNLESS THE INVESTOR
UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND MARKET
RISKS ASSOCIATED WITH THE SECURITIES.

The Securities are complex securities and it is important that each
investor in the Securities possess, either alone or together with an investment
advisor, the expertise necessary to evaluate the information contained and
incorporated in this Prospectus Supplement in the context of that investor's
financial situation.

The yield to maturity on the Securities will depend on the purchase price
and the rate and timing of principal payments on the Pooled Certificates which
in turn will be affected by the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations) on the FNMA Mortgages and
the FHLMC Mortgages (collectively, the "Mortgage Loans" and with respect to any
Pooled Certificates, the "Underlying Mortgage Loans" or a "Mortgage Pool").
Generally, the Mortgage Loans may be prepaid at any time without penalty. The
yield to maturity on the Securities also will be sensitive to the level of
LIBOR.

(ii)

<PAGE>

Mortgage Loan prepayment rates are likely to fluctuate significantly from time
to time, as is the level of LIBOR. Investors should consider the associated
risks, including:

o High levels of LIBOR can significantly reduce the interest due on
the Pooled Inverse Floating Rate Certificates. CONSEQUENTLY, A
HIGH LEVEL OF LIBOR WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO
INVESTORS IN THE SECURITIES.

o Slight variations in Mortgage Loan characteristics could
substantially affect the weighted average life and yield of the
Securities.

o The Pooled Certificates were issued as parts of different
Underlying Series and the rates of prepayments on the Underlying
Mortgage Loans will be different. Under various circumstances,
including differing prepayment rates of the Underlying Mortgage
Loans, the Pooled FNMA Certificates or the Pooled FHLMC
Certificates could mature at times other than expected by
investors and the Securities could have a cash flow profile
different from that expected by investors. For example, if the
Pooled Accrual Certificates and the Pooled Fixed Rate Certificates
were all to mature prior to the maturity of one or more of the
Pooled Inverse Floating Rate Certificates, the Securities would at
that point have the yield characteristics of an inverse floating
rate security.

o If the notional principal balances of the Pooled IO Certificates
are reduced to zero (or, in the case of the Pooled Inverse
Floating Rate Certificates, if increased LIBOR levels reduce the
interest rate payable on such certificates to zero), interest
payments on the Securities will be significantly reduced.

o The yield to investors on the Securities can be expected to
decrease to the extent that the notional principal balances of the
Pooled IO Certificates reduce faster than anticipated.

o If, on any Distribution Date, the amount by which the Pooled
Accrual Certificates have accreted exceeds the aggregate
distributions of principal for the Securities, the principal
balance of the Securities will be increased by the amount of such
excess.

o The yield to maturity of Securities purchased at a discount or
premium will be more sensitive to the rate and timing of payments
thereon. Holders of Securities purchased at a discount (or
premium) should consider the risk that a slower (or faster) than
anticipated rate of principal payments to the Securities could
result in an actual yield that is lower than the anticipated
yield.

To the extent statements contained herein do not relate to historic or
current information, this Prospectus Supplement may be deemed to contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "1933 Act"), and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "1934 Act"). Actual results could differ
materially from those projected in such statements as a result of the matters
set forth below, under "Summary of Terms--Yield and Prepayment Considerations"
and "Yield and Prepayment Considerations" and elsewhere in this Prospectus
Supplement.

There is currently no secondary market for the Securities and there can be
no assurance that one will develop. The Underwriter intends to establish a
market in the Securities, but is not obligated to do so. There is no assurance
that any such market, if established, will continue.

No election will be made to treat the Trust or any of its assets as a "real
estate mortgage investment conduit" ("REMIC") for Federal income tax purposes.

The Securities offered by this Prospectus Supplement constitute a separate
series of Securities being offered by the Seller pursuant to its Prospectus
dated October 28, 1997, of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full. Prospective investors are also urged to read the documents
relating to the Pooled Certificates described under " Description of the Pooled
Certificates--Additional Information" herein.

------------------------------

REPORTS TO SECURITYHOLDERS

Unless and until definitive certificates are issued with respect to the
Securities, monthly reports containing information concerning the Trust and
prepared by Trustee will be sent to Cede & Co., as nominee of The Depository
Trust Company ("DTC") and registered holder of the Securities. Such reports may
be available to beneficial owners of the Securities in accordance with the
regulations and procedures of DTC.

(iii)

<PAGE>

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

Page

SUMMARY OF TERMS..................................................S-2
RISK FACTORS.....................................................S-11
General.................................................S-11
Uncertainty of Yield....................................S-11
DESCRIPTION OF THE SECURITIES....................................S-12
Book Entry..............................................S-12
Payments of Interest and Principal......................S-13
Optional Termination....................................S-14
Mandatory Termination...................................S-15
Exchange of Securities..................................S-15
DESCRIPTION OF THE POOLED CERTIFICATES...........................S-15
General ...............................................S-15
Pooled FNMA Certificates................................S-15
Pooled FHLMC Certificates...............................S-16
Pooled Certificates - Principal Types...................S-17
Pooled Certificates - Interest Types....................S-18
The Underlying Mortgage Loans...........................S-18
Additional Information..................................S-19
THE RESERVE FUND.................................................S-22
YIELD AND PREPAYMENT CONSIDERATIONS..............................S-22
General Considerations..................................S-22
Final Scheduled Distribution Date.......................S-23
Weighted Average Lives..................................S-24
SPA Model...............................................S-24
Pricing Assumption......................................S-24
Decrement and Weighted Average Life Table...............S-24
Pre-Tax Yield Table.....................................S-26
Actual Experience Will Vary from Assumptions............S-26
THE POOLING AGREEMENT............................................S-27
General ...............................................S-27
Assignment of Pooled Certificates.......................S-27
Accounts S-28
Reports to Securityholders..............................S-28
Amendmnts...............................................S-29
Securityholder Action...................................S-29
Termination.............................................S-30
Indemnification of the Trustee..........................S-30
Certain Matters Regarding the Trustee...................S-30
FEDERAL INCOME TAX CONSIDERATIONS................................S-30
Tax Characterization of the Trust.......................S-31
ERISA CONSIDERATIONS.............................................S-32
LEGAL INVESTMENT.................................................S-32
UNDERWRITING.....................................................S-32
LEGAL MATTERS....................................................S-33
RATINGS..........................................................S-33
INDEX OF TERMS...................................................S-34
ANNEX 1..........................................................S-35
ANNEX 2..........................................................S-38

<PAGE>

SUMMARY OF TERMS

The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying prospectus dated October 28, 1997 (the "Prospectus"). A
description of the Pooled Certificates being deposited into the Trust is set
forth under "Description of the Pooled Certificates--General" and in Annex 1 and
Annex 2 hereto. Unless otherwise specified herein, references herein to an
amount or percentage of Pooled Certificates refers to the amount or percentage
calculated based on the aggregate outstanding principal balance or notional
principal balance as reported by the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC") with respect
to the Underlying Series (the "Pooled Certificate Principal Balance" or the
"Pooled Certificate Notional Principal Balance," as applicable) of such Pooled
Certificates as of each Certificate's November 1997 Pooled Certificate
Distribution Date, after giving effect to distributions made on the Pooled
Certificates on or prior to such dates. References to the "Trust Agreement" in
the Prospectus shall be deemed to refer to the "Pooling Agreement" in this
Prospectus Supplement.

Title of Securities....................... Mortgage Participation Securities,
Series 1997-2, Class A-1 (the
"Securities").

Trust..................................... The Securities will represent
the entire beneficial ownership
interest in a trust (the
"Trust") formed pursuant to a
Pooling Agreement (the "Agreement")
between Financial Asset
Securitization, Inc., as Seller (the
"Seller"), and Norwest Bank
Minnesota, National Association, as
Trustee (the "Trustee"). The
Seller expects to acquire the
Pooled Certificates and Treasury
Securities from Bear, Stearns &
Co. Inc. (the "Underwriter") on
the Closing Date. See
"Underwriting" herein and "The
Seller" in the Prospectus. The
Trustee will act as securities
administrator and will perform
securities administration functions
for the Trust, including, among
other things, calculating amounts
due to Securityholders and
the preparation and distribution of
monthly reports. Consequently,
there will be no separate servicing
agreement among the parties relating
to the transaction. See "The
Pooling Agreement" herein.

Book-Entry;
Denominations............................. The Securities will be registered
as a single certificate held by
Cede & Co. as nominee of The
Depository Trust Company ("DTC"),
and beneficial interests will be
held by investors through the
book-entry facilities of DTC in
minimum denominations of $25,000
and increments of $1 in excess
thereof. See "Description of the
Securities--Book Entry; Physical
Certificates" herein and
"Description of the
Securities--Book Entry Procedures"
in the Prospectus.

Pooled Certificates....................... The Trust will consist primarily
of the Pooled Certificates and the
Reserve Fund. The Pooled
Certificates will consist of a
portion of (i) two classes of
Guaranteed REMIC Pass-Through
Certificates issued by FNMA
representing beneficial ownership
interests in separate Underlying
FNMA Trusts (the "Pooled FNMA
Certificates") and (ii) six classes
of Multiclass Mortgage Securities
or Multiclass Mortgage
Participation Certificates issued
by FHLMC as part of separate
Underlying FHLMC Series (the "Pooled
FHLMC Certificates" and together
with the Pooled FNMA Certificates,
the "Pooled Certificates"). The
designations used herein for each

<PAGE>

Pooled Certificate are set forth
under "Description of the Pooled
Certificates--General" and the
characteristics of the Pooled
Certificates are described herein
under "Description of the Pooled
Certificates" and in Annex 1 and
Annex 2 attached hereto.

The Pooled FNMA Certificates are
guaranteed as to timely distribution
of principal and interest by FNMA.
FHLMC guarantees to the record
holder of the Pooled FHLMC
Certificates the timely payment of
interest and the payment of the
principal amount of the Pooled FHLMC
Certificates as described in the
Underlying FHLMC Offering Circular
Term Sheets. See "Description of the
Pooled Certificates--Pooled FHLMC
Certificates--General."

The Pooled FNMA Certificates are
each one class of two separate
series of FNMA REMIC Certificates
(each, an "Underlying FNMA Series")
which represent beneficial ownership
interests in separate trusts
established by FNMA (the "Underlying
FNMA Trusts"). The assets of the
Underlying FNMA Trusts consist of
direct or indirect beneficial
ownership interests in (i) certain
FNMA guaranteed mortgage
pass-through certificates ("FNMA
MBS") and/or (ii) certain "fully
modified pass-through" mortgage
backed securities ("GNMA
Certificates") guaranteed as to
timely payment of principal and
interest by the Government National
Mortgage Association ("GNMA"). Each
FNMA MBS represents a beneficial
ownership interest in a pool of
first lien, single-family, fixed
rate residential mortgage loans.
Each GNMA Certificate is based on
and backed by a pool of mortgage
loans (together with the mortgage
loans underlying the FNMA MBS, the
"FNMA Mortgages") which are either
insured by the Federal Housing
Administration ("FHA") or partially
guaranteed by the Department of
Veterans Affairs ("VA").

The Pooled FHLMC Certificates are
each one class of six separate
series of FHLMC Multiclass Mortgage
Securities or Multiclass Mortgage
Participation Certificates, (each,
an "Underlying FHLMC Series" and
together with the Underlying FNMA
Series, each an "Underlying Series")
which receive payments from the cash
flows provided by separate groups of
FHLMC Gold Mortgage Participation
Certificates ("Gold PCs"), FHLMC
Gold Giant Mortgage Participation
Certificates ("Gold Giant PCs"),
FHLMC Multiclass Mortgage
Participation Certificates
("Multiclass PCs"), GNMA-Related
Securities (GNMA Certificates and
Giant Securities), and/or FHLMC
Stripped Giant Mortgage
Participation Certificates
("Stripped Giant PCs"). The assets
underlying each Underlying FHLMC
Series are pools of fixed-rate,
first lien, residential mortgage
loans and/or participations in
mortgage loans ("FHLMC Mortgages").

Each Underlying Series was issued
pursuant to a separate agreement
(each, an "Underlying Agreement").

In the case of the Pooled FNMA
Certificates, the distribution date
is either the 17th day or the 18th
day of the month (the "Pooled FNMA
Certificate Distribution Date") and,
in the case of the Pooled FHLMC
Certificates, the distribution date
is the 15th day of each month,
except for one Pooled FHLMC
Certificate for which the
distribution date is the second

<PAGE>

business day after the 15th day of
the month (the "Pooled FHLMC
Certificate Distribution Date" and,
with the Pooled FNMA Certificate
Distribution Date, a "Pooled
Certificate Distribution Date"), or
if, in each case, such day is not a
business day as defined in the
applicable Underlying Agreement,
then the next succeeding business
day, as so defined.

Four classes of the Pooled
Certificates are entitled to receive
distributions of interest on the
principal balance or notional
principal balance thereof based on
separate formulae that vary
inversely with the London interbank
offered quotations for one-month
Eurodollar deposits ("LIBOR"),
subject to minimum and maximum rates
("Pooled Inverse Floating Rate
Certificates"). One class of the
Pooled FHLMC Certificates is
entitled to receive distributions of
interest on the principal balance
thereof at a fixed interest rate
("Pooled Fixed Rate Certificates").
Three of the classes of the Pooled
Certificates are accrual classes
("Pooled Accrual Certificates") with
fixed interest rates. In addition,
two of the classes of Pooled Inverse
Floating Rate Certificates are
"interest only" certificates and do
not have principal balances, and as
such, are not entitled to receive
distributions of principal ("Pooled
IO Certificates").

Annex 1 hereto sets forth
approximate information for each of
the Pooled Certificates. The tables
and the descriptions of the Pooled
Certificates herein are subject to
and qualified by reference to the
provisions of the Underlying
Prospectus Information (as defined
below) and the other documents
related to the Pooled Certificates
or the other mortgage-backed
securities issued as part of the
Underlying Series. The information
set forth in the tables and
elsewhere herein has been derived
from information provided by FNMA
and FHLMC, but such information has
not been independently verified.
This information comprises all
material information on the subject
that the Seller and the Underwriter
possess or can acquire without
unreasonable effort and expense.

Annex 2 hereto contains the
Prospectus Supplements for each of
the Pooled FNMA Certificates (the
"Underlying FNMA Prospectus
Information"), and the cover page
and terms sheet from the Offering
Circular Supplements for each of the
Pooled FHLMC Certificates (the
"Underlying FHLMC Offering Circular
Term Sheets" and together with the
Underlying FNMA Prospectus
Information, the "Underlying
Prospectus Information"). The
Prospectuses underlying the
Prospectus Supplements for each of
the Pooled FNMA Certificates are
incorporated herein by reference,
and the Offering Circular
Supplements and the related Offering
Circulars for each of the Pooled
FHLMC Certificates are incorporated
herein by reference. The related
Prospectuses and Offering Circulars
are hereinafter referred to as the
"Underlying Prospectuses." Investors
should purchase Securities only if
they have read and understood this
Prospectus Supplement, the
Prospectus, the Underlying
Prospectus Information and the other
documents described herein
"Description of the Pooled
Certificates--Additional
Information."

<PAGE>

It should be noted that there have
been material changes in facts and
circumstances since the dates of the
Underlying Prospectus Information,
including changes in prepayment
rates, prevailing interest rates and
other economic factors, which may
limit the usefulness of, and be
directly contrary to the assumptions
used in preparing the information
set forth in, such documents.

The Reserve Fund.......................... On the Closing Date, the Seller
will fund a reserve fund (the
"Reserve Fund") with seven United
States Treasury Securities (the
"Treasury Securities") that will
provide funds equal to $5,360,000.
Payments on the Treasury
Securities will be applied to pay
interest and/or principal on the
Securities on the Distribution
Date following receipt. On each of
the December 1997, January 1998,
and February 1998 Distribution
Dates $120,000 will be applied to
pay interest on the Securities. On
each of the February 1998, August
1998, February 1999, and August
1999 Distribution Dates,
$1,250,000 will be applied to pay
principal on the Securities. See
"The Reserve Fund" herein.

Closing Date.............................. On or about November 28, 1997 (the
"Closing Date").

Distribution Dates........................ Distributions of principal and
interest on the Securities with
respect to a month will be made on
the 25th day of such month (each,
a "Distribution Date") or, if
such day is not a Business Day
(as defined herein), then on the
next succeeding Business Day. A
"Business Day" means a day other
than a Saturday, a Sunday or a day
on which banking institutions in
New York, 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. The
first Distribution Date is expected
to be December 26, 1997. In
addition, if the Trustee has not
received a distribution on, or
distribution information with
respect to, any of the Pooled
Certificates by noon on the
Distribution Date (the
"Determination Time"), the
distribution allocable to such
Pooled Certificates will not be
made on the Distribution Date,
but, (i) if such distribution
and such distribution information
are received by noon on the third
Business Day after the
Determination Time, it will be
made on the third Business Day
after the Determination Time
(a "Supplemental Distribution
Date") or (ii) if received after
noon on the third Business Day
after the Determination Time, it
will be made on the next succeeding
Distribution Date, and in
neither case will additional
interest be paid thereon.

Record Date............................... Distributions will be made on each
Distribution Date to holders of
record as of the close of business
on the last Business Day of the
calendar month preceding the
month in which such Distribution
Date occurs; provided that for
this purpose the Distribution
Date is deemed to occur on the 25th
of each month, without regard to
whether such day is a Business Day
(the "Record Date"). See
"Description of the
Securities--Payments of Interest and
Principal" herein.

Original Principal
Amount.................................... The initial aggregate principal
amount of the Securities will be
equal to the sum of the (i)
aggregate Pooled Certificate
Principal Balance following the
November 1997 Pooled Certificate
Distribution Date and (ii) the
amount of the Treasury Securities
deposited in the Reserve Fund which

<PAGE>

are allocated for the payment of
principal on the Securities. The
original principal amount of the
Securities will be reduced to
reflect any exchange of Securities
for a pro rata portion of the Pooled
Certificates and Treasury
Securities.

Distributions of Interest
and Principal............................. The effective per annum interest
rate borne by the Securities
during the calendar month preceding
the month in which the Distribution
Date occurs (each, an "Interest
Accrual Period") will equal a
fraction, expressed as a percentage
truncated at the fourth decimal
place, the numerator of which is
equal to the aggregate amount in
respect of interest paid to the
Securityholders for the related
Interest Accrual Period multiplied
by 12, and the denominator of
which is the principal amount of
the Securities immediately
prior to such Distribution Date.
Under certain circumstances, the
principal amount of the Securities
could be paid in full while
interest would remain payable, in
which case, the calculation of
the effective per annum interest
rate borne by the Securities would
not be meaningful. The effective
per annum interest rate borne by
the Securities during the first
Interest Accrual Period is
projected to be approximately
6.1413%.

On each Distribution Date, holders
of the Securities will be entitled
to receive interest from funds
received as interest (and, on some
Distribution Dates, from funds
received as principal, up to the
amount of accrual on the Pooled
Accrual Certificates for such
Distribution Date) on the Pooled
Certificates and from funds payable
as interest from the Reserve Fund
(less the Trustee's Fees), and
principal from funds received as
principal on the Pooled Certificates
and from funds payable as principal
from the Reserve Fund, as more fully
described herein under "Description
of the Securities" and "The Reserve
Fund."

Optional Termination by
the Seller................................ The Trust may be terminated, at
the option of the Seller, on any
Distribution Date on or after the
date on which the aggregate Pooled
Certificate Principal Balance and
the amount of funds payable as
principal from the Reserve Fund
has declined to 10% or less of the
aggregate Pooled Certificate
Principal Balance and the amount
of funds payable as principal from
the Reserve Fund on the Closing
Date, as reduced by the original
face amount of any Securities
exchanged for a pro rata portion
of the Pooled Certificates and
Treasury Securities. In such
event, the Securityholders will
receive the unpaid principal
balance of the Securities plus
accrued interest thereon. See
"Description of the
Securities--Optional Termination"
herein.

Mandatory Termination..................... On the Distribution Date
following the first Distribution
Date on which the Pooled Certificate
Principal Balance or Pooled
Certificate Notional Principal
Balance of all but one of the Pooled
Certificates has been reduced to
zero, the Trust will be
terminated and the remaining Pooled
Certificate will be distributed
in kind pro rata among
Securityholders. See "Description
of the Securities--Mandatory
Termination" herein.

Exchange of Securities.................... Beginning on the Distribution
Date in December 1998, holders of
a minimum of 10% of the initial

<PAGE>

principal amount of the
Securities, without taking into
account any reductions in the
initial principal amount due to an
exchange of Securities will be
entitled to exchange such Securities
for a pro rata portion of each
of the Pooled Certificates and
Treasury Securities. Holders of
Securities to be exchanged will be
charged an exchange fee by the
Trustee equal to the greater of
(i) $500 and (ii) 0.02% of the
outstanding principal amount of
such Securities.

Yield and Prepayment
Considerations............................ General Considerations. The yield
to maturity and weighted average
life of the Securities will be
affected by, among other things,
the amount and timing of principal
and interest payments, the level
of LIBOR, the payment priorities
and other characteristics of the
Pooled Certificates, the occurrence
of an optional or mandatory
termination with respect to the
Pooled Certificates or the
Securities and the purchase price
paid for the Securities. In
addition to the discussion below,
prospective investors should review
the discussion under "Yield and
Prepayment Considerations" herein.

Mortgage Loan Prepayments. If
prevailing mortgage rates fall
significantly below the mortgage
rates on the FNMA Mortgages or the
FHLMC Mortgages (collectively, the
"Mortgage Loans" and with respect to
any Pooled Certificates, the
"Underlying Mortgage Loans" or a
"Mortgage Pool"), the Mortgage Loans
are likely to be subject to higher
prepayment rates than if prevailing
rates remain at or above the
mortgage rates on the Mortgage
Loans. Other factors affecting
prepayments of Mortgage Loans
include changes in mortgagors'
housing needs, job transfers,
unemployment, net equity in the
mortgaged properties and servicing
decisions. The Mortgage Loans may be
prepaid at any time without penalty
and, except for Mortgage Loans
backing GNMA Certificates, usually
have due-on-sale clauses. Since FNMA
and FHLMC guarantee the payment of
installments of principal of and
interest on the respective
Underlying Mortgage Loans, losses in
respect of the respective Underlying
Mortgage Loans will have the effect
of a prepayment.

Timing of Payments. The timing and
amount of payments on the Mortgage
Loans may significantly affect an
investor's yield. In general, the
earlier a prepayment of principal on
a Mortgage Loan, the greater will be
the effect on an investor's yield to
maturity. As a result, the effect on
an investor's yield of principal
prepayments occurring at a rate
higher (or lower) than the rate
anticipated during the period
immediately following the issuance
of the Securities will not be offset
by a subsequent like reduction (or
increase) in the rate of principal
prepayments. Furthermore, the
effective yield to Securityholders
will be slightly lower than the
yield that would otherwise be
produced because, while interest
generally will accrue on the
Securities from the first day of a
month, the distribution of such
interest will not be made earlier
than the 25th day of the month
following the month of accrual.

Underlying Securities. The Trust
contains Pooled Certificates which
were issued at different times, are
backed by different Mortgage Pools,
have different allocations of
principal and interest among various
classes and will perform differently
in various interest and prepayment
rate environments. The performance
characteristics of the Securities
will reflect a combination of the
performance characteristics of the

<PAGE>

Pooled Certificates. As a result, it
may be more difficult to analyze the
likely yield and payment experience
of the Securities.

Discounts and Premiums. In the case
of any Securities purchased at a
discount, a slower than anticipated
rate of principal payments on the
Securities, other things being
equal, could result in an actual
yield that is lower than the
anticipated yield. In the case of
any Securities purchased at a
premium, a faster than anticipated
rate of principal payments on the
Securities, other things being
equal, could result in an actual
yield that is lower than the
anticipated yield.

Notional Balances. The Pooled IO
Certificates have notional principal
balances which reduce
proportionately with the aggregate
outstanding principal balances of
certain related classes in the same
Underlying Series (the "Related
Certificates"). Accordingly, the
amount and timing of payments on
such Pooled IO Certificates, and
accordingly the yield on the
Securities, will be sensitive to the
rate and timing of principal
payments on such Related
Certificates. Relatively fast
prepayments of the underlying
Mortgage Loans may significantly
shorten, and relatively slow
underlying Mortgage Loan prepayments
may significantly extend, the life
of the Related Certificates and
therefore the Pooled IO
Certificates. Consequently, a rapid
rate of principal prepayments on the
Mortgage Loans underlying the Pooled
IO Certificates will have a negative
effect on the yield on the
Securities. Similarly, the exercise
of any optional redemption rights
with respect to the Underlying
Series of which any of the Pooled IO
Certificates are a part may have a
negative effect on the yield on the
Securities. If the life of any of
the Related Certificates is
significantly shortened, the life of
the related Pooled IO Certificates
will be significantly shortened and
the yield to investors in the
Securities can be expected to
decrease.

Reinvestment Risk. Because
prevailing interest rates are
subject to fluctuation, there can be
no assurance that investors in the
Securities will be able to reinvest
the distributions thereon at yields
equaling or exceeding the yield on
the Securities. Yields on any such
reinvestments may be lower, and may
even be significantly lower, than
the yield on the Securities.
Generally, when prevailing interest
rates increase, prepayment rates on
mortgage loans tend to decrease,
resulting in a reduced return of
principal to investors at a time
when reinvestment at such higher
prevailing rates would be desirable.
Conversely, when prevailing interest
rates decline, prepayment rates on
mortgage loans tend to increase,
resulting in a greater return of
principal to investors at a time
when reinvestment at comparable
yields may not be possible.
Prospective investors in the
Securities should consider the
related reinvestment risks in light
of other investments that may be
available to such investors.

LIBOR. The amount of interest
payable on the Pooled Inverse
Floating Rate Certificates will be
highly sensitive, to the level of
LIBOR. A high level of LIBOR will
reduce the yield to investors in the
Securities.

<PAGE>

Unrelated Underlying Securities. The
assets of the Trust consist
primarily of the Pooled FNMA
Certificates and the Pooled FHLMC
Certificates. Because each of the
Pooled Certificates was issued as
part of different Underlying Series,
the rates of prepayment of each of
the Pooled Certificates will be
different from the rates of
prepayment on each of the other
Pooled Certificates. Under various
circumstances, the principal balance
of one or more of the Pooled
Certificates could be reduced to
zero prior to the other Pooled
Certificates. In addition, one or
more of the Pooled Certificates
could be repurchased as described
under "The Pooling
Agreement--Assignment of Pooled
Certificates" or any of the
Underlying Agreements could be
terminated. In such event, the Trust
might consist solely of one or more
of the Pooled FNMA Certificates or
one or more of the Pooled FHLMC
Certificates, or a combination
thereof, and investors would be
exposed to the risk that the
Securities could take on a cash flow
profile different from that expected
by investors. For example, if the
Pooled Accrual Certificates and the
Pooled Fixed Rate Certificates were
all to mature prior to the maturity
of one or more of the Pooled Inverse
Floating Rate Certificates, the
Securities would at that point have
the yield characteristics of an
inverse floating rate security.

Liquidity................................. There is currently no secondary
market for the Securities, and
there can be no assurance that one
will develop. The Underwriter
intends to establish a market in
the Securities, but it is not
obligated to do so. There is no
assurance that any such market,
if established, will continue.
Each Securityholder will receive
monthly reports pertaining to the
Security as described under
"The Pooling Agreement--Reports to
Securityholders" herein. There
are a limited number of sources
which provide certain information
about mortgage pass-through
certificates in the secondary
market; however, there can be no
assurance that any of these
sources will provide information
about the Securities. Investors
should consider the effect of
limited information on the liquidity
of the Securities.

Certain Federal Income Tax
Consequences.............................. No election will be made to treat
the Trust as a real estate mortgage
investment conduit (a "REMIC") for
federal income tax purposes. For
federal income tax purposes, the
Trust will be classified as a
grantor trust under Subpart E,
part I of Subchapter J of the Code
and not as a partnership or as an
association taxable as a
corporation. See "Federal Income
Tax Considerations" herein and
"Certain Federal Income Tax
Consequences--Non-REMIC Securities"
in the Prospectus.

ERISA Considerations...................... Fiduciaries of employee benefit
plans subject to Title I of the
Employee Retirement Income
Security Act of 1974, as
amended ("ERISA"), should consider
the ERISA fiduciary investment
standards before authorizing an
investment by a plan in the
Securities. In addition,
fiduciaries of employee benefit
plans or other retirement
arrangements (such as individual
retirement accounts or certain
Keogh plans) which are subject to
Title I of ERISA, and/or Section
4975 of the Code, as well as any
entity, including an insurance
company general account, whose
underlying assets include plan
assets by reason of a plan or
account investing in such entity
(collectively, "Plan(s)"), should
consult with their legal counsel
to determine whether an investment

<PAGE>
in the Securities will cause the
assets of the Trust ("Trust
Assets") to be considered plan
assets pursuant to the plan asset
regulations set forth in 29 C.F.R.
2510.3-101, thereby subjecting the
Plan to the prohibited transaction
rules with respect to the Trust
Assets and the Trustee to the
fiduciary investment standards of
ERISA, or cause the excise tax
provisions of Section 4975 of the
Internal Revenue Code of 1986, as
amended (the "Code") to apply to
the Trust Assets, unless some
exemption granted by the
Department of Labor (an
"Exemption") applies to the
acquisition, holding or transfer of
the Securities. Each purchaser of
a Security, by virtue of its
purchase of such Security, will
be deemed to have represented either
that (i) it is not a Plan or (ii)
an Exemption exists which exempts
the acquisition, holding or
transfer of a security by such
purchaser from the prohibited
transaction rules of ERISA and the
related excise tax provisions of the
Code.

Legal Investment.......................... Institutions whose investment
activities are subject to legal
investment laws and regulations
or to review by certain regulatory
authorities may be subject to
restrictions on investment in the
Securities. Any such institution
should consult its legal advisors
in determining whether and to what
extent there may be restrictions
on its ability to invest in the
Securities. The Securities will
not constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984
("SMMEA"). See "Legal Investment"
herein and in the Prospectus.

Rating.................................... As a condition of their issuance,
the Securities will be rated "Aaa"
by Moody's and "AAA" by Fitch.
Moody's and Fitch are referred
to herein as the "Rating Agencies."

The ratings of the Securities should
be evaluated independently from
similar ratings on other types of
securities. A rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time
by the rating Agencies. See
"Ratings" herein.

The Seller has not requested a
rating of the Securities by any
rating agency other than the Rating
Agencies. However, there can be no
assurance as to whether any other
rating agency will rate the
Securities or, if it does, what
rating would be assigned by such
other rating agency. The rating
assigned by such other rating agency
to the Securities could be lower
than the respective ratings assigned
by the Rating Agencies.

<PAGE>

RISK FACTORS

General

THE SECURITIES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS.
IN PARTICULAR, NO INVESTOR SHOULD PURCHASE THE SECURITIES UNLESS THE INVESTOR
UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND MARKET
RISKS ASSOCIATED WITH THE SECURITIES.

In addition to the matters described elsewhere in this Prospectus
Supplement and Prospectus, particularly "Yield and Prepayment Considerations,"
and "Risk Factors" in the Prospectus, prospective investors should consider the
following:

Uncertainty of Yield

The Securities have no stated interest rate. Instead, Securityholders
will receive on each Distribution Date an amount equal to interest paid on the
Pooled Certificates for such month less the Trustee's Fee, and if applicable,
certain amounts from funds payable from the Reserve Fund. The amount of interest
payable on the Pooled Certificates will vary based upon a number of factors,
including the rate of prepayments thereon and levels of LIBOR. High rates of
LIBOR may significantly reduce the amount of interest payable on the Securities.
See "Yield and Prepayment Considerations" herein.

The yield to maturity on the Securities will depend on the purchase
price and the rate and timing of principal payments on the Pooled Certificates
which in turn will be affected by the rate and timing of principal payments
(including prepayments, repurchases, defaults and liquidations) on the FNMA
Mortgages and the FHLMC Mortgages (collectively, the "Mortgage Loans" and with
respect to any Pooled Certificates, the "Underlying Mortgage Loans" or a
"Mortgage Pool"). Generally, the Mortgage Loans may be prepaid at any time
without penalty. The yield to maturity on the Securities also will be sensitive
to the level of LIBOR. Mortgage Loan prepayment rates are likely to fluctuate
significantly from time to time, as is the level of LIBOR. Investors should
consider the associated risks, including:

o High levels of LIBOR can significantly reduce the interest due
on the Pooled Inverse Floating Rate Certificates. Consequently, a
high level of LIBOR will have a negative effect on the yield to
investors in the Securities.

o Slight variations in Mortgage Loan characteristics could
substantially affect the weighted average life and yield of the
Securities.

o The Pooled Certificates were issued as parts of different
Underlying Series and the rates of prepayments on the Underlying
Mortgage Loans will be different. Under various circumstances,
including differing prepayment rates of the Underlying Mortgage
Loans, the Pooled FNMA Certificates or the Pooled FHLMC
Certificates could mature at times other than expected by
investors and the Securities could have a cash flow profile
different from that expected by investors. For example, if the
Pooled Accrual Certificates and Pooled Fixed Rate Certificates
were all to mature prior to the maturity of one or more of the
Pooled Inverse Floating Rate Certificates, the Securities would
at that point have the yield characteristics of an inverse
floating rate security.

<PAGE>

o The yield to investors on the Securities can be expected to
decrease to the extent that the notional principal balances of
the Pooled IO Certificates reduce faster than anticipated.

DESCRIPTION OF THE SECURITIES

The following summaries describing certain provisions of the Securities
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the Prospectus and the provisions of the Agreement
relating to the Securities offered hereby.

Book Entry

The Securities will be represented by a single certificate registered
in the name of Cede & Co. ("Cede") as the nominee of DTC, and beneficial
interests therein will be held by investors through the book-entry facilities of
DTC, in minimum denominations of $25,000 and increments of $1 in excess thereof.
The certificate registered in the name of Cede can be held in physical
certificate form by investors only if (i) the Seller advises the Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Securities and the Seller is
unable to locate a qualified successor within 30 days or (ii) the Seller, at its
option, elects to terminate the book-entry system through DTC.

With respect to the certificate registered in the name of Cede, all
references herein to actions by holders of the Securities shall refer to actions
taken by DTC upon instructions from its participants, and all references herein
to distributions, notices, reports and statements to holders of the Securities
shall refer to distributions, notices, reports and statements to DTC or Cede, as
the case may be, for distribution to the beneficial owners of the Securities in
accordance with DTC procedures. Because DTC can only act on behalf of
participants, who in turn act on behalf of indirect participants and certain
banks, the ability of a beneficial owner of a Security to pledge such Security
to persons or entities who do not participate in the DTC system may be limited.
In addition, beneficial owners of Securities held through DTC may experience
delays in the receipt of distributions on such Securities. The book entry
procedures of DTC are more fully described under "Description of the
Securities--Book-Entry Procedures" in the Prospectus.

If Securities are issued in physical certificate form, they will be
transferable and exchangeable on a "Securities Register" to be maintained by the
Trustee at the office or agency of the Trustee maintained for that purpose in
Minneapolis, Minnesota. Securities surrendered to the Trustee for registration
of transfer or exchange must be accompanied by a written instrument of transfer
in form satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Securities, but payment of a sum
sufficient to cover any tax or other governmental charge may be required. Such
office or agency of the Trustee is currently located at Sixth & Marquette
Streets, Minneapolis, Minnesota 55479.

<PAGE>

Payments of Interest and Principal

Distributions of principal and interest on the Securities with respect
to a month will be made on the 25th day of such month (each, a "Distribution
Date") or, if such day is not a Business Day (as defined below), then on the
next succeeding Business Day. A "Business Day" means a day other than a
Saturday, a Sunday or a day on which banking institutions in New York, New York
or Minneapolis, Minnesota, the city in which the corporate trust office of the
Trustee is located, are authorized or obligated by law or executive order to be
closed. The first Distribution Date is expected to be December 26, 1997. In
addition, if the Trustee has not received a distribution on, or distribution
information with respect to, any of the Pooled Certificates by noon on the
Distribution Date (the "Determination Time"), the distribution allocable to such
Pooled Certificates will not be made on such Distribution Date, but (i) if such
distribution and such distribution information are received by noon on the third
Business Day after the Determination Time, it will be made on the third Business
Day after the Determination Time (a "Supplemental Distribution Date") or (ii) if
received after noon on the third Business Day after the Determination Time, it
will be made on the next succeeding Distribution Date, and in neither case will
additional interest be paid thereon. Notwithstanding the foregoing, for
accounting purposes, each Distribution Date and, if applicable, Supplemental
Distribution Date is deemed to occur in the same month as the concurrent or
immediately preceding Pooled Certificate Distribution Date.

Distributions will be made on each Distribution Date to holders of
record as of the close of business on the last Business Day of the calendar
month preceding the month in which such Distribution Date occurs; provided that
for this purpose the Distribution Date is deemed to occur on the 25th of each
month, without regard to whether such day is a Business Day (the "Record Date").

The effective per annum interest rate borne by the Securities during
the calendar month preceding the month in which the Distribution Date occurs
(each, an "Interest Accrual Period") will equal a fraction, expressed as a
percentage truncated at the fourth decimal place, the numerator of which is
equal to the aggregate amount in respect of interest paid to Securityholders for
the related Interest Accrual Period, multiplied by 12, and the denominator of
which is the principal amount of the Securities immediately prior to such
Distribution Date. Under certain circumstances, the principal amount of the
Securities could be paid in full while interest would remain payable, in which
case, the calculation of the effective per annum interest rate borne by the
Securities would not be meaningful. The effective per annum interest rate borne
by the Securities during the first Interest Accrual Period is projected to be
approximately 6.1413%.

On each Distribution Date, holders of the Securities will be entitled
to receive interest from funds received as interest (and, on some Distribution
Dates, from funds received as principal, up to the amount of accrual on the
Pooled Accrual Certificates for such Distribution Date) on the Pooled
Certificates and from the funds payable as interest from the Reserve Fund. On
each Distribution Date, holders of the Securities will be entitled to receive
principal from funds received as principal on the Pooled Certificates and from
funds payable as principal from the Reserve Fund.

If, on any Distribution Date, the amount by which the Pooled Accrual
Certificates have accreted exceeds the aggregate distributions of principal on
the other Pooled Certificates, the principal balance of the Securities will be
increased by the amount of such excess.

The Trustee as holder of the Pooled Certificates and the Reserve Fund,
will cause all distributions received by it on the Pooled Certificates and the
Treasury Securities, from whatever source, to be deposited directly into one or
more accounts held in trust by the Trustee for the benefit of the
Securityholders (such accounts referred to collectively herein as the "Asset
Proceeds Account").

On each Distribution Date, the Trustee will apply the Available
Distribution (as defined below) on deposit in the Asset Proceeds Account as of
such Distribution Date, in the following manner and order of priority:

first, from amounts with respect to interest received on the
Pooled Certificates to the Trustee, to pay the portion of the Trustee
Fee not being covered by a withdrawal from the Trustee Fee Escrow

<PAGE>

Account (as defined below) and, after payment of the Trustee Fee, to
deposit the Escrow Amount (as defined below) in the Trustee Fee Escrow
Account;

second, from amounts with respect to principal received on the
Pooled Certificates and funds payable from the Reserve Fund, to the
Securityholders, an amount with respect to principal, if any, such that
the principal balance of the Securities after such distribution is
equal to the aggregate principal balance of the Pooled Certificates and
the remaining amount payable as principal from the Reserve Fund; and

third, from the remaining Available Distribution, to the
Securityholders as interest.

"Available Distribution" means, as of any Distribution Date, the
aggregate amount on deposit in the Asset Proceeds Account.

The "Trustee Fee" means, with respect to any Distribution Date, the
monthly fee equal to 1/12th of the product of 0.0175% and the principal balance
of the Securities immediately prior to the Distribution Date, but not less than
$210 with respect to any Distribution Date. In addition, an amount equal to
1/12th of the product of 0.0025% and the principal balance of the Securities
immediately prior to each Distribution Date (the "Escrow Amount") will be
deposited by the Trustee in a separate escrow account (the "Trustee Fee Escrow
Account"). The Trustee Fee Escrow Account will not be part of the Trust. Any
amount deposited in the Trustee Fee Escrow Account will be permitted to be
invested as described in the Agreement. If on any Distribution Date, the Trustee
Fee exceeds the amount of interest received on the Pooled Certificates for such
Distribution Date, the Trustee shall withdraw the amount of the excess from the
Trustee Fee Escrow Account. If the Trustee resigns or is removed and a successor
trustee is appointed, any amounts on deposit in the Trustee Fee Escrow Account
shall thereafter be held by and for the benefit of the successor trustee. Any
funds remaining in the Trustee Fee Escrow Account upon the termination of the
Trust will be remitted to the Trustee or any successor thereto.

The full name of each abbreviated Underlying Series is set forth herein
under "Description of the Pooled Certificates--General." Copies of the
Underlying Agreements are available from the Underwriter, at 245 Park Avenue New
York, New York, Attention: Mortgage Department.

The Underwriter will convey the Pooled Certificates and Treasury
Securities to the Seller on the Closing Date pursuant to a Purchase Agreement
dated as of the Closing Date. The Underwriter will be obligated to make certain
representations and warranties (see "The Pooling Agreement--Assignment of Pooled
Certificates" herein) with respect to the Pooled Certificates and Treasury
Securities, and those representations and warranties will be assigned to the
Trust for the benefit of the Securityholders. If the Underwriter breaches a
representation or warranty with respect to the Pooled Certificates or Treasury
Securities which materially and adversely affects the interests of the
Securityholders and the Underwriter repurchases, or elects to substitute one or
more securities for, a Pooled Certificate or Treasury Security, the foregoing
definition will be modified with respect to the related Distribution Date to
delete the portion thereof relating to the Pooled Certificate or Treasury
Security being repurchased or substituted for and to reflect, in the case of a
repurchase, the repurchase price received with respect thereto as described
herein under "The Pooling Agreement--Assignment of Pooled Certificates" or in
the case of a substitution, the addition of a comparable provision with respect
to the new mortgage related security or securities.

The sole source of payment on the Securities will be distributions on
the Pooled Certificates and Treasury Securities. The Securities will not be
guaranteed by the Seller, the Underwriter, the Trustee or any other person.

Optional Termination

The Trust may be terminated at the option of the Seller on any
Distribution Date on or after the date on which the aggregate Pooled Certificate
Principal Balance and the amount of funds payable as principal from the Reserve
Fund has declined to 10% or less of the aggregate Pooled Certificate Principal
Balance and the amount of funds payable as principal from the Reserve Fund on
the Closing Date, as reduced by the original face amount of any Securities
exchanged for a pro rata portion of the Pooled Certificates and Treasury
Securities. In such event, the Securityholders will receive the unpaid principal
balance of the Securities plus accrued interest thereon. In connection with any

<PAGE>

such termination, the Available Distribution then on deposit in the Asset
Proceeds Account will be disbursed to the Trustee, Securityholders and other
persons entitled thereto, in accordance with the terms of the Agreement.

Mandatory Termination

On the Distribution Date following the first Distribution Date on which
the Pooled Certificate Principal Balance or Pooled Certificate Notional
Principal Balance of all but one of the Pooled Certificates has been reduced to
zero, the Trust will be terminated and the remaining Pooled Certificate will be
distributed in kind pro rata among Securityholders.

Exchange of Securities

Beginning on the Distribution Date in December 1998, holders of a
minimum of 10% of the initial principal amount of the Securities, without taking
into account any reductions in the initial principal amount due to an exchange
of Securities will be entitled to exchange such Securities for a pro rata
portion of each of the Pooled Certificates and Treasury Securities. Holders of
Securities to be exchanged will be charged an exchange fee by the Trustee equal
to the greater of (i) $500 and (ii) 0.02% of the outstanding principal amount of
such Securities. Holders will be required to provide the Trustee with
irrevocable written notice, accompanied by the exchange fee, of any proposed
exchange of Securities at least five Business Days prior to the proposed date of
such exchange, which must be a Business Day.

DESCRIPTION OF THE POOLED CERTIFICATES

General

The Securities will represent, in the aggregate, the entire beneficial
ownership interest in a Trust consisting primarily of the Pooled Certificates
and the Reserve Fund containing the Treasury Securities. The following is a list
of the Pooled Certificates with the designations used herein for such Pooled
Certificates and other related information. Definitions of abbreviations used
for principal types and interest types appear under " --Pooled
Certificates--Principal Types" and "--Pooled Certificates--Interest Types"
herein.

Pooled FNMA Certificates

Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1997-G5

Designation: SH
% of Class: 3.10%
Principal Type: NOTIONAL
Current Notional Principal
Balance of Pooled
Certificates: $1,915,500.00
Interest Type: INVERSE/IO
Interest Rate or Formula: 8.35% - (LIBOR x 1);
Minimum Rate: 0%; Maximum
Rate: 8.35%

<PAGE>

Guaranteed REMIC Pass-Through Certificates,
Fannie Mae REMIC Trust 1997-78

Designation: Z
% of Class: 87.51%
Principal Type COMPANION
Current Principal Balance
of Pooled Certificates: $22,098,000.00
Interest Type: ACCRUAL/FIX
Interest Rate or Formula: 0%, beginning in February
1998, 8.0%

Pooled FHLMC Certificates

Multiclass Mortgage Participation Certificates, Series 1381

Designation: E
% of Class: 31.52%
Principal Type: PAC
Current Principal Balance
of Pooled Certificates: $9,538,686.94
Interest Type: FIXED
Interest Rate or Formula: 6.25%

Multiclass Mortgage Participation Certificates, Series 1578

Designation: Z
% of Class: 21.06%
Principal Type: COMPANION
Current Principal Balance
of Pooled Certificates: $5,846,021.77
Interest Type: ACCRUAL/FIX
Interest Rate or Formula: 7.0%

Multiclass Mortgage Participation Certificates, Series 1591

Designation: SC
% of Class: 34.40%
Principal Type: COMPANION
Current Principal Balance
of Pooled Certificates: $8,012,030.47
Interest Type: INVERSE
Interest Rate or Formula: 19.09868464% - (LIBOR x
2.72838352); Minimum Rate:
0%; Maximum Rate:
19.09868464%

Multiclass Mortgage Participation Certificates, Series 1723

Designation: SB
% of Class: 79.47%
Principal Type: COMPANION
Current Principal Balance
of Pooled Certificates: $1,681,455.80
Interest Type: INVERSE
Interest Rate or Formula: 43.7499853% - (LIBOR x
6.9999972); Minimum Rate:
0%; Maximum Rate:
43.7499853%

<PAGE>

Multiclass Mortgage Participation Certificates
and Modifiable and Combinable REMIC Certificates, Series 1930

Designation: SF
% of Class: 34.35%
Principal Type: NOTIONAL
Current Notional Principal
Balance of Pooled
Certificates: $4,814,507.00
Interest Type: INVERSE/IO
Interest Rate or Formula: 22.82% - (LIBOR x 2.8);
Minimum Rate: 0%; Maximum
Rate: 22.82%

Multiclass Mortgage Participation Certificates,
Multiclass Mortgage Securities, and Modifiable and Combinable REMIC
Certificates, Series 2003

Designation: Z
% of Class : 53.83%
Principal Type: COMPANION
Current Principal Balance
of Pooled Certificates: $3,019,999.80
Interest Type: ACCRUAL/FIX
Interest Rate or Formula: 8.0%

----------

The Pooled FNMA Certificates are guaranteed as to timely distribution
of principal and interest by FNMA. FHLMC guarantees to each holder of the Pooled
FHLMC Certificates the timely payment of interest at the rates described above
and the payment of the principal amount of the Pooled FHLMC Certificates as
described in the Underlying FHLMC Offering Circular Term Sheets.

The Pooled FNMA Certificates are each one class of two separate
Underlying FNMA Series which represent beneficial ownership interests in
separate Underlying FNMA Trusts. The assets of the Underlying FNMA REMIC Trusts
consist of direct or indirect beneficial ownership interests in certain FNMA MBS
and/or GNMA Certificates. The Pooled FHLMC Certificates are each one class of
six separate Underlying FHLMC Series, the assets of each of which consist of
direct or indirect beneficial ownership interests in Gold PCs, Gold Giant PCs,
Multiclass PCs, GNMA Related Securities and/or Stripped Giant PCs. The assets
underlying each Underlying FNMA and FHLMC Series are pools of fixed-rate, first
lien, residential mortgage loans and/or participations in mortgage loans.

The distribution date for the Pooled FNMA Certificates is either the
17th day or the 18th day of the month, and the distribution date for the Pooled
FHLMC Certificates is the 15th day of each month, except for one Pooled FHLMC
Certificate for which the distribution date is the second business day after the
15th day of the month, or if, in each case, such day is not a business day as
defined in the applicable Underlying Agreement, then the next succeeding
business day, as so defined.

Additional characteristics of the Pooled Certificates are described
below and in Annex 1 and Annex 2.

Pooled Certificates - Principal Types

The Pooled Certificates were structured as planned amortization classes
("PAC Classes") or support or companion classes ("Companion Classes").

<PAGE>

A PAC Class is designed to receive principal payments using a
predetermined principal balance schedule derived by assuming two constant
prepayment rates for the underlying Mortgage Loans. A Companion Class receives
principal payments on a distribution date only if scheduled payments have been
made on specified PAC or other classes and receives all excess distributions of
principal to the extent not required to make scheduled payments on the related
PAC or other classes.

In general, since a PAC Class will receive distributions of principal
on a given distribution date in a pre-determined amount if prepayments on the
underlying mortgage loans occur within a certain range or at a certain rate,
distributions of principal should in such cases be more stable than would
otherwise be the case. If prepayments on the underlying mortgage loans occur at
different rates, principal payments will be received at a greater or lesser
rate. As a result of receiving principal payments at a different rate, the
weighted average life of the PAC Class will be shortened or extended. No
assurance can be given that the PAC Class has paid in accordance with its
respective schedule or, to the extent that such class has done so, that such
class will continue to do so in the future. No assurance can be given that
prepayments on the related underlying Mortgage Loans will occur at a constant
rate within any particular range in the future.

Two of the classes of Pooled Certificates are "interest only"
certificates and do not have principal balances, and as such, are not entitled
to receive distributions of principal. Such classes have a notional principal
balance which is the amount used as a reference to calculate the amount of
interest due on a Pooled IO Certificate ("Notional Classes"). The Pooled FNMA
1997-G5 Certificate and the Pooled FHLMC 1930 Certificate are Pooled IO
Certificates. The notional principal balances of the Pooled IO Certificates
reduce proportionately with their Related Certificates. The Pooled FNMA 1997-G5
Certificate's Related Certificate is a sequential pay/accretion directed
certificate. Such Related Certificate is designed to receive principal payments
in a prescribed sequence, does not have a predetermined schedule, and under all
circumstances, receives payments of principal continuously from the first
distribution date on which it receives principal until it is retired. In
addition, such Related Certificate also receives principal based on the accreted
interest on certain specified accrual classes issued concurrently therewith. The
Pooled FHLMC 1930 Certificate's Related Certificate is a structured
collateral/pass-through certificate. Such Related Certificate receives all
principal payments on a previously issued FHLMC Multiclass PC.

Pooled Certificates - Interest Types

Four classes of the Pooled Certificates are entitled to receive
distributions of interest on the principal balance thereof based on separate
formulae that vary inversely with LIBOR, subject to minimum and maximum rates
("Inverse Classes"). One class of the Pooled Certificates is entitled to receive
distributions of interest at a fixed rate ("Fixed Class").

Three classes of the Pooled Certificates are Pooled Accrual
Certificates. Pooled Accrual Certificates accrete all of their interest at a
fixed rate, which is added to the outstanding principal balance ("Accrual
Classes"). This accretion may continue until the class begins receiving
principal payments, until some other event has occurred or until the class is
retired. In the case of all the Pooled Accrual Certificates, the accretion
continues so long as such respective class remains outstanding and the accreted
interest is paid as principal. The Pooled FNMA 1997-78 Certificate is a Pooled
Accrual Certificate, which will not accrue interest prior to the February 1998
interest accrual period for such certificate. After such date, the Pooled FNMA
1997-78 Certificate will accrue interest at a fixed rate of 8.00% per annum.

The Underlying Mortgage Loans

The Mortgage Loans consist of conventional, fixed rate, one- to
four-family, fully-amortizing, level monthly payment, first mortgage loans with
original maturities of up to approximately 30 years, except in the case of
Pooled FHLMC 1381 Certificate, with original maturities of up to approximately
15 years. Payments on the Mortgage Loans underlying the Pooled Certificates will
either be distributed in the same month of payment or the month succeeding the
month of payment.

<PAGE>

Additional Information

The descriptions of the Pooled Certificates and the Mortgage Loans do
not purport to be complete. Set forth below are lists of documents relevant to
each of the Pooled Certificates.

Documents relevant to the Pooled FNMA 1997-G5 Certificates include the
following:

o FNMA Prospectus Supplement for Guaranteed REMIC Pass-Through
Certificates, Fannie Mae REMIC Trust 1997-G5, dated May 16, 1997.

o FNMA Prospectus for Guaranteed REMIC Pass-Through Certificates
dated June 14, 1996.

o FNMA Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated January 1, 1997.

o FNMA Prospectus for Guaranteed REMIC Pass-Through Certificates
(backed by GNMA Certificates) dated June 14, 1996.

o FNMA Information Statement dated March 31, 1997 and any
supplements thereto.

Documents relevant to the Pooled FNMA 1997-78 Certificates include the
following:

o FNMA Prospectus Supplement for Guaranteed REMIC Pass-Through
Certificates, Fannie Mae REMIC Trust 1997-78, dated October 8,
1997.

o FNMA Prospectus for Guaranteed REMIC Pass-Through Certificates
dated June 14, 1996.

o FNMA Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated August 1, 1997.

o FNMA Information Statement dated March 31, 1997 and any
supplements thereto.

Documents relevant to the Pooled FHLMC 1381 Certificates include the
following:

o FHLMC Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1381, dated August 17, 1992.

o FHLMC Multiclass Mortgage Participation Certificates Offering
Circular dated May 1, 1992.

o FHLMC Mortgage Participation Certificates Offering Circular
dated June 30, 1992 and its Mortgage Participation Certificates
Offering Circular Supplement dated August 3, 1992.

o FHLMC Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991.

o FHLMC Information Statement dated March 19, 1992, its Information
Statement Supplements dated April 28, 1992 and July 30, 1992, and
any other Information Statement Supplements subsequently
published by FHLMC.

Documents relevant to the Pooled FHLMC 1578 Certificates include the
following:

o FHLMC Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1578, dated July 27, 1993.

o FHLMC Multiclass Mortgage Participation Certificates Offering
Circular dated January 1, 1993.

<PAGE>

o FHLMC Mortgage Participation Certificates Offering Circular
dated June 30, 1992 and its Mortgage Participation Certificates
Offering Circular Supplements dated August 3, 1992, November 2,
1992, April 30, 1993, and August 17, 1993.

o FHLMC Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991 and its Giant Mortgage
Participation Offering Circular Supplement dated December 3,
1992.

o FHLMC Information Statement dated April 9, 1993, its Information
Statement Supplements dated April 30, 1993 and August 2, 1993,
and any other Information Statement Supplements subsequently
published by FHLMC.

Documents relevant to the Pooled FHLMC 1591 Certificates include the
following:

o FHLMC Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1591, dated August 24, 1993.

o FHLMC Multiclass Mortgage Participation Certificates Offering
Circular dated August 1, 1993.

o FHLMC Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991 and its Giant Mortgage
Participation Offering Circular Supplement dated December 3,
1992.

Documents relevant to the Pooled FHLMC 1723 Certificates include the
following:

o FHLMC Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1723, dated March 29, 1994.

o FHLMC Multiclass Mortgage Participation Certificates Offering
Circular dated January 18, 1994.

o FHLMC Mortgage Participation Certificates Offering Circular
dated February 15, 1994.

o FHLMC Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991, its Giant Mortgage
Participation Certificates Offering Circular Supplement dated
December 3, 1992, and its Stripped Giant Mortgage Participation
Certificates, Series 165, Offering Circular Supplement dated
March 29, 1994.

o FHLMC Information Statement dated March 31, 1994, and any other
Information Statement Supplements subsequently published by
FHLMC.

Documents relevant to the Pooled FHLMC 1930 Certificates include the
following:

o FHLMC Offering Circular Supplement for Multiclass Mortgage
Participation Certificates and Modifiable and Combinable REMIC
Certificates, Series 1930, dated January 13, 1997.

o FHLMC Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1552, dated June 15, 1993.

<PAGE>

o FHLMC Multiclass Mortgage Participation Certificates Offering
Circular dated January 1, 1997.

o FHLMC Mortgage Participation Certificates Offering Circular
dated September 1, 1995.

o FHLMC Giant Mortgage Participation Certificates and Other
Pass-Through Certificates Offering Circular dated January 1,
1997.

o FHLMC Information Statement dated March 29, 1996, its
Information Statement Supplements dated May 15, 1996, August 14,
1986, November 14, 1996, and January 30, 1997, and any other
Information Statement Supplements subsequently published by
FHLMC.

Documents relevant to the Pooled FHLMC 2003 Certificates include the
following:

o FHLMC Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Multiclass Mortgage Securities, and
Modifiable and Combinable REMIC Certificates, Series 2003, dated
September 25, 1997.

o FHLMC Multiclass Mortgage Participation Certificates Offering
Circular dated January 1, 1997.

o FHLMC Multiclass Mortgage Securities Offering Circular dated
January 1, 1997.

o FHLMC Mortgage Participation Certificates Offering Circular
dated September 1, 1995.

o FHLMC Giant Mortgage Participation Certificates and Other
Pass-Through Certificates Offering Circular dated January 1,
1997.

o FHLMC Giant GNMA-Backed Securities and other Pass-Through
Securities Offering Circular dated January 1, 1997.

o FHLMC Information Statement dated March 31, 1997, its
Information Statement Supplement dated May 15, 1997 and August
14, 1997 and any other Information Statement Supplements
subsequently published by FHLMC.

The FNMA documents may be obtained from FNMA by writing or calling its
MBS Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S, Washington, D.C. 20016;
telephone 1-800-BEST-MBS or 202-752-6547.

Investors can order the FHLMC documents from FHLMC by writing or
calling its Investor Inquiry Department at 8200 Jones Branch Drive, McLean,
Virginia 22102; outside Washington, D.C. metropolitan area, telephone
800/336-FMPC; within Washington, D.C. metropolitan area, telephone 703/450-3777.
FHLMC also publishes a supplemental statement applicable to each series shortly
after the applicable closing date. Investors can obtain the supplemental
statement, any offering materials for specific certificates, and historic and
current information concerning specific certificates from FHLMC's Investor
Inquiry Department. FHLMC's Internet Web-Site (http://www.freddiemac.com)
displays the offering circular supplements, the supplemental statements,
schedules of the certificates, and information, updated monthly, regarding each
class of the applicable Underlying FHLMC Series.

In addition, copies of the respective Prospectus Supplements,
Prospectuses, Offering Circular Supplements, Offering Circulars, and the other
documents set forth above relating to the Pooled Certificates may be obtained
from the Underwriter by writing Bear, Stearns & Co. Inc., 245 Park Avenue, New
York, New York 10167, Attention: Mortgage Department.

<PAGE>

THE RESERVE FUND

On the Closing Date, the Seller will fund the Reserve Fund with seven
United States Treasury Securities that will provide funds equal to $5,360,000.
Payments on the Treasury Securities will be applied to pay interest and/or
principal on the Securities on the Distribution Date following receipt. On each
of the December 1997, January 1998, and February 1998 Distribution Dates,
$120,000 will be applied to pay interest on the Securities. On each of the
February 1998, August 1998, February 1999, and August 1999 Distribution Dates,
$1,250,000 will be applied to pay principal on the Securities.

YIELD AND PREPAYMENT CONSIDERATIONS

General Considerations

The yield to maturity and weighted average life of the Securities will
be affected by, among other things, the amount and timing of principal payments,
including prepayments (for this purpose the term "prepayments" includes payments
resulting from refinancing, liquidations, purchases by the original transferors
or others), and interest payments on the Mortgage Loans, the level of LIBOR, the
payment priorities and other characteristics of the Pooled Certificates, the
purchase price paid for the Securities and the occurrence of an optional or
mandatory termination with respect to the Securities or the Pooled Certificates.
No representation is made as to the anticipated rate of prepayments on the
Mortgage Loans or the anticipated yield to maturity of the Securities.
Prospective investors are urged to consider their own estimates as to the
anticipated rate of future prepayments on the Mortgage Loans and the suitability
of the Securities to their investment objectives. If prevailing mortgage rates
fall significantly below the mortgage rates on the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the mortgage rates on the Mortgage Loans. Other factors
affecting prepayments of Mortgage Loans include changes in mortgagors' housing
needs, job transfers, unemployment, net equity in the mortgaged properties and
servicing decisions. The Mortgage Loans may be prepaid at any time without
penalty and generally have due-on-sale clauses. Since FNMA and FHLMC guarantee
the payment of installments of principal of and interest on the respective
Underlying Mortgage Loans, liquidations resulting from default, casualty or
condemnation in respect of the respective Underlying Mortgage Loans will have
the effect of a prepayment.

The timing and amount of payments, including prepayments, on the
Mortgage Loans may significantly affect an investor's yield. In general, the
earlier a prepayment of principal on the Mortgage Loans, the greater will be the
effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal prepayments occurring at a rate higher (or lower)
than the rate anticipated by the investor during the period immediately
following the issuance of the Securities will not be offset by a subsequent like
reduction (or increase) in the rate of principal prepayments.

The Pooled Certificates were issued at different times, are backed
directly or indirectly by different Mortgage Pools, have different allocations
of principal and interest and payment priorities among various classes, are
subject to optional termination to the extent described herein and in the
Underlying Agreements and will perform differently in various interest and
prepayment rate environments. The performance characteristics of the Securities
will reflect a combination of the performance characteristics of the Pooled
Certificates. As a result, it will be difficult to predict the likely yield and
payment experience of the Securities.

Since interest generally will be due on each Mortgage Loan on the first
day of the month, but the distribution of such interest will not be made until
the Pooled Certificate Distribution Dates and then the amounts received with
respect to a Pooled Certificate Distribution Date will not be distributed until
the related Distribution Date, the yield to investors in the Securities will be
lower than the yield produced without such delays. Since the amount of the
distributions on the Securities is based on information in respect of the
Underlying Series, if such information is not received in a timely manner,
payments will not be made until the following Distribution Date and the yield to
investors may be lower than the yield produced if such information had been
received in a timely manner.

<PAGE>

In the case of any Securities purchased at a discount, a slower than
anticipated rate of principal payments on the Securities, other things being
equal, could result in an actual yield that is lower than the anticipated yield.
In the case of any Securities purchased at a premium, a faster than anticipated
rate of principal payments on the Securities, other things being equal, could
result in an actual yield that is lower than the anticipated yield.

Two classes of Pooled Certificates have notional principal balances
which reduce proportionately with the principal balance of certain related
classes in the same Underlying Series. Accordingly, the amount and timing of
payments on the Pooled Certificates, and accordingly the yield on the
Securities, will be sensitive to the rate and timing of principal payments on
such Related Certificates. Relatively fast prepayments of underlying Mortgage
Loans may significantly shorten, and relatively slow prepayments of underlying
Mortgage Loans may significantly extend, the life of the Related Certificates
and therefore the Pooled IO Certificates. Generally, a rapid rate of principal
prepayments on the Mortgage Loans underlying the Pooled IO Certificates will
have a negative effect on the yield on the Securities. Similarly, the exercise
of any optional redemption rights with respect to the Underlying Series of which
any of the Pooled IO Certificates are a part may have a negative effect on the
yield on the Securities. If the life of any of the Related Certificates is
significantly shortened, the life of the related Pooled IO Certificates will be
significantly shortened and the yield to investors in the Securities can be
expected to decrease.

Since prevailing interest rates are subject to fluctuation, there can
be no assurance that investors in the Securities will be able to reinvest the
payments thereon at yields equaling or exceeding the yields on the Securities.
Yields on any such reinvestments may be lower, and may even be significantly
lower, than yields on the Securities. Prospective investors in the Securities
should consider the related reinvestment risks in light of other investments
that may be available to such investors.

The yield to investors in the Securities will also be affected by
changes in LIBOR. Consequently, a high level of LIBOR will reduce the yield to
investors in the Securities. Changes in LIBOR may not correlate with changes in
mortgage interest rates. It is possible that lower mortgage interest rates could
occur concurrently with a decrease in the level of LIBOR. Conversely, higher
mortgage interest rates could occur concurrently with a decrease in the level of
LIBOR. The amount of interest payable on the Pooled Inverse Floating Rate
Certificates will be highly sensitive, to the level of LIBOR.

The assets of the Trust consist of only the Pooled FNMA Certificates,
the Pooled FHLMC Certificates and the Reserve Fund consisting of Treasury
Securities. Because each of the Pooled Certificates was issued as part of
different Underlying Series, the rates of prepayment of each of the Pooled
Certificates will be different from the rates of prepayment on each of the other
Pooled Certificates. Under various circumstances, the principal balance of one
or more of the Pooled Certificates could be reduced to zero prior to the other
Pooled Certificates. In addition, one or more of the Pooled Certificates could
be repurchased as described under "The Pooling Agreement--Assignment of Pooled
Certificates" or any of the Underlying Agreements could be terminated. In such
an event, the Trust might consist solely of one or more of the Pooled FNMA
Certificates or one or more of the Pooled FHLMC Certificates, or a combination
thereof, and investors would be exposed to the risk that the Securities could
take on a cash flow profile different from that expected by investors. For
example, if the Pooled Accrual Certificates and the Pooled Fixed Rate
Certificate were all to pay prior to the maturity of one or more of the Pooled
Inverse Floating Rate Certificates, the Securities would at that point have the
yield characteristics of an inverse floating rate security.

Final Scheduled Distribution Date

The "Final Scheduled Distribution Date" for distributions on the
Securities is the Distribution Date in January, 2028. The Final Scheduled
Distribution Date is the Distribution Date one month after the latest final
distribution date of any of the Pooled Certificates. Since the rate of payment
of principal on the Mortgage Loans can be expected to exceed the rate of
payments used in calculating such final distribution date, the date of the final
distribution on the Securities is expected to be earlier, and could be
substantially earlier, than the Final Scheduled Distribution Date.

<PAGE>

Weighted Average Lives

The weighted average life of a security refers to the average amount of
time that will elapse from the applicable settlement date until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Security is determined by (i) multiplying the amount of
payments made in respect of principal on such Security on each Distribution Date
by the number of years from the Closing Date to such Distribution Date; (ii)
summing the results; and (iii) dividing the sum by the aggregate amount of the
principal payments on such Security referred to in clause (i). The weighted
average lives of the Securities will be influenced by, among other factors, the
rate at which principal is paid on the Mortgage Loans.

SPA Model

Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The standard prepayment assumption model used in
this Prospectus Supplement ("SPA") represents an assumed rate of prepayment each
month of the then outstanding principal balance of a pool of new mortgage loans.
SPA does not purport to be either a historical description of the prepayment
experience of any pool of mortgage loans or a prediction of the anticipated rate
of prepayment of any pool of mortgage loans, including the Mortgage Loans
underlying the Pooled Certificates. 100% SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such mortgage loans in
the first month of the life of the mortgage loans and an additional 0.2% per
annum in each month thereafter (for example 0.4% per annum in the second month)
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the mortgage loans, 100% SPA assumes a constant
prepayment rate of 6% per annum. Multiples will be calculated from this
prepayment rate series; for example, 50% SPA assumes prepayment rates will be
0.1% per annum in month one, 0.2% per annum in month two, reaching 3.0% per
annum in month 30 and remaining constant at 3.0% per annum thereafter. 0% SPA
assumes no prepayments.

Pricing Assumption

The Securities were structured assuming, among other things, a
prepayment assumption of 300% SPA with respect to the Pooled Certificates. The
prepayment assumptions to be used for pricing purposes for the Securities may
vary as determined at the time of sale. The actual prepayment rates may vary
considerably from the rates used for any pricing assumption.

Decrement and Weighted Average Life Table

The following table indicates the percentages of the Original Principal
Balance of the Securities outstanding after certain dates and the weighted
average lives (in years), assuming various constant percentages of SPA.

For the following table it was assumed, among other things, that (i)
the Trust consists of the Pooled Certificates in the principal or notional
amounts described in Annex 1 hereto and the Treasury Securities in the amount
set forth under "The Reserve Fund" herein; (ii) the initial principal balance of
the Securities will be $55,196,194; (iii) Distribution Dates on the Certificates
occur on the 25th of each month commencing in December 1997; (iv) each Mortgage
Loan underlying a guaranteed mortgage pass-through certificate issued by FNMA,
certificate issued by GNMA, or a participation certificate issued by FHLMC has a
mortgage rate, remaining term to maturity and loan age equal to the weighted
average mortgage rate, weighted average remaining term to maturity and weighted
average loan age, respectively, of all of the Mortgage Loans underlying such
guaranteed mortgage pass-through certificate, certificate issued by GNMA, or
participation certificate, or in the case of the Pooled FNMA 1997-78
Certificate, equal to the assumptions for such characteristics included in the
related Underlying Prospectus Information; (v) the Mortgage Loans prepay at the
constant percentages of SPA specified in the tables; (vi) all amounts due with
respect to the Mortgage Loans underlying the Pooled Certificates are applied to
the payment of the respective Pooled Certificates on the 25th day of each month
and payments on the Treasury Securities are applied to the payment of interest
or principal, as the case may be, the Securities on the Distribution Dates
occurring in the months in which they mature; (vii) there are no optional
terminations of the Securities or the Pooled Certificates and the mandatory

<PAGE>

termination is assumed not to occur; (viii) the settlement date is the Closing
Date, which is November 28, 1997; (ix) each month consists of 30 days; (x) any
reinvestment income on funds in the Asset Proceeds Account will be paid to the
Trustee and will not be available to make principal and interest payments on the
Securities; (xi) the only expenses to be paid on any Distribution Date by the
Trust will be the monthly payment of the Trustee Fee and the Escrow Amount, the
sum of which is assumed to equal 1/12 of the product of 0.02% and the principal
balance immediately prior to the applicable Distribution Date, but without
giving effect to the minimum Trustee Fee of $210 for any Distribution Date;
(xii) the effective interest rate borne by the Securities during the first
Interest Accrual Period is 6.1413% per annum; (xiii) there will be no
substitution of Pooled Certificates; and (xiv) no Securities will be exchanged
for pro rata portions of each of the Pooled Certificates and Treasury
Securities.

Percentage of Original Principal Balance Outstanding of the Securities

% of SPA

100% 150% 175% 200% 225% 250% 300%
--------- --------- -------- -------- -------- -------- --------
<S> <C>
Initial Balance 100% 100% 100% 100% 100% 100% 100%
November 25, 1998 88 85 84 83 81 80 79
November 25, 1999 82 82 77 63 50 36 28
November 25, 2000 87 87 77 55 32 23 12
November 25, 2001 93 92 79 47 24 22 4
November 25, 2002 99 98 82 44 24 22 3
November 25, 2003 106 104 87 45 24 17 1
November 25, 2004 113 110 92 47 24 12 1
November 25, 2005 121 117 97 48 24 8 *
November 25, 2006 129 124 103 51 21 5 *
November 25, 2007 138 132 110 53 17 3 *
November 25, 2008 147 141 117 56 14 2 0
November 25, 2009 157 150 124 55 12 1 0
November 25, 2010 167 161 125 54 9 1 0
November 25, 2011 178 158 120 53 7 1 0
November 25, 2012 190 152 110 53 6 1 0
November 25, 2013 203 145 101 54 4 * 0
November 25, 2014 217 133 91 50 3 * 0
November 25, 2015 216 120 79 45 2 * 0
November 25, 2016 206 107 67 38 1 * 0
November 25, 2017 186 91 57 32 1 * 0
November 25, 2018 165 76 47 26 * * 0
November 25, 2019 144 62 38 21 * 0 0
November 25, 2020 117 50 30 16 * 0 0
November 25, 2021 92 38 22 12 0 0 0
November 25, 2022 71 29 17 9 0 0 0
November 25, 2023 54 22 13 7 0 0 0
November 25, 2024 38 15 9 4 0 0 0
November 25, 2025 22 8 5 2 0 0 0
November 25, 2026 8 3 2 1 0 0 0
November 25, 2027 0 0 0 0 0 0 0
Weighted Average 21.6 18.7 16.8 11.4 4.4 2.9 1.7
Life (in years)
</TABLE>

- -------------

* Principal balance less than 0.5% of Original Principal Balance.

<PAGE>

Pre-Tax Yield Table

The significance of the effects of prepayments and changes in LIBOR on
the Securities is illustrated in the following table entitled "Sensitivity of
the Securities to Prepayments and LIBOR," which shows the pre-tax yield (on a
corporate bond equivalent basis) to the holders of such Securities under
different constant percentages of SPA and levels of LIBOR. The yields of such
Securities set forth in the following table were calculated using the
assumptions specified above under "--Decrement and Weighted Average Life Tables"
and assuming that (i) interest rates applicable to the Pooled Certificates for
each Interest Accrual Period subsequent to the first Interest Accrual Period
will be calculated based on the indicated level of LIBOR, (ii) the aggregate
purchase price (expressed as a percentage of the initial principal balance) of
the Securities is 99% (plus accrued interest from November 1, 1997) and (iii)
the Securities are purchased on November 28, 1997.

The yield to investors in the Certificates will be sensitive to the
level of LIBOR and to the rate and timing of principal payments (including
prepayments) of the Mortgage Loans, which generally can be prepaid at any time.
Generally, a high level of LIBOR will have a material negative effect on the
yield to investors in the Securities.

Changes in LIBOR may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of LIBOR.

Sensitivity of the Securities to Prepayments and LIBOR
(Pre-Tax Yield to Maturity)

% of SPA

LIBOR 100% 150% 175% 200% 225% 250% 300%
- ---------------------------- --------- --------- -------- -------- -------- -------- --------
<S> <C>
2.65% 9.9% 10.0% 10.2% 11.3% 12.8% 13.1% 12.8%
3.65% 9.2 9.3 9.5 10.2 11.3 11.5 11.3
4.65% 8.6 8.6 8.7 9.1 9.7 9.8 9.7
5.65% 7.9 8.0 8.0 8.1 8.1 8.1 8.1
6.65% 7.4 7.4 7.4 7.2 6.6 6.6 6.6
7.65% 7.1 7.1 7.1 6.7 5.8 5.7 5.8
8.65% 7.0 7.0 6.9 6.5 5.4 5.3 5.5
</TABLE>

The yields set forth in the above table were calculated by determining
the monthly discount rates which when applied to the assumed stream of cash
flows to be paid on the Securities, would cause the discounted present value of
such assumed stream of cash flows to equal the assumed purchase price of the
Securities indicated, and converting such monthly rates to corporate bond
equivalent rates. Such calculation does not take into account variations that
may occur in the interest rates at which investors may be able to reinvest funds
received by them as payments of principal of and interest on the Securities and
consequently does not purport to reflect the return of any investment in the
Securities when such reinvestment rates are considered.

Actual Experience Will Vary from Assumptions

Discrepancies will exist between the characteristics of the actual
Pooled Certificates and Mortgage Loans and characteristics of the Pooled
Certificates and Mortgage Loans assumed in preparing the tables contained
herein. To the extent that the Pooled Certificates and Mortgage Loans have
characteristics which differ from those assumed in preparing the tables, the
Securities may mature earlier or later than indicated by the tables, and the
weighted average lives and pre-tax yields and the cash flows on the Securities
may also differ. In addition, it is unlikely that the Mortgage Loans will prepay
at any constant rate. The timing of changes in the rate of prepayment may
significantly affect the yield realized by a holder of the Securities.

<PAGE>

THE POOLING AGREEMENT

General

The Securities will be issued pursuant to a Pooling Agreement between
Financial Asset Securitization, Inc., as the depositor, and Norwest Bank,
Minnesota, National Association, as the Trustee (the "Agreement" ). Reference is
made to the Prospectus for important information in addition to that set forth
herein regarding the terms and conditions of the Pooling Agreement and the
Securities. References to the "Trust Agreement" in the Prospectus shall be
deemed to mean the "Pooling Agreement" in this Prospectus Supplement. The
Securities will be transferable and exchangeable at the Corporate Trust Office
of the Trustee, which will serve as Security Registrar and Paying Agent. The
Trustee will provide to a prospective or actual Securityholder without charge,
upon written request, a copy of the Agreement. Requests should be addressed to
the Trustee at 11000 Broken Land Parkway, Columbia, Maryland 21044, Attention:
FASI 1997-2. The Trustee will also act as securities administrator for the
Trust. Consequently, there will be no separate servicing agreement among the
parties relating to the transaction.

Assignment of Pooled Certificates

At the time of issuance of the Securities, the Seller will cause the
Pooled Certificates and Treasury Securities to be assigned to the Trustee. The
Underwriter, which will sell the Pooled Certificates and the Treasury Securities
to the Seller, will represent to the Seller, among other things, that as of the
Closing Date, (i) it is the owner of the Pooled Certificates and Treasury
Securities free and clear of any lien or adverse interests of any person and
(ii) that it has acquired its ownership in the Pooled Certificates and Treasury
Securities in good faith without notice of any adverse claim. The Seller,
following its purchase and immediately prior to the transfer to the Trustee,
will make similar representations.

Upon discovery or receipt of notice by either the Seller or the Trustee
of a breach of any of the representations and warranties regarding the Pooled
Certificates or Treasury Securities which materially and adversely affects the
interests of the Securityholders, the Seller, or the Trustee, the party
discovering such breach will give prompt notice to the other and to the
Underwriter. Within thirty days of the earlier of either discovery by or notice
to the Underwriter of any such breach, the Underwriter shall use its best
efforts promptly to cure such breach in all material respects and, if such
breach cannot be cured, the Underwriter shall, at the election of the Majority
Securityholders, repurchase each Pooled Certificate or Treasury Security
affected by the breach at a repurchase price equal to (i) with respect to any
Treasury Security and any Pooled Certificate that is not a Pooled IO
Certificate, the outstanding principal balance of the Pooled Certificate as of
the date of repurchase plus accrued interest thereon or any Treasury Security at
the amount payable at maturity and (ii) with respect to any Pooled IO
Certificates, the highest bid obtained by the Trustee from three dealers then
active in the market for such Pooled IO Certificates (or such lesser number as
may then be active). In the event the Trustee is able to obtain a bid from only
one active dealer, then the Trustee may obtain an opinion (a "FMV Opinion") of
an investment banking firm of national reputation (other than an affiliate of
the Seller) to determine whether such bid is at least equal to the fair market
value of such Pooled IO Certificates and the repurchase price shall be the
higher of the bid or the fair market value as stated in any such FMV Opinion. If
the Trustee is unable to obtain a bid from any active dealer, then the Trustee
shall obtain a FMV Opinion and the repurchase price shall be equal to the fair
market value of such Pooled IO Certificates as stated in such FMV Opinion.

Notwithstanding the foregoing, for a period of 90 days following the
Closing Date, in lieu of repurchasing Pooled Certificates, other than the Pooled
IO Certificates, as described above, the Underwriter may substitute therefor one
or more mortgage related securities issued by GNMA, FNMA or FHLMC (each a
"Substitute Pooled Certificate") which meet the following criteria: (i) such
substitution shall be (a) in the case of the Pooled Accrual Certificates, with
one or more accrual certificates bearing a coupon no less than the coupon of the
Pooled Accrual Certificates being substituted for, (b) in the case of the Pooled
Inverse Floating Rate Certificates, other than the Pooled IO Certificates, with

<PAGE>

one or more inverse floating rate certificates based on LIBOR whose combined
coupon will be at least equal to the coupon of the Pooled Certificates being
substituted for at all levels of LIBOR, or (c) in the case of the Pooled Fixed
Rate Certificates, with one fixed rate certificate bearing a coupon no less than
the coupon of the Pooled Fixed Rate Certificate, (ii) the sum of the outstanding
principal amounts of the Substitute Pooled Certificates equals or exceeds the
sum of the outstanding principal amounts of the Pooled Certificates being
substituted for, (iii) the Substitute Pooled Certificates as of the date of
substitution ultimately are backed by mortgage loans (a) with a weighted average
pass-through rate no more than 50 basis points below or no more than 50 basis
points above the weighted average pass-through rate of the mortgages loans
ultimately backing the Pooled Certificates being substituted for and (b) which
are conventional, fixed rate, one- to four-family, fully amortizing, level
payment, first mortgage loans with original maturities of up to 30 years, except
with respect to Pooled FHLMC 1381 Certificate, for which the original maturity
of the Mortgage Loans shall be up to 15 years, (iv) the inclusion of which in
the Trust Fund will not result in a withdrawal or downgrading in the ratings
assigned to the Securities by the Rating Agencies, written confirmation of which
shall be provided by the Rating Agencies to the Trustee and (v) such
substitution will not cause the Trust to lose its status as a grantor trust for
federal income tax purposes as indicated in an opinion of counsel to be provided
to the Trustee. The Underwriter also may substitute for any Treasury Security
another Treasury Security that results in this same aggregate payment amount, of
principal or interest, as the case may be, on the same Distribution Date as the
Treasury Security being substituted for.

Accounts

The Trustee shall establish and maintain the Asset Proceeds Account in
the name of the Trustee for the benefit of the Securityholders. The Asset
Proceeds Account shall be an Eligible Account as defined in the Agreement. The
Trustee, in its capacity as holder of the Pooled Certificates and Treasury
Securities, will cause all distributions received by it on the Pooled
Certificates and Treasury Securities from whatever source, to be deposited
directly into the Asset Proceeds Account. Amounts on deposit in the Asset
Proceeds Account will be invested in certain investments permitted by the
Agreement ("Permitted Investments"). Any income on such investments will be paid
to the Trustee as additional compensation and losses on such investments shall
be reimbursed by the Trustee from its own funds.

Reports to Securityholders

On each Distribution Date, the Trustee will prepare, to the extent it
receives distribution information with respect to the Pooled Certificates and
Treasury Securities, and will forward by mail, a statement to each
Securityholder and to the Seller stating:

(i) the Available Distribution for such Distribution Date;

(ii) the interest distribution amount and the principal
distribution amount for such Distribution Date and,
with respect to each, the components thereof as described
in the definitions of such terms and as reported in the
related distribution information and the portion derived
from the Treasury Securities;

(iii) the principal balance of the Securities before and
after applying payments on such Distribution Date;

(iv) the effective interest rate on the Securities for such
Distribution Date;

(v) the outstanding Pooled Certificate Principal Balance or
Pooled Certificate Notional Principal Balance, as the case
may be, immediately prior to and after taking into
account distributions made on such Distribution Date of,
and the current interest rate, on each of the Pooled
Certificates on such Distribution Date;

<PAGE>

(vi) the outstanding amount payable at maturity, immediately
prior to and after taking into account distributions made
on such Distribution Date, of each of the Treasury
Securities;

(vii) the original principal amount of the Securities and
the original principal amount of the Securities as
reduced to reflect any exchange of Securities for a pro
rata portion of the Pooled Certificates and Treasury
Securities; and

(viii) the amount of the Trustee Fee for such Distribution Date.

In the case of the information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall also be expressed as a dollar amount per $1000 of
principal face amount.

In addition, the Trustee promptly will furnish to the Seller and, upon
request, to the Securityholders, copies of any notices, statements, reports or
other information received by the Trustee in its capacity as the holder of the
Pooled Certificates.

On or before March 31st of each calendar year, commencing in 1998, the
Trustee will prepare and deliver by first class mail to the Seller and each
person who at any time during the prior calendar year was a Securityholder of
record a statement containing the information required to be contained in the
regular monthly report to Securityholders, as set forth in clauses (ii) and (v)
above aggregated for such prior calendar year or in the case of a
Securityholder, the applicable portion thereof during which such person was a
Securityholder. Such obligation of the Trustee will be satisfied to the extent
that substantially comparable information is provided by the Trustee pursuant to
any requirements of the Code and regulations thereunder as from time to time are
in force.

Amendments

The Agreement may be amended by the Seller and the Trustee, without the
prior written consent of any Securityholder (i) to cure any ambiguity or
mistake, (ii) to correct or supplement any provision therein which may be
inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement that
are not materially inconsistent with other provisions of the Agreement and (iv)
to make such modifications as may be required in connection with a substitution
or repurchase of a Pooled Certificate permitted under the Agreement; provided,
however, that such amendment will not, as evidenced by an opinion of counsel (at
the expense of the party seeking such amendment) delivered to the Trustee,
adversely affect in any material respect the interests of any Securityholder.
Counsel shall be entitled to rely on a letter from each Rating Agency that the
modification will not cause the then-existing rating of the Securities to be
downgraded as conclusive evidence that the modification does not adversely
affect in any material respect the interests of any Securityholder. The
Agreement may also be amended by the Seller and the Trustee and the holders of
Securities evidencing more than 50% of the aggregate principal amount of the
Securities (the "Majority Securityholders") for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Agreement or modifying in any manner the rights of Securityholders;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, amounts required to be distributed on any
Security without the consent of the holder of such Security; (ii) modify the
provisions of the Section of the Agreement governing amendments of the
Agreement, without the consent of the holders of all Securities; or (iii) be
made unless the Trustee has received an opinion of counsel (at the expense of
the party seeking such amendment) that such amendment will not adversely affect
the status of the Trust as a grantor trust for federal income tax purposes.

Securityholder Action

No Securityholder will have any right to institute any action, suit or
proceeding in equity or at law upon or under or with respect to the Agreement
unless such holder previously has given to the Trustee and the Seller a written
notice of default and unless also the Majority Securityholders have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee thereunder and have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 30 days after its receipt of
such notice, request and offer of indemnity, will have neglected or refused to
institute any such action, suit or proceeding.

<PAGE>

Termination

The respective obligations and responsibilities of the Seller and the
Trustee created by the Agreement will terminate upon the final distribution to
Securityholders by the Trustee of all amounts required to be distributed
pursuant to the Agreement. Such distribution will occur, among other
circumstances, on the Distribution Date following the first Distribution Date on
which the principal balance or notional principal balance of all but one of the
Pooled Certificates has been reduced to zero, and if the Seller exercises its
option to purchase the Pooled Certificates as described herein under
"Description of the Securities--Optional Termination."

Indemnification of the Trustee

The Trustee and its directors, officers, employees and agents, will be
indemnified by the Trust against any loss, liability or expense arising out of
or incurred in connection with, the exercise and performance of any powers and
duties of the Trustee under the Agreement, with certain exceptions described in
the Agreement. The Trustee and its directors, officers, employees and agents
will not be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of the
obligations and duties of the Trustee.

Certain Matters Regarding the Trustee

The Trustee for the Securities will be Norwest Bank Minnesota, National
Association. The Trustee's corporate office is located at Sixth & Marquette
Streets, Minneapolis, Minnesota 55479, Attention: FASI 1997-2, and its
Bondholder Services telephone number is 410-884-2000.

The Trustee may at any time resign and be discharged from the trust by
giving 30 days' written notice thereof to the Seller and the Securityholders.
Upon receiving such notice of resignation, the Seller shall promptly appoint a
successor trustee. If no successor trustee has been so appointed and has
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. If at any time the
Trustee fails to meet the eligibility requirements or is incapable of acting, or
certain insolvency events occur, then the Seller shall remove the Trustee and
appoint a successor trustee. The Majority Securityholders may at any time remove
the Trustee and appoint a successor trustee. No resignation, discharge or
removal of the Trustee will become effective until a successor trustee shall
have assumed the Trustee's responsibilities and obligations under the Agreement.

FEDERAL INCOME TAX CONSIDERATIONS

The following discussion represents the opinion of Hunton & Williams,
special tax counsel to the Trust ("Tax Counsel"), as to the material federal
income tax consequences of the purchase, ownership and disposition of
Securities. However, the discussion does not purport to deal with Federal income
tax consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Securityholders that are insurance companies, regulated investment companies or
dealers in securities. Prospective investors are urged to consult their own tax
advisors in determining the Federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of Securities.

The following discussion is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. No ruling on any of the
issues discussed below will be sought from the Internal Revenue Service (the
"IRS"). As a result, the IRS may disagree with all or part of the discussion
below.

<PAGE>

Tax Characterization of the Trust

Tax counsel is of the opinion that the Trust will be classified for
federal income tax purposes as a grantor trust under subpart E, Part I of
subchapter J of the Code and not as an association taxable as a corporation.
Accordingly, each holder of a Security will be treated for federal income tax
purposes as the owner of a pro rata undivided interest in the Pooled
Certificates and Treasury Securities included in the Trust.

As further described below, each holder of a Security must report on
its federal income tax return the interest income and original issue discount
attributable to the portion of the Pooled Certificates and Treasury Securities
that is allocable to such Security and may deduct the portion of the expenses
incurred by the Trust that is allocable to such Security, at the same time and
to the same extent as such items would be reported by such holder if it had
purchased and held directly such interest in the Pooled Certificates and
Treasury Securities and incurred directly its share of expenses incurred by the
Trust. In general, the securities will be treated as Pass-Through Securities as
described in "Certain Federal Income Tax Consequences--Non-REMIC
Securities--Treatment of Pass-Through Securities" in the Prospectus.

A Securityholder that is an individual, estate or trust will be allowed
deductions for such expenses only to the extent that the sum of those expenses
and the holder's other miscellaneous itemized deductions exceeds two percent of
such holder's adjusted gross income. In addition, in the case of a
Securityholder who is an individual, certain otherwise allowable itemized
deductions will be reduced, but not by more than 80%, by an amount equal to 3%
of such Securityholder's adjusted gross income in excess of a statutorily
defined threshold. Moreover, a Securityholder that is not a corporation cannot
deduct such expenses for purposes of the alternative minimum tax (if
applicable). Such deductions will include servicing and administrative fees paid
to the Trustee.

A Securityholder must allocate the purchase price of its Securities
among its share of the Pooled Certificates and Treasury Securities based upon
the relative fair market value of the Pooled Certificates and Treasury
Securities as of the date such Securityholder purchased its Securities.

The tax consequences to a Securityholder of ownership of an undivided
interest in each Pooled Certificate are described in the Underlying
Prospectuses. The Underlying Prospectuses for each of the Pooled Certificates
state that such Pooled Certificates are REMIC Regular Interests. A general
discussion of the tax consequences to a holder of REMIC Regular Interests can be
found in "Certain Federal Income Tax Consequences--REMIC Securities" in the
Prospectus. It should be noted that recently enacted tax legislation made a
number of changes to the Code. Included among the changes are (i) lower tax
rates for certain capital gains of individuals resulting from the holding of
property for more than 18 months and (ii) a provision that would subject pools
of prepayable debt obligations to the provisions of section 1272(a)(6) of the
Code for taxable years beginning after August 5, 1997. The consequences of the
application of section 1272(a)(6) in the case of the Trust are not clear, but
may require the use of a prepayment assumption that differs from the prepayment
assumptions used for computing the inclusion of any original issue discount on
the Pooled Certificates.

The Securities will be treated as qualifying assets for domestic
building and loan associations, mutual savings banks, and real estate investment
trusts, and income from the Securities will constitute qualifying income for
such entities, in each case to the extent that the Pooled Certificates and the
income therefrom are treated as such. See "Certain Federal Income Tax
Consequences--REMIC Securities" in the Prospectus.

A Securityholder may be subject to backup withholding as described in
"Certain Federal Income Tax Consequences--REMIC Securities" in the Prospectus.
The backup withholding rate for reportable payments (including interest payments
and original issue discount) made on or after January 1, 1993 is 31%.

<PAGE>

ERISA CONSIDERATIONS

Fiduciaries of employee benefit plans subject to Title I of ERISA
should consider the ERISA fiduciary investment standards before authorizing an
investment by a plan in the Securities. In addition, fiduciaries of employee
benefit plans subject to Title I of ERISA, as well as certain plans or other
retirement arrangements not subject to ERISA, but which are subject to Section
4975 of the Code (such as individual retirement accounts and Keogh plans
covering only a sole proprietor, or partners), or any entity whose underlying
assets include plan assets by reason of a plan or account investing in such
entity, including an insurance company general account (collectively,
"Plan(s)"), should consult with their legal counsel to determine whether an
investment in the Securities will cause the assets of the Trust ("Trust Assets")
to be considered plan assets pursuant to the plan asset regulations set forth at
29 C.F.R. 2510.3-101 (the "Plan Asset Regulations"), thereby subjecting the Plan
to the prohibited transaction rules with respect to the Trust Assets and the
Trustee to the fiduciary investments standards of ERISA, or cause the excise tax
provisions of Section 4975 of the Code to apply to the Trust Assets, unless an
exemption granted by the Department of Labor (an "Exemption") applies to the
purchase, sale, transfer or holding of the Certificates and the operation and
management of the Trust and its assets. In particular, investors that are
insurance companies should consult with their legal counsel with respect to the
United States Supreme Court case John Hancock Mutual Life Insurance Co. v.
Harris Trust and Savings Bank, 114 S. Ct. 517 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be plan assets under certain circumstances. Investors should
analyze whether that decision or federal legislation recently enacted affecting
insurance company general accounts (see Section 1460 of the Small Business Job
Protection Act of 1996) may have an impact with respect to purchases of
Securities. Each purchaser of a Security, by virtue of its purchase of such
Security, will be deemed to have represented either that (i) it is not a Plan or
(ii) an Exemption exists which exempts the acquisition, holding or transfer of a
Security by such purchaser from the prohibited transaction rules of ERISA and
the related excise tax provisions of the Code.

A governmental plan as defined in Section 3(32) of ERISA is not subject
to ERISA, or Code Section 4975. However, such governmental plan may be subject
to Federal, state and local law, which is, to a material extent, similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of such
investment under applicable fiduciary or other investment standards, and the
need for the availability of any exemptive relief under any Similar Law.

LEGAL INVESTMENT

Institutions whose investment activities are subject to legal
investment laws and regulations or to review by certain regulatory authorities
may be subject to restrictions on investment in the Securities. Any such
institution should consult its legal advisors in determining whether and to what
extent there may be restrictions on its ability to invest in the Securities. The
Securities will not constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984.

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement dated October 28, 1997 and the related Terms Agreement dated the date
hereof (the "Underwriting Agreement") between the Seller and Bear, Stearns & Co.
Inc. (the "Underwriter"), the Seller has agreed to sell to the Underwriter, and
the Underwriter has agreed to purchase from the Seller, all of the Securities.
The Underwriting Agreement provides that the Underwriter's obligations
thereunder are subject to certain conditions precedent, and that the Underwriter
will be obligated to purchase all of the Securities if any are purchased.

The Underwriter has advised the Seller that it proposes to offer the
Securities 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 Securities to
or through dealers, and such dealers may receive compensation in the form of

<PAGE>

discounts, concessions or commissions from the Underwriter and/or commissions
from any purchaser of the Securities for whom they may act as agents. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Securities may be deemed to be underwriters, and any
discounts, concessions or commissions received by them, and any profit on the
resale of the Securities positioned by them, may be deemed to be underwriting
discounts and commissions under the 1933 Act.

The Seller has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Act, to the extent and under
the circumstances set forth in the Underwriting Agreement.

Because the Pooled Certificates and Treasury Securities were sold by
the Underwriter to the Seller and, thereafter, the Securities will be purchased
initially by the Underwriter from the Seller, the economic risks and benefits
associated with the sale of the Pooled Certificates and Treasury Securities and
the purchase by the Underwriter of the Securities are borne or realized
primarily by the Underwriter and its affiliates.

LEGAL MATTERS

Certain legal matters relating to the Securities will be passed upon
for the Seller and the Trust by Hunton & Williams, Richmond, Virginia. Certain
legal matters with respect to the Underwriter will be passed upon by Stroock &
Stroock & Lavan LLP, New York, New York.

RATINGS

As a condition to their issuance, the Securities will be rated "Aaa" by
Moody's and "AAA" by Fitch.

The rating assigned by Moody's to the Securities addresses the
likelihood of the receipt by Securityholders of all distributions to which such
Securityholders are entitled. The rating is based principally on the guarantees
of FNMA and FHLMC on the Pooled Certificates. Moody's ratings do not represent
any assessment of the likelihood that prepayments will be made by borrowers or
the degree to which such prepayments will differ from that originally
anticipated. The rating does not address the possibility that, as a result of
prepayments, Securityholders may suffer a lower than anticipated yield on the
Security.

The rating by Fitch on the Securities addresses the likelihood of the
receipt by Securityholders of all distributions to which such Securityholders
are entitled. Fitch takes into consideration the credit quality of FNMA and
FHLMC, structural and legal aspects associated with the Securities and the
extent to which the payment stream on the Pooled Certificates and Treasury
Securities is adequate to make payments required under the Securities. The
rating of Fitch does not constitute a statement regarding frequency of
prepayments on the Mortgage Loans or the corresponding effects on yield to
investors, and does not represent any assessment of the likelihood or rate of
prepayments.

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 Securities 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 Securities.

The Seller has not requested a rating of the Securities by any rating
agency other than Moody's and Fitch. However, there can be no assurance as to
whether any other rating agency will rate the Securities or, in such event, what
rating would be assigned to the Securities by such other rating agency. The
rating assigned by such other rating agency to the Securities may be lower than
the rating assigned by or Moody's or Fitch.

<PAGE>

INDEX OF TERMS

1933 Act........................................iii
1934 Act........................................iii
Agreement.................................S-2, S-27
Asset Proceeds Account.........................S-13
Available Distribution.........................S-14
Business Day..............................S-5, S-13
Cede...........................................S-12
Closing Date....................................S-5
Code.....................................S-10, S-30
Companion Classes..............................S-17
Determination Time........................S-5, S-13
Distribution Date.....................ii, S-5, S-13
DTC........................................iii, S-2
ERISA...........................................S-9
Escrow Amount..................................S-14
Exemption......................................S-10
FHA.........................................ii, S-3
FHLMC........................................i, S-2
FHLMC Mortgages.............................ii, S-3
Final Scheduled Distribution Date..............S-23
Fitch.............................................i
FNMA.........................................i, S-2
FNMA MBS....................................ii, S-3
FNMA Mortgages..............................ii, S-3
FNMA REMIC Certificates...........................i
GNMA........................................ii, S-3
GNMA Certificates...........................ii, S-3
Gold Giant PCs..............................ii, S-3
Gold PCs....................................ii, S-3
Interest Accrual Period...................S-6, S-13
IRS............................................S-30
LIBOR.......................................ii, S-4
Majority Securityholders.......................S-29
Moody's...........................................i
Mortgage Loans........................ii, S-7, S-11
Mortgage Pool.........................ii, S-7, S-11
Multiclass PCs..............................ii, S-3
Permitted Investments..........................S-28
Plan(s)...................................S-9, S-32
Plan Asset Regulations......................ii, S-4
Pooled Accrual Certificates.................ii, S-4
Pooled Certificate Distribution Date............S-4
Pooled Certificate Notional
Principal Balance.............................S-2
Pooled Certificate Principal Balance............S-2
Pooled Certificates.............................S-2
Pooled FHLMC Certificate
Distribution Date.............................S-4
Pooled FHLMC Certificates....................i, S-2
Pooled Fixed Rate Certificates..............ii, S-4
Pooled FNMA Certificate Distribution
Date..........................................S-3
Pooled FNMA Certificates.....................i, S-2
Pooled Inverse Floating Rate
Certificates..............................ii, S-4
Pooled IO Certificates......................ii, S-4
Prospectus......................................S-2
Rating Agencies.............................i, S-10
Record Date...............................S-5, S-13
REMIC......................................iii, S-9
Reserve Fund....................................S-5
Securities...................................i, S-2
Seller.......................................i, S-2
Similar Law....................................S-32
SMMEA..........................................S-10
SPA............................................S-24
Stripped Giant PCs..........................ii, S-3
Substitute Pooled Certificate..................S-27
Supplemental Distribution Date............S-5, S-13
Tax Counsel....................................S-30
Treasury Securities.........................ii, S-5
Trust........................................i, S-2
Trust Assets.............................S-10, S-32
Trustee.........................................S-2
Trustee Fee....................................S-14
Trustee Fee Escrow Account.....................S-14
Underlying Agreement............................S-3
Underlying FHLMC Offering Circular Term
Sheets........................................S-4
Underlying FHLMC Series.....................ii, S-3
Underlying FNMA Prospectus Information..........S-4
Underlying FNMA Series......................ii, S-3
Underlying FNMA Trusts......................ii, S-3
Underlying Mortgage Loans.............ii, S-7, S-11
Underlying Prospectus Information...............S-4
Underlying Prospectuses.........................S-4
Underlying Series...........................ii, S-3
Underwriter............................i, S-2, S-32
Underwriting Agreement.........................S-32
VA..........................................ii, S-3

<PAGE>

Annex 1

POOLED CERTIFICATE CURRENT INFORMATION

The table in this Annex 1 sets forth information for each of the Pooled
Certificates concerning such Pooled Certificates and the related Mortgage Loans.
The table and the descriptions of the Pooled Certificates herein are subject to
and qualified by reference to the information with respect to the provisions of
the Underlying Agreements and Underlying Prospectuses and the other prospectuses
related to the Pooled Certificates. The information set forth in the table and
elsewhere herein has been derived from information provided by FNMA and FHLMC,
but such information has not been independently verified by the Depositor or the
Underwriter. This information comprises all material information on the subject
that the Depositor and the Underwriter possess or can acquire without
unreasonable expense or effort.

"Weighted average" numbers are calculated based on the loan balances as
of November 1, 1997.

The issue dates for the Pooled FNMA Certificates are as follows:
1997-78/Z, November 28, 1997 and 1997-G5/SH, June 30, 1997. The issue dates for
the Pooled FHLMC Certificates are as follows: 1381/E, October 30, 1992; 1578/Z,
September 30, 1993; 1591/SC, October 29, 1993; 1723/SB, May 27, 1994; 1930/SF,
February 28, 1997; and 2003/Z, October 30, 1997.

The following is a description of each item reported in the following
table. The table should be read in conjunction with these descriptions and the
additional information contained in Annex 2.

1. Issuer and Series/Class. These first two columns indicate,
collectively, the issuer name, series, and class designation
of each Pooled Certificate. For the full name of each Pooled
Certificate, see "Description of the Pooled
Certificates--General".

2. Certificate Interest Type. INV indicates that the Pooled
Certificates bear interest at rates that are based on an index
(in this case, LIBOR) and that vary inversely with changes in
the index. FIX indicates that the Pooled Certificates bear
interest at a fixed rate. Z indicates that the Pooled
Certificates accrete the amount of accrual interest otherwise
distributable on such Pooled Certificates, which amount will
be added as principal to the principal balance of such Pooled
Certificates on each applicable distribution date. Such
accretion will continue until some specified event has
occurred or until such Pooled Certificates are retired.

3. Current Coupon. This coupon indicates the interest rates
applicable to the December 1997 distribution on the Pooled
Certificates.

4. Class Original Principal Balance or Notional Principal
Balance. This column lists the original principal balance or
notional principal balance of the Pooled Certificates.

5. Class % in Trust. This is the percentage which the respective
Pooled Certificates constitute of its class.

6. Class Current Principal Balance or Notional Principal Balance
In Trust. This column shows the principal balance or notional
principal balance of the Pooled Certificates included in the
Trust after the distributions made in November 1997.

7. Original Mortgage Loan Balance. This is the original aggregate
scheduled principal balance of the Mortgage Loans underlying
each Pooled Certificate.

<PAGE>

8. Current Mortgage Loan Balance. This is the aggregate scheduled
principal balance of the Mortgage Loans underlying each Pooled
Certificate as of November 1, 1997.

9. WAC. Under this heading is the current weighted average of the
note rates on the Mortgage Loans underlying each Pooled
Certificate.

10. CNWAC. Under this heading is the current weighted average of
the net rates (that is, note rate less any servicing fee and
any other administrative fees) on the Mortgage Loans
underlying each Pooled Certificate.

11. WAM. Under this heading is the current weighted average of the
remaining terms to maturity of the Mortgage Loans underlying
each Pooled Certificate (in months).

12. WALA/CAGE. Under this heading is the weighted average months
since origination for the Mortgage Loans underlying each
Pooled Certificate.

<PAGE>

- -----------------------------------------------------------------------------------------
Class Current
Certificate Class Principal or
Interest Current Original Class % Notional
Issuer Series/Class Type Coupon Principal or in Trust Principal
- ------ ------------ ---- ------ --------
Notional Balance
Principal in Trust
Balance
- -----------------------------------------------------------------------------------------
<S> <C>
FNMA 1997-G5/SH(1) INV/IO 2.60000% $61,815,500 3.10% $1,915,500
- -----------------------------------------------------------------------------------------
FNMA 1997-78/Z(1) FIX/Z 0.00000%(4) $25,252,700 87.51% $22,098,000
- -----------------------------------------------------------------------------------------
FHLMC 1381/E FIX 6.25000% $30,440,000 31.52% $9,538,687
- -----------------------------------------------------------------------------------------
FHLMC 1578/Z FIX/Z 7.00000% $66,000,000 21.06% $5,846,022
- -----------------------------------------------------------------------------------------
FHLMC 1591/SC INV 3.41048% $24,388,800 34.40% $8,012,030
- -----------------------------------------------------------------------------------------
FHLMC 1723/SB INV 3.50000% $2,142,858 79.47% $1,681,456
- -----------------------------------------------------------------------------------------
FHLMC 1930/SF(1) INV/IO 6.89500% $14,014,507 34.35% $4,814,507
- -----------------------------------------------------------------------------------------
FHLMC 2003/Z FIX/Z 8.00000% $5,572,900 53.83% $3,020,000
- -----------------------------------------------------------------------------------------
</TABLE>

- ----------------------------------------------------------------------------------

Original Current
Mortgage Mortgage WALA/
Issuer Loan Balance Loan Balance WAC CNWAC WAM CAGE
- ------ ------------ ------------ --- ---- --- ----

- ----------------------------------------------------------------------------------
<S> <C>
FNMA $1,059,200,000 $1,017,373,944 8.500 8.000 348 10
- ----------------------------------------------------------------------------------
FNMA $1,000,000,000 $1,000,000,000 7.700(2) 7.000(2) 355(2) 4(2)
- ----------------------------------------------------------------------------------
FHLMC $571,428,000 $198,087,133 7.959 7.500 109 62
- ----------------------------------------------------------------------------------
FHLMC $1,500,000,000 $1,095,402,928 7.527 7.000 293 51
- ----------------------------------------------------------------------------------
FHLMC $677,571,428 $531,336,172 7.197 6.500 296 51
- ----------------------------------------------------------------------------------
FHLMC $390,500,000 $263,299,879 8.538 8.000 283 61
- ----------------------------------------------------------------------------------
FHLMC $33,306,060(3) $33,306,060(3) 7.591 7.000 293 52
- ----------------------------------------------------------------------------------
FHLMC $268,232,220 $265,430,586 8.500 8.000 349 9
- ----------------------------------------------------------------------------------
</TABLE>

- ----------------------
(1) In cases where the Pooled Certificates receive payment from a
specified collateral group, only the characteristics of the group
relating to the Pooled Certificates have been used in calculating the above
information.

(2) Based on the assumptions for such Mortgage Loans included in the Underlying
FNMA Offering Circular Terms Sheet for such Pooled Certificates.

(3) Based on original and current principal balances of the underlying
securities, rather than the balance of the Mortgage Loans underlying such
securities.

(4) The Pooled FNMA 1997-78 Certificate is a Pooled Accrual Certificate,
which will not accrue interest prior to the February 1998 interest accrual
period for such certificate. After such date, the Pooled FNMA Certificate
will accrue interest at a fixed rate of 8.00000%.

<PAGE>

Annex 2

Pooled Certificate Information

<PAGE>

Annex 2(a)

Prospectus Supplement
dated May 16, 1997
to
Prospectus dated June 14, 1996
relating to

FannieMae
Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1997-G5

<PAGE>

Prospectus Supplement
(To Prospectus dated June 14, 1996)

$1,112,702,338

[FANNIEMAE LOGO]

Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1997-G5

The Guaranteed REMIC Pass-Through Certificates offered hereby (the "REMIC
Certificates") will represent beneficial ownership interests in one of two trust
funds. The REMIC Certificates, other than the RL Class, will represent
beneficial ownership interests in Fannie Mae REMIC Trust 1997-G5 (the "REMIC
Trust"). The assets of the REMIC Trust will consist of the "regular interests"
in a separate trust fund (the "Lower Tier REMIC"). The assets of the Lower Tier
REMIC will consist of (i) certain "fully modified pass-through" mortgage-backed
securities (the "GNMA Certificates") guaranteed as to timely payment of
principal and interest by the Government National Mortgage Association ("GNMA")
and (ii) certain previously issued REMIC certificates specified herein
(collectively, the "Underlying REMIC Certificates") evidencing direct or
indirect beneficial ownership interests in the related Fannie Mae REMIC Trusts
(the "Underlying REMIC Trusts") as further described in Exhibit A hereto. The
assets of the Underlying REMIC Trusts evidence direct or indirect beneficial
ownership interests in certain Fannie Mae Guaranteed Mortgage Pass-Through
Certificates (the "MBS"). Each GNMA Certificate is based on and backed by a pool
of mortgage loans which are either insured or guaranteed by the Federal Housing
Administration ("FHA"), the Department of Veterans Affairs ("VA") or the Rural
Housing Service ("FmHA"). Each MBS represents a beneficial ownership interest in
a pool of first lien, single-family, fixed-rate residential mortgage loans
(together with the pools and mortgage loans underlying the GNMA Certificates,
the "Pools" and "Mortgage Loans," respectively) having the characteristics
described herein.

Certain of the Classes of REMIC Certificates may, upon notice and payment of
an exchange fee, be exchanged for certain Classes (each, an "RCR Class") of
Combinable and Recombinable REMIC Certificates ("RCR Certificates") as provided
herein. Each RCR Certificate issued in such an exchange will represent a
beneficial ownership interest in, and will entitle the Holder thereof to receive
a proportionate share of the distributions on, the related Classes of REMIC
Certificates. The characteristics of the RCR Classes are set forth in Schedule 1
hereto. As described herein, the G Class RCR Certificates will be purchased in
full by Fannie Mae on the G Class Purchase Date (as defined herein), upon which
the Holders of the G Class will receive the unpaid principal balances of their
Certificates plus accrued and unpaid interest thereon, as further described
herein. As used herein, unless the context requires otherwise, the term
"Certificates" includes REMIC Certificates and RCR Certificates and the term
"Classes" includes the Classes of REMIC Certificates and the Classes of RCR
Certificates. See "Combination and Recombination" herein and Schedule 1 hereto.

The Certificates will be issued and guaranteed as to timely distribution of
principal and interest by Fannie Mae.

Investors should not purchase the Certificates before reading this Prospectus
Supplement and the additional Disclosure Documents listed at the bottom of page
S-2.

See "Additional Risk Factors" on page S-8 hereof and "Risk Factors"
beginning on page 8 of the GNMA Prospectus attached hereto for a discussion of
certain risks that should be considered in connection with an investment in the
Certificates.

------------------------

(Cover continued on next page)

THE CERTIFICATES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS. NO
INVESTOR SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS AND IS
ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH
SUCH CERTIFICATES.

------------------------

THE CERTIFICATES, TOGETHER WITH ANY INTEREST THEREON, ARE NOT GUARANTEED BY
THE UNITED STATES. THE OBLIGATIONS OF FANNIE MAE UNDER ITS GUARANTY OF THE
CERTIFICATES ARE OBLIGATIONS SOLELY OF FANNIE MAE AND DO NOT CONSTITUTE AN
OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF
OTHER THAN FANNIE MAE. THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES"
WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934.

=============================================================================================

Original Final
Principal Principal Interest Interest CUSIP Distribution
Class(1) Group Balance Type(2) Rate Type(2) Number Date
- ---------------------------------------------------------------------------------------------
<S> <C>
F ........ 1 $342,439,500 TAC (3) FLT 31359P 5 E 2 March 2019
SJ ....... 1 (4) NTL (3) INV/IO 31359P 5 F 9 March 2019
SK ....... 1 (4) NTL (3) INV/IO 31359P 5 G 7 March 2019
SB ....... 1 22,829,300 TAC (3) INV 31359P 5 H 5 March 2019
AB ....... 1 70,422,707 PAC 6.75% FIX 31359P 5 J 1 February 2016
IB ....... 1 (4) NTL 8.00 FIX/IO 31359P 5 K 8 February 2016
AC ....... 1 77,940,023 TAC/AD 7.50 FIX 31359P 5 L 6 October 2017
ZC ....... 1 5,787,670 TAC 7.50 FIX/Z 31359P 5 M 4 March 2019
B ........ 1 134,888,400 TAC 7.50 FIX 31359P 5 N 2 September 2017
C ........ 1 25,000,400 TAC 7.50 FIX 31359P 5 P 7 March 2019
CG ....... 1 2,000,000 TAC 7.50 FIX 31359P 5 Q 5 March 2018
CK ....... 1 2,235,000 TAC 7.50 FIX 31359P 5 R 3 October 2018
CL ....... 1 1,336,000 TAC 7.50 FIX 31359P 5 S 1 March 2019
FA ....... 1 38,544,000 SUP (3) FLT 31359P 5 T 9 June 2019
SA ....... 1 7,227,000 SUP (3) INV 31359P 5 U 6 June 2019
FE ....... 1 20,592,223 SEQ/AD (3) FLT 31359P 5 V 4 May 2004
SE ....... 1 (4) NTL (3) INV/IO 31359P5W2 May 2004
FH ....... 1 61,815,500 SEQ/AD (3) FLT 31359P 5 X 0 July 2012
SH ....... 1 (4) NTL (3) INV/IO 31359P 5 Y 8 July 2012
</TABLE>

=============================================================================================
Original Final
Principal Principal Interest Interest CUSIP Distribution
Class(1) Group Balance Type(2) Rate Type(2) Number Date
- ---------------------------------------------------------------------------------------------
<S> <C>
VC ....... 1 $ 24,199,500 SEQ/AD 7.00% FIX 31359P 5 Z 5 June 2007
VD ....... 1 31,581,000 SEQ/AD 7.25 FIX 31359P 6 A 9 April 2010
VE ....... 1 25,000,000 SEQ/AD 7.75 FIX 31359P 6 B 7 July 2012
VA ....... 1 15,361,000 SEQ/AD 7.50 FIX 31359P 6 C 5 July 2012
Z ........ 1 142,509,777 SCH/SEQ (5) FIX/Z 31359P 6 D 3 June 2027
ZA ....... 1 7,491,000 SEQ (6) FIX/Z 31359P 6 E 1 June 2027
IO ....... 1 (4) NTL 8.00 FIX/IO 31359P 6 F 8 September 2002
SC ....... 2 (4) NTL (3) INV/IO 31359P 6 G 6 October 2020
SD ....... 2 (4) NTL (3) INV/IO 31359P 6 H 4 October 2020
VG ....... 3 8,323,000 SC/AD 7.05 FIX 31359P 6 J 0 June 2004
VH........ 3 3,118,000 SC/AD 7.05 FIX 31359P 6 K 7 May 2006
VJ ....... 3 7,833,000 SC/AD 7.05 FIX 31359P 6 L 5 May 2010
VK........ 3 6,897,000 SC/AD 7.05 FIX 31359P 6 M 3 January 2013
ZB ....... 3 13,150,128 SC 7.05 FIX/Z 31359P 6 N 1 March 2024
FG ....... 4 10,241,985 SC/PT (3) FLT 31359P 6 P 6 November 2007
SG ....... 4 3,939,225 SC/PT (3) INV 31359P 6 Q 4 November 2007
R ........ 0 NPR 0 NPR 31359P 6 R 2 June 2027
RL ....... 0 NPR 0 NPR 31359P 6 S 0 June 2027
=============================================================================================
</TABLE>

(1) The RCR Classes are set forth on Schedule 1 herein.
(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the GNMA Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.
(3) These Classes will bear interest based on "LIBOR" as described under
"Description of the Certificates--Distributions of Interest" herein and
"Description of the Certificates--Indices Applicable to Floating Rate and
Inverse Floating Rate Classes" in the GNMA Prospectus.
(4) The SJ, SK, IB, SE, SH, IO, SC and SD Classes will be Notional Classes, will
not have principal balances and will bear interest on their notional
principal balances (initially, $342,439,500, $342,439,500, $6,602,128,
$20,592,223, $61,815,500, $30,648,838, $69,308,537 and $69,308,537,
respectively). The notional principal balances of the Notional Classes will
be calculated as specified herein. See "Description of the
Certificates--Distributions of Interest--Notional Classes" herein.
(5) Interest will accrue on the Z Class at a rate of 6.7% per annum during each
Interest Accrual Period prior to September 2002; thereafter, interest will
accrue thereon at a rate of 8.0% per annum. See "Description of the
Certificates--Distributions of Interest--Accrual Classes" herein.
(6) No interest will accrue on the ZA Class prior to the Interest Accrual Period
in September 2002; thereafter, interest will accrue thereon at a rate of
8.0% per annum.

------------------------

The Certificates will be offered by Bear, Stearns & Co. Inc. (the "Dealer")
from time to time in negotiated transactions, at varying prices to be determined
at the time of sale.

The Certificates will be offered by the Dealer, subject to issuance by Fannie
Mae, to prior sale or to withdrawal or modification of the offer without notice,
when, as and if delivered to and accepted by the Dealer, and subject to approval
of certain legal matters by counsel. It is expected that the Group 1 Classes (as
described herein) and the RCR Certificates will be available through the
book-entry facilities of The Depository Trust Company and that the Group 2,
Group 3 and Group 4 Classes (as described herein) will be available through the
book-entry system of the Federal Reserve Banks on or about June 30, 1997 (the
"Settlement Date"). It is expected that the R and RL Classes in registered,
certificated form will be available for delivery at the offices of the Dealer,
245 Park Avenue, New York, New York 10167, on or about the Settlement Date.

------------------------

Bear, Stearns & Co. Inc.
May 16, 1997

<PAGE>

(Cover continued from previous page)

The yields to investors in the Group 1 Classes will be sensitive in varying
degrees to, among other things, the rates of principal distributions on the GNMA
Certificates, which in turn will be determined by the rates of principal
payments of the related Mortgage Loans and the characteristics of such Mortgage
Loans. The yield to investors in the G Class RCR Certificates will also be
sensitive to the purchase of such Certificates by Fannie Mae on the G Class
Purchase Date. The yields to investors in the Group 2, Group 3 and Group 4
Classes will be sensitive in varying degrees to, among other things, the rate of
principal distributions or notional balance reductions on the related Underlying
REMIC Certificates, which in turn will be sensitive in varying degrees to the
rate of principal payments of the related Mortgage Loans, the characteristics of
the Mortgage Loans included in the related Pools and the priority sequences
affecting principal distributions for the Underlying REMIC Trusts. The yield to
investors in each Class will also be sensitive to the purchase price paid for
such Class and, in the case of any Floating Rate or Inverse Floating Rate Class,
fluctuations in the level of the Index (as defined herein). Accordingly,
investors should consider the following risks:

o The Mortgage Loans generally may be prepaid at any time without penalty,
and, accordingly, the rate of principal payments thereon is likely to
vary considerably from time to time.

o Slight variations in Mortgage Loan characteristics could substantially
affect the weighted average lives and yields of some or all of the
Classes.

o In the case of any Certificates purchased at a discount to their
principal amounts, a slower than anticipated rate of principal payments
is likely to result in a lower than anticipated yield.

o In the case of any Certificates purchased at a premium to their
principal amounts, a faster than anticipated rate of principal payments
(or, in the case of the G Class RCR Certificates, a purchase thereof by
Fannie Mae on an earlier than anticipated date) is likely to result in a
lower than anticipated yield.

o In the case of any Interest Only Class, a faster than anticipated rate
of principal payments is likely to result in a lower than anticipated
yield and, in certain cases, an actual loss on the investment.

o The yield on any Floating Rate or Inverse Floating Rate Class will be
sensitive to the level of the Index. See "Description of the
Certificates--Distributions of Interest--Floating Rate and Inverse
Floating Rate Classes" herein.

See "Risk Factors--Yield Considerations" in the GNMA Prospectus and "Additional
Risk Factors--Additional Yield and Prepayment Considerations" and "Yield Tables"
herein.

In addition, investors should purchase Certificates only after considering
the following:

o All but one of the Underlying REMIC Certificates are subordinate in
priority of principal distributions to certain other classes of
certificates evidencing beneficial ownership interests in the related
Underlying REMIC Trusts and, accordingly, there is no assurance that
principal distributions will be made on such Underlying REMIC
Certificates on any particular Distribution Date. In particular, such
Underlying REMIC Certificates are Support classes that are entitled to
receive principal distributions on any Distribution Date only if
scheduled distributions have been made on other specified classes of
certificates evidencing beneficial ownership interests in the related
Underlying REMIC Trusts. Accordingly, such Underlying REMIC Certificates
may receive no principal distributions for extended periods of time or
may receive principal distributions that vary widely from period to
period. The remaining Underlying REMIC Certificate has a notional
principal balance that is based on the principal balance of a class in
the related Underlying REMIC Trust that has a Principal Balance Schedule
and, as a result, may receive principal distributions at a rate faster
or slower than would otherwise have been the case. Prepayments on the
related Mortgage Loans may have occurred at a rate faster or slower than
that initially assumed. This Prospectus Supplement contains no
information as to whether such class has adhered to its Principal
Balance Schedule, whether any related Support classes remain outstanding
or whether such class otherwise has performed as originally anticipated.
Additional information regarding the Underlying REMIC Certificates may
be obtained by performing an analysis of current Fannie Mae principal
factors in the context of applicable information contained in the
related Underlying REMIC Disclosure Documents (as defined below), which
may be obtained from Fannie Mae as described below.

o The actual final payment of any Class will likely occur earlier, and
could occur much earlier, than the Final Distribution Date for such
Class specified on the cover page. See "Description of the
Certificates--Weighted Average Lives of the Certificates" herein and
"Description of the Certificates--Weighted Average Life and Final
Distribution Dates" in the GNMA Prospectus.

o The rate of principal distributions of the Certificates is uncertain and
investors may be unable to reinvest the distributions thereon at yields
equaling the yields on the Certificates. See "Risk Factors--Suitability
and Reinvestment Considerations" in the GNMA Prospectus.

o The feature whereby Fannie Mae will purchase the G Class RCR
Certificates on the G Class Purchase Date may significantly reduce the
likelihood that such Certificates will sell at a premium in the
secondary market.

o Investors whose investment activities are subject to legal investment
laws and regulations or to review by regulatory authorities may be
subject to restrictions on investment in certain Classes of the
Certificates. Investors should consult their legal advisors to determine
whether and to what extent the Certificates constitute legal investments
or are subject to restrictions on investment. See "Legal Investment
Considerations" in the GNMA Prospectus.

o The Dealer intends to make a market for the Certificates but is not
obligated to do so. There can be no assurance that such a secondary
market will develop or, if developed, that it will continue. Thus,
investors may not be able to sell their Certificates readily or at
prices that will enable them to realize their anticipated yield. No
investor should purchase Certificates unless such investor understands
and is able to bear the risk that the value of the Certificates will
fluctuate over time and that the Certificates may not be readily
salable.

These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus Supplement, the GNMA Prospectus, the
REMIC Prospectus, the MBS Prospectus or the Underlying REMIC Disclosure
Documents (each as defined below). Any representation to the contrary is a
criminal offense.

Elections will be made to treat the Lower Tier REMIC and the Trust as "real
estate mortgage investment conduits" ("REMICs") pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). The R and RL Classes will be subject to
transfer restrictions. See "Description of the Certificates-- Characteristics of
the R and RL Classes" and "Certain Additional Federal Income Tax Consequences"
herein, and "Description of the Certificates--Additional Characteristics of
Residual Certificates" and "Certain Federal Income Tax Consequences" in the GNMA
Prospectus.

Investors should purchase the Certificates only if they have read and
understood this Prospectus Supplement and the following documents (collectively,
the "Disclosure Documents");

o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through Certificates
(backed by GNMA Certificates) dated June 14, 1996 (the "GNMA
Prospectus"), which is attached to this Prospectus Supplement;

o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through Certificates
dated June 14, 1996 (the "REMIC Prospectus");

o Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated January 1, 1997 (the "MBS Prospectus");

o The Prospectus and Prospectus Supplements for the Underlying REMIC
Certificates (collectively, the "Underlying REMIC Disclosure
Documents"); and

o Fannie Mae's Information Statement dated March 31, 1997 and any
supplements thereto (collectively, the "Information Statement").

The MBS Prospectus, the REMIC Prospectus and the Information Statement are
incorporated herein by reference and, together with the Underlying REMIC
Disclosure Documents, may be obtained from Fannie Mae by writing or calling its
MBS Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S, Washington, D.C. 20016
(telephone 1-800-BEST-MBS or 202-752-6547). Such documents, other than the
Underlying REMIC Disclosure Documents, may also be obtained from Bear, Stearns &
Co. Inc. by writing or calling its Prospectus Department at One MetroTech Center
North, Brooklyn, New York 11201 (telephone 718-272-1581).

<PAGE>

TABLE OF CONTENTS

Page
----
Reference Sheet...................... S- 4
Additional Risk Factors.............. S- 8
Additional Yield and Prepayment
Considerations.................. S- 8
Description of the Certificates...... S- 9
General............................ S- 9
Structure....................... S- 9
Fannie Mae Guaranty............. S- 9
Characteristics of
Certificates.................. S- 9
Authorized Denominations........ S-10
Distribution Dates.............. S-10
Record Date..................... S-10
Trust Factors................... S-10
Purchase of G Class RCR
Certificates.................. S-10
Optional Termination............ S-10
Voting the Underlying REMIC
Certificates.................. S-10
Combination and Recombination...... S-11
General......................... S-11
Procedures...................... S-11
Additional Considerations....... S-11
Book-Entry Procedures.............. S-12
General......................... S-12
Method of Distribution.......... S-12
The GNMA Certificates.............. S-13
The Underlying REMIC Certificates.. S-13
Final Data Statement............... S-13
Distributions of Interest.......... S-14
Categories of Classes........... S-14
General......................... S-14
Interest Accrual Periods........ S-15
Accrual Classes................. S-15
Notional Classes................ S-15
Floating Rate and Inverse
Floating Rate Classes......... S-16
Calculation of LIBOR............... S-17
Distributions of Principal......... S-17
Categories of Classes........... S-17
REMIC Principal Distribution
Amount........................ S-17
Group 1 Principal Distribution
Amount........................ S-18
ZC Accrual Amount............. S-18
Z and ZA Accrual Amount....... S-18
Group 1 Remaining Principal
Distribution Amount........ S-19
Group 3 Principal Distribution
Amount........................ S-20
ZB Accrual Amount............. S-20
Group 3 Cash Flow Distribution
Amount........................ S-20
Group 4 Principal Distribution
Amount........................ S-20
Purchase of the G Class RCR
Certificates on the G Class
Purchase Date................... S-21
Structuring Assumptions............ S-21
Pricing Assumptions............. S-21
Prepayment Assumptions.......... S-21
Structuring Range and Rate...... S-22
Initial Effective Range......... S-22
Preliminary Principal Balance
Schedules for the PAC and TAC
Classes and the A and D
Classes......................... S-24
Principal Balance Schedule for the
Z Class......................... S-24
Yield Tables....................... S-31
General......................... S-31
The Inverse Floating Rate
Classes and the S Class....... S-31
The IB and IO Classes........... S-34
Weighted Average Lives of the
Certificates.................... S-35
Decrement Tables................... S-36
Characteristics of the R and RL
Classes......................... S-40
Certain Additional Federal Income Tax
Consequences....................... S-40
REMIC Elections and Special Tax
Attributes...................... S-40
Taxation of Beneficial Owners of
Regular Certificates............ S-41
Taxation of Beneficial Owners of
Residual Certificates........... S-41
Taxation of Beneficial Owners of
RCR Certificates................ S-41
General......................... S-41
Combination RCR Classes......... S-42
Exchanges....................... S-42
Plan of Distribution................. S-42
General......................... S-42
Increase in Certificates........ S-42
Legal Matters........................ S-42
Exhibit A............................ A- 1
Schedule 1........................... A- 2

<PAGE>

REFERENCE SHEET

This reference sheet is not a summary of the related transactions and it
does not contain complete information about the Certificates. Investors should
purchase the Certificates only after reading this Prospectus Supplement and each
of the additional Disclosure Documents described herein in their entirety.

Assumed Characteristics of the Mortgage Loans Underlying the GNMA Certificates
(as of June 1, 1997)

Aggregate Unpaid Original Term
Principal to Maturity WARM WALA
Balance (in months) (in months) (in months) WAC
---------------- ------------- ----------- ------------ -----
$1,059,200,000 360 352 7 8.50%

The actual remaining terms to maturity and calculated loan ages of most of
the related Mortgage Loans will differ from the weighted averages shown above,
perhaps significantly. See "Description of the Certificates--Structuring
Assumptions--Pricing Assumptions" herein.

Characteristics of the Underlying REMIC Certificates

The table contained in Exhibit A hereto sets forth information with respect
to the Underlying REMIC Certificates, including certain information regarding
the underlying Mortgage Loans. Certain additional information as to the
Underlying REMIC Certificates may be obtained by performing an analysis of
current Fannie Mae principal factors in the context of applicable information
contained in the related Underlying REMIC Disclosure Documents, which may be
obtained from Fannie Mae as described herein.

See "Description of the Certificates--The Underlying REMIC Certificates"
herein.

Combination and Recombination

Holders of certain Classes of REMIC Certificates will be entitled, upon
notice and payment of an exchange fee, to exchange all or a portion of such
Classes for a proportionate interest in the related RCR Classes in the ratios
and combinations set forth on Schedule 1 hereto. The Holders of RCR Classes will
be entitled to receive distributions of principal and interest from the related
Classes of REMIC Certificates. See "Description of Certificates--Combination and
Recombination" herein. Schedule 1 sets forth all of the available combinations
of the Classes of REMIC Certificates and the related RCR Classes.

Interest Rates

The Fixed Rate Classes will bear interest at the applicable per annum
interest rates set forth or described on the cover.

The Floating Rate and Inverse Floating Rate Classes will bear interest
during the initial Interest Accrual Period at initial interest rates determined
as described below, and will bear interest during each Interest Accrual Period

<PAGE>

thereafter, subject to the applicable maximum and minimum interest rates, at
rates determined as described below:

-------------------------

(1) These initial interest rates are assumed rates. The actual interest
rates will be calculated on the basis of the applicable formulas for
the calculation of such interest rates on the Index Determination Date
occurring on June 23, 1997.

* This Class is an RCR Class. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for
a further description thereof.

See "Description of the Certificates--Distributions of Interest--Floating Rate
and Inverse Floating Rate Classes" herein.

On any Distribution Date when distributions of interest are to be allocated
from REMIC Certificates to RCR Certificates, such distributions will be
allocated on a pro rata basis from the applicable Classes of REMIC Certificates
to the related RCR Classes.

Notional Classes

The notional principal balances of the Notional Classes will be equal to
the indicated percentages of the outstanding balances specified below
immediately prior to the related Distribution Date:

Class
---------------------------------------
SJ ................................... 100% of F Class
SK .................................... 100% of F Class
S* ................................... 100% of F Class
IB ................................... 9.375% of AB Class
SE ................................... 100% of FE Class
SH .................................... 100% of FH Class
IO**................................... 100% of ZA Class
16.25% of Z Class
SC ................................... 100% of Class 1994-42-S REMIC
Certificate
SD ................................... 100% of Class 1994-42-S REMIC
Certificate

-------------------------
* This Class is an RCR Class. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

** Prior to the Interest Accrual Period in September 2002, the IO Class
will have a notional principal balance calculated as specified above.
Thereafter, the notional principal balance of the IO Class will be
deemed to be zero and, accordingly, Holders of the IO Class will no
longer be entitled to any distributions of interest.

See "Description of the Certificates--Distributions of Interest--Notional
Classes" and "--Yield Tables--The Inverse Floating Rate Classes" and "--The IB
and IO Classes" herein.

<PAGE>

Distributions of Principal

The portion of the REMIC Principal Distribution Amount allocated to each
Class of REMIC Certificates will be determined by distributions of principal of
the GNMA Certificates or the related Underlying REMIC Certificates and, in the
case of the Group 1 Classes and Group 3 Classes, the Group 1 Accrual Amount and
Group 3 Accrual Amount, respectively. For such purposes, the REMIC Principal
Distribution Amount will be allocated among the Group 1, Group 3 and Group 4
Principal Distribution Amounts as described herein under "Description of the
Certificates--Distributions of Principal--REMIC Principal Distribution Amount".

Group 1 Principal Distribution Amount

ZC Accrual Amount

To the AC Class, to zero, and then to the ZC Class.

Z and ZA Accrual Amount

Commencing in October 2002, as follows:

1. To the FE Class, to zero.

2. To the VC and FH Classes, in equal proportions, until the VC
Class is reduced to zero.

3. To the VD and FH Classes, in the proportions of 57.1430122352%
and 42.8569877648%, respectively, until the VD Class is reduced to zero.

4. To the VE, VA and FH Classes, in the proportions of
46.0478086769%, 28.2936155634% and 25.6585757597%, respectively, to
zero.

Group 1 Remaining Principal Distribution Amount

1. To the TAC and PAC Classes, in the order and proportions set forth
herein under "Description of the Certificates--Distributions of Principal,"
to their Targeted and Planned Balances.

2. To the FA and SA Classes, in proportion to their original
principal balances, to zero.

3. To the TAC and PAC Classes, in the order and proportions set forth
herein under "Description of the Certificates--Distributions of Principal,"
to zero.

4. Prior to October 2002, to the Z Class, to its Scheduled Balance.

5. To the FE Class, to zero.

6. To the VC and FH Classes, in equal proportions, until the VC Class
is reduced to zero.

7. To the VD and FH Classes, in the proportions of 57.1430122352% and
42.8569877648%, respectively, until the VD Class is reduced to zero.

8. To the VE, VA and FH Classes, in the proportions of
46.0478086769%, 28.2936155634% and 25.6585757597%, respectively, to zero.

9. Prior to October 2002, to the Z and ZA Classes, in that order, to
zero.

10. Commencing in October 2002, as follows:

(x) if the Z and ZA Classes are both outstanding, to the Z and ZA
Classes, in proportion to their then current principal balances, to
zero, and

(y) if the Z Class is no longer outstanding, to the ZA Class, to
zero.

Group 3 Principal Distribution Amount

ZB Accrual Amount

To the VG, VH, VJ and VK Classes, in that order, to zero, and then to the
ZB Class.

<PAGE>

Group 3 Cash Flow Distribution Amount

To the VG, VH, VJ, VK and ZB Classes, in that order, to zero.

Group 4 Principal Distribution Amount

To the FG and SG Classes, in proportion to their original principal
balances, to zero.

On any Distribution Date when distributions of principal are to be
allocated from REMIC Certificates to RCR Certificates, such distributions will
be allocated on a pro rata basis from the applicable Classes of REMIC
Certificates to the related RCR Classes.

Purchase of the G Class RCR Certificates on the G Class Purchase Date

The G Class RCR Certificates will be purchased in full on the G Class
Purchase Date. Upon such purchase, Holders of such Certificates will receive the
unpaid principal balances of their Certificates plus accrued and unpaid interest
thereon, as described herein under "Description of the Certificates--Purchase of
the G Class RCR Certificates on the G Class Purchase Date."

Weighted Average Lives (years)*

PSA Prepayment Assumption

----------------------------------
Group 1 Classes 0% 100% 160% 300% 500%
- --------------- ------ ------ ------ ------ ------
F, SJ, SK, S**, SB, A** and D**. 15.3 6.4 4.5 3.1 2.1
AB and IB..................... 11.2 3.6 3.6 3.6 2.8
AC ........................... 16.5 7.8 5.3 2.5 1.4
ZC ........................... 20.8 13.0 5.3 5.1 2.3
B ........................... 14.1 5.1 3.6 2.5 1.7
C ........................... 20.7 12.2 8.5 5.5 3.5
CG ........................... 20.3 11.1 7.7 5.0 3.2
CK ........................... 20.8 12.3 8.6 5.6 3.5
CL ........................... 21.3 13.4 9.5 6.1 3.8
FA, SA and E**................ 21.7 14.5 10.3 0.6 0.3
FE, SE and VB**............... 6.1 6.1 6.1 6.0 4.1
FH, SH and H**................ 10.9 10.9 10.2 7.3 5.0
VC ........................... 8.5 8.5 8.5 6.7 4.5
VD ........................... 11.5 11.5 11.0 7.4 5.1
VE and VA..................... 14.0 14.0 12.0 8.2 5.7
Z .......................... 26.4 21.5 18.5 13.0 8.4
ZA ........................... 26.4 21.5 18.5 13.0 8.8
IO ........................... 5.2 5.2 5.2 5.2 5.1
G**........................... 5.1 5.1 5.1 5.1 5.0

PSA Prepayment Assumption

----------------------------------
Group 2 Classes 0% 75% 125% 300% 500%
- --------------- ------ ------ ------ ------ ------
SC and SD..................... 10.2 3.0 2.4 2.4 2.0

PSA Prepayment Assumption

----------------------------------
Group 3 Classes 0% 75% 125% 300% 500%
- --------------- ------ ------ ------ ------ ------
VG ........................... 3.8 3.8 3.8 1.5 0.6
VH ........................... 8.0 8.0 8.0 1.9 0.7
VJ ........................... 11.0 11.0 11.0 2.3 0.8
VK ........................... 14.3 14.3 14.3 2.9 1.0
ZB ........................... 26.0 22.9 20.2 4.6 1.3

PSA Prepayment Assumption

----------------------------------
Group 4 Classes 0% 75% 125% 300% 500%
- --------------- ------ ------ ------ ------ ------
FG and SG..................... 9.7 8.0 6.4 1.0 0.4

-------------------------
* Determined as specified under "Weighted Average Lives of the
Certificates" herein.

** These Classes are RCR Classes. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

<PAGE>

ADDITIONAL RISK FACTORS

Additional Yield and Prepayment Considerations

The rate of distributions of principal of the Group 1 Classes will be
sensitive in varying degrees to the rate of principal distributions on the GNMA
Certificates, which in turn will reflect the rate of payments of principal
(including prepayments) of the related Mortgage Loans. There can be no assurance
that the Mortgage Loans underlying the GNMA Certificates will have the
characteristics assumed herein. Because the rate of principal distributions on
the Group 1 Classes will be related to the rate of payments of principal of the
related Mortgage Loans, which are likely to include Mortgage Loans with
remaining terms to maturity shorter or longer than those assumed, the rates of
principal distributions on such Classes is likely to differ from the rate
anticipated by investors, even if such Mortgage Loans prepay at the indicated
constant percentages of PSA.

The rate of distributions of principal or reductions of notional balances
of the Group 2, Group 3 and Group 4 Classes will be directly related to the rate
of principal distributions or notional principal reductions on the related
Underlying REMIC Certificates, which in turn will be sensitive in varying
degrees to the rate of payments of principal (including prepayments) of the
related Mortgage Loans and the priority sequences affecting principal
distributions as to the Underlying REMIC Trusts. As described in the related
Underlying REMIC Disclosure Documents, all but one of the Underlying REMIC
Certificates are subordinate in priority of principal distributions to certain
other classes of certificates evidencing beneficial ownership interests in the
related Underlying REMIC Trusts and, accordingly, distributions of principal of
the related Mortgage Loans may for extended periods be applied to the
distribution of principal of those classes of certificates having priority over
such Underlying REMIC Certificates. In particular, such Underlying REMIC
Certificates are Support classes that are entitled to receive principal
distributions on any Distribution Date only if scheduled distributions have been
made on other specified classes of certificates evidencing beneficial ownership
interests in the related Underlying REMIC Trusts. Accordingly, such Underlying
REMIC Certificates may receive no principal distributions for extended periods
of time or may receive principal distributions that vary widely from period to
period. The remaining Underlying REMIC Certificate has a notional principal
balance that is based on the principal balance of a class in the related
Underlying REMIC Trust that has a Principal Balance Schedule and, as a result,
may receive principal distributions at a rate faster or slower than would
otherwise have been the case. Prepayments on the related Mortgage Loans may have
occurred at a rate faster or slower than that initially assumed. This Prospectus
Supplement contains no information as to whether such class has adhered to its
Principal Balance Schedule, whether any related Support classes remain
outstanding or whether such class otherwise has performed as originally
anticipated. Additional information as to the Underlying REMIC Certificates may
be obtained by performing an analysis of current Fannie Mae principal factors in
the context of applicable information contained in the related Underlying REMIC
Disclosure Documents, which may be obtained from Fannie Mae as described herein.

As described herein, on the G Class Purchase Date the G Class RCR
Certificates will be purchased in full by Fannie Mae, upon which the Holders of
such Certificates will receive the unpaid principal balances of their
Certificates plus accrued and unpaid interest thereon. There will be no
reimbursement to investors for the failure to recoup any premium paid by
investors as a result of such purchase by Fannie Mae (or for any consequent
losses in investors' yield if such purchase occurs earlier than anticipated). It
is possible that prevailing interest rates will have declined at the time of
such purchase. Finally, the feature whereby Fannie Mae will purchase the G Class
RCR Certificates on the G Class Purchase Date may significantly reduce the
likelihood that such Certificates will sell at a premium in the secondary
market.

It is highly unlikely that the Mortgage Loans underlying the GNMA
Certificates or any of the Underlying REMIC Certificates will prepay at any of
the rates assumed herein, will prepay at a constant PSA rate until maturity or
that such Mortgage Loans will prepay at the same rate. Investors must make their
own decisions as to the appropriate assumptions, including prepayment
assumptions, to be used in deciding whether to purchase the Certificates. See
"Risk Factors--Prepayment Considerations" in the REMIC Prospectus or GNMA
Prospectus, as applicable, and "Maturity and Prepayment Assumptions" in the MBS
Prospectus.

<PAGE>

The effective yields on the Delay Classes (as defined herein) will be
reduced below the yields otherwise produced because principal and interest
payable on a Distribution Date will not be distributed until the 17th or 25th
day, as applicable, following the end of the related Interest Accrual Period and
will not bear interest during such delay. No interest at all will be paid on any
Class after its principal balance has been reduced to zero. As a result of the
foregoing, the market values of the Delay Classes will be lower than would have
been the case if there were no such delay.

DESCRIPTION OF THE CERTIFICATES

The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the remaining provisions of this Prospectus
Supplement, the additional Disclosure Documents and the provisions of the Trust
Agreements (defined below). Capitalized terms used and not otherwise defined in
this Prospectus Supplement have the meanings assigned to such terms in the
applicable Disclosure Document or Trust Agreement (as the context may require).

General

Structure. The REMIC Trust and the Lower Tier REMIC will be created
pursuant to a trust agreement dated as of June 1, 1997 (the "Trust Agreement"),
which will be executed by the Federal National Mortgage Association ("Fannie
Mae") in its corporate capacity and in its capacity as trustee (the "Trustee"),
and the Certificates in the Classes and aggregate original principal balances
set forth on the cover hereof will be issued by Fannie Mae pursuant thereto. A
description of Fannie Mae and its business, together with certain financial
statements and other financial information, is contained in the Information
Statement.

The REMIC Certificates (other than the R and RL Classes) will be designated
as the "regular interests," and the R Class will be designated as the "residual
interest," in the REMIC constituted by the Trust. The interests in the Lower
Tier REMIC other than the RL Class (the "Lower Tier Regular Interests") will be
designated as the "regular interests," and the RL Class will be designated as
the "residual interest," in the Lower Tier REMIC. The assets of the Lower Tier
REMIC will consist of the GNMA Certificates and Underlying REMIC Certificates
(evidencing beneficial ownership interests in the Underlying REMIC Trusts).

Fannie Mae Guaranty. Fannie Mae guarantees to each holder of an MBS the
timely payment of scheduled installments of principal of and interest on the
underlying Mortgage Loans, whether or not received, together with the full
principal balance of any foreclosed Mortgage Loan, whether or not such balance
is actually recovered. The guaranty obligations of Fannie Mae with respect to
the Underlying REMIC Certificates are described in the Underlying REMIC
Disclosure Documents. In addition, Fannie Mae will be obligated to distribute on
a timely basis to the Holders of Certificates required installments of principal
and interest and to distribute the principal balance of each Class of
Certificates in full no later than the applicable Final Distribution Date,
whether or not sufficient funds are available in the Trust Account. The
guaranties of Fannie Mae are not backed by the full faith and credit of the
United States. See "Description of the Certificates--Fannie Mae's Guaranty" in
the GNMA Prospectus or REMIC Prospectus, as applicable, "Description of
Certificates--The Corporation's Guaranty" in the MBS Prospectus, and
"Description of the Certificates--General--Fannie Mae Guaranty" in the related
Underlying REMIC Disclosure Documents.

Characteristics of Certificates. Each of the Group 1 Classes and the RCR
Certificates will be represented by one or more certificates (the "DTC
Certificates") to be registered at all times in the name of the nominee of the
Depository (as defined herein), which Depository will maintain such Certificates
through its book-entry facilities. When used herein with respect to any DTC
Certificate, the terms "Holders" and "Certificateholders" refer to the nominee
of the Depository.

<PAGE>

The Group 2, Group 3 and Group 4 Classes will be issued and maintained and
may be transferred by Holders only on the book-entry system of the Federal
Reserve Banks. Such entities whose names appear on the book-entry records of a
Federal Reserve Bank as the entities for whose accounts such Certificates have
been deposited are herein referred to as "Holders" or "Certificateholders."

A Holder is not necessarily the beneficial owner of a book-entry
Certificate. Beneficial owners will ordinarily hold book-entry Certificates
through one or more financial intermediaries, such as banks, brokerage firms and
securities clearing organizations. See "Description of the
Certificates--Denominations, Certificate Form" in the GNMA Prospectus and
"Description of the Certificates--Book-Entry Procedures" herein.

The R and RL Certificates will not be issued in book-entry form but will be
issued in fully registered, certificated form. As to the R or RL Certificate,
"Holder" or "Certificateholder" refers to the registered owner thereof. The R or
RL Certificates will be transferable at the corporate trust office of the
Transfer Agent, or at the agency of the Transfer Agent in New York, New York.
The Transfer Agent initially will be State Street Bank and Trust Company in
Boston, Massachusetts ("State Street"). A service charge may be imposed for any
registration of transfer of the R or RL Certificate and Fannie Mae may require
payment of a sum sufficient to cover any tax or other governmental charge. See
also "Characteristics of the R and RL Classes" herein.

The distribution to the Holder of the R and RL Classes of the proceeds of
any remaining assets of the Trust and the Lower Tier REMIC, as applicable, will
be made only upon presentation and surrender of the related Certificate at the
office of the Paying Agent. The Paying Agent initially will be State Street.

Authorized Denominations. The Certificates, other than the R and RL
Certificates, will be issued in minimum denominations of $1,000 and integral
multiples of $1 in excess thereof. The R and RL Classes will be issued as single
Certificates and will not have principal balances.

Distribution Dates. Distributions on the Group 1 Classes will be made on
the 17th day of each month (or, if such 17th day is not a business day, on the
first business day next succeeding such 17th day), and distributions on the
Group 2, Group 3 and Group 4 Classes will be made on the 25th day of each month
(or, if such 25th day is not a business day, on the first business day next
succeeding such 25th day), commencing in the month following the Settlement
Date, and each such date is referred to herein as a "Distribution Date" when
used with respect to such Classes.

Record Date. Each monthly distribution on the Certificates will be made to
Holders of record on the last day of the preceding month.

Trust Factors. As soon as practicable following the eleventh calendar day
of each month, Fannie Mae will publish or otherwise make available for each
Class of Certificates the factor (carried to eight decimal places) which, when
multiplied by the original principal balance of a Certificate of such Class,
will equal the remaining principal balance of such Certificate after giving
effect to the distribution of principal to be made on the following Distribution
Date and any interest to be added as principal to the principal balances of the
Accrual Classes on such Distribution Date.

Purchase of G Class RCR Certificates. The G Class RCR Certificates will be
purchased in full on the G Class Purchase Date by Fannie Mae as described herein
under "Description of the Certificates--Purchase of the G Class RCR Certificates
on the G Class Purchase Date."

Optional Termination. Consistent with its policy described under
"Description of Certificates-- Termination" in the MBS Prospectus, Fannie Mae
will agree not to effect indirectly an early termination of the Lower Tier REMIC
or the REMIC Trust through the exercise of its right to repurchase the Mortgage
Loans underlying any MBS unless only one Mortgage Loan remains in the related
Pool or the principal balance of such Pool at the time of repurchase is less
than one percent of the original principal balance thereof.

Voting the Underlying REMIC Certificates. In the event any issue arises
under the trust agreement governing any of the Underlying REMIC Trusts that
requires the vote of holders of certificates outstanding thereunder, the Trustee

<PAGE>

will vote the related Underlying REMIC Certificates in accordance with
instructions received from Holders of REMIC Certificates of the related Classes
having principal balances aggregating not less than 51% of the aggregate
principal balance of all such Classes or Certificates outstanding. In the
absence of such instructions, the applicable Trustee will vote in a manner
consistent, in its sole judgment, with the best interests of the related
Certificateholders.

Combination and Recombination

General. Subject to the rules, regulations and procedures of the
Depository, all or a portion of the SJ, SK, AB, IB, AC, ZC, B, C, FA, SA, FE,
SE, FH, SH, Z and ZA Classes of REMIC Certificates may be exchanged for a
proportionate interest in the related RCR Classes in the combinations and ratios
set forth on Schedule 1 hereto. Similarly, all or a portion of the related RCR
Classes (other than the G Class RCR Certificates) may be exchanged, in the
combinations and ratios set forth on Schedule 1, for certain Classes of REMIC
Certificates. This process may occur repeatedly.

Upon the issuance of the G Class RCR Certificates, no exchange thereof for
the related REMIC Classes will be permitted.

Each RCR Class issued in an exchange will represent a beneficial ownership
interest in, and will be entitled to receive a proportionate share of the
distributions on, the related Class or Classes of REMIC Certificates, and the
Holders of an RCR Class will be treated as the beneficial owners of a
proportionate interest in the related Class or Classes of REMIC Certificates.

Procedures. A Holder proposing to effect an exchange must notify Fannie
Mae's Capital Markets Department through a dealer who is a member of Fannie
Mae's "REMIC Dealer Group." Such notice must be given in writing or by telefax
not later than two business days before the proposed exchange date (which date,
subject to Fannie Mae's approval, can be any business day other than the first
or last business day of the month). The notice must include the outstanding
principal balance of both the Certificates to be exchanged and the Certificates
to be received, and the proposed exchange date. Promptly after the receipt of a
Holder's notice, Fannie Mae will telephone the dealer to provide instructions
for delivering the Certificates and the exchange fee to Fannie Mae by wire
transfer. A Holder's notice becomes irrevocable on the second business day
before the proposed exchange date.

A fee will be payable to Fannie Mae in connection with each exchange equal
to 1/32 of 1% of the outstanding principal balance (exclusive of any notional
principal balance) of the Certificates to be submitted for exchange (but not
less than $2,000).

The first distribution on a REMIC Certificate or an RCR Certificate
received in an exchange transaction will be made on the Distribution Date in the
month following the month of the exchange. Such distribution will be made to the
Holder of record as of the close of business on the last day of the month of the
exchange.

Certificates to be exchanged must be delivered to Fannie Mae in the correct
"exchange ratios" as shown in Schedule 1, which are based on the original
principal balances of the related Classes of REMIC Certificates or RCR
Certificates and will not change as a result of any reductions (or increases) in
the outstanding principal balances of the Certificates.

Additional Considerations. At any given time, a Holder's ability to
exchange REMIC Certificates for RCR Certificates or to exchange RCR Certificates
for REMIC Certificates will be limited by a number of factors. A Holder must, at
the time of the proposed exchange, own the appropriate Classes in the
appropriate proportions in order to effect a desired exchange. A Holder that
does not own the appropriate Classes or the appropriate portions of such Classes
may not be able to obtain the necessary Class of REMIC Certificates or the RCR
Class. The Holder of a needed Class may refuse or be unable to sell at a
reasonable price or any price, or certain Classes may have been purchased and

<PAGE>

placed into other financial structures. In addition, principal distributions
will, over time, diminish the amounts available for exchange. Only the
combinations listed on Schedule 1 are permitted. Upon the issuance of the G
Class RCR Certificates, no exchange thereof for the related Classes of REMIC
Certificates will be permitted.

Book-Entry Procedures

General. Each of the Group 1 Classes and the RCR Certificates will be
represented by one or more certificates (the "DTC Certificates") to be
registered at all times in the name of the nominee of The Depository Trust
Company, a New York-chartered limited purpose trust company, or any successor
depository selected or approved by Fannie Mae (the "Depository"). In accordance
with its normal procedures, the Depository will record the positions held by
each Depository participating firm (each, a "Depository Participant") in the DTC
Certificates, whether held for its own account or as a nominee for another
person. State Street will act as Paying Agent for, and perform certain
administrative functions with respect to, the DTC Certificates.

No person acquiring a beneficial ownership interest in the DTC Certificates
(a "beneficial owner" or an "investor") will be entitled to receive a physical
certificate representing such ownership interest. An investor's interest in the
DTC Certificates will be recorded on the records of the brokerage firm, bank,
thrift institution or other financial intermediary (a "financial intermediary")
that maintains such investor's account for such purpose. In turn, the financial
intermediary's record ownership of such interest will be recorded on the records
of the Depository (or of a Depository Participant that acts as an agent for the
financial intermediary if such intermediary is not a Depository Participant).
Accordingly, an investor will not be recognized by the Trustee or the Depository
as a Certificateholder and must rely on the foregoing arrangements to evidence
its interest in the DTC Certificates. Beneficial ownership of an investor's
interest in the DTC Certificates may be transferred only by compliance with the
procedures of an investor's financial intermediary and of Depository
Participants. In general, beneficial ownership of an investor's interest in the
DTC Certificates will be subject to the rules, regulations and procedures
governing the Depository and Depository Participants as in effect from time to
time.

The Group 2, Group 3 and Group 4 Classes will be issued and maintained only
on the book-entry system of the Federal Reserve Banks. Such Certificates may be
held of record only by entities eligible to maintain book-entry accounts with
the Federal Reserve Banks. Beneficial owners ordinarily will hold such
Certificates through one or more financial intermediaries, such as banks,
brokerage firms and securities clearing organizations. A Holder that is not the
beneficial owner of such a Certificate, and each other financial intermediary in
the chain to the beneficial owner, will have the responsibility of establishing
and maintaining accounts for their respective customers. The rights of the
beneficial owner of such a Certificate with respect to Fannie Mae and the
Federal Reserve Banks may be exercised only through the Holder of such
Certificate. Fannie Mae and the Federal Reserve Banks will have no direct
obligation to a beneficial owner of such a Certificate that is not also the
Holder of the Certificate. The Federal Reserve Banks will act only upon the
instructions of the Holder in recording transfers of such a Certificate. See
"Description of the Certificates--Denominations, Certificate Form" in the GNMA
Prospectus.

Method of Distribution. Each distribution on the DTC Certificates will be
distributed by the Paying Agent to the Depository in immediately available
funds. The Depository will be responsible for crediting the amount of such
distributions to the accounts of the Depository Participants entitled thereto,
in accordance with the Depository's normal procedures, which currently provide
for distributions in same-day funds settled through the New York Clearing House.
Each Depository Participant and each financial intermediary will be responsible
for disbursing such distributions to the beneficial owners of the DTC
Certificates that it represents. Accordingly, the beneficial owners may
experience some delay in their receipt of distributions.

Fannie Mae's fiscal agent for the Group 2, Group 3 and Group 4 Classes, is
the Federal Reserve Bank of New York. The Federal Reserve Banks will make
distributions on such Certificates on behalf of Fannie Mae on the applicable
Distribution Dates by crediting Holders' accounts at the Federal Reserve Banks.

<PAGE>

The GNMA Certificates

The GNMA Certificates will have the aggregate unpaid principal balance and
Pass-Through Rate set forth below and the general characteristics described in
the GNMA Prospectus. All of the GNMA Certificates are GNMA I Certificates. See
"GNMA and the GNMA Programs" in the GNMA Prospectus. The characteristics of the
GNMA Certificates and the Mortgage Loans as of June 1, 1997 (the "Issue Date")
are expected to be as follows:

GNMA Certificates

Aggregate Unpaid Principal Balance.............. $1,059,200,000
GNMA Pass-Through Rate.......................... 8.00%
Mortgage Loans
WAC............................................. 8.50%
Range of WARMs.................................. 241 months to 360 months
Approximate Weighted Average WARM............... 352 months
Approximate Weighted Average WALA............... 7 months

The Underlying REMIC Certificates

The Underlying REMIC Certificates represent beneficial ownership interests
in the respective Underlying REMIC Trusts, the assets of which evidence the
direct or indirect beneficial ownership interests in certain MBS having the
general characteristics described in the MBS Prospectus.

The general characteristics of the Underlying REMIC Certificates are
described in the related Underlying REMIC Disclosure Documents. The general
characteristics of the MBS are described in the MBS Prospectus. Each MBS
evidences beneficial ownership interests in a Pool of conventional Level Payment
Mortgage Loans secured by first-mortgages or deeds of trust on one- to
four-family residential properties, as described under "The Mortgage Pools" and
"Yield Considerations" in the MBS Prospectus. The Underlying REMIC Certificates
provide that distributions thereon will be passed through monthly, commencing in
the month following the initial issuance thereof.

The table contained in Exhibit A hereto sets forth certain information with
respect to the Underlying REMIC Certificates, including the numerical
designations of the Underlying REMIC Trusts, the class designation, the date of
issue, the CUSIP number, the interest rate, the interest type, the final
distribution date, the principal type, the original principal balance or
notional principal balance of the entire class, the current principal factor for
such class and the principal balance or notional principal balance of such class
contained in the Lower Tier REMIC as of the Issue Date. The table also sets
forth the approximate weighted average WAC, approximate weighted average WAM and
approximate weighted average CAGE of the Mortgage Loans underlying the related
MBS as of the Issue Date, the underlying security type and the related Class
Group.

To request further information regarding the Underlying REMIC Certificates,
telephone Fannie Mae at 1-800-BEST-MBS or 202-752-6547. Other data specific to
the Certificates is available in electronic form by calling Fannie Mae at
1-800-752-6440 or 202-752-6000. It should be noted that there may have been
material changes in facts and circumstances since the dates the Underlying REMIC
Disclosure Documents were prepared, including, but not limited to, changes in
prepayment speeds and prevailing interest rates and other economic factors,
which may limit the usefulness of the information set forth in such documents.

Final Data Statement

Following the issuance of the Certificates, Fannie Mae will prepare a Final
Data Statement setting forth, (a) with respect to each GNMA Certificate, among
other things, the Pool number, the original unpaid principal balance, the unpaid
principal balance as of the Issue Date, and the remaining term to maturity of
the latest maturity Mortgage Loan underlying such GNMA Certificate as of the

<PAGE>

Issue Date and (b) with respect to each Underlying REMIC Certificate, the
current principal balance or notional principal balance thereof as of the Issue
Date. The Final Data Statement will also set forth the final Principal Balance
Schedules for the PAC and TAC Classes and the A and D Classes. The Final Data
Statement will not accompany this Prospectus Supplement but will be made
available by Fannie Mae. To request the Final Data Statement, telephone Fannie
Mae at 1-800-BEST-MBS or 202-752-6547. The contents of the Final Data Statement
and other data specific to the Certificates are available in electronic form by
calling Fannie Mae at 1-800-752-6440 or 202-752-6000.

Distributions of Interest

Categories of Classes

For the purpose of payments of interest, the Classes will be categorized as
follows:

Interest Type* Classes
- --------------- -------
Fixed Rate AB, IB, AC, ZC, B, C, CG, CK, CL, VC, VD, VE, VA, Z**,
ZA**, IO, VG, VH, VJ, VK and ZB
Accrual ZC, Z, ZA and ZB
Floating Rate F, FA, FE, FH and FG
Inverse Floating SJ, SK, SB, SA, SE, SH, SC, SD and SG
Rate
Interest Only SJ, SK, IB, SE, SH, IO, SC and SD
RCR*** S, A, D, E, VB, H and G
No Payment Residual R and RL

-------------------------
* See "Description of the Certificates--Class Definitions and
Abbreviations" in the REMIC Prospectus.

** See the cover hereof for a description of the interest rates applicable
to the Z and ZA Classes.

*** See "Description of the Certificates--Combination and Recombination"
herein and Schedule 1 for a further description of the RCR Classes.

General. The interest-bearing Certificates will bear interest at the
applicable per annum interest rates set forth on the cover or described herein.
Interest on the interest-bearing Certificates is calculated on the basis of a
360-day year consisting of twelve 30-day months and, except as described herein
with respect to the Accrual Classes, is distributable monthly on each
Distribution Date, commencing in the month after the Settlement Date. Interest
to be distributed or, in the case of the Accrual Classes, added to principal on
each interest-bearing Certificate on a Distribution Date will consist of one
month's interest on the outstanding principal balance of such Certificate
immediately prior to such Distribution Date.

<PAGE>

Interest Accrual Periods. Interest to be distributed on a Distribution Date
will accrue on the interest-bearing Certificates during the one-month periods
set forth below (each, an "Interest Accrual Period").

Classes Interest Accrual Periods
------- ------------------------
F,SJ, SK, S*, SB, FA, SA, FE, SE, One month period beginning on the 17th
FH and SH Classes day Classes of the month preceding
the month of the Distribution Date
and ending on the 16th of the month
of the Distribution Date

SC, SD, FG and SG Classes One month period beginning on the 25th
day of the month preceding the month
of the Distribution Date and ending
on the 24th of the month of the
Distribution Date

The Fixed Rate Classes and the A*, Calendar month preceding the month in
D*, E*, VB*, H* and G* Classes which the Distribution Date occurs
(collectively, the "Delay Classes")

See "Additional Risk Factors--Additional Yield and Prepayment Considerations"
herein.

Accrual Classes. The ZC, Z, ZA and ZB Classes are Accrual Classes. Interest
will accrue on the ZC Class during each Interest Accrual Period at the
applicable per annum rate set forth on the cover hereof; however, such interest
will not be distributed thereon for so long as such Class remains outstanding.
Interest will accrue on the Z Class at the applicable per annum rates set forth
on the cover hereof; however, commencing on the Distribution Date in October
2002, such interest will not be distributed thereon for so long as such Class
remains outstanding. The ZA Class will bear no interest prior to the Interest
Accrual Period in September 2002. Commencing in September 2002, interest will
accrue on the ZA Class at the applicable per annum rate described on the cover
hereof; however, such interest will not be distributed thereon for so long as
such Class remains outstanding. Interest will accrue on the ZB Class during each
Interest Accrual Period at the applicable per annum rate set forth on the cover
hereof; however, such interest will not be distributed thereon for so long as
such Class remains outstanding. Interest so accrued and unpaid on the Accrual
Classes will be added as principal to the respective principal balances thereof
on each Distribution Date. Distributions of principal of the Accrual Classes
will be made as described herein.

Notional Classes. The SJ, SK, S*, IB, SE, SH, IO, SC and SD Classes will be
Notional Classes. The Notional Classes will have no principal balances and will
bear interest at the applicable per annum interest rates described herein during
each Interest Accrual Period on their respective notional principal balances.
The notional principal balances of the Notional Classes will be equal to the
indicated percentages of the outstanding balances specified below immediately
prior to the related Distribution Date:

Class
-----
SJ ................................. 100% of F Class
SK .................................. 100% of F Class
S* ................................. 100% of F Class
IB ................................. 9.375% of AB Class
SE .................................. 100% of FE Class
SH .................................. 100% of FH Class
IO(1).................................. 100% of ZA Class
16.25% of Z Class
SC ................................... 100% of Class 1994-42-S REMIC
Certificate
SD ................................... 100% of Class 1994-42-S REMIC
Certificate

-------------------------
(1) Prior to the Interest Accrual Period in September 2002, the IO Class
will have a notional principal balance calculated as specified above.
Thereafter, the notional principal balance of the IO Class will be
deemed to be zero and, accordingly, Holders of the IO Class will no
longer be entitled to any distributions of interest.

- ---------------
* These Classes are RCR Classes. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

<PAGE>

The notional principal balance of a Notional Class is used for purposes of
the determination of interest distributions thereon and does not represent an
interest in the principal distributions of the GNMA Certificates, Underlying
REMIC Certificates or the underlying Mortgage Loans. Although a Notional Class
will not have a principal balance, a Trust Factor (as described herein) will be
published with respect to such Class that will be applicable to the notional
principal balance thereof, and references herein to the principal balances of
the Certificates generally shall be deemed to refer also to the notional
principal balances of the Notional Classes.

Floating Rate and Inverse Floating Rate Classes. The following Classes will
bear interest during their initial Interest Accrual Period at initial interest
rates determined as described below, and will bear interest during each Interest
Accrual Period thereafter, subject to the applicable maximum and minimum
interest rates, at rates determined as described below:

Initial Maximum Minimum Formula for
Interest Interest Interest Calculation of
Class Rate Rate Rate Interest Rate
----- --------- ------- ------- -----------------------------
<S> <C>
F .................. 6.08750% 9.00% 0.40% LIBOR + 40 basis points
SJ ................. 1.31250% 7.00% 0.00% 7.0% - LIBOR
SK.................. 1.00000% 1.00% 0.00% 8.0% - LIBOR
S* ................. 2.31250% 8.00% 0.00% 8.0% - LIBOR
SB ................. 9.00000% 9.00% 0.00% 129% - (15 X LIBOR)
FA ................. 6.33750% 9.50% 0.65% LIBOR + 65 basis points
SA ................. 16.86670% 47.20% 0.00% 47.2% - (5.33333333 X LIBOR)
FE ................. 6.13750% 8.00% 0.45% LIBOR + 45 basis points
SE ................. 1.86250% 7.55% 0.00% 7.55% - LIBOR
FH.................. 6.33750% 9.00% 0.65% LIBOR + 65 basis points
SH.................. 2.66250% 8.35% 0.00% 8.35% - LIBOR
SC ................. 1.28125%(1) 7.00% 0.00% 7.0% - LIBOR
SD ................. 1.60000%(1) 1.60% 0.00% 8.6% - LIBOR
FG ................. 6.08750% 9.00% 0.40% LIBOR + 40 basis points
SG ................. 7.57250% 22.36% 0.00% 22.36% - (2.6 X LIBOR)
</TABLE>
-----------------------
(1) These initial interest rates are assumed rates. The actual interest
rates will be calculated on the basis of the applicable formulas for the
calculation of such interest rates on the Index Determination Date
occurring on June 23, 1997.

* This Class is an RCR Class. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

The yields with respect to such Classes will be affected by changes in the
index as set forth in the table above (the "Index"), which changes may not
correlate with changes in mortgage interest rates. It is possible that lower
mortgage interest rates could occur concurrently with an increase in the level
of the Index. Conversely, higher mortgage interest rates could occur
concurrently with a decrease in the level of the Index.

The establishment of each Index value by Fannie Mae and Fannie Mae's
determination of the rate or rates of interest for the applicable Class or
Classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning Fannie Mae at 1-800-BEST-MBS or 202-752-6547.

<PAGE>

Calculation of LIBOR

On each Index Determination Date, until the principal balances and notional
principal balances of the F, SJ, SK, S* SB, FA, SA, FE, SE, FH, SH, SC, SD, FG
and SG Classes have been reduced to zero, Fannie Mae will establish LIBOR for
the related Interest Accrual Period in the manner described in the GNMA
Prospectus under "Description of the Certificates--Indices Applicable to
Floating Rate and Inverse Floating Rate Classes--LIBOR."

If on the initial Index Determination Date, Fannie Mae is unable to
determine LIBOR in the manner specified in the REMIC Prospectus, LIBOR for the
next succeeding Interest Accrual Period will be equal to 5.6875% in the case of
the F, SJ, SK, S*, SB, FA, SA, FE, SE, FH, SH, FG and SG Classes, and will be
equal to LIBOR as determined for such Interest Accrual Period for the related
Underlying REMIC Certificates in the case of the SC and SD Classes.

- ---------------
* This Class is an RCR Class. See "Description of the Certificates--Combination
and Recombination" herein and Schedule 1 for a further description thereof.

Distributions of Principal

Categories of Classes

For the purpose of payments of principal, the Classes will be categorized
as follows:

Principal Type* Classes
- --------------- -------
Group 1 Classes
PAC AB
Scheduled Z
TAC F, SB, AC, ZC, B, C, CG, CK and CL
Support FA and SA
Sequential Pay FE, FH, VC, VD, VE, VA, Z and ZA
Accretion Directed AC, FE, VC, VD, VE, VA and FH
Notional SJ, SK, IB, SE, SH and IO
RCR** S, A, D, E, VB, H and G
Group 2 Classes
Notional SC and SD
Group 3 Classes
Structured Collateral/Sequential Pay VG, VH, VJ, VK and ZB
Accretion Directed VG, VH, VJ and VK
Group 4 Classes
Structured Collateral/Pass-Through FG and SG
No Payment Residual R and RL

- -------------------------------
* See "Description of the Certificates--Class Definitions and Abbreviations" in
the GNMA Prospectus.

** See "Description of the Certificates--Combination and Recombination" herein
and Schedule 1 for a further description of the RCR Classes.

REMIC Principal Distribution Amount

Principal will be distributed monthly on the REMIC Certificates in an
amount (the "REMIC Principal Distribution Amount") equal to the sum of (i) the
aggregate amount distributable as principal of the GNMA Certificates in the
month of such Distribution Date calculated as described in the immediately
following paragraph (the "Group 1 Cash Flow Distribution Amount") and any
interest accrued and added on such Distribution Date to the principal balances
of the ZC Class (the "ZC Accrual Amount") and of the Z and ZA Classes (the "Z
and ZA Accrual Amount" and together with the ZC Accrual Amount and Group 1 Cash
Flow Distribution Amount, the "Group 1 Principal Distribution Amount"), (ii) the
aggregate distributions of principal concurrently made on the Class 1996-69-FE,
Class 69-SE and Class 69-PE REMIC Certificates (the "Group 3 Cash Flow
Distribution Amount") and any interest accrued and added on such Distribution
Date to the principal balance of the ZB Class (the "ZB Accrual Amount" and
together with the Group 3 Cash Flow Distribution Amount, the "Group 3 Principal
Distribution Amount") and (iii) the aggregate distributions of principal
concurrently made on the Class 1992-192-FB and Class 1992-192-SB REMIC
Certificates (the "Group 4 Principal Distribution Amount"). The portion of each
class of Underlying REMIC Certificates held by the Lower Tier REMIC will be as
set forth in Exhibit A.

<PAGE>

On or about the fifth business day of each month, Fannie Mae will aggregate
the amount of principal reported to be receivable on the GNMA Certificates
during such month on the basis of published GNMA factors for such month. For any
GNMA Certificate for which a factor is not available at such time, Fannie Mae
will calculate the amount of scheduled payments of principal distributable in
respect of such GNMA Certificates during such month on the basis of the assumed
amortization schedules of the related Mortgage Loans. The amortization schedules
will be prepared on the assumptions that; (i) each of the Mortgage Loans
underlying a single GNMA Certificate amortizes on a level installment basis, had
an original term to maturity of 360 months, and has a remaining term to maturity
equal to the remaining term to maturity of the latest maturing Mortgage Loan
underlying such GNMA Certificate at the origination of such GNMA Certificate,
adjusted to the Issue Date; and (ii) each Mortgage Loan underlying a GNMA
Certificate bears an interest rate of 8.5% per annum. All such amounts, whether
reported in GNMA factors or calculated by Fannie Mae, will be reflected in the
Trust Factors for the Distribution Date in such month and will be distributed to
Holders of the Group 1 Classes on such Distribution Date, whether or not
received. There will also be reflected in such Trust Factors and distributable
as principal on such Distribution Date the excess of (a) the distributions of
principal of the GNMA Certificates received during the month prior to the month
of such Distribution Date over (b) the amount of principal calculated and
distributable previously in accordance with the GNMA factors and the assumed
distribution schedules specified above.

Group 1 Principal Distribution Amount

ZC Accrual Amount

Accretion Directed Classes and Accrual Classes

On each Distribution Date, an amount equal to the accrued and unpaid
interest on the ZC Class, if any, will be distributed as principal of the
AC Class, until the principal balance thereof is reduced to zero, and
thereafter, to the ZC Class.

Z and ZA Accrual Amount

Commencing in October 2002, on each Distribution Date, the accrued and
unpaid interest on the Z and ZA Classes, if any, will be distributed as
principal of the Classes specified below in the following order of
priority:

(i) to the FE Class, until the principal balance thereof is reduced
to zero;

(ii) concurrently, to the VC and FH Classes, in equal proportions,
until the principal balance of the VC Class is reduced to zero;

(iii) concurrently, to the VD and FH Classes, in the proportions of
57.1430122352% and 42.8569877648%, respectively, until the principal
balance of the VD Class is reduced to zero; and

(iv) concurrently, to the VE, VA and FH Classes, in the proportions
of 46.0478086769%, 28.2936155634% and 25.6585757597%, respectively,
until the principal balances thereof are reduced to zero.

<PAGE>

Group 1 Remaining Principal Distribution Amount

On each Distribution Date, the excess of (x) the Group 1 Principal
Distribution Amount over (y) the amount distributed pursuant to the two
immediately preceding paragraphs (such excess, the "Group 1 Remaining Principal
Distribution Amount") will be distributed as principal of the Group 1 Classes in
the following order of priority:

TAC and PAC Classes

(i) to the TAC and PAC Classes, in the order and proportions set
forth below, until the principal balances of the F and SB Classes are
reduced to their respective Targeted Balances for such Distribution
Date:

a. 53.3333333334% of such amount, concurrently, to the F and SB
Classes, in proportion to their original principal balances (or
93.75% and 6.25%, respectively), until the principal balances thereof
are reduced to their respective Targeted Balances for such
Distribution Date,

b. 22.5076838390% of such amount, sequentially, to the AB, AC
and ZC Classes, in that order, until the principal balances thereof
are reduced to their respective Planned and Targeted Balances for
such Distribution Date, and

c. 24.1589828276% of such amount to the B, C, CG, CK and CL
Classes, until the principal balances thereof are reduced to their
respective Targeted Balances for such Distribution Date, as follows:

first, to the B Class, and

second, 81.7770857730% to the C Class, and

18.2229142270%, sequentially, to the CG, CK and CL
Classes, in that order;

Support Classes

(ii) concurrently, to the FA and SA Classes, in proportion to their
original principal balances (or 84.2105263158% and 15.7894736842%,
respectively), until the principal balances thereof are reduced to zero;

TAC and PAC Classes

(iii) to the TAC and PAC Classes, in the order and proportions set
forth below:

a. 53.3333333334% of the remaining amount, concurrently, to the
F and SB Classes, in proportion to their original principal balances,
without regard to their Targeted Balances and until the principal
balances thereof are reduced to zero;

b. 22.5076838390% of such remaining amount to the AB, AC and ZC
Classes, as follows:

first, to the AB Class, until the principal balance thereof
is reduced to its Planned Balance for such Distribution Date;

second, sequentially, to the AC and ZC Classes, in that
order, without regard to their Targeted Balances and until the
respective principal balances thereof are reduced to zero; and

third, to the AB Class, without regard to its Planned
Balance and until the principal balance thereof is reduced to
zero; and

<PAGE>

TAC and PAC Classes

c. 24.1589828276% of such remaining amount to the B, C, CG, CK
and CL Classes, without regard to their Targeted Balances and until
the respective principal balances thereof are reduced to zero, as
follows:

first, to the B Class, and

second, 81.7770857730% to the C Class, and

18.2229142270%, sequentially, to the CG, CK and CL
Classes, in that order;

Scheduled Class

(iv) prior to October 2002, to the Z Class, until the principal
balance thereof is reduced to its Scheduled Balance for such
Distribution Date;

Sequential Pay Classes

(v) to the FE Class, until the principal balance thereof is reduced
to zero;

(vi) concurrently, to the VC and FH Classes, in equal proportions,
until the principal balance of the VC Class is reduced to zero;

(vii) concurrently, to the VD and FH Classes, in the proportions of
57.1430122352% and 42.8569877648%, respectively, until the principal
balance of the VD Class is reduced to zero;

(viii) concurrently, to the VE, VA and FH Classes, in the
proportions of 46.0478086769%, 28.2936155634% and 25.6585757597%,
respectively, until the principal balances thereof are reduced to zero;

(ix) prior to October 2002, sequentially, to the Z and ZA Classes,
in that order, without regard to the Scheduled Balance of the Z Class
and until the respective principal balances thereof are reduced to zero;
and

(x) commencing in October 2002, as follows:

(a) if the Z and ZA Classes are then outstanding, concurrently,
to the Z and ZA Classes, in proportion to their then current
principal balances, until the principal balances thereof are reduced
to zero, and

(b) if the Z Class is no longer outstanding, to the ZA Class,
until the principal balance thereof is reduced to zero.

Group 3 Principal Distribution Amount

ZB Accrual Amount

Accretion Directed Classes and Accrual Class

On each Distribution Date, the ZB Accrual Amount, if any, will be
distributed, sequentially, as principal of the VG, VH, VJ and VK Classes,
in that order, until the respective principal balances thereof are reduced
to zero, and then to the ZB Class.

Group 3 Cash Flow Distribution Amount

Structured Collateral/Sequential Pay Class

On each Distribution Date, the Group 3 Cash Flow Distribution Amount
will be distributed, sequentially, as principal of the VG, VH, VJ, VK and
ZB Classes, in that order, until the respective principal balances thereof
are reduced to zero.

Group 4 Principal Distribution Amount

Structured Collateral/Pass-Through Classes

On each Distribution Date, the Group 4 Principal Distribution Amount
will be distributed, concurrently, as principal of the FG and SG Classes,
in proportion to their original principal balances (or 72.2222222222% and
27.7777777778%, respectively), until the principal balances thereof are
reduced to zero.

<PAGE>

On any Distribution Date when distributions of principal are to be
allocated from REMIC Certificates to RCR Certificates, such distributions
will be allocated on a pro rata basis from the applicable Classes of REMIC
Certificates to the related RCR Classes.

Purchase of the G Class RCR Certificates on the G Class Purchase Date

The G Class RCR Certificates will be purchased in full by Fannie Mae on the
earlier of (i) the Distribution Date in August 2002 and (ii) the business day
immediately preceding the Distribution Date on which the aggregate outstanding
principal balance of the Z and ZA Classes (after giving effect to the principal
distributions thereon on such date) will be equal to or less than 5% of the
aggregate initial principal balance of such Classes (such date, the "G Class
Purchase Date"). The Trust Factor for the G Class for the month of the G Class
Purchase Date will be zero. Upon such purchase, each Holder of a G Class RCR
Certificate will receive an amount (the "Purchase Distribution Amount") equal to
the sum of:

(i) 100% of the outstanding principal balance of such G Class RCR
Certificate;

(ii) accrued interest at the applicable rate per annum for such G Class
RCR Certificate for the related Interest Accrual Period; and

(iii) accrued interest at the applicable rate per annum for such G Class
RCR Certificate for the period from the first day of the month of
purchase through the day immediately preceding the day on which such
purchase occurs, calculated on the principal balance that would have
remained outstanding immediately after the related Distribution Date
if such purchase were not to occur (for example, 16 days' interest on
such reduced principal balance, if the G Class Purchase Date occurs
on a Distribution Date).

Distribution of the Purchase Distribution Amount to the Holders of the G
Class RCR Certificates will be in lieu of any distribution of principal and
interest that would otherwise be made on the G Class RCR Certificates on the
related Distribution Date.

Structuring Assumptions

Pricing Assumptions. Unless otherwise specified, the information in the
tables in this Prospectus Supplement has been prepared on the basis of the
actual characteristics of each Pool underlying the Underlying REMIC
Certificates, the priority sequences affecting the principal distributions as to
Underlying REMIC Trusts and the following assumptions (such characteristics and
assumptions, collectively, the "Pricing Assumptions"):

o the Mortgage Loans underlying the GNMA Certificates have original
terms to maturity of 360 months, remaining terms to maturity of 352
months, a WALA of 7 months and interest rates of 8.5% per annum.

o all payments (including prepayments) on the Mortgage Loans underlying
the GNMA Certificates, are distributed on the REMIC Certificates in
the month in which such payments are received;

o the Mortgage Loans prepay at the constant percentages of PSA
specified in the related table;

o the closing date for the sale of the Certificates is the Settlement
Date; and

o the first Distribution Date for the Certificates occurs in the month
following the Settlement Date.

Prepayment Assumptions. Prepayments of mortgage loans commonly are measured
relative to a prepayment standard or model. The model used in this Prospectus
Supplement is the Public Securities Association's standard prepayment model
("PSA"). To assume a specified rate of PSA is to assume a specified rate of
prepayment each month of the then outstanding principal balance of a pool of new
mortgage loans computed as described under "Description of the
Certificates--Prepayment Models" in the GNMA Prospectus. It is highly unlikely
that prepayments will occur at any PSA rate or at any other constant rate.

<PAGE>

Structuring Range and Rate. The Principal Balance Schedule for the Z Class
has been prepared on the basis of the Pricing Assumptions; however, the
Scheduled Balance for the Z Class has not been structured to hold at any
constant percentage of PSA.

The final Principal Balance Schedules for the PAC and TAC Classes and the
A* and D* Classes will be calculated by Fannie Mae at or about the time of
formation of the Trust on the basis of the Pricing Assumptions and the
assumption that the Mortgage Loans underlying the GNMA Certificates prepay at a
constant PSA rate within the Structuring Range or at the Structuring Rate
specified below. The final Principal Balance Schedules for the related Classes
will be included in the Final Data Statement to be made available shortly after
formation of the Trust. Fannie Mae's calculation of such final Principal Balance
Schedules will be final and binding on all persons regardless of any defect or
alleged defect in the methodology or information used in making such
calculation. The Preliminary Principal Balance Schedules, which are provided for
illustrative purposes only, are set forth beginning on page S-30 hereof.
Investors should note, however, that the actual characteristics of the Mortgage
Loans underlying the GNMA Certificates will differ from the characteristics
assumed in preparing the Preliminary Principal Balance Schedules set forth
herein.

Principal Balance
Schedule References Related Classes Structuring Range and Rate
- ------------------- ----------------------------- --------------------------
Planned Balance AB Between 100% and 300%
Targeted Balances F, SB, AC, ZC, B, C, CG, CK, 160%
CL, A* and D*

- -------------------------
* These Classes are RCR Classes. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

There is no assurance that the principal balance of any Class listed above
will conform on any Distribution Date to the applicable balance specified for
such Distribution Date in the Principal Balance Schedules, or that distributions
of principal on such Class will begin or end on the respective Distribution
Dates specified therein. Because any excess of the principal distribution on any
Distribution Date over the amount necessary to reduce any such Class to its
scheduled balance will be distributed, the ability to reduce such Class will not
be enhanced by the averaging of high and low principal payments from month to
month. In addition, even if prepayments occur at rates falling within the
Structuring Range specified above, principal distributions may be insufficient
to reduce the applicable Class to its scheduled balance if such prepayments do
not occur at constant PSA rate. Moreover, because of the diverse remaining terms
to maturity of the Mortgage Loans underlying the GNMA Certificates (which may
include recently originated Mortgage Loans), the Classes specified above may not
be reduced to their scheduled balances, even if prepayments occur at a constant
rate within the Structuring Range or at the Structuring Rate specified above.

Initial Effective Range. The Effective Range for a Class is the range of
prepayment rates (measured by constant PSA rates) that would reduce such Class
to its scheduled balance on each Distribution Date. The Initial Effective Range
set forth in the table below is based upon the assumed characteristics of the
Mortgage Loans specified in the Pricing Assumptions.

Related Classes Initial Effective
- ---------------- Range
AB ----------------------
Between 96% and 300%

The actual Effective Range at any time will be based upon the actual
characteristics of the related Mortgage Loans at such time, which are likely to
vary (and may vary considerably) from the Pricing Assumptions. The actual
Effective Range calculated on the basis of the actual characteristics likely
will differ from the Initial Effective Range. As a result, the applicable Class
might not be reduced to its scheduled balance even if prepayments were to occur
at a constant PSA rate within the Initial Effective Range (particularly if such
rate were at the lower or higher end of such range). In addition, even if
prepayments occur at rates falling within the actual Effective Range, principal

<PAGE>

distributions may be insufficient to reduce the applicable Class to its
scheduled balance if such prepayments do not occur at a constant PSA rate. It is
highly unlikely that the related Mortgage Loans will prepay at any constant PSA
rate. In general, the actual Effective Range may narrow, widen or shift upward
or downward to reflect actual prepayment experience over time. The principal
payment stability of the PAC and TAC Classes will be supported in part by the
Support Classes. When the Support Classes are retired, the PAC Class, if still
outstanding, may no longer have an Effective Range and will be more sensitive to
prepayments.

<PAGE>

Preliminary Principal Balance Schedules for the PAC and TAC Classes
and the A* and D* Classes

The Preliminary Principal Balance Schedules for the related Classes are set
forth below. The final Principal Balance Schedules for such Classes will be
calculated by Fannie Mae at or about the time of the formation of the Trust and
will be included in the Final Data Statement. The final Principal Balance
Schedules for such Classes, which will be used in the determination of principal
distributions thereon, will differ from those reflected in the preliminary table
below.

F Class SB Class AB Class AC Class ZC Class B Class
Distribution Targeted Targeted Planned Targeted Targeted Targeted
Date Balance Balance Balance Balance Balance Balance
- ------------------------------------ --------------- --------------- --------------- -------------- ----------------
<S> <C>
Initial Balance..... $ 342,439,500.00 $ 22,829,300.00 $ 70,422,707.00 $ 77,940,023.00 $ 5,787,670.00 $ 134,888,400.00
July 1997........... 340,955,780.59 22,730,385.37 70,422,707.00 77,318,289.90 5,741,501.35 134,171,496.97
August 1997......... 339,329,250.20 22,621,950.01 70,422,707.00 76,636,713.74 5,690,888.88 133,385,590.57
September 1997...... 337,560,758.42 22,504,050.56 70,422,707.00 75,895,650.52 5,635,859.02 132,531,091.32
October 1997........ 335,651,272.65 22,376,751.51 70,422,707.00 75,095,505.64 5,576,441.86 131,608,466.64
November 1997....... 333,601,877.43 22,240,125.16 70,422,707.00 74,236,733.53 5,512,671.18 130,618,240.56
December 1997....... 331,413,773.58 22,094,251.57 70,422,707.00 73,319,837.40 5,444,584.32 129,560,993.29
January 1998........ 329,088,277.29 21,939,218.48 70,422,707.00 72,345,368.78 5,372,222.23 128,437,360.79
February 1998....... 326,626,818.88 21,775,121.25 70,422,707.00 71,313,927.02 5,295,629.43 127,248,034.16
March 1998.......... 324,030,941.56 21,602,062.76 70,422,707.00 70,226,158.79 5,214,853.94 125,993,759.05
April 1998.......... 321,302,299.95 21,420,153.32 70,422,707.00 69,082,757.42 5,129,947.25 124,675,334.93
May 1998............ 318,442,658.45 21,229,510.55 70,422,707.00 67,884,462.27 5,040,964.26 123,293,614.33
June 1998........... 315,453,889.43 21,030,259.28 69,552,420.84 67,442,185.64 5,008,121.68 121,849,501.94
July 1998........... 312,337,971.37 20,822,531.41 68,646,168.19 66,980,109.20 4,973,808.80 120,343,953.72
August 1998......... 309,096,986.69 20,606,465.76 67,704,330.65 66,498,750.31 4,938,064.06 118,777,975.85
September 1998...... 305,733,119.56 20,382,207.95 66,727,307.99 65,998,652.11 4,900,927.77 117,152,623.69
October 1998........ 302,248,653.53 20,149,910.22 65,715,517.90 65,480,382.67 4,862,442.10 115,469,000.59
November 1998....... 298,645,968.99 19,909,731.25 64,669,395.73 64,944,534.17 4,822,651.08 113,728,256.71
December 1998....... 294,927,540.49 19,661,836.02 63,589,394.14 64,391,722.22 4,781,600.36 111,931,587.70
January 1999........ 291,095,933.98 19,406,395.59 62,475,982.85 63,822,584.75 4,739,337.36 110,080,233.38
February 1999....... 287,153,803.89 19,143,586.92 61,329,648.20 63,237,781.38 4,695,911.02 108,175,476.32
March 1999.......... 283,103,890.02 18,873,592.66 60,150,892.87 62,637,992.24 4,651,371.87 106,218,640.33
April 1999.......... 278,949,014.44 18,596,600.95 58,940,235.54 62,023,917.04 4,605,771.89 104,211,088.97
May 1999............ 274,692,078.15 18,312,805.20 57,698,210.47 61,396,274.10 4,559,164.38 102,154,223.96
June 1999........... 270,471,271.86 18,031,418.11 56,462,268.63 60,778,108.22 4,513,260.63 100,114,816.23
July 1999........... 266,286,292.33 17,752,419.47 55,232,378.19 60,169,321.99 4,468,053.37 98,092,719.26
August 1999......... 262,136,838.85 17,475,789.24 54,008,507.42 59,569,818.92 4,423,535.47 96,087,787.75
September 1999...... 258,022,613.24 17,201,507.53 52,790,624.80 58,979,503.40 4,379,699.82 94,099,877.63
October 1999........ 253,943,319.82 16,929,554.64 51,578,698.93 58,398,280.78 4,336,539.39 92,128,846.04
November 1999....... 249,898,665.38 16,659,911.01 50,372,698.61 57,826,057.21 4,294,047.21 90,174,551.29
December 1999....... 245,888,359.18 16,392,557.26 49,172,592.76 57,262,739.80 4,252,216.38 88,236,852.92
January 2000........ 241,912,112.90 16,127,474.17 47,978,350.48 56,708,236.49 4,211,040.09 86,315,611.61
February 2000....... 237,969,640.63 15,864,642.69 46,789,941.04 56,162,456.12 4,170,511.51 84,410,689.21
March 2000.......... 234,060,658.88 15,604,043.91 45,607,333.84 55,625,308.33 4,130,623.99 82,521,948.75
April 2000.......... 230,184,886.52 15,345,659.09 44,430,498.46 55,096,703.67 4,091,370.87 80,649,254.39
May 2000............ 226,342,044.78 15,089,469.64 43,259,404.61 54,576,553.50 4,052,745.56 78,792,471.44
June 2000........... 222,531,857.22 14,835,457.14 42,094,022.19 54,064,770.00 4,014,741.54 76,951,466.32
July 2000........... 218,754,049.72 14,583,603.31 40,934,321.22 53,561,266.21 3,977,352.37 75,126,106.59
August 2000......... 215,008,350.46 14,333,890.03 39,780,271.88 53,065,955.99 3,940,571.64 73,316,260.91
September 2000...... 211,294,489.88 14,086,299.33 38,631,844.52 52,578,754.02 3,904,392.98 71,521,799.03
October 2000........ 207,612,200.71 13,840,813.39 37,489,009.63 52,099,575.73 3,868,810.15 69,742,591.81
November 2000....... 203,961,217.90 13,597,414.54 36,351,737.84 51,628,337.38 3,833,816.96 67,978,511.19
December 2000....... 200,341,278.61 13,356,085.25 35,219,999.95 51,164,956.07 3,799,407.18 66,229,430.17
January 2001........ 196,752,122.22 13,116,808.16 34,093,766.90 50,709,349.61 3,765,574.75 64,495,222.82
February 2001....... 193,193,490.29 12,879,566.03 32,973,009.76 50,261,436.62 3,732,313.63 62,775,764.27
March 2001.......... 189,665,126.54 12,644,341.78 31,857,699.78 49,821,136.50 3,699,617.82 61,070,930.69
April 2001.......... 186,166,776.84 12,411,118.47 30,747,808.35 49,388,369.38 3,667,481.40 59,380,599.28
May 2001............ 182,698,189.20 12,179,879.29 29,643,306.98 48,963,056.20 3,635,898.50 57,704,648.29
June 2001........... 179,259,113.72 11,950,607.59 28,544,167.35 48,545,118.57 3,604,863.29 56,042,956.98
July 2001........... 175,849,302.61 11,723,286.85 27,450,361.28 48,134,478.90 3,574,370.02 54,395,405.62
August 2001......... 172,468,510.14 11,497,900.69 26,361,860.73 47,731,060.36 3,544,412.95 52,761,875.48
September 2001...... 169,116,492.66 11,274,432.86 25,278,637.80 47,334,786.78 3,514,986.47 51,142,248.83
</TABLE>
- ---------------
* These Classes are RCR Classes. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

<PAGE>

F Class SB Class AB Class AC Class ZC Class B Class
Distribution Targeted Targeted Planned Targeted Targeted Targeted
Date Balance Balance Balance Balance Balance Balance
- ------------------------------------ --------------- --------------- --------------- -------------- ----------------
<S> <C>
October 2001........ $ 165,793,008.55 $ 11,052,867.25 $ 24,200,664.74 $ 46,945,582.77 $ 3,486,084.94 $ 49,536,408.92
November 2001....... 162,497,818.23 10,833,187.89 23,127,913.94 46,563,373.61 3,457,702.86 47,944,239.99
December 2001....... 159,230,684.08 10,615,378.95 22,060,357.93 46,188,085.34 3,429,834.69 46,365,627.24
January 2002........ 155,991,370.53 10,399,424.71 20,997,969.38 45,819,644.66 3,402,475.02 44,800,456.83
February 2002....... 152,779,643.96 10,185,309.60 19,940,721.09 45,457,978.98 3,375,618.46 43,248,615.89
March 2002.......... 149,595,272.69 9,973,018.18 18,888,586.01 45,103,016.43 3,349,259.65 41,709,992.47
April 2002.......... 146,438,027.01 9,762,535.13 17,841,537.24 44,754,685.78 3,323,393.32 40,184,475.58
May 2002............ 143,307,679.10 9,553,845.27 16,799,547.99 44,412,916.50 3,298,014.23 38,671,955.15
June 2002........... 140,204,003.08 9,346,933.54 15,762,591.63 44,077,638.75 3,273,117.17 37,172,322.04
July 2002........... 137,126,774.96 9,141,785.00 14,730,641.63 43,748,783.34 3,248,697.03 35,685,468.02
August 2002......... 134,075,772.62 8,938,384.84 13,703,671.64 43,426,281.73 3,224,748.71 34,211,285.76
September 2002...... 131,050,775.79 8,736,718.39 12,681,655.42 43,110,066.06 3,201,267.16 32,749,668.83
October 2002........ 128,051,566.08 8,536,771.07 11,664,566.87 42,800,069.08 3,178,247.41 31,300,511.71
November 2002....... 125,077,926.88 8,338,528.46 10,652,380.02 42,496,224.23 3,155,684.50 29,863,709.74
December 2002....... 122,129,643.43 8,141,976.23 9,645,069.04 42,198,465.55 3,133,573.54 28,439,159.16
January 2003........ 119,206,502.76 7,947,100.19 8,642,608.21 41,906,727.72 3,111,909.68 27,026,757.05
February 2003....... 116,308,293.69 7,753,886.25 7,644,971.97 41,620,946.06 3,090,688.11 25,626,401.39
March 2003.......... 113,434,806.80 7,562,320.46 6,652,134.88 41,341,056.52 3,069,904.08 24,237,990.98
April 2003.......... 110,585,834.43 7,372,388.97 5,664,071.61 41,066,995.61 3,049,552.87 22,861,425.49
May 2003............ 107,761,170.66 7,184,078.05 4,680,756.99 40,798,700.52 3,029,629.80 21,496,605.42
June 2003........... 104,960,611.30 6,997,374.09 3,702,165.97 40,536,108.97 3,010,130.29 20,143,432.11
July 2003........... 102,183,953.86 6,812,263.59 2,728,273.59 40,279,159.36 2,991,049.73 18,801,807.72
August 2003......... 99,430,997.55 6,628,733.17 1,759,055.07 40,027,790.61 2,972,383.60 17,471,635.24
September 2003...... 96,701,543.28 6,446,769.55 794,485.75 39,781,942.27 2,954,127.39 16,152,818.46
October 2003........ 93,995,393.60 6,266,359.57 0.00 39,387,532.85 2,924,839.34 14,845,261.99
November 2003....... 91,312,352.72 6,087,490.18 0.00 38,263,239.88 2,841,351.59 13,548,871.22
December 2003....... 88,652,226.52 5,910,148.43 0.00 37,148,549.00 2,758,576.88 12,263,552.36
January 2004........ 86,014,822.47 5,734,321.49 0.00 36,043,379.54 2,676,509.20 10,989,212.38
February 2004....... 83,399,949.67 5,559,996.64 0.00 34,947,651.49 2,595,142.64 9,725,759.04
March 2004.......... 80,807,418.82 5,387,161.25 0.00 33,861,285.56 2,514,471.28 8,473,100.87
April 2004.......... 78,237,042.20 5,215,802.81 0.00 32,784,203.06 2,434,489.29 7,231,147.18
May 2004............ 75,688,633.67 5,045,908.91 0.00 31,716,325.99 2,355,190.89 5,999,808.02
June 2004........... 73,162,008.65 4,877,467.24 0.00 30,657,577.03 2,276,570.31 4,778,994.21
July 2004........... 70,656,984.10 4,710,465.60 0.00 29,607,879.46 2,198,621.87 3,568,617.31
August 2004......... 68,173,378.53 4,544,891.89 0.00 28,567,157.23 2,121,339.92 2,368,589.62
September 2004...... 65,711,011.94 4,380,734.12 0.00 27,535,334.91 2,044,718.87 1,178,824.17
October 2004........ 63,269,705.87 4,217,980.38 0.00 26,512,337.72 1,968,753.16 0.00
November 2004....... 60,849,283.32 4,056,618.88 0.00 25,498,091.51 1,893,437.26 0.00
December 2004....... 58,449,568.83 3,896,637.91 0.00 24,492,522.72 1,818,765.75 0.00
January 2005........ 56,070,388.35 3,738,025.88 0.00 23,495,558.45 1,744,733.17 0.00
February 2005....... 53,711,569.33 3,580,771.28 0.00 22,507,126.37 1,671,334.20 0.00
March 2005.......... 51,372,940.62 3,424,862.70 0.00 21,527,154.79 1,598,563.47 0.00
April 2005.......... 49,054,332.57 3,270,288.83 0.00 20,555,572.59 1,526,415.73 0.00
May 2005............ 46,755,576.90 3,117,038.45 0.00 19,592,309.27 1,454,885.73 0.00
June 2005........... 44,476,506.76 2,965,100.44 0.00 18,637,294.92 1,383,968.27 0.00
July 2005........... 42,216,956.69 2,814,463.77 0.00 17,690,460.20 1,313,658.22 0.00
August 2005......... 39,976,762.62 2,665,117.50 0.00 16,751,736.34 1,243,950.49 0.00
September 2005...... 37,755,761.86 2,517,050.78 0.00 15,821,055.20 1,174,839.97 0.00
October 2005........ 35,553,793.08 2,370,252.86 0.00 14,898,349.16 1,106,321.67 0.00
November 2005....... 33,370,696.30 2,224,713.08 0.00 13,983,551.18 1,038,390.61 0.00
December 2005....... 31,206,312.88 2,080,420.85 0.00 13,076,594.79 971,041.85 0.00
January 2006........ 29,060,485.51 1,937,365.69 0.00 12,177,414.07 904,270.49 0.00
</TABLE>

<PAGE>

<PAGE>

CG Class CK Class CL Class C Class A* Class D* Class
Distribution Targeted Targeted Targeted Targeted Targeted Targeted
Date Balance Balance Balance Balance Balance Balance
- ---------------------------------- -------------- -------------- --------------- ---------------- ----------------
<S> <C>
Initial Balance..... $ 2,000,000.00 $ 2,235,000.00 $ 1,336,000.00 $ 25,000,400.00 $ 154,150,400.00 $ 135,308,563.00
July 1997........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 153,482,498.25 134,722,298.68
August 1997......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 152,750,309.62 134,079,605.23
September 1997...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 151,954,216.54 133,380,818.36
October 1997........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 151,094,654.50 132,626,320.32
November 1997....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 150,172,111.71 131,816,539.65
December 1997....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 149,187,128.72 130,951,950.82
January 1998........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 148,140,298.01 130,033,073.90
February 1998....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 147,032,263.46 129,060,474.06
March 1998.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 145,863,719.74 128,034,761.08
April 1998.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 144,635,411.68 126,956,588.73
May 1998............ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 143,348,133.54 125,826,654.20
June 1998........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 142,002,728.18 124,645,697.32
July 1998........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 140,600,086.21 123,414,499.83
August 1998......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 139,141,145.03 122,133,884.58
September 1998...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 137,626,887.88 120,804,714.61
October 1998........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 136,058,342.68 119,427,892.21
November 1998....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 134,436,580.99 118,004,357.94
December 1998....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 132,762,716.73 116,535,089.58
January 1999........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 131,037,904.97 115,021,101.03
February 1999....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 129,263,340.62 113,463,441.12
March 1999.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 127,440,257.00 111,863,192.44
April 1999.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 125,569,924.48 110,221,470.08
May 1999............ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 123,653,648.96 108,539,420.32
June 1999........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 121,753,637.49 106,871,646.66
July 1999........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 119,869,753.56 105,218,029.28
August 1999......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 118,001,861.82 103,578,449.37
September 1999...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 116,149,828.04 101,952,789.09
October 1999........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 114,313,519.11 100,340,931.63
November 1999....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 112,492,803.04 98,742,761.12
December 1999....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 110,687,548.96 97,158,162.68
January 2000........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 108,897,627.07 95,587,022.39
February 2000....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 107,122,908.68 94,029,227.28
March 2000.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 105,363,266.18 92,484,665.33
April 2000.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 103,618,573.00 90,953,225.45
May 2000............ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 101,888,703.67 89,434,797.50
June 2000........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 100,173,533.73 87,929,272.25
July 2000........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 98,472,939.80 86,436,541.38
August 2000......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 96,786,799.51 84,956,497.49
September 2000...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 95,114,991.52 83,489,034.07
October 2000........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 93,457,395.51 82,034,045.50
November 2000....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 91,813,892.18 80,591,427.06
December 2000....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 90,184,363.20 79,161,074.90
January 2001........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 88,568,691.26 77,742,886.04
February 2001....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 86,966,760.01 76,336,758.35
March 2001.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 85,378,454.10 74,942,590.57
April 2001.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 83,803,659.13 73,560,282.29
May 2001............ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 82,242,261.68 72,189,733.94
June 2001........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 80,694,149.21 70,830,846.77
July 2001........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 79,159,210.20 69,483,522.87
August 2001......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 77,637,334.04 68,147,665.16
September 2001...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 76,128,411.05 66,823,177.36
</TABLE>

- ---------------
* These Classes are RCR Classes. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

<PAGE>

CG Class CK Class CL Class C Class A* Class D* Class
Distribution Targeted Targeted Targeted Targeted Targeted Targeted
Date Balance Balance Balance Balance Balance Balance
- ---------------------------------- -------------- -------------- --------------- ---------------- ----------------
<S> <C>
October 2001........ $ 2,000,000.00 $ 2,235,000.00 $ 1,336,000.00 $ 25,000,400.00 $ 74,632,332.46 $ 65,509,963.99
November 2001....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 73,148,990.42 64,207,930.38
December 2001....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 71,678,277.97 62,916,982.66
January 2002........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 70,220,089.06 61,637,027.73
February 2002....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 68,774,318.54 60,367,973.28
March 2002.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 67,340,862.10 59,109,727.77
April 2002.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 65,919,616.34 57,862,200.44
May 2002............ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 64,510,478.72 56,625,301.28
June 2002........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 63,113,347.55 55,398,941.01
July 2002........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 61,728,122.00 54,183,031.15
August 2002......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 60,354,702.08 52,977,483.92
September 2002...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 58,992,988.64 51,782,212.28
October 2002........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 57,642,883.36 50,597,129.95
November 2002....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 56,304,288.75 49,422,151.33
December 2002....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 54,977,108.13 48,257,191.57
January 2003........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 53,661,245.61 47,102,166.52
February 2003....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 52,356,606.14 45,956,992.73
March 2003.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 51,063,095.48 44,821,587.45
April 2003.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 49,780,620.09 43,695,868.63
May 2003............ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 48,509,087.31 42,579,754.90
June 2003........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 47,248,405.23 41,473,165.59
July 2003........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 45,998,482.68 40,376,020.68
August 2003......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 44,759,229.28 39,288,240.83
September 2003...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 43,530,555.41 38,209,747.38
October 2003........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 42,312,372.19 37,140,462.30
November 2003....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 41,104,591.48 36,080,308.25
December 2003....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 39,907,125.88 35,029,208.50
January 2004........ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 38,719,888.75 33,987,087.00
February 2004....... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 37,542,794.15 32,953,868.30
March 2004.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 36,375,756.85 31,929,477.61
April 2004.......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 35,218,692.37 30,913,840.76
May 2004............ 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 34,071,516.90 29,906,884.19
June 2004........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 32,934,147.36 28,908,534.97
July 2004........... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 31,806,501.35 27,918,720.78
August 2004......... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 30,688,497.17 26,937,369.90
September 2004...... 2,000,000.00 2,235,000.00 1,336,000.00 25,000,400.00 29,580,053.79 25,964,411.22
October 2004........ 1,999,860.55 2,235,000.00 1,336,000.00 24,999,774.22 28,481,090.89 24,999,774.22
November 2004....... 1,786,743.76 2,235,000.00 1,336,000.00 24,043,392.07 27,391,528.78 24,043,392.08
December 2004....... 1,575,450.30 2,235,000.00 1,336,000.00 23,095,192.30 26,311,288.48 23,095,192.31
January 2005........ 1,365,964.85 2,235,000.00 1,336,000.00 22,155,106.14 25,240,291.64 22,155,106.15
February 2005....... 1,158,272.22 2,235,000.00 1,336,000.00 21,223,065.41 24,178,460.58 21,223,065.41
March 2005.......... 952,357.33 2,235,000.00 1,336,000.00 20,299,002.48 23,125,718.27 20,299,002.49
April 2005.......... 748,205.25 2,235,000.00 1,336,000.00 19,382,850.32 22,081,988.33 19,382,850.33
May 2005............ 545,801.16 2,235,000.00 1,336,000.00 18,474,542.43 21,047,195.02 18,474,542.45
June 2005........... 345,130.37 2,235,000.00 1,336,000.00 17,574,012.89 20,021,263.21 17,574,012.91
July 2005........... 146,178.31 2,235,000.00 1,336,000.00 16,681,196.32 19,004,118.44 16,681,196.34
August 2005......... 0.00 2,183,930.53 1,336,000.00 15,796,027.90 17,995,686.85 15,796,027.92
September 2005...... 0.00 1,988,372.71 1,336,000.00 14,918,443.33 16,995,895.19 14,918,443.35
October 2005........ 0.00 1,794,490.65 1,336,000.00 14,048,378.88 16,004,670.85 14,048,378.89
November 2005....... 0.00 1,602,270.26 1,336,000.00 13,185,771.32 15,021,941.80 13,185,771.33
December 2005....... 0.00 1,411,697.57 1,336,000.00 12,330,557.98 14,047,636.65 12,330,557.99
January 2006........ 0.00 1,222,758.73 1,336,000.00 11,482,676.69 13,081,684.57 11,482,676.70
</TABLE>

<PAGE>

<PAGE>

Principal Balance Schedule for the Z Class

Z Class
Distribution Scheduled
Date Balance
- ------------------------------------
Initial Balance..... $ 142,509,777.00
July 1997........... 94,391,304.98
August 1997......... 95,020,580.35
September 1997...... 95,654,050.88
October 1997........ 96,291,744.55
November 1997....... 96,933,689.52
December 1997....... 97,579,914.12
January 1998........ 98,230,446.88
February 1998....... 98,885,316.52
March 1998.......... 99,544,551.97
April 1998.......... 100,208,182.31
May 1998............ 100,876,236.86
June 1998........... 101,548,745.11
July 1998........... 102,225,736.74
August 1998......... 102,907,241.65
September 1998...... 103,593,289.93
October 1998........ 104,283,911.86
November 1998....... 104,979,137.94
December 1998....... 105,678,998.86
January 1999........ 106,383,525.52
February 1999....... 107,092,749.02
March 1999.......... 107,806,700.68
April 1999.......... 108,525,412.02
May 1999............ 109,248,914.77
June 1999........... 109,977,240.87
July 1999........... 110,710,422.47
August 1999......... 111,448,491.96
September 1999...... 112,191,481.90
October 1999........ 112,939,425.11
November 1999....... 113,692,354.62
December 1999....... 114,450,303.65
January 2000........ 115,213,305.67

Z Class
Distribution Scheduled
Date Balance
- ------------------------------------
February 2000....... $ 115,981,394.38
March 2000.......... 116,754,603.67
April 2000.......... 117,532,967.70
May 2000............ 118,316,520.81
June 2000........... 119,105,297.62
July 2000........... 119,899,332.94
August 2000......... 120,698,661.82
September 2000...... 121,503,319.57
October 2000........ 122,313,341.70
November 2000....... 123,128,763.98
December 2000....... 123,949,622.40
January 2001........ 124,775,953.22
February 2001....... 125,607,792.91
March 2001.......... 126,445,178.19
April 2001.......... 127,288,146.05
May 2001............ 128,136,733.69
June 2001........... 128,990,978.58
July 2001........... 129,850,918.44
August 2001......... 130,716,591.23
September 2001...... 131,588,035.17
October 2001........ 132,465,288.74
November 2001....... 133,348,390.66
December 2001....... 134,237,379.93
January 2002........ 135,132,295.80
February 2002....... 136,033,177.77
March 2002.......... 136,940,065.62
April 2002.......... 137,852,999.39
May 2002............ 138,772,019.39
June 2002........... 139,697,166.18
July 2002........... 140,628,480.63
August 2002......... 141,566,003.83
September 2002...... 142,509,777.00

<PAGE>

Yield Tables

General. The tables below indicate the sensitivity of the pre-tax corporate
bond equivalent yields to maturity of applicable Classes to various constant
percentages of PSA and, where specified, to changes in the Index. The yields set
forth in the tables were calculated by determining the monthly discount rates
that, when applied to the assumed streams of cash flows to be paid on the
applicable Classes, would cause the discounted present value of such assumed
streams of cash flows to equal the assumed aggregate purchase prices of such
Classes and converting such monthly rates to corporate bond equivalent rates.
Such calculations do not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by them
as distributions on the related Certificates and consequently do not purport to
reflect the return on any investment in the Certificates when such reinvestment
rates are considered. There can be no assurance that the pre-tax yields on the
related Certificates will correspond to any of the pre-tax yields shown herein
or that the aggregate purchase prices of the Certificates will be as assumed. In
addition, there can be no assurance that the Index will correspond to the levels
shown herein. Furthermore, because some of the Mortgage Loans will likely have
remaining terms to maturity shorter or longer than those assumed, the principal
distributions on the Certificates are likely to differ from those assumed, even
if all Mortgage Loans prepay at the indicated constant percentages of PSA.
Moreover, it is not likely that the Mortgage Loans will prepay at a constant PSA
rate until maturity, that all of such Mortgage Loans will prepay at the same
rate or that the level of the Index will remain constant.

The Inverse Floating Rate Classes and the S Class. The yields to investors
in the Inverse Floating Rate Classes and the S** Class will be sensitive in
varying degrees to the level of the Index and to the rate of principal payments
(including prepayments) of the Mortgage Loans underlying the GNMA Certificates
and the related Underlying REMIC Certificates, as applicable. The Mortgage Loans
generally can be prepaid at any time. In addition, the rate of principal
payments (including prepayments) of the Mortgage Loans is likely to vary, and
may vary considerably, from Pool to Pool. As indicated in the tables below, it
is possible that, under certain index and prepayment scenarios, investors in the
SJ, SK, S**, SE, SH, SC and SD Classes would not fully recoup their initial
investments.

Changes in the Index may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of the Index.

The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumptions that (i) the interest rates
applicable to the Inverse Floating Rate Classes and the S** Class for the
initial Interest Accrual Period are the actual and assumed rates appearing in
the table under "Distributions of Interest--Floating Rate and Inverse Floating
Rate Classes" herein and for each Interest Accrual Period subsequent to the
initial Interest Accrual Period will be based on the indicated level of the
Index and (ii) the aggregate purchase prices of the Inverse Floating Rate
Classes and the S** Class (expressed in each case as a percentage of original
principal balance) are as follows:

Class Price*
----- -------
SJ ............................................. 2.125%
SK ............................................. 2.125%
S**............................................. 4.250%
SB ............................................. 97.375%
SA ............................................. 98.433%
SE ............................................. 4.186%
SH ............................................. 8.625%
SC ............................................. 1.781%
SD ............................................. 3.219%
SG ............................................. 88.350%

-------------------------------
* The prices do not include accrued interest. Accrued interest has been
added to such prices in calculating the yields set forth in the
tables below.

- ---------------
** This Class is an RCR Class. See "Description of the Certificates--Combination
and Recombination" herein and Schedule 1 for a further description thereof.

<PAGE>

Sensitivity of the SJ Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

<TABLE>
<CAPTION>
PSA Prepayment Assumption
-------------------------------------------------------
LIBOR 50% 100% 160% 300% 500%
- ----------------------------------- ------- ------- ------- ------- -------
<S> <C>
3.6875%............................ 197.9% 193.2% 187.5% 182.9% 166.5%
5.6875%............................ 63.9% 59.2% 52.9% 43.1% 20.9%
7.0000% and above.................. * * * * *
</TABLE>

- -------------------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SK Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
------------------------------------------------------
LIBOR 50% 100% 160% 300% 500%
- ----------------------------------- ------ ------ ------ -------- --------
<S> <C>
7.0% and below..................... 45.5% 40.4% 33.6% 21.9% (2.2)%
7.5%............................... 17.4% 11.2% 2.3% (13.9)% (42.4)%
8.0% and above..................... * * * * *
</TABLE>

-------------------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SB Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
------------------------------------------------
LIBOR 50% 100% 160% 300% 500%
- ----------------------------------- ----- ----- ------ ------ ------
<S> <C>
8.0% and below..................... 9.6% 9.8% 10.0% 10.2% 10.7%
8.3%............................... 4.9% 5.1% 5.3% 5.6% 6.1%
8.6%............................... 0.3% 0.5% 0.7% 1.0% 1.5%
</TABLE>

Sensitivity of the S** Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-----------------------------------------------------------
LIBOR 50% 100% 160% 300% 500%
- ----------------------------------- ------- -------- -------- -------- --------
<S> <C>
3.6875%............................ 115.9% 111.4% 105.7% 98.9% 80.0%
5.6875%............................ 54.6% 49.7% 43.2% 32.5% 9.4%
7.6875%............................ (5.0)% (13.7)% (26.4)% (48.7)% (82.1)%
8.0000%............................ * * * * *
</TABLE>

- -------------------------
* The pre-tax yield to maturity would be less than (99.9)%.
** This Class is an RCR Class. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for
a further description thereof.

<PAGE>

Sensitivity of the SA Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
--------------------------------------------------
LIBOR 50% 100% 160% 300% 500%
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C>
3.6875%............................ 29.5% 29.5% 29.5% 31.3% 33.3%
5.6875%............................ 17.8% 17.8% 17.8% 20.4% 23.1%
7.6875%............................ 6.5% 6.5% 6.6% 9.8% 13.3%
8.8600%............................ 0.1% 0.2% 0.2% 3.8% 7.7%
</TABLE>

Sensitivity of the SE Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------------
LIBOR 50% 100% 160% 300% 500%
- ----------------------------------- ------- ------- ------- ------- -------
<S> <C>
3.6875%............................ 108.4% 108.4% 108.4% 108.4% 105.2%
5.6875%............................ 44.0% 44.0% 44.0% 43.9% 35.2%
7.5500%............................ * * * * *
</TABLE>

- -------------------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SH Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
---------------------------------------------------------
LIBOR 50% 100% 160% 300% 500%
- ----------------------------------- ------- ------- ------- -------- --------
<S> <C>
3.6875%............................ 59.4% 59.4% 59.3% 58.2% 53.4%
5.6875%............................ 31.1% 31.1% 30.9% 27.6% 19.1%
7.6875%............................ (2.8)% (2.8)% (4.1)% (13.5)% (30.0)%
8.3500%............................ * * * * *
</TABLE>

- -------------------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SC Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------------
LIBOR 50% 75% 125% 300% 500%
- ----------------------------------- ------- ------- ------- ------- -------
<S> <C>
3.6875%............................ 218.6% 207.0% 195.9% 195.9% 194.0%
5.6875%............................ 62.2% 52.8% 43.3% 43.3% 35.2%
7.0000%............................ * * * * *
</TABLE>

- -------------------------
* The pre-tax yield to maturity would be less than (99.9)%.

<PAGE>

Sensitivity of the SD Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-----------------------------------------------------------
LIBOR 50% 75% 125% 300% 500%
- ----------------------------------- ------- -------- -------- -------- --------
<S> <C>
7.0%............................... 31.6% 21.8% 11.8% 11.8% 0.3%
7.8%............................... (0.2)% (11.4)% (22.6)% (22.6)% (39.3)%
8.6%............................... * * * * *
</TABLE>

- -------------------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SG Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
--------------------------------------------------
LIBOR 50% 75% 125% 300% 500%
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C>
3.6875%............................ 15.7% 15.7% 16.2% 27.9% 48.2%
5.6875%............................ 9.8% 9.9% 10.3% 22.1% 42.6%
7.6875%............................ 4.1% 4.2% 4.6% 16.4% 37.2%
8.6000%............................ 1.6% 1.6% 2.1% 13.8% 34.8%
</TABLE>

The IB and IO Classes. The yields to investors in the IB and IO Classes
will be very sensitive to the rate of principal payments (including prepayments)
of the Mortgage Loans underlying the GNMA Certificates. The Mortgage Loans
generally can be prepaid at any time. On the basis of the assumptions described
below, the yield to maturity on the IB and IO Classes would be 0% if prepayments
of the Mortgage Loans were to occur at constant rates of approximately 493% PSA
and 906% PSA, respectively. If the actual prepayment rates of the Mortgage Loans
were to exceed the applicable levels for as little as one month while equaling
such levels for the remaining months, the investors in the IB and IO Classes, as
applicable, would not fully recoup their initial investments.

The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase prices
of the IB and IO Classes (expressed in each case as a percentage of the original
notional principal balance) are as follows:

Class Price*
----- -------
IB............................................. 21.952%
IO ............................................ 34.176%

-------------------------------
* The prices do not include accrued interest. Accrued interest has been
added to such prices in calculating the yields set forth in the tables
below.

Sensitivity of the IB Class to Prepayments

PSA Prepayment Assumption
-----------------------------------------
50% 100% 160% 300% 500%
------ ------ ------ ------ -------
Pre-Tax Yields to Maturity....... 24.0% 12.5% 12.5% 12.5% (0.6)%

<PAGE>

Sensitivity of the IO Class to Prepayments

PSA Prepayment Assumption
--------------------------------------
50% 100% 160% 300% 500%
----- ----- ----- ---- -----
Pre-Tax Yields to Maturity......... 7.5% 7.5% 7.5% 7.5% 6.9%

Weighted Average Lives of the Certificates

The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the Settlement Date to the second such Distribution Date,
(b) summing the results and (c) dividing the sum by the aggregate amount of the
reductions in principal balance of such Certificate referred to in clause (a).
For a description of the factors which may influence the weighted average life
of a Certificate, see "Description of the Certificates-- Weighted Average Life
and Final Distribution Dates" in the GNMA Prospectus or REMIC Prospectus, as
applicable.

In general, the weighted average lives of the Certificates will be
shortened if the level of prepayments of principal of the related Mortgage Loans
increases. However, the weighted average lives will depend upon a variety of
other factors, including the timing of changes in such rate of principal
payments, the priority sequences of distributions of principal of the Group 1
Classes and, in the case of the Group 2, Group 3 and Group 4 Classes, the
priority sequences of distributions of principal as to the related Underlying
REMIC Trusts. In addition, the weighted average life of the G Class RCR
Certificates will be affected by the rate of distribution of principal of the
Class Z and ZA Classes and by the purchase of the G Class RCR Certificates on
the G Class Purchase Date, as described herein. The weighted average lives of
the Group 1 Classes will also depend on the distribution of principal of certain
Classes in accordance with the Principal Balance Schedules. In particular, if
certain amounts distributable as principal of the Group 1 Classes on any
Distribution Date exceed the amount required to reduce the principal balances of
the applicable Classes to their scheduled amounts as set forth in the Principal
Balance Schedules, such excess principal will be distributed on the remaining
Group 1 Classes on such Distribution Date. Conversely, if such amounts
distributable as principal on any Distribution Date are less than the amount
required to reduce the applicable Classes to their scheduled amounts, no
principal will be distributed on certain remaining Group 1 Classes on such
Distribution Date. Accordingly, the rates of principal payments on the related
Mortgage Loans are expected to have a greater effect on the weighted average
lives of the Support Classes and, under certain scenarios, the TAC and Scheduled
Classes than on the weighted average life of the PAC Class. See "Distributions
of Principal" herein and "Description of the Certificates--Distributions of
Principal" in the Underlying REMIC Disclosure Documents.

The effect of the foregoing factors may differ as to various Classes and
the effects on any Class may vary at different times during the life of such
Class. Accordingly, no assurance can be given as to the weighted average life of
any Class. Further, to the extent the prices of the Certificates represent
discounts or premiums to their respective original principal balances,
variability in the weighted average lives of such Classes of Certificates could
result in variability in the related yields to maturity. For an example of how
the weighted average lives of the Classes may be affected at various constant
prepayment rates, see the Decrement Tables below.

<PAGE>

Decrement Tables

The following tables indicate the percentages of original principal
balances of the specified Classes that would be outstanding after each of the
dates shown at various constant PSA levels and the corresponding weighted
average lives of such Classes. The tables have been prepared on the basis of the
Pricing Assumptions, except that with respect to the information set forth for
each such Class under 0% PSA it has been assumed that the underlying Mortgage
Loans have the original and remaining terms to maturity and bear interest at the
per annum rates specified below:

Mortgage Loans
relating to GNMA
Certificates and the Original Remaining
Underlying REMIC Terms Terms Interest Related
Trusts specified below to Maturity to Maturity Rates Groups
- ---------------------- ----------- ----------- -------- --------
GNMA Certificates 360 months 360 months 8.5% Group 1
1994-42 360 months 322 months 9.5% Group 2
1996-69 360 months 321 months 9.0% Group 3
1992-192 180 months 125 months 9.0% Group 4

It is not likely that (i) all of the underlying Mortgage Loans will have
the interest rates, WALAs or CAGEs or remaining terms to maturity assumed or
(ii) the underlying Mortgage Loans will prepay at a constant PSA level. In
addition, the diverse remaining terms to maturity of the Mortgage Loans could
produce slower or faster principal distributions than indicated in the tables at
the specified constant PSA levels, even if the distributions of the weighted
average remaining terms to maturity and the weighted average WALAs or CAGEs of
the Mortgage Loans are identical to the distributions of the remaining terms to
maturity and WALAs or CAGEs specified in the Pricing Assumptions.

Percent of Original Principal Balances Outstanding

F, SJ+, SK+, S***, SB, A*** and
D*** Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 99 95 92 92 85
June 1999........... 98 86 79 70 50
June 2000........... 96 76 65 48 20
June 2001........... 95 67 52 30 0
June 2002........... 93 58 41 15 0
June 2003........... 91 50 31 3 0
June 2004........... 89 42 21 0 0
June 2005........... 87 35 13 0 0
June 2006........... 85 28 5 0 0
June 2007........... 82 22 0 0 0
June 2008........... 80 16 0 0 0
June 2009........... 77 10 0 0 0
June 2010........... 73 4 0 0 0
June 2011........... 70 0 0 0 0
June 2012........... 66 0 0 0 0
June 2013........... 58 0 0 0 0
June 2014........... 49 0 0 0 0
June 2015........... 40 0 0 0 0
June 2016........... 30 0 0 0 0
June 2017........... 18 0 0 0 0
June 2018........... 6 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 15.3 6.4 4.5 3.1 2.1

AB and IB+ Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 99 99 99 99
June 1999........... 97 80 80 80 80
June 2000........... 94 60 60 60 44
June 2001........... 91 41 41 41 0
June 2002........... 87 22 22 22 0
June 2003........... 83 5 5 5 0
June 2004........... 79 0 0 0 0
June 2005........... 74 0 0 0 0
June 2006........... 69 0 0 0 0
June 2007........... 64 0 0 0 0
June 2008........... 58 0 0 0 0
June 2009........... 51 0 0 0 0
June 2010........... 44 0 0 0 0
June 2011........... 37 0 0 0 0
June 2012........... 28 0 0 0 0
June 2013........... 11 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 11.2 3.6 3.6 3.6 2.8

AC Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 97 90 87 87 71
June 1999........... 97 89 78 60 19
June 2000........... 96 87 69 34 0
June 2001........... 95 86 62 15 0
June 2002........... 95 84 57 1 0
June 2003........... 94 83 52 0 0
June 2004........... 93 71 39 0 0
June 2005........... 92 56 24 0 0
June 2006........... 91 41 10 0 0
June 2007........... 90 28 0 0 0
June 2008........... 88 14 0 0 0
June 2009........... 87 1 0 0 0
June 2010........... 86 0 0 0 0
June 2011........... 84 0 0 0 0
June 2012........... 83 0 0 0 0
June 2013........... 81 0 0 0 0
June 2014........... 71 0 0 0 0
June 2015........... 50 0 0 0 0
June 2016........... 28 0 0 0 0
June 2017........... 3 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 16.5 7.8 5.3 2.5 1.4

ZC Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 108 108 87 87 94
June 1999........... 116 116 78 91 101
June 2000........... 125 125 69 98 0
June 2001........... 135 135 62 105 0
June 2002........... 145 145 57 114 0
June 2003........... 157 157 52 21 0
June 2004........... 169 169 39 0 0
June 2005........... 182 182 24 0 0
June 2006........... 196 196 10 0 0
June 2007........... 211 211 0 0 0
June 2008........... 228 228 0 0 0
June 2009........... 245 245 0 0 0
June 2010........... 264 119 0 0 0
June 2011........... 285 0 0 0 0
June 2012........... 307 0 0 0 0
June 2013........... 331 0 0 0 0
June 2014........... 356 0 0 0 0
June 2015........... 384 0 0 0 0
June 2016........... 414 0 0 0 0
June 2017........... 446 0 0 0 0
June 2018........... 159 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.8 13.0 5.3 5.1 2.3

- ---------------
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

*** These Classes are RCR Classes. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

+ In the case of a Notional Class, the Decrement Table indicates the
percentage of the original notional principal balance outstanding.

<PAGE>

B Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 99 93 90 90 81
June 1999........... 97 83 74 64 39
June 2000........... 95 71 57 36 2
June 2001........... 93 59 42 14 0
June 2002........... 91 49 28 0 0
June 2003........... 89 39 15 0 0
June 2004........... 87 29 4 0 0
June 2005........... 84 21 0 0 0
June 2006........... 81 12 0 0 0
June 2007........... 78 4 0 0 0
June 2008........... 75 0 0 0 0
June 2009........... 71 0 0 0 0
June 2010........... 67 0 0 0 0
June 2011........... 63 0 0 0 0
June 2012........... 58 0 0 0 0
June 2013........... 49 0 0 0 0
June 2014........... 38 0 0 0 0
June 2015........... 26 0 0 0 0
June 2016........... 14 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 14.1 5.1 3.6 2.5 1.7

C Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 82 0
June 2003........... 100 100 100 17 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 70 0 0
June 2006........... 100 100 29 0 0
June 2007........... 100 100 0 0 0
June 2008........... 100 85 0 0 0
June 2009........... 100 54 0 0 0
June 2010........... 100 24 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 99 0 0 0 0
June 2018........... 32 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.7 12.2 8.5 5.5 3.5

CG Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 51 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 17 0 0
June 2006........... 100 100 0 0 0
June 2007........... 100 100 0 0 0
June 2008........... 100 59 0 0 0
June 2009........... 100 0 0 0 0
June 2010........... 100 0 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 96 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.3 11.1 7.7 5.0 3.2

CK Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 100 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 14 0 0
June 2007........... 100 100 0 0 0
June 2008........... 100 100 0 0 0
June 2009........... 100 74 0 0 0
June 2010........... 100 * 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 21 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.8 12.3 8.6 5.6 3.5

CL Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 100 0
June 2003........... 100 100 100 72 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 0 0 0
June 2008........... 100 100 0 0 0
June 2009........... 100 100 0 0 0
June 2010........... 100 100 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 100 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 21.3 13.4 9.5 6.1 3.8

FA, SA and E*** Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 13 0
June 1999........... 100 100 100 0 0
June 2000........... 100 100 100 0 0
June 2001........... 100 100 100 0 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 79 0 0
June 2008........... 100 100 0 0 0
June 2009........... 100 100 0 0 0
June 2010........... 100 100 0 0 0
June 2011........... 100 89 0 0 0
June 2012........... 100 15 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 100 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 21.7 14.5 10.3 0.6 0.3

FE, SE+ and VB*** Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 0
June 2003........... 55 55 55 55 0
June 2004........... 0 0 0 0 0
June 2005........... 0 0 0 0 0
June 2006........... 0 0 0 0 0
June 2007........... 0 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 6.1 6.1 6.1 6.0 4.1

FH, SH+ and H*** Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 44
June 2003........... 100 100 100 100 3
June 2004........... 98 98 98 62 0
June 2005........... 87 87 87 17 0
June 2006........... 74 74 74 0 0
June 2007........... 61 61 61 0 0
June 2008........... 48 48 44 0 0
June 2009........... 35 35 12 0 0
June 2010........... 21 21 0 0 0
June 2011........... 11 11 0 0 0
June 2012........... 1 1 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 10.9 10.9 10.2 7.3 5.0

- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.

** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

*** These Classes are RCR Classes. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 for a
further description thereof.

+ In the case of a Notional Class, the Decrement Table indicates the
percentage of the original notional principal balance outstanding.

<PAGE>

VC Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 0
June 2003........... 100 100 100 100 0
June 2004........... 96 96 96 2 0
June 2005........... 67 67 67 0 0
June 2006........... 35 35 35 0 0
June 2007........... 0 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 8.5 8.5 8.5 6.7 4.5

VD Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 56
June 2003........... 100 100 100 100 0
June 2004........... 100 100 100 100 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 100 0 0
June 2008........... 67 67 57 0 0
June 2009........... 31 31 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 11.5 11.5 11.0 7.4 5.1

VE and VA Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 100 100 100 100 15
June 2004........... 100 100 100 100 0
June 2005........... 100 100 100 77 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 100 0 0
June 2008........... 100 100 100 0 0
June 2009........... 100 100 51 0 0
June 2010........... 93 93 0 0 0
June 2011........... 50 50 0 0 0
June 2012........... 4 4 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 14.0 14.0 12.0 8.2 5.7

Z Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 95
June 2002........... 100 100 100 100 91
June 2003........... 106 106 106 106 97
June 2004........... 115 115 115 115 70
June 2005........... 125 125 125 125 49
June 2006........... 135 135 135 123 33
June 2007........... 146 146 146 99 23
June 2008........... 158 158 158 79 16
June 2009........... 171 171 171 63 11
June 2010........... 186 186 167 51 7
June 2011........... 201 201 147 40 5
June 2012........... 218 218 128 32 3
June 2013........... 236 202 112 25 2
June 2014........... 255 182 97 20 2
June 2015........... 276 163 83 15 1
June 2016........... 299 145 71 12 1
June 2017........... 324 128 60 9 *
June 2018........... 351 111 50 7 *
June 2019........... 377 95 42 5 *
June 2020........... 343 81 34 4 *
June 2021........... 305 66 27 3 *
June 2022........... 265 53 20 2 *
June 2023........... 220 40 15 1 *
June 2024........... 172 27 10 1 *
June 2025........... 119 15 5 * *
June 2026........... 62 4 1 * *
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 26.4 21.5 18.5 13.0 8.4

ZA Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 106 106 106 106 106
June 2004........... 115 115 115 115 77
June 2005........... 125 125 125 125 53
June 2006........... 135 135 135 123 37
June 2007........... 146 146 146 99 25
June 2008........... 158 158 158 79 17
June 2009........... 171 171 171 63 12
June 2010........... 186 186 167 51 8
June 2011........... 201 201 147 40 5
June 2012........... 218 218 128 32 4
June 2013........... 236 202 112 25 2
June 2014........... 255 182 97 20 2
June 2015........... 276 163 83 15 1
June 2016........... 299 145 71 12 1
June 2017........... 324 128 60 9 *
June 2018........... 351 111 50 7 *
June 2019........... 377 95 42 5 *
June 2020........... 343 81 34 4 *
June 2021........... 305 66 27 3 *
June 2022........... 265 53 20 2 *
June 2023........... 220 40 15 1 *
June 2024........... 172 27 10 1 *
June 2025........... 119 15 5 * *
June 2026........... 62 4 1 * *
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 26.4 21.5 18.5 13.0 8.8

G*** Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 95
June 2002........... 100 100 100 100 91
June 2003........... 0 0 0 0 0
June 2004........... 0 0 0 0 0
June 2005........... 0 0 0 0 0
June 2006........... 0 0 0 0 0
June 2007........... 0 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 5.1 5.1 5.1 5.1 5.0

IO+ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 160% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 97
June 2002........... 100 100 100 100 93
June 2003........... 0 0 0 0 0
June 2004........... 0 0 0 0 0
June 2005........... 0 0 0 0 0
June 2006........... 0 0 0 0 0
June 2007........... 0 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 5.2 5.2 5.2 5.2 5.1

SC+ and SD+ Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 75% 125% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 97 80 76 76 76
June 1999........... 94 62 54 54 54
June 2000........... 90 46 36 36 20
June 2001........... 86 32 20 20 0
June 2002........... 82 19 8 8 0
June 2003........... 77 9 0 0 0
June 2004........... 73 * 0 0 0
June 2005........... 67 0 0 0 0
June 2006........... 61 0 0 0 0
June 2007........... 55 0 0 0 0
June 2008........... 49 0 0 0 0
June 2009........... 42 0 0 0 0
June 2010........... 35 0 0 0 0
June 2011........... 26 0 0 0 0
June 2012........... 18 0 0 0 0
June 2013........... 11 0 0 0 0
June 2014........... 3 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 10.2 3.0 2.4 2.4 2.0

- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.

** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

*** This Class is a RCR Class. See "Description of the Certificates--Combination
and Recombination" herein and Schedule 1 for a further description thereof.

+ In the case of a Notional Class, the Decrement Table indicates the
percentage of the original notional principal balance outstanding.

<PAGE>

VG Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 75% 125% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 88 88 88 88 0
June 1999........... 76 76 76 0 0
June 2000........... 63 63 63 0 0
June 2001........... 49 49 49 0 0
June 2002........... 33 33 33 0 0
June 2003........... 17 17 17 0 0
June 2004........... 0 0 0 0 0
June 2005........... 0 0 0 0 0
June 2006........... 0 0 0 0 0
June 2007........... 0 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 3.8 3.8 3.8 1.5 0.6

VH Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 75% 125% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 0
June 1999........... 100 100 100 0 0
June 2000........... 100 100 100 0 0
June 2001........... 100 100 100 0 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 99 99 99 0 0
June 2005........... 49 49 49 0 0
June 2006........... 0 0 0 0 0
June 2007........... 0 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 8.0 8.0 8.0 1.9 0.7

VJ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 75% 125% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 0
June 1999........... 100 100 100 98 0
June 2000........... 100 100 100 0 0
June 2001........... 100 100 100 0 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 98 98 98 0 0
June 2007........... 75 75 75 0 0
June 2008........... 50 50 50 0 0
June 2009........... 24 24 24 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 11.0 11.0 11.0 2.3 0.8

VK Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 75% 125% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 100 36
June 1999........... 100 100 100 100 0
June 2000........... 100 100 100 23 0
June 2001........... 100 100 100 0 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 100 0 0
June 2008........... 100 100 100 0 0
June 2009........... 100 100 100 0 0
June 2010........... 95 95 95 0 0
June 2011........... 60 60 60 0 0
June 2012........... 23 23 23 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 14.3 14.3 14.3 2.9 1.0

ZB Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 75% 125% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 107 107 107 107 107
June 1999........... 115 115 115 115 0
June 2000........... 123 123 123 123 0
June 2001........... 132 132 132 76 0
June 2002........... 142 142 142 38 0
June 2003........... 152 152 152 17 0
June 2004........... 164 164 164 5 0
June 2005........... 175 175 175 * 0
June 2006........... 188 188 188 0 0
June 2007........... 202 202 202 0 0
June 2008........... 217 217 217 0 0
June 2009........... 232 232 232 0 0
June 2010........... 249 249 249 0 0
June 2011........... 268 268 268 0 0
June 2012........... 287 287 287 0 0
June 2013........... 299 299 283 0 0
June 2014........... 299 299 247 0 0
June 2015........... 299 299 212 0 0
June 2016........... 299 299 179 0 0
June 2017........... 299 296 148 0 0
June 2018........... 299 244 119 0 0
June 2019........... 299 193 91 0 0
June 2020........... 299 142 65 0 0
June 2021........... 299 92 40 0 0
June 2022........... 299 42 18 0 0
June 2023........... 139 2 1 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 26.0 22.9 20.2 4.6 1.3

FG and SG Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 75% 125% 300% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
June 1998........... 100 100 100 44 0
June 1999........... 100 100 96 7 0
June 2000........... 100 100 92 0 0
June 2001........... 100 100 84 0 0
June 2002........... 100 100 73 0 0
June 2003........... 100 96 60 0 0
June 2004........... 100 75 44 0 0
June 2005........... 100 50 28 0 0
June 2006........... 88 22 10 0 0
June 2007........... 30 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
Weighted Average
Life (years)**..... 9.7 8.0 6.4 1.0 0.4

- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.

** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

<PAGE>

Characteristics of the R and RL Classes

The R and RL Classes will have no principal balances and will not bear
interest. The Holder of the R Class will be entitled to receive the proceeds of
the remaining assets of the Trust, if any, after the principal balances of all
Classes have been reduced to zero, and the Holder of the RL Class will be
entitled to receive the proceeds of the remaining assets of the Lower Tier
REMIC, if any, after the principal balances of the Lower Tier Regular Interests
have been reduced to zero. It is not anticipated that there will be any material
assets remaining in either such circumstance.

The R and RL Classes will be subject to certain transfer restrictions. No
transfer of record or beneficial ownership of an R or RL Certificate will be
allowed to a "disqualified organization." In addition, no transfer of record or
beneficial ownership of an R or RL Certificate will be allowed to any person
that is not a "U.S. Person" without the written consent of Fannie Mae. Under
regulations issued by the Treasury Department on December 23, 1992 (the
"Regulations"), a transfer of a "noneconomic residual interest" to a U.S. Person
will be disregarded for all federal tax purposes unless no significant purpose
of the transfer is to impede the assessment or collection of tax. The R and RL
Classes will constitute noneconomic residual interests under the Regulations.
Any transferee of an R or RL Certificate must execute and deliver an affidavit
and an Internal Revenue Service Form W-9 on which the transferee provides its
taxpayer identification number. See "Description of the Certificates--Additional
Characteristics of Residual Certificates" and "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Residual Certificates" in the
GNMA Prospectus. Transferors of an R or RL Certificate should consult with their
own tax advisors for further information regarding such transfers.

The Holder of the R Class will be considered to be the holder of the
"residual interest" in the REMIC constituted by the Trust, and the Holder of the
RL Class will be considered to be the holder of the "residual interest" in the
REMIC constituted by the Lower Tier REMIC. See "Certain Federal Income Tax
Consequences" in the GNMA Prospectus. Pursuant to the Trust Agreement, Fannie
Mae will be obligated to provide to such Holders (i) such information as is
necessary to enable them to prepare their federal income tax returns and (ii)
any reports regarding the R Class or RL Class that may be required under the
Code.

CERTAIN ADDITIONAL FEDERAL INCOME TAX CONSEQUENCES

The following tax discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the GNMA Prospectus or REMIC
Prospectus, as applicable, describes the current federal income tax treatment of
investors in the Certificates. These two tax discussions do not purport to deal
with all federal tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors in determining the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of the
Certificates.

REMIC Elections and Special Tax Attributes

Elections will be made to treat the Lower Tier REMIC and the Trust as
REMICs for federal income tax purposes. The REMIC Certificates, other than the R
and RL Classes, will be designated as the "regular interests," and the R Class
will be designated as the "residual interest," in the REMIC constituted by the
Trust. The Lower Tier Regular Interests will be designated as the "regular
interests" and the RL Class will be designated as the "residual interest" in the
Lower Tier REMIC.

<PAGE>

loan associations for tax years beginning after December 31, 1995. As a result,
section 593(d) of the Code is no longer applicable to treat the Certificates as
"qualifying real property loans." See "Certain Federal Income Tax
Consequences--Special Tax Attributes" in the GNMA Prospectus.

Taxation of Beneficial Owners of Regular Certificates

The Notional Classes, the Accrual Classes and the SG Class will be, and
certain other Classes of REMIC Certificates may be, issued with original issue
discount ("OID") for federal income tax purposes, which generally will result in
recognition of some taxable income in advance of the receipt of the cash
attributable to such income. The Prepayment Assumption that will be used in
determining the rate of accrual of original issue discount will be 160% PSA in
the case of the Group 1 Classes and 125% PSA in the case of the Group 2, Group 3
and Group 4 Classes. See "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Regular Certificates--Original Issue Discount" in the GNMA
Prospectus. No representation is made as to whether the Mortgage Loans
underlying the GNMA Certificates or the MBS will prepay at any of those rates or
any other rate. See "Description of the Certificates--Weighted Average Lives of
the Certificates" herein and "Description of the Certificates--Weighted Average
Life and Final Distribution Dates" in the GNMA Prospectus or REMIC Prospectus,
as applicable. In addition, certain Classes of REMIC Certificates may be treated
as having been issued at a premium for federal income tax purposes. See "Certain
Federal Income Tax Consequences--Taxation of Beneficial Owners of Regular
Certificates--Certificates Purchased at a Premium" in the GNMA Prospectus.

Taxation of Beneficial Owners of Residual Certificates

Under the Regulations, neither the R Class nor the RL Class will have
significant value. Special rules regarding the treatment of "excess inclusions"
by certain thrift institutions no longer apply because of the amendment of
section 593 of the Code by the Small Business Job Protection Act of 1996. See
"Certain Federal Income Tax Consequences--Taxation of Beneficial Owners of
Residual Certificates--Excess Inclusions" in the GNMA Prospectus.

For purposes of determining the portion of the taxable income of the Trust
(or the Lower Tier REMIC) that generally will not be treated as excess
inclusions, the rate to be used is 120% of the "federal long-term rate." The
rate will be published on or about May 20, 1997. See "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Residual Certificates--Excess
Inclusions" and "--Foreign Investors--Residual Certificates" in the GNMA
Prospectus. The federal income tax consequences of any consideration paid to a
transferee on the transfer of an R or RL Certificate are unclear; any transferee
receiving such consideration should consult its own tax advisors.

Fannie Mae intends to determine the accruals of OID on the Underlying REMIC
Certificates using the same Prepayment Assumption, as provided above, that will
be used to determine the accruals of OID on the related Regular Certificates.
The IRS, however, could take the position that the proper Prepayment Assumption
to be used with respect to the Underlying REMIC Certificates is the Prepayment
Assumption set forth in the related Underlying REMIC Disclosure Documents. See
"Certain Federal Income Tax Consequences--Taxation of Beneficial Owners of
Residual Certificates--Taxable Income or Net Loss of a REMIC Trust" in the GNMA
Prospectus.

Taxation of Beneficial Owners of RCR Certificates

General. The arrangement pursuant to which the RCR Classes will be created,
sold and administered will be classified as a grantor trust under subpart E,
Part I of subchapter J of the Code. The interest in the REMIC Certificates that
have been exchanged for RCR Certificates (including any exchanges effective on
the Settlement Date) will be assets of such trust and the RCR Certificates will
evidence an ownership interest in those REMIC Certificates. For a general
discussion of the federal income tax treatment of investors in REMIC
Certificates, see "Certain Federal Income Tax Consequences" in the REMIC
Prospectus.

<PAGE>

The RCR Classes will represent beneficial ownership of the Underlying
Regular Certificates set forth in Schedule 1. The RCR Certificates (the
"Combination of RCR Certificates") will represent beneficial ownership of
undivided interests in two or more underlying Regular Certificates.

Combination RCR Classes. A beneficial owner of a Combination RCR
Certificate will be treated as the beneficial owner of a proportionate interest
in the related Classes of REMIC Certificates. A purchaser of a Combination RCR
Certificate must allocate its purchase price among the related Classes of REMIC
Certificates in proportion to their relative fair market values at the time of
purchase. Such owner should account for its ownership interest in each related
Class of REMIC Certificates as described under "--Taxation of Beneficial Owners
of Regular Certificates" herein and "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Regular Certificates" in the
REMIC Prospectus. When a beneficial owner sells a Combination RCR Certificate,
such owner must allocate the sale proceeds among the related Classes of REMIC
Certificates in proportion to their relative fair market value at the time of
sale.

In addition to its ownership of a proportionate interest in the related
Classes of REMIC Certificates, a Beneficial Owner of a G Class RCR Certificate
will be treated as owning its share of Fannie Mae's obligation to purchase the G
Class RCR Certificates on the G Class Purchase Date. A purchaser of a G Class
RCR Certificate must allocate its purchase price among the related Classes of
REMIC Certificates and the Fannie Mae purchase obligation in proportion to their
relative fair market values. The treatment of the portion of the purchase price,
if any, allocated to the Fannie Mae purchase obligation is unclear. Investors
should consult their own tax advisors in determining the treatment of any
amounts so allocated.

Exchanges. An exchange, as described under "Description of the
Certificates--Combination and Recombination" herein, by a beneficial owner of
(i) a combination of REMIC Certificates or (ii) all or a portion of an RCR Class
for the related RCR Class or REMIC Certificates, respectively, will not be a
taxable exchange. Such owner will be treated as continuing to own after the
exchange the same combination of interests in the related REMIC Certificates
that it owned immediately prior to the exchange.

PLAN OF DISTRIBUTION

General. The Dealer will receive the applicable Certificates in exchange
for the GNMA Certificates and the Underlying REMIC Certificates pursuant to a
Fannie Mae commitment. The Dealer proposes to offer the applicable Certificates
directly to the public from time to time in negotiated transactions at varying
prices to be determined at the time of sale. The Dealer may effect such
transactions to or through dealers.

Increase in Certificates. Before the Settlement Date, Fannie Mae and the
Dealer may agree to offer hereby Group 1 Certificates in amounts greater than
the amounts reflected herein. In such event, the GNMA Certificates will be
increased in principal balance, but it is expected that all such additional GNMA
Certificates will have the same characteristics as described herein under
"Description of the Certificates--The GNMA Certificates." The proportion that
the original principal balance of each Group 1 Class bears to the aggregate
original principal balance of all Group 1 Classes will remain the same. In
addition, the dollar amounts reflected in the Principal Balance Schedules will
be increased in a pro rata amount that corresponds to the increase of the
principal balances of the Scheduled and TAC Classes.

LEGAL MATTERS

Certain legal matters will be passed upon for the Dealer by Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982.

<PAGE>

Exhibit A

Underlying REMIC Certificates

Original
Principal
or Notional
Underlying Date Final Principal
REMIC of CUSIP Interest Interest Distribution Principal Balance
Trust Class Issue Number Rate Type(1) Date Type(1) of Class
- ---------- ------ -------------- ---------- --------- -------- ------------- ---------- ------------
<S> <C>
1994-42.. S April 1994 31359HXT6 (2) INV/IO October 2020 NTL $113,986,562
1996-69.. FE December 1996 31359NGL9 (2) FLT March 2024 SC/PT 30,801,551
1996-69.. SE December 1996 31359NGN5 (2) INV/IO March 2024 NTL 8,519,577
1996-69.. PE December 1996 31359NGM7 (2) PO March 2024 SC/PT 8,596,754
1992-192.. FB November 1992 31358RLT8 (2) FLT November 2007 SUP 17,537,000
1992-192.. SB November 1992 31358RLU5 (2) INV November 2007 SUP 8,094,000
</TABLE>

Principal
Original or Notional
Principal Principal Approximate Approximate
or Notional June Balance in Approximate Weighted Weighted
Underlying Principal 1997 Lower Tier Weighted Average Average Underlying
REMIC Balance Class REMIC as of Average WAM CAGE Security Class
Trust of Class Factor Issue Date WAC (in months) (in months) Type Group
- ---------- ------------ ---------- -------------- ----------- ----------- ----------- ----------- -----
<S> <C>
1994-42.. $113,986,562 0.60804131 $69,308,537.99 7.481% 312 40 MBS 2
1996-69.. 30,801,551 1.00000000 30,801,551.00 7.070 311 41 MBS 3
1996-69.. 8,519,577 1.00000000 8,519,577.00 7.070 311 41 MBS 3
1996-69.. 8,596,754 1.00000000 8,519,577.00 7.070 311 41 MBS 3
1992-192.. 17,537,000 0.67009210 9,702,933.61 7.171 119 57 MBS 4
1992-192.. 8,094,000 0.67009210 4,478,277.10 7.171 119 57 MBS 4
</TABLE>

- ---------------
(1) See "Description of the Certificates--Class Definitions and Abbreviations"
in the GNMA Prospectus.

(2) These Classes bear interest during their respective interest accrual
periods, subject to the applicable maximum and minimum interest rates, as
further described in the related Underlying REMIC Disclosure Documents.

<PAGE>

Schedule 1

Available Recombinations

REMIC Certificates
- -------------------------------------------------------------

Original
Principal
or Notional
Principal Exchange RCR
Class Balance Ratios(1) Class
- ------------------------- ------------- ----------------- -------
Recombination 1
SJ $ 342,439,500 100% S
SK 342,439,500 100%
Recombination 2
AB 70,422,707 100% A
IB 6,602,128 100%
AC 77,940,023 100%
ZC 5,787,670 100%
Recombination 3
B 110,308,163 100% D
C 25,000,400 100%
Recombination 4
FA 38,544,000 100% E
SA 7,227,000 100%
Recombination 5
FE 20,592,223 100% VB
SE 20,592,223 100%
Recombination 6
FH 61,815,500 100%H
SH 61,815,500 100%
Recombination 7
Z 142,509,777 100%G (4)
ZA 7,491,000 100%

RCR CERTIFICATES
- --------------------------------------------------------------

Original
Principal Interest Interest
Class Balance Rate Type(2)
- ------------------------- ------------- --------- ---------
Recombination 1
SJ $ 342,439,500 (3) INV/IO
SK
Recombination 2
AB 154,150,400 7.50% FIX
IB
AC
ZC
Recombination 3
B 135,308,563 7.50% FIX
C
Recombination 4
FA 45,771,000 8.00% FIX
SA
Recombination 5
FE 20,592,223 8.00% FIX
SE
Recombination 6
FH 61,815,500 9.00% FIX
SH
Recombination 7
Z 142,509,777 6.70% FIX
ZA
- -------------------------

RCR CERTIFICATES
- --------------------------------------------------------------

Final
Principal CUSIP Distribution
Class Type(2) Number Date
- ------------------------- --------- --------- -----------------
Recombination 1
SJ NTL 31359P6T8 March 2019
SK
Recombination 2
AB TAC 31359P6U5 March 2019
IB
AC
ZC
Recombination 3
B TAC 31359P6V3 March 2019
C
Recombination 4
FA SUP 31359P6W1 June 2019
SA
Recombination 5
FE SEQ 31359P6X9 May 2004
SE
Recombination 6
FH SEQ 31359P6Y7 July 2012
SH
Recombination 7
Z SEQ 31359P6Z4 August 2002(5)
ZA
- ---------------
(1) Each exchange ratio represents the percentage relationship which the
original principal or notional principal balance of the Certificate of each
REMIC Class presented for exchange must bear to the original principal or
notional principal balance of the Certificate of the RCR Class received in
any such exchange. Correspondingly, in connection with any reverse exchange
of RCR Certificates for Certificates of each related REMIC Class, such
exchange ratio represents the percentage relationship which the original
principal or notional principal balance of the Certificate of each RCR Class
presented for exchange must bear to the original principal or notional
principal balance of the Certificate of the REMIC Class received in any such
exchange. See "Description of the Certificates--Combinations and
Recombinations" herein.

(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.

(3) For a description of these interest rates, see "Description of the
Certificates--Distributions of Interest" herein.

(4) Upon the issuance of the G Class RCR Certificates, no exchange thereof for
the related REMIC Classes will be permitted.

(5) The G Class RCR Certificates will be purchased in full by Fannie Mae on the
G Class Purchase Date, as described herein under "Description of the
Certificates--Purchase of the G Class RCR Certificates on the G Class
Purchase Date."

<PAGE>

No dealer, salesman or other person has been authorized to give any information
or to make any representations in connection with this offering other than those
contained in this Prospectus Supplement and the additional Disclosure Documents
and, if given or made, such information or representations must not be relied
upon as having been authorized. This Prospectus Supplement and the
aforementioned documents do not constitute an offer to sell or a solicitation of
an offer to buy any of the Certificates offered hereby in any state to any
person to whom it is unlawful to make such offer or solicitation in such state.
The delivery of this Prospectus Supplement and the aforementioned documents at
any time does not imply that the information contained herein or therein is
correct as of any time subsequent to the date hereof or thereof.

------------------------

TABLE OF CONTENTS

Page
----
Prospectus Supplement
Table of Contents....................... S- 3
Reference Sheet......................... S- 4
Additional Risk Factors................. S- 8
Description of the Certificates......... S- 9
Certain Additional Federal Income Tax
Consequences.......................... S-40
Plan of Distribution.................... S-42
Legal Matters........................... S-42
Exhibit A............................... A- 1
Schedule 1.............................. A- 2

GNMA Prospectus
Prospectus Supplement................... 2
Summary of Prospectus................... 3
Risk Factors............................ 8
Description of the Certificates......... 10
The Trust Agreement..................... 22
GNMA and the GNMA Programs.............. 24
Certain Federal Income Tax
Consequences.......................... 25
Legal Investment Considerations......... 37
Legal Opinion........................... 37
ERISA Considerations.................... 37
Glossary................................ 39

$1,112,702,338

[FANNIEMAE LOGO]

Guaranteed REMIC
Pass-Through Certificates
Fannie Mae REMIC Trust 1997-G5

------------------------
PROSPECTUS SUPPLEMENT
------------------------

Bear, Stearns & Co. Inc.

May 16, 1997

<PAGE>

Annex 2(b)

Prospectus Supplement
dated October 8, 1997
to
Prospectus dated June 14, 1996
relating to

FannieMae
Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1997-78

<PAGE>

PROSPECTUS SUPPLEMENT
(To Prospectus dated June 14, 1996)

$2,102,833,336

[FANNIEMAE LOGO]

Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1997-78

The Guaranteed REMIC Pass-Through Certificates offered hereby (the "REMIC
Certificates") will represent beneficial ownership interests in one of two trust
funds. The REMIC Certificates, other than the RL Class, will represent
beneficial ownership interests in Fannie Mae REMIC Trust 1997-78 (the "Trust").
The assets of the Trust will consist of the "regular interests" in a separate
trust fund (the "Lower Tier REMIC"). The assets of the Lower Tier REMIC will
consist of (i) two groups of Fannie Mae Guaranteed Mortgage Pass-Through
Certificates described herein (the "Group 1 MBS" and "Group 6 MBS" and,
together, the "Trust MBS"), (ii) certain previously issued REMIC certificates
(the "Underlying REMIC Certificates") evidencing beneficial ownership interests
in the related Fannie Mae REMIC Trusts (the "Underlying REMIC Trusts") as
further described in Exhibit A hereto and (iii) certain Fannie Mae Stripped
Mortgage-Backed Securities (the "Trust SMBS") as further described in Exhibit A.
The assets of the Underlying REMIC Trusts evidence beneficial ownership
interests in (i) certain Fannie Mae Guaranteed Mortgage Pass-Through
Certificates and (ii) certain "fully modified pass-through" mortgage backed
securities (the "GNMA Certificates") guaranteed as to timely payment of
principal and interest by the Government National Mortgage Association ("GNMA").
The Trust SMBS evidence beneficial ownership interests in certain principal and
interest distributions made in respect of certain Fannie Mae Guaranteed Mortgage
Pass-Through Certificates. The Fannie Mae Guaranteed Mortgage Pass-Through
Certificates are collectively referred to herein as the "MBS." Each MBS
represents a beneficial ownership interest in a pool (each, a "Pool") of first
lien, single-family, fixed-rate residential mortgage loans having the
characteristics described herein. Each GNMA Certificate is based on and backed
by a pool of mortgage loans (together with the pools and mortgage loans
underlying the MBS, the "Pools" and "Mortgage Loans," respectively) which are
either insured or guaranteed by the Federal Housing Administration ("FHA"), the
Department of Veterans Affairs ("VA") or the Rural Housing Service ("FmHA"). The
Certificates will be issued and guaranteed as to timely distribution of
principal and interest by Fannie Mae.

Investors should not purchase the Certificates before reading this Prospectus
Supplement and the additional Disclosure Documents listed at the bottom of page
S-2.

------------------------

See "Additional Risk Factors" on page S-10 hereof and "Risk Factors"
beginning on page 8 of the REMIC Prospectus attached hereto for a discussion of
certain risks that should be considered in connection with an investment in the
Certificates.

(Cover continued on next page)

------------------------

THE CERTIFICATES, TOGETHER WITH ANY INTEREST THEREON, ARE NOT GUARANTEED BY
THE UNITED STATES. THE OBLIGATIONS OF FANNIE MAE UNDER ITS GUARANTY OF THE
CERTIFICATES ARE OBLIGATIONS SOLELY OF FANNIE MAE AND DO NOT CONSTITUTE AN
OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF OTHER
THAN FANNIE MAE. THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES"
WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934.

===============================================================================================
Original Final
Class Principal Interest Interest CUSIP Distribution
Class(1) Group Balance Type(2) Rate Type(2) Number Date
- -----------------------------------------------------------------------------------------------
<S> <C>
PB ....... 1 $155,973,200 PAC 6.000 % FIX 31359RDB5 August 2014
PC ....... 1 70,011,500 PAC 6.250 FIX 31359RDC3 October 2017
PD ....... 1 42,180,000 PAC 6.500 FIX 31359RDD1 January 2021
PH ....... 1 54,193,100 PAC 6.250 FIX 31359RDE9 January 2021
PG ....... 1 35,521,000 PAC 6.000 FIX 31359RDF6 June 2023
PJ ....... 1 54,830,500 PAC 6.500 FIX 31359RDG4 June 2023
PE ....... 1 245,849,700 PAC 7.000 FIX 31359RDH2 December 2027
IA ....... 1 47,593,271 (3) NTL 7.000 FIX/IO 31359RDJ8 June 2023
FD ....... 1 55,345,666 TAC (4) FLT 31359RDK5 December 2027
SD ....... 1 27,672,834 TAC (4) INV 31359RDL3 December 2027
FC ....... 1 30,142,588 SUP (4) FLT 31359RDM1 December 2027
SC ....... 1 25,059,412 SUP (4) INV 31359RDN9 December 2027
FB ....... 1 30,000,000 SUP (4) FLT 31359RDP4 December 2027
SE ....... 1 2,500,000 SUP (4) INV 31359RDQ2 December 2027
FA ....... 1 129,304,711 TAC/AD (4) FLT 31359RDR0 December 2027
SA ....... 1 129,304,711 (3) NTL (4) INV/IO 31359RDS8 December 2027
SB ....... 1 16,163,089 TAC/AD (4) INV 31359RDT6 December 2027
Z ........ 1 25,252,700 SUP (5) FIX/Z 31359RDU3 December 2027
IO ....... 1 25,252,700 (3) NTL 8.000 FIX/IO 31359RDV1 February 1998
FH ....... 2 5,381,497 SC/PT (4) FLT 31359RDW9 October 2023
SH ....... 2 1,395,204 SC/PT (4) INV 31359RDX7 October 2023
A ........ 3 25,000,000 SC/PT 6.000 FIX 31359RDY5 June 2022
B ........ 4 32,300,000 SC/PT 6.500 FIX 31359RDZ2 July 2023
FJ ....... 5 22,007,022 SC/PT (4) FLT 31359REA6 September 2023
PL ....... 5 6,641,172 SC/PT (6) PO 31359REB4 September 2023
SL ....... 5 6,641,172 (3) NTL (4) INV/IO 31359REC2 September 2023
</TABLE>

==================================================================================================
Original Final
Class Principal Interest Interest CUSIP Distribution
Class(1) Group Balance Type(2) Rate Type(2) Number Date
- --------------------------------------------------------------------------------------------------
<S> <C>
PM........ 5 $ 1,823,068 SC/PT (6) PO 31359RED0 September 2023
SM........ 5 1,823,068 (3) NTL (4) INV/IO 31359REE8 September 2023
C ........ 6 75,000,000 SEQ 6.765 % FIX 31359REF5 March 2025
D ........ 6 119,228,400 SEQ 6.500 FIX 31359REG3 March 2025
E ........ 6 30,895,600 SEQ 9.500 FIX 31359REH1 March 2025
G ........ 6 74,876,000 SEQ 7.000 FIX 31359REJ7 December 2027
FG ....... 7 24,588,236 SC/PT (4) FLT 31359REK4 November 2023
SG ....... 7 24,588,236 (3) NTL (4) INV/IO 31359REL2 November 2023
PN ....... 8 112,660,700 PAC 6.000 FIX 31359REM0 December 2014
PQ ....... 8 43,800,400 PAC 6.250 FIX 31359REN8 October 2017
PR ....... 8 65,074,500 PAC 6.500 FIX 31359REP3 December 2020
PS ....... 8 61,333,200 PAC 6.500 FIX 31359REQ1 April 2023
PT ....... 8 165,608,300 PAC 7.000 FIX 31359RER9 October 2027
IB ....... 8 53,838,364 (3) NTL 7.000 FIX/IO 31359RES7 April 2020
IC ....... 8 40,046,200 (3) NTL 7.000 FIX/IO 31359RET5 October 2027
FR ....... 8 173,652,988 TAC/AD (4) FLT 31359REU2 October 2027
SR........ 8 173,652,988 (3) NTL (4) INV/IO 31359REV0 October 2027
SO ....... 8 21,706,624 TAC/AD (4) INV 31359REW8 October 2027
ID ....... 8 34,350,000 (3) NTL 8.000 FIX/IO 31359REX6 February 1998
ZA ....... 8 34,350,000 SUP (5) FIX/Z 31359REY4 October 2027
PO ....... 9 5,510,425 SC/PT (6) PO 31359REZ1 July 2023
SP ....... 9 5,510,425 (3) NTL (4) INV/IO 31359RFA5 July 2023
SQ ....... 9 5,510,425 (3) NTL (4) INV/IO 31359RFB3 July 2023
R ........ 0 NPR 0 NPR 31359RFC1 December 2027
RL ....... 0 NPR 0 NPR 31359RFD9 December 2027
================================================================================================
</TABLE>

(1) The SJ, SK, SN and ST Classes are RCR Classes. See "Description of the
Certificates -- Combination and Recombination herein and Schedule 1 hereto
for a description of the RCR Classes.

(3) These Classes will be Notional Classes, will not have principal balances and
will bear interest on their respective notional principal balances. The
notional principal balances of the Notional Classes initially will be as set
forth above and thereafter will be calculated as specified herein. See
"Description of the Certificates-- Distributions of Interest--Notional
Classes" herein.

(4) The FD, SD, FC, SC, FB, SE, FA, SA, SB, FH, SH, FJ, SL, SM, FG, SG, FR, SR
and SO Classes will bear interest based on "LIBOR" and the SP and SQ Classes
will bear interest based on "COFI," as described under "Description of the
Certificates--Distributions of Interest" herein and "Description of the
Certificates--Indices Applicable to Floating Rate and Inverse Floating Rate
Classes" in the REMIC Prospectus.

(5) No interest will accrue on the Z and ZA Classes prior to the Interest
Accrual Period in February 1998; thereafter, interest will accrue thereon at
a rate of 8.00% per annum.

(6) These Classes will be Principal Only Classes and will bear no interest.

------------------------

The Certificates will be offered by Bear, Stearns & Co. Inc. (the "Dealer")
from time to time in negotiated transactions, at varying prices to be determined
at the time of sale.

The Certificates will be offered by the Dealer, subject to issuance by Fannie
Mae, to prior sale or to withdrawal or modification of the offer without notice,
when, as and if delivered to and accepted by the Dealer, and subject to approval
of certain legal matters by counsel. It is expected that the Classes (except the
PL, SL, PM, SM, SP, SQ, R and RL Classes) will be available through the
book-entry system of the Federal Reserve Banks and that the PL, SL, PM, SM, SP
and SQ Classes and the RCR Certificates will be available through the book-entry
facilities of The Depository Trust Company on or about November 28, 1997 (the
"Settlement Date"). It is expected that the R and RL Classes in registered,
certificated form will be available for delivery at the offices of the Dealer,
245 Park Avenue, New York, New York 10167, on or about the Settlement Date.

------------------------

Bear, Stearns & Co. Inc.
October 8, 1997.

<PAGE>

(Cover continued from previous page)

Certain of the Classes of REMIC Certificates may, upon notice and payment of
an exchange fee, be exchanged for one or more Classes (each, an "RCR Class") of
Combinable and Recombinable REMIC Certificates ("RCR Certificates") as provided
herein. Each RCR Certificate issued in such an exchange will represent a
beneficial ownership interest in, and will entitle the Holder thereof to receive
a proportionate share of the distributions on, the related Classes of REMIC
Certificates. The characteristics of the RCR Classes are set forth in Schedule 1
hereto. As used herein, unless the context requires otherwise, the term
"Certificates" includes REMIC Certificates and RCR Certificates and the term
"Classes" includes the Classes of REMIC Certificates and the Classes of RCR
Certificates. See "Description of the Certificates--Combination and
Recombination" herein and Schedule 1 hereto.

The yields to investors in the Group 1 and Group 6 Classes will be sensitive
in varying degrees to, among other things, the rate of principal distributions
on the Group 1 MBS and Group 6 MBS, respectively, which in turn will be
determined by the rate of principal payments of the related Mortgage Loans and
the characteristics of such Mortgage Loans. The yields to investors in the Group
2, Group 3, Group 4, Group 5, Group 7, Group 8 and Group 9 Classes will be
sensitive in varying degrees to, among other things, the rate of principal
distributions of the related Underlying REMIC Certificates and the Trust SMBS,
as applicable, which in turn will be sensitive in varying degrees to the rate of
principal payments of the related Mortgage Loans, the characteristics of the
Mortgage Loans included in the related Pools and, if applicable, the priority
sequences affecting the Underlying REMIC Certificates. The yield to investors in
each Class will also be sensitive to the purchase price paid for such Class and,
in the case of any Floating Rate or Inverse Floating Rate Class, fluctuations in
the level of the applicable Index (as defined herein). Accordingly, investors
should consider the following risks:

o The Mortgage Loans generally may be prepaid at any time without
penalty, and, accordingly, the rate of principal payments thereon is
likely to vary considerably from time to time.

o Slight variations in Mortgage Loan characteristics could substantially
affect the weighted average lives and yields of some or all of the
Classes.

o In the case of any Certificates purchased at a discount to their
principal amounts (including any Principal Only Class), a slower than
anticipated rate of principal payments is likely to result in a lower
than anticipated yield.

o In the case of any Certificates purchased at a premium to their
principal amounts, a faster than anticipated rate of principal payments
is likely to result in a lower than anticipated yield.

o The yield on any Floating Rate or Inverse Floating Rate Class will be
sensitive to the level of the applicable Index. See "Description of the
Certificates--Distributions of Interest--Floating Rate and Inverse
Floating Rate Classes" herein.

See "Risk Factors--Yield Considerations" in the REMIC Prospectus and "Additional
Risk Factors--Additional Yield and Prepayment Considerations" and "Yield Tables"
herein.

In addition, investors should purchase Certificates only after considering
the following:

o The rate of principal distributions of the Certificates is uncertain
and investors may be unable to reinvest the distributions thereon at
yields equaling the yields on the Certificates. See "Risk
Factors--Suitability and Reinvestment Considerations" in the REMIC
Prospectus.

o Investors whose investment activities are subject to legal investment
laws and regulations or to review by regulatory authorities may be
subject to restrictions on investment in certain Classes of the
Certificates. Investors should consult their legal advisors to
determine whether and to what extent the Certificates constitute legal
investments or are subject to restrictions on investment. See "Legal
Investment Considerations" in the REMIC Prospectus.

o The Dealer intends to make a market for the Certificates but is not
obligated to do so. There can be no assurance that such a secondary
market will develop or, if developed, that it will continue. Thus,
investors may not be able to sell their certificates readily or at
prices that will enable them to realize their anticipated yield. No
investor should purchase Certificates unless such investor understands
and is able to bear the risk that the value of the Certificates will
fluctuate over time and that the Certificates may not be readily
salable.

These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus Supplement, the REMIC Prospectus, the
MBS Prospectus, the Prospectus Supplements for the Underlying REMIC Trusts
(collectively, the "Underlying REMIC Disclosure Documents"), the SMBS Prospectus
or the Mega Prospectus (each as defined below). Any representation to the
contrary is a criminal offense.

Elections will be made to treat the Lower Tier REMIC and the Trust as "real
estate mortgage investment conduits" ("REMICs") pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). The R and RL Classes will be subject to
transfer restrictions. See "Description of the Certificates--Characteristics of
the R and RL Classes" and "Certain Additional Federal Income Tax Consequences"
herein, and "Description of the Certificates--Additional Characteristics of
Residual Certificates" and "Certain Federal Income Tax Consequences" in the
REMIC Prospectus.

Investors should purchase the Certificates only if they have read and
understood this Prospectus Supplement and the following documents (collectively,
the "Disclosure Documents"):

o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through Certificates
dated June 14, 1996 (the "REMIC Prospectus"), which is attached to this
Prospectus Supplement;

o Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated August 1, 1997 (the "MBS Prospectus");

o Fannie Mae's Prospectus for Stripped Mortgage-Backed Securities dated
July 1, 1996 (the "SMBS Prospectus");

o Fannie Mae's Prospectus for Guaranteed MBS Pass-Through Securities
dated October 1, 1996 (the "Mega Prospectus");

o Fannie Mae's Information Statement dated March 31, 1997 and any
supplements thereto (collectively, the "Information Statement"); and

o The Underlying REMIC Disclosure Documents.

The MBS Prospectus, SMBS Prospectus, the Mega Prospectus and the Information
Statement are incorporated herein by reference and, together with the other
Disclosure Documents, may be obtained from Fannie Mae by writing or calling its
MBS Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S, Washington, D.C. 20016
(telephone 1-800-BEST-MBS or 202-752-6547). Such documents, other than the
Underlying REMIC Disclosure Documents, may also be obtained from Bear, Stearns &
Co. Inc. by writing or calling its Prospectus Department at One Metro Tech
Center North, Brooklyn, New York 11201 (telephone 718-272-1581).

<PAGE>

TABLE OF CONTENTS

Page
----
Reference Sheet........................ S- 4
Additional Risk Factors................ S-10
Additional Yield and Prepayment
Considerations..................... S-10
Description of the Certificates........ S-11
General.............................. S-11
Structure.......................... S-11
Fannie Mae Guaranty................ S-11
Characteristics of Certificates.... S-11
Authorized Denominations........... S-12
Distribution Dates................. S-12
Record Date........................ S-12
REMIC Trust Factors................ S-12
Optional Termination............... S-12
Voting the Underlying REMIC
Certificates and Trust SMBS..... S-12
Combination and Recombination........ S-12
General............................ S-12
Procedures......................... S-13
Additional Considerations.......... S-13
Book-Entry Procedures................ S-14
General............................ S-14
Method of Distribution............. S-14
The Trust MBS........................ S-15
The Underlying REMIC Certificates and
the Trust SMBS..................... S-15
Final Data Statement................. S-16
Distributions of Interest............ S-16
Categories of Classes.............. S-16
General............................ S-17
Interest Accrual Periods........... S-17
Accrual Classes.................... S-17
Notional Classes................... S-17
Floating Rate and Inverse Floating
Rate Classes.................... S-18
Calculation of LIBOR................. S-18
Calculation of COFI.................. S-18
Distributions of Principal........... S-19
Categories of Classes.............. S-19
Principal Distribution Amount...... S-20
Group 1 Principal Distribution
Amount.......................... S-20
Group 1 Accrual Amount.......... S-20
Group 1 Cash Flow Distribution
Amount........................ S-21
Group 2 Principal Distribution
Amount.......................... S-22
Group 3 Principal Distribution
Amount.......................... S-22
Group 4 Principal Distribution
Amount.......................... S-22
Group 5 Principal Distribution
Amount.......................... S-22
Group 6 Principal Distribution
Amount.......................... S-22
Group 7 Principal Distribution
Amount.......................... S-22
Group 8 Principal Distribution
Amount.......................... S-23
Group 8 Accrual Amount.......... S-23
Group 8 Cash Flow Distribution
Amount........................ S-23
Group 9 Principal Distribution
Amount.......................... S-23
Structuring Assumptions.............. S-23
Pricing Assumptions................ S-23
Prepayment Assumptions............. S-24
Structuring Range and Rate......... S-24
Initial Effective Ranges........... S-24
Yield Tables......................... S-25
General............................ S-25
The IA, IO, IB, IC and ID
Classes......................... S-25
The Inverse Floating Rate Classes
and the SJ, SK, SN and ST
Classes......................... S-26
The Principal Only Classes......... S-30
Weighted Average Lives of the
Certificates....................... S-31
Decrement Tables..................... S-32
Characteristics of the R and RL
Classes............................ S-37
Certain Additional Federal Income Tax
Consequences......................... S-37
REMIC Elections and Special Tax
Attributes......................... S-37
Taxation of Beneficial Owners of
Regular Certificates............... S-38
Taxation of Beneficial Owners of
Residual Certificates.............. S-38
Taxation of Beneficial Owners of RCR
Certificates....................... S-39
General............................ S-39
Combination RCR Classes............ S-39
Exchanges.......................... S-39
Plan of Distribution................... S-39
General............................ S-39
Increase in Certificates........... S-39
Legal Matters.......................... S-40
Exhibit A.............................. A-1
Schedule 1............................. A-2
Principal Balance Schedules............ B-1

<PAGE>

REFERENCE SHEET

This reference sheet is not a summary of the REMIC transaction and it does
not contain complete information about the Certificates. Investors should
purchase the Certificates only after reading this Prospectus Supplement and each
of the additional Disclosure Documents described herein in their entirety.

Assumed Characteristics of the Mortgage Loans Underlying the Trust MBS (as of
November 1, 1997)

Approximate
Original Weighted Average Approximate
Mortgage Approximate Term to Remaining Term Calculated Approximate
Loan Principal Maturity to Maturity Loan Age Weighted
Group Balance (in months) (in months) (in months) Average Coupon
- ------------ -------------- ----------- ---------------- ----------- --------------
<S> <C>
Group 1 MBS $1,000,000,000 360 355 4 7.700%
Group 6 MBS $ 300,000,000 360 342 15 7.700%
</TABLE>

The actual remaining terms to maturity, calculated loan ages and interest
rates of most of the related Mortgage Loans will differ from the weighted
averages shown above, perhaps significantly. See "Description of the
Certificates--Structuring Assumptions--Pricing Assumptions" herein.

Characteristics of the Underlying REMIC Certificates and the Trust SMBS

The table contained in Exhibit A hereto sets forth information with respect
to the Underlying REMIC Certificates and the Trust SMBS, including certain
information regarding the underlying Mortgage Loans. Certain additional
information as to the Underlying REMIC Certificates may be obtained by
performing an analysis of current Fannie Mae principal factors in the context of
applicable information contained in the related Underlying REMIC Disclosure
Documents, which may be obtained from Fannie Mae as described herein.

See "Description of the Certificates--The Underlying REMIC Certificates and
the Trust SMBS" herein.

Combination and Recombination

Holders of certain Classes of REMIC Certificates will be entitled, upon
notice and payment of an exchange fee, to exchange all or a portion of such
Classes for a proportionate interest in the related RCR Classes as reflected on
Schedule 1 hereto. The Holders of RCR Classes will be entitled to receive
distributions of principal and interest from the related Classes of REMIC
Certificates. See "Description of the Certificates--Combination and
Recombination" herein. Schedule 1 sets forth all of the available combinations
of the Classes of REMIC Certificates and the related RCR Classes.

Interest Rates

The Fixed Rate Classes will bear interest at the applicable per annum
interest rates set forth on the cover.

The Floating Rate and Inverse Floating Rate Classes will bear interest
during the initial Interest Accrual Period at initial interest rates specified
or determined as described below, and will bear interest during each Interest
Accrual Period thereafter, subject to the applicable maximum and minimum
interest rates, at rates determined as described below:

<PAGE>

Initial Maximum Minimum Formula for
Interest Interest Interest Calculation of
Class Rate Rate Rate Interest Rate
- ----------------- -------- ---------- ------- ----------------------------------
<S> <C>
FD .............. 6.05000% 9.00000% 0.40% LIBOR + 40 basis points
SD .............. 5.90000% 17.20000% 0.00% 17.2% - (2 X LIBOR)
FC .............. 6.65000% 8.50000% 1.00% LIBOR + 100 basis points
SC .............. 4.44000% 18.00000% 0.00% 18% - (2.4 X LIBOR)
FB .............. 6.45000% 9.00000% 0.80% LIBOR + 80 basis points
SE .............. 8.40000% 8.40000% 0.00% 98.4% - (12 X LIBOR)
FA .............. 6.05000% 9.00000% 0.40% LIBOR + 40 basis points
SA .............. 1.85000% 7.50000% 0.00% 7.5% - LIBOR
SB .............. 8.80000% 8.80000% 0.00% 68.8% - (8 X LIBOR)
FH .............. 6.62500% 8.50000% 1.00% LIBOR + 100 basis points
SH .............. 7.23213% 28.92855% 0.00% 28.92855% - (3.85714 X LIBOR)
FJ .............. 6.42500% 9.00000% 0.80% LIBOR + 80 basis points
SL .............. 6.21324% 24.85294% 0.00% 24.85294% - (3.31372549 X LIBOR)
SM............... 8.45000% 8.45000% 0.00% 98.98571% - (12.0714285 X LIBOR)
SJ .............. 6.21324% 24.85294% 0.00% 24.85294% - (3.31372549 X LIBOR)
SK .............. 8.45000% 8.45000% 0.00% 98.98571% - (12.0714285 X LIBOR)
SN .............. 6.69500% 21.32000% 0.00% 21.32% - (2.6 X LIBOR)
FG .............. 6.60625%(1) 8.50000% 0.95% LIBOR + 95 basis points
SG .............. 0.45000%(1) 0.45000% 0.00% 7.55% - LIBOR
FR .............. 6.05000% 9.00000% 0.40% LIBOR + 40 basis points
SR .............. 1.85000% 7.50000% 0.00% 7.5% - LIBOR
SO .............. 8.80000% 8.80000% 0.00% 68.8% - (8 X LIBOR)
SP .............. 4.80432% 16.33331% 0.00% 16.33331% - (2.33333 X COFI)
SQ .............. 4.19990% 4.19999% 0.00% 20.53330% - (2.33333 X COFI)
ST .............. 9.00431% 20.53330% 0.00% 20.53330% - (2.33333 X COFI)
</TABLE>
- ---------------
(1) The initial interest rates for these Classes are assumed rates. The actual
initial interest rates for these Classes will be calculated on the basis of
the applicable formulas for the calculation of such interest rates on the
Index Determination Date occurring on November 21, 1997.

See "Description of the Certificates--Distributions of Interest--Floating
Rate and Inverse Floating Rate Classes" herein.

<PAGE>

Notional Classes

The notional principal balances of the Notional Classes will be equal to
the indicated percentages of the outstanding balances specified below
immediately prior to the related Distribution Date:

Classes
-------
IA ................................ 14.2857142857% of PB Class
14.2857142857% of PG Class
10.7142857143% of PC Class
10.7142857143% of PH Class
7.1428571429% of PD Class
7.1428571429% of PJ Class
SA ................................ 100% of FA Class
IO(1).............................. 100% of Z Class
SL................................. 100% of PL Class
SM................................. 100% of PM Class
SG ................................ 100% of FG Class
IB and IC(2)....................... 28.5714285714% of PN Class
25.0000000000% of PQ Class
21.4285714286% of PR Class
21.4285714286% of PS Class
14.2857142857% of PT Class
SR ................................ 100% of FR Class
ID(1).............................. 100% of ZA Class
SP ................................ 100% of PO Class
SQ ................................ 100% of PO Class
ST ................................ 100% of PO Class

-------------------------
(1) Prior to the Interest Accrual Period in February 1998, the IO and ID
Classes will have notional principal balances calculated as specified
above. Thereafter, the notional principal balances of the IO and ID
Classes will be deemed to be zero and, accordingly, Holders of the IO
and ID Classes will no longer be entitled to any distributions of
interest.

(2) In the aggregate. On each Distribution Date, reductions in the
principal balances of the PN, PQ, PR, PS and PT Classes will be
applied, sequentially, to reduce the notional principal balances of the
IB and IC Classes, in that order, until the respective notional
principal balances thereof are reduced to zero.

See "Description of the Certificates--Distributions of Interest--Notional
Classes" and "--Yield Tables--The IA, IO, IB, IC and ID Classes" and "--The
Inverse Floating Rate Classes and the SJ, SK, SN and ST Classes" herein.

Distributions of Principal

The portion of the Principal Distribution Amount allocated to each Class of
Certificates will be determined as described herein under "Description of the
Certificates--Distributions of Principal-- Principal Distribution Amount."

Group 1 Principal Distribution Amount

Group 1 Accrual Amount

Commencing in March 1998, to the FA and SB Classes, in proportion to their
original principal balances, to zero, and then to the Z Class.

Group 1 Cash Flow Distribution Amount

1. To the PB and PC Classes, in that order, to their Planned Balances.

2. To the PD and PH Classes, in proportion to their original principal
balances, to their Planned Balances.

3. To the PG and PJ Classes, in proportion to their original principal
balances, to their Planned Balances.

<PAGE>

4. To the PE Class, to its Planned Balance.

5. (a) 50% of the remaining amount in the following order:

first, to the FD and SD Classes, in proportion to their original
principal balances, to their Targeted Balances,

second, to the FC, SC, FB and SE Classes, in proportion to their
original principal balances, to zero, and

third, to the FD and SD Classes, in proportion to their original
principal balances, to zero, and

(b) 50% of such remaining amount in the following order:

first, to the FA and SB Classes, in proportion to their original
principal balances, to their Targeted Balances,

second, to the Z Class, to zero, and

third, to the FA and SB Classes, in proportion to their original
principal balances, to zero.

6. To the PB and PC Classes, in that order, to zero.

7. To the PD and PH Classes, in proportion to their original principal
balances, to zero.

8. To the PG and PJ Classes, in proportion to their original principal
balances, to zero.

9. To the PE Class, to zero.

Group 2 Principal Distribution Amount

To the FH and SH Classes, in proportion to their original principal
balances, to zero.

Group 3 Principal Distribution Amount

To the A Class, to zero.

Group 4 Principal Distribution Amount

To the B Class, to zero.

Group 5 Principal Distribution Amount

To the FJ, PL and PM Classes, in proportion to their original principal
balances, to zero.

Group 6 Principal Distribution Amount

1. To the C, D and E Classes, in proportion to their original principal
balances, to zero.

2. To the G Class, to zero.

Group 7 Principal Distribution Amount

To the FG Class, to zero.

Group 8 Principal Distribution Amount

Group 8 Accrual Amount

Commencing in March 1998, to the FR and SO Classes, in proportion to their
original principal balances, to zero, and then to the ZA Class.

<PAGE>

Group 8 Cash Flow Distribution Amount

1. To the PN, PQ, PR, PS and PT Classes, in that order, to their Planned
Balances.

2. To the FR and SO Classes, in proportion to their original principal
balances, to their Targeted Balances.

3. To the ZA Class, to zero.

4. To the FR and SO Classes, in proportion to their original principal
balances, to zero.

5. To the PN, PQ, PR, PS and PT Classes, in that order, to zero.

Group 9 Principal Distribution Amount

To the PO Class, to zero.

Weighted Average Lives (years)*

PSA Prepayment Assumption
----------------------------------
Group 1 Classes 0% 100% 165% 250% 500%
- ------------------------------ ----- ------ ------ ------ ------
PB ........................... 8.0 2.5 2.5 2.5 2.2
PC ........................... 14.8 4.5 4.5 4.5 3.0
PD and PH..................... 17.8 6.0 6.0 6.0 3.6
PG and PJ..................... 20.4 7.9 7.9 7.9 4.3
PE ........................... 23.9 13.8 13.8 13.8 7.4
IA ........................... 13.2 4.5 4.5 4.5 3.0
FC, SC, FB and SE............. 29.1 23.9 15.5 2.8 1.1
Z ........................... 28.1 23.3 19.4 1.6 1.0
IO ........................... 0.2 0.2 0.2 0.2 0.2

PSA Prepayment Assumption
-----------------------------------------
0% 100% 160% 165% 250% 500%
------ ------ ------ ------ ------ ------
FD and SD..................... 27.0 11.3 3.0 3.0 3.0 1.7
FA, SA and SB................. 15.9 10.5 4.8 4.5 3.1 1.4

PSA Prepayment Assumption
----------------------------------
Group 2 Classes 0% 100% 165% 350% 500%
- ------------------------------------ ------ ------ ------ ------
FH and SH................... 25.7 23.4 20.8 1.3 0.6

PSA Prepayment Assumption
----------------------------------
Group 3 Class 0% 100% 165% 350% 500%
- ------------------------------------ ------ ------ ------ ------
FH and SH................... 17.2 6.9 6.9 6.4 4.4

PSA Prepayment Assumption
----------------------------------
Group 4 Class 0% 100% 165% 350% 500%
- ------------------------------------ ------ ------ ------ ------
B............................. 20.8 13.7 13.7 10.8 7.6

PSA Prepayment Assumption
----------------------------------
Group 5 Classes 0% 100% 165% 350% 500%
- ------------------------------------ ------ ------ ------ ------
FJ, PL, SL, PM, SM, SJ, SK and
SN.......................... 25.5 22.6 19.3 2.2 1.1

<PAGE>

PSA Prepayment Assumption
----------------------------------
Group 6 Classes 0% 100% 180% 350% 500%
- ------------------------------------ ------ ------ ------ ------
C, D and E.................... 18.9 7.1 4.5 2.5 1.8
G............................. 28.7 21.9 16.6 9.7 6.8

PSA Prepayment Assumption
----------------------------------
Group 7 Classes 0% 100% 250% 350% 500%
- ------------------------------------ ------ ------ ------ ------
FG and SG..................... 25.6 22.7 14.0 4.2 1.6

PSA Prepayment Assumption
----------------------------------
Group 8 Classes 0% 100% 165% 250% 500%
- ------------------------------------ ------ ------ ------ ------
PN ........................... 8.3 2.5 2.5 2.5 2.2
PQ ........................... 15.1 4.5 4.5 4.5 3.0
PR ........................... 17.9 6.0 6.0 6.0 3.6
PS ........................... 20.5 7.9 7.9 7.9 4.3
PT ........................... 23.9 13.8 13.8 13.8 7.4
IB ........................... 11.5 3.6 3.6 3.6 2.6
IC ........................... 22.4 11.3 11.3 11.3 6.1
ID ........................... 0.2 0.2 0.2 0.2 0.2
ZA ........................... 28.0 23.2 19.3 1.6 1.0

PSA Prepayment Assumption
-----------------------------------------
0% 100% 160% 165% 250% 500%
------ ------ ------ ------ ------ ------
FR, SR and SO................. 15.7 10.5 4.8 4.5 3.1 1.4

PSA Prepayment Assumption
----------------------------------
Group 9 Classes 0% 100% 175% 350% 500%
- ------------------------------------ ------ ------ ------ ------
PO, SP, SQ and ST............. 25.1 21.5 17.1 2.1 1.0

-----------------------
* Determined as specified under "Description of the Certificates--Weighted
Average Lives of the Certificates" herein.

<PAGE>

ADDITIONAL RISK FACTORS

Additional Yield and Prepayment Considerations

The rate of distributions of principal of the Group 1 and Group 6 Classes
will be sensitive in varying degrees to the rate of principal distributions on
the Group 1 MBS and Group 6 MBS, respectively, which in turn will reflect the
rate of amortization (including prepayments) of the related Mortgage Loans.
There can be no assurance that the Mortgage Loans underlying the Group 1 MBS or
Group 6 MBS will have the characteristics assumed herein. Because the rate of
principal distributions on the Group 1 and Group 6 Classes will be related to
the rate of amortization of the related Mortgage Loans, which are likely to
include Mortgage Loans with remaining terms to maturity shorter or longer than
those assumed and interest rates higher or lower than those assumed, the rate of
principal distributions on such Classes is likely to differ from the rate
anticipated by an investor, even if the related Mortgage Loans prepay at the
indicated constant percentages of PSA.

The rate of distributions of principal of the Group 2, Group 3, Group 4,
Group 5, Group 7, Group 8 and Group 9 Classes will be directly related to the
rate of distributions of principal of the related Underlying REMIC Certificates
and the Trust SMBS, as applicable, which in turn will be sensitive in varying
degrees to the rate of payments of principal (including prepayments) of the
related Mortgage Loans and, if applicable, the priority sequences affecting such
Underlying REMIC Certificates. As described in the related Underlying REMIC
Disclosure Documents, the Underlying REMIC Certificates are subordinate in
priority of principal distributions to certain other classes of certificates
evidencing beneficial ownership interests in the related Underlying REMIC Trusts
and, accordingly, distributions of principal of the related Mortgage Loans may
for extended periods be applied to the distribution of principal of those
classes of certificates having priority over such Underlying REMIC Certificates.
In particular, certain of the Underlying REMIC Certificates are Support classes
that are entitled to receive principal distributions on any Distribution Date
only if scheduled distributions have been made on other specified classes of
certificates evidencing beneficial ownership interests in the related Underlying
REMIC Trusts. Accordingly, such Underlying REMIC Certificates may receive no
principal distributions for extended periods of time or may receive principal
distributions that vary widely from period to period. In addition, certain of
the Underlying REMIC Certificates have Principal Balance Schedules and, as a
result, may receive principal distributions at a rate faster or slower than
would otherwise have been the case (and in some cases may receive no
distributions of principal for extended periods). Prepayments on the related
Mortgage Loans may have occurred at a rate faster or slower than that initially
assumed. This Prospectus Supplement contains no information as to whether such
classes have adhered to their Principal Balance Schedules, whether any related
Support classes remain outstanding or whether such classes otherwise have
performed as originally anticipated. Additional information as to the Underlying
REMIC Certificates may be obtained by performing an analysis of current Fannie
Mae principal factors in the context of applicable information contained in the
related Underlying REMIC Disclosure Documents, which may be obtained from Fannie
Mae as described herein.

It is highly unlikely that the Mortgage Loans underlying the Trust MBS,
Underlying REMIC Certificates or Trust SMBS, as applicable, will prepay at any
of the rates assumed herein, will prepay at a constant PSA rate until maturity
or that such Mortgage Loans will prepay at the same rate. Investors must make
their own decisions as to the appropriate assumptions, including prepayment
assumptions, to be used in deciding whether to purchase the Certificates.

The effective yields on the Delay Classes (as defined herein) will be
reduced below the yields otherwise produced because principal and interest
payable on a Distribution Date will not be distributed until the 18th or 25th
day, as applicable, following the end of the related Interest Accrual Period and
will not bear interest during such delay. As a result of the foregoing, the
market values of the Delay Classes will be lower than would have been the case
if there were no such delay. No interest at all will be paid on any Class after
its principal balance has been reduced to zero.

<PAGE>

DESCRIPTION OF THE CERTIFICATES

The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the remaining provisions of this Prospectus
Supplement, the additional Disclosure Documents and the provisions of the Trust
Agreement (defined below). Capitalized terms used and not otherwise defined in
this Prospectus Supplement have the meanings assigned to such terms in the
applicable Disclosure Document or the Trust Agreement (as the context may
require).

General

Structure. The Trust and the Lower Tier REMIC will be created pursuant to a
trust agreement dated as of November 1, 1997 (the "Trust Agreement"), executed
by the Federal National Mortgage Association ("Fannie Mae") in its corporate
capacity and in its capacity as trustee (the "Trustee"), and the Certificates in
the Classes and aggregate original principal balances set forth on the cover
hereof will be issued by Fannie Mae pursuant thereto. A description of Fannie
Mae and its business, together with certain financial statements and other
financial information, is contained in the Information Statement.

The Certificates (other than the R and RL Classes) will be designated as
the "regular interests," and the R Class will be designated as the "residual
interest," in the REMIC constituted by the Trust. The interests in the Lower
Tier REMIC other than the RL Class (the "Lower Tier Regular Interests") will be
designated as the "regular interests," and the RL Class will be designated as
the "residual interest," in the Lower Tier REMIC. The assets of the Lower Tier
REMIC will consist of the Trust MBS, Underlying REMIC Certificates (which
evidence beneficial ownership interests in the Underlying REMIC Trusts) and
Trust SMBS.

Fannie Mae Guaranty. Fannie Mae guarantees to each holder of an MBS the
timely payment of scheduled installments of principal of and interest on the
underlying Mortgage Loans, whether or not received, together with the full
principal balance of any foreclosed Mortgage Loan, whether or not such balance
is actually recovered. The guaranty obligations of Fannie Mae with respect to
the Underlying REMIC Certificates are described in the Underlying REMIC
Disclosure Documents. The guarantee obligations of Fannie Mae with respect to
the Trust SMBS are described in the SMBS Prospectus. In addition, Fannie Mae
will be obligated to distribute on a timely basis to the Holders of Certificates
required installments of principal and interest and to distribute the principal
balance of each Class of Certificates in full no later than the applicable Final
Distribution Date, whether or not sufficient funds are available in the Trust
Account. The guaranties of Fannie Mae are not backed by the full faith and
credit of the United States. See "Description of the Certificates--Fannie Mae's
Guaranty" in the REMIC Prospectus, "Description of Certificates--The
Corporation's Guaranty" in the MBS Prospectus, "Description of the
Certificates--General--Fannie Mae Guaranty" in the related Underlying REMIC
Disclosure Documents and "The SMBS Certificates--Fannie Mae Obligations" in the
SMBS Prospectus.

Characteristics of Certificates. The Classes of REMIC Certificates other
than the PL, SL, PM, SM, SP, SQ, R and the RL Classes (the "Fed Book-Entry
Certificates") will be issued and maintained and may be transferred by Holders
only on the book-entry system of the Federal Reserve Banks. Such entities whose
names appear on the book-entry records of a Federal Reserve Bank as the entities
for whose accounts such Certificates have been deposited are herein referred to
as "Holders" or "Certificateholders."

The PL, SL, PM, SM, SP and SQ Classes and the RCR Certificates will be
represented by one or more certificates (the "DTC Certificates") to be
registered at all times in the name of the nominee of the Depository (as defined
herein), which Depository will maintain such Certificates through its book-entry
facilities. When used herein with respect to any DTC Certificate, the terms
"Holders" and "Certificateholders" refer to the nominee of the Depository.

<PAGE>

securities clearing organizations. See "Description of the
Certificates--Denominations, Certificate Form" in the REMIC Prospectus.

Distribution Dates. Distributions on the Group 1, Group 6 and Group 8
Classes will be made on the 18th day of each month (or, if such 18th day is not
a business day, on the first business day next succeeding such 18th day), and
distributions on the Group 2, Group 3, Group 4, Group 5, Group 7 and Group 9
Classes will be made on the 25th day of each month (or, if the 25th day is not a
business day, on the first business day next succeeding such 25th day) (each, a
"Distribution Date"), commencing in the month following the Settlement Date.

Record Date. Each monthly distribution on the Certificates will be made to
Holders of record on the last day of the preceding month.

REMIC Trust Factors. As soon as practicable following the eleventh calendar
day of each month, Fannie Mae will publish or otherwise make available for each
Class of Certificates the factor (carried to eight decimal places) which, when
multiplied by the original principal balance of a Certificate of such Class,
will equal the remaining principal balance of such Certificate after giving
effect to the distribution of principal to be made on the following Distribution
Date and any interest to be added as principal to the principal balances of the
Accrual Classes on such Distribution Date.

Optional Termination. Consistent with its policy described under
"Description of Certificates-- Termination" in the MBS Prospectus, Fannie Mae
will agree not to effect indirectly an early termination of the Lower Tier REMIC
or the Trust through the exercise of its right to repurchase the Mortgage Loans
underlying any MBS unless only one Mortgage Loan remains in the related Pool or
the principal balance of such Pool at the time of repurchase is less than one
percent of the original principal balance thereof.

Voting the Underlying REMIC Certificates and Trust SMBS. In the event any
issue arises under the trust agreement governing any of the Underlying REMIC
Trusts or under the trust indenture governing the Trust SMBS that requires the
vote of holders of certificates outstanding thereunder, the Trustee will vote
the related Underlying REMIC Certificates or the Trust SMBS, as applicable, in
accordance with instructions received from Holders of Certificates of the
related Classes having principal balances aggregating not less than 51% of the
aggregate principal balance of all such Classes outstanding. In the absence of
such instructions, the Trustee will vote in a manner consistent, in its sole
judgment, with the best interests of Certificateholders.

Combination and Recombination

General. Subject to the rules, regulations and procedures of the
Depository, all or a portion of the PL, SL, PM, SM, SP and SQ Classes of REMIC
Certificates may be exchanged for a proportionate interest in one or more RCR
Classes as reflected on Schedule 1 hereto. Similarly, all or a portion of one or
more RCR Classes may be exchanged as reflected on Schedule 1, for certain
Classes of REMIC Certificates. This process may occur repeatedly.

<PAGE>

Each RCR Class issued in an exchange will represent a beneficial ownership
interest in, and will be entitled to receive a proportionate share of the
distributions on, the related Classes of REMIC Certificates, and the Holders of
an RCR Class will be treated as the beneficial owners of a proportionate
interest in the related Classes of REMIC Certificates.

The Classes of REMIC Certificates and RCR Certificates that are outstanding
at any given time, and the outstanding principal balances (or notional principal
balances) of such Classes, will depend upon distributions of principal of such
Classes as well as any exchanges that occur. The aggregate outstanding principal
balance of all the Classes of REMIC Certificates and RCR Classes (exclusive of
any notional principal balance) will at all times equal the aggregate
outstanding principal balance of the related Underlying REMIC Certificates.

Certificates to be exchanged must be delivered to Fannie Mae as provided in
Schedule 1, based on the original principal balances of the related Classes of
REMIC Certificates or RCR Certificates and will not change as a result of any
reductions (or increases) in the outstanding principal balances of the
Certificates.

Additional Considerations. The characteristics of an RCR Class will
reflect the characteristics of the Classes of REMIC Certificates used to form
such RCR Class.

At any given time, a Holder's ability to exchange REMIC Certificates for
RCR Certificates or to exchange RCR Certificates for REMIC Certificates will be
limited by a number of factors. A Holder must, at the time of the proposed
exchange, own the appropriate Classes in the appropriate proportions in order to
effect a desired exchange. A Holder that does not own the appropriate Classes or
the appropriate portions of such Classes may not be able to obtain the necessary
Class or Classes of REMIC Certificates or the RCR Class. The Holder of a needed
Class may refuse or be unable to sell at a reasonable price or any price, or
certain Classes may have been purchased and placed into other financial
structures. In addition, principal distributions will, over time, diminish the
amounts available for exchange. Only the combinations listed on Schedule 1 are
permitted.

<PAGE>

Book-Entry Procedures

General. The Fed Book-Entry Certificates will be issued and maintained only
on the book-entry system of the Federal Reserve Banks. Such Certificates may be
held of record only by entities eligible to maintain book-entry accounts with
the Federal Reserve Banks. Beneficial owners ordinarily will hold such
Certificates through one or more financial intermediaries, such as banks,
brokerage firms and securities clearing organizations. A Holder that is not the
beneficial owner of such a Certificate, and each other financial intermediary in
the chain to the beneficial owner, will have the responsibility of establishing
and maintaining accounts for their respective customers. The rights of the
beneficial owner of such a Certificate with respect to Fannie Mae and the
Federal Reserve Banks may be exercised only through the Holder of such
Certificate. Fannie Mae and the Federal Reserve Banks will have no direct
obligation to a beneficial owner of such a Certificate that is not also the
Holder of the Certificate. The Federal Reserve Banks will act only upon the
instructions of the Holder in recording transfers of such a Certificate. See
"Description of the Certificates--Denominations, Certificate Form" in the REMIC
Prospectus.

The DTC Certificates will be registered at all times in the name of the
nominee of The Depository Trust Company, a New York-chartered limited purpose
trust company, or any successor depository selected or approved by Fannie Mae
(the "Depository"). In accordance with its normal procedures, the Depository
will record the positions held by each Depository participating firm (each, a
"Depository Participant") in the DTC Certificates, whether held for its own
account or as a nominee for another person. State Street will act as Paying
Agent for, and perform certain administrative functions with respect to, the DTC
Certificates.

Method of Distribution. Fannie Mae's fiscal agent for the Fed Book-Entry
Certificates is the Federal Reserve Bank of New York. The Federal Reserve Banks
will make distributions on such Certificates on behalf of Fannie Mae on the
applicable Distribution Dates by crediting Holders' accounts at the Federal
Reserve Banks.

Each distribution on the DTC Certificates will be distributed by the Paying
Agent to the Depository in immediately available funds. The Depository will be
responsible for crediting the amount of such distributions to the accounts of
the Depository Participants entitled thereto, in accordance with the
Depository's normal procedures, which currently provide for distributions in
same-day funds settled through the New York Clearing House. Each Depository
Participant and each financial intermediary will be responsible for disbursing
such distributions to the beneficial owners of the DTC Certificates that it
represents. Accordingly, the beneficial owners may experience some delay in
their receipt of distributions.

<PAGE>

The Trust MBS

The Trust MBS included in each group specified below will have the
aggregate unpaid principal balance and Pass-Through Rate set forth below and the
general characteristics described in the MBS Prospectus. The Trust MBS will
provide that principal and interest on the related Mortgage Loans will be passed
through monthly, commencing in the month following the month of the initial
issuance of the Trust MBS. The Mortgage Loans underlying the Trust MBS will be
conventional Level Payment Mortgage Loans secured by first mortgages or deeds of
trust on one- to four-family ("single-family") residential properties and having
an original maturity of up to 30 years. See "The Mortgage Pools" and "Yield
Considerations" in the MBS Prospectus. The characteristics of the Group 1 and
Group 6 MBS and the related Mortgage Loans as of November 1, 1997 (the "Issue
Date") are expected to be as follows:

Group 1 MBS
Aggregate Unpaid Principal Balance............. $1,000,000,000
MBS Pass-Through Rate.......................... 7.00%

Related Mortgage Loans
Range of WACs (per annum percentages).......... 7.25% to 9.50%
Range of WAMs.................................. 241 months to 360 months
Approximate Weighted Average WAM............... 355 months
Approximate Weighted Average CAGE.............. 4 months

Group 6 MBS
Aggregate Unpaid Principal Balance............. $300,000,000
MBS Pass-Through Rate.......................... 7.00%

Related Mortgage Loans
Range of WACs (per annum percentages).......... 7.25% to 9.50%
Range of WAMs.................................. 241 months to 360 months
Approximate Weighted Average WAM............... 342 months
Approximate Weighted Average CAGE.............. 15 months

The Underlying REMIC Certificates and the Trust SMBS

The Underlying REMIC Certificates represent beneficial ownership interests
in the related Underlying REMIC Trusts, the assets of which evidence beneficial
ownership interests in certain MBS having the general characteristics set forth
in the MBS Prospectus or beneficial ownership interests in distributions made in
respect of certain GNMA Certificates. The Trust SMBS evidence beneficial
ownership interests in certain interest and principal distributions made with
respect of certain MBS. Each MBS evidences beneficial ownership interests in a
Pool of conventional Level Payment Mortgage Loans secured by first mortgages or
deeds of trust on one- to four-family residential properties, as described under
"The Mortgage Pools" and "Yield Considerations" in the MBS Prospectus. Each GNMA
Certificate is based on and backed by a pool of mortgage loans that are either
insured or guaranteed by the FHA, the VA or the FmHA. The Underlying REMIC
Certificates and the Trust SMBS provide that distributions thereon will be
passed through monthly, commencing in the month following the initial issuance
thereof. The general characteristics of the Underlying REMIC Certificates are
described in the related Underlying REMIC Disclosure Documents. The general
characteristics of the Trust SMBS are described in the SMBS Prospectus.

The table contained in Exhibit A hereto sets forth certain information with
respect to each of the Underlying REMIC Certificates and the Trust SMBS,
including the numerical designation of the related trust, the class designation,
the date of issue, the CUSIP number, the interest rate, the interest type, the
final distribution date, the principal type, the original notional principal
balance or principal balance of the entire class, the current principal factor
for such class and the notional principal balance or principal balance of such
class contained in the Lower Tier REMIC as of the Issue Date. The table also
sets forth the approximate weighted average WAC, approximate weighted average
WAM or WARM and approximate weighted average CAGE or WALA of the Mortgage Loans
underlying the related MBS or GNMA Certificates as of the Issue Date, the
underlying security type and the related Class group.

<PAGE>

To request further information regarding the Underlying REMIC Certificates
and the Trust SMBS, telephone Fannie Mae at 1-800-BEST-MBS or 202-752-6547.
Other data specific to the Certificates is available in electronic form by
calling Fannie Mae at 1-800-752-6440 or 202-752-6000. It should be noted that
there may have been material changes in facts and circumstances since the dates
the Underlying REMIC Disclosure Documents were prepared, including, but not
limited to, changes in prepayment speeds and prevailing interest rates and other
economic factors, which may limit the usefulness of the information set forth in
such documents.

Final Data Statement

Following the issuance of the Certificates, Fannie Mae will prepare a Final
Data Statement setting forth, among other information, the current principal
balances of the Underlying REMIC Certificates and the Trust SMBS as of the Issue
Date and with respect to the Trust MBS, the Pool number, the current WAC (or
original WAC, if the current WAC is not available) and the current WAM (or
Adjusted WAM, if the current WAM is not available) of the Mortgage Loans
underlying each Trust MBS, along with the weighted average of all the current or
original WACs and the weighted average of all the current or Adjusted WAMs,
based on the current unpaid principal balances of the Mortgage Loans underlying
the Trust MBS as of the Issue Date. The Final Data Statement will not accompany
this Prospectus Supplement but will be made available by Fannie Mae. To request
the Final Data Statement, telephone Fannie Mae at 1-800-BEST-MBS or
202-752-6547. The contents of the Final Data Statement and other data specific
to the Certificates are available in electronic form by calling Fannie Mae at
1-800-752-6440 or 202-752-6000.

Distributions of Interest

Categories of Classes

For the purpose of payments of interest, the Classes will be categorized as
follows:

Interest Type* Classes
- -------------- -------
Group 1 Classes
Fixed Rate PB, PC, PD, PH, PG, PJ, PE, IA, Z and IO
Accrual Z
Floating Rate FD, FC, FB and FA
Inverse Floating Rate SD, SC, SE, SA and SB
Interest Only IA, SA and IO

Group 2 Classes
Floating Rate FH
Inverse Floating Rate SH

Group 3 Class
Fixed Rate A

Group 4 Class
Fixed Rate B

Group 5 Classes
Floating Rate FJ
Inverse Floating Rate SL and SM
Interest Only SL and SM
Principal Only PL and PM
RCR** SJ, SK and SN

Group 6 Classes
Fixed Rate C, D, E and G

Group 7 Classes
Floating Rate FG
Inverse Floating Rate SG
Interest Only SG

<PAGE>

Interest Type* Classes
- --------------- -------
Group 8 Classes
Fixed Rate PN, PQ, PR, PS, PT, IB, IC, ID and ZA
Accrual ZA
Floating Rate FR
Inverse Floating Rate SR and SO
Interest Only IB, IC, SR and ID

Group 9 Classes
Inverse Floating Rate SP and SQ
Interest Only SP and SQ
Principal Only PO
RCR** ST

No Payment Residual R and RL

- ---------------
* See "Description of the Certificates--Class Definitions and
Abbreviations" in the REMIC Prospectus.

** See "Description of the Certificates--Combination and Recombination"
herein and Schedule 1 for a further description of the RCR Classes.

General. The interest-bearing Certificates will bear interest at the
applicable per annum interest rates set forth on the cover or described herein.
Interest on the interest-bearing Certificates is calculated on the basis of a
360-day year consisting of twelve 30-day months and is distributable monthly on
each Distribution Date, commencing (except with respect to the Accrual Classes)
in the month after the Settlement Date. Interest to be distributed or, in the
case of the Accrual Classes, added to principal on each interest-bearing
Certificate on a Distribution Date will consist of one month's interest on the
outstanding principal balance of such Certificate immediately prior to such
Distribution Date.

On any Distribution Date when distributions of interest are to be allocated
from REMIC Certificates to RCR Certificates, such distributions will be
allocated on a pro rata basis from the applicable Class or Classes of REMIC
Certificates to the related RCR Class.

Classes Interest Accrual Periods
- ------------------------------ ----------------------------------------
All Floating Rate and Inverse One month period ending on the day
Floating Rate Classes (other preceding the Distribution Date
than the FH, SH, SP, SQ and
ST Classes) and the SJ, SK
and SN Classes

All Fixed Rate Classes and the Calendar month preceding the month in
FH, SH, SP, SQ and ST which the Distribution Date occurs
Classes (collectively, the
"Delay Classes")

See "Additional Risk Factors--Additional Yield and Prepayment Considerations"
herein.

Solely for purposes of facilitating the trading of the Principal Only
Classes, the PL, PM and PO Classes will be treated as Delay Classes.

Accrual Classes. The Z and ZA Classes are Accrual Classes. The Accrual
Classes will bear no interest prior to the Interest Accrual Period in February
1998. Commencing in February 1998, interest will accrue on the Accrual Classes
at the per annum rate set forth on the cover hereof; however, such interest will
not be distributed thereon for so long as such Classes remain outstanding.
Interest so accrued and unpaid on the Accrual Classes will be added as principal
to the respective principal balances thereof on each Distribution Date.
Distributions of principal of the Accrual Classes will be made as described
herein.

Notional Classes. The IA, SA, IO, SL, SM, SG, IB, IC, SR, ID, SP, SQ and ST
Classes will be Notional Classes. The Notional Classes will not have principal
balances and will bear interest at the applicable per annum interest rates set
forth on the cover or as described herein during each Interest Accrual Period on
their respective notional principal balances. The notional principal balances of
the Notional Classes will be calculated as specified herein under "Reference
Sheet--Notional Classes."

<PAGE>

The notional principal balance of a Notional Class is used for purposes of
the determination of interest distributions thereon and does not represent an
interest in any distributions of principal. Although a Notional Class will not
have a principal balance, a REMIC Trust Factor (as described herein) will be
published with respect to such Class that will be applicable to the notional
principal balance thereof, and references herein to the principal balances of
the Certificates generally shall be deemed to refer also to the notional
principal balances of the Notional Classes.

Floating Rate and Inverse Floating Rate Classes. The Floating Rate and
Inverse Floating Rate Classes will bear interest during each Interest Accrual
Period, subject to applicable maximum and minimum interest rates, at rates
determined as described herein under "Reference Sheet--Interest Rates."

The yields with respect to such Classes will be affected by changes in the
index specified (each, an "Index"), which changes may not correlate with changes
in mortgage interest rates. It is possible that lower mortgage interest rates
could occur concurrently with an increase in the level of the applicable Index.
Conversely, higher mortgage interest rates could occur concurrently with a
decrease in the level of the applicable Index.

Calculation of LIBOR

On each Index Determination Date, until the principal balances and notional
principal balances of the Floating Rate and Inverse Floating Rate Classes (other
than the SP, SQ and ST Classes) and the SJ, SK and SN Classes have been reduced
to zero, Fannie Mae will establish LIBOR for the related Interest Accrual Period
in the manner described in the REMIC Prospectus under "Description of the
Certificates--Indices Applicable to Floating Rate and Inverse Floating Rate
Classes--LIBOR."

If on the initial Index Determination Date, Fannie Mae is unable to
determine LIBOR in the manner specified in the REMIC Prospectus, LIBOR for the
next succeeding Interest Accrual Period will be equal to 5.65% in the case of
the FD, SD, FC, SC, FB, SE, FA, SA, SB, FR, SR and SO Classes and 5.625% in the
case of the FH, SH, FJ, SL, SJ, SM, SK and SN Classes, and will be equal to
LIBOR as determined for such Interest Accrual Period for the related Underlying
REMIC Certificates in the case of the FG and SG Classes.

Calculation of COFI

Except as otherwise specified below, the amount of interest which will
accrue in respect of the SP, SQ and ST Classes (the "COFI Classes") during each
Interest Accrual Period following its initial Interest Accrual Period will be
determined on the basis of the Eleventh District Cost of Funds Index for the
second month next preceding the month in which such Interest Accrual Period
commences if such Eleventh District Cost of Funds Index for such second
preceding month is published on or before the tenth day of the month in which
such Interest Accrual Period commences. For example, if the Eleventh District
Cost of Funds Index for May is announced on or before July 10, interest accrued
on the COFI Classes for the Interest Accrual Period commencing in July and
distributable in August will be based on the Eleventh District Cost of Funds
relating to May. If the Eleventh District Cost of Funds Index for the applicable
month is not published on or before the tenth day of the second following month,
interest will accrue on the COFI Classes at a rate determined as provided in the
REMIC Prospectus under "Description of the Certificates--Indices Applicable to
Floating Rate and Inverse Floating Rate Classes--COFI." Under certain
circumstances, an alternative index may be applicable to the COFI Classes. A
change of index from the Eleventh District Cost of Funds Index to an alternative
index will result in a change in the index level, and, particularly if LIBOR is
the alternative index, could increase the degree of index volatility.

<PAGE>

For information regarding historical values of the Eleventh District Cost
of Funds Index as reported by the Federal Home Loan Bank of San Francisco
("FHLBSF"), see "Description of the Certificates--Indices Applicable to Floating
Rate and Inverse Floating Rate Classes--COFI" in the REMIC Prospectus.

The values of the Eleventh District Cost of Funds Index as reported by the
FHLBSF for the period from May 1996 through September 1997 were as follows:

May 1996................................................... 4.823%
June 1996.................................................. 4.809%
July 1996.................................................. 4.819%
August 1996................................................ 4.839%
September 1996............................................. 4.834%
October 1996............................................... 4.839%
November 1996.............................................. 4.835%
December 1996.............................................. 4.842%
January 1997............................................... 4.821%
February 1997.............................................. 4.759%
March 1997................................................. 4.780%
April 1997................................................. 4.822%
May 1997................................................... 4.864%
June 1997.................................................. 4.853%
July 1997.................................................. 4.887%
August 1997................................................ 4.904%
September 1997............................................. 4.941%

Distributions of Principal

Categories of Classes

For the purpose of payments of principal, the Classes will be categorized
as follows:

Principal Type* Classes
- -------------------------------- ------------------------------
Group 1 Classes
PAC(1) PB, PC, PD, PH, PG, PJ and PE
TAC(1) FD, SD, FA and SB
Support FC, SC, FB, SE and Z
Notional IA, SA and IO
Accretion Directed FA and SB

Group 2 Classes
Structured FH and SH
Collateral/Pass-Through

Group 3 Class
Structured A
Collateral/Pass-Through

Group 4 Class
Structured B
Collateral/Pass-Through

Group 5 Classes
Structured FJ, PL and PM
Collateral/Pass-Through
Notional SL and SM
RCR** SJ, SK and SN

Group 6 Classes
Sequential Pay C, D, E and G

Group 7 Classes
Structured FG
Collateral/Pass-Through
Notional SG

<PAGE>

Principal Type* Classes
- -------------------------------- ------------------------------
Group 8 Classes
PAC(1) PN, PQ, PR, PS and PT
TAC(1) FR and SO
Support ZA
Notional IB, IC, SR and ID
Accretion Directed FR and SO

Group 9 Classes
Structured PO
Collateral/Pass-Through
Notional SP and SQ
RCR** ST

No Payment Residual R and RL

--------------------
* See "Description of the Certificates--Class Definitions and
Abbreviations" in the REMIC Prospectus.

** See "Description of the Certificates--Combination and Recombination"
herein and Schedule 1 for a further description of the RCR Classes.

(1) The Principal Balance Schedules are set forth herein beginning on page
B-1.

Principal Distribution Amount

Principal will be distributed monthly on the Certificates in an amount (the
"Principal Distribution Amount") equal to the sum of (i) the aggregate
distributions of principal to be made on the Group 1 MBS in the month of such
Distribution Date (the "Group 1 Cash Flow Distribution Amount") and any interest
accrued and added on such Distribution Date to the principal balance of the Z
Class (the "Group 1 Accrual Amount", and together with the Group 1 Cash Flow
Distribution Amount, the "Group 1 Principal Distribution Amount"), (ii) the
distribution of principal concurrently made on the Class 1993-G34-G REMIC
Certificate (the "Group 2 Principal Distribution Amount"), (iii) the aggregate
distributions of principal concurrently made on the Class 1993-198-F and Class
1993-198-S REMIC Certificates (the "Group 3 Principal Distribution Amount"),
(iv) the aggregate distributions of principal concurrently made on the Class
1993-121-FB and Class 1993-121-SC REMIC Certificates (the "Group 4 Principal
Distribution Amount"), (v) the aggregate distributions of principal concurrently
made on the Class 1993-178-FA and Class 1993-178-SA REMIC Certificates (the
"Group 5 Principal Distribution Amount"), (vi) the aggregate distributions of
principal to be made on the Group 6 MBS in the month of such Distribution Date
(the "Group 6 Principal Distribution Amount"), (vii) the distribution of
principal concurrently made on the Class 1993-210-FD REMIC Certificate (the
"Group 7 Principal Distribution Amount"), (viii) the aggregate distributions of
principal concurrently made on the Trust SMBS (the "Group 8 Cash Flow
Distribution Amount") and any interest accrued and added on such Distribution
Date to the principal balance of the ZA Class (the "Group 8 Accrual Amount", and
together with the Group 8 Cash Flow Distribution Amount, the "Group 8 Principal
Distribution Amount") and (ix) the distribution of principal concurrently made
on the Class 1993-103-SB REMIC Certificate (the "Group 9 Principal Distribution
Amount").

Group 1 Principal Distribution Amount

Group 1 Accrual Amount

Accretion Directed Classes and Accrual Class

Commencing in March 1998, on each Distribution Date, the Group 1 Accrual
Amount will be distributed, concurrently, as principal of the FA and SB Classes,
in proportion to their original principal balances (or 88.8888888125% and
11.1111111875%, respectively), without regard to their Targeted Balances and
until the principal balances thereof are reduced to zero, and then to the Z
Class.

<PAGE>

Group 1 Cash Flow Distribution Amount

On each Distribution Date, the Group 1 Cash Flow Distribution Amount will
be distributed as principal of the Group 1 Classes in the following order of
priority:

PAC Classes

(i) sequentially, to the PB and PC Classes, in that order, until the
principal balances thereof are reduced to their respective Planned Balances
for such Distribution Date;

(ii) concurrently, to the PD and PH Classes, in proportion to their
original principal balances (or 43.7673998242% and 56.2326001758%,
respectively), until the principal balances thereof are reduced to their
respective Planned Balances for such Distribution Date;

(iii) concurrently, to the PG and PJ Classes, in proportion to their
original principal balances (or 39.3142338533% and 60.6857661467%,
respectively), until the principal balances thereof are reduced to their
respective Planned Balances for such Distribution Date;

(iv) to the PE Class, until the principal balance thereof is reduced
to its Planned Balance for such Distribution Date;

(v) (a) 50% of the remaining amount in the following order of
priority:

TAC Classes
first, concurrently, to the FD and SD Classes, in proportion to
their original principal balances (or 66.6666658636% and 33.3333341364%,
respectively), until the principal balances thereof are reduced to their
respective Targeted Balances for such Distribution Date;

Support Classes

second, concurrently, to the FC, SC, FB and SE Classes, in
proportion to their original principal balances (or 34.3693279515%,
28.5733643474%, 34.2067455702% and 2.8505621309%, respectively), until
the principal balances thereof are reduced to zero; and

TAC Classes
third, concurrently, to the FD and SD Classes, in proportion to
their original principal balances, without regard to their Targeted
Balances and until the principal balances thereof are reduced to zero,
and

(b) 50% of such remaining amount in the following order of priority:

TAC Classes

first, concurrently, to the FA and SB Classes, in proportion to
their original principal balances (or 88.8888888125% and 11.1111111875%,
respectively), until the principal balances thereof are reduced to their
respective Targeted Balances for such Distribution Date;

Support Classes

second, to the Z Class, until the principal balance thereof is
reduced to zero; and

TAC Classes

third, concurrently, to the FA and SB Classes, in proportion to
their original principal balances, without regard to their Targeted
Balances and until the principal balances thereof are reduced to zero;

<PAGE>

PAC Classes

(vi) sequentially, to the PB and PC Classes, in that order, without
regard to their Planned Balances and until the respective principal
balances thereof are reduced to zero;

(vii) concurrently, to the PD and PH Classes, in proportion to their
original principal balances, without regard to their Planned Balances and
until the principal balances thereof are reduced to zero;

(viii) concurrently, to the PG and PJ Classes, in proportion to their
original principal balances, without regard to their Planned Balances and
until the principal balances thereof are reduced to zero; and

(ix) to the PE Class, without regard to its Planned Balance and until
the principal balance thereof is reduced to zero.

Group 2 Principal Distribution Amount

Structured Collateral/ Pass-Through Class

On each Distribution Date, the Group 2 Principal Distribution Amount will
be distributed, concurrently, as principal of the FH and SH Classes, in
proportion to their original principal balances (or 79.4117521195 and
20.5882478805%, respectively), until the principal balances thereof are reduced
to zero.

Group 3 Principal Distribution Amount

Structured Collateral/ Pass-Through Class

On each Distribution Date, the Group 3 Principal Distribution Amount will
be distributed as principal of the A Class, until the principal balance thereof
is reduced to zero.

Group 4 Principal Distribution Amount

Structured Collateral/ Pass-Through Class

On each Distribution Date, the Group 4 Principal Distribution Amount will
be distributed as principal of the B Class, until the principal balance thereof
is reduced to zero.

Group 5 Principal Distribution Amount

Structured Collateral/ Pass-Through Classes

On each Distribution Date, the Group 5 Principal Distribution Amount will
be distributed, concurrently, as principal of the FJ, PL and PM Classes, in
proportion to their original principal balances (or 72.2222203990%,
21.7948701961% and 5.9829094049%, respectively), until the principal balances
thereof are reduced to zero.

Group 6 Principal Distribution Amount

On each Distribution Date, the Group 6 Principal Distribution Amount will
be distributed as principal of the Group 6 Classes in the following order of
priority:

Sequential Pay Classes

(i) concurrently, to the C, D and E Classes, in proportion to their
original principal balances (or 33.3149730815%, 52.9612124873% and
13.7238144312%, respectively), until the principal balances thereof are
reduced to zero; and

(ii) to the G Class, until the principal balance thereof is reduced to
zero.

Group 7 Principal Distribution Amount

Structured Collateral/ Pass-Through Class

On each Distribution Date, the Group 7 Principal Distribution Amount will
be distributed as principal of the FG Class, until the principal balance thereof
is reduced to zero.

<PAGE>

Group 8 Principal Distribution Amount

Group 8 Accrual Amount

Accretion Directed Classes and Accrual Class

Commencing in March 1998, on each Distribution Date, the Group 8 Accrual
Amount will be distributed, concurrently, as principal of the FR and SO Classes,
in proportion to their original principal balances (or 88.8888886614% and
11.1111113386%, respectively), without regard to their Targeted Balances and
until the principal balances thereof are reduced to zero, and then to the ZA
Class.

Group 8 Cash Flow Distribution Amount

On each Distribution Date, the Group 8 Cash Flow Distribution Amount will
be distributed as principal of the Group 8 Classes in the following order of
priority:

PAC Classes

(i) sequentially, to the PN, PQ, PR, PS and PT Classes, in that order,
until the principal balances thereof are reduced to their respective
Planned Balances for such Distribution Date;

TAC Classes

(ii) concurrently, to the FR and SO Classes, in proportion to their
original principal balances (or 88.8888886614% and 11.1111113386%,
respectively), until the principal balances thereof are reduced to their
respective Targeted Balances for such Distribution Date;

Support Class

(iii) to the ZA Class, until the principal balance thereof is reduced
to zero;

TAC Classes

(iv) concurrently, to the FR and SO Classes, in proportion to their
original principal balances, without regard to their Targeted Balances and
until the principal balances thereof are reduced to zero; and

PAC Classes

(v) sequentially, to the PN, PQ, PR, PS and PT Classes, in that order,
without regard to their Planned Balances and until the respective principal
balances thereof are reduced to zero.

Group 9 Principal Distribution Amount

Structured Collateral/ Pass-Through Class

On each Distribution Date, the Group 9 Principal Distribution Amount will
be distributed as principal of the PO Class, until the principal balance thereof
is reduced to zero.

Structuring Assumptions

Pricing Assumptions. Unless otherwise specified, the information in the
tables in this Prospectus Supplement has been prepared on the basis of the
actual characteristics of each Pool underlying the Underlying REMIC Certificates
and the Trust SMBS, the priority sequences affecting the principal distributions
of the Underlying REMIC Certificates and the following assumptions (such
characteristics and assumptions, collectively, the "Pricing Assumptions"):

o the Mortgage Loans underlying the Group 1 MBS and Group 6 MBS have the
original terms to maturity, remaining terms to maturity, CAGEs and
interest rates as specified herein under "Reference Sheet--Assumed
Characteristics of the Mortgage Loans Underlying the Trust MBS;

o all payments (including prepayments) on the Mortgage Loans underlying
the GNMA Certificates, are distributed on the Certificates in the
month in which such payments are received;

o the Mortgage Loans prepay at the constant percentages of PSA specified
in the related table; and

<PAGE>

o the closing date for the sale of the Certificates is November 28,
1997.

Prepayment Assumptions. Prepayments of mortgage loans commonly are measured
relative to a prepayment standard or model. The model used herein is the Public
Securities Association's standard prepayment model ("PSA"). To assume a
specified rate of PSA is to assume a specified rate of prepayment each month of
the then outstanding principal balance of a pool of new mortgage loans computed
as described under "Description of the Certificates--Prepayment Models" in the
REMIC Prospectus. It is highly unlikely that prepayments will occur at any
constant PSA rate or at any other constant rate.

Structuring Range and Rate. The Principal Balance Schedules have been
prepared on the basis of the Pricing Assumptions and the assumption that the
related Mortgage Loans prepay at a constant PSA rate within the Structuring
Range or at the applicable rate set forth below.

Principal Balance
Schedule References Related Classes Structuring Range and Rate
- ------------------- --------------------------- ---------------------------
Planned Balances PB, PC, PD, PH, PG, PJ, PE, Between 100% and 250%
PN, PQ, PR, PS and PT
Targeted Balances FD and SD 160%
Targeted Balances FA, SB, FR and SO (1)

-------------------------
(1) The Targeted Balances relating to the specified Classes have not been
structured to hold at any constant percentage of PSA.

There is no assurance that the balance of any Class listed above will
conform on any Distribution Date to the applicable balance specified for such
Distribution Date in the Principal Balance Schedules herein, or that
distributions of principal of such Class will begin or end on the respective
Distribution Dates specified therein. Because any excess of the principal
distribution on any Distribution Date over the amount necessary to reduce any
such Class to its scheduled balance will be distributed or allocated, the
ability to so reduce such Class will not be enhanced by the averaging of high
and low principal payments from month to month. In addition, even if prepayments
occur on the related Mortgage Loans at rates falling within the Structuring
Range specified above, principal distributions may be insufficient to reduce the
applicable Classes to their scheduled balances if such prepayments do not occur
at a constant PSA rate. Moreover, because of the diverse remaining terms to
maturity of the related Mortgage Loans (which may include recently originated
Mortgage Loans), the Classes specified above may not be reduced to their
scheduled balances, even if prepayments occur at a constant rate within the
Structuring Range or at the applicable rate specified above.

Initial Effective Ranges. The Effective Range for a Class is the range of
prepayment rates (measured by constant PSA rates) that would reduce such Class
to its scheduled balance on each Distribution Date. The Initial Effective Ranges
set forth in the table below are based upon the assumed characteristics of the
related Mortgage Loans specified in the Pricing Assumptions.

Initial Effective
Related Classes Ranges
- --------------- ---------------------
PB Between 100% and 333%
PC Between 100% and 289%
PD Between 100% and 258%
PH Between 100% and 258%
PG Between 100% and 250%
PJ Between 100% and 250%
PE Between 100% and 250%
PN Between 100% and 327%
PQ Between 100% and 288%
PR Between 100% and 258%
PS Between 100% and 250%
PT Between 100% and 250%

The actual Effective Ranges at any time will be based upon the actual
characteristics of the related Mortgage Loans at such time, which are likely to
vary (and may vary considerably) from the Pricing Assumptions. The actual

<PAGE>

Effective Ranges calculated on the basis of the actual characteristics likely
will differ from the Initial Effective Ranges. As a result, the applicable
Classes might not be reduced to their scheduled balances even if prepayments
were to occur at a constant PSA rate within the Initial Effective Ranges
(particularly if such rate were at the lower or higher end of such ranges). In
addition, even if prepayments occur at rates falling within the actual Effective
Ranges, principal distributions may be insufficient to reduce the applicable
Classes to their scheduled balances if such prepayments do not occur at a
constant PSA rate. It is highly unlikely that the related Mortgage Loans will
prepay at any constant PSA rate. In general, the actual Effective Ranges may
narrow, widen or shift upward or downward to reflect actual prepayment
experience over time. The stability in principal payment of the PAC Classes will
be supported in part by the related TAC and Support Classes. When the related
TAC and Support Classes are retired, any outstanding PAC Classes may no longer
have Effective Ranges and will be more sensitive to prepayments.

Yield Tables

General. The tables below indicate the sensitivity of the pre-tax corporate
bond equivalent yields to maturity of applicable Classes to various constant
percentages of PSA and, where specified, to changes in the applicable Index. The
yields set forth in the tables were calculated by determining the monthly
discount rates that, when applied to the assumed streams of cash flows to be
paid on the applicable Classes, would cause the discounted present value of such
assumed streams of cash flows to equal the assumed aggregate purchase prices of
such Classes and converting such monthly rates to corporate bond equivalent
rates. Such calculations do not take into account variations that may occur in
the interest rates at which investors may be able to reinvest funds received by
them as distributions on the Certificates and consequently do not purport to
reflect the return on any investment in the Certificates when such reinvestment
rates are considered. There can be no assurance that the pre-tax yields on the
Certificates will correspond to any of the pre-tax yields shown herein or that
the aggregate purchase prices of the Certificates will be as assumed. In
addition, there can be no assurance that the applicable Index will correspond to
the levels shown herein. Furthermore, because some of the Mortgage Loans will
likely have remaining terms to maturity shorter or longer than those assumed and
interest rates higher or lower than those assumed, the principal distributions
on the Certificates are likely to differ from those assumed, even if all
Mortgage Loans prepay at the indicated constant percentages of PSA. Moreover, it
is not likely that the Mortgage Loans will prepay at a constant PSA rate until
maturity, that all of such Mortgage Loans will prepay at the same rate or that
the level of the applicable Index will remain constant.

The IA, IO, IB, IC and ID Classes. The yields to investors in the IA, IO,
IB, IC and ID Classes will be very sensitive to the rate of principal payments
(including prepayments) of the related Mortgage Loans. The Mortgage Loans
generally can be prepaid at any time. On the basis of the assumptions described
below, the yield to maturity on the IA, IB and IC Classes would be 0% if
prepayments of the related Mortgage Loans were to occur at constant rates of
approximately 413% PSA, 426% PSA and 466% PSA, respectively. If the actual
prepayment rates of the related Mortgage Loans were to exceed the applicable
levels for as little as one month while equaling such levels for the remaining
months, the investors in the IA, IB and IC Classes, as applicable, would not
fully recoup their initial investments.

<PAGE>

The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase prices
of the IA, IO, IB, IC and ID Classes (expressed in each case as a percentage of
the original principal balance) are as follows:

Class Price*
---------------------------------------------------------------- ---------
IA ............................................................. 23.53125%
IO ............................................................. 1.37500%
IB ............................................................. 19.81250%
IC ............................................................. 45.37500%
ID.............................................................. 1.37500%

- ---------------
* The prices do not include accrued interest. Accrued interest has been
added to such prices in calculating the yields set forth in the tables
below.

Sensitivity of the IA Class to Prepayments

PSA Prepayment Assumption
----------------------------------------------
50% 100% 165% 250% 500%
----- ----- ----- ----- ------
Pre-Tax Yields to Maturity..... 17.5% 10.5% 10.5% 10.5% (7.6)%

Sensitivity of the IO Class to Prepayments

PSA Prepayment Assumption
-----------------------------------------
50% 100% 165% 250% 500%
----- ---- ---- ---- ----
Pre-Tax Yields to Maturity......... 9.3% 9.3% 9.3% 9.3% 9.3%

Sensitivity of the IB Class to Prepayments

PSA Prepayment Assumption

----------------------------------------------
50% 100% 165% 250% 500%
----- ----- ----- ----- ------
Pre-Tax Yields to Maturity...... 18.9% 10.5% 10.5% 10.5% (6.8)%

Sensitivity of the IC Class to Prepayments

PSA Prepayment Assumption
----------------------------------------------
50% 100% 165% 250% 500%
----- ----- ----- ----- ------
Pre-Tax Yields to Maturity..... 12.7% 10.0% 10.0% 10.0% (1.8)%

Sensitivity of the ID Class to Prepayments

PSA Prepayment Assumption
----------------------------------------
50% 100% 165% 250% 500%
---- ---- ---- ---- ----
Pre-Tax Yields to Maturity............ 9.3% 9.3% 9.3% 9.3% 9.3%

The Inverse Floating Rate Classes and the SJ, SK, SN and ST Classes. The
yields to investors in the Inverse Floating Rate Classes and the SJ, SK, SN and
ST Classes will be sensitive in varying degrees to the rate of principal
payments (including prepayments) of the related Mortgage Loans and to the level
of the applicable Index. The Mortgage Loans generally can be prepaid at any
time. In addition, the rate of principal payments (including prepayments) of the
Mortgage Loans is likely to vary, and may vary considerably, from Pool to Pool.
As indicated in the tables below, it is possible that, under certain Index and
prepayment scenarios, investors in the SA, SL, SM, SG, SR, SP, SQ and ST Classes
would not fully recoup their initial investments.

Changes in the applicable Index may not correlate with changes in
prevailing mortgage interest rates. It is possible that lower prevailing
mortgage interest rates, which might be expected to result in faster
prepayments, could occur concurrently with an increased level of such Index.

<PAGE>

The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumptions that (i) the interest rates
applicable to the Inverse Floating Rate Classes and the SJ, SK, SN and ST
Classes for the initial Interest Accrual Period are the actual and assumed rates
appearing in the table under "Reference Sheet--Interest Rates" herein and for
each Interest Accrual Period subsequent to the initial Interest Accrual Period
will be based on the indicated level of the Index and (ii) the aggregate
purchase prices of such Classes (expressed in each case as a percentage of
original principal balance) are as follows:

Class Price*
-------------------------------------------------------------- ----------
SD ........................................................... 90.84375%
SC ........................................................... 75.00000%
SE ........................................................... 92.75000%
SA ........................................................... 4.06250%
SB ........................................................... 99.00000%
SH ........................................................... 76.25000%
SL ........................................................... 16.00000%
SM............................................................ 16.00000%
SG ........................................................... 2.78125%
SR ........................................................... 4.00000%
SO............................................................ 100.00000%
SP............................................................ 23.50000%
SQ............................................................ 24.00000%
SJ ........................................................... 72.00000%
SK ........................................................... 88.50000%
SN ........................................................... 88.50000%
ST............................................................ 23.75000%

- ---------------
* The prices do not include accrued interest. Accrued interest has been
added to such prices in calculating the yields set forth in the tables
below.

Sensitivity of the SD Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
- -------------------- ----- ----- ----- ----- ----- -----
3.65%............... 11.3% 11.8% 14.3% 14.3% 14.3% 16.6%
5.65%............... 6.9% 7.3% 9.8% 9.8% 9.9% 12.3%
7.65%............... 2.5% 2.9% 5.5% 5.5% 5.5% 8.0%
8.60%............... 0.5% 0.9% 3.4% 3.4% 3.4% 6.0%

Sensitivity of the SC Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
---------------------------------------------
LIBOR 50% 100% 165% 250% 500%
- ---------------------------- ----- ----- ----- ----- -----
3.65%....................... 12.8% 12.8% 13.8% 22.9% 41.8%
5.65%....................... 6.5% 6.6% 7.5% 16.7% 35.5%
7.50% and above............. 1.1% 1.2% 2.0% 11.0% 29.8%

<PAGE>

Sensitivity of the SE Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
------------------------------------------
LIBOR 50% 100% 165% 250% 500%
- ------------------------------- ---- ---- ---- ----- -----
7.50% and below................ 9.3% 9.3% 9.6% 11.8% 16.4%
7.85%.......................... 4.7% 4.8% 5.0% 7.3% 12.0%
8.20%.......................... 0.3% 0.3% 0.5% 2.9% 7.6%

Sensitivity of the SA Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-----------------------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
- -------------------------- ------ ----- ----- ----- -------
3.65%...............107.7% 101.9% 90.7% 89.6% 82.4% 36.5%
5.65%............... 46.6% 42.5% 29.8% 28.4% 18.5% (38.7)%
7.50% and above..... * * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SB Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
- --------------------------- ---- ---- ---- ---- ---- ----
7.50% and below............ 9.1% 9.1% 9.3% 9.3% 9.4% 9.7%
8.05%...................... 4.6% 4.6% 4.8% 4.8% 4.9% 5.4%
8.60%...................... 0.1% 0.1% 0.3% 0.3% 0.5% 1.0%

Sensitivity of the SH Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
---------------------------------------------
LIBOR 50% 100% 165% 350% 500%
- ----------------------------- ----- ----- ----- ----- -----
3.625%....................... 20.2% 20.2% 20.3% 41.0% 72.4%
5.625%....................... 9.9% 10.0% 10.1% 31.4% 62.6%
7.500%....................... 1.1% 1.2% 1.3% 22.7% 53.6%

Sensitivity of the SL Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------
LIBOR 50% 100% 165% 350% 500%
- --------------------------- ----- ----- ----- ------- -------
3.625%..................... 91.8% 91.8% 91.8% 58.7% (29.2)%
5.625%..................... 42.1% 42.1% 42.1% (11.7)% (97.7)%
7.500%..................... * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

<PAGE>

Sensitivity of the SM Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------
LIBOR 50% 100% 165% 350% 500%
- ---------------------------- ----- ----- ----- ------- -------
7.50% and below............. 59.0% 59.0% 59.0% 14.4% (72.9)%
7.85%....................... 28.4% 28.4% 28.3% (36.1)% *
8.20%....................... * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SG Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-----------------------------------------------
LIBOR 50% 100% 250% 350% 500%
- ---------------------------- ----- ----- ----- ------- -----
3.65625%.................... 16.3% 16.2% 13.8% (13.6)% *
5.65625%.................... 16.3% 16.2% 13.8% (13.6)% *
7.55000%.................... * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SR Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-----------------------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
- ----------------- ------ ------ ----- ----- ----- -------
3.65%............ 110.5% 104.3% 92.7% 91.6% 84.0% 35.8%
5.65%............ 47.9% 43.6% 30.7% 29.3% 19.2% (40.0)%
7.50% and above.. * * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SO Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
- -------------------------- ---- ---- ---- ---- ---- ----
7.50% and below........... 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
8.05%..................... 4.5% 4.5% 4.5% 4.5% 4.5% 4.6%
8.60%..................... 0.0% 0.0% 0.1% 0.1% 0.2% 0.3%

Sensitivity of the SP Class to Prepayments and COFI
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
----------------------------------------------------
COFI 50% 100% 175% 350% 500%
- ------------------------ ------- ------- ------- ------- ----
2.941%.................. 42.5% 42.5% 42.4% (13.9)% *
4.941%.................. 20.8% 20.7% 20.0% (53.2)% *
6.941%.................. (13.4)% (14.5)% (18.4)% * *
7.000% and above........ * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

<PAGE>

Sensitivity of the SQ Class to Prepayments and COFI
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
----------------------------------------------
COFI 50% 100% 175% 350% 500%
- ---------------------------- ----- ----- ----- ------- ----
7.0% and below.............. 17.5% 17.4% 16.5% (60.3)% *
7.9%........................ 7.0% 6.7% 4.9% (85.6)% *
8.8%........................ * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

Sensitivity of the SJ Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
---------------------------------------------
LIBOR 50% 100% 165% 350% 500%
- --------------------------- ----- ----- ----- ----- -----
3.625%..................... 18.5% 18.5% 18.7% 32.1% 51.0%
5.625%..................... 9.3% 9.3% 9.6% 23.5% 42.2%
7.500% and above........... 1.4% 1.5% 1.7% 15.7% 34.3%

Sensitivity of the SK Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------
LIBOR 50% 100% 165% 350% 500%
- ------------------------------ ---- ---- ----- ----- -----
7.50% and below............... 9.9% 9.9% 10.0% 15.0% 21.5%
7.85%......................... 5.1% 5.2% 5.3% 10.4% 17.0%
8.20%......................... 0.5% 0.6% 0.7% 5.9% 12.6%

Sensitivity of the SN Class to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
---------------------------------------------
LIBOR 50% 100% 165% 350% 500%
- ---------------------------- ----- ----- ----- ----- -----
3.625%...................... 13.8% 13.9% 13.9% 18.7% 25.1%
5.625%...................... 7.9% 7.9% 8.0% 13.0% 19.5%
7.625%...................... 2.1% 2.2% 2.3% 7.4% 14.0%
8.200%...................... 0.5% 0.6% 0.7% 5.8% 12.4%

Sensitivity of the ST Class to Prepayments and COFI
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
-------------------------------------------------
COFI 50% 100% 175% 350% 500%
- -------------------------- ----- ----- ----- ------- -------
2.941%.................... 62.2% 62.2% 62.2% 15.4% (76.4)%
4.941%.................... 39.9% 39.9% 39.8% (18.1)% *
6.941%.................... 18.4% 18.3% 17.5% (58.3)% *
8.800%.................... * * * * *

- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.

The Principal Only Classes. The Principal Only Classes will not bear
interest. As indicated in the tables below, a low rate of principal payments
(including prepayments) on the related Mortgage Loans will have a negative
effect on the yields to investors in the Principal Only Classes.

<PAGE>

The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase prices
of the Principal Only Classes (expressed in each case as a percentage of
original principal balance) are as follows:

Class Price
-------------------------------------------------------------------- ------
PL.................................................................. 56.0%
PM.................................................................. 72.5%
PO.................................................................. 50.0%

Sensitivity of the Principal Only Classes to Prepayments
(Pre-Tax Yields to Maturity)

PSA Prepayment Assumption
------------------------------------------
Class 50% 100% 165% 350% 500%
- -------------------------------- ---- ---- ---- ----- -----
PL ............................. 2.5% 2.6% 3.0% 28.2% 63.3%
PM.............................. 1.4% 1.4% 1.7% 15.1% 32.8%

PSA Prepayment Assumption
------------------------------------------
Class 50% 100% 175% 350% 500%
- -------------------------------- ---- ---- ---- ----- -----
PO ............................. 3.0% 3.3% 4.2% 36.0% 84.4%

Weighted Average Lives of the Certificates

<PAGE>

Decrement Tables

The following tables indicate the percentages of original principal
balances of the specified Classes that would be outstanding after each of the
dates shown at various constant PSA rates and the corresponding weighted average
lives of such Classes. The tables have been prepared on the basis of the Pricing
Assumptions, except that with respect to the information set forth for each such
Class under 0% PSA it has been assumed that the underlying Mortgage Loans have
the original and remaining terms to maturity and bear interest at the per annum
rates specified below:

Original Remaining
Mortgage Loans Relating to Terms Terms Interest Related
Trust Assets Specified Below to Maturity to Maturity Rates Groups
- ----------------------------- ----------- ----------- -------- -------
<S> <C>
Group 1 MBS 360 months 360 months 9.5% Group 1
1993-G34 360 months 311 months 8.0% Group 2
1993-198 360 months 311 months 9.0% Group 3
1993-121 360 months 308 months 9.5% Group 4
1993-178 360 months 310 months 9.5% Group 5
Group 6 MBS 360 months 360 months 9.5% Group 6
1993-210 360 months 312 months 9.0% Group 7
Trust SMBS 360 months 359 months 9.5% Group 8
1993-103 360 months 308 months 9.5% Group 9
</TABLE>

It is not likely that (i) all of the underlying Mortgage Loans will have
the interest rates, CAGEs or WALAs or remaining terms to maturity assumed or
(ii) the underlying Mortgage Loans will prepay at a constant PSA level. In
addition, the diverse remaining terms to maturity of the Mortgage Loans could
produce slower or faster principal distributions than indicated in the tables at
the specified constant PSA rates, even if the distributions of the weighted
average remaining terms to maturity and the weighted average CAGEs or WALAs of
the Mortgage Loans are identical to the distributions of the remaining terms to
maturity and CAGEs or WALAs specified in the Pricing Assumptions.

Percent of Original Principal Balances Outstanding

PB Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 96 91 91 91 91
November 1999....... 92 75 75 75 75
November 2000....... 87 33 33 33 0
November 2001....... 82 0 0 0 0
November 2002....... 76 0 0 0 0
November 2003....... 70 0 0 0 0
November 2004....... 63 0 0 0 0
November 2005....... 55 0 0 0 0
November 2006....... 46 0 0 0 0
November 2007....... 37 0 0 0 0
November 2008....... 27 0 0 0 0
November 2009....... 16 0 0 0 0
November 2010....... 4 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 8.0 2.5 2.5 2.5 2.2

PC Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 55
November 2001....... 100 88 88 88 0
November 2002....... 100 6 6 6 0
November 2003....... 100 0 0 0 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 78 0 0 0 0
November 2012....... 45 0 0 0 0
November 2013....... 8 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 14.8 4.5 4.5 4.5 3.0

PD and PH Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 0
November 2002....... 100 100 100 100 0
November 2003....... 100 48 48 48 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 77 0 0 0 0
November 2015....... 45 0 0 0 0
November 2016....... 10 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 17.8 6.0 6.0 6.0 3.6

- ---------------
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

<PAGE>

PJ and PG Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 88
November 2002....... 100 100 100 100 0
November 2003....... 100 100 100 100 0
November 2004....... 100 95 95 95 0
November 2005....... 100 42 42 42 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 100 0 0 0 0
November 2015....... 100 0 0 0 0
November 2016....... 100 0 0 0 0
November 2017....... 69 0 0 0 0
November 2018....... 24 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.4 7.9 7.9 7.9 4.3

PE Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 92
November 2003....... 100 100 100 100 63
November 2004....... 100 100 100 100 44
November 2005....... 100 100 100 100 30
November 2006....... 100 97 97 97 21
November 2007....... 100 81 81 81 14
November 2008....... 100 67 67 67 10
November 2009....... 100 56 56 56 7
November 2010....... 100 46 46 46 4
November 2011....... 100 38 38 38 3
November 2012....... 100 31 31 31 2
November 2013....... 100 25 25 25 1
November 2014....... 100 21 21 21 1
November 2015....... 100 17 17 17 1
November 2016....... 100 13 13 13 *
November 2017....... 100 11 11 11 *
November 2018....... 100 8 8 8 *
November 2019....... 90 7 7 7 *
November 2020....... 70 5 5 5 *
November 2021....... 48 4 4 4 *
November 2022....... 24 3 3 3 *
November 2023....... 2 2 2 2 *
November 2024....... 1 1 1 1 *
November 2025....... 1 1 1 1 *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.9 13.8 13.8 13.8 7.4

IA+ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 98 96 96 96 96
November 1999....... 96 88 88 88 88
November 2000....... 94 69 69 69 46
November 2001....... 91 51 51 51 17
November 2002....... 89 38 38 38 0
November 2003....... 86 28 28 28 0
November 2004....... 82 18 18 18 0
November 2005....... 79 8 8 8 0
November 2006....... 75 0 0 0 0
November 2007....... 71 0 0 0 0
November 2008....... 66 0 0 0 0
November 2009....... 61 0 0 0 0
November 2010....... 55 0 0 0 0
November 2011....... 50 0 0 0 0
November 2012....... 44 0 0 0 0
November 2013....... 39 0 0 0 0
November 2014....... 33 0 0 0 0
November 2015....... 27 0 0 0 0
November 2016....... 21 0 0 0 0
November 2017....... 13 0 0 0 0
November 2018....... 5 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 13.2 4.5 4.5 4.5 3.0

FC, SC, FB and SE Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 98 88 58
November 1999....... 100 100 95 65 0
November 2000....... 100 100 91 41 0
November 2001....... 100 100 88 23 0
November 2002....... 100 100 85 11 0
November 2003....... 100 100 84 4 0
November 2004....... 100 100 83 * 0
November 2005....... 100 100 82 0 0
November 2006....... 100 100 81 0 0
November 2007....... 100 100 79 0 0
November 2008....... 100 100 75 0 0
November 2009....... 100 100 70 0 0
November 2010....... 100 100 66 0 0
November 2011....... 100 100 60 0 0
November 2012....... 100 100 55 0 0
November 2013....... 100 100 50 0 0
November 2014....... 100 100 45 0 0
November 2015....... 100 100 40 0 0
November 2016....... 100 97 35 0 0
November 2017....... 100 87 30 0 0
November 2018....... 100 77 26 0 0
November 2019....... 100 67 22 0 0
November 2020....... 100 57 18 0 0
November 2021....... 100 48 15 0 0
November 2022....... 100 39 12 0 0
November 2023....... 100 30 9 0 0
November 2024....... 100 21 6 0 0
November 2025....... 100 13 3 0 0
November 2026....... 54 5 1 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 29.1 23.9 15.5 2.8 1.1

Z Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 106 106 106 106 47
November 1999....... 115 115 115 12 0
November 2000....... 125 125 125 0 0
November 2001....... 135 135 135 0 0
November 2002....... 146 146 146 0 0
November 2003....... 158 158 158 0 0
November 2004....... 171 171 171 0 0
November 2005....... 186 186 186 0 0
November 2006....... 201 201 201 0 0
November 2007....... 218 218 218 0 0
November 2008....... 236 236 236 0 0
November 2009....... 255 255 245 0 0
November 2010....... 276 276 228 0 0
November 2011....... 299 299 210 0 0
November 2012....... 324 324 192 0 0
November 2013....... 351 351 173 0 0
November 2014....... 380 380 155 0 0
November 2015....... 412 371 138 0 0
November 2016....... 446 336 121 0 0
November 2017....... 483 301 105 0 0
November 2018....... 523 267 91 0 0
November 2019....... 566 233 76 0 0
November 2020....... 613 199 63 0 0
November 2021....... 664 166 51 0 0
November 2022....... 676 134 40 0 0
November 2023....... 654 103 30 0 0
November 2024....... 514 73 20 0 0
November 2025....... 360 44 12 0 0
November 2026....... 189 16 4 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.1 23.3 19.4 1.6 1.0

IO+ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 0 0 0 0 0
November 1999....... 0 0 0 0 0
November 2000....... 0 0 0 0 0
November 2001....... 0 0 0 0 0
November 2002....... 0 0 0 0 0
November 2003....... 0 0 0 0 0
November 2004....... 0 0 0 0 0
November 2005....... 0 0 0 0 0
November 2006....... 0 0 0 0 0
November 2007....... 0 0 0 0 0
November 2008....... 0 0 0 0 0
November 2009....... 0 0 0 0 0
November 2010....... 0 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 0.2 0.2 0.2 0.2 0.2

- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.

** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.

<PAGE>

FD and SD Classes
-----------------------------------------
PSA Prepayment
Assumption
-----------------------------------------
Date 0% 100% 160% 165% 250% 500%
- -------------------------- ------ ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100 100
November 1998....... 100 90 84 84 84 84
November 1999....... 100 74 55 55 55 36
November 2000....... 100 74 41 41 41 0
November 2001....... 100 74 29 29 29 0
November 2002....... 100 74 19 19 19 0
November 2003....... 100 74 12 12 12 0
November 2004....... 100 74 6 6 6 0
November 2005....... 100 74 2 2 1 0
November 2006....... 100 74 0 0 * 0
November 2007....... 100 72 0 0 * 0
November 2008....... 100 68 0 0 * 0
November 2009....... 100 63 0 0 * 0
November 2010....... 100 55 0 0 * 0
November 2011....... 100 47 0 0 * 0
November 2012....... 100 38 0 0 * 0
November 2013....... 100 28 0 0 * 0
November 2014....... 100 18 0 0 * 0
November 2015....... 100 7 0 0 * 0
November 2016....... 100 0 0 0 * 0
November 2017....... 100 0 0 0 * 0
November 2018....... 100 0 0 0 * 0
November 2019....... 100 0 0 0 * 0
November 2020....... 100 0 0 0 * 0
November 2021....... 100 0 0 0 * 0
November 2022....... 100 0 0 0 * 0
November 2023....... 93 0 0 0 * 0
November 2024....... 51 0 0 0 * 0
November 2025....... 4 0 0 0 * 0
November 2026....... 0 0 0 0 * 0
November 2027....... 0 0 0 0 0 0
Weighted Average
Life (years)**..... 27.0 11.3 3.0 3.0 3.0 1.7

FA, SA+ and SB Classes
-----------------------------------------
PSA Prepayment
Assumption
-----------------------------------------
Date 0% 100% 160% 165% 250% 500%
- -------------------------- ------ ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100 100
November 1998....... 99 93 89 89 83 75
November 1999....... 97 83 70 69 69 21
November 2000....... 96 81 58 56 48 0
November 2001....... 94 79 48 46 30 0
November 2002....... 92 77 40 37 18 0
November 2003....... 90 75 33 30 9 0
November 2004....... 88 73 27 24 4 0
November 2005....... 85 70 22 19 1 0
November 2006....... 82 68 18 14 * 0
November 2007....... 80 64 13 10 * 0
November 2008....... 76 58 8 4 * 0
November 2009....... 73 52 2 0 * 0
November 2010....... 69 44 0 0 * 0
November 2011....... 65 35 0 0 * 0
November 2012....... 61 25 0 0 * 0
November 2013....... 56 15 0 0 * 0
November 2014....... 51 4 0 0 * 0
November 2015....... 46 0 0 0 * 0
November 2016....... 40 0 0 0 * 0
November 2017....... 34 0 0 0 * 0
November 2018....... 27 0 0 0 * 0
November 2019....... 19 0 0 0 * 0
November 2020....... 11 0 0 0 * 0
November 2021....... 2 0 0 0 * 0
November 2022....... 0 0 0 0 * 0
November 2023....... 0 0 0 0 * 0
November 2024....... 0 0 0 0 * 0
November 2025....... 0 0 0 0 * 0
November 2026....... 0 0 0 0 * 0
November 2027....... 0 0 0 0 0 0
Weighted Average
Life (years)**..... 15.9 10.5 4.8 4.5 3.1 1.4

FH and SH Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 81 0
November 1999....... 100 100 100 0 0
November 2000....... 100 100 100 0 0
November 2001....... 100 100 100 0 0
November 2002....... 100 100 100 0 0
November 2003....... 100 100 100 0 0
November 2004....... 100 100 100 0 0
November 2005....... 100 100 100 0 0
November 2006....... 100 100 100 0 0
November 2007....... 100 100 100 0 0
November 2008....... 100 100 100 0 0
November 2009....... 100 100 100 0 0
November 2010....... 100 100 100 0 0
November 2011....... 100 100 100 0 0
November 2012....... 100 100 100 0 0
November 2013....... 100 100 100 0 0
November 2014....... 100 100 100 0 0
November 2015....... 100 100 94 0 0
November 2016....... 100 100 76 0 0
November 2017....... 100 100 59 0 0
November 2018....... 100 100 44 0 0
November 2019....... 100 96 30 0 0
November 2020....... 100 59 17 0 0
November 2021....... 100 25 6 0 0
November 2022....... 100 3 * 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.7 23.4 20.8 1.3 0.6

A Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 140% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 59
November 2002....... 100 90 90 89 23
November 2003....... 100 64 64 56 0
November 2004....... 100 43 43 30 0
November 2005....... 100 25 25 10 0
November 2006....... 100 10 10 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 98 0 0 0 0
November 2013....... 78 0 0 0 0
November 2014....... 56 0 0 0 0
November 2015....... 32 0 0 0 0
November 2016....... 6 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 17.2 6.9 6.9 6.4 4.4

B Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 98
November 2003....... 100 100 100 100 67
November 2004....... 100 100 100 100 46
November 2005....... 100 100 100 82 31
November 2006....... 100 100 100 63 21
November 2007....... 100 85 85 48 14
November 2008....... 100 70 70 36 10
November 2009....... 100 57 57 27 6
November 2010....... 100 47 47 21 4
November 2011....... 100 38 38 15 3
November 2012....... 100 30 30 11 2
November 2013....... 100 24 24 8 1
November 2014....... 100 19 19 6 1
November 2015....... 100 15 15 4 *
November 2016....... 100 11 11 3 *
November 2017....... 80 8 8 2 *
November 2018....... 39 6 6 1 *
November 2019....... 4 4 4 1 *
November 2020....... 2 2 2 * *
November 2021....... 1 1 1 * *
November 2022....... 0 0 0 * *
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.8 13.7 13.7 10.8 7.6

FJ, PL, SL+, PM, SM+, SJ,
SK and SN Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 57
November 1999....... 100 100 100 63 *
November 2000....... 100 100 100 * *
November 2001....... 100 100 100 * *
November 2002....... 100 100 100 * *
November 2003....... 100 100 100 * *
November 2004....... 100 100 100 * *
November 2005....... 100 100 100 * *
November 2006....... 100 100 100 * *
November 2007....... 100 100 100 * *
November 2008....... 100 100 100 * *
November 2009....... 100 100 100 * *
November 2010....... 100 100 100 * *
November 2011....... 100 100 100 * *
November 2012....... 100 100 100 * *
November 2013....... 100 100 88 * *
November 2014....... 100 100 74 * *
November 2015....... 100 100 61 * *
November 2016....... 100 100 50 * *
November 2017....... 100 100 39 * *
November 2018....... 100 86 29 * *
November 2019....... 100 61 20 * *
November 2020....... 100 38 11 * *
November 2021....... 100 16 4 * *
November 2022....... 100 * * * *
November 2023....... * * * * *
November 2024....... * * * * *
November 2025....... * * * * *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.5 22.6 19.3 2.2 1.1

C, D and E Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 180% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 99 93 88 79 70
November 1999....... 98 84 74 54 39
November 2000....... 97 76 61 35 16
November 2001....... 96 68 50 20 1
November 2002....... 95 60 40 8 0
November 2003....... 94 53 31 0 0
November 2004....... 92 47 23 0 0
November 2005....... 91 41 16 0 0
November 2006....... 89 35 10 0 0
November 2007....... 87 29 4 0 0
November 2008....... 85 24 0 0 0
November 2009....... 83 19 0 0 0
November 2010....... 80 14 0 0 0
November 2011....... 77 10 0 0 0
November 2012....... 74 6 0 0 0
November 2013....... 71 2 0 0 0
November 2014....... 67 0 0 0 0
November 2015....... 63 0 0 0 0
November 2016....... 58 0 0 0 0
November 2017....... 53 0 0 0 0
November 2018....... 48 0 0 0 0
November 2019....... 42 0 0 0 0
November 2020....... 35 0 0 0 0
November 2021....... 28 0 0 0 0
November 2022....... 20 0 0 0 0
November 2023....... 11 0 0 0 0
November 2024....... 2 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 18.9 7.1 4.5 2.5 1.8

G Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 180% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 71
November 2003....... 100 100 100 97 49
November 2004....... 100 100 100 75 34
November 2005....... 100 100 100 58 23
November 2006....... 100 100 100 45 16
November 2007....... 100 100 100 35 11
November 2008....... 100 100 98 27 7
November 2009....... 100 100 85 21 5
November 2010....... 100 100 74 16 3
November 2011....... 100 100 63 12 2
November 2012....... 100 100 54 9 2
November 2013....... 100 100 46 7 1
November 2014....... 100 94 39 5 1
November 2015....... 100 84 33 4 *
November 2016....... 100 73 28 3 *
November 2017....... 100 64 23 2 *
November 2018....... 100 55 19 2 *
November 2019....... 100 46 15 1 *
November 2020....... 100 38 12 1 *
November 2021....... 100 30 9 * *
November 2022....... 100 23 6 * *
November 2023....... 100 16 4 * *
November 2024....... 100 9 2 * *
November 2025....... 73 3 1 * *
November 2026....... 38 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.7 21.9 16.6 9.7 6.8

- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.

** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.

<PAGE>

FG and SG+ Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 250% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 0
November 2000....... 100 100 100 77 0
November 2001....... 100 100 100 41 0
November 2002....... 100 100 100 22 0
November 2003....... 100 100 100 12 0
November 2004....... 100 100 100 9 0
November 2005....... 100 100 100 6 0
November 2006....... 100 100 100 * 0
November 2007....... 100 100 86 0 0
November 2008....... 100 100 73 0 0
November 2009....... 100 100 61 0 0
November 2010....... 100 100 51 0 0
November 2011....... 100 100 42 0 0
November 2012....... 100 100 34 0 0
November 2013....... 100 100 27 0 0
November 2014....... 100 100 22 0 0
November 2015....... 100 100 17 0 0
November 2016....... 100 100 13 0 0
November 2017....... 100 100 10 0 0
November 2018....... 100 87 7 0 0
November 2019....... 100 64 4 0 0
November 2020....... 100 42 3 0 0
November 2021....... 100 21 1 0 0
November 2022....... 100 3 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.6 22.7 14.0 4.2 1.6

PN Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 96 90 90 90 90
November 1999....... 92 73 73 73 73
November 2000....... 88 35 35 35 0
November 2001....... 83 0 0 0 0
November 2002....... 77 0 0 0 0
November 2003....... 71 0 0 0 0
November 2004....... 65 0 0 0 0
November 2005....... 57 0 0 0 0
November 2006....... 49 0 0 0 0
November 2007....... 41 0 0 0 0
November 2008....... 31 0 0 0 0
November 2009....... 20 0 0 0 0
November 2010....... 9 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 8.3 2.5 2.5 2.5 2.2

PQ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 54
November 2001....... 100 95 95 95 0
November 2002....... 100 6 6 6 0
November 2003....... 100 0 0 0 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 89 0 0 0 0
November 2012....... 53 0 0 0 0
November 2013....... 13 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 15.1 4.5 4.5 4.5 3.0

PR Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 0
November 2002....... 100 100 100 100 0
November 2003....... 100 48 48 48 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 80 0 0 0 0
November 2015....... 47 0 0 0 0
November 2016....... 12 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 17.9 6.0 6.0 6.0 3.6

PS Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 86
November 2002....... 100 100 100 100 0
November 2003....... 100 100 100 100 0
November 2004....... 100 95 95 95 0
November 2005....... 100 42 42 42 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 100 0 0 0 0
November 2015....... 100 0 0 0 0
November 2016....... 100 0 0 0 0
November 2017....... 71 0 0 0 0
November 2018....... 25 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.5 7.9 7.9 7.9 4.3

PT Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 91
November 2003....... 100 100 100 100 63
November 2004....... 100 100 100 100 43
November 2005....... 100 100 100 100 30
November 2006....... 100 97 97 97 20
November 2007....... 100 81 81 81 14
November 2008....... 100 67 67 67 10
November 2009....... 100 56 56 56 7
November 2010....... 100 46 46 46 4
November 2011....... 100 38 38 38 3
November 2012....... 100 31 31 31 2
November 2013....... 100 25 25 25 1
November 2014....... 100 21 21 21 1
November 2015....... 100 17 17 17 1
November 2016....... 100 13 13 13 *
November 2017....... 100 11 11 11 *
November 2018....... 100 8 8 8 *
November 2019....... 91 7 7 7 *
November 2020....... 70 5 5 5 *
November 2021....... 48 4 4 4 *
November 2022....... 23 3 3 3 *
November 2023....... 2 2 2 2 *
November 2024....... 1 1 1 1 *
November 2025....... 1 1 1 1 *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.9 13.8 13.8 13.8 7.4

- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.

** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.

<PAGE>

IB+ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 98 94 94 94 94
November 1999....... 95 84 84 84 84
November 2000....... 93 61 61 61 31
November 2001....... 90 39 39 39 0
November 2002....... 86 21 21 21 0
November 2003....... 83 6 6 6 0
November 2004....... 79 0 0 0 0
November 2005....... 74 0 0 0 0
November 2006....... 70 0 0 0 0
November 2007....... 64 0 0 0 0
November 2008....... 59 0 0 0 0
November 2009....... 52 0 0 0 0
November 2010....... 45 0 0 0 0
November 2011....... 38 0 0 0 0
November 2012....... 31 0 0 0 0
November 2013....... 23 0 0 0 0
November 2014....... 15 0 0 0 0
November 2015....... 6 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 11.5 3.6 3.6 3.6 2.6

IC+ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 87
November 2002....... 100 100 100 100 54
November 2003....... 100 100 100 100 37
November 2004....... 100 90 90 90 26
November 2005....... 100 73 73 73 18
November 2006....... 100 57 57 57 12
November 2007....... 100 48 48 48 8
November 2008....... 100 40 40 40 6
November 2009....... 100 33 33 33 4
November 2010....... 100 27 27 27 3
November 2011....... 100 22 22 22 2
November 2012....... 100 18 18 18 1
November 2013....... 100 15 15 15 1
November 2014....... 100 12 12 12 1
November 2015....... 100 10 10 10 *
November 2016....... 96 8 8 8 *
November 2017....... 82 6 6 6 *
November 2018....... 67 5 5 5 *
November 2019....... 54 4 4 4 *
November 2020....... 42 3 3 3 *
November 2021....... 28 2 2 2 *
November 2022....... 14 2 2 2 *
November 2023....... 1 1 1 1 *
November 2024....... 1 1 1 1 *
November 2025....... * * * * *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 22.4 11.3 11.3 11.3 6.1

FR, SR+ and SO Classes
-----------------------------------------
PSA Prepayment
Assumption
-----------------------------------------
Date 0% 100% 160% 165% 250% 500%
- -------------------------- ------ ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100 100
November 1998....... 99 94 89 89 82 75
November 1999....... 97 83 70 69 69 18
November 2000....... 96 82 58 56 48 0
November 2001....... 94 80 49 46 30 0
November 2002....... 92 78 40 37 18 0
November 2003....... 90 76 33 30 9 0
November 2004....... 87 73 27 24 4 0
November 2005....... 85 71 22 19 1 0
November 2006....... 82 68 18 14 * 0
November 2007....... 79 64 13 10 * 0
November 2008....... 76 59 8 4 * 0
November 2009....... 73 52 1 0 * 0
November 2010....... 69 44 0 0 * 0
November 2011....... 65 35 0 0 * 0
November 2012....... 61 25 0 0 * 0
November 2013....... 56 15 0 0 * 0
November 2014....... 51 4 0 0 * 0
November 2015....... 45 0 0 0 * 0
November 2016....... 39 0 0 0 * 0
November 2017....... 33 0 0 0 * 0
November 2018....... 26 0 0 0 * 0
November 2019....... 18 0 0 0 * 0
November 2020....... 10 0 0 0 * 0
November 2021....... 1 0 0 0 * 0
November 2022....... 0 0 0 0 * 0
November 2023....... 0 0 0 0 * 0
November 2024....... 0 0 0 0 * 0
November 2025....... 0 0 0 0 * 0
November 2026....... 0 0 0 0 * 0
November 2027....... 0 0 0 0 0 0
Weighted Average
Life (years)**..... 15.7 10.5 4.8 4.5 3.1 1.4

ID+ Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 0 0 0 0 0
November 1999....... 0 0 0 0 0
November 2000....... 0 0 0 0 0
November 2001....... 0 0 0 0 0
November 2002....... 0 0 0 0 0
November 2003....... 0 0 0 0 0
November 2004....... 0 0 0 0 0
November 2005....... 0 0 0 0 0
November 2006....... 0 0 0 0 0
November 2007....... 0 0 0 0 0
November 2008....... 0 0 0 0 0
November 2009....... 0 0 0 0 0
November 2010....... 0 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 0.2 0.2 0.2 0.2 0.2

ZA Class
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 165% 250% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 106 106 106 106 36
November 1999....... 115 115 115 9 0
November 2000....... 125 125 125 0 0
November 2001....... 135 135 135 0 0
November 2002....... 146 146 146 0 0
November 2003....... 158 158 158 0 0
November 2004....... 171 171 171 0 0
November 2005....... 186 186 186 0 0
November 2006....... 201 201 201 0 0
November 2007....... 218 218 218 0 0
November 2008....... 236 236 236 0 0
November 2009....... 255 255 243 0 0
November 2010....... 276 276 226 0 0
November 2011....... 299 299 209 0 0
November 2012....... 324 324 190 0 0
November 2013....... 351 351 172 0 0
November 2014....... 380 380 154 0 0
November 2015....... 412 368 137 0 0
November 2016....... 446 334 120 0 0
November 2017....... 483 299 105 0 0
November 2018....... 523 265 90 0 0
November 2019....... 566 231 76 0 0
November 2020....... 613 197 63 0 0
November 2021....... 664 165 51 0 0
November 2022....... 669 133 40 0 0
November 2023....... 641 102 29 0 0
November 2024....... 500 72 20 0 0
November 2025....... 345 43 12 0 0
November 2026....... 173 15 4 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.0 23.2 19.3 1.6 1.0

PO, SP+, SQ+ and ST+ Classes
----------------------------------
PSA Prepayment
Assumption
----------------------------------
Date 0% 100% 175% 350% 500%
- -------------------------- ------ ------ ------ ------
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 44
November 1999....... 100 100 100 53 0
November 2000....... 100 100 100 7 0
November 2001....... 100 100 100 0 0
November 2002....... 100 100 100 0 0
November 2003....... 100 100 100 0 0
November 2004....... 100 100 100 0 0
November 2005....... 100 100 100 0 0
November 2006....... 100 100 100 0 0
November 2007....... 100 100 100 0 0
November 2008....... 100 100 100 0 0
November 2009....... 100 100 100 0 0
November 2010....... 100 100 88 0 0
November 2011....... 100 100 77 0 0
November 2012....... 100 100 66 0 0
November 2013....... 100 100 56 0 0
November 2014....... 100 100 46 0 0
November 2015....... 100 100 38 0 0
November 2016....... 100 95 30 0 0
November 2017....... 100 76 23 0 0
November 2018....... 100 58 16 0 0
November 2019....... 100 40 11 0 0
November 2020....... 100 23 5 0 0
November 2021....... 100 7 1 0 0
November 2022....... 59 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.1 21.5 17.1 2.1 1.0

- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.

** Determined as specified under "Weighted Average Lives of the Certificates"
herein.

+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.

<PAGE>

Characteristics of the R and RL Classes

The R and RL Classes will not have principal balances and will not bear
interest. The Holder of the R Class will be entitled to receive the proceeds of
the remaining assets of the Trust, if any, after the principal balances of all
Classes have been reduced to zero, and the Holder of the RL Class will be
entitled to receive the proceeds of the remaining assets of the Lower Tier
REMIC, if any, after the principal balances of the Lower Tier Regular Interests
have been reduced to zero. It is not anticipated that there will be any material
assets remaining in either such circumstance.

The R and RL Classes will be subject to certain transfer restrictions. No
transfer of record or beneficial ownership of an R or RL Certificate will be
allowed to a "disqualified organization." In addition, no transfer of record or
beneficial ownership of an R or RL Certificate will be allowed to any person
that is not a "U.S. Person" without the written consent of Fannie Mae. Under
regulations issued by the Treasury Department on December 23, 1992 (the
"Regulations"), a transfer of a "noneconomic residual interest" to a U.S. Person
will be disregarded for all federal tax purposes unless no significant purpose
of the transfer is to impede the assessment or collection of tax. The R and RL
Classes will constitute noneconomic residual interests under the Regulations.
Any transferee of an R or RL Certificate must execute and deliver an affidavit
and an Internal Revenue Service Form W-9 on which the transferee provides its
taxpayer identification number. See "Description of the Certificates--Additional
Characteristics of Residual Certificates" and "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Residual Certificates" in the
REMIC Prospectus. Transferors of an R or RL Certificate should consult with
their own tax advisors for further information regarding such transfers.

The Holder of the R Class will be considered to be the holder of the
"residual interest" in the REMIC constituted by the Trust, and the Holder of the
RL Class will be considered to be the holder of the "residual interest" in the
REMIC constituted by the Lower Tier REMIC. See "Certain Federal Income Tax
Consequences" in the REMIC Prospectus. Pursuant to the Trust Agreement, Fannie
Mae will be obligated to provide to such Holders (i) such information as is
necessary to enable them to prepare their federal income tax returns and (ii)
any reports regarding the R or RL Class that may be required under the Code.

CERTAIN ADDITIONAL FEDERAL INCOME TAX CONSEQUENCES

The following tax discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the REMIC Prospectus, describes
the current federal income tax treatment of investors in the Certificates. These
two tax discussions do not purport to deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Certificates.

REMIC Elections and Special Tax Attributes

Elections will be made to treat the Lower Tier REMIC and the Trust as
REMICs for federal income tax purposes. Arnold & Porter, special tax counsel to
Fannie Mae, will deliver its opinion to Fannie Mae that, assuming compliance
with the Trust Agreement, the Lower Tier REMIC and the Trust will qualify as
REMICs for federal income tax purposes. The REMIC Certificates, other than the R
and RL Classes, will be designated as the "regular interests," and the R Class
will be designated as the "residual interest," in the REMIC constituted by the
Trust. The Lower Tier Regular Interests will be designated as the "regular
interests" and the RL Class will be designated as the "residual interest" in the
Lower Tier REMIC.

As a consequence of the qualification of the Lower Tier REMIC and the Trust
as REMICs, the REMIC Certificates and any related RCR Certificates generally
will be treated as "regular or residual interests in a REMIC" for domestic
building and loan associations, "real estate assets" for real estate investment
trusts, and, except for the R and RL Classes, as "qualified mortgages" for other
REMICs. The Small Business Job Protection Act of 1996 repeals the bad debt
reserve method of accounting for mutual savings banks and domestic building and
loan associations for tax years beginning after December 31, 1995. As a result,
section 593(d) of the Code is no longer applicable to treat the Certificates as
"qualifying real property loans." See "Certain Federal Income Tax Consequences--
Special Tax Attributes" in the REMIC Prospectus.

<PAGE>

Taxation of Beneficial Owners of Regular Certificates

The Notional Classes, the Principal Only Classes, the Accrual Classes, the
SD Class, the SC Class and the SH Class will be, and certain other Classes of
REMIC Certificates may be, issued with original issue discount ("OID") for
federal income tax purposes, which generally will result in recognition of some
taxable income in advance of the receipt of the cash attributable to such
income. The Prepayment Assumption that will be used in determining the rate of
accrual of original issue discount will be 165% PSA in the case of the Group 1,
Group 2, Group 4, Group 5 and Group 8 Classes, 140% PSA in the case of the Group
3 Classes, 180% PSA in the case of the Group 6 Classes, 100% PSA in the case of
the Group 7 Classes and 175% PSA in the case of the Group 9 Classes. See
"Certain Federal Income Tax Consequences--Taxation of Beneficial Owners of
Regular Certificates--Original Issue Discount" in the REMIC Prospectus. No
representation is made as to whether the Mortgage Loans underlying the MBS or
the GNMA Certificates will prepay at any of those rates or any other rate. See
"Description of the Certificates--Weighted Average Lives of the Certificates"
herein and "Description of the Certificates--Weighted Average Life and Final
Distribution Dates" in the REMIC Prospectus. In addition, certain Classes of
REMIC Certificates may be treated as having been issued at a premium for federal
income tax purposes. See "Certain Federal Income Tax Consequences-- Taxation of
Beneficial Owners of Regular Certificates--Certificates Purchased at a Premium"
in the REMIC Prospectus.

The Taxpayer Relief Act of 1997 adds provisions to the Code that require
the recognition of gain upon the "constructive sale of an appreciated financial
position." A constructive sale of an appreciated financial position occurs if a
taxpayer enters into certain transactions or series of such transactions with
respect to a financial instrument that have the effect of substantially
eliminating the taxpayer's risk of loss and opportunity for gain with respect to
the financial instrument. These provisions do not apply to Classes of
Certificates other than the Notional Classes.

Taxation of Beneficial Owners of Residual Certificates

Under the Regulations, neither the R Class nor the RL Class will have
significant value. Special rules regarding the treatment of "excess inclusions"
by certain thrift institutions no longer apply because of the amendment of
sections 593 and 860E of the Code by the Small Business Job Protection Act of
1996. See "Certain Federal Income Tax Consequences--Taxation of Beneficial
Owners of Residual Certificates--Excess Inclusions" in the REMIC Prospectus.

For purposes of determining the portion of the taxable income of the Trust
(or the Lower Tier REMIC) that generally will not be treated as excess
inclusions, the rate to be used is 120% of the "federal long-term rate." The
rate will be published on or about October 20, 1997. See "Certain Federal Income
Tax Consequences--Taxation of Beneficial Owners of Residual Certificates--Excess
Inclusions" and "--Foreign Investors--Residual Certificates" in the REMIC
Prospectus. The federal income tax consequences of any consideration paid to a
transferee on the transfer of an R or RL Certificate are unclear; any transferee
receiving such consideration should consult its own tax advisors.

Fannie Mae intends to determine the accruals of OID on the Underlying REMIC
Certificates using the same Prepayment Assumptions, as provided above, that will
be used to determine the accruals of OID on the related Regular Certificates.
The IRS, however, could take the position that the proper Prepayment Assumption
to be used with respect to the Underlying REMIC Certificates is the Prepayment
Assumption set forth in the related Underlying REMIC Disclosure Documents. See
also "Certain Federal Income Tax Consequences--Taxation of Beneficial Owners of
Residual Certificates--Taxable Income or Net Loss of a REMIC Trust" in the REMIC
Prospectus.

<PAGE>

The Taxpayer Relief Act of 1997 adds provisions to the Code that will apply
to an "electing large partnership." If an electing large partnership holds an R
or RL Certificate, all interests in the electing large partnership are treated
as held by disqualified organizations for purposes of the tax imposed upon a
pass-through entity by section 860E(e) of the Code. An exception to this tax,
otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.

Taxation of Beneficial Owners of RCR Certificates

General. The arrangement pursuant to which the RCR Classes will be created,
sold and administered will be classified as a grantor trust under subpart E,
Part I of subchapter J of the Code. The interests in the REMIC Certificates that
have been exchanged for RCR Certificates (including any exchanges effective on
the Settlement Date) will be the assets of such trust and the RCR Certificates
will evidence an ownership interest in those REMIC Certificates. For a general
discussion of the federal income tax treatment of investors in REMIC
Certificates, see "Certain Federal Income Tax Consequences" in the REMIC
Prospectus.

The RCR Classes will represent beneficial ownership of the underlying
Regular Certificates set forth in Schedule 1. The RCR Certificates (the
"Combination RCR Certificates") will represent beneficial ownership of undivided
interests in two or more underlying Regular Certificates.

Combination RCR Classes. A beneficial owner of a Combination RCR
Certificate will be treated as the beneficial owner of a proportionate interest
in the related Class or Classes of REMIC Certificates. A purchaser of a
Combination RCR Certificate must allocate its purchase price among the related
Classes of REMIC Certificates in proportion to their relative fair market values
at the time of purchase. Such owner should account for its ownership interest in
each related Class of REMIC Certificates as described under "--Taxation of
Beneficial Owners of Regular Certificates" herein and "Certain Federal Income
Tax Consequences--Taxation of Beneficial Owners of Regular Certificates" in the
REMIC Prospectus. When a beneficial owner sells a Combination RCR Certificate,
such owner must allocate the sale proceeds among the related Classes of REMIC
Certificates in proportion to their relative fair market values at the time of
sale.

PLAN OF DISTRIBUTION

General. The Dealer will receive the Certificates in exchange for the Trust
MBS, Underlying REMIC Certificates and Trust SMBS pursuant to a Fannie Mae
commitment. The Dealer proposes to offer the Certificates directly to the public
from time to time in negotiated transactions at varying prices to be determined
at the time of sale. The Dealer may effect such transactions to or through
dealers.

Increase in Certificates. Before the Settlement Date, Fannie Mae and the
Dealer may agree to offer hereby Group 1 or Group 6 Classes in addition to those
contemplated as of the date hereof. In such event, the related Trust MBS will be
increased in principal balance, but it is expected that all such additional
Trust MBS will have the same characteristics as described herein under
"Description of the Certificates--The Trust MBS." The proportion that the
original principal balance of each Group 1 or Group 6 Class bears to the
aggregate original principal balance of all Group 1 or Group 6 Classes,
respectively, will remain the same. In addition, the dollar amounts reflected in
the Principal Balance Schedules will be increased in a pro rata amount that
corresponds to the increase of the principal balances of the applicable Classes.

<PAGE>

LEGAL MATTERS

Certain legal matters will be passed upon for the Dealer by Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982.

<PAGE>

Exhibit A

Underlying REMIC Certificates and Trust SMBS

Underlying
REMIC
Trust Date
and Trust of CUSIP Interest Interest
SMBS Class Issue Number Rate Type(1)
- ------------ ----- --------------- --------- -------- --------
1993-G34 G October 1993 31359EB34 6.75% FIX
1993-198 F October 1993 31359EMR9 (2) FLT
1993-198 S October 1993 31359EMS7 (2) INV
1993-121 FB July 1993 31359BNE3 (2) FLT
1993-121 SC July 1993 31359BNF0 (2) INV
1993-178 FA September 1993 31359D6Z1 (2) FLT
1993-178 SA September 1993 31359D7A5 (2) INV
1993-210 FD November 1993 31359E6N6 (2) FLT
000289-CL PO October 1997 31364HQ75 (3) PO
000289-CL IO October 1997 31364HQ83 7.00 FIX
1993-103 SB July 1993 31359BCJ4 (2) INV

Original
Principal Principal
Balance or Balance or
Underlying Original Notional
REMIC Notional November Principal
Trust Final Principal 1997 Balance in
and Trust Distribution Principal Balance Class the Lower
SMBS Date Type(1) of Class Factor Tier REMIC
- ------------ ------------- --------- ------------ ---------- --------------
1993-G34 October 2023 SUP $ 28,362,962 0.49138576 $ 6,776,701
1993-198 June 2022 PAC 27,300,000 1.00000000 15,000,000
1993-198 June 2022 PAC 18,200,000 1.00000000 10,000,000
1993-121 July 2023 PAC 22,100,000 1.00000000 22,100,000
1993-121 July 2023 PAC 10,200,000 1.00000000 10,200,000
September
1993-178 2023 TAC/SUP 26,000,000 0.84642395 22,007,022
September
1993-178 2023 TAC/SUP 10,000,000 0.84642395 8,464,240
1993-210 November 2023 SUP 30,588,236 1.00000000 24,588,236
000289-CL November 2027 STP 2,050,000,000 0.99733340 678,186,712
000289-CL November 2027 NTL 2,050,000,000 0.99733340 775,070,528
1993-103 July 2023 SUP 11,040,000 0.91840422 5,510,425

Approximate Approximate
Underlying Weighted Weighted
REMIC Approximate Average Average
Trust Weighted WARM or WALA or Underlying
and Trust Average WAM CAGE Security Class
SMBS WAC (in months) (in months) Type Group
- ------------ ----------- ----------- ----------- ---------- -----
1993-G34 8.000 % 296 54 GNMA 2
1993-198 7.085 299 50 MBS 3
1993-198 7.085 299 50 MBS 3
1993-121 7.543 295 53 MBS 4
1993-121 7.543 295 53 MBS 4
1993-178 7.485 297 52 MBS 5
1993-178 7.485 297 52 MBS 5
1993-210 7.055 301 49 MBS 7
000289-CL 7.687 355 5 MBS 8
000289-CL 7.687 355 5 MBS 8
1993-103 7.509 293 55 MBS 9
- ---------------
(1) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus.

(3) This Class is a Principal Only Class and bears no interest.

<PAGE>

Schedule 1

Available Recombinations(1)

RCR
REMIC Certificates Certificates
- ------------------------------------------- -------------
Original
Principal
or Notional
Principal RCR
Class Balance Class
- ------------------------- -------------- -------
Recombination 1
PL $ 6,641,172 SJ
SL 6,641,172
Recombination 2
PM 1,823,068 SK
SM 1,823,068
Recombination 3
PL 6,641,172 SN
SL 6,641,172
PM 1,823,068
SM 1,823,068
Recombination 4
SP 5,510,425 ST
SQ 5,510,425

REMIC Certificates
- -------------------------------------------------------
Original
Principal
or Notional
Principal Interest Interest
Class Balance Rate Type(2)
- ------------------------- -------------- --------- ---------
Recombination 1
PL $ 6,641,172 (3) INV
SL
Recombination 2
PM 1,823,068 (3) INV
SM
Recombination 3
PL 8,464,240 (3) INV
SL
PM
SM
Recombination 4
SP 5,510,425 (3) INV/IO
SQ

REMIC Certificates
- ------------------------------------------------------------------
Final
Principal CUSIP Distribution
Class Type(2) Number Date
- ------------------------- --------- --------- -----------------
Recombination 1
PL SC/PT 31359RFE7 September 2023
SL
Recombination 2
PM SC/PT 31359RFF4 September 2023
SM
Recombination 3
PL SC/PT 31359RFG2 September 2023
SL
PM
SM
Recombination 4
SP NTL 31359RFH0 July 2023
SQ
- ---------------
(1) The principal balances and/or notional principal balances of the REMIC
Certificates and RCR Certificates involved in any exchange will bear the
same relationship as that borne by the original principal balances and/or
original notional principal balances of the related Classes.

(3) For a description of these interest rates, see "Description of the
Certificates--Distribution of Interest" herein.

<PAGE>

Principal Balance Schedules

PB Class PC Class PD Class PH Class PG Class PJ Class
Distribution Planned Planned Planned Planned Planned Planned
Date Balance Balance Balance Balance Balance Balance
- ------------------------------------ --------------- --------------- --------------- --------------- ---------------
<S> <C>
Initial Balance..... $ 155,973,200.00 $ 70,011,500.00 $ 42,180,000.00 $ 54,193,100.00 $ 35,521,000.00 $ 54,830,500.00
December 1997....... 155,238,185.76 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 1998........ 154,423,493.74 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 1998....... 153,529,368.28 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 1998.......... 152,556,094.90 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 1998.......... 151,504,000.19 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 1998............ 150,373,451.73 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 1998........... 149,164,857.85 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 1998........... 147,878,667.50 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 1998......... 146,515,369.97 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 1998...... 145,075,494.61 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 1998........ 143,559,610.59 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 1998....... 141,968,326.46 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 1998....... 140,302,289.87 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 1999........ 138,562,187.08 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 1999....... 136,748,742.58 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 1999.......... 134,862,718.56 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 1999.......... 132,904,914.44 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 1999............ 130,876,166.29 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 1999........... 128,777,346.28 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 1999........... 126,609,362.05 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 1999......... 124,373,156.09 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 1999...... 122,069,705.04 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 1999........ 119,700,019.03 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 1999....... 116,271,576.18 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 1999....... 110,915,567.14 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 2000........ 105,424,508.33 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 2000....... 99,960,694.77 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 2000.......... 94,523,985.11 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 2000.......... 89,114,238.71 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 2000............ 83,731,315.67 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 2000........... 78,375,076.79 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 2000........... 73,045,383.59 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 2000......... 67,742,098.31 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 2000...... 62,465,083.88 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 2000........ 57,214,203.96 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 2000....... 51,989,322.87 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 2000....... 46,790,305.67 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 2001........ 41,617,018.08 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 2001....... 36,469,326.52 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 2001.......... 31,347,098.10 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 2001.......... 26,250,200.61 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 2001............ 21,178,502.50 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 2001........... 16,131,872.94 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 2001........... 11,110,181.71 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 2001......... 6,113,299.32 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 2001...... 1,141,096.90 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 2001........ 0.00 66,204,946.25 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 2001....... 0.00 61,281,719.85 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
</TABLE>

<PAGE>

PB Class PC Class PD Class PH Class PG Class PJ Class
Distribution Planned Planned Planned Planned Planned Planned
Date Balance Balance Balance Balance Balance Balance
- ------------------------------------ --------------- --------------- --------------- --------------- ---------------
<S> <C>
December 2001....... $ 0.00 $ 56,382,790.81 $ 42,180,000.00 $ 54,193,100.00 $ 35,521,000.00 $ 54,830,500.00
January 2002........ 0.00 51,508,032.90 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 2002....... 0.00 46,657,320.54 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 2002.......... 0.00 41,830,528.78 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 2002.......... 0.00 37,027,533.34 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 2002............ 0.00 32,248,210.55 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 2002........... 0.00 27,492,437.37 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 2002........... 0.00 22,760,091.44 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 2002......... 0.00 18,051,050.95 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 2002...... 0.00 13,365,194.80 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 2002........ 0.00 8,702,402.45 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 2002....... 0.00 4,062,554.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 2002....... 0.00 0.00 41,937,322.97 53,881,307.19 35,521,000.00 54,830,500.00
January 2003........ 0.00 0.00 39,926,509.47 51,297,802.77 35,521,000.00 54,830,500.00
February 2003....... 0.00 0.00 37,925,582.11 48,727,000.10 35,521,000.00 54,830,500.00
March 2003.......... 0.00 0.00 35,934,489.47 46,168,833.12 35,521,000.00 54,830,500.00
April 2003.......... 0.00 0.00 33,953,180.38 43,623,236.13 35,521,000.00 54,830,500.00
May 2003............ 0.00 0.00 31,981,603.99 41,090,143.74 35,521,000.00 54,830,500.00
June 2003........... 0.00 0.00 30,019,709.65 38,569,490.93 35,521,000.00 54,830,500.00
July 2003........... 0.00 0.00 28,067,447.02 36,061,212.96 35,521,000.00 54,830,500.00
August 2003......... 0.00 0.00 26,124,765.98 33,565,245.49 35,521,000.00 54,830,500.00
September 2003...... 0.00 0.00 24,191,616.68 31,081,524.47 35,521,000.00 54,830,500.00
October 2003........ 0.00 0.00 22,267,949.54 28,609,986.17 35,521,000.00 54,830,500.00
November 2003....... 0.00 0.00 20,353,715.22 26,150,567.20 35,521,000.00 54,830,500.00
December 2003....... 0.00 0.00 18,448,864.63 23,703,204.49 35,521,000.00 54,830,500.00
January 2004........ 0.00 0.00 16,553,348.94 21,267,835.33 35,521,000.00 54,830,500.00
February 2004....... 0.00 0.00 14,667,119.57 18,844,397.28 35,521,000.00 54,830,500.00
March 2004.......... 0.00 0.00 12,790,128.17 16,432,828.24 35,521,000.00 54,830,500.00
April 2004.......... 0.00 0.00 10,922,326.68 14,033,066.44 35,521,000.00 54,830,500.00
May 2004............ 0.00 0.00 9,063,667.25 11,645,050.40 35,521,000.00 54,830,500.00
June 2004........... 0.00 0.00 7,214,102.28 9,268,718.98 35,521,000.00 54,830,500.00
July 2004........... 0.00 0.00 5,373,584.44 6,904,011.35 35,521,000.00 54,830,500.00
August 2004......... 0.00 0.00 3,542,066.60 4,550,866.99 35,521,000.00 54,830,500.00
September 2004...... 0.00 0.00 1,719,501.91 2,209,225.67 35,521,000.00 54,830,500.00
October 2004........ 0.00 0.00 0.00 0.00 35,436,423.78 54,699,947.46
November 2004....... 0.00 0.00 0.00 0.00 33,815,257.06 52,197,501.54
December 2004....... 0.00 0.00 0.00 0.00 32,202,007.53 49,707,276.65
January 2005........ 0.00 0.00 0.00 0.00 30,596,633.96 47,229,209.16
February 2005....... 0.00 0.00 0.00 0.00 28,999,095.33 44,763,235.73
March 2005.......... 0.00 0.00 0.00 0.00 27,409,350.80 42,309,293.35
April 2005.......... 0.00 0.00 0.00 0.00 25,827,359.78 39,867,319.34
May 2005............ 0.00 0.00 0.00 0.00 24,253,081.86 37,437,251.33
June 2005........... 0.00 0.00 0.00 0.00 22,686,476.84 35,019,027.29
July 2005........... 0.00 0.00 0.00 0.00 21,127,504.74 32,612,585.48
August 2005......... 0.00 0.00 0.00 0.00 19,576,125.79 30,217,864.51
September 2005...... 0.00 0.00 0.00 0.00 18,032,300.39 27,834,803.25
October 2005........ 0.00 0.00 0.00 0.00 16,495,989.17 25,463,340.97
November 2005....... 0.00 0.00 0.00 0.00 14,967,152.97 23,103,417.15
December 2005....... 0.00 0.00 0.00 0.00 13,445,752.80 20,754,971.68
</TABLE>

<PAGE>

<PAGE>

PE Class FD Class SD Class FA Class SB Class PN Class
Distribution Planned Targeted Targeted Targeted Targeted Planned
Date Balance Balance Balance Balance Balance Balance
- ------------------------------------ --------------- --------------- ---------------- --------------- ----------------
<S> <C>
Initial Balance..... $ 245,849,700.00 $ 55,345,666.00 $ 27,672,834.00 $ 129,304,711.00 $ 16,163,089.00 $ 112,660,700.00
December 1997....... 245,849,700.00 54,925,164.59 27,462,583.29 96,978,500.00 12,122,312.59 112,056,398.75
January 1998........ 245,849,700.00 54,446,411.20 27,223,206.59 96,978,500.00 12,122,312.59 111,391,877.83
February 1998....... 245,849,700.00 53,909,633.20 26,954,817.58 96,978,500.00 12,122,312.59 110,667,347.24
March 1998.......... 245,849,700.00 53,315,109.64 26,657,555.79 96,978,500.00 12,122,312.59 109,883,047.54
April 1998.......... 245,849,700.00 52,663,171.15 26,331,586.53 96,978,500.00 12,122,312.59 109,039,250.29
May 1998............ 245,849,700.00 51,954,199.76 25,977,100.82 96,978,500.00 12,122,312.59 108,136,257.92
June 1998........... 245,849,700.00 51,188,628.65 25,594,315.25 96,978,500.00 12,122,312.59 107,174,403.60
July 1998........... 245,849,700.00 50,366,941.82 25,183,471.82 96,978,500.00 12,122,312.59 106,154,135.14
August 1998......... 245,849,700.00 49,489,673.70 24,744,837.74 96,978,500.00 12,122,312.59 105,075,847.55
September 1998...... 245,849,700.00 48,557,408.71 24,278,705.23 96,978,500.00 12,122,312.59 103,939,963.52
October 1998........ 245,849,700.00 47,570,780.69 23,785,391.20 96,978,500.00 12,122,312.59 102,746,935.62
November 1998....... 245,849,700.00 46,530,472.31 23,265,236.99 96,978,500.00 12,122,312.59 101,497,245.98
December 1998....... 245,849,700.00 45,437,214.38 22,718,608.00 96,978,500.00 12,122,312.59 100,191,423.51
January 1999........ 245,849,700.00 44,291,785.12 22,145,893.35 96,978,500.00 12,122,312.59 98,830,021.78
February 1999....... 245,849,700.00 43,095,009.31 21,547,505.43 96,978,500.00 12,122,312.59 97,413,609.17
March 1999.......... 245,849,700.00 41,847,757.46 20,923,879.48 96,978,500.00 12,122,312.59 95,942,782.22
April 1999.......... 245,849,700.00 40,550,944.80 20,275,473.13 96,978,500.00 12,122,312.59 94,418,240.19
May 1999............ 245,849,700.00 39,205,530.31 19,602,765.86 96,978,500.00 12,122,312.59 92,840,687.90
June 1999........... 245,849,700.00 37,812,515.59 18,906,258.47 96,978,500.00 12,122,312.59 91,211,001.06
July 1999........... 245,849,700.00 36,372,943.76 18,186,472.53 96,978,500.00 12,122,312.59 89,531,507.49
August 1999......... 245,849,700.00 34,887,898.24 17,443,949.75 95,829,501.88 11,978,687.83 87,806,747.20
September 1999...... 245,849,700.00 33,358,501.49 16,679,251.35 93,366,287.08 11,670,785.98 86,039,484.66
October 1999........ 245,849,700.00 31,785,913.67 15,892,957.41 90,838,003.09 11,354,750.47 84,239,721.36
November 1999....... 245,849,700.00 30,502,519.53 15,251,260.32 88,688,210.50 11,086,026.40 82,159,114.21
December 1999....... 245,849,700.00 29,799,511.88 14,899,756.48 87,305,557.49 10,913,194.77 78,599,466.62
January 2000........ 245,849,700.00 29,081,018.79 14,540,509.92 85,895,948.67 10,736,993.67 74,991,096.98
February 2000....... 245,849,700.00 28,373,773.02 14,186,887.02 84,505,655.29 10,563,206.99 71,343,223.06
March 2000.......... 245,849,700.00 27,677,662.00 13,838,831.50 83,134,448.91 10,391,806.19 67,674,593.08
April 2000.......... 245,849,700.00 26,992,574.16 13,496,287.57 81,782,103.16 10,222,762.97 64,012,187.86
May 2000............ 245,849,700.00 26,318,398.93 13,159,199.94 80,448,393.73 10,056,049.29 60,367,827.17
June 2000........... 245,849,700.00 25,655,026.76 12,827,513.84 79,133,098.38 9,891,637.37 56,741,536.42
July 2000........... 245,849,700.00 25,002,349.04 12,501,174.97 77,835,996.86 9,729,499.68 53,133,221.84
August 2000......... 245,849,700.00 24,360,258.16 12,180,129.52 76,556,870.92 9,569,608.94 49,542,790.14
September 2000...... 245,849,700.00 23,728,647.48 11,864,324.17 75,295,504.35 9,411,938.12 45,970,148.54
October 2000........ 245,849,700.00 23,107,411.30 11,553,706.07 74,051,682.85 9,256,460.43 42,415,204.69
November 2000....... 245,849,700.00 22,496,444.90 11,248,222.86 72,825,194.08 9,103,149.33 38,877,866.75
December 2000....... 245,849,700.00 21,895,644.47 10,947,822.63 71,615,827.64 8,951,978.52 35,358,043.32
January 2001........ 245,849,700.00 21,304,907.16 10,652,453.97 70,423,375.04 8,802,921.95 31,855,643.49
February 2001....... 245,849,700.00 20,724,131.03 10,362,065.90 69,247,629.68 8,655,953.78 28,370,576.82
March 2001.......... 245,849,700.00 20,153,215.08 10,076,607.91 68,088,386.82 8,511,048.42 24,902,753.32
April 2001.......... 245,849,700.00 19,592,059.19 9,796,029.95 66,945,443.58 8,368,180.51 21,452,083.47
May 2001............ 245,849,700.00 19,040,564.17 9,520,282.43 65,818,598.94 8,227,324.93 18,018,478.19
June 2001........... 245,849,700.00 18,498,631.71 9,249,316.19 64,707,653.67 8,088,456.77 14,601,848.91
July 2001........... 245,849,700.00 17,966,164.40 8,983,082.53 63,612,410.35 7,951,551.36 11,202,107.44
August 2001......... 245,849,700.00 17,443,065.70 8,721,533.17 62,532,673.34 7,816,584.23 7,819,166.11
September 2001...... 245,849,700.00 16,929,239.95 8,464,620.28 61,468,248.78 7,683,531.16 4,452,937.65
October 2001........ 245,849,700.00 16,424,592.35 8,212,296.47 60,418,944.56 7,552,368.13 1,103,335.28
November 2001....... 245,849,700.00 15,929,028.96 7,964,514.77 59,384,570.28 7,423,071.34 0.00
</TABLE>

<PAGE>

PE Class FD Class SD Class FA Class SB Class PN Class
Distribution Planned Targeted Targeted Targeted Targeted Planned
Date Balance Balance Balance Balance Balance Balance
- ------------------------------------ --------------- --------------- ---------------- --------------- ----------------
<S> <C>
December 2001....... $ 245,849,700.00 $ 15,442,456.70 $ 7,721,228.63 $ 58,364,937.28 $ 7,295,617.22 $ 0.00
January 2002........ 245,849,700.00 14,964,783.32 7,482,391.93 57,359,858.59 7,169,982.38 0.00
February 2002....... 245,849,700.00 14,495,917.41 7,247,958.96 56,369,148.91 7,046,143.67 0.00
March 2002.......... 245,849,700.00 14,035,768.39 7,017,884.44 55,392,624.63 6,924,078.13 0.00
April 2002.......... 245,849,700.00 13,584,246.51 6,792,123.49 54,430,103.76 6,803,763.02 0.00
May 2002............ 245,849,700.00 13,141,262.82 6,570,631.64 53,481,405.97 6,685,175.80 0.00
June 2002........... 245,849,700.00 12,706,729.20 6,353,364.82 52,546,352.54 6,568,294.12 0.00
July 2002........... 245,849,700.00 12,280,558.31 6,140,279.37 51,624,766.33 6,453,095.84 0.00
August 2002......... 245,849,700.00 11,862,663.61 5,931,332.01 50,716,471.83 6,339,559.03 0.00
September 2002...... 245,849,700.00 11,452,959.35 5,726,479.87 49,821,295.06 6,227,661.93 0.00
October 2002........ 245,849,700.00 11,051,360.57 5,525,680.47 48,939,063.59 6,117,383.00 0.00
November 2002....... 245,849,700.00 10,657,783.07 5,328,891.71 48,069,606.55 6,008,700.87 0.00
December 2002....... 245,849,700.00 10,272,143.43 5,136,071.88 47,212,754.61 5,901,594.37 0.00
January 2003........ 245,849,700.00 9,894,358.98 4,947,179.65 46,368,339.92 5,796,042.53 0.00
February 2003....... 245,849,700.00 9,524,347.80 4,762,174.05 45,536,196.11 5,692,024.56 0.00
March 2003.......... 245,849,700.00 9,162,028.74 4,581,014.51 44,716,158.32 5,589,519.83 0.00
April 2003.......... 245,849,700.00 8,807,321.38 4,403,660.83 43,908,063.17 5,488,507.94 0.00
May 2003............ 245,849,700.00 8,460,146.02 4,230,073.15 43,111,748.65 5,388,968.62 0.00
June 2003........... 245,849,700.00 8,120,423.72 4,060,212.00 42,327,054.29 5,290,881.83 0.00
July 2003........... 245,849,700.00 7,788,076.25 3,894,038.26 41,553,820.95 5,194,227.66 0.00
August 2003......... 245,849,700.00 7,463,026.08 3,731,513.17 40,791,890.96 5,098,986.41 0.00
September 2003...... 245,849,700.00 7,145,196.41 3,572,598.33 40,041,108.01 5,005,138.54 0.00
October 2003........ 245,849,700.00 6,834,511.14 3,417,255.69 39,301,317.16 4,912,664.68 0.00
November 2003....... 245,849,700.00 6,530,894.87 3,265,447.55 38,572,364.86 4,821,545.64 0.00
December 2003....... 245,849,700.00 6,234,272.89 3,117,136.55 37,854,098.88 4,731,762.40 0.00
January 2004........ 245,849,700.00 5,944,571.17 2,972,285.69 37,146,368.37 4,643,296.08 0.00
February 2004....... 245,849,700.00 5,661,716.37 2,830,858.28 36,449,023.77 4,556,128.01 0.00
March 2004.......... 245,849,700.00 5,385,635.83 2,692,818.00 35,761,916.85 4,470,239.64 0.00
April 2004.......... 245,849,700.00 5,116,257.53 2,558,128.85 35,084,900.64 4,385,612.61 0.00
May 2004............ 245,849,700.00 4,853,510.15 2,426,755.16 34,417,829.50 4,302,228.72 0.00
June 2004........... 245,849,700.00 4,597,323.02 2,298,661.59 33,760,559.04 4,220,069.91 0.00
July 2004........... 245,849,700.00 4,347,626.09 2,173,813.12 33,112,946.10 4,139,118.29 0.00
August 2004......... 245,849,700.00 4,104,350.00 2,052,175.07 32,474,848.81 4,059,356.13 0.00
September 2004...... 245,849,700.00 3,867,426.00 1,933,713.07 31,846,126.50 3,980,765.84 0.00
October 2004........ 245,849,700.00 3,636,785.99 1,818,393.06 31,226,639.74 3,903,330.00 0.00
November 2004....... 245,849,700.00 3,412,362.49 1,706,181.31 30,616,250.30 3,827,031.32 0.00
December 2004....... 245,849,700.00 3,194,088.67 1,597,044.39 30,014,821.15 3,751,852.67 0.00
January 2005........ 245,849,700.00 2,981,898.28 1,490,949.19 29,422,216.43 3,677,777.08 0.00
February 2005....... 245,849,700.00 2,775,725.70 1,387,862.90 28,838,301.44 3,604,787.71 0.00
March 2005.......... 245,849,700.00 2,575,505.93 1,287,753.01 28,262,942.65 3,532,867.86 0.00
April 2005.......... 245,849,700.00 2,381,174.57 1,190,587.33 27,696,007.67 3,462,000.99 0.00
May 2005............ 245,849,700.00 2,192,667.80 1,096,333.94 27,137,365.29 3,392,170.69 0.00
June 2005........... 245,849,700.00 2,009,922.42 1,004,961.24 26,586,885.34 3,323,360.69 0.00
July 2005........... 245,849,700.00 1,832,875.79 916,437.92 26,044,438.83 3,255,554.88 0.00
August 2005......... 245,849,700.00 1,661,465.86 830,732.95 25,509,897.81 3,188,737.25 0.00
September 2005...... 245,849,700.00 1,495,631.18 747,815.61 24,983,135.49 3,122,891.96 0.00
October 2005........ 245,849,700.00 1,335,310.84 667,655.44 24,464,026.08 3,058,003.28 0.00
November 2005....... 245,849,700.00 1,180,444.53 590,222.28 23,952,444.89 2,994,055.63 0.00
December 2005....... 245,849,700.00 1,030,972.47 515,486.25 23,448,268.28 2,931,033.56 0.00
</TABLE>

<PAGE>

PE Class FD Class SD Class FA Class SB Class PN Class
Distribution Planned Targeted Targeted Targeted Targeted Planned
Date Balance Balance Balance Balance Balance Balance
- ------------------------------------ --------------- --------------- ---------------- --------------- ----------------
<S> <C>
January 2006........ $ 245,849,700.00 $ 886,835.46 $ 443,417.74 $ 22,951,373.64 $ 2,868,921.73 $ 0.00
February 2006....... 245,849,700.00 747,974.85 373,987.43 22,461,639.42 2,807,704.95 0.00
March 2006.......... 245,849,700.00 614,332.53 307,166.27 21,978,945.06 2,747,368.15 0.00
April 2006.......... 245,849,700.00 485,850.94 242,925.47 21,503,171.02 2,687,896.40 0.00
May 2006............ 245,849,700.00 362,473.06 181,236.53 21,034,198.78 2,629,274.87 0.00
June 2006........... 245,849,700.00 244,142.40 122,071.20 20,571,910.77 2,571,488.87 0.00
July 2006........... 245,849,700.00 130,803.00 65,401.50 20,116,190.40 2,514,523.82 0.00
August 2006......... 245,849,700.00 22,399.42 11,199.71 19,666,922.06 2,458,365.28 0.00
September 2006...... 245,849,700.00 0.00 0.00 19,223,991.13 2,402,998.91 0.00
October 2006........ 242,370,809.10 0.00 0.00 18,787,283.85 2,348,410.50 0.00
November 2006....... 238,715,548.20 0.00 0.00 18,350,942.61 2,293,867.84 0.00
December 2006....... 235,112,269.91 0.00 0.00 17,905,391.99 2,238,174.02 0.00
January 2007........ 231,560,254.95 0.00 0.00 17,450,799.55 2,181,349.96 0.00
February 2007....... 228,058,793.82 0.00 0.00 16,987,329.59 2,123,416.22 0.00
March 2007.......... 224,607,186.76 0.00 0.00 16,515,143.16 2,064,392.91 0.00
April 2007.......... 221,204,743.50 0.00 0.00 16,034,398.24 2,004,299.80 0.00
May 2007............ 217,850,783.26 0.00 0.00 15,545,249.64 1,943,156.22 0.00
June 2007........... 214,544,634.50 0.00 0.00 15,047,849.16 1,880,981.16 0.00
July 2007........... 211,285,634.88 0.00 0.00 14,542,345.54 1,817,793.21 0.00
August 2007......... 208,073,131.11 0.00 0.00 14,028,884.59 1,753,610.59 0.00
September 2007...... 204,906,478.81 0.00 0.00 13,507,609.17 1,688,451.16 0.00
October 2007........ 201,785,042.41 0.00 0.00 12,978,659.26 1,622,332.42 0.00
November 2007....... 198,708,195.02 0.00 0.00 12,442,172.02 1,555,271.51 0.00
December 2007....... 195,675,318.32 0.00 0.00 11,898,281.78 1,487,285.23 0.00
January 2008........ 192,685,802.44 0.00 0.00 11,347,120.14 1,418,390.03 0.00
February 2008....... 189,739,045.84 0.00 0.00 10,788,815.97 1,348,602.01 0.00
March 2008.......... 186,834,455.19 0.00 0.00 10,223,495.50 1,277,936.95 0.00
April 2008.......... 183,971,445.31 0.00 0.00 9,651,282.26 1,206,410.29 0.00
May 2008............ 181,149,438.97 0.00 0.00 9,072,297.24 1,134,037.16 0.00
June 2008........... 178,367,866.88 0.00 0.00 8,486,658.85 1,060,832.36 0.00
July 2008........... 175,626,167.48 0.00 0.00 7,894,483.00 986,810.38 0.00
August 2008......... 172,923,786.95 0.00 0.00 7,295,883.08 911,985.39 0.00
September 2008...... 170,260,179.00 0.00 0.00 6,690,970.07 836,371.27 0.00
October 2008........ 167,634,804.83 0.00 0.00 6,079,852.52 759,981.57 0.00
November 2008....... 165,047,133.00 0.00 0.00 5,462,636.62 682,829.58 0.00
December 2008....... 162,496,639.36 0.00 0.00 4,839,426.20 604,928.28 0.00
January 2009........ 159,982,806.91 0.00 0.00 4,210,322.80 526,290.35 0.00
February 2009....... 157,505,125.75 0.00 0.00 3,575,425.70 446,928.22 0.00
March 2009.......... 155,063,092.92 0.00 0.00 2,934,831.92 366,853.99 0.00
April 2009.......... 152,656,212.39 0.00 0.00 2,288,636.30 286,079.54 0.00
May 2009............ 150,283,994.89 0.00 0.00 1,636,931.48 204,616.44 0.00
June 2009........... 147,945,957.85 0.00 0.00 979,807.99 122,476.00 0.00
July 2009........... 145,641,625.32 0.00 0.00 317,354.23 39,669.28 0.00
August 2009......... 143,370,527.86 0.00 0.00 0.00 0.00 0.00
September 2009...... 141,132,202.46 0.00 0.00 0.00 0.00 0.00
October 2009........ 138,926,192.46 0.00 0.00 0.00 0.00 0.00
November 2009....... 136,752,047.43 0.00 0.00 0.00 0.00 0.00
December 2009....... 134,609,323.15 0.00 0.00 0.00 0.00 0.00
January 2010........ 132,497,581.44 0.00 0.00 0.00 0.00 0.00
</TABLE>

<PAGE>

<PAGE>

<PAGE>

<PAGE>

<PAGE>

<PAGE>

PQ Class PR Class PS Class PT Class FR Class SO Class
Distribution Planned Planned Planned Planned Targeted Targeted
Date Balance Balance Balance Balance Balance Balance
- ----------------------------------- --------------- --------------- ---------------- ---------------- ---------------
<S> <C>
Initial Balance..... $ 43,800,400.00 $ 65,074,500.00 $ 61,333,200.00 $ 165,608,300.00 $ 173,652,988.00 $ 21,706,624.00
December 1997....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
January 1998........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
February 1998....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
March 1998.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
April 1998.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
May 1998............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
June 1998........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
July 1998........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
August 1998......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
September 1998...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
October 1998........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
November 1998....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
December 1998....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
January 1999........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
February 1999....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
March 1999.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
April 1999.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
May 1999............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
June 1999........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
July 1999........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
August 1999......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 128,841,793.13 16,105,224.51
September 1999...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 125,634,466.68 15,704,308.70
October 1999........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 122,377,678.52 15,297,210.17
November 1999....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 119,302,087.62 14,912,761.30
December 1999....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 117,477,922.14 14,684,740.61
January 2000........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 115,640,320.17 14,455,040.35
February 2000....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 113,795,021.14 14,224,377.97
March 2000.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 111,952,987.51 13,994,123.76
April 2000.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 110,129,539.02 13,766,192.69
May 2000............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 108,331,178.53 13,541,397.63
June 2000........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 106,557,673.92 13,319,709.55
July 2000........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 104,808,727.48 13,101,091.24
August 2000......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 103,084,044.22 12,885,505.82
September 2000...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 101,383,331.82 12,672,916.77
October 2000........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 99,706,300.63 12,463,287.87
November 2000....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 98,052,663.58 12,256,583.23
December 2000....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 96,422,136.30 12,052,767.32
January 2001........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 94,814,436.93 11,851,804.89
February 2001....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 93,229,286.20 11,653,661.04
March 2001.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 91,666,407.32 11,458,301.18
April 2001.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 90,125,526.09 11,265,691.02
May 2001............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 88,606,370.74 11,075,796.60
June 2001........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 87,108,671.94 10,888,584.24
July 2001........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 85,632,162.86 10,704,020.60
August 2001......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 84,176,579.01 10,522,072.62
September 2001...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 82,741,658.34 10,342,707.53
October 2001........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 81,327,141.14 10,165,892.88
November 2001....... 41,570,672.62 65,074,500.00 61,333,200.00 165,608,300.00 79,932,770.04 9,991,596.49
</TABLE>

<PAGE>

PQ Class PR Class PS Class PT Class FR Class SO Class
Distribution Planned Planned Planned Planned Targeted Targeted
Date Balance Balance Balance Balance Balance Balance
- ----------------------------------- --------------- --------------- ---------------- ---------------- ---------------
<S> <C>
December 2001....... $ 38,254,063.77 $ 65,074,500.00 $ 61,333,200.00 $ 165,608,300.00 $ 78,558,290.00 $ 9,819,786.48
January 2002........ 34,953,823.26 65,074,500.00 61,333,200.00 165,608,300.00 77,203,448.27 9,650,431.26
February 2002....... 31,669,866.05 65,074,500.00 61,333,200.00 165,608,300.00 75,867,994.37 9,483,499.51
March 2002.......... 28,402,107.55 65,074,500.00 61,333,200.00 165,608,300.00 74,551,680.07 9,318,960.22
April 2002.......... 25,150,463.59 65,074,500.00 61,333,200.00 165,608,300.00 73,254,259.40 9,156,782.64
May 2002............ 21,914,850.44 65,074,500.00 61,333,200.00 165,608,300.00 71,975,488.55 8,996,936.28
June 2002........... 18,695,184.80 65,074,500.00 61,333,200.00 165,608,300.00 70,715,125.92 8,839,390.94
July 2002........... 15,491,383.79 65,074,500.00 61,333,200.00 165,608,300.00 69,472,932.07 8,684,116.71
August 2002......... 12,303,364.97 65,074,500.00 61,333,200.00 165,608,300.00 68,248,669.71 8,531,083.91
September 2002...... 9,131,046.30 65,074,500.00 61,333,200.00 165,608,300.00 67,042,103.66 8,380,263.15
October 2002........ 5,974,346.19 65,074,500.00 61,333,200.00 165,608,300.00 65,853,000.84 8,231,625.29
November 2002....... 2,833,183.44 65,074,500.00 61,333,200.00 165,608,300.00 64,681,130.26 8,085,141.47
December 2002....... 0.00 64,781,977.29 61,333,200.00 165,608,300.00 63,526,262.99 7,940,783.06
January 2003........ 0.00 61,671,647.38 61,333,200.00 165,608,300.00 62,388,172.10 7,798,521.69
February 2003....... 0.00 58,576,613.76 61,333,200.00 165,608,300.00 61,266,632.75 7,658,329.27
March 2003.......... 0.00 55,496,796.90 61,333,200.00 165,608,300.00 60,161,422.04 7,520,177.93
April 2003.......... 0.00 52,432,117.68 61,333,200.00 165,608,300.00 59,072,319.06 7,384,040.05
May 2003............ 0.00 49,382,497.37 61,333,200.00 165,608,300.00 57,999,104.89 7,249,888.28
June 2003........... 0.00 46,347,857.66 61,333,200.00 165,608,300.00 56,941,562.50 7,117,695.48
July 2003........... 0.00 43,328,120.63 61,333,200.00 165,608,300.00 55,899,476.81 6,987,434.76
August 2003......... 0.00 40,323,208.78 61,333,200.00 165,608,300.00 54,872,634.61 6,859,079.48
September 2003...... 0.00 37,333,044.97 61,333,200.00 165,608,300.00 53,860,824.64 6,732,603.24
October 2003........ 0.00 34,357,552.49 61,333,200.00 165,608,300.00 52,863,837.43 6,607,979.83
November 2003....... 0.00 31,396,655.01 61,333,200.00 165,608,300.00 51,881,465.39 6,485,183.32
December 2003....... 0.00 28,450,276.60 61,333,200.00 165,608,300.00 50,913,502.73 6,364,187.99
January 2004........ 0.00 25,518,341.70 61,333,200.00 165,608,300.00 49,959,745.49 6,244,968.33
February 2004....... 0.00 22,600,775.16 61,333,200.00 165,608,300.00 49,019,991.49 6,127,499.08
March 2004.......... 0.00 19,697,502.20 61,333,200.00 165,608,300.00 48,094,040.33 6,011,755.18
April 2004.......... 0.00 16,808,448.44 61,333,200.00 165,608,300.00 47,181,693.33 5,897,711.80
May 2004............ 0.00 13,933,539.85 61,333,200.00 165,608,300.00 46,282,753.58 5,785,344.33
June 2004........... 0.00 11,072,702.81 61,333,200.00 165,608,300.00 45,397,025.88 5,674,628.37
July 2004........... 0.00 8,225,864.08 61,333,200.00 165,608,300.00 44,524,316.69 5,565,539.71
August 2004......... 0.00 5,392,950.77 61,333,200.00 165,608,300.00 43,664,434.21 5,458,054.40
September 2004...... 0.00 2,573,890.37 61,333,200.00 165,608,300.00 42,817,188.28 5,352,148.66
October 2004........ 0.00 0.00 61,101,810.76 165,608,300.00 41,982,390.38 5,247,798.92
November 2004....... 0.00 0.00 58,310,240.18 165,608,300.00 41,159,853.62 5,144,981.82
December 2004....... 0.00 0.00 55,532,307.23 165,608,300.00 40,349,392.71 5,043,674.20
January 2005........ 0.00 0.00 52,767,940.89 165,608,300.00 39,550,824.01 4,943,853.12
February 2005....... 0.00 0.00 50,017,070.49 165,608,300.00 38,763,965.41 4,845,495.79
March 2005.......... 0.00 0.00 47,279,625.73 165,608,300.00 37,988,636.35 4,748,579.65
April 2005.......... 0.00 0.00 44,555,536.67 165,608,300.00 37,224,657.90 4,653,082.34
May 2005............ 0.00 0.00 41,844,733.73 165,608,300.00 36,471,852.57 4,558,981.68
June 2005........... 0.00 0.00 39,147,147.69 165,608,300.00 35,730,044.44 4,466,255.66
July 2005........... 0.00 0.00 36,462,709.66 165,608,300.00 34,999,059.08 4,374,882.49
August 2005......... 0.00 0.00 33,791,351.15 165,608,300.00 34,278,723.52 4,284,840.54
September 2005...... 0.00 0.00 31,133,003.98 165,608,300.00 33,568,866.28 4,196,108.38
October 2005........ 0.00 0.00 28,487,600.33 165,608,300.00 32,869,317.33 4,108,664.76
November 2005....... 0.00 0.00 25,855,072.73 165,608,300.00 32,179,908.09 4,022,488.60
December 2005....... 0.00 0.00 23,235,354.07 165,608,300.00 31,500,471.37 3,937,559.01
</Talbe>

<PAGE>

</TABLE>
<TABLE>
<CAPTION>

PQ Class PR Class PS Class PT Class FR Class SO Class
Distribution Planned Planned Planned Planned Targeted Targeted
Date Balance Balance Balance Balance Balance Balance
- ----------------------------------- --------------- --------------- ---------------- ---------------- ---------------
<S> <C>
January 2006........ $ 0.00 $ 0.00 $ 20,628,377.57 $ 165,608,300.00 $ 30,830,841.41 $ 3,853,855.27
February 2006....... 0.00 0.00 18,034,076.78 165,608,300.00 30,170,853.84 3,771,356.82
March 2006.......... 0.00 0.00 15,452,385.61 165,608,300.00 29,520,345.68 3,690,043.29
April 2006.......... 0.00 0.00 12,883,238.31 165,608,300.00 28,879,155.29 3,609,894.49
May 2006............ 0.00 0.00 10,326,569.46 165,608,300.00 28,247,122.37 3,530,890.38
June 2006........... 0.00 0.00 7,782,313.96 165,608,300.00 27,624,088.01 3,453,011.08
July 2006........... 0.00 0.00 5,250,407.08 165,608,300.00 27,009,894.55 3,376,236.90
August 2006......... 0.00 0.00 2,730,784.38 165,608,300.00 26,404,385.67 3,300,548.28
September 2006...... 0.00 0.00 223,381.79 165,608,300.00 25,807,406.35 3,225,925.87
October 2006........ 0.00 0.00 0.00 163,336,435.54 25,218,802.82 3,152,350.43
November 2006....... 0.00 0.00 0.00 160,872,144.14 24,621,656.42 3,077,707.12
December 2006....... 0.00 0.00 0.00 158,442,907.71 24,012,115.27 3,001,514.48
January 2007........ 0.00 0.00 0.00 156,048,241.10 23,390,404.81 2,923,800.67
February 2007....... 0.00 0.00 0.00 153,687,665.78 22,756,746.05 2,844,593.32
March 2007.......... 0.00 0.00 0.00 151,360,709.76 22,111,355.76 2,763,919.53
April 2007.......... 0.00 0.00 0.00 149,066,907.48 21,454,446.43 2,681,805.87
May 2007............ 0.00 0.00 0.00 146,805,799.74 20,786,226.36 2,598,278.35
June 2007........... 0.00 0.00 0.00 144,576,933.63 20,106,899.70 2,513,362.52
July 2007........... 0.00 0.00 0.00 142,379,862.41 19,416,666.59 2,427,083.38
August 2007......... 0.00 0.00 0.00 140,214,145.45 18,715,723.13 2,339,465.45
September 2007...... 0.00 0.00 0.00 138,079,348.12 18,004,261.51 2,250,532.74
October 2007........ 0.00 0.00 0.00 135,975,041.76 17,282,469.97 2,160,308.80
November 2007....... 0.00 0.00 0.00 133,900,803.54 16,550,532.97 2,068,816.67
December 2007....... 0.00 0.00 0.00 131,856,216.43 15,808,631.21 1,976,078.95
January 2008........ 0.00 0.00 0.00 129,840,869.08 15,056,941.64 1,882,117.75
February 2008....... 0.00 0.00 0.00 127,854,355.77 14,295,637.55 1,786,954.73
March 2008.......... 0.00 0.00 0.00 125,896,276.34 13,524,888.65 1,690,611.12
April 2008.......... 0.00 0.00 0.00 123,966,236.07 12,744,861.09 1,593,107.67
May 2008............ 0.00 0.00 0.00 122,063,845.67 11,955,717.49 1,494,464.72
June 2008........... 0.00 0.00 0.00 120,188,721.16 11,157,617.06 1,394,702.16
July 2008........... 0.00 0.00 0.00 118,340,483.79 10,350,715.60 1,293,839.48
August 2008......... 0.00 0.00 0.00 116,518,760.03 9,535,165.57 1,191,895.72
September 2008...... 0.00 0.00 0.00 114,723,181.43 8,711,116.09 1,088,889.54
October 2008........ 0.00 0.00 0.00 112,953,384.59 7,878,713.08 984,839.16
November 2008....... 0.00 0.00 0.00 111,209,011.08 7,038,099.23 879,762.42
December 2008....... 0.00 0.00 0.00 109,489,707.38 6,189,414.12 773,676.78
January 2009........ 0.00 0.00 0.00 107,795,124.80 5,332,794.16 666,599.29
February 2009....... 0.00 0.00 0.00 106,124,919.43 4,468,372.73 558,546.60
March 2009.......... 0.00 0.00 0.00 104,478,752.05 3,596,280.21 449,535.04
April 2009.......... 0.00 0.00 0.00 102,856,288.12 2,716,643.99 339,580.51
May 2009............ 0.00 0.00 0.00 101,257,197.64 1,829,588.53 228,698.57
June 2009........... 0.00 0.00 0.00 99,681,155.14 935,235.41 116,904.43
July 2009........... 0.00 0.00 0.00 98,127,839.64 33,703.36 4,212.92
August 2009......... 0.00 0.00 0.00 96,596,934.50 0.00 0.00
September 2009...... 0.00 0.00 0.00 95,088,127.46 0.00 0.00
October 2009........ 0.00 0.00 0.00 93,601,110.53 0.00 0.00
November 2009....... 0.00 0.00 0.00 92,135,579.92 0.00 0.00
December 2009....... 0.00 0.00 0.00 90,691,236.01 0.00 0.00
January 2010........ 0.00 0.00 0.00 89,267,783.31 0.00 0.00
</TABLE>

<PAGE>

<PAGE>

<PAGE>

<PAGE>

<PAGE>

<PAGE>

======================================================

------------------------

TABLE OF CONTENTS

Page
----
Prospectus Supplement
Table of Contents..................... S- 3
Reference Sheet....................... S- 4
Additional Risk Factors............... S-10
Description of the Certificates....... S-11
Certain Additional Federal Income Tax
Consequences........................ S-37
Plan of Distribution.................. S-39
Legal Matters......................... S-40
Exhibit A............................. A- 1
Schedule 1............................ A- 2
Principal Balance Schedules........... B- 1

REMIC Prospectus
Prospectus Supplement................. 2
Summary of Prospectus................. 3
Risk Factors.......................... 8
Description of the Certificates....... 10
The Trust Agreement................... 23
Certain Federal Income Tax
Consequences........................ 25
Legal Investment Considerations....... 37
Legal Opinion......................... 37
ERISA Considerations.................. 37
Glossary.............................. 39

======================================================

$2,102,833,336

[FANNIEMAE LOGO]

Guaranteed REMIC
Pass-Through Certificates
Fannie Mae REMIC Trust 1997-78

------------------------
PROSPECTUS SUPPLEMENT
------------------------

Bear, Stearns & Co. Inc.

October 8, 1997

======================================================

<PAGE>

Annex 2(c)

Cover Page and Terms Sheet
for
Offering Circular Supplement
dated August 17, 1992
to
Offering Circular
dated May 1, 1992
relating to

Federal Home Loan Mortgage Corporation
Multiclass Mortgage Participation Certificates,
Series 1381

<PAGE>

Offering Circular Supplement

Freddie
(To Offering Circular Dated May 1, 1992) Mac

$571,428,000 [ LOGO ]

Federal Home Loan Mortgage Corporation
Multiclass Mortgage Participation Certificates, Series 1381

------------------------

The Federal Home Loan Mortgage Corporation ("Freddie Mac") is offering its
Multiclass Mortgage Participation Certificates, Series 1381 (the "Multiclass
PCs"). The Multiclass PCs will consist of the various "Classes" listed below.
The Classes will receive principal and interest payments, in differing
proportions and at differing times, from the cash flows provided by Freddie Mac
"Gold PCs" and "Gold Giant PCs" with interest rates of 7.5% per annum. This
Supplement sometimes refers to the Gold PCs and Gold Giant PCs that will back
the Multiclass PCs as the "PCs." Underlying the PCs are pools of fixed-rate,
first lien, residential mortgages and mortgage participations (the "Mortgages").
See "General Information - Structure of Transaction" in this Supplement. All of
the Mortgages will have original terms to maturity of 180 months or less.

Freddie Mac guarantees to each "Holder" of a Multiclass PC (i) the timely
payment of interest at the applicable "Class Coupon" and (ii) the payment of the
principal amount of the Holder's Multiclass PC as described in this Supplement.

Freddie Mac will make interest and principal payments on each monthly
"Payment Date," beginning November 15, 1992, on the Classes entitled to such
payments. See "Payments" in this Supplement.

This Series will involve the creation of an "Upper-Tier REMIC Pool" and a
"Lower-Tier REMIC Pool." Elections will be made to treat both REMIC Pools as
"real estate mortgage investment conduits" ("REMICs") pursuant to the Internal
Revenue Code. The R and RS Classes will be "Residual Classes" and, for federal
income tax purposes, will be the residual interests in the Upper-Tier and
Lower-Tier REMIC Pools, respectively. The other Classes will be "Regular
Classes" and, for federal income tax purposes, will be the regular interests in
the Upper-Tier REMIC Pool. The Residual Classes will be subject to transfer
restrictions. See "Certain Federal Income Tax Consequences" in this Supplement
and in the Multiclass PC Offering Circular.

Investors should read this Supplement in conjunction with the documents
listed at the bottom of page S-2.

The obligations of Freddie Mac under its guarantees of the Multiclass PCs
are obligations of Freddie Mac only. The Multiclass PCs, including any
interest thereon, are not guaranteed by the United States and do not
constitute debts or obligations of the United States or any agency or
instrumentality of the United States other than Freddie Mac. Income on the
Multiclass PCs has no exemption under federal law from federal, state or local
taxation. The Multiclass PCs are exempt from the registration requirements of
the Securities Act of 1933 and are "exempted securities" within the meaning of
the Securities Exchange Act of 1934.

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Principal
Original Type/ Weighted Average
Class Principal Other Class Interest CUSIP Final Payment Life at 185%
1381- Amount (1) Type (2) Coupon Type (2) Number Date (3) PSA (4)
- -------------- ------------ ------------ ------ --------- --------- ------------------ ----------------
<S> <C>
A ............ $142,857,000 STP (5) FLT 312912TJ7 October 15, 2007 5.7 Yrs
B ............ 46,756,000 SCH/LIQ 5.50% FIX 312912TK4 October 15, 1996 2.3
C ............ 33,315,000 SCH/LIQ 5.50 FIX 312912TL2 October 15, 1997 2.5
D ............ 51,679,000 PAC 5.25 FIX 312912TM0 August 15, 2004 2.4
E ............ 30,440,000 PAC 6.25 FIX 312912TN8 July 15, 2006 5.5
G ............ 18,343,000 PAC 6.50 FIX 312912TP3 February 15, 2007 6.3
H ............ 23,753,000 PAC 6.75 FIX 312912TQ1 October 15, 2007 7.0
A ............ (6) CPT/NTL 7.50 FIX/IO 312912TR9 February 15, 2007 -
IB ........... (7) NTL 7.50 FIX/IO 312912TS7 October 15, 2007 -
IC ........... (8) NTL 7.50 FIX/IO 312912TT5 October 15, 1997 -
J ............ 45,657,000 PAC 6.75 FIX 312912TU2 June 15, 2005 8.4
K ............ 30,551,000 PAC 7.00 FIX 312912TV0 October 15, 2007 10.5
L ............ 25,539,000 SCH 7.00 FIX 312912TW8 October 15, 2007 3.5
M ............ 38,172,100 TAC (5) FLT 312912TX6 October 15, 2007 3.5
N ............ 9,710,000 TAC (5) INV 312912TY4 July 15, 2007 2.3
O ............ 3,922,900 TAC (5) INV 312912TZ1 October 15, 2007 6.5
P ............ 33,336,210 SUP (5) FLT/DLY 312912UA4 October 15, 2007 12.9
Q ............ 7,675,306 SUP (5) INV/DLY 312912UB2 October 15, 2007 12.9
SA............ (9) NTL (5) INV/IO 312912UC0 July 15, 1997 -
SB............ (9) NTL (5) INV/IO 312912UD8 October 15, 2007 -
SC............ (9) NTL (5) INV/IO 312912UE6 October 15, 2007 -
T ............ 4,230,484 SUP (5) INV/DLY 312912UF3 October 15, 2007 12.9
V ............ 5,124,000 AD/LIQ 6.00 FIX 312912UG1 July 15, 1996 1.9
Z ............ 20,367,000 PAC 6.00 FIX/Z 312912UH9 July 15, 2005 4.4
R ............ 0 NPR 0 NPR 312912UJ5 October 15, 2007 -
RS............ 0 NPR 0 NPR 312912UK2 October 15, 2007 -
</TABLE>

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

(1) Subject to proportionate increase as described under "Increase in Size" in
this Supplement.

(2) See "Description of Multiclass PCs -Standard Definitions and Abbreviations
for Classes" on pages 7-9 of the Multiclass PC Offering Circular and
"Payments - Interest" in this Supplement.

(3) Determined as described under "Final Payment Dates" in this Supplement.

(4) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at the assumed rate of 185% PSA or any
other constant rate, and the actual weighted average lives of many Classes
are likely to differ from those shown, perhaps significantly.

(5) The A, P, Q, SA, SB, SC and T Classes will bear interest based on "COFI,"
and the M, N and O Classes will bear interest based on the "Three-Year
Treasury Index," as described under "Payments - Interest" in this
Supplement.

(6) The IA Class will not receive principal payments, will have an original
notional principal amount of $29,075,300 and will bear interest on its
notional principal amount at its Class Coupon of 7.5% per annum. The
notional principal amount of the IA Class will be reduced proportionately
with reductions in the principal amounts of the Accretion Directed Class and
certain of the Scheduled and PAC Classes, as described under "Payments -
Interest" in this Supplement.

(7) The IB Class will not receive principal payments, will have an original
notional principal amount of approximately $2,313,666 and will bear interest
on its notional principal amount at its Class Coupon of 7.5% per annum. The
notional principal amount of the IB Class will be reduced proportionately
with reductions in the aggregate principal amount of the H and J Classes, as
described under "Payments- Interest" in this Supplement.

(8) The IC Class will not receive principal payments, will have an original
notional principal amount of $6,663,000 and will bear interest on its
notional principal amount at its Class Coupon of 7.5% per annum. The
notional principal amount of the IC Class will be reduced proportionately
with reductions in the principal amount of the C Class, as described under
"Payments - Interest" in this Supplement.

(9) The SA, SB and SC Classes will not receive principal payments, will have
original notional principal amounts of $7,454,685, $35,768,515 and
$3,467,743, respectively, and will bear interest on their respective
notional principal amounts based on COFI, as described under "Payments
Interest" in this Supplement. The notional principal amounts of the SA, SB
and SC Classes will be reduced in relation to reductions in the principal
amount of the A Class, as described under "Payments - Interest" in this
Supplement.

The Multiclass PCs are offered by Bear, Stearns & Co. Inc. (the
"Underwriter") to the public from time to time for sale in negotiated
transactions at varying prices to be determined at the time of sale, plus
accrued interest from October 1, 1992 on the Fixed Rate Classes and the P, Q and
T Classes and from October 15, 1992 on the Floating Rate and Inverse Floating
Rate Classes other than the P, Q and T Classes. The Multiclass PCs are offered
by the Underwriter, subject to sale by Freddie Mac and receipt and acceptance by
the Underwriter and subject to the Underwriter's right to reject any order in
whole or in part. It is expected that the Regular Classes (in book-entry form)
will be available for deposit at any Federal Reserve Bank, and that delivery of
the Residual Classes (in certificated form) will be made at the offices of the
Underwriter, 245 Park Avenue, New York, New York 10167, on or about October 30,
1992 (the "Closing Date").

Bear, Stearns & Co. Inc.

Offering Circular Supplement Dated August 17, 1992

<PAGE>

MULTICLASS PCs ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE MULTICLASS PCs OF ANY CLASS UNLESS THE
INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD AND LIQUIDITY
RISKS ASSOCIATED WITH THAT CLASS.

------------------------

The yield of each Class will depend upon its purchase price, its
sensitivity to the rate of principal payments on the Mortgages, the actual
characteristics of the Mortgages and, in the case of each Floating Rate or
Inverse Floating Rate Class, its sensitivity to the level of COFI or the
Three-Year Treasury Index (each, an "Index"). The Mortgages are subject to
prepayment at any time without penalty. Mortgage prepayment rates are likely to
fluctuate significantly from time to time, as is the level of each Index.
Investors should consider the associated risks, including:

o Fast Mortgage prepayment rates can reduce the yields of Classes
purchased at a premium, especially the IA, IB, IC, SA, SB and SC
Classes, which are Interest Only Classes. Under certain prepayment
scenarios, investors in the Interest Only Classes could fail to fully
recover their investments.

o Slow Mortgage prepayment rates can increase the weighted average lives
and, thus, reduce the yields of Classes purchased at a discount.

o Small differences in the characteristics of the Mortgages can have a
significant effect on the weighted average lives and yields of the
Classes.

o Low levels of the applicable Index can reduce the yields of the A, M
and P Classes. Conversely, high levels of the applicable Index can
significantly reduce the yields of the N, O, Q, SA, SB, SC and T
Classes and (especially in combination with fast Mortgage prepayment
rates) may result in the failure of investors in the SA, SB and SC
Classes to fully recover their investments.

o In general, principal payment rates on the P, Q and T Classes, which
are Support Classes, are likely to exhibit a higher sensitivity to
Mortgage prepayments than are principal payment rates on the Accretion
Directed, PAC, TAC, Scheduled and Strip Classes.

o In general, principal payment rates on the TAC and L Classes are
likely to exhibit a higher sensitivity to Mortgage prepayments than
are principal payment rates on the Accretion Directed, PAC, B and C
Classes.

See "Prepayment and Yield Analysis" in this Supplement.

------------------------

The Underwriter intends to make a market for the purchase and sale of the
Multiclass PCs after their initial issuance but has no obligation to do so.
There is no assurance that such a secondary market will develop or, if it
develops, that it will continue. Consequently, investors may not be able to sell
their Multiclass PCs readily or at prices that will enable them to realize their
desired yield.

------------------------

Investors should purchase Multiclass PCs only if they have read and
understand this Supplement and the following documents:

o Freddie Mac's Multiclass Mortgage Participation Certificates Offering
Circular dated May 1, 1992 (the "Multiclass PC Offering Circular"),
which is attached to this Supplement;

o Freddie Mac's Mortgage Participation Certificates Offering Circular
dated June 30, 1992 and its Mortgage Participation Certificates
Offering Circular Supplement dated August 3, 1992 (together, the "PC
Offering Circular");

o Freddie Mac's Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991 (the "Giant PC Offering Circular");
and

o Freddie Mac's Information Statement dated March 19, 1992, its
Information Statement Supplements dated April 28, 1992 and July 30,
1992 and any other Information Statement Supplements published by
Freddie Mac through the time of purchase (collectively, the
"Information Statement").

This Supplement incorporates by reference the PC Offering Circular, the
Giant PC Offering Circular and the Information Statement. Investors can order
those documents: from Freddie Mac, by writing or calling its Investor Inquiry
Department at 8200 Jones Branch Drive, McLean, Virginia 22102 (outside
Washington, D.C. metropolitan area, phone 800/336-FMPC; within Washington, D.C.
metropolitan area, phone 703/759-8160); or from the Underwriter, by writing or
calling its Prospectus Department at One MetroTech Center North, Brooklyn, New
York 11201-3859 (phone 212/272-1581).

Investors can obtain additional information regarding the PCs and Mortgages
from the sources described under "General Information - Additional Information"
in this Supplement.

<PAGE>

SERIES 1381 TERMS SHEET

This terms sheet contains selected information for quick reference only. It
is not a summary of the transaction. Investors should refer to the remainder of
this Supplement for further information.

Class and Component Coupons

The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement.

The Floating Rate and Inverse Floating Rate Classes will bear interest as
follows:

Class Coupon Subject to
Initial Class or --------------------------
Class Rate Component Coupon Minimum Rate Maximum Rate
- -------------- --------- --------------------------------------------- ------------ ------------
<S> <C>
A ............ 6.03800% COFI + 0.78% 0.78% 9.00000%
SA............ 9.78970 27.16792% - (COFI x 3.3051) 0 27.16792
SB............ 9.06258 26.4408% - (COFI x 3.3051) 0 26.44080
SC............ 7.50000 280.22736% - (COFI x 34.09092) 0 7.50000
M ............ 4.62000 Three-Year Treasury Index 0 9.50000
N and O....... 13.66398 26.59998% - (Three-Year Treasury Index x 2.8) 0 26.59998
P* ........... 6.00800 COFI + 0.75% 0.75 9.50000
Q*............ 9.73767 32.5748% - (COFI x 4.34331) 0 32.57480
T* ........... 9.85000 68.95% - (COFI x 7.88) 0 9.85000
</TABLE>

- ---------------
*Accrues interest during "Interest Accrual Periods" rather than "Floating
Interest Accrual Periods."

See "Payments - Interest" in this Supplement.

Allocation of Principal

o Accrual Amount to V and Z, in that order

o 25% of PC Principal Amount to A

o 75% of PC Principal Amount to:

1. B and C to their Combined Scheduled Balance,* allocated:

(i) beginning October 15, 1993, B to its Targeted Balance
(structured at 95% - 235% PSA)

(ii) C to its Targeted Balance (structured at 235% PSA)

(iii) B and C, in that order, until retired

2. Beginning April 15, 2000, J and K, in that order, to their
Targeted Balances (structured at 95% - 235% PSA)

3. L to its Higher Targeted Balance (structured at 95% PSA)

4. Beginning October 15, 1993, D, Z, E, G and H, in that order, to
their Targeted Balances (structured at 95% - 235% PSA)

5. L to its Lower Targeted Balance (structured at approximately 112%
PSA)

6. TAC Classes to their Targeted Balances (structured at 195% PSA),
allocated 73.6842003668% to M and 26.3157996332% to N and O, in that
order

7. P, Q and T, pro rata, until retired

8. TAC Classes as in step 6, without regard to their Targeted Balances,
until retired

9. L until retired

10. D, V, Z, E, G, H, J and K, in that order, until retired

- -------------------
*The Combined Scheduled Balance equals approximately 13.9% of the remaining
principal balance of the PCs on the first Payment Date and declines on each
subsequent Payment Date to 0% of such balance on October 15, 1997.

See "Payments - Principal" in this Supplement.

<PAGE>

Weighted Average Lives (in years)*

PSA Prepayment Assumption
----------------------------
0% 95% 185% 235% 400%
---- ---- ---- ---- ----
A................... 9.3 7.0 5.7 5.1 3.9
B................... 2.5 2.3 2.3 2.3 2.1
C................... 3.0 2.8 2.5 2.4 2.3
D................... 6.7 2.4 2.4 2.4 2.4
E................... 11.7 5.5 5.5 5.5 4.5
G................... 12.3 6.3 6.3 6.3 5.2
H................... 12.8 7.0 7.0 7.0 5.8
J .................. 8.4 8.4 8.4 8.4 7.3
K................... 10.5 10.5 10.5 10.5 10.7
L................... 7.8 6.5 3.5 4.4 2.2
M................... 13.6 11.6 3.5 2.8 2.2
N................... 13.5 11.3 2.3 2.1 1.9
O................... 14.0 12.6 6.5 4.5 2.8
P, Q and T.......... 14.6 13.8 12.9 8.1 1.4
V................... 1.9 1.9 1.9 1.9 1.9
Z................... 10.6 4.4 4.4 4.4 3.8
Underlying PCs...... 9.3 7.0 5.7 5.1 3.9

- -------------------
*Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at any assumed rate shown or any other
constant rate, and the actual weighted average lives of many Classes and of
the PCs are likely to differ from those shown, perhaps significantly.

Assumed Mortgage Characteristics (as of October 1, 1992)

Approximate
Weighted Average Approximate Approximate
Approximate Remaining Term Weighted Average Weighted Average
Principal to Maturity Loan Age Per Annum
Balance (in months) (in months) Interest Rate
- -------------- ---------------- ---------------- ----------------
$571,428,000 178 2 8.125%

The actual remaining terms to maturity, loan ages and interest rates of most
of the Mortgages will differ from the weighted averages shown above, perhaps
significantly. See "General Information - The Mortgages" in this Supplement.

<PAGE>

Annex 2(d)

Cover Page and Terms Sheet
for
Offering Circular Supplement
dated July 27, 1993
to
Offering Circular
dated January 1, 1993
relating to

Federal Home Loan Mortgage Corporation
Multiclass Mortgage Participation Certificates,
Series 1578

<PAGE>

OFFERING CIRCULAR SUPPLEMENT
(To Offering Circular Dated January 1, 1993) Freddie
Mac
$1,500,000,000

Federal Home Loan [ LOGO ]
Mortgage Corporation

MULTICLASS MORTGAGE PARTICIPATION CERTIFICATES, Series 1578

------------------------

The Federal Home Loan Mortgage Corporation ("Freddie Mac") is offering its
Multiclass Mortgage Participation Certificates, Series 1578 (the "Multiclass
PCs"). The Multiclass PCs will consist of the various "Classes" listed below.
The Classes will receive principal and interest payments, in differing
proportions and at differing times, from the cash flows provided by Freddie Mac
"Gold PCs" and "Gold Giant PCs" with interest rates of 7% per annum. This
Supplement sometimes refers to the Gold PCs and Gold Giant PCs that will back
the Multiclass PCs as the "PCs." Underlying the PCs are pools of fixed-rate,
first lien, residential mortgages and mortgage participations (the "Mortgages").
See "General Information -- Structure of Transaction" in this Supplement.

Freddie Mac will make interest and principal payments on each monthly
"Payment Date," beginning October 15, 1993, on the Classes entitled to such
payments. See "Payments" in this Supplement.

INVESTORS SHOULD READ THIS SUPPLEMENT IN CONJUNCTION WITH THE DOCUMENTS
LISTED AT THE BOTTOM OF PAGE S-2.

------------------------

THE OBLIGATIONS OF FREDDIE MAC UNDER ITS GUARANTEES OF THE MULTICLASS PCS ARE
OBLIGATIONS OF FREDDIE MAC ONLY. THE MULTICLASS PCS, INCLUDING ANY
INTEREST THEREON, ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT
CONSTITUTE DEBTS OR OBLIGATIONS OF THE UNITED STATES OR ANY AGENCY OR
INSTRUMENTALITY OF THE UNITED STATES OTHER THAN FREDDIE MAC.
INCOME ON THE MULTICLASS PCS HAS NO EXEMPTION UNDER FEDERAL LAW
FROM FEDERAL, STATE OR LOCAL TAXATION. THE MULTICLASS PCS ARE
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933 AND ARE "EXEMPTED SECURITIES" WITHIN THE MEANING OF
THE SECURITIES EXCHANGE ACT OF 1934.

------------------------

WEIGHTED
AVERAGE
ORIGINAL LIFE AT
CLASS PRINCIPAL PRINCIPAL CLASS INTEREST CUSIP FINAL PAYMENT 200%
1578- AMOUNT(1) TYPE(2) COUPON TYPE(2) NUMBER DATE(3) PSA(4)
- --------- ------------ ------------- ------ ------ --------- ------------------ --------
<S> <C>
A .... $131,370,000 PAC I 5.00% FIX 3133T0H23 September 15, 2005 1.5 Yrs
B .... 28,944,000 PAC I 5.00 FIX 3133T0H31 February 15, 2007 2.4
C .... 164,112,000 PAC I 5.50 FIX 3133T0H49 November 15, 2012 3.4
D .... 31,227,000 PAC I 5.75 FIX 3133T0H56 September 15, 2013 4.5
E .... 203,211,000 PAC I 6.00 FIX 3133T0H64 November 15, 2017 5.8
F .... 29,234,800 TAC (5) FLT 3133T0H72 September 15, 2023 2.2
FC .... 25,103,400 TAC (5) FLT 3133T0H80 September 15, 2023 2.2
FE .... 43,876,700 PAC I (5) FLT 3133T0H98 July 15, 2022 10.9
FG .... 77,525,368 PAC III (5) FLT 3133T0J21 September 15, 2023 3.3
FK .... 43,989,600 PAC II (5) FLT 3133T0J39 December 15, 2022 3.4
G .... 129,651,000 PAC I 6.35 FIX 3133T0J47 November 15, 2019 7.9
H .... 151,328,000 PAC I 6.65 FIX 3133T0J54 July 15, 2022 10.9
J .... 47,157,000 PAC I 6.90 FIX 3133T0J62 January 15, 2023 14.9
K .... 72,213,000 PAC I 6.90 FIX 3133T0J70 September 15, 2023 20.0
L .... 25,000,000 PAC II 7.00 FIX 3133T0J88 December 15, 2022 3.4
M .... 49,587,000 PAC II 7.00 FIX 3133T0J96 May 15, 2023 12.5
N .... 43,635,000 PAC II 7.00 FIX 3133T0K29 September 15, 2023 21.2
O .... $ 6,000,000 PAC III 7.00% FIX 3133T0K37 September 15, 2023 3.3
P .... 20,000 TAC 7.00 FIX 3133T0K45 September 15, 2023 2.2
S .... 5,074,326 TAC (5) INV 3133T0K52 September 15, 2023 2.2
SA .... 7,454,874 TAC (5) INV 3133T0K60 September 15, 2023 2.2
SC .... 10,758,600 TAC (5) INV 3133T0K78 September 15, 2023 2.2
SD .... (6) NTL (TAC) (5) INV/IO 3133T0K86 September 15, 2023 --
SE .... 22,103,300 PAC I (5) INV 3133T0K94 July 15, 2022 10.9
SG .... (6) NTL (PAC III) (5) INV/IO 3133T0L28 September 15, 2023 --
SH .... 7,293,327 PAC III (5) INV 3133T0L36 September 15, 2023 3.3
SJ .... 20,394,305 PAC III (5) INV 3133T0L44 September 15, 2023 3.3
SK .... 6,873,400 PAC II (5) INV 3133T0L51 December 15, 2022 3.4
T .... 50,863,000 PAC II 6.00 FIX 3133T0L69 December 15, 2022 3.4
U .... (6) NTL (PAC I) 7.00 FIX/IO 3133T0L77 November 15, 2017 --
V .... (6) NTL (PAC I) 7.00 FIX/IO 3133T0L85 September 15, 2023 --
Z .... 66,000,000 SUP 7.00 FIX/Z 3133T0L93 September 15, 2023 15.8
R .... 0 NPR 0 NPR 3133T0M27 September 15, 2023 --
RS .... 0 NPR 0 NPR 3133T0M35 September 15, 2023 --
</TABLE>

- ---------------
(1) Subject to proportionate increase as described under "Increase in Size" in
this Supplement.

(2) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" on pages 7-9 of the Multiclass PC Offering Circular. The type
of Class with which the notional principal amount of a Notional Class will
be reduced is indicated in parentheses.

(3) Determined as described under "Final Payment Dates" in this Supplement.

(4) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at the assumed rate of 200% PSA or any
other constant rate, and the actual weighted average lives of many Classes
are likely to differ from those shown, perhaps significantly.

(5) The F, FC, FG, FK, S, SA, SC, SD, SG, SH, SJ and SK Classes will bear
interest based on "LIBOR" and the FE and SE Classes will bear interest based
on the "Ten-Year Treasury Index" as described under "Payments -- Interest"
in this Supplement.

(6) The Notional Classes will not receive principal payments, will bear interest
as described in this Supplement and will have original notional principal
amounts of $5,123,143 (SD), $9,564,818 (SG), $115,577,250 (U) and
approximately $24,609,707 (V). The notional principal amounts of the
Notional Classes will be reduced with reductions in the principal amounts of
certain PAC and TAC Classes. See "Payments -- Interest" in this Supplement.

------------------------

The Multiclass PCs are offered by Morgan Stanley & Co. Incorporated (the
"Underwriter") to the public from time to time in negotiated transactions at
varying prices to be determined, in each case, at the time of sale, plus accrued
interest from September 1, 1993 on the Fixed Rate Classes and from September 15,
1993 on the Floating Rate and Inverse Floating Rate Classes. The Multiclass PCs
are offered by the Underwriter when, as and if issued, subject to delivery by
Freddie Mac and acceptance by the Underwriter, to prior sale and to withdrawal,
cancellation or modification of the offer without notice. It is expected that
the Regular Classes (in book-entry form) will be available for deposit at any
Federal Reserve Bank, and that delivery of the Residual Classes (in certificated
form) will be made at the offices of the Underwriter, on or about September 30,
1993 (the "Closing Date").

------------------------

MORGAN STANLEY & CO.
Incorporated

July 27, 1993

<PAGE>

MULTICLASS PCS ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE MULTICLASS PCS OF ANY CLASS UNLESS THE
INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD AND LIQUIDITY
RISKS ASSOCIATED WITH THAT CLASS.

------------------------

THE YIELD OF EACH CLASS WILL DEPEND UPON ITS PURCHASE PRICE, ITS
SENSITIVITY TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGES, THE ACTUAL
CHARACTERISTICS OF THE MORTGAGES AND, IN THE CASE OF EACH FLOATING RATE OR
INVERSE FLOATING RATE CLASS, ITS SENSITIVITY TO THE LEVEL OF LIBOR OR THE
TEN-YEAR TREASURY INDEX (EACH, AN "INDEX"). THE MORTGAGES ARE SUBJECT TO
PREPAYMENT AT ANY TIME WITHOUT PENALTY. MORTGAGE PREPAYMENT RATES ARE LIKELY TO
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME, AS IS THE LEVEL OF EACH INDEX.
INVESTORS SHOULD CONSIDER THE ASSOCIATED RISKS, INCLUDING:

o FAST MORTGAGE PREPAYMENT RATES CAN REDUCE THE YIELDS OF CLASSES
PURCHASED AT A PREMIUM, ESPECIALLY THE SD, SG, U AND V CLASSES, WHICH
ARE INTEREST ONLY CLASSES, AND THE SK CLASS. UNDER CERTAIN PREPAYMENT
SCENARIOS, INVESTORS IN THE INTEREST ONLY AND SK CLASSES COULD FAIL TO
FULLY RECOVER THEIR INVESTMENTS.

o SLOW MORTGAGE PREPAYMENT RATES CAN INCREASE THE WEIGHTED AVERAGE LIVES
AND, THUS, REDUCE THE YIELDS OF CLASSES PURCHASED AT A DISCOUNT.

o SMALL DIFFERENCES IN THE CHARACTERISTICS OF THE MORTGAGES CAN HAVE A
SIGNIFICANT EFFECT ON THE WEIGHTED AVERAGE LIVES AND YIELDS OF THE
CLASSES.

o LOW LEVELS OF THE APPLICABLE INDEX CAN REDUCE THE YIELDS OF THE
FLOATING RATE CLASSES. CONVERSELY, HIGH LEVELS OF THE APPLICABLE INDEX
CAN SIGNIFICANTLY REDUCE THE YIELDS OF THE INVERSE FLOATING RATE
CLASSES AND (ESPECIALLY IN COMBINATION WITH FAST MORTGAGE PREPAYMENT
RATES) MAY RESULT IN THE FAILURE OF INVESTORS IN THE SD, SG AND SK
CLASSES TO FULLY RECOVER THEIR INVESTMENTS.

o IN GENERAL, PRINCIPAL PAYMENT RATES ON THE SUPPORT CLASSES ARE LIKELY
TO EXHIBIT A HIGHER SENSITIVITY TO MORTGAGE PREPAYMENTS THAN ARE
PRINCIPAL PAYMENT RATES ON THE PAC AND TAC CLASSES.

o IN GENERAL, PRINCIPAL PAYMENT RATES ON THE TAC CLASSES ARE LIKELY TO
EXHIBIT A HIGHER SENSITIVITY TO MORTGAGE PREPAYMENTS THAN ARE
PRINCIPAL PAYMENT RATES ON THE PAC CLASSES.

SEE "PREPAYMENT AND YIELD ANALYSIS" IN THIS SUPPLEMENT.

------------------------

THE UNDERWRITER INTENDS TO MAKE A MARKET FOR THE PURCHASE AND SALE OF THE
MULTICLASS PCS AFTER THEIR INITIAL ISSUANCE BUT HAS NO OBLIGATION TO DO SO.
THERE IS NO ASSURANCE THAT SUCH A SECONDARY MARKET WILL DEVELOP OR, IF IT
DEVELOPS, THAT IT WILL CONTINUE. CONSEQUENTLY, INVESTORS MAY NOT BE ABLE TO SELL
THEIR MULTICLASS PCS READILY OR AT PRICES THAT WILL ENABLE THEM TO REALIZE THEIR
DESIRED YIELD.

------------------------

Investors should purchase Multiclass PCs only if they have read and
understand this Supplement and the following documents:

o Freddie Mac's Multiclass Mortgage Participation Certificates Offering
Circular dated January 1, 1993 (the "Multiclass PC Offering
Circular"), which is attached to this Supplement;

o Freddie Mac's Mortgage Participation Certificates Offering Circular
dated June 30, 1992 and its Mortgage Participation Certificates
Offering Circular Supplements dated August 3, 1992, November 2, 1992,
April 30, 1993 and August 17, 1993 (collectively, the "PC Offering
Circular");

o Freddie Mac's Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991 and its Giant Mortgage Participation
Certificates Offering Circular Supplement dated December 3, 1992
(together, the "Giant PC Offering Circular"); and

o Freddie Mac's Information Statement dated April 9, 1993, its
Information Statement Supplements dated April 30, 1993 and August 2,
1993 and any other Information Statement Supplements published by
Freddie Mac through the time of purchase (collectively, the
"Information Statement").

This Supplement incorporates by reference the PC Offering Circular, the
Giant PC Offering Circular and the Information Statement. Investors can order
those documents: from Freddie Mac, by writing or calling its Investor Inquiry
Department at 8200 Jones Branch Drive, McLean, Virginia 22102 (outside
Washington, D.C. metropolitan area, phone 800/336-FMPC; within Washington, D.C.
metropolitan area, phone 703/759-8160); or from the Underwriter, by writing or
calling its Prospectus Department at 1251 Avenue of the Americas, New York, New
York 10020 (phone 212/703-7630).

Investors can obtain additional information regarding the PCs and Mortgages
from the sources described under "General Information -- Additional Information"
in this Supplement.

<PAGE>

SERIES 1578 TERMS SHEET

THIS TERMS SHEET CONTAINS SELECTED INFORMATION FOR QUICK REFERENCE ONLY. IT
IS NOT A SUMMARY OF THE TRANSACTION. INVESTORS SHOULD REFER TO THE REMAINDER OF
THIS SUPPLEMENT FOR FURTHER INFORMATION.

CLASS COUPONS

The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement.

The Floating Rate and Inverse Floating Rate Classes will bear interest as
follows:

CLASS COUPON SUBJECT TO
-----------------------------
CLASS INITIAL RATE CLASS COUPON MINIMUM RATE MAXIMUM RATE
- -------------------- ---------------- ---------------------------------------------------------- ------------- --------------
<S> <C>
F and FC............ 4.0375% LIBOR + 0.85% 0.85% 10.0%
FE ......... 5.06 Ten-Year Treasury Index - 0.7% 0 10.0
FG ......... 4.0875 LIBOR + 0.9% 0.9 9.5
FK ......... 3.6375 LIBOR + 0.45% 0.45 9.25
S ......... 9.50617284 52.71604939% - (LIBOR x 5.761316873) 0 9.50617284
SA ......... 16.9117647014 29.4117647% - (LIBOR x 3.921568627) 0 29.4117647
SC ......... 11.07321428 16.99285714% - (LIBOR x 1.857142857) 0 16.99285714
SD ......... 5.9625 9.15% - LIBOR 0 9.15
SE ......... 9.80626866 21.24029851% - (Ten-Year Treasury Index x 1.985074626) 0 19.85074627
SG ......... 5.4125 8.6% - LIBOR 0 8.6
SH ......... 10.25 80.13636263% - (LIBOR x 9.318181684) 0 10.25
SJ ......... 14.370672 24.99247372% - (LIBOR x 3.332329931) 0 24.99247372
SK ......... 35.9198984486 56.31982425% - (LIBOR x 6.399976722) 0.000029 56.31982425
</TABLE>

See "Payments -- Interest" in this Supplement.

NOTIONAL CLASSES

NOTIONAL CLASS REDUCES WITH
- -------------- ---------------------------------------------------
SD FC (TAC Class)
SG FG (Type III PAC Class)
U A, B, C, D and E (Type I PAC Classes)
V FE, G, H, J, K and SE (Type I PAC Classes)

See "Payments -- Interest -- Notional Classes" in this Supplement.

ALLOCATION OF PRINCIPAL

1. Beginning March 15, 1994, Type I PAC Classes to their Targeted Balances
(structured at 95% - 275% PSA), allocated:

A, B, C, D, E and G, in that order
FE, H and SE, pro rata
J and K, in that order

2. Type II PAC Classes to their Targeted Balances (structured at 125% -
230% PSA), allocated:

FK, L, SK and T, pro rata
M and N, in that order

3. Type III PAC Classes (FG, O, SH and SJ), pro rata, to their Targeted
Balances (structured at 160% - 230% PSA)

4. TAC Classes (F, FC, P, S, SA and SC), pro rata, to their Targeted
Balances (to be structured at 200% PSA)

5. Z until retired

6. TAC Classes as in step 4 until retired

<PAGE>

7. Type III PAC Classes as in step 3 until retired

8. Type II PAC Classes as in step 2 until retired

9. Type I PAC Classes as in step 1 until retired

See "Payments -- Principal" in this Supplement.

WEIGHTED AVERAGE LIVES (IN YEARS)*

PSA PREPAYMENT ASSUMPTION
---------------------------------
0% 95% 200% 275% 500%
----- ----- ----- ----- -----
A .............................. 4.2 1.5 1.5 1.5 1.5
B .............................. 7.9 2.4 2.4 2.4 2.4
C .............................. 11.0 3.4 3.4 3.4 2.9
D .............................. 13.5 4.5 4.5 4.5 3.3
E .............................. 15.9 5.8 5.8 5.8 3.8
F, FC, P, S, SA and SC......... 26.4 18.4 2.2 2.0 1.2
FE, H and SE................... 20.9 10.9 10.9 10.9 6.4
FG, O, SH and SJ............... 25.6 16.0 3.3 2.6 1.6
FK, L, SK and T................ 22.8 10.3 3.4 2.8 1.7
G .............................. 18.7 7.9 7.9 7.9 4.7
J .............................. 22.4 14.9 14.9 14.9 8.6
K .............................. 23.4 20.0 20.0 20.0 11.9
M .............................. 24.6 14.2 12.5 5.0 2.4
N .............................. 25.4 21.2 21.2 6.3 2.6
Z .............................. 28.4 24.4 15.8 1.5 0.6
Underlying PCs................. 21.3 11.9 7.7 6.1 3.8

- -------------------------------

* Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that section.
Prepayments will not occur at any assumed rate shown or any other constant
rate, and the actual weighted average lives of many Classes and of the PCs are
likely to differ from those shown, perhaps significantly.

ASSUMED MORTGAGE CHARACTERISTICS (AS OF SEPTEMBER 1, 1993)

APPROXIMATE
WEIGHTED AVERAGE APPROXIMATE APPROXIMATE
REMAINING TERM WEIGHTED AVERAGE WEIGHTED AVERAGE
APPROXIMATE TO MATURITY LOAN AGE PER ANNUM
PRINCIPAL BALANCE (IN MONTHS) (IN MONTHS) INTEREST RATE
- ------------------ ----------------------- ----------------------- -------------------
<S> <C>
$ 300,000,000 359 0 7.65%
600,000,000 358 1 7.65
300,000,000 357 2 7.65
300,000,000 356 3 7.65
- ------------------
$ 1,500,000,000 358* 1*
- ------------------
- ------------------
</TABLE>

---------------------------------

* Weighted average by principal balance.

The actual remaining terms to maturity, loan ages and interest rates of
most of the Mortgages will differ from the weighted averages shown above,
perhaps significantly. See "General Information -- The Mortgages" in this
Supplement.

<PAGE>

Annex 2(e)

Cover Page and Terms Sheet
for
Offering Circular Supplement
dated August 24, 1993
to
Offering Circular
dated August 1, 1993
relating to

Federal Home Loan Mortgage Corporation
Multiclass Mortgage Participation Certificates,
Series 1591

<PAGE>

OFFERING CIRCULAR SUPPLEMENT
(TO OFFERING CIRCULAR DATED AUGUST 1, 1993)

Freddie
Mac
$677,571,428
[ LOGO ]
FEDERAL HOME LOAN MORTGAGE CORPORATION
MULTICLASS MORTGAGE PARTICIPATION CERTIFICATES, SERIES 1591

Freddie Mac will make interest and principal payments on each monthly
"Payment Date," beginning November 15, 1993, on the Classes entitled to such
payments. See "Payments" in this Supplement.

INVESTORS SHOULD READ THIS SUPPLEMENT IN CONJUNCTION WITH THE DOCUMENTS
LISTED AT THE BOTTOM OF PAGE S-2.

THE OBLIGATIONS OF FREDDIE MAC UNDER ITS GUARANTEES OF THE MULTICLASS PCS
ARE OBLIGATIONS OF FREDDIE MAC ONLY. THE MULTICLASS PCS, INCLUDING ANY INTEREST
THEREON, ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT CONSTITUTE DEBTS OR
OBLIGATIONS OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED
STATES OTHER THAN FREDDIE MAC. INCOME ON THE MULTICLASS PCS HAS NO EXEMPTION
UNDER FEDERAL LAW FROM FEDERAL, STATE OR LOCAL TAXATION. THE MULTICLASS PCS ARE
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE
"EXEMPTED SECURITIES" WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934.

- --------------------------------------------------------------------------------

WEIGHTED
AVERAGE
ORIGINAL LIFE AT
PRINCIPAL PRINCIPAL OR CLASS INTEREST CUSIP FINAL PAYMENT 185%
CLASS AMOUNT(1) OTHER TYPE(2) COUPON TYPE(2) NUMBER DATE(3) PSA(4)
- ------- ---------- ---------- ----------- --------- ---------- ------------------- --------------
<S> <C>
A ......... $ 6,178,260 PAC 0% PO 3133T1VB1 December 15, 2018 2.3 Yrs.
B ......... 17,476,580 PAC 0 PO 3133T1VC1 October 15, 2023 10.5
C ......... 3,776,96 SCH 0 PO 3133T1VD1 October 15, 2023 3.4
D ......... 6,485,360 CPT (5) W 3133T1VE9 October 15, 2023 9.8
E ......... 8,571,428 STP 10.00 FIX 3133T1VF6 October 15, 2023 8.1
F ......... 40,082,840 STP (5) FLT 3133T1VG4 October 15, 2023 8.1
FA ......... 30,276,000 SUP (5) FLT 3133T1VH2 October 15, 2023 9.9
FB ......... 48,410,000 PAC (5) FLT 3133T1VJ8 February 15, 2022 11.0
FC ......... 66,542,000 SUP (5) FLT 3133T1VK5 October 15, 2023 9.9
FE ......... 8,168,000 SCH (5) FLT/DLY 3133T1VL3 October 15, 2023 3.4
FG ......... 18,949,000 SCH (5) FLT/DLY 3133T1VM1 October 15, 2023 3.4
FH ......... 12,300,000 PAC (5) FLT/DLY 3133T1VN9 September 15, 2023 14.4
FJ ......... 20,000,000 STP (5) FLT 3133T1VP4 October 15, 2023 8.1
PA ......... 47,468,550 PAC 4.00 FIX 3133T1VQ2 August 15, 2004 1.3
PB ......... 17,152,250 PAC 4.50 FIX 3133T1VR0 November 15, 2006 2.4
PC ......... 53,594,600 PAC 4.75 FIX 3133T1VS8 December 15, 2011 3.4
PD ......... 20,618,350 PAC 5.00 FIX 3133T1VT6 May 15, 2013 4.5
PE ......... 60,439,400 PAC 5.50 FIX 3133T1VU3 November 15, 2016 5.8
PG ......... $18,056,500 PAC 5.85% FIX 3133T1VV1 June 15, 2019 7.9
PK ......... 18,754,575 PAC 6.35 FIX 3133T1VW9 October 15, 2023 19.6
PL ......... 16,987,073 NTL(PAC) 6.50 FIX/IO 3133T1VX7 August 15, 2004 --
PM ......... 4,314,306 NTL(PAC) 6.50 FIX/IO 3133T1VY5 October 15, 2023 --
PN ......... 41,272,000 PAC 5.95 FIX 3133T1VZ2 June 15, 2019 7.9
PT ......... 31,606,580 NTL(PAC) 6.50 FIX/IO 3133T1WA6 June 15, 2019 --
PV ......... 22,326,875 PAC 6.25 FIX 3133T1WB4 October 15, 2023 19.6
SA ......... 11,645,600 SUP (5) INV 3133T1WC2 October 15, 2023 9.9
SB ......... 30,306,350 PAC (5) INV 3133T1WD0 February 15, 2023 11.0
SC ......... 24,388,800 SUP (5) INV 3133T1WE8 October 15, 2023 9.9
SD ......... 4,890,000 SUP (5) INV 3133T1WF5 October 15, 2023 9.9
SE ......... 3,770,150 SCH (5) INV/DLY 3133T1WG3 October 15, 2022 3.4
SG ......... 8,338,200 SCH (5) INV/DLY 3133T1WH1 October 15, 2023 3.4
SH ......... 7,332,800 PAC (5) INV/DLY 3133T1WJ7 September 15, 2022 14.4
SJ ......... 20,000,000 NTL(STP) (5) INV/IO 3133T1WK4 October 15, 2023 --
R ......... 0 NPR 0 NPR 3133T1WL2 October 15, 2023 --
RS ......... 0 NPR 0 NPR 3133T1WM0 October 15, 2023 --
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Subject to proportionate increase as described under "Increase in Size" in
this Supplement. The amount shown for a Notional Class is its original
notional principal amount and does not represent principal that will be
paid; see "Payments -- Interest" in this Supplement.

(2) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circular. The type of Class with
which the notional principal amount of a Notional Class will be reduced is
indicated in parentheses.

(3) See "Final Payment Dates" in this Supplement.

(4) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at the assumed rate of 185% PSA or any
other constant rate, and the actual weighted average lives of any or all of
the Classes are likely to differ from those shown, perhaps significantly.

(5) The Weighted Average Coupon, Floating Rate and Inverse Floating Rate Classes
will bear interest as described under "Terms Sheet -- Class and Component
Coupons" in this Supplement.

The Multiclass PCs are offered by Donaldson, Lufkin & Jenrette Securities
Corporation (the "Underwriter") from time to time in negotiated transactions at
varying prices to be determined, in each case, at the time of sale, plus accrued
interest from October 1, 1993 on the Fixed Rate and Delay Classes and from
October 15, 1993 on the Weighted Average Coupon, Floating Rate and Inverse
Floating Rate Classes other than the Delay Classes (the "Non-Delay Classes").
The Multiclass PCs are offered by the Underwriter, subject to sale by Freddie
Mac and receipt and acceptance by the Underwriter, and subject to the
Underwriter's right to reject any order in whole or in part. It is expected that
the Regular Classes (in book-entry form) will be available for deposit at any
Federal Reserve Bank, and that delivery of the Residual Classes (in certificated
form) will be made at the offices of the Underwriter, New York, New York, on or
about October 29, 1993 (the "Closing Date").

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

OFFERING CIRCULAR SUPPLEMENT DATED AUGUST 24, 1993

<PAGE>

------------------------

THE YIELD OF EACH CLASS WILL DEPEND UPON ITS PURCHASE PRICE, ITS
SENSITIVITY TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGES AND THE ACTUAL
CHARACTERISTICS OF THE MORTGAGES. IN ADDITION, THE YIELD OF EACH WEIGHTED
AVERAGE COUPON, FLOATING RATE OR INVERSE FLOATING RATE CLASS WILL DEPEND UPON
ITS SENSITIVITY TO THE LEVEL OF THE TEN-YEAR TREASURY INDEX, LIBOR OR THE PRIME
RATE (EACH, AN "INDEX"). THE MORTGAGES ARE SUBJECT TO PREPAYMENT AT ANY TIME
WITHOUT PENALTY. MORTGAGE PREPAYMENT RATES ARE LIKELY TO FLUCTUATE SIGNIFICANTLY
FROM TIME TO TIME, AS IS THE LEVEL OF EACH INDEX. INVESTORS SHOULD CONSIDER THE
ASSOCIATED RISKS, INCLUDING:

o FAST MORTGAGE PREPAYMENT RATES CAN REDUCE THE YIELDS OF THE INTEREST
ONLY AND WEIGHTED AVERAGE COUPON CLASSES AND OF ANY OTHER CLASSES
PURCHASED AT A PREMIUM OVER THEIR PRINCIPAL AMOUNTS. UNDER SOME
PREPAYMENT SCENARIOS, INVESTORS IN THE INTEREST ONLY AND WEIGHTED
AVERAGE COUPON CLASSES COULD FAIL TO FULLY RECOVER THEIR INVESTMENTS.

o SLOW MORTGAGE PREPAYMENT RATES CAN REDUCE THE YIELDS OF THE PRINCIPAL
ONLY CLASSES AND OF ANY OTHER CLASSES PURCHASED AT A DISCOUNT TO THEIR
PRINCIPAL AMOUNTS.

o SMALL DIFFERENCES IN THE CHARACTERISTICS OF THE MORTGAGES CAN HAVE A
SIGNIFICANT EFFECT ON THE WEIGHTED AVERAGE LIVES AND YIELDS OF THE
CLASSES.

o LOW LEVELS OF THE APPLICABLE INDEX CAN SIGNIFICANTLY REDUCE THE YIELDS
OF THE FLOATING RATE CLASSES. CONVERSELY, HIGH LEVELS OF THE
APPLICABLE INDEX CAN SIGNIFICANTLY REDUCE THE YIELDS OF THE INVERSE
FLOATING RATE AND WEIGHTED AVERAGE COUPON CLASSES AND (ESPECIALLY IN
COMBINATION WITH FAST MORTGAGE PREPAYMENT RATES) MAY RESULT IN THE
FAILURE OF INVESTORS IN THE D AND SJ CLASSES TO FULLY RECOVER THEIR
INVESTMENTS.

o IN GENERAL, PRINCIPAL PAYMENT RATES ON THE SUPPORT AND COMPONENT
CLASSES ARE LIKELY TO EXHIBIT A HIGHER SENSITIVITY TO MORTGAGE
PREPAYMENTS THAN ARE PRINCIPAL PAYMENT RATES ON THE PAC AND SCHEDULED
CLASSES.

SEE "PREPAYMENT AND YIELD ANALYSIS" IN THIS SUPPLEMENT.

------------------------

Investors should purchase Multiclass PCs only if they have read and
understand this Supplement and the following documents:

o Freddie Mac's Multiclass Mortgage Participation Certificates Offering
Circular dated August 1, 1993 (the "Multiclass PC Offering Circular"),
which is attached to this Supplement;

This Supplement incorporates by reference the PC Offering Circular, the
Giant PC Offering Circular and the Information Statement. Investors can order
those documents: from Freddie Mac, by writing or calling its Investor Inquiry
Department at 8200 Jones Branch Drive, McLean, Virginia 22102 (outside
Washington, D.C. metropolitan area, phone 800/336-FMPC; within Washington, D.C.
metropolitan area, phone 703/759-8160); or from the Underwriter, by writing or
calling its Prospectus Department at 140 Broadway, 33rd Floor, New York, New
York 10005 (phone 212/504-4525).

Investors can obtain additional information regarding the PCs and Mortgages
from the sources described under "General Information -- Additional Information"
in this Supplement.

<PAGE>

TERMS SHEET

THIS TERMS SHEET CONTAINS SELECTED INFORMATION FOR QUICK REFERENCE ONLY. IT
IS NOT A SUMMARY OF THE TRANSACTION. INVESTORS SHOULD REFER TO THE REMAINDER OF
THIS SUPPLEMENT FOR FURTHER INFORMATION. WEIGHTED AVERAGE COUPON CLASS
(COMPONENT CLASS)

COMPONENT INTEREST
DESIGNATION ORIGINAL PRINCIPAL AMOUNT COMPONENT COUPON TYPE* PRINCIPAL TYPE*
- --------------- ------------------------- --------------------- ---------- -----------------
<S> <C>
D-1 $ 401,820 (See table below) INV/IO STP
D-2 6,083,540 0% PO SUP
-------------------------
$ 6,485,360
-------------------------
-------------------------
</TABLE>

-------------------------

* See "Description of Multiclass PCs -- Standard Definitions and
Abbreviations for Classes" in the Multiclass PC Offering Circular.

See "Payments -- Interest -- Weighted Average Coupon Class (Component Class)" in
this Supplement.

CLASS AND COMPONENT COUPONS

The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement.

The A, B and C Classes will be Principal Only Classes and the D-2 Component
will be a Principal Only Component and will not bear interest.

The Floating Rate and Inverse Floating Rate Classes and the D-1 Component
will bear interest as follows:

CLASS OR COMPONENT COUPON
SUBJECT TO
CLASS OR COMPONENT INITIAL -----------------------------
RATE(1) CLASS OR COMPONENT COUPON MINIMUM RATE MAXIMUM RATE
- -------------------- ------------- ---------------------------------------------------------- ------------- --------------
<S> <C>
D-1 ......... 1,197.053406% 16,854.3192% - (Ten-Year Treasury Index x 2,394.077348) 0.014732965% (3)
F ......... 0 (Ten-Year Treasury Index x 24.0) - 156.96% (4) 12.0%
FA ......... 4.8575 LIBOR + 1.67% 1.67 9.0
FB ......... 4.92 Ten-Year Treasury Index - 0.5% 0 10.0
FC ......... 4.4375 LIBOR + 1.25% 1.25 9.0
FE(2) ......... 3.6875 LIBOR + 0.5% 0.5 9.5
FG(2) ......... 3.6875 LIBOR + 0.5% 0.5 9.0
FH(2) ......... 4.5 Prime Rate - 1.5% 0 10.0
FJ ......... 3.6875 LIBOR + 0.5% 0.5 10.0
SA ......... 10.77013 19.056938% - (LIBOR x 2.59978) 0 19.056938
SB ......... 8.11474 16.772411% - (Ten-Year Treasury Index x 1.597355) 0 15.973733
SC ......... 10.40196 19.09868464% - (LIBOR x 2.72838352) 0 19.09868464
SD ......... 10.206237 105.460634% - (LIBOR x 13.607771) 0 10.206237
SE(2) ......... 12.593258 19.498952% - (LIBOR x 2.166492) 0 19.498952
SG(2) ......... 12.073416 19.317178% - (LIBOR x 2.272553) 0 19.317178
SH(2) ......... 9.226183 19.290552% - (Prime Rate x 1.6773947) 0 16.774459
SJ ......... 6.3125 9.5% - LIBOR 0 9.5
</TABLE>

- ---------------

(1) Initial Rate will be in effect during first "Accrual Period;" Class or
Component Coupon will adjust monthly thereafter.

(2) Delay Class.

(3) The maximum Component Coupon for the D-1 Component for any Accrual Period
will be equal to its Component Coupon for the immediately preceding Accrual
Period.

(4) The minimum Class Coupon for the F Class for any Accrual Period will be
equal to its Class Coupon for the immediately preceding Accrual Period.

See "Payments -- Interest" in this Supplement and "Description of Multiclass PCs
- -- Interest Rate Indices" in the Multiclass PC Offering Circular.

NOTIONAL CLASSES

NOTIONAL CLASS REDUCES WITH
- -------------- -------------------------------------------------------------
PL PA (Group B PAC Class)
PM FB, FH, PG, PK, PV, SB and SH (Group B PAC Classes)
PT PB, PC, PD, PE and PN (Group B PAC Classes)
SJ FJ (Strip Class)

See "Payments -- Interest -- Notional Classes" in this Supplement.

<PAGE>

ALLOCATION OF PRINCIPAL

o 10.1917060175% of PC Principal Amount to E, F, FJ and D-1, pro rata

o 4.9463921610% of PC Principal Amount to:

1. Group A PAC Classes (A and B, in that order) to their Targeted
Balances (structured at 90% - 230% PSA)

2. Group A Scheduled Class (C) to its Targeted Balance (structured at
140% - 200% PSA)

3. D-2 until retired

4. B and A, in that order, until retired

5. C until retired

o Remainder of PC Principal Amount to:

1. Group B PAC Classes to their Targeted Balances (structured at 95% -
250% PSA), allocated:

PA, PB, PC, PD and PE, in that order

PG and PN, pro rata

FB and SB, pro rata

FH and SH, pro rata

PK and PV, pro rata

2. Group B Scheduled Classes (FE, FG, SE and SG), pro rata, to their
Targeted Balances (structured at 125% - 200% PSA)

3. FA, FC, SA, SC and SD, pro rata, until retired

4. FE, FG, SE and SG, pro rata, until retired

5. Group B PAC Classes as in step 1 until retired

See "Payments -- Principal" in this Supplement.

<PAGE>

WEIGHTED AVERAGE LIVES (IN YEARS)*

PSA PREPAYMENT ASSUMPTION
-------------------------------------------------------------
0% 95% 185% 250% 450%
--------- ----------- ----------- ----------- -----------
<S> <C>
A ......................................................... 6.8 2.3 2.3 2.3 2.3
B ......................................................... 19.9 10.5 10.5 10.0 5.8
C ......................................................... 26.5 13.6 3.4 3.4 3.4
D ......................................................... 28.1 23.2 9.8 3.1 1.6
E, F and FJ......................................................... 19.9 11.8 8.1 6.5 4.1
FA, FC, SA, SC and SD............................................... 28.3 22.5 9.9 3.4 1.6
FB and SB........................................................... 22.1 11.0 11.0 11.0 6.6
FE, FG, SE and SG................................................... 25.9 13.2 3.4 3.4 2.3
FH and SH........................................................... 23.8 14.4 14.4 14.4 8.5
PA ......................................................... 3.6 1.3 1.3 1.3 1.3
PB ......................................................... 7.5 2.4 2.4 2.4 2.4
PC ......................................................... 10.8 3.4 3.4 3.4 3.1
PD ......................................................... 13.6 4.5 4.5 4.5 3.5
PE ......................................................... 16.1 5.8 5.8 5.8 4.0
PG and PN........................................................... 19.2 7.9 7.9 7.9 4.9
PK and PV........................................................... 25.0 19.6 19.6 19.6 12.1
Underlying PCs...................................................... 19.9 11.8 8.1 6.5 4.1
</TABLE>

-------------------------
* Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at any assumed rate shown or any
other constant rate, and the actual weighted average lives of any or all
of the Classes and of the PCs are likely to differ from those shown,
perhaps significantly.

ASSUMED MORTGAGE CHARACTERISTICS (AS OF OCTOBER 1, 1993)

REMAINING TERM
PRINCIPAL TO MATURITY LOAN AGE PER ANNUM
BALANCE (IN MONTHS) (IN MONTHS) INTEREST RATE
- ---------------- ------------------- ----------------- ---------------
$ 677,571,428 359 1 7.05%

The actual remaining terms to maturity, loan ages and interest rates
of most of the Mortgages will differ from those shown above, perhaps
significantly. See "General Information -- The Mortgages" in this
Supplement.

<PAGE>

Annex 2(f)

Cover Page and Terms Sheet
for
Offering Circular Supplement
dated March 29, 1994
to
Offering Circular
dated January 18, 1994
relating to

Federal Home Loan Mortgage Corporation
Multiclass Mortgage Participation Certificates,
Series 1723

<PAGE>

OFFERING CIRCULAR SUPPLEMENT Freddie
(TO OFFERING CIRCULAR DATED JANUARY 18, 1994) Mac

$390,500,000
[ LOGO ]
FEDERAL HOME LOAN MORTGAGE CORPORATION

MULTICLASS MORTGAGE PARTICIPATION CERTIFICATES, SERIES 1723

The Federal Home Loan Mortgage Corporation ("Freddie Mac") is offering its
Multiclass Mortgage Participation Certificates of the above Series (the
"Multiclass PCs"). The Multiclass PCs will consist of the various "Classes"
listed below. The Classes will receive principal and interest payments, in
differing proportions and at differing times, from the cash flows provided by
Freddie Mac Stripped Giant PCs issued as part of Freddie Mac's Stripped Giant
Mortgage Participation Certificates, Series 165 (the "Stripped Giant PCs"). The
Stripped Giant PCs will have a weighted average interest rate of 7% per annum at
all times. Underlying the Stripped Giant PCs will be Freddie Mac "Gold PCs" and
"Gold Giant PCs" with interest rates of 8% per annum (the "PCs"). Underlying the
PCs are pools of fixed-rate, first lien, residential mortgages and mortgage
participations (the "Mortgages"). See "General Information -- Structure of
Transaction" in this Supplement.

Freddie Mac will make interest and principal payments on each monthly
"Payment Date," beginning June 15, 1994, on the Classes entitled to such
payments. See "Payments" in this Supplement.

INVESTORS SHOULD READ THIS SUPPLEMENT IN CONJUNCTION WITH THE DOCUMENTS
LISTED AT THE BOTTOM OF PAGE S-2.

THE OBLIGATIONS OF FREDDIE MAC UNDER ITS GUARANTEES OF THE MULTICLASS PCs ARE
OBLIGATIONS OF FREDDIE MAC ONLY. THE MULTICLASS PCs, INCLUDING ANY
INTEREST THEREON, ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT
CONSTITUTE DEBTS OR OBLIGATIONS OF THE UNITED STATES OR ANY AGENCY
OR INSTRUMENTALITY OF THE UNITED STATES OTHER THAN FREDDIE
MAC. INCOME ON THE MULTICLASS PCs HAS NO EXEMPTION UNDER
FEDERAL LAW FROM FEDERAL, STATE OR LOCAL TAXATION. THE
MULTICLASS PCs ARE EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND
ARE "EXEMPTED SECURITIES" WITHIN THE
MEANING OF THE SECURITIES EXCHANGE ACT
OF 1934.

- ----------------------------------------------------------------------------------------------------------------------
ORIGINAL WEIGHTED AVERAGE
PRINCIPAL PRINCIPAL OR CLASS INTEREST CUSIP FINAL PAYMENT LIFE AT 295%
CLASS AMOUNT(1) OTHER TYPE(2) COUPON TYPE(2) NUMBER DATE(3) PSA(4)
- ----- ----------- ------------- ------ -------- --------- -------------- ----------------
<S> <C>
A ......... $32,000,000 TAC 7.00% FIX 3133T5GN7 May 15, 2024 1.0 Yrs
B ......... 54,050,910 SUP 7.00 FIX 3133T5GP2 May 15, 2024 5.1
C ......... 2,632,232 SUP 7.00 FIX 3133T5GQ0 May 15, 2024 15.5
F ......... 16,338,000 TAC (5) FLT 3133T5GR8 May 15, 2024 1.0
FB ......... 15,000,000 SUP (5) FLT 3133T5GS6 March 15, 2024 3.5
PA ......... 47,722,000 PAC I 6.25 FIX 3133T5GT4 June 15, 2010 1.1
PB ......... 23,159,000 PAC I 6.25 FIX 3133T5GU1 September 15, 2013 2.5
PC ......... 23,370,000 PAC I 6.50 FIX 3133T5GV9 February 15, 2016 3.5
PD ......... 20,556,000 PAC I 6.75 FIX 3133T5GW7 November 15, 2017 4.5
PE ......... 38,987,000 PAC I 6.75 FIX 3133T5GX5 June 15, 2020 5.9
PG ......... 32,768,000 PAC I 7.00 FIX 3133T5GY3 March 15, 2022 7.9
PH ......... 33,490,000 PAC I 7.00 FIX 3133T5GZ0 September 15, 2023 11.0
PJ ......... 9,133,000 PAC I 7.00 FIX 3133T5HA4 February 15, 2024 15.0
PK ......... 7,516,000 PAC I 7.00 FIX 3133T5HB2 May 15, 2024 19.9
PL ......... 9,985,187 NTL(PAC I) 8.00 FIX/IO 3133T5HC0 June 15, 2020 --
PM ......... 22,200,000 PAC II 7.00 FIX 3133T5HD8 May 15, 2024 2.5
PN ......... 2,212,000 PAC II 7.00 FIX 3133T5HE6 May 15, 2024 6.3
S ......... 7,002,000 TAC (5) INV/DLY 3133T5HF3 May 15, 2024 1.0
SA ......... 16,338,000 NTL(TAC) (5) INV/IO/DLY 3133T5HG1 May 15, 2024 --
SB ......... 2,142,858 SUP (5) INV 3133T5HH9 March 15, 2024 3.5
R ......... 220,000 CPT/PAC I (6) W 3133T5HJ5 May 15, 2024 3.6
RS ......... 1,000 SUP 7.00 FIX 3133T5HK2 May 15, 2024 5.1
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Subject to proportionate increase as described under "Increase in Size" in
this Supplement. The amount shown for a Notional Class is its original
notional principal amount and does not represent principal that will be
paid; see "Payments -- Interest" in this Supplement.

(3) See "Final Payment Dates" in this Supplement.

(4) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at the assumed rate shown above or any
other constant rate, and the actual weighted average lives of any or all of
the Classes are likely to differ from those shown, perhaps significantly.

(5) The Floating Rate and Inverse Floating Rate Classes will bear interest as
described under "Terms Sheet -- Class Coupons" in this Supplement.

(6) The R Class will bear interest as described under "Terms Sheet -- Component
Class (Weighted Average Coupon Class)" in this Supplement.

The Multiclass PCs are offered by Lehman Brothers (including Lehman Brothers
Inc. and Lehman Government Securities Inc.) (the "Underwriter") from time to
time for sale in negotiated transactions at varying prices to be determined at
the time of sale, plus accrued interest from May 1, 1994 on the Fixed Rate,
Weighted Average Coupon and Delay Classes and from May 15, 1994 on the Floating
Rate and Inverse Floating Rate Classes other than the Delay Classes (the
"Non-Delay Classes"). The Multiclass PCs are offered by the Underwriter, subject
to prior sale when, as and if delivered to and accepted by the Underwriter and
subject to the Underwriter's right to reject any order in whole or in part. It
is expected that the Regular Classes (in book-entry form) will be available for
deposit at any Federal Reserve Bank, and that delivery of the Residual Classes
(in certificated form) will be made at the offices of the Underwriter, on or
about May 27, 1994 (the "Closing Date").

------------------------
LEHMAN BROTHERS
OFFERING CIRCULAR SUPPLEMENT DATED MARCH 29, 1994

<PAGE>

------------------------

THE YIELD OF EACH CLASS WILL DEPEND UPON ITS PURCHASE PRICE, ITS
SENSITIVITY TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGES AND THE ACTUAL
CHARACTERISTICS OF THE MORTGAGES. IN ADDITION, THE YIELD OF EACH FLOATING RATE
OR INVERSE FLOATING RATE CLASS WILL DEPEND UPON ITS SENSITIVITY TO THE LEVEL OF
COFI OR LIBOR (EACH, AN "INDEX"). THE MORTGAGES ARE SUBJECT TO PREPAYMENT AT ANY
TIME WITHOUT PENALTY. MORTGAGE PREPAYMENT RATES ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME, AS IS THE LEVEL OF EACH INDEX. INVESTORS SHOULD
CONSIDER THE ASSOCIATED RISKS, INCLUDING:

o FAST MORTGAGE PREPAYMENT RATES CAN REDUCE THE YIELDS OF THE INTEREST
ONLY CLASSES AND OF ANY OTHER CLASSES PURCHASED AT A PREMIUM OVER
THEIR PRINCIPAL AMOUNTS. UNDER SOME PREPAYMENT SCENARIOS, INVESTORS IN
THE INTEREST ONLY CLASSES COULD FAIL TO FULLY RECOVER THEIR
INVESTMENTS.

o SLOW MORTGAGE PREPAYMENT RATES CAN REDUCE THE YIELDS OF CLASSES
PURCHASED AT A DISCOUNT TO THEIR PRINCIPAL AMOUNTS.

o SMALL DIFFERENCES IN THE CHARACTERISTICS OF THE MORTGAGES CAN HAVE A
SIGNIFICANT EFFECT ON THE WEIGHTED AVERAGE LIVES AND YIELDS OF THE
CLASSES.

o IN GENERAL, PRINCIPAL PAYMENT RATES ON THE SUPPORT CLASSES ARE LIKELY
TO EXHIBIT A HIGHER SENSITIVITY TO MORTGAGE PREPAYMENTS THAN ARE
PRINCIPAL PAYMENT RATES ON THE PAC AND TAC CLASSES.

o IN GENERAL, PRINCIPAL PAYMENT RATES ON THE TAC CLASSES ARE LIKELY TO
EXHIBIT A HIGHER SENSITIVITY TO MORTGAGE PREPAYMENTS THAN ARE
PRINCIPAL PAYMENT RATES ON THE PAC CLASSES.

SEE "PREPAYMENT AND YIELD ANALYSIS" IN THIS SUPPLEMENT.

------------------------

Investors should purchase Multiclass PCs only if they have read and
understand this Supplement and the following documents:

o Freddie Mac's Multiclass Mortgage Participation Certificates Offering
Circular dated January 18, 1994 (the "Multiclass PC Offering
Circular"), which is attached to this Supplement;

o Freddie Mac's Mortgage Participation Certificates Offering Circular
dated February 15, 1994 (the "PC Offering Circular");

o Freddie Mac's Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991, its Giant Mortgage Participation
Certificates Offering Circular Supplement dated December 3, 1992 and
its Stripped Giant Mortgage Participation Certificates, Series 165
Offering Circular Supplement dated March 29, 1994 (collectively, the
"Giant PC Offering Circular"); and

o Freddie Mac's Information Statement dated March 31, 1994 and any
Information Statement Supplements published by Freddie Mac through the
time of purchase (collectively, the "Information Statement").

This Supplement incorporates by reference the PC Offering Circular, the
Giant PC Offering Circular and the Information Statement. Investors can order
those documents: from Freddie Mac, by writing or calling its Investor Inquiry
Department at 8200 Jones Branch Drive, McLean, Virginia 22102 (outside
Washington, D.C. metropolitan area, phone 800/336-FMPC; within Washington, D.C.
metropolitan area, phone 703/759-8160); or from the Underwriter, by writing or
calling its Prospectus Department at 140 58th Street, Brooklyn, New York 11220
(phone 718/921-8466).

Investors can obtain additional information regarding the Multiclass PCs,
Stripped Giant PCs, PCs and Mortgages from the sources described under "General
Information -- Additional Information" in this Supplement.

<PAGE>

TERMS SHEET

THIS TERMS SHEET CONTAINS SELECTED INFORMATION ABOUT THIS SERIES. INVESTORS
SHOULD REFER TO THE REMAINDER OF THIS SUPPLEMENT FOR FURTHER INFORMATION.

CLASS COUPONS

The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement.

The R Class will be a Weighted Average Coupon Class and will bear interest
as shown under "Component Class (Weighted Average Coupon Class)" below.

The Floating Rate and Inverse Floating Rate Classes will bear interest as
follows:

CLASS COUPON SUBJECT TO
INITIAL ----------------------------------
CLASS RATE(1) CLASS COUPON MINIMUM RATE MAXIMUM RATE
- --------------------- ------------- ---------------------------------------- ----------------- ---------------
<S> <C>
F .......... 4.51% COFI + 0.8% 0.8% 10.0%
FB .......... 5.50 LIBOR + 1.75% 1.75 8.0
S(2)................. 12.46 21.1166666% - (COFI x 2.3333333) 0 21.1166666
SA(2)................ 0.15 9.2% - COFI 0 0.15
SB .......... 17.4999958 43.7499853% - (LIBOR x 6.9999972) 0 43.7499853
</TABLE>

-------------------------

(1) Initial Rate will be in effect during first Accrual Period; Class
Coupon will adjust monthly thereafter.

(2) Delay Class.

See "Payments -- Interest" in this Supplement and "Description of Multiclass PCs
- -- Interest Rate Indices" in the Multiclass PC Offering Circular.

NOTIONAL CLASSES

NOTIONAL CLASS REDUCES WITH
- ------------------------------------------------ -----------------------------------------------
<S> <C>
PL ..................................... PA, PB, PC, PD, PE, R-1 and R-2
(Type I PAC Classes and Components)
SA ..................................... F (TAC Class)
</TABLE>

See "Payments -- Interest -- Notional Classes" in this Supplement.

COMPONENT CLASS (WEIGHTED AVERAGE COUPON CLASS)

ORIGINAL PRINCIPAL COMPONENT INTEREST
DESIGNATION PRINCIPAL AMOUNT TYPE* COUPON TYPE*
- ----------- ----------------- ----------- ----------- -----------
R-1 $ 75,000 PAC I 6.25% FIX
R-2 125,000 PAC I 6.25 FIX
R-3 20,000 PAC I 7.00 FIX
-----------------
$ 220,000
-----------------
-----------------

-------------------------
* See "Description of Multiclass PCs -- Standard Definitions and
Abbreviations for Classes" in the Multiclass PC Offering Circular.

See "Payments -- Interest -- Weighted Average Coupon Class" in this Supplement.

<PAGE>

ALLOCATION OF PRINCIPAL

On each Payment Date, Freddie Mac will pay the "PC Principal Amount" for
that Payment Date to the Classes and Components in the following order of
priority:

TYPE I 1. To the Type I PAC Classes and Components, until reduced to
PAC their "Targeted Balances" for that Payment Date, allocated to:

PA and R-1, pro rata

PB and R-2, pro rata

PC, PD, PE, PG, PH and PJ, in that order

PK and R-3, pro rata

TYPE II 2. To PM and PN, in that order, until reduced to their Targeted
PAC Balances for that Payment Date

TAC 3. To A, F and S, pro rata, until reduced to their Targeted
Balances for that Payment Date

SUPPORT 4. Concurrently:

73.2142847468% to B and RS, pro rata, until retired, and

26.7857152532% first to FB and SB, pro rata, until retired,
and then to C, until retired

TAC 5. To A, F and S, pro rata, until retired

TYPE II 6. To PM and PN, in that order, until retired
PAC

TYPE I 7. To the Type I PAC Classes and Components as in step 1, but
PAC without regard to their Targeted Balances, until retired

The Targeted Balances (shown under "Payments -- Principal -- Targeted
Balances Schedules" in this Supplement) were structured as follows:

STRUCTURING RANGE OR RATE
-------------------------
Type I PAC Classes and Components............ 100% - 325% PSA
Type II PAC Classes.......................... 125% - 325% PSA
TAC Classes.................................. 275% PSA

See "Payments -- Principal" and "Prepayment and Yield Analysis" in this
Supplement.

<PAGE>

WEIGHTED AVERAGE LIVES (IN YEARS)*

PSA PREPAYMENT ASSUMPTION
-------------------------------------------------------------
0% 100% 295% 325% 600%
--------- ----------- ----------- ----------- -----------
<S> <C>
A, F and S......................................................... 27.3 15.4 1.0 1.0 0.9
B and RS........................................................... 29.1 23.2 5.1 2.8 0.6
C ........................................................ 29.9 27.6 15.5 5.2 1.1
FB and SB.......................................................... 29.0 22.5 3.5 2.4 0.5
PA ........................................................ 7.6 1.1 1.1 1.1 1.0
PB ........................................................ 14.0 2.5 2.5 2.5 2.0
PC ........................................................ 16.6 3.5 3.5 3.5 2.3
PD ........................................................ 18.5 4.5 4.5 4.5 2.6
PE ........................................................ 20.5 5.9 5.9 5.9 3.2
PG ........................................................ 22.6 7.9 7.9 7.9 4.1
PH ........................................................ 24.1 11.0 11.0 11.0 5.7
PJ ........................................................ 25.0 15.0 15.0 15.0 7.8
PK ........................................................ 25.4 19.9 19.9 19.9 10.9
PM ........................................................ 25.9 10.2 2.5 2.5 1.3
PN ........................................................ 26.3 12.0 6.3 6.3 1.7
R ........................................................ 12.9 3.6 3.6 3.6 2.5
Underlying PCs..................................................... 21.8 10.9 4.9 4.5 2.4
</TABLE>

ASSUMED MORTGAGE CHARACTERISTICS (AS OF MAY 1, 1994)

REMAINING TERM
TO MATURITY LOAN AGE PER ANNUM
(IN MONTHS) (IN MONTHS) INTEREST RATE
- ------------------- --------------- ---------------
340 18 8.55%

The actual remaining terms to maturity, loan ages and interest rates of
most of the Mortgages will differ from those shown above, perhaps significantly.
See "General Information -- The Mortgages" in this Supplement.

THE STRIPPED GIANT PCS

As of the Closing Date, the Stripped Giant PCs will have a principal
balance of not less than $390,500,000 and a weighted average interest rate of 7%
per annum. The Stripped Giant PCs will be backed by PCs having interest rates of
8% per annum. See "General Information -- Structure of Transaction" in this
Supplement.

<PAGE>

Annex 2(g)

Cover Page and Terms Sheet
for
Offering Circular Supplement
dated January 13, 1997
to
Offering Circular
dated January 1, 1997
relating to

Federal Home Loan Mortgage Corporation
Multiclass Mortgage Participation Certificates
and Modifiable and Combinable REMIC Certificates,
Series 1930

<PAGE>

Offering Circular Supplement Freddie
(To Offering Circular Dated January 1, 1997) Mac

$933,846,661
[ LOGO]
Federal Home Loan Mortgage Corporation
Multiclass Mortgage Participation Certificates
and Modifiable and Combinable REMIC Certificates, Series 1930

Offered Securities: Classes of Multiclass PCs listed below; MACR Classes
listed on Appendix 1 to this Supplement

Guarantee: Principal and interest guaranteed by Freddie Mac, as
described in this Supplement

Tax Status: REMIC (Double-Tier, consisting of one Upper-Tier REMIC
Pool and two Lower-Tier REMIC Pools)

Underlying Assets: Five Asset Groups, consisting of two Groups of Freddie Mac
PCs (Gold PCs and Gold Giant PCs), one Group of Freddie
Mac Callable Pass-Through Certificates (CPCs) and two
Groups of Freddie Mac Multiclass PCs

Payment Dates: Monthly, beginning March 15, 1997

Redemption of
Callable Classes: CPCs underlying Callable Classes are redeemable beginning
February 15, 1998; upon redemption the Callable Classes
would be retired

Form of Securities: Regular and MACR Classes: Book-entry (Federal Reserve
Banks) Residual Classes (R, RA and RB): Certificated

Offering Terms: Classes offered in negotiated transactions at varying
prices through the Underwriter named below

Closing Date: February 28, 1997

The risks associated with the Securities may make them unsuitable for some
investors. See "Certain Risk Considerations" and "Prepayment and Yield Analysis"
in this Supplement.

Investors should read this Supplement in conjunction with the documents listed
under "Available Information" in this Supplement.

The obligations of Freddie Mac under its guarantees of the Securities are
obligations of Freddie Mac only. The Securities, including any interest thereon,
are not guaranteed by the United States and do not constitute debts or
obligations of the United States or any agency or instrumentality of the United
States other than Freddie Mac. Income on the Securities has no exemption under
federal law from federal, state or local taxation. The Securities are exempt
from the registration requirements of the Securities Act of 1933 and are
"exempted securities" within the meaning of the Securities Exchange Act of 1934.

==============================================================================

Class of Original Weighted
Multiclass Principal Principal or Class Interest CUSIP Final Payment Average
PCs Amount(1) Other Type(2) Coupon Type(2) Number Date(3) Life(4)
- ---------- ------------ ----------------- ------ ---------- ---------- ------------------ --------
<S> <C>
A ........ $ 42,304,000 SEQ 7.00 % FIX 3133T9 B M 6 July 15, 2022 4.0Yrs
AB ....... 110,000,000 SEQ 7.50 FIX 3133T9 B N 4 September 15, 2023 4.6
AC ....... 50,000,000 SEQ 7.00 FIX 3133T9 B P 9 September 15, 2023 4.6
AF ....... 8,136,000 Callable/SEQ (5) FLT/DLY 3133T9 B Q 7 February 15, 2027 16.7
B ........ 7,296,502 SEQ 7.00 FIX 3133T9 B R 5 September 15, 2023 9.4
C ........ 22,106,000 SEQ 7.50 FIX 3133T9 B S 3 May 15, 2024 11.0
D ........ 25,000,000 SEQ 7.00 FIX 3133T9 B T 1 December 15, 2022 4.2
F ........ 41,533,498 SEQ (5) FLT 3133T9 B U 8 September 15, 2023 4.6
FA ....... 23,039,746 SC/PT (5) FLT 3133T9 B V 6 October 15, 2022 7.7
FB ....... 54,511,713 Callable/SEQ (5) FLT 3133T9 B W 4 August 15, 2025 4.4
FC ....... 10,500,000 Callable/SEQ (5) FLT/DLY 3133T9 B X 2 February 15, 2027 16.7
FD ....... 5,280,000 Callable/SEQ (5) FLT/DLY 3133T9 B Y 0 February 15, 2027 17.9
FG ....... 89,018,142 TAC (5) FLT 3133T9 B Z 7 March 15, 2025 4.4
FH ....... 12,857,142 TAC (5) FLT 3133T9 C 2 9 July 15, 2022 3.1
FJ ....... 13,920,665 AD/SEQ (5) FLT 3133T9 C 3 7 July 15, 2016 9.4
FK ....... 3,764,705 SUP (5) FLT/DLY 3133T9 C 4 5 May 15, 2025 10.8
G ........ 95,395,503 Callable/SEQ 7.60 FIX 3133T9 C 5 2 August 15, 2025 4.4
H ........ 40,883,784 Callable/SEQ 7.60 FIX 3133T9 C 6 0 August 15, 2025 4.4
I ........ 5,000,000 Callable/SEQ 8.00 FIX 3133T9 C 7 8 February 15, 2027 16.7
J ........ 1,825,000 Callable/SEQ 8.00 FIX 3133T9 C 8 6 January 15, 2026 12.5
K ........ 478,500 Callable/SEQ 8.00 FIX 3133T9 C 9 4 February 15, 2027 17.9
M ........ 75,000,000 TAC 6.95 FIX 3133T9 C A 1 July 15, 2022 3.1
N ........ 30,833,716 TAC 7.25 FIX 3133T9 C B 9 March 15, 2025 8.0
O ........ 11,304,824 SUP 8.00 FIX 3133T9 C C 7 May 15, 2025 10.8
PO ....... $ 14,014,507 SC/PT 0.00 % PO 3133T9 C E 3 August 15, 2023 19.5Yrs
SB ....... 54,511,713 Callable/NTL(SEQ) (5) INV/IO 3133T9 C K 9 August 15, 2025 --
SC ....... 2,329,500 Callable/SEQ (5) INV/DLY 3133T9 C L 7 February 15, 2027 16.7
SD ....... 330,000 Callable/SEQ (5) INV/DLY 3133T9 C M 5 February 15, 2027 17.9
SE ....... 330,000 Callable/SEQ (5) INV/DLY 3133T9 C N 3 February 15, 2027 17.9
SF ....... 14,014,507 SC/NTL(PT) (5) INV/IO/DLY 3133T9 C P 8 August 15, 2023 --
SG ....... 89,018,142 NTL(TAC) (5) INV/IO 3133T9 C Q 6 March 15, 2025 --
SH ....... 12,857,142 NTL(TAC) (5) INV/IO 3133T9 C R 4 July 15, 2022 --
SJ ....... 13,920,665 NTL(AD/SEQ) (5) INV/IO 3133T9 C S 2 July 15, 2016 --
SK ....... 235,295 SUP (5) INV/DLY 3133T9 C T 0 May 15, 2025 10.8
SL ....... 41,533,498 NTL(SEQ) (5) INV/IO 3133T9 C U 7 September 15, 2023 --
SM........ 41,533,498 NTL(SEQ) (5) INV/IO 3133T9 C V 5 September 15, 2023 --
SN ....... 23,039,746 SC/NTL(PT) (5) INV/IO 3133T9 C W 3 October 15, 2022 --
SO ....... 23,039,746 SC/NTL(PT) (5) INV/IO 3133T9 C X 1 October 15, 2022 --
VA ....... 12,730,000 AD/SEQ/LIQ 7.50 FIX 3133T9 C Z 6 November 15, 2001 2.5
VB ....... 16,180,000 AD/SEQ 7.50 FIX 3133T9 D 2 8 February 15, 2006 7.0
VC ....... 42,648,000 AD/SEQ 7.50 FIX 3133T9 D 3 6 May 15, 2013 11.9
VD ....... 3,653,778 AD/SEQ 6.75 FIX 3133T9 D 4 4 June 15, 2004 4.0
VE ....... 20,785,431 AD/SEQ 7.55 FIX 3133T9 D 5 1 July 15, 2016 12.0
Z ........ 30,202,000 SEQ 7.50 FIX/Z 3133T9 D 6 9 February 15, 2027 18.9
ZA ....... 10,418,710 SEQ 8.00 FIX/Z 3133T9 D 7 7 February 15, 2027 18.9
R ........ 0 NPR 0.00 NPR 3133T9 C F 0 February 15, 2027 --
RA ....... 0 NPR 0.00 NPR 3133T9 D 8 5 February 15, 2027 --
RB ....... 0 NPR 0.00 (6) NPR 3133T9 D 9 3 February 15, 2027 --
</TABLE>

==============================================================================

(1) The amount shown for a Notional Class is its original notional principal
amount and does not represent principal that will be paid; see "Payments --
Interest" in this Supplement.

(2) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circular. The type of Class with
which a Notional Class will reduce is indicated in parentheses.

(3) See "Final Payment Dates" in this Supplement.

(4) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Weighted average lives are calculated at the "Prepayment
Assumption" shown under "Certain Federal Income Tax Consequences -- Regular
Classes" in this Supplement. Prepayments will not occur at the rates
assumed, and the actual weighted average lives of the Classes may differ
significantly from those shown.

(5) Calculated as shown under "Terms Sheet -- Class Coupons" in this Supplement.

(6) The RB Class may receive certain interest payments as described under
"General Information -- Structure of Transaction -- The Group 3 Asset" in
this Supplement.

----------------------------
PaineWebber Incorporated
Offering Circular Supplement Dated January 13, 1997

<PAGE>

CERTAIN RISK CONSIDERATIONS

THE SECURITIES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE SECURITIES OF ANY CLASS UNLESS THE
INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, REDEMPTION, YIELD,
LIQUIDITY AND MARKET RISKS ASSOCIATED WITH THAT CLASS.

------------------------

The Securities are complex securities and it is important that each investor
in any Class possess, either alone or together with an investment advisor, the
expertise necessary to evaluate the information contained and incorporated in
this Supplement in the context of that investor's financial situation.

------------------------

The yield of each Class will depend upon its purchase price, the rate of
principal payments on the related Asset or Assets (which will be sensitive to
the rate of principal payments on the related Mortgages), the actual
characteristics of the related Mortgages and, in the case of the Callable
Classes, whether a redemption of the Group 3 Asset occurs (as described under
"General Information -- Structure of Transaction -- The Group 3 Asset" in this
Supplement). In addition, the yields of the Floating Rate and Inverse Floating
Rate Classes will be sensitive to the level of LIBOR or the Prime Rate, as
applicable (each, an "Index"). The Mortgages are subject to prepayment at any
time without penalty. Mortgage prepayment rates are likely to fluctuate
significantly from time to time, as is the level of each Index. In addition,
principal payments on the Mortgages underlying the Group 4 and Group 5 Assets
will be allocated among the various classes of Series 1552 and Series 1395,
respectively, and such allocations will affect the sensitivity of the yield of
each related Class of this Series to Mortgage prepayment rates generally.
Investors should consider the associated risks, including:

o Fast prepayment rates on the related Mortgages or, in the case of the
Callable Classes, a redemption of the Group 3 Asset, can reduce the
yields of the Interest Only Classes and any other Classes purchased at a
premium over their principal amounts. Under some prepayment and
redemption scenarios, investors in such Classes (especially Interest
Only and Callable Classes) could fail to fully recover their
investments.

o Slow prepayment rates on the related Mortgages and, in the case of the
Callable Classes, the absence of a redemption of the Group 3 Asset, can
reduce the yields of the Principal Only Class and any other Classes
purchased at a discount to their principal amounts.

o Small differences in the characteristics of the Mortgages can have a
significant effect on the weighted average lives and yields of the
related Classes.

o Low levels of the applicable Index can reduce the yields of the Floating
Rate Classes. Conversely, high levels of the applicable Index can
significantly reduce the yields of the Inverse Floating Rate Classes and
(especially in combination with fast Mortgage prepayment rates or, if
applicable, a redemption of the Group 3 Asset) may result in the failure
of investors in the Interest Only Classes to fully recover their
investments.

o The Group 3 Asset consists of the Callable Class of Freddie Mac's CPCs,
Series C033 ("Series C033"). As further described under "General
Information -- Structure of Transaction -- The Group 3 Asset" in this
Supplement, the Group 3 Asset may be redeemed on any Payment Date
beginning in February 1998 at the direction of the holder of the Call
Class of Series C033. The holder of the Call Class, which may include
the Underwriter (or an affiliate), may also be a Holder of one or more
Callable Classes of this Series, such as an Interest Only Class, which
may affect such holder's decision whether to direct a redemption of the
Group 3 Asset. The redemption of the Group 3 Asset would result in the
concurrent retirement of all Callable Classes then outstanding and would
reduce the weighted average lives of such Classes, perhaps
significantly.

o In general, principal payment rates on the Support and Sequential Pay
Classes (other than those which are also Accretion Directed Classes) are
likely to exhibit a higher sensitivity to prepayments on the related
Mortgages than are principal payment rates on the TAC and Accretion
Directed Classes.

o In general, there can be no assurance that the Group 4 and Group 5
Assets, which were structured as TAC Classes, will receive principal
payments in accordance with their schedules.

See "Prepayment and Yield Analysis" in this Supplement.

------------------------

The Underwriter intends to make a market for the purchase and sale of the
Securities after their initial issuance but has no obligation to do so. There is
no assurance that such a secondary market will develop or, if it develops, that
it will continue. Consequently, investors may not be able to sell their
Securities readily or at prices that will enable them to realize their desired
yield. The market values of the Securities are likely to fluctuate; such
fluctuations may be significant and could result in significant losses to
investors. In addition, the redemption feature of the Group 3 Asset may affect
the market values of the Callable Classes.

------------------------

The secondary markets for mortgage-related securities have experienced
periods of illiquidity and can be expected to do so in the future. Illiquidity
can have a severely adverse effect on the prices of Securities that are
especially sensitive to prepayment, redemption or interest rate risk or that
have been structured to meet the investment requirements of limited categories
of investors.

Freddie Mac's Multiclass Mortgage Participation Certificates Offering
Circular dated January 1, 1997 (the "Multiclass PC Offering Circular")
accompanies this Supplement. Capitalized terms that are used in this Supplement
without further definition have the meanings given them in the Multiclass PC
Offering Circular. Investors should purchase Securities only if they have read
and understood this Supplement, the Multiclass PC Offering Circular and the
documents listed under "Available Information" in this Supplement.

<PAGE>

TERMS SHEET

This Terms Sheet contains selected information about this Series. Investors
should refer to the remainder of this Supplement for further information.

MACR Certificates

This Series provides for the issuance of Classes (each, a "MACR Class") of
Modifiable and Combinable REMIC Certificates ("MACR Certificates") in exchange
for certain Classes of Multiclass PCs. Holders of such Multiclass PCs will be
entitled to exchange all or a portion of their Multiclass PCs for related MACR
Certificates, and Holders of MACR Certificates will be entitled to exchange all
or a portion of their MACR Certificates for related Multiclass PCs. Appendix 1
to this Supplement shows the characteristics of the MACR Classes and the
"Combinations" of Classes of Multiclass PCs and MACR Certificates. As used in
this Supplement, unless the context requires otherwise, the term "Securities"
includes Multiclass PCs and MACR Certificates and the term "Classes" includes
Classes of Multiclass PCs and MACR Certificates.

See "MACR Certificates" in the Multiclass PC Offering Circular for a
description of MACR Certificates and procedures for effecting exchanges. The fee
payable to Freddie Mac in connection with each exchange will equal 2/32 of 1% of
the outstanding principal amount (exclusive of any notional principal amount) of
the Securities submitted for exchange (but not less than $5,000). The fee
payable to Freddie Mac in connection with an exchange involving Combination 2
will equal 2/32 of 1% of the outstanding notional principal amount of the
Securities submitted for exchange (but not more than $60,000).

Class Coupons

The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement and on Appendix 1 to this Supplement.

The PO Class is a Principal Only Class and will not bear interest.

The Floating Rate and Inverse Floating Rate Classes will bear interest as
follows:

Class Coupon Subject to
----------------------------
Class Initial Rate(1) Class Coupon Minimum Rate Maximum Rate
- -------------------------- --------------- ----------------------------- ------------ ------------
<S> <C>
Multiclass PCs
AF(2)..................... 7.0% Prime Rate - 1.25% 0% 9.0%
F......................... 6.05 LIBOR + 0.55% 0.55 9.0
FA........................ 5.9 LIBOR + 0.4% 0.4 10.0
FB........................ 6.2 LIBOR + 0.7% 0.7 9.0
FC(2)..................... 7.0 Prime Rate - 1.25% 0 9.0
FD(2)..................... 7.0 Prime Rate - 1.25% 0 9.0
FG........................ 6.05 LIBOR + 0.55% 0.55 9.0
FH........................ 5.9 LIBOR + 0.40% 0.4 9.0
FJ........................ 6.25 LIBOR + 0.75% 0.75 9.0
FK(2)..................... 6.95 LIBOR + 1.45% 1.45 8.5
SB........................ 2.8 8.3% - LIBOR 0 8.3
SC(2)..................... 16.0 82.0% - (Prime Rate X 8.0) 0 72.0
SD(2)..................... 20.0 152.0% - (Prime Rate X 16.0) 0 132.0
SE(2)..................... 12.0 164.0% - (Prime Rate X 16.0) 0 12.0
SF(2)..................... 7.42 22.82% - (LIBOR X 2.8) 0 22.82
SG........................ 2.95 8.45% - LIBOR 0 8.45
SH........................ 3.1 8.60% - LIBOR 0 8.6
SJ........................ 2.75 8.25% - LIBOR 0 8.25
SK(2)..................... 24.8 112.8% - (LIBOR X 16.0) 0 112.8
SL........................ 2.4 7.9% - LIBOR 0 7.9
SM........................ 0.55 8.45% - LIBOR 0 0.55
SN........................ 3.1 8.60% - LIBOR 0 8.6
SO........................ 1.0 9.60% - LIBOR 0 1.0
</TABLE>

MACR Class

- ---------------

(1) Initial Rate will be in effect during the first Accrual Period; Class Coupon
will adjust monthly thereafter.

(2) Delay Class.

See "Payments -- Interest" in this Supplement and "Description of Multiclass PCs
- -- Interest Rate Indices" in the Multiclass PC Offering Circular.

<PAGE>

Notional Classes
Multiclass PCs

Original
Notional
Class Principal Amount Reduces Proportionately With
- ---------- ---------------- ---------------------------------------------
SB $ 54,511,713 FB (Callable/Sequential Pay Class)
SF 14,014,507 PO (Pass-Through Class)
SG 89,018,142 FG (TAC Class)
SH 12,857,142 FH (TAC Class)
SJ 13,920,665 FJ (Accretion Directed/Sequential Pay Class)
SL and SM 41,533,498 F (Sequential Pay Class)
SN and SO 23,039,746 FA (Pass-Through Class)

MACR Class

Original
Notional
Class Principal Amount Reduces Proportionately With
- ---------- ---------------- ---------------------------------------------
SA $ 23,039,746 FA (Pass-Through Class)

See "Payments -- Interest -- Notional Classes" in this Supplement.

Allocation of Principal

Multiclass PCs

On each Payment Date, Freddie Mac will pay:

Accretion Directed and Accrual

o The "Z Accrual Amount" for that Payment Date to VA, VB and VC, in that
order, until retired, and then to Z

o The "Group 1 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:

Sequential Pay

1. Concurrently:

(a) 17.2477058240% to A and B, in that order, until retired

(b) 72.9839490972% to AB, AC and F, pro rata, until retired

2. To C, VA, VB, VC and Z, in that order, until retired

o The "ZA Accrual Amount" for that Payment Date to the Classes shown
below in the following order of priority:

Accretion Directed and Accrual

1. Concurrently:

(a) 55.5555528525% to FJ

(b) 44.4444471475% to VD, until retired

2. Concurrently:

(a) 31.0344805848% to FJ, until retired

(b) 68.9655194152% to VE, until retired

3. To ZA

<PAGE>

o The "Group 2 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:

TAC

1. To the TAC Classes, until reduced to their "Targeted Balances" for
that Payment Date, allocated concurrently:

(a) 42.8571424445% to FG

(b) 57.1428575555% to FH and M, pro rata, and then to N

Support

2. To FK, O and SK, pro rata, until retired

TAC

3. Concurrently:

(a) 42.8571424445% to FG, until retired

(b) 57.1428575555% to FH and M, pro rata, until retired, and then to
N, until retired

Sequential Pay

4. Concurrently:

(a) 55.5555528525% to FJ

(b) 44.4444471475% to VD, until VD is retired

5. Concurrently:

(a) 31.0344805848% to FJ, until retired

(b) 68.9655194152% to VE, until retired

6. To ZA, until retired

o The "Group 3 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:

Sequential Pay

1. To FB, G and H, pro rata, until retired

2. Concurrently:

(a) 75.9025402672% to AF, FC, I and SC, pro rata, until retired

(b) 24.0974597328% to J, until retired, and then to FD, K, SD and SE,
pro rata, until retired

Pass-Through

o The "Group 4 Asset Principal Amount" for that Payment Date to PO,
until retired

o The "Group 5 Asset Principal Amount" for that Payment Date to FA,
until retired

The Targeted Balances (shown under "Payments -- Principal -- Targeted
Balances Schedules" in this Supplement) were structured as follows:

Structuring Rate
----------------
TAC Classes............................ 225% PSA

MACR Classes

On any Payment Date when payments of principal are to be allocated from
Multiclass PCs to MACR Certificates, such payments will be allocated from the
applicable Class or Classes of Multiclass PCs to the related MACR Class.

See "Payments -- Principal" and "Prepayment and Yield Analysis" in this
Supplement.

Freddie Mac Guarantee

<PAGE>

REMIC Status

Freddie Mac will form an "Upper-Tier REMIC Pool" and two "Lower-Tier REMIC
Pools" for this Series. Elections will be made to treat each REMIC Pool as a
"real estate mortgage investment conduit" ("REMIC") pursuant to the Internal
Revenue Code. The R, RA and RB Classes will be "Residual Classes" and the other
Classes of Multiclass PCs will be "Regular Classes." The Residual Classes will
be subject to transfer restrictions. See "Certain Federal Income Tax
Consequences" in this Supplement and the Multiclass PC Offering Circular.

Weighted Average Lives (in years)*

PSA Prepayment Assumption
------------------------------------
0% 100% 170% 300% 500%
---- ---- ---- ---- ----
Group 1
A.................................. 17.6 5.9 4.0 2.6 1.7
AB, AC, F, P and T................. 18.5 6.8 4.6 2.9 1.9
B.................................. 26.0 14.0 9.4 5.8 3.7
C.................................. 26.9 16.0 11.0 6.7 4.2
D.................................. 17.9 6.2 4.2 2.7 1.8
VA................................. 2.5 2.5 2.5 2.5 2.5
VB................................. 7.0 7.0 7.0 6.6 4.7
VC................................. 12.9 12.9 11.9 8.5 5.6
Z.................................. 28.7 22.5 18.9 13.8 9.1
Group 1 Assets..................... 21.6 11.3 8.3 5.3 3.4

PSA Prepayment Assumption
------------------------------------
0% 100% 225% 350% 500%
---- ---- ---- ---- ----
Group 2
FJ................................. 10.9 10.9 9.4 7.4 5.8
FG................................. 19.6 8.0 4.4 3.6 2.7
FH and M........................... 17.3 5.7 3.1 2.7 2.1
FK, O and SK....................... 27.9 19.2 10.8 1.0 0.6
N.................................. 26.3 14.7 8.0 6.2 4.5
VD................................. 4.0 4.0 4.0 4.0 3.8
VE................................. 14.3 14.3 12.0 9.1 6.8
ZA................................. 29.1 24.7 18.9 14.3 10.7
Group 2 Assets..................... 21.8 11.7 7.0 4.9 3.6

Group 3
Redemption on February 15, 1998
AF, FC, I and SC................... 1.0 1.0 1.0 1.0 1.0
FB, G and H........................ 1.0 0.9 0.9 0.9 0.8
FD, K, SD and SE................... 1.0 1.0 1.0 1.0 1.0
J.................................. 1.0 1.0 1.0 1.0 1.0
Group 3 Asset...................... 1.0 0.9 0.9 0.9 0.8

Redemption on February 15, 2002
AF, FC, I and SC................... 5.0 5.0 5.0 5.0 5.0
FB, G and H........................ 4.9 4.1 3.3 2.7 2.0
FD, K, SD and SE................... 5.0 5.0 5.0 5.0 5.0
J.................................. 5.0 5.0 5.0 5.0 5.0
Group 3 Asset...................... 4.9 4.2 3.6 3.0 2.5

No Redemption
AF, FC, I and SC................... 29.3 24.0 16.7 11.5 8.0
FB, G and H........................ 20.5 8.4 4.4 2.9 2.0
FD, K, SD and SE................... 29.4 24.8 17.9 12.5 8.7
J.................................. 28.7 21.1 12.5 8.3 5.7
Group 3 Asset...................... 21.8 10.8 6.3 4.2 2.9

PSA Prepayment Assumption
------------------------------------
0% 100% 150% 300% 500%
---- ---- ---- ---- ----
Group 4 and Group 5

PO and Group 4 Asset............... 24.8 22.4 19.5 3.2 1.1
FA and Group 5 Assets.............. 15.7 9.5 7.7 4.5 2.7

-------------------

* Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at any assumed rate shown or any other
constant rate, a redemption of the Group 3 Asset may occur on a date other
than a date shown and the actual weighted average lives of any or all of
the Classes and of the Assets are likely to differ from those shown,
perhaps significantly.

<PAGE>

The Assets

The Assets will consist of:

(i) $400,000,000 of Freddie Mac 7.5% per annum PCs (the "Group 1
Assets")

(ii) $271,792,408 of Freddie Mac 8.0% per annum PCs (the "Group 2
Assets")

(iii) $225,000,000 of Freddie Mac 8.0% per annum CPCs, Series C033,
Class A1 (the "Group 3 Asset")

(iv) $14,014,507 of Freddie Mac Multiclass PCs, Series 1552, Class YA
(the "Group 4 Asset")

(v) $23,039,746 of Freddie Mac Multiclass PCs, Series 1395, F and S
Classes (the "Group 5 Assets")

The Group 3, 4 and 5 Assets have the following characteristics:

Principal (or
Notional
Percentage of Class Principal) Amount
in Related in Related Lower-
Asset Lower-Tier Tier REMIC Pool as February 1997 Class Principal Type/
Group Class REMIC Pool of Closing Date Class Factor Coupon Interest Type(1) Final Payment Date
- ------ -------- --------------------- ------------------ -------------- ------ ----------------- --------------------
<S> <C>
3 C033-A1 100% $225,000,000 1.0000000 8.00% Callable/FIX February 15, 2027
4 1552-YA 42.0779491780% 14,014,507 1.0000000 (2) TAC/INV/DLY August 15, 2023
5 1395-F 10.9913465918% 23,039,746 0.4546122 (2) TAC/FLT October 15, 2022
5 1395-S 10.9913465918% 23,039,746(3) 0.4546122 (2) NTL(TAC)/INV/IO October 15, 2022
</TABLE>
- ---------------

(1) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circular. The Group 4 and Group 5
Assets currently do not have any constant rate of Mortgage prepayments at
which they would adhere to their schedules.

(2) Calculated as shown in the applicable Asset Offering Circular. See Exhibits
II and III to this Supplement.

(3) Notional principal amount.

The Group 3 Asset may be redeemed by Freddie Mac at the direction of the
holder of the Call Class of Series C033 on any Payment Date beginning in
February 1998 if, as of the date Freddie Mac receives notice of intention to
redeem, the market value of the Giant PC underlying the Group 3 Asset exceeds
its principal amount.

A redemption is most likely to occur if prevailing interest rates have
declined. Upon a redemption of the Group 3 Asset, investors in each Callable
Class will receive the outstanding principal amount of the investor's Security,
plus interest, calculated as described under "General Information -- Structure
of Transaction -- The Group 3 Asset" in this Supplement.

See "Payments -- Redemption and Exchange" in the Series C033 Asset Offering
Circular, "General Information -- Structure of Transaction" and "Prepayment and
Yield Analysis" in this Supplement and Exhibits I, II and III to this
Supplement.

Mortgage Characteristics (as of February 1, 1997)

Group 1, Group 2 and Group 3 Assets -- Assumed Mortgage Characteristics

Remaining Term Per Annum
to Maturity Loan Age Per Annum Interest Rate
Asset Group Principal Balance (in months) (in months) Interest Rate of Related PCs
- ----------- ----------------- -------------- ----------- ------------- --------------
<S> <C>
1 $ 400,000,000 351 7 8.042% 7.5%
2 $ 271,792,408 356 4 8.550 8.0
$ 150,000,000 340 16 8.600 8.0
75,000,000 327 21 8.703 8.0
-----------------
$ 225,000,000 336* 18* 8.634%*
============
</TABLE>

--------------------

* Weighted average by principal balance.

<PAGE>

Group 4 and 5 Assets -- Mortgage Characteristics

The actual remaining terms to maturity, loan ages and interest rates of
most of the Mortgages differ from those shown above, in some cases
significantly. See "General Information -- The Mortgages" in this Supplement.

<PAGE>

Annex 2(h)

Cover Page and Terms Sheet
for
Offering Circular Supplement
date September 25, 1997
to
Offering Circulars
dated January 1, 1997
relating to

Freddie Mac
Multiclass Mortgage Participation Certificates,
Multiclass Mortgage Securities
and Modifiable and Combinable REMIC Certificates,
Series 2003

<PAGE>

Offering Circular Supplement (To Offering Circulars
Dated January 1, 1997)

$1,169,544,177

Freddie
Mac

[logo]

Multiclass Mortgage Participation Certificates, Multiclass Mortgage Securities
and Modifiable and Combinable REMIC Certificates, Series 2003

Offered Securities: Classes of Multiclass PCs and Multiclass Securities listed
below; MACR Classes listed on Appendix 1 to this
Supplement

Guarantee: Principal and interest guaranteed by Freddie Mac, as
described in this Supplement

Tax Status: REMIC (Double-Tier, consisting of one Upper-Tier REMIC
Pool and three Lower-Tier REMIC Pools)

Underlying Assets: Six Asset Groups, consisting of two Groups of Freddie Mac
Callable Pass-Through Certificates (CPCs), one Group of
GNMA-Related Securities (GNMA Certificates and Giant
Securities), one Group of Freddie Mac Principal Only
Stripped Giant Securities (backed by GNMA-Related
Securities) and two Groups of Freddie Mac Multiclass PCs

Payment Dates: Monthly, beginning in November 1997, as described in this
Supplement

Redemption of
Callable Classes: CPCs underlying Callable Classes are redeemable beginning
in October 1998 as described in this Supplement; upon
redemption the related Callable Classes would be retired

Form of Securities: Regular Classes of Multiclass PCs and related MACR
Classes: Book-entry (Federal Reserve Banks) Regular
Classes of Multiclass Securities and related MACR Classes:
Book-entry (Participants Trust Company) Residual Classes
(R, RA, RB and RC): Certificated

Offering Terms: Classes offered in negotiated transactions at varying
prices through Bear, Stearns & Co. Inc. (the
"Underwriter")

Closing Date: October 30, 1997

The risks associated with the Securities may make them unsuitable for some
investors. See "Certain Risk Considerations" and "Prepayment and Yield Analysis"
in this Supplement.

Investors should read this Supplement in conjunction with the documents listed
under "Available Information" in this Supplement.

==============================================================================
Class of
Multiclass
PCs or Original Weighted
Multiclass Principal Principal or Class Interest CUSIP Final Payment Average
Securities(1) Amount(2) Other Type(3) Coupon Type(3) Number Date(4) Life(5)
- ------------- ------------ ------------------ ------ ---------- ---------- ------------------ --------
<S> <C>
Group 1
A ........... $262,553,185 Callable/SEQ 7.173% FIX 3133TBN55 December 15, 2025 5.5Yrs
B ........... 13,548,341 Callable/SEQ 0.0 PO 3133TBN89 October 15, 2027 12.6
D ........... 5,000,000 Callable/SEQ 7.25 FIX 3133TBN97 December 15, 2025 5.5
E ........... 222,026,200 Callable/SEQ 7.0 FIX 3133TBNA4 December 15, 2025 5.5
F ........... 35,000,000 Callable/SEQ (6) FLT/DLY 3133TBNB2 October 15, 2027 19.5
FD .......... 50,000,000 Callable/SEQ (6) FLT 3133TBNE6 October 15, 2027 19.5
S ........... 3,333,334 Callable/SEQ (6) INV/DLY 3133TBNY2 October 15, 2027 19.5
SD .......... 4,393,940 Callable/SEQ (6) INV 3133TBP46 October 15, 2027 19.5
SE .......... 2,272,727 Callable/SEQ (6) INV 3133TBP53 October 15, 2027 19.5
SG .......... 1,333,333 Callable/SEQ (6) INV/DLY 3133TBP61 October 15, 2027 19.5
Group 2
FB .......... 131,294,210 CPT/SCH (6) FLT 3133TBNC0 October 17, 2027 4.1
PB .......... 114,953,333 PAC 8.0 FIX 3133TBNG1 October 17, 2027 10.0
SA .......... 131,294,210 NTL(CPT/SCH) (6) INV/IO 3133TBNZ9 October 17, 2027 --
SB .......... 16,411,777 CPT/SCH (6) INV 3133TBP20 October 17, 2027 4.1
Z ........... 5,572,900 SUP 8.0 FIX/Z 3133TBPB0 October 17, 2027 20.5
Group 3
PC .......... 38,007,000 PAC 0.0 PO 3133TBNH9 February 17, 2017 2.5
PD .......... 68,972,000 PAC 0.0 PO 3133TBNJ5 October 17, 2027 10.0
PG .......... $ 11,464,000 TAC 0.0% PO 3133TBNL0 October 17, 2027 1.5Yrs
PO .......... 42,496,053 SUP 0.0 PO 3133TBNQ9 October 17, 2027 9.7
Group 4
AA .......... 17,000,000 Callable/SEQ 7.0 FIX 3133TBN63 May 15, 2026 5.0
AB .......... 50,000,000 Callable/SEQ 8.0 FIX 3133TBN71 May 15, 2026 5.0
FH .......... 10,215,750 Callable/SEQ (6) FLT/DLY 3133TBNF3 October 15, 2027 18.4
PE .......... 2,200,000 Callable/SEQ 0.0 PO 3133TBNK2 May 15, 2026 5.0
SH .......... 897,748 Callable/SEQ (6) INV/DLY 3133TBP79 October 15, 2027 18.4
SI .......... 464,352 Callable/SEQ (6) INV/DLY 3133TBP87 October 15, 2027 18.4
Group 5
PX .......... 4,983,020 SC/PT 0.0 PO 3133TBNR7 February 15, 2023 17.7
SX .......... 4,983,020 SC/NTL(PT) (6) INV/IO 3133TBPA2 February 15, 2023 --
Group 6
FC .......... 29,604,436 SC/PT (6) FLT/F 3133TBND8 August 15, 2023 6.3
SC .......... 25,546,538 SC/PT (6) W 3133TBUF5 August 15, 2023 6.3
Residual
R ........... 0 NPR 0.0 NPR 3133TBNS5 October 17, 2027 --
RA .......... 0 NPR 0.0 (7) NPR 3133TBNU0 October 15, 2027 --
RB .......... 0 NPR 0.0 NPR 3133TBNV8 October 17, 2027 --
RC .......... 0 NPR 0.0 NPR 3133TBNW6 October 15, 2027 --
</TABLE>
==============================================================================

(1) The Group 2, Group 3, R and RB Classes are Multiclass Securities; the other
Classes are Multiclass PCs.

(2) The amount shown for a Notional Class is its original notional principal
amount and does not represent principal that will be paid; see "Payments --
Interest" in this Supplement.

(3) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circular and "Description of
Multiclass Securities -- Standard Definitions and Abbreviations for Classes"
in the Multiclass Securities Offering Circular. The type of Class with which
a Notional Class will reduce is indicated in parentheses.

(4) See "Final Payment Dates" in this Supplement.

(5) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Weighted average lives are calculated at 165% PSA for the Group 1
Classes, 200% PSA for the Group 2, Group 3, Group 4 and Group 6 Classes and
155% PSA for the Group 5 Classes. Prepayments will not occur at the rates
assumed, and the actual weighted average lives of the Classes may differ
significantly from those shown.

(6) Calculated as shown under "Terms Sheet -- Class Coupons" in this Supplement.

(7) The RA Class may receive certain payments as described under "General
Information -- Structure of Transaction -- The Callable Assets" in this
Supplement.

------------------------

Bear, Stearns & Co. Inc.
Offering Circular Supplement Dated September 25, 1997

<PAGE>

CERTAIN RISK CONSIDERATIONS

------------------------

The yield of each Class will depend upon its purchase price, the rate of
principal payments on the related Asset or Assets (which will be sensitive to
the rate of principal payments on the related Mortgages), the actual
characteristics of the related Mortgages and, in the case of the Callable
Classes, whether a redemption of the Group 1 or Group 4 Asset occurs (as
described under "General Information -- Structure of Transaction -- The Callable
Assets" in this Supplement). The yields of the Floating Rate, Inverse Floating
Rate and Weighted Average Coupon Classes will also be sensitive to the level of
LIBOR or COFI, as applicable (each, an "Index"). The Mortgages are subject to
prepayment at any time without penalty. Mortgage prepayment rates are likely to
fluctuate significantly from time to time, as is the level of each Index. In
addition, principal payments on the Mortgages underlying the Group 5 and Group 6
Assets will be allocated among the various classes of the related Series, and
such allocations will affect the sensitivity of each related Class of this
Series to Mortgage prepayment rates generally. Investors should consider the
associated risks, including:

o Fast prepayment rates on the related Mortgages or, in the case of the
Callable Classes, a redemption of the related Callable Asset, can reduce
the yields of the Interest Only Classes and any other Classes purchased
at a premium over their principal amounts. Under some prepayment and
redemption scenarios, investors in such Classes (especially Interest
Only and Callable Classes) could fail to fully recover their
investments.

o Slow prepayment rates on the related Mortgages and, in the case of the
Callable Classes, the absence of a redemption of the related Callable
Asset, can reduce the yields of the Principal Only Classes and any other
Classes purchased at a discount to their principal amounts.

o Small differences in the characteristics of the Mortgages can have a
significant effect on the weighted average lives and yields of the
related Classes.

o Low levels of LIBOR can reduce the yields of the Floating Rate Classes.
Conversely, high levels of the applicable Index can significantly reduce
the yields of the Inverse Floating Rate and Weighted Average Coupon
Classes and (especially in combination with fast Mortgage prepayment
rates) may result in the failure of investors in the SA, SK and SX
Classes to fully recover their investments.

o The Group 1 and Group 4 Assets each consist of a separate Callable Class
of Freddie Mac's CPCs, Series C060 ("Series C060"). As further described
under "General Information -- Structure of Transaction -- The Callable
Assets" in this Supplement, each such Asset may be redeemed on any
Payment Date beginning in October 1998 at the direction of the holder of
the related Call Class of Series C060. The holder of such Call Class,
which may include the Underwriter (or an affiliate), may also be a
Holder of one or more Callable Classes of this Series, such as a
Principal Only Class, which may affect such holder's decision whether to
direct a redemption of the Group 1 or Group 4 Asset. The redemption of
the Group 1 or Group 4 Asset would result in the concurrent retirement
of all related Callable Classes then outstanding and would reduce the
weighted average lives of such Classes, perhaps significantly.

o In general, principal payment rates on the Pass-Through, Sequential Pay
and Support Classes are likely to exhibit a higher sensitivity to
prepayments on the related Mortgages than are principal payment rates on
the PAC, TAC and Scheduled Classes.

o In general, principal payment rates on the TAC and Scheduled Classes are
likely to exhibit a higher sensitivity to prepayments on the related
Mortgages than are principal payment rates on the PAC Classes.

o The Group 5 Asset was structured as a TAC Class. However, such Class has
received principal payments at a slower rate than reflected by its
schedule and there can be no assurance that such Class will adhere to
its schedule in the future.

o The Group 6 Assets are backed by certain classes of Series 1567 (the
"1567-A Class" and "1567-B Class"), which are in turn backed by classes
of various other Series (the "Series 1567 Assets"). The 1567-A and
1567-B Classes are subject to redemption by Freddie Mac on any Payment
Date when their aggregate remaining principal amount is less than 10% of
their aggregate original principal amount. Such a redemption could
significantly reduce the weighted average lives of the FC and SC Classes
and could occur when the remaining principal amounts of those Classes
are as high as approximately 12.9% of their original principal amounts.

o The Group 6 Assets are indirectly backed by the Series 1567 Assets,
which consist of (i) Classes that were structured as (but no longer
behave as) PAC Classes with high interest rates and (ii) Stripped Giant
PCs. The Class Coupons of the SC and SK Classes are based in part on a
weighted average of the interest rates of the Series 1567 Assets, and
the Class Coupon of the FC Class is subject to the availability of funds
received as interest from the Series 1567 Assets. Fast principal payment
rates on such PAC Classes relative to the principal payment rate on such
Stripped Giant PCs would reduce the Class Coupons of the SC and SK
Classes and the availability of funds for the payment of interest on the
FC Class, thereby reducing such Classes' respective yields.

See "Prepayment and Yield Analysis" in this Supplement.

------------------------

The Underwriter intends to make a market for the purchase and sale of the
Securities after their initial issuance but has no obligation to do so. There is
no assurance that such a secondary market will develop or, if it develops, that
it will continue. Consequently, investors may not be able to sell their
Securities readily or at prices that will enable them to realize their desired
yield. The market values of the Securities are likely to fluctuate; such
fluctuations may be significant and could result in significant losses to
investors. In addition, the redemption feature of the Group 1 and Group 4 Assets
may affect the market values of the related Callable Classes.

------------------------

Freddie Mac's Multiclass Mortgage Participation Certificates Offering
Circular dated January 1, 1997 (the "Multiclass PC Offering Circular") and its
Multiclass Mortgage Securities Offering Circular dated January 1, 1997 (the
"Multiclass Securities Offering Circular" and, together with the Multiclass PC
Offering Circular, the "Multiclass Offering Circulars") accompany this
Supplement. Capitalized terms that are used in this Supplement without further
definition have the meanings given them in the Multiclass Offering Circulars.
Investors should purchase Securities only if they have read and understood this
Supplement, the Multiclass Offering Circulars and the documents listed under
"Available Information" in this Supplement.

<PAGE>

TERMS SHEET

This Terms Sheet contains selected information about this Series. Investors
should refer to the remainder of this Supplement for further information.

MACR Certificates

This Series provides for the issuance of Classes (each, a "MACR Class") of
Modifiable and Combinable REMIC Certificates ("MACR Certificates") in exchange
for certain Classes of Multiclass PCs or Multiclass Securities. Holders of such
Multiclass PCs or Multiclass Securities will be entitled to exchange all or a
portion of their Multiclass PCs or Multiclass Securities for related MACR
Certificates, and Holders of MACR Certificates will be entitled to exchange all
or a portion of their MACR Certificates for related Multiclass PCs or Multiclass
Securities. Appendix 1 to this Supplement shows the characteristics of the MACR
Classes and the "Combinations" of Classes of Multiclass PCs or Multiclass
Securities and MACR Certificates. As used in this Supplement, unless the context
requires otherwise, the term "Securities" includes Multiclass PCs, Multiclass
Securities and MACR Certificates and the term "Classes" includes Classes of
Multiclass PCs, Multiclass Securities and MACR Certificates.

See "MACR Certificates" in the Multiclass Offering Circulars for a
description of MACR Certificates and procedures for effecting exchanges. The fee
payable to Freddie Mac in connection with each exchange will equal 2/32 of 1% of
the outstanding principal amount (exclusive of any notional principal amount) of
the Securities submitted for exchange (but not less than $5,000).

Class Coupons

The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement.

The B, PC, PD, PE, PG, PH, PK, PJ, PO and PX Classes will be Principal Only
Classes and will not bear interest.

<PAGE>

The Floating Rate, Inverse Floating Rate and Weighted Average Coupon
Classes will bear interest as shown in the following table. The term "WAC"
refers to the weighted average of the interest rates of the Series 1567 Assets
(and, thus, of the Group 6 Assets). The WAC applicable to the first Accrual
Period is 5.1027262574%. The minimum WAC is 1.3671875%.

Multiclass PCs and Multiclass Securities

Class Coupon Subject to
-----------------------------------
Class or Component Initial Rate(1) Class Coupon Minimum Rate Maximum Rate
- ------------------ --------------- -------------------------------------------- ------------ -----------------
<S> <C>
F(2).............. 6.725% LIBOR + 1.1% 1.1% 8.5%
FB................ 6.025 LIBOR + 0.4% 0.4 9.0
FC................ 6.025 LIBOR + 0.4% 0.4 10.0(3)
FD and FH(2)...... 6.625 LIBOR + 1.0% 1.0 8.5
S(2).............. 14.4375 73.5% - (LIBOR X 10.5) 0 73.5
SA................ 1.875 7.5% - LIBOR 0 7.5
SB................ 8.8 68.8% - (LIBOR X 8) 0 8.8
SC-1(4)........... 4.0339554715 (WAC X 2.1588433417) - 0 (WAC X 2.1588433417) -
((LIBOR X 1.1588433417) + 0.4635373367%) 0.4635373367%
SC-2(4)........... 0 LIBOR - 9.6% 0 (WAC X 1.862929409) -
10.0%
SD and SH(2)...... 15.64655 79.65517% - (LIBOR X 11.37931) 0 79.65517
SE and SI(2)...... 11.0 165% - (LIBOR X 22) 0 11.0
SG(2)............. 10.5 194.25% - (LIBOR X 26.25) 0 10.5
SX................ 12.288 27.0% - (COFI X 3) 0 27.0
</TABLE>

MACR Class

Class Coupon Subject to
----------------------------------------
Component Initial Rate(1) Class Coupon Minimum Rate Maximum Rate
- ------------------ --------------- -------------------------------------------- ------------ -----------------------
<S> <C>
SK-1(4)........... 4.0339554715% (WAC X 2.1588433417) - 0% (WAC X 2.1588433417) -
((LIBOR X 1.1588433417) + 0.4635373367%) 0.4635373367%
SK-2(4)........... 0 LIBOR - 9.6% 0 (WAC X 1.862929409) -
10.0%
</TABLE>

- ---------------

(1) Initial Rate will be in effect during the first Accrual Period; Class Coupon
will adjust monthly thereafter.

(2) Delay Class.

(3) Interest payable on the FC Class on any Payment Date is subject to the
availability of funds received as interest on the Group 6 Assets. The Class
Coupon of the FC Class will not exceed WAC X 1.862929409. Any interest
deficiency on a Payment Date resulting from such available funds cap will
not be owing or paid on any subsequent Payment Date and will not be covered
by Freddie Mac's guarantee.

(4) For purposes of calculating interest on the SC and SK Classes, the SC and SK
Classes have two interest components as follows:

Original
Principal
or Notional
Designation Principal Amount*
----------------------------------------------------- -----------------
SC-1 and SK-1........................................ $25,546,538
SC-2 and SK-2........................................ $29,604,436

---------------------------------------
* The amounts shown for SC-2, SK-1 and SK-2 are
notional.

See "Payments -- Interest" in this Supplement and "Description of Multiclass PCs
- -- Interest Rate Indices" in the Multiclass PC Offering Circular and
"Description of Multiclass Securities -- Interest Rate Indices" in the
Multiclass Securities Offering Circular.

Notional Classes

Multiclass PCs and Multiclass Securities

Original Notional
Class Principal Amount Reduces Proportionately With
- ---- ---------------- ------------------------------
SA $131,294,210 FB (Component/Scheduled Class)
SX 4,983,020 PX (Pass-Through Class)
MACR Class
SK $ 25,546,538 PK (Pass-Through Class)

See "Payments -- Interest -- Notional Classes" in this Supplement.

<PAGE>

Components

Original Principal
Designation Principal Amount Type*
- ----------- ---------------- ---------
FB-1 $ 56,306,181 PAC
FB-2 74,988,029 SCH
----------------
$131,294,210
=============
SB-1 $ 7,038,273 PAC
SB-2 9,373,504 SCH
----------------
$ 16,411,777
=============

--------------------------
* See "Description of Multiclass PCs -- Standard Definitions and
Abbreviations for Classes" in the Multiclass PC Offering Circular.

See "Payments -- Component Classes" in this Supplement.

Allocation of Principal

On each Payment Date, Freddie Mac will pay:

Multiclass PCs

o The "Group 1 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:

Sequential Pay

1. 98.6564370062% to A, D and E, pro rata, and 1.3435629938% to B,
until A, D and E are retired

2. To B, F, FD, S, SD, SE and SG, pro rata (based on their then
outstanding balances), until retired

Multiclass Securities

Scheduled and Accrual

o The "Accrual Amount" for that Payment Date to FB-2 and SB-2, pro rata,
until retired, and then to Z

o The "Group 2 Asset Principal Amount" for that Payment Date to the
Classes and Components shown below in the following order of priority:

PAC

1. To FB-1 and SB-1, pro rata, until reduced to their "Targeted
Balances" for that Payment Date

2. To PB, until reduced to its Targeted Balance for that Payment Date

Scheduled

3. To FB-2 and SB-2, pro rata, until reduced to their Targeted
Balances for that Payment Date

Support
4. To Z, until retired

Scheduled

5. To FB-2 and SB-2, pro rata, until retired

PAC

6. To FB-1 and SB-1, pro rata, until retired

7. To PB, until retired

o The "Group 3 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:

PAC
1. To PC and PD, in that order, until reduced to their Targeted
Balances for that Payment Date

<PAGE>

TAC

2. To PG, until reduced to its Targeted Balance for that Payment Date

Support

3. To PO, until retired

TAC
4. To PG, until retired

PAC

5. To PC and PD, in that order, until retired

Multiclass PCs

o The "Group 4 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:

Sequential Pay

1. To AA, AB and PE, pro rata, until retired
2. To FH, SH and SI, pro rata, until retired

Pass-Through

o The "Group 5 Asset Principal Amount" for that Payment Date to PX,
until retired

Pass-Through

o The "Group 6 Asset Principal Amount" for that Payment Date to FC and
SC, pro rata, until retired

The Targeted Balances (shown under "Payments -- Principal -- Targeted
Balances Schedules" in this Supplement) were structured as follows:

Structuring Range or
Class or Component Rate
-------------------------------------------------- --------------------
Group 2

PAC (FB-1, PB and SB-1)......................... 100% PSA - 275% PSA
Scheduled (FB-2 and SB-2)....................... *

Group 3
PAC (PC and PD)................................. 100% PSA - 275% PSA
TAC (PG)........................................ 200% PSA

---------------------
* The Scheduled Components are not structured at a constant rate or range.

MACR Classes

On any Payment Date when payments of principal are to be allocated from
Multiclass PCs or Multiclass Securities to related MACR Certificates, such
payments will be allocated from the applicable Class or Classes of Multiclass
PCs or Multiclass Securities to the related MACR Class that is entitled to
principal payments.

See "Payments -- Principal" and "Prepayment and Yield Analysis" in this
Supplement.

Guarantees

Freddie Mac guarantees to each Holder of a Security (i) the timely payment
of interest at the applicable Class Coupon and (ii) the payment of the principal
amount of the Holder's Security as described in this Supplement. There is no
source of funds for the payment of, and Freddie Mac does not guarantee, any
interest deficiency on the FC Class resulting from its available funds cap as
described under "Class Coupons" above. The Government National Mortgage
Association ("GNMA") guarantees the payment of interest and principal on GNMA
Certificates.

REMIC Status

Freddie Mac will form an "Upper-Tier REMIC Pool" and three "Lower-Tier
REMIC Pools" for this Series. Elections will be made to treat each REMIC Pool as
a "real estate mortgage investment conduit"

<PAGE>

("REMIC") pursuant to the Internal Revenue Code. The R, RA, RB and RC Classes
will be "Residual Classes" and the other Classes of Multiclass PCs and
Multiclass Securities will be "Regular Classes." The Residual Classes will be
subject to transfer restrictions. See "Certain Federal Income Tax Consequences"
in this Supplement and the Multiclass Offering Circulars.

Weighted Average Lives (in years)*

Group 1

PSA Prepayment Assumption
----------------------------------
0% 100% 165% 250% 400%
------ ------ ------ ------ ------
Redemption on October 15, 1998
A, D and E.................... 1.0 0.9 0.9 0.9 0.9
B............................. 1.0 0.9 0.9 0.9 0.9
F, FD, S, SD, SE and SG....... 1.0 1.0 1.0 1.0 1.0
Group 1 Asset................. 1.0 0.9 0.9 0.9 0.9
Redemption on October 15, 2002
A, D and E.................... 4.8 4.1 3.6 3.1 2.4
B............................. 4.9 4.5 4.3 4.1 3.7
F, FD, S, SD, SE and SG....... 5.0 5.0 5.0 5.0 5.0
Group 1 Asset................. 4.8 4.2 3.9 3.5 2.8
No Redemption
A, D and E.................... 17.3 8.1 5.5 3.8 2.5
B............................. 22.4 16.0 12.6 9.4 6.1
F, FD, S, SD, SE and SG....... 27.4 23.6 19.5 14.8 9.7
Group 1 Asset................. 19.0 10.7 7.9 5.7 3.7

Group 2

PSA Prepayment Assumption
----------------------------------
0% 100% 200% 275% 450%
------ ------ ------ ------ ------
FB and SB..................... 16.6 10.1 4.1 2.8 1.9
PB............................ 20.9 10.0 10.0 10.0 6.5
Z............................. 28.4 25.8 20.5 2.7 1.7
Group 2 Assets................ 20.3 11.6 7.6 5.9 3.9

Group 3

PSA Prepayment Assumption
----------------------------------
0% 100% 200% 275% 450%
------ ------ ------ ------ ------
PC............................ 9.2 2.5 2.5 2.5 2.3
PD............................ 20.9 10.0 10.0 10.0 6.5
PG............................ 25.7 12.5 1.5 1.5 1.5
PJ............................ 27.4 19.9 7.9 3.0 1.6
PO............................ 27.9 21.9 9.7 3.4 1.6
PH and Group 3 Assets......... 20.3 11.6 7.6 5.9 3.9

--------------------

* Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at any assumed rate shown or any
other constant rate, a redemption of the Group 1 or Group 4 Assets may
occur on a date other than a date shown and the actual weighted average
lives of any or all of the Classes and of the Assets are likely to differ
from those shown, perhaps significantly.

<PAGE>

Group 4

PSA Prepayment Assumption
----------------------------------
0% 100% 200% 275% 450%
------ ------ ------ ------ ------
Redemption on October 15, 1998
AA, AB and PE................. 1.0 0.9 0.9 0.9 0.9
FH, SH and SI................. 1.0 1.0 1.0 1.0 1.0
Group 4 Asset................. 1.0 0.9 0.9 0.9 0.9
Redemption on October 15, 2002
AA, AB and PE................. 4.8 4.1 3.5 3.1 2.3
FH, SH and SI................. 5.0 5.0 5.0 5.0 5.0
Group 4 Asset................. 4.8 4.2 3.7 3.3 2.7
No Redemption
AA, AB and PE................. 17.9 8.6 5.0 3.7 2.3
FH, SH and SI................. 27.7 24.4 18.4 14.6 9.2
Group 4 Asset................. 19.3 10.8 6.9 5.3 3.3

Group 5
PSA Prepayment Assumption
----------------------------------
0% 100% 155% 250% 400%
------ ------ ------ ------ ------
PX and Group 5 Asset.......... 23.0 20.2 17.7 9.2 0.7

Group 6

PSA Prepayment Assumption
----------------------------------
0% 100% 200% 275% 450%
------ ------ ------ ------ ------
FC, PK and SC and Group 6
Assets...................... 15.8 9.5 6.3 4.8 3.0

The Assets

The Group 2 Assets will consist of $268,232,220 of 8.0% per annum 30-year
GNMA-Related Securities.

The Group 3 Assets will consist of $160,939,053 of Freddie Mac Principal
Only Stripped Giant Securities ("Stripped Giant Securities"), backed by
GNMA-Related Securities which were issued as part of Freddie Mac's Stripped
GNMA-Backed Securities, Series GS007 ("Series GS007").

<PAGE>

The other Groups of Assets will have the following characteristics:

Principal Amount
Percentage of Class in Related
in Related Lower-Tier
Asset Lower-Tier REMIC Pool October 1997 Class Principal Type/
Group Class REMIC Pool as of Closing Date Class Factor Coupon Interest Type(1) Final Payment Date
- ------ --------- ------------------- ------------------ ------------ ------ ---------------- ------------------
<S> <C>
1 C060-A1 100% $599,461,060 1.0000000 7.0% Callable/FIX October 15, 2027
4 C060-A2 100 80,777,850 1.0000000 7.5 Callable/FIX October 15, 2027
5 1470-SA 96.9407265774 4,983,020 0.3931377 (3) TAC/INV February 15, 2023
1908-A(2) 100 40,254,419 0.9007546 (3) SC/SEQ/W August 15, 2023
6 1908-B(2) 100 14,896,555 1.0000000 (3) SC/SEQ/W August 15, 2023
</TABLE>
- ---------------

(1) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circulars. The Group 5 Asset was
structured as a TAC Class but has received principal payments at a slower
rate than reflected by its schedule. The Group 6 Assets are indirectly
backed by the Series 1567 Assets, which include Classes that were structured
as PAC Classes. Such PAC Classes have not adhered to their schedules.

(2) Backed by the 1567-A and 1567-B Classes, which are backed by the Series 1567
Assets.

(3) Class Coupon is calculated as shown in the applicable Asset Offering
Circular. See Exhibits II and III to this Supplement.

The Series 1567 Assets have the following characteristics:

Approximate Principal or
Notional Principal
Amount Underlying
Group 6 Assets October 1997 Underlying
Class as of Closing Date Class Factor Class Coupon PC Coupon
- ------ -------------------- ------------------- ------------------ ------------
<S> <C>
1163-YA $ 5,811 0.2397028 1,008.5% 8.5%
1165-M 21,979 0.2750340 1,087.5795 8.5
1167-G 18,687 0.2122032 1,007.5 8.5
1177-K 42,715 0.2600547 1,016.880466 8.5
1283-L 7,909 0.2609629 846.2735849 8.5
1311-LA 56,019 0.1531875 1,033.279533 8.5
1358-L 47,367 0.2387269 1,048.798059 8.5
152-A(1) 54,950,490 0.7788991 0.0 7.0
152-B(1) 10,732,511(2) 0.7788991 7.0 7.0
</TABLE>

- ---------------
(1) Freddie Mac Stripped Giant PCs.
(2) Notional principal amount.

The Group 1 and Group 4 Assets (the "Callable Assets") each may be redeemed
by Freddie Mac at the direction of the holder of the related Call Class of
Series C060 on any Payment Date beginning in October 1998 if, as of the time
Freddie Mac receives notice of intention to redeem, the underlying Giant PC has
a market value:

(a) for a redemption on any Payment Date through October 15, 2000,
that exceeds 102% of its principal amount, or

(b) for a redemption on any Payment Date thereafter, that exceeds its
principal amount.

A redemption is most likely to occur if prevailing interest rates have
declined. Upon a redemption of a Callable Asset, investors in the related
Securities will receive the outstanding principal amount of the investors'
Securities, plus interest (if any), calculated as described under "General
Information -- Structure of Transaction -- The Callable Assets" in this
Supplement.

See "Payments -- Redemption and Exchange" in the Callable Asset Offering
Circular, "General Information -- Structure of Transaction" and "Prepayment and
Yield Analysis" in this Supplement and Exhibits I, II and III to this
Supplement.

Mortgage Characteristics (as of October 1, 1997)

Group 1, Group 2 and Group 4 Assets -- Assumed Mortgage Characteristics

Per Annum
Interest Rate
of Related PCs
Remaining Term or GNMA-
to Maturity Loan Age Per Annum Related
Asset Group Principal Balance (in months) (in months) Interest Rate Securities
- ----------- ----------------- -------------- ----------- ------------- --------------
<S> <C>
1 $ 599,461,060 342 16 7.625% 7.0%
2 268,232,220 354 5 8.50 8.0
4 80,777,850 342 16 8.05 7.5
</TABLE>

<PAGE>

Group 3, Group 5 and Group 6 Assets -- Mortgage Characteristics

Weighted
Average Weighted Weighted
Remaining Term Average Average Per Annum
to Maturity Loan Age Per Annum Interest Rate of
Asset Group Series (in months) (in months) Interest Rate Related PCs
- ----------- ---------- -------------- ----------- ------------- ----------------
<S> <C>
3 GS007 354 5 8.50% 8.00%
5 1470 287 58 8.518 8.00
6 1908/1567 * * * --
</TABLE>
--------------------
* The Group 6 Assets consist of Classes of Multiclass PCs from Series 1908,
which are backed directly by the 1567-A and 1567-B Classes and indirectly
by the Series 1567 Assets. The Mortgages underlying the Series 1567
Assets have the following characteristics (as of October 1, 1997):

Weighted Average Weighted Average
Remaining Term Weighted Average Per Annum
Series to Maturity (in months) Loan Age (in months) Interest Rate
- ------- ----------------------- -------------------- ----------------
1163 269 74 9.203%
1165 267 76 9.174
1167 263 80 9.136
1177 273 71 9.061
1283 273 67 9.051
1311 277 66 8.958
1358 276 67 8.967
152 294 52 7.445

The actual remaining terms to maturity, loan ages and (except in the case
of Asset Groups 2 and 3) interest rates of most of the Mortgages differ from
those shown above, in some cases significantly. See "General Information --
Structure of Transaction" and "-- The Mortgages" in this Supplement.

<PAGE>

PROSPECTUS
FINANCIAL ASSET SECURITIZATION, INC.
(SELLER)
MORTGAGE PARTICIPATION SECURITIES
(ISSUABLE IN SERIES)

The Mortgage Participation Securities (the "Securities") offered hereby and
by the related Prospectus Supplements will be offered from time to time in
Series. Capitalized terms used herein and not defined herein shall have the
respective meanings assigned to them in the Glossary. This Prospectus may not be
used to consummate sales of Securities of any Series unless accompanied by a
Prospectus Supplement for that Series.

The Securities of each Series may include one or more Classes and will
evidence beneficial ownership interests in a segregated pool of Mortgage Assets,
or beneficial interests therein, and certain other assets described herein
assigned to a trust or trusts (collectively, a "Trust"). A Series may include
one or more Classes of Securities entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions,
derived from the related Trust. A Series may also include one or more Classes of
Securities entitled to distributions derived from specified portions of the
Mortgage Assets in the related Trust. The rights of holders of Securities of one
or more Classes of a Series to receive distributions may be subordinated to the
rights of holders of other Classes of that Series. The Prospectus Supplement or
Supplements relating to a Series of Securities will set forth, among other
things, the following information if applicable to such Series: (1) the
respective allocations and order of application of principal and interest
distributions on the Mortgage Assets in the related Trust to the respective
Classes of such Securities; (2) certain information as to the nature of the
Mortgage Assets and any other assets assigned or pledged to the Trust underlying
such Securities; (3) the dates periodic distributions will be made to
Securityholders; (4) the Final Scheduled Distribution Dates and authorized
denominations of such Securities; (5) the optional termination features
pertaining to such Securities; (6) certain information regarding subordination
of rights to distributions of any Class of such Securities to the rights of
other Classes; and (7) additional information with respect to the plan of
distribution of such Securities.

Financial Asset Securitization, Inc. (the "Seller") will assign and
transfer the Mortgage Assets and other assets to the Trust for each Series of
Securities. The Mortgage Assets will consist of one or more of the following:
(1) Mortgage Pass-Through Certificates guaranteed by the Government National
Mortgage Association ("GNMA Certificates"), (2) Mortgage Participation
Certificates issued by the Federal Home Loan Mortgage Corporation ("FHLMC
Certificates"), (3) Guaranteed Mortgage Pass-Through Certificates issued by the
Federal National Mortgage Association ("FNMA Certificates"), (4) certain other
mortgage pass-through certificates or mortgage-collateralized obligations,
including those representing interests in pools of multifamily residential
mortgage loans (with GNMA, FNMA and FHLMC Certificates, the "Mortgage
Certificates"), (5) residential mortgage loans secured by property consisting of
single family (one- to four-family) attached or detached residential housing or
multifamily residential rental properties or cooperatively owned properties
consisting of five or more attached or detached dwelling units ("Mortgage
Loans"), (6) retail installment sales contracts ("Contracts") secured by liens
on units of manufactured housing ("Manufactured Homes"), and (7) certain other
assets evidencing interests in loans secured by residential property. Mortgage
Loans that are Cooperative Loans will be secured by assignments of shares and a
proprietary lease or occupancy agreement on a cooperative apartment. The Seller
also may transfer or assign to the Trust for a Series of Securities certain
Reserve Funds and other funds or accounts, Insurance Policies, Servicing
Agreements, additional Mortgage Assets and other instruments as described herein
and in the related Prospectus Supplement. The Mortgage Assets and other assets
in the Trust will be held for the benefit of the Securityholders of the related
Series pursuant to a Trust Agreement as more fully described herein. The only
obligations of the Seller with respect to a Series of Securities will be
pursuant to certain limited representations and warranties.

An election may be made to treat certain Trusts or the related assets as
real estate mortgage investment conduits ("REMICs"). See "Certain Federal Income
Tax Consequences." A Series of Securities for which a REMIC election has been
made will include one or more Classes of regular interests in each REMIC ("REMIC
Regular Securities") and will include one Class of residual interest in each
REMIC ("Residual Securities").

ALTHOUGH PAYMENT OF PRINCIPAL AND INTEREST ON THE MORTGAGE CERTIFICATES, IF
ANY, ASSIGNED TO THE TRUST FOR A SERIES OF SECURITIES IS GUARANTEED BY GNMA,
FNMA OR FHLMC, THE SECURITIES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST
IN THE SELLER OR ANY AFFILIATE THEREOF AND ARE NOT GUARANTEED OR INSURED BY
GNMA, FNMA, FHLMC, THE SELLER OR ANY OF ITS AFFILIATES, OR ANY OTHER PERSON.

SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING THE SECURITIES OF ANY
SERIES.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

The date of this Prospectus is October 28, 1997.

<PAGE>
ADDITIONAL INFORMATION

The Seller is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports and other information filed by the Seller with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a public access site on the internet through the "world wide web" at
which any electronic filings, reports, information statements and other
information regarding the Seller may be viewed. The internet address of the
Commission's site is http://www.sec.gov.

The Prospectus does not contain all the information set forth in the
Registration Statements (of which this Prospectus is a part) and exhibits
relating thereto which the Seller has filed with the Commission in Washington,
D.C. Copies of the information and the exhibits are on file at the offices of
the Commission and may be obtained, upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Copies of the Trust Agreement for a Series will be provided to each person to
whom a Prospectus is delivered upon written or oral request, provided that such
request is made to Financial Asset Securitization, Inc., 901 East Byrd Street,
Richmond, Virginia 23219 (telephone (804) 344-6575), Attn: Secretary.

Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMC's most recent Information Statement and any subsequent information
statement, any supplement to any information statement relating to FHLMC and any
quarterly report made available by FHLMC after December 31, 1983 can be obtained
by writing or calling the Investor Relations Department of FHLMC at Post Office
Box 4112, Reston, Virginia 22090 (outside Washington, D.C. metropolitan area,
telephone 800-424-5401, ext. 3725; within Washington, D.C. metropolitan area,
telephone 703-903-3725). The Seller did not participate in the preparation of
FHLMC's Offering Circular, Information Statement or any supplement and,
accordingly, makes no representation as to the accuracy or completeness of the
information set forth therein.

Copies of FNMA's most recent Prospectus for FNMA Certificates and FNMA's
annual report and quarterly financial statements, as well as other financial
information, are available from the Director of Investor Relations, 3900
Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-752-7115). The Seller did
not participate in the preparation of FNMA's Prospectus and, accordingly, makes
no representations as to the accuracy or completeness of the information set
forth therein.

The Seller is not obligated with respect to the Securities. Accordingly,
the Seller has determined that financial statements of the Seller are not
material to the offering made hereby.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Seller's Registration Statement on Form 10 heretofore filed by the
Seller with the Commission is incorporated by reference in this Prospectus.

All documents filed by the Seller pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this Prospectus
and prior to the termination of the offering of the Securities hereunder shall
be deemed to be incorporated into and made a part of this Prospectus from the
date of filing of such documents.

The Seller hereby undertakes to provide a copy of any and all information
that has been incorporated by reference into the Registration Statements (not
including exhibits to the information so incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Registration Statements incorporate) upon written or oral request of any
person, without charge to such person, provided that such request is made to
Financial Asset Securitization, Inc., 901 East Byrd Street, Richmond, Virginia
23219 (804) 344-6575, Attn: Secretary.

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series of Securities contained in the
related Prospectus Supplement and in the trust agreement (the "Trust Agreement")
with respect to such Series. A form of Trust Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.

Capitalized terms used herein and not defined herein shall have the
respective meanings assigned them in the "GLOSSARY."

<TABLE>
<S> <C>
SELLER........................ Financial Asset Securitization, Inc., formerly named Ryland Mortgage Securities Corporation, is
a wholly owned, limited-purpose financing subsidiary of JST Company, L.L.C. ("JST"). JST is a
limited liability company organized under the laws of the Commonwealth of Virginia on August
22, 1995. Neither JST nor the Seller has guaranteed, or is otherwise obligated with respect to,
the Securities of any Series. The principal executive offices of the Seller are located at 901
East Byrd Street, Richmond, Virginia 23219, and its telephone number is (804) 344-6575.

SECURITIES OFFERED............ Mortgage Participation Securities (the "Securities"), issuable in Series, all as more fully
described in the related Prospectus Supplement. The Securities of each Series may include one
or more Classes and will evidence beneficial ownership interests in a segregated pool of
Mortgage Assets, or beneficial interests therein, and certain other assets assigned to a trust
or trusts for the benefit of Securityholders of each Series as specified in the related
Prospectus Supplement. A Series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest distributions, or
entitled to interest distributions, with disproportionate, nominal or no principal
distributions, derived from the related Trust. The principal amount of any Security may be
represented by a notional principal amount as specified in the related Prospectus Supplement. A x
Class of Securities of a Series entitled to distributions of interest may receive interest at a
specified rate (a "Pass-Through Rate"), which may be fixed, variable or adjustable and may
differ from other Classes of the same Series. One or more Classes of Securities of a Series may
be Securities upon which interest will accrue but not be distributed until certain other
Classes are paid. A Series may also include one or more Classes of Securities entitled to
distributions derived from specified portions of the Mortgage Assets in the related Trust. One
or more Classes ("Subordinated Securities") may be subordinated in right to distributions and
subject to allocation of losses on the Mortgage Loans in favor of one or more other Classes
("Senior Securities") of that Series. The Securities will be issued in fully registered
certificated or book-entry form in the authorized denominations specified in the related
Prospectus Supplement. Any Class of Securities of a Series offered hereby and by the related
Prospectus Supplement will be rated by at least one Rating Agency in one of its four highest
rating categories ("Investment Grade").

TRUST AGREEMENT............... Each Series of Securities will be issued pursuant to one or more Trust Agreements among the
Seller, a Master Servicer or Securities Administrator, and the Trustee identified in the
related Prospectus Supplement. Pursuant to the Trust Agreement, the Seller will sell and assign
the Mortgage Assets and other assets comprising the related Trust to the trustee named in the
related Prospectus Supplement (the "Trustee") in exchange for a Series of Securities. Following
the closing for a Series, the Mortgage Assets will be registered in the name of the Trustee or
its Custodian for that Series. Payments of principal, including prepayments, and interest on
the Mortgage Assets with respect to a Series (together with payments from any Reserve Fund or
other funds for such Series) and, if applicable, Reinvestment Income thereon, will be passed
through to the Trust as specified in the Prospectus Supplement. The Trustee will periodically
allocate such amounts, to the extent actually collected, advanced or
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received during the applicable Due Period or Prepayment Period, net of various fees, premiums
and expenses (the "Available Distribution") among the Classes of Securities in the proportion
and order of application set forth in the Trust Agreement and described in the related
Prospectus Supplement. The Available Distribution may be allocated so that amounts paid as
interest on the Mortgage Assets may be distributed as principal on the Securities and amounts
paid as principal on the Mortgage Assets may be distributed as interest on the Securities.

DISTRIBUTIONS
OF INTEREST................. Interest will be distributed periodically by the Trustee on the dates specified in the related
Prospectus Supplement (each, a "Distribution Date"). Interest will be passed through to each
Class of the Securities entitled to interest distributions at the applicable Pass-Through Rate
on the outstanding actual or notional principal amount of such Securities or allocated by such
other formula as may be specified in the related Prospectus Supplement. Each periodic
distribution of interest on the Securities of a particular Class will be paid to holders out of
the Available Distribution pro rata in accordance with their respective percentage ownership of
the outstanding Securities of such Class. Each such distribution of interest will include all
interest accrued through the Accounting Date immediately preceding the applicable Distribution
Date or to another date specified in the related Prospectus Supplement. Distributions of
interest on the Securities of a Series may be reduced to the extent of delinquencies or losses
on Loans in the related Trust.

DISTRIBUTIONS
OF PRINCIPAL................ Principal will be distributed periodically by the Trustee on the Distribution Dates specified
in the related Prospectus Supplement. Each periodic distribution of principal on the Securities
of a particular Class will be paid to holders out of the Available Distribution pro rata in
accordance with the respective percentage ownership of the outstanding Securities of such
Class, or in such other manner specified in the related Prospectus Supplement. Distributions of
principal on the Securities of a Series may be reduced to the extent of delinquencies or losses
on the Loans in the related Trust.

The Final Scheduled Distribution Date for each Class of a Series is the date after which no
Securities of such Class will remain outstanding, assuming timely payments are made on the
Mortgage Assets in the related Trust in accordance with their terms. The Final Scheduled
Distribution Date of a Class generally will be determined on the basis of the assumptions set
forth in the related Prospectus Supplement. The actual maturity date of the Securities of a
Series will depend primarily upon the level of prepayments with respect to the Loans comprising
or underlying the Mortgage Assets in the related Trust. The actual maturity of any Security is
likely to occur earlier and may occur substantially earlier than its Final Scheduled
Distribution Date as a result of the application of prepayments to the reduction of the
principal amounts of the Securities. Under certain default scenarios with respect to the Loans
comprising or underlying the Mortgage Assets in the Trust, the actual final Distribution Date
of one or more Classes of a Series may occur after the Final Scheduled Distribution Date. See
"Maturity and Prepayment Considerations" and "Yield Considerations."

ALLOCATION OF LOSSES
AND SHORTFALL............... With respect to any defaulted Loan that is finally liquidated for cash through foreclosure
sale, disposition of the related mortgaged premises ("Mortgaged Premises") if acquired by deed
in lieu of foreclosure, or otherwise (a "Liquidated Loan"), the amount of loss realized, if any
(a "Realized Loss"), unless otherwise specified in the Prospectus Supplement, will equal the
sum of the (i) Unpaid Principal Balance, (ii) amounts reimbursable to the Servicer, Master
Servicer or Trustee for related costs, expenses and advances, and (iii) amounts attributable to
interest accrued but not paid on such Mortgage Loan, minus sales proceeds ("Liquidation
Proceeds"), insurance recoveries ("Insurance Proceeds") and other recoveries with
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respect to the Mortgage Loan. Realized Losses also include Mortgagor Bankruptcy Losses, Special
Hazard Losses and Fraud Losses. Mortgagor Bankruptcy Losses result when the Unpaid Principal
Balance of a Mortgage Loan is reduced or the payment terms of a Mortgage Loan are modified in
connection with bankruptcy proceedings of the mortgagor or mortgagors (the "Borrower"). Special
Hazard Losses are losses attributable to physical damage to Mortgaged Premises of a type which
is not covered by standard hazard insurance policies, but do not include losses caused by war,
nuclear reaction, nuclear or atomic weapons, insurrection or normal wear and tear. Fraud Losses
are losses on Mortgage Loans resulting from a Mortgage Insurer's failure to pay a claim with
respect to a Mortgage Loan on the grounds of fraud, dishonesty or misrepresentation in the
application for insurance.

Unless otherwise specified in the Prospectus Supplement, the Servicers of the Loans in the
Trust for a Series and, to the limited extent described herein, the Master Servicer is, and the
Trustee or Pool Insurer may be, obligated to advance funds to the Trust to cover delinquent
payments of principal or interest on the Loans. In the event that advances are not made or are
insufficient to cover delinquencies, interest distributions on the Securities may be reduced.
Interest Shortfall also may result from the application of the Soldiers' and Sailors' Civil
Relief Act of 1940, which caps the interest rate payable by certain Borrowers who subsequently
enter military service ("Soldiers' and Sailors' Shortfall"); from an inability to pay accrued
and unpaid interest on a Loan from Liquidation Proceeds and Insurance Proceeds ("Realized
Interest Losses"); and from the prepayment in full of a Loan if interest to month-end is not
paid by the Servicer or, in certain cases, the Master Servicer ("Prepayment Interest
Shortfall"). See "Sale and Servicing of Mortgage Loans -- General" and " -- Advances."

A Series may include one or more Classes of Securities as to which the right to receive
distributions with respect to the Mortgage Assets will be subordinate to the rights of holders
of more senior Securities of such Series. Such subordination may only be to the extent of a
specific amount specified in the related Prospectus Supplement (the "Subordination Amount") or
may require allocation of all Realized Losses or Shortfall to such Class of Securities until
their principal amount has been reduced to zero. If so provided in the related Prospectus
Supplement, certain types of Realized Losses or Shortfall may be allocated differently than
other Realized Losses or Shortfall. Any allocation of a Realized Loss to a Class of Securities
generally will be made by reducing the principal amount thereof as of the applicable
Distribution Date by an amount equal to the amount of such Realized Loss.

OPTIONAL TERMINATION.......... To the extent specified in the related Prospectus Supplement, the Securities of a Series may be
retired through termination of the related Trust by means of repurchase of the assets in the
Trust by the party or parties specified therein under certain circumstances. See "Description
of the Securities -- Optional Termination."

THE TRUSTS.................... The Seller will assign or transfer to the Trust established for each Series, for the benefit of
Securityholders, assets consisting primarily of one or more of the following, each of which
will be more specifically described in the Prospectus Supplement for such Series:

A. MORTGAGE
ASSETS..................... Assets assigned or transferred to the Trust for Securities of a Series may be composed of (i)
GNMA Certificates guaranteed by the Government National Mortgage Association, (ii) FHLMC
Certificates issued by the Federal Home Loan Mortgage Corporation, (iii) FNMA Certificates
issued by the Federal National Mortgage Association, (iv) such other types of mortgage assets,
including mortgage pass-through certificates and collateralized mortgage obligations (together
with the GNMA Certificates, FHLMC Certificates and FNMA Certificates, the "Mortgage
Certificates"),
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as may be described in the related Prospectus Supplement, (v) Mortgage Loans secured by
property consisting of single family (one- to four-family) attached or detached residential
housing or multifamily residential rental properties or cooperatively owned properties
consisting of five or more attached or detached dwelling units, (vi) Contracts secured by
Manufactured Homes, (vii) certain other assets evidencing interests in loans secured by
residential property, and (viii) Funding Agreements with various Finance Companies that are
secured by Mortgage Certificates, Loans or other similar assets. Mortgage Certificates, Loans
and other similar assets, whether assigned to a Trust by the Seller or pledged to secure a
Funding Agreement, are herein referred to collectively as "Mortgage Assets." The Mortgage
Assets and other assets in the Trust for the Securities of a Series will have an aggregate
Asset Value at least equal to the original aggregate principal amount of such Securities. See
"The Trusts."

B. ASSET PROCEEDS
ACCOUNT.................... All payments and collections received or advanced on the Mortgage Assets assigned to the Trust
for the Securities of a Series will be remitted to one or more accounts (collectively, the
"Asset Proceeds Account") established and maintained in trust on behalf of the Securityholders.
Unless otherwise specified in the related Prospectus Supplement, reinvestment income on amounts
in the Asset Proceeds Account will not accrue for the benefit of the Securityholders of a
Series but will be remitted periodically to the Master Servicer or the Servicers as additional
master servicing or servicing compensation. See "The Trusts -- Asset Proceeds Account."

C. RESERVE FUNDS.............. If specified in the Prospectus Supplement for a Series, the Seller will deposit cash,
securities, certificates of deposit or letters of credit in one or more Reserve Funds which may
be used by the Trustee to make any required distributions of principal or interest on the
Securities of the Series to the extent funds are not otherwise available. Any Reserve Fund will
be maintained in trust but may or may not constitute a part of the Trust for a Series. The
funding of the Reserve Fund for a Series of Securities will be specified in the Prospectus
Supplement for the Series. The Seller will have certain rights on any Distribution Date to
cause the Trustee to withdraw funds from a Reserve Fund for a Series to the extent such funds
are no longer required to be maintained for the Securityholders. See "The Trusts -- Reserve
Fund or Accounts."

D. INSURANCE POLICIES......... For Series in which the Trust contains Mortgage Loans, the Seller may assign to the Trustee
payments due under certain mortgage insurance, hazard insurance and other policies
(collectively, "Insurance Policies") which may include, as specified in the related Prospectus
Supplement, (i) "Mortgage Insurance Policies" consisting of (a) Primary Mortgage Insurance
Policies that will insure (subject to their provisions and certain limitations) Mortgage Loans
against all or a portion of any loss sustained by reason of nonpayments by Borrowers, (b) one
or more mortgage Pool Insurance Policies providing coverage in an amount specified in the
related Prospectus Supplement, or (c) a combination of Primary Mortgage and Pool Insurance
Policies; (ii) Standard Hazard Insurance Policies insuring Mortgage Loans against losses due to
various causes, including fire and windstorm; (iii) Special Hazard Insurance insuring Mortgage
Loans against certain losses that are not covered by the Standard Hazard Insurance Policies
(including earthquakes, landslides and mudflows) in an amount specified in the related
Prospectus Supplement; (iv) Mortgagor Bankruptcy Insurance which will provide for payments in
an amount specified in the Prospectus Supplement in the event of the bankruptcy of the
Borrower; and (v) with respect to multifamily Mortgaged Premises, boiler insurance and business
interruption insurance. To the extent specified in the Prospectus Supplement for a Series, the
Seller may, in lieu of providing certain Insurance Policies, deposit cash, securities, a
certificate of deposit, a letter of credit or any other instrument acceptable to each Rating
Agency rating that Series for such Series in an initial amount acceptable to each such Rating
Agency.
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Insurance related to Mortgage Loans may be modified to cover Mortgage Loans assigned to Trusts
for more than one Series or that secure collateralized mortgage obligations issued by the
Seller or one of its affiliates, provided that such revision does not result in any lowering of
the credit rating assigned to any outstanding Series by any Rating Agency rating that Series at
the request of the Seller. See "The Trusts -- Mortgage Insurance on Mortgage Loans."

E. ADDITIONAL ASSETS.......... The Seller may assign to the Trust for a Series non-recourse guaranties (each a "Guaranty") of
the timely payment of principal and interest on Mortgage Loans in the Trust secured by a pledge
of other assets satisfactory to the Rating Agency rating the Series. The Seller may also assign
such other assets by such other means as may be specified in the related Prospectus Supplement.
Such other assets may consist of additional Mortgage Loans, additional Mortgage Certificates,
letters of credit or other Permitted Investments (such other assets, together with the
Guaranties, are referred to as "Additional Assets"), and may be drawn upon to cover losses on
Mortgage Loans in the Trust as described in the related Prospectus Supplement. See "The
Trusts -- Delivery of Additional Assets."

F. SERVICING.................. One or more Servicers will perform certain servicing functions with respect to the Mortgage
Loans assigned to the Trust for a Series. If specified in the Prospectus Supplement, the
Servicers will be supervised by a Master Servicer. Each Servicer of one- to four-family
Mortgage Loans generally will be an approved servicer by FNMA or FHLMC and by the Master
Servicer. Servicers of multifamily mortgage loans generally will be approved mortgagees under
Section 203 of the National Housing Act. Each Servicer will be obligated under a Servicing
Agreement (i) to perform customary servicing functions, (ii) to make mandatory or discretionary
advances of funds to cover certain payments not made by the Borrowers to the extent such
advances are deemed recoverable from future payments by the Borrowers, from proceeds of
Insurance Policies, from the proceeds of Liquidated Loans, or as provided in the related
Prospectus Supplement, and (iii) under certain circumstances, unless otherwise provided in the
Prospectus Supplement, to purchase any Mortgage Loans (a) that are converted from an adjustable
to a fixed Note Rate or from one fixed Note Rate to a lower fixed Note Rate (a "Converted
Mortgage Loan") and (b) with respect to which the Servicer has made a misrepresentation or
breached a covenant. The Seller will assign its rights under any Servicing Agreement to the
Trust for the related Series. See "The Trusts -- Repurchase of Converted Mortgage Loans" and
" -- Sale and Servicing of Mortgage Loans."

G. MASTER SERVICER............ The Master Servicer or Securities Administrator named in the Prospectus Supplement will be
responsible under the Trust Agreement for providing general administrative services to the
Trust including, among other things, (i) oversight of payments received on Mortgage Assets,
(ii) monitoring the amounts on deposit in various Trust Accounts, (iii) calculation of the
amounts payable to Securityholders on each Distribution Date, (iv) preparation of periodic
reports to the Trustee or the Securityholders with respect to the foregoing matters, (v)
preparation of federal and state tax and information returns, and (vi) preparation of reports,
if any, required under the Securities Exchange Act of 1934, as amended. In addition, with
respect to a Trust that includes one- to four-family Mortgage Loans, the Master Servicer will
be required by the Trust Agreement to supervise and administer the performance of Servicers, to
make advances of delinquent payments of principal and interest on the Mortgage Loans to the
extent provided in the related Prospectus Supplement, and to perform the servicing obligations
of a terminated Servicer. The Master Servicer's obligations to act as a servicer following the
termination of a Servicing Agreement will not, however, require the Master Servicer to (i)
purchase Mortgage Loans from the Trust due to a breach by the Servicer of a representation or
warranty under the Servicing Agreement, (ii) purchase from the Trust any Converted Mortgage
Loan unless otherwise required
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as Master Servicer or (iii) make advances of principal and interest on delinquent Mortgage
Loans in excess of the Master Servicer's independent advance obligation under the Trust
Agreement. If a Servicer does not have an obligation to purchase Converted Mortgage Loans, the
Master Servicer will be obligated to purchase such Converted Mortgage Loans to the extent
provided in the Prospectus Supplement. The Master Servicer may delegate its responsibilities
under the Trust Agreement; PROVIDED, HOWEVER, that no such delegation shall release the Master
Servicer from its responsibilities or obligations under the Trust Agreement.

CERTAIN FEDERAL
INCOME TAX
CONSEQUENCES................ See "Certain Federal Income Tax Consequences."

YIELD CONSIDERATIONS.......... The Prospectus Supplement for a Series may specify certain yield calculations, based upon an
assumed rate of prepayment or a range of prepayment assumptions on the Mortgage Assets, for
Classes receiving disproportionate allocations of principal and interest. A higher level of
principal prepayments on the Mortgage Assets than anticipated is likely to have an adverse
effect on the yield on any Class of Securities that has a purchase price greater than its
initial principal amount (a "Premium Security") and a lower level of principal prepayments on
the Mortgage Assets than anticipated is likely to have an adverse effect on the yield on any
Class of Securities that has a purchase price less than its initial principal amount (a
"Discount Security"). It is possible under certain circumstances for holders of Premium
Securities not only to suffer a lower than anticipated yield but, in extreme cases, to fail to
recoup fully their initial investment.

USE OF PROCEEDS............... The Seller generally will acquire the Mortgage Assets from their previous owner (the
"Participant") at the time the Securities of a Series are issued. Substantially all of the net
proceeds from the sale of each Series of Securities will be paid by the Seller to the
Participant in exchange for the Mortgage Assets to be assigned to the Trust for such Series or
to fund loans to Finance Companies secured by Mortgage Assets and assigned to the Trust for
such Series.

LEGAL INVESTMENT.............. The Securities of each Series offered by the related Prospectus Supplement will generally
constitute "mortgage-related securities" under the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are rated by a Rating Agency in one of its two highest rating
categories. Any such securities would be "legal investments" for certain types of institutional
investors to the extent provided in SMMEA, subject to state laws overriding SMMEA. A number of
states have enacted legislation overriding the legal investment provisions of SMMEA. Some
Classes of Securities offered hereby may not be rated in one of the two highest rating
categories and thus would not constitute "mortgage-related securities." Securities that do not
constitute "mortgage-related securities" under SMMEA will require registration, qualification
or an exemption under applicable state securities laws and may not be "legal investments" to
the same extent as "mortgage-related securities." See "Legal Investment."

ERISA CONSIDERATIONS.......... An employee benefit plan that invests in the Securities may be treated as having acquired a
direct interest in the assets of the related Trust for purposes of the "plan asset" rules of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). See "ERISA
Considerations."

RATING........................ Each Class of Securities offered by means of this Prospectus and the related Prospectus
Supplement will be rated not less than Investment Grade by at least one Rating Agency
identified in such Prospectus Supplement.
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RISK FACTORS

Investors should consider, among other things, the following risk factors
in connection with the purchase of the Securities.

MATURITY AND YIELD CONSIDERATIONS

SENSITIVITY TO PREPAYMENTS. Yields realized by holders of certain Classes
of Securities of a Series with disproportionate allocations of principal or
interest will be extremely sensitive to levels of prepayments (including for
this purpose, payments resulting from refinancings, liquidations due to
defaults, casualties, condemnations, and purchase by or on behalf of the Seller,
the Servicer, the Master Servicer or the Participant, as the case may be) on the
Mortgage Assets of the related Trust. In general, yields on Premium Securities
will be adversely affected by higher than anticipated levels of prepayments on
the Mortgage Assets and enhanced by lower than anticipated levels. Conversely,
yields on Discount Securities are likely to be enhanced by any higher than
expected level of prepayments and adversely affected by a lower than anticipated
level. This sensitivity will be magnified as the disproportion of the allocation
of principal and interest payments on the Mortgage Assets to each Class
increases. Holders of certain Classes of Securities could fail to recover their
initial investment.

The rate of principal payments on the Loans (and mortgage loans underlying
the Mortgage Certificates) will be affected by the amortization schedules of
such loans and the rate of principal prepayments thereon (including for this
purpose payments resulting from refinancings, liquidations due to defaults,
casualties, condemnations, and purchases by or on behalf of the Seller, the
Servicer, the Master Servicer or the Participant, as the case may be). The rate
of principal prepayments on pools of mortgages is influenced by a variety of
economic, geographic, social, tax, legal and other factors. In general, however,
if the Loans are not subject to prepayment penalties and if prevailing interest
rates fall significantly below the interest rate on the Loans (or mortgage loans
underlying the Mortgage Certificates), such Loans are likely to be the subject
of higher principal prepayments than if prevailing rates remain at or above the
rates borne by such Loans. Conversely, a Borrower is less likely to prepay his
Loan when interest rates are higher than those in effect when the Loan was
originated. The holder of the Loan (the Trustee, and through it, the
Securityholders) generally does not want a Loan to be prepaid when prevailing
interest rates are lower than at the time of investment and generally wants a
Loan to be prepaid when prevailing interest rates are higher than at the time of
investment. This conflict between the Borrower and the holder of the Loan
exposes the holder to reinvestment risk when prevailing interest rates are lower
than at the time of its investment (it can only reinvest the mortgage loan
proceeds in investments bearing a lower rate of interest) and the loss of
reinvestment opportunity when prevailing interest rates are higher than at the
time of its investment (it cannot reinvest in higher yielding instruments).

LIMITED NATURE OF RATING. Each Class of Securities of a Series offered
hereby and by means of the related Prospectus Supplement initially will be rated
Investment Grade by at least one of the Rating Agencies identified in such
Prospectus Supplement. Any such rating is not a recommendation to buy, sell or
hold Securities and is subject to revision or withdrawal at any time by the
Rating Agency issuing such rating. An investor may obtain further details with
respect to any rating on the Securities from the Rating Agency issuing such
rating. In addition, any such rating will be based, among other things, on the
credit quality of the Mortgage Assets and will represent only an assessment of
the likelihood of receipt by Securityholders of payments with respect to the
underlying Mortgage Assets. Such rating will not represent any assessment of the
likelihood that prepayment experience may differ from prepayment assumptions
and, accordingly, any assessment of the possibility that holders of Premium
Securities will, under circumstances of high principal prepayments on the
Mortgage Assets, fail to recoup their initial investment. Security ratings
assigned to Classes of Securities having a disproportionate entitlement to
principal or interest should be evaluated independently of similar security
ratings assigned to other kinds of securities. A rating also will not assess the
ability of a Servicer or Participant to perform its obligation, if any, to
repurchase Converted Mortgage Loans.

CREDIT CONSIDERATIONS

GENERAL. Each Trust is expected to have no significant assets other than
the Mortgage Assets and other assets assigned to the Trust by the Seller. For
that reason, prospective purchasers of the Securities of a Series must rely
primarily upon payments of principal and interest on such Mortgage Assets, the
security therefor, and sources of credit enhancement identified in the related
Prospectus Supplement. A Mortgage Loan or Contract

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typically is made based upon a determination of the Borrower's ability to make
Monthly Payments on his Mortgage Loan or Contract and upon the value of the
Mortgaged Premises or Manufactured Home secured thereby. The ability of a
Borrower to make Monthly Payments will be dependent on the availability of jobs
and general macro and micro economic conditions. A Borrower's failure to pay and
subsequent foreclosure on the Mortgaged Premises typically will not relieve the
Borrower from liability for a Mortgage Loan, but the most likely source of cash
as a practical matter will be from the sale of the Mortgage Premises.
Accordingly, an investment in Securities of a Series evidencing interests in a
Trust consisting of Mortgage Loans may be affected by a decline in real estate
values. If the residential real estate market in the area of properties securing
the Mortgage Loans should experience an overall decline in property values such
that the outstanding balances of the Mortgage Loans, and any secondary financing
on the Mortgaged Premises, become equal to or greater than the value of such
Mortgaged Premises, the actual rate of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. To the extent that such losses are not covered by any Subordination
Amount, applicable insurance policies or other credit enhancement, holders of
the Securities of a Series evidencing interests in the related Trust will bear
all risk of loss resulting from default by Borrowers and will have to look
primarily to the value of the Mortgaged Premises for recovery of the outstanding
principal and unpaid interest of the defaulted Mortgage Loans.

Loans such as GPM Loans, GEM Loans, ARM Loans and Buy-Down Mortgage Loans
are of recent origin. As a result, reliable prepayment, loss and foreclosure
statistics relating to such loans are not available. Such Mortgage Loans may be
underwritten on the basis of an assessment that the Borrower will have the
ability to make payments in higher amounts in later years and, in the case of
certain ARM Loans, after relatively short periods of time. Other loans may be
underwritten principally on the basis of the initial loan-to-value ratio of the
Loans. To the extent losses on Loans exceed levels estimated by the Rating
Agency rating the Series in determining required levels of overcollateralization
or other credit support, the Trust may experience a loss. Furthermore, Loans
made with respect to multifamily property, Manufactured Homes or Cooperative
Dwellings may entail risks of loss in the event of delinquency and foreclosure
or repossession that are greater than similar risks associated with traditional
single-family property. To the extent losses on such Loans exceed levels
estimated by the Rating Agency in determining required levels of
overcollateralization or other credit support, the Trust Fund may experience a
loss. See "Sale and Servicing of Loans -- Maintenance of Insurance Policies;
Claims Thereunder and Other Realization Upon Defaulted Mortgage Loans."

Multifamily lending is generally viewed as exposing the lender to a greater
risk of loss than one- to four-family residential lending. Multifamily lending
typically involves larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore, the
repayment of loans secured by income producing properties is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. Multifamily
real estate can be affected significantly by supply and demand in the market for
the type of property securing the loan and, therefore, may be subject to adverse
economic conditions. Market values may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender, such as
rent control laws, which impact the future cash flow of the property.
Corresponding to the greater lending risk is a generally higher interest rate
applicable to multifamily residential mortgage lending.

INSURANCE AND CREDIT SUPPORT LIMITATIONS. The Insurance Policies on the
Mortgage Loans or the obligation to deliver Additional Assets, if any, with
respect to a Series will not cover all contingencies and will cover other
contingencies only to a limited extent. See "The Trusts -- Mortgage Insurance on
Mortgage Loans," " -- Hazard Insurance on the Mortgage Loans," and " -- Delivery
of Additional Assets." The amount, type and nature of insurance policies,
subordination, letters of credit and other credit support, if any, required with
respect to a Series will be determined on the basis of actuarial criteria
established by each Rating Agency rating such Series. Such actuarial analysis is
the basis upon which each Rating Agency determines required amounts and types of
pool insurance, special hazard insurance, reserve funds, subordination or other
credit support. There can be no assurance that the historical data supporting
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of housing loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans.

Moreover, reserve funds, insurance policies, letter of credit or other
credit support for a Series will not cover all potential losses or risks. A
Series of Securities may include a Class or multiple Classes of Subordinated
Securities

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as described in the related Prospectus Supplement. Although such subordination
is intended to reduce the risk of delinquent distributions or ultimate losses to
holders of Senior Securities, the applicable principal amount of the
Subordinated Securities or Subordination Amount will be limited and will decline
under certain circumstances. See "Description of the Securities" and "The
Trusts."

In addition, if distributions in reduction of the principal amount of
Securities of a Series are made in order of the respective Final Scheduled
Distribution Dates of the Classes, any limits with respect to the aggregate
amount of claims under any related Insurance Policy may be exhausted before the
principal of the later-maturing Classes has been repaid. As a result, the impact
of significant losses on the Mortgage Loans may bear primarily upon the
Securities of the later-maturing Classes.

FHLMC AND FNMA GUARANTY. Payments of principal and interest on the FHLMC
Certificates or FNMA Certificates are backed only by the credit of FHLMC and
FNMA, respectively, and not by the full faith and credit of the United States.
See "Additional Information" for the availability of information respecting
FHLMC and FNMA.

DEFICIENCY ON SALE OF ASSETS. If the assets assigned to a Trust were to be
sold, there can be no assurance that the proceeds of any such sale would be
sufficient to distribute in full the outstanding principal amount of the related
Securities and accrued interest due thereon. The market value of the assets
generally will fluctuate with changes in prevailing rates of interest.
Consequently, the Mortgage Assets and any Permitted Investments in which the
funds deposited in the Asset Proceeds Account and any Reserve Funds for a Series
may be invested may be liquidated at a discount from par value or from their
purchase price, in which case the proceeds of liquidation might be less than the
aggregate outstanding principal amount and interest at the Pass-Through Rate
allocated to each Class of the Securities of that Series.

ENFORCEABILITY. As specified in the related Prospectus Supplement, the
Mortgage Loans may contain "due-on-sale" clauses which permit the lender to
accelerate the maturity of the Mortgage Loan if the Borrower sells, transfers or
conveys the related Mortgaged Premises or its interest in the Mortgaged
Premises. Such clauses are generally enforceable subject to certain exceptions.
See "Certain Legal Aspects of Mortgage Loans -- "Due on Sale' Clauses."

Multifamily mortgage loan transactions often provide for an assignment of
the leases and rents pursuant to which the Borrower typically assigns its right,
title and interest, as landlord under each lease and the income derived
therefrom, to the lender while either obtaining a license to collect rents for
so long as there is no default or providing for the direct payment to the
lender. Local law, however, may require that the lender take possession of the
property and appoint a receiver before becoming entitled to collect the rents
under the lease. In addition, if bankruptcy or similar proceedings are commenced
by or in respect of the obligor, the lender's ability to collect the rents may
be adversely affected.

Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. See "Certain Legal Aspects of
Mortgage Loans -- Equitable Limitations on Remedies."

Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the Borrower following foreclosure or sale under a
deed of trust. See "Certain Legal Aspects of Mortgage Loans -- Anti-Deficiency
Legislation and Other Limitations on Lenders."

In some states, the Borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement or redemption
period, cure the default by paying the entire amount in arrears plus certain of
the costs and expenses incurred in enforcing the obligation. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
Borrower and certain foreclosed junior encumbrancers are given a statutory
period in which to redeem the property from the foreclosure sale. The effect of
a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure of sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run. See "Certain Legal Aspects of Mortgage Loans --
Rights of Reinstatement and Redemption."

<PAGE>

OTHER LEGAL CONSIDERATIONS. In addition to anti-deficiency and related
legislation, numerous other federal and state statutory provisions, including
the federal bankruptcy laws, the federal Soldiers' and Sailors' Civil Relief Act
of 1940 and state laws affording relief to debtors, may interfere with or affect
the ability of a secured mortgage lender to realize upon its security. The
Internal Revenue Code of 1986, as amended, provides priority to certain tax
liens over the lien of the mortgage or deed of trust. Other federal and state
laws provide priority to certain tax and other liens over the lien of the
mortgage or deed of trust. Numerous federal and some state consumer protection
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of mortgage loans. These laws
include the federal Truth in Lending Act, Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting
Act, and related statutes and regulations. These federal laws and state laws
impose specific statutory liabilities upon lenders who originate or service
mortgage loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans. See "Certain
Legal Aspects of Mortgage Loans -- Anti-Deficiency Legislation and Other
Limitations on Lenders."

ENVIRONMENTAL CONSIDERATIONS. Real property pledged as security to a lender
may be subject to certain environmental risks. Although federal law provides
secured lenders significant protection from federal liability if they foreclose
on contaminated Mortgaged Property, a secured lender may incur liability, as an
"owner" or "operator," for certain environmental clean-up costs required at the
Mortgaged Property if its agents or employees become sufficiently involved in
the operations of the Borrower, even if the environmental damage or threat was
caused by a prior owner. In addition, many states have environmental clean-up
statutes, and not all provide protection for a secured lender in the case of
foreclosure. See "Certain Legal Aspects of Mortgage Loans -- Environmental
Considerations."

Even if a foreclosing secured lender is protected by legislation from
liability for clean-up costs on a Mortgaged Property, the transferee from the
secured lender is not entitled to such protection. Thus, the presence of
environmental contamination may decrease the amount that prospective buyers are
willing to pay for a Mortgaged Property and thereby reduce the likelihood that
the Trust will recover fully on the related Mortgage Loan as a result of
foreclosure.

Under the laws of many states, contamination of a property may give rise to
a lien on the property for clean-up costs. In several states, such a lien has
priority over all existing liens, including those of existing security
instruments. In these states, the lien of a security instrument may lose its
priority to such a "superlien." See "Certain Legal Aspects of Mortgage Loans --
Environmental Considerations."

Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, it is likely that no environmental
assessment or a very limited environmental assessment of the Mortgaged Premises
was conducted. In general, no representations or warranties have been made or
any liability assumed with respect to the absence or effect of hazardous wastes
or hazardous substances on any Mortgaged Premises or any casualty resulting from
the presence or effect of hazardous wastes or hazardous substances. Any loss or
liability resulting from the presence or effect of hazardous wastes or such
hazardous substances will reduce the amounts otherwise available to pay to the
holders of the Securities. See "Certain Legal Aspects of Mortgage Loans --
Environmental Considerations."

TAX AND OTHER CONSIDERATIONS

ORIGINAL ISSUE DISCOUNT. Discount Securities generally will be treated as
issued with original issue discount for federal income tax purposes. In
addition, certain classes of Premium Securities may be treated by the Trustee
under applicable provisions of the Internal Revenue Code of 1986, as amended, as
stripped coupons issued in the original issue discount. The Trustee will report
original issue discount with respect to such Discount and Premium Securities on
the accrual basis, which may be prior to the receipt of cash associated with
such income. See "Certain Federal Income Tax Consequences."

TAX CONSIDERATIONS FOR RESIDUAL SECURITIES. Residual Securities are subject
to certain special tax considerations that differ from those applicable to REMIC
Regular Securities and of Securities in a Series for which a REMIC election is
not made. See "Certain Federal Income Tax Consequences."

<PAGE>

LIMITED LIQUIDITY. There can be no assurance that a secondary market will
develop for the Securities of any Series or, if it does develop, that it will
provide Securityholders of such Series with liquidity of investment or that it
will continue for the term of the Securities of such Series.

BOOK-ENTRY SECURITIES. The Prospectus Supplement for a Series may specify
that certain Classes of the Securities will be issued in book-entry form
("Book-Entry Securities"). As described under "Description of the Securities --
Book-Entry Procedures," because transactions in Book-Entry Securities can be
effected only through The Depository Trust Company (the "Depository") and
certain Financial Intermediaries, the ability of a beneficial owner of a
Book-Entry Security (a "beneficial owner") to pledge such a Security to persons
or entities that do not participate in the Depository's system, or otherwise to
take actions in respect of such Securities, may be limited due to lack of a
physical certificate representing such Security. Issuance of the Securities in
book-entry form may reduce the liquidity of such Securities in the secondary
trading market since investors may be unwilling to purchase Securities for which
they cannot obtain physical certificates.

Beneficial owners may experience some delay in their receipt of
distributions of interest on and principal of the Securities because such
distributions will be forwarded by the Trustee to the Depository and the
Depository will be required to credit such distributions to the accounts of the
related Financial Intermediary which thereafter will be required to credit them
to the accounts of beneficial owners either directly or indirectly through
indirect participants. See "Description of the Securities -- Book-Entry
Procedures."

DESCRIPTION OF THE SECURITIES

GENERAL

The Mortgage Participation Securities described herein and in the related
Prospectus Supplements (the "Securities") will be issued from time to time in
Series pursuant to a Trust Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
Trust Agreement may incorporate by reference Standard Terms to Trust Agreement
("Standard Terms"). One or more Trusts will be established with the Trustee for
each Series of Securities. The Seller may sell to investors one or more Classes
of a Series of Securities in transactions not requiring registration under the
Securities Act of 1933.

The Seller will assign and transfer to the Trust for the benefit of the
holders of the Securities of each Series the Mortgage Assets, the Asset Proceeds
Account, and, to the extent specified in the related Prospectus Supplement, the
Reserve Fund or other funds, any Additional Assets, the Insurance Policies, and
the Servicing Agreements for such Series. See "The Trusts" and "The Trust
Agreements." The following summaries describe certain provisions common to each
Series of Securities. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the Prospectus
Supplement and the provisions of the Trust Agreement relating to each such
Series of Securities. When particular provisions or terms used in the Trust
Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.

The Trust Agreement for a Series will generally provide that Securities may
be issued thereunder up to the aggregate principal amount authorized from time
to time by the Seller. Each Series will consist of one or more Classes of
Securities and may include (i) one or more Classes of Senior Securities entitled
to certain preferential rights to distributions of principal and interest, (ii)
one or more Classes of Subordinated Securities, (iii) one or more Classes of
Securities representing an interest only in a specified portion of interest
payments on the Mortgage Assets in the related Trust and that may have no
principal balance, a nominal principal balance or a notional principal balance
("Strip Class"), (iv) one or more Classes of Securities representing an interest
only in payments of principal on the Mortgage Assets ("Principal Only Class"),
(v) one or more Classes of Securities upon which interest will accrue but will
not be distributed until certain other Classes of Securities of that Series have
received their final distribution ("Compound Interest Class" and "Capital
Appreciation Class" and, collectively "Accretion Classes"), (vi) one or more
Classes of Securities entitled to distributions from specified portions of the
Mortgage Assets in the related Trust, (vii) one or more Classes entitled to
fixed principal payments under certain conditions ("PAC Classes") and companion
classes thereto ("Companion Classes"), and (viii) one or more Classes of REMIC
Regular Securities and one Class of Residual Securities for each REMIC within a
Series for which a REMIC election is to be made.

<PAGE>

The Securities of each Series will be issued in fully registered
certificated or book-entry form in the authorized denominations for each Class
specified in the related Prospectus Supplement. The Securities of each Series in
certificated form may be transferred or exchanged at the corporate trust office
of the Trustee or such other office specified in the related Prospectus
Supplement without the payment of any service charge, other than any tax or
other governmental charge payable in connection therewith. Unless otherwise
specified in the Prospectus Supplement, distributions of principal and interest
will be made to each Class of Securities of a Series in certificated form by
check mailed to each person in whose name a Security is registered as of the
close of business on the Record Date specified in the related Prospectus
Supplement at the address appearing on the books and records of the Trust,
except that the final distributions in retirement of each Class of Securities of
a Series in certificated form will be made only upon presentation and surrender
of such Securities at the corporate trust office of the Trustee or such other
office specified in the related Prospectus Supplement. Distributions with
respect to Securities in book-entry form will be made as set forth below.

BOOK-ENTRY PROCEDURES

The Prospectus Supplement for a Series may specify that certain Classes of
the Securities will initially be issued in book-entry form ("Book-Entry
Securities") in the authorized denominations specified therein. Each such Class
will be represented by a single certificate registered in the name of the
nominee of the depository, which initially is expected to be The Depository
Trust Company ("DTC" and, together with any successor or other depository
selected by the Seller, the "Depository"). The Depository or its nominee will be
registered as the record holder of the Securities in the Security Register of
the Trust. No person acquiring a Book-Entry Security (a "beneficial owner") will
be entitled to receive a certificate representing such Security.

The beneficial owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains such
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of the Depository (or of a participating firm that acts as agent for the
Financial Intermediary whose interest in turn will be recorded on the records of
the Depository, if the beneficial owner's Financial Intermediary is not a
Depository participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a Book-Entry
Security, and beneficial ownership of a Book-Entry Security may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Depository participants.

DTC, which is a New York-chartered limited-purpose trust company, performs
services for its participants, some of whom (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Securities, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Securities will be subject to the rules,
regulations and procedures governing the Depository and Depository participants
as in effect from time to time.

Distributions of principal and interest on the Book-Entry Securities will
be made on each Distribution Date to the Depository. The Depository will be
responsible for crediting the amount of such distributions to the accounts of
the applicable Depository participants in accordance with the Depository's
normal procedures. Each Depository participant will be responsible for
disbursing such payments to the beneficial owners of the Book-Entry Securities
that it represents and to each Financial Intermediary for which it acts as
agent. Each such Financial Intermediary will be responsible for disbursing funds
to the beneficial owners of the Book-Entry Securities that it represents. As a
result of the foregoing procedures, beneficial owners of the Book-Entry
Securities may experience some delay in their receipt of payments.

Because transactions in Book-Entry Securities can be effected only through
the Depository, participating organizations, indirect participants and certain
banks, the ability of a beneficial owner of a Book-Entry Security to pledge such
Security to persons or entities that do not participate in the Depository, or
otherwise to take actions in respect of such Security, may be limited due to the
lack of a physical certificate representing such Security. Issuance of the
Book-Entry Securities in book-entry form may reduce the liquidity of such
Securities in the secondary trading market because investors may be unwilling to
purchase Book-Entry Securities for which they cannot obtain physical
certificates.

<PAGE>

The Book-Entry Securities will be issued in fully registered, certificated
form to beneficial owners of Book-Entry Securities or their nominees, rather
than to the Depository or its nominee, only if (i) the Seller advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Book-Entry
Securities and the Seller is unable to locate a qualified successor within 30
days or (ii) the Seller, at its option, elects to terminate the book-entry sytem
through the Depository. Upon the occurrence of either event described in the
preceding sentence, the Trustee is required to notify the Depository, which in
turn will notify all beneficial owners of Book-Entry Securities through
Depository participants, of the availability of certificated Securities. Upon
surrender by the Depository of the certificates representing the Book-Entry
Securities and receipt of instructions for re-registration, the Trustee will
reissue the Book-Entry Securities as certificated Securities to the beneficial
owners of Book-Entry Securities.

Neither the Seller, the Master Servicer (or Securities Administrator) nor
the Trustee will have any liability for any aspect of the records relating to or
payment made on account of beneficial ownership interests of the Book-Entry
Securities held by the Depository, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.

ALLOCATION OF DISTRIBUTIONS FROM THE MORTGAGE ASSETS

The Prospectus Supplement for a Series will specify the Available
Distribution for such Series, which in general will be equal to the amount of
principal and interest actually collected, advanced or received during the
applicable Due Period or Prepayment Period, net of applicable servicing, master
servicing, administrative and guarantee fees, insurance premiums and amounts
required to reimburse any unreimbursed advances. The Available Distribution will
be allocated among the Classes of Securities in the proportion and order of
application set forth in the Trust Agreement and described in the related
Prospectus Supplement. The Available Distribution may be allocated so that
amounts paid as interest on the Mortgage Assets may be distributed as principal
on the Securities and amounts paid as principal on the Mortgage Assets may be
distributed as interest on the Securities.

A Class of Securities of a Series entitled to distributions of interest may
receive such interest at a specified rate (a "Pass-Through Rate"), which may be
fixed, variable or adjustable. Each such Class of Securities may have a
different Pass-Through Rate. The related Prospectus Supplement will specify the
Pass-Through Rate, or the method for determining the Pass-Through Rate, for each
applicable Class. Residual Securities offered hereby may or may not have a
Pass-Through Rate. Residual Securities will generally be entitled to receive
amounts remaining after allocation of scheduled distributions to all other
outstanding Classes of Securities of that Series entitled thereto. Certain
Classes of Securities may be represented by a notional principal amount. The
notional amount is used solely for purposes of determination of interest
distributions and certain other rights and obligations of holders of such
Securities and does not represent any beneficial interest in principal payments
on the Mortgage Assets in the related Trust. Interest distributions on the
Securities generally will include interest accrued through the Accounting Date
preceding the applicable Distribution Date or to another date specified in the
related Prospectus Supplement. Interest will be computed on the basis of a
360-day year consisting of twelve 30-day months, unless otherwise specified in
the related Prospectus Supplement.

With respect to a Series that includes one or more Classes of Subordinated
Securities, the Senior Securities will generally not bear any Realized Losses on
the Loans, except as otherwise specified in the related Prospectus Supplement,
until the Subordinated Securities of that Series have borne Realized Losses up
to a specified Subordination Amount or loss limit, or until the principal amount
of the Subordinated Securities has been reduced to zero, either through the
allocation of Realized Losses, the priority of distributions, or both.
Distributions of interest may be reduced to the extent of Shortfall on Mortgage
Loans comprising or underlying the Mortgage Assets of the related Trust. With
respect to a Series that includes a Class of Subordinated Securities, any
Shortfall may result in a reallocation of amounts otherwise distributable to
less senior Securities for distribution to more senior Securities.

Principal and interest distributable to the holders of a Class of
Securities will be distributed pro rata in the proportion that the outstanding
principal or notional amount of each Security of such Class bears to the
aggregate outstanding principal or notional amount of all Securities of such
Class, or in such other manner as may be specified in the related Prospectus
Supplement.

The Final Scheduled Distribution Date for each Class of Securities
generally will be determined on the basis of the assumptions set forth in the
related Prospectus Supplement. If no assumptions are set forth, the Final
Scheduled Distribution Date for a Class of Securities will be the date on which
the last distribution of the principal thereof

<PAGE>

is scheduled to occur, assuming no prepayments of principal with respect to the
Mortgage Assets included in the Trust for that Series.

VALUATION OF MORTGAGE ASSETS

The Mortgage Assets and other assets included in the Trust for each Series
of Securities will have an initial aggregate Asset Value, together with any
other assets included in the Trust underlying a Series of Securities, at least
equal to 100% of the initial principal amount of the Securities of such Series.
Unless otherwise specified in the related Prospectus Supplement, the Asset Value
of any Mortgage Asset in the Trust for a Series, to the extent applicable to
such Series, will generally equal (i) the Scheduled Principal Balance of such
Mortgage Asset or (ii) the lesser of (A) the present value of the stream of
remaining regularly scheduled payments of principal and interest due on such
Mortgage Asset (after taking into account charges for servicing, administration,
insurance and related matters) discounted at the Asset Value Discount Rate, if
any, for such Series specified in the Prospectus Supplement, and (B) the
Scheduled Principal Balance of such Mortgage Asset multiplied by the applicable
Asset Value Percentage. The Asset Value Percentage will be the percentage
limitation that, based upon the scheduled net payments on the Mortgage Assets
included in the Trust, is intended to assure the availability of sufficient
funds to make scheduled distributions on the Securities in the event of
substantial principal prepayments on the Mortgage Assets. In each case Asset
Value will be determined after the subtraction of applicable servicing, master
servicing, administrative and guarantee fees, and insurance premiums and the
addition, if the related Prospectus Supplement so specifies, of any Reinvestment
Income thereon. The Asset Value of a Liquidated Loan or Loan purchased from the
Trust pursuant to the Trust Agreement shall be zero.

If distributable to the Securityholders, Reinvestment Income for a Series
may be based on the applicable contractually specified interest rates pursuant
to guaranteed reinvestment agreements with an institution or institutions
acceptable to each Rating Agency rating the Series. Other specified interest
rates acceptable to each Rating Agency rating a Series may be set forth in the
related Prospectus Supplement for purposes of certain assumptions regarding
Reinvestment Income if required in the calculation of distributions to
Securityholders.

OPTIONAL REDEMPTION

To the extent and under the circumstances specified in the related
Prospectus Supplement, the Securities of any Series may be redeemed prior to
their Final Scheduled Distribution Date at the option of the Seller, the Master
Servicer (or Securities Administrator), the Servicer or such other party as may
be specified in the related Prospectus Supplement by purchase of the outstanding
Securities of such Series. Unless otherwise specified in the Prospectus
Supplement, the right so to redeem the Securities of any Series will be
conditioned upon the passage of a certain date specified in the Prospectus
Supplement and/or the Asset Value or Scheduled Principal Balance of the Mortgage
Assets in the Trust or the outstanding principal balance of a specified Class of
Securities at the time of purchase aggregating less than a percentage specified
in the related Prospectus Supplement, of the Asset Value or the Scheduled
Principal Balance of the Mortgage Assets in the Trust or the outstanding
principal balance of the applicable Class of Securities upon the issuance of the
Series of Securities. In the event the option to redeem the Securities of any
Series is exercised, the purchase price distributed with respect to each
Security offered hereby and by the related Prospectus Supplement will generally
equal 100% of its then outstanding principal amount, plus accrued and unpaid
interest thereon at the applicable Pass-Through Rate, net of any unreimbursed
advances and unrealized losses allocated to such Security. Notice of the
redemption of the Securities of any Series will be given to related
Securityholders as provided in the related Trust Agreement.

MATURITY AND PREPAYMENT CONSIDERATIONS

Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans and the mortgage loans underlying the Mortgage Certificates
included in the Trust for a Series will consist of first lien residential
mortgages or deeds of trust. The mortgage loans underlying the GNMA Certificates
in the Trust for a Series will consist of FHA Loans, VA Loans, RHS Loans or
multifamily loans; the mortgage loans underlying the FNMA Certificates in the
Trust for a Series will consist of conventional loans, FHA Loans, VA Loans, RHS
Loans or multifamily loans; the mortgage loans underlying the FHLMC Certificates
in the Trust for a Series will consist of conventional loans, multifamily loans
or participations in either; and the Mortgage Loans in the Trust for a Series
will consist of conventional loans, FHA Loans, VA Loans or RHS Loans. See "The
Trusts."

<PAGE>

The prepayment experience on the Mortgage Assets will affect (i) the
average life of the Securities and each Class thereof issued by the related
Trust, (ii) the extent to which the final distribution for each Class occurs
prior to its Final Scheduled Distribution Date, and (iii) the effective yield on
each Class of such Securities. Because prepayments will be passed through to the
holders of Securities of each Series as distributions of principal on such
Securities, it is likely that in the event of such prepayments, the final
distributions on the Classes of Securities of a Series will occur prior to their
respective Final Scheduled Distribution Dates.

Prepayments on mortgages are commonly measured relative to a prepayment
standard or model, such as the FHA Prepayment Experience, the Single Monthly
Mortality ("SMM") prepayment model, the Constant Prepayment Rate ("CPR") model,
or some other prepayment assumption model ("PAM"). The Prospectus Supplement for
a Series of Securities may contain a table setting forth percentages of the
original principal amount of each Class of Securities of such Series anticipated
to be outstanding after each of the dates shown in the table. It is unlikely
that the prepayment of the Mortgage Assets of any Trust will conform to any of
the percentages of the prepayment assumption model described in any table set
forth in the related Prospectus Supplement.

FHA has compiled statistics relating to one- to four-family, fixed rate
level payment mortgage loans insured by the FHA under the National Housing Act
of 1934, as amended, at various interest rates, all of which permit assumption
by the new buyer if the home is sold. Such statistics indicate that while some
of such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities.
Moreover, although each of the FHA Loans included in the FHA statistics is
assumable, a number of Mortgage Loans and a number of mortgage loans backing
FHLMC Certificates and FNMA Certificates include "due-on-sale" clauses which
allow the holder of the mortgage loan to demand payment in full of the remaining
principal balance of the mortgage loan upon sale or certain other transfers of
the underlying Mortgaged Premises. The resulting acceleration of mortgage
payments upon transfer of the underlying Mortgaged Premises is another factor
affecting prepayment rates that is not reflected in the FHA statistics. See
"Certain Legal Aspects of Mortgage Loans -- "Due-on-Sale' Clauses."

The rate of principal payments on Mortgage Loans (or mortgage loans
underlying the Mortgage Certificates) will be affected by the amortization
schedules of the mortgage loans and by the rate of principal prepayments thereon
(including for this purpose payments resulting from refinancings, liquidations
due to defaults, casualties, condemnations, and purchases by or on behalf of the
Seller, the Servicers, the Master Servicer or the Participant, as the case may
be). NO ASSURANCE CAN BE GIVEN AS TO THE RATE OF PRINCIPAL PAYMENTS OR
PREPAYMENTS ON THE MORTGAGE LOANS. The rate of principal prepayments on pools of
mortgages is influenced by a variety of economic, geographic, social, tax, legal
and other factors. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans (or mortgage loans
underlying the Mortgage Certificates), such mortgage loans are likely to be the
subject of higher principal prepayments than if prevailing rates remain at or
above the rates borne by such mortgage loans.

It should also be noted that certain Mortgage Certificates in the Trust for
a Series of Securities may be backed by mortgage loans with different interest
rates. Accordingly, the prepayment experience of such Mortgage Certificates will
to some extent be a function of the mix of interest rates of the underlying
mortgage loans. The stated certificate rate on certain Mortgage Certificates may
be up to 3% less than the stated interest rate on the underlying mortgage loans.
Other factors affecting the prepayment of Mortgage Loans (or mortgage loans
underlying the Mortgage Certificates) include changes in Borrowers' housing
needs, job transfers, unemployment, Borrowers' net equity in the Mortgaged
Premises and servicing decisions.

<PAGE>

YIELD CONSIDERATIONS

Distributions of interest on the Securities generally will include interest
accrued through the Accounting Date for the applicable Distribution Date.
Because distributions to the Securityholders generally will not be made until
the Distribution Date following the Accounting Date, the effective yield to the
holders of the Securities will be lower than the yield otherwise produced by the
applicable Pass-Through Rate and purchase price for the Security.

The yield to maturity of any Security will be affected by the rate and
timing of payment of principal of the Mortgage Loans. If the purchaser of a
Security offered at a discount from its Parity Price (as defined below)
calculates the anticipated yield to maturity of such Security based on an
assumed rate of payment of principal that is faster than that actually received
on the Mortgage Loans (or mortgage loans underlying the Mortgage Certificates),
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Security offered at a premium over its Parity Price
calculates the anticipated yield to maturity of such Security on an assumed rate
of payment of principal that is slower than that actually received on the
Mortgage Loans (or mortgage loans underlying the Mortgage Certificates), the
actual yield to maturity will be lower than that so calculated. "Parity Price"
is the price at which a Security will yield its coupon, after giving effect to
any payment delay.

The timing of changes in the rate of prepayments on the Mortgage Loans (or
mortgage loans underlying the Mortgage Certificates) may significantly affect an
investor's actual yield to maturity, even if the average rate of principal
payments experienced over time is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the Mortgage Loans (or
mortgage loans underlying the Mortgage Certificates), the greater will be the
effect on the investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments occurring at a rate higher (or lower)
than the rate anticipated by the investor during the period immediately
following the issuance of the Securities would not be fully offset by a
subsequent like reduction (or increase) in the rate of principal payments.
Because the rate of principal payments (including prepayments) on the Mortgage
Loans (or mortgage loans underlying the Mortgage Certificates) may significantly
affect the weighted average life and other characteristics of any Class of
Securities, prospective investors are urged to consider their own estimates as
to the anticipated rate of future prepayments on the mortgage loans and the
suitability of the Securities to their investment objectives. For factors
affecting principal prepayments on the mortgage loans, see "Maturity and
Prepayment Considerations" above.

The yield on each Class of Securities also will be affected by Realized
Losses or Shortfall allocated to such Class.

THE TRUSTS

GENERAL

The Seller will sell, assign and transfer to the Trust for the benefit of
the holders of the Securities thereof: (i) Mortgage Assets (which may include
Funding Agreements with various Finance Companies that are secured by Mortgage
Assets), together with the payments thereon, having an aggregate initial Unpaid
Principal Balance or Asset Value, as specified in the related Prospectus
Supplement, at least equal to 100% of the original principal amount of the
Securities of such Series, (ii) the Asset Proceeds Account for such Series,
(iii) to the extent applicable, the Reserve Fund and other funds and accounts
for such Series, (iv) to the extent applicable, certain rights to Additional
Assets, (v) to the extent applicable, all proceeds that may become due under the
Insurance Policies with respect to such Series, and (vi) to the extent
applicable, the Seller's rights under the Servicing Agreements and the
agreements pursuant to which it acquired the Mortgage Assets with respect to
such Series.

The assets for a Series will be assigned and transferred to a Trust for the
sole benefit of holders of the Securities of such Series, except that certain
credit enhancement items required by Rating Agencies in connection with Mortgage
Loans may also be assigned to Trusts for other Series of Securities or may
secure other mortgage-backed securities or collateralized mortgage obligations
issued by the Seller or other persons. Particular assets that might be assigned
to Trusts for other Series or that secure such other collateralized mortgage
obligations include Pool Insurance Policies, Special Hazard Insurance Policies,
Mortgagor Bankruptcy Insurance, Reserve Funds and Additional Assets.

<PAGE>

ASSIGNMENT OF MORTGAGE ASSETS

Pursuant to the applicable Trust Agreement, the Seller will cause the
Mortgage Assets (or its security interest therein) to be sold, assigned and
transferred to the Trustee, together with all principal and interest paid on
such Mortgage Assets from the date specified in the Prospectus Supplement. The
Trustee will, in exchange for the Mortgage Assets so transferred, deliver to the
order of the Seller Securities of that Series in authorized denominations
registered in such names as the Seller may request representing the beneficial
ownership interest in such Mortgage Assets. Each pool of Mortgage Assets will
constitute a trust or trusts held by the Trustee for the benefit of the holders
of the Series of Securities representing the ownership interest therein. Each
Mortgage Certificate or Loan included in a Trust will be identified in a
schedule appearing as an exhibit to the related Trust Agreement. Such schedule
will include information as to the Scheduled Principal Balance of each Mortgage
Certificate or Loan as of the date of issuance of the Securities and its
interest rate, original principal balance and certain other information.

In addition, such steps will be taken by the Seller as are necessary to
have the Trustee become the registered owner of each Mortgage Certificate which
is included in a Trust and to provide for all payments on each such Mortgage
Certificate to be made directly to the Trustee. The Seller will, likewise, as to
each Mortgage Loan, deliver or cause to be delivered to the Trustee the related
mortgage note (a "Note") endorsed to the order of the Trustee, evidence of
recording of the mortgage or deed of trust (a "Security Instrument"), an
assignment of such Security Instrument in recordable form naming the Trustee as
assignee, and certain other original documents evidencing or relating to the
Mortgage Loan. Within one year following the Closing Date for a Series, the
Seller will cause the assignments of the Mortgage Loans to be recorded in the
appropriate public office for real property records wherever necessary to
protect the Trustee's interest in the Mortgage Loans. In lieu of recording the
assignments of Mortgage Loans in a particular jurisdiction, the Seller may
deliver or cause to be delivered to the Trustee an opinion of local counsel to
the effect that such recording is not required to protect the right, title and
interest of the Trustee in such Mortgage Loans. The original mortgage documents
are to be held by the Trustee or a custodian acting on its behalf, except to the
extent released to the Servicer or the Master Servicer from time to time in
connection with servicing the Mortgage Loan.

The Seller or the Participant will make certain representations and
warranties in the Trust Agreement with respect to the Mortgage Assets, including
representations that it either is the owner of the Mortgage Assets or has a
first priority perfected security interest in the Mortgage Assets. In addition,
the Participant may make certain representations and warranties with respect to
the Mortgage Assets in the sales agreement pursuant to which the Mortgage Assets
are transferred to the Seller, or in a Funding Agreement. With respect to those
Mortgage Assets which are Mortgage Loans, the Servicer also may make certain
representations and warranties in the Servicing Agreement unless otherwise
provided in the Prospectus Supplement. See "Sale and Servicing of Mortgage Loans
- -- Representations and Warranties." The Seller's right to enforce such
representations and warranties of a Participant or Servicer will be assigned to
the Trustee under the related Trust Agreement. To the extent that a Participant
or Servicer makes representations and warranties regarding the characteristics
of the Mortgage Assets, the Seller will generally not also make such
representations and warranties. In the event that the representations and
warranties of the Seller or Participant are breached, and such breach or
breaches adversely affect the interests of the Securityholders in the Mortgage
Assets, the Seller or Participant will be required to cure such breach or, in
the alternative, to substitute Mortgage Assets in accordance with the criteria
set forth herein, or to repurchase the affected Mortgage Assets, in general at a
price equal to the Unpaid Principal Balance of such Mortgage Assets, together
with accrued and unpaid interest thereon at the interest rate on such Note (the
"Note Rate"). In addition, unless otherwise provided in the Prospectus
Supplement, in the event a Servicer breaches its representations and warranties
with respect to a Mortgage Loan and such breach adversely affects the interests
of the Securityholders in the Mortgage Loans, the Servicer will be required to
cure such breach or to repurchase such Mortgage Loan for the purchase price
described above, net of any unreimbursed advances of principal made by the
Servicer and any outstanding servicing fees owed to the Servicer with respect to
such Mortgage Loan. Neither the Seller nor any Master Servicer will be obligated
to substitute Mortgage Assets or to repurchase Mortgage Assets if a Participant
or Servicer defaults upon its obligation to do so, and no assurance can be given
that Participants or Servicers will perform such obligations with respect to
Mortgage Assets.

<PAGE>

THE MORTGAGE ASSETS

The Prospectus Supplement for a Series will describe in general the type of
Mortgage Assets that will be transferred to the related Trust. The Mortgage
Assets may be composed of (i) GNMA Certificates, (ii) FHLMC Certificates, (iii)
FNMA Certificates, (iv) other Mortgage Certificates, (v) Mortgage Loans, (vi)
Contracts, (vii) certain other assets evidencing interests in loans secured by
residential property, and (viii) Funding Agreements with various Finance
Companies that are secured by Mortgage Certificates, Mortgage Loans or other
similar assets.

GNMA Certificates are mortgage pass-through certificates as to which the
timely payment of principal and interest is guaranteed by Government National
Mortgage Association, a wholly owned corporate instrumentality of the United
States within HUD. GNMA's obligations are guaranteed by the full faith and
credit of the United States. The mortgage loans underlying GNMA Certificates may
consist of FHA Loans secured by mortgages on one- to four-family residential
properties or multi-family residential properties, VA Loans partially guaranteed
by the VA, and other mortgage loans eligible for inclusion in mortgage pools
underlying GNMA Certificates.

FHLMC Certificates are mortgage pass-through certificates as to which the
Federal Home Loan Mortgage Corporation has guaranteed the timely payment of
interest and, generally, the ultimate collection of principal. FHLMC is a
federally chartered corporation whose obligations are not guaranteed by the
United States or any agency or instrumentality thereof. Each FHLMC Certificate
will represent an undivided interest in a group of mortgage loans or
participations in mortgage loans secured by a first lien on one-to-four family
residential properties or multi-family residential properties.

FNMA Certificates are mortgage pass-through certificates as to which the
Federal National Mortgage Association has guaranteed the timely payment of
principal and interest. FNMA is a federally chartered and privately owned
corporation whose obligations are not guaranteed by the United States or any
agency or instrumentality thereof. Each FNMA Certificate will represent an
undivided interest in a pool of mortgage loans formed by FNMA. Each such
mortgage loan will be secured by a first lien on one- to four-family residential
properties or multifamily residential properties.

Although payment of principal and interest on the GNMA Certificates, FHLMC
Certificates and FNMA Certificates, if any, assigned to the Trust for a Series
of Securities is guaranteed by GNMA, FHLMC and FNMA, respectively, the
Securities do not represent an obligation of or an interest in the Seller or any
affiliate thereof and are not guaranteed or insured by GNMA, FHLMC, FNMA, the
Seller or any of its affiliates, or any other person.

Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans included in a Trust will be secured by first liens on one-family,
two- to four-family or multifamily residential property and may also include
Cooperative Loans evidenced by promissory notes secured by a lien or the shares
issued by private, non-profit, cooperative housing corporations and on the
related proprietary leases or occupancy agreements granting exclusive rights to
occupy specific Cooperative Dwellings. Regular monthly installments of principal
and interest on each Mortgage Loan or Contract ("Monthly Payments") paid by the
Borrower will be collected by the Servicer or Master Servicer and ultimately
remitted to the Trustee.

The Mortgaged Premises securing such Mortgage Loans may consist of (i)
detached homes, (ii) attached homes (units having a common wall), (iii) units
located in condominiums, and (iv) such other types of homes or units set forth
in the related Prospectus Supplement including but not limited to multifamily
residential complexes and cooperative units evidenced by a stock certificate.
Each such detached or attached home will be constructed on land owned in fee
simple by the Borrower or on land leased by the Borrower for a term at least one
year greater than the term of the applicable Mortgage Loan. Attached homes may
consist of duplexes, triplexes and fourplexes (multifamily structures where the
entire lot on which each structure is built is owned by the owners of the units)
or townhouses (multifamily structures in which each Borrower owns the land upon
which the unit is built with the remaining adjacent land owned in common). The
Mortgage Loans included in the Trust for a Series of Securities may be secured
by Mortgaged Premises that (i) are owner-occupied, (ii) are owned by investors
or (iii) serve as second residences or vacation homes.

The Mortgage Loans included in the Trust for a Series: may provide for the
payment of interest and full repayment of principal in level Monthly Payments
with a fixed rate of interest computed on the declining principal balance of the
Mortgage Loan ("Level Payment Mortgage Loans"); may provide for periodic
adjustments to the rate of interest on such Mortgage Loans ("ARM Loans") to
equal the sum (which may be rounded) of a fixed margin ("Gross Margin") and an
index ("Index"), all as described in the related Prospectus Supplement; may
consist of

<PAGE>

Mortgage Loans for which funds have been provided to reduce the Borrower's
Monthly Payments during the early period of such Mortgage Loans ("Buy-Down
Mortgage Loans"); may provide for the one-time reduction of the interest rate
payable thereon ("RIM Loans"); may provide for (i) Monthly Payments during the
first year that are at least sufficient to pay interest due on the Mortgage
Loan, and (ii) an increase in such Monthly Payment in subsequent years at a
predetermined rate resulting in full repayment over a shorter term than the
initial amortization schedule ("GEM Loans"); may include graduated payment
Mortgage Loans, which allow for payments during a portion of their term which
are or may be less than the amount of interest due on the Unpaid Principal
Balance of the Mortgage Loans, and which unpaid interest will be added to the
principal balance of such Mortgage Loan and will be paid, together with interest
thereon, in the later years ("GPM Loans"); may include Mortgage Loans on which
only interest is payable until maturity, as well as Mortgage Loans that provide
for the amortization of principal over a certain period, although all remaining
principal is due at the end of a shorter period ("Balloon Payment Mortgage
Loans"); may include Mortgage Loans that provide for Borrower payments to be
made on a bi-weekly basis ("Bi-Weekly Mortgage Loans"); and may include such
other types of mortgage loans as are described in the related Prospectus
Supplement. Buy-Down Mortgage Loans, GEM Loans, GPM Loans and Balloon Payment
Mortgage Loans also may be ARM Loans.

The Mortgage Assets may consist of Contracts secured by Manufactured Homes.
The Contracts typically will provide for regular Monthly Payments that will
amortize the principal amount thereof over the term of the Contract (typically
from ten to twenty years). Interest may be fixed or adjustable based upon an
Index. Unless the Manufactured Home is affixed to the real estate, the security
interest in the Manufactured Home will be governed by state motor vehicle
titling laws or the state's Uniform Commercial Code. Manufactured Homes may
consist of either "single-wide" or "double-wide" units. Additional information
about the Contracts and Manufactured Homes included in a Trust will be provided
in the related Prospectus Supplement.

The Trust for a Series may also include other Mortgage Assets consisting of
conventional mortgage pass-through certificates or collateralized mortgage
obligations as more fully described in the related Prospectus Supplement. Such
other Mortgage Assets must be in form and substance satisfactory to each Rating
Agency rating that Series of Securities.

REPURCHASE OF CONVERTED MORTGAGE LOANS

If so specified in the Prospectus Supplement for a Series, the related
Trust may include Mortgage Loans which are convertible to Converted Mortgage
Loans. Unless otherwise specified in the Prospectus Supplement, a Servicer will
be obligated to repurchase from the Trust any such Converted Mortgage Loan at a
purchase price equal to the Unpaid Principal Balance of such Mortgage Loan, plus
30 days of interest thereon at the applicable Note Rate. If a Servicer (other
than a successor servicer) does not have an obligation to purchase Converted
Mortgage Loans, the Master Servicer will be obligated to purchase such Converted
Mortgage Loans to the extent provided in the Prospectus Supplement. A Servicer
or the Master Servicer, as applicable, will be obligated to deposit the amount
of the purchase price in an account or accounts established for such purpose and
the purchase price will be treated as a prepayment of the related Mortgage Loan.
An obligation of a Servicer or the Master Servicer to repurchase Converted
Mortgage Loans may or may not be supported by cash, letters of credit, third
party guarantees or other similar arrangements.

SUBSTITUTION OF MORTGAGE ASSETS

Unless otherwise provided in the Prospectus Supplement for a Series, the
Seller or Participant may, within three months of the Closing Date, deliver to
the Trustee other Mortgage Assets in substitution for any one or more Mortgage
Assets initially included in the Trust for such Series. In general, any
substitute Mortgage Asset must, on the date of such substitution, (i) have an
Unpaid Principal Balance not greater than (and not more than $10,000 less than)
the Unpaid Principal Balance of the deleted Mortgage Asset, (ii) have a Note
Rate not less than (and not more than one percentage point in excess of) the
Note Rate of the deleted Mortgage Asset, (iii) have a Net Rate equal to the Net
Rate of the deleted Mortgage Asset, (iv) have a remaining term to maturity not
greater than (and not more than one year less than) that of the deleted Mortgage
Asset, and (v) comply with each representation and warranty relating to the
Mortgage Assets and, if the Participant is effecting the substitution, comply
with each representation and warranty set forth in the transfer agreement
conveying the Mortgage Loans to the Seller. In addition, only like-kind
collateral may be substituted except that Mortgage Certificates may be
substituted for Mortgage Loans. If Mortgage Loans are being substituted, the
substitute Mortgage Loan must have a loan-to-value ratio as of

<PAGE>

the first day of the month in which the substitution occurs equal to or less
than the loan-to-value ratio of the deleted Mortgage Loan as of such date (in
each case, using the value at origination, and after taking into account the
payment due on such date). Further, no ARM Loan may be substituted unless the
deleted Mortgage Loan is an ARM Loan, in which case, the substituted Mortgage
Loan must also (a) have a minimum lifetime Note Rate that is not less than the
minimum lifetime Note Rate on the deleted Mortgage Loan, (b) have a maximum
lifetime Note Rate that is not less than the maximum lifetime Note Rate on the
deleted Mortgage Loan, (c) provide for a lowest possible Net Rate that is not
lower than the lowest possible Net Rate for the deleted Mortgage Loan and a
highest possible Net Rate that is not lower than the highest possible Net Rate
for the deleted Mortgage Loan, (d) have a Gross Margin not less than the Gross
Margin of the deleted Mortgage Loan, (e) have a Periodic Rate Cap equal to the
Periodic Rate Cap on the deleted Mortgage Loan, (f) have a next Interest
Adjustment Date that is the same as the next Interest Adjustment Date for the
deleted Mortgage Loan or occurs not more than two months prior to the next
Interest Adjustment Date for the deleted Mortgage Loan, and (g) not be a
Mortgage Loan convertible from an adjustable rate to a fixed rate unless the
deleted Mortgage Loan is so convertible. In the event that more than one
Mortgage Asset is substituted for a deleted Mortgage Asset, one or more of the
foregoing characteristics may be applied on a weighted average basis as
described in the Trust Agreement.

FUNDING AGREEMENTS

If specified in the Prospectus Supplement for a Series, the Seller may
enter into a Funding Agreement with a limited-purpose subsidiary or affiliate of
a Participant (a "Finance Company"). No Finance Company will be authorized to
engage in any business activities other than the financing and sale of Mortgage
Assets.

Pursuant to a Funding Agreement (i) the Seller will lend a Finance Company
a portion of the proceeds from the sale of a Series of Securities and such
Finance Company will pledge to the Seller as security therefor Mortgage Assets
having an aggregate Unpaid Principal Balance or Asset Value equal to at least
the amount of the loan, and (ii) the Finance Company will agree to repay such
loan by causing payments on the Mortgage Assets to be made to the Trustee as
assignee of the Seller in such amounts as are necessary (together with payments
from the related Reserve Fund or other funds or accounts) to pay accrued
interest on such loan and to amortize the entire principal amount of such loan.
A Finance Company is not obligated to provide additional collateral to secure
the loan pursuant to a Funding Agreement subsequent to the issuance of the
Securities of the Series by the Trust.

Unless the Seller, the Servicer, the Master Servicer or other entity
designated in the Prospectus Supplement exercises its option to terminate the
Trust and retire the Securities of a Series, or a Finance Company defaults under
its Funding Agreement, such Finance Company's loan may not be prepaid other than
as a result of prepayments on the pledged Mortgage Assets. If the Finance
Company, nevertheless, were to attempt to prepay its loan, the loan would not be
deemed prepaid in full unless the Finance Company paid the Seller an amount
sufficient to enable the Seller to purchase other Mortgage Assets comparable in
yield and maturity to the Finance Company's Mortgage Assets pledged under the
Funding Agreement. The Trustee then could either (i) purchase such other
Mortgage Assets and substitute them for the Mortgage Assets pledged by the
Finance Company, to the extent that such purchase and substitution did not
adversely affect the tax treatment of the related Series, or (ii) deposit the
amount of the Finance Company's prepayment in the Asset Proceeds Account.

In the event of a default under a Funding Agreement, the Trustee will have
recourse to the related Finance Company for the benefit of the holders of the
Securities, including the right to foreclose upon the Mortgage Assets securing
that Funding Agreement. The participating Finance Companies will be
limited-purpose finance entities and, therefore, it is unlikely that a
defaulting Finance Company will have any significant assets except those pledged
to the Trust for the Series and those that secure other mortgage-backed
securities and collateralized mortgage obligations. The Trustee has no recourse
to assets pledged to secure other securities except to the limited extent that
funds generated by such assets exceed the amount required to pay those
securities and are released from the lien securing such other securities and
returned to a Finance Company. For that reason, prospective purchasers of
Securities should make their investment decisions on the basis that the
Securities of a Series have rights solely with respect to the assets transferred
to the Trust for that Series of Securities.

In the event of a default under a Funding Agreement and the sale by the
Trustee of the Mortgage Assets securing the obligations of the Finance Company
under the Funding Agreement, the Trustee may distribute principal in an amount
equal to the Unpaid Principal Balance of the Mortgage Assets so liquidated
ratably among all

<PAGE>

Classes of Securities within the Series, or in such other manner as may be
specified in the related Prospectus Supplement.

ASSET PROCEEDS ACCOUNT

Unless otherwise specified in the related Prospectus Supplement, payments
on the Mortgage Loans or Contracts included in the Trust for a Series will be
remitted to the Servicer Custodial Account or Master Servicer Custodial Account
and then to the Asset Proceeds Account for such Series, net of amounts required
to pay servicing fees and any amounts which are to be included in any Reserve
Fund. All payments received on Mortgage Certificates included in the Trust for a
Series will be remitted to the Asset Proceeds Account. All or a portion of the
amounts in such Asset Proceeds Account, together with Reinvestment Income
thereon if payable to the Securityholders, will be available, to the extent
specified in the related Prospectus Supplement, for the payment of master
servicing and administrative fees and distributions of principal and interest on
each Class of the Securities of such Series in accordance with the respective
allocations set forth in the related Prospectus Supplement.

RESERVE FUND OR ACCOUNTS

If stated in the Prospectus Supplement for a Series, the Seller will
deposit cash, certificates of deposit or letters of credit in one or more
Reserve Funds or accounts, which may be used by the Trustee to make any required
distributions of principal or interest on the Securities of the Series to the
extent funds are not otherwise available. The Reserve Funds will be maintained
in trust but may or may not constitute a part of the Trust for such Series. The
Seller may have certain rights on any Distribution Date to cause the Trustee to
make withdrawals from the Reserve Funds for a Series and to pay such amounts in
accordance with the instructions of the Seller as specified in the related
Prospectus Supplement to the extent that such funds are no longer required to be
maintained for the Securityholders.

MORTGAGE INSURANCE ON THE MORTGAGE LOANS

Conventional Mortgage Loans included in the Trust for a Series may be
covered by primary mortgage insurance policies ("Primary Mortgage Insurance
Policies") or one or more mortgage pool insurance policies (each, a "Pool
Insurance Policy") or any combination thereof (together, the "Mortgage Insurance
Policies"). To the extent provided in the related Prospectus Supplement, in lieu
of Mortgage Insurance Policies, Additional Assets may be delivered to the
Trustee to secure the timely payment of principal and interest on the Mortgage
Loans (See "The Trusts -- Delivery of Additional Assets" below). FHA Loans and
VA Loans included in the Trust for a Series will be covered by FHA insurance or
VA guarantees, respectively, and may be covered by a Pool Insurance Policy, if
any, for such Series.

Conventional Mortgage Loans that have initial loan-to-value ratios of
greater than 80% will, to the extent specified in the related Prospectus
Supplement, be covered by Primary Mortgage Insurance Policies providing coverage
on at least the amount of each such Mortgage Loan in excess of 75% of the
original fair market value of the Mortgaged Premises and remaining in force
until the principal balance of such Mortgage Loan is reduced to 80% of such
original fair market value or, with the consent of the Master Servicer and
Mortgage Insurer, after the policy has been in effect for more than two years if
the loan-to-value ratio with respect to such Mortgage Loan has declined to 80%
or less based upon its current fair market value. The initial loan-to-value
ratio of any Mortgage Loan represents the ratio of the principal amount of the
Mortgage Loan outstanding at the origination of such loan divided by the fair
market value of the Mortgaged Premises. The fair market value of the Mortgaged
Premises securing any Mortgage Loan is the lesser of the purchase price paid by
the Borrower or the appraised value of such Mortgaged Premises at origination.
Certain other Mortgage Loans may also be covered by Primary Mortgage Insurance
Policies and some Primary Mortgage Insurance Policies will, subject to their
provisions and certain conditions and exclusions described below, provide full
coverage against any loss sustained by reason of nonpayments by the Borrowers (a
"Full Coverage Insurance Policy").

The Pool Insurance Policy or Policies for a Series will generally be
designed to provide coverage for all conventional Mortgage Loans which are not
covered by Full Coverage Insurance Policies. However, the Mortgage Insurance
Policies will not insure against certain losses sustained in the event of a
personal bankruptcy of the Borrower under a Mortgage Loan. See "Certain Legal
Aspects of Mortgage Loans -- Anti-Deficiency Legislation and Other Limitations
on Lenders." Such losses may be covered by Mortgagor Bankruptcy Insurance to the
extent described below for such Series.

<PAGE>

The Mortgage Insurance Policies will not provide coverage against hazard
losses. Each Mortgage Loan will be covered by a Standard Hazard Insurance Policy
but such policies typically will exclude from coverage physical damage resulting
from a number of causes and, even when the damage is covered, may afford
recoveries that are significantly less than full replacement cost of such
losses. Further, to the extent that Mortgage Loans are covered by a Special
Hazard Insurance Policy, such Special Hazard Insurance Policy will not cover all
risks, and the coverage of such policy will be limited in amount. See "The
Trusts -- Hazard Insurance on the Mortgage Loans" below. Certain hazard risks
will, as a result, not be insured and losses related thereto may affect
distributions to holders of Securities of such Series.

To the extent necessary to restore or prevent a reduction of the rating
assigned by a Rating Agency to the Securities of a Series, the Servicer or the
Master Servicer will use its reasonable best efforts to replace a Mortgage
Insurance Policy with a new Mortgage Insurance Policy issued by an insurer whose
claims paying ability is acceptable to such Rating Agency.

Forms of a Primary Mortgage Insurance Policy and a Pool Insurance Policy
have been filed as exhibits to, or incorporated by reference into, the
Registration Statements of which this Prospectus forms a part. The following
descriptions of such policies and the coverage thereunder do not purport to be
complete and are qualified in their entirety by reference to such forms of
policies.

PRIMARY MORTGAGE INSURANCE

Each Primary Mortgage Insurance Policy covering Mortgage Loans included in
the Trust for a Series will be issued by a Mortgage Insurer pursuant to its
applicable master policy. The Seller and the Trustee, as assignee of the lender
under such Mortgage Loans, will generally be the insureds or assignees of
record, as their interests may appear, under each such Primary Mortgage
Insurance Policy. Each Servicing Agreement with respect to such Series will
require the Servicer to cause a Primary Mortgage Insurance Policy to be
maintained in full force and effect with respect to each related Mortgage Loan
requiring such insurance and to act on behalf of the insured with respect to all
actions required to be taken by the insured under each such Primary Mortgage
Insurance Policy.

Unless otherwise specified in the related Prospectus Supplement, the amount
of a claim for benefits under a Primary Mortgage Insurance Policy covering a
Mortgage Loan included in the Trust for a Series (herein referred to as the
"Loss") will consist of the insured portion of the unpaid principal amount of
the covered Mortgage Loan (as described herein) and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or are in any way related to such Mortgaged
Premises, (ii) hazard insurance proceeds in excess of the amount required to
restore such Mortgaged Premises and which have not been applied to the payment
of such Mortgage Loan, (iii) amounts expended but not approved by the mortgage
insurer, (iv) claim payments previously made by the Mortgage Insurer, and (v)
unpaid premiums.

Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan included in the Trust for a
Series, the insured will generally be required to, in the event of default by
the Borrower: (i) advance or discharge (a) all hazard insurance premiums and (b)
as necessary and approved in advance by the Mortgage Insurer, (1) real estate
property taxes, (2) all expenses required to preserve, repair and prevent waste
to the Mortgaged Premises so as to maintain such Mortgaged Premises in at least
as good a condition as existed at the effective date of such Primary Mortgage
Insurance Policy, ordinary wear and tear excepted, (3) property sales expenses,
(4) any outstanding liens (as defined in such Primary Mortgage Insurance Policy)
on the Mortgaged Premises, and (5) foreclosure costs, including court costs and
reasonable attorneys' fees; (ii) in the event of any physical loss or damages to
the Mortgaged Premises, have restored and repaired the Mortgaged Premises to at
least as good a condition as existed at the effective date of such Primary
Mortgage Insurance Policy, ordinary wear and tear excepted; and (iii) tender to
the Mortgage Insurer good and merchantable title to and possession of the
Mortgaged Premises. The Primary Mortgage Insurance Policy may not reimburse the
Insured for attorneys' fees on a foreclosed Mortgage Loan in excess of 3% of the
unpaid balance of that Mortgage Loan. As a result, legal expenses in excess of
such reimbursement limitation may be charged as a loss on the related
Securities.

Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan included in the Trust for a Series generally will provide that:
(a) no change may be made in the terms of such Mortgage Loan without the consent
of the Mortgage

<PAGE>

Insurer; (b) written notice must be given to the Mortgage Insurer within 10 days
after the insured becomes aware that a Borrower is delinquent in the payment of
a sum equal to the aggregate of two scheduled payments due under such Mortgage
Loan or that any proceedings affecting the Borrower's interest in the Mortgaged
Premises securing such Mortgage Loan have been commenced, and thereafter, the
insured must report monthly to the Mortgage Insurer the status of any such
Mortgage Loan until such Mortgage Loan is brought current, such proceedings are
terminated or a claim is filed; (c) the Mortgage Insurer will have the right to
purchase such Mortgage Loan at any time subsequent to the 10 days' notice
described in (b) above and prior to the commencement of foreclosure proceedings,
at a price equal to the Unpaid Principal Balance of the Mortgage Loan plus
accrued and unpaid interest thereon and reimbursable amounts expended by the
insured for the real estate taxes and hazard insurance on the Mortgaged Premises
for a period not exceeding 12 months and less the sum of any claim previously
paid under the policy and any due and unpaid premium with respect to such
policy; (d) the insured must commence proceedings at certain times specified in
the policy and diligently proceed to obtain good and merchantable title to and
possession of the Mortgaged Premises; (e) the insured must notify the Mortgage
Insurer of the institution of such proceedings, provide it with copies of
documents relating thereto, notify the Mortgage Insurer of the price specified
in (c) above at least 15 days prior to the sale of the Mortgaged Premises by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; (f) the insured may accept a conveyance of the Mortgaged
Premises in lieu of foreclosure with written approval of the Mortgage Insurer,
provided that the ability of the insured to assign specified rights to the
Mortgage Insurer are not thereby impaired or the specified rights of the
Mortgage Insurer are not thereby adversely affected; (g) the insured agrees that
the Mortgage Insurer has issued the policy in reliance upon the correctness and
completeness of the statements contained in the application for the policy and
in the appraisal, plans and specifications and other exhibits and documentation
submitted therewith or at any time thereafter; (h) under certain policies, the
Mortgage Insurer will not pay claims involving or arising out of dishonest,
fraudulent, criminal or knowingly wrongful acts (including error or omission) by
certain persons, or claims involving or arising out of the negligence of certain
persons if such negligence is material either to the acceptance of the risk or
to the hazard assumed by the Mortgage Insurer; and (i) the insured must comply
with other notice provisions in the policy. As noted below, except as otherwise
provided in the Prospectus Supplement for a Series, a Participant and the
Servicer of Mortgage Loans must represent and warrant that (i) each Mortgage
Insurance Policy is the valid and binding obligation of the Mortgage Insurer and
(ii) that each mortgage insurance application was complete and accurate in all
material respects when made. See "Sale and Servicing of Mortgage Loans --
Representations and Warranties" herein.

Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Insurer will be required to pay to the insured either: (1) the insured
percentage of the Loss; or (2) at its option under certain of the Primary
Mortgage Insurance Policies, the sum of the delinquent scheduled payments plus
any advances made by the insured, both to the date of the claim payment, and
thereafter, scheduled payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
insured until the earlier of (A) the date the Mortgage Loan would have been
discharged in full if the default had not occurred, or (B) an approved sale. Any
rents or other payments collected or received by the insured which are derived
from or are in any way related to the Mortgaged Premises will be deducted from
any claim payment.

POOL INSURANCE

If any Mortgage Loan in the Trust for a Series is not covered by a Full
Coverage Insurance Policy or other credit enhancement, the Seller may obtain a
Pool Insurance Policy to cover any loss (subject to the limitations described
below) by reason of default by the Borrowers of the Mortgage Loans included in
the Trust for such Series to the extent not covered by any Primary Mortgage
Insurance Policy. The terms of the Trust Agreement with respect to a Series will
require the Master Servicer to maintain the Pool Insurance Policies, if any, for
such Series and to present or cause the Servicers to present claims thereunder
to the related insurer on behalf of the Seller, the Trustee and the holders of
Securities of such Series.

The amount of the Pool Insurance Policy (or Policies) for a Series, if any,
will be specified in the related Prospectus Supplement. A Pool Insurance Policy
for a Series, however, will not be a blanket policy against loss, because claims
thereunder may only be made for particular defaulted Mortgage Loans and only
upon satisfaction of certain conditions precedent as described below.

Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy for a Series will provide that as a condition precedent to the
payment of any claim the insured will be required (a) to advance

<PAGE>

hazard insurance premiums on the Mortgaged Premises securing the defaulted
Mortgage Loan; (b) to advance, as necessary and approved in advance by the
related insurer, (1) real estate property taxes, (2) all expenses required to
preserve and repair the Mortgaged Premises, to protect the Mortgaged Premises
from waste, so that the Mortgaged Premises is in at least as good a condition as
existed on the date upon which coverage under the Pool Insurance Policy with
respect to such Mortgaged Premises first became effective, ordinary wear and
tear excepted, (3) property sales expenses, (4) any outstanding liens on the
Mortgaged Premises, and (5) foreclosure costs including court costs and
reasonable attorneys' fees; and (c) if there has been physical loss or damage to
the Mortgaged Premises, to restore the Mortgaged Premises to its condition
(ordinary wear and tear excepted) as of the issue date of the Pool Insurance
Policy. It also will be a condition precedent to the payment of any claim under
the Pool Insurance Policy that the insured maintain a Primary Mortgage Insurance
Policy that is acceptable to the Pool Insurer on all Mortgage Loans that have
loan-to-value ratios at the time of origination in excess of 80%. Assuming
satisfaction of these conditions, the Pool Insurer will pay to the insured the
amount of the Loss which will be: (a) the amount of the Unpaid Principal Balance
of the Mortgage Loan immediately prior to the Approved Sale of the Mortgaged
Premises; (b) the amount of the accumulated unpaid interest on such Mortgage
Loan to the date of claim settlement at the contractual rate of interest; and
(c) reimbursable amounts advanced by the insured as described above, less
certain payments (including the proceeds of any prior Approved Sale and any
Primary Insurance Policies). The Pool Insurance Policy may not reimburse the
Insured for attorneys' fees on a foreclosed Mortgage Loan in excess of 3% of the
unpaid balance of that Mortgage Loan. As a result, legal expenses in excess of
such reimbursement limitation may be charged as a loss on the related
Securities. An Approved Sale is (1) a sale of the Mortgaged Premises acquired by
the insured because of a default by the Borrower to which the Pool Insurer has
given prior approval, (2) a foreclosure or trustee's sale of the Mortgaged
Premises at a price exceeding the minimum amount specified by the Pool Insurer,
(3) the acquisition of the Mortgaged Premises under the Primary Mortgage
Insurance Policy by the related Mortgage Insurer, or (4) the acquisition of the
Mortgaged Premises by the Pool Insurer. If the Pool Insurer elects to take title
to the Mortgaged Premises, the insured must, as a condition precedent to the
payment of any such Loss, provide the Pool Insurer with good and merchantable
title to the Mortgaged Premises. If any property securing a defaulted Mortgage
Loan is damaged and the proceeds, if any, from the related Standard Hazard
Insurance Policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the damaged property to a condition sufficient to permit
recovery under the Pool Insurance Policy, the Servicer or the Master Servicer of
the related Mortgage Loan will not be required to expend its own funds to
restore the damaged Mortgaged Premises unless it determines and the Master
Servicer agrees (A) that such restoration will increase the proceeds to the
Trust on liquidation of the Mortgage Loan after reimbursement of the Servicer or
the Master Servicer for its expenses and (B) that such expenses will be
recoverable by it through Liquidation Proceeds or Insurance Proceeds.

The Pool Insurance Policies will generally not insure (and many Primary
Insurance Policies may not insure) against loss sustained by reason of a default
arising from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Borrower or the
Originator, (ii) failure to construct Mortgaged Premises in accordance with
plans and specifications and (iii) a claim in respect of a defaulted Mortgage
Loan occurring when the Servicer of such Mortgage Loan, at the time of default
or thereafter, was not approved by the Mortgage Insurer. A failure of coverage
attributable to one of the foregoing events might result in a breach of the
Participant's or Servicer's representations and warranties described under "Sale
and Servicing of Mortgage Loans -- Representations and Warranties" and in such
event, subject to the limitations described therein, might give rise to an
obligation on the part of the Participant or Servicer to purchase the defaulted
Mortgage Loan if the breach cannot be cured. See "Sale and Servicing of Mortgage
Loans -- Representations and Warranties." In addition, if a terminated Servicer
has failed to comply with its obligation under the Servicing Agreement to
purchase a Mortgage Loan upon which coverage under a Pool Insurance Policy has
been denied on the grounds of fraud, dishonesty or misrepresentation (or if the
Servicer has no such obligation), the Master Servicer may be obligated to
purchase the Mortgage Loan. See "Sale and Servicing of Mortgage Loans --
General" and " -- Maintenance of Insurance Policies; Claims Thereunder and Other
Realization Upon Defaulted Mortgage Loans."

The original amount of coverage under any Pool Insurance Policy assigned to
the Trust for a Series will be reduced over the life of the Securities of such
Series by the aggregate dollar amount of claims paid less the aggregate of the
net amounts realized by the Pool Insurer upon disposition of all foreclosed
Mortgaged Premises covered thereby. The amount of claims paid includes certain
expenses incurred by the Servicer or the Master Servicer of the defaulted
Mortgage Loan, as well as accrued interest on delinquent Mortgage Loans to the
date of payment

<PAGE>

of the claim. See "Certain Legal Aspects of Mortgage Loans -- Foreclosure." The
net amounts realized by the Pool Insurer will depend primarily on the market
value of the Mortgaged Premises securing the defaulted Mortgage Loan. The market
value of the Mortgaged Premises will be determined by a variety of economic,
geographic, social, environmental and other factors and may be affected by
matters that were unknown and could not reasonably be anticipated at the time
the original loan was made.

If aggregate net claims paid under a Pool Insurance Policy reach the
original policy limit, coverage under the Pool Insurance Policy will lapse and
any further losses may affect adversely distributions to holders of Securities
of such Series. In addition, unless the Servicer or Master Servicer could
determine that an advance in respect of a delinquent Mortgage Loan would be
recoverable to it from the proceeds of the liquidation of such Mortgage Loan or
otherwise, neither the Servicer nor the Master Servicer would be obligated to
make an advance respecting any such delinquency since the advance would not be
ultimately recoverable to it from either the Pool Insurance Policy or from any
other related source. See "Sale and Servicing of Mortgage Loans -- Advances."
The original amount of coverage under the Pool Insurance Policy assigned to the
Trust for a Series may also be reduced or canceled to the extent each Rating
Agency rating the Series confirms that such reduction will not result in the
lowering of the rating of the Securities of such Series.

Unless otherwise specified in the related Prospectus Supplement, a Pool
Insurance Policy may insure against losses on the Mortgage Loans assigned to
Trusts for other Series of Securities or that secure other mortgage-backed
securities or collateralized mortgage obligations issued by the Seller or one of
its affiliates, provided, however, that the extension of coverage (and
corresponding assignment of the Pool Insurance Policy) to any other Series or
such other Securities does not result in the downgrading of the credit rating of
any outstanding Securities of a Series offered hereby.

HAZARD INSURANCE ON THE MORTGAGE LOANS

A form of Standard Hazard Insurance Policy and a form of Special Hazard
Insurance Policy have been filed as exhibits to, or incorporated by reference
into, the Registration Statements of which this Prospectus forms a part. The
following descriptions do not purport to be complete and are qualified in their
entirety by reference to such forms of policies.

STANDARD HAZARD INSURANCE POLICIES

To the extent specified in the related Prospectus Supplement, the terms of
each Servicing Agreement relating to a Series will require each Servicer to
cause to be maintained a Standard Hazard Insurance Policy covering each
Mortgaged Premises underlying each Mortgage Loan covered by such Servicing
Agreement. The coverage amount of each Standard Hazard Insurance Policy will be
at least equal to the lesser of (a) the outstanding principal balance of the
Mortgage Loan, or (b) 100% of the replacement value of the improvements on the
Mortgaged Premises. All amounts collected by the Servicer or Master Servicer
under any Standard Hazard Insurance Policy (less amounts to be applied to the
restoration or repair of the Mortgaged Premises and other amounts necessary to
reimburse the Servicer or Master Servicer for previously incurred advances or
approved expenses, which may be retained by the Servicer or Master Servicer)
will be deposited to the applicable Custodial Account (as defined below under
"Sale and Servicing of Mortgage Loans -- Payments on Mortgage Loans") maintained
with respect to such Mortgage Loan or the Asset Proceeds Account.

The Standard Hazard Insurance Policies will provide for coverage at least
equal to the applicable state standard form of fire insurance policy with
extended coverage. In general, the standard form of fire and extended coverage
policy will cover physical damage to, or destruction of, the improvements on the
Mortgaged Premises caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Because the Standard Hazard Insurance Policies
relating to the Mortgage Loans included in the Trust for any Series of
Securities will be underwritten by different insurers and will cover Mortgaged
Premises located in various states, such policies will not contain identical
terms and conditions. The basic terms thereof, however, generally will be
determined by state law and generally will be similar. Most such policies
typically will not cover any physical damage resulting from the following: war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), nuclear reaction, wet
or dry rot, vermin, rodents, insects or domestic animals, theft and, in certain
cases, vandalism. The foregoing list is merely indicative of certain kinds of
uninsured risks and is not intended to be all-inclusive. When Mortgaged Premises
are located in a flood area identified by HUD pursuant to the National Flood

<PAGE>

Insurance Act of 1968, as amended, the applicable Servicing Agreement will
require that the Servicer or the Master Servicer, as the case may be, cause to
be maintained flood insurance with respect to such Mortgaged Premises.

The Standard Hazard Insurance Policies covering Mortgaged Premises securing
Mortgage Loans typically will contain a "coinsurance" clause which, in effect,
will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Premises in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
dwellings, structures and other improvements damaged or destroyed or (ii) such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such dwellings, structures and other improvements.

Any losses incurred with respect to Mortgage Loans included in the Trust
for a Series due to uninsured risks (including earthquakes, mudflows and floods)
or insufficient hazard insurance proceeds may reduce the value of the assets
included in the Trust for such Series of Securities to the extent such losses
are not covered by the Special Hazard Insurance Policy for such Series and could
affect distributions to holders of Securities of such Series.

The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained for any Cooperative Loan. Generally, the
cooperative itself is responsible for maintenance of hazard insurance for the
property owned by the cooperative and the tenant-stockholders of that
cooperative do not maintain individual hazard insurance policies. To the extent,
however, a cooperative and the related borrower on a Cooperative Note do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of the damaged property, damage to
such borrower's Cooperative Dwelling or such cooperative's building could
significantly reduce the value of the collateral securing such Cooperative Note.

SPECIAL HAZARD INSURANCE POLICY

A special hazard policy ("Special Hazard Insurance Policy") may be obtained
with respect to the Mortgage Loans included in a Trust as specified in the
related Prospectus Supplement that, subject to the limitations described below,
will protect the holders of Securities of such Series from (i) loss by reason of
damage to Mortgaged Premises underlying defaulted Mortgage Loans included in the
Trust for such Series caused by certain hazards (including vandalism and
earthquakes and, except where the Borrower is required to obtain flood
insurance, floods and mudflows) not covered by the Standard Hazard Insurance
Policies with respect to such Mortgage Loans, and (ii) loss from partial damage
to the Mortgaged Premises securing such defaulted Mortgage Loans caused by
reason of the application of the coinsurance clause contained in the applicable
Standard Hazard Insurance Policies. Any Special Hazard Insurance Policy for a
Series, however, will not cover losses occasioned by war, nuclear reaction,
nuclear or atomic weapons, insurrection or normal wear and tear. Coverage under
the Special Hazard Insurance Policy with respect to a Series will be at least
equal to the amount specified in the related Prospectus Supplement.

Subject to the foregoing limitations, the Special Hazard Insurance Policy
with respect to a Series will provide that when there has been damage to
Mortgaged Premises securing a defaulted Mortgage Loan and such damage is not
covered by the Standard Hazard Insurance Policy maintained by the Borrower or
the Servicer or Master Servicer with respect to such Mortgage Loan, the special
hazard insurer will pay the lesser of (a) the cost of repair of such Mortgaged
Premises or (b) upon transfer of such property to it, the Unpaid Principal
Balance of such Mortgage Loan at the time of the acquisition of such Mortgaged
Premises, plus accrued interest to the date of claim settlement (excluding late
charges and penalty interest), and certain expenses incurred in respect of such
Mortgaged Premises. No claim may be validly presented under a Special Hazard
Insurance Policy unless (1) hazard insurance on the Mortgaged Premises securing
the defaulted Mortgage Loan has been kept in force and other reimbursable
protection, preservation and foreclosure expenses have been paid (all of which
must be approved in advance as necessary by the insurer), and (2) the insured
has acquired title to the Mortgaged Premises as a result of default by the
Borrower. If the sum of the unpaid principal amount plus accrued interest and
certain expenses is paid by the special hazard insurer, the amount of further
coverage under the Special Hazard Insurance Policy will be reduced by such
amount less any net proceeds from the sale of the Mortgaged Premises. Any amount
paid as the cost of repair of the Mortgaged Premises will reduce coverage by
such amount.

<PAGE>

The terms of the Trust Agreement with respect to a Series will require the
Master Servicer to maintain the Special Hazard Insurance Policy for such Series
in full force and effect throughout the term of such Trust Agreement, subject to
certain conditions contained therein. See "Sale and Servicing of Mortgage Loans
- -- Maintenance of Insurance Policies; Claims Thereunder and Other Realization
Upon Defaulted Mortgage Loans." The Master Servicer is also required to present
claims, on behalf of the Trustee, for all losses not otherwise covered by the
applicable Standard Hazard Insurance Policies and take all reasonable steps
necessary to permit recoveries on such claims. See "Sale and Servicing of
Mortgage Loans."

To the extent provided in the Prospectus Supplement, partially or entirely
in lieu of a Special Hazard Insurance Policy, the Seller may deposit cash,
securities, a certificate of deposit, a letter of credit or any other instrument
acceptable to each Rating Agency rating the Series in an amount and for a term
acceptable to each such Rating Agency. Such a deposit will be credited to a
special hazard fund or similar fund, including a fund that may also provide
coverage for mortgagor bankruptcy losses, and the Trustee will be permitted to
draw on the fund to recover losses that would otherwise be covered by a Special
Hazard Insurance Policy. Such losses may also be allocated to the Subordinated
Securities of a Series on the terms and subject to the conditions and
limitations set forth in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, a Special Hazard Insurance
Policy or special hazard fund may insure against losses on Mortgage Loans
assigned to Trusts for other Series of Securities or that secure other
mortgage-backed securities or collateralized mortgage obligations issued by the
Seller or one of its affiliates, provided, however, that the extension of
coverage (and corresponding assignment of the Special Hazard Insurance Policy)
to any other Series or such other securities does not result in the downgrading
of the credit rating of any outstanding Securities of a Series offered hereby.
The Seller may also elect to insure against special hazard losses by the
delivery of Additional Assets to the Trust rather than through a Special Hazard
Insurance Policy or special hazard fund.

MORTGAGOR BANKRUPTCY INSURANCE ON THE MORTGAGE LOANS

In the event of a personal bankruptcy of a Borrower, the bankruptcy court
may establish the value of the Mortgaged Premises of such Borrower at an amount
less than the then outstanding principal balance of the Mortgage Loan secured by
such Mortgaged Premises. The amount of the secured debt could be reduced to such
value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Premises by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding. See "Certain Legal Aspects of Mortgage
Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders." Losses
resulting from a bankruptcy proceeding affecting Mortgage Loans included in the
Trust for a Series may be covered by mortgagor bankruptcy insurance for such
Series (or any other instrument that will not result in a down-grading of the
rating of the Series by any rating agency rating the Series) (the "Mortgagor
Bankruptcy Insurance"). The amount and term of any Mortgagor Bankruptcy
Insurance for a Series, which will be specified in the related Prospectus
Supplement, must be acceptable to each Rating Agency rating the Series. Subject
to the terms of the Mortgagor Bankruptcy Insurance, the issuer thereof may have
the right to purchase any Mortgage Loan with respect to which a payment or
drawing has been made or may be made for an amount equal to the outstanding
principal amount of such Mortgage Loan plus accrued and unpaid interest thereon.
In the alternative, partially or entirely in lieu of Mortgagor Bankruptcy
Insurance, to the extent specified in the related Prospectus Supplement, the
Seller may deposit cash, securities, a certificate of deposit, a letter of
credit or any other instrument acceptable to each Rating Agency rating the
Series in an initial amount acceptable to each such Rating Agency. Such a
deposit will be credited to a mortgagor bankruptcy fund or similar fund or
account, including a fund or account that may also provide coverage for special
hazard losses, and the Trustee will be able to draw on the fund or account to
recover losses that would be insured against by Mortgagor Bankruptcy Insurance.
The mortgagor bankruptcy fund or account may or may not constitute a part of the
Trust for a Series. The amount of the Mortgagor Bankruptcy Insurance for a
Series or deposit in lieu thereof may be reduced as long as any such reduction
will not result in a reduction of the then applicable rating of the Securities
of that Series offered hereby by any Rating Agency rating the Series. Unless
otherwise provided in the Prospectus Supplement, the Mortgagor Bankruptcy
Insurance or any mortgagor bankruptcy fund may insure against losses on Mortgage
Loans assigned to Trusts for other Series of Securities or that secure other
mortgage-backed securities or collateralized mortgage obligations issued by the
Seller or one of its affiliates, provided, however, that the extension of
coverage (and corresponding assignment of the Mortgagor Bankruptcy Insurance
Policy or mortgagor bankruptcy fund) to any other Series or such other
Securities does not result in the downgrading of the credit rating of any
outstanding

<PAGE>

Series of Securities offered hereby. The Seller may elect to deposit Additional
Assets to the Trust in lieu of obtaining Mortgagor Bankruptcy Insurance or
establishing a mortgagor bankruptcy fund.

A form of Mortgagor Bankruptcy Insurance policy has been filed as an
exhibit to, or incorporated by reference into, the Registration Statements of
which this Prospectus forms a part. The foregoing description does not purport
to be complete and is qualified in its entirety by reference to such form of
policy.

OTHER INSURANCE

If the Mortgage Assets for a Series include multifamily Mortgage Loans, the
Borrowers thereunder generally will be required to maintain additional types of
insurance, including but not limited to boiler explosion insurance and business
interruption insurance. Any such insurance policies will be described in the
Prospectus Supplement for such Series.

DELIVERY OF ADDITIONAL ASSETS

To the extent provided in the related Prospectus Supplement, in lieu of
providing Pool Insurance, Special Hazard Insurance, Mortgagor Bankruptcy
Insurance or other insurance, the Seller may assign to the Trust for a Series of
Securities non-recourse guaranties (each a "Guaranty") of the timely payment of
principal and interest on Mortgage Loans included in the Trust secured by other
assets satisfactory to each Rating Agency rating the Series. The Seller may also
assign or undertake to deliver such other assets to the Trust by such other
means as may be specified in the related Prospectus Supplement. Such other
assets may consist of additional Mortgage Loans, additional Mortgage
Certificates, letters of credit or other Eligible Investments ("Additional
Assets").

INVESTMENT OF FUNDS

Funds deposited in or remitted to the Asset Proceeds Account, any Reserve
Fund and any other funds and accounts for a Series are to be invested by the
Trustee, as directed by the Seller, in certain eligible investments ("Permitted
Investments"), which may include (i) obligations of the United States or any
agency thereof provided such obligations are backed by the full faith and credit
of the United States, (ii) within certain limitations, securities bearing
interest or sold at a discount issued by any corporation, which securities are
rated in the rating category required to support the then applicable rating
assigned to that Series, (iii) commercial paper which is then rated in the
commercial paper rating category required to support the then applicable rating
assigned to that Series, (iv) demand and time deposits, certificates of deposit,
bankers' acceptances and federal funds sold by any depository institution or
trust company incorporated under the laws of the United States or of any state
thereof, provided that either the senior debt obligations or commercial paper of
such depository institution or trust company (or provided that either the senior
debt obligations or commercial paper of the parent company of such depository
institution or trust company) are then rated in the security rating category
required to support the then applicable rating assigned to that Series, (v)
demand and time deposits and certificates of deposit issued by any bank or trust
company or savings and loan association and fully insured by the Federal Deposit
Insurance Corporation (the "FDIC"), (vi) guaranteed reinvestment agreements
issued by any insurance company, corporation or other entity acceptable to each
Rating Agency rating that Series at the time of issuance of the Series, and
(vii) certain repurchase agreements of United States government securities.

Permitted Investments with respect to a Series will include only
obligations or securities that mature on or before the date on which the Asset
Proceeds Account, Reserve Fund and other funds or accounts for such Series are
required or may be anticipated to be required to be applied for the benefit of
the holders of such Series. Any income, gain or loss from such investments for a
Series will be credited or charged to the appropriate fund or account for such
Series. Reinvestment Income from Permitted Investments may be payable to the
Master Servicer or the Servicers as additional servicing compensation and, in
that event, will not accrue for the benefit of the Securityholders of that
Series.

If a reinvestment agreement is obtained with respect to a Series, the
related Trust Agreement will require the Trustee to invest funds deposited in
the Asset Proceeds Account and the Reserve Fund, if any, for that Series
pursuant to the terms of the reinvestment agreement.

<PAGE>

SALE AND SERVICING OF THE MORTGAGE LOANS

GENERAL

For each Series including Mortgage Loans, one or more Servicers will
provide certain customary servicing functions with respect to such Mortgage
Loans pursuant to separate servicing agreements ("Servicing Agreements"), which
will be assigned to the Trustee. The Master Servicer is deemed to be a Servicer
for purposes of the following discussion to the extent it is directly servicing
the Mortgage Loans in a Trust. The Servicers may be entitled to withhold their
servicing fees and certain other fees and charges from remittances of payments
received on Mortgage Loans serviced by them.

Each Servicer of Mortgage Loans generally will be approved by FNMA or FHLMC
as a servicer of mortgage loans and must be approved by the Master Servicer (if
any). In determining whether to approve a Servicer, the Master Servicer will
review the credit of the Servicer, including capitalization ratios, liquidity,
profitability and other similar items that indicate financial ability to perform
its obligations. In addition, the Master Servicer's mortgage servicing personnel
review the Servicer's servicing record and evaluate the ability of the Servicer
to conform with required servicing procedures. Generally, the Master Servicer
will not approve a Servicer unless the Servicer has serviced conventional
mortgage loans for a minimum of two years and maintains a loan servicing
portfolio of at least $500,000,000. Servicers approved by the Master Servicer
fall into three general categories: commercial banks, mortgage banks and thrift
institutions. The Master Servicer generally will not approve a commercial bank
as a Servicer unless the commercial bank maintains a capitalization ratio
(defined as total equity and subordinated debt to total assets) of at least 6%.
The Master Servicer generally will not approve a mortgage bank as a Servicer
unless the mortgage bank has stockholders' equity of at least $1,000,000 or at
least .20% of its loan servicing portfolio, whichever is greater. The Master
Servicer generally will not approve a thrift institution as a Servicer unless
the thrift institution maintains a capitalization ratio of at least 3% and a
liquidity ratio of at least 5%. Once a Servicer is approved, the Master Servicer
will continue to monitor on a regular basis the financial position and servicing
performance of the Servicer.

The duties to be performed by the Servicers include collection and
remittance of principal and interest payments on the Mortgage Loans,
administration of mortgage escrow accounts, collection of insurance claims,
foreclosure procedures, and, if necessary, the advance of funds to the extent
certain payments are not made by the Borrowers and are considered to be
recoverable under the applicable Insurance Policies with respect to such Series
or from proceeds of liquidation of such Mortgage Loans. Each Servicer also will
provide such accounting and reporting services as are necessary to enable the
Master Servicer to provide required information to the Seller and the Trustee
with respect to the Mortgage Loans included in the Trust for such Series. Each
Servicer is entitled to a periodic servicing fee equal to a specified percentage
of the outstanding principal balance of each Mortgage Loan serviced by such
Servicer. With the consent of the Master Servicer, certain servicing obligations
of a Servicer may be delegated to another person approved by the Master
Servicer.

Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will (i) administer and supervise the performance by the Servicers of
their duties and responsibilities under the Servicing Agreements, and (ii)
maintain Special Hazard Insurance, Mortgagor Bankruptcy Insurance and Pool
Insurance, if required. The Master Servicer or Securities Administrator will be
entitled to receive a portion of the interest payments on the Mortgage Loans
included in the Trust for the Series to cover its fees as Master Servicer or
Securities Administrator, as the case may be. The Master Servicer or the Trustee
may terminate a Servicer who has failed to comply with its covenants or breached
one of its representations contained in the Servicing Agreement. Upon
termination of a Servicer by the Master Servicer, the Master Servicer will
assume certain servicing obligations of the terminated Servicer, or, at its
option, may appoint a substitute Servicer acceptable to the Trustee to assume
the servicing obligations of the terminated Servicer.

With respect to a Series in which Mortgage Loans are covered by a Pool
Insurance Policy, if a terminated Servicer has failed to comply with its
obligation under the Servicing Agreement to purchase a Mortgage Loan upon which
Mortgage Insurance coverage has been denied on the grounds of fraud or
misrepresentation, the Master Servicer is obligated to purchase the Mortgage
Loan, subject to limitations, if any, described below under "Maintenance of
Insurance Policies; Claims Thereunder and Other Realization Upon Defaulted
Mortgage Loans" and as may be set forth in the related Prospectus Supplement. To
the extent required by the Rating Agency, the Master Servicer may secure its
performance of such obligation through cash, a letter of credit or any other
instrument

<PAGE>

acceptable to the Rating Agency in such amount as required by the Rating Agency.
Alternatively, a Pool Insurer may agree to waive its right to deny a claim under
its Pool Insurance Policy resulting from a loss sustained by reason of a default
arising from fraud, dishonesty or misrepresentation in connection with the
related Mortgage Loan, subject to the limitations applicable to the Master
Servicer's obligation to purchase such Mortgage Loan, as set forth below under
"Maintenance of Insurance Policies; Claims Thereunder and Other Realization Upon
Defaulted Mortgage Loans." To the extent there are limitations on the Master
Servicer's obligation to purchase Mortgage Loans included in a Trust for a
Series upon which Mortgage Insurance coverage has been denied on the grounds of
fraud or misrepresentation, payments to the holders of the Securities of such
Series could be affected if a Servicer and the Master Servicer fail to honor
their respective repurchase obligations.

Forms of Servicing Agreements have been filed as exhibits to, or
incorporated by reference into, the Registration Statements of which this
Prospectus forms a part. The Seller's rights under each Servicing Agreement with
respect to a Series will be assigned as assets to the Trust for such Series. The
descriptions contained herein do not purport to be complete and are qualified in
their entirety by reference to the form of the Servicing Agreement.

REPRESENTATIONS AND WARRANTIES

The Seller generally will acquire Mortgage Loans from Participants, or will
enter into a Funding Agreement with a Finance Company affiliated with a
Participant secured by Mortgage Loans acquired from such Participant. A
Participant or an affiliate may act as a Servicer of Mortgage Loans included in
the Trust or an unrelated entity may act as Servicer. The Participant will make
or will assign its rights in certain representations and warranties with respect
to such Mortgage Loans in the agreement by which such Participant transfers its
interest in such Mortgage Loans. In addition, unless otherwise provided in the
Prospectus Supplement, the Servicer (which may be the Participant) will make
certain representations and warranties with respect to the Mortgage Loans
serviced by the Servicer in the Servicing Agreement. Except as otherwise noted
in the Prospectus Supplement for a Series, a Participant and the Servicer will
each represent and warrant, among other things, as follows: (i) that each
Mortgage Loan has been originated in compliance with all applicable laws, rules
and regulations; (ii) that no Mortgage Loan is more than 30 days delinquent as
of the applicable Cut-off Date; (iii) that each Mortgage Insurance Policy is the
valid and binding obligation of the Mortgage Insurer; (iv) that each Mortgage
Insurance application was complete and accurate in all material respects when
made; (v) that each Security Instrument constitutes a good and valid first lien
on the Mortgaged Premises; and (vi) that the Borrower holds good and marketable
title to the Mortgaged Premises. Except as otherwise noted in the Prospectus
Supplement for a Series, the Participant is required to submit to the Trustee
with each Mortgage Loan a mortgagee title insurance policy, title insurance
binder, preliminary title report, or satisfactory evidence of title insurance.
If a preliminary title report is delivered initially, the Participant is
required to deliver a final title insurance policy or satisfactory evidence of
the existence of such a policy.

In the event the Participant or the Servicer breaches a representation or
warranty made with respect to a Mortgage Loan or if any principal document
executed by the Borrower relating to a Mortgage Loan is found to be defective in
any material respect and the breaching party cannot cure such breach or defect
within the number of days specified in the applicable agreement, the Trustee may
require such breaching party to purchase such Mortgage Loan from the Trust for
the applicable Series upon deposit with the Trustee of funds equal to the then
Unpaid Principal Balance of such Mortgage Loan plus accrued interest thereon at
the Note Rate through the end of the month in which the purchase occurs net, in
the case of a purchase by the Servicer, of any unreimbursed advances of
principal made by the Servicer and any outstanding servicing fees owed to the
Servicer with respect to such Mortgage Loan. In the event of a breach by the
Participant of a representation or warranty with respect to a Mortgage Loan or
the delivery by the Participant to the Trustee of a materially defective
document with respect to a Mortgage Loan, the Participant may under certain
circumstances, in lieu of repurchasing such Mortgage Loan, substitute a Mortgage
Loan having characteristics substantially similar to those of the defective
Mortgage Loan. See "The Trusts -- Substitution of Mortgage Assets."

Neither a Participant's nor a Servicer's obligation to purchase a Mortgage
Loan will be guaranteed by the Master Servicer or the Seller, unless otherwise
specified in the related Prospectus Supplement. If the Participant or a Servicer
defaults upon its obligation to purchase a Mortgage Loan and no one elects to
assume such obligation, distributions to the holders of the Securities could be
reduced to the extent payments are not made on the Mortgage Loan. See also "The
Trusts -- Assignment of Mortgage Assets" herein.

<PAGE>

ORIGINATION OF THE MORTGAGE LOANS

Unless otherwise provided in the Prospectus Supplement for a Series, each
Mortgage Loan included in the Trust for a Series will be originated by a savings
and loan association, savings bank, commercial bank, credit union, insurance
company, or similar institution which is supervised and examined by a federal or
state authority, or by a mortgagee approved by HUD. In originating a Mortgage
Loan, the loan originator (the "Originator") will follow its credit approval
process in order to assess the prospective Borrower's ability to repay and the
adequacy of the Mortgaged Premises as collateral. Each Originator's mortgage
credit approval process for single-family residential loans follows a standard
procedure which is intended to comply with applicable federal and state laws and
regulations. The Originator generally will review a detailed application of the
prospective Borrower designed to provide pertinent credit information, including
a current balance sheet describing assets and liabilities and a statement of
income and expenses, credit history with merchants and lenders, any record of
bankruptcy, employment history, current and anticipated salary and deposit
verification from financial institutions.

To the extent specified in the Prospectus Supplement, Mortgage Loans may
have been originated under a "limited documentation" underwriting program, where
the credit approval procedures may be minimal. Under "limited documentation"
programs, income and employment verifications generally need not be furnished
(other than the year-to-date paycheck stubs or a W-2 for employed individuals
and tax returns for two years for self-employed individuals) and deposit
verifications are only required for substantial accounts listed on application
forms for such programs. Participation in a limited documentation program
generally is limited to individuals with no adverse credit history and to loans
secured by owner-occupied residences with original loan-to-value ratios not in
excess of 80%.

An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who, at the time
the appraisal was conducted, met the minimum qualifications of FNMA or FHLMC for
appraisers of conventional residential mortgage loans. The appraisal generally
will be based on the appraiser's judgment of value, giving appropriate weight to
both the market value of comparable homes and the cost of replacing the
residence.

Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator whether the prospective Borrower has
sufficient monthly income available to meet the Borrower's monthly obligations
on the proposed loan and other expenses related to the residence (such as
property taxes, hazard and, if applicable, primary mortgage insurance
maintenance fees) and other financial obligations and monthly living expenses.
Each Originator's lending guidelines for conventional single-family Mortgage
Loans generally will specify that mortgage payments plus taxes and insurance and
all monthly payments extending beyond 10 months (including those mentioned above
and other fixed obligations, such as car payments) would equal no more than
specified percentages of the Borrower's gross income. These guidelines will be
applied only to the payments to be made during the first year of the loan. Other
credit considerations may cause an Originator to depart from these guidelines.
When two individuals co-sign the loan documents, the incomes and expenses of
both individuals may be included in the computation.

With respect to a Series, the underwriting practices described in the
Prospectus Supplement may vary from those described in general herein, and with
respect to the Borrower's credit standing and ability to repay the loan, may be
less stringent than the underwriting standards generally acceptable to FNMA and
FHLMC. In these instances, the underwriting standards are primarily intended to
evaluate the value and adequacy of the Mortgaged Premises as collateral for the
Mortgage Loans.

PAYMENTS ON MORTGAGE LOANS

Pursuant to the applicable Servicing Agreements, each Servicer will be
required to establish and maintain one or more separate, insured (to the
available limits) custodial accounts (collectively, the "Custodial Account")
into which the Servicer will be required to deposit on a daily basis payments of
principal and interest received with respect to Mortgage Loans serviced by such
Servicer included in the Trust for the Securities of such Series. Such amounts
will include principal prepayments, Insurance Proceeds and Liquidation Proceeds,
any advances by such Servicer as described herein, and proceeds of any Mortgage
Loans withdrawn from the Trust for such Series, as provided in the Trust
Agreement, for defects in documentation, breach of representations or warranties
or otherwise.

<PAGE>

To the extent deposits in each Custodial Account are required to be insured
by the FDIC, if at any time the sums in any Custodial Account exceed the limits
of insurance on such account, the Servicer will be required within one business
day to withdraw such excess funds from such account and remit such amounts to a
"Servicer Custodial Account," which shall be a custodial account maintained by
the Trustee, or to the Trustee or the Master Servicer for deposit in either the
Asset Proceeds Account for such Series or the "Master Servicer Custodial
Account" which shall be a custodial account maintained by the Master Servicer.
The amount on deposit in any Servicer Custodial Account, Master Servicer
Custodial Account or Asset Proceeds Account will be invested in or
collateralized by Permitted Investments as described herein.

Not later than the 24th calendar day of each month or such other day or
days as may be specified in the Servicing Agreement (the "Remittance Date"),
each Servicer will be required to remit to the Servicer Custodial Account or the
Master Servicer Custodial Account amounts representing scheduled installments of
principal and interest on the Mortgage Loans included in the Trust for such
Series received or advanced by the Servicer that were due during the applicable
Due Period, principal prepayments, Insurance Proceeds or guarantee proceeds, and
the proceeds of liquidations of Mortgaged Premises, including funds paid by the
Servicer for any such Mortgage Loans withdrawn from the Trust for such Series
received during the applicable Prepayment Period, with interest to the date of
prepayment or liquidation (subject to certain limitations), less applicable
servicing fees, insurance premiums and amounts representing reimbursement of
advances made by the Servicer. On or before the Distribution Date, the Trustee
will withdraw from the Servicer Custodial Account or the Master Servicer
Custodial Account and remit to the Asset Proceeds Account those amounts
allocable to the Available Distribution for such Distribution Date. In addition,
there will be deposited in the Asset Proceeds Account for such Series of
Securities any advances of principal and interest made by the Servicer, the
Master Servicer or the Trustee pursuant to the terms of the Servicing Agreement
or Trust Agreement for such Series and any Insurance, guarantee or Liquidation
Proceeds (including amounts paid in connection with the withdrawal of defective
Mortgage Loans from the Trust for such Series) to the extent such amounts were
not deposited in the related Custodial Account or received and applied by such
Servicer.

Prior to each Distribution Date for a Series (or the next preceding
business day if such day is not a business day), the Master Servicer will
furnish to the Trustee a statement setting forth certain information with
respect to the Mortgage Loans included in the Trust for such Series.

ADVANCES

Unless otherwise provided in the related Prospectus Supplement for a
Series, the Servicing Agreements generally will provide that each Servicer will
be required to advance funds to cover, to the extent that such amounts are
deemed to be recoverable from any subsequent payments on that Mortgage Loan, (i)
delinquent payments of principal and interest on such Mortgage Loans, (ii)
delinquent payments of taxes, insurance premiums, and other escrowed items, and
(iii) foreclosure costs, including reasonable attorneys' fees. The failure of
the Servicer to make any required advances under a Servicing Agreement
constitutes a default under such Agreement for which the Servicer will be
terminated. Upon a default by the Servicer, the Master Servicer or the Trustee
may, if so provided in the Trust Agreement, be required to make advances to the
extent necessary to make required distributions on certain Securities, provided
that such party deems such amounts to be recoverable. Alternatively, the Seller
may obtain an endorsement to the Pool Insurance Policy which obligates the
Mortgage Insurer to advance delinquent payments of principal and interest. The
Pool Insurer would only be obligated under such endorsement to the extent the
Borrower fails to make such payment and the Servicer and the Master Servicer
fail to make a required advance. The Master Servicer may agree to reimburse the
Pool Insurer for any sums the Pool Insurer pays under such endorsement.

The advance obligation of the Trustee, the Master Servicer or the Pool
Insurer may be further limited to an amount specified by the Rating Agency
rating the Securities. Any such advances by the Servicers, the Master Servicer,
the Trustee or the Pool Insurer, as the case may be, must be deposited into the
applicable Custodial Account or Servicer Custodial Account or into the Asset
Proceeds Account and will be due not later than the Distribution Date to which
such delinquent payment relates. Amounts so advanced by the Servicers, the
Master Servicer or the Trustee, as the case may be, will be reimbursable out of
future payments on the Mortgage Loans, Insurance Proceeds, Additional Assets,
Liquidation Proceeds of the Mortgage Loans for which such amounts were advanced.
If an advance made by a Servicer, the Master Servicer or the Trustee later
proves to be unrecoverable,

<PAGE>

such Servicer, the Master Servicer or the Trustee, as the case may be, will be
entitled to reimbursement from funds in the Asset Proceeds Account prior to the
distribution of payments to the Securityholders.

Any advances made by a Servicer, the Master Servicer or the Trustee with
respect to Mortgage Loans included in the Trust for any Series are intended to
enable the Trustee to make timely payment of the scheduled distributions of
principal and interest on the Securities of such Series. However, neither the
Master Servicer, the Trustee nor any Servicer will insure or guarantee the
Securities of any Series or the Mortgage Loans included in the Trust for any
Series.

COLLECTION AND OTHER SERVICING PROCEDURES

The Servicing Agreements with respect to a Series will require each
Servicer to make reasonable efforts to collect all payments called for under the
Mortgage Loans included in the Trust for the Series and, consistent with the
Servicing Agreement and the applicable Insurance Policies with respect to each
Mortgage Loan, to follow such collection procedures as it normally would follow
with respect to mortgage loans serviced for FNMA.

The Note or Security Instrument used in originating a conventional Mortgage
Loan may contain a "due-on-sale" clause. See "Certain Legal Aspects of Mortgage
Loans -- "Due-On-Sale' Clauses." The Servicer will be required to use reasonable
efforts to enforce "due-on-sale" clauses with respect to any Note or Security
Instrument containing such a clause, provided that the coverage of any
applicable Insurance Policy will not be adversely affected thereby. In any case
in which Mortgaged Premises have been or are about to be conveyed by the
Borrower and the due-on-sale clause has not been enforced or the related Note is
by its terms assumable, the Servicer will be authorized, on behalf of the
Trustee, to enter into an assumption agreement with the person to whom such
Mortgaged Premises have been or are about to be conveyed, if such person meets
certain loan underwriting criteria, including the criteria necessary to maintain
the coverage provided by the applicable Mortgage Insurance Policies or otherwise
required by law. In the event that the Servicer enters into an assumption
agreement in connection with the conveyance of any such Mortgaged Premises, the
Servicer, on behalf of the Trustee as holder of the related Note, will release
the original Borrower from liability upon the Mortgage Loan and substitute the
new Borrower as obligor thereon. In no event can the assumption agreement permit
a decrease in the Note Rate or an increase in the term of the Mortgage Loan.
Fees collected for entering into an assumption agreement will be retained by the
Servicer as additional servicing compensation.

Under the applicable Servicing Agreements with respect to a Series, each
Servicer will, to the extent permitted by law, establish and maintain a
custodial account or accounts (the "Escrow Account") into which certain
Borrowers will be required to deposit amounts sufficient to pay taxes,
assessments, Primary Mortgage and Standard Hazard Insurance premiums and other
comparable items, except that certain Servicers may provide insurance coverage
acceptable to the Master Servicer for such Series against loss occasioned by the
failure to escrow insurance premiums rather than causing such escrows to be
made. Withdrawals from the Escrow Account maintained for Borrowers may be made
to effect timely payment of taxes, assessments, Primary Mortgage and Standard
Hazard premiums or comparable items, to reimburse the Servicer for maintaining
Primary Mortgage and Standard Hazard insurance, to refund to Borrowers amounts
determined to be overages, to pay interest to Borrowers on balances in the
Escrow Account, if required, to repair or otherwise protect the Mortgaged
Premises and to clear and terminate such account. The Servicer will be
responsible for the administration of the Escrow Account and will be obligated
to make advances to such account when a deficiency exists therein.

MAINTENANCE OF INSURANCE POLICIES; CLAIMS THEREUNDER AND
OTHER REALIZATION UPON DEFAULTED MORTGAGE LOANS

To the extent specified in the related Prospectus Supplement, the Servicer
will be required to maintain a Standard Hazard Insurance Policy with respect to
each Mortgaged Premises in full force and effect as long as such coverage is
required under the Servicing Agreement and to pay the premium therefor on a
timely basis. Unless otherwise provided in the Prospectus Supplement, each
Servicing Agreement with respect to a Series will also require the Servicer to
maintain a Primary Mortgage Insurance Policy for each single-family Mortgage
Loan with a loan-to-value ratio in excess of 80% included in the Trust unless
such insurance is waived by the Master Servicer.

The Master Servicer with respect to a Series may be required to maintain
any Special Hazard Insurance Policy, any Mortgagor Bankruptcy Insurance and any
Pool Insurance Policy for such Series in full force and effect

<PAGE>

throughout the term of the Trust, subject to payment of the applicable premiums
by the Trustee. The Master Servicer will be required to notify the Trustee to
pay from amounts in the Trust the premiums for any such Special Hazard Insurance
Policy, any such Mortgagor Bankruptcy Insurance and any such Pool Insurance
Policy for such Series on a timely basis. Any such premiums may be payable on a
monthly basis in advance, or pursuant to any other payment schedule acceptable
to the applicable insurer. In the event that such Special Hazard Insurance
Policy, such Mortgagor Bankruptcy Insurance or such Pool Insurance Policy for
such Series is canceled or terminated for any reason (other than the exhaustion
of total policy coverage), the Master Servicer will be obligated to obtain from
another insurer a comparable replacement policy with a total coverage which is
equal to the then existing coverage (or such lesser amount if the Master
Servicer confirms in writing with the Rating Agency rating the Securities that
such lesser amount will not impair the rating on the Securities) of such Special
Hazard Insurance Policy, such Mortgagor Bankruptcy Insurance or such Pool
Insurance Policy. However, if the cost of any such replacement policy or bond is
greater than the cost of the policy or bond which has been terminated, then the
amount of the coverage will be reduced to a level such that the applicable
premium will not exceed the cost of the premium for the policy or bond that was
terminated.

The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the Cooperative Dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's Cooperative Dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.

Each Servicing Agreement and Trust Agreement with respect to a Series will
require the Servicer or the Master Servicer, as the case may be, to present
claims to the insurer under any Insurance Policy applicable to the Mortgage
Loans included in the Trust for such Series and to take such reasonable steps as
are necessary to permit recovery under such Insurance Policies with respect to
defaulted Mortgage Loans, or losses on the Mortgaged Premises securing the
Mortgage Loans.

If any Mortgaged Premises securing a defaulted Mortgage Loan included in
the Trust for a Series are damaged and the proceeds, if any, from the related
Standard Hazard Insurance Policy or any Special Hazard Insurance Policy are
insufficient to restore the damaged Mortgaged Premises to the condition to
permit recovery under the related Mortgage Insurance Policy, the Servicer will
not be required to expend its own funds to restore the damaged Mortgaged
Premises unless it determines that such expenses will be recoverable to it
through Liquidation Proceeds or Insurance Proceeds.

Unless otherwise provided in the Prospectus Supplement, the Servicing
Agreements require each Servicer to make representations with respect to each
Mortgage Loan that it services, including, among other things, that the related
title insurance, standard hazard insurance, flood insurance and mortgage
insurance policies are legal and valid obligations of the respective insurers
and that the applications submitted for such insurance, as well as the
application for the inclusion of a Mortgage Loan under a Pool Insurance Policy,
are accurate and complete in all material respects. If any of these
representations proves to be incorrect and the Servicer fails to cure it, the
Servicer will be obligated to purchase the affected Mortgage Loan at a price
equal to its Unpaid Principal Balance, plus accrued and uncollected interest on
that Unpaid Principal Balance to the date on which the purchase is made. For
instance, if it is determined that coverage under a Mortgage Insurance Policy is
not available on a defaulted Mortgage Loan because of fraud or misrepresentation
in the application, a Servicer will be obligated to purchase the defaulted
Mortgage Loan unless otherwise provided in the Prospectus Supplement. As noted
above under "General," upon termination for cause of a Servicer by the Master
Servicer, the Master Servicer will assume the servicing obligations of a
terminated Servicer, or the Master Servicer, at its option, may appoint a
substitute Servicer acceptable to the Trustee to assume the servicing
obligations of the terminated Servicer.

If a Servicer who is obligated fails to comply with its obligation under
the Servicing Agreement to purchase a Mortgage Loan as to which coverage under a
Mortgage Insurance Policy has been denied on the grounds of fraud or
misrepresentation (or if the Servicer has no such obligation), the Master
Servicer will be obligated to purchase the Mortgage Loan, up to an aggregate
amount and for the time period specified in the Prospectus Supplement for a
Series. The Master Servicer may provide a fund, insurance policy or other
security to support its obligation. To

<PAGE>

the extent that a Servicer or Master Servicer fails, or is not required to,
repurchase Mortgage Loans with respect to which coverage under a Mortgage
Insurance Policy has been denied on the grounds of fraud or misrepresentation,
distributions to the holders of the Securities could be reduced.

The obligation of the Master Servicer to assume other unfulfilled past
obligations of a terminated Servicer may be limited to the extent such
limitation does not result in a downgrading of the Series secured by the related
Servicing Agreement. As and to the extent required by the Rating Agency in order
to rate the Securities, certain of the obligations of the Master Servicer under
the Trust Agreement will be secured by cash, letters of credit, insurance
policies or other instruments in an amount acceptable to the Rating Agency.

If recovery under an applicable Mortgage Insurance Policy or from
Additional Assets is not available and the Servicer or the Master Servicer is
not obligated to purchase a defaulted Mortgage Loan, the Servicer or the Master
Servicer nevertheless will be obligated to follow standard practice and
procedures to realize upon the defaulted Mortgage Loan. See "Certain Legal
Aspects of Mortgage Loans -- Environmental Considerations." In this regard, the
Servicer or the Master Servicer will sell the Mortgaged Premises pursuant to
foreclosure, trustee's sale or, in the event a deficiency judgment is available
against the Borrower or other person (see "Certain Legal Aspects of Mortgage
Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders" for a
description of the limited availability of deficiency judgments), proceed to
seek recovery of the deficiency against the appropriate person. To the extent
that the proceeds of any such liquidation proceedings are less than the Unpaid
Principal Balance or Asset Value of the defaulted Mortgage Loan, there will be a
reduction in the value of the assets of the Trust for the related Series such
that holders of Securities of that Series may not receive distributions of
principal and interest on those Securities in full.

EVIDENCE AS TO SERVICING COMPLIANCE

Within 90 days of the end of each of its fiscal years the Servicer must
provide the Master Servicer (or the Securities Administrator) with a copy of its
audited financial statements for the year and a statement from the firm of
independent public accountants that prepared the financial statements to the
effect that, in preparing such statements, it reviewed the results of the
Servicer's servicing operations in accordance with the Uniform Single-Audit
Procedures for mortgage banks developed by the Mortgage Bankers Association. In
addition, the Servicer will be required to deliver an officer's certificate to
the effect that it has fulfilled its obligations under the Servicing Agreement
during the preceding fiscal year or identifying any ways in which it has failed
to fulfill its obligations during the fiscal year and the steps that have been
taken to correct such failure. The Master Servicer (or the Securities
Administrator) will be required to promptly make available to the Trustee any
compliance reporting that it receives from a Servicer.

Each year the Master Servicer (if any) will review each Servicer's
performance under its Servicing Agreement and the status of any fidelity bond
and errors and omissions policy required to be maintained by the Servicer under
the Servicing Agreement.

THE TRUST AGREEMENTS

The following summaries describe certain provisions of the Trust Agreement,
including any Standard Terms to Trust Agreement to be incorporated by reference
therein. The summaries do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the provisions of the Trust
Agreement for each Series. When particular provisions or terms used in the Trust
Agreement are referred to, the actual provisions are incorporated by reference
as part of such summaries.

MASTER SERVICER OR SECURITIES ADMINISTRATOR

Unless otherwise specified in the Prospectus Supplement, the Master
Servicer or Securities Administrator will be responsible under the Trust
Agreement for providing general administrative services to a Trust including,
among other things, (i) oversight of payments received on Mortgage Assets, (ii)
monitoring the amounts on deposit in various trust accounts, (iii) calculation
of the amounts payable to Securityholders on each Distribution Date, (iv)
preparation of periodic reports to the Trustee or the Securityholders with
respect to the foregoing matters, (v) preparation of federal and state tax and
information returns, and (vi) preparation of reports, if any, required under the
Securities Exchange Act of 1934, as amended. In addition, with respect to a
Trust that includes single-family Mortgage Loans, the Master Servicer will be
required by the Trust Agreement to supervise and administer the

<PAGE>

performance of Servicers, to make advances of delinquent payments of principal
and interest on the Mortgage Loans to the limited extent described herein under
the heading "Sale and Servicing of Mortgage Loans -- Advances," if such amounts
are not advanced by a Servicer, and to perform the servicing obligations of a
terminated Servicer. The Master Servicer's obligations to act as a servicer
following the termination of a Servicing Agreement will not, however, require
the Master Servicer to (i) purchase Mortgage Loans from the Trust due to a
breach by the Servicer of a representation or warranty under the Servicing
Agreement, (ii) purchase from the Trust any Converted Mortgage Loan or (iii)
advance payments of principal and interest on a delinquent Mortgage Loan in
excess of the Master Servicer's independent advance obligation under the Trust
Agreement. The Master Servicer may delegate its responsibilities under the Trust
Agreement; provided, however, that no such delegation shall release the Master
Servicer from its responsibilities or liabilities arising under the Trust
Agreement.

The Master Servicer or Securities Administrator for a Series may resign
from its obligations and duties under the Trust Agreement with respect to such
Series, but no such resignation will become effective until the Trustee or a
successor master servicer or securities administrator has assumed the Master
Servicer's or Securities Administrator's obligations and duties. If specified in
the Prospectus Supplement for a Series, the Seller may appoint a stand-by Master
Servicer, which will assume the obligations of the Master Servicer upon a
default by the Master Servicer.

THE TRUSTEE

The Trustee under each Trust Agreement will be named in the related
Prospectus Supplement. The Trustee must be a corporation or a national banking
association organized under the laws of the United States or any state and
authorized under the laws of the jurisdiction in which it is organized to have
corporate trust powers. It must also have combined capital and surplus of at
least $50,000,000 and be subject to regulation and examination by state or
federal regulatory authorities. Although the Trustee may not be an affiliate of
the Seller or the Master Servicer, either the Seller or the Master Servicer may
maintain normal banking relations with the Trustee if the Trustee is a
depository institution.

The Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor Trustee. The Seller will also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the Trust
Agreement or if the Trustee becomes insolvent. The Trustee may also be removed
at any time by the holders of Securities entitled to at least 51% of the Voting
Rights of such Series. Any resignation or removal of the Trustee and appointment
of a successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.

AMENDMENT

Generally, unless otherwise specified in the related Prospectus Supplement,
the Trust Agreement may be amended by the parties thereto with the consent of
the holders of outstanding Securities holding at least 66% of the Voting Rights
of a Series. However, no amendment that (i) reduces in any manner or delays the
timing of payments on the Mortgage Assets or distributions to the
Securityholders or (ii) reduces the percentage of Securityholders required to
authorize an amendment to the Trust Agreement may be made unless each holder of
a Security affected by such amendment consents. The Trust Agreement may also be
amended by the parties thereto without the consent of Securityholders, for the
purpose of, among other things, (i) curing any ambiguity, (ii) correcting or
supplementing any provisions thereof which may be inconsistent with any other
provision therein, (iii) modifying, eliminating or adding to any of its
provisions to such extent as shall be necessary or appropriate to maintain the
qualification of the Trust as a REMIC under the Code at all times that any REMIC
Securities are outstanding or (iv) making any other provisions with respect to
matters or questions arising under the Trust Agreement or matters arising with
respect to the Trust which are not covered by the Trust Agreement and which
shall not be inconsistent with the provisions of the Trust Agreement, provided
that such action shall not adversely affect in any material respect the
interests of any Securityholder. Any such amendment or supplement shall be
deemed not to adversely affect in any material respect any Securityholder if
there is delivered to the Trustee written notification from each Rating Agency
that rated the applicable Securities to the effect that such amendment or
supplement will not cause that Rating Agency to reduce the then current rating
assigned to such Securities.

<PAGE>

EVENTS OF DEFAULT

Unless otherwise provided in the Prospectus Supplement for a Series, Events
of Default under the Trust Agreement in respect of a Series of Securities will
consist of (i) any default in the performance or breach of any covenant or
warranty of the Master Servicer (or the Securities Administrator, as the case
may be) under the Trust Agreement with respect to such Series of Securities
which continues unremedied for a specified period after the giving of written
notice of such failure to the Master Servicer or Securities Administrator by the
Trustee or by the holders of Securities entitled to at least 25% of the
aggregate Voting Rights; (ii) any failure by the Master Servicer (or the
Securities Administrator, as the case may be) to make required advances with
respect to delinquent Mortgage Loans in a Trust; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Master Servicer (or the Securities
Administrator, as the case may be), if any, and certain actions by or on behalf
of the Master Servicer or Securities Administrator indicating its insolvency or
inability to pay its obligations.

RIGHTS UPON EVENT OF DEFAULT

So long as an Event of Default remains unremedied, the Trustee may, and at
the direction of the holders of a Series of Securities entitled to a certain
percentage of the Voting Rights, as specified in the Trust Agreement, the
Trustee shall, terminate all of the rights and obligations of the Master
Servicer under the Trust Agreement covering the related Trust except that the
Trustee may elect not to terminate the Master Servicer for its failure to make
advances. Upon termination, the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under such
Agreement (except that if the Trustee is to so succeed the Master Servicer but
is prohibited by law from obligating itself to make advances regarding
delinquent Mortgage Loans, then the Trustee will not be so obligated) and will
be entitled to similar compensation arrangements. In the event that the Trustee
would be obligated to succeed the Master Servicer but is unwilling or unable so
to act, it may appoint or, if the holders of Securities representing a certain
percentage of the Voting Rights, as specified in the Trust Agreement, so request
in writing, it shall appoint, or petition a court of competent jurisdiction for
the appointment of, a mortgage loan servicing or other housing and home finance
institution with a net worth of at least $15,000,000 to act as successor to the
Master Servicer under the Trust Agreement or may provide cash, a letter of
credit, a standby master servicing agreement or another arrangement consistent
with the then-current rating of the Securities of the related Series. The
Trustee and such successor may agree upon the servicing compensation to be paid,
which in no event may be greater than the compensation to the Master Servicer
under the Trust Agreement.

The Trustee will be under no obligation to exercise any of the trusts or
powers vested in it by the Trust Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of Securities covered by such Trust Agreement, unless such
Securityholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.

REPORTS TO SECURITYHOLDERS

The Trustee will furnish the Securityholders with monthly statements
containing information with respect to principal and interest distributions,
Realized Losses and the assets of the Trust. Any financial information contained
in such reports will not have been examined or reported upon by an independent
public accountant. Copies of such monthly statements and any annual reports
prepared by a Servicer or the Master Servicer or Securities Administrator with
respect to compliance with the provisions of a Servicing Agreement or the Trust
Agreement, as applicable, will be furnished to Securityholders upon request
addressed to Financial Asset Securitization Inc., 901 East Byrd Street,
Richmond, Virginia 23219.

TERMINATION

Each Trust Agreement and the respective obligations and responsibilities
created thereby shall terminate upon the distribution to Securityholders of all
amounts required to be paid to them pursuant to the Trust Agreement following
(i) the purchase of all the Mortgage Assets in the Trust and all Mortgaged
Premises or Manufactured Homes acquired in respect thereof, if the related
Prospectus Supplement so provides, or (ii) the later of the final payment or
other liquidation of the last Mortgage Asset remaining in the Trust or the
disposition of all Mortgaged Premises acquired in respect thereof. See
"Description of the Securities -- Optional Redemption." In no event, however,
will the trust created by any Trust Agreement continue beyond the expiration of
21 years from the death

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of the survivor of certain persons described in such Trust Agreement. Written
notice of termination of the Trust Agreement will be given to each
Securityholder, and the final distribution will be made only upon surrender and
cancellation of the Securities at the corporate trust office of the Trustee or
its agent.

CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS

The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the Mortgaged
Premises securing the Mortgage Loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans. In this regard, the following discussion does not reflect
federal regulations with respect to FHA Loans, VA Loans and RHS Loans.

The following discussion is not applicable to security interests in
Contracts and the repossession of Manufactured Homes. Such activity is typically
not governed by a state's real estate laws, but by its motor vehicle titling
statutes and Uniform Commercial Code. A general discussion of these laws will be
included in the Prospectus Supplement for any Series that has Contracts as part
of the Trust.

GENERAL

The Mortgage Loans will be secured by either first mortgages or deeds of
trust, depending upon the prevailing practice in the state in which the
underlying property is located. A mortgage creates a lien upon the real property
encumbered by the mortgage. It is not prior to the lien for real estate taxes
and assessments. Priority between mortgages depends on their terms and,
generally, on the order of filing with a state or county office. There are two
parties to a mortgage: the mortgagor, who is the Borrower and owner of the
property; and the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a Note or bond evidencing the loan and
the mortgage. Although a deed of trust is similar to a mortgage, a deed of trust
formally has three parties: the Borrower-property owner called the trustor
(similar to a mortgagor); a lender called the beneficiary (similar to a
mortgagee); and a third-party grantee called the trustee. Under a deed of trust,
the Borrower grants the property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the loan.
The trustee's authority under a deed of trust and the mortgagee's authority
under a mortgage are governed by the express provisions of the deed of trust or
mortgage, applicable law, and, in some cases, with respect to the deed of trust,
the directions of the beneficiary.

COOPERATIVE LOANS

If specified in the Prospectus Supplement relating to a Series of
Securities, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the property which it covers, the priority of which will depend on
the terms of the particular security agreement as well as the order of
recordation of the agreement in the appropriate recording office. Such a lien or
title interest is not prior to the lien for real estate taxes and assessments
and other charges imposed under governmental police powers.

Unless otherwise specified in the related Prospectus Supplement, all
cooperative apartments relating to the Cooperative Loans are located in the
State of New York. A corporation which is entitled to be treated as a housing
cooperative under the Code owns all the real property or some interest therein
sufficient to permit it to own the building and all separate dwelling units
therein. The Cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is generally the case, or an underlying lease of the
land, as is the case in some instances, the Cooperative, as property mortgagor,
is also responsible for meeting these mortgage or rental obligations. The
interest of the occupant under proprietary leases or occupancy agreements as to
which that Cooperative is the landlord is generally subordinate to the interest
of the holder of a blanket mortgage and to the interest of the holder of a land
lease. If the Cooperative is unable to meet the

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payment obligations (i) arising under a blanket mortgage, the mortgagee holding
a blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (ii) arising under
its land lease, the holder of the land lease could terminate it and all
subordinate proprietary leases and occupancy agreements. Also, a blanket
mortgage on a Cooperative may provide financing in the form of a mortgage that
does not fully amortize, with a significant portion of principal being due in
one final payment at maturity. The inability of the Cooperative to refinance a
mortgage and its consequent inability to make such final payment could lead to
foreclosure by the mortgagee. Similarly, a land lease has an expiration date,
and the inability of the Cooperative to extend its term or, in the alternative,
to purchase the land could lead to termination of the Cooperative's interest in
the property and termination of all proprietary leases and occupancy agreements.
A foreclosure by the holder of a blanket mortgage could eliminate or
significantly diminish the value of any collateral held by the lender who
financed an individual tenant-stockholder of Cooperative shares or, in the case
of the Mortgage Loans, the collateral securing the Cooperative Loans. Similarly,
the termination of the land lease by its holder could eliminate or significantly
diminish the value of any collateral held by the lender who financed an
individual tenant-stockholder of the Cooperative shares or, in the case of the
Mortgage Loans, the collateral securing the Cooperative Loans.

The Cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a Cooperative must make a monthly payment to the
Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights are financed through
a Cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related Cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement and a
financing statement covering the proprietary lease or occupancy agreement and
the Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "Realizing on Cooperative Loan Security" below.

TAX ASPECTS OF COOPERATIVE OWNERSHIP. In general, a "tenant-stockholder"
(as defined in Section 216(b)(2) of the Code) of a corporation that qualifies as
a "cooperative housing corporation" within the meaning of Section 216(b)(1) of
the Code is allowed a deduction for amounts paid or accrued within his taxable
year to the corporation representing his proportionate share of certain interest
expenses and certain real estate taxes allowable as a deduction under Section
216(a) of the Code to the corporation under Sections 163 and 164 of the Code. In
order for a corporation to qualify under Section 216(b)(1) of the Code for its
taxable year in which such items are allowable as a deduction to the
corporation, such section requires, among other things, that at least 80% of the
gross income of the corporation be derived from its tenant-stockholders. By
virtue of this requirement, the status of a corporation for purposes of Section
216(b)(1) of the Code must be determined on a year-to-year basis. Consequently,
there can be no assurance that cooperatives relating to the Cooperative Loans
will qualify under such section for any particular year. In the event that such
a cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies under Section 216(b)(1) of the Code, the likelihood that such a
failure would be permitted to continue over a period of years appears remote.

FORECLOSURE

Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon the
Borrower and any party having a subordinate interest in the real estate
including any holder of a junior encumbrance on the real estate. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. Judicial foreclosure proceedings are often
not contested by any of the parties defendant. However, when the mortgagee's
right to foreclosure is contested, the

<PAGE>

legal proceedings necessary to resolve the issue can be time-consuming. After
the completion of a judicial foreclosure proceeding, the court may issue a
judgment of foreclosure and appoint a receiver or other officer to conduct the
sale of the Mortgaged Premises. In some states, mortgages may also be foreclosed
by advertisement, pursuant to a power of sale provided in the mortgage.
Foreclosure of a mortgage by advertisement is essentially similar to foreclosure
of a deed of trust by non-judicial power of sale.

Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the Mortgaged Premises to a third party upon any default by
the Borrower under the terms of the Note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, the trustee must record a
notice of default and send a copy to the Borrower and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other party
having a subordinate interest in the real estate, including any holder of a
junior encumbrance on the real estate. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states, published for a specified period of time in one or
more newspapers. In addition, some state laws require that a copy of the notice
of sale be posted on the property and sent to all parties having an interest of
record in the property. When the beneficiary's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.

In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the Mortgaged Premises may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the Mortgaged Premises
at the foreclosure sale. Rather, it is common for the lender to purchase the
Mortgaged Premises from the trustee or receiver for an amount which may be as
great as the Unpaid Principal Balance of the Note, accrued and unpaid interest
and the expenses of foreclosure. Thereafter, subject to the right of the
Borrower in some states to remain in possession during the redemption period,
the lender will assume the burdens of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the Mortgaged Premises suitable for sale. The lender commonly will obtain the
services of a real estate broker and pay the broker a commission in connection
with the sale of the Mortgaged Premises. Depending upon market conditions, the
ultimate proceeds of the sale of the Mortgaged Premises may not equal the
lender's investment therein. Any loss may be reduced by the receipt of Insurance
Proceeds. See "The Trust -- Mortgage Insurance on the Mortgage Loans" and "The
Trust -- Hazard Insurance on the Mortgage Loans." Mortgaged Premises that are
acquired through foreclosure generally must be sold by the Trustee within two
years of the date on which it is acquired in order to satisfy certain federal
income tax requirements. See "Certain Federal Income Tax Consequences."

REALIZING UPON COOPERATIVE LOAN SECURITY

The Cooperative shares and proprietary lease or occupancy agreement owned
by the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the Cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be canceled by the Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the Cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the Cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the Cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.

The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement

<PAGE>

typically provides that if the proprietary lease or occupancy agreement is
terminated, the Cooperative will recognize the lender's lien against proceeds
from a sale of the Cooperative apartment, subject, however, to the Cooperative's
right to sums due under such proprietary lease or occupancy agreement or which
have become liens on the shares relating to the proprietary lease or occupancy
agreement. The total amount owed to the Cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not monitor, could reduce
the value of the collateral below the outstanding principal balance of the
Cooperative Loan and accrued and unpaid interest thereon.

Recognition agreements also provide that in the event the lender succeeds
to the tenant-shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon its collateral for a Cooperative Loan, the
lender must obtain the approval or consent of the Cooperative as required by the
proprietary lease before transferring the Cooperative shares or assigning the
proprietary lease. Generally, the lender is not limited in any rights it may
have to dispossess the tenant-stockholder.

In New York, lenders generally have realized upon the pledged shares and
proprietary lease or occupancy agreement given to secure a Cooperative Loan by
public sale in accordance with the provisions of Article 9 of the New York
Uniform Commercial Code (the "NY UCC") and the security agreement relating to
those shares. Article 9 of the NY UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the sale. Generally, a
sale conducted according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.

Article 9 of the NY UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See " -- Anti-Deficiency Legislation
and Other Limitations on Lenders" below.

RIGHTS OF REINSTATEMENT AND REDEMPTION

In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the Borrower and certain foreclosed junior encumbrancers are given a
statutory period in which to redeem the Mortgaged Premises from the foreclosure
sale. Depending upon state law, the right of redemption may apply to sale
following judicial foreclosure, or to sale pursuant to a non-judicial power of
sale. Where the right of redemption is available, in some states statutory
redemption may occur only upon payment of the foreclosure purchase price,
accrued interest and taxes and certain of the costs and expenses incurred in
enforcing the obligation. In other states, redemption may be authorized if the
former Borrower pays only a portion of the sums due. In some states, the right
to redeem is a statutory right and in others it is a contractual right. The
effect of a right of redemption is to diminish the ability of the lender to sell
the foreclosed Mortgaged Premises, while such right of redemption is
outstanding. The exercise of a right of redemption would defeat the title of any
purchaser at a foreclosure sale, or of any purchaser from the lender subsequent
to judicial foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has run.

<PAGE>

LEASES AND RENTS

ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS

Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the Borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
Borrower equal in most cases to the difference between the amount due to the
lender and greater of the net amount realized upon the foreclosure sale and the
market value of the Mortgaged Premises.

Statutory provisions may limit any deficiency judgment against the former
Borrower following a foreclosure sale to the excess of the outstanding debt over
the fair market value of the Mortgaged Premises at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former Borrower as a result of
low or no bids at the foreclosure sale.

Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the Borrower.
In other states, the lender has the option of bringing a personal action against
the Borrower on the debt without first exhausting such security; however, in
some of these states, the lender, following judgment on such personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. Consequently, the practical effect of the
election requirement, when applicable, is that lenders will usually proceed
first against the security rather than bringing a personal action against the
Borrower.

In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the Borrower, for example, in the event of waste of the
Mortgaged Premises.

Generally, lenders realize on cooperative shares and the accompanying
proprietary lease given to secure a Cooperative Loan under Article 9 of the UCC.
Some courts have interpreted section 9-504 of the UCC to prohibit a deficiency
award unless the creditor establishes that the sale of the collateral (which, in
the case of a Cooperative Loan, would be the shares of the Cooperative and the
related proprietary lease or occupancy agreement) was conducted in a
commercially reasonable manner.

In addition to anti-deficiency and related legislation, numerous federal
and state statutory provisions, including the federal bankruptcy laws, the
federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws affording
relief to debtors, may interfere with or affect the ability of a secured
mortgage lender to realize upon its security and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, the filing of a
petition acts as a stay against the enforcement of remedies for collection of a
debt.

In a Chapter 13 proceeding under the federal Bankruptcy Code, when a court
determines that the value of a home is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home, and, as part
of the rehabilitation plan, reduce the amount of the secured indebtedness to the
value of the home as it exists at the time of the proceeding, leaving the lender
as a general unsecured creditor for the difference between that value and the
amount of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the periodic
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence. If a court
relieves a Borrower's obligation to repay amounts otherwise due on a Mortgage
Loan, the Servicer will not be required to advance such amounts, and any loss in
respect thereof may reduce the amounts available to be paid to the holders of
the Securities.

<PAGE>

In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to other collateral and/or be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to bankruptcy
court-approved financing. The bankruptcy court can, in effect, invalidate
due-on-sale clauses through confirmed Chapter 11 plans of reorganization.

The Internal Revenue Code of 1986, as amended provides priority to certain
tax liens over the lien of the mortgage or deed of trust. Other federal and
state laws provide priority to certain tax and other liens over the lien of the
mortgage or deed of trust. Numerous federal and some state consumer protection
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of mortgage loans. These laws
include the federal Truth in Lending Act, Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting
Act, and related statutes and regulations. These federal laws and state laws
impose specific statutory liabilities upon lenders who originate or service
mortgage loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans.

SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940

Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of all
branches of the military on active duty, including draftees and reservists in
military service, (i) are entitled to have interest rates reduced and capped at
6% per annum on obligations (including mortgage loans) incurred PRIOR to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service and (iii) may have the maturity of such obligations incurred
prior to military service extended, the payments lowered and the payment
schedule readjusted for a period of time after the completion of military
service. However, the benefits of (i), (ii), or (iii) above are subject to
challenge by creditors and if, in the opinion of the court, the ability of a
person to comply with such obligations is not materially impaired by military
service, the court may apply equitable principles accordingly. If a Borrower's
obligation to repay amounts otherwise due on a Mortgage Loan included in a Trust
for a Series is relieved pursuant to the Soldiers' and Sailors' Civil Relief Act
of 1940, neither the Servicer, the Master Servicer nor the Trustee will be
required to advance such amounts, and any loss in respect thereof may reduce the
amounts available to be paid to the holders of the Securities of such Series.
Unless otherwise provided in the Prospectus Supplement for a Series, any
shortfalls in interest collections on Mortgage Loans included in a Trust for a
Series resulting from application of the Soldiers' and Sailors' Civil Relief Act
of 1940 will be allocated to each Class of Securities of such Series that is
entitled to receive interest in respect of such Mortgage Loans in proportion to
the interest that each such Class of Securities would have otherwise been
entitled to receive in respect of such Mortgage Loans had such interest
shortfall not occurred.

ENVIRONMENTAL CONSIDERATIONS

The federal Comprehensive Environmental Response Compensation and Liability
Act, as amended, ("CERCLA") imposes strict liability on present and past
"owners" and "operators" of contaminated real property for the costs of
clean-up. A secured lender may be liable as an "owner" or "operator" of a
contaminated mortgaged property if agents or employees of the lender have become
sufficiently involved in the management of such mortgaged property or the
operations of the borrower. Such liability may exist even if the lender did not
cause or contribute to the contamination and regardless of whether the lender
has actually taken possession of a mortgaged property through foreclosure, deed
in lieu of foreclosure or otherwise. The magnitude of the CERCLA liability at
any given contaminated site is a function of the actions required to address
adequately the risks to human health and the environment posed by the particular
conditions at the site. As a result, such liability is not constrained by the
value of the property or the amount of the original or unamortized principal
balance of any loans secured by the property. Moreover, under certain
circumstances, liability under CERCLA may be joint and several -- I.E., any
liable party may be obligated to pay the entire cleanup costs regardless of its
relative contribution to the contamination. If a lender is found to be liable,
it is entitled to bring an action for contribution against other liable parties,
such as the present or past owners and operators of the property. The lender
nonetheless may have to bear a disproportionate share of the liability if such
other parties are defunct or without substantial assets.

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Until recent legislation was adopted, it was uncertain what actions could
be taken by a secured lender in the event of a loan default without it incurring
exposure under CERCLA in the event the property was environmentally
contaminated. The Asset Conservation, Lender Liability and Deposit Insurance Act
of 1996 (the "1996 Lender Liability Act") provides for a safe harbor for secured
lenders from CERCLA liability even though the lender forecloses and sells the
real estate securing the loan, provided the secured lender sells "at the
earliest practicable, commercially reasonable time, at commercially reasonable
terms, taking into account market conditions and legal and regulatory
requirements." Although the 1996 Lender Liability Act provides significant
protection to secured lenders, it has not been construed by the courts, and
there are circumstances in which actions taken could expose a secured lender to
CERCLA liability. And, the transferee from the secured lender is not entitled to
the protections enjoyed by a secured lender. Thus, contamination may decrease
the amount that prospective buyers are willing to pay for a Mortgaged Property
and, thus, decrease the likelihood that the Trust will recover fully on the
Mortgage Loan through foreclosure.

Many states have environmental clean-up statutes similar to CERCLA, and not
all those statutes provide for a secured creditor exemption. In addition,
underground storage tanks are commonly found on a wide variety of commercial and
industrial properties. Federal and state laws impose liability on the owners and
operators of underground storage tanks for any cleanup that may be required as a
result of releases from such tanks. These laws also impose certain compliance
obligations on the tank owners and operators, such as regular monitoring for
leaks and upgrading of older tanks. A lender may become a tank owner or
operator, and subject to compliance obligations and potential cleanup
liabilities, either as a result of becoming involved in the management of a site
at which a tank is located or, more commonly, by taking title to such a
property. Federal and state laws also obligate property owners and operators to
maintain and, under some circumstances, to remove asbestos-containing building
materials and lead based paint. As a result, the presence of these materials can
increase the cost of operating a property and thus diminish its value. In a few
states, transfers of some types of properties are conditioned upon cleanup of
contamination prior to transfer. In these cases, a lender that becomes the owner
of a property through foreclosure, deed in lieu of foreclosures or otherwise may
be required to clean up the contamination before selling or otherwise
transferring the property.

Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsured liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.

Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Premises was conducted. Unless otherwise specified in the related
Prospectus Supplement, no representations or warranties are made by the
Participant or Seller as to the absence or effect of hazardous wastes or
hazardous substances on any of the Mortgaged Premises. In addition, the
Servicers have not made any representations or warranties or assumed any
liability with respect to the absence or effect of hazardous wastes or hazardous
substances on any Mortgaged Premises or any casualty resulting from the presence
or effect of hazardous wastes or hazardous substances and any loss or liability
resulting from the presence or effect of such hazardous wastes or hazardous
substances will reduce the amounts otherwise available to pay to the holders of
the Securities.

Unless otherwise specified in the related Prospectus Supplement, the
Servicers are not permitted to foreclose on any Mortgaged Premises without the
approval of the Master Servicer. The Master Servicer is not permitted to approve
foreclosure on any property which it knows or has reason to know is contaminated
with or affected by hazardous wastes or hazardous substances. The Master
Servicer is required to inquire of any Servicer requesting approval of
foreclosure whether the property proposed to be foreclosed upon is so
contaminated. If a Servicer does not foreclose on Mortgaged Premises, the
amounts otherwise available to pay to the holders of the Securities may be
reduced. A Servicer will not be liable to the holders of the Securities if it
fails to foreclose on Mortgaged Premises that it reasonably believes may be so
contaminated or affected, even if such Mortgaged Premises are, in fact, not so
contaminated or affected. Similarly, a Servicer will not be liable to the
holders of the Securities if based

<PAGE>

on its reasonable belief that no such contamination or effect exists, the
Servicer forecloses on Mortgaged Premises and takes title to such Mortgaged
Premises, and thereafter such Mortgaged Premises are determined to be so
contaminated or affected.

"DUE-ON-SALE" CLAUSES

The forms of Note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the Borrower transfers its interest in the Mortgaged
Premises. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in many
states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982 (the "Act"), which, after a 3-year
grace period, preempted state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that "due-on-sale" clauses in certain
loans (which loans include the conventional Mortgage Loans) made after the
effective date of the Act are enforceable within certain limitations as set
forth in the Act and the regulations promulgated thereunder.

By virtue of the Act, the mortgage lender generally may be permitted to
accelerate any conventional Mortgage Loan which contains a "due-on-sale" clause
upon transfer of an interest in the Mortgaged Premises. With respect to any
Mortgage Loan secured by a residence occupied or to be occupied by the Borrower,
this ability to accelerate will not apply to certain types of transfers,
including (i) the granting of a leasehold interest which has a term of three
years or less and which does not contain an option to purchase, (ii) a transfer
to a relative resulting from the death of a Borrower, or a transfer where the
spouse or child(ren) becomes an owner of the Mortgaged Premises in each case
where the transferee(s) will occupy the Mortgaged Premises, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse becomes
an owner of the Mortgaged Premises, (iv) the creation of a lien or other
encumbrance subordinate to the lender's security instrument which does not
relate to a transfer of rights of occupancy in the Mortgaged Premises (provided
that such lien or encumbrance is not created pursuant to a contract for deed),
(v) a transfer by devise, descent or operation of law on the death of a joint
tenant or tenant by the entirety, and (vi) other transfers as set forth in the
Act and the regulations thereunder. As a result, a lesser number of Mortgage
Loans which contain "due-on-sale" clauses may extend to full maturity than
earlier experience would indicate with respect to single-family mortgage loans.
The extent of the effect of the Act on the average lives and delinquency rates
of the Mortgage Loans, however, cannot be predicted. FHA and VA Loans do not
contain due-on-sale clauses. See "Maturity and Prepayment Considerations."

ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES

The standard form of Note, mortgage and deed of trust used by lenders may
contain provisions obligating the Borrower to pay a late charge if payments are
not timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a Borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a Borrower as an additional charge if the loan is
prepaid. The enforceability, under the laws of a number of states of provisions
providing for prepayment fees or penalties upon an involuntary prepayment is
unclear, and no assurance can be given that, at the time a prepayment fee or
penalty is required to be made on a Mortgage Loan in connection with an
involuntary prepayment, the obligation to make such payment will be enforceable
under applicable state law. The absence of a restraint on prepayment,
particularly with respect to Mortgage Loans having higher mortgage rates, may
increase the likelihood of refinancing or other early retirements of the
Mortgage Loans. Unless otherwise provided in the related Prospectus Supplement,
late charges and prepayment fees (to the extent permitted by law and not waived
by the Servicers) will be retained by the Servicers as additional servicing
compensation.

EQUITABLE LIMITATIONS ON REMEDIES

Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the Borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the Borrower's
default and the likelihood that the Borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have

<PAGE>

required lenders to reinstate loans or recast payment schedules to accommodate
Borrowers who are suffering from temporary financial disability. In other cases,
courts have limited the right of lenders to foreclose if the default under the
Security Instrument is not monetary, such as the Borrower failing to adequately
maintain the Mortgaged Premises or the Borrower executing a second mortgage or
deed of trust affecting the Mortgaged Premises. Finally, some courts have been
faced with the issue whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that Borrowers under
the deeds of trust receive notices in addition to the statutorily-prescribed
minimum requirements. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust or under a mortgage having a power of sale does not involve
sufficient state action to afford constitutional protections to the Borrower.

The Mortgage Loans may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary default of the Borrower, after
the applicable cure period. The courts of all states will enforce clauses
providing for acceleration in the event of a material payment default. However,
courts of any state, exercising equity jurisdiction, may refuse to allow a
lender to foreclose a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust and the circumstances would render
the acceleration unconscionable.

SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS

Certain of the Mortgage Loans may not restrict secondary financing, thereby
permitting the borrower to use the Mortgaged Property as security for one or
more additional loans. Certain of the Mortgage Loans may preclude secondary
financing (by permitting the first lender to accelerate the maturity of its loan
if the borrower further encumbers the Mortgaged Premises or in some other
fashion) or may require the consent of the senior lender to any junior or
substitute financing; however, such provisions may be unenforceable in certain
jurisdictions under certain circumstances.

Where the Borrower encumbers the Mortgaged Premises with one or more junior
liens, the senior lender is subjected to additional risk. For example, the
Borrower may have difficulty servicing and repaying multiple loans or acts of
the senior lender which prejudice the junior lender or impair the junior
lender's security may create a superior equity in favor of the junior lender.
For example, if the Borrower and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the senior
lender may lose its priority to the extent any existing junior lender is harmed
or the Borrower is additionally burdened. In addition, if the Borrower defaults
on the senior loan and/or any junior loan or loans, the existence of junior
loans and actions taken by junior lenders can impair the security available to
the senior lender and can interfere with, delay and in certain circumstances
even prevent the taking of action by the senior lender. In addition, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.

THE SELLER

Financial Asset Securitization, Inc. was incorporated in Virginia under the
name Ryland Mortgage Securities Corporation on April 22, 1986, as a wholly
owned, limited-purpose financing subsidiary of Ryland Mortgage Company. On
August 31, 1995, the Seller was sold to JST and is now a wholly owned subsidiary
of JST. The Seller changed its name from Ryland Mortgage Securities Corporation
to Financial Asset Securitization, Inc. by filing Articles of Amendment to its
Amended and Restated Articles of Incorporation with the State Corporation
Commission of the Commonwealth of Virginia on September 21, 1995. JST was
organized in Virginia on August 22, 1995. The Seller's principal office is
located at 901 East Byrd Street, Richmond, Virginia 23219, telephone (804) 344-
6575. The Seller was formed solely for the purpose of facilitating the financing
and sale of financial assets. It does not intend to engage in any business or
investment activities other than issuing and selling securities secured
primarily by, or evidencing interests in, financial assets and taking certain
actions with respect thereto. The Seller's Articles of Incorporation, which have
been filed as an Exhibit to, or incorporated by reference into, the Registration
Statement of which this Prospectus forms a part, limit the Seller's business to
the foregoing and place certain other restrictions on the Seller's activities.
The Seller has authorized capital stock consisting of 10,000 shares of Common
Stock. All 10,000 of such authorized shares are held by JST.

JST has agreed not to file a petition in bankruptcy with respect to the
Seller.

<PAGE>

USE OF PROCEEDS

Substantially all of the net proceeds from the sale of each Series of
Securities will be applied by the Seller to purchase the Mortgage Assets
assigned to the Trust underlying such Series or to fund loans to Finance
Companies secured by the pledge of Mortgage Assets to the Trust for such Series.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of the anticipated material federal
income tax consequences of the purchase, ownership, and disposition of the
Securities offered hereunder. The summary is based upon laws, regulations,
rulings, and decisions now in effect, all of which are subject to change.
Because REMIC status may be elected with respect to certain Series, this
discussion includes a summary of the federal income tax consequences to holders
of REMIC Securities. The discussion does not purport to deal with the federal
income tax consequences to all categories of investors (such as banks, insurance
companies and foreign investors), some of which may be subject to special rules.
The discussion focuses primarily on investors who will hold the Securities as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Internal Revenue Code, although much of the discussion is
applicable to other investors as well. Investors should note that, although
final regulations under the REMIC provisions of the Code (the "REMIC
Regulations") have been issued by the Treasury, no currently effective
regulations or other administrative guidance has been issued with respect to
certain provisions of the Code that are or may be applicable to Securityholders,
particularly the provisions dealing with market discount and stripped debt
securities. Although the Treasury recently issued final regulations dealing with
original issue discount and premium, those regulations do not address directly
the treatment of REMIC Regular Securities and certain other types of securities.
Furthermore, the REMIC Regulations do not address many of the issues that arise
in connection with the formation and operation of a REMIC. Hence, definitive
guidance cannot be provided with respect to many aspects of the tax treatment of
Securityholders, particularly Residual Securityholders (as described below).
Moreover, this summary and the opinion referred to below are based on current
law, and there can be no assurance that the Service will not take positions that
would be materially adverse to investors. Finally, the summary does not purport
to address the anticipated state income tax consequences to investors of owning
and disposing of the Securities. Consequently, Investors should consult their
own tax advisors in determining the federal, state, foreign, and any other tax
consequences to them of the purchase, ownership, and disposition of the
Securities.

GENERAL

Many aspects of the federal income tax treatment of the Securities of a
particular Series will depend upon whether an election is made to treat the
Trust, or one or more segregated pools of Trust assets, as a REMIC. The
Prospectus Supplement for each Series will indicate whether a REMIC election or
elections will be made with respect to the related Trust. For each Series with
respect to which one or more REMIC elections are to be made, Hunton & Williams,
counsel to the Seller, will deliver a separate opinion generally to the effect
that, assuming timely filing of a REMIC election or elections and compliance
with the relevant Trust Agreement and certain other documents specified in the
opinion, the Trust (or one or more segregated pools of Trust assets) will
qualify as one or more REMICs (each, a "Series REMIC"). For each Series with
respect to which a REMIC election is not to be made, Hunton & Williams will
deliver a separate opinion generally to the effect that, assuming compliance
with the relevant Trust Agreement and certain other documents, the Trust will be
treated as a grantor trust under subpart E, Part I of subchapter J of the Code
and not as an association taxable as a corporation. Those opinions will be based
on existing law, but there can be no assurance that the law will not change or
that contrary positions will not be taken by the Service.

REMIC SECURITIES

REMIC Securities will be classified as either REMIC Regular Securities,
which generally are treated as debt for federal income tax purposes, or Residual
Securities, which generally are not treated as debt for such purposes, but
rather as representing rights and responsibilities with respect to the taxable
income or loss of the related REMIC. The Prospectus Supplement for each Series
of REMIC Securities will indicate which of the Securities of such Series will be
classified as REMIC Regular Securities and which will be classified as Residual
Securities.

<PAGE>

REMIC Securities held by a thrift institution taxed as a "domestic building
and loan association" will constitute a "regular or residual interest in a
REMIC," as the case may be, within the meaning of Section 7701(a)(19)(C)(xi) of
the Code; REMIC Securities held by a real estate investment trust ("REIT") will
constitute "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code; and interest on such Securities will be considered "interest on
obligations secured by mortgages on real property" within the meaning of Section
856(c)(3)(B), all in the same proportion that the related REMIC's assets would
so qualify. If 95 percent or more of the assets of a given Series REMIC
constitute qualifying assets for Thrift Institutions and REITs, the related
REMIC Securities and the income thereon will be treated entirely as qualifying
assets and income for such purposes. REMIC Regular and Residual Securities held
by a financial institution to which Section 585 of the Code applies will be
treated as evidences of indebtedness for purposes of Section 582(c)(1) of the
Code. The REMIC Regular Securities generally will be "qualified mortgages"
within the meaning of Section 860G(a)(3) of the Code with respect to other
REMICs. Effective September 1, 1997, REMIC Regular Securities held by a
financial asset securitization investment trust (a "FASIT") will qualify for
treatment as "permitted assets" within the meaning of Section 860L(c)(1)(G) of
the Code. In the case of a Series for which two or more Series REMICs will be
created, all Series REMICs will be treated as a single REMIC for purposes of
determining the extent to which the related Securities and the income thereon
will be treated as qualifying assets and income for such purposes. However,
REMIC Securities will not qualify as government securities for REITs and
regulated investment companies ("RICs") in any case.

TAX TREATMENT OF REMIC REGULAR SECURITIES

Payments received by holders of REMIC Regular Securities generally should
be accorded the same tax treatment under the Code as payments received on
ordinary taxable corporate debt instruments. Except as described below for REMIC
Regular Securities issued with original issue discount or acquired with market
discount or premium, interest paid or accrued on REMIC Regular Securities will
be treated as ordinary income to the Securityholder and a principal payment on
such Securities will be treated as a return of capital to the extent that the
Securityholder's basis in the Security is allocable to that payment. Holders of
REMIC Regular (or Residual) Securities must report income from such Securities
under an accrual method of accounting, even if they otherwise would have used
the cash receipts and disbursements method. The Trustee or the Master Servicer
will report annually to the Service and to Securityholders of record with
respect to interest paid or accrued and original issue discount, if any, accrued
on the Securities.

Under temporary Treasury regulations, holders of REMIC Regular Securities
issued by "single-class REMICs" who are individuals, trusts, estates, or
pass-through entities in which such investors hold interests may be required to
recognize certain amounts of income in addition to interest and discount income.
A single-class REMIC, in general, is a REMIC that (i) would be classified as an
investment trust in the absence of a REMIC election or (ii) is substantially
similar to an investment trust. Under the temporary Treasury regulations, each
holder of a regular or residual interest in a single-class REMIC is allocated
(i) a share of the REMIC's "allocable investment expenses" (i.e., expenses
normally allowable under Section 212 of the Code, which may include servicing
and administrative fees and insurance premiums) and (ii) a corresponding amount
of additional income. Section 67 of the Code permits an individual, trust or
estate to deduct miscellaneous itemized expenses (including Section 212
expenses) only to the extent that such expenses, in the aggregate, exceed 2% of
its adjusted gross income. Consequently, an individual, trust or estate that
holds a regular interest in a single-class REMIC (either directly or through a
pass-through entity) will recognize additional income with respect to such
regular interest to the extent that its share of allocable investment expenses,
when combined with its other miscellaneous itemized deductions for the taxable
year, fails to exceed 2% of its adjusted gross income. Any such additional
income will be treated as interest income. In addition, Code Section 68 provides
that the amount of itemized deductions otherwise allowable for the taxable year
for an individual whose adjusted gross income exceeds the applicable amount
($100,000, or $50,000 in the case of a separate return by a married individual
within the meaning of Code Section 7703 for taxable year 1991 and adjusted for
inflation each year thereafter) will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the applicable amount, and (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. The
amount of such additional taxable income recognized by holders who are subject
to the limitations of either Section 67 or Section 68 may be substantial and may
reduce or eliminate the after-tax yield to such holders of an investment in the
Securities of an affected Series. Where appropriate, the Prospectus Supplement
for a particular REMIC Series will indicate that the holders of Securities of
such Series may be required to recognize additional income as a result of the
application of the limitations of either Section 67 or Section 68 of the Code.
Non-corporate holders of REMIC Regular Securities evidencing an interest in a
single-

<PAGE>

class REMIC also should be aware that miscellaneous itemized deductions,
including allocable investment expenses attributable to such REMIC, are not
deductible for purposes of the alternative minimum tax ("AMT").

ORIGINAL ISSUE DISCOUNT

Certain Classes of REMIC Regular Securities may be issued with "original
issue discount" within the meaning of Section 1273(a) of the Code. In general,
such original issue discount, if any, will equal the difference between the
"stated redemption price at maturity" of the REMIC Regular Security (generally,
its principal amount) and its issue price. Holders of REMIC Regular Securities
as to which there is original issue discount should be aware that they generally
must include original issue discount in income for federal income tax purposes
on an annual basis under a constant yield accrual method that reflects
compounding. In general, original issue discount is treated as ordinary income
and must be included in income in advance of the receipt of the cash to which it
relates.

The amount of original issue discount required to be included in a REMIC
Regular Securityholder's income in any taxable year will be computed in
accordance with Section 1272(a)(6) of the Code, which provides for the accrual
of original issue discount under a constant yield method for certain debt
instruments, such as the REMIC Regular Securities, that are subject to
prepayment by reason of prepayments of underlying obligations. Under Section
1272(a)(6), the amount and rate of accrual of original issue discount on a REMIC
Regular Security generally is to be calculated based on (i) a single constant
yield to maturity and (ii) the prepayment rate for the related mortgage
collateral and the reinvestment rate on amounts held pending distribution that
were assumed in pricing the REMIC Regular Security (the "Pricing Prepayment
Assumptions"). No regulatory guidance currently exists under Code Section
1272(a)(6). Accordingly, until the Treasury issues guidance to the contrary, the
Master Servicer or other person responsible for computing the amount of original
issue discount to be reported to a REMIC Regular Securityholder each taxable
year (the "Tax Administrator") will, except as otherwise provided herein, base
its computations on Code Section 1272(a)(6), final regulations governing the
accrual of original issue discount on debt instruments that were issued by the
Treasury on January 27, 1994, but that do not address directly the treatment of
instruments that are subject to Code Section 1272(a)(6) (the "OID Regulations"),
and certain other guidance, all as described below. However, there can be no
assurance that such methodology represents the correct manner of calculating
original issue discount on the REMIC Regular Securities. The Tax Administrator
will account for income on certain REMIC Regular Securities that provide for one
or more contingent payments as described in "Certain Federal Income Tax
Consequences -- Original Issue Discount -- Interest Weighted Securities and Non-
VRDI Securities" herein. Prospective purchasers should be aware that none of the
Seller, the Master Servicer, any Servicer or the Trustee will make any
representation that the Mortgage Assets underlying a Series will in fact prepay
at a rate conforming to the related Pricing Prepayment Assumptions or at any
other rate.

The amount of original issue discount on a REMIC Regular Security is the
excess, if any, of the Security's "stated redemption price at maturity" over its
"issue price." Under the OID Regulations, a debt instrument's stated redemption
price at maturity is the sum of all payments provided by the instrument other
than "qualified stated interest" ("Deemed Principal Payments"). Qualified stated
interest, in general, is stated interest that is unconditionally payable in cash
or property (other than debt instruments of the issuer) at least annually at (i)
a single fixed rate or (ii) a variable rate that meets certain requirements set
out in the OID Regulations. See "Certain Federal Income Tax Consequences --
REMIC Securities -- Original Issue Discount -- Variable Rate Securities" below.
Thus, in the case of any REMIC Regular Security, the stated redemption price at
maturity will equal the total amount of all Deemed Principal Payments due on
that Security. In the case of any REMIC Regular Security that does not require
unconditional payments of interest at least annually, the stated redemption
price at maturity of such Security will equal the aggregate of all payments due,
whether designated as principal, accrued interest, or current interest. The
issue price of a REMIC Regular Security generally will equal the initial price
at which a substantial amount of Securities of the same Class is sold to the
public.

The OID Regulations contain an aggregation rule (the "Aggregation Rule")
under which two or more debt instruments issued in connection with the same
transaction or related transactions (determined based on all the facts and
circumstances) generally are treated as a single debt instrument for federal
income tax accounting purposes if issued by a single issuer to a single holder.
The Aggregation Rule, however, does not apply if the debt instrument is part of
an issue (i) a substantial portion of which is traded on an established market
or (ii) a substantial portion of which is issued for cash (or property traded on
an established market) to parties who are not related to the issuer or holder
and who do not purchase other debt instruments of the same issuer in connection
with the same transaction or related transactions. In most cases, the
Aggregation Rule will not apply to REMIC Regular

<PAGE>

Securities of different Classes because one or both of the exceptions to the
Aggregation Rule will have been met. Although the Tax Administrator currently
intends to apply the Aggregation Rule to all REMIC regular interests in a Series
REMIC that are held by a related Series REMIC, it generally will not apply the
Aggregation Rule to REMIC Regular Securities for purposes of reporting to
Securityholders.

Under a DE MINIMIS rule, a REMIC Regular Security will be considered to
have no original issue discount if the amount of original issue discount is less
than 0.25% of the Security's stated redemption price at maturity multiplied by
the weighted average maturity ("WAM") of all Deemed Principal Payments. For that
purpose, the WAM of a REMIC Regular Security is the sum of the amounts obtained
by multiplying the amount of each Deemed Principal Payment by a fraction, the
numerator of which is the number of complete years from the Security's issue
date until the payment is made, and the denominator of which is the Security's
stated redemption price at maturity. Although no Treasury regulations have been
issued under the relevant provisions of the 1986 Act, it is expected that the
WAM of a REMIC Regular Security will be computed using the Pricing Prepayment
Assumptions. A REMIC Regular Securityholder will include DE MINIMIS original
issue discount in income on a PRO RATA basis as stated principal payments on the
Security are received or, if earlier, upon disposition of the Security, unless
the Securityholder makes the "All OID Election" (as defined below).

REMIC Regular Securities of certain Series may bear interest under terms
that provide for a teaser rate period, interest holiday, or other period during
which the rate of interest payable on the Securities is lower than the rate
payable during the remainder of the life of the Securities ("Teaser
Securities"). Under certain circumstances, a Teaser Security may be considered
to have a DE MINIMIS amount of original issue discount even though the amount of
original issue discount on the Security would be more than DE MINIMIS as
determined as described above if the stated interest on a Teaser Security would
be qualified stated interest but for the fact that during one or more accrual
periods its interest rate is below the rate applicable for the remainder of its
term, the amount of original issue discount on such Security that is measured
against the DE MINIMIS amount of original issue discount allowable on the
Security is the greater of (i) the excess of the stated principal amount of such
Security over its issue price ("True Discount") and (ii) the amount of interest
that would be necessary to be payable on such Security in order for all stated
interest to be qualified stated interest.

The holder of a REMIC Regular Security generally must include in gross
income the sum, for all days during his taxable year on which he holds the REMIC
Regular Security, of the "daily portions" of the original issue discount on such
Security. In the case of an original holder of a REMIC Regular Security, the
daily portions of original issue discount with respect to such Security
generally will be determined by allocating to each day in any accrual period the
Security's ratable portion of the excess, if any, of (i) the sum of (a) the
present value of all payments under the Security yet to be received as of the
close of such period plus (b) the amount of any Deemed Principal Payments
received on the Security during such period over (ii) the Security's "adjusted
issue price" at the beginning of such period. The present value of payments yet
to be received on a REMIC Regular Security is to be computed using the Pricing
Prepayment Assumptions and the Security's original yield to maturity (adjusted
to take into account the length of the particular accrual period), and taking
into account Deemed Principal Payments actually received on the Security prior
to the close of the accrual period. The adjusted issue price of a REMIC Regular
Security at the beginning of the first period is its issue price. The adjusted
issue price at the beginning of each subsequent period is the adjusted issue
price of the Security at the beginning of the preceding period increased by the
amount of original issue discount allocable to that period and reduced by the
amount of any Deemed Principal Payments received on the Security during that
period. Thus, an increased (or decreased) rate of prepayments received with
respect to a REMIC Regular Security will be accompanied by a correspondingly
increased (or decreased) rate of recognition of original issue discount by the
holder of such Security.

The yield to maturity of a Regular Security is calculated based on (i) the
Pricing Prepayment Assumptions and (ii) any contingencies not already taken into
account under the Pricing Prepayment Assumptions that, considering all of the
facts and circumstances as of the issue date, are more likely than not to occur.
Contingencies, such as the exercise of "mandatory redemptions," that are taken
into account by the parties in pricing the Regular Security typically will be
subsumed in the Pricing Prepayment Assumptions and thus will be reflected in the
Security's yield to maturity. The Tax Administrator's determination of whether a
contingency relating to a Class of Regular Securities is more likely than not to
occur is binding on each holder of a Regular Security of such Class unless the
holder explicitly discloses on its federal income tax return that its
determination of the yield and maturity of the Security is different from that
of the Tax Administrator.

<PAGE>

In many cases, REMIC Regular Securities will be subject to optional
redemption before their stated maturity dates. Under the OID Regulations, the
Seller will be presumed to exercise its option to redeem for purposes of
computing the accrual of original issue discount if, and only if, by using the
optional redemption date as the maturity date and the optional redemption price
as the stated redemption price at maturity, the yield to maturity of the
Security is lower than it would be if the Security were not redeemed early. If
the Seller is presumed to exercise its option to redeem the Securities, original
issue discount on such Securities will be calculated as if the redemption date
were the maturity date and the optional redemption price were the stated
redemption price at maturity. In cases in which all of the Securities of a
particular Series are issued at par or at a discount, the Seller will not be
presumed to exercise its option to redeem the Securities because a redemption by
the Seller would not lower the yield to maturity of the Securities. If, however,
some Securities of a particular Series are issued at a premium, the Seller may
be able to lower the yield to maturity of the Securities by exercising its
redemption option. In determining whether the Seller will be presumed to
exercise its option to redeem Securities when one or more Classes of the
Securities is issued at a premium, the Tax Administrator will take into account
all Classes of Securities that are subject to the optional redemption to the
extent that they are expected to remain outstanding as of the optional
redemption date, based on the Pricing Prepayment Assumptions. If, determined on
a combined weighted average basis, the Securities of such Classes were issued at
a premium, the Tax Administrator will presume that the Seller will exercise its
option. However, the OID Regulations are unclear as to how the redemption
presumption rules should apply to instruments such as the Securities, and there
can be no assurance that the Service will agree with the Tax Administrator's
position.

A REMIC Regular Security having original issue discount may be acquired
subsequent to its issuance for more than its adjusted issue price. If the
subsequent holder's adjusted basis in such a Security, immediately after its
acquisition, exceeds the sum of all Deemed Principal Payments to be received on
the Security after the acquisition date, the Security will no longer have
original issue discount, and the holder may be entitled to reduce the amount of
interest income recognized on the Security by the amount of amortizable premium.
See "Certain Federal Income Tax Consequences -- REMIC Securities -- Amortizable
Premium." If the subsequent holder's adjusted basis in the Security, immediately
after the acquisition, exceeds the adjusted issue price of the Security, but is
less than or equal to the sum of the Deemed Principal Payments to be received on
the Security after the acquisition date, the amount of original issue discount
on the Security will be reduced by a fraction, the numerator of which is the
excess of the Security's adjusted basis immediately after its acquisition over
the adjusted issue price of the Security and the denominator of which is the
excess of the sum of all Deemed Principal Payments to be received on the
Security after the acquisition date over the adjusted issue price of the
Security. For that purpose, the adjusted basis of a REMIC Regular Security
generally is reduced by the amount of any qualified stated interest that is
accrued but unpaid as of the acquisition date. Alternatively, the subsequent
holder of a REMIC Regular Security having original issue discount may make an
All OID Election (as defined below) with respect to the Security.

The OID Regulations provide that a Securityholder generally may make an
election (an "All OID Election") to include in gross income all stated interest,
original issue discount, DE MINIMIS original issue discount, market discount (as
described below under "Certain Federal Income Tax Consequences -- REMIC
Securities -- Market Discount"), and DE MINIMIS market discount that accrues on
a REMIC Regular Security (reduced by any acquisition premium or amortizable
premium, as described below under "Certain Federal Income Tax Consequences --
REMIC Securities -- Amortizable Premium") under the constant yield method used
to account for original issue discount. To make the All OID Election, the holder
of the Security must attach a statement to its timely filed federal income tax
return for the taxable year in which the holder acquired the Security. The
statement must identify the instruments to which the election applies. An All
OID Election is irrevocable unless the holder obtains the consent of the
Service. If an All OID Election is made for a debt instrument with market
discount, the holder is deemed to have made an election to include in income
currently the market discount on all of the holder's other debt instruments with
market discount, as described in "Certain Federal Income Tax Consequences --
REMIC Securities -- Market Discount" below. In addition, if an All OID Election
is made for a debt instrument with amortizable bond premium, the holder is
deemed to have made an election to amortize the premium on all of the holder's
other debt instruments with amortizable premium under the constant yield method.
See "Certain Federal Income Tax Consequences -- REMIC Securities -- Amortizable
Premium." Securityholders should be aware that the law is unclear as to whether
an All OID Election is effective for a Security that is subject to the
contingent payment rules. See "Certain Federal Income Tax Consequences -- REMIC
Securities -- Original Issue Discount -- Interest Weighted Securities and
Non-VRDI Securities."

<PAGE>

If the interval between the issue date of a Current Interest Security and
the first Distribution Date (the "First Distribution Period") contains more days
than the number of days of stated interest that are payable on the first
Distribution Date, the effective interest rate received by the Securityholder
during the First Distribution Period will be less than the Security's stated
interest rate, making such Security a Teaser Security. If the amount of original
issue discount on the Security measured under the expanded DE MINIMIS test
exceeds the DE MINIMIS amount of original issue discount allowable on the
Security, the amount by which the stated interest on the Security exceeds the
interest that would be payable on the Security at the effective rate of interest
for the First Distribution Period would be treated as part of the Security's
stated redemption price at maturity. Accordingly, the holder of a Teaser
Security may be required to recognize ordinary income arising from original
issue discount in the First Distribution Period in addition to any qualified
stated interest that accrues in that period.

Similarly, if the First Distribution Period is shorter than the interval
between subsequent Distribution Dates, the effective rate of interest payable on
a Security during the First Distribution Period will be higher than the stated
rate of interest if a Securityholder receives interest on the first Distribution
Date based on a full accrual period. Unless the "Pre-Issuance Accrued Interest
Rule" described below applies, such Security (a "Rate Bubble Security") would be
issued with original issue discount unless the amount of original issue discount
is DE MINIMIS. The amount of original issue discount on a Rate Bubble Security
attributable to the First Distribution Period would be the amount by which the
interest payment due on the first Distribution Date exceeds the amount that
would have been payable had the effective rate for that Period been equal to the
stated interest rate. However, under the "Pre-Issuance Accrued Interest Rule,"
if, (i) a portion of the initial purchase price of a Rate Bubble Security is
allocable to interest that has accrued under the terms of the Security prior to
its issue date ("Pre-Issuance Accrued Interest") and (ii) the Security provides
for a payment of stated interest on the First Distribution Date within one year
of the issue date that equals or exceeds the amount of the Pre-Issuance Accrued
Interest, the Security's issue price may be computed by subtracting from the
issue price the amount of Pre-Issuance Accrued Interest. If the Securityholder
opts to apply the Pre-Issuance Accrued Interest Rule, the portion of the
interest received on the first Distribution Date equal to the Pre-Issuance
Accrued Interest would be treated as a return of such Interest and would not be
treated as a payment on the Security. Thus, where the Pre-Issuance Accrued
Interest Rule applies, a Rate Bubble Security will not have original issue
discount attributable to the First Distribution Period, provided that the
increased effective interest rate for that Period is attributable solely to
Pre-Issuance Accrued Interest, as typically will be the case. The Tax
Administrator intends to apply the Pre-Issuance Accrued Interest Rule to each
Rate Bubble Security for which it is available if the Security's stated interest
otherwise would be qualified stated interest. If, however, the First
Distribution Period of a Rate Bubble Security is longer than subsequent Payment
Periods, the application of the Pre-Issuance Accrued Interest Rule typically
will not prevent disqualification of the Security's stated interest because its
effective interest rate during the First Distribution Period will be less than
its stated interest rate. Thus, a REMIC Regular Security with a long First
Distribution Period typically will be a Teaser Security, as discussed above. The
Pre-Issuance Accrued Interest Rule will not apply to any amount paid at issuance
for such a Teaser Security that is nominally allocable to interest accrued under
the terms of such Security before its issue date. All amounts paid for such a
Teaser Security at issuance, regardless of how designated, will be included in
the issue price of such Security for federal income tax accounting purposes.

It is not entirely clear how income should be accrued with respect to a
REMIC Regular Security, the payments on which consist entirely or primarily of a
specified nonvarying portion of the interest payable on one or more of the
qualified mortgages held by the REMIC (an "Interest Weighted Security"). Unless
and until the Service provides contrary administrative guidance on the income
tax treatment of an Interest Weighted Security, the Tax Administrator will take
the position that an Interest Weighted Security does not bear qualified stated
interest, and will account for the income thereon as described in "Certain
Federal Income Tax Consequences -- REMIC Securities -- Original Issue Discount
- -- Interest Weighted Securities and Non-VRDI Securities," herein. Some Interest
Weighted Securities may provide for a relatively small amount of principal and
for interest that can be expressed as qualified stated interest at a very high
fixed rate with respect to that principal ("Superpremium Securities").
Superpremium Securities technically are issued with amortizable premium.
However, because of their close similarity to other Interest Weighted Securities
it appears more appropriate to account for Superpremium Securities in the same
manner as for other Interest Weighted Securities. Consequently, in the absence
of further administrative guidance, the Tax Administrator intends to account for
Superpremium Securities in the same manner as other Interest Weighted
Securities. However, there can be no assurance that the Service will not assert
a position contrary to that taken by the Tax Administrator, and, therefore,
holders of Superpremium Securities should consider making a protective election
to amortize premium on such Securities.

<PAGE>

In view of the complexities and current uncertainties as to the manner of
inclusion in income of original issue discount on the REMIC Regular Securities,
each investor should consult his own tax advisor to determine the appropriate
amount and method of inclusion in income of original issue discount on such
Securities for federal income tax purposes.

VARIABLE RATE SECURITIES

A REMIC Regular Security may pay interest at a variable rate (a "Variable
Rate Security"). A Variable Rate Security that qualifies as a "variable rate
debt instrument" as that term is defined in the OID Regulations (a "VRDI") will
be governed by the rules applicable to VRDIs in the OID Regulations, which are
described below. A Variable Rate Security qualifies as a VRDI under the OID
Regulations if (i) the Security is not issued at a premium to its noncontingent
principal amount in excess of the lesser of (a) .015 multiplied by the product
of such noncontingent principal amount and the WAM (as that term is defined
above in the discussion of the DE MINIMIS rule) of the Security and (b) 15
percent of such noncontingent principal amount (an "Excess Premium"); (ii)
stated interest on the Security compounds or is payable unconditionally at least
annually at (a) one or more "qualified floating rates,"(b) a single fixed rate
and one or more qualified floating rates, (c) a single "objective rate," or (d)
a single fixed rate and a single objective rate that is a "qualified inverse
floating rate"; (iii) the qualified floating rate or the objective rate in
effect during an accrual period is set at a current value of that rate (I.E.,
the value of the rate on any day occurring during the interval that begins three
months prior to the first day on which that value is in effect under the
Security and ends one year following that day); and (iv) the Security does not
provide for contingent principal payments.

Under Treasury regulations issued on June 12, 1996, a rate is a qualified
floating rate if variations in the rate reasonably can be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the currency
in which the debt instrument is denominated. A qualified floating rate may
measure contemporaneous variations in borrowing costs for the issuer of the debt
instrument or for issuers in general. A multiple of a qualified floating rate is
considered a qualified floating rate only if the rate is equal to either (a) the
product of a qualified floating rate and a fixed multiple that is greater than
.65 but not more than 1.35 or (b) the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate. If a REMIC Regular Security provides for two or more
qualified floating rates that reasonably can be expected to have approximately
the same values throughout the term of the Security, the qualified floating
rates together will constitute a single qualified floating rate. Two or more
qualified floating rates conclusively will be presumed to have approximately the
same values throughout the term of a Security if the values of all rates on the
issue date of the Security are within 25 basis points of each other.

A variable rate will be considered a qualified floating rate if it is
subject to a restriction or restrictions on the maximum stated interest rate (a
"Cap"), a restriction or restrictions on the minimum stated interest rate (a
"Floor"), a restriction or restrictions on the amount of increase or decrease in
the stated interest rate (a "Governor"), or other similar restriction only if:
(a) the Cap, Floor, Governor, or similar restriction is fixed throughout the
term of the related Security or (b) the Cap, Floor, Governor, or similar
restriction is not reasonably expected, as of the issue date, to cause the yield
on the Security to be significantly less or significantly more than the expected
yield on the Security determined without such Cap, Floor, Governor, or similar
restriction, as the case may be. Although the OID Regulations are unclear, it
appears that a VRDI, the principal rate on which is subject to a Cap, Floor, or
Governor that itself is a qualified floating rate, bears interest at an
objective rate.

An objective rate is a rate (other than a qualified floating rate) that (i)
is determined using a single fixed formula, (ii) is based on objective financial
or economic information, and (iii) is not based on information that either is
within the control of the issuer (or a related party) or is unique to the
circumstances of the issuer (or related party), such as dividends, profits, or
the value of the issuer's (or related party's) stock. That definition would
include, in addition to a rate that is based on one or more qualified floating
rates or on the yield of actively traded personal property, a rate that is based
on changes in a general inflation index. In addition, a rate would not fail to
be an objective rate merely because it is based on the credit quality of the
issuer. An objective rate is a qualified inverse floating rate if (i) the rate
is equal to a fixed rate minus a qualified floating rate and (ii) the variations
in the rate can reasonably be expected to inversely reflect contemporaneous
variations in the qualified floating rate (disregarding certain Caps, Floors,
and Governors).

<PAGE>

If interest on a Variable Rate Security is stated at a fixed rate for an
initial period of less than one year followed by a variable rate that is either
a qualified floating rate or an objective rate for a subsequent period, and the
value of the variable rate on the issue date is intended to approximate the
fixed rate, the fixed rate and the variable rate together constitute a single
qualified floating rate or objective rate. A variable rate conclusively will be
presumed to approximate an initial fixed rate if the value of the variable rate
on the issue date does not differ from the value of the fixed rate by more than
25 basis points.

All interest payable on a Variable Rate Security that qualifies as a VRDI
and provides for stated interest unconditionally payable in cash or property at
least annually at a single qualified floating rate or a single objective rate (a
"Single Rate VRDI Security") is treated as qualified stated interest. The amount
and accrual of original issue discount on a Single Rate VRDI Security is
determined, in general, by converting such Security into a hypothetical fixed
rate security and applying the rules applicable to fixed rate securities
described under "Certain Federal Income Tax Consequences -- REMIC Securities --
Original Issue Discount" above to such hypothetical fixed rate security.
Qualified stated interest or original issue discount allocable to an accrual
period with respect to a Single Rate VRDI Security also must be increased (or
decreased) if the interest actually accrued or paid during such accrual period
exceeds (or is less than) the interest assumed to be accrued or paid during such
accrual period under the related hypothetical fixed rate security.

Except as provided below, the amount and accrual of original issue discount
on a Variable Rate Security that qualifies as a VRDI but is not a Single Rate
VRDI Security (a "Multiple Rate VRDI Security") is determined by converting such
Security into a hypothetical equivalent fixed rate security that has terms that
are identical to those provided under the Multiple Rate VRDI Security, except
that such hypothetical equivalent fixed rate security will provide for fixed
rate substitutes in lieu of the qualified floating rates or objective rate
provided for under the Multiple Rate VRDI Security. A Multiple Rate VRDI
Security that provides for a qualified floating rate or rates or a qualified
inverse floating rate is converted to a hypothetical equivalent fixed rate
security by assuming that each qualified floating rate or the qualified inverse
floating rate will remain at its value as of the issue date. A Multiple Rate
VRDI Security that provides for an objective rate or rates is converted to a
hypothetical equivalent fixed rate security by assuming that each objective rate
will equal a fixed rate that reflects the yield that reasonably is expected for
the Multiple Rate VRDI Security. Qualified stated interest or original issue
discount allocable to an accrual period with respect to a Multiple Rate VRDI
Security must be increased (or decreased) if the interest actually accrued or
paid during such accrual period exceeds (or is less than) the interest assumed
to be accrued or paid during such accrual period under the hypothetical
equivalent fixed rate security.

The amount and accrual of original issue discount on a Multiple Rate VRDI
Security that provides for stated interest at either one or more qualified
floating rates or at a qualified inverse floating rate and in addition provides
for stated interest at a single fixed rate (other than an initial fixed rate
that is intended to approximate the subsequent variable rate) is determined
using the method described above for all other Multiple Rate VRDI Securities
except that prior to its conversion to a hypothetical equivalent fixed rate
security, such Multiple Rate VRDI Security is treated as if it provided for a
qualified floating rate (or a qualified inverse floating rate), rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the Multiple
Rate VRDI Security as of its issue date would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
the qualified floating rate (or qualified inverse floating rate), rather than
the fixed rate.

REMIC Regular Securities of certain Series may provide for interest based
on a weighted average of the interest rates on some or all of the Mortgage Loans
or regular interests in a second REMIC held subject to the related Trust
Agreement ("Weighted Average Securities"). Under the OID Regulations, it appears
that Weighted Average Securities relating to a REMIC whose assets consist
exclusively of ARM Loans bear interest at an "objective rate," provided the ARM
Loans themselves bear interest at qualified floating rates. However, under the
OID Regulations, Weighted Average Securities relating to a REMIC whose assets do
not bear interest at qualified floating rates ("Non-Objective Weighted Average
Securities" or "NOWA Securities") do not bear interest at an objective or a
qualified floating rate and, consequently, do not qualify as VRDIs. Accordingly,
unless and until the Service provides contrary administrative guidance on the
income tax treatment of NOWA Securities, the Tax Administrator intends to treat
such Securities as debt obligations that provide for one or more contingent
payments, and will account for the income thereon as described in "Certain
Federal Income Tax Consequences -- REMIC Securities -- Original Issue Discount
- -- Interest Weighted Securities and Non-VRDI Securities."

<PAGE>

REMIC Regular Securities of certain Series may provide for the payment of
interest at a rate determined as the difference between two interest rate
parameters, one of which is a variable rate and the other of which is a fixed
rate or a different variable rate ("Inverse Floater Securities"). Under the OID
Regulations, Inverse Floater Securities generally bear interest at objective
rates, because their rates either constitute "qualified inverse floating rates"
under those Regulations or, although not qualified floating rates themselves,
are based on one or more qualified floating rates. Consequently, if such
Securities are not issued at an Excess Premium and their interest rates
otherwise meet the test for qualified stated interest, the income on such
Securities will be accounted for under the rules applicable to VRDIs described
above. However, an Inverse Floater Security may have an interest rate parameter
equal to the weighted average of the interest rates on some or all of the
Mortgage Assets (or other interest bearing assets) held by the related REMIC in
a case where one or more of those rates is a fixed rate or otherwise may not
qualify as a VRDI. Unless and until the Service provides contrary administrative
guidance on the income tax treatment of such Inverse Floater Securities, the Tax
Administrator intends to treat such Securities as debt obligations that provide
for one or more contingent payments, and will account for the income thereon as
described in "Certain Federal Income Tax Consequences -- REMIC Securities --
Original Issue Discount -- Interest Weighted Securities and Non-VRDI Securities"
herein.

INTEREST WEIGHTED SECURITIES AND NON-VRDI SECURITIES

The treatment of a NOWA Security, a Variable Rate Security that is issued
at an Excess Premium, any other Variable Rate Security that does not qualify as
a VRDI (each a "Non-VRDI Security") or an Interest Weighted Security is unclear
under current law. The OID Regulations contain provisions (the "Contingent
Payment Regulations") that address the federal income tax treatment of debt
obligations that provide for one or more contingent payments ("Contingent
Payment Obligations"). Under the Contingent Payment Regulations, any variable
rate debt instrument that is not a VRDI is classified as a Contingent Payment
Obligation. However, the Contingent Payment Regulations, by their terms, do not
apply to REMIC regular interests and other instruments that are subject to
Section 1272(a)(6) of the Code. In the absence of further guidance, the Tax
Administrator will account for Non-VRDI Securities, Interest Weighted
Securities, and other REMIC Regular Securities that are Contingent Payment
Obligations in accordance with Code Section 1272(a)(6) and the accounting
methodology described in this paragraph. Income will be accrued on such
securities based on a constant yield that is derived from a projected payment
schedule as of the Closing Date. The projected payment schedule will take into
account the related Pricing Prepayment Assumptions and the interest payments
that are expected to be made on such Securities based on the value of any
relevant indices on the issue date. To the extent that actual payments differ
from projected payments for a particular taxable year, appropriate adjustments
to interest income and expense accruals will be made for that year. In the case
of a Weighted Average Security, the projected payments schedule will be derived
based on the assumption that the principal balances of the Mortgage Loans that
collateralize the Security pay down pro rata.

The method described in the foregoing paragraph for accounting for Interest
Weighted Securities and Non-VRDI Securities is consistent with Code section
1272(a)(6) and the legislative history thereof. Because of the uncertainty with
respect to the treatment of such Securities under the OID Regulations, however,
there can be no assurance that the Service will not assert successfully that a
method less favorable to Securityholders will apply. In view of the complexities
and the current uncertainties as to income inclusions with respect to Non-VRDI
Securities and Interest Weighted Securities, particularly with respect to the
method that should be used to account for the income on such Securities, each
investor should consult his or her own tax advisor to determine the appropriate
amount and method of income inclusion on such Securities for federal income tax
purposes.

ANTI-ABUSE RULE

Concerned that taxpayers might be able to structure debt instruments or
transactions, or to apply the bright-line or mechanical rules of the OID
Regulations, in a way that produce unreasonable tax results, the Treasury issued
regulations containing an anti-abuse rule on the same date as the issuance of
the OID Regulations. The regulations provide that if a principal purpose in
structuring a debt instrument, engaging in a transaction, or applying the OID
Regulations is to achieve a result that is unreasonable in light of the purposes
of the applicable statutes, the Service can apply or depart from the OID
Regulations as necessary or appropriate to achieve a reasonable result. A result
is not considered unreasonable under the regulations, however, in the absence of
a substantial effect on the present value of a taxpayer's tax liability.

<PAGE>

MARKET DISCOUNT

A subsequent purchaser of a REMIC Regular Security at a discount from its
outstanding principal amount (or, in the case of a REMIC Regular Security having
original issue discount, its adjusted issue price) will acquire such Security
with "market discount." The purchaser generally will be required to recognize
the market discount (in addition to any original issue discount remaining with
respect to the Security) as ordinary income. A person who purchases a REMIC
Regular Security at a price lower than the remaining outstanding Deemed
Principal Payments but higher than its adjusted issue price does not acquire the
Security with market discount, but will be required to report original issue
discount, appropriately adjusted to reflect the excess of the price paid over
the adjusted issue price. See "Certain Federal Income Tax Consequences -- REMIC
Securities -- Original Issue Discount." A REMIC Regular Security will not be
considered to have market discount if the amount of such market discount is DE
MINIMIS, I.E., less than the product of (i) 0.25% of the remaining principal
amount of the Security (or, in the case of a REMIC Regular Security having
original issue discount, the adjusted issue price of such Security), multiplied
by (ii) the weighted average maturity of the Security (determined as for
original issue discount) remaining after the date of purchase. Regardless of
whether the subsequent purchaser of a REMIC Regular Security with more than a DE
MINIMIS amount of market discount is a cash-basis or accrual-basis taxpayer,
market discount generally will be taken into income as principal payments
(including, in the case of a REMIC Regular Security having original issue
discount, any Deemed Principal Payments) are received, in an amount equal to the
lesser of (i) the amount of the principal payment received or (ii) the amount of
market discount that has "accrued" (as described below), but that has not yet
been included in income. The purchaser may make a special election, which
generally applies to all market discount instruments held or acquired by the
purchaser in the taxable year of election or thereafter, to recognize market
discount currently on an uncapped accrual basis (the "Current Recognition
Election"). The Service has set forth in Revenue Procedure 92-67 the manner in
which a Current Recognition Election may be made. In addition, a purchaser may
make an All OID Election with respect to a REMIC Regular Security purchased with
market discount. See "Certain Federal Income Tax Consequences -- REMIC
Securities -- Original Issue Discount" above.

Until the Treasury promulgates applicable regulations, the purchaser of a
REMIC Regular Security with market discount generally may elect to accrue the
market discount either: (i) on the basis of a constant interest rate; (ii) in
the case of a REMIC Regular Security not issued with original issue discount, in
the ratio of stated interest payable in the relevant period to the total stated
interest remaining to be paid from the beginning of such period; or (iii) in the
case of a REMIC Regular Security issued with original issue discount, in the
ratio of original issue discount accrued for the relevant period to the total
remaining original issue discount at the beginning of such period. The Service
indicated in Revenue Procedure 92-67 the manner in which an election may be made
to accrue market discount on a REMIC Regular Security on the basis of a constant
interest rate. Regardless of which computation method is elected, the Pricing
Prepayment Assumptions must be used to calculate the accrual of market discount.

A Securityholder who has acquired any REMIC Regular Security with market
discount generally will be required to treat a portion of any gain on a sale or
exchange of the Security as ordinary income to the extent of the market discount
accrued to the date of disposition under one of the foregoing methods, less any
accrued market discount previously reported as ordinary income as partial
principal payments were received. Moreover, such Securityholder generally must
defer interest deductions attributable to any indebtedness incurred or continued
to purchase or carry the Security to the extent they exceed income on the
Security. Any such deferred interest expense, in general, is allowed as a
deduction not later than the year in which the related market discount income is
recognized. If a Regular Securityholder makes a Current Recognition Election or
an All OID Election, the interest deferral rule will not apply. Under the
Contingent Payment Regulations, a secondary market purchaser of a Non-VRDI
Security or an Interest Weighted Security at a discount generally would continue
to accrue interest and determine adjustments on such Security based on the
original projected payment schedule devised by the issuer of such Security. See
"Certain Federal Income Tax Consequences -- REMIC Securities -- Original Issue
Discount -- Interest Weighted Securities and Non-VRDI Securities" herein. The
holder of such a Security would be required, however, to allocate the difference
between the adjusted issue price of the Security and its basis in the Security
as positive adjustments to the accruals or projected payments on the Security
over the remaining term of the Security in a manner that is reasonable (e.g.,
based on a constant yield to maturity).

Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those rules.
For example, the treatment of a REMIC Regular Security subject to

<PAGE>

redemption at the option of the Seller that is acquired at a market discount is
unclear. It appears likely, however, that the market discount rules applicable
in such a case would be similar to the rules pertaining to original issue
discount. Due to the substantial lack of regulatory guidance with respect to the
market discount rules, it is unclear how those rules will affect any secondary
market that develops for a given Class of REMIC Regular Securities. Prospective
investors in REMIC Regular Securities should consult their own tax advisors as
to the application of the market discount rules to those Securities.

AMORTIZABLE PREMIUM

A purchaser of a REMIC Regular Security who purchases the Security at a
premium over the total of its Deemed Principal Payments may elect to amortize
such premium under a constant yield method that reflects compounding based on
the interval between payments on the Securities. The legislative history of the
1986 Act indicates that premium is to be accrued in the same manner as market
discount. Accordingly, it appears that the accrual of premium on a REMIC Regular
Security will be calculated using the Pricing Prepayment Assumptions. Under the
Code, except as otherwise provided in Treasury regulations to be issued,
amortized premium would be treated as an offset to interest income on a REMIC
Regular Security and not as a separate deduction item. If a holder makes an
election to amortize premium on a REMIC Regular Security, such election will
apply to all taxable debt instruments (including all REMIC regular interests)
held by the holder at the beginning of the taxable year in which the election is
made, and to all taxable debt instruments acquired thereafter by such holder,
and will be irrevocable without the consent of the Service. Purchasers who pay a
premium for the REMIC Regular Securities should consult their tax advisors
regarding the election to amortize premium and the method to be employed.

Amortizable premium on a REMIC Regular Security that is subject to
redemption at the option of the Trust generally must be amortized as if the
optional redemption price and date were the Security's principal amount and
maturity date if doing so would result in a smaller amount of premium
amortization during the period ending with the optional redemption date. Thus, a
Securityholder would not be able to amortize any premium on a REMIC Regular
Security that is subject to optional redemption at a price equal to or greater
than the Securityholder's acquisition price unless and until the redemption
option expires. In cases where premium must be amortized on the basis of the
price and date of an optional redemption, the Security will be treated as having
matured on the redemption date for the redemption price and then having been
reissued on that date for that price. Any premium remaining on the Security at
the time of the deemed reissuance will be amortized on the basis of (i) the
original principal amount and maturity date or (ii) the price and date of any
succeeding optional redemption, under the principles described above.

Under the Contingent Payment Regulations, a secondary market purchaser of a
Non-VRDI Security or an Interest Weighted Security at a premium generally would
continue to accrue interest and determine adjustments on such Security based on
the original projected payment schedule devised by the issuer of such Security.
See "Certain Federal Income Tax Consequences -- REMIC Securities -- Original
Issue Discount -- Interest Weighted Securities and Non-VRDI Securities" herein.
The holder of such a Security would allocate the difference between its basis in
the Security and the adjusted issue price of the Security as negative
adjustments to the accruals or projected payments on the Security over the
remaining term of the Security in a manner that is reasonable (e.g., based on a
constant yield to maturity).

CONSEQUENCES OF REALIZED LOSSES

Under section 166 of the Code, both corporate holders of REMIC Regular
Securities and noncorporate holders that acquire REMIC Regular Securities in
connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their REMIC Regular
Securities become wholly or partially worthless as the result of one or more
Realized Losses on the underlying Assets. However, a noncorporate holder that
does not acquire a REMIC Regular Security in connection with its trade or
business will not be entitled to deduct a loss under Code Section 166 until its
REMIC Regular Security becomes wholly worthless (i.e., until its outstanding
principal balance has been reduced to zero), and the loss will be characterized
as short-term capital loss).

Each holder of a REMIC Regular Security will be required to accrue original
issue discount income with respect to such Certificate without giving effect to
any reduction in distributions attributable to a default or delinquency on the
underlying Assets until a Realized Loss is allocated to such Security or until
such earlier time as it can be established that any such reduction ultimately
will not be recoverable. As a result, the amount of original

<PAGE>

issue discount reported in any period by the holder of a REMIC Regular Security
could exceed significantly the amount of economic income actually realized by
the holder in such period. Although the holder of a REMIC Regular Security
eventually will recognize a loss or a reduction in income attributable to
previously included original issue discount that, as a result of a Realized
Loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income. Accordingly, holders
of REMIC Regular Securities should consult with their own tax advisors with
respect to the federal income tax consequences of Realized Losses on original
issue discount.

The Tax Administrator will adjust the accrual of original issue discount on
REMIC Regular Securities in a manner that it believes to be appropriate to
reflect Realized Losses. However, there can be no assurance that the Service
will not contend successfully that a different method of accounting for the
effect of Realized Losses is correct and that such method will not have an
adverse effect upon the holders of REMIC Regular Securities.

GAIN OR LOSS ON DISPOSITION

If a REMIC Regular Security is sold, the Securityholder will recognize gain
or loss equal to the difference between the amount realized on the sale and his
adjusted basis in the Security. The adjusted basis of a REMIC Regular Security
generally will equal the cost of the Security to the Securityholder, increased
by any original issue discount or market discount previously includable in the
Securityholder's gross income with respect to the Security, and reduced by the
portion of the basis of the Security allocable to payments on the Security
(other than qualified stated interest) previously received by the Securityholder
and by any amortized premium. Similarly, a Securityholder who receives a
scheduled or prepaid principal payment with respect to a REMIC Regular Security
will recognize gain or loss equal to the difference between the amount of the
payment and the allocable portion of his adjusted basis in the Security. Except
to the extent that the market discount rules apply and except as provided below,
any gain or loss on the sale or other disposition of a REMIC Regular Security
generally will be capital gain or loss. Such gain or loss will be long-term gain
or loss if the Security is held as a capital asset for more than the applicable
holding period.

The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for more
than eighteen months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions). Prospective investors
should consult their own tax advisors concerning these tax law changes.

If the holder of a REMIC Regular Security is a bank, thrift, or similar
institution described in Section 582 of the Code, any gain or loss on the sale
or exchange of the REMIC Regular Security will be treated as ordinary income or
loss. In the case of other types of holders, gain from the disposition of a
REMIC Regular Security that otherwise would be capital gain will be treated as
ordinary income to the extent that the amount actually includable in income with
respect to the Security by the Securityholder during his holding period is less
than the amount that would have been includable in income if the yield on that
Security during the holding period had been 110% of a specified U.S. Treasury
borrowing rate as of the date that the Securityholder acquired the Security.
Although the legislative history to the 1986 Act indicates that the portion of
the gain from disposition of a REMIC Regular Security that will be
recharacterized as ordinary income is limited to the amount of original issue
discount (if any) on the Security that was not previously includable in income,
the applicable Code provision contains no such limitation.

A portion of any gain from the sale of a REMIC Regular Security that might
otherwise be capital gain may be treated as ordinary income to the extent that
such Security is held as part of a "conversion transaction" within the meaning
of Section 1258 of the Code. A conversion transaction generally is one in which
the taxpayer has taken two or more positions in Securities or similar property
that reduce or eliminate market risk, if substantially all of the taxpayer's
return is attributable to the time value of the taxpayer's net investment in
such transaction. The amount of gain realized in a conversion transaction that
is recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable federal rate" (which rate is computed and published
monthly by the Service) at the time the taxpayer entered into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income from the transaction.

Currently, the highest marginal individual income tax bracket is 36%, and a
10% surtax is imposed on taxpayers whose taxable income for 1993 and later years
exceeds $250,000 (resulting in a 39.6% marginal rate). The

<PAGE>

alternative minimum tax ("AMT") rate for individuals is 26% with respect to AMT
income up to $175,000 and 28% with respect to AMT income over $175,000. The
recently enacted Taxpayer Relief Act of 1997 (the "Relief Act") established a
three-tier rate structure with respect to the net capital gain of individuals.
Under the Relief Act, the highest marginal federal tax rate on net capital gains
for individuals with respect to assets held for 18 months or less is 28%, as
under prior law. However, the Relief Act reduces the highest marginal federal
tax rate with respect to net capital gain on assets held by individuals for more
than 18 months from 28% to 20%, and, for taxable years beginning after December
31, 2000 and with respect to assets held for more than 5 years, to 18%.

TAX TREATMENT OF RESIDUAL SECURITIES

OVERVIEW

Residual Securities will be considered residual interests in the Series
REMIC to which they relate. A REMIC is an entity for federal income tax purposes
consisting of a fixed pool of mortgages or other mortgage-backed assets in which
investors hold multiple classes of interests. To be treated as a REMIC, the
Trust (or one or more segregated pools of Trust assets) underlying a Series must
meet certain continuing qualification requirements, and a REMIC election must be
in effect. See "REMIC Qualification." A Series REMIC generally will be treated
as a pass-through entity for federal income tax purposes, I.E., as not subject
to entity-level tax. All interests in a Series REMIC other than the Residual
Securities must be regular interests, I.E., REMIC Regular Securities. As
described in "Tax Treatment of Regular Securities" above, a regular interest
generally is an interest whose terms are analogous to those of a debt instrument
and it generally is treated as such an instrument for federal income tax
purposes. REMIC Regular Securities will generate interest and original issue
discount deductions for the REMIC. As a residual interest, a Residual Security
represents the right to (i) stated principal and interest on such Security, if
any, and (ii) the income generated by the REMIC assets in excess of the amount
necessary to service the regular interests and pay the REMIC's expenses. In a
manner similar to that employed in the taxation of partnerships, REMIC taxable
income or loss will be determined at the REMIC level, but passed through to the
Residual Securityholders. Thus, REMIC taxable income or loss will be allocated
pro rata to the Residual Securityholders, and each Residual Securityholder will
report his share of REMIC taxable income or loss on his own federal income tax
return. Prospective investors in Residual Securities should be aware that the
obligation to account for the REMIC's income or loss will continue until all of
the REMIC Regular Securities have been retired, which may not occur until well
beyond the date on which the last payments on Residual Securities are made. In
addition, because of the way in which REMIC taxable income is calculated, a
Residual Securityholder may recognize "phantom" income (I.E., income recognized
for tax purposes in excess of income as determined under financial accounting or
economic principles) which will be matched in later years by a corresponding tax
loss or reduction in taxable income, but which could lower the yield to Residual
Securityholders due to the lower present value of such loss or reduction.

A portion of the income of Residual Securityholders in certain Series
REMICs will be treated unfavorably in three contexts: (i) it may not be offset
by current or net operating loss deductions (except in the case of Thrift
Institutions holding Residual Securities with significant value); (ii) it will
be considered unrelated business taxable income ("UBTI") to tax-exempt entities;
and (iii) it is ineligible for any statutory or treaty reduction in the 30
percent withholding tax otherwise available to a foreign Residual
Securityholder.

The concepts presented in this overview are discussed more fully below.

TAXATION OF RESIDUAL SECURITYHOLDERS

A Residual Securityholder will recognize his share of REMIC taxable income
or loss for each day during his taxable year on which he holds the Residual
Security. The amount so recognized will be characterized as ordinary income or
loss and generally will not be taxed separately to the REMIC. If a Residual
Security is transferred during a calendar quarter, REMIC taxable income or loss
for that quarter will be prorated between the transferor and the transferee on a
daily basis.

A REMIC generally determines its taxable income or loss in a manner similar
to that of an individual using a calendar year and the accrual method of
accounting. REMIC taxable income or loss will be characterized as ordinary
income or loss and will consist of the REMIC's gross income, including interest,
original issue discount, and market discount income, if any, on the REMIC's
assets (including temporary cash flow investments) premium amortization on the
REMIC Regular Securities, income from foreclosure property, and any cancellation
of indebtedness income due to the allocation of realized losses to REMIC Regular
Securities, reduced by the REMIC's

<PAGE>

deductions, including deductions for interest and original issue discount
expense on the REMIC Regular Securities, premium amortization and servicing fees
on such assets, the administration expenses of the REMIC and the REMIC Regular
Securities, any tax imposed on the REMIC's income from foreclosure property, and
any bad debt deductions with respect to the Mortgage Loans. However, the REMIC
may not take into account any items allocable to a "prohibited transaction." See
"Certain Federal Income Tax Consequences -- REMIC Securities -- REMIC-Level
Taxes." The deduction of REMIC expenses by Residual Securityholders who are
individuals is subject to certain limitations as described below in "Certain
Federal Income Tax Consequences -- REMIC Securities -- Special Considerations
for Certain Types of Investors -- Individuals and Pass-Through Entities."

The amount of the REMIC's net loss with respect to a calendar quarter that
may be deducted by a Residual Securityholder is limited to such Securityholder's
adjusted basis in the Residual Security as of the end of that quarter (or time
of disposition of the Residual Security, if earlier), determined without taking
into account the net loss for that quarter. A Residual Securityholder's basis in
its Residual Security initially is equal to the price paid for such Security.
Such basis is increased by the amount of income recognized with respect to the
Residual Security and decreased (but not below zero) by the amount of
distributions made and the amount of net losses recognized with respect to that
Security. The amount of the REMIC's net loss allocable to a Residual
Securityholder that is disallowed under the basis limitation may be carried
forward indefinitely, but may be used only to offset income with respect to the
related Residual Security. The ability of Residual Securityholders to deduct net
losses with respect to a Residual Security may be subject to additional
limitations under the Code, as to which Securityholders should consult their tax
advisors. A distribution with respect to a Residual Security is treated as a
non-taxable return of capital up to the amount of the Residual Securityholder's
adjusted basis in his Residual Security. If a distribution exceeds the adjusted
basis of the Residual Security, the excess is treated as gain from the sale of
such Residual Security.

Although the law is unclear in certain respects, a Residual Securityholder
effectively should be able to recover some or all of the basis in his Residual
Security as the REMIC recovers the basis of its assets through either the
amortization of premium on such assets or the allocation of basis to principal
payments received on such assets. The REMIC's initial aggregate basis in its
assets will equal the sum of the issue prices of all Residual Securities and
REMIC Regular Securities. In general, the issue price of a REMIC Regular
Security of a particular Class is the initial price at which a substantial
amount of the Securities of such Class is sold to the public. In the case of a
REMIC Regular Security of a Class not offered to the public, the issue price is
either the price paid by the first purchaser of such Security or the fair market
value of the property received in exchange for such Security, as appropriate.
The REMIC's aggregate basis will be allocated among its assets in proportion to
their respective fair market values.

The assets of certain Series REMICs may have bases that exceed their
principal amounts. Except as indicated in "Certain Federal Income Tax
Consequences -- REMIC Securities -- Treatment by the REMIC of Original Issue
Discount, Market Discount, and Amortizable Premium," the premium on such assets
will be amortizable under the constant yield method and the same prepayment
assumptions used in pricing the Securities. The amortized premium will reduce
the REMIC's taxable income or increase its tax loss for each year which will
offset a corresponding amount of the stated interest or other residual cash
flow, if any, allocable to the Residual Securityholders. It should be noted,
however, that the law concerning the amortization of premium on mortgage loans
and Mortgage Certificates is unclear in certain respects. If the Service were to
contend successfully that part or all of the premium on the REMIC's assets
underlying certain Series REMICs is not amortizable, the Residual
Securityholders would recover the basis attributable to the unamortizable
premium only as principal payments are received on such assets or upon the
disposition or worthlessness of their Residual Securities. The inability to
amortize part or all of the premium could give rise to timing differences
between the REMIC's income and deductions, creating phantom income. Because
phantom income arises from timing differences, it will be matched by a
corresponding loss or reduction in taxable income in later years, during which
economic or financial income will exceed REMIC taxable income. Any acceleration
of taxable income, however, could lower the yield to a Residual Securityholder,
since the present value of the tax paid on that income will exceed the present
value of the corresponding tax reduction in the later years. The amount and
timing of any phantom income are dependent upon (i) the structure of the
particular Series REMIC and (ii) the rate of prepayment on the mortgage loans
comprising or underlying the REMIC's assets and, therefore, cannot be predicted
without reference to a particular Series REMIC.

The assets of certain Series REMICs may have bases that are less than their
principal amounts. In such a case, a Residual Securityholder will recover the
basis in his Residual Security as the REMIC recovers the portion

<PAGE>

of its basis in the assets that is attributable to the residual interest. The
REMIC's basis in the assets is recovered as it is allocated to principal
payments received by the REMIC.

A portion of the REMIC's taxable income may be subject to special
treatment. That portion ("excess inclusion income") generally is any taxable
income beyond that which the Residual Securityholder would have recognized had
the Residual Security been a conventional debt instrument bearing interest at
120 percent of the applicable long-term federal rate (based on quarterly
compounding) as of the date on which the Residual Security was issued. Excess
inclusion income generally is intended to approximate phantom income and may
result in unfavorable tax consequences for certain investors. See "Certain
Federal Income Tax Consequences -- REMIC Securities -- Taxation of Residual
Securityholders Limitations on Offset or Exemption of REMIC Income" and "Certain
Federal Income Tax Consequences -- REMIC Securities -- Special Considerations
for Certain Types of Investors."

LIMITATIONS ON OFFSET OR EXEMPTION OF REMIC INCOME

Generally, a Residual Securityholder's taxable income for any taxable year
may not be less than such Securityholder's excess inclusion income for that
taxable year. Excess inclusion income is equal to the excess of REMIC taxable
income for the quarterly period for the Residual Securities over the product of
(i) 120% of the long-term applicable federal rate that would have applied to the
Residual Securities if they were debt instruments for federal income tax
purposes on the date of their issuance and (ii) the adjusted issue price of such
Residual Securities at the beginning of such quarterly period. For this purpose,
the adjusted issue price of a Residual Security at the beginning of a quarter is
the issue price of the Residual Security, increased by the amount of the daily
accruals of REMIC income for all prior quarters, decreased by any distributions
made with respect to such Residual Security prior to the beginning of such
quarterly period. If the Residual Securityholder is an organization subject to
the tax on UBTI imposed by Code Section 511, the Residual Securityholder's
excess inclusion income will be treated as UBTI. In addition, under Treasury
regulations yet to be issued, if a REIT or a RIC owns a Residual Security that
generates excess inclusion income, a pro rata portion of the dividends paid by
the REIT or the RIC generally will constitute excess inclusion income for its
shareholders. Finally, Residual Securityholders that are foreign persons will
not be entitled to any exemption from the 30% withholding tax or a reduced
treaty rate with respect to their excess inclusion income from the REMIC. See
"Certain Federal Income Tax Consequences -- REMIC Securities -- Taxation of
Certain Foreign Holders of REMIC Securities -- Residual Securities" below.

NON-RECOGNITION OF CERTAIN TRANSFERS FOR FEDERAL INCOME TAX PURPOSES

In addition to the limitations specified above, the REMIC Regulations
provide that the transfer of a "noneconomic residual interest" to a United
States person will be disregarded for tax purposes unless no significant purpose
of the transfer was to impede the assessment or collection of tax. A Residual
Security will constitute a noneconomic residual interest unless, at the time the
interest is transferred, (i) the present value of the expected future
distributions with respect to the Residual Security equals or exceeds the
product of the present value of the anticipated excess inclusion income and the
highest corporate tax rate for the year in which the transfer occurs, and (ii)
the transferor reasonably expects that the transferee will receive distributions
from the REMIC in amounts sufficient to satisfy the taxes on excess inclusion
income as they accrue. If a transfer of a residual interest is disregarded, the
transferor would continue to be treated as the owner of the Residual Security
and thus would continue to be subject to tax on its allocable portion of the net
income of the related REMIC. A significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the transfer, either
knew or should have known that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC, (I.E., the
transferor has "improper knowledge"). Under the REMIC Regulations, a transferor
is presumed not to have such improper knowledge if (i) the transferor conducted,
at the time of the transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor found that the transferee had historically paid its debts as they
came due and found no significant evidence to indicate that the transferee would
not continue to pay its debts as they come due and (ii) the transferee
represents to the transferor that it understands that, as the holder of a
noneconomic residual interest, it may incur tax liabilities in excess of any
cash flows generated by the interest and that it intends to pay the taxes
associated with holding the residual interest as they become due. A similar
limitation exists with respect to transfers of certain residual interests to
foreign investors. See "Certain Federal Income Tax Consequences -- REMIC
Securities -- Taxation of Certain Foreign Holders of REMIC Securities --
Residual Securities" herein.

<PAGE>

OWNERSHIP OF RESIDUAL INTERESTS BY DISQUALIFIED ORGANIZATIONS

The Code contains three sanctions that are designed to prevent or
discourage the direct or indirect ownership of a REMIC residual interest (such
as a Residual Security) by the United States, any state or political subdivision
thereof, any foreign government, any international organization, any agency or
instrumentality of any of the foregoing, any tax-exempt organization (other than
a farmers' cooperative described in section 521 of the Code) that is not subject
to the tax on UBTI, or any rural electrical or telephone cooperative (each a
"Disqualified Organization"). A corporation is not treated as an instrumentality
of the United States or any state or political subdivision thereof if all of its
activities are subject to tax and, with the exception of FHLMC, a majority of
its board of directors is not selected by such governmental unit.

First, the REMIC status of any REMIC created after March 31, 1988 is
dependent upon the presence of reasonable arrangements designed to prevent a
Disqualified Organization from acquiring record ownership of a residual
interest. Residual interests in Series REMICs (including Residual Securities)
are not offered for sale to Disqualified Organizations. Furthermore, (i)
residual interests in Series REMICs will be registered as to both principal and
any stated interest with the Trustee (or its agent) and transfer of a residual
interest may be effected only (A) by surrender of the old residual interest
instrument and reissuance by the Trustee of a new residual interest instrument
to the new holder or (B) through a book entry system maintained by the Trustee,
(ii) the applicable Trust Agreement will prohibit the ownership of residual
interests by Disqualified Organizations, and (iii) each residual interest
instrument will contain a legend providing notice of that prohibition.
Consequently, each Series REMIC should be considered to have made reasonable
arrangements designed to prevent the ownership of residual interests by
Disqualified Organizations.

Second, the Code imposes a one-time tax on the transferor of a residual
interest (including a Residual Security or an interest therein) to a
Disqualified Organization. The one-time tax equals the product of (i) the
present value of the total anticipated excess inclusions with respect to the
transferred residual interest for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. Under the
REMIC Regulations, the anticipated excess inclusions with respect to a
transferred residual interest must be based on (i) both actual prior prepayment
experience and the prepayment assumptions used in pricing the related REMIC's
interests and (ii) any required or permitted clean up calls or required
qualified liquidation provided for in the REMIC's organizational documents. The
present value of anticipated excess inclusions is determined using a discount
rate equal to the applicable federal rate that would apply to a debt instrument
that was issued on the date the Disqualified Organization acquired the residual
interest and whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the residual interest. Where a
transferee is acting as an agent for a Disqualified Organization, the transferee
is subject to the one-time tax. Upon the request of such transferee or the
transferor, the REMIC must furnish to the requesting party and to the Service
information sufficient to permit the computation of the present value of the
anticipated excess inclusions. For that purpose, the term "agent" includes a
broker, nominee, or other middleman. The transferor of a residual interest
(including a Residual Security or interest therein) will not be liable for the
one-time tax if the transferee furnishes to the transferor an affidavit that
states, under penalties of perjury, that the transferee is not a Disqualified
Organization, and, as of the time of the transfer, the transferor does not have
actual knowledge that such affidavit is false. The one-time tax must be paid by
the later of March 24, 1993 and April 15th of the year following the calendar
year in which the residual interest is transferred to a Disqualified
Organization. The one-time tax may be waived by the Secretary of the Treasury
if, upon discovery that a transfer is subject to the one-time tax, the
Disqualified Organization promptly disposes of the residual interest and the
transferor pays such amounts as the Secretary may require.

Third, the Code imposes an annual tax on any pass-through entity (I.E.,
RIC, REIT, common trust fund, partnership, trust, estate or cooperative
described in Code section 1381) that owns a direct or indirect interest in a
residual interest (including a Residual Security), if record ownership of an
interest in the pass-through entity is held by one or more Disqualified
Organizations. The tax imposed equals the highest corporate rate multiplied by
the share of any excess inclusion income of the pass-through entity for the
taxable year that is allocable to the interests in the pass-through entity held
by Disqualified Organizations. The same tax applies to a nominee who acquires an
interest in a residual interest (including a Residual Security) on behalf of a
Disqualified Organization. For example, a broker that holds an interest in a
Residual Security in "street name" for a Disqualified Organization is subject to
the tax. The tax due must be paid by the later of March 24, 1993 and the
fifteenth day of the fourth month following the close of the taxable year of the
pass-thru entity in which the Disqualified Organization is a record holder. Any
such tax imposed on a pass-through entity would be deductible against that
entity's ordinary

<PAGE>

income in determining the amount of its required distributions. In addition,
dividends paid by a RIC or a REIT are not considered preferential dividends
within the meaning of Section 562(c) of the Code solely because the RIC or REIT
allocates such tax expense only to the shares held by Disqualified
Organizations. A pass-through entity will not be liable for the annual tax if
the record holder of the interest in the pass-through entity furnishes to the
pass-through entity an affidavit that states, under penalties of perjury, that
the record holder is not a Disqualified Organization, and the pass-through
entity does not have actual knowledge that such affidavit is false.

The Code and the REMIC Regulations also require that reasonable
arrangements be made with respect to each REMIC to enable the REMIC to provide
the Treasury and the transferor with information necessary for the application
of the one-time tax described above. Consequently, the applicable Trust
Agreement will provide for an affiliate to perform such information services as
may be required for the application of the one-time tax. If a Residual
Securityholder transfers an interest in a Residual Security in violation of the
relevant transfer restrictions and triggers the information requirement, the
affiliate may charge such Residual Securityholder a reasonable fee for providing
the information.

SPECIAL CONSIDERATIONS FOR CERTAIN TYPES OF INVESTORS

DEALERS IN SECURITIES. Residual Securityholders that are dealers in
securities should be aware that under Treasury regulations (the "Mark-to-Market
Regulations") relating to the requirement under section 475 of the Code that
dealers in securities use mark-to-market accounting for federal income tax
purposes, dealers in securities are not permitted to mark to market any REMIC
residual interests acquired on or after January 4, 1995. Prospective purchasers
of Residual Securities should consult with their tax advisors regarding the
possible application of the Mark-to-Market Regulations.

TAX-EXEMPT ENTITIES. Any excess inclusion income with respect to a Residual
Security held by a tax-exempt entity, including a qualified profit-sharing,
pension, or other employee benefit plan, will be treated as UBTI. Although the
legislative history and statutory provisions imply otherwise, the Treasury
conceivably could take the position that, under pre-existing Code provisions,
substantially all income on a Residual Security (including non-excess inclusion
income) is to be treated as UBTI. See "Certain Federal Income Tax Consequences
- -- REMIC Securities -- Taxation of Residual Securityholders."

INDIVIDUALS AND PASS-THROUGH ENTITIES. A Residual Securityholder who is an
individual, trust, or estate will be able to deduct its allocable share of the
fees or expenses relating to servicing the assets assigned to a Trust or
administering the Series REMIC under Section 212 of the Code only to the extent
that the amount of such fees or expenses, when combined with the
Securityholder's other miscellaneous itemized deductions for the taxable year,
exceeds 2% of the holder's adjusted gross income. That same limitation will
apply to individuals, trusts, or estates that hold Residual Securities
indirectly through a grantor trust, a partnership, an S corporation, a common
trust fund, a REMIC, or a nonpublicly offered RIC. A nonpublicly offered RIC is
a RIC other than one whose shares are (i) continuously offered pursuant to a
public offering, (ii) regularly traded on an established securities market, or
(iii) held by no fewer than 500 persons at all times during the taxable year. In
addition, that limitation will apply to individuals, trusts, or estates that
hold Residual Securities through any other person (i) that is not generally
subject to federal income tax and (ii) the character of whose income may affect
the character of the income generated by that person for its owners or
beneficiaries. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount ($100,000, or $50,000 in the
case of a separate return by a married individual within the meaning of Code
Section 7703 for taxable year 1991 and adjusted for inflation each year
thereafter) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. In some cases, the amount
of additional income that would be recognized as a result of the foregoing
limitations by a Residual Securityholder who is an individual, trust, or estate
could be substantial. Non-corporate holders of REMIC Residual Securities also
should be aware that miscellaneous itemized deductions, including allocable
investment expenses attributable to a REMIC, are not deductible for purposes of
the AMT. Finally, persons holding an interest in a Residual Security indirectly
through an interest in a RIC, common trust fund or one of certain corporations
doing business as a cooperative generally will recognize a share of any excess
inclusion allocable to that Residual Security.

EMPLOYEE BENEFIT PLANS. See "Certain Federal Income Tax Consequences --
Residual Securities -- Special Considerations for Certain Types of Investors --
Tax-exempt entities" and "ERISA Considerations."

<PAGE>

REITS AND RICS. If the Residual Securityholder is a REIT and the REMIC
generates excess inclusion income, a portion of REIT dividends will be treated
as excess inclusion income for the REIT's shareholders, in a manner to be
provided by regulations. Thus, shareholders in a REIT that invests in Residual
Securities could face unfavorable treatment of a portion of their REIT dividend
income for purposes of (i) using current deductions or NOL carryovers or
carrybacks, (ii) UBTI in the case of tax-exempt shareholders, and (iii)
withholding tax in the case of foreign shareholders (see "Certain Federal Income
Tax Consequences -- Residual Securities -- Special Considerations for Certain
Types of Investors -- Foreign Residual Securityholders" below). Moreover,
because Residual Securityholders may recognize phantom income (see "Certain
Federal Income Tax Consequences -- REMIC Securities -- Taxation of Residual
Securityholders"), a REIT contemplating an investment in Residual Securities
should consider carefully the effect of any phantom income upon its ability to
meet its income distribution requirements under the Code. The same rules
regarding excess inclusion will apply to a Residual Securityholder that is a
RIC, common trust fund, or one of certain corporations doing business as a
cooperative.

A Residual Security held by a REIT will be treated as a real estate asset
for purposes of the REIT qualification requirements in the same proportion that
the REMIC's assets would be treated as real estate assets if held directly by
the REIT, and interest income derived from such Residual Security will be
treated as qualifying interest income for REIT purposes ("Qualifying REIT
Interest") to the same extent. If 95% or more of a REMIC's assets qualify as
real estate assets for REIT purposes, 100% of that REMIC's regular and residual
interests (including Residual Securities) will be treated as real estate assets
for REIT purposes, and all of the income derived from such interests will be
treated as Qualifying REIT Interest. The REMIC Regulations provide that payments
of principal and interest on Mortgage Loans that are reinvested pending
distribution to the holders of the REMIC Securities constitute real estate
assets for REIT purposes. Two REMICs that are part of a tiered structure will be
treated as one REMIC for purposes of determining the percentage of assets of
each REMIC that constitutes real estate assets. It is expected that at least 95
percent of the assets of a Series REMIC will be real estate assets throughout
the REMIC's life. The amount treated as a real estate asset in the case of a
Residual Security apparently is limited to the REIT's adjusted basis in the
Security. REITs should be aware that 100% of the interest income derived by a
REIT from a residual interest in such REMIC may not be treated as Qualifying
REIT Interest if the REMIC holds Mortgage Loans that provide for interest that
is contingent on mortgagor profits or property appreciation.

Significant uncertainty exists with respect to the treatment of a Residual
Security for purposes of the various asset composition requirements applicable
to RICs. A Residual Security should be treated as a "security," but probably
will not be considered a "government security" for purposes of section 851(b)(4)
of the Code. Moreover, it is unclear whether a Residual Security will be treated
as a "voting security" under that Code section. Finally, because the REMIC will
be treated as the "issuer" of the Residual Security for purposes of that
section, a RIC would be unable to invest more than 25% of the value of its total
assets in Residual Securities.

PARTNERSHIPS. Partners in a partnership that acquires a Residual Security
generally must take into account their allocable share of any income, including
excess inclusion income, that is produced by the Residual Security. The
partnership itself is not subject to tax on income from the Residual Security
other than excess inclusion income that is allocable to partnership interests
owned by Disqualified Organizations.

FOREIGN RESIDUAL SECURITYHOLDERS. Certain adverse tax consequences may be
associated with the holding of certain Residual Securities by a foreign person
or with the transfer of such Securities to or from a foreign person. See
"Certain Federal Income Tax Consequences -- REMIC Securities -- Taxation of
Certain Foreign Holders of REMIC Securities -- Residual Securities" herein.

THRIFT INSTITUTIONS, BANKS, AND CERTAIN OTHER FINANCIAL INSTITUTIONS.
Residual Securities will be treated as qualifying real property loans and loans
secured by interests in real property for Thrift Institutions in the same
proportion that the assets of the REMIC would be so treated. However, if 95% or
more of the assets of a given Series REMIC are qualifying assets for Thrift
Institutions, 100% of that REMIC's regular and residual interests (including
Residual Securities) would be treated as qualifying assets. In addition, the
REMIC Regulations provide that payments of principal and interest on Mortgage
Loans that are reinvested pending their distribution to the holders of the REMIC
Securities will be treated as qualifying real property loans for Thrift
Institutions. Moreover, two REMICs that are part of a tiered structure will be
treated as one REMIC for purposes of determining the percentage of assets of
each REMIC that constitutes qualifying assets for Thrift Institution purposes.
It is expected that at least 95% of the assets of any Series REMIC will be
qualifying assets for Thrift Institutions throughout the REMIC's life. The
amount

<PAGE>

of a Residual Security treated as a qualifying asset for Thrift Institutions,
however, cannot exceed the holder's adjusted basis in that Residual Security.

Generally, gain or loss arising from the sale or exchange of Residual
Securities held by certain financial institutions will give rise to ordinary
income or loss, regardless of the length of the holding period for the Residual
Securities. Those financial institutions include banks, mutual savings banks,
cooperative banks, domestic building and loan institutions, savings and loan
institutions, and similar institutions.

DISPOSITION OF RESIDUAL SECURITIES

A Residual Securityholder will recognize gain or loss on the disposition of
his Residual Security equal to the difference between the amount of proceeds (or
the fair market value of any property) received and his adjusted basis in the
Residual Security. If the holder has held the Residual Security for more than
the applicable holding period, such gain or loss generally will be characterized
as long-term capital gain or loss. In the case of banks, thrifts, and certain
other financial institutions, however, gain or loss on the disposition of a
Residual Security will be treated as ordinary gain or loss, regardless of the
length of the holding period. See "Certain Federal Income Tax Consequences --
REMIC Securities -- Special Considerations for Certain Types of Investors."

A special version of the wash sale rules will apply to dispositions of
Residual Securities. Under that version, losses on dispositions of Residual
Securities generally will be disallowed where, within six months before or after
the disposition, the seller of such Securities acquires any residual interest in
a REMIC or any interest in a taxable mortgage pool. Regulations providing for
appropriate exceptions to the application of the wash sale rules have been
authorized, but have not yet been promulgated.

LIQUIDATION OF THE REMIC

A REMIC may liquidate without the imposition of entity-level tax only in a
qualified liquidation. A liquidation is considered qualified if the REMIC (i)
adopts a plan of complete liquidation, (ii) sells all of its non-cash assets
within 90 days of the date on which it adopts the plan, and (iii) distributes in
liquidation all sale proceeds plus its cash (other than amounts retained to meet
claims against it) to Securityholders within the 90-day period. Under the REMIC
Regulations, a plan of liquidation need not be in any special form. Furthermore,
if a REMIC specifies the first day in the 90-day liquidation period in a
statement attached to its final tax return, the REMIC will be considered to have
adopted a plan of liquidation on that date.

TREATMENT BY THE REMIC OF ORIGINAL ISSUE DISCOUNT, MARKET DISCOUNT, AND
AMORTIZABLE PREMIUM

ORIGINAL ISSUE DISCOUNT. Generally, the REMIC's deductions for original
issue discount expense on its REMIC Regular Securities will be determined in the
same manner as for determining the original issue discount income of the holders
of such Securities, as described in "Certain Federal Income Tax Consequences --
REMIC Securities -- Original Issue Discount" above, without regard to the DE
MINIMIS rule described therein.

MARKET DISCOUNT. In general, the REMIC will have market discount income
with respect to its qualified mortgages if the basis of the REMIC in such
mortgages is less than the adjusted issue prices of such mortgages. The REMIC's
aggregate initial basis in its qualified mortgages (and any other assets
transferred to the REMIC on the startup day) equals the aggregate of the issue
prices of the regular and residual interests in the REMIC. That basis is
allocated among the REMIC's qualified mortgages based on their relative fair
market values. Any market discount that accrues on the REMIC's qualified
mortgages will be recognized currently as an item of REMIC ordinary income. The
amount of market discount income to be recognized in any period is determined in
a manner generally similar to that used in the determination of original issue
discount, as if the qualified mortgages had been issued (i) on the date they
were acquired by the REMIC and (ii) for a price equal to the REMIC's initial
basis in the qualified mortgages. The Pricing Prepayment Assumptions are used to
compute the yield to maturity of the REMIC's qualified mortgages.

PREMIUM. Generally, if the basis of the REMIC in its qualified mortgages
exceeds the unpaid principal balances of those mortgages the REMIC will be
considered to have acquired such mortgages at a premium equal to the amount of
such excess. As stated above, the REMIC's initial basis in its qualified
mortgages equals the aggregate of the issue prices of the regular and residual
interests in the REMIC. As described above under "Certain Federal Income Tax
Consequences -- REMIC Securities -- Amortizable Premium," a REMIC that holds a
qualified mortgage as a capital asset generally may elect under Code Section 171
to amortize premium on such mortgage

<PAGE>

under a constant interest method, to the extent such mortgages were originated,
or treated as originated, after September 27, 1985. The legislative history to
the 1986 Act indicates that, while the deduction for amortization of premium
will not be subject to the limitations on miscellaneous itemized deductions of
individuals, it will be treated as interest expense for purposes of other
provisions in the 1986 Act limiting the deductibility of interest for non-
corporate taxpayers. Because substantially all of the mortgagors on the mortgage
loans that comprise or underlie the qualified mortgages are expected to be
individuals, Section 171 will not be available for the amortization of premium
on such mortgage loans to the extent they were originated on or prior to
September 27, 1985. Such premium may be amortizable under more general
provisions and principles of federal income tax law in accordance with a
reasonable method regularly employed by the holder of such mortgage loans. The
allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Service may argue that such premium
should be allocated in a different manner, such as allocating such premium
entirely to the final payment of principal.

REMIC-LEVEL TAXES

Income from certain transactions by the REMIC, called prohibited
transactions, will not be part of the calculation of the REMIC's income or loss
that is includable in the federal income tax returns of Residual
Securityholders, but rather will be taxed directly to the REMIC at a 100% rate.
In addition, net income from one prohibited transaction may not be offset by
losses from other prohibited transactions. Prohibited transactions generally
include: (i) the disposition of qualified mortgages other than pursuant to (a)
the repurchase of a defective mortgage, (b) the substitution for a defective
mortgage within two years of the closing date, (c) a substitution for any
qualified mortgage within three months of the closing date, (d) the foreclosure,
default, or imminent default of a qualified mortgage, (e) the bankruptcy or
insolvency of the REMIC, (f) the sale of a convertible mortgage loan upon its
conversion for an amount equal to the mortgage loan's current principal balance
plus accrued but unpaid interest (and provided that certain other requirements
are met) or (g) a qualified liquidation of the REMIC; (ii) the receipt of income
from assets that are not the type of mortgages or investments that the REMIC is
permitted to hold; (iii) the receipt of compensation for services by the REMIC;
and (iv) the receipt of gain from disposition of cash-flow investments other
than pursuant to a qualified liquidation of the REMIC. A disposition of a
qualified mortgage or cash flow investment will not give rise to a prohibited
transaction, however, if the disposition was (i) required to prevent default on
a regular interest resulting from a default on one or more of the REMIC's
qualified mortgages or (ii) made to facilitate a clean-up call. The REMIC
Regulations define a clean-up call as the redemption of a class of regular
interests when, by reason of prior payments with respect to those interests, the
administrative costs associated with servicing the class outweigh the benefits
of maintaining the class. Under those regulations, the redemption of a class of
regular interests with an outstanding principal balance of no more than 10% of
the original principal balance qualifies as a clean-up call. The REMIC
Regulations also provide that the modification of a mortgage loan generally will
not be treated as a disposition of that loan if it is occasioned by a default or
a reasonably foreseeable default, an assumption of the mortgage loan, the waiver
of a due-on-sale or encumbrance clause, or the conversion of an interest rate by
a mortgagor pursuant to the terms of a convertible adjustable rate mortgage
loan.

In addition, a REMIC generally will be taxed at a 100% rate on any
contribution to the REMIC after the closing date unless such contribution is a
cash contribution that (i) takes place within the three-month period beginning
on the closing date, (ii) is made to facilitate a clean-up call (as described in
the preceding paragraph) or a qualified liquidation (as defined in "Certain
Federal Income Tax Consequences -- REMIC Securities -- Liquidation of the REMIC"
above), (iii) is a payment in the nature of a guarantee, (iv) constitutes a
contribution by the holder of the Residual Securities in the REMIC to a
qualified reserve fund, or (v) is otherwise permitted by Treasury regulations
yet to be issued. The structure and operation of Series REMICs generally will be
designed to avoid the imposition of both the 100% tax on contributions and the
100% tax on prohibited transactions.

To the extent that a REMIC derives certain types of income from foreclosure
property (generally, income relating to dealer activities of the REMIC), it will
be taxed on such income at the highest corporate income tax rate. It is not
anticipated that any Series REMIC will receive significant amounts of such
income, although the relevant law is unclear.

The organizational documents governing the REMIC Regular and Residual
Securities will be designed to prevent the imposition of the foregoing taxes on
the related Series REMIC in any material amounts. If any of the foregoing taxes
is imposed on a Series REMIC, the Trustee will seek to place the burden thereof
on the person whose action or inaction gave rise to such taxes. To the extent
that the Trustee is unsuccessful in doing so, the

<PAGE>

burden of such taxes will be borne by any outstanding subordinated Class of
Securities before it is borne by a more senior Class of Securities.

REMIC QUALIFICATION

The Trust underlying a Series (or one or more designated pools of assets
held by the Trust) will qualify under the Code as a REMIC in which the REMIC
Regular Securities and Residual Securities will constitute the "regular
interests" and "residual interests," respectively, if a REMIC election is in
effect and certain tests concerning (i) the composition of the REMIC's assets
and (ii) the nature of the Securityholders' interests in the REMIC are met on a
continuing basis.

ASSET COMPOSITION

In order for a Trust (or one or more designated pools of assets held by a
Trust) to be eligible for REMIC status, substantially all of the assets of the
Trust (or the designated pool) must consist of "qualified mortgages" and
"permitted investments" as of the close of the third month beginning after the
closing date and at all times thereafter (the "Asset Qualification Test"). A
REMIC will be deemed to satisfy the Asset Qualification Test if no more than a
DE MINIMIS amount of its assets (I.E., assets with an aggregate adjusted basis
that is less than 1 percent of the aggregate adjusted basis of all the REMIC's
assets) are assets other than qualified mortgages and permitted investments. A
qualified mortgage is any obligation that is principally secured by an interest
in real property, including a regular interest in another REMIC, that is either
transferred to the REMIC on the closing date or purchased by the REMIC pursuant
to a fixed price contract within a three-month period thereafter. A qualified
mortgage also includes a qualified replacement mortgage, which is any property
that would have been treated as a qualified mortgage if it were transferred to
the REMIC on the closing date and that is received either in exchange for a
defective mortgage within a two-year period beginning on the closing date or in
exchange for any qualified mortgage within a three-month period beginning on
that date. The Mortgage Assets of each Series REMIC will be treated as qualified
mortgages.

Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. Cash flow investments are investments of
amounts received with respect to qualified mortgages for a temporary period (not
to exceed thirteen months) before distribution to holders of regular or residual
interests in the REMIC. Qualified reserve assets are intangible investment
assets (other than REMIC residual interests) that are part of a reasonably
required reserve (a "Qualified Reserve Fund") maintained by the REMIC to provide
for full payment of expenses of the REMIC or amounts due on the regular
interests in the event of defaults or delinquencies on qualified mortgages,
lower than expected returns on cash-flow investments, or interest shortfalls on
qualified mortgages caused by prepayments of those mortgages. A Qualified
Reserve Fund will be disqualified if more than 30% of the gross income from the
assets in such fund for the year is derived from the sale of property held for
less than three months, unless such sale was required to prevent a default on
the regular interests caused by a default on one or more qualified mortgages. To
the extent that the amount in a Qualified Reserve Fund exceeds a reasonably
required amount, it must be reduced "promptly and appropriately". Foreclosure
property generally is property acquired by the REMIC in connection with the
default or imminent default of a qualified mortgage. Property so acquired by the
REMIC, however, will not be qualifying foreclosure property if the foreclosure
was anticipated at the time that the related qualified mortgage was transferred
to the REMIC. Furthermore, foreclosure property may not be held beyond the third
taxable year after the taxable year of foreclosure unless the Secretary of the
Treasury grants an extension of time within which to sell such property.

INVESTORS' INTERESTS

In addition to the foregoing asset qualification requirements, the various
interests in a REMIC also must meet certain requirements. All of the interests
in a REMIC must be issued on the closing date (or within a specified 10-day
period) and belong to either of the following: (i) one or more classes of
regular interests or (ii) a single class of residual interests on which
distributions are made pro rata. In the case of Series that include Residual
Securities, the residual interest will be represented by the Residual
Securities.

If the interest payable on any REMIC regular interest is disproportionately
high relative to the specified principal amount of the interest, that interest
may be treated, in whole or in part, as a second residual interest, which could
result in the disqualification of the REMIC. Under the REMIC Regulations,
interest payments (or similar amounts) are considered disproportionately high if
the issue price of the REMIC regular interest exceeds 125% of

<PAGE>

the specified principal amount of the regular interest. Under the REMIC
Regulations, however, interest payable at a disproportionately high rate will
not cause a REMIC Regular Security to be recharacterized as a residual interest
if interest payments on the Security consist of a specified portion of the
interest payments on qualified mortgages and such portion does not vary during
the period that the Security is outstanding. None of the REMIC Regular
Securities, will have an issue price that exceeds 125% of their respective
specified principal amounts unless interest payments on those Securities consist
of a specified nonvarying portion of the interest payments on one or more of the
REMIC's qualified mortgages.

A REMIC interest qualifies as a regular interest if (i) it is issued on the
startup day with fixed terms, (ii) it is designated as a regular interest, (iii)
it entitles its holder to a specified principal amount, and (iv) if it pays
interest, such interest either (a) constitutes a specified nonvarying portion of
the interest on one or more of the REMIC's qualified mortgages, (b) is payable
at a fixed rate with respect to the principal amount of the regular interest, or
(c) to the extent permitted under the REMIC Regulations, is payable at a
variable rate with respect to such principal amount. Pursuant to the REMIC
Regulations, the following rates are permissible variable rates for REMIC
regular interests: (i) a qualified floating rate set at a current value as
described in "Certain Federal Income Tax Consequences -- REMIC Securities --
Original Issue Discount -- Variable Rate Securities" herein, without regard to
the rules in the OID Regulations limiting the use of Caps, Floors, and Governors
with respect to such a rate, (ii) a rate equal to the highest, lowest, or
average of two or more qualified floating rates (E.G., a rate based on the
average cost of funds of one or more financial institutions), or (iii) a rate
equal to the weighted average of the interest rates on some or all of the
qualified mortgages held by the REMIC PROVIDED, HOWEVER, that the qualified
mortgages taken into account in determining the weighted average rate bear
interest at a fixed rate or a rate that would be a permissible variable rate for
a REMIC regular interest as described in this sentence. Under the REMIC
Regulations, the presence of a ceiling or floor on the interest payable on a
variable rate interest will not prevent such interest from qualifying as a
regular interest. In addition, a qualifying variable rate may be expressed as a
multiple of, or a constant number of basis points more or less than, one of the
permissible types of variable rates described above. Finally, a limitation on
the amount of interest to be paid on a variable rate regular interest based on
the total amount available for distribution is permissible, provided that it is
not designed to avoid the restrictions on qualifying variable rates. The REMIC
Regulations also provide that the specified principal amount of a REMIC regular
interest may be zero if the interest associated with such regular interest
constitutes a specified nonvarying portion of the interest on one or more of the
REMIC's qualified mortgages.

The Code requires that certain arrangements be made with respect to all
REMICs. Those arrangements, which are intended to prevent acquisitions of REMIC
residual interests (including REMIC Residual Securities) by certain
organizations that are not subject to federal income tax, are described in
"Certain Federal Income Tax Consequences -- REMIC Securities -- Taxation of
Residual Securityholders -- Ownership of Residual Interests by Disqualified
Organizations." Series REMICs will be structured to provide for such
arrangements.

CONSEQUENCES OF DISQUALIFICATION

If a Series REMIC fails to comply with one or more of the Code's ongoing
requirements for REMIC status during any taxable year, the Code provides that
its REMIC status may be lost for that year and thereafter. If REMIC status is
lost, the treatment of the former REMIC and the interests therein for federal
income tax purposes is uncertain. The former REMIC might be entitled to
treatment as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code, in which case no entity-level tax would be imposed on the former REMIC.
Alternatively, the REMIC Regular Securities may continue to be treated as debt
instruments for federal income tax purposes, but the arrangement could be
treated as a Taxable Mortgage Pool, as described in "Certain Federal Income Tax
Consequences -- REMIC Securities -- Taxable Mortgage Pools" below. If a Series
REMIC were treated as a Taxable Mortgage Pool, any residual income of the REMIC
(I.E., interest and discount income from the Mortgage Loans less interest and
original issue discount expense allocable to the REMIC Regular Securities and
any administrative expenses of the REMIC) would be subject to corporate income
tax at the Taxable Mortgage Pool level. On the other hand, the arrangement could
be treated under Treasury regulations as a separate association taxable as a
corporation and the REMIC Regular Securities would be treated as stock interests
therein, rather than debt instruments. In that case, none of the payments made
with respect to the REMIC Regular Securities would be deductible by the former
REMIC. In the latter two cases, the Residual Securities also would be treated as
stock interests in such Taxable Mortgage Pool or association, respectively. The
Code authorizes the Treasury to issue regulations that address situations where
a failure to meet the requirements for REMIC status occurs inadvertently and in
good

<PAGE>

faith. Such regulations have not yet been issued. The conference report
accompanying the 1986 Act indicates that disqualification relief may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC's income for the period of time in which the requirements
for REMIC status are not satisfied.

TAXABLE MORTGAGE POOLS

Corporate income tax can be imposed on the net income of certain entities
issuing non-REMIC debt obligations secured by real estate mortgages ("Taxable
Mortgage Pools"). Any entity other than a REMIC or a REIT will be considered to
be a Taxable Mortgage Pool if (i) substantially all of the assets of the entity
consist of debt obligations and more than 50% of such obligations consist of
real estate mortgages, (ii) such entity is the obligor under debt obligations
with two or more maturities, and (iii) under the terms of the debt obligations
on which the entity is the obligor, payments on such obligations bear a
relationship to payment on the obligations held by the entity. Furthermore, a
group of assets held by an entity can be treated as a separate Taxable Mortgage
Pool if the assets are expected to produce significant cash flow that will
support one or more of the entity's issues of debt obligations. The Seller
generally will structure offerings of non-REMIC Bonds to avoid the application
of the Taxable Mortgage Pool rules.

TAXATION OF CERTAIN FOREIGN HOLDERS OF REMIC SECURITIES

REMIC REGULAR SECURITIES

Interest, including original issue discount, paid on a REMIC Regular
Security to a nonresident alien individual, foreign corporation, or other
non-United States person ("Foreign Person") generally will be treated as
"portfolio interest" and, therefore, will not be subject to any United States
withholding tax, provided that (i) such interest is not effectively connected
with a trade or business in the United States of the Securityholder, and (ii)
the Trustee (or other person who would otherwise be required to withhold tax) is
provided with appropriate certification that the beneficial owner of the
Security is a Foreign Person ("Foreign Person Certification"). If Foreign Person
Certification is not provided, interest (including original issue discount) paid
on such a Security may be subject to either a 30 percent withholding tax or 31
percent backup withholding. See "Certain Federal Income Tax Consequences --
REMIC Securities -- Backup Withholding."

RESIDUAL SECURITIES

Amounts paid to Residual Securityholders who are Foreign Persons are
treated as interest for purposes of the 30 percent (or lower treaty rate) United
States withholding tax. Under temporary Treasury Regulations, non-excess
inclusion income received by Residual Securityholders who are Foreign Persons
generally qualifies as "portfolio interest" exempt from the 30 percent
withholding tax only to the extent that (i) the assets of the Trust REMIC are
Mortgage Certificates that are issued in registered form and (ii) the Mortgage
Loans underlying the Mortgage Certificates were originated after July 18, 1984.
Because Mortgage Loans are not issued in registered form, amounts received by
Residual Securityholders who are Foreign Persons will not be exempt from the 30
percent withholding tax to the extent such amounts relate to Mortgage Loans held
directly (rather than indirectly through Mortgage Certificates) by the related
REMIC. If the portfolio interest exemption is unavailable, such amounts
generally will be subject to United States withholding tax when paid or
otherwise distributed (or when the Residual Security is disposed of) under rules
similar to those for withholding on debt instruments that have original issue
discount. However, the Code grants the Treasury authority to issue regulations
requiring that those amounts be taken into account earlier than otherwise
provided where necessary to prevent avoidance of tax (I.E., where the Residual
Securities, as a Class, do not have significant value). Further, a Residual
Securityholder will not be entitled to any exemption from the 30 percent
withholding tax or a reduced treaty rate on excess inclusion income.

Under the REMIC Regulations, a transfer of a Residual Security that has
"tax avoidance potential" will be disregarded for federal income tax purposes if
the transferee is a Foreign Person. A Residual Security is deemed to have tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that, for each accrual of excess inclusion, the REMIC will
distribute to the transferee an amount that will equal at least 30% of the
excess inclusion, and that each such amount will be distributed no later than
the close of the calendar year following the calendar year of accrual (the "30%
Test"). A transferor of a Residual Security to a Foreign Person will be presumed
to have had a reasonable expectation that the Residual Security satisfies the
30% Test if that test would be satisfied for all Mortgage Loan prepayment rates
between 50% and 200% of the Pricing Prepayment Assumption. See "Certain Federal
Income Tax Consequences -- REMIC Securities -- Original Issue Discount," above.
If a

<PAGE>

Foreign Person transfers a Residual Security to a United States person and the
transfer, if respected, would permit avoidance of withholding tax on accrued
excess inclusion income, the transfer will be disregarded for federal income tax
purposes and distributions with respect to the Residual Security will continue
to be subject to 30% withholding as though the Foreign Person still owned the
Residual Security. Investors who are Foreign Persons should consult their own
tax advisors regarding the specific tax consequences to them of owning and
disposing of a Residual Security.

BACKUP WITHHOLDING

Under federal income tax law, a Securityholder may be subject to "backup
withholding" under certain circumstances. Backup withholding may apply to a
Securityholder who is a United States person if the Securityholder, among other
things, (i) fails to furnish his social security number or other taxpayer
identification number ("TIN") to the Trustee, (ii) furnishes the Trustee an
incorrect TIN, (iii) fails to report properly interest and dividends, or (iv)
under certain circumstances, fails to provide the Trustee or the
Securityholder's securities broker with a certified statement, signed under
penalties of perjury, that the TIN provided to the Trustee is correct and that
the Securityholder is not subject to backup withholding. Backup withholding may
apply, under certain circumstances, to a Securityholder who is a foreign person
if the Securityholder fails to provide the Trustee or the Securityholder's
securities broker with a Foreign Person Certification. Backup withholding
applies to "reportable payments," which include interest payments and principal
payments to the extent of accrued original issue discount, as well as
distributions of proceeds from the sale of REMIC Regular Securities or REMIC
Residual Securities. The backup withholding rate is 31% for payments made on or
after January 1, 1993. Backup withholding, however, does not apply to payments
on a Security made to certain exempt recipients, such as tax-exempt
organizations, and to certain Foreign Persons. Securityholders should consult
their tax advisors for additional information concerning the potential
application of backup withholding to payments received by them with respect to a
Security.

REPORTING AND TAX ADMINISTRATION

REMIC REGULAR SECURITIES

Reports will be made at least annually to holders of record of REMIC
Regular Securities (other than those with respect to whom reporting is not
required) and to the Internal Revenue Service as may be required by statute,
regulation, or administrative ruling with respect to (i) interest paid or
accrued on the Securities, (ii) original issue discount, if any, accrued on the
Securities, and (iii) information necessary to compute the accrual of any market
discount or the amortization of any premium on the Securities.

RESIDUAL SECURITIES

For purposes of federal income tax reporting and administration, a Series
REMIC generally will be treated as a partnership, and the related Residual
Securityholders as its partners. A Series REMIC will file an annual return on
Form 1066 and will be responsible for providing information to Residual
Securityholders sufficient to enable them to report properly their shares of the
REMIC's taxable income or loss, although it is anticipated that such information
actually will be supplied by the Trustee or the Master Servicer. The REMIC
Regulations require reports to be made by a REMIC to its Residual
Securityholders each calendar quarter in order to permit such Securityholders to
compute their taxable income accurately. A person that holds a Residual Security
as a nominee for another person is required to furnish those quarterly reports
to the person for whom it is a nominee within 30 days of receiving such reports.
A REMIC is required to file all such quarterly reports for a taxable year with
the Service as an attachment to the REMIC's income tax return for that year. As
required by the Code, a Series REMIC's taxable year will be the calendar year.

Residual Securityholders should be aware that their responsibilities as
holders of the residual interest in a REMIC, including the duty to account for
their shares of the REMIC's income or loss on their returns, continue for the
life of the REMIC, even after the principal and interest on their Residual
Securities have been paid in full.

Under the REMIC Regulations, a Residual Securityholder must be designated
as the REMIC's tax matters person ("TMP"). The TMP generally has responsibility
for overseeing and providing notice to the other Residual Securityholders of
certain administrative and judicial proceedings regarding the REMIC's tax
affairs, although other holders of the Residual Securities of the same Series
would be able to participate in such proceedings in appropriate circumstances.
Unless otherwise indicated in the related Prospectus Supplement, the Seller,
Master Servicer

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or an affiliate thereof either will acquire a portion of the residual interest
in each Series REMIC in order to permit it to be designated as TMP for the REMIC
or will obtain from the Residual Securityholders an irrevocable appointment to
perform the functions of the REMIC's TMP and will prepare and file the REMIC's
federal and state income tax and information returns.

Treasury regulations provide that a Holder of a Residual Security is not
required to treat items on its return consistently with their treatment on the
REMIC's return if a Holder owns 100% of the Residual Securities for the entire
calendar year. Otherwise, each Holder of a Residual Security is required to
treat items on its returns consistently with their treatment on the REMIC's
return, unless the Holder of a Residual Security either files a statement
identifying the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC. The Service may assess a
deficiency resulting from a failure to comply with the consistency requirement
without instituting an administrative proceeding at the REMIC level. A Series
REMIC typically will not register as a tax shelter pursuant to Code section 6111
because it generally will not have a net loss for any of the first five taxable
years of its existence. Any person that holds a Residual Security as a nominee
for another person may be required to furnish the REMIC, in a manner to be
provided in Treasury regulations, with the name and address of such person and
other specified information.

NON-REMIC SECURITIES

TREATMENT OF THE TRUST FOR FEDERAL INCOME TAX PURPOSES

In the case of Series with respect to which a REMIC election is not to be
made, the Trust will be classified as a grantor trust under Subpart E, Part I of
subchapter J of the Code and not as an association taxable as a corporation. For
federal income tax purposes, the owner of a Non-REMIC Security will be treated
as the beneficial owner of an appropriate portion of the principal and interest
payments (according to the characteristics of the Security in question) to be
received on the Mortgage Assets assigned to a Trust for federal income tax
purposes.

TREATMENT OF THE NON-REMIC SECURITIES FOR FEDERAL INCOME TAX PURPOSES GENERALLY

The types of Non-REMIC Securities offered in a Series may include: (i)
securities evidencing ownership interests only in the interest payments on the
Mortgage Assets assigned to a Trust, net of certain fees, ("IO Securities");
(ii) securities evidencing ownership interests in the principal, but not the
interest, payments on the Mortgage Assets ("PO Securities"); (iii) securities
evidencing ownership interests in differing percentages of both the interest
payments and the principal payments on the Mortgage Assets ("Ratio Securities");
and (iv) securities evidencing ownership in equal percentages of the principal
and interest payments on the Mortgage Assets ("Pass-Through Securities"). The
federal income tax treatment of Non-REMIC Securities other than Pass-Through
Securities ("Strip Securities") will be determined in part by Section 1286 of
the Code. Little administrative guidance has been issued under that section and,
thus, many aspects of its operation are unclear, particularly the interaction
between that section and the rules pertaining to discount and premium. Hence,
significant uncertainty exists with respect to the federal income tax treatment
of the Strip Securities, and potential investors should consult their own tax
advisors concerning such treatment.

Several Code Sections provide beneficial treatment to certain taxpayers
that invest in certain types of mortgage assets. For purposes of those Code
Sections, Pass-Through Securities will be characterized with reference to the
Mortgage Assets in the Trust, but it is not clear whether the Strip Securities
will be so characterized. The Service could take the position that the character
of the Mortgage Assets is not attributable to the Strip Securities for purposes
of those Sections. However, because the Strip Securities represent sole
ownership rights in the principal and interest payments on the Mortgage Assets,
the Strip Securities, like the Pass-Through Securities, unless otherwise
specified in the Prospectus Supplement, should be considered to represent "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
"loans secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code, and interest income attributable to the
Securities should be considered to represent "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code, to the extent that the Trust assets would qualify for such treatment.

One or more Classes of Securities may be subordinated to one or more other
Classes of Securities of the same Series. See "Description of the Securities --
Allocation of Distributions from the Mortgage Assets." In general, such
subordination should not affect the federal income tax treatment of either the
Subordinated or Senior Securities. However, to the extent indicated in
"Description of the Securities -- Allocation of Distributions from the

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Mortgage Assets" and the relevant Prospectus Supplement, holders of the
Subordinated Securities will be allocated losses that otherwise would have been
borne by the holders of the more senior Securities. Holders of the Subordinated
Securities should be able to recognize any such losses no later than the taxable
year in which they become Realized Losses. Employee benefit plans subject to
ERISA should consult their own tax advisors before purchasing any Subordinated
Security. See "ERISA Considerations" herein and in the Prospectus Supplement.

TREATMENT OF PASS-THROUGH SECURITIES

The holder of a Pass-Through Security generally will be treated as owning a
pro rata undivided interest in each of the Mortgage Assets of the Trust.
Accordingly, each Pass-Through Securityholder will be required to include in
income its pro rata share of the entire income from the Trust assets, including
interest and discount income, if any. Such Securityholder generally will be able
to deduct from its income its pro rata share of the administrative fees and
expenses incurred with respect to the Trust assets (provided that such fees and
expenses represent reasonable compensation for the services rendered). An
individual, trust, or estate that holds a Pass-Through Security directly or
through a pass-through entity will be entitled to deduct such fees and expenses
under Section 212 only to the extent that the amount of the fees and expenses,
when combined with its other miscellaneous itemized deductions for the taxable
year in question, exceeds 2% of its adjusted gross income. In addition, Code
Section 68 provides that the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount ($100,000, or $50,000 in the case of a separate return by a
married individual within the meaning of Code Section 7703 for taxable year 1991
and adjusted for inflation each year thereafter) will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the applicable amount, and
(ii) 80% of the amount of itemized deductions otherwise allowable for such
taxable year. Non-corporate holders of Pass-Through Securities also should be
aware that miscellaneous itemized deductions, including allocable investment
expenses attributable to such REMIC, are not deductible for purposes of the AMT.
Each Pass-Through Securityholder generally will determine its net income or loss
with respect to the Trust in accordance with its own method of accounting,
although income arising from original issue discount must be taken into account
under the accrual method even though the Securityholder otherwise would use the
cash receipts and disbursements method.

The Code provisions concerning original issue discount, market discount,
and amortizable premium will apply to the Trust assets. The rules regarding
discount and premium that are applicable to Non-REMIC Securities generally are
the same as those that apply to REMIC Regular Securities. See the discussions
under "Certain Federal Income Tax Consequences -- REMIC Securities -- Original
Issue Discount -- Variable Rate Securities" and "Certain Federal Income Tax
Consequences -- REMIC Securities -- Market Discount" and " -- Amortizable
Premium" above.

For instruments to which it applies, Code Section 1272(a)(6) requires the
use of an income tax accounting methodology that utilizes (i) a single constant
yield to maturity and (ii) the Pricing Prepayment Assumptions. Unlike in the
case of REMIC Regular Securities, Code Section 1272(a)(6) technically does not
apply to Non-REMIC Securities. Although the Treasury has authority to apply that
Section to securities such as the Non-REMIC Securities, it has not yet done so.
Nonetheless, unless and until administrative guidance to the contrary is
released, the Tax Administrator intends to account for the Non-REMIC Securities
as though Section 1272(a)(6) applied to them. Thus, the Tax Administrator will
account for a Class of Non-REMIC Securities in the same manner as it would
account for a Class of REMIC Regular Securities with the same terms. There can
be no assurance, however, that the Service ultimately will sanction the Tax
Administrator's position.

It is anticipated that most or all of the Mortgage Assets securing any
Series will be subject to the original issue discount, market discount, and
amortizable premium rules. Although most mortgage loans nominally are issued at
their original principal amounts, original issue discount could arise from the
payment of points or certain other origination charges by the Borrower if the
discount attributable to such payments exceeds the DE MINIMIS amount. If the
Trust contains Mortgage Assets purchased for a price below its outstanding
principal amount, Pass-Through Securityholders generally will be required to
take into account original issue discount not previously accrued to the prior
holder of such Mortgage Assets. Moreover, if such Mortgage Assets were purchased
for less than their adjusted issue prices, Pass-Through Securityholders
generally will be required to take into account market discount, unless the
amount of such market discount is DE MINIMIS under the market discount rules.
Finally, Pass-Through Securityholders generally may elect to amortize any
premium paid for Mortgage Assets over their outstanding principal amounts. For a
more complete elaboration of the rules pertaining to original issue discount,

<PAGE>

market discount, and acquisition premium, see the discussion under "Certain
Federal Income Tax Consequences -- REMIC Securities -- Tax Treatment of REMIC
Regular Securities."

TREATMENT OF STRIP SECURITIES

Many aspects of the federal income tax treatment of the Strip Securities
are uncertain. The discussion below describes the treatment that Counsel
believes is appropriate, but there can be no assurance that the Service will not
take a contrary position. Potential investors, therefore, should consult their
own tax advisors with respect to the federal income tax treatment of the Strip
Securities.

Under Section 1286 of the Code, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments on such obligation
results in the creation of "stripped coupons" with respect to the separated
rights to interest payments and "stripped bonds" with respect to the principal
and any unseparated interest payments associated with that principal. The
issuance of IO or PO Securities effects a separation of the ownership of the
interest and principal payments on some or all of the Mortgage Assets in the
Trust. In addition, the issuance of Ratio Securities effectively separates and
reallocates the proportionate ownership of the interest and principal payments
on the Mortgage Assets. Therefore, Strip Securities will be subject to Section
1286.

For federal income tax accounting purposes, section 1286 treats a stripped
bond or a stripped coupon as a new debt instrument issued (i) on the date that
the stripped interest is purchased and (ii) at a price equal to its purchase
price or, if more than one stripped interest is purchased, the share of the
purchase price allocable to such stripped interest. Each stripped bond or coupon
generally will have original issue discount equal to the excess of its stated
redemption price at maturity (or, in the case of a stripped coupon, the amount
payable on the due date of such coupon) over its issue price. Treasury
regulations under Section 1286 (the "Stripping Regulations"), however, provide
that the original issue discount on a stripped bond or stripped coupon is zero
if the amount of the original issue discount would be DE MINIMIS under rules
generally applicable to debt instruments. For purposes of the determination
whether such amount would be DE MINIMIS, (i) the number of complete years to
maturity is measured from the date the stripped bond or stripped coupon is
purchased, (ii) an aggregation approach similar to the Aggregation Rule (as
described in "Certain Federal Income Tax Consequences -- REMIC Securities --
Original Issue Discount" above) may be applied, and (iii) unstripped coupons may
be treated as stated interest with respect to the related bonds and, therefore,
may be excluded from stated redemption price at maturity in appropriate
circumstances. In addition, the Stripping Regulations provide that, in certain
circumstances, the excess of a stripped bond's stated redemption price at
maturity over its issue price is treated as market discount, rather than as
original issue discount. See "Certain Federal Income Tax Consequences --
Non-REMIC Securities -- Treatment of Strip Securities -- Determination of Income
With Respect to Strip Securities."

The application of Section 1286 to the Strip Securities is not entirely
clear under current law. That section could be interpreted as causing: (i) in
the case of an IO Security, each interest payment due on the Mortgage Assets to
be treated as a separate debt instrument; (ii) in the case of a Ratio Security
entitled to a disproportionately high share of principal, each excess principal
amount (I.E., the portion of each principal payment on such assets that exceeds
the amount to which the Ratio Securityholder would have been entitled if he had
held an undivided interest in the Mortgage Assets) to be treated as a separate
debt instrument; and (iii) in the case of a Ratio Security entitled to a
disproportionately high share of interest, each excess interest amount to be
treated as a separate debt instrument. In addition, Section 1286 requires the
purchase price of a Strip Security to be allocated among each of the rights to
payment on the Mortgage Assets to which the Securityholder is entitled that are
treated as separate debt instruments. Despite the foregoing, it may be
appropriate to treat stripped coupons and stripped bonds issued to the same
holder in connection with the same transaction as a single debt instrument,
depending on the facts and circumstances surrounding the issuance. Facts and
circumstances considered relevant for this purpose should include the likelihood
of the debt instruments trading as a unit and the difficulty of allocating the
purchase price of the unit among the individual payments. Strip Securities are
designed to trade as whole investment units and, to the extent that the
Underwriter develops a secondary market for the Strip Securities, it anticipates
that the Strip Securities would trade in such market as whole units. In
addition, because no market exists for individual payments on Mortgage Assets,
the proper allocation of the Security's purchase price to each separate payment
on the Mortgage Assets in the Trust would be difficult and burdensome to
determine. Based on those facts and circumstances, it appears that all payments
of principal and interest to which the holder of a Strip Security is entitled
should be treated as a single installment obligation. Although the OID
Regulations do not refer directly

<PAGE>

to debt instruments that are governed by Section 1286 of the Code, the
application of the OID Regulations to such instruments is consistent with the
overall statutory and regulatory scheme. Therefore, the Tax Administrator
intends to treat each Strip Security as a single debt instrument for income tax
accounting purposes.

DETERMINATION OF INCOME WITH RESPECT TO STRIP SECURITIES

For purposes of determining the amount of income on a Strip Security that
accrues in any period, the rules described above under "Certain Federal Income
Tax Consequences -- REMIC Securities -- Original Issue Discount -- Variable Rate
Securities," " -- Interested Weighted Securities and Non-VRDI Securities," and "
- -- Anti-Abuse Rule" and "Certain Federal Income Tax Consequences -- REMIC
Securities -- Market Discount" and " -- Amortizable Premium" will apply. PO
Securities, and certain Classes of Ratio Securities, will be issued at a price
that is less than their stated principal amount and thus generally will be
issued with original issue discount. A Strip Security that would meet the
definition of an Interest Weighted Security or a Weighted Average Security if it
were a REMIC Regular Security is subject to the same tax accounting
considerations applicable to the REMIC Regular Security to which it corresponds.
Thus, as described in "Certain Federal Income Tax Consequences -- REMIC
Securities -- Original Issue Discount -- Interest Weighted Securities and
Non-VRDI Securities" above, certain aspects of the tax accounting treatment of
such a Strip Security are unclear. Unless and until the Service provides
administrative guidance to the contrary, the Tax Administrator will account for
such a Strip Security in the manner described for the corresponding REMIC
Regular Security. See "Certain Federal Income Tax Consequences -- REMIC
Securities -- Original Issue Discount -- Interest Weighted Securities and
Non-VRDI Securities" above.

If a PO Security or a Ratio Security that is not considered a Contingent
Payment Obligation (an "Ordinary Ratio Security") subsequently is sold, the
purchaser apparently would be required to treat the difference between the
purchase price and the stated redemption price at maturity as original issue
discount. The holders of such securities generally will be required to include
such original issue discount in income as described in "Certain Federal Income
Tax Consequences -- REMIC Securities -- Original Issue Discount" above. PO
Securities and Ordinary Ratio Securities issued at a price less than their
stated principal amount will be treated as issued with market discount rather
than with original issue discount if, after the most recent disposition of the
related Security, either (i) the amount of original issue discount on the
Security is considered to be DE MINIMIS under the Stripping Regulations or (ii)
the annual stated rate of interest payable on the Security is no more than one
percent lower than the annual stated rate of interest payable on the Mortgage
Loan from which the Security was stripped. The holders of such Securities
generally would be required to include market discount in income in the manner
described above in "Certain Federal Income Tax Consequences -- REMIC Securities
- -- Market Discount." Some Classes of Ordinary Ratio Securities may be issued at
prices that exceed their stated principal amounts. Subject to the discussion of
Superpremium Securities in "Certain Federal Income Tax Consequences -- REMIC
Securities -- Original Issue Discount," holders of such Ordinary Ratio
Securities generally will be able to amortize that premium as described in
"Certain Federal Income Tax Consequences -- REMIC Securities -- Amortizable
Premium."

PURCHASE OF COMPLEMENTARY CLASSES OF STRIP SECURITIES

Strip Securities of certain Classes of the same Series ("Complementary
Securities"), when held in combination, may provide an aggregate economic effect
equivalent to that of a Pass-Through Security based upon the same Mortgage
Assets in the Trust. When an investor purchases Complementary Securities, it
appears that, for federal income tax purposes, each Security should be treated
separately and should be subject to the rules described above. The Service could
assert, however, that Complementary Securities held in combination should be
treated as a single pass-through type instrument, with the result that the rules
governing stripped bonds and stripped coupons under Section 1286 of the Code
would not be applied. Consequently, investors who acquire Complementary
Securities should consult their own tax advisors as to the proper treatment of
such Securities.

POSSIBLE ALTERNATIVE CHARACTERIZATIONS

The Service could assert that the Strip Securities should be characterized
for tax purposes in a manner different from that described above. For example,
the Service could contend that each Ratio Security whose interest rate is higher
than the net interest rate distributed from the Trust taking into account all of
the Securities of that Series (the "Net Series Rate") is to be treated as being
composed of two securities: (i) a Pass-Through Security of the same principal
amount as the Ratio Security but generating interest at the Net Series Rate; and
(ii) an IO Security representing the excess of the rate on the Ratio Security
over the Net Series Rate. Similarly, a Ratio

<PAGE>

Security whose interest rate is lower than the Net Series Rate could be treated
as composed of a Pass-Through Security with an interest rate equal to the Net
Series Rate and a PO Security. Alternatively, the Service could interpret
Section 1286 to require that each individual interest payment with respect to an
IO Security or a Ratio Security be treated as a separate debt instrument for
original issue discount purposes. The Service also might challenge the manner in
which original issue discount is calculated, contending that (i) the stated
maturity should be used to calculate yield on the Non-REMIC Securities, (ii) the
Contingent Payment Regulations should not apply to the IO Securities, or (iii)
the Contingent Payment Regulations should apply to the Ordinary Ratio
Securities. Given the variety of alternative treatments of the Non-REMIC
Securities and the different federal income tax consequences that could result
from each alternative, a potential investor is urged to consult its own tax
advisor regarding the proper treatment of the Non-REMIC Securities for federal
income tax purposes.

LIMITATIONS ON DEDUCTIONS WITH RESPECT TO STRIP SECURITIES

The holder of a Strip Security will be treated as owning an interest in
each of the Mortgage Assets of the related Trust and will recognize an
appropriate share of the income and expenses associated with those Mortgage
Assets. Accordingly, an individual, trust, or estate that holds a Strip Security
directly or through a pass-through entity will be subject to the same
limitations on deductions with respect to such Security as are applicable to
holders of Pass-Through Securities. See "Certain Federal Income Tax Consequences
- -- Non-REMIC Securities -- Treatment of Pass-Through Securities" above.

SALE OF A NON-REMIC SECURITY

A sale of a Non-REMIC Security prior to its maturity will result in gain or
loss equal to the difference, if any, between the amount received and the
holder's adjusted basis in such Security. The rules for computing the adjusted
basis of a Non-REMIC Security are the same as in the case of a REMIC Regular
Security. See "Certain Federal Income Tax Consequences -- REMIC Securities --
Gain or Loss on Disposition." Gain or loss from the sale or other disposition of
a Non-REMIC Security generally will be capital gain or loss to a Securityholder
if the Security is held as a "capital asset" within the meaning of Section 1221
of the Code, and will be long-term or short-term depending on whether the
Security has been held for the longterm capital gain holding period. Ordinary
income treatment, however, will apply to the extent mandated by the original
issue discount and market discount rules or if the Securityholder is a financial
institution described in Section 582 of the Code. See "Certain Federal Income
Tax Consequences -- REMIC Securities -- Gain or Loss on Disposition."

TAXATION OF CERTAIN FOREIGN HOLDERS OF NON-REMIC SECURITIES

Interest, including original issue discount, paid on a Non-REMIC Security
to a Foreign Person generally is treated as "portfolio interest" and, therefore,
is not subject to any United States tax, provided that (i) such interest is not
effectively connected with a trade or business in the United States of the
Securityholder, and (ii) the Trustee (or other person who would otherwise be
required to withhold tax) is provided with Foreign Person Certification. If
Foreign Person Certification is not provided, interest (including original issue
discount) paid on a Non-REMIC Security may be subject to either a 30 percent
withholding tax or 31 percent backup withholding.

In the case of certain Series, portfolio interest treatment will not be
available for interest paid with respect to certain classes of Non-REMIC
Securities. Interest on debt instruments issued on or before July 18, 1984 does
not qualify as "portfolio interest" and, therefore, is subject to United States
withholding tax at a 30 percent rate (or lower treaty rate, if applicable). IO
Securities and PO Securities generally are treated, and Ratio Securities
generally should be treated, as having been issued when they are sold to an
investor. In the case of Pass-Through Securities, however, the issuance date of
the Security is determined by the issuance date of the mortgage loans underlying
the Trust. Thus, to the extent that the interest received by a holder of a
Pass-Through Security is attributable to mortgage loans issued on or before July
18, 1984, such interest will be subject to the 30 percent withholding tax.
Moreover, to the extent that a Ratio Security is characterized as a pass-through
type security and the underlying mortgage loans were issued on or before July
18, 1984, interest generated by the Security may be subject to the withholding
tax. See "Certain Federal Income Tax Consequences -- Non-REMIC Securities --
Possible Alternative Characterizations." Although recently enacted tax
legislation denies portfolio interest treatment to certain types of contingent
interest, that legislation generally applies only to interest based on the
income, profits, or property values of the debtor. Accordingly, it is not
anticipated that such legislation will apply to deny portfolio interest to
Securityholders who are Foreign Persons. However, because the scope of the new
legislation is not entirely clear,

<PAGE>

investors who are Foreign Persons should consult their own tax advisors
regarding the potential application of the legislation before purchasing a
Security.

BACKUP WITHHOLDING

The application of backup withholding to Non-REMIC Securities generally is
the same as in the case of REMIC Securities. See "Certain Federal Income Tax
Consequences -- REMIC Securities -- Backup Withholding."

REPORTING AND TAX ADMINISTRATION

For purposes of reporting and tax administration, the holders of Non-REMIC
Securities will be treated in the same fashion as the holders of REMIC Regular
Securities. See "Certain Federal Income Tax Consequences -- REMIC Securities --
Reporting and Tax Administration" above.

DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.

STATE TAX CONSIDERATIONS

In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Securities. State income tax law may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state. Therefore, potential investors should consult
their own tax advisors with respect to the various state tax consequences of an
investment in the Securities.

ERISA CONSIDERATIONS

In considering an investment in a Security of the assets of an employee
benefit plan, a fiduciary should consider, among other things, (i) the purposes,
requirements, and liquidity needs of such plan; (ii) the definition of plan
assets under the Employee Retirement Income Security Act of 1974 ("ERISA"), and
the U.S. Department of Labor ("DOL") regulations regarding the definition of
plan assets; (iii) whether the investment satisfies the diversification
requirements of Section 404(a)(1)(C) of ERISA; and (iv) whether the investment
is prudent, considering the nature of an investment in a Security and the fact
that no market in which such fiduciary can sell or otherwise dispose of
Securities is expected to arise. The prudence of a particular investment must be
determined by the responsible fiduciary (usually the trustee or investment
manager) with respect to each employee benefit plan taking into account all of
the facts and circumstances of the investment.

Section 403 of ERISA requires that all plan assets be held in trust.
However, under regulations that became effective on June 17, 1982, even if the
underlying assets of an issuer of securities are deemed to be plan assets of an
employee benefit plan investing in the Securities, the "holding in trust"
requirement of Section 403 of ERISA will be satisfied if the Securities are held
in trust on behalf of the plan.

Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions that involve (i) an employee benefit plan subject to ERISA or
Section 4975 of the Code, including individual retirement accounts and certain
Keogh Plans (each a "Plan") and any party in interest or disqualified person
with respect to the Plan, and (ii) plan assets. Regulations of the DOL set forth
in 29 C.F.R. 2510.3-101 (the "Plan Asset Regulations") define "plan assets" to
include not only securities (such as the Securities) held by a Plan but also the
underlying assets of the issuer of any equity securities, unless one or more
exceptions specified in the regulations are satisfied. Thus, under the Plan
Asset Regulations, a Plan that acquires a Security could be treated for ERISA
purposes as having acquired a direct interest in some or all of the assets in
the Trust. Such treatment could cause certain transactions with respect to such
assets to be deemed prohibited transactions under ERISA and, in addition, could
result in a finding of an improper delegation by the plan fiduciary of its duty
to manage plan assets. The Plan Asset Regulations will not apply , however, if
(i) the security is registered under the Securities Exchange Act of 1934, is
freely transferrable and is part of a class of securities that is held by more
than 100 unrelated investors (the "publicly offered exception") or (ii)
immediately after the most recent acquisition of an equity interest, benefit
plan investors

<PAGE>

do not own 25% or more of the value of any class of equity interests in the
trust (the "insignificant participation exception"). Prior to purchasing a
Security, a Plan should consult with its counsel to determine whether the
publicly offered exception, the insignificant participation exception, or any
other exception to the Plan Asset Regulations would apply to the purchase of the
Security.

The DOL has issued several exemptions from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code. Those exemptions include, but are not limited to: (a) Prohibited
Transaction Class Exemption ("PTCE") 95-60, regarding investments by insurance
company general accounts; (b) PTCE 91-38, regarding investments by bank
collective investment funds; (c) PTCE 90-1, regarding investments by insurance
company pooled separate accounts; (d) PTCE 83-1, regarding acquisitions by Plans
of interests in mortgage pools; and (e) various underwriter exemptions. Before
purchasing any Securities, a Plan subject to the fiduciary responsibility
provisions of ERISA or described in Section 4975(e)(1) of the Code should
consult with its counsel to determine whether the conditions of any exemption
would be met. A purchaser of Securities should be aware, however, that certain
of the exemptions do not apply to the purchase, sale, and holding of
subordinated securities. Moreover, a purchaser of Securities also should be
aware that even if the conditions specified in one or more exemptions are met,
the scope of the relief provided by an exemption might not cover all acts that
might be construed as prohibited transactions.

Because the purchase or holding of Securities may result in unfavorable
consequences for a Plan or its fiduciaries under the Plan Asset Regulations or
the prohibited transaction provisions of ERISA or the Code, certain classes of
Securities will not be offered for sale to, and are not transferable to, any
benefit plan investor unless such benefit plan investor provides the Seller with
a "Benefit Plan Opinion." A Benefit Plan Opinion is an opinion of Counsel
satisfactory to the Seller (and upon which the Seller, Trustee, TMP, and their
respective counsel are authorized to rely) that the ownership of a Security of
such class (A) will not be treated as a prohibited transaction under Sections
406 and 407 of ERISA or Section 4975 of the Code and (B) either (i) will not
cause any of the assets in the Trust (or in the case of a REMIC Series, the
REMIC's assets) to be regarded as plan assets for purposes of the Plan Asset
Regulation or (ii) will not give rise to any fiduciary duty under ERISA on the
part of the Seller, the Trustee, the Master Servicer or the TMP. The Prospectus
Supplement for an affected Series will indicate which classes of Securities are
restricted in their availability to benefit plan investors.

In considering the possible application of the Plan Asset Regulations,
potential Plan investors should be aware that, with respect to certain Series
and under certain circumstances, the Seller may have a right to redeem the
Securities of such Series, at its option. In such cases, the Seller's purpose
for the retention of such a redemption right is to enable the Seller to
terminate its administration obligations with respect to the Securities in the
event such obligations become unprofitable. The Seller undertakes no obligation
to consider the interests of Securityholders in deciding whether to exercise any
redemption right.

As described in "Certain Federal Income Tax Consequences," an investment in
a Security may produce unrelated business taxable income for tax-exempt employee
benefit plans. Potential investors also should be aware that ERISA requires that
the assets of a Plan be valued at their fair market value as of the close of the
plan year. Neither the Seller nor the Underwriters currently intend to provide
valuations to Securityholders. Plans contemplating the acquisition of Securities
should consult their legal advisors with respect to the ERISA, Code, and other
consequences of an investment in the Securities.

LEGAL INVESTMENT

Unless otherwise specified in the Prospectus Supplement for a Series, the
Securities will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), and, as such, will
be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, life insurance companies and pension funds) created pursuant to or
existing under the laws of the United States or of any state whose authorized
investments are subject to state regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for any such entities. Pursuant to SMMEA, a number of states enacted
legislation, on or before the October 3, 1991 cutoff for such enactments,
limiting to varying extents the ability of certain entities to invest in
"mortgage related securities,"

<PAGE>

in most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in the Securities only to the extent
provided in such legislation.

SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in the Securities
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in the Securities; and national banks may
purchase the Securities for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. (section
mark) 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.

Securities that do not constitute "mortgage-related securities"under SMMEA
will require registration, qualification or an exemption under applicable state
securities laws and may not be "legal investments" to the same extent as
"mortgage-related securities."

There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase certain types of the Securities or
to purchase Securities representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Securities constitute legal
investments for such investors.

PLAN OF DISTRIBUTION

The Seller may sell the Securities offered hereby either directly or
through one or more underwriters or underwriting syndicates. The Prospectus
Supplement or Supplements for each Series will set forth the terms of the
offering of such Series and of each Class within such Series, including the name
or names of the Underwriters, the proceeds to and their use by the Seller, and
either the initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
the Securities will be determined.

The Securities of a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all the Securities of a
Series described in the related Prospectus Supplement, if any are purchased. If
Securities of a Series are offered other than through Underwriters, the related
Prospectus Supplement will contain information regarding the nature of such
offering and any agreements to be entered into between the Seller and purchasers
of Securities of such Series.

The place and time of delivery for the Securities of a Series in respect of
which this Prospectus is delivered will be set forth in the Prospectus
Supplement.

Securities issued pursuant to the Registration Statement of which this
prospectus is a part may be reregistered and reissued pursuant to the
Registration Statement when they are reacquired by the Seller and deposited by
the Seller to be part of the estate of a new trust. In addition, other
securities issued by affiliates of the Seller or persons unaffiliated with the
Seller may be acquired by the Seller and deposited to new trusts to be part of
the trust estate for securities issued pursuant to this prospectus and a related
prospectus supplement.

<PAGE>

GLOSSARY

There follows an abbreviated definition of certain capitalized terms used
in this Prospectus. The Trust Agreement may contain a more complete definition
of certain of the terms defined herein and reference should be made to the Trust
Agreement for a more complete definition of all such terms.

"ACCOUNTING DATE" means the last day of each month.

"ACCRETION CLASS" means a Capital Appreciation Class or a Compound Interest
Class of Securities.

"ACT" means the Garn - St. Germain Depository Institutions Act of 1982.

"ADDITIONAL ASSETS" means mortgage loans, mortgage certificates, or other
assets pledged to secure the timely payment of principal and interest on
Mortgage Loans, the projected cash flow on which is to be used to make required
distributions on the related Series.

"APPROVED SALE" means a sale of the Mortgaged Premises approved under a
Pool Insurance Policy.

"ARM LOANS" means mortgage loans providing for periodic adjustments to the
rate of interest thereon to equal the sum (which may be rounded) of a Gross
Margin and an Index.

"ASSET PROCEEDS ACCOUNT" means the separate custodial account established
and maintained by the Trustee in which payments with respect to the Mortgage
Assets will be deposited for the benefit of the holders of Securities of a
Series.

"ASSET VALUE" means, unless otherwise specified in the related Prospectus
Supplement, an amount generally equal to the lesser of (A) the present value of
the stream of remaining regularly scheduled monthly payments of principal and
interest on the Mortgage Assets (after taking into account charges for
servicing, administration, insurance and related matters) discounted at the
Asset Value Discount Rate for such Series, or at such other rate, or rates,
specified in the related Prospectus Supplement, or (B) the Unpaid Principal
Balance of such Mortgage Assets times the Asset Value Percentage.

"ASSET VALUE DISCOUNT RATE" means, for each item of Mortgage Assets in the
Trust for a Series, the rate specified in the related Trust Agreement for
purposes of calculation of Asset Value.

"ASSET VALUE PERCENTAGE" means the percentage limitation that, based upon
scheduled net payments on the Mortgage Assets included in the Trust for a
Series, will assure the availability of sufficient funds to make timely
distributions of principal and interest on the Securities in the event of
substantial principal prepayments on the Mortgage Assets.

"AVAILABLE DISTRIBUTION" means the amount of cash received by the Trustee
and available for distribution to the Securityholders on any Distribution Date.

"BALLOON PAYMENT MORTGAGE LOANS" are Mortgage Loans as to which only
interest is payable until maturity and Mortgage Loans that provide for
amortization of the principal amount over a certain period, although all
remaining principal is due at the end of a shorter period.

"BI-WEEKLY MORTGAGE LOAN" means a Mortgage Loan that provides for Borrower
payments to be made on a bi-weekly basis.

"BOOK-ENTRY SECURITIES" means a Class of Securities held in book-entry form
through a Depository.

"BORROWER" means the individual or individuals obligated to repay a
Mortgage Loan or the obligor(s) under a Contract.

"BUY-DOWN MORTGAGE LOAN" means a Mortgage Loan as to which funds have been
provided to reduce the Borrower's Monthly Payments during the early period of
such Mortgage Loan.

"CAPITAL APPRECIATION SECURITY" means a Class of Securities upon which
interest is accrued and is compounded and added to the principal thereof
periodically, but which is not entitled to distributions of principal or
interest until the Final Scheduled Distribution Date of such Class or the
termination of the related Trust or under such other circumstances as may be
specified in the Prospectus Supplement.

<PAGE>

"CERCLA" means the Federal Comprehensive Environmental Response
Compensation and Liability Act, as amended.

"CLASS" means, with respect to any Series, a group of Securities evidencing
the same ownership interest in the Available Distribution or such other
classification as may be set forth in the related Prospectus Supplement.

"CLOSING DATE" means the date on which a Series is closed and the
Securities issued.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMPANION CLASS" means a Class of Securities structured to receive
principal payments on the underlying Mortgage Loans to the extent those
principal payments exceed the principal payments scheduled to be made on a PAC
Class of Securities.

"COMPOUND INTEREST CLASS" means a Class of Securities upon which interest
is accrued and is compounded and added to the principal thereof periodically,
but which is not entitled to distributions of principal or interest until a
specified date or specified Classes of the same Series have received their final
distributions.

"CONTRACTS" means retail installment sales contracts secured by liens on
Manufactured Homes.

"CONVERTED MORTGAGE LOAN" means any ARM Loan on which the Note Rate is
converted from an adjustable rate of interest to a fixed rate of interest and
any Mortgage Loan on which the Note Rate is converted from a fixed rate of
interest to a lower fixed rate of interest.

"COOPERATIVE" means a corporation owned by tenant-stockholders who, through
the ownership of stock, shares or membership certificates in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units.

"COOPERATIVE DWELLING" means an individual housing unit in a building owned
by a cooperative.

"COOPERATIVE LOAN" means a housing loan made with respect to a Cooperative
Dwelling and secured by an assignment by the borrower (tenant-stockholder) of a
security interest in shares issued by the applicable Cooperative.

"COOPERATIVE NOTE" means the note associated with a Cooperative Loan.

"CPR" means Constant Prepayment Rate prepayment model.

"CREDIT LOSSES" means Realized Losses on the Mortgage Loans less Fraud
Losses, Special Hazard Losses and Mortgagor Bankruptcy Losses.

"CURRENT INTEREST CLASS" means any Class of Securities that bears interest,
other than Accretion Securities.

"CUSTODIAL ACCOUNT" means one or more accounts into which a Servicer
deposits collections on the Mortgage Assets.

"CUT-OFF DATE" means the date specified in the related Prospectus
Supplement after which payments on the Mortgage Assets are for the account of
the Securityholders.

"DEPOSITORY" means the record owner of any Book-Entry Security. Initially,
the Depository for any Book-Entry Security is expected to be the DTC.

"DISCOUNT SECURITIES" means any Class of Securities which has a purchase
price less than the aggregate amount of principal allocable to such Class.

"DISTRIBUTION DATE" means that date each month, or other periodic dates,
commencing on the date specified in the Prospectus Supplement for a Series of
Securities, on which the Available Distribution will be paid by the Trustee to
holders of Securities of such Series.

"DTC" means the Depository Trust Company.

"DUE DATE" means each date that payments are due on the Mortgage Assets.

"DUE PERIOD" means, as to any Distribution Date, the period during which
regularly scheduled payments of principal and interest on the Mortgage Assets
are to be passed through to the Securityholders.

<PAGE>

"ELIGIBLE ASSETS" means assets approved under the Trust Agreement.

"ESCROW ACCOUNT" means accounts into which a Borrower will deposit amounts
sufficient to pay taxes, assessments, insurance premiums and other comparable
items.

"ERISA" the Employee Retirement Income Security Act of 1974, as amended.

"FHA" means the United States Federal Housing Administration.

"FHA LOANS" means Mortgage Loans insured by the FHA.

"FHLMC" means the Federal Home Loan Mortgage Corporation.

"FHLMC CERTIFICATES" means mortgage participation certificates issued by
FHLMC either in certificated or book-entry form.

"FINAL SCHEDULED DISTRIBUTION DATE" means, with respect to any Security,
the date specified in such Security as the fixed date on which the final
distribution on such Security is due and distributable.

"FINANCE COMPANY" means a limited-purpose financing company providing a
portion of the Assets for a Series.

"FINANCIAL INTERMEDIARY" means a brokerage firm, bank, thrift institution
or other financial intermediary that maintains a beneficial owner's account with
respect to Book-Entry Securities.

"FNMA" means the Federal National Mortgage Association.

"FNMA CERTIFICATES" means guaranteed mortgage pass-through certificates
issued by FNMA either in certificated or book-entry form.

"FRAUD LOSS LIMIT" means the amount, if any, determined in accordance with
formula set forth in the Prospectus Supplement for a Series.

"FRAUD LOSSES" means losses on Mortgage Loans resulting from a Mortgage
Insurer's failure to pay a claim with respect to a Mortgage Loan on the grounds
of fraud, dishonesty or misrepresentation in the application for insurance.

"FULL COVERAGE INSURANCE POLICIES" means, with respect to any Mortgage
Loan, a Primary Mortgage Insurance Policy covering the full amount of such
Mortgage Loan.

"FUNDING AGREEMENT" means an agreement between the Seller and a Finance
Company pursuant to which (i) the Seller will lend a portion of the net proceeds
of the sale of the Securities to such Finance Company, (ii) the Finance Company
will pledge Mortgage Assets owned by it to secure the loan from the Seller, and
(iii) the Seller will assign the Funding Agreement, as so secured, to the Trust
for a Series.

"GEM LOAN" means a fixed-rate fully amortizing Mortgage Loan providing for
(1) monthly payments during the first year that are at least sufficient to pay
interest due on the Mortgage Loan, and (2) an increase in such monthly payments
in subsequent years at a predetermined rate generally not more than a specified
percentage of the Monthly Payments during the preceding year.

"GNMA" means the Government National Mortgage Association.

"GNMA CERTIFICATES" means fully modified pass-through mortgage-backed
certificates guaranteed by GNMA.

"GPM LOAN" means a Mortgage Loan providing for graduated payments during a
portion of its term which are or may be less than the amount of interest due on
the Unpaid Principal Balance.

"GROSS MARGIN" means with respect to each ARM Loan, the fixed percentage
specified in the related note that is added to the Index on each Interest
Adjustment Date to determine the new Note Rate for such ARM Loan.

"GUARANTY" means a non-recourse guaranty of the timely payment of principal
and interest on a Mortgage Loan.

"HUD" means the United States Department of Housing and Urban Development.

<PAGE>

"INDEX" means with respect to each ARM Loan, the index specified in the
related note that is added to the Gross Margin on each Interest Adjustment Date
to determine the new Note Rate for such ARM Loan.

"INSURANCE POLICIES" means any Mortgage Insurance Policy, Standard Hazard
Insurance Policy, Special Hazard Insurance Policy, Mortgagor Bankruptcy
Insurance Policy or other insurance policy with respect to the Mortgage Loans in
a Trust.

"INSURANCE PROCEEDS" means the proceeds paid by any insurer pursuant to an
Insurance Policy covering a Mortgage Loan included in the Trust for a Series.

"INTEREST ADJUSTMENT DATE" means with respect to each ARM Loan, the date on
which the Note Rate changes in accordance with the terms of the related note.

"INVESTMENT GRADE" means a rating assigned by at least one Rating Agency to
a Class or Series of Securities that is in one of its four highest rating
categories (without regard to plus or minus gradations).

"JST" means JST Company, L.L.C., a Virginia limited liability company.

"LEVEL PAYMENT MORTGAGE LOAN" means a Mortgage Loan that provides for the
payment of principal and interest in level Monthly Payments over the term of the
Mortgage Loan, with interest at a fixed rate computed on the declining principal
balance of the Mortgage Loan.

"LIBOR" means London Interbank Offered Rate.

"LIQUIDATED LOAN" means any defaulted Mortgage Loan that is finally
liquidated, through foreclosure sale, disposition of the related Mortgaged
Premises if acquired by deed in lieu of foreclosure, or otherwise.

"LIQUIDATION PROCEEDS" means the proceeds of any Mortgage Assets liquidated
as a result of defaults by Borrowers, together with proceeds of insurance or
guarantees with respect to such Mortgage Assets.

"LOAN" means a Mortgage Loan or a Contract.

"LOSS" means the amount of a claim for benefits under a Primary Mortgage
Insurance Policy.

"MANUFACTURED HOMES" means the unit of manufactured housing used as a
single-family residence and having a minimum living space of 400 square feet and
a minimum width of over 102 inches, together with all accessions thereto
securing the obligations of the Borrower under a Contract.

"MASTER SERVICER" means the entity, if any, specified in the Prospectus
Supplement for a Series that will perform certain administrative functions with
respect to a Trust and, with respect to a Trust that includes Mortgage Loans,
that will administer and supervise the performance by Servicers of their duties
and responsibilities under Servicing Agreements in respect of such Mortgage
Loans.

"MASTER SERVICER CUSTODIAL ACCOUNT" means an account maintained by the
Master SERVICER into which the Master Servicer deposits collections on the
Mortgage Assets received from a Servicer.

"MONTHLY PAYMENTS" means scheduled payments of principal and interest due
each month on any Mortgage Loan.

"MORTGAGE ASSETS" means Mortgage Certificates and Loans assigned to the
Trust for a Series or pledged to secure Funding Agreements assigned to the Trust
for a Series.

"MORTGAGE CERTIFICATES" means GNMA Certificates, FNMA Certificates, FHLMC
Certificates and other mortgage pass-through certificates and collateralized
mortgage obligations either in certificated or book-entry form.

"MORTGAGE INSURANCE POLICIES" means Primary Mortgage Insurance Policies and
Pool Insurance Policies.

"MORTGAGE INSURER" means any insurance company or other entity that
provides Mortgage Insurance Policies with respect to a Series.

"MORTGAGE LOANS" means mortgage loans, FHA Loans, VA Loans and RHS Loans,
all secured by mortgages or deeds of trust on Mortgaged Premises, including
Cooperative Loans.

"MORTGAGE POOL" means a segregated pool of mortgage loans.

<PAGE>

"MORTGAGED PREMISES" means land and improvements thereon subject to the
lien of a mortgage or deed of trust.

"MORTGAGOR BANKRUPTCY INSURANCE" means an insurance policy or a fund
providing coverage to holders of Securities of a Series against losses resulting
from the bankruptcy of a Borrower.

"MORTGAGOR BANKRUPTCY LOSSES" means losses resulting from any court ordered
reduction in the valuation of Mortgaged Premises or changes in the repayment
terms of a Mortgage Loan in conjunction with a bankruptcy proceeding of a
Borrower or otherwise.

"MORTGAGOR BANKRUPTCY LOSS LIMIT" means the amount, if any, specified in
the Prospectus Supplement for a Series.

"NET RATE" means, with respect to any item of Mortgage Assets, the Note
Rate thereon minus applicable servicing, administration and guarantee fees and
insurance premiums, plus Reinvestment Income thereon if payable to
Securityholders, expressed as a percentage of the applicable Mortgage Asset.

"NOTE" means any promissory note with respect to a Mortgage Loan secured by
a lien on real property and the improvements thereon.

"NOTE RATE" means, with respect to a Mortgage Loan, the interest rate per
annum required to be paid by a Borrower under the terms of the related mortgage
note, and with respect to a Mortgage Certificate, the interest rate per annum
payable under the terms thereof.

"NY UCC" means the New York Uniform Commercial Code.

"OFFERED SECURITIES" means the Securities actually offered pursuant to a
Prospectus Supplement appended to this Prospectus.

"ORIGINATOR" means a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution that originates a
Mortgage Loan.

"PAC CLASS" means a Class of Securities structured to receive fixed
principal payments on designated Distribution Dates so long as principal
payments on the underlying Mortgage Loans occur within a range of constant
percentages of the prepayment assumption made as set forth in the related
Prospectus Supplement.

"PAM" means any prepayment assumption model other than a SMM or CPR.

"PARTICIPANT" means each person who was the owner of Mortgage Assets
acquired by the Seller for assignment and transfer to the Trust for a Series of
Securities or each person who owns Mortgage Assets pledged to secure a Funding
Agreement that has been assigned and transferred to the Trust for a Series.

"PASS-THROUGH RATE" means the applicable fixed, variable or adjustable rate
or rates, specified or described in the Prospectus Supplement for a Series, at
which net interest payments on the Mortgage Assets in the related Trust are
passed through on each Class of the Securities, other than Spread Securities,
entitled to interest distributions.

"PERIODIC RATE CAP" means with respect to each ARM Loan, the limit on the
percentage increase or decrease that may be made on the Note Rate on any
Interest Adjustment Date.

"PERMITTED INVESTMENTS" means those investments permitted under the
applicable Trust Agreement, as described generally under "The Trusts --
Investment of Funds."

"POOL INSURER" means any insurance company or other person that provides
Policy for a Series.

"POOL INSURANCE POLICY" means an insurance policy to cover any loss
(subject to certain limitations) by reason of default by the Borrowers of the
Mortgage Loans included in the Trust for a Series to the extent not covered by
any Primary Mortgage Insurance Policy.

"PREMIUM SECURITIES" means any Class of Securities which has a purchase
price greater than or equal to the aggregate amount of Principal allocable to
such Class.

"PREPAYMENT INTEREST SHORTFALL" results when a Mortgage Loan is prepaid in
full and interest to month-end is not paid by the Servicer.

<PAGE>

"PREPAYMENT PERIOD" means, as to any Distribution Date, the period during
which any prepayments or other unscheduled payments of principal and interest
paid with respect to the Mortgage Assets are to be passed through to the
Securityholders.

"PRIMARY MORTGAGE INSURANCE POLICY" means an insurance policy covering a
Mortgage Loan included in the Trust for a Series against loss of the insured
portion of the Unpaid Principal Balance of the covered Mortgage Loan together
with accrued and unpaid interest thereon.

"PRINCIPAL ONLY CLASS" means a Class of Securities sold at a significant
discount to its principal amount because no interest is paid on that Class of
Securities.

"RATING AGENCY" means with respect to any Series, each
nationally-recognized statistical rating agency or organization that initially
rates the Series at the request of the Seller and is identified in the related
Prospectus Supplement.

"REALIZED INTEREST SHORTFALL" results when a Mortgage Loan is foreclosed
and the Liquidation Proceeds from the sale of the Mortgaged Premises are
insufficient to pay accrued but unpaid interest on such Mortgage Loan.

"REALIZED LOSSES" means generally (i) the aggregate amount of losses
realized on Liquidated Loans, (ii) Fraud Losses, (ii) Mortgagor Bankruptcy
Losses and (iv) Special Hazard Losses.

"REDEMPTION DATE" means any Distribution Date on which the Securities of a
Series are redeemed.

"REINVESTMENT INCOME" means, with respect to a Series, the income received
on the investment of funds securing such Series at the Assumed Reinvestment
Rate.

"REIT" means a real estate investment trust as defined in the Code.

"REMIC" means a real estate mortgage investment conduit as defined in the
Code.

"REMIC REGULAR SECURITIES" means any Class of Securities of a Series
constituting regular interests in a REMIC.

"REMITTANCE DATE" means the date each month on which the Servicer, or the
Master Servicer to the extent that it directly services the Mortgage Loans, must
remit certain collections with respect to such Mortgage Loans to the Servicer
Custodial Account or the Asset Proceeds Account.

"RESERVE FUND" means, as to a Series, a fund established by the Seller that
may be used by the Trustee to make any required distributions of principal or
interest on the Securities of that Series to the extent funds are not otherwise
available.

"RESIDUAL SECURITIES" mean any Class of Securities of a Series constituting
the residual interests in a REMIC.

"RHS" means the United States Rural Housing Service.

"RHS LOANS" mean Mortgage Loans insured or guaranteed by RHS.

"RIC" means a regulated investment company as defined in the Code.

"RIM LOAN" means a Mortgage Loan where, subject to certain conditions, the
Borrower has a one-time option to reduce the interest rate payable with respect
to such Mortgage Loan.

"SCHEDULED PRINCIPAL BALANCE" means, with respect to any Mortgage Asset or
Contract as of any date of determination, an amount equal to the scheduled
principal balance thereof as of the Cut-off Date, reduced by the principal
portion of all Monthly Payments due on or before such determination date,
whether or not received, and by all amounts allocable to unscheduled principal
payments received on or before such determination date and as further reduced to
the extent that any Realized Loss has occurred with respect to such Mortgage
Asset or Contract on or before such determination date.

"SECURITYHOLDER" means the holder or beneficial owner of a Security.

"SECURITY INSTRUMENT" means any mortgage or deed of trust securing payment
of any Note with respect to a Mortgage Loan.

<PAGE>

"SECURITIES" means mortgage participation securities, issuable in Series,
each of which may include one or more Classes evidencing beneficial ownership
interests in the portion of the Available Distribution specified as allocable to
each Class in the Prospectus Supplement relating to such Series.

"SECURITIES ADMINISTRATOR" means the entity, if any, specified in the
Prospectus Supplement for a Series that will perform certain administrative
functions with respect to a Trust.

"SELLER" means Financial Asset Securitization, Inc., a Virginia
corporation.

"SENIOR SECURITIES" means any Class of Securities of a Series entitled to
preferential rights to distributions on the Mortgage Assets and other assets
assigned or pledged to the Trust for such Series.

"SERIES" means a group of Securities issued by a separate Trust.

"SERVICER CUSTODIAL ACCOUNT" means a custodial account into which the
Servicer may remit collections with respect to Mortgage Loans.

"SERVICERS" means those entities that perform the servicing functions with
respect to Mortgage Loans included in the Trust for a Series.

"SHORTFALL" means Soldiers' and Sailors' Shortfall, Realized Interest
Shortfall, Prepayment Interest Shortfall and any temporary delinquency in the
payment of interest on a Mortgage Loan.

"SMM" means Single Monthly Mortality prepayment model.

"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.

"SOLDIERS' AND SAILORS' SHORTFALL" results from application of the
Soldiers' and Sailors' Civil Relief Act of 1940, whereby members of the Armed
Forces who entered into mortgages prior to the commencement of military service
may have the interest rate on those mortgage loans reduced and capped for the
duration of military service.

"SPECIAL HAZARD FUND" or "SPECIAL HAZARD INSURANCE POLICY" means an
insurance policy or fund providing coverage to the holders of Securities of a
Series against (i) loss by reason of damage to Mortgaged Premises caused by
certain hazards not covered by any Standard Hazard Insurance Policy and (ii)
loss from partial damage to the Mortgaged Premises caused by reason of the
application of the coinsurance clause contained in any Standard Hazard Insurance
Policy.

"SPECIAL HAZARD LOSS LIMIT" means the amount, if any, determined in
accordance with the formula set forth in the Prospectus Supplement for a Series.

"SPECIAL HAZARD LOSSES" means Losses on Mortgage Loans arising out of
damage to the Mortgaged Premises that are not covered by Standard Hazard
Insurance Policies, but do not include losses caused by war, nuclear reaction,
nuclear or atomic weapons, insurrection or normal wear and tear.

"SPREAD CLASS" or "STRIP CLASS" means a Class of Securities sold at a
significant premium to its principal amount because it represents the right to
receive interest at a rate significantly higher than prevailing rates.

"SPREAD RATE" or "STRIP RATE" means the rate of interest payable on a
Spread Class or Strip Class respectively.

"STANDARD HAZARD INSURANCE POLICY" means an insurance policy covering a
Mortgage Loan included in the Trust for a Series against loss by reason of fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion.

"STANDARD TERMS" means Standard Terms to Trust Agreement.

"SUBORDINATED SECURITIES" means any Class of Securities of a Series as to
which the right to receive distributions with respect to the Mortgage Assets and
other assets assigned to the Trust for such Series is subordinate to the rights
of holders of Senior Securities of such Series to the extent specified in the
related Prospectus Supplement.

"SUBORDINATION AMOUNT" means, if applicable to a Series including a Class
of Subordinated Securities, the amount of Realized Losses to be borne solely by
the holders of such Subordinated Securities as specified in the related
Prospectus Supplement.

<PAGE>

"TRUST" means the pool of Mortgage Assets and other assets specified in the
Prospectus Supplement for each Series of Securities that are assigned and
transferred to a trust or trusts in the name of the Trustee for the benefit of
the holders of Securities of such Series.

"TRUST AGREEMENT" means the trust agreement between the Seller, the Master
Servicer and the Trustee with respect to a single Series of Securities defining
certain rights of holders of such Securities and certain rights and duties of
the Trustee with respect to such Securities, incorporating by reference therein
Standard Terms to Trust Agreement.

"TRUSTEE" means the bank, trust company or other fiduciary named in the
Prospectus Supplement for each Series of Securities as the trustee under the
Trust Agreement pursuant to which such Series is issued.

"UCC" means the Uniform Commercial Code.

"UNPAID PRINCIPAL BALANCE" means the unpaid principal amount of the
Mortgage Assets or any part thereof as of a date of determination.

"VA" means the United States Veterans Administration.

"VA LOANS" means Mortgage Loans partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended.

"VOTING RIGHTS" means the allocation of voting rights among the Classes of
a Series as provided in the Prospectus Supplement.

"1996 LENDER LIABILITY ACT" means the Asset Conservation, Lender Liability
and Deposit Insurance Act of 1996.

<PAGE>

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR
PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR PROSPECTUS SUPPLEMENT, NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.

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TABLE OF CONTENTS

PAGE
----
PROSPECTUS SUPPLEMENT
Table of Contents.............................. S- 1
Summary of Terms............................... S- 2
Risk Factors................................... S-11
Description of the Securities.................. S-12
Description of the Pooled Certificates......... S-15
The Reserve Fund............................... S-22
Yield and Prepayment Considerations............ S-22
Pooling Agreement.............................. S-27
Federal Income Tax Considerations.............. S-30
ERISA Considerations........................... S-32
Legal Investment............................... S-32
Underwriting................................... S-32
Legal Matters.................................. S-33
Ratings........................................ S-33
Index of Terms................................. S-34
Annex 1........................................ S-35
Annex 2........................................ S-38
PROSPECTUS
Additional Information......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Prospectus Summary............................. 3
Risk Factors................................... 9
Description of the Securities.................. 13
Maturity and Prepayment
Considerations............................... 16
Yield Considerations........................... 18
The Trusts..................................... 18
Sale and Servicing of the
Mortgage Loans............................... 31
The Trust Agreements........................... 37
Certain Legal Aspects of
Mortgage Loans............................... 40
The Seller..................................... 48
Use of Proceeds................................ 49
Certain Federal Income Tax Consequences........ 49
State Tax Considerations....................... 78
ERISA Considerations........................... 78
Legal Investment............................... 79
Plan of Distribution........................... 80
Glossary....................................... 81

UNTIL FEBRUARY 23, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
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.

$55,196,194

FASI

MORTGAGE
PARTICIPATION SECURITIES,
SERIES 1997-2

FINANCIAL ASSET
SECURITIZATION, INC.
SELLER

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PROSPECTUS SUPPLEMENT
---------------------------------------

BEAR, STEARNS & CO. INC.

NOVEMBER 25, 1997

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