FILED PURSUANT TO RULE 424(B)(5)
FILE NO. 33-78368
PROSPECTUS SUPPLEMENT TO
PROSPECTUS DATED APRIL 25, 1997
$174,023,033
(Approximate)
Financial Asset Securitization, Inc.
Seller
North American Mortgage Company
Master Servicer
Mortgage Participation Securities, Series 1997-NAMC 1
Initial Security Pass-Through
Class Principal Balance(1) Rate
Class FXA-1 Securities $ 15,058,594 6.90%
Class FXA-2 Securities $ 20,500,000 7.75%
Class FXA-3 Securities $ 11,623,696 7.35%
Class FXA-4 Securities $ 13,200,375 7.50%
Class FXA-5 Securities $ 5,125,000 7.75%
Class FXA-6 Securities $ 4,001,000 7.75%
Class FXA-7 Securities $ 1,000,000 7.75%
Class FXA-8 Securities $ 27,665,835 Variable Rate(3)
Class FXA-9 Securities (2) Variable Rate(4)
Class FXP Securities $ 81,389 (5)
Class FXS Securities (2) 7.75%
Class A-1 Securities $ 43,444,391 7.75%
Class A-2 Securities $ 6,962,000 7.75%
Class A-3 Securities $ 1,951,000 7.75%
Class A-4 Securities $ 13,700,000 7.75%
Class P Securities $ 1,087,731 (5)
Class S Securities (2) 7.75%
Class B-1 Securities $ 5,190,778 7.75%
Class B-2 Securities $ 2,111,503 7.75%
Class B-3 Securities $ 1,319,689 7.75%
Class R Securities $ 25 7.75%
Class RP Securities $ 25 7.75%
Footnotes appear on next page.
The Series 1997-NAMC 1 Mortgage Participation Securities (the
"Securities") will consist of the following Classes: (i) Class FXA-1, Class
FXA-2, Class FXA-3, Class FXA-4, Class FXA-5, Class FXA-6, Class FXA-7, Class
FXA-8 and Class FXA-9 (the "Class FXA Securities"), (ii) Class A-1, Class A-2,
Class A-3 and Class A-4 (the "Class A Securities"), (iii) Class FXP and Class P
(the "Principal Only Securities"), (iv) Class FXS and Class S (the "Strip
Securities"), (v) Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and
Class B-6 (the "Subordinate Securities") and (vi) Class R and Class RP (the
"Residual Securities"). The Class FXA, Class FXS and Class FXP Securities are
sometimes referred to as the "Class FX Securities" and the Class A, Class S,
Class P and Residual Securities are sometimes referred to as the "Class II
Securities." The Class FXA Securities, Class A Securities, Strip Securities,
Principal Only Securities and Residual Securities are sometimes referred to as
the "Senior Securities." The Class FXA-2 and Class A-4 Securities are sometimes
referred to as the "Lockout Securities." The Class FXA-8 and Class FXA-9
Securities are sometimes referred to as the "LIBOR Securities" or the "Floater
Securities" and the Class FXA-9 Securities are sometimes referred to as the
"Inverse Floater Securities." Only the Senior Securities and the Class B-1,
Class B-2 and Class B-3 Securities (collectively, the "Offered Securities") are
offered hereby. The Class B-4, Class B-5 and Class B-6 Securities are not
offered hereby.
(Continued on next page)
<PAGE>
------------------------
THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
DLJMCI, THE LOAN SELLER, THE MASTER SERVICER, THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE SECURITIES NOR THE UNDERLYING MORTGAGE LOANS WILL
BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY THE SELLER, DLJMCI, THE
LOAN SELLER, THE MASTER SERVICER, THE TRUSTEE,
THE UNDERWRITER OR ANY OF THEIR RESPECTIVE
AFFILIATES.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
Prospective investors should consider, among other things, the factors
set forth under "Risk Factors," commencing at Page 9 of the Prospectus and at
Page S-24 of this Prospectus Supplement.
-----------------
The Offered Securities are being offered by the Underwriter from time
to time to the public in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. Proceeds to the Seller are expected to be
approximately $176,719,078 plus accrued interest on the Offered Securities from
April 1, 1997 (or April 25, 1997 with respect to the Floater Securities), before
deducting issuance expenses payable by the Seller, which are estimated to be
approximately $250,000.
The Offered Securities are offered when, as and if delivered to and
accepted by the Underwriter, and subject to various conditions, including the
Underwriter's right to reject orders in whole or in part. It is expected that
the Senior Securities (other than the Strip, Principal Only and Residual
Securities) will be delivered in book-entry form through the Same Day Funds
Settlement System of The Depository Trust Company as further discussed herein,
and that the Principal Only, Strip, Residual, Class B-1, Class B-2 and Class B-3
Securities will be delivered in registered and certificated form at the office
of Donaldson, Lufkin & Jenrette Securities Corporation, New York, New York, on
or about April 30, 1997 against payment therefor in immediately available funds.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
The date of this Prospectus Supplement is April 25, 1997.
S-1
<PAGE>
(Cover continued from previous page)
(1) Approximate. The initial Security Principal Balances are
subject to adjustment as described herein.
(2) Based on the related Notional Amount, as described herein.
(3) The initial Pass-Through Rate for the Class FXA-8 Securities
will be 5.95% per annum. Thereafter, the Pass-Through Rate on
the Class FXA-8 Securities will be a per annum rate equal to
LIBOR (as defined herein) plus 0.45%, subject to a minimum
Pass-Through Rate of 0.45% per annum and a maximum
Pass-Through Rate of 8.50% per annum.
(4) The initial Pass-Through Rate for the Class FXA-9 Securities
will be 2.55% per annum. Thereafter, the Pass-Through Rate on
the Class FXA-9 Securities will be a per annum rate equal to
8.05% minus LIBOR, subject to a minimum Pass-Through Rate of
0.00% per annum and a maximum Pass-Through Rate of 8.05% per
annum.
(5) Will not be entitled to distributions of interest.
The Securities will, in the aggregate, evidence the entire beneficial
ownership interest in a trust (the "Trust") consisting primarily of a pool (the
"Mortgage Pool") of certain conventional, fixed-rate, fully-amortizing, one- to
four-family, first lien mortgage loans (the "Mortgage Loans") to be deposited by
Financial Asset Securitization, Inc. ("FASI" or the "Seller") into the Trust for
the benefit of the Securityholders. The Mortgage Loans will have an aggregate
principal balance as of April 1, 1997 (the "Cut-off Date") of approximately
$175,958,578 and will have original terms to maturity from the due dates of
their first scheduled monthly payment of interest and principal of not more than
30 years. The Mortgage Pool consists of two groups (each, a "Mortgage Loan
Group"): "Group I" or the "Group I Mortgage Loans" generally consists of
Mortgage Loans underwritten pursuant to the Flex Extra Program (as further
described herein) of North American Mortgage Company (the "Loan Seller" or
"NAMC"), with an aggregate principal balance as of the Cut-off Date of
approximately $104,527,543, and "Group II" or the "Group II Mortgage Loans"
generally consists of Mortgage Loans underwritten pursuant to the Loan Seller's
Gold Flex Program (as further described herein), with an aggregate principal
balance as of the Cut-off Date of approximately $71,431,034. All of the Mortgage
Loans were originated by the Loan Seller and will have been sold by the Loan
Seller to DLJ Mortgage Capital, Inc. ("DLJMCI"), an affiliate of the
Underwriter, on or prior to the date of initial issuance of the Securities (the
"Closing Date"), and will be acquired by the Seller from DLJMCI on the Closing
Date. The Mortgage Loans will be serviced by North American Mortgage Company (in
such capacity, the "Master Servicer"). Certain characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool."
The primary credit support for the Senior Securities is the
subordination of the Subordinate Securities. In addition, the Senior Securities,
other than the Lockout Securities, will be allocated all or a disproportionately
large share of the principal prepayments received on the related Mortgage Loan
Group for a period of time, as described herein. The primary credit support for
the Class B-1, Class B-2 and Class B-3 Securities is the subordination of the
Classes of Subordinate Securities with higher numerical designations. The rights
of the holders of the Class B-1 Securities to receive distributions with respect
to the Mortgage Loans will be subordinate to the rights of the holders of the
Senior Securities, the rights of the holders of the Class B-2 Securities to
receive distributions with respect to the Mortgage Loans will be subordinate to
the rights of the holders of the Senior and Class B-1 Securities, and the rights
of the holders of the Class B-3 Securities to receive distributions with respect
to the Mortgage Loans will be subordinate to the rights of the holders of the
Senior, Class B-1 and Class B-2 Securities, in each case as and to the extent
described herein. Realized Losses on the Mortgage Loans will be allocated first
to the Non-Offered Subordinate Securities in reverse numerical order, second to
the Offered Subordinated Securities in reverse numerical order, and then to the
Senior Securities, in each case as described herein. The weighted average lives
of and yield on the Class B-1, Class B-2 and Class B-3 Securities will be
sensitive to Realized Losses on the Mortgage Loans. Similarly, following the
reduction of the aggregate Security Principal Balance (as defined herein) of the
Subordinate Securities to zero, the yield to maturity on the Senior Securities
will be extremely sensitive to all Realized Losses on the Mortgage Loans in the
related Mortgage Loan Group and certain Realized Losses on the
S-2
<PAGE>
Mortgage Loans in the other Mortgage Loan Group. See "Description of the
Securities -- Subordination and Allocation of Losses" herein.
Distributions on the Offered Securities will be made on the 25th day of
each month or, if such day is not a business day, then on the next succeeding
business day, commencing in May 1997 (each, a "Distribution Date"). As more
fully described herein, interest distributions on the Offered Securities will be
based on the Security Principal Balances thereof (or on the applicable Notional
Amount (as defined herein), in the case of the Strip Securities and the Class
FXA-9 Securities) and the related Pass-Through Rates. In general, interest
distributions to the Class FX Securities will be made from the Group I Mortgage
Loans, interest distributions to the Class II Securities will be made from the
Group II Mortgage Loans and interest distributions to the Subordinate Securities
will be made from the Mortgage Pool. The Pass-Through Rates on the Offered
Securities (other than the Floater Securities) will be equal to the rates
specified above. The initial Pass-Through Rate for the Class FXA-8 Securities
will be 5.95% per annum. Thereafter, the Pass-Through Rate on the Class FXA-8
Securities will be a per annum rate equal to LIBOR (as defined herein) plus
0.45%, subject to a minimum Pass-Through Rate of 0.45% per annum and a maximum
Pass-Through Rate of 8.50%. The initial Pass-Through Rate for the Class FXA-9
Securities will be 2.55% per annum. Thereafter, the Pass-Through Rate on the
Class FXA-9 Securities will be a per annum rate equal to 8.05% minus LIBOR,
subject to a minimum Pass-Through Rate of 0.00% and a maximum Pass-Through Rate
of 8.05% per annum. The Principal Only Securities will not be entitled to
receive distributions of interest. Distributions of principal will be allocated
among the Securities (other than the Strip Securities and Class FXA-9
Securities) as described herein. In general, distributions of principal on the
Class FX Securities will be made from the Group I Mortgage Loans, distributions
of principal on the Class II Securities will be made from the Group II Mortgage
Loans and distributions of principal on the Subordinate Securities will be made
from the Mortgage Pool. No principal prepayments on the Mortgage Loans will be
distributed to the holders of the Lockout Securities prior to the Distribution
Date occurring in May 2002, unless in either case the Class FXA Securities
(other than the Class FXA-2 Securities), with respect to prepayments from Group
I Mortgage Loans, or the Class A Securities (other than the Class A-4
Securities), with respect to prepayments from the Group II Mortgage Loans, have
been retired. No principal prepayments on the Mortgage Loans will be distributed
to the holders of the Subordinate Securities prior to the Distribution Date
occurring in May 2002 and no principal prepayments on the Mortgage Loans will be
distributed to the holders of the Subordinate Securities thereafter if certain
criteria relating to the extent of available subordination and the delinquency
and loss performance of the Mortgage Loans described herein are not satisfied,
unless in either case the Class FXA Securities, with respect to prepayments from
Group I Mortgage Loans, or the Class A Securities, with respect to prepayments
from the Group II Mortgage Loans, have been retired.
The yield to maturity on the Class FXA-8 Securities will be sensitive
to fluctuations in the level of LIBOR, and the yield to maturity on the Inverse
Floater Securities will be extremely sensitive to fluctuations in the level of
LIBOR, as defined herein, and to the rate of principal prepayments on the Group
I Mortgage Loans. Prospective investors should fully consider the risks
associated with an investment in the Inverse Floater Securities, including the
possibility that if the rate of principal prepayments on the Group I Mortgage
Loans is rapid or if the level of LIBOR is high, investors in the Inverse
Floater Securities may not fully recoup their initial investments. In addition,
in the event of very high principal prepayments of Group II Mortgage Loans and
the reduction of the Security Principal Balance of the Class A Securities to
zero, subject to certain limitations set forth herein, all principal (after
giving effect to the distribution to the Class P Securities) of the Group II
Mortgage Loans will be distributed to the Class FXA Securities, and therefore,
may adversely affect the yield of the Inverse Floater Securities. See "Certain
Yield and Prepayment Considerations" and "Yield Considerations with respect to
the Strip Securities, Inverse Floater Securities and Principal Only Securities"
herein.
The yields to maturity on the Strip Securities and Principal Only
Securities will be extremely sensitive to the level of prepayments on the
Mortgage Loans in the related Loan Group. The interest payable to the Class FXS
Securities is based on the weighted average of the Stripped Interest Rates (as
defined herein) of the Group I Premium Rate Mortgage Loans (as defined herein).
The interest payable to the Class S Securities is based on the weighted average
of the Stripped Interest Rates of the Group II Premium Rate Mortgage Loans (as
defined herein). Therefore, the yield to maturity on the Strip Securities will
generally decrease as a result of faster than expected prepayments on such Group
I or Group II Premium Rate Mortgage Loans. Prospective investors should fully
consider the risks associated with an investment in the Strip Securities,
including the possibility that if the rate of prepayments on the Group I or
Group II Premium Rate Mortgage Loans is rapid, such investors may not fully
S-3
<PAGE>
recoup their initial investments. Moreover, because the principal payable with
respect to the Class FXP Securities (which are entitled to receive distributions
of principal only) is derived from Group I Mortgage Loans with Net Rates that
are lower than 7.75% per annum, the yield to maturity on the Class FXP
Securities will be adversely affected by slower than expected prepayments of
Group I Mortgage Loans with Net Rates less than 7.75% per annum. Because the
principal payable with respect to the Class P Securities (which are entitled to
receive distributions of principal only) is derived from Group II Mortgage Loans
with Net Rates that are lower than 7.75% per annum, the yield to maturity on the
Class P Securities will be adversely affected by slower than expected
prepayments of Group II Mortgage Loans with Net Rates less than 7.75% per annum.
Because the interest payable on the Class FXS and Class S Securities and the
principal distributable to the Class FXP and Class P Securities are in part
derived from different groups of Mortgage Loans within the related Mortgage Loan
Group, it is possible that faster than expected prepayments with respect to the
Strip Securities may occur at the same time as slower than expected prepayments
with respect to the Principal Only Securities. See "Certain Yield and Prepayment
Considerations" and "Yield Considerations with respect to the Strip Securities,
Inverse Floater Securities and Principal Only Securities" herein.
It is a condition to the issuance of the Offered Securities that each
Class of Class FXA Securities (other than the Class FXA-9 Securities), Residual
Securities and Class A Securities be rated "AAA" by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Fitch Investors
Service, Inc. ("Fitch") and by Duff & Phelps Credit Rating Co. ("DCR," and
together with S&P and Fitch, the "Rating Agencies"), that the Strip Securities,
Principal Only Securities and Class FXA-9 Securities be rated "AAA" by DCR and
Fitch and "AAAr" by S&P, that the Class B-1 Securities be rated not lower than
"AA" by DCR, that the Class B-2 Securities be rated not lower than "A" by DCR,
and that the Class B-3 Securities be rated not lower than "BBB" by DCR.
Elections will be made to treat the assets comprising the Trust as two
separate "real estate mortgage investment conduits" (each a "REMIC" and,
respectively, the "Issuing REMIC" and the "Pooling REMIC") for federal income
tax purposes. As described more fully herein and in the Prospectus, the
Securities (other than the Residual Securities) will be designated as "regular
interests" in the Issuing REMIC. See "Certain Federal Income Tax Consequences"
in the Prospectus. The Class R and Class RP Securities will be designated as the
"residual interest" in the Issuing REMIC and the Pooling REMIC, respectively.
The Holders of the Residual Securities will be required to report on their
federal income tax returns any net income or loss of the related REMIC and may
experience a highly negative after-tax return. See "Special Tax Considerations"
herein.
The Class B-2 and Class B-3 Securities will not constitute
"mortgage-related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), because those Classes are not rated in one of
the two highest rating categories by a nationally-recognized rating agency.
The Subordinate and Residual Securities may not be transferred to Plans
(as defined herein), persons acting on behalf of Plans, or persons using assets
of Plans (each of the foregoing, a "Plan Investor"), except as described herein.
Each purchaser of a Subordinate or Residual Security will be deemed to
represent, by virtue of its acquisition thereof, that it is not a Plan Investor,
unless such purchaser provides a Benefit Plan Opinion or, in the case of an
insurance company, a representation letter as described herein. The Subordinate
and Residual Securities may not be suitable investments for Plan Investors and
are not offered to Plan Investors. See "ERISA Considerations" herein and in the
Prospectus. The Residual Securities are subject to additional transfer
restrictions. See "Restrictions on Purchase and Transfer of the Residual
Securities" herein.
There is currently no secondary market for the Offered Securities.
Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriter") intends
to make a secondary market in the Offered Securities but has no obligation to do
so. There can be no assurance that a secondary market for the Offered Securities
will develop or, if it does develop, that it will continue or will provide
investors with a sufficient level of liquidity. The Offered Securities will not
be listed on any securities exchange. See "Risk Factors" in the Prospectus.
S-4
<PAGE>
The information set forth herein under "Summary of Prospectus
Supplement -- The Mortgage Pool," "Description of the Mortgage Pool," "The Loan
Seller" and "Pooling and Servicing Agreement -- The Master Servicer" has been
provided by the Loan Seller. No representation is made by FASI, DLJMCI, the
Underwriter, the Trustee or any of their respective affiliates as to the
accuracy or completeness of the information provided by the Loan Seller.
-----------
No person is authorized in connection with this offering to give any
information or to make any representation about FASI, DLJMCI, the Loan Seller,
the Master Servicer, the Trustee, the Offered Securities, or any other matter
referred to herein, other than those contained in this Prospectus Supplement or
the Prospectus. If any other information or representation is given or made,
such information or representation may not be relied upon as having been
authorized by FASI, DLJMCI, the Loan Seller, the Master Servicer, or the
Trustee. This Prospectus Supplement and the Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy securities other than the
Offered Securities, or an offer to sell or a solicitation of an offer to buy
securities in any jurisdiction or to any person to whom it is unlawful to make
such offer in such jurisdiction. Neither the delivery of this Prospectus
Supplement or the Prospectus nor any sale 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 their respective dates.
-----------
The Offered Securities offered by this Prospectus Supplement will be
part of a separate series of Securities being offered by FASI pursuant to its
Prospectus dated April 25, 1997, of which this Prospectus Supplement is a part
and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering that is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
-----------
REPORTS TO SECURITYHOLDERS
With respect to the Senior Securities (other than the Strip, Principal
Only and Residual Securities), unless and until definitive certificates are
issued, monthly reports containing information concerning the Trust and prepared
by the Trustee, will be sent to Cede & Co. ("Cede"), as nominee of DTC and
registered holder of such Senior Securities, pursuant to the Pooling and
Servicing Agreement (as defined herein). Such reports may be available to
beneficial owners of Senior Securities (other than the Strip, Principal Only and
Residual Securities) in accordance with the regulations and procedures of DTC.
-----------
The Seller will file with the Commission certain materials relating to
the Mortgage Pool and the Offered Securities on Form 8-K. Such materials were
prepared by the Underwriter for certain prospective investors, and the
information included in such materials is subject to and is superseded by, the
information set forth in this Prospectus Supplement.
S-5
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF PROSPECTUS SUPPLEMENT............................................S-7
RISK FACTORS...............................................................S-24
General...............................................................S-24
Subordination.........................................................S-25
Geographic Concentration of the Mortgaged
Premises.........................................................S-26
Recent Developments...................................................S-26
Limited Recourse......................................................S-26
The Status of the Mortgage Loans in the Event
of Insolvency....................................................S-27
DESCRIPTION OF THE MORTGAGE POOL...........................................S-27
General...............................................................S-27
Underwriting Standards................................................S-42
ADDITIONAL INFORMATION.....................................................S-46
THE LOAN SELLER............................................................S-46
DESCRIPTION OF THE SECURITIES..............................................S-47
General...............................................................S-47
Book-Entry Registration...............................................S-48
Available Distribution................................................S-49
Priority of Distributions.............................................S-49
Distributions of Interest.............................................S-53
LIBOR.................................................................S-54
Distributions of Principal............................................S-56
Subordination and Allocation of Losses................................S-62
Optional Purchase of Delinquent Mortgage
Loans............................................................S-64
Advances..............................................................S-64
Example of Distributions..............................................S-65
CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS........................................................S-67
General...............................................................S-67
Weighted Average Life.................................................S-69
YIELD CONSIDERATIONS WITH RESPECT
TO THE STRIP SECURITIES, INVERSE
FLOATER SECURITIES AND PRINCIPAL
ONLY SECURITIES.......................................................S-71
POOLING AND SERVICING AGREEMENT............................................S-76
General...............................................................S-76
Assignment of Mortgage Loans..........................................S-76
The Master Servicer...................................................S-77
Servicing and Other Compensation and
Payment of Expenses..............................................S-79
Voting Rights.........................................................S-79
Events of Default.....................................................S-80
Rights Upon Event of Default..........................................S-80
Limitation on Resignation of the Master
Servicer.........................................................S-81
Termination...........................................................S-81
The Trustee...........................................................S-81
SPECIAL TAX CONSIDERATIONS.................................................S-82
RESTRICTIONS ON PURCHASE AND
TRANSFER OF THE RESIDUAL
SECURITIES............................................................S-84
UNDERWRITING...............................................................S-84
USE OF PROCEEDS............................................................S-85
LEGAL OPINIONS.............................................................S-85
RATINGS....................................................................S-85
LEGAL INVESTMENT...........................................................S-86
ERISA CONSIDERATIONS.......................................................S-87
INDEX OF TERMS.............................................................S-89
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
S-6
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used herein and not otherwise defined herein
or in the Prospectus shall have the meanings assigned in the "Glossary"
contained in the Prospectus. References to the "Trust Agreement" in the
Prospectus shall be deemed to refer to the "Pooling and Servicing Agreement" in
this Prospectus Supplement. The Index of Terms appearing at the end of the
Prospectus Supplement indicates the page number on which each definition in the
Prospective Supplement appears.
<TABLE>
<S> <C>
Title of Securities............................ Mortgage Participation Securities, Series 1997-NAMC 1.
Seller......................................... Financial Asset Securitization, Inc. ("FASI" or the "Seller"). See
"The Seller" in the Prospectus.
Master Servicer................................ North American Mortgage Company ("NAMC" or the "Master
Servicer"). Notwithstanding anything to the contrary in the
Prospectus, the Master Servicer will provide all customary
servicing functions with respect to the Mortgage Loans pursuant to
the Pooling and Servicing Agreement. The Master Servicer will
be entitled to: (i) a monthly fee with respect to each Mortgage
Loan payable on each Distribution Date in an amount equal to one-
twelfth of 0.25% per annum (the "Servicing Fee Rate") multiplied
by the Scheduled Principal Balance of such Mortgage Loan on the
first day of the Due Period relating to such Distribution Date, (ii)
any interest or investment income earned on funds deposited in the
Custodial Account for the period ending on such Distribution Date,
and (iii) additional servicing compensation described herein. See
"Pooling and Servicing Agreement-- The Master Servicer" herein.
Trustee........................................ The First National Bank of Chicago (the "Trustee"). See "Pooling
and Servicing Agreement-- The Trustee" herein. The Trustee
will also perform securities administration functions to the Trust
under the Pooling and Servicing Agreement, including, among
other things, monitoring the amounts on deposit in the Security
Account and other accounts established in accordance with the
Pooling and Servicing Agreement and maintained with the Trustee,
calculating amounts distributable to Securityholders on each
Distribution Date, the preparation of and distribution to
Securityholders of monthly statements and other reports as
provided in the Pooling and Servicing Agreement, and filing
periodic reports with the Securities and Exchange Commission.
Loan Seller.................................... North American Mortgage Company (the "Loan Seller"). See
"The Loan Seller" herein.
DLJMCI......................................... DLJ Mortgage Capital, Inc. ("DLJMCI").
Cut-off Date................................... April 1, 1997.
Closing Date................................... On or about April 30, 1997.
Distribution Date.............................. The 25th day of each month, or if such day is not a business day,
then the next succeeding business day, beginning in May 1997
(each, a "Distribution Date").
</TABLE>
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<TABLE>
<S> <C>
Record Date.................................... With respect to each Distribution Date, the "Record Date" is the
last business day of the month preceding the month in which such
Distribution Date occurs.
Due Period..................................... With respect to each Distribution Date, the "Due Period" is the
period commencing on the second day of the month preceding the
month in which such Distribution Date occurs and ending on the
first day of the month in which such Distribution Date occurs.
Prepayment Period.............................. With respect to each Distribution Date and (i) each prepayment in
full, the related "Prepayment Period" commences on the 15th day
of the month preceding the month in which such Distribution Date
occurs and ends on the 14th day of the month in which such
Distribution Date occurs, and (ii) each partial prepayment, the
"Prepayment Period" is the month preceding the month in which
such Distribution Date occurs.
Designations:
Class FXA Securities....................... Class FXA-1, Class FXA-2, Class FXA-3, Class FXA-4, Class
FXA-5, Class FXA-6, Class FXA-7, Class FXA-8 and Class FXA-
9 Securities.
Class A Securities......................... Class A-1, Class A-2, Class A-3 and Class A-4 Securities.
Principal Only Securities.................. Class FXP and Class P Securities.
Strip Securities........................... Class FXS and Class S Securities.
Class FX Securities........................ Class FXA, Class FXP and Class FXS Securities.
Class II Securities........................ Class A, Class P, Class S and Residual Securities.
Subordinate Securities..................... Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class
B-6 Securities.
Residual Securities........................ Class R and Class RP Securities.
Senior Securities.......................... Class FXA, Class A, Principal Only, Strip and Residual Securities.
Floater or LIBOR Securities................ Class FXA-8 and Class FXA-9 Securities.
Inverse Floater Securities................. Class FXA-9 Securities.
Lockout Securities......................... Class FXA-2 and Class A-4 Securities.
Offered Securities......................... Senior, Class B-1, Class B-2 and Class B-3 Securities.
Offered Subordinate Securities............. Class B-1, Class B-2 and Class B-3 Securities.
Non-Offered Subordinate
Securities................................. Class B-4, Class B-5 and Class B-6 Securities.
</TABLE>
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Denominations.................................. The Class FXA-5, Class FXA-6, Class FXA-7, Class A-2, Class
A-3 and Principal Only Securities will be issued in minimum
denominations of $1,000 and integral multiples of $1,000 in excess
thereof. The Class FXA-1, FXA-2, FXA-3, FXA-4, Class FXA-
8, Class A-1, Class A-4 and Offered Subordinate Securities will be
issued in minimum denominations of $250,000 and integral
multiples of $1,000 in excess thereof. The Residual Securities will
be issued in minimum denominations of $10 and integral multiples
of $1.00 in excess thereof. The Strip Securities and Class FXA-9
Securities will be issued in minimum initial Notional Amounts (as
defined herein) of $1.00 and integral multiples of $1.00 in excess
thereof. In addition, one Security of each Class may be issued
evidencing the sum of an authorized denomination thereof and the
remainder of the aggregate initial Security Principal Balance of
such Class.
Registration................................... Each Class of Class FXA Securities and Class A Securities will be
Book-Entry Securities represented by a Security registered in the
name of Cede & Co., as nominee of DTC. No person acquiring
a beneficial interest in a Book-Entry Security (each, a "Beneficial
Owner") will be entitled to receive a Security in certificated form,
except under the limited circumstances described herein. For each
Security held by DTC, DTC will effect payments to and transfers
of the related Book-Entry Securities among the respective
Beneficial Owners by means of its electronic recordkeeping
services, acting through organizations that participate in DTC.
This arrangement may result in certain delays in receipt of
distributions by Beneficial Owners and may restrict a Beneficial
Owner's ability to pledge the Securities beneficially owned by it.
All references in this Prospectus Supplement to the Book-Entry
Securities reflect the rights of Beneficial Owners of such Securities
only as such rights may be exercised through DTC and its
participating organizations so long as such Securities are held by
DTC. The Strip, Principal Only, Residual and Offered
Subordinate Securities will be offered in registered and certificated
form. See "Description of the Securities-- Book-Entry
Registration" herein and "Description of the Securities-- Book-
Entry Procedures" in the Prospectus.
The Mortgage Pool.............................. Based solely upon information provided by the Loan Seller, the
Mortgage Loans will have the characteristics described herein.
The Trust will consist primarily of a pool (the "Mortgage Pool")
of conventional, fixed-rate, fully-amortizing mortgage loans (the
"Mortgage Loans") with an aggregate principal balance as of the
Cut-off Date of approximately $175,958,578. The Mortgage
Loans are secured by first liens on fee simple and leasehold
interests in one- to four-family residential real properties (each, a
"Mortgaged Premises") and have original terms to maturity from
the due dates of their first scheduled monthly payment of interest
and principal (each such payment, a "Monthly Payment") of not
more than 30 years. All of the Mortgage Loans have Monthly
Payments due on the first day of each month.
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The Group I Mortgage Loans will consist of a pool of
approximately 700 Mortgage Loans with an aggregate principal
balance as of the Cut-off Date of approximately $104,527,543
(representing approximately 59.40% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date), with Note
Rates ranging from approximately 7.625% to 10.000% per annum.
The Group II Mortgage Loans will consist of a pool of
approximately 238 Mortgage Loans with an aggregate principal
balance as of the Cut-off Date of approximately $71,431,034
(representing approximately 40.60% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date), with Note
Rates ranging from approximately 7.375% to 9.000% per annum.
See "Description of the Mortgage Pool" herein for a further
description of certain characteristics of the Mortgage Loans.
As of the Cut-off Date, none of the Mortgage Loans were thirty
days or more delinquent in their Monthly Payments and none of
the Mortgage Loans will have been thirty days or more delinquent
in their Monthly Payments more than once during the twelve
months preceding the Closing Date. As of the Cut-off Date, no
Mortgage Loan had been sixty or more days delinquent at any time
since origination.
The Offered Securities......................... The Offered Securities will be issued pursuant to a Pooling and
Servicing Agreement, to be dated as of April 1, 1997, among the
Seller, the Master Servicer, the Loan Seller and the Trustee (the
"Pooling and Servicing Agreement"). The Senior Securities in the
aggregate, the Offered Subordinate Securities in the aggregate, and
the Non-Offered Subordinate Securities in the aggregate will
evidence initial undivided beneficial ownership interests of
approximately 94.00%, 4.90% and 1.10%, respectively, in the
Trust. The Offered Securities will have the following per annum
Pass-Through Rates and approximate outstanding principal balances
(each, a "Security Principal Balance") as of the Cut-off Date:
</TABLE>
<TABLE>
<CAPTION> Initial
Security
Pass-Through Principal
Class Rate Balance(1)
----- ------------ ----------
<S> <C>
FXA-1 Securities 6.90% $ 15,058,594
FXA-2 Securities 7.75% $ 20,500,000
FXA-3 Securities 7.35% $ 11,623,696
FXA-4 Securities 7.50% $ 13,200,375
FXA-5 Securities 7.75% $ 5,125,000
FXA-6 Securities 7.75% $ 4,001,000
FXA-7 Securities 7.75% $ 1,000,000
FXA-8 Securities (2) $ 27,665,835
FXA-9 Securities (3) $ (5)
FXP Securities (4) $ 81,389
FXS Securities 7.75% (5)
A-1 Securities 7.75% $ 43,444,391
A-2 Securities 7.75% $ 6,962,000
A-3 Securities 7.75% $ 1,951,000
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A-4 Securities 7.75% $ 13,700,000
P Securities (4) $ 1,087,731
S Securities 7.75% (5)
B-1 Securities 7.75% $ 5,190,778
B-2 Securities 7.75% $ 2,111,503
B-3 Securities 7.75% $ 1,319,689
R Securities 7.75% $ 25
RP Securities 7.75% $ 25
</TABLE>
<TABLE>
<S> <C>
--------------------
(1) The initial Security
Principal Balance of any
Class of Offered
Securities are approximate
and may be increased or
decreased by up to 5%
(which increase or
decrease may be allocated
disproportionately among
the Classes of
Securities), depending
upon (i) the Mortgage
Loans actually acquired
for each Mortgage Loan
Group and (ii) the
subordination requirements
of the Rating Agencies.
Accordingly, any
investor's commitments
with respect to the
Offered Securities may be
correspondingly increased
or decreased.
(2) The initial Pass-Through
Rate for the Class FXA-8
Securities will be 5.95%
per annum. The
Pass-Through Rate for the
Class FXA-8 Securities
will be equal to a per
annum rate equal to LIBOR
plus 0.45%, determined for
each Interest Accrual
Period (as defined herein)
as set forth herein,
subject to a minimum
Pass-Through Rate of 0.45%
per annum and a maximum
Pass-Through Rate of 8.50%
per annum.
(3) The initial Pass-Through
Rate for the Class FXA-9
Securities will be 2.55%
per annum. The
Pass-Through Rate for the
Class FXA-9 Securities
will be equal to a per
annum rate equal to (i)
8.05% minus (ii) LIBOR,
determined for each
Interest Accrual Period as
set forth herein, subject
to a minimum Pass-Through
Rate of 0.00% per annum
and a maximum Pass-Through
Rate of 8.05% per annum.
(4) The Class FXP and Class P
Securities are principal
only securities on which
no interest will be paid.
(5) The Class FXA-9, Class FXS
and Class S Securities are
interest only securities
on which interest is paid
on the applicable Notional
Amounts, as determined for
each Interest Accrual
Period as set forth
herein.
Interest Distributions......................... With respect to each Class of Securities (except the Principal Only
Securities, which are not entitled to interest), interest will be
passed through monthly on each Distribution Date, commencing in
May 1997. With respect to each Distribution Date, an amount of
interest will accrue on each Class of Securities generally equal to
1/12th of the applicable Pass-Through Rate for such Class
multiplied by the related Security Principal Balance or Notional
Amount, as applicable. All distributions of interest for each Class
of Securities will generally be made only to the extent of the
Available Distribution for the related Mortgage Loan Group as
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described herein under "Description of the Securities -- Priority of
Distributions."
As of any Distribution Date, the "Class FXS Notional Amount"
will equal the product of (x) the aggregate Scheduled Principal
Balance, as of the second preceding Due Date after giving effect
to payments scheduled to be received as of such Due Date,
whether or not received, or with respect to the initial Distribution
Date, as of the Cut-off Date, of Group I Mortgage Loans having
Net Rates in excess of 7.75% per annum (the "Group I Premium
Rate Mortgage Loans") and (y) a fraction, the numerator of which
is the weighted average of the Stripped Interest Rates (as defined
herein) for the Group I Premium Rate Mortgage Loans and the
denominator of which is 7.75%. The Class FXS Notional Amount
as of the Cut-off Date will be approximately $9,750,681. The
"Stripped Interest Rate" for each Group I Mortgage Loan is the
excess of the Net Rate for such Mortgage Loan over 7.75%. As
of any Distribution Date, the "Class S Notional Amount" will
equal the product of (x) the aggregate Scheduled Principal Balance,
as of the second preceding Due Date after giving effect to
payments scheduled to be received as of such Due Date, whether
or not received, or with respect to the initial Distribution Date, as
of the Cut-off Date, of Group II Mortgage Loans having Net Rates
in excess of 7.75% per annum (the "Group II Premium Rate
Mortgage Loans") and (y) a fraction, the numerator of which is the
weighted average of the Stripped Interest Rates (as defined herein)
for the Group II Premium Rate Mortgage Loans and the
denominator of which is 7.75%. The Class S Notional Amount as
of the Cut-off Date will be approximately $1,201,720. The
"Stripped Interest Rate" for each Group II Mortgage Loan is the
excess of the Net Rate for such Mortgage Loan over 7.75%. As
of any Distribution Date, the "Class FXA-9 Notional Amount" will
be equal to the Security Principal Balance of the Class FXA-8
Securities immediately preceding such Distribution Date. The
Class FXA-9 Notional Amount as of the Cut-off Date will be
approximately $27,665,835. As used herein, "Notional Amount"
refers to the Class FXS Notional Amount, Class S Notional
Amount and Class FXA-9 Notional Amount. References herein to
the Notional Amount in respect of the Strip Securities and the
Class FXA-9 Securities are used solely for certain calculations and
do not represent the right of the holders of the Strip Securities or
the Class FXA-9 Securities to receive distributions of such amount.
See "Description of the Securities -- Distributions of Interest"
herein.
The Pass-Through Rates for the LIBOR Securities are adjustable
monthly based on changes in LIBOR, as defined and determined
herein. The initial, minimum and maximum Pass-Through Rates
for the LIBOR Securities, as well as the applicable formula for
calculating the Pass-Through Rates for the LIBOR Securities, are
specified on the cover page hereto and elsewhere herein. The
Class FXA-9 Securities will accrue interest on the Class FXA-9
Notional Amount.
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For purposes of determining the Pass-Through Rates for the
LIBOR Securities, the Trustee will determine LIBOR in
accordance with the procedures set forth herein.
See "Description of the Securities -- Distributions of Interest"
herein.
Principal Distributions........................ On each Distribution Date, to the extent of the Available
Distribution with respect to each Mortgage Loan Group, amounts
in respect of principal will be distributed to the holders of the
Offered Securities (other than the Class FXA-9 Securities and Strip
Securities) as provided herein under "Description of the
Securities-- Distributions of Principal."
The Class FXA-9 Securities and Strip Securities are not entitled to
distributions of principal.
Advances....................................... The Master Servicer is required to make advances ("Advances") in
respect of delinquent payments of principal and interest (net of the
related Servicing Fees) on the Mortgage Loans, subject to the
limitations described herein. Such Advances are reimbursable to
the Master Servicer prior to distributions to the Securityholders, as
described under the heading "Description of Securities--
Advances" herein. The Trustee will be obligated to make any such
Advance only to the limited extent provided in the Pooling and
Servicing Agreement. See "Description of the Securities--
Advances" herein.
Allocation of Losses;
Subordination.................................. Neither the Offered Securities nor the Mortgage Loans are insured
or guaranteed by any governmental agency or instrumentality or by
the Seller, the Master Servicer, the Loan Seller, DLJMCI, the
Trustee or any of their respective affiliates. Subject to the
limitations described below, Realized Losses on the Mortgage
Loans will be allocated, in each case until the applicable Security
Principal Balances have been reduced to zero, first, to the Non-
Offered Subordinate Securities in reverse numerical order; second,
to the Class B-3 Securities; third, to the Class B-2 Securities;
fourth, to the Class B-1 Securities; and fifth, to the outstanding
Classes of Senior Securities in the manner described herein;
provided, however, that (i) if the loss is recognized with respect to
a Group I Discount Mortgage Loan, the Class FXP Fraction of
such loss will first be allocated to the Class FXP Securities and the
remainder of such loss will be allocated as described above; (ii) if
the loss is recognized with respect to a Group II Discount
Mortgage Loan, the Class P Fraction of such loss will first be
allocated to the Class P Securities and the remainder of such loss
will be allocated as described above; and (iii) only a certain
specified amount of Special Hazard Losses, Fraud Losses and
Mortgagor Bankruptcy Losses will be allocated solely to the
Subordinate Securities, following which such losses will be
allocated among all outstanding Classes of Securities on a pro rata
basis, as described herein. See "Description of the Securities--
Subordination and Allocation of Losses" herein.
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<S> <C>
All of the foregoing amounts are subject to periodic reduction as
described herein. In the event that the Security Principal Balances
of the Subordinate Securities are reduced to zero, all additional
losses (including, without limitation, all Special Hazard Losses,
Fraud Losses, Mortgagor Bankruptcy Losses and Extraordinary
Losses (as defined herein)) on the Group I Mortgage Loans and the
Group II Mortgage Loans will be allocated among the Class FX
Securities and the Class II Securities, respectively, as described
herein.
Therefore, notwithstanding that losses on the Mortgage Loans in
one Mortgage Loan Group may only be allocated to the related
Senior Securities (except for Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses (each as defined
herein)), the allocation to the Subordinate Securities of losses on
the Mortgage Loans in the other Mortgage Loan Group will
increase the likelihood that losses may be allocated to such Senior
Securities.
Shifting of Interests.......................... The Senior Securities entitled to principal, other than the Lockout
Securities, will receive 100% of principal prepayments received
with respect to the Mortgage Loans in the related Mortgage Loan
Group until the fifth anniversary of the first Distribution Date.
During the next four years, the Senior Securities, other than the
Lockout Securities, will receive a disproportionately large, but
decreasing, share of principal prepayments received with respect
to the Mortgage Loans in the related Mortgage Loan Group. This
will result in an acceleration of the amortization of the Senior
Securities, other than the Lockout Securities, subject to the
priorities described in "Description of the Securities--
Distributions of Principal" herein, enhancing the likelihood that
holders of such Classes of Securities will be paid the full amount
of principal to which they are entitled.
Non-Offered Subordinate Securities............. The Class B-4, Class B-5 and Class B-6 Securities each have a
Pass-Through Rate of 7.75% per annum and have an initial
aggregate Security Principal Balance of approximately $1,935,546.
Optional Termination........................... At its option, the Master Servicer may purchase from the Trust all
remaining Mortgage Loans and other assets thereof, and thereby
effect early retirement of the Securities, on any Distribution Date
when the aggregate outstanding principal balance of the Mortgage
Loans is equal to or less than 5% of the aggregate outstanding
principal balance of such Mortgage Loans as of the Cut-off Date.
See "Pooling and Servicing Agreement-- Termination" herein.
Special Prepayment
Considerations................................. General: The rate of principal payments on the Offered Securities
will depend on, among other things, the rate and timing of
principal payments (including prepayments, repurchases, defaults
and liquidations) on the Mortgage Loans. As is the case with
mortgage-backed securities generally, the Offered Securities are
subject to substantial inherent cash-flow uncertainties because the
Mortgage Loans may be prepaid at any time. Generally, when
prevailing interest rates increase, prepayment rates on mortgage
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<S> <C>
loans tend to decrease in subsequent periods, 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
in subsequent periods, resulting in an accelerated
return of principal to investors at a time when
reinvestment at comparable yields may not be possible.
Therefore, a higher rate of principal payments (including principal
prepayments) and liquidations in a Mortgage Loan Group could
result in a lower than expected yield to maturity on related Classes
of Securities purchased at a premium. Conversely, a lower than
anticipated rate of principal payments (including principal
prepayments) and liquidations in a Mortgage Loan Group could
reduce the return on any related Class of Securities purchased at
a discount. Except as described herein under "Description of the
Securities-- Distributions of Principal-- Cross-Collateralization,"
principal distributions to the Class FX Securities and Class II
Securities relate to principal payments on the Group I Mortgage
Loans and Group II Mortgage Loans, respectively, and principal
distributions to the Subordinate Securities relate to principal
payments on both Group I Mortgage Loans and Group II Mortgage
Loans.
Principal Only and Floater Securities: Because the principal
payable with respect to the Class FXP Securities (which are
entitled to receive distributions of principal only) is derived from
Group I Mortgage Loans with Net Rates that are lower than 7.75%
per annum, the yield to maturity on the Class FXP Securities will
be adversely affected by slower than expected prepayments of
Group I Mortgage Loans with Net Rates less than 7.75% per
annum. Similarly, because the principal payable with respect to
the Class P Securities (which are entitled to receive distributions
of principal only) is derived from Group II Mortgage Loans with
Net Rates that are lower than 7.75% per annum, the yield to
maturity on the Class P Securities will be adversely affected by
slower than expected prepayments of Group II Mortgage Loans
with Net Rates less than 7.75% per annum. Because the interest
payable on the Class FXS and Class S Securities and the principal
distributable to the Class FXP and Class P Securities are for the
most part derived from different groups of Mortgage Loans within
the related Mortgage Loan Group, it is possible that faster than
expected prepayments with respect to the Strip Securities may
occur at the same time as slower than expected prepayments with
respect to the Principal Only Securities. See "Risk Factors,"
"Certain Yield and Prepayment Considerations" and "Yield
Considerations with respect to the Strip Securities, Inverse Floater
Securities and Principal Only Securities" herein.
The yield to maturity on the Class FXA-8 Securities will be
sensitive to fluctuations in the level of LIBOR, and the yield to
maturity on the Inverse Floater Securities will be extremely
sensitive to fluctuations in the level of LIBOR and to the rate of
principal prepayments on the Group I Mortgage Loans.
Prospective investors should fully consider the risks associated with
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<S> <C>
an investment in the Inverse Floater Securities, including
the possibility that if the rate of principal prepayments
on the Group I Mortgage Loans is rapid or if the level of
LIBOR is high, investors in the Inverse Floater Securities may
not fully recoup their initial investments. In addition, in
the event of very high principal prepayments of Group
II Mortgage Loans and the reduction of the Security
Principal Balance of the Class A Securities to zero, subject
to certain limitations set forth herein, all principal
(after giving effect to the distribution to the Class P
Securities) of the Group II Mortgage Loans will be
distributed to the Class FXA Securities, and therefore, may
adversely affect the yield of the Inverse Floater Securities.
See "Risk Factors," "Certain Yield and Prepayment
Considerations" and "Yield Considerations with respect to
the Strip Securities, Inverse Floater Securities and the
Principal Only Securities" herein.
Lockout Securities: The Class FXA-2 and Class A-4 Securities
will not be entitled to receive any principal prepayments on the
Mortgage Loans until May 2002 unless the Security Principal
Balance of the Class FXA Securities (other than the Class FXA-2
Securities) or Class A Securities (other than the Class A-4
Securities), as appropriate, have been reduced to zero. Therefore,
the Class FXA-2 and Class A-4 Securities will not be entitled to
receive the disproportionate allocation of principal prepayments
that the other Class FXA and Class A Securities are entitled to
receive unless the Security Principal Balances of such other Senior
Securities have been reduced to zero.
Sequentially Paying Classes: All Classes of Class FXA and Class
A Securities are subject to various priorities for payment of
principal, as described herein. Distributions of principal on the
Classes of Class FXA and Class A Securities having an earlier
priority of payment will be affected by the rates of prepayment of
the Mortgage Loans in the related Mortgage Loan Group early in
the life of the Mortgage Pool. The timing of commencement of
principal distributions and the weighted average lives of the Classes
of Class FXA and Class A Securities with a later priority of
payment will be affected by the rates of prepayment experienced
both before and after the commencement of principal distributions
on such Classes.
Strip Securities: The Notional Amounts, and therefore the
amount of interest distributions on the Classes of Strip Securities,
will be highly sensitive to the rate and timing of principal payments
(including prepayments, repurchases, defaults and liquidations) on
the Group I or Group II Premium Rate Mortgage Loans, as
applicable. See "--Special Yield Considerations" below, "Risk
Factors," "Certain Yield and Prepayment Considerations" and
"Yield Considerations with respect to the Strip Securities, Inverse
Floater Securities and the Principal Only Securities" herein.
Classes With Subordination Features: As described herein,
during certain periods all or a disproportionately large percentage
of principal prepayments on the Mortgage Loans will be allocated
among the Senior Securities (other than the Lockout Securities),
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and therefore, during certain periods no principal
prepayments or, relative to the Subordinate Percentage (as
defined herein), a disproportionately small
percentage of such prepayments will be distributed to the
Subordinate Securities. To the extent that no principal
prepayments or a disproportionately small
percentage of such prepayments are distributed to the
Subordinate Securities, the weighted average lives of the
Subordinate Securities will be extended and, as a relative
matter, the Subordination afforded to the Senior
Securities by the Subordinate Securities will be increased
(to the extent not otherwise offset by Realized Losses).
See "Description of the Securities-- Distributions of Principal,"
"Certain Yield and Prepayment Considerations" and "Yield
Considerations with respect to the Strip Securities, Inverse Floater
Securities and Principal Only Securities" herein, and see "Yield
Considerations" and "Certain Yield and Prepayment
Considerations" in the Prospectus.
Special Yield
Considerations................................. General: The yield to maturity on each Class of Offered
Securities will depend on, among other things, the rate and timing
of principal payments (including prepayments, repurchases,
defaults and liquidations) on the Mortgage Loans and the allocation
thereof to reduce the Security Principal Balance (or the Notional
Amount) of such Class of Securities. The yield to maturity on
each Class of Offered Securities also will depend on other factors
such as the related Pass-Through Rate and the purchase price for
such Securities. The yield to investors on any Class of Offered
Securities will be adversely affected by any allocation thereto of
any Prepayment Interest Shortfalls on the Mortgage Loans to the
extent not covered by payments by the Master Servicer as
described herein.
In general, if a Class of Offered Securities is purchased at a
premium and principal payments on the Mortgage Loans occur at
a rate faster than assumed at the time of purchase, the investor's
actual yield to maturity will be lower than originally anticipated.
Conversely, if a Class of Offered Securities is purchased at a
discount and principal payments on the Mortgage Loans occur at
a rate slower than that assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that originally
anticipated.
Strip Securities: The yield to investors on the Strip Securities will
be extremely sensitive to the rate and timing of principal payments
on the Group I or Group II Premium Rate Mortgage Loans
(including prepayments, repurchases, defaults and liquidations), as
applicable, which may fluctuate significantly over time. A rapid
rate of principal payments on the Mortgage Loans in the related
Mortgage Loan Group could result in the failure of investors in a
Class of Strip Securities to recover their initial investment. The
yield on the Classes of Strip Securities will also be materially and
adversely affected if the Group I or Group II Premium Rate
Mortgage Loans, as applicable, experience a high rate of defaults
and liquidations. In addition to the foregoing, the yield on the
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Classes of Strip Securities will be materially and
adversely affected to a greater extent than the yields on the
other Classes of Offered Securities if the Group I or
Group II Premium Rate Mortgage Loans, as applicable, with
higher Net Rates prepay faster than such Mortgage Loans with
lower Net Rates, because holders of the Strip Securities
generally will have rights to relatively larger portions of
interest payments on the Group I or Group II Premium Rate
Mortgage Loans, as applicable, with higher Net Rates than on
the Mortgage Loans in the related Mortgage Loan Groups
with lower Net Rates.
Floater Securities: The yield to maturity on the Class FXA-8
Securities will be sensitive to fluctuations in the level of LIBOR,
and the yield to maturity on the Inverse Floater Securities will be
extremely sensitive to fluctuations in the level of LIBOR, and to
the rate of principal prepayments on the Group I Mortgage Loans.
Prospective investors should fully consider the risks associated with
an investment in the Inverse Floater Securities, including the
possibility that if the rate of principal prepayments on the Group
I Mortgage Loans is rapid or if the level of LIBOR is high,
investors in the Inverse Floater Securities may not fully recoup
their initial investments. In addition, in the event of very high
principal prepayments of Group II Mortgage Loans and the
reduction of the Security Principal Balance of the Class A
Securities to zero, subject to certain limitations set forth herein, all
principal (after giving effect to the distribution to the Class P
Securities) of the Group II Mortgage Loans will be distributed to
the Class FXA Securities, and therefore, may adversely affect the
yield of the Inverse Floater Securities. See "Certain Yield and
Prepayment Considerations" and "Yield Considerations with
respect to the Strip Securities, Inverse Floater Securities and
Principal Only Securities" herein.
Classes With Subordination Features: The yield to maturity on
the Subordinate Securities will be extremely sensitive to certain
losses on the Mortgage Loans (and the timing thereof) to the extent
such losses are not covered by the Subordinate Securities
subordinate thereto. See "Certain Yield and Prepayment
Considerations" herein and "Yield Considerations" and "Certain
Yield and Prepayment Considerations" in the Prospectus.
Residual Securities: The Class R and Class RP Securities, which
represent the residual interests in the Issuing REMIC and the
Pooling REMIC, respectively, may experience a highly negative
after tax return. See "Special Tax Considerations" herein.
Certain Federal Income
Tax Consequences............................... For federal income tax purposes, elections will be made to treat the
segregated pool of assets comprising the Trust as two separate real
estate mortgage investment conduits (each a "REMIC," and
respectively, the "Issuing REMIC" and "Pooling REMIC"). Upon
the issuance of the Offered Securities, Hunton & Williams, counsel
to the Seller, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, each of the
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REMICs will qualify as a REMIC within the meaning of Sections
860A through 860G of the Internal Revenue Code of 1986
(the "Code"). For federal income tax purposes, the Senior
Securities (other than the Residual Securities) and the
Subordinate Securities will be designated as the "regular
interests" in the Issuing REMIC, and the Class R and
Class RP Securities will be designated as the "residual
interests" in the Issuing REMIC and the Pooling REMIC,
respectively.
Because the Senior Securities (other than the Residual Securities)
and the Subordinate Securities will be considered REMIC regular
interests, they will be taxable debt obligations under the Code, and
interest paid or accrued on such Securities, including any original
issue discount, will be taxable to the holders of such Securities in
accordance with the accrual method of accounting, regardless of
such Securityholder's usual method of accounting. It is expected
that the Class FXA-9, Class FXP, Class FXS, Class P, and Class
S Securities will be treated as having been issued with original
issue discount for federal income tax purposes. Each of the other
Classes of Offered Securities bears interest at a qualified stated rate
and, therefore, will be issued with original issue discount only if
its stated principal amount exceeds its issue price by more than a
de minimis amount. See "Certain Federal Income Tax
Consequences-- REMIC Securities-- Original Issue Discount" in
the Prospectus. The prepayment assumption that should be used
in determining the rate of accrual of original issue discount, if any,
with respect to the Offered Securities is 235% of the Basic
Prepayment Assumption, as defined herein. However, no
representation is made herein as to the rate at which prepayments
actually will occur. See "Certain Yield and Prepayment
Considerations" herein.
For federal income tax purposes, the Offered Securities generally
will be treated as "regular or residual interests in a REMIC" for
domestic building and loan associations and as "real estate assets"
for real estate investment trusts ("REITs"), subject to the
limitations described in "Certain Federal Income Tax
Consequences" in the Prospectus. Similarly, interest on the
Offered Securities will be considered "interest on obligations
secured by mortgages on real property" for REITs, subject to the
limitations described in "Certain Federal Income Tax
Consequences" in the Prospectus.
For further information regarding the federal income tax
consequences of investing in the Offered Securities see "Certain
Federal Income Tax Consequences" in the Prospectus.
Federal Income Tax Aspects
of Residual Securities......................... The Residual Securities generally will be treated in the same
manner as the other Offered Securities for the various qualification
purposes referred to above, but generally will not be treated as
evidences of indebtedness for federal income tax purposes.
Instead, the Class R and Class RP Securities will be considered as
representing the right to the net income or loss of the Issuing
REMIC and the Pooling REMIC, respectively. Holders of the
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Residual Securities will be required to report, and will be
taxed on, their pro rata shares of such income or loss, and
such requirements will continue until there are no Securities
of any Class outstanding, even though such Securityholders
previously may have received full payment of their stated
interest and principal. Furthermore, the taxable income
of Residual Securityholders attributable to the Residual
Securities may exceed the principal and interest
distributions received by such Securityholders with respect to
such Securities during the corresponding period, which
could result in a highly negative after-tax return for
such Securityholders. See "Special Tax Considerations"
herein.
The Issuing REMIC and the Pooling REMIC may generate
income, a portion of which will be treated as "excess inclusion"
income. Such excess inclusion income (a) is taxable to a tax-
exempt Class R and Class RP Securityholder, as applicable, as
unrelated business taxable income ("UBTI"), (b) in the case of
foreign holders, is subject to withholding tax at a rate of 30%
(regardless of any statutory or treaty exemptions or rate reduction
that otherwise would apply), and (c) generally cannot be offset by
any net operating losses or current deductions of Residual
Securityholders. Consequently, Residual Securityholders may
experience an after-tax return that is highly negative.
Furthermore, Residual Securityholders who are individuals, estates
or trusts may be subject to limitations on the deductibility of
administrative expenses of the Issuing REMIC or Pooling REMIC,
as applicable, for purposes of determining their taxable income and
alternative minimum taxable income.
Furthermore, the Treasury regulations relating to REMICs (the
"REMIC Regulations") provide that certain transfers of
noneconomic residual interests ("NERDs") and residual interests
that have tax avoidance potential ("TAPRIs") will be disregarded
for federal income tax purposes. It is expected that the Class R
Securities will constitute NERDs and TAPRIs for purposes of the
REMIC Regulations on the Closing Date. A transferor of a
Residual Security should consult with its tax advisor to determine
whether the Residual Securities would be considered a NERD or
a TAPRI at the time of the transfer thereof for purposes of the
REMIC Regulations. See "Special Tax Considerations" herein.
The Class R and Class RP Securities represent the residual
interest in the Issuing REMIC and Pooling REMIC,
respectively, and may experience a highly negative after-tax
return. Accordingly, prospective investors are urged to consult
their own tax advisors and consider the after-tax effect of
ownership of a Residual Security and the suitability of the
Residual Securities to their investment objectives.
Restrictions on Purchase
and Transfer of Residual
Securities.................................... The Residual Securities are not offered for sale to tax-exempt
organizations that are "disqualified organizations" as
defined in "Certain Federal Income Tax Consequences --
REMIC Securities -- Ownership of Residual Interests by
Disqualified
</TABLE>
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<TABLE>
<S> <C>
Organizations" in the Prospectus. In addition, there
are limitations on transfers to a Plan or Plan Investor (each
as defined herein). Finally, none of the Residual Securities
nor any beneficial interest therein may be sold or
otherwise transferred except upon delivery to the Trustee of
the certificates, affidavits and other agreements described
herein. See "Certain Federal Income Tax Consequences --
REMIC Securities -- Ownership of Residual Interests by
Disqualified Organizations" in the Prospectus and
"Restrictions on Purchase and Transfer of the Residual
Securities" herein.
ERISA Considerations........................... Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements, including individual retirement accounts
and annuities, Keogh plans, and collective investment funds in
which such plans, accounts, annuities or arrangements are invested,
that are subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or corresponding provisions of
the Code (each of the foregoing, a "Plan") should review carefully
with their legal advisors whether the purchase or holding of the
Offered Securities will result in unfavorable consequences for the
Plan or its fiduciaries under the Plan Asset Regulations (as defined
in the Prospectus) or the prohibited transaction provisions of
ERISA or the Code (the "Prohibited Transaction Provisions").
Such consequences could result unless one of the exceptions in, or
exemptions from, the Plan Asset Regulations and Prohibited
Transaction Provisions is applicable. See "ERISA Considerations"
herein and in the Prospectus.
Because the Subordinate Securities are subordinated securities, they
will not satisfy the requirements of certain exemptions from the
Prohibited Transaction Provisions. As a result, the purchase or
holding of any of the Subordinate Securities by a Plan, a person
acting on behalf of a Plan, or any person using the assets of a Plan
(each, a "Plan Investor") may constitute a non-exempt prohibited
transaction or result in the imposition of excise taxes or penalties.
Accordingly, the Subordinate Securities may not be transferred to
a Plan Investor unless the Plan Investor provides the Master
Servicer and the Trustee with a Benefit Plan Opinion (as defined
herein) in the Prospectus or subject to certain conditions described
herein, a representation letter stating that the source of funds used
to purchase any Subordinate Securities is an "insurance company
general account." Each purchaser of a Subordinate Security, by
virtue of such purchaser's receipt of such Security, will be deemed
to have represented that it is not a Plan Investor, unless such
purchaser provides a Benefit Plan Opinion or representation letter.
See "ERISA Considerations" herein and in the Prospectus.
The foregoing limitations, as well as other limitations, apply to
transfers of the Residual Securities to Plan Investors. See
"Restrictions on Purchase and Transfer of the Residual Securities"
herein.
</TABLE>
S-21
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<S> <C>
Final Scheduled
Distribution Date.............................. The "Final Scheduled Distribution Date" for distributions on each
Class of Securities will be May 25, 2027. The Final Scheduled
Distribution Date has been determined by adding one month to the
maturity date of the Mortgage Loan with the latest stated maturity
date. Because the rate of distributions on the Class FX and Class
II Securities will depend on the rate of payment of principal
(including prepayments) on the Mortgage Loans in the related
Mortgage Loan Group, and the rate of distributions on the
Subordinate Securities will depend on the rate of principal
payments and prepayments on the Mortgage Pool, the actual final
distribution on any Class of Offered Securities could occur
significantly earlier than its Final Scheduled Distribution Date.
The rate of payments on the Mortgage Loans will depend on their
particular characteristics, as well as on the interest rates prevailing
from time to time and other economic factors, and no assurance
can be given as to the actual payment experience of the Mortgage
Loans.
Ratings........................................ It is a condition to the issuance of the Offered Securities that each
Class of Class FXA Securities, other than the Class FXA-9
Securities, each Class of Residual Securities and each Class of
Class A Securities be rated "AAA" by the Rating Agencies, that
the Strip Securities, Principal Only Securities and the Class FXA-9
Securities be rated "AAA" by DCR and Fitch and "AAAr" by
S&P, that the Class B-1 Securities be rated not lower than "AA"
by DCR, that the Class B-2 Securities be rated not lower than "A"
by DCR and that the Class B-3 Securities be rated not lower than
"BBB" by DCR. A security rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating organization. A
security rating does not address the frequency of principal
prepayments or the corresponding effect on yield to investors. The
ratings of the Strip Securities do not address the possibility that the
holders of such Securities may fail to fully recover their initial
investment. The ratings of the Residual Securities do not assess
the likelihood of return to investors in the Residual Securities,
except to the extent of the initial principal amount of such Class
and interest thereon at the applicable Pass-Through Rate. See
"Certain Yield and Prepayment Considerations" and "Ratings"
herein and "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
In addition, S&P assigns the additional rating of "r" to highlight
classes of securities that it believes may experience high volatility
or a variability in expected returns due to noncredit risks; however,
the absence of an "r" symbol should not be taken as an indication
that a class will exhibit no volatility or variability in total return.
See "Certain Yield and Prepayment Considerations" and "Ratings"
herein.
The Seller has not requested a rating of the Offered Securities from
any rating agency other than Fitch, DCR and S&P. However,
there can be no assurance as to whether any other rating agency
</TABLE>
S-22
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will rate the Offered Securities, or if one does,
what rating would be assigned by such rating agency.
Legal Investment............................... The Senior Securities and the Class B-1 Securities will constitute
"mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as amended
("SMMEA") for so long as they are rated in one of the two highest
rating categories by any nationally recognized statistical ratings
organization. The Class B-2 and Class B-3 Securities will not
constitute "mortgage related securities" for purposes of SMMEA.
Except as set forth above, no representations are made as to the
proper characterization of any Class of Offered Securities for legal
investment, financial institution regulatory or other purposes, or as
to the ability of particular investors to purchase any Class of
Offered Securities under applicable legal investment restrictions.
These uncertainties may adversely affect the liquidity of the
Offered Securities. Accordingly, all institutions whose investment
activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities
should consult with their own legal advisors in determining
whether and to what extent any Class of Offered Securities, and,
in particular, the Offered Subordinate Securities, constitute a legal
investment or are subject to investment, capital or other
restrictions. See "Legal Investment" and "ERISA Considerations"
herein and in the Prospectus.
</TABLE>
S-23
<PAGE>
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following factors (as well as the factors set forth under "Risk Factors" in
the Prospectus) before deciding to invest in the Offered Securities.
General
The rate of distributions in reduction of the principal balance of any
Class of Offered Securities, the aggregate amount of distributions of principal
and interest on any Class of Offered Securities and the yield to maturity of any
Class of Offered Securities will be directly related to the rate of payments of
principal on the Mortgage Loans in the Trust (and in the case of the Strip
Securities, particularly on those Mortgage Loans with higher rates of interest),
and to the amount and timing of mortgagor defaults resulting in Realized Losses.
The rate of principal payments on the Mortgage Loans will in turn be affected
by, among other things, the amortization schedules of the Mortgage Loans, the
rate of principal prepayments (including partial prepayments and those resulting
from refinancing) thereon by mortgagors, liquidations of defaulted Mortgage
Loans, repurchases of Mortgage Loans as a result of defective documentation or
breaches of representations and warranties, optional purchase by the Master
Servicer of defaulted Mortgage Loans and optional purchase by the Master
Servicer of all of the Mortgage Loans in connection with the termination of the
Trust. See "Certain Yield and Prepayment Considerations," "Yield Considerations
with respect to the Strip Securities, Inverse Floater Securities and Principal
Only Securities" and "Pooling and Servicing Agreement -- Termination" herein and
"The Trust Agreements -- Assignment of Mortgage Assets" and "Description of the
Securities -- Optional Redemption" in the Prospectus. Borrowers are permitted to
prepay the Mortgage Loans, in whole or in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Note Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Note
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to decrease.
An investor that purchases any Offered Securities at a discount should
consider the risk that a slower than anticipated rate of principal payments
(including prepayments) on the Mortgage Loans will result in an actual yield
that is lower than such investor's expected yield. An investor that purchases
any Offered Securities at a premium or that purchases any Class of Strip
Securities should consider the risk that a faster than anticipated rate of
principal payments (including prepayments) on the Mortgage Loans in the related
Mortgage Loan Group (particularly, with respect to the Strip Securities, the
Group I or Group II Premium Mortgage Loans with higher Net Rates of interest)
will result in an actual yield that is lower than such investor's expected
yield. See "Certain Yield and Prepayment Considerations" herein.
The yield to maturity on the Class FXS Securities and Class S
Securities will be extremely sensitive to the rate and timing of principal
payments (including prepayments) on the Group I Premium Rate Mortgage Loans and
Group II Premium Rate Mortgage Loans, respectively, which, in either case, may
fluctuate significantly from time to time, and by other factors set forth
herein. The particular sensitivity of each Class of Strip Securities is
separately displayed in a table appearing under the heading "Yield
Considerations with respect to the Strip Securities, Inverse Floater Securities
and Principal Only Securities" herein. Investors in the Class FXS Securities and
the Class S Securities should consider the risk that a rapid rate of principal
payments on the Group I Premium Rate Mortgage Loans and Group II Premium Rate
Mortgage Loans, respectively, particularly such Mortgage Loans having higher Net
Rates of interest, could result in the failure of such investors to fully
recover their initial investments. See "Yield Considerations with respect to the
Strip Securities, Inverse Floater Securities and Principal Only Securities"
herein.
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The yield to maturity on the Class FXA-8 Securities will be sensitive
to the fluctuations in the level of LIBOR (as defined herein), and the yield to
maturity on the Inverse Floater Securities will be extremely sensitive to
fluctuations in the level of LIBOR and to the rate of principal prepayments on
the Group I Mortgage Loans. Prospective investors should fully consider the
risks associated with an investment in the Inverse Floater Securities, including
the possibility that if the rate of principal prepayments on the Group I
Mortgage Loans is rapid or if the level of LIBOR is high, investors in the Class
FXA-9 Securities may not fully recoup their initial investments. See "Certain
Yield and Prepayment Considerations" and "Yield Considerations with respect to
the Strip Securities, Inverse Floater Securities and Principal Only Securities"
herein. In addition, in the event of very high principal prepayments of Group II
Mortgage Loans and the reduction of the Security Principal Balance of the Class
A Securities to zero, subject to certain limitations set forth herein, all
principal (after giving effect to the distributions to the Class P Securities)
of the Group II Mortgage Loans will be distributed to the Class FXA Securities,
and therefore, may adversely affect the yield of the Inverse Floater Securities.
The yields to maturity on the Principal Only Securities will be
extremely sensitive to the level of principal prepayments on certain of the
Mortgage Loans in the related Mortgage Loan Group. Because the principal payable
with respect to the Class FXP Securities (which are entitled to receive
distributions of principal only) is derived from Group I Loans with Net Rates
that are lower than 7.75% per annum, the yield to maturity on the Class FXP
Securities will be adversely affected by slower than expected prepayments of
Group I Loans with Net Rates less than 7.75% per annum. Similarly, because the
principal payable with respect to the Class P Securities (which are entitled to
receive distributions of principal only) is derived from Group II Loans with Net
Rates that are lower than 7.75% per annum, the yield to maturity on the Class P
Securities will be adversely affected by slower than expected prepayments of
Group II Loans with Net Rates less than 7.75% per annum. Because the interest
payable on the Class FXS and Class S Securities and the principal distributable
to the Class FXP and Class P Securities are for the most part derived from
different groups of Mortgage Loans within the related Mortgage Loan Group, it is
possible that faster than expected principal prepayments with respect to the
Strip Securities may occur at the same time as slower than expected principal
prepayments with respect to the Principal Only Securities. See "Certain Yield
and Prepayment Considerations" and "Yield Considerations with respect to the
Strip Securities, Inverse Floater Securities and Principal Only Securities"
herein.
The Class FXA-2 and Class A-4 Securities will not be entitled to
receive any principal prepayments until May 2002, unless the Security Principal
Balance of the other Class FXA or Class A Securities as appropriate, have been
reduced to zero. Therefore, the Class FXA-2 and Class A-4 Securities will not be
entitled to receive the disproportionate allocation of principal prepayments
that the other Senior Securities are entitled to receive until the Security
Principal Balances of such other Senior Securities have been reduced to zero.
See "Description of the Securities -- Distributions of Principal" and "Certain
Yield and Prepayment Considerations" herein.
Investors in the Senior Securities should be aware that the applicable
coverages for Special Hazard Losses, Fraud Losses and Mortgagor Bankruptcy
Losses cover Mortgage Loans in both Mortgage Loan Groups. Therefore, in the
event Mortgage Loans in a Mortgage Loan Group suffer a high level of such
losses, it will reduce the available coverage for the Senior Securities in both
Mortgage Loan Groups and therefore may cause Senior Securities relating to the
other Mortgage Loan Group to suffer losses in the event any Mortgage Loan
suffers such a loss after the available coverage has been exhausted.
The Class R and Class RP Securities, which represent the residual
interest in the Issuing REMIC and the Pooling REMIC, respectively, may
experience a highly negative after tax return. See "Special Tax Considerations"
herein.
Subordination
The rights of the holders of the Subordinate Securities to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Securities and the rights of the holders of
the Subordinate Securities to receive distributions with respect to the Mortgage
Loans will be subordinated to such rights of the holders of the Senior and
Subordinate Securities senior thereto, all to the extent described herein under
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"Description of the Securities." Realized Losses on the Mortgage Loans will be
allocated first to the Non-Offered Subordinate Securities in reverse numerical
order, second to the Offered Subordinate Securities in reverse numerical order,
and then to the Senior Securities, in each case as described herein. See
"Description of the Securities -- Subordination and Allocation of Losses"
herein.
Geographic Concentration of the Mortgaged Premises
Approximately 33.99% of the Group I Mortgage Loans and approximately
48.57% of the Group II Mortgage Loans are expected to be secured by Mortgaged
Premises located in the state of California, including approximately 10.90% and
14.82% of the Group I Mortgage Loans located in the Los Angeles and San
Francisco metropolitan areas, respectively, and approximately 24.64% and 15.67%
of the Group II Mortgage Loans located in the Los Angeles and San Francisco
metropolitan areas, respectively. Approximately 16.48% of all Mortgage Loans are
located in the Los Angeles metropolitan area and approximately 15.16% of all
Mortgage Loans are located in the San Francisco metropolitan area. Approximately
8.80% of the Group I Mortgage Loans and approximately 5.71% of the Group II
Mortgage Loans are expected to be secured by Mortgaged Premises located in the
state of Texas. In addition, approximately 5.01% of the Group I Mortgage Loans
are expected to be secured by Mortgaged Premises located in the state of Florida
and approximately 7.63% of the Group II Mortgage Loans are expected to be
secured by Mortgaged Premises located in the state of New Jersey. Consequently,
losses and prepayments on the Mortgage Loans and resultant payments on the
Offered Securities may, both generally and particularly, be affected
significantly by changes in the housing markets and regional economies of, and
the occurrence of natural disasters (such as earthquakes, fires, floods, and
hurricanes) in, the states of California, Texas, Florida and New Jersey, in
general, and the metropolitan areas of Los Angeles and San Francisco, in
particular. As used herein, "Los Angeles metropolitan area" means all or
portions of the California counties of Kern, Los Angeles, Orange, Riverside, San
Bernandino and Ventura, and "San Francisco metropolitan area" means all or
portions of the California counties of Alameda, Contra Costa, Marin, Napa, San
Francisco, San Mateo, Santa Clara, Santa Cruz, Solano and Sonoma. No assurance
can be given, however, that such definitions are comprehensive and that
additional counties or portions thereof would not result in a more appropriate
representation of such metropolitan area. Thus, losses and prepayments may be
higher or significantly higher to the extent that more counties or portions
thereof are included in such metropolitan areas or if changes in housing markets
or regional economies or natural disasters affect a wider area of counties. A
listing of the breakdown of the Mortgage Loans by United States postal zip codes
will be included as part of the Form 8-K filed by the Seller within fifteen days
of the Closing Date.
Recent Developments
During the latter part of 1996 and the early part of 1997, major
flooding (the "1996-1997 Floods") occurred in Ohio, Kentucky, Indiana, Arkansas
and Tennessee (the "1996-1997 Flood States"). Approximately 2.05% of the
aggregate principal balance of all Mortgage Loans are located in the 1996-1997
Flood States. Also, in the past several months, major flooding (the "Current
Floods," and together with the 1996-1997 Floods, the "Floods") has occurred and
is continuing in North Dakota, South Dakota and Minnesota (the "Current Flood
States"). Approximately 1.04% of the aggregate principal balance of all Mortgage
Loans are located in Current Flood States. The Loan Seller has advised the
Seller that, of the Mortgage Loans located in the Current Flood States, three
Mortgage Loans (representing 0.23% of the aggregate principal balance of all
Mortgage Loans) are located in federally declared natural disaster counties in
the state of Minnesota. The Loan Seller has not been notified by any of the
related Borrowers that the related Mortgaged Premises has been damaged by the
Floods.
Limited Recourse
Neither the Mortgage Loans nor the Offered Securities will be
guaranteed or insured by any governmental agency, the Seller, DLJMCI, the Loan
Seller, the Master Servicer, the Underwriter or any other person. Payments on
the Offered Securities will be payable solely from amounts collected on or with
respect to the assets of the Trust.
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The Status of the Mortgage Loans in the Event of Insolvency
The Seller believes that the transfer of the Mortgage Loans by the Loan
Seller to DLJMCI and by DLJMCI to the Seller each constitutes an absolute and
unconditional sale. However, in the event of the bankruptcy of DLJMCI or the
Loan Seller, a trustee in bankruptcy could attempt to recharacterize the sale of
the Mortgage Loans as a borrowing secured by a pledged of the Mortgage Loans.
Such an attempt, even if unsuccessful, could result in delays in payments on the
Offered Securities. If such an attempt were successful, the trustee in
bankruptcy could elect to accelerate payment of the Offered Securities and
liquidate the Mortgage Loans, with the holder of the Offered Securities entitled
to no more than the then outstanding aggregate Security Principal Balances, if
any, of such Offered Securities together with interest at the applicable rate to
the date of payment. In the event of an acceleration of the Offered Securities,
the holders of the Offered Securities would lose the right to future
distributions of interest and might suffer reinvestment losses in a lower
interest rate environment, and may fail to recover fully their initial
investments.
DESCRIPTION OF THE MORTGAGE POOL
The information set forth in the following paragraphs has been provided
by the Loan Seller. Neither the Seller, DLJMCI, the Underwriter, the Trustee,
nor any of their respective affiliates have made or will make any representation
as to the accuracy or completeness of such information.
General
The Trust will consist primarily of a Mortgage Pool with an aggregate
principal balance as of the Cut-off Date of approximately $175,958,578. The
Mortgage Loans will be conventional, fixed-rate, fully-amortizing mortgage loans
secured by first liens on fee simple and leasehold interests in one-to
four-family residential real properties (each, a "Mortgaged Premises"). The
Mortgage Loans will have original terms to maturity from the due dates of their
first Monthly Payment of not more than 30 years and will have Monthly Payments
due on the first day of each month. The Mortgage Pool consists of two Mortgage
Loan Groups: "Group I" or the "Group I Mortgage Loans" which generally consist
of Mortgage Loans underwritten pursuant to the Loan Seller's "Flex Extra
Program," with an aggregate principal balance as of the Cut-off Date of
approximately $104,527,543, and "Group II" or the "Group II Mortgage Loans"
which generally consist of Mortgage Loans underwritten pursuant to the Loan
Seller's "Gold Flex Program," with an aggregate principal balance as of the
Cut-off Date of approximately $71,431,034. All of the Mortgage Loans were
originated by the Loan Seller in accordance with the underwriting criteria under
its Flex Series Program, as described herein under "-- Underwriting Standards."
The Mortgage Loans will have been sold to DLJMCI by North American
Mortgage Company, in its capacity as Loan Seller, on or prior to the Closing
Date pursuant to certain mortgage loan purchase agreements between DLJMCI and
the Loan Seller (the "Purchase Agreements") and will be acquired by FASI from
DLJMCI on the Closing Date pursuant to a Mortgage Loan Sale Agreement between
FASI and DLJMCI (the "Loan Sale Agreement"). The Loan Seller will make certain
representations and warranties regarding the Mortgage Loans on and as of the
Closing Date in the Pooling and Servicing Agreement. None of the Purchase
Agreements nor the Loan Sale Agreement will be assigned to the Trustee.
Therefore, the only recourse the Trustee, on behalf of the Securityholders, will
have with respect to the Mortgage Loans will be to the representations and
warranties regarding the Mortgage Loans made by the Loan Seller under the
Pooling and Servicing Agreement.
None of the Mortgage Loans were thirty days or more delinquent in their
Monthly Payments as of the Cutoff Date. Prospective investors in the Offered
Securities should be aware, however, that approximately 26.98% of the Mortgage
Loans (by aggregate principal balance as of the Cut-off Date) have their first
Monthly Payments due in May 1997 and only approximately 6.98% of the Mortgage
Loans had a first Monthly Payment due on or before February 1, 1997. All of the
Mortgage Loans had their first Monthly Payments due on or after November 1996.
In addition to the foregoing, none of the Mortgage Loans will have been thirty
days or more delinquent in its Monthly Payments more than once during the twelve
months preceding the Closing Date. As of the Cut-off
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Date, none of the Mortgage Loans will have been sixty days or more delinquent in
its Monthly Payments at anytime since origination.
Each Mortgage Loan will contain a customary "due-on-sale" clause.
Pursuant to the terms of the Pooling and Servicing Agreement, the Master
Servicer will be entitled to all late payment charges received on the Mortgage
Loans as additional servicing compensation and such amounts will not be
available for distribution on the Securities.
Pursuant to its terms, each Mortgage Loan is required to be covered by
a standard hazard insurance policy in an amount equal to the lower of the
original principal loan amount or the replacement value of the improvements on
the Mortgaged Premises. In addition, 17.63% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) will be covered by a primary mortgage
insurance policy. See "The Trusts -- Mortgage Insurance on the Mortgage Loans"
in the Prospectus.
The Mortgage Loans will have the following approximate characteristics
as of the Cut-off Date:
<TABLE>
<CAPTION>
Group I Group II All
Mortgage Loans Mortgage Loans Mortgage Loans
<S> <C>
Number of Mortgage Loans..................... 700 238 938
Aggregate Principal Balance.................. $104,527,543 $71,431,034 $175,958,578
Note Rates:
Weighted Average....................... 8.727% 8.022% 8.441%
Range.................................. 7.625-10.000% 7.375-9.000% 7.375-10.000%
Weighted Average Remaining
Term to Maturity (in months)................. 358.61 358.65 358.63
</TABLE>
The Mortgage Loans will have the following approximate characteristics
as of the Cut-off Date (expressed as a percentage of the aggregate principal
balance of the Mortgage Loans having such characteristics relative to the
aggregate principal balance of all of the Mortgage Loans, or all of the Mortgage
Loans in the related Mortgage Loan Group, as applicable, provided, that the sum
of the percentages in certain of the following paragraphs may not equal 100% due
to rounding).
Each Mortgage Loan will have been originated by the Loan Seller on or
before March 31, 1997. None of the Mortgage Loans had a first Monthly Payment
due prior to November 1, 1996, and the latest maturity date of any of the
Mortgage Loans is April 1, 2027. The latest maturity date of any of the Group I
Mortgage Loans is April 1, 2027 and the latest maturity date of any of the Group
II Mortgage Loans is April 1, 2027.
The Mortgage Loans will each have a principal balance of not less than
$38,080 or more than $899,441, and the Mortgage Loans will have an average
principal balance of approximately $187,589. The Group I Mortgage Loans will
each have a principal balance of not less than $38,080 or more than $769,678,
and the Group I Mortgage Loans will have an average principal balance of
approximately $149,325. The Group II Mortgage Loans will each have a principal
balance of not less than $110,650 or more than $899,441, and the Group II
Mortgage Loans will have an average principal balance of approximately $300,130.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will be approximately 75.64%, no Mortgage Loan will have a Loan-to-Value
Ratio at origination exceeding 95.00% and no Mortgage Loan will have a combined
Loan-to-Value Ratio at origination, including any then-existing second mortgage
subordinate to the lien of the Mortgage, in excess of 95.00%. The weighted
average Loan-to-Value Ratio at origination of the Group I Mortgage Loans will be
approximately 74.87%, no Group I Mortgage Loan will have a Loan-to-Value Ratio
at origination exceeding 95.00% and no Group I Mortgage Loan will have a CLTV at
origination, including any then-existing second mortgage subordinate to the lien
of the Mortgage, in excess of 95.00%. The weighted average Loan-to-Value Ratio
at origination of the Group II Mortgage Loans will be approximately 76.76%, no
Group II Mortgage Loan will have a Loan-to-Value Ratio at origination exceeding
S-28
<PAGE>
95.00% and no Group II Mortgage Loan will have a CLTV at origination, including
any then-existing second mortgage subordinate to the lien of the Mortgage, in
excess of 95.00%. The "Loan-to-Value Ratio at origination" of any Mortgage Loan
represents the ratio of the principal amount of the Mortgage Loan outstanding at
origination of such Mortgage Loan divided by (a) in the case of a purchase, the
lesser of the original selling price of the related Mortgaged Premises and its
appraised value at the time of such purchase or (b) in the case of a refinance,
the appraised value of the related Mortgaged Premises at the time of such
refinance. All of the Mortgage Loans with Loan-to-Value Ratios greater than 80%
at the time of origination will be covered by a Primary Mortgage Insurance
Policy. The combined Loan-to-Value Ratio at origination (the "CLTV") of any
Mortgage Loan represents the ratio of (A) the sum of (i) the principal amount of
the Mortgage Loan outstanding at origination of such Mortgage Loan plus (ii) the
principal amount of the second lien financing of the related Mortgaged Premises
outstanding at the origination of such Mortgage Loan divided by (B) (i) in the
case of a purchase, the lesser of the original selling price of the related
Mortgage Premises and its appraised value at the time of such purchase or (ii)
in the case of a refinance, the appraised value of the related Mortgaged
Premises at the time of such refinance.
At origination, approximately 49 Mortgage Loans (representing
approximately 7.43% of the aggregate principal balance of the Mortgage Loans)
were secured by a Mortgaged Premises that was subject to a then-existing lien
subordinate to that of the related Mortgage, approximately 32 Group I Mortgage
Loans (representing approximately 7.67% of the aggregate principal balance of
the Group I Mortgage Loans) were secured by a Mortgaged Premises that was
subject to a then-existing lien subordinate to that of the related Mortgage, and
approximately 17 Group II Mortgage Loans (representing approximately 7.08% of
the aggregate principal balance of the Group II Mortgage Loans) were secured by
a Mortgaged Premises that was subject to a then-existing lien subordinate to
that of the related Mortgage.
With respect to approximately 509 Mortgage Loans (representing
approximately 49.40% of the aggregate principal balance of the Mortgage Loans),
the proceeds were used to purchase the related Mortgaged Premises. Approximately
247 of the Mortgage Loans (representing approximately 34.22% of the aggregate
principal balance of the Mortgage Loans) were rate and term refinancings and
approximately 182 of the Mortgage Loans (representing approximately 16.37% of
the aggregate principal balance of the Mortgage Loans) were equity take-out
refinancings. With respect to approximately 367 Group I Mortgage Loans
(representing approximately 44.02% of the aggregate principal balance of the
Group I Mortgage Loans), the proceeds were used to purchase the related
Mortgaged Premises. Approximately 165 of the Group I Mortgage Loans
(representing approximately 32.58% of the aggregate principal balance of the
Group I Mortgage Loans) were rate and term refinancings and approximately 168 of
the Group I Mortgage Loans (representing approximately 23.40% of the aggregate
principal balance of the Group I Mortgage Loans) were equity take-out
refinancings. With respect to approximately 142 Group II Mortgage Loans
(representing approximately 57.28% of the aggregate principal balance of the
Group II Mortgage Loans), the proceeds were used to purchase the related
Mortgaged Premises. Approximately 82 of the Group II Mortgage Loans
(representing approximately 36.63% of the aggregate principal balance of the
Group II Mortgage Loans) were rate and term refinancings and approximately 14 of
the Group II Mortgage Loans (representing approximately 6.09% of the aggregate
principal balance of the Group II Mortgage Loans) were equity take-out
refinancings.
The tables below set forth certain characteristics of the Mortgage Pool
and the Mortgage Loan Groups as of the Cut-off Date, including the number,
aggregate principal balance and percentage of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date of such Mortgage Loans relative to the
aggregate principal balance of all of the Mortgage Loans or of all Mortgage
Loans in the related Mortgage Loan Group, as applicable). As used herein,
"principal balance" with respect to the Mortgage Loans refers to the "Scheduled
Principal Balance" (as defined in the Prospectus) of the referenced Mortgage
Loans. The sum of the amounts and the percentages in the table below may not
equal the totals due to rounding.
S-29
<PAGE>
LOAN-TO-VALUE RATIOS AT ORIGINATION
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Loan-to-Value Ratios at of Mortgage Principal Aggregate Principal
Origination (%) Loans Balance Balance
<S> <C>
60.00 or less............................ 84 $ 18,414,532 10.47%
60.01-65.00.............................. 44 8,596,579 4.89
65.01-70.00.............................. 100 15,738,480 8.94
70.01-75.00.............................. 169 32,522,290 18.48
75.01-80.00.............................. 360 69,657,539 39.59
80.01-85.00.............................. 12 2,555,886 1.45
85.01-90.00.............................. 129 19,418,305 11.04
90.01-95.00.............................. 40 9,054,968 5.15
----
Total........................... 938 $175,958,578 100.00%
=== =========== ======
</TABLE>
- ---------------
(1) As of the Cut-Off Date, the weighted average Loan-to-Value-Ratio at
origination of all Mortgage Loans is expected to be approximately
75.64%.
NOTE RATES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Note Rates (%) Loans Balance Balance
<S> <C>
7.250-7.500.............................. 24 $ 7,162,189 4.07%
7.501-7.750.............................. 38 11,739,613 6.67
7.751-8.000.............................. 108 31,252,214 17.76
8.001-8.250.............................. 102 24,244,552 13.78
8.251-8.500.............................. 140 29,088,992 16.53
8.501-8.750.............................. 169 25,057,134 14.24
8.751-9.000.............................. 200 28,051,482 15.94
9.001-9.250.............................. 112 14,473,243 8.23
9.251-9.500.............................. 38 4,263,878 2.42
9.501-9.750.............................. 6 537,199 0.31
9.751-10.000............................. 1 88,082 0.05
----- ------------- -------
Total........................... 938 $175,958,578 100.00%
==== =========== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Note Rate of all the
Mortgage Loans is expected to be approximately 8.441%.
S-30
<PAGE>
GEOGRAPHIC DISTRIBUTION
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Location Loans Balance Balance
<S> <C>
Arizona.................................. 37 $ 5,995,914 3.41%
Arkansas................................. 1 92,747 0.05
California(2)............................ 263 70,219,661 39.91
Colorado................................. 38 5,322,766 3.03
Connecticut.............................. 5 1,234,554 0.70
Delaware................................. 1 127,748 0.07
District of Columbia..................... 1 174,400 0.10
Florida.................................. 56 5,897,397 3.35
Georgia.................................. 7 704,229 0.40
Hawaii................................... 12 3,251,593 1.85
Idaho.................................... 19 2,397,228 1.36
Illinois................................. 13 2,202,069 1.25
Indiana.................................. 7 1,158,302 0.66
Kansas................................... 1 153,598 0.09
Kentucky................................. 5 344,044 0.20
Louisiana................................ 18 2,500,397 1.42
Maine.................................... 2 162,404 0.09
Maryland................................. 21 3,715,223 2.11
Massachusetts............................ 41 7,690,402 4.37
Michigan................................. 37 4,223,955 2.40
Minnesota................................ 13 1,830,132 1.04
Mississippi.............................. 1 159,903 0.09
Missouri................................. 8 1,258,605 0.72
Montana.................................. 1 500,000 0.28
Nevada................................... 34 6,253,309 3.55
New Hampshire............................ 5 345,025 0.20
New Jersey............................... 31 7,656,802 4.35
New Mexico............................... 15 2,311,769 1.31
New York................................. 2 689,328 0.39
North Carolina........................... 7 1,048,531 0.60
Ohio..................................... 19 1,447,484 0.82
Oklahoma................................. 1 65,960 0.04
Oregon................................... 34 4,719,685 2.68
Pennsylvania............................. 25 4,382,635 2.49
Rhode Island............................. 4 294,392 0.17
South Carolina........................... 2 162,072 0.09
Tennessee................................ 5 560,629 0.32
Texas.................................... 83 13,269,909 7.54
Utah..................................... 11 2,292,793 1.30
Vermont.................................. 1 116,109 0.07
Virginia................................. 22 5,078,031 2.89
Washington............................... 23 3,308,907 1.88
Wisconsin................................ 6 637,938 0.36
----
Total.................................... 938 $175,958,578 100.00%
=== =========== ======
</TABLE>
- ---------------
(1) No more than 1.82% of the Mortgage Loans will be secured by Mortgaged
Premises located in any one zip code area in California and no more
than 0.64% of the Mortgage Loans will be secured by Mortgaged Premises
located in any one zip code area outside of California.
(2) Approximately 16.48% and 15.16%, respectively, of the Mortgage Loans
will be secured by Mortgaged Premises located in the Los Angeles and
San Francisco metropolitan areas. See "Risk Factors -- Geographic
Concentration of the Mortgaged Premises" herein for a description of
the areas comprising the Los Angeles and San Francisco metropolitan
areas.
S-31
<PAGE>
OCCUPANCY TYPES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Occupancy Type Loans Balance Balance
<S> <C>
Owner Occupied.......................... 628 $146,031,043 82.99%
Investor................................ 298 28,361,900 16.12
Second Home............................. 12 1,565,635 0.89
---- ------------ ------
Total.......................... 938 $175,958,578 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) Based upon representations of the related Borrower at the time of
origination.
DOCUMENTATION FOR MORTGAGE LOANS
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Type of Program Loans Balance Balance
<S> <C>
Full.................................... 373 $ 78,598,523 44.67%
Alternate............................... 219 42,558,724 24.19
Limited................................. 218 36,449,142 20.71
No Ratio................................ 128 18,352,188 10.43
Total.......................... 938 $175,958,578 100.00%
=== =========== ======
</TABLE>
- -------------------
(1) For information relating to the Loan Seller's underwriting programs see
"-- Underwriting Standards" herein.
TYPE OF MORTGAGED PREMISES
OF ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Property Type Loans Balance Balance
<S> <C>
Single Family............................ 576 $111,123,553 63.15%
Planned Unit Development
(PUD)................................... 19 2,238,827 1.27
Deminimus PUD............................ 162 40,822,464 23.20
Condominium.............................. 36 5,311,763 3.02
Two-family............................... 66 7,367,052 4.19
Three-family............................. 27 3,264,209 1.86
Four-family.............................. 52 5,830,711 3.31
---- ------------ ------
Total........................... 938 $175,958,578 100.00%
=== =========== ======
</TABLE>
S-32
<PAGE>
CURRENT PRINCIPAL BALANCES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Range of Current of Mortgage Principal Aggregate Principal
Principal Balances Loans Balance Balance
<S> <C>
$0.01-100,000............................ 315 $ 22,081,073 12.55%
100,000.01-150,000....................... 142 17,418,774 9.90
150,000.01-200,000....................... 111 19,213,431 10.92
200,000.01-250,000....................... 115 26,631,601 15.14
250,000.01-300,000....................... 114 31,537,360 17.92
300,000.01-350,000....................... 48 15,511,479 8.82
350,000.01-400,000....................... 37 13,854,956 7.87
400,000.01-450,000....................... 17 7,270,993 4.13
450,000.01-500,000....................... 15 7,102,612 4.04
500,000.01-550,000....................... 3 1,528,300 0.87
550,000.01-600,000....................... 5 2,936,877 1.67
600,000.01-650,000....................... 12 7,663,476 4.36
650,000.01-700,000....................... 1 699,576 0.40
750,000.01-800,000....................... 1 769,678 0.44
800,000.01-850,000....................... 1 838,952 0.48
850,000.01-900,000....................... 1 899,441 0.51
---- ------------ ------
Total........................... 938 $175,958,578 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the average current aggregate principal balance
is expected to be approximately $187,589.
REMAINING TERM TO STATED MATURITY
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Remaining Stated of Mortgage Principal Aggregate Principal
Term (Months) Loans Balance Balance
<S> <C>
240...................................... 2 $ 259,000 0.15%
354...................................... 1 291,415 0.17
355...................................... 1 358,976 0.20
356...................................... 5 998,480 0.57
357...................................... 56 10,633,731 6.04
358...................................... 309 54,606,095 31.03
359...................................... 323 61,600,511 35.01
360...................................... 241 47,210,369 26.83
--- ------------ ------
Total........................... 938 $175,958,578 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity
of all Mortgage Loans is expected to be approximately 358.63 months.
S-33
<PAGE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF
THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Loan-to-Value Ratios at of Mortgage Principal Aggregate Principal
Origination (%) Loans Balance Balance
<S> <C>
60.00 or less............................ 65 $ 10,067,805 9.63%
60.01-65.00.............................. 36 6,629,364 6.34
65.01-70.00.............................. 87 11,874,007 11.36
70.01-75.00.............................. 127 19,627,662 18.78
75.01-80.00.............................. 267 42,444,862 40.61
80.01-85.00.............................. 7 1,379,355 1.32
85.01-90.00.............................. 96 9,934,359 9.50
90.01-95.00.............................. 15 2,570,129 2.46
---- ------------ ------
Total........................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group I Mortgage Loans is expected to be 74.87%.
NOTE RATES OF
THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Note Rates (%) Loans Balance Balance
<S> <C>
7.500-7.750.............................. 5 $ 1,377,040 1.32%
7.751-8.000.............................. 17 4,140,312 3.96
8.001-8.250.............................. 56 10,876,915 10.41
8.251-8.500.............................. 110 19,487,274 18.64
8.501-8.750.............................. 161 23,029,351 22.03
8.751-9.000.............................. 194 26,254,249 25.12
9.001-9.250.............................. 112 14,473,243 13.85
9.251-9.500.............................. 38 4,263,878 4.08
9.501-9.750.............................. 6 537,199 0.51
9.751-10.000............................. 1 88,082 0.08
----
Total........................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the weighted average Note Rate of the Group I
Mortgage Loans is approximately 8.727%.
S-34
<PAGE>
GEOGRAPHIC DISTRIBUTION OF
THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Mortgage Loans by
Mortgage Principal Aggregate Principal
Location Loans Balance Balance
<S> <C>
Arizona......................................... 26 $ 3,019,821 2.89%
Arkansas........................................ 1 92,747 0.09
California(2)................................... 151 35,526,024 33.99
Colorado........................................ 33 3,911,015 3.74
Connecticut..................................... 3 498,646 0.48
Delaware........................................ 1 127,748 0.12
District of Columbia............................ 1 174,400 0.17
Florida......................................... 53 5,239,624 5.01
Georgia......................................... 7 704,229 0.67
Hawaii.......................................... 11 2,873,822 2.75
Idaho........................................... 19 2,397,228 2.29
Illinois........................................ 11 1,523,957 1.46
Indiana......................................... 5 638,742 0.61
Kansas.......................................... 1 153,598 0.15
Kentucky........................................ 5 344,044 0.33
Louisiana....................................... 15 1,716,469 1.64
Maine........................................... 2 162,404 0.16
Maryland........................................ 13 1,604,129 1.53
Massachusetts................................... 32 4,989,423 4.77
Michigan........................................ 34 3,433,174 3.28
Minnesota....................................... 10 1,115,217 1.07
Mississippi..................................... 1 159,903 0.15
Missouri........................................ 5 474,241 0.45
Nevada.......................................... 28 4,130,596 3.95
New Hampshire................................... 5 345,025 0.33
New Jersey...................................... 12 2,205,525 2.11
New Mexico...................................... 12 1,519,469 1.45
North Carolina.................................. 7 1,048,531 1.00
Ohio............................................ 19 1,447,484 1.38
Oklahoma........................................ 1 65,960 0.06
Oregon.......................................... 31 3,855,847 3.69
Pennsylvania.................................... 17 2,151,420 2.06
Rhode Island.................................... 4 294,392 0.28
South Carolina.................................. 2 162,072 0.16
Tennessee....................................... 4 308,629 0.30
Texas........................................... 69 9,194,154 8.80
Utah............................................ 10 1,933,817 1.85
Vermont......................................... 1 116,109 0.11
Virginia........................................ 12 1,940,138 1.86
Washington...................................... 20 2,289,832 2.19
Wisconsin....................................... 6 637,938 0.61
----
Total........................................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) No more than 3.07% of the Group I Mortgage Loans will be secured by
Mortgaged Premises located in any one zip code area in California and
no more than 0.85% of the Group I Mortgage Loans will be secured by
Mortgaged Premises located in any one zip code area outside of
California.
(2) Approximately 10.90% and 14.82%, respectively, of the Group I Mortgage
Loans will be secured by Mortgaged Premises located in the Los Angeles
and San Francisco metropolitan areas. See "Risk Factors -- Geographic
Concentration of the Mortgaged Premises" herein for a description of
the areas comprising the Los Angeles and San Francisco metropolitan
areas.
S-35
<PAGE>
OCCUPANCY TYPES
FOR GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Occupancy Type Loans Balance Balance
<S> <C>
Owner Occupied.......................... 393 $ 75,276,191 72.02%
Investor................................ 296 27,998,217 26.79
Second Home............................. 11 1,253,135 1.20
---- ------------ ------
Total.......................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) Based upon representations of the related Borrower at the time of
origination.
DOCUMENTATION FOR MORTGAGE LOANS
FOR GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Type of Program Loans Balance Balance
<S> <C>
Full.................................... 244 $ 39,449,617 37.74%
Alternate............................... 121 14,098,495 13.49
Limited................................. 207 32,627,243 31.21
No Ratio................................ 128 18,352,188 17.56
---- ------------ ------
Total.......................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
- ------------------
(1) For information relating to the Loan Seller's underwriting programs see
"-- Underwriting Standards" herein.
TYPE OF MORTGAGED PREMISES
FOR GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Property Type Loans Balance Balance
<S> <C>
Single Family............................ 418 $ 63,850,393 61.08%
Planned Unit Development
(PUD)................................... 17 1,766,589 1.69
Deminimus PUD............................ 94 20,457,169 19.57
Condominium.............................. 30 3,450,768 3.30
Two-family............................... 64 6,651,939 6.36
Three-family............................. 25 2,519,976 2.41
Four-family.............................. 52 5,830,711 5.58
---- ------------ ------
Total........................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
S-36
<PAGE>
CURRENT PRINCIPAL BALANCES
FOR GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Range of Current of Mortgage Principal Aggregate Principal
Principal Balances Loans Balance Balance
<S> <C>
$0.01-100,000............................ 315 $ 22,081,073 21.12%
100,000.01-150,000....................... 140 17,192,124 16.45
150,000.01-200,000....................... 104 17,962,914 17.18
200,000.01-250,000....................... 45 10,271,415 9.83
250,000.01-300,000....................... 33 9,030,910 8.64
300,000.01-350,000....................... 15 4,781,958 4.57
350,000.01-400,000....................... 16 6,021,149 5.76
400,000.01-450,000....................... 9 3,901,568 3.73
450,000.01-500,000....................... 6 2,814,161 2.69
500,000.01-550,000....................... 3 1,528,300 1.46
550,000.01-600,000....................... 4 2,344,775 2.24
600,000.01-650,000....................... 8 5,127,943 4.91
650,000.01-700,000....................... 1 699,576 0.67
750,000.01-800,000....................... 1 769,678 0.74
---- ------------ ------
Total........................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the average current aggregate principal balance
of the Group I Mortgage Loans is expected to be approximately $149,325.
REMAINING TERM TO STATED MATURITY
FOR GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Remaining Stated of Mortgage Principal Aggregate Principal
Term (Months) Loans Balance Balance
<S> <C>
240...................................... 2 $ 259,000 0.25%
356...................................... 2 238,735 0.23
357...................................... 31 3,451,166 3.30
358...................................... 232 31,951,203 30.57
359...................................... 249 38,783,869 37.10
360...................................... 184 29,843,569 28.55
--- ------------ ------
Total........................... 700 $104,527,543 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity
of the Group I Mortgage Loans is expected to be approximately 358.61
months.
S-37
<PAGE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF
THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Loan-to-Value Ratios at Origination (%) Loans Balance Balance
<S> <C>
60.00 or less.................................. 19 $ 8,346,727 11.69%
60.01-65.00.................................... 8 1,967,214 2.75
65.01-70.00.................................... 13 3,864,473 5.41
70.01-75.00.................................... 42 12,894,627 18.05
75.01-80.00.................................... 93 27,212,677 38.10
80.01-85.00.................................... 5 1,176,531 1.65
85.01-90.00.................................... 33 9,483,947 13.28
90.01-95.00.................................... 25 6,484,839 9.08
----
Total................................. 238 $71,431,034 100.00%
=== ========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group II Mortgage Loans is expected to be 76.76%.
NOTE RATES OF
THE GROUP II MORTGAGE LOANS (1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Note Rates (%) Loans Balance Balance
<S> <C>
7.250-7.500.............................. 24 $ 7,162,189 10.03%
7.501-7.750.............................. 33 10,362,573 14.51
7.751-8.000.............................. 91 27,111,902 37.96
8.001-8.250.............................. 46 13,367,637 18.71
8.251-8.500.............................. 30 9,601,718 13.44
8.501-8.750.............................. 8 2,027,783 2.84
8.751-9.000.............................. 6 1,797,234 2.52
----
Total........................... 238 $71,431,034 100.00%
=== ========== ======
</TABLE>
- -----------------
(1) As of the Cut-Off Date, the weighted average Note Rate of the Group II
Mortgage Loans is expected to be 8.022%.
S-38
<PAGE>
GEOGRAPHIC DISTRIBUTION OF
THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Mortgage Loans by
Mortgage Principal Aggregate Principal
Location Loans Balance Balance
<S> <C>
Arizona............................................. 11 $ 2,976,093 4.17%
California(2)....................................... 112 34,693,637 48.57
Colorado............................................ 5 1,411,752 1.98
Connecticut......................................... 2 735,908 1.03
Florida............................................. 3 657,773 0.92
Hawaii.............................................. 1 377,771 0.53
Illinois............................................ 2 678,111 0.95
Indiana............................................. 2 519,560 0.73
Louisiana........................................... 3 783,929 1.10
Maryland............................................ 8 2,111,094 2.96
Massachusetts....................................... 9 2,700,979 3.78
Michigan............................................ 3 790,781 1.11
Minnesota........................................... 3 714,915 1.00
Missouri............................................ 3 784,364 1.10
Montana............................................. 1 500,000 0.70
Nevada.............................................. 6 2,122,712 2.97
New Jersey.......................................... 19 5,451,276 7.63
New Mexico.......................................... 3 792,301 1.11
New York............................................ 2 689,328 0.97
Oregon.............................................. 3 863,838 1.21
Pennsylvania........................................ 8 2,231,215 3.12
Tennessee........................................... 1 252,000 0.35
Texas............................................... 14 4,075,755 5.71
Utah................................................ 1 358,976 0.50
Virginia............................................ 10 3,137,893 4.39
Washington.......................................... 3 1,019,075 1.43
---- ----------- ------
Total............................................... 238 $71,431,034 100.00%
=== ========== ======
</TABLE>
- -----------------
(1) No more than 2.00% of the Group II Mortgage Loans will be secured by
Mortgaged Premises located in any one zip code area in California and
no more than 1.46% of the Group II Mortgage Loans will be secured by
Mortgaged Premises located in any one zip code area outside of
California.
(2) Approximately 24.64% and 15.67%, respectively, of the Group II Mortgage
Loans will be secured by Mortgaged Premises located in the Los Angeles
and San Francisco metropolitan areas. See "Risk Factors -- Geographic
Concentration of the Mortgaged Premises" herein for a description of
the areas comprising the Los Angeles and San Francisco metropolitan
areas.
S-39
<PAGE>
OCCUPANCY TYPES
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Occupancy Type Loans Balance Balance
<S> <C>
Owner Occupied.......................... 235 $ 70,754,852 99.05%
Investor................................ 2 363,683 0.51
Second Home............................. 1 312,500 0.44
---- ------------ ------
Total.......................... 238 $ 71,431,034 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) Based upon representations of the related Borrower at the time of
origination.
DOCUMENTATION FOR MORTGAGE LOANS
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Type of Program Loans Balance Balance
<S> <C>
Full.................................... 129 $ 39,148,906 54.81%
Alternate............................... 98 28,460,229 39.84
Limited................................. 11 3,821,899 5.35
---- ------------ ------
Total.......................... 238 $ 71,431,034 100.00%
=== =========== ======
</TABLE>
- ------------------
(1) For information relating to the Loan Seller's underwriting programs see
"-- Underwriting Standards" herein.
TYPE OF MORTGAGED PREMISES
FOR GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
of Mortgage Principal Aggregate Principal
Property Type Loans Balance Balance
<S> <C>
Single Family............................ 158 $ 47,273,160 66.18%
Planned Unit Development
(PUD)................................... 2 472,238 0.66
Deminimus PUD............................ 68 20,365,295 28.51
Condominium.............................. 6 1,860,996 2.61
Two-family............................... 2 715,113 1.00
Three-family............................. 2 744,233 1.04
---- ------------ ------
Total........................... 238 $ 71,431,034 100.00%
=== =========== ======
</TABLE>
S-40
<PAGE>
CURRENT PRINCIPAL BALANCES
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Range of Current Aggregate of Mortgage Principal Aggregate Principal
Principal Balances Loans Balance Balance
<S> <C>
100,000.01-150,000....................... 2 $ 226,650 0.32
150,000.01-200,000....................... 7 1,250,518 1.75
200,000.01-250,000....................... 70 16,360,186 22.90
250,000.01-300,000....................... 81 22,506,450 31.51
300,000.01-350,000....................... 33 10,729,521 15.02
350,000.01-400,000....................... 21 7,833,807 10.97
400,000.01-450,000....................... 8 3,369,425 4.72
450,000.01-500,000....................... 9 4,288,451 6.00
550,000.01-600,000....................... 1 592,102 0.83
600,000.01-650,000....................... 4 2,535,533 3.55
800,000.01-850,000....................... 1 838,952 1.17
850,000.01-900,000....................... 1 899,441 1.26
---- ------------ ------
Total........................... 238 $ 71,431,034 100.00%
=== =========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the average current aggregate principal balance
of the Group II Mortgage Loan is expected to be approximately $300,130.
REMAINING TERM TO STATED MATURITY
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
Percentage of
Number Aggregate Mortgage Loans by
Remaining Stated of Mortgage Principal Aggregate Principal
Term (Months) Loans Balance Balance
<S> <C>
354...................................... 1 $ 291,415 0.41%
355...................................... 1 358,976 0.50
356...................................... 3 759,745 1.06
357...................................... 25 7,182,565 10.06
358...................................... 77 22,654,892 31.72
359...................................... 74 22,816,642 31.94
360...................................... 57 17,366,800 24.31
--- ------------ ------
Total........................... 238 $ 71,431,034 100.00%
=== ========== ======
</TABLE>
- -----------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity
of the Group II Mortgage Loans is expected to be approximately 358.65
months.
S-41
<PAGE>
Underwriting Standards
General. The underwriting guidelines utilized in the "Flex Series
Program," as developed by the Loan Seller, are intended to assess the borrower's
ability and willingness to repay the mortgage loan obligation and to assess the
adequacy of the mortgaged property as collateral for the mortgage loan. The
underwriting guidelines utilized in the Flex Series Program are generally less
restrictive than the standards set forth by FHLMC and FNMA, particularly with
respect to loan-to-value ratios, borrower income, required documentation,
borrower occupancy of the mortgaged property and/or property types. The Flex
Series Program is designed to meet the needs of borrowers with good credit. The
Flex Series Program consists of two mortgage loan programs. Each program has
different loan amounts, reserve requirements, debt service-to-income ratios and
Loan-to-Value Ratio restrictions. The "Gold Flex Program" is more restrictive
with less credit risk than Flex Extra. The "Flex Extra Program" offers higher
loan amounts, investor properties to 90% Loan-to-Value Ratios and expanded
underwriting guidelines. Flex Extra allows for less restrictive standards with
certain compensating or offsetting factors such as a lower Loan-to-Value Ratio,
greater liquid assets, job stability and in the case of refinance mortgage
loans, length of time owning the mortgaged property. The philosophy of the Flex
Series Program is that no single borrower characteristic should automatically
determine whether an application for a mortgage loan should be approved or
disapproved. Lending decisions are based on a risk analysis assessment after the
review of the entire mortgage loan file. Each mortgage loan is individually
underwritten with emphasis placed on the overall quality of the mortgage loan.
Under the Flex Series Program, the Loan Seller underwrites one- to
four-family mortgage loans with Loan- to-Value Ratios at origination of up to
95%. The Loan Seller's Gold Flex Program underwriting guidelines for purchase
money or rate/term refinance loans secured by primary residences generally allow
Loan-to-Value Ratios at origination of up to 95% for mortgage loans with
original principal balances of up to $300,000, up to 90% for mortgage loans with
original principal balances of up to $400,000, up to 75% for mortgage loans with
original principal balances of up to $650,000 and up to 60% for mortgage loans
with original principal balances of up to $1,000,000, depending on, among other
things, a borrower's credit history, repayment ability and debt service-to-
income ratio, as well as the type and use of the mortgaged property. The Loan
Seller's Flex Extra Program underwriting guidelines for purchase money or
rate/term refinance loans secured by primary residences generally allow
Loan-to-Value Ratios at origination of up to 95% for mortgage loans with
original principal balances of up to $400,000, up to 90% for mortgage loans with
original principal balances of up to $500,000, up to 80% for mortgage loans with
original principal balances of up to $650,000 and up to 70% for mortgage loans
with original principal balances of up to $1,500,000, depending on, among other
things, a borrower's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
Under the Gold Flex Program and the Flex Extra Program, for cash-out refinance
loans, the maximum Loan-to-Value Ratio generally is 75% and 80%, respectively,
and the maximum "cash out" amount permitted is based in part on the
Loan-to-Value Ratio of the related mortgage loan. The Loan Seller generally does
not provide cash-out refinance mortgage loans with original principal balances
in excess of $650,000 with a maximum Loan-to-Value Ratio of 50% and $1,500,000
with a maximum Loan-to-Value Ratio of 65% with respect to the Gold Flex Program
and Flex Extra Program, respectively. Second lien financing of the mortgaged
properties may be provided by lenders other than the Seller at origination;
however, the CLTV generally may not exceed 95% for mortgage loan amounts up to
$400,000 in the Flex Extra Program and 95% for mortgage loan amounts above
$300,000 in the Gold Flex Program. The mortgage loans in the Flex Series Program
generally bear rates of interest that are greater than those which are
originated in accordance with FHLMC and FNMA standards. In general, the maximum
amount for mortgage loans originated under the Gold Flex Program is $1,000,000
and under the Flex Extra Program is $1,500,000; however, the Loan Seller may
approve mortgage loans with strong compensating factors in excess of such amount
on a case-by-case basis.
All of the mortgage loans originated under the Flex Series Program are
underwritten by employees of or independent contractors for the Loan Seller. All
of the Flex Series Program mortgage loans with Loan-to-Value Ratios at
origination in excess of 80% are insured by a Primary Mortgage Insurance Policy
insuring a portion of the balance of the mortgage loan generally equal to the
product of the original principal balance of such mortgage loan and a fraction,
the numerator of which is the excess of the original principal balance of such
mortgage loan over 75% of the lesser of the appraised value and selling price of
the related mortgaged property and the denominator of which
S-42
<PAGE>
is the original principal balance of the related mortgage loan plus accrued
interest thereon and related foreclosure expenses. No such primary mortgage
guaranty insurance policy will be required with respect to any such mortgage
loan after the date on which the related Loan-to-Value Ratio decreases to 80% or
less or, based upon a new appraisal, the principal balance of such mortgage loan
represents 80% or less of the new appraised value. All of the insurers which
have issued primary mortgage guaranty insurance policies with respect to the
Mortgage Loans meet FNMA's or FHLMC's standards or are acceptable to the Rating
Agencies.
Debt Service-to-Income Ratios. The debt service-to-income ratios
utilized in the Flex Series Program generally exceed those of FNMA or FHLMC. In
determining whether a prospective borrower has sufficient monthly income
available (i) to meet the borrower's monthly obligation on the proposed mortgage
loan and (ii) to meet monthly housing expenses and other financial obligations
including the borrower's monthly obligations on the proposed mortgage loan, the
Loan Seller generally considers the ratio of such amounts to the proposed
borrower's acceptable stable monthly gross income. Such ratios vary depending on
a number of underwriting criteria, including Loan-to-Value Ratios, and are
determined on a loan-by-loan basis, but generally do not exceed 38%-40%.
Full/Alternative Documentation, Limited Documentation and "No Ratio"
Flex Series Programs. Each prospective borrower completes a mortgage loan
application which includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. The Loan Seller requires a credit report on each applicant from a
credit reporting company. The report typically contains information relating to
credit history with local and national merchants and lenders, installment debt
payments and any record of defaults, bankruptcies, repossessions or judgments.
The Flex Series Program allows for approval of an application pursuant
to the (a) Full/Alternative Documentation Program, (b) the Limited Documentation
Program, or (c) the "No Ratio" Program. The Full/Alternative Documentation
Program requires the following documents: (i) Uniform Residential Loan
Application (FNMA Form 1003 or FHLMC Form 65), (ii) Statement of Assets and
Liabilities (FNMA Form 1003A or FHLMC 65A), (iii) A tri-merged credit report
(generally from three separate repositories) and/or a standard factual data
credit report, (iv) Verification of Employment Form (or federal tax returns for
self-employed borrowers) providing a complete two year employment history, (v)
Verification of Deposit Form for all liquid assets, verifying minimum cash
reserves based upon the Loan-to-Value Ratio and borrower's income, and (vi) a
Uniform Residential Appraisal Report (FNMA Form 1004 or FHLMC Form 70). The
Full/Alternative Documentation Program allows for the use of certain alternative
documents in lieu of the Verification of Deposit Form and Verification of
Employment Form. These include W-2 Statements, tax returns and one pay check
from the most recent full month for verification of income and the most recent
three months personal bank statements for verification of liquid assets. In
addition, self-employed borrowers must provide federal tax returns for the
previous two to three years, including K-l's, federal business tax returns for
two years, year-to-date financial statements, a business credit report and a
signed IRS Form 4506 (Request for Copy of Tax Returns).
Under the Limited Documentation Program, which is available to
borrowers in every Flex Series Program, the Loan Seller obtains from prospective
borrowers either a verification of deposit or bank statements for the most
recent two-month period preceding the mortgage loan application. Under these
programs the borrower provides income information on the mortgage loan
application, and the debt service-to-income ratio is calculated. However, income
is not verified. Mortgage loans underwritten under the Limited Documentation
Program are limited to borrowers with credit histories that demonstrate an
established ability to repay indebtedness in a timely fashion. Permitted maximum
Loan-to-Value Ratios (including secondary financing) under the Limited
Documentation generally is limited.
Loans originated under the Limited Documentation Program include
cash-out refinance loans and mortgage loans secured by investor-owned
properties. Permitted maximum Loan-to- Value Ratios (including secondary
financing) under the Limited Documentation Program, which range up to 90%, are
more restrictive than under the Full Documentation Program or the Alternative
Documentation Program.
S-43
<PAGE>
The Flex Series Program also allows for approval of applications
pursuant to the "No Ratio" Program. The "No Ratio" Program, available to
borrowers in the Flex Extra Program, is designed for a mortgage loan which
requires a minimum 20% down payment from the borrower with employment
information, but no income information, stated on the application (and,
therefore, the debt service-to-income ratio is not calculated). The
certification of assets is confirmed by written verification of deposits and
supported by bank statements. With respect to the "No Ratio" Program, a mortgage
loan with a Loan-to-Value Ratio at origination in excess of 80% is not eligible.
Under the Full/Alternative Documentation Program the Loan Seller may
verbally verify the borrower's employment prior to closing and under the Limited
Documentation and "No Ratio" Programs the Loan Seller does verbally verifies the
borrower's employment prior to closing. Credit history, collateral quality and
the amount of the down payment are important factors in evaluating a mortgage
loan submitted under the Limited Documentation Programs. In addition, in order
to qualify for a Limited Documentation Program, a mortgage loan must conform to
certain criteria regarding maximum loan amount, property type and occupancy
status. Mortgage loans having a Loan-to-Value Ratio at origination in excess of
70% with respect to the Gold Flex and 80% with respect to the Flex Extra and,
with respect to Gold Flex, mortgage loans on mortgaged property used as a second
or vacation home by the prospective borrowers are not eligible for the Limited
Documentation Program. In general, the maximum loan amount for mortgage loans
underwritten in accordance with the Limited Documentation Program is $650,000
with respect to the Gold Flex Program and $300,000 with respect to the Flex
Extra Program for purchase transactions and rate-term transactions and, with
respect to the Gold Flex Program, a maximum loan amount of $650,000 for cash out
refinance transactions. Secondary financing is allowed in the origination of the
Limited Documentation Program but must meet the CLTV requirements described
above and certain other requirements for subordinate financing. Secondary
financing is not allowed in the case of the "No Ratio" Program. In all cases,
liquid assets are verified and must support the level of income of the borrower
as stated in proportion to the type of employment of the borrower. Full
Documentation is requested by the underwriter if it is the judgment of the
underwriter that the compensating factors are insufficient for loan approval.
Credit History. Under all Flex Series Programs, a FICO Score is
obtained from two to three major credit repositories. "FICO Scores" are
statistical credit scores obtained by many mortgage lenders in connection with
the loan application to help assess a borrower's creditworthiness. FICO Scores
are generated by models developed by a third party and are made available to
lenders through three national credit bureaus. The FICO Score is based on a
borrower's historical credit data, including, among other things, payment
history, delinquencies on accounts, levels of outstanding indebtedness, length
of credit history, types of credit and bankruptcy experience. FICO Scores range
from approximately 250 to approximately 900, with higher scores indicating an
individual with a more favorable credit history compared to an individual with a
lower score. However, a FICO Score purports only to be a measurement of the
relative degree of risk a borrower represents to a lender, i.e., that a borrower
with a higher score is statistically expected to be less likely to default in
payment than a borrower with a lower score. In addition, it should be noted that
FICO Scores were developed to indicate a level of default probability over a
two-year period which does not correspond to the life of a mortgage loan.
Furthermore, FICO Scores were not developed specifically for use in connection
with mortgage loans, but for consumer loans in general. Therefore, a FICO Score
does not take into consideration the affect of mortgage loan characteristics on
the probability of repayment by the borrower. Additionally, the Loan Seller may
utilize an AQI mortgage score, created from the risk analysis platform of PMI
Mortgage Insurance Co. ("PMI"). Credit risk analysis tools, such as FICO and
AQI, are utilized to create representative risk scores on each mortgage loan.
Generally, these scores have demonstrated predictable patterns of repayment
expectations from borrowers based upon the combination of variables from many
loan characteristics as measured by statistical models.
For all Gold Flex mortgage loans, a FICO Score of 675 is required. FICO
Scores below 675 generally are allowed with compensating factors, one of which
may be an acceptable AQI score as determined by PMI and the Loan Seller.
For all Flex Extra mortgage loans, a FICO Score of 660 with exemplary
credit references from the borrower is required. FICO Scores below 660 with
satisfactory credit references will be considered as well with compensating
factors, one of which may be an acceptable AQI score
S-44
<PAGE>
as determined by PMI and the Loan Seller. If a FICO Score is not available or
obtainable, a satisfactory AQI score is required.
Generally, the minimum allowable FICO Score is 620. However, on a
limited case by case basis, with significant compensating factors, lower FICO
Scores may be considered.
The Flex Series Program further defines an acceptable credit history as
one that might include isolated derogatory items provided that the borrower
supplies a satisfactory written explanation or the circumstances causing such
derogatory items. Loans underwritten under the Limited Documentation Flex Series
Program must have at least two years of established credit history on at least
three open accounts where the accounts have been paid according to their terms.
Judgments, bankruptcies, tax liens or foreclosures generally will require that
the mortgage loan be underwritten under the Full Documentation Flex Series
Program.
In general, borrowers may not have more than two thirty-day and no
sixty-day late payments within the past twenty-four months on any revolving
credit account; a maximum of two thirty-day late payments within the past
twenty-four months on any installment credit account and a maximum of one
thirty-day late payments on previous mortgage loans within the past twelve
months. All bankruptcies must be at least twenty-four months old under the Gold
Flex Program and thirty-six months old under the Flex Extra Program, fully
discharged and the borrower must have re-established satisfactory credit.
For equity take-out refinances under the Full Documentation Flex Series
Program with Loan-to-Value Ratios in excess of 75% with respect to the Gold Flex
Program and 80% with respect to the Flex Extra Program, no late payments on
previous mortgage loans are allowed. No late payments on previous mortgage loans
are allowed on equity take-out refinances under the Limited Documentation Flex
Series Program.
Quality Control. The Loan Seller performs a post-funding audit on a
statistical percentage of all Flex Series Program mortgage loans. This audit
includes a review for compliance with Flex Series Program parameters and
accuracy of the legal documents. In a selected audit, the Loan Seller performs a
complete re-verification of employment, income and liquid assets used to qualify
for such mortgage loan. Such review also includes procedures intended to detect
evidence of fraudulent documentation and/or imprudent activity during the
processing of the mortgage loan. Verification of occupancy and applicable
information is made by regular mail. Additionally, the Loan Seller will conduct
pre-funding quality assurance audits of selected Flex Series Program mortgage
loans. In a selected pre-funding audit the Loan Seller performs a complete
re-verification of employment, income and liquid assets used to qualify for such
mortgage loan.
Appraisals. One- to four-family residential properties that are to
secure Flex Series Program mortgage loans are appraised by independent
appraisers who are approved by the Loan Seller. Such appraisers inspect and
appraise the subject property and verify that such property is in acceptable
condition. Following each appraisal, the appraiser prepares a report which
includes a market value analysis based on recent sales of comparable homes in
the area and, when deemed appropriate, replacement cost analysis based on the
current cost of constructing a similar home. All appraisals are required to
conform to the Uniform Standards of Professional Appraisal Practice adopted by
the Appraisal Standards Board of the Appraisal Foundation and must be on forms
acceptable to FNMA and FHLMC. As part of the Loan Seller's quality control
procedures, either field or desk appraisal reviews are obtained on 10% of all
mortgage loans originated under the Flex Series Program. Selected mortgage loans
will also be reviewed for compliance and document accuracy. Desk reviews, field
appraisals and/or additional full appraisals may be required on those mortgage
loans originated under the Flex Series Program with greater risk characteristics
such as higher loan amounts, non-owner occupied properties, second home
properties, cash-out refinance mortgage loans and whenever in the underwriter's
judgment it is necessary to reverify the appraised value of the property.
Variations. The Loan Seller uses the foregoing parameters as guidelines
only. On a case-by-case basis, the Loan Seller may determine that the
prospective mortgagor warrants an exception outside the standard Flex Series
Program guidelines. An exception may be allowed if the loan application reflects
certain compensating factors, including: (i) the prospective mortgagor has
demonstrated an ability to save and devote a greater portion of income to basic
housing needs;
S-45
<PAGE>
(ii) the prospective mortgagor may have a potential for increased earnings and
advancement because of education or special job training, even if the
prospective mortgagor has just entered the job market; (iii) the prospective
mortgagor has demonstrated an ability to maintain a debt free position; (iv) the
prospective mortgagor may have short term income that is verifiable but could
not be counted as stable income because it does not meet the remaining term
requirements; and (v) the prospective mortgagor's net worth is substantial
enough to suggest that repayment of the loan is within the prospective
mortgagor's ability.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Loans and
Mortgaged Premises is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Offered
Securities, Mortgage Loans may be removed from the Mortgage Pool as a result of
incomplete documentation or otherwise, if the Seller deems such removal
necessary or appropriate. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Offered Securities.
A Current Report on Form 8-K will be available to purchasers of the
Offered Securities and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Offered Securities. In the event that Mortgage Loans
are removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in such Current Report on Form
8-K.
THE LOAN SELLER
The information set forth in the following paragraphs has been provided
by the Loan Seller. Neither the Seller, DLJMCI, the Underwriter, the Trustee,
nor any of their respective affiliates have made or will make any representation
as to the accuracy or completeness of the information provided by the Loan
Seller.
North American Mortgage Company (the "Loan Seller" or "NAMC"), a
Delaware corporation, is among one of the nation's largest independent mortgage
bankers. The common and preferred stock of the Loan Seller are registered under
the Securities Act of 1933 and quoted on the New York Stock Exchange. The Loan
Seller is subject to the reporting requirements of the Securities and Exchange
Act of 1934, and in accordance therewith, files reports and other information
with the Commission. Copies of such materials may be obtained at prescribed
rates at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, or by mailing a written request to
the corporate secretary of the Loan Seller at 3883 Airway Drive, Santa Rosa,
California 95403.
The Loan Seller originates, acquires, sells and services mortgage loans
which are principally first-lien mortgage loans secured by single (one- to
four-) family residences. The Loan Seller also sells the servicing rights
associated with a portion of such mortgage loans.
The Loan Seller originates mortgage loans through wholesale, retail,
and telemarketing. Substantially all mortgage loans originated by the Loan
Seller through such sources are underwritten, funded and closed by the Loan
Seller. During 1996, the Loan Seller originated approximately $9.5 billion in
mortgage loans. As of March 31, 1997, the Loan Seller's largest mortgage loan
origination markets were in California, Texas, Minnesota, Florida and Arizona.
As of March 31, 1997, the Loan Seller operated 107 origination offices located
in 31 states.
The Loan Seller customarily sells all of the mortgage loans it
originates, generally retaining the right to service such loans. The Loan Seller
sells the majority of the conventional mortgage loans it originates under
purchase and guarantee programs sponsored by FHLMC and FNMA. The Loan Seller's
mortgage loans insured by FHA or partially guaranteed by VA or the Farmers Home
Administration are pooled to form GNMA securities. The Loan Seller sells FNMA,
FHLMC and GNMA
S-46
<PAGE>
securities to investment banking firms that are usually primary dealers in
government securities. Mortgage loans not conforming to requirements of such
agencies are sold to private institutional investors.
The Loan Seller also engages in mortgage loan servicing, which includes
the processing of mortgage loan payments and the administration of mortgage
loans. The primary source of servicing is from mortgage loans it has originated
and sold. At March 31, 1997, the Loan Seller's loan servicing portfolio totaled
$12.5 billion. See "Pooling and Servicing Agreement -- The Master Servicer"
herein.
In addition to its mortgage banking activity, the Loan Seller wholly
owns an insurance agency known as North American Mortgage Insurance Services
("NAMIS"). NAMIS is a California corporation that offers a full range of
insurance products in most states where the Loan Seller originates mortgage
loans.
At March 31, 1997, the Loan Seller had approximately 2,971 employees.
The Loan Seller's executive offices are located at 3883 Airway Drive, Santa
Rosa, California 95403, and its telephone number is (707) 546- 3310.
No person other than the Loan Seller is obligated with respect to the
representations and warranties respecting the Mortgage Loans and the remedies
for any breach thereof. See "Pooling and Servicing Agreement -- Assignment of
Mortgage Loans" herein.
It is anticipated that the Loan Seller will be the initial holder of
all of the Class B-6 Securities. The Loan Seller may sell the Class B-6
Securities at any time, subject to certain conditions set forth in the Pooling
and Servicing Agreement.
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be dated as of the Cut-off
Date between FASI, as Seller, North American Mortgage Corporation, as Loan
Seller and Master Servicer, and The First National Bank of Chicago, as trustee
(the "Trustee"). Copies of the Pooling and Servicing Agreement will be available
following the Closing Date from the Master Servicer and will be filed with the
Commission within 15 days of the Closing Date. See "The Trust Agreements" in the
Prospectus.
The Securities will represent in the aggregate all the beneficial
ownership in the Trust established by the Seller, into which the Mortgage Loans
will be deposited. The Trust also will include: (i) such assets as from time to
time are identified as deposited in respect of the Mortgage Loans in the one or
more Custodial Accounts established by the Master Servicer for the collection of
payments on the Mortgage Loans and in the Excess Proceeds Account and the
Security Account (each as established under the Pooling and Servicing Agreement)
and as belonging to the Trust, (ii) property acquired by foreclosure of such
Mortgage Loans or by deed in lieu of foreclosure, and (iii) any applicable
hazard insurance policies, any applicable primary mortgage insurance policies,
any other applicable insurance policies and all proceeds thereof.
Distributions on the Offered Securities will be made on each
Distribution Date, commencing in May 1997, to Securityholders of record on the
immediately preceding Record Date.
The Senior Securities (with the exception of the Strip, Principal Only
and Residual Securities) will be Book- Entry Securities. Distributions on the
Book-Entry Securities will be made by or on behalf of the Trustee to DTC (as
described below) by wire transfer. The Strip, Principal Only, Residual and
Subordinate Securities will be issued in certificated, fully-registered form.
Distributions on the Offered Securities that are issued in certificated form
will be made to each
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registered holder entitled thereto, either (i) by check mailed to the address of
such Securityholder as it appears on the books of the Trustee or (ii) at the
request, submitted to the Trustee in writing at least five business days prior
to the related Record Date, of any holder of such an Offered Security having an
initial Security Principal Balance of not less than $1,000,000 (or, with respect
to a Strip Security or a Class FXA-9 Security, an initial Notional Amount of not
less than $1,000,000), by wire transfer in immediately available funds,
provided, that the final distribution in respect of any Offered Security will be
made only upon presentation and surrender of such Security at the Corporate
Trust Office of the Trustee. See "Pooling and Servicing Agreement -- The
Trustee" herein.
The Class FXA-5, Class FXA-6, Class FXA-7, Class A-2, Class A-3 and
Principal Only Securities will be issued in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof. The Class FXA- 1, Class FXA-2,
Class FXA-3, Class FXA-4, Class FXA-8, Class A-1, Class A-4 and Offered
Subordinate Securities will be issued in minimum denominations of $250,000 and
integral multiples of $1,000 in excess thereof. The Residual Securities will be
issued in minimum denominations of $10 and integral multiples of $1.00 in excess
thereof. The Strip Securities and Class FXA-9 Securities will be issued in
minimum initial Notional Amounts of $1.00 and integral multiples of $1.00 in
excess thereof. In addition, one Security of each Class may be issued evidencing
the sum of an authorized denomination thereof and the remainder of the aggregate
initial Security Principal Balance of such Class.
Each of the Class FXA Securities and Class A Securities will be issued
as a Book-Entry Security, maintained and transferred on the book-entry records
of the DTC and its participants. The Book-Entry Securities will be represented
by one or more certificates registered in the name of the nominee of DTC. The
Seller has been informed by DTC that DTC's nominee will be Cede. No Beneficial
Owner of a Book-Entry Security will be entitled to receive a Definitive
Certificate representing such person's interest, except as set forth below under
"-- Book-Entry Registration -- Definitive Securities." Unless and until
Definitive Certificates are issued for the Book- Entry Securities under the
limited circumstances described herein, all references to actions by
Securityholders with respect to the Book-Entry Securities shall refer to actions
taken by DTC upon instructions from its Participants, and all references herein
to distributions, notices, reports and statements to Securityholders with
respect to the Book- Entry Securities shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Book-Entry Securities, for distribution to Beneficial Owners by DTC in
accordance with DTC procedures.
Book-Entry Registration
General. Beneficial Owners that are not participants or indirect
participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the related Book-Entry Securities may do so only through
participants and indirect participants. In addition, Beneficial Owners will
receive all distributions of principal of and interest on the related Book-Entry
Securities through DTC and its participants. Accordingly, Beneficial Owners may
experience delays in their receipt of payments. Unless and until Definitive
Certificates are issued for the related Book-Entry Securities, it is anticipated
that the only registered Securityholder of such Book-Entry Securities will be
Cede, as nominee of DTC. Beneficial Owners will not be recognized by the Trustee
or the Master Servicer as Securityholders, as such term is used in the Pooling
and Servicing Agreement, and Beneficial Owners will be permitted to receive
information furnished to Securityholders and to exercise the rights of
Securityholders only indirectly through DTC, its participants and indirect
participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Book-Entry Securities among participants and to receive and transmit
distributions of principal of and interest on such Book-Entry Securities.
Participants and indirect participants with which Beneficial Owners have
accounts with respect to such Book-Entry Securities similarly are required to
make book-entry transfers and receive and transmit such distributions on behalf
of their respective Beneficial Owners. Accordingly, although Beneficial Owners
will not possess physical certificates evidencing their interests in the
Book-Entry Securities, the Rules provide a mechanism by which Beneficial Owners,
through their participants and indirect participants, will receive distributions
and will be able to transfer their interests in the Book-Entry Securities.
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None of the Seller, DLJMCI, the Loan Seller, the Master Servicer, the
Underwriter or the Trustee, or any of their respective affiliates will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Book-Entry Securities held
by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Securities -- Book-Entry Procedures."
Upon the occurrence of an event described in the Prospectus in the
second to last paragraph under "Description of the Securities -- Book-Entry
Procedures," the Trustee (through DTC) is required to notify participants who
have ownership of Book-Entry Securities as indicated on the records of DTC of
the availability of Definitive Certificates for their Book-Entry Securities.
Upon surrender by DTC of the definitive certificates representing the Book-Entry
Securities and upon receipt of instructions from DTC for re-registration, the
Trustee will re-issue the Book-Entry Securities as Definitive Certificates in
the respective principal amounts owned by individual Beneficial Owners, and
thereafter the Trustee and the Master Servicer will recognize the holders of
such Definitive Certificates as Securityholders under the Pooling and Servicing
Agreement. Such Definitive Certificates will be issued in minimum denominations
of $1,000, except that any certificate that was represented by a Book- Entry
Security in an amount less than $1,000 immediately prior to the issuance of a
Definitive Certificate shall be issued in a minimum denomination equal to the
amount represented by such Book-Entry Security.
For additional information regarding DTC and the Book-Entry Securities,
see "Description of the Securities -- Book-Entry Procedures" in the Prospectus.
Available Distribution
The "Available Distribution" for any Distribution Date and either
Mortgage Loan Group will equal (a) the sum of (i) the balance on deposit in the
Custodial Account relating to such Mortgage Loan Group as of the close of
business on the related Determination Date, (ii) all Advances relating to such
Mortgage Loan Group made with respect to such Distribution Date and (iii)
certain other related amounts to be deposited by the Master Servicer in the
Security Account relating to such Mortgage Loan Group, reduced by (b) the sum of
(i) scheduled payments on the Mortgage Loans collected with respect to such
Mortgage Loan Group but due after the related Due Date, (ii) reinvestment income
on amounts relating to such Mortgage Loan Group in the Custodial Account, (iii)
all amounts reimbursable to the Master Servicer, any subservicer, the Trustee or
the Seller relating to such Mortgage Loan Group and (iv) any unscheduled
payments with respect to such Mortgage Loan Group, including mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of the Mortgage Loans in such Mortgage Loan Group, in
each case received after the applicable Prepayment Period relating to such
Distribution Date. Notwithstanding the foregoing, with respect to the
Subordinate Securities and the Residual Securities (after the Security Principal
Balance of the Residual Securities has been reduced to zero), "Available
Distribution" means, with respect to any Distribution Date, the sum of (x) the
Available Distribution for Group I for such Distribution Date, plus (y) the
Available Distribution for Group II for such Distribution Date, in each case,
after any distributions required to made prior to such Classes of Securities on
such Distribution Date as described below under the headings "-- Distributions
of Interest" and "-- Distributions of Principal." With respect to any
Distribution Date, the "Determination Date" is the 15th day of the month in
which such Distribution Date occurs or, if such day is not a business day, the
immediately preceding business day.
Priority of Distributions
On each Distribution Date prior to the Credit Support Depletion Date
(as defined herein), distributions will be made in the order and priority as
follows:
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(a) With respect to the Class FX Securities to the extent
of the Available Distribution for Group I remaining
following prior distributions, if any, on such
Distribution Date:
(i) first, to the Class FXP Securities, the Class
FXP Fraction of all principal received on or
in respect of each Group I Discount Mortgage
Loan;
(ii) second, to the Class FXA and Class FXS
Securities accrued and unpaid interest at the
respective Pass-Through Rates on their
respective Security Principal Balances (or
the Class FXS Notional Amount and the Class
FXA-9 Notional Amount, in the case of the
Class FXS and Class FXA-9 Securities,
respectively);
(iii) third, to the Class FXA Securities, as
principal, the Class FXA Principal
Distribution Amount in the order described in
"-- Distributions of Principal -- Class FXA
Principal Distribution Amount" herein; and
(iv) fourth, for so long as the Subordinate
Securities are outstanding, to the Class FXP
Securities, the sum of (a) principal in an
amount equal to the Class FXP Fraction of
certain principal losses on the Group I
Discount Mortgage Loans, as described in "--
Distributions of Principal" herein to the
extent of amounts otherwise available to pay
the Subordinate Principal Distribution Amount
(as defined herein) (without regard to clause
(B) of such definition) on such Distribution
Date and (b) the sum of amounts, if any, by
which the amount described in clause (a)
above on each prior Distribution Date
exceeded the amount actually distributed in
respect thereof on such prior Distribution
Dates and not subsequently distributed, to
the extent of the Subordinate Principal
Distribution Amount on such Distribution Date
(any amounts distributed in respect of losses
pursuant to this paragraph shall not cause a
further reduction in the Security Principal
Balance of the Class FXP Securities);
provided, that if the amounts otherwise
available to pay the Subordinate Principal
Distribution Amount for any such Distribution
Date are insufficient to cover such
outstanding principal losses for the Class
FXP Securities as provided above and Class P
Securities as provided in clause (iv) of
paragraph (b) below, then the amounts
otherwise available to pay the Subordinate
Principal Distribution Amount will be
allocated pro rata to the Class FXP and Class
P Securities based on the amount such
Securities are entitled to receive pursuant
to this clause, in the case of the Class FXP
Securities, and clause (iv) of paragraph (b)
below, in the case of the Class P Securities;
(b) With respect to the Class II Securities, to the extent
of the Available Distribution for Group II remaining
following prior distributions, if any, on such
Distribution Date:
(i) first, to the Class P Securities, the Class P
Fraction (as defined herein) of all principal
received on or in respect of each Group II
Discount Mortgage Loan (as defined herein);
(ii) second, to the Class A, Class S and Residual
Securities, accrued and unpaid interest at
their respective Pass-Through Rates on their
respective Security Principal Balances (or
the Class S Notional Amount, in the case of
the Class S Securities);
(iii) third, as described in the Pooling and
Servicing Agreement, to the Residual
Securities, as principal, pro rata, until
their respective Security Principal Balances
have been reduced to zero, and then to the
Class A Securities, as principal, the Class A
Principal Distribution Amount in the order
described in "-- Distributions of Principal
-- Class A Principal Distribution Amount"
herein; and
(iv) fourth, for so long as the Subordinate
Securities are outstanding, to the Class P
Securities, the sum of (a) principal in an
amount equal to the Class P Fraction of
certain principal losses on the Group II
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<PAGE>
Discount Mortgage Loans, as described in "--
Distributions of Principal" herein to the
extent of amounts otherwise available to pay
the Subordinate Principal Distribution Amount
(without regard to clause (B) of such
definition) on such Distribution Date and (b)
the sum of amounts, if any, by which the
amount described in clause (a) above on each
prior Distribution Date exceeded the amount
actually distributed in respect thereof on
such prior Distribution Dates and not
subsequently distributed, to the extent of
the Subordinate Principal Distribution Amount
on such Distribution Date (any amounts
distributed in respect of losses pursuant to
this paragraph shall further reduction in the
Security Principal Balance of the Class P
Securities); provided, that if the amounts
otherwise available to pay the Subordinate
Principal Distribution Amount for any such
Distribution Date are insufficient to cover
such outstanding principal losses for the
Class P Securities as provided above and
Class FXP Securities as provided in clause
(iv) of paragraph (a) above, then the amounts
otherwise available to pay the Subordinate
Principal Distribution Amount will be
allocated pro rata to the Class FXP and Class
P Securities based on the amount such
Securities are entitled to receive pursuant
to this clause, in the case of the Class P
Securities, and clause (iv) of paragraph (a)
above, in the case of the Class FXP
Securities.
(c) With respect to the Subordinate Securities and the
Residual Securities, subject to the payment of the
Senior Securities as described above, and to the
extent of the Available Distribution for both Mortgage
Loan Groups remaining, if any, following prior
distributions on such Distribution Date:
(i) first, to the Class B-1 Securities, accrued
and unpaid interest at the Class B-1 Pass-
Through Rate on the Security Principal
Balance of the Class B-1 Securities;
(ii) second, to the Class B-1 Securities, their
pro rata share of the Subordinate Principal
Distribution Amount (based upon such Class'
Security Principal Balance as a percentage of
the Security Principal Balance of all of the
Subordinate Securities);
(iii) third, to the Class B-2 Securities, accrued
and unpaid interest at the Class B-2 Pass-
Through Rate on the Security Principal
Balance of the Class B-2 Securities;
(iv) fourth, to the Class B-2 Securities, their
pro rata share of the Subordinate Principal
Distribution Amount (based upon such Class'
Security Principal Balance as a percentage of
the Security Principal Balance of all of the
Subordinate Securities);
(v) fifth, to the Class B-3 Securities, accrued
and unpaid interest at the Class B-3 Pass-
Through Rate on the Security Principal
Balance of the Class B-3 Securities;
(vi) sixth, to the Class B-3 Securities, their pro
rata share of the Subordinate Principal
Distribution Amount (based upon such Class'
Security Principal Balance as a percentage of
the Security Principal Balance of all of the
Subordinate Securities);
(vii) seventh, to the remaining Subordinate
Securities, interest and principal in the
same manner as for the Subordinate Securities
in clauses (i) through (vi) above, first to
the Class B-4 Securities, then to the Class
B-5 Securities and then to the Class B-6
Securities;
(viii) eighth, to each Class of the Subordinate
Securities in the order of seniority, the
remaining portion, if any, of the Available
Distribution, up to the amount of
unreimbursed Realized Losses previously
allocated to such Class, if any, provided
distribution of any amount pursuant to this
paragraph shall not cause a further reduction
in the Security Principal Balances of such
Class of Subordinate Securities; and
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<PAGE>
(ix) ninth, to the Class R and Class RP Securities, the
remaining portion, if any, of the Available
Distribution for both Mortgage Loan Groups for such
Distribution Date after all prior distributions on
such Distribution Date in respect of the Issuing
REMIC and the Pooling REMIC, as their respective
interests are described in the Pooling and Servicing
Agreement.
With respect to the Subordinate Securities, notwithstanding
the foregoing, on any Distribution Date on which the
Subordination Level for any Class of Subordinate Securities is
less than such percentage as of the Cut-off Date, the portion
of the Subordinate Principal Distribution Amount otherwise
allocable to the Class or Classes junior to such Class will be
allocated to the most senior Class of Subordinate Securities
for which the Subordination Level is less than such
percentages of the Cut-off Date and to the Class or Classes of
Subordinate Securities senior thereto, pro rata according to
the Security Principal Balances of such Classes. The
"Subordination Level" on any specified date with respect to
any Class of Subordinate Securities is the percentage obtained
by dividing the sum of the Security Principal Balances of all
Classes of Securities which are subordinate in right of
payment to such Class by the sum of the Security Principal
Balances of all of the Securities as of such date prior to
giving effect to distributions or allocations of Realized
Losses on the Mortgage Loans on such date.
On each Distribution Date on or after the Credit Support Depletion
Date, distributions will be made in the order and priority as follows:
(a) With respect to the Class FX Securities (and to the limited
extent described below, the Class R, Class RP and Class A
Securities), subject, in each case, to the extent of the
Available Distribution for Group I remaining following prior
distributions, if any, on such Distribution Date:
(i) first, to the Class FXP Securities, the Class FXP
Fraction of all principal received on or in respect
of each Group I Discount Mortgage Loan;
(ii) second, to the Class FXA and Class FXS Securities,
accrued and unpaid interest at their respective
Pass-Through Rates on their respective Security
Principal Balances (or the Class FXS Notional Amount
and Class FXA-9 Notional Amount, in the case of the
Class FXS and Class FXA-9 Securities, respectively),
pro rata (based on the amount of interest to which
each Class of Class FX Securities (other than the
Class FXP Securities) is entitled to receive);
(iii) third, to the Class FXA Securities, the Class FXA
Principal Distribution Amount, pro rata according to
their respective Security Principal Balances;
(iv) fourth, to the Class II Securities as additional
Available Distribution; and
(v) fifth, to the Class R and Class RP Securities, the
remaining portion, if any, of the Available
Distribution for Group I for such Distribution Date
after all prior distributions on such Distribution
Date in respect of the Issuing REMIC and the Pooling
REMIC, as their respective interests are described in
the Pooling and Servicing Agreement.
(b) With respect to the Group II Securities (and to the limited
extent described below, the Class FX Securities), subject, in
each case, to the extent of the Available Distribution for
Group II remaining following prior distributions, if any, on
such Distribution Date:
(i) first, to the Class P Securities, the Class P
Fraction of all principal received on or in respect
of each Group II Discount Mortgage Loan;
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<PAGE>
(ii) second, to the Class A, Residual and Class S
Securities, accrued and unpaid interest at their
respective Pass-Through Rates on their respective
Security Principal Balances (or the Class S Notional
Amount, in the case of the Class S Securities), pro
rata (based on the amount of interest to which each
Class of Class A Securities (other than the Class P
Securities) is entitled to receive);
(iii) third, to the Class A and Residual Securities, the
Class A Principal Distribution Amount, pro rata
according to their respective Security Principal
Balances;
(iv) fourth, to the Class FX Securities as additional
Available Distribution; and
(v) fifth, to the Class R and Class RP Securities, the
remaining portion, if any, of the Available
Distribution for Group II for such Distribution Date
after all prior distributions on such Distribution
Date in respect of the Issuing REMIC and the Pooling
REMIC, as their respective interests are described in
the Pooling and Servicing Agreement.
The "Credit Support Depletion Date" is the first Distribution Date on
which the aggregate of the Security Principal Balances of the Subordinate
Securities has been or will be reduced to zero.
Except in the limited circumstances described herein, distributions of
interest and principal to the Class FX and Class II Securities will be based
solely on payments received with respect to Group I Mortgage Loans and Group II
Mortgage Loans, respectively.
Distributions of Interest
With respect to each Class of Securities (except the Principal Only
Securities), interest will be passed through monthly on each Distribution Date,
commencing in May 1997. With respect to each Distribution Date, an amount of
interest will accrue during the related Interest Accrual Period on each Class of
Securities generally equal to 1/12th of the applicable Pass-Through Rate for
such Class multiplied by the related Security Principal Balance or Notional
Amount, as applicable. Interest to be distributed on the Securities on any
Distribution Date will consist of accrued and unpaid interest as of previous
Distribution Dates and interest accrued during the related Interest Accrual
Period. All distributions of interest for each Class of Securities will
generally be made only to the extent of the Available Distribution for the
related Mortgage Loan Group as described herein under "-- Priority of
Distributions." Interest payable on the Securities shall be calculated based on
the Security Principal Balance of each Class of Securities after giving effect
to all distributions of principal and allocations of Realized Losses on all
preceding Distribution Dates.
For each Distribution Date, the "Interest Accrual Period" for each
Class of Securities (other than the Floater Securities) is the calendar month
preceding such Distribution Date, and for the Floater Securities is the period
beginning on the 25th day of the month preceding such Distribution Date and
ending on the 24th day of the month in which such Distribution Date occurs.
The Pass-Through Rates for the Securities (other than the LIBOR
Securities) are fixed as set forth on the cover page hereof. The Strip
Securities will accrue interest on the applicable Notional Amount. The Class FXS
Notional Amount with respect to any Distribution Date will equal the product of
(x) the aggregate Scheduled Principal Balance, as of the second preceding Due
Date after giving effect to payments scheduled to be received as of such Due
Date, whether or not received, or with respect to the initial Distribution Date,
as of the Cut-off Date, of the Group I Premium Rate Mortgage Loans and (y) a
fraction, the numerator of which is the weighted average of the Stripped
Interest Rates (as defined herein) for the Group I Premium Rate Mortgage Loans
and the denominator of which is 7.75%. The Class FXS Notional Amount as of the
Cut-off Date will be approximately $9,750,681. The "Stripped Interest Rate" for
each Group I Premium Rate Mortgage Loan is the excess of the Net Rate for such
Mortgage Loan over 7.75%.
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<PAGE>
The "Class S Notional Amount" with respect to any Distribution Date
will equal the product of (x) the aggregate Scheduled Principal Balance, as of
the second preceding Due Date after giving effect to payments scheduled to be
received as of such Due Date, whether or not received, or with respect to the
initial Distribution Date, as of the Cut-off Date, of the Group II Premium Rate
Mortgage Loans and (y) a fraction, the numerator of which is the weighted
average of the Stripped Interest Rates (as defined herein) for the Group II
Premium Rate Mortgage Loans and the denominator of which is 7.75%. The Class S
Notional Amount as of the Cut-off Date will be approximately $1,201,720. The
"Stripped Interest Rate" for each Group II Premium Rate Mortgage Loan is the
excess of the Net Rate for such Mortgage Loan over 7.75%.
The initial Pass-Through Rate for the Class FXA-8 Securities is set
forth on the cover page hereof. Thereafter, the Class FXA-8 Securities will
accrue interest at a per annum rate equal to LIBOR plus 0.45%, subject to a
minimum Pass-Through Rate of 0.45% per annum and a maximum Pass-Through Rate of
8.50% per annum. The initial Pass-Through Rate for the Class FXA-9 Securities is
set forth on the cover page hereof. Thereafter, the Class FXA-9 Securities will
accrue interest at a per annum rate equal to 8.05% minus LIBOR, subject to a
minimum Pass-Through Rate of 0.00% per annum and a maximum Pass-Through Rate of
8.05% per annum. The Class FXA-9 Securities will accrue interest on the Class
FXA-9 Notional Amount, which will equal the Security Principal Balance of the
Class FXA-8 Securities at the time of determination. The Strip Securities and
Class FXA-9 Securities are not entitled to receive distributions of principal.
Subject to the limitations described in this Prospectus Supplement
under "Certain Yield and Prepayment Considerations," on each Distribution Date
the Master Servicer is obligated to pass through an amount equal to the lesser
of (a) any shortfall for the related month in interest collections resulting
from the timing of prepayments in full made from the 15th day of the calendar
month preceding such Distribution Date to the last day of such month, and (b)
the monthly Servicing Fee. The amount so passed through will hereinafter be
referred to as "Compensating Interest." If the amount of Compensating Interest
with respect to any Distribution Date is not sufficient to cover all Prepayment
Interest Shortfalls, there will be a corresponding shortfall to the extent of
the amount of Prepayment Interest Shortfalls not offset by such Compensating
Interest in the interest distributed to Securityholders on such Distribution
Date, and any such shortfall, as well as any Soldiers' and Sailors' Shortfall,
will be allocated pro rata to reduce the interest distribution to which each
Class of Securities would otherwise be entitled.
LIBOR
The LIBOR Securities will bear interest at their respective
Pass-Through Rates, which are based on the London Interbank Offered Rate for
one-month U.S. Dollar deposits ("LIBOR") determined by the Trustee. The Trustee
will determine LIBOR and the Pass-Through Rates for the LIBOR Securities for a
given Interest Accrual Period, other than the initial Interest Accrual Period,
on the second business day prior to the day on which such Interest Accrual
Period commences (a "LIBOR Determination Date"). For this purpose a "business
day" is any day on which banks in London and New York City are open for the
transaction of international business. The Pass- Through Rates for the LIBOR
Securities, and the outstanding Security Principal Balance or Notional Amount,
as applicable, for each Class of LIBOR Securities (expressed as a percentage of
the initial Security Principal Balance and as a percentage of the initial
Notional Amount, as applicable) applicable to the then current and the
immediately preceding Interest Accrual Period will appear on Telerate. The
specific Telerate page number upon which such information appears may be
obtained from the Trustee.
With respect to any Interest Accrual Period commencing on or after the
Closing Date, the determination of LIBOR will be made in accordance with the
following provisions:
(i) On each LIBOR Determination Date, the Trustee will determine
LIBOR on the basis of LIBOR quotations as of approximately
11:00 a.m. (London time) on the LIBOR Determination Date in
question, as such quotations appear on the Telerate Page 3750
(as defined in the International Swap Dealers Association Inc.
Code of 1987 Interest Rate and Currency Exchange Definitions).
If such rate does not appear on Telerate Page 3750, the LIBOR
for that day will be determined on the basis of the rates at
which deposits in U.S. Dollars are offered by the Reference
Banks (as defined below) at approximately 11:00 a.m. London
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<PAGE>
Time on the LIBOR Determination Date to prime banks in the
London interbank market for a period of one month commencing
on the first day of such Interest Accrual Period. The Trustee
will request the principal London office of each of four major
banks selected by the Trustee (the "Reference Banks") to
provide a quotation of its rate.
(ii) If, on any LIBOR Determination Date, at least two of the
Reference Banks provide quotations, LIBOR will be determined
as the arithmetic mean (rounded upward, if necessary, to the
nearest multiple of 1/16 of 1%) of such offered quotations.
(iii) If, on any LIBOR Determination Date, only one or none of the
Reference Banks provides quotations, LIBOR will be the higher
of:
(a) LIBOR as determined on the previous LIBOR
Determination Date (or, in the case of the first
LIBOR Determination Date, the initial LIBOR of
5.50%); or
(b) the Reserve Rate. The Reserve Rate will be the rate
per annum (rounded upward, if necessary, to the
nearest multiple of 1/16 of 1%) that the Trustee
determines to be either (1) the arithmetic mean of
the offered quotations that the leading banks in New
York City selected by the Trustee are quoting on the
relevant LIBOR Determination Date for one- month
United States Dollar deposits to the principal London
office of each of the Reference Banks or those of
them (being at least two in number) to which such
offered quotations are, in the opinion of the
Trustee, being so made, or (2) in the event that the
Trustee can determine no such arithmetic mean, the
arithmetic mean of the offered quotations that
leading banks in New York City selected by the
Trustee are quoting on such LIBOR Determination Date
to leading European banks for one-month United States
dollar deposits; provided, however, that if the banks
selected by the Trustee are not quoting as mentioned
above, LIBOR for the next Interest Accrual Period
will be LIBOR as specified in (a) above.
(iv) Notwithstanding the foregoing, LIBOR for the next succeeding
Interest Accrual Period shall not be based on LIBOR for the
previous Interest Accrual Period for two consecutive LIBOR
Determination Dates. If, under the priorities described above,
LIBOR for the next succeeding Interest Accrual Period would be
based on LIBOR for the previous LIBOR Determination Date for
the second consecutive LIBOR Determination Date, the Trustee
shall select an alternative index (over which the Trustee has
no control) used for determining LIBOR that is calculated and
published (or otherwise made available) by an independent
third party.
Each Reference Bank (i) shall be a leading bank engaged in transactions
in Eurodollar deposits in the international Eurocurrency market, (ii) shall not
control, be controlled by, or be under common control with, the Trustee and
(iii) shall have an established place of business in London. If any such
Reference Bank should be unwilling or unable to act as such or if the Trustee
should terminate the designation of any such Reference Bank, the Trustee will
promptly designate another leading bank meeting the criteria specified above.
The establishment of LIBOR on each LIBOR Determination Date by the
Trustee and the Trustee's calculation of the Pass-Through Rate for the LIBOR
Securities for the related Interest Accrual Period shall, in the absence of
manifest error, be final and binding.
Listed below are some historical values of LIBOR since January 1992.
Such values were not determined in accordance with the provisions set forth
above and are intended only to provide a historical summary of the movement in
yields on LIBOR; the monthly figures set forth below are the value of LIBOR as
derived from various sources.
S-55
<PAGE>
<TABLE>
<CAPTION>
YEAR
---------------------------------------------------------------------------------
MONTH 1997 1996 1995 1994 1993 1992
- ----- --------- ---------- ---------- ---------- ---------- -------
<S> <C>
January................... 5.43750% 5.43750% 6.09375% 3.12500% 3.18750% 4.18750%
February.................. 5.43750 5.31250 6.12500 3.56250 3.18750 4.25000
March..................... 5.68750 5.43750 6.12500 3.68750 3.18750 4.25000
April..................... 5.43750 6.06250 4.00000 3.12500 3.93750
May....................... 5.43750 6.06250 4.37500 3.25000 4.00000
June...................... 5.49609 6.12500 4.56250 3.18750 3.93750
July...................... 5.46484 5.87500 4.50000 3.18750 3.37500
August.................... 5.43750 5.87500 4.87500 3.18750 3.50000
September................. 5.43359 5.87500 5.06250 3.18750 3.12500
October................... 5.37500 5.83203 5.06250 3.18750 3.25000
November.................. 5.56250 5.97656 6.06250 3.56250 4.25000
December.................. 5.68750 6.00000 6.00000 3.31250 4.68750
</TABLE>
Distributions of Principal
General. On each Distribution Date, Securityholders will be entitled to
receive principal distributions from the Available Distribution to the extent
and priority described herein. See "-- Priority of Distributions" herein. Except
in the limited circumstances described herein, the Class FX Securities (other
than the Class FXS and Class FXA-9 Securities which are not entitled to receive
principal distributions) will receive principal collected from Group I Mortgage
Loans and the Class II Securities (other than the Class S Securities which are
not entitled to receive principal distributions) will receive principal
collected from Group II Mortgage Loans. The Subordinate Securities will receive
principal collected from Mortgage Loans in both Mortgage Loan Groups.
The Strip Securities and Class FXA-9 Securities will not receive any
distributions of principal.
Class FXP Principal Distribution Amount. On each Distribution Date, the
Class FXP Securities will receive a portion of the Available Distribution for
Group I attributable to principal received on or in respect of any Group I
Mortgage Loan with a Net Rate of less than 7.75% (a "Group I Discount Mortgage
Loan"), equal to the amount of such principal so attributable multiplied by a
fraction, the numerator of which is 7.75% minus the Net Rate on such Group I
Discount Mortgage Loan and the denominator of which is 7.75% (the "Class FXP
Fraction"). In addition, on each Distribution Date for so long as any Class of
Subordinate Securities remains outstanding, the Class FXP Securities will also
be allocated principal, to the extent of amounts available to pay the
Subordinate Principal Distribution Amount (without regard to clause (B) of such
definition) on such Distribution Date, in an amount generally equal to the Class
FXP Fraction of any loss on a Group I Discount Mortgage Loan other than Excess
Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses, such
payments in respect of losses shall not cause a further reduction of the
outstanding Security Principal Balance of the Class FXP Securities; provided,
that if the amounts otherwise available to pay the Subordinate Principal
Distribution Amount for any such Distribution Date are insufficient to cover
such outstanding principal losses for the Class FXP Securities as provided above
and Class P Securities as provided below, then the amounts otherwise available
to pay the Subordinate Principal Distribution Amount will be allocated pro rata
to the Class FXP and Class P Securities based on the amount such Securities are
entitled to receive pursuant to this sentence, in the case of the Class FXP
Securities, and the second sentence under "Class P Principal Distribution
Amount" below, in the case of the Class P Securities. The aggregate of the
amounts payable to the Class FXP Securities described in this paragraph are
referred to herein as the "Class FXP Principal Distribution Amount."
Class FXA Principal Distribution Amount. On each Distribution Date
prior to the Credit Support Depletion Date, an amount, up to the amount of the
Class FXA Principal Distribution Amount for such Distribution Date, to the
extent of the amount, if any, remaining following prior distributions on such
Distribution Date, will be distributed as principal to the following Classes of
Class FXA Securities in the following order of priority:
S-56
<PAGE>
(i) first, to the Class FXA-2 Securities, an amount, up to the
amount of the Class FXA-2 Principal Distribution Amount (as
defined herein), until the Security Principal Balance of the
Class FXA-2 Securities has been reduced to zero;
(ii) second, concurrently, 46.8750007782% and 53.1249992218% to the
Class FXA-1 and Class FXA- 8 Securities, respectively, until
the Security Principal Balance of the Class FXA-1 Securities
has been reduced to zero;
(iii) third, concurrently, 65.2173932559% and 34.7826067441% to the
Class FXA-3 and Class FXA-8 Securities, respectively, until
the Security Principal Balance of the Class FXA-3 Securities
has been reduced to zero;
(iv) fourth, concurrently 75% and 25% to the Class FXA-4 and Class
FXA-8 Securities, respectively, until the Security Principal
Balances of the Class FXA-4 and Class FXA-8 Securities have
been reduced to zero;
(v) fifth, sequentially, to the Class FXA-5, Class FXA-6 and Class
FXA-7 Securities, until the Security Principal Balance of each
such Class has been reduced to zero; and
(vi) sixth, to the Class FXA-2 Securities, until the Security
Principal Balance of the Class FXA-2 Securities has been
reduced to zero.
The "Class FXA Principal Distribution Amount" for any Distribution Date
will equal the sum of (i) the Class FXA Percentage (as defined below) of the
Principal Payment Amount (as defined below) for Group I (exclusive of the
portion thereof attributable to the Class FXP Principal Distribution Amount),
(ii) the Class FXA Prepayment Percentage (as defined below) of the Principal
Prepayment Amount (as defined below) for Group I (exclusive of the portion
thereof attributable to the Class FXP Principal Distribution Amount), and (iii)
the Class FXA Liquidation Amount (as defined below).
The "Class FXA Liquidation Amount" is the aggregate of, for each Group
I Mortgage Loan which became a Liquidated Loan during the calendar month
preceding the month of the Distribution Date, the lesser of (i) the Class FXA
Percentage of the principal balance of such Mortgage Loan (exclusive of the
Class FXP Fraction thereof, with respect to any Group I Discount Mortgage Loan)
and (ii) the Class FXA Prepayment Percentage of the Liquidation Principal with
respect to such Mortgage Loan.
"Liquidation Principal" is the principal portion of Liquidation
Proceeds received with respect to each Mortgage Loan which became a Liquidated
Loan (but not in excess of the principal balance thereof) during the calendar
month preceding the month of the Distribution Date, exclusive of the portion
thereof attributable to the applicable Class FXP Principal Distribution Amount.
The "Class FXA Percentage" for any Distribution Date will equal the
lesser of (i) 100% and (ii) the sum of the Security Principal Balances of the
Class FXA Securities divided by the aggregate Scheduled Principal Balance of the
Group I Mortgage Loans (less the Class FXP Principal Balance), in each case
immediately prior to the Distribution Date.
The "Class FXA-2 Principal Distribution Amount" for any Distribution
Date will equal the sum of (i) the Class FXA-2 Percentage (as defined below) of
the Principal Payment Amount for Group I (exclusive of the portion thereof
attributable to the Class FXP Principal Distribution Amount), (ii) the Class
FXA-2 Prepayment Percentage (as defined herein) of the Principal Prepayment
Amount for Group I (exclusive of the portion thereof attributable to the Class
FXP Principal Distribution Amount) and (iii) the Class FXA-2 Liquidation Amount
(as defined below).
The "Class FXA-2 Percentage" for any Distribution Date will equal the
lesser of (i) 100% and (ii) the Class FXA-2 Principal Balance divided by the
aggregate Scheduled Principal Balance of the Group I Mortgage Loans (less
S-57
<PAGE>
the Security Principal Balance of the Class FXP Securities), in each case
immediately prior to the Distribution Date. The "Class FXA-2 Liquidation Amount"
is the aggregate of, for each Group I Mortgage Loan which became a Liquidated
Loan during the calendar month preceding the month of the Distribution Date, the
lesser of (i) the Class FXA-2 Percentage of the principal balance of such
Mortgage Loan (exclusive of the Class FXP Fraction thereof, if applicable) and
(ii) the Class FXA-2 Percentage on any Distribution Date occurring prior to the
fifth anniversary of the first Distribution Date, and the Class FXA-2 Prepayment
Percentage (as defined herein) on any Distribution Date thereafter, in each
case, of the Liquidation Principal with respect to such Mortgage Loan.
Class P Principal Distribution Amount. On each Distribution Date, the
Class P Securities will receive a portion of the Available Distribution for
Group II attributable to principal received on or in respect of any Group II
Mortgage Loan with a Net Rate of less than 7.75% (a "Group II Discount Mortgage
Loan"), equal to the amount of such principal so attributable multiplied by a
fraction, the numerator of which is 7.75% minus the Net Rate on such Group II
Discount Mortgage Loan and the denominator of which is 7.75% (the "Class P
Fraction"). In addition, on each Distribution Date for so long as any Class of
Subordinate Securities remains outstanding, the Class P Securities will also be
allocated principal, to the extent of amounts available to pay the Subordinate
Principal Distribution Amount (without regard to clause (B) of such definition)
on such Distribution Date, in an amount generally equal to the Class P Fraction
of any loss on a Group II Discount Mortgage Loan other than Excess Special
Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses, such payments in
respect of losses shall not cause a further reduction of the outstanding
Security Principal Balance of the Class P Securities; provided, that if the
amounts otherwise available to pay the Subordinate Principal Distribution Amount
for any such Distribution Date are insufficient to cover such outstanding
principal losses for the Class P Securities as provided above and Class FXP
Securities as provided above, then the amounts otherwise available to pay the
Subordinate Principal Distribution Amount will be allocated pro rata to the
Class FXP and Class P Securities based on the amount such Securities are
entitled to receive pursuant to this sentence, in the case of the Class P
Securities, and the second sentence of the "Class FXP Principal Distribution
Amount" above, in the case of the Class FXP Securities. The aggregate of the
amounts payable to the Class P Securities described in this paragraph are
referred to herein as the "Class P Principal Distribution Amount."
Class A Principal Distribution Amount. On each Distribution Date prior
to the Credit Support Depletion Date, an amount, up to the amount of the Class A
Principal Distribution Amount for such Distribution Date, to the extent of the
amount, if any, remaining following prior distributions on such Distribution
Date, will be distributed as principal to the following Classes of Class A and
Residual Securities in the following order of priority:
(i) first, as described in the Pooling and Servicing Agreement,
concurrently, to each Class of Residual Securities, until the
respective Security Principal Balance thereof has been reduced
to zero;
(ii) second, to the Class A-4 Securities, an amount, up to the
Class A-4 Principal Distribution Amount, until the Security
Principal Balance of the Class A-4 Securities has been reduced
to zero;
(iii) third, to the Class A-1 Securities, until the Security
Principal Balance of the Class A-1 Securities has been reduced
to zero;
(iv) fourth, to the Class A-2 Securities, until the Security
Principal Balance of the Class A-2 Securities has been reduced
to zero;
(v) fifth, to the Class A-3 Securities, until the Security
Principal Balance of the Class A-3 Securities has been reduced
to zero; and
(vi) sixth, to the Class A-4 Securities, until the Security
Principal Balance of the Class A-4 Securities has been reduced
to zero.
S-58
<PAGE>
The "Class A Principal Distribution Amount" for any Distribution Date
will equal the sum of (i) the Class A Percentage (as defined below) of the
Principal Payment Amount for Group II (exclusive of the portion thereof
attributable to the Class P Principal Distribution Amount), (ii) the Class A
Prepayment Percentage (as defined below) of the Principal Prepayment Amount for
Group II (exclusive of the portion thereof attributable to the Class P Principal
Distribution Amount), and (iii) the Class A Liquidation Amount (as defined
below).
The "Class A Liquidation Amount" is the aggregate of, for each Group II
Mortgage Loan which became a Liquidated Loan during the calendar month preceding
the month of the Distribution Date, the lesser of (i) the Class A Percentage of
the principal balance of such Mortgage Loan (exclusive of the Class P Fraction
thereof, with respect to any Group II Discount Mortgage Loan) and (ii) the Class
A Prepayment Percentage of the Liquidation Principal with respect to such
Mortgage Loan.
The "Class A Percentage" for any Distribution Date will equal the
lesser of (i) 100% and (ii) the sum of the Security Principal Balances of the
Class A and Residual Securities divided by the aggregate Scheduled Principal
Balance of the Group II Mortgage Loans (less the Class P Principal Balance), in
each case immediately prior to the Distribution Date.
The "Class A-4 Principal Distribution Amount" for any Distribution Date
will equal the sum of (i) the Class A-4 Percentage (as defined below) of the
Principal Payment Amount for Group II (exclusive of the portion thereof
attributable to the Class P Principal Distribution Amount), (ii) the Class A-4
Prepayment Percentage (as defined herein) of the Principal Prepayment Amount for
Group II (exclusive of the portion thereof attributable to the Class P Principal
Distribution Amount) and (iii) the Class A-4 Liquidation Amount (as defined
below).
The "Class A-4 Percentage" for any Distribution Date will equal the
lesser of (i) 100% and (ii) the Class A-4 Principal Balance divided by the
aggregate Scheduled Principal Balance of the Group II Mortgage Loans (less the
Class P Principal Balance), in each case immediately prior to the Distribution
Date. The "Class A-4 Liquidation Amount" is the aggregate of, for each Group II
Mortgage Loan which became a Liquidated Loan during the calendar month preceding
the month of the Distribution Date, the lesser of (i) the Class A-4 Percentage
of the principal balance of such Mortgage Loan (exclusive of the Class P
Fraction thereof, if applicable) and (ii) the Class A-4 Percentage on any
Distribution Date occurring prior to the fifth anniversary of the first
Distribution Date, and the Class A-4 Prepayment Percentage (as defined herein)
on any Distribution Date thereafter, in each case, of the Liquidation Principal
with respect to such Mortgage Loan.
For any Distribution Date and for either Mortgage Loan Group, the
"Principal Payment Amount" is the sum of scheduled principal payments on the
Mortgage Loans in such Mortgage Loan Group due on the related Due Date. For any
Distribution Date and for either Mortgage Loan Group, the "Principal Prepayment
Amount" is the sum of (i) all partial principal prepayments from the Mortgage
Loans in such Mortgage Loan Group which were received during the preceding
calendar month, (ii) all principal prepayments in full from the Mortgage Loans
in such Mortgage Loan Group received from the 15th day of the month immediately
prior to the month of such Distribution Date through the 14th day of the month
of such Distribution Date (provided that principal prepayments in full received
from the Cut-off Date through April 14, 1997 will be passed through to holders
of Securities on the May 1997 Distribution Date), (iii) the principal portion of
repurchase proceeds received with respect to any Mortgage Loan in such Mortgage
Loan Group which was repurchased as permitted or required by the Pooling and
Servicing Agreement during the calendar month preceding the month of the
Distribution Date and (iv) any other unscheduled payments of principal which
were received from the Mortgage Loans in such Mortgage Loan Group during the
preceding calendar month, other than principal prepayments in full, partial
principal prepayments or Liquidation Principal. Except as described herein,
principal distributions to the Class FXA Securities will be based on the
Principal Payment Amount, Principal Prepayment Amount and Liquidation Principal
for the Group I Mortgage Loans and principal distributions to the Class A
Securities will be based on the Principal Payment Amount, Principal Prepayment
Amount and Liquidation Principal for the Group II Mortgage Loans. Principal
distributions to the Subordinate Securities will be based on the Principal
Payment Amount, Principal Prepayment Amount and Liquidation Principal for both
Mortgage Loan Groups.
S-59
<PAGE>
The "Class FXA Prepayment Percentage" and "Class A Prepayment
Percentage" for any Distribution Date occurring will be as follows: for any
Distribution Date occurring prior to May 2002, 100%; for any Distribution Date
in May 2002 through and including April 2003, the Class FXA or Class A
Percentage, as the case may be, for such Distribution Date plus 70% of the
Subordinate Percentage (as defined herein) for the related Mortgage Loan Group
for such Distribution Date; for any Distribution Date occurring in May 2003
through and including April 2004, the Class FXA or Class A Percentage, as the
case may be, for such Distribution Date plus 60% of the Subordinate Percentage
for the related Mortgage Loan Group for such Distribution Date; for any
Distribution Date occurring in May 2004 through and including April 2005, the
Class FXA or Class A Percentage, as the case may be, for such Distribution Date
plus 40% of the Subordinate Percentage for the related Mortgage Loan Group for
such Distribution Date; for any Distribution Date occurring in May 2005 through
and including April 2006, the Class FXA or Class A Percentage, as the case may
be, for such Distribution Date plus 20% of the Subordinate Percentage for the
related Mortgage Loan Group for such Distribution Date; and for any Distribution
Date occurring in or after May 2006, the Class FXA or Class A Prepayment
Percentage will be the Class FXA or Class A Percentage, as the case may be, for
such Distribution Date. Any scheduled reduction to the Class FXA and Class A
Prepayment Percentage described above shall not be made as of any Distribution
Date unless for both Mortgage Loan Groups both (i)(X) the average outstanding
principal balance of the Mortgage Loans in the related Mortgage Loan Group
delinquent 60 days or more over the last six months, as a percentage of the
related Class B Loan Group Component Balance (as defined below), is less than
50% or (Y) the average outstanding principal balance of the Mortgage Loans in
the related Mortgage Loan Group delinquent 60 days or more over the last six
months, as a percentage of the aggregate average outstanding principal balance
of all Mortgage Loans in such Mortgage Loan Group over the last six months, does
not exceed 2% and (ii) realized losses on the Mortgage Loans in the related
Mortgage Loan Group to date for such Distribution Date, if occurring during the
sixth, seventh, eighth, ninth or tenth year (or any year thereafter) after the
first Distribution Date, are less than 30%, 35%, 40%, 45% or 50%, respectively,
of the initial related Class B Loan Group Component Balance. The "Class B Loan
Group Component Balance" at any time for either Mortgage Loan Group shall equal
the then outstanding aggregate Scheduled Principal Balance of the Mortgage Loans
in such Mortgage Loan Group minus the then outstanding Security Principal
Balance of the Class FX Securities, with respect to Group I, or the Class II
Securities, with respect to Group II. Upon reduction of the Security Principal
Balance of the Class FXA Securities, or the Security Principal Balance of the
Class A Securities, as applicable, to zero, the Class FXA Prepayment Percentage
or Class A Percentage, as appropriate, will equal 0%. Notwithstanding the above,
if on any Distribution Date, the Class FXA or Class A Percentage exceeds the
initial related Class FXA or Class A Percentage, then both the Class FXA and
Class A Prepayment Percentages for such Distribution Date will equal 100%.
The "Class FXA-2 Prepayment Percentage" will equal the product of (a)
the Class FXA-2 Percentage and (b) the Step Down Percentage (as defined below);
provided, however, if on any Distribution Date the Security Principal Balances
of the Class FXA Securities, other than the Class FXA-2 Securities, have been
reduced to zero, the "Class FXA-2 Prepayment Percentage" shall be equal to the
Class FXA Prepayment Percentage for such Distribution Date.
The "Class A-4 Prepayment Percentage" will equal the product of (a) the
Class A-4 Percentage and (b) the Step Down Percentage; provided, however, if on
any Distribution Date the Security Principal Balances of the Class A Securities,
other than the Class A-4 Securities, have been reduced to zero, the "Class A-4
Prepayment Percentage" shall be equal to the Class A Prepayment Percentage for
such Distribution Date.
S-60
<PAGE>
The "Step Down Percentage" for any Distribution Date will be the
percentage indicated below:
DISTRIBUTION DATE OCCURRING IN STEP DOWN PERCENTAGE
- ------------------------------ --------------------
May 1997 through April 2002 0%
May 2002 through April 2003 30%
May 2003 through April 2004 40%
May 2004 through April 2005 60%
May 2005 through April 2006 80%
May 2006 and thereafter 100%
S-60
<PAGE>
Cross-Collateralization. On each Distribution Date prior to the
occurrence of the Credit Support Depletion Date, but after the reduction of the
Security Principal Balance of the Class FXA or Class A Securities to zero, all
principal on the Mortgage Loans in the Mortgage Loan Group relating to either
such Class FXA or Class A Securities that have been paid in full will be paid as
principal, after distributions of principal to the related Principal Only
Securities, to the remaining Class FXA or Class A Securities, as applicable, in
accordance with the order set forth under the applicable Principal Distribution
Amount beginning with clause (ii) thereof as described in "-- Distributions of
Principal" herein, and in reduction of the Security Principal Balances of such
remaining Class FXA or Class A Securities, as applicable, provided that on such
Distribution Date (a) the then current Class B Percentage is less than two (2)
times the initial Class B Percentage, and (b) the average outstanding principal
balance of the Mortgage Loans in either Mortgage Loan Group delinquent 60 days
or more over the last six months, as a percentage of the related Class B Loan
Group Component Balance, is greater than or equal to 50%. In addition, if on any
Distribution Date the aggregate Security Principal Balances of the Class FX or
Class II Securities is greater than the aggregate Scheduled Principal Balance of
the Mortgage Loans in the related Mortgage Loan Group, less the Class FXP or
Class P Fraction of any Group I or Group II Discount Mortgage Loans (the
"Undercollateralized Group"), (i) the portion of the Available Distribution in
respect of principal on the Mortgage Loans in the other Mortgage Loan Group (the
"Overcollateralized Group") remaining after distributions of principal to the
Principal Only Securities and the other Classes of Securities of the
Overcollateralized Group will be distributed to the Senior Securities of the
Undercollateralized Group in accordance with the order set forth under the
applicable Principal Distribution Amount beginning with clause (ii) thereof, as
described above, until the aggregate Security Principal Balance of the Senior
Securities of the Undercollateralized Group equals the aggregate Scheduled
Principal Balance of the Mortgage Loans in the related Mortgage Loan Group less
the Class FXP or Class P Fraction of any Group I or Group II Discount Mortgage
Loans in such Mortgage Loan Group, as applicable, and (ii) the Available
Distribution of the Overcollateralized Group will be further reduced (after
distributions to the Overcollateralized Group pursuant to subclauses (a)(i) and
(ii) or (b)(i) and (b)(ii), as applicable, under "-- Priority of Distributions"
herein) in an amount equal to one month's interest on the amount by which the
Undercollateralized Group is undercollateralized at 7.50% per annum plus any
shortfall of interest on the Senior Securities of the Undercollateralized Group
from prior Distribution Dates, including accrued and unpaid interest on such
shortfall at the rate described above (any amount covering interest shortfalls
and interest accrued thereon, will be distributed to the applicable Class or
Classes of Securities in the priority of interest payable on such Class of
Securities on such Distribution Date) and such amount will be included in the
Available Distribution with respect to the Undercollateralized Group. The "Class
B Percentage," as of any Distribution Date, is a percentage the numerator of
which is the outstanding aggregated Scheduled Principal Balance of the Mortgage
Loans minus the then outstanding Security Principal Balance of the Senior
Securities and the denominator of which is the aggregate Scheduled Principal
Balance of the Mortgage Loans.
Subordinate Principal Distribution Amount. The "Subordinate Principal
Distribution Amount" for any Distribution Date will be equal to the excess of
(A) the sum of (i) the Subordinate Percentage for Group I of the Principal
Payment Amount for Group I (exclusive of the portion thereof attributable to the
Class FXP Principal Distribution Amount), (ii) the Subordinate Percentage for
Group II of the Principal Payment Amount for Group II (exclusive of the portion
thereof attributable to the Class P Principal Distribution Amount), (iii) the
Subordinate Prepayment Percentage for Group I (as defined below) of the
Principal Prepayment Amount for Group I (exclusive of the portion thereof
attributable to the Class FXP Principal Distribution Amount), (iv) the
Subordinate Prepayment
S-61
<PAGE>
Percentage for Group II of the Principal Prepayment Amount for Group II
(exclusive of the portion thereof attributable to the Class P Principal
Distribution Amount) and (v) the Subordinate Liquidation Amount (as defined
below) over (B) the sum of (x) the amounts required to be distributed to the
Principal Only Securities pursuant to clause (iv) of paragraphs (a) and (b)
under "-- Priority of Distributions" herein on such Distribution Date, (y) in
the event that the Security Principal Balance of either the Class FXA or Class A
Securities has been reduced to zero, principal paid from the Available
Distribution for the Mortgage Loan Group related to such Class FXA or Class A
Securities to the remaining Class FXA or Class A Securities and (z) the amounts
in respect of principal paid from the Available Distribution of an
Overcollateralized Group to an Undercollateralized Group as described in the
immediately preceding paragraph.
The "Subordinate Percentage" for Group I for any Distribution Date will
equal the excess of 100% over the Class FXA Percentage.
The "Subordinate Percentage" for Group II for any Distribution Date
will equal the excess of 100% over the Class A Percentage.
The "Subordinate Prepayment Percentage" for Group I will equal the
excess of 100% over the Class FXA Prepayment Percentage and the "Subordinate
Prepayment Percentage" for Group II will equal the excess of 100% over the Class
A Prepayment Percentage.
The "Subordinate Liquidation Amount" will equal the excess, if any, of
the (i) aggregate Liquidation Principal for all Mortgage Loans which became
Liquidated Loans during the calendar month preceding the month of the
Distribution Date (other than any such amounts allocated to the Principal Only
Securities), over (ii) the sum of the Class FXA Liquidation Amount and Class A
Liquidation Amount for such Distribution Date.
The rights of the holders of the Subordinate Securities to receive
distributions of interest and principal are subordinated to the rights of the
holders of the Senior Securities to receive distributions of interest and
principal.
See "-- Subordination and Allocation of Losses" herein.
Subordination and Allocation of Losses
The Subordinate Securities will be subordinate in right of payment to
and provide credit support to the Senior Securities, the Non-Offered Subordinate
Securities will be subordinate in right of payment to and provide credit support
to the Offered Subordinate Securities, the Class B-3 Securities will be
subordinate in right of payment to and provide credit support to the Class B-1
and Class B-2 Securities and the Class B-2 Securities will be subordinate in
right of payment to and provide credit support to the Class B-1 Securities, to
the extent described herein. The support provided by the Subordinate Securities
is intended to enhance the likelihood of regular receipt by the Senior
Securities of the full amount of the monthly distributions of interest and
principal, as applicable, to which they are entitled and to afford such
Securities protection against certain losses. The protection afforded to the
Senior Securities by the Subordinate Securities will be accomplished by the
preferential right on each Distribution Date of the Senior Securities to receive
distributions of interest and principal, as applicable, prior to distributions
of interest or principal to the Subordinate Securities. The support provided by
the Non-Offered Subordinate Securities to the Offered Subordinate Securities is
intended to enhance the likelihood of regular receipt by the Offered Subordinate
Securities of the full amount of monthly distributions of interest to which they
are entitled and to afford such holders protection against certain losses. The
protection afforded the Class B-1 Securities by the Class B-2 and Class B-3
Securities, and the protection afforded the Class B-2 Securities by the Class
B-3 Securities, will be similarly accomplished by the preferential right of the
Class B-1 Securities to receive distributions of interest prior to distributions
of interest to the Class B-2 and Class B-3 Securities and the preferential right
of the Class B-2 Securities to receive such distributions of interest prior to
such distributions to the Class B-3 Securities.
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<PAGE>
Except for Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses, any Realized Loss with respect to a
Mortgage Loan will be allocated among the Securities (i) for losses allocable to
principal (a) first, to each Class of Non-Offered Subordinate Securities (in
reverse numerical order), (b) second, to the Class B-3 Securities, (c) third, to
the Class B-2 Securities, (d) fourth, to the Class B-1 Securities, in each case
until the Security Principal Balance of such Class has been reduced to zero, and
then, (x) in the case of losses on a Group I Mortgage Loan, to the Class FX
Securities, other than the Class FXP Securities, pro rata according to their
Security Principal Balances in reduction of their respective Security Principal
Balances and (y) in the case of losses on a Group II Mortgage Loan, to the Class
II Securities, other than the Class P Securities, pro rata according to their
Security Principal Balances in reduction of their respective Security Principal
Balances; provided, however, that in each case if the loss is recognized with
respect to a Group I Discount Mortgage Loan or Group II Discount Mortgage Loan,
the Class FXP or Class P Fraction of such loss will first be allocated to the
Class FXP or Class P Securities, as applicable, and the remainder of such loss
will be allocated as described above in this clause (i), and (ii) for losses
allocable to interest (a) first, to each Class of Non-Offered Subordinate
Securities (in reverse numerical order), in reduction of accrued but unpaid
interest thereon and then in reduction of the aggregate Security Principal
Balance thereof, (b) second, to the Class B-3 Securities, in reduction of
accrued but unpaid interest thereon and then in reduction of the Security
Principal Balance thereof, (c) third, to the Class B-2 Securities, in reduction
of accrued but unpaid interest thereon and then in reduction of the Security
Principal Balance thereof, (d) fourth, to the Class B-1 Securities, in reduction
of accrued but unpaid interest thereon and then in reduction of the Security
Principal Balance thereof and (e) fifth, (x) in the case of losses on a Group I
Mortgage Loan, to the Class FX Securities, other than the Class FXP Securities,
pro rata according to accrued but unpaid interest thereon and then pro rata
according to their Security Principal Balances in reduction of their respective
Security Principal Balances and (y) in the case of losses on a Group II Mortgage
Loan, to the Class II Securities, other than the Class P Securities, pro rata
according to accrued but unpaid interest thereon and then pro rata according to
their Security Principal Balances in reduction of their respective Security
Principal Balances.
On each Distribution Date, after giving effect to the principal
distributions and allocation of losses as described above, if the Security
Principal Balances of all outstanding Securities exceed the aggregate Scheduled
Principal Balance of the Mortgage Loans, as of such date, then the excess of the
Security Principal Balance of the Securities over such aggregate Scheduled
Principal Balance will be deemed to be a principal loss, which will be allocated
to the most subordinate Class of Subordinate Securities.
Investors in the Senior Securities should be aware that because the
Subordinate Securities represent interests in both Loan Groups, the Security
Principal Balances of Subordinate Securities could be reduced to zero as a
result of a disproportionate amount of losses on the Mortgage Loans in one
Mortgage Loan Group. Therefore, notwithstanding that losses on the Mortgage
Loans in one Mortgage Loan Group may only be allocated to the related Senior
Securities (except for Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses), the allocation to the Subordinate
Securities of losses on the Mortgage Loans in the other Mortgage Loan Group will
increase the likelihood that losses may be allocated to such Senior Securities.
Special Hazard Losses in excess of the Special Hazard Coverage ("Excess
Special Hazard Losses") will be allocated to the outstanding Classes of
Securities by Pro Rata Allocation. "Special Hazard Coverage" is expected to
equal approximately $3,209,693 as of the Cut-off Date. On each anniversary of
the Cut-off Date, the Special Hazard Coverage will be reduced, but not
increased, to an amount equal to the lesser of (1) the greatest of (a) the
aggregate principal balance of the Mortgage Loans located in the single
California zip code area containing the largest aggregate Scheduled Principal
Balance of the Mortgage Loans, (b) 1% of the aggregate Scheduled Principal
Balance of the Mortgage Loans and (c) twice the Scheduled Principal Balance of
the largest single Mortgage Loan, in each case calculated as of the Due Date in
the immediately preceding month and (2) the Special Hazard Coverage as of the
Cut-off Date as reduced by the Special Hazard Losses allocated to the Securities
since the Cut-off Date.
Fraud Losses in excess of the Fraud Coverage ("Excess Fraud Losses")
will be allocated to the outstanding Classes of Securities by Pro Rata
Allocation. "Fraud Coverage" is expected to equal approximately $3,519,172 as of
the Cut-off Date. Fraud Coverage will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Securities. On each anniversary of the
Cut-off Date, Fraud Coverage will be reduced to the lesser
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<PAGE>
of (i) on the first, second, third and fourth anniversaries of the Cut-off Date,
1.0% of the aggregate principal balance of the Mortgage Loans as of the Due Date
in the preceding month and (ii) the excess of the Fraud Coverage as of the
Cut-off Date over cumulative Fraud Losses allocated to the Securities to date.
On the fifth anniversary of the Cut-off Date, Fraud Coverage will be reduced to
zero.
Mortgagor Bankruptcy Losses in excess of the Bankruptcy Coverage
("Excess Bankruptcy Losses") will be allocated to the outstanding Classes of
Securities by Pro Rata Allocation. "Bankruptcy Coverage" is expected to equal
approximately $100,000 as of the Cut-off Date. Bankruptcy Coverage will be
reduced, from time to time, by the amount of Mortgagor Bankruptcy Losses
allocated to the Securities.
Extraordinary Losses also will be allocated to the outstanding Classes
of Securities by Pro Rata Allocation.
As used herein, "Pro Rata Allocation" means (i) the allocation of the
principal portion of losses relating to a Mortgage Loan to all Classes of
Securities, other than the Principal Only Securities, pro rata according to
their respective Security Principal Balances, except if the loss is recognized
with respect to a Group I Discount Mortgage Loan or a Group II Discount Mortgage
Loan, the applicable Class FXP Fraction or Class P Fraction of such loss will
first be allocated to the related Principal Only Securities, and (ii) the
allocation of the interest portion of losses relating to a Mortgage Loan to all
Classes of Securities pro rata according to the amount of interest accrued on
each such Class, other than the Principal Only Securities, in reduction thereof
and then in reduction of their related Security Principal Balance.
Special Hazard Coverage, Fraud Coverage or Bankruptcy Coverage may also
be reduced upon written confirmation from the Rating Agencies that such
reduction will not adversely affect the then current ratings assigned to the
Offered Securities by the Rating Agencies. Such a reduction, in the event of
Special Hazard Losses, Fraud Losses or Mortgagor Bankruptcy Losses, could
adversely affect the level of protection afforded the Senior Securities by
subordination of the Subordinate Securities or the level of protection afforded
the Offered Subordinate Securities by the Non-Offered Subordinate Securities.
Investors in the Senior Securities should be aware that the applicable
coverages for such losses cover Mortgage Loans in both Mortgage Loan Groups.
Therefore, in the event Mortgage Loans in a Mortgage Loan Group suffer a high
level of Special Hazard Losses, Fraud Losses or Mortgagor Bankruptcy Losses, it
will reduce the available coverage for the related Senior Securities and may
cause Senior Securities relating to the other Mortgage Loan Group to suffer
losses in the event Mortgage Loans in either Mortgage Loan Group suffer such
losses after the available coverage has been exhausted.
Optional Purchase of Delinquent Mortgage Loans
The Master Servicer will have the right to purchase from the Trust any
Mortgage Loan that is 90 days or more delinquent (i.e., any Mortgage Loan on
which the related mortgagor has failed to make four consecutive monthly
payments) if the Master Servicer determines that such Mortgage Loan otherwise
would become subject to foreclosure or related proceedings. The purchase price
for any such Mortgage Loan will equal the outstanding principal balance of such
Mortgage Loan plus accrued and unpaid interest thereon (adjusted to the related
Net Rate) to the first day of the month in which the amount of such purchase
price will be distributed to the Securityholders. The Master Servicer will be
obligated to deposit into the Custodial Account the purchase price for any
Mortgage Loan purchased by it as described above.
Advances
Prior to each Distribution Date, the Master Servicer is required to
make Advances (out of its own funds or funds held in the Custodial Account for
future distribution or withdrawal) with respect to any payments of principal and
interest (net of the related Servicing Fee) that were due on the Mortgage Loans
on the immediately preceding Due Date and delinquent as of the close of business
on the related Determination Date.
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<PAGE>
Such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, Liquidation Proceeds or amounts otherwise payable to the
holders of the Subordinate Securities. The purpose of making such Advances is to
maintain a regular cash flow to the Securityholders, rather than to guarantee or
insure against losses. The Master Servicer will not be required to make any
Advances with respect to reductions in the amount of the monthly payments on the
Mortgage Loans due to reductions in the amount of monthly payments due to
certain bankruptcy proceedings not including any permanent forgiveness ("Debt
Service Reductions") or Soldiers' and Sailors Shortfalls or shortfalls due to
similar legislation or regulations (as defined herein). Any failure by the
Master Servicer to make an Advance as required under the Pooling and Servicing
Agreement will constitute an Event of Default (as defined herein) thereunder, in
which case the Trustee, as successor Master Servicer, will be obligated to make
any such Advance, in accordance with the terms of the Pooling and Servicing
Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, (i) if the
Offered Subordinate Securities are outstanding and the Security Principal
Balance of the Non-Offered Subordinate Securities has not been reduced to zero,
from amounts otherwise distributable to the Non-Offered Subordinate Securities
(in reverse numerical order), (ii) if the Offered Subordinate Securities are
outstanding but the Security Principal Balance of the Non-Offered Subordinate
Securities have been reduced to zero, from amounts otherwise distributable on
the Class B-3 Securities, (iii) if the Class B-1 and Class B-2 Securities are
outstanding but the Security Principal Balance of the Class B-3 Securities has
been reduced to zero, from amounts otherwise distributable on the Class B-2
Securities, and (iv) if the Class B-1 Securities are outstanding but the
Security Principal Balances of the Class B-2 and the Class B-3 Securities have
been reduced to zero, from amounts otherwise distributable on the Class B-1
Securities; provided, however, that any such Advances that were made with
respect to delinquencies which ultimately were determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or losses
occasioned by war, civil insurrection, certain governmental actions, nuclear
reaction and other similar risks ("Extraordinary Losses") are reimbursable to
the Master Servicer out of any funds in the Custodial Account prior to
distributions on any of the Securities and the amount of such losses will be
allocated as described herein. In addition, if the Security Principal Balances
of the Subordinate Securities have been reduced to zero, any Advances previously
made which are deemed by the Master Servicer to be nonrecoverable from related
late collections, Insurance Proceeds and Liquidation Proceeds may be reimbursed
to the Master Servicer out of any funds in the Custodial Account prior to
distributions on the Securities. The effect of these provisions on the
Subordinate Securities is that, with respect to any Advance that remains
unreimbursed following the final liquidation of the related Mortgage Loan, the
entire amount of the reimbursement for such Advance will be borne by the holders
of the Subordinate Securities (except as described above), to the extent of all
amounts otherwise distributable to such holders.
Example of Distributions
The following chart sets forth an example of distributions on the
Securities for the first month of the Trust's existence.
<TABLE>
<S> <C>
April 1.....................Cut-off Date. The initial principal balance of the Mortgage Pool will
be the aggregate outstanding principal balance of the
Mortgage Loans as of April 1, 1997, after deducting
any principal payments due on or before such date.
Any principal and interest payments due on or before
April 1 will not be part of the Mortgage Pool.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
April 15 through
May 14......................Prepayment Period. Prepayments in full with interest thereon to the date of
such prepayment in full, received at any time during
this period will be deposited into the Custodial Account
for distribution to Securityholders on May 27.
April 30....................Record Date. Distributions on May 27 will be made to
Securityholders of record at the close of business on the
last business day of the month immediately preceding
the month of distribution.
April 2 through
May 15......................Collection Period. Payments due during the related Due Period (April 2
through May 1) from mortgagors will be deposited in
the Custodial Account as received, and will include
scheduled principal payments plus interest on the April
balances.
May 15......................Determination Date. On the second business day following the Determination
Date, the amounts of principal and interest that will be
distributed on May 27 will be determined by the
Trustee.
May 22......................Security Account On the business day immediately preceding the
Deposit Date. Distribution Date, the Master Servicer will remit to the
Trustee the amount of principal and interest to be
distributed to the Securityholders on
such Distribution Date from amounts on deposit in the
Custodial Account, together with any Advances required
to be made by the Master Servicer for such
Distribution Date.
May 27......................Distribution Date. On May 27, the Trustee will distribute or cause to be
distributed to the Securityholders the amounts
determined as of the second business day following the
Determination Date. If a Monthly Payment due during
the related Due Period is received from a mortgagor
after May 15 and an Advance has been made with
respect to such late payment from the Custodial
Account, such late payment will be deposited into the
Custodial Account as reimbursement therefor. If the
Master Servicer has made an Advance with respect to
such late payment from its own funds, the Master
Servicer will reimburse itself to the extent permitted by
the Pooling and Servicing Agreement by withdrawing
from the Custodial Account the amount relating to such
Advance. If no such Advance has been made with
respect to such late payment, the proceeds of such late
payment will be distributed to the Securityholders on
the Distribution Date occurring in June.
</TABLE>
Succeeding months follow the same pattern, except for the Cut-off Date
and except that the Distribution Date will be the 25th day of the month (or, if
such day is not a business day, the business day immediately following such
day).
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<PAGE>
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
Distributions of interest on the Securities entitled to interest
distributions (other than the Floater Securities) on any Distribution Date will
include interest accrued thereon through the last day of the month preceding the
month in which such Distribution Date occurs. Because interest will not be
distributed on such Securities until the 25th day (or, if such day is not a
business day, then on the next succeeding business day) of the month following
the month in which such interest accrues on the Mortgage Loans, the effective
yield to the holders of such Securities will be lower than the yield otherwise
produced by the applicable Pass-Through Rate and purchase price.
The yield to maturity of any Security will be affected by the timing
and amount of payments of principal of the related 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 certain of the Mortgage Loans, 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 based on an assumed rate of payment of principal that is slower
than that actually received on the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated. "Parity Price" of a Security is the price
at which such 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
may significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments experienced over time is consistent with such
investor's expectation. In general, the earlier a prepayment of principal on the
Mortgage Loans, 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.
The Mortgage Loans may be prepaid by the Borrowers at any time without
payment of any prepayment fee or penalty. Investors should consider the risk
that rapid rates of prepayments on the Mortgage Loans, and therefore of
principal distributions on the Securities, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts received as
principal distributions on such investor's Security may be lower than the
interest rate borne by such Security. Conversely, slow rates of prepayments on
the Mortgage Loans, and therefore of principal distributions on the Securities,
may coincide with periods of high prevailing interest rates. During such
periods, the amount of principal distributions available to an investor for
reinvestment at such high prevailing interest rates may be relatively low.
Because the rate of principal payments (including prepayments) on the
Mortgage Loans 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.
The Securities are subject to various priorities for payment of
principal, as described herein. Distributions of principal on the Classes of
Class FXA and Class A Securities having an earlier priority of payment will be
affected by the rates of prepayment of the Group I Mortgage Loans and Group II
Mortgage Loans, respectively, early in the life of the Mortgage Pool. The timing
of commencement of principal distributions and the weighted average lives of the
Classes of Class FXA and Class A Securities with a later priority of payment
will be affected by the rates of prepayment experienced both before and after
the commencement of principal distributions on such Classes. Furthermore, as
described under "Description of the Securities -- Distributions of Principal"
herein, during certain periods all or a disproportionately large percentage of
principal prepayments on the Group I Mortgage Loans and Group II Mortgage Loans
will be allocated among the Class FXA Securities (other than the Class FXA-2
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<PAGE>
Securities) and Class A Securities (other than the Class A-4 Securities),
respectively, and, during certain periods, no principal prepayments or (relative
to the related Subordinate Percentage) a disproportionately small portion of
principal prepayments on the Mortgage Loans will be allocated to the Subordinate
Securities. The allocation of all or a disproportionately large percentage of
principal prepayments to the Senior Securities (other than the Lockout
Securities) will cause the Security Principal Balances of the Lockout Securities
and the Subordinate Securities to decline more slowly than would be the case if
the Lockout Securities and the Subordinate Securities received their
proportionate share of principal prepayments. In addition, to the extent that
all or a disproportionately large percentage of principal prepayments are
allocated to the Senior Securities during any period as described herein, the
percentage upon which future allocations of prepayments to the Class FXA
Securities or Class A Securities, as applicable, would thereafter be based
would, assuming a high level of prepayments but a low level of losses on the
Mortgage Loans, be significantly decreased, with the result that principal
payments, including principal prepayments subsequent to such periods, would be
allocated to the holders of the Subordinate Securities in a greater percentage
than the Subordinate Percentage.
The Pass-Through Rates on the Classes of Class FXA Securities (other
than the Floater Securities), the Class A Securities and the Subordinate
Securities are fixed and will not change in response to changes in market
interest rates. While the Pass-Through Rates on the Strip Securities are fixed,
the Notional Amounts are based on the weighted average of the Stripped Interest
Rates on the Group I Premium Rate Mortgage Loans and Group II Premium Rate
Mortgage Loans, respectively, which will not change in response to market
interest rates. Accordingly, if market interest rates or market yield for
securities similar to the Offered Securities were to rise, the market value of
the Offered Securities may decline.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance mortgage loans
may be higher than for other types of Mortgage Loans. Furthermore, the rate and
timing of prepayments, defaults and liquidations on the Mortgage Loans will be
affected by the general economic condition of the region of the country in which
the related Mortgaged Premises are located. The risk of delinquencies and loss
is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Yield Considerations"
and "Maturity and Prepayment Considerations" in the Prospectus.
As described under "Description of the Securities -- Subordination and
Allocation of Losses" and "Description of the Securities -- Advances," amounts
otherwise distributable to holders of the Subordinate Securities will be made
available to protect the holders of the Senior Securities against interruptions
in distributions due to certain mortgagor delinquencies, to the extent not
covered by Advances. Such delinquencies will affect the yield to investors in
the Offered Subordinate Securities to the extent not covered by the Non-Offered
Subordinate Securities, with the yield on the Class B-2 Securities being
relatively more sensitive than on the Class B-1 Securities and the Class B-3
Securities being the most sensitive class of Offered Securities. Even if
subsequently cured, such delinquencies may affect the timing of the receipt of
distributions by the holders of Securities because the entire amount (rather
than a pro rata portion) thereof would be borne by such Class of Securities.
Furthermore, the Classes of Principal Only Securities will share in the
principal portions of Realized Losses on the Mortgage Loans in the related
Mortgage Loan Group only to the extent they are incurred with respect to Group I
or Group II Discount Mortgage Loans, as appropriate, and only to the extent of
the related Class FXP or Class P Fractions thereof, as appropriate. Thus, after
the Subordinate Securities are retired, or in the case of Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses,
the Senior Securities may be affected to a greater extent by losses on
non-discount Mortgage Loans than by losses on Group I and Group II Discount
Mortgage Loans. In addition, a higher than expected rate of delinquencies or
losses will also affect the rate of principal payments on the Subordinate
Securities if it delays the scheduled reduction of the Class FXA or Class A
Prepayment Percentage, as applicable, or affects the allocation of prepayments
among the Subordinate Securities.
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<PAGE>
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
immediately preceding monthly payment up to the date of such prepayment, instead
of for a full month. Partial principal prepayments are applied as of the first
day of the month of receipt, with a resulting reduction in interest payable for
the month during which the partial prepayment is made. Full or partial
prepayments (or other liquidations) received in any calendar month will be
distributed to Securityholders on the Distribution Date in the month following
the month of receipt. With respect to such full prepayments, the Master Servicer
is obligated to fund shortfalls in collection of one full month's interest
(adjusted to the related Net Rate) but only to the extent of the Servicing Fee
otherwise payable to the Master Servicer. Accordingly, to the extent any such
shortfall in interest collections exceeds the amount that the Master Servicer is
obligated to fund, the effect of any such principal prepayment will be to reduce
the aggregate amount of interest that is available for distribution to the
Securityholders, and will be allocated among the Securities in proportion to the
interest otherwise distributable or accrued thereon.
In addition, the yield to maturity of the Offered Securities will
depend on the prices paid by the holders of the Offered Securities and the
related Pass-Through Rates. The extent to which the yield to maturity of an
Offered Security is sensitive to prepayments will depend upon the degree to
which it is purchased at a discount or premium. For additional considerations
relating to the yield on the Securities, see "Yield Considerations" and
"Maturity and Prepayment Considerations" in the Prospectus.
Any redemption of the Securities will have an adverse effect on the
yield to maturity of any Securities purchased at a premium, because such
redemption will have the same effect as a prepayment in full of the Mortgage
Loans.
The Class R and Class RP Securities, which represent the residual
interests in the Issuing REMIC and the Pooling REMIC, respectively, may
experience a highly negative after-tax return. See "Special Tax Considerations"
herein.
Weighted Average Life
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security to the date of distribution to
the investor of each dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Offered
Securities will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. This Prospectus Supplement uses two different
models, the Basic Prepayment Assumption (the "Basic Prepayment Assumption") and
the Alternative Prepayment Assumption (the "Alternative Prepayment Assumption",
and together with the Basic Prepayment Assumption, the "Prepayment
Assumptions"), each as described herein.
Basic Prepayment Assumption. The Basic Prepayment Assumption assumes a
per annum rate of prepayment of 0.20% of the then outstanding principal balance
of a pool of mortgage loans in the first month after formation of such pool of
mortgage loans, following which, such annual prepayment rate increases by 0.20%
each month until the 30th month after formation of such pool of mortgage loans
and remains constant at 6% per annum in the 30th month after formation of such
pool of mortgage loans and in each month thereafter. 0% of the Basic Prepayment
Assumption indicates no prepayments are received; 100% of the Basic Prepayment
Assumption indicates prepayments at 1.00 times the Basic Prepayment Assumption;
150% of the Basic Prepayment Assumption indicates prepayments at 1.50 times the
Basic Prepayment Assumption; 200% of the Basic Prepayment Assumption indicates
prepayments at 2.00 times the Basic Prepayment Assumption; 300% of the Basic
Prepayment Assumption indicates prepayments at 3.00 times the Basic Prepayment
Assumption; and 500% of the Basic Prepayment Assumption indicates prepayments at
5.00 times the Basic Prepayment Assumption.
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<PAGE>
Alternative Prepayment Assumption. The Alternative Prepayment
Assumption represents an assumed rate of prepayment each month relative to then
outstanding principal balance of a pool of mortgage loans. A 100% Alternative
Prepayment Assumption assumes a Constant Prepayment Rate ("CPR") of 4.0% 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 1.09% per annum
in each month thereafter through the twelfth month. Beginning in the thirteenth
month and in each month thereafter during the life of the mortgage loans, a 100%
Alternative Prepayment Assumption assumes a CPR of 16% per annum each month. As
used in the table below, a 50% Alternative Prepayment Assumption assumes
prepayment rates equal to 50% of the Alternative Prepayment Assumption.
Correspondingly, a 200% Alternative Prepayment Assumption assumes prepayment
rates equal to 200% of the Alternative Prepayment Assumption, and so forth.
Neither Prepayment Assumption purports to be either an 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 Pool, and there is no assurance that the Mortgage Loans
will prepay at any given percentage of either Prepayment Assumption. The actual
rate of principal prepayments on the Mortgage Loans may be influenced by a
variety of economic, geographic, social and other factors. In general, if
prevailing interest rates fall significantly below the interest 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 interest rates on the
Mortgage Loans.
Conversely, if interest rates rise above the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to decrease. A
comparatively low interest-rate environment may result in a higher than expected
rate of prepayments on the Mortgage Loans and an earlier than expected
retirement of the Securities.
The Seller makes no representation as to the specific factors that will
affect the prepayment of the Mortgage Loans or the relative importance of such
factors. Factors not identified by the Seller or discussed herein may
significantly affect the prepayment rate of the Mortgage Loans. In particular,
the Seller makes no representation as to the percentage of the principal amount
of the Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment.
For purposes of the tables set forth in Appendices A and B, it is
assumed that (i) scheduled payments on all Mortgage Loans are received on the
first day of each month beginning May 1, 1997, (ii) any payoff in full on the
Mortgage Loans are received on the last day of each month beginning in April
1997 and include 30 days of interest thereon, (iii) there are no defaults or
delinquencies on the Mortgage Loans, (iv) optional termination of the Trust does
not occur, (v) the Mortgage Loans in each Mortgage Loan Group are comprised of
two subgroups of hypothetical mortgage loans which have the common
characteristics indicated:
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- GROUP I
<TABLE>
<CAPTION>
Principal Remaining Term Original Term Note Net
Balance (Months) (Months) Rate Rate
--------- -------------- ------------- ---- ----
<S> <C>
$99,010,191.80 359 360 8.7732323367% 8.5132323367%
$ 5,517,352.25 359 360 7.8956752054% 7.6356752054%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- GROUP II
<TABLE>
<CAPTION>
Principal Remaining Term Original Term Note Net
Balance (Months) (Months) Rate Rate
--------- -------------- -------------- ---- ----
<S> <C>
$26,794,371.06 358 360 8.3575853177% 8.0975853177%
$44,636,663.40 359 360 7.8211436793% 7.5611436793%
</TABLE>
S-70
<PAGE>
(vi) there are no partial prepayments on the Mortgage Loans and prepayments are
computed after giving effect to scheduled payments received on the following
day, (vii) the Mortgage Loans prepay at the indicated constant percentages of
applicable Prepayment Assumption, (viii) the date of issuance for the Securities
is April 29, 1997, (ix) cash distributions are received by the Securityholders
on the 25th day of each month when due and (x) the Monthly Payments for each
Mortgage Loan are computed based upon its unpaid Scheduled Principal Balance,
Note Rate and remaining term such that the Mortgage Loan will fully amortize on
its maturity date (collectively, the "Modeling Assumptions").
Any discrepancy between the actual characteristics of the Mortgage
Loans and the characteristics of the Mortgage Loans set forth above may affect
the percentages of the initial Security Principal Balances set forth in the
tables and the weighted average lives of the Offered Securities. In addition, to
the extent that the characteristics of the Mortgage Loans differ and the initial
Security Principal Balances differ from those assumed in preparing the tables in
Appendices A and B, the outstanding Security Principal Balance of any Class of
Offered Securities may be reduced to zero earlier or later than indicated by
such tables.
Variations in actual prepayment experience may increase or decrease the
percentages of the original outstanding Security Principal Balances and the
weighted average lives shown in the tables in Appendices A and B. Such
variations may occur even if the average prepayment experience of all the
Mortgage Loans equals the indicated percentage of the applicable Prepayment
Assumption. There is no assurance, however, that prepayment of the Mortgage
Loans will conform to any given percentage of the applicable Prepayment
Assumption. Based on the foregoing assumptions, the tables indicate the
projected weighted average lives of the Offered Securities and set forth the
percentages of the initial outstanding Securities Principal Balance of each such
Class of Offered Securities that would be outstanding after each of the dates
shown at various constant percentages of the Basic Prepayment Assumption.
YIELD CONSIDERATIONS WITH RESPECT TO THE STRIP SECURITIES,
INVERSE FLOATER SECURITIES AND PRINCIPAL ONLY SECURITIES
The yield to investors in the LIBOR Securities will be sensitive to
fluctuations in LIBOR. The yield to maturity on the Inverse Floater Securities
will be extremely sensitive to fluctuations in LIBOR, and the Pass- Through
Rates on such Securities will vary inversely with LIBOR. 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. Conversely, higher prevailing mortgage interest rates (which would be
expected to result in slower prepayments) could occur concurrently with a lower
level of LIBOR.
The yields to maturity on the Strip Securities and Principal Only
Securities will be extremely sensitive to the level of both the timing of and
overall rate of receipt of prepayments on the Mortgage Loans in the related
Mortgage Loan Group. The interest payable to the Class FXS Securities is based
on the weighted average of the Stripped Interest Rates of the Group I Premium
Rate Mortgage Loans. The interest payable to the Class S Securities is based on
the weighted average of the Stripped Interest Rates of the Group II Premium Rate
Mortgage Loans. Therefore the yield to maturity on the Strip Securities will
generally decrease as a result of faster than expected prepayments on the Group
I or Group II Premium Rate Mortgage Loans. Prospective investors should fully
consider the risks associated with an investment in the Strip Securities,
including the possibility that if the rate of prepayments on the Mortgage Loans
in the related Mortgage Loan Group is rapid, such investors may not fully recoup
their initial investments. Because the principal payable with respect to the
Class FXP Securities (which are entitled to receive distributions of principal
only) is derived from Group I Discount Mortgage Loans, the yield to maturity on
the Class FXP Securities will be adversely affected by slower than expected
prepayments of Group I Discount Mortgage Loans. Because the principal payable
with respect to the Class P Securities (which are entitled to receive
distributions of principal only) is derived from Group II Discount Mortgage
Loans, the yield to maturity on the Class P Securities will be adversely
affected by slower than expected prepayments of Group II Discount Mortgage
Loans. Because the interest payable on the Class FXS and Class S Securities and
the principal
S-71
<PAGE>
distributable to the Class FXP and Class P Securities are in part derived from
different groups of Mortgage Loans within the related Mortgage Loan Group, it is
possible that faster than expected prepayments with respect to the Strip
Securities may occur at the same time as slower than expected prepayments with
respect to the Principal Only Securities.
To illustrate the significance of different rates of prepayment and, in
the case of the Inverse Floater Securities, different levels of LIBOR, on the
distributions on the Strip Securities, Principal Only Securities and Inverse
Floater Securities, the following tables indicate the approximate pre-tax yields
to maturity (on a corporate bond equivalent basis) under the different
percentages of the Basic Prepayment Assumption or Alternative Prepayment
Assumption indicated and, with respect to the Inverse Floater Securities,
different levels of LIBOR. Because the rate of distribution of interest on the
Strip Securities and the Inverse Floater Securities and the rate of distribution
of principal on the Principal Only Securities will be directly related to the
actual amortization (including prepayments) of the Mortgage Loans, which will
include Mortgage Loans that have remaining terms to maturity shorter or longer
than those assumed and interest rates higher or lower than those assumed, the
pre-tax yields to maturity on the Strip, Inverse Floater and Principal Only
Securities are likely to differ from those shown in the following tables even if
all the Mortgage Loans prepay at the indicated constant percentages of the
applicable Prepayment Assumption and the weighted average remaining terms to
maturity of the Mortgage Loans are as assumed and, for the Inverse Floater
Securities, LIBOR, remains at the levels assumed. Any differences between such
assumptions and the actual characteristics and performance of the Mortgage Loans
and of the Securities may result in yields to maturity being different from
those shown in such tables. Discrepancies between assumed and actual
characteristics and performances underscore the hypothetical nature of the
tables, which are provided only to give a general sense of the sensitivity of
yields to maturity in varying prepayment scenarios and, for the Inverse Floater
Securities, different levels of LIBOR.
In addition, it is highly unlikely that the Mortgage Loans will prepay
at a constant level of Prepayment Assumption until maturity or that all of such
Mortgage Loans will prepay at the same rate or, for the Inverse Floater
Securities, that the levels of LIBOR will remain constant.
The timing of changes to the rate of prepayments or rate of LIBOR may
significantly affect the actual yield to maturity to an investor, even if the
average rate of prepayments or average rate of LIBOR is consistent with an
investor's expectation. In general, the earlier a payment of principal on the
Mortgage Loans in the related Mortgage Loan Group or change in LIBOR, the
greater the effect on an investor's yield to maturity. As a result, the effect
on an investor's yield to maturity 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 or changes in the level of
LIBOR, as applicable, 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 equally offset by a subsequent like reduction (or
increase) in the rate of prepayments or level of LIBOR.
In addition, the yield to maturity on the Strip and Inverse Floater
Securities may be adversely affected if an optional termination of the Trust
occurs. In addition, in the event of very high prepayments of Group II Mortgage
Loans and the reduction of the Security Principal Balance of the Class A
Securities to zero, subject to certain limitations set forth herein, all
principal (after giving effect to the distribution of the Class P Securities) of
the Group II Mortgage Loans will be distributed to the Class FXA Securities, and
therefore, may adversely affect the yield of the Inverse Floater Securities.
The tables set forth below are based on the Modeling Assumptions
described under "Certain Yield and Repayment Considerations -- Weighted Average
Life" and assume further that (i) the Securities are purchased at prices (which
include accrued interest in the case of the Strip Securities) equal to those set
forth in the tables and (ii) in the case of the Inverse Floater Securities, on
the LIBOR Determination Date in May 1997 and on each LIBOR Determination Date
thereafter, the applicable LIBOR will be the Inverse Floater Securityholders
will receive 30 days of interest at their respective initial Pass-Through Rates.
There can be no assurance that the Mortgage Loans will have the assumed
characteristics, will prepay at any of the rates shown herein, that the purchase
prices of the Securities will be as assumed or that the pre-tax yields to
maturity will correspond to any of the pre-tax yields
S-72
<PAGE>
shown herein, that for, the Inverse Floater Securities that the rate of LIBOR
will correspond to the levels shown herein, or that the purchase prices of the
Inverse Floater Securities will be as assumed. The actual prices to be paid on
the Strip, Inverse Floater and Principal Only Securities have not been
determined and will be dependent on the characteristics of the Mortgage Pool as
ultimately constituted. In addition to any other factors an investor may deem
material, each investor must make its own decision as to the appropriate
prepayment assumptions to be used and, in the case of the Inverse Floater
Securities, the appropriate rates of LIBOR to be assumed in deciding whether or
not to purchase a Class of Securities.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS FXS SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 100% 150% 200% 235% 250% 300% 500%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
$3,081,486....................... 19.51% 16.92% 14.31% 12.47% 11.68% 9.02% -1.85%
</TABLE>
PERCENTAGE OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 50% 75% 90% 100% 150% 175% 200%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
$3,081,486....................... 16.28% 11.98% 9.35% 7.59% -1.51% -6.22% -11.06%
</TABLE>
On the basis of a CPR of approximately 466% of the Basic Prepayment Assumption,
or a CPR of approximately 141% of the Alternative Prepayment Assumption, in each
case with a purchase price of $3,081,486, which includes accrued interest, and
the assumptions described above, the pre-tax yield to maturity of the Class FXS
Securities would be approximately 0%. If the actual prepayment rate were to
exceed the rates assumed above, even for one month, while equaling such rates
for all other months, an investor in the Class FXS Securities would not fully
recoup the initial purchase price of such Securities.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS S SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 100% 150% 200% 235% 250% 300% 500%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
$439,863......................... 15.43% 12.74% 10.03% 8.12% 7.29% 4.52% -6.86%
</TABLE>
S-73
<PAGE>
On the basis of a CPR of approximately 380% of the Basic Prepayment Assumption,
a purchase price of $439,863, which includes accrued interest, and the
assumptions described above, the pre-tax yield to maturity of the Class S
Securities would be approximately 0%. If the actual prepayment rate were to
exceed the rates assumed above, even for one month, while equaling such rates
for all other months, an investor in the Class S Securities would not fully
recoup the initial purchase price of such Securities.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS FXP SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 100% 150% 200% 235% 250% 300% 500%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
$50,462.......................... 4.64% 5.93% 7.25% 8.17% 8.56% 9.85% 14.65%
</TABLE>
PERCENTAGE OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 50% 75% 90% 100% 150% 175% 200%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
$50,462.......................... 6.01% 8.28% 9.72% 10.70% 15.77% 18.38% 21.05%
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS P SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 100% 150% 200% 235% 250% 300% 500%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
$707,025......................... 4.13% 5.26% 6.42% 7.24% 7.59% 8.73% 13.00%
</TABLE>
S-74
<PAGE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE INVERSE FLOATER SECURITIES TO PREPAYMENTS
AND LIBOR AT AN ASSUMED PURCHASE PRICE OF 5.00%
OF THE CLASS FXA-9 NOTIONAL AMOUNT
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
LIBOR 100% 150% 200% 235% 250% 300% 500%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
7.50%............................ -4.00% -11.95% -21.89% -29.78% -33.01% -42.73% -71.71%
6.50%............................ 20.81% 14.65% 7.90% 2.83% 0.67% -6.29% -30.01%
5.50%............................ 45.25% 39.90% 34.37% 30.38% 28.66% 22.98% 2.17%
4.50%............................ 70.46% 65.65% 60.75% 57.27% 55.77% 50.80% 31.84%
3.50%............................ 96.58% 92.15% 87.64% 84.47% 83.10% 78.55% 60.84%
</TABLE>
PERCENTAGE OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
LIBOR 50% 75% 90% 100% 150% 175% 200%
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
7.50%............................ -12.26% -29.93% -41.99% -49.37% -81.10% -94.80% -107.28%
6.50%............................ 11.87% -1.32% -10.27% -16.20% -44.45% -57.72% -70.33%
5.50%............................ 35.16% 23.34% 15.60% 10.32% -16.09% -29.02% -41.58%
4.50%............................ 59.41% 47.99% 40.72% 35.74% 10.33% -2.40% -14.94%
3.50%............................ 84.69% 73.35% 66.23% 61.38% 36.41% 23.75% 11.17%
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rates (whether positive or
negative) which, when applied to the assumed streams of cash flows to be paid on
the Strip, Inverse Floater and Principal Only Securities, would cause the
discounted present values of such assumed streams of cash flows to equal the
assumed purchase price, including accrued interest, where applicable. These
monthly discount rates were converted to corporate bond equivalent rates, which
are higher than the monthly discount rates because they are based on semiannual
compounding. These yields to maturity do not take into account the different
interest rates at which investors may be able to reinvest funds received by them
as distributions on the Strip, Inverse Floater or Principal Only Securities and
thus do not reflect the return on any investment in the Strip, Inverse Floater
or Principal Only Securities when any reinvestment rates other than the discount
rates are considered.
There are no historical prepayment data available for the Mortgage
Pool, and comparable data are not available because the Mortgage Loans do not
constitute a representative sample of mortgage loans generally. In addition,
historical data available with respect to mortgage loans underlying mortgage
pass-through certificates issued by the GNMA, FNMA and FHLMC may not be
comparable to prepayments expected to be experienced by the Mortgage Pool
because the Mortgage Loans may have characteristics which differ from the
mortgage loans underlying certificates issued by GNMA, FNMA and FHLMC.
S-75
<PAGE>
The Seller makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed above. Each investor must make its
own decision as to the appropriate prepayment assumptions to be used in deciding
whether or not to purchase any of the Securities. Since the rate of principal
payments (including prepayments) with respect to, and repurchases of, the
Mortgage Loans will significantly affect the yields to maturity on the Offered
Securities, prospective investors are urged to consult their investment advisors
as to both the anticipated rate of future principal payments (including
prepayments) on the Mortgage Loans and the suitability of the Securities to
their investment objectives.
POOLING AND SERVICING AGREEMENT
General
The Securities will be issued pursuant to the Pooling and Servicing
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 and Servicing Agreement and the Offered Securities. References to the
"Trust Agreement" or the "Servicing Agreement" in the Prospectus shall be deemed
to mean the "Pooling and Servicing Agreement" in this Prospectus Supplement. The
Offered 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 a prospective or actual Securityholder without charge,
on written request, a copy (without exhibits) of the Pooling and Servicing
Agreement. Requests should be addressed to the Corporate Trust Office of the
Trustee at One First National Plaza, Mail Suite 0126, Chicago, Illinois
60670-0126.
Assignment of Mortgage Loans
The Mortgage Loans will be assigned by the Seller to the Trustee
pursuant to the terms of the Pooling and Servicing Agreement, together with all
principal and interest due on the Mortgage Loans after the Cut-off Date. The
Trustee will, concurrently with such assignment, authenticate and deliver the
Securities. Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the Pooling and Servicing Agreement which will specify with respect
to each Mortgage Loan, among other things, the original principal balance, the
principal balance as of the close of business on the Cut-off Date, the Monthly
Payment, the maturity date and the Note Rate.
As to each Mortgage Loan, the following documents are required to be
delivered to the Trustee in accordance with the Pooling and Servicing Agreement:
(i) the original Mortgage Note endorsed "Pay to the order of The First National
Bank of Chicago, as Trustee without recourse;" (ii) the original Mortgage with
evidence of recording thereon, or a certified copy thereof; (iii) a duly
executed original assignment of the Mortgage in recordable form to "The First
National Bank of Chicago, as Trustee;" (iv) originals or certified copies of all
recorded intervening assignments of Mortgage; (v) the original or a certified
copy of the policy of title insurance, or if the policy has not yet been issued,
a written commitment or interim binder or preliminary report of title issued by
the title insurance or escrow company; (vi) originals, or certified copies, of
each assumption, extension, modification, written assurance or substitution
agreements, if applicable; and (vii) evidence of any primary mortgage insurance
policy. The assignments to the Trustee in connection with each Mortgage Loan are
required to be submitted for recording promptly after the Closing Date.
Pursuant to the terms of the Pooling and Servicing Agreement, if the
Seller cannot deliver the original recorded Mortgage Loan Documents or the
original policy of title insurance, including riders and endorsements thereto,
on the Closing Date, the Loan Seller will, promptly upon receipt of notice
thereof and in any case not later than 180 days from the Closing Date, deliver
such original documents, including original recorded documents, to the Trustee
or its designee (unless the Loan Seller is delayed in making such delivery by
reason of the fact that such documents shall not have been returned by the
appropriate recording office). If delivery is not completed within 180 days
solely due to delays in making such delivery by reason of the fact that such
documents shall not have been returned by the appropriate recording office, the
Loan Seller will be required to deliver such documents to the Trustee, or its
designee, within such time period as specified in an officer's certificate of
the Trustee. The Pooling
S-76
<PAGE>
and Servicing Agreement provides that this procedure will be repeated until the
documents have been received and delivered, and that the Loan Seller will
continue to use its best efforts to effect delivery within 270 days of the
Closing Date. Pursuant to the terms of the Pooling and Servicing Agreement, the
Loan Seller and the Seller will deliver any such document directly to the
Trustee promptly upon receipt of any such document.
The Trustee will review each Mortgage File within 90 days of the
Closing Date, and if any such document is found to be defective in any material
respect (after taking into account any time period specified above) and the Loan
Seller does not cure such defect within 60 days of notice thereof from the
Trustee, the Loan Seller will be obligated to purchase the related Mortgage Loan
from the Trust within 90 days of such notice.
Pursuant to the Pooling and Servicing Agreement, NAMC will make certain
representations and warranties with respect to the Mortgage Loans. The
representations and warranties made by NAMC, with respect to the Mortgage Loans
differ but are similar in nature to the representations and warranties
summarized in the Prospectus under the caption "Sale and Servicing of the
Mortgage Loans -- Representations and Warranties." Upon discovery by the Seller,
the Master Servicer, NAMC or the Trustee of a breach of any representation or
warranty which materially and adversely affects the interests of the
Securityholders in a Mortgage Loan, the party discovering such breach will give
prompt written notice to the other parties. NAMC will have 90 days from its
discovery or its receipt of such notice to cure such breach or repurchase the
Mortgage Loan. NAMC will not have any right to substitute another mortgage loan
for a Mortgage Loan as to which such a breach has occurred. See "The Loan
Seller" herein.
Neither the Seller, the Master Servicer (in its capacity as such),
DLJMCI, the Underwriter, the Trustee, nor any of their respective affiliates
will make any representations or warranties with respect to the Mortgage Loans,
or have any obligation to purchase a Mortgage Loan if NAMC defaults on its
obligation to repurchase a Mortgage Loan in connection with a breach of a
representation and warranty or in connection with a defective document as
described above, and no assurance can be given that NAMC will carry out such
obligations with respect to such Mortgage Loans. Although the subordination
described herein will not be available to support the Loan Seller's obligation
to repurchase any Mortgage Loan, to the extent any such Mortgage Loan is not
repurchased by NAMC, and losses occur on such Mortgage Loans, subordination with
respect to such Mortgage Loans will be available to the extent provided herein.
To the extent that the subordination is so utilized, such subordination will be
depleted more quickly than if such Mortgage Loans had been repurchased by NAMC.
The Master Servicer
NAMC will act as Master Servicer of the Mortgage Loans pursuant to the
Pooling and Servicing Agreement. For a description of NAMC see "The Loan Seller"
herein. The Master Servicer has the right to resign from the obligations and
duties imposed on it under the Pooling and Servicing Agreement upon the
appointment of a successor servicer and delivery to the Trustee of a letter from
each Rating Agency that such resignation and appointment will not, in and of
itself, result in a downgrading of the Securities. The Master Servicer may not
assign its obligations and duties under the Pooling and Servicing Agreement.
The following table sets forth certain information regarding the
principal balance of one- to four-family residential mortgage loans included in
the Master Servicer's servicing portfolio:
S-77
<PAGE>
<TABLE>
<CAPTION>
Three Months
Year Ended December 31 Ended March 31,
------------------------------------------------------- --------------------------
1994 1995 1996 1997
(in millions except "Number of Loans" and "Average Loan Size")
<S> <C>
Servicing Portfolio
Beginning Portfolio $17,276 $14,836 $14,109 $13,293
Add:
Loans Originated 9,755 7,496 9,473 2,009
Deduct:
Sale of Servicing Rights 9,853 6,679 8,246 2,250
Loans Transferred Out(1) 191 9 1 0
Run-off(2) 2,151 1,535 2,042 554
------
Ending Portfolio(3)(4) $14,836 $14,109 $13,293 $12,498
====== ====== ====== ======
Number of Loans 151,847 143,317 136,815 128,148
Average Loan Size $98,000 $98,000 $97,000 $98,000
</TABLE>
- ------------------
(1) Loans transferred out represent termination of servicing under
agreements with investors. For 1996, loans transferred out were $.725
million.
(2) Run-off refers to regular amortization of loans, prepayments and
foreclosures.
(3) Does not include servicing rights of $2.6 million, $2.1 billion and
$1.2 billion for the years ended December 31, 1996, 1995 and 1994,
respectively, which were sold but were being sub-serviced by the Master
Servicer prior to transfer.
(4) Does not include $.3 million, $.3 million and $3 million for the years
ended December 31, 1996, 1995 and 1994, respectively, of mortgage loans
which the Master Servicer serviced under sub-servicing contracts with
other companies that had primary servicing responsibility.
At December 31, 1996, the Master Servicer's loan servicing portfolio
totaled $13.3 billion, excluding servicing rights sold and sub- serviced by the
Master Servicer prior to transfer.
The following table sets forth certain information regarding the Master
Servicer's delinquency statistics for its one- to-four family residential
mortgage servicing portfolio for the periods presented:
<TABLE>
<CAPTION>
As of December 31,
1994 1995 1996 As of March 31, 1997
Percent of Percent of Percent of Percent of
Number Servicing Number Servicing Number Servicing Number Servicing
of Loans Portfolio of Loans Portfolio of Loans Portfolio of Loans Portfolio
<S> <C>
Loan delinquent for:
30-59 days 2,287 1.41% 3,015 1.84% 3,248 2.06% 2,837 1.83%
60-89 days 497 0.31 611 0.37 735 0.47 659 0.43
90 days and over 635 0.39 669 0.42 604 0.38 654 0.42
---
Total delinquencies 3,419 2.10 4,295 2.63 4,587 2.91 4,150 2.68
Foreclosures pending 537 0.33 705 0.43 1,061 0.67 1,060 0.69
---
Total 3,956 2.43% 5,000 3.06% 5,648 3.58% 5,210 3.37%
=====
</TABLE>
*Includes the $2.6 billion, $2.1 billion and $1.2 billion for the years
ended December 31, 1996, 1995 and 1994, respectively, of loan servicing
rights sold to others but temporarily being sub-serviced by the Master
Servicer prior to transfer.
There can be no assurance that the delinquency experience of the
Mortgage Loans will correspond to the delinquency experience of the Master
Servicer's servicing portfolio set forth in the foregoing tables. The statistics
shown above represent the delinquency experience for the Master Servicer's
servicing portfolio only for the periods presented, whereas the aggregate
delinquency experience on the Mortgage Loans will depend on the results obtained
over the life of the Mortgage Pool. The Master Servicer's servicing portfolio
includes mortgage loans with a variety of payment and other characteristics
(including geographic location) which are not necessarily representative of the
payment and other characteristics of the Mortgage Loans. The Master Servicer's
servicing portfolio includes mortgage loans underwritten pursuant to guidelines
not necessarily representative of those applicable to the Mortgage Loans.
S-78
<PAGE>
It also should be noted that if the residential real estate market
should experience a decline in property values, the actual rates of delinquency
and foreclosure could be higher than those previously experienced by the Master
Servicer. In addition, adverse economic conditions may affect the timely payment
by mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquency, bankruptcy and
foreclosure with respect to the Mortgage Pool.
Servicing and Other Compensation and Payment of Expenses
The servicing fee (the "Servicing Fee") in respect of each Mortgage
Loan will be payable at a rate (the "Servicing Fee Rate") equal to 0.25% per
annum on the outstanding principal balance of each Mortgage Loan and out of the
interest payments on such Mortgage Loan. The Master Servicer is entitled to
retain as additional servicing compensation all ancillary fees, including
without limitation, all assumption fees, reconveyance fees, prepayment fees and
late fees to the extent such fees are collected from mortgagors and are in
excess of any other amounts due and payable with respect to the related Mortgage
Loan, and any interest or other income earned on funds held in the Custodial
Account. Under the terms of the Pooling and Servicing Agreement, the Master
Servicer may also be entitled to additional servicing compensation in the form
of excess proceeds following disposition of property in connection with
defaulted Mortgage Loans and as otherwise specified therein. It is not
anticipated that the Master Servicer will enter into any subservicing
arrangements with respect to the Mortgage Loans.
The Master Servicer is obligated to pay certain ongoing expenses
associated with the Trust and incurred by the Master Servicer in connection with
its responsibilities under the Pooling and Servicing Agreement, including
possibly, among other things without limitation, the payment of the fees and
expenses of the Trustee and independent accountants, subservicing and other
related compensation payable to any subservicer, payment of insurance policy
premiums and the cost of credit support, if any, payment of expenses incurred in
enforcing the obligations of others, and in the preparation of reports to
Securityholders. Certain of these expenses may be reimbursable pursuant to the
terms of the Pooling and Servicing Agreement from Liquidation Proceeds and the
proceeds of insurance policies, and in the case of enforcement of the
obligations of others, from any recoveries in excess of amounts due with respect
to the related Mortgage Loans or from specific recoveries of costs.
The Master Servicer will be entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted Mortgage
Loans. If claims are either not made or paid under the applicable insurance
policies or if coverage thereunder has been exhausted, the Trust will suffer a
loss to the extent that Liquidation Proceeds, after reimbursement of the Master
Servicer's expenses, are less than the outstanding principal balance of and
unpaid interest on the related Mortgage Loan which would be distributable to
Securityholders. In addition, the Master Servicer will be entitled to
reimbursement of expenditures incurred by it in connection with the restoration
of property securing a defaulted Mortgage Loan, such right of reimbursement
being prior to the rights of the Securityholders to receive any related proceeds
of insurance policies, Liquidation Proceeds or amounts derived from other forms
of credit support. The Master Servicer is also entitled to reimbursement from
the Security Account and the Custodial Account for Advances.
The rights of the Master Servicer to receive funds from the Security
Account or the Custodial Account for a Series, whether as the Servicing Fee or
other compensation, or for the reimbursement of Advances, expenses or otherwise,
are not subordinate to the rights of Securityholders.
Voting Rights
Certain actions specified in the Prospectus that may be taken by
holders of Securities evidencing a specified percentage of all undivided
interests in the Trust may be taken by holders of Securities entitled in the
aggregate to such percentage of the Voting Rights. Ninety-six percent of all
Voting Rights will be allocated among all holders of the Securities (other than
the Strip Securities and Class FXA-9 Securities and the Residual Securities) in
proportion to their then outstanding Security Principal Balances, 3% of all
Voting Rights will be allocated among the holders of the Classes of Strip
Securities and Class FXA-9 Securities (pro rata, based upon their applicable
Notional Amounts) in proportion to the Percentage Interests evidenced by their
respective Securities, and 0.50%
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of all Voting Rights will be allocated to each Class of Residual Securities in
proportion to their initial respective Security Principal Balance. The
percentage ownership of a Holder of a Floater or Class FXA-9 Security is the
percentage of the related Notional Amount of such Class evidenced by such
Security. The Pooling and Servicing Agreement will be subject to amendment
without the consent of the holders of the Securities in certain circumstances.
Events of Default
Events of default ("Events of Default") under the Pooling and Servicing
Agreement will consist of: (i) any failure by the Master Servicer to distribute
or cause to be distributed to Securityholders any required payment (other than
any Advance) which continues unremedied for five days after the giving of
written notice of such failure to the Master Servicer by the Seller (with a copy
to the Trustee) or the Trustee, or to the Master Servicer, the Seller and the
Trustee by the holders of Securities evidencing not less than 25% of the Voting
Rights; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any of its other covenants or agreements in the Pooling and
Servicing Agreement which continues unremedied for thirty days after the giving
of written notice of such failure to the Master Servicer by the Seller (with a
copy to the Trustee) or the Trustee, or to the Master Servicer, the Seller, and
the Trustee by the holders of Securities evidencing not less than 25% of the
Voting Rights; (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by or on behalf of the Master Servicer indicating its insolvency or inability to
pay its obligations; and (iv) any failure of the Master Servicer to make any
Advance as required under the terms of the Pooling and Servicing Agreement as
and when due.
Rights Upon Event of Default
So long as an Event of Default under the Pooling and Servicing
Agreement as described in clauses (i), (ii) and (iii) of the preceding paragraph
remains unremedied, the Seller or the Trustee may, and at the direction of
holders of Securities evidencing not less than 51% of the Voting Rights shall,
by notice in writing to the Master Servicer, terminate all of the rights and
obligations of the Master Servicer, in its capacity as master servicer, under
the Pooling and Servicing Agreement and in and to the Trust. If an Event of
Default under the Pooling and Servicing Agreement as described in clause (iv) of
the preceding paragraph shall occur, the Trustee will, by notice to the Master
Servicer and the Seller, terminate all of the rights and obligations of the
Master Servicer under the Pooling and Servicing Agreement and in and to the
Trust; provided, however, that if the Trustee determines that the failure by the
Master Servicer to make any required Advance was due to circumstances beyond its
control and the required Advance was otherwise made, the Trustee shall not
terminate the Master Servicer. Upon receipt by the Master Servicer of any such
written notice, all authority and power of the Master Servicer under the Pooling
and Servicing Agreement will pass to and be vested in the Trustee, and the
Trustee will be authorized and empowered to execute and deliver, on behalf of
the Master Servicer, as attorney-in-fact, or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such termination. Upon
receipt by the Master Servicer of notice of termination, the Trustee will
succeed to all the responsibilities, duties and liabilities of the Master
Servicer under the Pooling and Servicing Agreement and will be entitled to
similar compensation arrangements. In the event that the Trustee is unwilling,
it may, or if it is unable or if the holders of Securities evidencing not less
than 51% of the Voting Rights request in writing, it shall, appoint or petition
a court of competent jurisdiction for the appointment of a FNMA- or
FHLMC-approved mortgage loan servicing institution, with a net worth of at least
$10,000,000 to act as successor to the Master Servicer under the Pooling and
Servicing Agreement. Pending such appointment, the Trustee is obligated to act
in such capacity. 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 Pooling and Servicing Agreement. In addition,
holders of Securities evidencing at least 66% of the Voting Rights of Securities
affected by an Event of Default may waive such Event of Default; provided,
however, that (a) an Event of Default with respect to the Master Servicer's
obligation to make Advances may be waived only by all of the holders of
Securities affected by such Event of Default and (b) no such waiver is permitted
that would materially adversely affect any non-consenting Securityholder.
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No Securityholder, solely by virtue of such holder's status as a
Securityholder, will have any right under the Pooling and Servicing Agreement to
institute any proceeding with respect to the Pooling and Servicing Agreement,
unless such holder previously has given to the Trustee written notice of default
and unless the holders of Securities evidencing at least 25% of Voting Rights
have made written request upon the Trustee to institute such proceeding in its
own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity, and the Trustee for 60 days has neglected or refused to institute any
such proceeding.
Limitation on Resignation of the Master Servicer
The Master Servicer may resign from its obligations and duties under
the Pooling and Servicing Agreement only if such resignation, and the
appointment of a successor, will not result in a downgrading of the ratings
assigned to any Class of Securities, or upon a determination that its duties
under the Pooling and Servicing Agreement are no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's responsibilities,
liabilities, obligations and duties under the Pooling and Servicing Agreement.
Any proposed successor Master Servicer must be an established mortgage loan
servicing institution, must be reasonably acceptable to the Trustee, must be
acceptable to each Rating Agency for purposes of maintaining its then-current
ratings of the Securities, and must comply with any further requirements of a
successor Master Servicer under the Pooling and Servicing Agreement.
Termination
The obligations created by the Pooling and Servicing Agreement will
terminate upon payment to the Securityholders of all amounts held in the
Custodial Accounts required to be paid to the Securityholders pursuant to such
Pooling and Servicing Agreement, following the earlier of: (i) the final payment
or other liquidation (or any Advance with respect thereto) of the last Mortgage
Loan remaining in the Trust or the disposition of all property acquired upon
foreclosure of any such Mortgage Loan and (ii) the repurchase of all of the
assets of the Trust by the Master Servicer when the aggregate principal balance
of the Mortgage Loans equals 5% or less of the aggregate principal balance as of
the Cut-off Date, pursuant to a provision of the Agreement giving the Master
Servicer the right to do so. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Securityholder, and the final
distribution will be made only upon surrender and cancellation of the Securities
at an office or agency appointed by the Trustee which will be specified in the
notice of termination.
Any such repurchase of Mortgage Loans and property acquired in respect
of the Mortgage Loans shall be made at a price equal to the sum of (a) 100% of
the unpaid principal balance of each outstanding Mortgage Loan other than one as
to which a property was acquired in connection with a default thereunder as of
the day of such repurchase plus accrued interest thereon at the Net Rate to the
first day of the month of such repurchase, plus (b) the appraised value of any
property acquired in respect of any defaulted Mortgage Loan (but not more than
the unpaid principal balance of that Mortgage Loan together with accrued
interest at the applicable Net Rate to the first day of the month of such
repurchase) less the good faith estimate of the Master Servicer of liquidation
expenses to be incurred in connection with its disposal thereof, plus (c) the
amount of any Servicing Advances and any other amounts to be reimbursed to the
Master Servicer or the Trustee under the terms of the Pooling and Servicing
Agreement. The exercise of the right to purchase the assets of the Trust as set
forth in clause (ii) of the preceding paragraph will effect early retirement of
the Securities.
The Trustee
The First National Bank of Chicago will be the Trustee under the
Pooling and Servicing Agreement. The Seller and the Master Servicer may maintain
other banking relationships in the ordinary course of business with the Trustee.
Offered Securities may be surrendered at the Corporate Trust Office of the
Trustee located at One First National Plaza, Mail Suite 0126, Chicago, Illinois
60670-0126 or at such other addresses as the Trustee may designate from time to
time by notice to the Securityholders, the Seller and the Master Servicer.
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The Trustee is eligible to serve as such under the Pooling and
Servicing Agreement only if it is a corporation or banking association organized
and doing business under the laws of the United States or any state thereof,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by federal or state authority and has combined
capital and surplus of at least $50,000,000.
The Trustee may, upon written notice to the Master Servicer, the Seller
and all Securityholders, resign at any time, in which event the Master Servicer
will be obligated to appoint a successor Trustee. If no successor Trustee has
been appointed and has accepted appointment within 60 days after giving such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. Any such successor Trustee
must be approved by each Rating Agency. The Trustee may also be removed at any
time (i) by the Master Servicer, if the Trustee ceases to be eligible to
continue as such as described above or if the Trustee becomes insolvent or (ii)
by holders of Securities evidencing at least 51% of the Voting Rights. Any
removal or resignation of the Trustee and appointment of a successor Trustee as
described above will not become effective until acceptance of appointment by the
successor Trustee.
SPECIAL TAX CONSIDERATIONS
Residual Securityholders
The Class R and Class RP Securities, which represent the residual
interest in the Issuing REMIC and the Pooling REMIC, respectively, may
experience a highly negative after-tax return. Accordingly, prospective
investors are urged to consult their own tax advisers and consider the after-tax
effect of ownership of a Residual Security and the suitability of the Residual
Securities to their investment objectives.
Holders of Class R and Class RP Securities will be treated as owners of
the "residual interest" in the Issuing REMIC and the Pooling REMIC,
respectively, for federal income tax purposes. Accordingly, Residual
Securityholders will not be treated as holders of debt instruments for such
purposes, and their taxable income will not be computed with reference to the
stated interest or amortization of premium on the Residual Securities, but
rather will be computed as described in "Certain Federal Income Tax Consequences
- -- REMIC Securities -- Tax Treatment of Residual Securities" in the Prospectus.
Taxable income to Residual Securityholders may exceed principal and interest
distributions received by such Securityholders with respect to their Residual
Securities for the corresponding period, which would result in a highly negative
after-tax return for such period. See "Certain Federal Income Tax Consequences
- -- REMIC Securities -- Tax Treatment of Residual Securities -- Taxation of REMIC
Securityholders" in the Prospectus. Consequently, such Securityholders should
have other sources of funds sufficient to pay any federal or state income taxes
due as a result of ownership of the Residual Securities.
The Issuing REMIC and the Pooling REMIC may generate income, a portion
of which will be treated as "excess inclusion" income. Excess inclusion income
(a) is taxable to a tax-exempt Class R or Class RP Securityholder, respectively,
as unrelated business taxable income ("UBTI"), (b) in the case of foreign
holders, is subject to withholding tax at a rate of 30% (regardless of any
statutory of treaty exemptions or rate reduction that otherwise would apply),
and (c) generally cannot be offset by any net operating losses or current
deductions of Residual Securityholders. Furthermore, Residual Securityholders
who are individuals, estates or trusts may be subject to limitations on the
deductibility of administrative expenses of the Issuing REMIC or Pooling REMIC,
as applicable, for purposes of determining their taxable income and alternative
minimum taxable income. See "Certain Federal Income Tax Consequences -- REMIC
Securities -- Special Considerations for Certain Types of Investors" in the
Prospectus.
Prospective purchasers of Residual Securities should be aware that the
REMIC Regulations provide that the transfer of noneconomic residual interests to
United States persons may be disregarded for federal income tax purposes if any
significant purpose of the transfer was to impede the assessment and collection
of tax. For purposes of those Regulations, a residual interest is considered to
be a noneconomic residual interest if, at the time of transfer, either (a) the
present value of the expected distributions is less than the present value of
the expected tax
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on the excess inclusions or (b) the transferee is not to receive cash
distributions at or after the time that tax accrues on the anticipated excess
inclusions in an amount sufficient to pay the accrued tax. See "Certain Federal
Income Tax Consequences -- REMIC Securityholders -- Taxation of Residual
Securityholders -- Limitations on Offset or Exemption of REMIC Income" in the
Prospectus. If a transfer of a Residual Security is disregarded, the transferor
would be liable for any federal income tax imposed upon taxable income derived
by the transferee from the Issuing REMIC or the Pooling REMIC, as applicable. A
significant purpose to impede the assessment or collection of tax will exist if
the transferor fails to establish that it neither knew nor should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of such REMIC. See "Certain Federal Income Tax
Consequences -- REMIC Securityholders -- Taxation of Residual Securityholders --
Non-Recognition of Certain Transfers for Federal Income Tax Purposes" in the
Prospectus. It is expected that the Class R Securities would be treated as
noneconomic residual interests for purposes of the REMIC Regulations on the
Closing Date. Each Class R Securityholder considering the transfer of such
Security to a United States person (i.e., a citizen or resident of the United
States, a domestic corporation, partnership, estate or trust) should consult
with its tax advisor to determine whether (a) the Class R Security to be
transferred would be considered to be a noneconomic residual interest at the
time of the transfer thereof and (b) any significant purpose of the transfer is
to impede the collection and assessment of tax within the meaning of the REMIC
Regulations.
The REMIC Regulations also provide that the transfer of a residual
interest to a foreign person will be disregarded if the residual interest has
tax avoidance potential (is a "TAPRI") and the income derived from the residual
interest is not effectively connected with the conduct of a United States trade
or business. A Residual Security will be deemed to have tax avoidance potential
under the REMIC Regulations unless, at the time of the transfer, the transferor
reasonably expects that the applicable REMIC will distribute to the transferee
amounts that are sufficient to pay the tax on the excess inclusion accruing
during each calendar year with respect to the related residual interest not
later than the close of the calendar year following the calendar year of
accrual. Moreover, if a foreign person transfers a Residual Security to a United
States person and otherwise would avoid withholding tax on accrued excess
inclusion income, the transfer will be disregarded for 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. See "Certain Federal Income Tax Consequences -- REMIC Securities --
Taxation of Certain Foreign Holders of REMIC Securities" in the Prospectus. It
is expected that the Class R Securities would be treated as TAPRIs for purposes
of the REMIC Regulations on the Closing Date. A Class R Securityholder should
consult with its tax counsel, before transferring a Residual Security to a
foreign person, to determine whether the Class R Security would be considered a
TAPRI under the REMIC Regulations at the time of the proposed transfer. A
transferee that is a foreign person will be required to deliver to the Trustee
certain certifications (and to satisfy certain other conditions) in connection
with the transfer of a Residual Security.
Under section 166 of the Code, both corporate Holders of the Offered
Subordinate Securities and noncorporate Holders that acquire such 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 Offered
Subordinate Securities become wholly or partially worthless as the result of one
or more Realized Losses. However, a noncorporate Holder that does not acquire an
Offered Subordinate Security in connection with its trade or business will not
be entitled to deduct a loss under Code section 166 until its Offered
Subordinate Security becomes wholly worthless (i.e., until its outstanding
principal balance has been reduced to zero), and the loss will be characterized
as a short-term capital loss.
Each Holder of an Offered Subordinate Security will be required to
accrue interest and original issue discount income ("Current Income") with
respect to such Security without giving effect to any reduction in distributions
attributable to a default or delinquency on the Mortgage Loans until a related
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 Current Income reported in any period by the Holder of an
Offered Subordinate Security could exceed significantly the amount of economic
income actually realized by the Holder in such period. Although the Holder of an
Offered Subordinate Security eventually will recognize a loss or a reduction in
income attributable to previously included Current Income that, as the result of
a Realized Loss, ultimately will not be realized, the law is unclear with
respect to the timing of such loss or reduction in income. Accordingly,
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Holders of the Offered Subordinate Securities should consult their own tax
advisors with respect to the federal income tax consequences of Realized Losses
on Current Income.
The Trustee intends to adjust the accrual of Current Income on the
Subordinate Securities in a manner that it believes to be appropriate to take
account of Realized Losses. However, there can be no assurance that the Internal
Revenue 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 the Offered Subordinate
Securities.
RESTRICTIONS ON PURCHASE AND TRANSFER OF THE RESIDUAL SECURITIES
The Residual Securities are not offered for sale to any investor that
is (a) a "disqualified organization" as described in "Certain Federal Income Tax
Consequences -- REMIC Securities -- Taxation of Residual Securityholders --
Ownership of Residual Interests by Disqualified Organizations" in the Prospectus
or (b) a Plan or a Plan Investor unless such Plan provides the Seller with a
Benefit Plan Opinion, as defined below or, with respect to an insurance company,
a representation letter.
A Residual Security may not be transferred except in compliance with
the restrictions on transfer set forth in the Pooling and Servicing Agreement.
As a prerequisite to any such transfer, the proposed transferee must provide the
Trustee with (a) a transferee affidavit and agreement to the effect that the
transferee is not a disqualified organization or a Non-U.S. Person, (b) one or
more investor representation letters to the effect that the transferee is not a
Plan Investor described in or subject to the Plan Asset Regulations (as defined
herein), and that the proposed transferee either is not an insurance company or
is an insurance company and that none of the funds used by it in connection with
its purchase of the Residual Securities will constitute "plan assets" as defined
in the Plan Asset Regulations, (c) if the transferee is a Plan or a Plan
Investor, a Benefit Plan Opinion, and (d) a certificate, signed by transferor,
stating that the purpose of the proposed transfer is not to impede the
assessment or collection of taxes, confirming its investigation of the
transferee and absence of actual knowledge on the part of the transferor that
the proposed transferee is a disqualified organization or a Non-U.S. Person. A
"Benefit Plan Opinion" is an opinion of counsel satisfactory to the Trustee (and
upon which the Trustee, the Master Servicer and the Seller are authorized to
rely) generally to the effect that the proposed transfer will not (A) cause the
assets of the Trust to be regarded as plan assets for purposes of the Plan Asset
Regulations, (B) give rise to any fiduciary duty under ERISA on the part of the
Seller, the Master Servicer or the Trustee or (C) be treated as, or result in, a
prohibited transaction under Sections 406 or 407 of ERISA or Section 4975 of the
Code. A "Non-U.S. Person" is a person other than (a) a citizen or resident of
the United States, (b) a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, (c) an estate whose income from sources without the United
States is includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States, or (d) a trust if a United States court is able to
exercise primary supervision over the administration of the trust and one or
more of the United States fiduciaries have the authority to control all
substantial decisions of the trust. Notwithstanding the fulfillment of the
prerequisites described above, the Trustee may withhold registration of a
proposed transfer if it has actual knowledge that the proposed transferee is a
Non-U.S. Person or a disqualified organization. A transfer in violation of the
restrictions set forth herein may subject a Residual Securityholder to taxation
and the payment of certain fees to the Trustee. See "Certain Federal Income Tax
Consequences -- REMIC Securities -- Taxation of Residual Securityholders --
Ownership of Residual Interest by Disqualified Organizations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") between FASI and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Underwriter"), FASI has agreed to sell to
the Underwriter, and the Underwriter has agreed to purchase from FASI, the
Offered Securities.
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The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered Securities is subject
to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of
FASI's Registration Statement shall be in effect, and that no proceedings for
such purpose shall be pending before or threatened by the Commission.
The distribution of the Offered Securities by the Underwriter will be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined, in each case, at the time of sale. The
proceeds to FASI from the sale of the Offered Securities will be approximately
$176,719,078, plus accrued interest at the weighted average of the Net Rates as
of the Cut-off Date but before deducting expenses payable by FASI. The
Underwriter may effect such transactions by selling its Securities to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriter for whom they act as
agent. In connection with the sale of the Offered Securities, the Underwriter
may be deemed to have received compensation from FASI in the form of an
underwriting discount. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Offered Securities may be deemed to be
underwriters and any profit on the resale of the Offered Securities positioned
by them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.
The Underwriting Agreement provides that FASI will indemnify the
Underwriter, and under limited circumstances the Underwriter will indemnify
FASI, against certain civil liabilities under the Securities Act of 1933, or, in
each case, contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Offered
Securities will develop or, if it does develop, that it will continue or will
provide investors with a sufficient level of liquidity. The primary source of
information available to investors concerning the Offered Securities will be the
monthly statements discussed in the Prospectus under "The Trust Agreements --
Reports to Securityholders," which will include information as to the
outstanding principal balance of the Offered Securities and the status of the
applicable form of credit enhancement. There can be no assurance that any
additional information regarding the Offered Securities will be available
through any other source. In addition, FASI is not aware of any source through
which price information about the Offered Securities will be generally available
on an ongoing basis. The limited nature of such information regarding the
Offered Securities may adversely affect the liquidity of the Offered Securities,
even if a secondary market for the Offered Securities becomes available.
USE OF PROCEEDS
The Seller will apply the net proceeds from the sale of the Offered
Securities against the purchase price of the Mortgage Loans.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for the Seller by Hunton & Williams, Richmond, Virginia and for the Underwriter
by Cadwalader, Wickersham & Taft, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Securities that each
Class of Class FXA Securities (other than the Class FXA-9 Securities), the
Residual Securities and Class A Securities, be rated "AAA" by the Rating
Agencies, that the Strip Securities, Principal Only Securities, and Class FXA-9
Securities be rated "AAA" by DCR and Fitch and "AAAr" by S&P, that the Class B-1
Securities be rated not lower than "AA" by DCR, that the Class B-2 Securities be
rated not lower than "A" by DCR and that the Class B-3 Securities be rated not
lower than "BBB" by DCR.
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Publications of S&P indicate that it assigns a rating of "AAA" to
securities for which "the capacity to pay interest and repay principal is
extremely strong." In addition, S&P assigns the additional rating of "r" to
highlight classes of securities that it believes may experience high volatility
or a variability in expected returns due to noncredit risks; however, the
absence of an "r" symbol should not be taken as a indication that a class will
exhibit no volatility or variability in total return.
Publications of DCR indicates that it assigns a rating of (i) "AAA" to
securities that are of the "highest credit quality" where "risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt;"
(ii) "AA" to securities that are of "high credit quality" where "protection
factors are strong" and "risk is modest but may vary slightly from time to time
because of economic conditions;" (iii) "A" to securities where the "protection
factors are average but adequate, but are more variable and greater in periods
of economic stress;" and (iv) "BBB" to securities where there are "below average
protection factors but are still considered sufficient for prudent investment,"
but where there is "considerable variability in risk during economic cycles."
The ratings assigned by DCR to mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
they are entitled under the transaction structure. DCR's ratings reflect its
analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgages. Further, in the case of
the Strip Securities and the Inverse Floater Securities, the rating does not
address whether investors will recoup their initial investment.
Publications of Fitch indicate that it assigns a rating of "AAA" to
securities that are "of the highest credit quality" where "the obligor has an
exceptionally strong ability to pay interest and repay principal."
The ratings assigned to the Residual Securities do not assess the
likelihood of return to investors in the Residual Securities, except to the
extent of the nominal initial principal amount of such Class and interest
thereon at the applicable Pass-Through Rate.
The Seller has not requested ratings on the Offered Securities by any
rating agency other than Fitch, S&P and DCR. However, there can be no assurance
as to whether any other rating agency will rate the Offered Securities, or, if
it does, what ratings would be assigned by such other rating agency. Ratings on
the Offered Securities by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Offered Securities by Fitch, S&P and DCR.
A securities 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 securities rating should be evaluated
independently of similar ratings on different securities.
LEGAL INVESTMENT
The Senior Securities and the Class B-1 Securities will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA") so long as they are rated in at
least the second highest rating category by any Rating Agency or another
nationally recognized statistical rating organization.
The Class B-2 and Class B-3 Securities will not constitute "mortgage
related securities" for purposes of SMMEA, because those Classes are not rated
in the two highest rating categories by a nationally recognized rating
organization.
Any financial institution that is subject to the jurisdiction of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the National Credit Union Administration, any state insurance
commission, or any other federal or state agencies with similar authority should
review any applicable rules, guidelines and regulations prior to purchasing
S-86
<PAGE>
any Securities. Financial institutions should review and consider the
applicability of the Federal Financial Institutions Examination Council
Supervisory Policy Statement on the Selection of Securities Dealers and
Unsuitable Investment practices (to the extent adopted by their respective
federal regulators), which, among other things, sets forth guidelines for
investing in certain types of mortgage related securities and prohibits
investment in certain "high-risk" mortgage securities.
Except as to the status of certain Classes of Offered Securities as
"mortgage related securities," no representations are made as to the proper
characterization of any Class of Offered Securities for legal investment,
financial institution registry or other purposes, or as to the ability of
particular investors to purchase any Class of Offered Securities under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Securities. Accordingly, all institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
should consult with their own legal advisors in determining whether and to what
extent any Class of the Offered Securities, and, in particular, the Class B-1
Securities, constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh plans
and collective investment funds in which such plans, accounts, annuities or
arrangements are invested (any of the foregoing a "Plan"), persons acting on
behalf of a Plan, or persons using the assets of a Plan ("Plan Investors"),
should review carefully with their legal advisors whether the purchase or
holding of the Securities could either give rise to a transaction that is
prohibited under ERISA or the Code or cause the collateral securing the
Securities to be treated as plan assets for purposes of regulations of the
Department of Labor set forth in 29 C.F.R. 2510.3-101 (the "Plan Asset
Regulations"). Although certain exceptions from the application of the
prohibited transaction rules and the Plan Asset Regulations exist, there can be
no assurance that any such exception will apply with respect to the acquisition
of a Security. See "ERISA Considerations" in the Prospectus.
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit
certain transactions that involve (i) a Plan that is subject to ERISA and any
party in interest or disqualified person with respect to the Plan and (ii) plan
assets. 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 (the "Look-Through Rule"), unless
one or more exceptions specified in the regulations are satisfied. The Offered
Securities will be treated as equity securities for purposes of the Plan Asset
Regulations. Based on the information available to the Underwriter at the time
of the printing of the Prospectus, there can be no assurance that any exception
specified in the Plan Asset Regulations will apply to the initial or any
subsequent purchases of the Offered Securities. See "ERISA Considerations" in
the Prospectus.
The U.S. Department of Labor has granted an administrative exemption to
DLJ (Prohibited Transaction Exemption 90-83, 55 Fed. Reg. 50, 250 (December 5,
1990), referred to herein as the "Exemption") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code with respect to the initial purchase, the holding and the subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations and that meet the conditions and
requirements of the Exemption. The Exemption may apply to the purchase, holding
and resale of a Senior Security by a Plan Investor, provided that the specified
conditions are met. For the Exemption to apply to an acquisition of a Senior
Security by a Plan, among other things, the Plan must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933; the Securities must be
acquired by the Plan on terms (including the price paid for the Securities) that
are at least as favorable to the Plan as they would be in an arm's length
transaction with an unrelated party; and the compensation paid to and retained
by the
S-87
<PAGE>
Underwriter in connection with the distribution of the Offered Securities and by
any servicer for its services under the applicable servicing agreement must be
reasonable and the amounts to be retained by the Seller in connection with the
sale of the Mortgage Loans to the Trust must not exceed the fair market value of
the Mortgage Loans. Prospective investors should be aware, however, that even if
the conditions specified in the Exemption are met, the scope of the relief
provided by the Exemption might not cover all acts that might be construed as
prohibited transactions. Before purchasing Senior 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 to application of the Exemption or any other exemptions (including
Prohibited Transaction Class Exemption 83-1) would be met.
The Holders of the Residual Securities will be required to report on
their federal income tax returns any net income or loss of the related REMIC and
may experience a highly negative after-tax return. Accordingly, the Residual
Securities may not be suitable for Plan Investors. Special restrictions apply to
the purchase and transfer of the Residual Securities. See "Restrictions on
Purchase and Transfer of the Residual Securities" herein.
In addition, because the Subordinate Securities are subordinated
securities, they will not satisfy the requirements of the Exemption. As a
result, the purchase or holding of any of the Subordinate Securities by a Plan
Investor may constitute a non-exempt prohibited transaction and result in the
imposition of excise taxes or penalties. Accordingly, the Subordinate Securities
may not be transferred to a Plan Investor unless the Plan Investor provides the
Trustee with a Benefit Plan Opinion as defined in "ERISA Considerations" in the
Prospectus. A Plan Investor that is an insurance company may, in lieu of a
Benefit Plan Opinion, deliver to the Trustee a representation letter stating,
among other things, that (i) the source of funds used to purchase the
Subordinate Securities is an "insurance company general account" (as such term
is defined in Section V(e) of Prohibited Transaction Class Exemption 95-60
("PTCE 95-60"), 60 Fed. Reg. 35925 (July 12, 1995)), (ii) there is no Plan with
respect to which the amount of such general account's reserves and liabilities
for the contract(s) held by or on behalf of such Plan and all other Plans
maintained by the same employer (or affiliate thereof as defined in Section
V(a)(1) of PTCE 95-60) or by the same employee organization exceeds 10% of the
total of all reserves and liabilities of such general account (as such amounts
are determined under Section I(a) of PTCE 95-60) at the date of acquisition,
(iii) the purchase of the Securities is not part of an agreement, arrangement,
or understanding designed to benefit a party in interest, and (iv) the
conditions of the Exemption (except for the conditions stated in Section
II(A)(2) and (3) thereof) are met. Each purchaser of a Subordinate Security, by
virtue of such purchaser's receipt of such Security, will be deemed to have
represented that it is not a Plan Investor, unless such purchaser provides a
Benefit Plan Opinion or, in the case of an insurance company, a representation
letter. See "ERISA Considerations" in the Prospectus.
The sale of Offered Securities to a Plan is in no respect a
representation by the Seller or the Underwriter that this investment meets all
relevant legal requirements with respect to investments by Plans generally or
any particular Plan, or that this investment is appropriate for Plans generally
or any particular Plan.
S-88
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
1996-1997 Flood States.........................................................................................S-26
1996-1997 Floods .............................................................................................S-26
Advances .............................................................................................S-13
Available Distribution.........................................................................................S-49
Bankruptcy Coverage............................................................................................S-64
Beneficial Owner ........................................................................................S-9, S-48
Benefit Plan Opinion...........................................................................................S-84
Cede ..............................................................................................S-5
Class A Liquidation Amount.....................................................................................S-59
Class A Percentage.............................................................................................S-59
Class A Prepayment Percentage..................................................................................S-60
Class A Principal Distribution Amount..........................................................................S-59
Class A Securities..............................................................................................S-1
Class A-4 Liquidation Amount...................................................................................S-59
Class A-4 Percentage...........................................................................................S-59
Class A-4 Prepayment Percentage................................................................................S-60
Class A-4 Principal Distribution Amount........................................................................S-59
Class B Loan Group Component Balance...........................................................................S-60
Class FX Securities.............................................................................................S-1
Class FXA Liquidation Amount...................................................................................S-57
Class FXA Percentage...........................................................................................S-57
Class FXA Prepayment Percentage................................................................................S-60
Class FXA Principal Distribution Amount........................................................................S-57
Class FXA Securities............................................................................................S-1
Class FXA-2 Liquidation Amount.................................................................................S-58
Class FXA-2 Percentage.........................................................................................S-57
Class FXA-2 Prepayment Percentage..............................................................................S-60
Class FXA-2 Principal Distribution Amount......................................................................S-57
Class FXA-9 Notional Amount....................................................................................S-12
Class FXP Fraction.............................................................................................S-56
Class FXP Principal Distribution Amount........................................................................S-58
Class FXS Notional Amount................................................................................S-12, S-53
Class II Securities.............................................................................................S-1
Class P Fraction .............................................................................................S-58
Class P Principal Distribution Amount..........................................................................S-58
Class S Notional Amount..................................................................................S-12, S-54
Closing Date ..............................................................................................S-2
CLTV .............................................................................................S-42
Code .............................................................................................S-19
Compensating Interest..........................................................................................S-54
CPR .............................................................................................S-70
Credit Support Depletion Date..................................................................................S-53
Current Flood States...........................................................................................S-26
Current Floods .............................................................................................S-26
Custodial Account .............................................................................................S-47
Cut-off Date ..............................................................................................S-2
DCR ........................................................................................S-4, S-22
Debt Service Reductions........................................................................................S-65
Distribution Date ...................................................................................S-3, S-7, S-47
DLJMCI .........................................................................................S-2, S-7
DTC ..............................................................................................S-9
Due Period ..............................................................................................S-8
ERISA .............................................................................................S-21
Events of Default .............................................................................................S-80
</TABLE>
S-89
<PAGE>
<TABLE>
<S> <C>
Excess Bankruptcy Losses.......................................................................................S-64
Excess Fraud Losses............................................................................................S-63
Excess Special Hazard Losses...................................................................................S-63
Exemption .............................................................................................S-87
Extraordinary Losses...........................................................................................S-65
FASI .........................................................................................S-2, S-7
FICO Scores .............................................................................................S-44
Final Scheduled Distribution Date..............................................................................S-22
Floater Securities..............................................................................................S-1
Floods .............................................................................................S-26
Fraud Coverage .............................................................................................S-63
Gold Flex Program .......................................................................................S-27, S-42
Group I ........................................................................................S-2, S-27
Group I Discount Mortgage Loan.................................................................................S-56
Group I Mortgage Loans....................................................................................S-2, S-27
Group I Premium Rate Mortgage Loans............................................................................S-12
Group II ........................................................................................S-2, S-27
Group II Discount Mortgage Loan................................................................................S-58
Group II Mortgage Loans...................................................................................S-2, S-27
Group II Premium Rate Mortgage Loans...........................................................................S-12
Interest Accrual Period........................................................................................S-53
Inverse Floater Securities......................................................................................S-1
Issuing REMIC ........................................................................................S-4, S-18
LIBOR .............................................................................................S-54
LIBOR Determination Date.......................................................................................S-54
LIBOR Securities ..............................................................................................S-1
Liquidation Principal..........................................................................................S-57
Loan Sale Agreement............................................................................................S-27
Loan Seller ...................................................................................S-2, S-7, S-46
Loan-to-Value Ratio at origination.............................................................................S-29
Lockout Securities..............................................................................................S-1
Look-Through Rule .............................................................................................S-87
Master Servicer .........................................................................................S-2, S-7
Modeling Assumptions...........................................................................................S-71
Monthly Payment ..............................................................................................S-9
Moody's .............................................................................................S-22
Mortgage Loan Group.............................................................................................S-2
Mortgage Loans ...................................................................................S-2, S-9, S-27
Mortgage Pool .........................................................................................S-2, S-9
Mortgage related securities........................................................................S-23, S-86, S-87
Mortgaged Premises........................................................................................S-9, S-27
NAMC ........................................................................................S-7, S-46
NAMIS .............................................................................................S-47
NERDs .............................................................................................S-20
No Ratio .......................................................................................S-43, S-44
Non-U.S. Person .............................................................................................S-84
Notional Amount .............................................................................................S-12
Offered Securities..............................................................................................S-1
Overcollateralized Group.......................................................................................S-61
Parity Price .............................................................................................S-67
Plan .......................................................................................S-21, S-87
Plan Asset Regulations.........................................................................................S-87
Plan assets .......................................................................................S-84, S-87
Plan Investor ..............................................................................................S-4
PMI .............................................................................................S-44
Pooling REMIC ........................................................................................S-4, S-18
</TABLE>
S-90
<PAGE>
<TABLE>
<S> <C>
Prepayment Period ..............................................................................................S-8
Principal Only Securities.......................................................................................S-1
Principal Payment Amount.......................................................................................S-59
Principal Prepayment Amount....................................................................................S-59
Pro Rata Allocation............................................................................................S-64
Prohibited Transaction Provisions..............................................................................S-21
PTCE 95-60 .............................................................................................S-88
Purchase Agreements............................................................................................S-27
Rating Agencies ..............................................................................................S-4
Real estate assets.............................................................................................S-19
Real estate mortgage investment conduits........................................................................S-4
Record Date ..............................................................................................S-8
Reference Banks .............................................................................................S-55
REITs .............................................................................................S-19
REMIC ........................................................................................S-4, S-18
REMIC Regulations .............................................................................................S-20
Residual Securities.............................................................................................S-1
Rules .............................................................................................S-48
S&P ..............................................................................................S-4
Securities ..............................................................................................S-1
Security Principal Balance.....................................................................................S-10
Seller .........................................................................................S-2, S-7
Senior Securities ..............................................................................................S-1
Servicing Fee .............................................................................................S-79
Servicing Fee Rate........................................................................................S-7, S-79
SMMEA ..................................................................................S-4, S-23, S-86
Special Hazard Coverage........................................................................................S-63
Step Down Percentage...........................................................................................S-61
Strip Securities ..............................................................................................S-1
Stripped Interest Rate.............................................................................S-12, S-53, S-54
Subordinate Liquidation Amount.................................................................................S-62
Subordinate Percentage.........................................................................................S-62
Subordinate Prepayment Percentage..............................................................................S-62
Subordinate Principal Distribution Amount......................................................................S-61
Subordinate Securities..........................................................................................S-1
Subordination Level............................................................................................S-52
TAPRI .............................................................................................S-83
TAPRIs .............................................................................................S-20
Thirty-Day Delinquent Mortgage Loans.....................................................................S-10, S-27
Trust ..............................................................................................S-2
UBTI .......................................................................................S-20, S-82
Undercollateralized Group......................................................................................S-61
Underwriter ........................................................................................S-4, S-84
Underwriting Agreement.........................................................................................S-84
</TABLE>
S-91
<PAGE>
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-1 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 93 91 89 87 86 84 74
April 25, 1999 79 71 62 57 54 46 14
April 25, 2000 60 43 28 17 12 0 0
April 25, 2001 41 18 0 0 0 0 0
April 25, 2002 23 0 0 0 0 0 0
April 25, 2003 8 0 0 0 0 0 0
April 25, 2004 0 0 0 0 0 0 0
April 25, 2005 0 0 0 0 0 0 0
April 25, 2006 0 0 0 0 0 0 0
April 25, 2007 0 0 0 0 0 0 0
April 25, 2008 0 0 0 0 0 0 0
April 25, 2009 0 0 0 0 0 0 0
April 25, 2010 0 0 0 0 0 0 0
April 25, 2011 0 0 0 0 0 0 0
April 25, 2012 0 0 0 0 0 0 0
April 25, 2013 0 0 0 0 0 0 0
April 25, 2014 0 0 0 0 0 0 0
April 25, 2015 0 0 0 0 0 0 0
April 25, 2016 0 0 0 0 0 0 0
April 25, 2017 0 0 0 0 0 0 0
April 25, 2018 0 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years* 3.6 2.8 2.3 2.1 2.0 1.8 1.4
</TABLE>
- ------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-1
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-2 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 99 99 99 99 99 99 99
April 25, 1999 98 98 98 98 98 98 98
April 25, 2000 98 98 98 98 98 98 98
April 25, 2001 97 97 97 97 97 97 97
April 25, 2002 96 96 96 96 96 96 96
April 25, 2003 93 92 91 90 90 89 61
April 25, 2004 89 87 85 84 83 81 38
April 25, 2005 85 81 78 76 74 71 24
April 25, 2006 79 74 69 66 64 60 15
April 25, 2007 73 66 60 56 54 48 11
April 25, 2008 68 59 52 47 45 39 7
April 25, 2009 62 53 44 39 37 31 5
April 25, 2010 57 47 38 33 31 25 3
April 25, 2011 52 41 33 28 26 20 2
April 25, 2012 48 37 28 23 21 16 2
April 25, 2013 43 32 24 19 17 12 1
April 25, 2014 39 28 20 16 14 10 1
April 25, 2015 35 24 17 13 11 8 *
April 25, 2016 31 21 14 11 9 6 *
April 25, 2017 28 18 12 9 7 5 *
April 25, 2018 24 15 10 7 6 4 *
April 25, 2019 21 13 8 5 5 3 *
April 25, 2020 18 11 6 4 4 2 *
April 25, 2021 15 9 5 3 3 1 *
April 25, 2022 12 7 4 2 2 1 *
April 25, 2023 10 5 3 2 1 1 *
April 25, 2024 7 4 2 1 1 * *
April 25, 2025 4 2 1 1 1 * *
April 25, 2026 2 1 * * * * *
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 15.4 13.7 12.4 11.7 11.5 10.7 7.1
</TABLE>
- ---------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-2
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-3 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 96 0
April 25, 2001 100 100 93 67 56 22 0
April 25, 2002 100 90 44 13 1 0 0
April 25, 2003 100 57 6 0 0 0 0
April 25, 2004 91 28 0 0 0 0 0
April 25, 2005 69 5 0 0 0 0 0
April 25, 2006 51 0 0 0 0 0 0
April 25, 2007 35 0 0 0 0 0 0
April 25, 2008 20 0 0 0 0 0 0
April 25, 2009 6 0 0 0 0 0 0
April 25, 2010 0 0 0 0 0 0 0
April 25, 2011 0 0 0 0 0 0 0
April 25, 2012 0 0 0 0 0 0 0
April 25, 2013 0 0 0 0 0 0 0
April 25, 2014 0 0 0 0 0 0 0
April 25, 2015 0 0 0 0 0 0 0
April 25, 2016 0 0 0 0 0 0 0
April 25, 2017 0 0 0 0 0 0 0
April 25, 2018 0 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years* 9.3 6.3 5.0 4.4 4.2 3.6 2.6
</TABLE>
- ---------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-3
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-4 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 99
April 25, 2001 100 100 100 100 100 100 7
April 25, 2002 100 100 100 100 100 62 0
April 25, 2003 100 100 100 74 61 22 0
April 25, 2004 100 100 75 43 30 0 0
April 25, 2005 100 100 51 21 9 0 0
April 25, 2006 100 86 34 5 0 0 0
April 25, 2007 100 70 22 0 0 0 0
April 25, 2008 100 57 11 0 0 0 0
April 25, 2009 100 44 1 0 0 0 0
April 25, 2010 93 33 0 0 0 0 0
April 25, 2011 80 22 0 0 0 0 0
April 25, 2012 68 13 0 0 0 0 0
April 25, 2013 56 4 0 0 0 0 0
April 25, 2014 45 0 0 0 0 0 0
April 25, 2015 35 0 0 0 0 0 0
April 25, 2016 25 0 0 0 0 0 0
April 25, 2017 16 0 0 0 0 0 0
April 25, 2018 7 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years* 16.8 11.8 8.5 7.0 6.5 5.4 3.5
</TABLE>
- ------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-4
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-5 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 100 100
April 25, 2002 100 100 100 100 100 100 0
April 25, 2003 100 100 100 100 100 100 0
April 25, 2004 100 100 100 100 100 76 0
April 25, 2005 100 100 100 100 100 14 0
April 25, 2006 100 100 100 100 82 0 0
April 25, 2007 100 100 100 85 52 0 0
April 25, 2008 100 100 100 56 27 0 0
April 25, 2009 100 100 100 32 6 0 0
April 25, 2010 100 100 76 11 0 0 0
April 25, 2011 100 100 51 0 0 0 0
April 25, 2012 100 100 29 0 0 0 0
April 25, 2013 100 100 10 0 0 0 0
April 25, 2014 100 89 0 0 0 0 0
April 25, 2015 100 64 0 0 0 0 0
April 25, 2016 100 42 0 0 0 0 0
April 25, 2017 100 23 0 0 0 0 0
April 25, 2018 100 4 0 0 0 0 0
April 25, 2019 93 0 0 0 0 0 0
April 25, 2020 65 0 0 0 0 0 0
April 25, 2021 39 0 0 0 0 0 0
April 25, 2022 13 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years* 23.6 18.8 14.2 11.4 10.2 7.5 4.3
</TABLE>
- ---------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-5
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-6 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 100 100
April 25, 2002 100 100 100 100 100 100 0
April 25, 2003 100 100 100 100 100 100 0
April 25, 2004 100 100 100 100 100 100 0
April 25, 2005 100 100 100 100 100 100 0
April 25, 2006 100 100 100 100 100 75 0
April 25, 2007 100 100 100 100 100 55 0
April 25, 2008 100 100 100 100 100 40 0
April 25, 2009 100 100 100 100 100 27 0
April 25, 2010 100 100 100 100 85 16 0
April 25, 2011 100 100 100 91 66 8 0
April 25, 2012 100 100 100 72 50 1 0
April 25, 2013 100 100 100 55 37 0 0
April 25, 2014 100 100 92 41 25 0 0
April 25, 2015 100 100 73 29 16 0 0
April 25, 2016 100 100 57 19 8 0 0
April 25, 2017 100 100 43 11 2 0 0
April 25, 2018 100 100 31 4 0 0 0
April 25, 2019 100 85 20 0 0 0 0
April 25, 2020 100 66 11 0 0 0 0
April 25, 2021 100 48 3 0 0 0 0
April 25, 2022 100 33 0 0 0 0 0
April 25, 2023 86 19 0 0 0 0 0
April 25, 2024 56 6 0 0 0 0 0
April 25, 2025 27 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years* 27.3 24.1 19.9 16.8 15.4 10.8 4.7
</TABLE>
- ---------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-6
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-7 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 100 100
April 25, 2002 100 100 100 100 100 100 17
April 25, 2003 100 100 100 100 100 100 0
April 25, 2004 100 100 100 100 100 100 0
April 25, 2005 100 100 100 100 100 100 0
April 25, 2006 100 100 100 100 100 100 0
April 25, 2007 100 100 100 100 100 100 0
April 25, 2008 100 100 100 100 100 100 0
April 25, 2009 100 100 100 100 100 100 0
April 25, 2010 100 100 100 100 100 100 0
April 25, 2011 100 100 100 100 100 100 0
April 25, 2012 100 100 100 100 100 100 0
April 25, 2013 100 100 100 100 100 83 0
April 25, 2014 100 100 100 100 100 66 0
April 25, 2015 100 100 100 100 100 51 0
April 25, 2016 100 100 100 100 100 40 0
April 25, 2017 100 100 100 100 100 31 0
April 25, 2018 100 100 100 100 84 24 0
April 25, 2019 100 100 100 91 66 18 0
April 25, 2020 100 100 100 71 51 13 0
April 25, 2021 100 100 100 54 39 10 0
April 25, 2022 100 100 87 40 28 7 0
April 25, 2023 100 100 63 29 20 5 0
April 25, 2024 100 100 43 19 13 3 0
April 25, 2025 100 77 26 11 8 2 0
April 25, 2026 98 35 11 5 3 1 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years* 29.5 28.7 26.9 24.8 23.7 19.1 5.0
</TABLE>
- ------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-7
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE AND
CLASS FXA-9 NOTIONAL AMOUNT OUTSTANDING AT VARIOUS
PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXA-8 AND FXA-9 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 96 94 93 92 91 90 84
April 25, 1999 87 82 77 73 72 67 47
April 25, 2000 75 65 55 49 46 37 16
April 25, 2001 64 49 37 31 29 21 1
April 25, 2002 53 36 26 19 16 10 0
April 25, 2003 43 29 17 12 10 3 0
April 25, 2004 36 22 12 7 5 0 0
April 25, 2005 31 17 8 3 1 0 0
April 25, 2006 27 14 5 1 0 0 0
April 25, 2007 24 11 3 0 0 0 0
April 25, 2008 20 9 2 0 0 0 0
April 25, 2009 17 7 * 0 0 0 0
April 25, 2010 15 5 0 0 0 0 0
April 25, 2011 13 4 0 0 0 0 0
April 25, 2012 11 2 0 0 0 0 0
April 25, 2013 9 1 0 0 0 0 0
April 25, 2014 7 0 0 0 0 0 0
April 25, 2015 6 0 0 0 0 0 0
April 25, 2016 4 0 0 0 0 0 0
April 25, 2017 2 0 0 0 0 0 0
April 25, 2018 1 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 6.9 5.0 3.9 3.4 3.2 2.8 2.0
</TABLE>
- ---------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance (or
Class FXA-9 Notional Amount, as applicable) by the number of years from the date
of issuance of the Security to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the initial Security Principal Balance (or
Class FXA-9 Notional Amount, as applicable) of the Security.
A-8
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS FXP SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 98 97 96 96 95 95 92
April 25, 1999 93 90 88 86 85 83 73
April 25, 2000 87 82 77 73 72 68 51
April 25, 2001 81 73 67 62 61 55 35
April 25, 2002 75 66 58 53 51 44 24
April 25, 2003 69 59 50 45 43 36 17
April 25, 2004 64 53 44 38 36 29 12
April 25, 2005 59 48 38 32 30 23 8
April 25, 2006 55 43 33 27 25 19 6
April 25, 2007 51 38 28 23 21 15 4
April 25, 2008 46 34 24 19 17 12 3
April 25, 2009 43 30 21 16 14 10 2
April 25, 2010 39 27 18 13 12 8 1
April 25, 2011 36 23 15 11 10 6 1
April 25, 2012 32 21 13 9 8 5 1
April 25, 2013 29 18 11 8 7 4 *
April 25, 2014 26 16 9 6 5 3 *
April 25, 2015 24 14 8 5 4 2 *
April 25, 2016 21 12 7 4 4 2 *
April 25, 2017 19 10 5 3 3 1 *
April 25, 2018 16 9 4 3 2 1 *
April 25, 2019 14 7 4 2 2 1 *
April 25, 2020 12 6 3 2 1 1 *
April 25, 2021 10 5 2 1 1 * *
April 25, 2022 8 4 2 1 1 * *
April 25, 2023 6 3 1 1 1 * *
April 25, 2024 5 2 1 * * * *
April 25, 2025 3 1 1 * * * *
April 25, 2026 1 1 * * * * *
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 11.7 9.4 7.8 6.9 6.6 5.8 3.8
</TABLE>
- ---------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-9
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-1 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 96 95 94 93 93 91 86
April 25, 1999 89 85 81 78 76 72 56
April 25, 2000 79 71 63 58 55 48 21
April 25, 2001 70 58 48 40 37 28 0
April 25, 2002 61 47 34 26 22 12 0
April 25, 2003 54 38 24 15 11 1 0
April 25, 2004 47 30 15 6 3 0 0
April 25, 2005 41 23 9 * 0 0 0
April 25, 2006 36 18 4 0 0 0 0
April 25, 2007 31 14 1 0 0 0 0
April 25, 2008 27 10 0 0 0 0 0
April 25, 2009 23 7 0 0 0 0 0
April 25, 2010 20 4 0 0 0 0 0
April 25, 2011 16 1 0 0 0 0 0
April 25, 2012 13 0 0 0 0 0 0
April 25, 2013 10 0 0 0 0 0 0
April 25, 2014 7 0 0 0 0 0 0
April 25, 2015 4 0 0 0 0 0 0
April 25, 2016 1 0 0 0 0 0 0
April 25, 2017 0 0 0 0 0 0 0
April 25, 2018 0 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years* 7.8 5.5 4.2 3.7 3.5 3.1 2.2
</TABLE>
- ------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-10
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-2 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 100 78
April 25, 2002 100 100 100 100 100 100 0
April 25, 2003 100 100 100 100 100 100 0
April 25, 2004 100 100 100 100 100 56 0
April 25, 2005 100 100 100 100 83 26 0
April 25, 2006 100 100 100 77 59 9 0
April 25, 2007 100 100 100 60 45 2 0
April 25, 2008 100 100 86 46 32 0 0
April 25, 2009 100 100 70 34 22 0 0
April 25, 2010 100 100 56 24 13 0 0
April 25, 2011 100 100 44 16 6 0 0
April 25, 2012 100 89 33 8 * 0 0
April 25, 2013 100 74 24 2 0 0 0
April 25, 2014 100 61 16 0 0 0 0
April 25, 2015 100 50 9 0 0 0 0
April 25, 2016 100 39 3 0 0 0 0
April 25, 2017 92 29 0 0 0 0 0
April 25, 2018 77 20 0 0 0 0 0
April 25, 2019 63 13 0 0 0 0 0
April 25, 2020 49 5 0 0 0 0 0
April 25, 2021 36 0 0 0 0 0 0
April 25, 2022 24 0 0 0 0 0 0
April 25, 2023 12 0 0 0 0 0 0
April 25, 2024 1 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 23.1 18.3 13.9 11.2 10.2 7.5 4.3
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-11
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-3 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 100 100
April 25, 2002 100 100 100 100 100 100 0
April 25, 2003 100 100 100 100 100 100 0
April 25, 2004 100 100 100 100 100 100 0
April 25, 2005 100 100 100 100 100 100 0
April 25, 2006 100 100 100 100 100 100 0
April 25, 2007 100 100 100 100 100 100 0
April 25, 2008 100 100 100 100 100 86 0
April 25, 2009 100 100 100 100 100 69 0
April 25, 2010 100 100 100 100 100 55 0
April 25, 2011 100 100 100 100 100 44 0
April 25, 2012 100 100 100 100 100 35 0
April 25, 2013 100 100 100 100 82 27 0
April 25, 2014 100 100 100 88 67 22 0
April 25, 2015 100 100 100 72 54 17 0
April 25, 2016 100 100 100 59 44 13 0
April 25, 2017 100 100 90 47 35 10 0
April 25, 2018 100 100 74 38 28 8 0
April 25, 2019 100 100 60 30 22 6 0
April 25, 2020 100 100 48 23 17 4 0
April 25, 2021 100 96 37 18 13 3 0
April 25, 2022 100 75 28 13 9 2 0
April 25, 2023 100 57 20 9 6 2 0
April 25, 2024 100 40 14 6 4 1 0
April 25, 2025 67 25 8 4 2 1 0
April 25, 2026 31 11 4 2 1 * 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 28.5 26.6 23.4 20.6 19.4 14.6 4.9
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-12
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-4 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 99 99 99 99 99 99 99
April 25, 1999 98 98 98 98 98 98 98
April 25, 2000 97 97 97 97 97 97 97
April 25, 2001 96 96 96 96 96 96 96
April 25, 2002 95 95 95 95 95 95 95
April 25, 2003 92 91 90 90 89 88 60
April 25, 2004 89 87 85 83 83 80 37
April 25, 2005 84 80 77 75 74 70 23
April 25, 2006 78 73 68 65 64 59 15
April 25, 2007 72 65 59 55 53 47 10
April 25, 2008 67 58 51 46 44 38 7
April 25, 2009 61 52 44 39 37 30 5
April 25, 2010 56 46 37 32 30 24 3
April 25, 2011 51 41 32 27 25 19 2
April 25, 2012 46 36 27 22 21 15 1
April 25, 2013 42 31 23 19 17 12 1
April 25, 2014 38 27 19 15 14 10 1
April 25, 2015 34 24 16 13 11 7 *
April 25, 2016 30 20 14 10 9 6 *
April 25, 2017 27 17 11 8 7 4 *
April 25, 2018 23 15 9 7 6 3 *
April 25, 2019 20 12 7 5 4 3 *
April 25, 2020 17 10 6 4 3 2 *
April 25, 2021 14 8 5 3 3 1 *
April 25, 2022 12 6 4 2 2 1 *
April 25, 2023 9 5 3 2 1 1 *
April 25, 2024 7 3 2 1 1 * *
April 25, 2025 4 2 1 1 * * *
April 25, 2026 2 1 * * * * *
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 15.1 13.5 12.3 11.6 11.4 10.6 7.0
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-13
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS P SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 98 97 96 96 95 95 92
April 25, 1999 93 90 88 86 85 83 73
April 25, 2000 87 82 77 73 72 68 51
April 25, 2001 80 73 67 62 61 55 35
April 25, 2002 75 66 58 53 51 44 24
April 25, 2003 69 59 50 45 43 36 17
April 25, 2004 64 53 44 38 36 29 12
April 25, 2005 59 48 38 32 30 23 8
April 25, 2006 55 42 33 27 25 19 6
April 25, 2007 50 38 28 23 21 15 4
April 25, 2008 46 34 24 19 17 12 3
April 25, 2009 43 30 21 16 14 10 2
April 25, 2010 39 27 18 13 12 8 1
April 25, 2011 36 23 15 11 10 6 1
April 25, 2012 32 21 13 9 8 5 1
April 25, 2013 29 18 11 8 7 4 *
April 25, 2014 26 16 9 6 5 3 *
April 25, 2015 24 14 8 5 4 2 *
April 25, 2016 21 12 6 4 3 2 *
April 25, 2017 19 10 5 3 3 1 *
April 25, 2018 16 9 4 3 2 1 *
April 25, 2019 14 7 4 2 2 1 *
April 25, 2020 12 6 3 2 1 1 *
April 25, 2021 10 5 2 1 1 * *
April 25, 2022 8 4 2 1 1 * *
April 25, 2023 6 3 1 1 1 * *
April 25, 2024 5 2 1 * * * *
April 25, 2025 3 1 * * * * *
April 25, 2026 1 1 * * * * *
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 11.7 9.4 7.8 6.9 6.6 5.8 3.8
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-14
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS B-1, B-2 AND B-3 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 100% 150% 200% 235% 250% 300% 500%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 99 99 99 99 99 99 99
April 25, 1999 98 98 98 98 98 98 98
April 25, 2000 97 97 97 97 97 97 97
April 25, 2001 96 96 96 96 96 96 96
April 25, 2002 95 95 95 95 95 95 95
April 25, 2003 92 92 91 90 90 89 85
April 25, 2004 89 87 85 84 83 81 73
April 25, 2005 84 81 78 75 74 71 58
April 25, 2006 79 74 69 65 64 59 43
April 25, 2007 73 66 60 55 53 48 29
April 25, 2008 67 59 51 46 45 38 20
April 25, 2009 62 52 44 39 37 31 14
April 25, 2010 57 46 38 33 31 25 9
April 25, 2011 52 41 32 27 25 20 6
April 25, 2012 47 36 28 23 21 16 4
April 25, 2013 43 32 23 19 17 12 3
April 25, 2014 39 28 20 16 14 10 2
April 25, 2015 35 24 17 13 11 8 1
April 25, 2016 31 21 14 10 9 6 1
April 25, 2017 27 18 12 8 7 5 1
April 25, 2018 24 15 9 7 6 3 *
April 25, 2019 21 13 8 5 5 3 *
April 25, 2020 18 11 6 4 4 2 *
April 25, 2021 15 8 5 3 3 1 *
April 25, 2022 12 7 4 2 2 1 *
April 25, 2023 9 5 3 2 1 1 *
April 25, 2024 7 4 2 1 1 * *
April 25, 2025 4 2 1 1 1 * *
April 25, 2026 2 1 * * * * *
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life in Years** 15.3 13.6 12.4 11.7 11.4 10.7 8.9
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
A-15
<PAGE>
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-1 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 80 71 66 62 44 35 26
April 25, 1999 54 35 23 15 0 0 0
April 25, 2000 31 2 0 0 0 0 0
April 25, 2001 9 0 0 0 0 0 0
April 25, 2002 0 0 0 0 0 0 0
April 25, 2003 0 0 0 0 0 0 0
April 25, 2004 0 0 0 0 0 0 0
April 25, 2005 0 0 0 0 0 0 0
April 25, 2006 0 0 0 0 0 0 0
April 25, 2007 0 0 0 0 0 0 0
April 25, 2008 0 0 0 0 0 0 0
April 25, 2009 0 0 0 0 0 0 0
April 25, 2010 0 0 0 0 0 0 0
April 25, 2011 0 0 0 0 0 0 0
April 25, 2012 0 0 0 0 0 0 0
April 25, 2013 0 0 0 0 0 0 0
April 25, 2014 0 0 0 0 0 0 0
April 25, 2015 0 0 0 0 0 0 0
April 25, 2016 0 0 0 0 0 0 0
April 25, 2017 0 0 0 0 0 0 0
April 25, 2018 0 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life* 2.3 1.6 1.4 1.3 0.9 0.8 0.8
</TABLE>
- ------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-1
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-2 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 99 99 99 99 99 99 99
April 25, 1999 98 98 98 98 98 98 98
April 25, 2000 98 98 98 98 98 98 98
April 25, 2001 97 97 97 97 97 97 91
April 25, 2002 96 96 96 96 96 76 52
April 25, 2003 92 91 90 90 75 49 29
April 25, 2004 88 85 84 83 53 31 15
April 25, 2005 83 78 75 73 37 19 7
April 25, 2006 76 69 65 63 27 13 4
April 25, 2007 69 60 55 52 20 9 3
April 25, 2008 62 52 46 43 15 6 2
April 25, 2009 56 44 39 35 11 5 1
April 25, 2010 50 38 32 29 8 3 1
April 25, 2011 45 33 27 23 6 2 1
April 25, 2012 40 28 22 19 5 2 *
April 25, 2013 36 24 18 16 3 1 *
April 25, 2014 31 20 15 13 2 1 *
April 25, 2015 28 17 12 10 2 1 *
April 25, 2016 24 14 10 8 1 * *
April 25, 2017 21 12 8 6 1 * *
April 25, 2018 18 10 7 5 1 * *
April 25, 2019 15 8 5 4 * * *
April 25, 2020 13 6 4 3 * * *
April 25, 2021 10 5 3 2 * * *
April 25, 2022 8 4 2 2 * * *
April 25, 2023 6 3 2 1 * * *
April 25, 2024 5 2 1 1 * * *
April 25, 2025 3 1 1 * * * *
April 25, 2026 1 * * * * * *
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life** 14.2 12.4 11.6 11.2 8.1 6.7 5.5
</TABLE>
- ---------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-2
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-3 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 62 31 1
April 25, 2000 100 100 75 57 0 0 0
April 25, 2001 100 53 19 0 0 0 0
April 25, 2002 80 9 0 0 0 0 0
April 25, 2003 51 0 0 0 0 0 0
April 25, 2004 25 0 0 0 0 0 0
April 25, 2005 4 0 0 0 0 0 0
April 25, 2006 0 0 0 0 0 0 0
April 25, 2007 0 0 0 0 0 0 0
April 25, 2008 0 0 0 0 0 0 0
April 25, 2009 0 0 0 0 0 0 0
April 25, 2010 0 0 0 0 0 0 0
April 25, 2011 0 0 0 0 0 0 0
April 25, 2012 0 0 0 0 0 0 0
April 25, 2013 0 0 0 0 0 0 0
April 25, 2014 0 0 0 0 0 0 0
April 25, 2015 0 0 0 0 0 0 0
April 25, 2016 0 0 0 0 0 0 0
April 25, 2017 0 0 0 0 0 0 0
April 25, 2018 0 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life* 6.2 4.1 3.5 3.2 2.2 1.9 1.7
</TABLE>
- ---------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-3
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-4 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 73 36 2
April 25, 2001 100 100 100 98 5 0 0
April 25, 2002 100 100 71 48 0 0 0
April 25, 2003 100 76 37 15 0 0 0
April 25, 2004 100 48 11 0 0 0 0
April 25, 2005 100 28 0 0 0 0 0
April 25, 2006 87 14 0 0 0 0 0
April 25, 2007 73 5 0 0 0 0 0
April 25, 2008 61 0 0 0 0 0 0
April 25, 2009 49 0 0 0 0 0 0
April 25, 2010 38 0 0 0 0 0 0
April 25, 2011 28 0 0 0 0 0 0
April 25, 2012 19 0 0 0 0 0 0
April 25, 2013 10 0 0 0 0 0 0
April 25, 2014 2 0 0 0 0 0 0
April 25, 2015 0 0 0 0 0 0 0
April 25, 2016 0 0 0 0 0 0 0
April 25, 2017 0 0 0 0 0 0 0
April 25, 2018 0 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life* 12.2 7.3 5.8 5.1 3.4 2.9 2.5
</TABLE>
- ------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-4
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-5 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 0 0
April 25, 2002 100 100 100 100 0 0 0
April 25, 2003 100 100 100 100 0 0 0
April 25, 2004 100 100 100 65 0 0 0
April 25, 2005 100 100 78 11 0 0 0
April 25, 2006 100 100 40 0 0 0 0
April 25, 2007 100 100 18 0 0 0 0
April 25, 2008 100 86 0 0 0 0 0
April 25, 2009 100 61 0 0 0 0 0
April 25, 2010 100 38 0 0 0 0 0
April 25, 2011 100 19 0 0 0 0 0
April 25, 2012 100 2 0 0 0 0 0
April 25, 2013 100 0 0 0 0 0 0
April 25, 2014 100 0 0 0 0 0 0
April 25, 2015 83 0 0 0 0 0 0
April 25, 2016 60 0 0 0 0 0 0
April 25, 2017 40 0 0 0 0 0 0
April 25, 2018 20 0 0 0 0 0 0
April 25, 2019 2 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life* 19.6 12.6 8.9 7.3 4.4 3.7 3.2
</TABLE>
- ---------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-5
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-6 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 86 0
April 25, 2002 100 100 100 100 29 0 0
April 25, 2003 100 100 100 100 0 0 0
April 25, 2004 100 100 100 100 0 0 0
April 25, 2005 100 100 100 100 0 0 0
April 25, 2006 100 100 100 75 0 0 0
April 25, 2007 100 100 100 58 0 0 0
April 25, 2008 100 100 99 43 0 0 0
April 25, 2009 100 100 79 31 0 0 0
April 25, 2010 100 100 62 21 0 0 0
April 25, 2011 100 100 47 13 0 0 0
April 25, 2012 100 100 35 6 0 0 0
April 25, 2013 100 83 25 0 0 0 0
April 25, 2014 100 67 16 0 0 0 0
April 25, 2015 100 52 8 0 0 0 0
April 25, 2016 100 39 2 0 0 0 0
April 25, 2017 100 28 0 0 0 0 0
April 25, 2018 100 19 0 0 0 0 0
April 25, 2019 100 11 0 0 0 0 0
April 25, 2020 82 3 0 0 0 0 0
April 25, 2021 63 0 0 0 0 0 0
April 25, 2022 45 0 0 0 0 0 0
April 25, 2023 28 0 0 0 0 0 0
April 25, 2024 13 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life* 24.8 18.5 14.2 11.0 4.9 4.2 3.6
</TABLE>
- ---------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-6
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-7 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 100 100 100 100 100 100 100
April 25, 1999 100 100 100 100 100 100 100
April 25, 2000 100 100 100 100 100 100 100
April 25, 2001 100 100 100 100 100 100 0
April 25, 2002 100 100 100 100 100 0 0
April 25, 2003 100 100 100 100 0 0 0
April 25, 2004 100 100 100 100 0 0 0
April 25, 2005 100 100 100 100 0 0 0
April 25, 2006 100 100 100 100 0 0 0
April 25, 2007 100 100 100 100 0 0 0
April 25, 2008 100 100 100 100 0 0 0
April 25, 2009 100 100 100 100 0 0 0
April 25, 2010 100 100 100 100 0 0 0
April 25, 2011 100 100 100 100 0 0 0
April 25, 2012 100 100 100 100 0 0 0
April 25, 2013 100 100 100 99 0 0 0
April 25, 2014 100 100 100 80 0 0 0
April 25, 2015 100 100 100 64 0 0 0
April 25, 2016 100 100 100 51 0 0 0
April 25, 2017 100 100 88 41 0 0 0
April 25, 2018 100 100 70 32 0 0 0
April 25, 2019 100 100 55 25 0 0 0
April 25, 2020 100 100 43 19 0 0 0
April 25, 2021 100 89 33 14 0 0 0
April 25, 2022 100 68 24 10 0 0 0
April 25, 2023 100 50 17 7 0 0 0
April 25, 2024 100 34 11 5 0 0 0
April 25, 2025 96 20 7 3 0 0 0
April 25, 2026 44 9 3 1 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life* 28.9 26.2 23.1 20.0 5.3 4.5 3.9
</TABLE>
- ------------------
*The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-7
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE AND
CLASS FXA-9 NOTIONAL AMOUNT OUTSTANDING AT VARIOUS
PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-8 AND FXA-9 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 88 82 79 77 66 60 54
April 25, 1999 72 60 52 48 30 23 16
April 25, 2000 57 40 33 29 12 6 *
April 25, 2001 44 28 20 16 1 0 0
April 25, 2002 34 18 11 8 0 0 0
April 25, 2003 27 12 6 2 0 0 0
April 25, 2004 22 8 2 0 0 0 0
April 25, 2005 17 5 0 0 0 0 0
April 25, 2006 14 2 0 0 0 0 0
April 25, 2007 12 1 0 0 0 0 0
April 25, 2008 10 0 0 0 0 0 0
April 25, 2009 8 0 0 0 0 0 0
April 25, 2010 6 0 0 0 0 0 0
April 25, 2011 4 0 0 0 0 0 0
April 25, 2012 3 0 0 0 0 0 0
April 25, 2013 2 0 0 0 0 0 0
April 25, 2014 * 0 0 0 0 0 0
April 25, 2015 0 0 0 0 0 0 0
April 25, 2016 0 0 0 0 0 0 0
April 25, 2017 0 0 0 0 0 0 0
April 25, 2018 0 0 0 0 0 0 0
April 25, 2019 0 0 0 0 0 0 0
April 25, 2020 0 0 0 0 0 0 0
April 25, 2021 0 0 0 0 0 0 0
April 25, 2022 0 0 0 0 0 0 0
April 25, 2023 0 0 0 0 0 0 0
April 25, 2024 0 0 0 0 0 0 0
April 25, 2025 0 0 0 0 0 0 0
April 25, 2026 0 0 0 0 0 0 0
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life** 4.7 3.1 2.6 2.3 1.6 1.4 1.2
</TABLE>
- ---------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance (or
Class FXA-9 Notional Amount, as applicable) by the number of years from the date
of issuance of the Security to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the initial Security Principal Balance (or
Class FXA-9 Notional Amount, as applicable) of the Security.
B-8
<PAGE>
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXP SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION DATE 50% 75% 90% 100% 150% 175% 200%
<S> <C>
Initial Percentage 100 100 100 100 100 100 100
April 25, 1998 94 91 89 88 83 80 77
April 25, 1999 85 79 76 73 62 57 52
April 25, 2000 78 69 64 61 47 41 35
April 25, 2001 71 60 54 51 35 29 23
April 25, 2002 64 52 46 42 26 21 16
April 25, 2003 58 45 39 35 20 15 11
April 25, 2004 53 39 33 29 15 10 7
April 25, 2005 48 34 28 24 11 7 5
April 25, 2006 43 29 23 20 8 5 3
April 25, 2007 39 25 19 16 6 4 2
April 25, 2008 35 22 16 13 5 3 1
April 25, 2009 32 19 14 11 3 2 1
April 25, 2010 28 16 11 9 3 1 1
April 25, 2011 25 14 9 7 2 1 *
April 25, 2012 22 12 8 6 1 1 *
April 25, 2013 20 10 6 5 1 * *
April 25, 2014 18 8 5 4 1 * *
April 25, 2015 15 7 4 3 1 * *
April 25, 2016 13 6 3 2 * * *
April 25, 2017 12 5 3 2 * * *
April 25, 2018 10 4 2 2 * * *
April 25, 2019 8 3 2 1 * * *
April 25, 2020 7 3 1 1 * * *
April 25, 2021 6 2 1 1 * * *
April 25, 2022 5 2 1 * * * *
April 25, 2023 3 1 1 * * * *
April 25, 2024 2 1 * * * * *
April 25, 2025 2 * * * * * *
April 25, 2026 1 * * * * * *
April 25, 2027 0 0 0 0 0 0 0
Weighted Average Life** 9.5 7.1 6.1 5.6 3.8 3.3 2.9
</TABLE>
- ---------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying the
amount of each distribution in reduction of the Security Principal Balance by
the number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial Security Principal Balance of the Security.
B-9
